IRIDEX Corp (IRIX) 2016 Q2 法說會逐字稿

Greetings and welcome to the IRIDEX second-quarter 2016 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. Will Moore. Thank you. You may begin.

Thank you, Operator. Good afternoon and thank you for joining us as we discuss the results of the second quarter of 2016. My name is Will Moore. I'm the CEO of IRIDEX.

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, relating to the Company's financial outlook and performance in the third and fourth quarters of 2016, fiscal-year 2016, and other future periods, including future growth rates, revenue, sales, gross margins, operating expense, and pricing levels; the Company's business outlook, sale levels, continued development, pricing model, and contribution to earnings in future periods of the Company's Cyclo G6 product platform; the impact of these and other new products on the Company's business; demand for the Company's products and market acceptance of the Company's new products; the product mix composing of sales in future periods and the Company's product pipeline; trends in the global healthcare marketplace with respect to the treatment of eye diseases, such as diabetic macular edema and glaucoma; the Company's growth strategy and growth opportunities, including acquisitions, technology investments, and strategic relationships; pricing of the Company's products and reimbursement rates for procedures performed using the Company's products; the Company's operating expense controls and the impact of these controls on the Company's financial results; the Company's clinical data and other marketing initiatives; the availability or results of future clinical studies relating to the Company's products; the Company's changes in personnel; the Company's business and sales model; regulatory developments and approval for Company products; the impact of sales cycles, tax rates, and cash requirements related to tax obligations in future periods; the effect of currency exchange rates and other global and domestic market conditions on the Company's business; any health risks associated with the use of the Company's products; and other macroeconomic industrywide factors affecting the Company's 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 2, 2016, and our quarterly reports on Form 10-Q for subsequent fiscal quarters, each 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 will now turn it back over to Will.

Thank you, Susan.

Before we start today, I'd like to introduce and welcome our new CFO and Vice President of Corporate Development, Atabak Mokari, who joined the team a few weeks ago. Atabak has an ideal background to help guide the Company to the next level. He has a strong finance and strategy experience in our industry and has worked with me from the outside of the Company for several years, demonstrating his understanding of how to create long-standing shareholder value.

Over the past year, I've mentioned on a number of occasions that our new glaucoma platform is a pathway to rapid revenue growth and margin expansion. The continued robust adoption of the G6 system and its growing utilization in the field now has us convinced that this opportunity is proving out. So it's great to have a financial executive of Atabak's caliber aboard at this important time. He has spent his career working with medical technology companies, especially in the ophthalmology industry, helping to build, fund, and expand their businesses, specializing in strategic growth, so welcome, Atabak.

Thanks, Will. I am very excited to join the IRIDEX team. While I am new to the team, I have closely tracked the ophthalmic industry and IRIDEX in particular for many years, which has enabled me to get off to a bit of a running start.

Over the last few weeks, I've had a chance to meet with the broader team and have come away with the following two initial observations. One, we have a significant opportunity before us. The G6 platform for glaucoma is certainly at the top of that list, but we have a broad range of pipeline projects underway that are very compelling. And two, IRIDEX has a very talented and hard-working team that is dedicated to the Company's success. As we transform ourselves over the next few years to a high-growth, high-margin business, we know we must execute and I believe that we have the appropriate building blocks to meet our objectives.

Lastly, I will be taking an active role in our Investor Relations activities and I look forward to meeting many of you in the coming months. I'll turn the call back over to Will.

Thanks, Atabak.

I'm also pleased to say Romeo Dizon, our Vice President and Controller, who stepped in very [atably] and filled the top financial role for almost a full year, will continue to play a leadership role on the finance and accounting team and he will be reviewing the financial results on the call today.

Now, onto the second quarter. The last time we spoke, at the end of the first quarter, I told you how excited we all were about the business momentum. I said it was a compelling time at IRIDEX and that our commercial outlook was the most promising it's been since I've been here. Today, I am pleased to say that the commercial outlook continues to translate to sales in the field, so that excitement continued to grow in the second quarter.

Revenue for the quarter was $11.9 million, which is a record and comes in at the top end of our guidance and represents a growth rate of 32% from last year. Our growth was driven by continued momentum in gaining glaucoma market share.

The market has discovered the G6 platform and the numbers speak for themselves. G6 platform revenue in the quarter increased 66% over the first quarter of 2016. We saw really nice sequential growth that was driven by both systems sold and Pro sales. We sold 115 G6 systems in the first nine months it was on sale in 2015, another 72 in the first quarter of 2016, and 124 systems in Q2. This was clearly a great result; however, I want to be a bit cautious on the implied ramp trajectory as some of these orders were placed by distributors, which will take some time to work through before we see reorders.

We shipped 7,000 MP3 probes in the first nine months they were on sale in 2015, 5,000 more in the first quarter of 2016, and 8,000 this quarter.

In the first year since launch, physicians who have integrated G6 into their practices are typically using between six to eight probes per month. We are obviously very encouraged by this performance, and an interesting comparison is that our MP3 probe utilization is tracking to the utilization level of the only commercialized MIGS stent at the comparable point in their launch.

Overall, we remain very bullish over the prospects of our positioning in the glaucoma market. As we've discussed before, the glaucoma market is very large, including $5.5 billion annually in eye drop medicines alone, so we feel like we are barely scratching the surface on this opportunity, since poor patient compliance with their eye drop regimen is one of the factors leading to an ongoing high level of intraocular pressure, or IOP.

Our Cyclo G6 laser provides doctors and patients with a new treatment option that often reduces the need for meds and is durable, with lower IOP often lasting for months or years. We are seeing the Cyclo G6 quickly gaining acceptance and creating a real potential for G6 to become a key component in the continuum of care for glaucoma.

I have mentioned that the G6 platform offers key competitive advantages. Unlike our competitors, who tend to specialize in products that treat a particular stage of the disease, our G6 platform was designed to support additional disposable probe solutions for several distinct stages of glaucoma treatment.

On top of that, the economics and logistics for the ophthalmologists are superior to past solutions, as we only take about five minutes to perform an MP3 procedure. Physicians have adopted the MicroPulse (inaudible) because it is safe, minimally invasive, non-incisional, and can be repeated at intervals over many years as it causes limited to no damage to healthy tissue. It is also titratable to a patient's condition, which is an important attribute in the area of personalized medicine.

We believe these tangible reasons are driving excitement in the glaucoma community for the G6 and are behind the remarkable sales growth. We have now sold over 300 G6 lasers and shipped approximately 20,000 probes without published peer review, clinical data, or marketing muscle.

Our clinical marketing initiatives are just now getting underway and their clinical presentations are beginning to emerge at major meetings. It was a podium presentation at the American Glaucoma Society meeting in March, two presentations at ARVO the first week of May, two more at ASCRS in New Orleans, and most recently at the European Glaucoma Society in June. These presentations will most likely be followed by published papers in the coming months that we believe should continue to fuel accelerated interest in sales.

Another important differentiator that can't be overemphasized compared to other therapies in the market, whether it be drugs or devices, our product delivers real value to the healthcare system and provides benefits to both physicians and patients.

With the cost of glaucoma therapies increasingly straining the resources of healthcare in the US and around the world, our effective, durable products deliver the best medicine at the lowest price, helping us to become the go-to choice for delivering value-based medical solutions. We just started to introduce the G6 on a limited basis internationally in Europe, the Middle East, and Australia, but the large developing markets, like China and India, represent a significant untapped opportunity for us.

Needless to say, we believe we are entering a new era at IRIDEX whereby the steady modest growth of the past is becoming overcome by a real growth dynamic and with considerably more upside on the way. However, we are facing some headwinds. Our legacy EndoProbe sales have been -- have realized some modest contraction and we believe that our MicroPulse for retina business could grow at a faster rate. We had predicted softness in our EndoProbe business, so let's focus on the MicroPulse for retina business as I think we have a good understanding of what is going on and believe that business continues to have significant upside opportunity for us.

As we have analyzed the situation, it's clear that the value proposition we have discussed in the past remains intact, specifically the economic workflow benefits of MicroPulse for retina relative to the pharmacological alternatives has been more broadly understood and adopted by physicians.

What is affecting our near-term growth is twofold. The quality issues that we experienced last year are still fresh in the minds of some customers. While we have addressed our quality issues, we still have more work to do with our customers that give them the confidence in our quality on a go-forward basis. And two, our sales team has been stretched, given the rapid adoption of the G6 platform. While we have adjusted our compensation plan to incentivize focus on both products, we have greater expectations for MicroPulse for retina business.

So what are we doing to support the rapid growth of potential to the G6 platform and MicroPulse for retina businesses? First, we intend to modestly expand our sales teams so that we broaden our territories and improve our focus on the highest opportunity regions.

As many of you know -- as many of you that have been following us know, we have a history of being a prudent company, almost to a fault, and have been cautious to make investments ahead of our growth. While our optimism over the past year about the G6 has transitioned to real growth and real utility in the marketplace, in order to realize our growth objectives we feel that the timing is right to expand our US direct sales force from 12 to 18 reps over the next several months.

We will also need to make investments in our commercial operation to increase our manufacturing capacity, continuing to improve our quality and to reduce our costs. We are very confident over the medium and longer term this is money well spent and the potential for a large return on investment is close at hand.

These expenses will impact our P&L over the next few quarters as we will need to incur some costs upfront, but the revenue impact won't be realized immediately. It is important to note that we are remaining consistent with our past actions and that we will plan to undertake these investments in a staged approach that minimizes disruption to the business and is predicated on the continued and positive signals from the field.

Now I will turn the call over to Romeo for more financial details. Romeo?

Thank you, Will.

As we noted in our press release and in Will's comments, our revenues for the 2016 second quarter were $11.9 million, compared to $9.0 million in the prior-year period, an increase of 32%. The increase is due mainly to sale of the Cyclo G6 systems and probes, which increased 66% over the first quarter of 2016. Note that revenues for the second quarter of 2015 were impacted by the previously reported supply-chain issues that forced us to slow shipments of laser systems in the second quarter of 2015.

Our domestic sales increased 38%, from $2.2 million to $3.0 million. The increase in our domestic system sales was fueled mainly by the sales of our Cyclo G6 laser systems. Our international system sales increased 39%, from $2.1 million to $2.9 million. International sales were marginally impacted in the quarter by the Brexit situation in Europe, as systems orders anticipated to close at the quarter-end were delayed in the UK and other EU countries, due to exchange rate uncertainty, but we expect that the impact to be temporary as the situation normalizes.

Our recurring revenues, which include sales of our consumable products, service, and royalties, increased 26% to $6.0 million from $4.8 million in the prior-year period. The increase is mainly attributable to an increase in the sales of our proprietary Cyclo G6, MP3 probes, and G probes, which offset the decline in the sales of our legacy EndoProbes.

Gross margins in the 2016 second quarter came in at 48.2%, compared to 46.7% for the Q2 2015. Gross margin was positively impacted in 2016 by improved product mix, especially a higher mix of the MP3 probe revenues.

Our operating expenses for Q2 2016 were $6.1 million, up from $5.0 million in Q2 2015. The increase in operating expenses was attributable primarily to nonrecurring expenses related to termination and severance expenses of $0.6 million. Approximately one-third of that number was non-cash expenses.

Consequently, our operating loss in the 2016 second quarter was $0.4 million, compared to an operating loss of $0.7 million in the prior-year second quarter. The net loss of this year's second quarter was $0.3 million, or $0.03 loss per share, compared to $0.7 million, or $0.07 loss per share, for the prior-year period.

Lastly, in terms of guidance, we are maintaining our guidance for the full year of 2016 of low double-digit revenue growth. For Q3 2016, we anticipate revenue of $11.0 million to $11.3 million, which represents a growth of approximate 14% at the midpoint compared to Q3 2015. We anticipate higher revenues in the fourth quarter relative to the third quarter, due to the typical seasonality in our business.

With that, I'll turn the call back over to Will.

Thank you, Romeo.

I hope you can tell how excited we are. We are building a rapidly expanding global company whose aim is to serve the growing demand for a durable, economically feasible solution for glaucoma and other conditions. And we know we have a very powerful tool and treatment option for the glaucoma market, which is very large and only going to get larger.

Today, there are 5 million people worldwide that are on multiple medications for glaucoma. Keeping in mind the dramatic cost of that clinical pathway, as well as the dismal level of compliance, that is our core target patient population. We consider all 5 million of those people to be potential G6 patients.

Driving that statistic are the roughly 17 million people worldwide who have been diagnosed with glaucoma and the 65 million who have the disease and don't know it. It's a massive population and we can help them. We can treat these patients multiple times; reduce the IOP anywhere from 20% to 40% and keep those pressures at bay for months, if not years; preserve their eyesight; and save the healthcare systems of the world billions of dollars without invasive implants or surgery.

Today, we know more than ever that our MicroPulse and G6 technologies have a vital role to play in the battle against the glaucoma global epidemic. With the cost of glaucoma therapies increasingly straining the resources of healthcare in the US and around the world, our effective durable products deliver the best medicine at the lowest possible price.

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

(Operator Instructions). Lisa Springer, Singular Research.

Good afternoon and congratulations on a good quarter, Will.

Thank you, Lisa.

My question is regarding the breakdown of the Cyclo G6 sales during the quarter of new customers versus existing customers, and also, is this group of initial units primarily going into hospitals and research facilities?

Romeo picked up the exact number between the new and existing customers. Predominantly, these are going to glaucoma specialty locations, such as ASCs and hospitals.

Okay. And you also mentioned investments in your operating footprint. Could you give us a sense of what type of investment you're talking about and over what period?

Right now, we're -- as Will mentioned, we're talking about increasing the sales force from 12 to 18 reps. I think it's going to be staged over a number of quarters, partly dependent on the continued traction in the field. So it's hard to give you a specific timeline, because it's dependent on the reads that we continue to get from the field.

Okay. Thank you.

Lisa, Romeo will answer your question on the earlier part.

Yes, Lisa, on the Cyclo G6 probe, new customer accounts for the quarter was 124.

Great, thank you. Okay. Thanks, gentlemen.

Larry Haimovitch, HMTC.

Good afternoon, gentlemen, and Atabak, congrats and look forward to seeing you soon.

Thank you, Larry.

So I had a couple questions. Will, you mentioned in the prepared remarks that some of the 124 went to international distributors. Can you break that down between domestic, international, and do you think that means that international will have lower shipments in Q3 because of the stocking in Q2?

I think the number in the US versus international was 115 total and was it 50? 124 total in the quarter and it was 50 that went international, Romeo?

International, we got 67.

67 were international; the remainder, US.

The international piece really is dependent on how fast we can get the regulation -- the registrations done in each country. We will be adding a few countries, such as Germany, shortly.

So I think what we've done also is the order for a distributor, they had to place an order for a minimum of three products, three G6 bundles, so that we could then send our person there for training. So those distributors will buy three, a couple of them will be demos, and they'll maybe have one on stock or something of that nature. Our UK distributor, for example, purchased five, a couple demos and a couple in stock, but it won't take that long to work through.

But I think what we were doing in the prepared remarks is just being cautious on the projected trajectory this gives you. I'm not comfortable with saying we are going to do another 124 instruments next quarter.

Okay. I'm going to ask a follow-up question on that, and that is I think in Q1 you had minimal to no international shipments. Is that correct? I mean if there was, it was very small.

That's correct.

So if I back out the 67 from the 124, that means it's 57 domestically, 67 internationally?

Correct.

In the first quarter, you did 77 in total?

72.

72.

Yes, and I think (multiple speakers) -- I think we had 20 units internationally on Q1.

We had 22.

22.

Okay. But it looks like domestic was more or less flat in the second quarter in units shipped. I'm not saying that's the exact number, but it looks like it was somewhat of a flat quarter.

Yes.

That is surprising to me and confuses me because I know the momentum in the US market is tremendous, so why would it be that the second quarter would be flattish with the first quarter? US.

I think (multiple speakers) -- yes, US-wise, I think this is a time issue and why we are talking about expanding the sales force. There's only so much time -- our 12 guys have to be able to sell, in service, and train, and some of these institutions may have anywhere from one to 15 different doctors or 20 doctors and so an install can take a day or two or it can take an entire week.

Okay. So strictly a manpower issue, if you will, that the sales reps just didn't have enough time to in-service more than they did?

That's my opinion, yes.

Okay. I have another question. Let me jump back in queue, let someone else go, and then I'll come back in the queue.

Stan Mann, Mann Family Investments.

Good afternoon. The question is you have a gigantic market. You used the word that you are going to add based on ramp, r-a-m-p. You are not going to get a ramp unless you add people and it seems like we need to think about a little more expansion to build the growth rate.

And I guess I'm kind of puzzled. It seems like we are trying to hold back and be careful. We have plenty of cash. We know the market exists and the only way you are going to get ramp is by adding the people or resources to get the ramp, including increasing training and other. Could you kind of talk to this? I think we've chatted about this before.

We've chatted about it before, Stan; that's correct. I think the comment that we talked about is we will continue to add people. We're not going to add six at once. We said we're going to add up to six people; that will include another sales manager. We will be also adding people internationally.

The point we talked about was we will continue to add people as long as the numbers show that it is prudent to do so. And I think that's where we are. I suspect that we will probably never satisfy your rate of adding of sales people, but on the other side if I were a venture-backed business, I would have added a lot more by now. I will continue to stay by the position that I'm going to be prudent with money, and we could have a discussion in regards to whether it's prudent to add five, 10, 15 people today or add them as they go on sequentially.

Okay. I have one last comment. It seems to me we should be targeting for a 20% to 30% increase in our topline. We're really very small potatoes. So I'd like you to think about that and we can talk about it off-line, but I don't say I can never satisfied; I'm not satisfied that these levels because I think we're missing an opportunity by kind of holding back what we're doing, and I'll move on. Thank you.

So Stan, we did 32% this quarter. The thing I would like to do is I would like to grow faster, but I can't just flip a switch and have product appear on my doorstep that gives me enough supply. I cannot deliver G6 boxes and have no disposals to ship to them. So there's always a balancing act between the number of people and the production and supply of the goods, and I'll be happy to have a conversation with you anytime to discuss it.

Okay.

Jamie DeYoung, Goudy Park Capital.

Hi, Will. Good afternoon. Good progress in the quarter. I just wanted to follow up and just confirm some numbers we've been tossing around. So given the strength in the international shipments to distributors there, suffice it to say that the next quarter will be down sequentially, is that correct?

I'm going to say it's possible, Jamie. I was just putting caution in there. It really depends on how fast and how rapid the regulatory side can get registrations through.

Okay. And in terms of the ramp in the US, can you just -- what was the number, again, for the amount of reps you'd like to have exiting the year?

We have 12 now and we've put in place that we will add another six in the coming months.

And what is the quota going to be -- expectation for those?

We've had in the past a number that says -- I'll put it this way. There's a certain number that says it's profitable/it's not profitable. And what we look at is we will take and divide territories and make them become profitable as rapidly as we can.

I'm not going to deliver the number or the exact dollar amount we need for that, but the idea is to say we take a territory and split it down and one territory is profitable and the other one is maybe slightly under and it becomes profitable shortly.

Understood. So given the ramp that's required with bringing on some of these new sales reps, particularly in the US, and the acceleration you had with international that won't be sustained in the back half of the year, what gives you the confidence to be able to hit that 12% growth number in the back -- for the remainder of the year, that 12% to 14%?

I think it's a couple things. One is as we expand and receive these registrations we'll be adding countries that help.

The other part is that with the growth rate of the disposable probes, the G6 probes, it gives us a far more predictable view of the future. These users are averaging between six to eight probes per month, and we can look at that and start to give some kind of mindset of what that growth rate is going to be.

I think the other part is when we can get these other reps on, I want to see a continuation of the positive product mix between the retina business and glaucoma products. The retinal business, an average sale there runs between $50,000 to $70,000 per laser, whereas the glaucoma is about $20,000 per system. So if we can get back into what we were doing with on the growth rate on MicroPulse for retina and the people are not stretched as thin as they are right now by taking care of just G6, I think you'll see a product mix that is more to what we like, which will also give us a higher revenue piece for it.

Longer term, I'm perfectly happy with selling G6s and the disposables. But I want to maintain that healthy mix for a while.

So I see the path to revenue acceleration in 2017 and 2018 as you get a higher installed base, the recurring revenue, you get more reps, ramp. I'm just not convinced, with the slowdown in the MicroPulse and some challenges you alluded to there in the near term and the slower ramp with G6 in the US, that growth might still be a little bit slower and challenged for the rest of this year before it ramps up next year.

Just to clarify our comments, G6 was not -- you talked about slowing growth. I would say that it's still ahead of our plan and we are very pleased with how G6 has progressed, so I wouldn't characterize it as slowing.

And then, the MicroPulse for retina business, that business is -- it's growing nicely for us. It's just we think that growth has been impacted by the G6, that the reps don't have enough focus to be able to focus on both products.

So we didn't mean to imply that the retina business was not growing; it's just we think that it could be growing at a faster rate. And so, the sales investment that we're talking about making has the dual-pronged intention of driving both of those businesses to an accelerated growth.

Thank you.

Paul Spetts, private investor.

Yes, thank you. In the interest of trying to give us at least a feeling on this expansion of the sales force, and I'll get back in line for the additional question, first of all, of the incremental addition, which I guess will eventually be six, what percent are you targeting at the US? How long does it take to orient and train one of the new reps before they're productive, not necessarily profitable? And lastly, do the international distributors do the customer training presently?

Okay, Paul, I'm going to try to recall everything you asked during that question.

First, are they US focused? How long does it take? And the international guys?

(multiple speakers). The US, all six are coming in the US that I was talking about.

Okay. Thanks.

And the second part is the training on the G6 is much faster than the training on the IQs, or the retina business. So to become proficient, they can become proficient quite rapidly on the G6 for a couple of reasons.

One, the doctors are calling for demonstrations on that at a rapid rate, so that's why they get stretched. The retinal business, not only is there a laser, there is a pattern scanner, there is talking to doctors of getting through this what I'll call cognitive dissonance between having a laser that doesn't burn versus having a MicroPulse laser. So there's that kind of education, and I think you're probably looking at -- with our reps we're hiring, you're probably looking at 90 days to six months, max, because --

That's helpful.

-- the reps we're hiring all are familiar with the doctors they're calling on and they are already in the ophthalmology space.

They might not understand how our lasers work, but they understand the anatomy, they understand the physician, and they understand how to get to them. So that's why there can be an acceleration. I think Mr. Buckley and his team do a great job of training these people and it doesn't take us that long to get them going.

Now the last part of that question was on an international basis, it's a combination between our people that are located throughout the world and the distributors. The reason why we ask distributors to supply a certain number of Cyclo G6 to start with is to make certain that that distributor is making an investment into our business as a partner and therefore they will schedule with our rep, our employee, for a training session and we have what are called Cyclo G6 Academy. And the distributor will bring in a number of KOLs and physicians to be trained by our person to begin with and then our person will work with their product specialist to start so that the training stays consistent with what we have in the US.

That's helpful. Thank you. I'll get back in line.

Larry Haimovitch, HMTC.

Will, during your prepared remarks you made some reference to the legacy business and particularly the retina business, and I don't quite understand what you were saying there. You touched on it with a couple of the answers you've given, but are you signaling that that business is mature or it just hasn't had the attention that it needs because people -- the sales force is very focused on the Cyclo G6? Are there competitive issues? I didn't quite understand what you were communicating to us.

Okay. And I apologize if I wasn't clear on that. The signaling is on the EndoProbe business, the disposable part of our old-line lasers.

We've had some softness in that market and that is competitive because we're in a very mature market, so we've seen some of that. We've seen introductions of competitors coming into the US and we've seen some other things on an international basis. As Romeo talked about, the UK Brexit and the US dollar becoming stronger, our pricing changes a little bit and so we've got to deal with that.

I think what -- and Atabak hopefully clarified, we separate that legacy and people tend to use that term a little loosely. To us, we're talking about -- when we say legacy, we're talking about continuous wave lasers that use EndoProbes for retinal detachments and retinal tears and things of that nature, IOP-type procedures.

Then we have what we'll call our MicroPulse business that we separate between MicroPulse for retina and MicroPulse for glaucoma. Both of those are growing and we are perfectly happy with those. We do think, as Atabak said, we do believe that the retinal business could grow at a faster rate, but to do so we're going to have to give some time relief to the salespeople, meaning when you have six -- when you have 12 people covering the US, there's a lot of windshield time, and we need to get rid of that and get people more face to face with customers on that piece, and that will free up that ability to treat with that.

So hopefully that answers it, but we're not signaling that we are seeing a softness in our overall business, that disposable-probe business that we've had for 20 years.

And Will, to follow up, you announced six new reps over some period of time. Might the sales force over time be even larger than that, if these new reps are productive?

Yes.

Okay. So that could be just the beginning of even building a larger sales force?

Yes.

Okay.

And I will add to that -- you didn't ask question, but I will add to that, there will probably be an expansion on the international side as well.

Okay. On the selling prices of the lasers internationally, what's the difference between the US and international?

So the numbers aren't going to be exact, but roughly we give the distributors about a 35% discount.

For the Cyclo G6 in Q2, average ASP domestic was $12,300 versus $9,500.

But I thought you sold the initial ones were higher priced than (multiple speakers)

What you're -- so what Romeo gave you was the accountable cost, if you will, accountable sales price for the laser itself (multiple speakers)

For the laser alone. So if you bundle the laser with the probes in the US and bundle the laser and the probes overseas, then it's still about a 35% discount?

Yes, you are seeing roughly $20,000 for the US, in that range, that $[3,500].

Okay. Great. Thank you.

Stan Mann, Mann Family Investments.

Probably I shouldn't ask, but are we doing anything for a new product addition to our product lines in R&D?

We're making major investments in R&D, yes.

So we'll have another family or set of lasers or disposables in glaucoma or retinal in the near future?

You are using a lot of subjective terms that I would have to qualify. We are making investments in glaucoma and in retina at varying eye diseases. The target market -- the target product is a captive disposable with a piece of hardware.

Your other question is, soon? I can't say soon when it has to deal with the FDA and a variety of things, but you should feel comfortable with -- Romeo and Atabak both explained that we are making these investments in the R&D side. We've made a few hires in that area and we think we have some other technologies that will be as good as, if not better, than what we've got.

Thank you.

Some will be big businesses and some will be just [average].

Thank you.

Operator?

Paul Spetts, private investor.

Very brief, one of the things that you did early on was in your international distribution system. It had some products that didn't originate with you, but were complementary to what you provided and absorbed some of the overhead. Is there any effort to extend that further?

I think -- if you are talking about the eye care product, we're not set up to be a distributor of other people's products. We've made the investments in the R&D side and I don't really see us doing much of that. I would say we are opportunistic. I mean, if it works, it will work, but if it doesn't, we won't do it.

We're going to continue to invest our money into development on our current product line and add scientific things here. I think basically, Paul, my viewpoint is I would rather create markets than just to add another product on to compete with somebody else.

Thank you.

That does conclude our question-and-answer session, so I will turn it back to you, Mr. Moore, for closing remarks.

Thank you, Operator, and thank you, everyone, for joining the call today. We look forward to speaking with you at the end of Q3.

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