CapsoVision - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered 19% YoY revenue growth to $3.538M, but revenue was below Wall Street consensus ($3.684M), and diluted EPS of $(0.17) missed the $(0.125) consensus; gross margin was 54% vs. 55% in Q2 and 56% in Q3 2024. Revenue Consensus Mean: $3.684M*; Primary EPS Consensus Mean: $(0.125)*. Values retrieved from S&P Global.
• Management advanced strategic catalysts: submitted Breakthrough Device Designation (BDD) application to FDA for pancreatic screening (Nov 6), progressed CapsoCam Colon Gen-1 (under review) and began Gen-2 pivotal enrollment; AI module submission for CapsoCam Plus now targeted by year-end 2025 due to biostat resource constraints.
• Operating expenses rose to $9.933M, including a one-time $1.6M Canon CMOS development charge; CFO clarified this should be removed from forward R&D run-rate.
• Commercial KPIs strengthened: ~8,336 patients in Q3 (+20% YoY), new accounts +31% YoY, hospital systems customers +26% YoY; U.S. salesforce at 26 reps and 7 managers/trainers.
• Near-term stock narrative hinges on regulatory milestones (BDD decision, AI module clearance timeline, Colon program progress) and execution on commercial momentum despite near-term margin and OpEx pressure.

What Went Well and What Went Wrong

What Went Well

• 19% YoY revenue growth to $3.538M, driven by higher CapsoCam Plus capsule sales; gross profit rose to $1.914M.
• Strategic pipeline progress: FDA BDD application submitted for pancreatic cancer screening; Colon Gen-1 under review; Gen-2 pivotal enrollment started with enhanced optics/AI.
• Commercial traction: ~8,336 patients in Q3 (+20% YoY), new accounts +31% YoY, hospital systems customers +26% YoY; management emphasized cloud-based workflow and in-house AI competency as differentiators.

Selected management quotes:

• “We delivered a strong third quarter… submission for Breakthrough Device Designation… underscores our commitment…”.
• “We currently plan to submit… AI… to the FDA by year-end 2025… slight delay due to resource constraints…”.
• “Our Gen-1… is currently under FDA review, and we have begun enrolling patients in our pivotal study for the Gen-2 capsule… submission in Q2 2026… clearance in Q4 2026”.

What Went Wrong

• Revenue missed consensus by ~$0.145M (−3.9%) and diluted EPS missed by $0.045; gross margin compressed to 54% vs. 55% in Q2 and 56% YoY. Revenue Consensus Mean: $3.684M*; Primary EPS Consensus Mean: $(0.125)*. Values retrieved from S&P Global.
• Operating expenses increased to $9.933M, including $1.6M R&D tied to Canon CMOS development; net loss widened to $(7.921) vs. $(5.794) YoY.
• AI module submission timing slipped from late Sep/early Oct to year-end 2025 due to biostatistician constraints, shifting anticipated commercialization to second half next year.

Transcript

Operator (participant)

Good afternoon and welcome to CapsoVision's Third Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. After the presentation, we will have a question-and-answer session. If you'd like to ask a question, please press star and the number one on your telephone keypad. If you'd like to withdraw your question or your question has been answered, please press star one again. Thank you. I will now turn the call over to Leigh Salvo, Investor Relations for CapsoVision. Please go ahead.

Leigh Salvo (Investor Relations Contact)

Thank you, Operator. Good afternoon, everyone, and thank you for joining us for CapsoVision's Third Quarter 2025 Earnings Call. Joining me today are Johnny Wang, President and Chief Executive Officer, and Senior Vice President of Finance, David Garcia, as well as Doug Atkinson, Senior 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 10-Q 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 statement contained herein to reflect any change 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 update on CapsoVision's business, target markets, and recent highlights from our pipeline development. Then, Dave will walk through a commercial update and recent financial results. After our prepared remarks, we'll open the call up for Johnny, David, and Doug to take your questions. With that, I'd like to turn the call over to Johnny Wang, CEO. Johnny?

Johnny Wang (President and CEO)

Thank you, Leigh, and good afternoon, everyone. CapsoVision's mission has always been clear: to make early, accurate, and accessible cancer detection available to patients everywhere. Our long-term vision remains to deliver an ingestible capsule that can screen for multiple cancers: esophageal, gastric, pancreatic, liver, and colorectal, in a single non-invasive procedure powered by advanced imaging and AI. We delivered a strong third quarter highlighted by 19% year-over-year revenue growth, a 31% increase in new account generation, and the milestone of more than 151,000 patients having used our CapsoCam Plus system to date. These results reflect growing market adoption and strong physician engagement, as more clinics embrace the advantages of our wide-field panoramic capsule technology. CapsoCam Plus provides a complete 360-degree view of the small bowel, with a 97% completion rate, giving physicians the clarity and the efficiency they need for accurate diagnosis.

Combined with our secure cloud-based workflow, providers can review cases anytime and anywhere without the burden of servers or hardware. SubSTEM cloud infrastructure continues to build the vastly identified image database that fuels our proprietary AI development. On the pipeline development front, we have continued to make exciting progress that I'd like to share. First, we continue to invest in AI to improve our existing products and made significant progress with the clinical study to demonstrate the benefits of incorporation of our AI technology into CapsoCam Plus. We currently plan to submit the related fighting case application to the FDA by year-end 2025. This updated timing represents a slight delay from our previously anticipated timing due to resource constraints from our third-party biostatisticians. To mitigate further delays, we have contracted with an additional biostatistical consulting group.

We expect that it will take approximately six months for the FDA to review our application, and the pending clearance commercialization is planned to begin shortly thereafter. CapsoVision is, to our knowledge, the only capsule endoscopy company with true in-house AI core competency. The scale and the quality of our growing image data flows, inherent in our cloud-based architecture, create a powerful foundation for training AI models and uncovering new clinical insights that will continue to set our platforms apart. Because our system is fully cloud-based, it eliminates the need for on-site servers, reduces cost and downtime, and removes the IT burden for clinicians. The result is an AI-enabled diagnostic platform designed to deliver efficiency, accuracy, and accessibility to GI practices across all settings.

We also made important progress extending our pipeline with the recent submission of an application for Breakthrough Device Designation to pursue use of our non-invasive capsule endoscopy system to enable earlier detection of pancreatic ductal adenocarcinoma, a major milestone in our mission to bring screening to one of the deadliest cancers worldwide. It represents an important step in CapsoVision's mission to extend our capsule-based diagnostic platform beyond the small bowel and address some of the most challenging diseases in gastroenterology. Pancreatic ductal adenocarcinoma, the most common form of pancreatic cancer, has a five-year survival rate of only 8%, largely because it is diagnosed at advanced stages that cannot be treated. Currently, no early screening tools are recommended to identify the disease at a treatable stage. CapsoVision is pursuing the potential use of CapsoCam UGI endoscopy to identify pancreatic disease at an early stage.

The device's unique panoramic imaging capability enables clear visualization of the duodenal papilla, a small bowel landmark that controls the release of digestive fluid from the pancreas. Changes in the papilla's appearance can be associated with pancreatic abnormalities and may serve as an early indicator of disease. Unlike traditional endoscopic or imaging procedures, CapsoCam UGI is completely non-invasive. Patients simply swallow a pill-sized camera, eliminating the need for sedation, intubation, or recovery time, while enabling physicians to review detailed images through a secure cloud-based system. The FDA's Breakthrough Devices Program is designed to expedite the development and review of technologies that may offer more effective diagnosis or treatment for life-threatening conditions where no adequate alternatives exist. If granted, that designation would allow CapsoVision to work closely with the FDA to accelerate development and share upcoming clinical studies for the regulatory review process. We are also advancing our CapsoCam Colon program.

Our Gen-1 fighting-based imaging is currently under FDA review, and we have begun enrolling patients in our pivotal study for the Gen-2 capsule. This version incorporates enhanced optics and AI for improved accuracy and is on track for submission in the second quarter of 2026, with potential clearance in the fourth quarter of 2026. We are also very pleased to be partnering with Canon Incorporated for next generation imaging technology. Earlier in the third quarter, we entered into a development agreement focused on creating advanced CMOS imaging sensors with high resolution and a dynamic range. These sensors are designed to further enhance image quality and performance in future versions of our capsule endoscopes, supporting our goal to deliver the most precise and reliable visualization in the industry. Finally, we continue to build our organization for growth. Following our successful IPO earlier this year, we are pleased to welcome Mr.

David Garcia as Senior Vice President of Finance. His deep financial leadership and capsule market experience will be instrumental as we move into the next stage of execution and growth. Overall, Q3 is a strong quarter across the board, commercially, operationally, and strategically. Our progress in AI, our advancing pipeline for early detection of major cancers, and the continued expansion of CapsoCam Plus adoption have reaffirmed our competence in leading the next generation of non-invasive AI-enabled GI screening and diagnostics. I will now turn the call over to Dave to cover recent commercial and operational highlights, as well as our financial results for the third quarter. Dave?

David Garcia (Senior VP of Finance)

Thank you, Johnny. I'm thrilled to join CapsoVision and be part of a team that's redefining what's possible in GI diagnostics. I've already been impressed by the talent and energy across the organization, and I look forward to getting to know everyone and to engaging with our investors and the broader Wall Street community in the months ahead. Turning to commercial highlights. As of September 30th, 2025, CapsoCam Plus for small bowel screening has been used by more than 151,000 patients across the U.S. and internationally. In the third quarter of 2025, approximately 8,336 patients used our system, compared to approximately 6,961 in the third quarter of 2024, representing year-over-year growth of 20%. Today, our technology is protected by 82 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 September 30, 2025, our U.S. direct sales team included 26 representatives supported by seven regional sales managers 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 account generation grew 31% in the third 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 24% increase in GI clinics and mega GI groups, which we define as those with more than 150 providers with multiple locations and in multiple states, in the third quarter of 2025 over the same quarter last year. Although our historical 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 third quarter of 2025, hospital systems customers increased 26% over the prior year. Turning to our financial performance.

For the third quarter of 2025, total revenue was $3.5 million, reflecting 19% growth compared to the third quarter of 2024. This was driven by an increase in the number of CapsoCam Plus capsules sold. Our gross margin was 54% for the quarter, consistent with our expectations as we scale. Operating expenses were $9.9 million, a $2.5 million increase from the quarter of 2024, driven primarily by an increase in expenses associated with the development of the new CMOS imaging sensors under the development agreement with Canon Inc, and the increase of general and administrative expenses due to higher payroll and benefits expenses and stock-based compensation expenses associated with the executive officer departure and higher professional service expenses, including audit, legal, and consulting fees as we were operating as a public company.

Net loss was $7.9 million for the third quarter of 2025, compared to a net loss of $5.8 million in the third quarter of 2024. We ended the quarter with $17.8 million in cash and equivalents, an increase from $1.1 million at June 30, 2025. At the beginning of the quarter, on July 3th, 2025, we completed our initial public offering and received total net proceeds of $23.4 million. We also announced a development agreement with Canon to design and evaluate next generation CMOS imaging sensors for future versions of our capsule endoscopes. While not intended for CapsoCam Plus or CapsoCam Colon, this collaboration marks a key step in advancing our innovation pipeline and imaging capabilities. In July 2025, we made a prepayment of $1 million. R&D expenses for this agreement, recognized in the third quarter of 2025, were $1.6 million.

Accrued liability balance as of September 30th, 2025, was $0.6 million. Now, I'd like to turn the call back to Johnny for some closing remarks.

Johnny Wang (President and CEO)

Thanks, David. As we look ahead, we are entering one of the most exciting periods in CapsoVision's history. We have clear momentum across every part of the business, from the continued commercial growth of CapsoCam Plus to the expansion of our pipeline into new indications like the colon and the pancreas, to the advancement of our AI-assisted diagnostics. Our application for Breakthrough Device Designation for pancreatic screening reflects both the urgency of that amazing need and the promise of our technology to detect disease earlier when treatment can still make a difference. In addition, continued development of our AI module for CapsoCam Plus has the potential to make capsule endoscopy faster and more accurate than ever before.

As with our CapsoCam Colon program progressing and the additional development efforts underway with partners such as Canon, we are steadily building a comprehensive platform that can transform how gastrointestinal diseases are detected and managed. Following our successful IPO, we are strengthening our leadership team and executing our clear growth plan, and confident that the combination of our advanced imaging, proprietary AI, and fully cloud-based architecture gives us a strong foundation for long-term success. I want to thank our employees for their dedication and creativity, our clinical partners for their collaboration, and our investors for their continued support. Together, we are redefining what's possible in GI screening, making early, accurate, and patient-friendly diagnosis a reality. We look forward to updating you on our continued progress next quarter. At this time, Dave [Doug] and I would be happy to take your questions. Operator, can you please open the line?

Operator (participant)

Thank you. If you'd like to ask a question, please press star and the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to address a question, simply press star one again. Thank you. We will take our first question from Bruce Jackson from the Benchmark Company. Please go ahead.

Bruce Jackson (Equity Research Analyst)

Hi, good afternoon. Thank you for taking my questions. First, I want to ask a pipeline question. With the AI feature, if you're going to be submitting that in the fourth quarter, what does that do to the other milestones in that program? Does the approval also move forward a quarter? I think we were looking at maybe first quarter next year. Originally, would that go to the second quarter?

Johnny Wang (President and CEO)

Bruce, thanks for the question. It normally takes three months-six months, so it should be available in the second half. As soon as you get it cleared, we will launch it in the market.

Bruce Jackson (Equity Research Analyst)

Okay. And then a question on the operating expenses. You mentioned that there was a $1.6 million charge or fee for the Canon agreement. That would bring kind of like the core R&D rate in and around maybe $4.5 million. Is that kind of the level we should assume going forward?

David Garcia (Senior VP of Finance)

Yeah, thanks. This is Dave. So the $1.6 million expense for R&D for Canon, think of that as a one-time in nature for Q3. Going forward, you can take that out.

Bruce Jackson (Equity Research Analyst)

Okay, perfect. All right. That's it for me. Thank you.

David Garcia (Senior VP of Finance)

Thanks.

Operator (participant)

Thank you.

Thank you. Our next question comes from the line of Kyle Bowser from Roth Capital Partners. Please go ahead.

For Kyle, thanks for taking our questions. First one for me, congrats on applying for breakthrough designation for pancreatic cancer. With that application, is there any sort of clinical data that you're able to use in the application and maybe any key highlights there that you can provide for us?

Johnny Wang (President and CEO)

Yes, we do have a small feasibility study conducted about six years ago. Yeah, so it's a small study, 20 subjects, but two with cancers. We saw both of them. Actually, it's two out of two out of 20. So it's a perfect number, although the study is small. That's a bigger decide to pursue this great opportunity.

Great. No, that's very helpful. Maybe just to touch on the collaboration with Kodak. In terms of timing there, will that be used in the CapsoCam UGI with the pancreatic for pancreas, or will it be that later iterations? Maybe just an update on the timeline there.

Can you say it again? Sorry.

Yeah, so just with Kodak, the Kodak.

Oh, CMOS sensor. Canon Incorporated CMOS sensor. Yes, yes. Please go ahead.

Yeah, so kind of what's the timing? Just an update on the timeline there. Will that be used for the pancreas, CapsoCam, or will that be used in later iterations? That imaging.

Actually, pancreas for pancreas pivotal study, we will move ahead without waiting for this Canon sensor. Canon sensor we expect to be ready in 2026 and going to Capso in 2027. For the pancreas pivotal study, we are using existing sensor from Toshiba and with the new optics, which has 35% more viewing area, field of view, and with better image quality. That should suffice for this application, given that we already got a very good result in feasibility study using the lens with not as good quality as this new lens.

Okay, great. That's helpful. And then last one for me. In terms of the commercial organization, what does the headcount look like, especially as you're expanding with the rollout of CapsoCam Plus and then CapsoCam Colon on the horizon?

David Garcia (Senior VP of Finance)

Yeah, that's a great question, Kevin. Right now, we are sustained with 26th territory managers, and we have seven directors, sales directors, and field sales trainers here in the U.S. market. We will maintain that count. We're looking at adding an additional two territories going into 2026. We have a methodology about the expansion of these territories. The nice thing is it's the same call points that we're making with all of our products that we will be adding to our bag in 2026 and then going into 2027. We have the right team in place right now. We don't see a huge increase in headcount. However, with Colon, once we gain additional expansions and indications on what it can be used for, clearly, we're going to need more feet on the street.

Right now, we're going to maintain with the sales team that we have in place, both U.S. and internationally, and looking at 2026 adding two additional territories in some of the larger populated states such as Florida and in the New York metro market.

Great. Thank you guys very much. That's all for me.

Johnny Wang (President and CEO)

Of course. Thanks, Kevin.

Operator (participant)

Thank you. Again, if you'd like to ask a question, please press star and the number one on your telephone keypad. There are no further questions. That concludes our question and answer session. That also concludes the call for today. Thank you all for joining, and you may now.