IRIDEX Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 26, 2020; each period comprised 13 weeks. IRIDEX develops and sells ophthalmic laser systems, delivery devices, consumables, and related services for glaucoma and retinal conditions.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $8.803 | $10.664 | $24.043 | $31.685 |
| Gross profit | $3.654 | $4.283 | $9.976 | $13.089 |
| Gross margin | 41.5% | 40.2% | 41.5% | 41.3% |
| Operating expenses | $5.500 | $6.136 | $16.259 | $20.446 |
| Operating loss | $(1.846) | $(1.853) | $(6.283) | $(7.357) |
| Net loss | $(1.719) | $(1.785) | $(6.150) | $(7.252) |
| Diluted loss per share | $(0.12) | $(0.13) | $(0.44) | $(0.53) |
- Revenue and mix: Q3 revenue fell 17.5% year over year. Retina revenue declined 23.5% to $4.429 million, Cyclo G6 declined 6.3% to $2.776 million, and other revenue declined 16.5% to $1.598 million. For the first nine months, revenue declined 24.1%; retina was down 32.8%, Cyclo G6 down 17.1%, and other down 10.1%.
- Margins and expenses: Q3 gross margin improved 1.3 percentage points, which management attributed mainly to geographic and product mix, partly offset by fixed manufacturing overhead spread over lower volume. Q3 operating expenses decreased 10.4%; nine-month expenses decreased 20.5%, reflecting lower personnel, travel, commissions, marketing, consulting, and legal costs. The company remained loss-making.
- Cash flow: Nine-month operating cash use was $3.029 million, compared with $7.724 million in 2019. Investing cash use was $0.084 million; financing provided $2.468 million, primarily from the PPP loan. Cash decreased $0.721 million during the period to $11.932 million.
- Liquidity and balance sheet: Working capital was $16.3 million, versus $20.8 million at December 28, 2019. Total assets were $28.459 million and total liabilities $11.207 million at quarter-end. Accumulated deficit was $56.765 million.
- Debt: The company received a $2.497 million Paycheck Protection Program loan at 1% interest, with a two-year term. It applied for forgiveness of the full amount on September 22, 2020; forgiveness was not assured. The balance sheet classified $1.526 million as current and $0.971 million as long term.
Changes, outlook, and risks
- Management attributed the revenue decline chiefly to COVID-19-related reductions in elective procedures and delays in hospital and clinic capital purchases. Retina sales and capital equipment were particularly affected. Management said Cyclo G6 probes rebounded as non-incisional glaucoma treatments resumed, although total Cyclo G6 revenue still declined.
- Management expected capital purchases could remain deferred while uncertainty persisted and expected results to be affected for as long as the pandemic continued. It forecast continued operating losses and negative operating cash flows through October 2, 2021, while believing available cash would cover anticipated needs for the next 12 months. No specific revenue or earnings guidance was provided.
- Key risks include the duration and effects of COVID-19, continued elective-procedure constraints, customer capital-spending delays, manufacturing and supply-chain disruption, reliance on some sole- or limited-source suppliers, and the need for additional financing if cash needs exceed expectations.
- Future minimum vendor purchase commitments through fiscal 2021 were approximately $9.9 million. Operating lease liabilities totaled $2.003 million, with a weighted-average remaining lease term of 1.4 years.
- The company disclosed that the FDA termination request for its 2018 voluntary recall of the TruFocus LIO Premiere remained pending. It had received clearance for an updated device, but noted potential adverse-event and market-acceptance risks.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level, with no material change in internal control over financial reporting during the quarter. Ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether elective ophthalmic procedures and customer capital spending recovered, and how that affected revenue after September 26, 2020.
- Whether the PPP loan was forgiven in full, and whether any audit, repayment, or penalty exposure arose.
- Cash burn relative to management’s 12-month liquidity assessment, including the effect of purchase commitments and possible financing needs.
- Whether gross-margin improvement persisted as sales volume, product mix, and manufacturing utilization changed.
- The status of the TruFocus LIO Premiere recall termination request and any safety, regulatory, or commercialization developments involving the updated device.