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IC

IRIDEX CORP (IRIX)·Q3 2026 Earnings Summary

Executive Summary

  • Mixed quarter: revenue +7.8% YoY to $12.48M but down sequentially vs Q2; GAAP gross margin compressed to 32.1% due to a one‑time, non‑cash $0.82M inventory write-down; adjusted EBITDA slipped to a modest loss after two positive quarters .
  • Strength in glaucoma (Cyclo G6) and Pascal retina systems; probes +9.6% YoY to 14,900 units and systems 30 units; EMEA drove growth while Asia faced tariff/FX headwinds .
  • Guidance maintained: management still targets Q4 2025 cash flow breakeven and positive FY25 adjusted EBITDA on revenue consistent with FY24; quarter added clarity by specifying “Q4” for breakeven .
  • 2026 setup: ongoing cost actions (contract manufacturing, facility/G&A relocation) expected to lower COGS and drive ~$165k quarterly savings beginning Q1 2026; execution on MDR certification in Europe and supply normalization are key catalysts .

What Went Well and What Went Wrong

  • What Went Well

    • Product momentum: Cyclo G6 revenue +13% YoY to $3.54M; retina revenue +4% YoY to $6.70M; probe volumes rose YoY (14,900 vs 13,600) and Cyclo G6 systems grew (30 vs 26) .
    • Cost discipline: operating expenses down 12% YoY to $5.42M, reflecting 2024 restructuring; management reiterated path to positive adjusted EBITDA for FY25 .
    • EMEA strength: EMEA revenue rose to $4.03M in Q3 (vs $2.80M prior year), offsetting Asia softness; CEO: “growth led by G6 probe and Pascal retina laser system sales” .

  • What Went Wrong

    • Gross margin pressure: GM fell 520 bps YoY to 32.1% on a one‑time $0.82M inventory write‑down tied to manufacturing transition/ERP cleanup; absent this, GM would have been ~38.7% (management commentary) .
    • Sequential revenue step‑down: $12.48M vs $13.57M in Q2 as supply constraints and Asia macro/FX/tariff issues weighed; Japan softness and China tariff dispute persisted .
    • Concentration risk persists: Topcon accounted for 31% of Q3 revenue and 25% of AR, underscoring partner dependence .

Financial Results

MetricQ1 FY2026 (Mar 29, 2025)Q2 FY2026 (Jun 28, 2025)Q3 FY2026 (Sep 27, 2025)
Revenue ($M)$11.896 $13.571 $12.484
Gross Margin %42.5% 34.5% 32.1%
Operating Expenses ($M)$5.260 $5.622 $5.424
Net Loss ($M)$(1.686) $(0.994) $(1.573)
Diluted EPS ($)$(0.10) $(0.06) $(0.09)
Adjusted EBITDA ($M, Non‑GAAP)$0.415 $0.021 $(0.131)

Segment/Product revenue mix (company reports one operating segment; product grouping shown)

Product Group ($M)Q1 FY2026Q2 FY2026Q3 FY2026
Cyclo G6$3.2 $3.3 $3.537
Retina$6.6 $8.0 $6.698
Other (service, royalties, legacy, exclusivity fees)$2.1 $2.2 $2.249
Total$11.9 $13.6 $12.484

KPIs

KPIQ1 FY2026Q2 FY2026Q3 FY2026
Cyclo G6 Probes (units)13,900 13,100 14,900
Cyclo G6 Systems (units)24 35 30
EMEA Revenue ($M)n/an/a$4.033
Asia/Pacific Revenue ($M)n/an/a$2.066

Estimate comparison (S&P Global)

  • Wall Street consensus (EPS and revenue) for Q3 FY2026 was unavailable via S&P Global for IRIX at the time of this analysis; therefore, no estimate comparison is provided. Values not shown due to unavailability.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Cash FlowQ4 2025“Cash flow breakeven in 2025” “Cash flow breakeven in the fourth quarter” Clarified timing (Q4)
Adjusted EBITDA (Non‑GAAP)FY 2025Positive adjusted EBITDA in 2025 Positive adjusted EBITDA in 2025 Maintained
RevenueFY 2025Revenue “consistent with 2024” Revenue “consistent with 2024” Maintained
Margin/COGS actions2026 run‑rateNegotiating contract manufacturers; facility downsizing ahead of Aug‑2026 lease expiry Continuing COGS reduction via contract manufacturers; relocate certain G&A functions outside CA (~$165k quarterly savings from Q1’26) Expanded detail

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 FY2026)Trend
Cost reductions/footprintQ2: Negotiating with contract manufacturers; plan to relocate to smaller space before Aug‑2026 lease end Relocating certain G&A outside California for ~$165k quarterly savings from Q1’26; pursuing COGS cuts with contract manufacturers Continuing, quantified savings
Supply chain/inventoryQ2: Late‑quarter probe shipment constraints; backlog to ship in Q3 $0.82M one‑time inventory write‑down tied to ERP transition and production transfer; GM would be ~38.7% ex‑charge Normalizing post one‑time adjustment
Tariffs/FX macroQ2: China tariff dispute and weak JPY weighed on Asia Management cites ongoing macro/tariff factors; Asia remained challenging Persistent headwind
Regulatory (EU MDR)Q2: MDR delay hurting EU retina sales EU still constrained; expectation of pent‑up demand post‑certification (management commentary) Awaiting certification
Product performanceQ2: Strong Pascal and G6 consoles; retina outperformed Growth led by G6 probes and Pascal systems Positive momentum
Regional trendsQ2: EMEA strength; Asia volatility; backlog carry into Q3 EMEA up to $4.03M; Asia $2.07M amid tariffs/FX EMEA improving; Asia mixed
Technology enablementQ2: MedScout to drive mid‑tier utilization Continued use of MedScout to lift G6 utilization Ongoing adoption

Management Commentary

  • “Our third quarter results represent strength across the business with growth led by G6 probe and Pascal retina laser system sales… we expect to be adjusted EBITDA positive for the full year 2025 and that our balance sheet will support sustained cash flow positivity for Iridex going forward.” — Patrick Mercer, CEO .
  • CFO on gross margin: “We recorded a one-time, non-recurring, non-cash charge to write down inventory… Excluding this one-time write-down, our gross margin rate would have improved to 38.7%.” — Romeo Dizon, CFO .
  • Cost actions: relocating certain G&A outside California expected to generate ~$165k in quarterly savings starting Q1 2026; continued negotiations with contract manufacturers to reduce COGS .

Q&A Highlights

  • The published transcript consisted of prepared remarks without a public Q&A segment; key clarifications were provided by management during remarks: (a) GM ex write‑down at ~38.7% ; (b) quantified G&A relocation savings and manufacturing transition plans .

Estimates Context

  • S&P Global consensus for Q3 FY2026 (EPS and revenue) was unavailable for IRIX at this time; as such, no beat/miss analysis versus Street is presented. This suggests limited sell‑side coverage for the name and implies post‑print estimate resets should be minimal absent new initiations.

Key Takeaways for Investors

  • One‑time inventory write‑down obscured underlying margin recovery; ex‑charge GM would approximate 38.7%, consistent with structural improvements seen earlier in 2025 .
  • Cost program remains the central driver: opex −12% YoY, with additional ~$165k/quarter savings beginning Q1’26 and COGS benefits expected from contract manufacturing transitions .
  • Commercial momentum intact in core franchises (G6 probes, Pascal), but quarterly cadence may remain uneven given Asia tariff/FX risks and EU MDR timing; EMEA performance is an offsetting tailwind .
  • Concentration risk with Topcon (31% of revenue) and sizable purchase commitments warrant monitoring; execution on partner strategy remains critical .
  • Near‑term catalysts: Q4 cash flow breakeven milestone, EU MDR certification progress, contract manufacturing ramp, and stabilization in Asia could re‑rate margin and cash generation trajectory .
  • Medium‑term thesis: a leaner cost base plus recurring probe utilization growth can compound operating leverage if geographic/regulatory headwinds abate; watch unit/ASP trends and GM normalization in 2026 .

Additional Detail (for reference):

  • Full income statement and balance sheet details, including reconciliation to non‑GAAP Adjusted EBITDA, are furnished in the Q3 FY2026 8‑K/press release and the 10‑Q -.
  • Geographic mix for Q3: U.S. $5.59M; EMEA $4.03M; Asia/Pacific $2.07M; Americas ex‑U.S. $0.80M .
  • Cash and cash equivalents ended Q3 at $5.57M; working capital improved vs year‑end; Topcon exclusivity fees continue to be recognized over time .