IRIDEX Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended April 1, 2023 (13 weeks); comparable period ended April 2, 2022. Unaudited consolidated results. IRIDEX develops and sells ophthalmic medical lasers, delivery devices, consumables, service and support.
Financial performance and position
Unless otherwise stated, amounts are in millions of U.S. dollars.
| Metric | Q1 2023 | Q1 2022 / prior date | Change |
|---|---|---|---|
| Revenue | $13.71 | $13.39 | +2.4% |
| Gross profit / margin | $5.94 / 43.3% | $5.98 / 44.6% | Profit roughly flat; margin down 1.3 percentage points |
| Operating expenses | $8.28 | $8.25 | +0.3% |
| Operating loss | $(2.34) | $(2.28) | Loss increased $0.07 |
| Net loss / diluted loss per share | $(2.09) / $(0.13) | $(2.39) / $(0.15) | Net loss narrowed $0.30 |
| Cash used in operating activities | $(2.84) | $(3.25) | Cash use decreased $0.41 |
| Cash and cash equivalents | $11.05 | $13.92 at Dec. 31, 2022 | Down $2.87 |
| Working capital | $21.5 | $23.3 at Dec. 31, 2022 | Down $1.8 |
| Total liabilities | $25.10 | $25.06 at Dec. 31, 2022 | Broadly unchanged |
- Other income was $0.27 million versus $0.09 million of expense in the prior-year quarter, helping narrow the net loss despite a slightly larger operating loss.
- No amounts were outstanding on the company’s $8 million secured revolving credit facility at April 1, 2023. The filing reports no other borrowings.
- Current assets were $34.70 million and current liabilities were $13.16 million at quarter-end. Cash flow from investing was $(0.04) million; financing provided $0.04 million.
Material changes and business drivers
- Revenue increased $0.32 million. Cyclo G6 revenue grew 3.6% to $3.67 million; retina revenue declined 1.2% to $7.21 million; other revenue rose 10.9% to $2.82 million. Management attributed growth mainly to Cyclo G6 probes and legacy G probes.
- Gross margin fell to 43.3% from 44.6%, primarily due to higher manufacturing overhead.
- R&D expense decreased 17.3% to $1.75 million as spending on PASCAL and other product portfolio projects declined following project completion. General and administrative expense rose 22.4% to $2.25 million, primarily due to legal expenses and higher personnel costs. Sales and marketing expense was essentially flat at $4.28 million.
- Geographically, U.S. revenue increased to $6.77 million; EMEA increased to $4.18 million; Asia/Pacific declined to $2.14 million. International sales represented 50.6% of revenue.
Outlook, liquidity, risks and unusual items
- Management said its outlook had improved and believes existing cash is sufficient for anticipated needs over the next 12 months. It also expects continued operating losses and negative operating cash flows. No numerical revenue or earnings guidance was provided.
- Management cited macroeconomic uncertainty, inflation, higher interest rates, foreign exchange effects and customer deferrals of capital spending as factors that may affect demand. It said capital purchases by hospitals, surgical centers and physician offices may continue to be deferred.
- Purchase commitments were approximately $18.5 million through fiscal 2024, including $16.8 million due within 12 months. This is a significant cash commitment relative to quarter-end cash.
- Topcon, a 10.1% shareholder and related party, accounted for 32% of quarterly revenue and 35% of accounts receivable at quarter-end. Topcon receivables were $3.8 million. The company’s exclusive distribution relationship with Topcon is a key commercial dependency.
- IRIDEX’s lender, Silicon Valley Bank, entered FDIC receivership in March 2023. The filing says the company had full control of its cash and that the successor bridge bank would honor the revolving facility.
- The company adopted the expected-credit-loss standard on January 1, 2023, recording a $0.24 million cumulative-effect adjustment to opening accumulated deficit; the quarter-end accounts receivable allowance was $0.15 million.
- The filing identifies a prior voluntary recall of the TruFocus LIO Premiere accessory; the request to terminate that recall remained pending. The filing also notes ordinary-course legal matters, which management did not expect to have a material adverse effect.
- Other notable exposures include reliance on suppliers, manufacturing and product-quality risks, international distribution and currency risks, regulatory compliance, competition, and the possibility of needing additional capital. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether operating cash burn and the stated 12-month cash sufficiency remain consistent with actual collections, spending and the $16.8 million of near-term purchase commitments.
- Topcon’s sales performance, payment timing and continuing role as a major distributor and customer.
- Whether the gross-margin decline is temporary or reflects sustained manufacturing-cost or product-mix pressure.
- Progress toward profitability and the company’s ability to reduce losses without impairing growth or product development.
- Status of the TruFocus LIO Premiere recall termination request and any new quality, regulatory or litigation developments.