Iridex Corp 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and thank you all for joining us this afternoon.

With me on today's call are Patrick Mercer, IRIDEX's Chief Executive Officer, and Romeo Dizon, the company's Chief Financial Officer. Earlier today, IRIDEX issued a press release detailing our financial results for the quarter ended July 4, 2026, which is posted to the investors section of our website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact, including, but not limited to, statements concerning our strategic goals and priorities, product development matters, sales trends in the markets in which we operate.

All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place reliance on these statements. For a discussion of the risks and uncertainties associated with our business, please see the most recent Form 10-K and Form 10-Q filings with the SEC. IRIDEX disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 18, 2026. With that, I'll pass the call to Patrick.

Good afternoon, everyone, and thank you for joining us for our second quarter call. If there is one message I want to leave you with today, it is that IRIDEX has reached an important inflection point in its financial profile. We generated positive cash flow in the second quarter, demonstrating the meaningful progress we have made over the past two years to fundamentally transform our cost structure, strengthen working capital management, and create a more disciplined and sustainable business. As part of our activity to further improve the efficiency of the business, this month we began the process of relocating our headquarters. This is a long-anticipated cost-cutting step and an important part of our broader effort to optimize our cost structure, improve operational efficiency, and align our infrastructure with the business we are building for the future.

The headquarters move will require a new registration process and managing global registration blackout periods. In order to secure our international supply chain and protect top-line distributor revenue streams through the transition, we are in the process of building safety stock inventory to maintain supply continuity. This project is being implemented in a careful coordination with our vendors and distribution partners, all of whom are familiar with the special demands of medical device manufacturing and particularly the necessary regulatory approvals. We anticipate that the temporary working capital investment, which impacted our second quarter cash flow and will further impact our third quarter cash flow, will enable us to achieve our 2026 revenue guidance of $51 million to $53 million. Cash flow from operations should be unaffected, but the increased deployment of working capital will reduce our cash on hand through 2026.

With that reversing and becoming a cash tailwind in 2027 as we work down the elevated inventory levels and continue to more tightly manage our working capital. We continue to right-size the business with discipline, and the positive cash flow we delivered in the second quarter is proof point of our success and the growing financial strength of the business. I am pleased to announce that we have again reduced our operating expenses compared to the prior year period through our various cost savings initiatives. As mentioned previously, the relocation of our headquarters is ongoing and the multi-year shift of production to lower cost third-party contract manufacturers continues to advance. We view both as becoming powerful drivers of improving gross margins ahead in 2027. We believe some of the timing related impacts that affected our first half 2026 performance represent incremental revenue opportunities for the remainder of the year.

Our focus in the back half of the year remains on strengthening our supply chain, building inventory ahead of our manufacturing transitions, and advancing our international regulatory submissions. Now turning to our commercial performance in the quarter. Our glaucoma business once again delivered solid probe led growth this quarter. This continued growth in demand and utilization for this higher margin product is an encouraging indicator of the increasing utilization of our G6 platform. Demonstrating the increasing adoption of our technology by physicians. In our retina business, we faced a number of market dynamics and operational execution challenges that have affected commercial activity during the quarter. We are actively addressing these factors and remain focused on strengthening execution, improving performance, and positioning the retina business for sustainable, profitable growth. Total revenue for the quarter was $12.6 million.

Cyclo G6 probe volume rose roughly 35% year-over-year, and G6 product family revenue increased 19%, a direct reflection of expanding physician adoption of our non-incisional approach and increased utilization of the G6 platform. The breadth of this growth is encouraging as it came from every region in which we operate. The year-over-year revenue decline in our overall business was driven entirely by retina and by a set of temporary commercial transition and regulatory related factors internationally rather than by any change in the fundamental demand of our products. Starting with glaucoma for the quarter, Cyclo G6 probe volume totaled 17,700 units, a 35% increase from 13,100 units sold in the prior year period. In the U.S., three initiatives are driving strong growth, customer targeting with MedScout, LCD tailwinds, and increased ASPs.

Our primary growth driver in glaucoma this quarter continued to be increased utilization of the G6 platform with particularly strong momentum in probe volumes. Through MedScout, we have become increasingly targeted in how we identify and engage physicians with the greatest opportunity to expand utilization. We are focused on two key segments, existing G6 accounts with moderate utilization, where there is an opportunity to increase procedure volume and high volume glaucoma practices that have not yet incorporated MicroPulse therapy into their treatment protocols. In both segments, our commercial team is working directly with physicians through education focused on appropriate patient selection, clinical outcomes, and the efficacy and versatility of the procedure. This targeted approach is helping us move beyond simply placing systems and toward driving great utilization of the installed base.

We are also seeing continued tailwinds from the Medicare LCDs implemented last year, which have supported broader consideration of MicroPulse therapy across the glaucoma treatment continuum. Our commercial organization is using these reimbursement developments as an important educational opportunity, working with physicians to highlight the procedure's ability to lower IOP while providing a non-incisional repeatable treatment option, which we believe this combination of clinical education, reimbursement support, and growing physician experience is helping expand the role of G6 therapy within glaucoma treatment pathways. The third contributor to glaucoma revenue growth was another increase in U.S. average selling prices for both probes and systems. The continued improvement in ASPs reflects the value physicians place on MicroPulse therapy and the clinical utility of the G6 platform.

Importantly, as we increase utilization within the installed base, we believe the combination of higher probe volumes and increased ASPs provides an attractive foundation for continued growth in the glaucoma business. On systems, we placed 18 Cyclo G6 units during the quarter versus 35 in the prior year period. That step-down was driven largely by order timing in Europe, Middle East, and Africa, together with ongoing competitive pressures on new console placements in our Iridex Europe GmbH business. Moving to the international glaucoma business. In Europe, Middle East, and Africa, our U.K. registry is progressing nicely and engagement from the clinical community has remained strong. We believe the data generated through the registry will be an important step in supporting broader reimbursement for MicroPulse therapy in the U.K.

Expanded reimbursement would improve access for patients, increase physician adoption, and over time drive greater utilization of the installed G6 base and increase probe volumes. We believe this positions us well for continued growth in the U.K. and broader adoption across the region. In Iridex Europe GmbH, Germany and Austria operations again performed well as we continue to reclaim business previously handled by our former distributor. The main soft spot in the region remains G6 console sales, where competition persists for new console placements. In Asia, our distributor partner began stocking inventory ahead of the coming business transition in Japan, which increased purchases of MicroPulse P3 probes, EndoProbe, and Pascal systems. In Latin America and Canada, G6 probe sales held steady, driven primarily by Brazil, where our distributor increased inventory in preparation for our upcoming business.

In Canada, we are seeing the commercial focus and initiatives implemented last quarter deliver scalable results. Taken together, glaucoma growth was broad across our international regions this quarter, which reinforces how durable our value proposition is globally. Turning to our retina portfolio, our strategy remains focused on three pillars: advancing the Pascal upgrade cycle domestically, expanding Pascal's international footprint, and securing regulatory clearances for our next generation platforms that will allow us to leverage our global distribution network. We remained encouraged by the opportunity for our retina business and customer demand remains strong. That said, during the quarter, we confronted some market and operational execution dynamics that impacted sales during the quarter. We are actively addressing these factors and are confident we are implementing long-term solutions that will improve our execution and distributor sell-through.