IRIDEX Corp (IRIX) 2015 Q4 法說會逐字稿

Greetings and welcome to the IRIDEX Corporation fourth-quarter 2015 earnings call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. William Moore. Thank you. Mr. Moore, you may begin.

Thank you, operator. Good afternoon and thank you for joining us as we discuss the results of the fourth quarter of 2015. My name is Will Moore, and I'm the CEO of IRIDEX. I'm joined by Romeo Dizon, who has recently been promoted to our Vice President and Controller, and Timothy Buckley, our Vice President of Global Sales and Marketing. I will be delivering some prepared remarks, and then we'll open the floor for questions.

Before we get started, Susan Bruce will read the required Safe Harbor statement. Susan?

This conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Forward-looking statements include statements with respect to sales of products in future periods and markets; distributor, insurer, and government acceptance of our new products, including our Cyclo G6 product system and our MicroPulse technology; product mix and sales of consumables; the timing and outcome of any steps that we may have taken or may take to address supply-chain issues, and the impact of these issues and corrective measures on production and operations; changes to our business model, including any plans to increase sales of consumable products and develop greater per-procedure revenue streams; future product developments; the size of the market for our products, including the Cyclo G6 product system; our financial outlook and performance in fiscal-year 2016, the quarterly periods in fiscal-year 2016, and future periods, including margins, revenues, expenses, sales associated with the Cyclo G6 system and glaucoma product sales as a percentage of our overall revenue in future periods; trends in the global healthcare marketplace and global health trends; our growth strategy and growth opportunities, including acquisitions, technology investments, and strategic relationships; product pricing; operating expense controls and cost-reduction programs, and the impact of these controls and programs on our financial results; the impact of changes in currency exchange rates on our business and operating results; personnel and salesforce developments; marketing initiatives; our share repurchase program; regulatory developments and approval for our products; the impact of the sales cycles; tax rates and cash requirements related to tax obligations in future periods; and other industry like factors affecting our business.

These statements are not guarantees of future performance, and actual results may differ materially from those described in these forward-looking statements as a result of a number of factors. Please see a detailed description of these and other risks contained in our annual report on Form 10-K for the fiscal year ended January 6, 2015, filed with the Securities and Exchange Commission. Forward-looking statements contained in this conference call are made as of this date and will not be updated.

I'll now turn the call back over to Will.

Thank you, Susan. We had a strong close to 2015, as noted in our preannouncement in January. We worked through our supply-chain issue, putting it behind us, and closed out the year in a strong fashion, generating a record $12.1 million in revenue for the fourth quarter. This was more revenue than we had expected; and, frankly, we received more orders than we could deliver at year-end.

I'm pleased to add today that momentum is continuing in the first quarter of 2016. I am confident it will build throughout the year, although I do believe we will continue to see some gross margin compression due to currency exchange rates, product mix weighted towards hardware, and introductory prices for the G6 on a global basis.

Our laser product line now includes two solid growth engines. The first is our core technology, MicroPulse, for retinal conditions. That business continues to gain penetration and clinical acceptance, generating steady, stable, and predictable revenue growth on a global basis.

The second is our glaucoma platform, with its centerpiece, the Cyclo G6 laser system, featuring MicroPulse. Based on the feedback we are receiving from physicians and patients, we see this product line as a breakthrough for IRIDEX.

We launched the G6 and MP3 disposable probe in the spring of 2015, and it's already generating a groundswell of interest and traction in the marketplace, which is exceeding even the high end of our internal expectations. As of the end of 2015 we had placed 116 G6 laser systems and sold about 7,000 new MP3 disposable probes.

Again, we believe this to be just a start, because we introduced the G6 with a staged, controlled rollout, especially as it relates to the pace of conference presentations and data. Since then, we have expanded our salesforce, delivered more marketing muscle including our recent European launch.

Based on the reaction we received in the US, our distribution network is looking forward to demonstrating and selling the G6 laser system and MP3 probes. We again will have a limited launch in each country, making sure the training and service elements of our business are in place.

In the US we are also stepping up efforts to promote the G6 and the MP3 probe. We will have workshops, data presentations, KOL demonstrations, and other special events at the AGS, going on now through this weekend, the ASCRS, and ARVO. There will be four KOL physician podium presentations from such institutions as UCSF and Wills Eye, providing year outcome data of up to a 40% reduction in IOP.

As you know, glaucoma represents an enormous opportunity for us. It is a chronic, global disease and the leading cause of adult irreversible blindness. It is a large and growing patient population, affecting more than 4 million people in the US and approximately 60 million people worldwide.

In a recent US publication, it is estimated that 1 in 2 patients do not know they have the disease. It's also estimated there are 9.4 million patients on glaucoma medications who we believe are looking for another option, something minimally invasive, effective, with no side effects. We consider all these people to be candidates for the G6 and MP3 procedures.

Our estimates for the market at between $75 million and $100 million in the US alone. Based on what we are already hearing from patients and physicians, our Cyclo G6 laser system and MP3 probe is the right product filling a void in the marketplace.

A few real-life examples of patients that have really benefited from our technology include: A female with one functioning eye had developed COPD from her beta-blocker/eyedrop med combination. Post her G6 procedure, her IOP was reduced by a few points, and she is now on no meds.

A 75-year-old female who could not afford the three meds it took to control her glaucoma, she had an IOP of 25 without meds, 18 IOP on three meds. Post the G6 procedure, her IOP was 15 and on no meds.

A 67-year-old patient who was blind in one eye with an IOP of 44, and the other eye IOP of 29 on two meds. Post G6 procedure, IOP was 20 in both eyes and on one med.

A key advantage and key differentiator of the G6 is its array of disposable probes, including the MP3. The platform provides solutions for several distinct stages of glaucoma treatment.

Our competitors tend to specialize in products that treat a particular stage of the disease. So the purchase of a G6 represents an efficient investment for our customers, an example of our model of value-based medicine.

From a practice management and economic vantage point, our G6 and MP3 procedures take about 2 to 3 minutes to perform. It's minimally invasive and non-incisional.

It's titratable to the patient's condition, an important attribute in this era of personalized glaucoma therapy. The patient's downtime or recovery time is significantly less than any other option.

The reimbursement is good for the physician and the healthcare facility. And more importantly, the procedure is repeatable, since it causes minimal to no damage to the healthy tissue.

We have a growing evidence that the MP3 should migrate towards earlier stages of treatment, and the excitement in the glaucoma community has been spreading. We received a communication from a physician in Florida today that just saw a woman yesterday who was one of his first patients treated with the G6 MP3 procedure. Before the procedure, her IOP was 22 on two meds. Both on her three-week and now on her five-month follow-up, her IOP is 16 with no meds. That means that as long as the pressures remain under control, the physician can choose to perform the treatment with G6 every six to 12 months, to push out the time when a more invasive procedure such as implants or surgery is necessary.

The data is showing the time frame may be as much as a year. We continue to gather more long-term data, and we'll continue to share that as we move forward.

Finally, the MicroPulse trademark is well respected. Physicians understand MicroPulse is safe and repeatable, and we have a patent on the MP3 with additional patents forthcoming.

For IRIDEX, the Cyclo G6 and its array of disposable probes provides a great new business model. With the growing installed base and an increase in procedures comes a growing stream of high-margin recurring revenue, which has been one of our premier goals at the Company.

So far we have released two other planned disposable probes for the G6, the lead product being the patented MP3. Our plan is to launch additional probes in 2016, adding flexibility for the physicians and more revenue potential for the platform.

Today, sales from our glaucoma platform represent about 5% of our total revenue. By mid-2018, we expect glaucoma product sales to be approximately 50% of total revenue. Obviously, that's a huge runway ahead of us and a big reason we are all so excited about the next couple of years.

Another important differentiator for payers, patients, and the economics of the healthcare systems overall, our products deliver real value. They are effective, durable, support our goal of creating value-based medicine. That means delivering the best in medicine at the lowest possible price.

I cannot overemphasize how important this is, as the cost of glaucoma therapies is increasingly straining the resources of healthcare in the US and all over the world. It's particularly important in developing countries, including those with major markets like China and India.

MicroPulse is and will continue to be viewed as the value-based medicine solution, which has been a differentiator for us with our retinal solutions. And I believe that governments and insurers across the globe will identify the G6 platform as a cost-effective way to treat the growing population suffering from glaucoma and avoiding the massive societal costs of blindness.

In a similar fashion, right here in the US we believe the value of MicroPulse technology will be recognized over time by the payer community. As that occurs, the value provided by our laser treatments compared to other new, more costly technologies will be recognized, and reimbursement strategies may be developed to promote its use.

At this time I'd like to turn the call over to Romeo Dizon to summarize our financials. Romeo?

Thank you, Will. In terms of the financials, as Will mentioned earlier and as we noted in our press release today, our revenues for Q4 2015 were $12.1 million, and $41.8 million for the full year. Total year-end revenues were down slightly from 2014 due to the supply-chain issues we encountered in the fall.

Overall, system sales in Q4 2015 were $7.1 million, compared to $6.7 million in Q4 2014. System sales were $21.8 million for the year, compared to $23.5 million for the full year of 2014.

Recurring revenues were $5.0 million in Q4 2015, and $20.0 million for the full year of 2015, compared to $5.1 million in Q4 2014, and $19.3 million for the full-year 2014. Shipments of our Cyclo G6 probes in Q4 2015, while small in terms of absolute dollars, partially offset the decrease in recurring revenues. We expect the G6 MP3 to have a significant impact going forward.

Gross margins for the 2015 fourth quarter came in at 45.3%, compared to 50.1% for the Q4 2014. Our margins were impacted in 2015 by the special introductory prices for the G6, by the product mix, currency exchange rates, and lower manufacturing overhead absorption due to the decrease in revenues resulting from the previously reported supply-chain issues that we encountered in the second and third quarter of 2015.

We expect margins to improve late 2016 and should accelerate in 2017. We delivered 77 G6 lasers in the fourth quarter, and many customers are already repurchasing probes, which deliver much higher margins.

Operating expenses for Q4 2015 were $5.0 million, virtually the same as last year's Q4 2014. Operating expenses for the full-year 2015 were $19.7 million, about $0.8 million more than in 2014.

The increase in spending is mainly attributable to our ongoing investments in new product development and in commercializing our products. In addition, we also incurred additional expenditures relating to solving the production and quality issues we encountered in the beginning of 2015.

Net income for the 2015 fourth quarter was $0.4 million or $0.04 per diluted share, compared to net income of $8.8 million or $0.86 per diluted share for the year-ago period. Net income in the fourth-quarter 2014 included an adjustment in the Company's earnout liability of $1.0 million in expense and a credit to income tax expense of $8.8 million for the release of the Company's deferred tax valuation allowance, both of which were noncash items.

For the full-year 2015 net income was $0.5 million or $0.05 per diluted share, compared with net income of $10 million or $0.97 per diluted share for the year-ago period.

In terms of guidance, for Q1 of 2016 we anticipate revenues to be about $11.5 million to $11.8 million, which represents growth of 7% to 8% from the first quarter of 2015.

Finally, for the full-year 2015, the Company repurchased approximately 200,000 shares at an average price of $7.82 per share. Approximately $1.1 million remains available under the program, which will expire in August 2016.

Now with that, I will turn the call back to Will for his closing remarks. Will?

Thank you, Romeo. In conclusion, I'd like to reiterate that we are all very excited about the progress we have made and the runway we see ahead of us. We have a solid base business of retinal products that are generating a steady revenue growth. On top of that, our glaucoma products are taking off.

We've put out a fairly aggressive target number of G6 laser systems and beat it. Who knows what would've happened without the supply-chain issue?

I'll close by saying one more time that our issue in the late summer and fall of 2015 was never about demand. Nobody canceled orders.

These were growing pains. IRIDEX is a Company that has been stable around $30 million in yearly revenue when I joined three years ago. We now feel like a Company that's headed toward $100 million in revenue and, because of our value-based model and our product lines, is superb with both equipment and disposables that meet the needs of patients and doctors and society.

We have never been more excited about what lies ahead. We are prepared. We have a great team and a desire to meet our goals.

I want to thank all of our employees for their outstanding efforts. And I also went to thank our investors who believe our story and understand we are doing everything possible to enhance shareholder value.

With that, I'll turn the call over to the operator for questions. Operator?

(Operator Instructions) Larry Haimovitch, HMTC.

Good afternoon, gentlemen. Congrats on a very fine year, despite the manufacturing glitches. Will, I have a couple of questions for you.

Question number one, given how strong the glaucoma product line has taken off, do you think you should be devoting even more resources to sales and marketing? I know you mentioned in your prepared remarks you're doing that, but I wondered if there is even further opportunity to really press the accelerator down and take advantage of the fact that you have a fully dominant position in the marketplace right now.

Well, I think what I say, we've expanded the salesforce in the US. We've added a couple sales managers and we have territories we have been filling. So we're doing that.

But I think the real issue, Larry, for a product that has this much excitement and this much opportunity: Whatever you do, you better do it right.

Sometimes you have to have a little more patience with your passion. And by that, I mean the product has some art and some technique requirements that, if not correctly the physician may in turn think the product is not working appropriately. So for us we've taken a very controlled approach to it, and making sure that every doctor that tries it uses it and understands the speed at which to go around the eye and the angle at which to hold the probe, so that you're not undertreating and then having expectations not met.

We'll continue to do that. We have in the US release the product to everybody now, and sales are continuing to ramp quite rapidly.

As far as the international marketplace, we're going to replicate what we've done in the US. You basically have to think about it as we've got to get a community of physicians together that are talking to each other that, when one has an issue they tell the other one and why it's not working appropriately, and they get it fixed and it's working.

It's not like taking a pill. It's not as much education as trying to tell somebody why they need it. It's really simply an in-service point that takes maybe two to three cases.

Okay. Second question. Have you seen any indications of competition at this point? I'm not aware of any, but obviously you know the market much better than I do.

At this point in time, there is no evidence of competition. As I stated in my prepared remarks, the trademark of MicroPulse is well respected. We do have a patent issued; we have another one that's been published, and we have a couple more behind that that are forthcoming. And these are on a global basis.

But I do expect you can't -- I do expect competition to come at some point in time. But I think we have a head start of quite a bit.

The model that was put together by marketing for pricing is why Romeo's prepared remarks talked about some compression on margin. You can't sell razor blades without the razor, and so we are putting them in -- the razors, or the G6 lasers in -- at a reduced cost to get the use of the disposables, which will reward us substantially by 2017 and beyond.

Great. I have one more and I'll jump back in queue, Will. That is, you aroused my curiosity tremendously when you said G6 is now 5% of our revenue but by mid-2018 I think you said 50% of the revenue. Did I hear that correctly?

You heard that correctly.

What is your assumption for sales in mid-2018? Or what is your assumption for glaucoma revenue mid-2018? What's the math on that?

It's obviously going to be a real rocket ship of a grower for you. But just curious if you could provide a little more color beyond the percentages.

Okay. You know I'm not going to tell you the exact numbers and provide guidance, but what I will do is I'll let Tim give you an understanding of the model on how we reach those kind of numbers. With that I'll turn it over to Tim Buckley.

Yes, hi, Larry. So the model, as Will has pointed out, is based on the razor/razor blade model. What we specifically target and our objective going in was to drive a revenue per unit upwards of $20,000 to $30,000 in an annual recurring basis. So that was the proposition going in.

What we do know, the data that we do know, in the market there are approximately 5,000 locations that perform ophthalmic surgery of some capacity, albeit cataracts, glaucoma. Those are the targets.

So just back of envelope, we'll do the conservative side: $20,000 per laser system, 5,000 sites, that's where we get to the $100 million. But the factors we are specifically watching that has us excited is we are assuming a certain percent of those accounts will overachieve that annual revenue; we are assuming a certain percent of those accounts will buy more than one unit; and we're assuming a certain percent will come back for additional. So what we have and the excitement is we're exceeding on many of those fronts.

I do have one additional question on what you just said. If it's 50% of revenue in mid-2018, Will, is most of that disposable revenue? By then, I would assume most of the -- much of the installed base would already be in. That would be heavily a disposable recurring revenue at that point; correct?

That's not totally correct. I think the situation is what Tim -- the answer to your question is, no, that's not correct. I'll explain what and then I'll add a little bit to it.

We will still be doing the international installs on the G6 lasers, so you're still going to be seeing a lot of hardware going out in 2018. We just entered the European market and the Australian market, or people that use the CE Mark as their clearance piece.

But that doesn't allow us to sell in China or sell in Japan or places of that nature yet. That will take some time. So you'll see that hardware for another year and a half to two.

What Tim has alluded to, in the US there's 300 accounts that do more than 50% of the glaucoma procedures. We already have over 30 of those. The game there is to make sure that we have the highest possible percentage of those 300 before any competition comes into play.

So when you start thinking about it, and you can do the math, it's simply saying that if -- right now we're on a run rate doing $12 million a quarter, and saying: Okay, in another we're going to be doing $25 million in revenue with glaucoma.

And that's being done by -- I take 5,000 locations; they buy between one and four instruments; each one of those instruments uses 10 to 12-plus probes; and you just go from that point.

Okay, great. Thank you.

Lisa Springer, Singular Research.

Good afternoon, Will. I was wondering if you can -- can you comment on unit sales for the G6 system versus plan for January and February of this year?

I'm not going to -- I can tell you this, we're very excited that the momentum has continued in Q1, and we're comfortable. As Romeo said, we did 76 lasers in Q4.

Right, okay.

We'll be out in a couple more weeks with Q1 results.

I'll be waiting for it. Next question, do you have -- have you sold any units in Europe yet?

Yes.

Okay. I know you mentioned the system is being -- you're selling the system at a discount. Are you also selling the disposable probes at a discount in Europe?

No.

Okay.

We're augmenting -- or we're doing the same thing in Europe as we did in the US, which is there is an introductory bundle. And in the US we've raised the price 4 times for that bundle, by either raising the total dollar amount or reducing the number of probes that go with the bundle.

In Europe we're doing the same thing. We started at -- now, understand there's an extra layer of costs in there with the distributor. But our distributor prices are $14,500, which is the same as what we had on our retail side in the US when we started.

Okay. Okay, great. Thank you.

Stan Mann, Mann Family Investors.

Very good job, Will.

Thanks, Stan.

I have some significant questions. As you know, I attended the Glaucoma show today --

Yes. Were you the one that bought the product today?

No. (laughter) No, it was before me.

Okay.

But I did help your sales marketing manager, because rather than talk to me I gave him a customer that was answering my questions at the poster session. But I have some serious questions, and I think you can answer them.

Incoming orders shipped. Have you shipped everything that's coming or is there a (multiple speakers)?

There was a background noise; I couldn't hear that. Have we shipped what?

Have you shipped all the orders that have come in, or is there a backlog?

We have not shipped all the orders that have come in.

All right. Does that mean that your output is limiting our sales?

No, that's not the case. There is -- we're doing everything we can to improve our efficiency when it comes to forecasting. It's really easy to forecast a product that's been in business for a while, and there is a lead time for pieces and parts.

So it is not -- there is not a slowdown in orders. The slowdown, if you will, to satisfy your point, is getting the pieces and parts in to do the production.

We have the people and the capacity to meet the demand. We just need to have the parts in. And we're ordering them as fast as we can, but some of these things have lead times of weeks and weeks.

Okay. But I don't -- I get a feeling, and I'm in agreement with Larry, we've got nearly $10 million in cash. Why don't we build an inventory anticipating a 20% or 30% growth? Which seems to be reasonable, but we're holding ourselves back.

So, Larry expressed that and I'd like to understand a better use of cash. I mean we have the opportunity to grab a large, good hunk of market share, because we're the only system. And it seems like we're the best, a tremendous option. So it seems like we have a lot of opportunity, and we're doing it -- I know it's carefully -- but too slowly.

Okay. I appreciate your comments. There is a time to step on the gas, and there is a time to be a little more reserved.

I've been in the medical business for 40 years with multiple new products, and I can tell you this. When you get a new product out the door and it doesn't meet the doctor's expectations, there is not a doctor out there that's going to tell you it's his fault or her fault. Everyone is going to blame you.

No, (multiple speakers). I understand that.

So the issue -- what marketing has done here is spent the time creating the community through the Internet and through the KOL process that allows for these physicians who get a brand-new product to be able to communicate with another physician versus our salesperson. As that community expands, the doctors are selling each other.

Once that starts, that's when you step on the gas, and that's what we're beginning to do in the US and we'll replicate that outside.

As I said before, we went from having one sales manager to we have two sales managers, and each one now has another seven-plus territories in there. We've added extra people on the independent side, and we're opening the door to go to more than 80 distributors as we get regulations and registrations taken care of.

But is there a reason that we can't -- it seems like your (multiple speakers)

Yes, the reason is me. The reason is me, Stan.

Okay, so --

Because what I don't want to do is make a mistake and have you call me up and go: Why isn't it growing faster?

I don't want to do is to spend -- there is a time -- there is a push and a pull. I could spend a lot of money advertising and marketing it. I don't think it's going to make much of an impact at this point in time.

What I can do is spend more money, which we're doing, on developing the G6 family of probes. And we can spend more money with our doctors, generating more data, so that as the product advances further there is plenty of data. Not just four podiums, but there are different papers that are saying: I've got this reduction; I've done this reduction; I've got this reduction, and it's lasting for 12 months, it's lasting for 18.

I'll spend money on that. All that does for us is to be able to create more efficiency in the salesmen. Every time that salesman goes into a door of a hospital or so, I'm spending $25,000-plus. If they don't sell that product on that one call, it is costing me too much money.

What I'm saying right now is not everybody is ready to answer that call to buy it on the day one. So therefore I'm being a little more cautious.

Okay. I understand all that, and I agree with care. But my experience in this industry also says if you want to grow 20% you've got to put the sales, all the assets in to back that up.

You seem to have solved probably, I don't know, 90% of your problems. So my question, how -- when will we accelerate? When will we put our foot on the gas, as you call it?

Stan, I don't know what you mean by accelerate. I did 77 units in Q4, out of 116, for the year -- or for eight months, I should say.

Okay.

That's acceleration. I said in my prepared calls that momentum has continued in Q1. It's not like building -- I mean, to go from standstill to 100 units a quarter there is a training part of hiring people.

Okay.

For me to go and hire a whole bunch of technicians before we start getting the evidence that this is really what we think it is, I would have bloated the OpEx line.

So we are hiring people; we've gone from having one tech building to now there's three techs buildings; and we've got reqs out for more. We're moving along.

The answer to your point is there is no reason why we can't think about having a big business, and there's no reason why we can't invest more into it. And we are. That will be in salespeople; it will be in clinical data; it will be in production; it will be in marketing collateral material.

And on the other side of that, I will continue to invest in other new products that will meet the same kind of success that we're seeing with the G6.

All right. But we have $10 million in cash.

Yes.

All I suggest is think about it's okay to not make a lot of money and grow a little faster. It's worth it.

Okay.

It could pay. I mean, that's my opinion.

All right. No, you're correct. The team here has the perspective: the number-one goal is growth rate. The number-one goal is growth rate.

We are looking at a situation where it is not -- we do not believe we're going to get paid by making $0.02 to go to $0.20. We believe we'll get paid by taking $30 million and taking it to $75 million.

I'm not worried about the margins. I'm not worried about making more than $0.02 to $0.04 a share. I'm worried about growing the top line and investing in the new products that will continue to accelerate that.

Okay. I've made my point. I think I would like to see us grow faster and consistently. And I've said my piece, so thank you.

Okay, Stan. You're welcome.

Jason Stankowski, Clayton Partners LLC.

Hey, guys; thanks for taking the call. Maybe patience is a virtue, and it can also be quite remunerative too, so we're highly supportive of the measured pace you've taken to grow and not blow our cash. We want to grow as fast as possible, but we're pretty confident you do too, and we're highly supportive of the path you've taken. Just for our two cents on that.

I was wondering, as you laid out the 5,000 -- the math on your 5,000 surgical locations, that's in the US. Is that correct?

US alone.

That's US alone. So you've talked about moving up the continuum of care. Is the opportunity in nonsurgical available to us as well? Or is this just -- there's too much pain or people won't do some of the pain relief things in a nonsurgical setting? How are you seeing that opportunity potentially expand your addressable market?

Because I find it hard to believe that you're basing your opinion on the fact that you're going to get in every single one of the 5,000. Maybe, I guess, if we become standard of care; but that seems like it's a tough nut to crack every single one. But maybe your thoughts on that opportunity.

Okay, I'm just going to give you a quick answer then Tim will provide a little more clarity to it. The premise when you're talking about technologies like this that are deemed safe and do no harm, physicians will explore and try things when they're looking for possible solutions. So our theory was, if we could demonstrate MicroPulse in the retinal world as being safe and the community talks about it, and as you move into glaucoma, they will start where the risk/reward ratio is such that if it didn't work it didn't cause any problems, which is very late-stage glaucoma, with the idea that as you migrate it and you delivered good results, they would continue to use it earlier and earlier and earlier and more often.

That's what we're seeing and that's the mindset we have. Now with that, I'll let Tim give you a little more clarity on those things. He's better at that than I am.

Yes. The way we're addressing the market now, as you mentioned, Jason, it's been more on the surgical setting. The requirement has been -- because of the preferred sedation and anesthetic requirements at this point, it has been driving it into a surgical sale.

That being said, this technology has me excited from the standpoint of it has the makeup to cross that Holy Grail of moving from the surgical environment, into outpatient, into the office setting, which is a whole order of magnitude larger. We have it's non-incisional; it doesn't require the antibiotics necessary. And to that exact point, we have specific anesthetic protocols under development as we speak that will be a catalyst to transfer it into that environment as well.

Just to give it some scale, we did the math showing you a very conservative $100 million opportunity on 5,000 sites. When you look at the office setting, now we're going 18,000, 24,000 locations just in the US.

So we have our eye on it. We have significant clinical work that's ongoing with that. And you'll be hearing more about that over the coming year.

Are there any doctors that do it in the office setting right now that we know of?

Yes, I would estimate probably about 5% of our specialists are comfortable performing the required anesthetic in their office setting. Sometimes they have a minor procedure room, like a Kaiser Permanente; or they have sterile protocols already in place.

So right now it's been -- it's a small portion of it. But if we can move from the current preferred anesthetic to a more gentler version, we'll see that it will be a faster catalyst.

Okay. That's helpful. I guess in the spirit of Larry's and everybody else's question on growth, as you see the opportunity rolling out, I guess, is the reason your guidance number for -- I think you said mid-teens, I guess, or teens for the year, is that relatively conservative? And primarily driven by the fact that we have to do the same measured procedure that we did here in Europe such that by going into 2017 we're more likely to have a fuller picture of the fully developed global demand, us supplying and not being quite as constrained for 2017 with regard to the sales process; is that a good way to look at it?

I'm going to try to answer that question, but I'm not sure I got it all, the way you're phrasing it. I think that what we're talking about is a low-teen growth. I'm a conservative guy. Growing faster than that, possible; but I'm always going to try to tell you what I know of we can do.

Right.

Then the next part of that is I think you'll see a growth rate in the US at more than that. And you'll see the growth rate in Europe and CE Mark approved countries slowly ramping up until we get through the controlled launch piece.

I'd don't think you see all factors -- meaning all these places such as US, Europe, Japan, etc. -- cleared beyond the controlled piece. And each time we go to a new country, we can do less when you talk about controlled launch, because the community is bigger. The beauty of today when it comes about -- Internet of Things of that nature -- when I was running marketing departments I was paid to be clever. Today we're paid to be transparent and better.

The AGS, for example, has their own blog that these doctors around the world are reading on a daily basis. And last -- a few weeks ago I was down in Argentina as that government changes and the export rules change. I walk into a doctor's office and the doctor will say to me: I'm going to make your day; I'm going to read a quote; it's on the AGS site.

That's what I'm talking about. Do not make a mistake in the beginning, and you'll be rewarded because the doctors will sell each other.

So we will see the growth rate being -- you'll watch it move along here this year and it will keep accelerating. And as you move into 2017 and 2018 I think we can see huge numbers because it will have both hardware -- and just think about it this way. Let's just say -- I'm not giving you guidance, Jason -- but let's just say we have 300 instruments out there at the end of 2016, using approximately 10 to 12 probes per month; and on top of that we're going to sell another 300 the next year.

Now you start seeing the magnitude of how the growth rate -- and why we want to do this the right way.

Yes. I think I guess that just -- I think you answered my question. It wasn't -- I didn't try to make it convoluted.

But -- so that makes sense. So it sounds like as you get everybody up and running you have a more -- whether it's later this year or early in 2017, you're likely to have the process of getting everybody accustomed to doing it right, and the seeds planted correctly within the respective organizations around the world that are telling people how to do it and believing in it.

I guess along with that, on the other side of the business, from what you've said you haven't seen a material -- you have headwinds but you haven't seen us going backwards at all with regard to the growth. You don't see that side of the business as being a drag. Obviously, clearly not as big of a grower, but helping nonetheless slightly over the year. That's your view?

I think you can look at it this way. I look at the business in a three-pronged approach, which is: continuous wave legacy lasers, if that stays stable, 1% growth to 1% negative, that stays stable and we continue to get tenders -- like we just delivered 35 lasers to China off of a tender like that. So we'll still see that.

And then we have that next leg of the business which is our MicroPulse for retina and DME type things. That's growing quite nicely. It's a very stable growing business; it just doesn't have the recurring revenue piece to it.

And then we'll have the third leg of that piece, which is the G6 and MP3 probes. Just to give you an idea, it wouldn't surprise me at all if I saw a number that exceeded 40,000-plus probes in 2016. That wouldn't faze me in the slightest.

That's great. I'll get back in the queue, but anything to speak to with regard to the eye, the wound closure or the surgical operation closure, little call option that we have?

Yes, I'll speak about it. We decided to put that on hold because we had some FDA questions; and the risk of moving further forward with the FDA on that pushed us closer and closer to a possible PMA. So we pulled back and we're gathering more data to be able to make sure when we go to the FDA with the 510(k) that we can get the appropriate approval.

Not to be coy on that, but we got crunched on time, and we didn't know every single question which the FDA was going to ask. If you submit without knowing every question, they can reject you and then say: Hey, I want human data.

Right.

So we made a call to say halt, regroup. Go sit down at what's called a precept meeting at the FDA, get all the questions laid out that you have to have. And then go back and gather all that data and then return back to the FDA.

Right. Thanks, guys. I appreciate all the color. And good luck here in 2016.

Thank you very much.

Thanks, Jason.

[George Monk], a private investor.

Hi, Will. A few conference calls ago you were asked about competition. You commented that what kept you most worried was the potential pricing moves by drug manufacturers. Are you seeing anything along those lines?

Yes, I think -- well, first, George, I lay awake on a lot of things, but not necessarily -- this one is one. I see drug companies doing the following things.

I see them taking meds and trying to have a prolonged period of the device, of that med working. For example, with anti-VEGF today they last about six weeks; they are expensive. So they had a choice either to reduce their cost or to prolong the life of the drug, meaning it lasts now 12 weeks.

We're seeing that kind of stuff. We're seeing things like people trying to come up with an implantable type of mechanism that allows drugs to be dispensed on a regular basis.

I see that more -- and I'm going to let Tim answer this too in a second. I see that more on the DME side or the diabetic side. The glaucoma side, the eyedrops, I'm not really worried about them doing something of that nature, because that's not the problem.

The problem with meds in the glaucoma side is compliance. I don't care how long it lasts; I don't care how much it costs. A 95-year-old person has a hard time putting the drugs in, and they forget.

The other part is you're talking about a chronic disease that, one, doesn't take their meds day one, they don't notice a difference. The doctor will notice the difference because the pressure is up so slightly.

On the DME side, those are all the injectables. So you go in and see the doctor and the doctor sticks a needle in your eye.

So I see that, those two things, and we see the situation with Glaukos and the recent acquisition by Transcend, about putting stents in the eye to decrease the aqueous fluid. I think those are good things for us because it brings a lot of visibility into our space.

We don't compete with them. They're incisional surgery; and where we are, the patient really doesn't want to have their eye opened up. So it's a different game. Did I lose you, George?

No, I'm here. You said that you're going to have your sales guy talk as well.

Okay. Oh, no, no. So that was -- did I answer your question?

Oh, yes. Thanks.

All right. Do you have another one?

No, that's it. Thanks, bye.

There are no further questions. I'd like to turn the call back over to Mr. Moore for closing remarks.

Thank you, operator, and thank you to everyone for attending our call today. I appreciate the time. I appreciate your interest and support.

I can guarantee you that our team here has your interest at heart and will do everything they can to enhance shareholder value and look forward to our next quarter's call. Thank you, operator.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.