IRIDEX Corporation Stock

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2026 IRIDEX Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to [ Tripp Taylor ], Investor Relations. 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, to the investor 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, and 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 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, without 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 a 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 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. 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's 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 campus ] is focused on the treatment of glaucoma, 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 greater utilization of the install base.

We're 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. 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. 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 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 increased probe volumes. We believe this positions us well for continued growth in the U.K. and broader adoption across the region.

In 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, EndoProbes, 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 stable results.

Taken together, glaucoma growth was broad across our international regions this quarter, which reinforces how durable our value proposition is globally. Now turning to our retina portfolio, our strategy remains focused on three pillars: advancing the PASCAL upgrade cycle domestically, expanding [ PASCAL FGAL's ] international footprint, and securing regulatory clearances for our next-generation platforms that will allow us to leverage our global distribution network. We remain encouraged by the opportunity for our retina business, and customer demand remained strong. That said, during the quarter, we confronted the 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. Since our last earnings call, we took an important step to broaden access to our retina product portfolio domestically, announcing the addition of our EndoProbe handpieces to our existing product offering with iPRO GPO. That agreement now gives us more than 4,300 member practices, regulatory surgery centers, and hospitals across the country preferred pricing on EndoProbe, building on the PASCAL IQ532, IQ577, OcuLight TX, and Cyclo-G6 platforms already available through that channel.

We see this as a meaningful expansion of the value we offer retina specialists and ophthalmic providers and another lever supporting our U.S. retina business going forward. Turning to international retina, abroad, retina results were inconsistent, and we are taking steps to ensure we are executing commercially and operationally to satisfy the strong demand from our global customer base. In Europe, Middle East, and Africa, we expect PASCAL to secure MDR approval in Europe in the first half of next year. We anticipate meaningful demand once that certification is complete.

In China, sell-through was impacted by regulatory constraints, as well as the need for our distributor to work through existing inventory before placing additional orders. We're actively progressing the regulatory renewal process and expect these factors to normalize over the coming quarters. In Latin America and Canada, PASCAL sales resumed following previous market challenges, and we anticipate continued momentum and growth throughout the remainder of the year. As we turn to the rest of 2026, our priorities remain focused on commercial and operational execution, in conjunction with continued expense management to drive positive cash flow from operations for the year.

In alignment with these priorities, we are reaffirming our full-year revenue guidance of $51 million to $53 million. To reiterate, that range excludes revenue from the Middle East region and on a comparable basis reflects roughly 1% to 5% pro forma growth against 2025. The cadence of international ordering has had a meaningful effect on our results this quarter. In some markets, that sets up incremental opportunity as previously deferred backlog shifts and the product re-registration tied to our relocation are completed. In others where distributors placed larger stocking orders this quarter, we expect a corresponding decline next quarter, representing some continued choppiness in different regions globally. I'll now hand the call over to Romeo to take you through the financials.

Thanks, Patrick, and good afternoon, everyone. As Patrick noted and as detailed in our presentation, press release, total revenue for the second quarter of 2026 was $12.6 million, down 7% from $13.6 million in the second quarter of 2025. The year-over-year decline stemmed mainly from lower retina product sales, which were partly offset by continued growth in glaucoma probe sales. Turning to components, retina product revenue was $6.5 million versus $8.0 million in the prior year period. As Patrick noted, the decline was driven entirely by temporary headwinds, including international commercial transitions and regulatory-related factors. Underlying global demand for our core products remained robust and fundamentally intact.

Total product revenue for the Cyclo-G6 product family was $3.9 million, representing growth of 19% year-over-year, compared to $3.3 million in the prior year quarter. Growth is attributed to both an increase in unit volumes, both in the U.S. and internationally, and an increase in ASP domestically. Other revenue is $2.2 million, essentially flat compared to $2.2 million in the second quarter of 2025. Gross profit in the second quarter was $4.3 million, translating to a gross margin of 34.2%, relatively flat with $4.7 million or 34.5% in the prior year period. Favorable contribution from our higher-margin glaucoma probe was largely offset by softer retina systems margins and by a number of cost pressures in the quarter.

We continue to view our transition to lower-cost third-party contract manufacturers as a meaningful driver of gross margin improvement over the balance of the year and into 2027. Operating expenses were $5.3 million in the second quarter of 2026, down $0.3 million, or 5%, compared to $5.6 million in the second quarter of 2025. That reduction was driven primarily by lower general and administrative expenses, reflecting savings from the administrative function transfer initiative we've highlighted in prior periods. Progress on that initiative continues, and we remain on schedule to complete our headquarters relocation later this year.

Net loss was $1.3 million or $0.07 per share for the second quarter of 2026 compared to a net loss of $1.0 million or $0.06 per share in the same period of the prior year. Non-GAAP adjusted EBITDA for the second quarter of 2026 was a loss of $0.4 million for the quarter, compared to a non-GAAP adjusted EBITDA income of $21,000 in the second quarter of 2025. We ended the quarter with cash and cash equivalents of $4.7 million as of July 4, 2026, an increase of $0.1 million compared to April 4, 2026. As Patrick emphasized, we were pleased to deliver positive cash flow in the quarter, a meaningful marker of the financial discipline now driving the business, achieved through disciplined cost control and improved working capital, even as we build safety stock for certain distributors ahead of our relocation.

Across the remaining quarters, we expect quarterly cash generation to build sequentially as we sell through inventory and collect receivables on higher revenue. However, we anticipate a temporary reinvestment of operating cash flow into advanced inventory procurement. This proactive buffer secures our international supply chain and protects top-line distributed revenue streams while we transition to our new production facility. Turning to guidance, we are reaffirming our 2026 guidance to expect revenue in the range of $51 million to $53 million. As a reminder, given the market [ disruption ] for the ongoing conflict in the Middle East, that outlook excludes revenue from the region.

On a pro forma basis that strips out 2025 Middle East revenue, the guide implies 2026 growth of 1% to 5% over 2025. We are also reiterating our expectation for adjusted operating expenses, which include depreciation and amortization and stock compensation, to be in the range of $19 million to $19.5 million for the full year of 2026. I will now pass the call back to Patrick for his closing remarks.

Thanks, Romeo. Looking back on the second quarter, I'm energized by the continued broad-based strength of our glaucoma franchise, and above all, by our demonstrated ability to manage the business to positive cash flow. Our cost discipline keeps translating into stronger cash generation, and both our manufacturing transition and our headquarters relocation remain firmly on course to deliver meaningful additional margin improvement as the year unfolds. Our priorities for 2026 remain firmly in place: growing G6 utilization and adoption globally, securing international regulatory approvals to open up new geographies for our retina systems, and completing the move to lower-cost contract manufacturers to increase gross margin.

The foundation we built is solid. Our path to sustained profitability is clear, and we're excited about what lies ahead. We appreciate your continued support of IRIDEX, and we look forward to sharing our progress with you again next quarter. I will turn the call over to the operator for questions.

Our first question comes from the line of Scott Henry. Please go ahead.

First on retina, it sounds like there's a lot of moving parts domestically and international. The question is, do you expect retina to grow year-over-year if I look at the full year, which would require a pretty significant boost in the second half? So even if we forget about the full year, do you expect second half '26 to be higher than second half '25?

Yes. Thank you, Scott, for the question. We expect the second half of the year for retina to show low single-digit growth. We have several important tailwinds as we advance international regulatory approvals. We expect that to broaden our addressable market and improve overall performance, particularly with our flagship product, PASCAL. And in the U.S., on the back half of the year, we expect momentum as we head into the American Academy of Ophthalmology meeting. We plan on implementing our annual promotion programs, which really help us with the sale of the capital equipment and really drive in customer engagement coming out of that meeting.

Those are the tailwinds that we see. We had headwinds due to the continued disruption in the Middle East. We had some sell-through delays in China due to some stocking orders previously for the tariffs, and just managing our relocation and those subsequent inventory management for the blackout periods due to our headquarter relocation. But we do, again, expect the second half to generate low single-digit growth for retina.

Okay, and would you expect, you know, historically the fourth quarter is a lot stronger than the third quarter. Would you expect that to be the case this year as well?

Yes, most definitely. It's our largest by quite a bit, generally speaking, Q4.

Okay. And then shifting to glaucoma, 17,700 probes was a lot for Q3, biggest quarter of the last five quarters or six quarters by far. Do you think there was any inventory build there among your customers? I mean, should we expect that to normalize back to more typical levels, or is this a new normal?

No, I wouldn't say it's a new normal. We do expect low double-digit growth for the second half of the year. If you back out, so we did have Japan place some orders, heavier orders to manage the blackout period. And if you, not just Japan, but in Europe, we had some of that too to support the blackout periods. But if you back that out, we still had over 15% growth, which is, if we get that at the back half of the year, we'll be very happy with. So there was some, I'll call it lumpiness due to the pre-orders to cover the blackout period, but with that backed out, we still had really good growth.

Okay, and also, final question, the system sold 18, on the other hand, was a little bit of a lower number. Would you expect that to jump back higher in the second half of the year? How should we think about that 18 as far as a go-forward?

We believe it's going to be much higher towards the back end of the year. We are, again, Q4 is our largest quarter and that includes system sales as well, so we expect those numbers to be higher as we move forward. We did have some slowness in Europe, Middle East, and Africa that, you know, waiting on approval that U.K. registry will once we get that approval there for reimbursement that will help boost some sales there so that hurt us this quarter but we do expect those numbers to increase over the second half of the year.

Okay, great. Thank you for taking the questions.

Thank you. And thank you all for joining us.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Thank you for standing by, and welcome to IRIDEX First Quarter 2026 Earnings Conference Call. I'd like to remind everyone that this call is being recorded. [Operator Instructions]

I would now like to turn the call over to Trip Taylor, Investor Relations. Please go ahead.

Thank you, and thank you all for participating in today's call. Joining me from the company are Patrick Mercer, IRIDEX's Chief Executive Officer; and Romeo Dizon, the company's Chief Financial Officer.

Earlier today, IRIDEX released financial results for the quarter ended April 4, 2026. A copy of the press release is available on the company's 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, products and development matters, sales trends and 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 our 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, May 19, 2026.

And with that, I'll turn the call over to Patrick.

Good afternoon, everyone, and thank you for joining us. I am pleased to share our first quarter results and the continued progress we're making as we build on the positive momentum we delivered throughout last year.

For context, before diving into Q1, I want to highlight some of the significant milestones we achieved last year. In 2025, we delivered positive adjusted EBITDA for the first time in the company's recent history and we also achieved positive cash flow from operations in Q4. These achievements represent a fundamental shift in IRIDEX's financial profile and reflect the hard work completed to reposition the business for sustainable profitability going forward. As a result of this work and our solid start to the year, we remain on track to be cash flow positive in 2026.

We executed according to plan in Q1 despite several anticipated headwinds, including the Iran conflict, temporary supply chain constraints and extended time lines associated with certain regulatory approvals. Against this backdrop, we delivered revenue of $11.8 million essentially flat year-over-year and above the guidance communicated on our last earnings call.

Our highest margin business, G6 probes was a clear bright spot during the quarter. Continued growth and adoption of our glaucoma solution underscore the strength of our clinical value proposition and the loyalty physicians have to the G6 platform.

Internationally, we operated in a challenging environment with supply disruptions, regulatory delays and geopolitical volatility, particularly impacting revenue in Asia and the Middle East.

Importantly, underlying demand remains solid, and we believe revenue and earnings would have been higher had we been able to fulfill certain orders that were backlog at the end of the quarter.

Looking ahead, supply chain conditions and regulatory processes are improving, and we continue to actively manage through these dynamics. As a result, we believe some of the timing-related impacts that affected our first quarter performance represent incremental revenue opportunities for the balance of the year.

On the operations front, we again reduced our operating expense compared to the prior year period as we continue to drive efficiencies across the organization.

We are pleased to report that the relocation of certain general and administrative functions out of California, again delivering quarterly savings starting in Q1 2026.

We also remain on schedule to relocate our headquarters later this year, which is expected to reduce our fixed cost base by approximately $600,000 on an annualized basis.

Additionally, our multiyear initiative to transition production to lower-cost third-party contract manufacturers is underway with meaningful transfers initiated in the first quarter. Full implementation is expected to be completed in 2027, and this transition will drive gross margin improvement as we progress through the year and into next year.

Turning now to our commercial performance in the first quarter, starting with our glaucoma business. In total, in the first quarter, we sold 15,500 products versus 13,900 in the prior year period. This represented growth in the competitive glaucoma market, which is a testament to the strength of our value proposition and physician loyalty to the G6 platform.

Utilizing MedScout to target G6 adopters with average utilization continues to be our most effective strategy. Our MedScout platform continues to be a valuable tool for targeted outreach. Here, we are focused on 2 groups. The first are those who already have G6 systems and our average users and the second are high-volume facilities that do not currently perform micropulse procedures.

With the mid utilization accounts, we focus on education, working with physicians to expand their patient selection criteria to treat patients earlier in the glaucoma severity continuum.

With the second group, the focus is also on education with particular focus on the efficacy of TLT patients who have already had a mixed procedure.

Speaking of mix, the Medicare LCD introduced last year are creating tailwinds for us, including expanding our target segments and supporting earlier adoption of G6 therapy for both the mild to moderate and post meg glaucoma patients. Combined with our updated suite speed, procedural techniques and clinical data demonstrating the IOP-lowering efficacy of the procedure. We believe we are well positioned to drive sustainable growth in this business throughout 2026.

Pricing discipline also supported our Q1 performance, as our ASP increases on both probes and systems in the U.S. carried over from 2025. This is indicative of enhanced recognition of the value proposition of our procedure and the growing recognition among ophthalmologists of G6 as a safe, effective alternative to incisional surgery.

On the system side, we sold 24 G6 units in the quarter, in line with the prior year period. Unit placement has remained steady year-over-year and physician relocations continue to drive dedicated to some acquisitions at new practice sides. This steady growing installed base provides a solid foundation for driving incremental probe utilization as we execute on our commercial strategy.

Turning to our international glaucoma business. Performance was mixed across regions as we navigated a number of operational and macroeconomic challenges.

In Europe, Middle East and Africa, we conducted multiple high-impact G6 symposiums and clinical trainings that reinforced our value proposition in multiple countries including Russia, Saudi Arabia, Egypt and Poland.

U.K. registry product is moving forward as planned. The engagement from the clinical community has been strong, and we believe this positions us well or continued adoption in the region.

In Germany, G6 probes sales remained stable with existing customers, and we believe our German market utilization is well positioned to absorb incremental volume as we work through distributor transitions in the country.

In Asia, we navigate ongoing volatility throughout the year. Demand of our products remained stable, but challenging economic conditions created some headwinds for our commercial execution.

In Japan, we restored G6 probe inventory following prior regulatory challenges which was a meaningful positive development for the region. However, macro headwinds from a weekend continue to persist, and we are monitoring the macro environment closely and expect conditions to improve over time.

In Latin America and Canada, we saw stable G6 probe performance with users being led by Peru and Mexico. Additional focus is being placed on Canada, Brazil and Argentina, to leverage the sizable installed base of G6 systems.

Turning to our retina portfolio. Our strategic priorities remain focused on 3 areas: driving the U.S. PASCAL upgrade cycle, expanding international PASCAL adoption and obtaining regulatory clearance for our next-generation platform to leverage our established global distribution footprint.

In the United States, surgical retina was a standout performer driven by continued strong demand for SLX, TX and LIOs. This category exceeded expectations for the quarter and demonstrated the underlying strength of our surgical platforms.

Medical retina continued to perform strongly, particularly PASCAL, benefiting from a robust pipeline of leads generated at the American Academy of Ophthalmology Annual Meeting in Q4. It is worth noting that PASCAL continues to be firmly established as our flagship system in the U.S. market. We are seeing a consistent trend of existing PASCAL customers upgrading to our newer platforms and newly graduating ophthalmologists are selecting PASCAL systems due to our efforts to ensure PASCAL as the preferred system used in university and training programs.

On the commercial front, we announced an important partnership with EyeProGPO in early April. This agreement expands access to our retina laser portfolio to their more than 1,800 members, including ophthalmology practices, ambulatory surgery centers and hospitals in the United States.

Through this partnership, EyeProGPO members receive preferred pricing on our PASCAL laser platform IQ 532 and IQ 577 lasers and the OcuLight TX laser. It adds to our existing Cyclo G6 contract with EyeProGPO and represents a significant commercial milestone.

Beyond contract status reinforces the credibility of our technology enables a more streamlined sales process for our team and customers while expanding the addressable market for our retinal laser systems. We believe this partnership will be an important driver of retina systems placements in the coming quarters.

Turning to international retina in Europe, Middle East and Africa, lack of MDR approval continues to constrain PASCAL growth in Europe, madly offset by the launch of the new IRIDEX PASCAL in Africa.

In Germany, EndoProbe sales are gaining traction, in line with plan as we take over business from our previous distributor.

In Asia, China experienced some challenges during the quarter, including EndoProbe supply constraints that materially impacted sell-through. We have been working with our manufacturing partners, and these issues should be resolved this month.

In Japan, large PASCAL orders were deferred to Q2 due to regulatory delays associated with electrical safety testing. This is a timing item not a demand concern, and we expect the order to ship in the current quarter.

In Latin America and Canada, PASCAL and medical retina sales came below expectations, impacted in part by seasonal summer holiday slowdown.

As we look ahead to the remainder of 2026, our strategic priorities remain clear and focused. For the full year 2026 we are reaffirming our revenue guidance of $51 million to $53 million. As a reminder, this guidance excludes revenue from the Middle East region and represent approximately 1% to 5% pro forma growth versus 2025.

I am proud of the sustained execution we have demonstrated across all 4 of our 2025 commitments revenue growth, cost reduction, positive adjusted EBITDA and positive cash flow from operations in Q4. The foundation is set for continued progress in 2026.

Now I'll hand the call over to Romeo to discuss our financial results.

Thank you, Patrick. Good afternoon, everyone. Thank you for joining us today. As we noted in our press release and in Patrick's comments, our total revenues for the first quarter of 2026 were $11.8 million, ACV flat with $11.9 million reported in the first quarter of 2025. Revenue was in line with our expectations and the guidance we provided with our Q4 results. The decrease in revenue was primarily driven by a decrease in retina system sales, partially offset by an increase in glaucoma probe sales of service and other revenues.

Retina product revenue was $5.8 million compared to $6.6 million in the prior year period, driven primarily by lower sell-through of retina system sales internationally.

Total product revenue from the Cyclo G6 product family was $3.6 million, representing growth of 14% year-over-year compared to $3.2 million in the prior year quarter. The increase is attributable to both the increase in units sold domestically and internationally and an increase in ASP domestically.

Other revenue increased $0.2 million to $2.3 million in the first quarter of 2026 compared to $2.1 million in the first quarter of 2025, driven primarily by the increase in service and other certain legacy product revenues.

Gross profit in the first quarter of 2026 was $4.7 million or a 40% gross margin, a decrease of $0.3 million compared to $5.0 million or a 43% gross margin in the prior year period.

Gross margin decreased primarily due to the increase in overall manufacturing costs, including increased product costs associated with the recent tariff development. On a sequential basis, first quarter gross margins improved 300 basis points compared to fourth quarter 2025 gross margins.

Operating expenses were $5.1 million in the first quarter of a decrease of $0.2 million or 4% compared to $5.3 million in the first quarter of 2025. The decrease was primarily attributable to lower general and administrative expenses, driven by reduced consulting costs, reduced deal-related legal expenses and cost savings realized from the general and administrative transfer initiative discussed in prior period.

In Q4, we announced that we were relocating certain G&A functions out of California commencing in the first quarter of 2026. We have achieved about 70% of this initiative and have realized approximately $100,000 in savings in the first quarter of 2026, short of our expected quarterly benefit of approximately $165,000. We will update you on our progress on our next call.

Loss from operations was $0.3 million, an increase of $0.1 million compared to a loss from operations of $0.2 million in the first quarter of 2025.

Other expense net was $0.1 million in the first quarter of 2026, primarily consisting of interest and amortization of loan expenses. Other expense net was $1.5 million in the first quarter of 2025 due primarily to costs associated with the note payable settlement. Consequently, net loss was $0.5 million or $0.03 per share in the first quarter of 2026 compared to a net loss of $1.7 million or $0.10 per share in the same period of the prior year.

Non-GAAP adjusted EBITDA for the quarter of 2026 was $0.3 million compared to non-GAAP adjusted EBITDA of $0.4 million for the first quarter of 2025. Cash and cash equivalents as of April 4, 2026, were $4.6 million, a decrease of $1.4 million in the quarter.

As we guided on our last call, in general, our cash usage is highest in the first quarter of the fiscal year, resulting from payments of accrued compensation and other year-end accrued expenses and liabilities.

For the remaining quarters of the year, we expect to generate cash and for the quarterly cash generation to improve sequentially as we sell through inventory and collect receivables on increased revenues.

Cumulatively, this will result in positive cash flow for fiscal year 2026.

Total operating expenses continued a favorable trend in Q1 2026, reflecting the sustained impact of cost reduction initiatives implemented beginning in the fourth quarter of fiscal 2024.

Our first quarter performance confirms that we are on track for 2026. A sequential revenue decline we saw in Q1 was anticipated as consistent with the normal seasonality we see in our business, and we managed to reduce our net loss despite the lower revenue.

As Patrick mentioned, we are reaffirming our 2026 guidance. We expect to generate revenue of $51 million to $53 million. As a result of the market disruption from the ongoing comp in the Middle East, this guidance does not include revenue from that region. On a pro forma basis, adjusted to exclude Middle East revenue in 2025, guidance represents 2026 growth of 1% to 5% compared to 2025.

We also want to reiterate the seasonality we experienced in our business. Q1 on average represents 22% of our annual revenue and is the lowest quarterly total revenue for the year. From the total dollar perspective, second and fourth quarters are seasonally stronger than the first with the fourth quarter being the strongest quarter of the year and the third quarter is generally a sequential decline from the second quarter.

We are also reiterating our expectation for adjusted operating expenses, which exclude depreciation, amortization and stock compensation to be in the range of $19 million to $19.5 million for the full year 2026.

We also continue to expect to generate positive operating cash flow for the full year 2026.

And with that, I'll turn the call back to Patrick.

Thank you, Romeo. As I reflect on the first quarter, I am encouraged by the progress we are making on our strategic initiatives. Our U.S. glaucoma business delivered solid growth in a competitive environment. Our cost structure improvements are flowing through as planned, and our manufacturing transition is underway and on track to drive meaningful margin expansion.

We remain confident in our ability to deliver on our priorities for 2026. These priorities are clear: expand our G6 utilization through effective targeting, advanced regulatory approvals internationally, to unlock new geographies for our retina systems and continue to transition to lower cost contract manufacturers to drive gross margin improvement.

We will now turn the call over to the operator for your questions.

[Operator Instructions] And your first question comes from the line of Scott Henry from AGP.

A lot of information in there. Just to get started, on the retina line, 1 of the lighter quarters we've seen in a while, is that a lot to do with the international headwinds, anything else there? And when we think about full year 2026, I know last year was a strong retina year. Should we be thinking about that comp making the 2026 kind of a negative year-over-year move for retina revenues?

Scott, thank you for your question. In first quarter, we ran through some regulatory delays that hurt us internationally, particularly on PASCAL. There were orders that didn't ship to Japan because of that. There were other orders that didn't ship due to a material issue with our EndoProbes, that issue has been resolved and we are going to ship the product this month. The regulatory issues have been resolved. So going forward, we do not see these as issues at all. In fact, our PASCAL in the U.S. performed very well and so did our surgical retina.

So going forward, we don't expect anything different. We still see the PASCAL upgrade cycle to be ongoing, both international and in the U.S. We've engaged hospitals and universities for graduating ophthalmologists to start using our PASCAL systems. And particularly with this EyeProGPO partnership, we see things improving over Q1.

Q1, we got snagged by a few challenges in supply chain and regulatory issues. But those hopefully will be behind us. We feel strong that certainly moving forward, they will be.

Okay. Great. And you mentioned you had some backlog at the end of the quarter. I didn't hear, but did you quantify the amount of that? And should that have a favorable impact on 2Q? And also was that backlog, was that in the retina section? Or was it in G6?

That backlog was around $800,000, and it was all retina. And we didn't -- we anticipated the EndoProbe backlog. We did not anticipate the regulatory. We'd hope to get that over the finish line. But as you know, with regulatory items, some of those things are up to the bodies of those countries. But going forward, we look for that revenue to ship this quarter. And -- yes.

Okay. Great. And then shifting gears to G6. The systems sold was flat year-over-year. Do you think you can grow that total system sold in 2026? Or will the focus be more on the probes, which did very well in the quarter?

Yes. We think we will grow the system somewhat, but we're really focused on driving probe utilization and driving particularly those more moderate patients in the U.S. There's 2.1 million moderate patients. And we're just scratching the surface there. And with our MedScout targeting that we're going after, where we can see who's doing what procedures, we're going to continue to focus on utilization and selling more probes.

Certainly, we are setting up new accounts, and we look for those numbers to remain in line with our expectations and our plan. But our real objective is to drive probe utilization. And I want -- 1 reminder is we -- in the U.S. particularly, we increased ASP on both the probes and the systems. So we saw growth from obviously, the ASP but also from units as well. And we're excited about that. We feel really good about our glaucoma business going throughout the rest of the year.

Okay. Great. Final question. Gross margin was up sequentially in Q1. But last year, it did dip in those middle quarters. How should we think about gross margin in 2Q and 3Q relative to what we saw this quarter?

Scott, this is Romeo. Thanks for the question. Yes. Basically, going forward now, we've -- over the last couple of quarters, we've been studying the reserves for the contract manufacturing transition of products. So we figured those part costs. We'd expect them there. That's why the margins were lower. But given even with the continued increase in our production costs, I think they've normalized in the high 30s, low 40s, just really dependent on the product and region mix as well, which helped this quarter.

That concludes our Q&A session. I will now turn the conference back over to Patrick for closing remarks.

Thank you for your time today. We look forward to updating you on future calls. Thank you.

Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q4 2025 IRIDEX Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Trip Taylor, Investor Relations. Please go ahead.

Thank you, and thank you all for participating in today's call. Joining me from the company are Patrick Mercer, IRIDEX's Chief Executive Officer; and Romeo Dizon, the company's Chief Financial Officer. Earlier today, IRIDEX released financial results for the quarter ended January 3, 2026. A copy of the press release is available on the company's 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 and 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 our 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, March 26, 2026.

And with that, I'll turn the call over to Patrick.

Thank you, Trip. Good afternoon, everyone, and thank you for joining us. Today, I am proud to share our fourth quarter and full year results, which represent a successful year and a positive transformation for IRIDEX.

2025, we achieved our goals to streamline our operations, reduce costs and put IRIDEX on a path to sustainable profitability. For the full year 2025, we grew revenue by 8% and reduced operating expenses by 22% compared to the prior year. And this leverage helped deliver positive adjusted EBITDA for the first time in the company's recent history. Further, we closed out the year by generating positive cash flow from operations in the fourth quarter. I believe it has been made clear that we have done the work to create a new financial profile capable of generating positive cash flow from operations in 2026 and beyond.

For the full year, revenue was $52.7 million, representing 8% growth year-over-year versus 2024. Notably, we saw growth across every major product category. Cyclo G6, medical retina, surgical retina as well as across both our U.S. and international businesses. Fourth quarter growth was even stronger. The 16% increase marked the strongest quarterly growth rate of the year.

I want to take a moment to highlight some of the important contributors to our strong Q4 performance. On the cost side, we are continuing to rightsize the business to be more in line with revenues. We have continued to make meaningful progress with the relocation of certain general and administrative functions out of California. We expect this initiative alone to generate approximately $165,000 in quarterly savings beginning in Q1, 2026. We also plan to relocate our headquarters later in 2026, which will further reduce our fixed cost base by approximately $600,000 on an annualized basis.

Also, as part of our continuing efforts to reduce our cost structure, we are in active discussions with contract manufacturers as part of a multiyear initiative to transition production away from our Mountain View facilities and toward lower-cost third-party manufacturing. We expect to begin meaningful transfers in 2026, which will incrementally lower our cost of goods as the year progresses. Full implementation is expected to be completed in 2027 and will prove a further meaningful reduction to our cost of goods. This initiative is expected to be a significant driver of gross margin improvement over the coming years.

Turning now to take a closer look at our commercial results for the fourth quarter, beginning with our glaucoma business. In the United States, our strategy remains centered on leveraging our substantial installed base of Cyclo G6 systems and driving higher procedural utilization. Medicare LCDs introduced last year continue to create drivers for G6 adoption earlier in the continuum of care for mild to moderate stage patients. Our team is focused on educating our physician users on this opportunity, including highlighting our robust clinical data supporting the IOP lowering efficacy of the procedure and updated sweep speed procedural technique.

Using MedScout, our relatively new sales enablement software platform, we are identifying accounts in the midrange of utilization to engage with clinicians and reiterate the benefits of our repeatable, incision-less procedure. In an extension of this effort, we are also now targeting high-volume MIGS surgeons who, based on their case volumes have the potential to adopt the procedure at meaningful utilization levels. Pricing tailwinds based on the enhanced value proposition of our procedure also contributed positively to Q4 glaucoma revenue. Physician relocations drove a number of system sales in the quarter as the new practice locations acquired their own dedicated G6 systems. With a growing installed base, higher ASPs and increasingly effective commercial targeting through MedScout, we are well positioned to drive meaningful G6 growth throughout 2026.

In total, in the fourth quarter, we sold 15,900 probes versus 13,300 in the prior year period. And 44 G6 systems versus 47 in Q4, 2024. For the full year 2025, we sold 57,800 Cyclo G6 probes compared to 55,400 in the prior year, and 133 G6 systems compared to 125 in 2024. International glaucoma was also strong across multiple geographies. In Europe, Middle East and Africa, glaucoma probe sales grew for the third consecutive quarter, supported by fulfillment of several GPI orders, a meaningful milestone for the region. It is important to note that the conflict in Iran is impacting sales in the Middle East materially to date.

In GmbH, G6 probe sales remained stable with existing customers, and we believe our GmbH utilization is well positioned to absorb incremental volume as we work through distributor transitions in the region. In Asia, the region continued to experience volatile and operational challenges. Despite continued demand, shifting macroeconomic conditions continue to impact our commercial activity. The evolving tariff uncertainty with China continues to challenge sales and forecasting. In Japan, current headwinds continue to weigh on near-term results. Our partnership with Topcon remains active, and we are monitoring the macro environment closely and expect conditions to improve over time. In Latin America and Canada, the region showed steady utilization in G6 probes, reflecting solid adoption of our technology in Canada and across key markets.

Now turning to our retina portfolio. Our top priorities continue to be capitalizing on the ongoing upgrade cycle, driving PASCAL adoption, both domestically and internationally, and securing additional regulatory approvals for our next-generation retina platforms to capitalize on our global distribution network. In the United States, PASCAL is firmly established as our flagship system, and we are seeing a consistent trend of existing PASCAL customers upgrading to our newer platforms. Additionally, newly graduating ophthalmologists are choosing IRIDEX's PASCAL systems in part due to our efforts to ensure PASCAL is the preferred system used in university and training programs. Medical and surgical retina revenue performed well. Surgical retina was a particular standout, exceeding the plan for the quarter. EndoProbe sales held steady throughout Q4, demonstrating consistent performance.

Turning to international retina. In Europe, Middle East and Africa, the region continued to perform in line with expectations. PASCAL's performance in the Middle East and Africa was somewhat softer in Q4 following the fulfillment of several large orders in Q3. We're also making progress in expanding our ENT business in the U.K. with notable increases in ENT probes and IQ 532 XP systems. Italy remains stable, and we continue to manage distributor quality and service in that market. Middle East sales of retina products are also being materially impacted by the conflict in Iran.

In GmbH, capital equipment sales faced a slowdown in part due to purchase order delays. However, we completed our first IQ 532 XP sales in Germany, which we believe represents a promising new model for expanding our business. Our GmbH team has secured PASCAL synthesis orders and continues to build a pipeline for placements with newer models, pending MDR certification.

In Asia, our retina business was affected by the same macro dynamics impacting glaucoma across the region, including the China tariff situation and currency pressures in Japan. Despite these headwinds, underlying demand for our retina products across Asia remains solid, and we believe the region represents meaningful upside and operational uncertainty is clarified.

In Latin America and Canada, the region continues to stabilize, supported by consistent PASCAL sales driven by renewed distribution engagement in Chile and Colombia. Representative of our comprehensive commercial efforts, it is important to call out that clinician interest in our glaucoma and retinal laser platforms was very apparent at the American Academy of Ophthalmology Annual Meeting, where our group locations saw substantial foot traffic. We are pleased to see the growing attention to our industry-leading technology and have come out of the meeting with a large number of high-quality leads.

More importantly, on the execution front, our sales team did an exceptional job converting those leads into orders with close to $1 million in business stemming directly from that meeting. We expect to continue to execute on our strategic initiatives and extend our commercial momentum with our glaucoma and retina platforms to drive revenue growth in 2026. For the year, revenue is expected to range from $51 million to $53 million. This guidance contemplates no sales in the Middle East. When adjusted to exclude Middle East revenue in 2025, our guidance represents 2026 growth of 1% to 5%.

Now I'll hand the call over to Romeo to discuss our financial results.

Thank you, Patrick. Good afternoon, everyone. Thank you for joining us today. Before I review the financial results for the quarter, please note that the fiscal year 2025 was a 53-week year, with the fourth quarter spanning 14 weeks compared to 13 weeks in the prior year period.

As we noted in our press release, and in Patrick's comments, our total revenues for the fourth quarter of 2025 were $14.7 million, representing a 16% year-over-year increase, compared to $12.7 million in the fourth quarter of 2024. Growth was driven primarily by higher retina sales, including PASCAL sales and glaucoma probe sales. Retina product revenue increased 22% in the fourth quarter of 2025 to $8.9 million, compared to the fourth quarter of 2024, driven primarily by the higher PASCAL system sales, medical and surgical retina system sales.

Total product revenue from the Cyclo G6 glaucoma product family was $3.8 million, representing growth of 15% year-over-year, driven primarily by higher probe sales. Other revenues decreased $0.1 million to $2.0 million in the fourth quarter of 2025, compared to $2.1 million in the fourth quarter of 2024. Gross profit in the fourth quarter of 2025 was $5.5 million, or a gross margin of 37%, a decrease of $0.1 million compared to $5.6 million, or a gross margin of 44% in the fourth quarter of 2024. The decline was primarily due to an increase in overall manufacturing costs, including increased product costs associated with tariff developments throughout the year and lower capitalization of manufacturing overhead as our inventory levels declined.

Operating expenses were $5.5 million in the fourth quarter of 2025, a decrease of $0.6 million or 10% compared to $6.1 million in the fourth quarter of 2024, due to expense reduction measures taken in late 2024. Net loss for the fourth quarter of 2025 was $0.2 million, or $0.01 per share, compared to a net loss of $0.8 million or $0.05 per share in the same period of the prior year. Net loss for the fourth quarter of 2025 included a provision for income tax of $0.1 million and interest expense of $0.1 million.

Non-GAAP adjusted EBITDA for the fourth quarter of 2025 was $817,000, an improvement of $0.2 million compared to non-GAAP adjusted EBITDA of $611,000 for the fourth quarter of 2024. The improvement is driven primarily by the expense reduction measures implemented in late 2024. Cash and cash equivalents totaled $6.0 million at the end of the fourth quarter 2025, an increase of $0.4 million, compared to $5.6 million at the end of the third quarter of 2025. In 2025, cash use was $2.1 million, an improvement of 71% compared to 2024. We are very pleased with our reduction in cash usage and expect cash use to continue or improve from these levels.

While gross margins is a key driver to improving our financial profile, we experienced a decline in the fourth quarter of 2025, mainly due to an increase in overall manufacturing costs, including increased product costs associated with the tariff developments throughout the year and lower capitalization of manufacturing overhead as our inventory levels declined. For the full year 2025, our gross margins also declined due to inventory write-downs, coupled with the reasons to decline in the fourth quarter. We expect gross margins to improve as we progress through the manufacturing transition to third-party contract manufacturers in 2026 and 2027.

Operating expenses continued their favorable trend in the fourth quarter, reflecting the sustained impact of the cost reduction initiatives implemented beginning in Q4, 2024. For the full year 2025, operating expenses will reduce 22% year-over-year. The relocation of certain G&A functions out of California commencing in the first quarter of 2026 is expected to generate approximately $165,000 in quarterly savings beginning in Q1, 2026.

We are very pleased to report that we achieved positive adjusted EBITDA for the full year 2025, consistent with the commitment we made at the outset of the year. In the fourth quarter of 2025, we achieved positive cash flow, another key milestone. Cash and cash equivalents at the end of the fourth quarter reflect our meaningfully reduced cash burn, and we expect to maintain this trajectory in 2026. As a reminder, in general, our cash usage is highest in the first quarter of the fiscal year, resulting from payments of accrued compensation and other accrued expenses and liabilities. For the remaining quarters of the year, we expect to generate cash, and for quarterly cash generation to improve sequentially as we sell through inventory and collect receivables on increased revenues. Cumulatively, this will result in positive cash flow for the fiscal year 2026.

As Patrick mentioned, we are initiating our 2026 guidance. We expect to generate revenues of between $51 million and $53 million. As a result of the market disruption from the ongoing conflict in the Middle East, this guidance does not include revenue from that region. On a pro forma basis, adjusted to exclude the Middle East revenue in 2025, guidance represents 2026 growth of 1% to 5% compared to 2025. We also want to reiterate the seasonality we experienced in our business. The first quarter on average represents 22% of our annual revenue and is the lowest quarterly total revenue for the year. From a total dollar perspective, the second and fourth quarters are seasonally stronger than the first quarter, with the fourth quarter being the strongest quarter of the year and the third quarter is generally a sequential decline from the second quarter. We have provided expectations for our adjusted operating expenses, which exclude depreciation and amortization and stock compensation to be in the range of $19 million to $19.5 million.

And with that, I will turn the call back to Patrick.

Thank you, Romeo. As I reflect on the past year, I am proud of what the IRIDEX team has accomplished. When we began this transformation in Q4 2024, when we set out to grow revenue, reduce operating expenses, improve our financial profile and position the business for sustainable profitability. We are proud to say that we have delivered on all 4.

Looking to 2026, our priorities are clear. On the growth side, we are focused on expanding our G6 user base, targeting high-volume MIGS surgeons using MedScout intelligence, while continuing to drive utilization among our existing installed base. For retina, we are pursuing international regulatory approvals to unlock new geographies and accelerating our PASCAL installed base replacement cycle domestically. On the cost side, we will continue our transition to contract manufacturing, minimize production at our headquarters and advance our facility relocation. We thank you for your continued support of IRIDEX and look forward to updating you on our progress next quarter. Thank you.

Your first question comes from the line of Scott Henry from Alliance Global.

Just a couple of questions. First, when thinking about your 2026 guidance, how large is the Middle East in terms of revenues? What percent of the revenue base?

It's 5% of our total revenue base, 10% OUS. Scott, it's Patrick Mercer.

Patrick, so larger than typical for that geography. Looking at Q4 also, I noticed the other was sequentially kind of down from Q3. Is that just typical variability, or any trends going on in the other segment?

Say that again, Scott. When you say other segment, what do you mean?

It was down sequentially from Q3. Not big numbers, but when we model it going forward, are there any trends there? Or is that just kind of noise?

In the other expense, you mean?

No, the other revenue line. It's about $2 million. It was, I think, $2.2 million last quarter, $2.2 million before. I mean, not big numbers.

Scott, this is Romeo. Yes, that's just basically dependent on the service product lines that are -- and not really -- I mean, we've got -- 1 month, we just give a bunch of service to provide and others is just -- it's pretty flat. It's staying around within that same level, plus or minus $100,000.

Okay. Fair enough. And then when I was looking at G6, we don't have -- I'll get the specific breakouts, but just based on the general statement, it looks like pricing was down a little bit from the past couple of quarters relative to the systems sold in the probe utilization. Is that fair? And is that a trend or just quarterly noise?

No, that would -- if anything, that you're looking at consolidated numbers, that must have been the OUS driving that down. Because in OUS and in the U.S., we've actually increased the ASPs on the probes and the volume as well has picked up and has continued to pick up as of this quarter.

Yes, we've increased the ASPs last year and this year on both the probes and the systems for the -- in the U.S.

Okay. I guess I'll just -- I'll take a look at that when the K is filed as well. Final question. When you look at the retina segment and I guess, a little bit the G6 segment, how do you think of organic growth rates, particularly on the retina segment? How should we think of kind of a steady state or organic growth rate for that segment?

Scott, I guess when we were talking about 4, 5 years ago, we always expected the retina to decrease like 1% to 2%. Well, after I left, the company has acquired or merged with the Topcon, and we've acquired the PASCAL systems. So I think in my own mind, both in terms of the size of that distribution model plus the product itself PASCAL, which is really becoming our product flagship in the U.S. has just really contributed to either a small growth in our product -- retina product business the last couple of years.

Okay. So I mean -- it sounds like you're -- if I think about the category growing at about 4%, do you still think you're gaining share in the retina segment to put it differently?

Absolutely. We -- with our PASCAL, we have a lot of momentum moving forward with that product. It's faster than the competition. It has -- it's serviced in the field, and it's doing really well. And as we get more MDR approvals globally, we're going to see that pick up. It's already taken off in the U.S. And as we get more approvals, it will definitely pick up. We expect to see that increase.

There are no further questions. I'd like to turn the call over to Frank Mercer for closing remarks.

Great. I appreciate everyone's time. We'll continue to update you in the future on our business and appreciate the questions. Thank you.

That concludes today's meeting. You may now disconnect.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Third Quarter 2025 IRIDEX Earnings Conference Call.

I would now like to turn the conference over to Trip Taylor, Investor Relations. You may begin.

Thank you, and thank you all for participating in today's call. Joining me from the company are Patrick Mercer, IRIDEX's Chief Executive Officer; and Romeo Dizon, the company's Chief Financial Officer. Earlier today, IRIDEX released financial results for the quarter ended September 27, 2025. A copy of the press release is available on the company's 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 facts including, but not limited to, statements concerning our strategic goals and priorities, product development matters, sales trends and the markets in which we operate.

All forward-looking statements are based upon 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 our 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, November 11, 2025.

And with that, I'll turn the call over to Patrick.

Good afternoon, everyone, and thank you for joining us. Today, I'm excited to highlight our third quarter business results. We are proud of the steady progress we have made during my first year as CEO. And over the past 4 quarters, we have executed our strategy to streamline our operations and advance IRIDEX towards profitability. The financial transformation of this business is demonstrating by our fourth consecutive quarter of year-over-year revenue growth, reduced operating expenses and improved adjusted EBITDA. We are on track to achieve both positive cash flows in the fourth quarter and positive adjusted EBITDA for the full year 2025.

Importantly, the result of our hard work over the last year puts us in a position to achieve cash flow positive operations in 2026 as well. I am proud to say we have accomplished the goals we set in place for IRIDEX when we started this transformation.

Turning to the third quarter specifically, we achieved strong year-over-year revenue growth of 8%. This was accomplished while reducing operating expenses by 12% and improving our adjusted EBITDA by $1.3 million compared to the prior year period. You will recall that beginning in the fourth quarter of 2024, we implemented a series of targeted cost reduction programs that have resulted in lowered operating expenses throughout 2025.

For the 9 months ending September 27, operating expenses have been reduced by 25%. These efforts have meaningfully reduced our cash burn and strengthened the company's overall financial position as the cost structure is now better in line with our revenues.

We have identified additional opportunities to further strengthen the company's financial profile and are now implementing actions to enhance our gross margins and further reduce operating expenses. On the manufacturing front, we are in negotiation with contract manufacturers that could reduce our cost of goods sold and benefit gross margins. It will take some time to implement these new relationships and transition certain product lines, but this is an initiative we remain very excited about for 2026.

In the near term, we are relocating certain general and administrative functions outside of California. This initiative alone is expected to generate approximately $165,000 and quarterly savings beginning in the first quarter of 2026. These moves demonstrate our commitment to continuing cost discipline and improved financial performance.

Turning next to discussing our commercial performance. I am pleased to share that in the third quarter, our top line revenue grew a healthy 8% year-over-year to $12.5 million. With a smaller sales force and reduced marketing spend, our commercial team's strong execution has been truly impressive. They continue to drive efficiency by levering technology and long-standing customer relationships to drive sales. The third quarter's revenue increase was driven by strength in both our glaucoma and retina product lines.

Starting with our glaucoma business. We remain enthusiastic about the global growth potential as acceptance of our treatment solutions increases.

In the U.S., our strategy for the G6 system centers on deleveraging our substantial installed base to drive higher system utilization. The Medicare LCDs introduced last year have also created new opportunities for adoption of the G6 treatment earlier in the continuum of care for mild to moderate stage patients.

From a tactical standpoint, we are continuing to utilize MedScout, a sales enablement platform to identify accounts within the midrange of utilization and support them to increase the utilization. These practices have already demonstrated a strong commitment to G6. And with targeted engagement, we see meaningful potential to increase their procedure volumes.

Overall, during the third quarter, Cyclo G6 system sales increased to 30 units from 26 in the prior year period. Most units were sold to existing users acquiring additional systems often as they expanded into new locations. We believe this demonstrates recognition of TLT as a necessary treatment option for clinicians.

We sold 14,900 probes compared to 13,600 in the prior year period, representing a higher utilization in both the U.S. and internationally. We have also realized an increase in ASPs for both probes and consoles. International glaucoma performance was strong with positive contributions across geographies.

In Europe, Middle East and Africa, we saw continued growth in glaucoma probe sales, supported by the fulfillment of several orders initially deferred from Q2 due to supply constraints IRIDEX experienced last quarter.

In GmbH, G6 Pro sales remain on a steady upward trajectory, reflecting sustained procedural demand and solid recurring revenue streams. In Asia, for the second consecutive quarter, the region experienced volatility and operational challenges. While demand remains strong, several macro factors continue to weigh on our commercial activity.

As anticipated in Q2, the ongoing tariff dispute with China continued to disrupt sales planning and forecasting into Q3. Japan's market remains sluggish, driven by the weak yen against the U.S. dollar, which benefits domestic competitors who are less exposed to currency fluctuations. Looking to Latin America and Canada, we saw improved G6 business momentum following the appointment of new glaucoma distributors and a stronger push from existing partners.

Shifting to our retina product portfolio. Here, our top priorities include driving broader adoption of our flagship PASCAL system and securing additional international regulatory approvals for our next-generation retina platforms, enabling us to capitalize on robust global distribution network.

In the U.S., PASCAL sales remained strong as sales representatives increasingly focusing their efforts on promoting our next-generation PASCAL platform. Medical and surgical retina revenue grew more than 10% year-over-year in line with expectations and reflecting steady market demand. EndoProbe sales remained stable throughout the quarter, demonstrating consistent performance across our customer base.

Now on to international retina performance. In Europe, Middle East and Africa, the region continues to outperform expectations, primarily driven by strong PASCAL performance in the Middle East and Africa, alongside steady Synthesis activities from European markets. MDR certification for the IRIDEX PASCAL are negatively affecting retina cells throughout Europe. We expect this and anticipate pent-up demand will provide a tailwind once certification is achieved.

In GmbH, operations faced a slowdown in capital equipment sales, largely due to purchase order delays associated with the region's summer holiday period. In Asia, our retina business was similarly affected by the same regional dynamics impacting the glaucoma business including the continued impact of the China tariff dispute and currency-driven competitive pressures in Japan. Despite these headwinds, underlying demand for our retina products remains solid. In Latin America and Canada, a region is showing signs of recovery, primarily fueled by a rebound in PASCAL sales supported by renewed distribution engagement.

Now I'll hand the call over to Romeo to discuss our financial results.

Thank you, Patrick. Good afternoon, everyone, and thank you for joining us today. I would like to begin by reviewing our financial performance for the third quarter ended September 27, 2025.

As we noted in our press release and in Patrick's comments, our total revenues for the third quarter of 2025 were $12.5 million, representing an 8% year-over-year increase. Growth was driven primarily by higher glaucoma probe sales and PASCAL system sales partially offset by lower surgical retina probe sales. Retina product revenue increased 4% in the third quarter of 2025 to $6.7 million compared to the third quarter of 2024, driven primarily by higher PASCAL system sales, medical and surgical retina system sales, partially offset by a decrease in surgical retina probe sales.

Total product revenue from the Cyclo G6 glaucoma product group was $3.5 million, representing a growth of 13% year-over-year. Other revenue increased $0.2 million to $2.2 million in the third quarter of 2025 compared to $2.0 million in the third quarter of 2024, driven primarily by an increase in service revenue.

Gross profit in the third quarter of 2025 was $4.0 million or a gross margin of 32.1%, a decrease of $0.3 million compared to $4.3 million or a gross margin of $37.3 million in the third quarter of 2024. Gross margin decreased by 520 basis points driven by $0.8 million charge to cost of goods sold, issued inventory write-down, partially offset by more favorable geographic and product mix in the current year.

In the third quarter of 2025, we recorded a onetime nonrecurring noncash charge to write-down inventory, following a detailed review related to the transition to a new resource planning system in our estimate of the cost of raw materials and subassembled products not absorbed as we continue to transfer our production of various product lines to third-party contract manufacturers. It was determined that such inventories are now excess and obsolete. These stranded costs are typical in the transfer of production to contract manufacturers. Excluding this onetime write-down, our gross margin rate would have improved to 38.7%.

Operating expenses were $5.4 million in the third quarter of 2025, a decrease of $0.8 million or 12% compared to $6.2 million in the third quarter of 2024 due to expense reductions measures taken late 2024. Consequently, net loss, including the onetime charge, was $1.6 million or $0.09 per share for Q3 2025 compared to a net loss of $1.9 million or $0.12 per share in the same period of the prior year.

Non-GAAP adjusted EBITDA for the first quarter of 2025 was a loss of $131,000, an improvement of $1.3 million compared to non-GAAP adjusted EBITDA loss of $1.4 million for the third quarter of 2024. The improvement is driven primarily by the expense reduction measures implemented in late 2024. Cash and cash equivalents totaled $5.6 million at the end of the third quarter of 2025, a reduction of $1.2 million compared to $6.8 million at the second quarter of 2025.

We are very pleased with our reduction in cash usage and expect cash use to continue or improve on these levels. As you can see, we are making significant progress advancing our business plan with a greater focus on profitability. We are pleased with the results of our continuing financial prudence, and we plan to achieve a cash flow breakeven fourth quarter positive EBITDA in fiscal year 2025.

And with that, I'll turn the call back to Patrick.

Thank you, Romeo. Looking back over the past 12 months, we have made significant progress towards the goals we established a year ago when I assumed the CEO role. Most notably, we are proud that our focus on operating improvements are expected to support sustained cash flow positivity for IRIDEX going forward. We continue to take decisive actions to reduce operating expenses and strengthen our financial position. IRIDEX is well positioned to extend its leadership in ophthalmic laser systems.

To the IRIDEX team, I'd like to take a moment to thank you for your continued commitment, dedication and outstanding execution. We recognize that many of you are wearing multiple hats and your contributions have not gone unnoted. To our shareholders, thank you for your continued support of IRIDEX. We look forward to updating you on our progress next quarter.

To all the veterans, Happy Veterans Day. Thank you for your sacrifice and service.

This concludes today's conference call. Thank you for joining. You may now disconnect.