CapsoVision - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered 17% YoY revenue growth to $3.32M, with gross margin at 55%; operating loss narrowed YoY as R&D spend stepped down following completion of a pivotal study.
• Revenue modestly beat S&P Global consensus by ~2% ($3.32M vs. $3.25M); GAAP diluted EPS of -$2.02 is not comparable to the -$0.11 S&P consensus due to pre-IPO share base and limited coverage, but headline optics appear as a large miss.
• Liquidity strengthened post-quarter: $1.07M cash at 6/30/25 and $23.4M net IPO proceeds on 7/3/25; partial over-allotment added ~$0.6M net.
• Pipeline catalysts remain the stock narrative: small-bowel AI module 510(k) submission targeted for late Sep/early Oct with launch next year, 510(k) for CapsoCam Colon submitted in June (Gen2 targeted for 2026), and Breakthrough Device Designation application for pancreas by year-end.

What Went Well and What Went Wrong

What Went Well

• Adoption: New accounts +75% YoY; CapsoCam Plus used by >143,000 patients as of 6/30/25, supporting the 17% YoY revenue increase.
• Margin discipline and expense control: Gross margin 55% (vs. 56% LY), while operating expenses declined YoY (-$0.4M) on lower clinical costs post-pivotal study completion.
• Capital and pipeline progress: IPO raised $23.4M net; 510(k) filed for CapsoCam Colon in June; AI module for small bowel planned for FDA submission late Sep/early Oct.

Selected quote:

• “Our second quarter performance reflected steady adoption of our CapsoCam Plus… Following the achievement of several development milestones, we successfully completed our IPO in July, providing us with the additional capital to accelerate growth and expand into high-impact new indications.” – CEO Johnny Wang.

What Went Wrong

• Losses remain elevated: Net loss of $(4.63)M and operating loss of $(4.65)M, reflecting growth investments; gross margin dipped 100 bps YoY due to mix/scale.
• Liquidity tight at quarter-end: Cash of $1.07M pre-IPO; company depended on subsequent financing to fund operations and pipeline.
• Cash burn scrutiny: In Q&A, management characterized cash burn as “around $11.5M,” while the cash flow statement shows H1’25 net cash used in operations of $(9.51)M, highlighting potential investor focus on runway and spending cadence.

Transcript

Speaker 5

Good afternoon and welcome to CapsoVision's second quarter 2025 earnings conference call. All participants are in a listen-only mode. I'll now turn the call over to Lisa Lowe in Investor Relations for CapsoVision. Please go ahead.

Speaker 3

Thank you, operator. Good afternoon, everyone, and thank you for joining us for CapsoVision's second quarter 2025 earnings call. Joining me today are Johnny Wang, President and Chief Executive Officer; Kevin Lundquist, Chief Financial Officer; and Doug Atkinson, Vice President of Sales. Before we begin, please remember that today's remarks include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10Q filed by us with the SEC.

These forward-looking statements speak only as of the date of this call, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any changes in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. Our call today will cover the following agenda. Johnny will begin with an overview of CapsoVision's business, market opportunity, and recent highlights from our pipeline. Kevin will walk through a commercial update and financial results for 2025. After our prepared remarks, we'll open up the call for Johnny, Kevin, and Doug to take your questions. With that, I'd like to turn the call over to Johnny.

Speaker 4

Thank you, Leigh, and good afternoon, everyone. Today marks an exciting milestone for CapsoVision as we host our first earnings call as a public company. On behalf of the entire team, I want to thank our employees, our physician partners, and our shareholders for your trust and support. As a co-founder of CapsoVision, our mission has always been clear: to deliver an early, accurate, accessible, and patient-friendly solution for advanced disease screening in the GI tract. We believe our approach to the detection of cancerous lesions sets CapsoVision apart from most, if not all, commercially available, non-invasive GI screenings that are used to detect cancer early at a lower cost and while it's potentially still treatable.

Our long-term life-saving vision is an ingestible capsule that, in a single convenient, non-invasive procedure, screens for multiple cancers: esophageal, gastric, pancreatic, small bowel, and colorectal at early and still precancerous stages, using AI to analyze thousands of images captured in the GI tract. We have developed a next-generation capsule endoscopy system that provides high-resolution 360-degree imaging, offering a more comfortable, non-invasive alternative to traditional GI screening options. Patients simply swallow a pill sized to the camera, making the screening process easier and more approachable. CapsoCam Plus, our FDA-cleared capsule for small bowel visualization, is already in commercial use across the U.S. and several international markets. We believe a key differentiator is its ability to capture a panoramic view of the small bowel, imaging areas that are often missed by competitive panel view capsules.

This more complete visualization has been proven to significantly reduce blind spots, allowing physicians to more effectively identify complications such as GI obscure bleeding, Crohn's disease, and other small bowel abnormalities. In peer-reviewed articles, our capsule showed a higher detection rate of pneumopapilla, which is a small bowel landmark where the pancreas releases fluid into the small bowel. I will elaborate on this advantage in terms of pancreas screening later in my comments. Our small bowel capsule also delivers an industry-leading 97% procedural completion rate, a key benchmark for clinical reliability due to our long battery-powered operation time. In an incomplete study, portions of the small bowel may not be examined, and as a result, potential pathologies may be missed. Because CapsoCam Plus is wire-free, with standard storage in the capsule and secure post-procedural workflow, it removes traditional bottlenecks such as scheduling office visits or managing body-worn equipment.

Physicians can review patient results anytime, anywhere, not just during office hours, and with no need for on-site servers or IT support. Multiple providers can access patient results through a centralized cloud-based infrastructure. Importantly, our cloud platform, where all patient images are downloaded, transcoded, and accessible, is developing into a trove of de-identified imaging data that we believe is a strategic asset that we can leverage in our in-house AI development. Earlier this year, we announced two important milestones for our capsule endoscopy solution. First, we received FDA clearance of CapsoCam Plus for use in pediatric patients as young as two, providing a safe, non-invasive option for early diagnosis and treatment, particularly when traditional endoscopy is not feasible. In addition, the FDA also cleared the remote ingestion of CapsoCam Plus for both adult and pediatric patients, enabling the procedure to be completed from home under video supervision through telemedicine.

Together, these clearances marked a major advancement in access, comfort, and the integration of our capsule endoscopy platform into telemedicine workflows. Turning to our development pipeline, we are on track to submit our AI-powered module for CapsoCam Plus to the FDA in late September or early October. Upon approval, we will be able to offer a best-in-class solution that integrates advanced imaging with AI-powered interpretation for small bowel diagnostics. To our knowledge, we are the only company in our industry with in-house AI core competency. We believe that AI has the potential to make the procedure more efficient, as well as deliver more accurate results. This, together with our growing de-identified imaging data trove, proprietary to our cloud-based system, gives us a significant advantage in bringing disruptive AI-enabled GI tract disease screening solutions to market.

Looking beyond the small bowel, in June, we submitted a filing to the FDA for our first-generation CapsoCam Colon, a non-invasive capsule for colon polyp detection. CapsoVision CapsoCam Colon provides a comfortable, sedation-free alternative to optical colonoscopy, ideal for early detection of precancerous lesions and, ultimately, colon cancer prevention. We plan to initially address patients who have higher colonoscopy procedure-related risks or those who have had an incomplete procedure. We estimate this market, combined with new opportunities in integrated delivery networks, who don't rely on Medicare or private insurers for reimbursement for capsule-based colon screening, has a market potential of over $1 billion. Of course, our ability to assess this market is subject to timely receipt of the required regulatory approvals and the patient procedural indication.

Importantly, we believe CapsoCam Colon is the only capsule in development that combines advanced imaging capability with deep learning AI-assisted analysis, offering more complete view and the polyp detection capability. Clinically, it has potential applications beyond colorectal cancer screening, including IVD and bleeding evaluation. Economically, it could reduce reliance on operating room time and insufficiency and for a CT-based recovery, supporting both cost savings and scalability. We are also in development of a second-generation colon capsule that will provide improved optics and plan to conduct a smaller second arm study to facilitate the regulatory approval of this improved capsule and give physicians confidence in accuracy and completeness. The new optics have 35% more viewing area with substantially better image quality than the Gen 1. To provide some additional color here, a capsule, or any endoscopy for that matter, can miss polyps in two ways related to its camera.

The first is capture error when the capsule camera fails to capture images of polyps. The second is perception error when the image of the polyp is captured, but the doctor fails to identify it as a polyp, possibly because it sits among other benign forms in the colon. With a larger viewing area and better image quality, our Gen 2 capsule can reduce both capture error and perception error. We expect to submit for FDA approval of the Gen 2 capsule in the first quarter of 2026. We are also expanding our pipeline to address other parts of the GI tract. One area of focus that I'm especially excited about is the pancreas. This is one of the deadliest cancers, in large part because there is no effective screening tool available today.

As discussed earlier, our panoramic capsule endoscopy has a distinctively higher detection rate for duodenal papilla, a landmark in small bowel where the pancreas releases fluid into the small bowel. Some pancreatic abnormalities will cause the papilla to dilate, and this dilation in turn will cause the gastric fluid and duodenal content to reflux into the pancreatic duct. Persistent dilation of the papilla is associated with pancreatic neoplasia, a likely precursor to pancreatic cancer. Improved visualization may enable earlier detection. Based on promising results we saw in an early feasibility study on pancreas screening application and the continued development progress, we plan to submit an application for breakthrough device designation by year end. If breakthrough designation is received, some other benefits could facilitate communications with the FDA, help inform the structure of our related clinical development efforts, and accelerate the FDA review process.

Our development pipeline also includes screening for esophageal varices. Most cirrhotic patients during the course of disease progression are at high risk of developing esophageal varices, and the current guidelines recommend regular screening. In the U.S. alone, there are an estimated 5 million patients with cirrhosis, and over 85% develop varices, making this a large high-risk population. We plan to initiate pivotal studies in the second half of 2026 for subsequent regulatory submission to expand into this indication. In summary, GI diseases remain a major health challenge worldwide, and we believe CapsoVision has a tremendous opportunity to address the broad and underserved market. Barriers such as invasiveness, cost, and patient hesitation continue to limit access to GI examination and screening. We believe our capsule-based solution and our innovation pipeline are well positioned to address these gaps.

I will now turn the call over to Kevin to cover recent commercial and operational highlights, as well as our financial results for the second quarter. Kevin?

Speaker 1

Thanks, Johnny. I am excited to be here at this historic moment for our company, our first earnings call as a publicly traded company. Turning to commercial highlights, as of June 30, 2025, CapsoVision CapsoCam Plus for small bowel screening has been used by more than 143,000 patients across the U.S. and internationally. In the second quarter of 2025, approximately 7,900 patients used our system, compared to approximately 6,700 in the second quarter of 2024, representing year-over-year growth of 17%. Today, our technology is protected by 82 issued U.S. patents, reinforcing our strong foundation in IP and clinical innovation. In addition, the device is reimbursed under CPT code 91110, supporting adoption across both private practices and hospital systems. A key strategic advantage of our approach to the GI market is the ability to leverage our existing sales infrastructure as we expand into additional indications.

Importantly, we expect that the same call point for CapsoCam Plus will serve as the entry for CapsoCam Colon once it has been approved for commercialization, creating a built-in cross-sell opportunity without requiring significant increases in headcount. While we expect to scale over time, as of June 30, 2025, our U.S. direct sales team included 25 representatives, supported by seven regional sales directors and trainers. Internationally, we're gaining traction with four representatives in Germany, and we continue to efficiently expand into high-potential global markets through distributor partnerships. New accounts grew 75% in the second quarter of 2025 over the comparable quarter in 2024, demonstrating continued physician adoption of our capsule for use in small bowel screening, as well as the impact of approvals in pediatric patients over two years old and remote ingestion of the capsule, furthering the benefits of telemedicine.

We were also encouraged to see a 46% increase in GI clinics in Mega GI Group, which we define as those with more than 150 providers with multiple locations and in multiple states in the second quarter of 2025 over the same quarter last year. Although our historic focus has been on private gastroenterology practices, we are now achieving momentum in hospitals and GPOs as incumbent contracts come up for renewal. In the second quarter of 2025, hospital systems customers increased 35% over the prior year. Turning to our financial performance, for the second quarter of 2025, total revenue was $3.3 million, reflecting 17% growth compared to the second quarter of 2024. This was driven by an increase in the number of CapsoCam Plus capsules sold. Our gross margin was 55% for the quarter, consistent with our expectations as we scaled.

Operating expenses were $6.5 million for the second quarter of 2025, compared to $6.9 million in the second quarter of 2024. The decrease was attributable to an $800,000 decrease of expenses associated with ongoing clinical trials as the CapsoCam Colon pivotal study was completed at the end of 2024, and clinical expenses for ongoing clinical trials in 2025 were lower. This was partially offset by a $400,000 increase in general and administrative expenses, primarily due to higher professional service expenses, including audit, legal, and consulting fees. Net loss was $4.6 million for the second quarter of 2025, compared to a net loss of $5.3 million in the second quarter of 2024. We ended the quarter with $1.1 million in cash and equivalents. Subsequent to quarter end on July 3, 2025, we completed our IPO and received total net proceeds of $23.4 million.

We also recently announced a development agreement with Canon to design and evaluate next-generation CMOS image sensors for future versions of our capsule endoscope. While not intended for CapsoCam Plus or CapsoCam Colon, this collaboration marks a key step in advancing our innovation pipeline and imaging capabilities. The agreement, valued at approximately $4.1 million, including milestone-based payments, lays the groundwork for a strategic supplier relationship. Looking out towards the remainder of 2025, we expect second half revenue to be higher than first half and are already experiencing stronger sales in Q3. In addition, our Q4 sales have historically been seasonally our highest. As we look ahead, I'd like to summarize the catalysts that we believe will drive our growth and value creation for our shareholders. First, continued market share gains in the small bowel market, supported by strong physician enthusiasm for our technology's diagnostic performance and patient convenience.

Second, integration of our AI-powered modules in CapsoCam Plus, which we expect to submit to the FDA by late September or early October. Third, the expected regulatory clearance of CapsoVision Kang-Huai Wang Capsule K with the AI module, that we believe will unlock a significant new market opportunity for non-invasive colorectal screening by the second half of 2026. Fourth, anticipated development of pancreatic and esophageal varices disease screening, which we believe will further broaden our market opportunity and position us to image the entire GI tract. In short, we are confident that we have the right technology, the right strategy, and the right team to execute on these opportunities. Thank you for your support and interest in CapsoVision. We look forward to keeping you updated on our progress. At this time, Johnny, Doug, and I would be happy to take your questions. Operator, can you please open the line?

Speaker 5

Thank you. To ask a question, press star one on your telephone keypad. Our first question comes from the line of Jason Withis with Rob Capital. Please go ahead.

Speaker 0

Hi, thanks for joining questions and congrats on going public. First off, just to clarify, in terms of the colon launch, the plan is for the second-generation device, not for the initial device that you submitted for. Just wanted to clarify that.

Speaker 3

That's correct.

Speaker 0

Okay. Simple enough. Also.

Speaker 4

Yeah.

Speaker 0

Okay. In terms of just timing, it sounds like if I, maybe I'm reading too much into this, but I think, Johnny, you said the plan is for a first quarter submission for the second gen, or the second gen with the improved lens, colon capsule. I guess that would imply that I assume that would come after the first approval, right? That would be prepping on getting that first approval.

Speaker 4

Exactly.

Speaker 0

Okay.

Speaker 4

Exactly.

Speaker 0

Okay. Thank you. You mentioned the Canon arrangement. It's $4.1 million. Is that an initial upfront payment? How long, and what are the deliverables for that relationship? I guess what timeframe should we be thinking about?

Speaker 3

Sure. It's an upfront payment of $1 million. It's a development contract for a new CMOS image sensor. The agreement is over a couple of years, and once we've agreed with the panel engineering design and signed a mutual agreement with them, they'll put it into production. The remainder of that will be allocated to a piece part, on a minimum contract for a few years going on.

Speaker 0

Okay.

Speaker 3

We do have an option.

Speaker 0

Okay, go ahead.

Speaker 3

We do have an option on that contract to pay it once they deliver a final device that we're going to submit to the FDA. The approval is contingent on it clearing the FDA.

Speaker 0

Will that be a device that's sold by Canon, or will it be our device?

Speaker 3

It'll be our device, a future device.

Speaker 0

Okay. I'll jump back to you, but I do have one other question on financials. What was the cash burn in the quarter, and what's the expectation for cash burn for the year?

Speaker 3

I believe cash burn was around $11.5 million. We're still tracking at about $2 million a month with our clinical trials. I think our negative net income for the year is about $20 million, where we said it would be $20 to $22 million.

Speaker 0

Okay. Appreciate the detail. I'll jump back in too.

Speaker 5

Our next question is from the line of Bruce Jackson with The Benchmark Company. Please go ahead.

Speaker 2

Hi. Good afternoon, and thank you for taking my questions. I wanted to focus on the AI feature. Two questions there. One is the timeline. Are you still planning to submit in the fourth quarter with a possible launch next year sometime?

Speaker 4

Yes, we do. We plan to submit end of September.

Speaker 5

Okay.

Speaker 4

In the first quarter next year, we plan to launch.

Speaker 2

Okay. I wanted to ask about just the market receptivity to the AI feature. Is this something where the doctors are already aware of the feature and they're receptive to it, or is this something where you might have to do some education to get them to buy into it?

Speaker 4

Yeah, the AI is detecting all abnormalities within small bowel. It will recognize the abnormalities within GI space. There is no need for actual additional education.

Speaker 2

Thank you. Okay. Last question for me on the AI. You mentioned that you've got the in-house capabilities. I was wondering what type of advantage do you think that you have with your AI compared to the other options that are out there?

Speaker 4

For in-house development on this kind of technology, like software, it's always difficult because the turnaround, we control our own destiny. We control our own efforts. If someone else does it for you, it's this kind of communication, and the other company always has their priorities. You may not do, they may not do what you want and put enough resource. This advantage actually is tremendous. We are the only company we know in this space with in-house AI, complete in-house AI development from labeling to the model, model restructure, as well as training, validation, and other aspects of AI technology we need. This is in-house development. Also, when you need to modify AI, if other companies you want them to do it, they may have other priorities. It's not your company, right? They may assign it to some people. It's not great people. They don't.

This condition is almost like in the software industry. If you have in-house software, you are much better off than you ask other companies to develop software for you. It's the same situation.

Speaker 2

Okay, that's it for me. Thank you very much, and congratulations on the quarterly results.

Speaker 4

Thank you.

Speaker 3

Thank you.

Speaker 5

Again, to ask a question, press star one on your telephone keypad. With no further questions in queue, this does conclude today's conference call. You may now.