IRIDEX Corp (IRIX) 2011 Q4 法說會逐字稿

Welcome to the 4Q 2011 earnings release conference call. (Operator Instructions). I would like to turn the conference over to Dominik Beck. Please go ahead, sir.

Welcome to IRIDEX Corporation's fourth quarter 2011 conference call. I'm Dominik Beck, President and Chief Executive Officer. I'm joined by Jim Mackaness, our CFO. Before we get started Susan Bruce, our Executive Administrator, will read the required Safe Harbor statement, and then I will begin with a recap of our progress to date and an outline of the good things we see ahead of us. 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 growth strategy including acquisitions, technology investments and strategic relationships, global and domestic market conditions, healthcare spending, market direction and trends, product demand and market acceptance of new products, gross margins, operating expense controls and the Company's 2012 financial outlook. 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 1, 2011 and the quarterly report on Form 10-Q for the quarterly period ended April 2, 2011, July 2, 2011 and October 1, 2011; each of which are 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.

Thank you, Susan. On the last quarter's call I had just arrived at the Company. Since that time I have been able to spend a large part of my time with employees, customers, partners and suppliers in an effort to get a read on where we need to improve our services and focus our efforts. While that work is never completed, the past weeks and months have been valuable in validating and refining our strategic plans, and most importantly we executed on a number of key elements.

Specifically, by selling our aesthetics laser business we can now focus solely on our Ophthalmology business. By entering into a distribution agreement with Alcon we have taken the next big step in making consumable product a key part of our growth plan.

And since the American Academy of Ophthalmology when we first introduced MicroPulse as an up-charged option for all our laser platforms, we have fast-growing affirmation that vision preserving MicroPulse laser therapy is the way of the future beyond treatment of diabetic macular edema. It makes more economic sense to healthcare systems, it is more profitable for physicians and healthcare providers and it has improved clinical outcome for the patient compared to the current standard of care. We now have ten year data and a pronouncement from the UK's National Institute of Health and Clinical Excellence to support our assertions. With those initiatives behind us, it is time to focus solely on growth and efficiency and I will begin to outline those plans today, and we will continue to drive those two areas as the central focus of IRIDEX.

This afternoon we presented the fourth quarter results for our continuing Ophthalmology business. Before reviewing those results I want to spend a moment explaining our rationale for the sale of our aesthetics business.

As you can see from the results, the aesthetics business was a contributing asset, but the contribution was diminishing over time because we were keeping investment in this business to a minimum for a number of years. To maximize the revenue potential of the product portfolio we would have needed to make significant investments in both market and product development. Strategically, I thought this would take our Company in the wrong direction, and so the timing was right to find a befitting home for the product portfolio and the associated employees. Finally, a potentially flat or declining aesthetics business would have mass growth in our core Ophthalmology market as our new initiatives kick in and we believe that an increasing top line is key in growing shareholder interest and participation.

We see Cutera as a perfect home, and we are pleased to have executed this transaction. This is specifically true for our aesthetic customers, as I'm convinced that they will continue to experience excellent product and service delivered by Cutera. I would like to thank all our aesthetics employees for the contributions over the last couple of years, and their support in the smooth transition.

Even though the aesthetics deal closed in February 2012, in accordance with accounting guidance we have reported our financial results for our continuing Ophthalmology business which gives investors clarity on the business as it stands now. I will focus my comments on our Ophthalmology performance for the fourth quarter and for the year 2011, and Jim will go into more details later on.

Revenue for the fourth quarter 2011 were $8.6 million, down 5% from $9 million for the fourth quarter 2010. In Q4 2011 we saw very strong domestic equipment sales as some of our targeted marketing programs kicked in, and we have $200,000 of international sales push out due to delays in registration. Our recurring revenue were flat compared to the prior year. However, we are looking forward to our relationship with Alcon having a positive impact on these revenues in 2012. Overall a mixed performance for the quarter, but many reasons to look forward to a positive year of growth in 2012.

For the year our revenues were up $33.2 million compared to $32.3 million in 2010, but this was below our expectations. We will be rolling out marketing programs and introducing new products in 2012 to drive increased revenue growth in 2012, and I will return to this topic in my closing remarks.

When we presented to investors prior to the divestiture of the aesthetics business, we indicated that we believed the gross margin would improve presuming the aesthetics business was sold, and I'm pleased to announce that our gross margins have taken a step up. Gross margin for the fourth quarter 2011 was 49.6% compared to 49.4% for 2010. And gross margin for the year 2011 was 49.1% compared to 50.1% in 2010.

One of the items that I have identified to move the Company forward and generate higher gross margin is a lean manufacturing initiative. We intend to move forward with that initiative immediately. I believe that with lean manufacturing we can remove costs from our manufacturing processes which will move our gross margins above 50%. It is also worth noting that our gross margin is 50% with 25% less revenue flowing through the factory as a result of the sale of the aesthetics business. As we see revenues grow we should experience improved margins due to increase overhead efficiency.

We did invest more in research and development and marketing in the fourth quarter to accelerate certain product development programs and to drive customer adoption of MicroPulse. And we benefited from receiving the up front payment from Alcon that was part of our distribution licensing agreement. Without the Alcon payment, our operating expenses were $4.4 million. With a plan to continue our investments in R&D and marketing and sales, $4.4 million is indicative of what we are targeting for an average quarterly investment in operating expenses going forward. For 2012 our goal is to generate our fourth consecutive year of profits, although the first quarter 2012 may be around break even.

Let me spend a minute describing the Alcon deal because we see that as a good win for our consumable strategy. As part of the RetinaLabs acquisition we completed in April 2010 we acquired certain products and patents. One was a green tip, soft tip cannula. A cannula is used during a vitrectomy when in approximately 6% of the cases a gas-fluid exchange procedure is performed. The soft tip is used for removal of intraocular fluids and is green for better visualization and safety. This was a logical product addition to our EndoProbe line of products that are also used in the same procedure.

Alcon is a dominant force in the vitrectomy surgery suite, and by joining forces with them, we have generated substantial new revenue opportunities. This one simple product with an ASP of less than $20 has the possibility of contributing more than $1 million in sales annually. We continue to work on the other products and IP we acquired from RetinaLabs, and intend to launch related products in 2012. We will also explore other opportunities to work together with Alcon in the consumable side of the business.

The other two pieces of news that highlighted the quarter positively impact our MicroPulse initiative. As many of you are aware, the Company pioneered a vision preserving laser therapy for the treatment of diabetic retinopathy using our MicroPulse technology. With the recent publication of the seminal study by Dr. Luttrell, we now have ten year data supporting the effectiveness and safety of MicroPulse.

In addition, there is growing global sentiment that physicians and the healthcare system need to find more cost-effective ways to treat an ever increasing population of patients suffering from diabetic retinopathy. In the UK the National Institute of Health and Clinical Excellence has rejected the use of Lucentis in favor of conventional laser [photocoagulation]. We see this trend only becoming stronger as the benefits of vision preserving laser therapy over conventional laser photocoagulation become more widely accepted.

So now I will turn the call over to Jim to go over more of the details of our financial results, and then I will have a few concluding remarks. Jim.

Thanks, Dominik. As Dominik mentioned, you will notice that we have presented the fourth quarter results from our continuing Ophthalmology business. I want to draw your attention to the fact that we did include a supplemental schedule in the press release for your reference, showing the results of our continuing Ophthalmology business for all four quarters of 2011 and for the year 2011.

Turning back to this quarter, revenues for the fourth quarter 2011 from continuing Ophthalmology operations were $8.6 million, up 4% from $8.3 million from Q3, but down 5% from $9 million reported for the fourth quarter 2010. Our recurring revenues were $4.1 million representing 47.6% of our total revenues. This was up $0.2 million sequentially from Q3, and level with the $4.1 million reported in Q4 2010.

Gross margins have reset as a result of carving out our aesthetics business. Gross margins for Q4 2011 was 49.6% improved from 48.3% for Q3 of 2011 and from 49.4% for Q4 2010.

Operating expenses, including the credit for Alcon with $3.1 million. Adding back the Alcon impact, the expenses were $4.4 million. Operating expenses $3.7 million for Q3 and $3.9 million for Q4 2010. We added two key employees with the Ocunetics acquisition focused on marketing and product development, and we do traditionally have higher expenses in our fourth quarter due to our attendance at the American Academy of Ophthalmology which occurred in October. We use this event as an opportunity to invest in additional sales collateral and marketing programs in support of the launch of MicroPulse on our green laser platform, and we accelerated certain product development programs.

In addition to the $1.3 million credit to operating expense for the Alcon agreement, we also recorded $0.3 million of other expense because we increased the amount of the earnout we anticipate paying RetinaLabs as a result of the deal. Taking all of these into consideration, our income from continued operations was $0.8 million for the fourth quarter, or $0.08 per diluted share, compared to $0.3 million, or $0.02 per diluted share for Q3 and $0.2 million, or $0.02 for Q4 2010.

For the year revenues were up 2.6%, or $33.2 million from $32.3 million. Recurring revenues $16.2 million for both 2011 and 2010.

Gross margin was 49.1% compared to 50.1%, and operating expenses excluding the impact of Alcon were $15.6 million compared to $15 million. Income from continuing operations were $2.1 million or $0.21 per diluted share in 2011 compared with $1.7 million or $0.16 per diluted share.

Looking to the first quarter of fiscal 2012. Historically the Company has provided quarterly revenue, margin and operating expense guidance for the coming three month period. We intend to continue that practice in the future. However, given the complexity surrounding the closing of the sale of the aesthetics business and related organizational changes in the first quarter, providing an accurate assessment of margin and operating expense is not possible at this time. Revenues are expected to be in the range of $8.5 million to $8.8 million.

In closing, with the Alcon deal we ended the year with $10.8 million in cash. The sale of the aesthetics business in Q1 2012 has added to our cash balance.

It is our intention to use our cash position to return value to our shareholders both through possible acquisitions and through purchasing our own shares if we feel the price is below what management believes to be the intrinsic value of the Company. The Company continues to execute its share repurchase program, although we are limited by SEC regulations in how active we can be in the markets. Since the beginning of 2011 approximately 168,000 shares have been repurchased at an average price of $3.80.

Yesterday, the Board of Directors approved an extension of the Company's share repurchase program through May 2013, and an increase in the amount of cash available for the program to a total of $4 million. And with that, I will turn the call back over to Dominik.

Thank you, Jim. I am excited by the opportunity that we have. Our target markets of retinal diseases primarily diabetic retinopathy and glaucoma, our large growing markets demanding improvements in the therapy, improvement in the clinical outcomes of the patients and improvement in efficiencies and cost savings to the physicians, as well as improvements in the overall costs to healthcare systems. The Company's focus is to leverage the existing product portfolio through targeted marketing programs and introduce product line extensions to capture more share in these markets while working determined on the paradigm shape that MicroPulse brings to laser therapy. As we expand our market focus to include comprehensive and glaucoma specialists, we are also enlarging our total addressable market opportunity by three fold.

Let me briefly address how we are stimulating growth in product sales going forward. As we speak, we are developing new sales programs which will be put in place in the short-term designed to leverage our key product discriminators in both the [OR and ASC]. Through those programs and our program with Alcon, we are determined to defend our market share and gain additional momentum in consumable probe sales in the near-term while at the same time addressing a market manufacturing capabilities to drive better margins.

These internal efforts will be supplemented by additional business development activities. We have concluded two acquisitions, one sale and one distribution alliance in the last two years and intend to remain active in this area.

In summary, our goal is to grow the Company as a pure player in Ophthalmology and increase shareholder value by rolling out a steady stream of new products and services while implementing internal programs to improve efficiencies and productivity. Success for us will be to grow revenues to above $50 million by the end of 2014, with gross margins larger than 55% and an income before taxes of about 15%. I will now open up the lines up for questions. Operator.

Thank you, sir. (Operator Instructions). Our first question comes from the line of Larry Haimovitch. Please go ahead.

Good afternoon, gentlemen.

Hi, Larry.

Hello, Larry, welcome back.

Thank you. I just got in a couple of hours ago. Dominik, you referenced manufacturing changes or potentials. Could you discuss that a little bit more?

I can give you an example. If you look at our current probe manufacturing, we touch those probes within and out of the factory about four to five times too often. By reducing those touches, we will eventually enhance our efficiency and productivity, reduce our costs and therefore grow our margins.

And so I'm assuming there is some studies and initiatives underway to figure out the best way to do that?

This is correct, yes.

Okay. And then right at the end of the call you mentioned something which I thought was very interesting, and that concerned your goals for I think it was for 2014?

Right.

Was it $50 million in revenue?

This is, correct. Target is beyond $50 million. Five zero million in 2014.

Okay, And then I think it was 15% net after taxes.

Before taxes.

So 15% pretax margin?

Correct.

Okay. So that would imply growing roughly 50% in the next three years, cumulatively. The Company being 50% larger in 2014 versus 2011, if my math is correct.

Yes.

Okay. And does that include the benefit of acquisitions, or is that all internal growth?

This has both components included, but predominantly internal growth.

Okay. Fair enough. And then question for you, or Jim, I guess. On the repurchase. $4 million repurchase has been authorized by the Board. That would be about 1 million shares at roughly current prices. But I'm a assuming, Jim, that you couldn't get anywhere near doing 1 million shares this year unless the trading volume significantly ticked up?

That's correct. Although we are able to take blocks.

You are, okay.

Yes.

And then finally, Jim, with the closing of the Cutera deal my understanding was that there would be a fairly significant tax loss carry-forward that you could employ now that asset has been disposed of. Do you have any more detail on that?

Yes. And we are still refining it, but to your point we had created in the past an intangible tax asset of about $7 million, and as a result of the disposal that will effectively roll over to be a net operating loss. So the advantage is that we would be able to use it for cash tax purposes to shelter 100%.

So are you saying the net tax loss credit for future use is only $7 million? Because my understanding was it was going to be in the mid to high teens.

Well, mid to high teens in the sense of the amount of income if you like. The actual cash benefit. You tax effect that.

Oh. So you are tax effecting the benefit.

That's correct.

The pretax benefit is what, something in the high teens then?

$15 million.

$15 million. Okay. That's a little lower than I thought, but that is in the ballpark. Okay. Thanks.

Yes.

Thank you, sir. Our next question comes from the line of Greg Powell. Please go ahead.

Hi, thanks for having me. A couple of quick questions first. Were the legal expenses related to Cutera buying the aesthetics unit, are those in discontinued operations?

The direct legal costs, yes, are included in the discontinued ops line.

So there are no one time items in quarter four that are skewing anything in one direction other than the Alcon payment?

Correct to that, yes.

Okay. All right. Can you give me a little bit of an idea of the costs from switching over to a little bit more of a lean manufacturing in I guess these first couple quarters, and how long you would expect that transition to take?

Some of the programs will have immediate impact. However, the extent of the impact is difficult to calculate at that point. As I point out, I believe we will move beyond the 50% margin through those plans within this year. Their impact, however, is sustained.

So year by year we will have the benefit of those plans eventually, and they will grow in size as well. To give you an idea, initially we will target more our disposable and consumable product lines, and eventually we will look into our console manufacturing as well.

Okay. And so with the consumable, I assume that is different than your systems, which a lot of that is outsourced and then you compile it. Do you do pretty much all of the consumables internally?

No, there is actually a large amount of the value created outside IRIDEX doors at this point. Part of the lean program is to identify what additional value can be either brought in or brought under control.

Okay. All right. And I guess from what I'm looking at the capital equipment market. there seems like there was a lot of spending in December to try and meet a tax deadline. And you mentioned that US sales were pretty strong internally. I guess did you see that and do you see that weakening in this first quarter?

The Section 179 tax was a very strong closing tool in the year end. So far we have just seen a little bit of impact eventually on Q1 in that.

Okay.

Nothing to worry about on our end.

Okay. So it wasn't that big of an impact, but just a small little bit.

Correct.

All right. And then with the recurring revenue, I think you mentioned it was $4.1 million, and I think it was $3.9 million last quarter. Is most of that increase from Alcon, or was there I guess can you -- from organically -- can you talk a little bit about the change there's?

There was a little bit of impact from Alcon. Not much. Doesn't really come on stream until this quarter. The rest was just the regular ebbs and flows that we see.

We do often see international, because it goes through distribution, tends to buy in bulk, so the timing of particular distribution orders can influence things backs and forwards. It was up, but I don't know that it's indicative necessarily of specific items other than just timing.

Okay. So do you see the $1 million potentially in -- is that for this year?

It should play out through 2012, correct.

Okay. So do you see that more in the back half? Is that in next quarter or two?

Well, we will see how it plays out. We think it should come onstream pretty quickly.

Okay. And I guess do you have the manufacturing capability to -- I guess to fully handle them yet?

The way the deal was structured is the initial deal calls for a royalty.

Right.

And then there is a transition to IRIDEX branded green tips as we come up to production capacity. So that is the thing that may just have a timing on how the revenue flows in, but we will be receiving royalties from the get-go.

Okay. And just a quick question on the -- I guess their royalty payment. Was that taxable? I'm just trying to see if there was anything affecting the tax rate and going forward with that. Should that stay around 13% or so?

It is taxable income. The tax for us gets a little -- Larry touched on this one-- it is going to get a little bit interesting as we work through. So where we were in 2011 was we would be if you like -- in the P&L we had two impacts. We had a regular tax rate that was then mitigated by a reduction in the valuation allowance on the deferred net assets. So you saw a net 13% in the P&L.

Going into 2012 as Larry identified as well, we anticipate that a large part of that deferred tax asset now becomes a net operating loss. At the moment our thinking is that on a cash tax payment for federal, we may be able to get to in effect a zero payment, while we are able to maintain the valuation allowance against that, as we draw the tax deferred tax asset down our P&L rate will similarly benefit.

So going into next year we should have a low tax rate in the P&L, and it may be as low as zero. We are still working through all the permutations.

Okay, thank you. And I guess, can you talk a little bit about how well you have been received with your green laser -- or sorry, your yellow laser was the most recent one to come out?

We have seen an increase in yellow laser sales although we do not go into detail there. We see that retina physicians quite like the idea, and specifically also combined in MicroPulse, we have had quite a few successes here and we see a growth in our yellow sales.

Okay. All right. Thank you. That's all I have.

Thanks, Greg.

Thank you.

Thank you, sir. Our next question comes from the line of [Richard Lynn]. Please go ahead, sir.

Hi, guys, how are you.

Good, how are you doing?

Good.

Good. Thanks for taking the call. A couple of clarifying questions, and one more broad question. First of all I really appreciate you giving 2714 guidance. That is very much appreciated. Is that a run rate at the end of 2014, or your number for the end of calendar year, or the beginning run rate of 2014? Can you just clarify those --

I think it is a year end number.

Okay. Year end number. So at the end of 2014 in terms of run rate it should be somewhat higher than what you are guiding to that, is that fair?

Yes.

Okay. And then on the buyback you said $4 million. Is that an additional $4 million, or has some of that been spent in the past?

Some of that has been spent. We originally announced the plan in May of this year.

Last year.

2011. And it was a $2 million authorization, and the Board approved to up it to $4 million. We have brought probably under the plan itself something in the order of 90,000 shares, so 90 times four will get you the number of dollars we spent out already.

Okay. But it sounds like a big bulk of that you still can spend.

Correct, yes.

Okay. And then on the operating expenses, I notice it was $3.7 milliona few quarters ago, it was $4.4 million last quarter. What is the right number to model for the next couple of quarters now that you don't have the conference stuff? Can you give us some guidance on that?

Well, we don't want to get into too much specific guidance, but we said we anticipate and we do want to keep those investments in R&D and marketing and sales to some extent going forward. For us, somewhere in getting towards the $4.4 million would not be reasonable on average.

It's going to move quarter to quarter. Sometimes you have AAO in your quarter. Sometimes we have less marketing programs, so it will move in and around there. But just to give you some feel of quantity that is where we are targeting on average.

Okay, great. The last question is more a general question on the MicroPulse. Can you point to any metrics -- well, I guess first question is -- of your revenue is there any way to know what percent is due to MicroPulse, and are there any metrics to follow that adoption curve in the market, or at all, or how you are doing in terms of that specific category?

At this point this there is not, and we are not breaking that out either. And we might look at changing that approach in the future.

Is it fair to say that is helping drive a lot of your assumptions going forward, or what is really driving the organic growth I guess in your mind, or is it more of the Alcon relationship?

There is multiple elements to it. MicroPulse is one important one. In terms of capital equipment sales is then eventually a metric that will somehow be tied into how we did with MicroPulse as well. Because every MicroPulse unit will pull a new laser console through as well.

Okay, great. Thank you, guys. Keep up the good work.

Thanks.

Thanks, Rich.

Thank you, sir. Our next question comes from the line of Stan Mann. Please go ahead.

Hi, gentlemen.

Hi, there Stan.

Hi, there Stan.

How are you?

Doing good. How about you?

Good. I'm trying to understand in the future where we are going between -- the growth really going to be in consumables or in MicroPulse machinery units? In your opinion.

It is both. In the consumable as we said, we want to grow our current 50% contribution of consumables to our topline to a more 60% number. So therefore it will participate a little bit faster in topline growth than capital equipment.

Okay. The Alcon deal. I know you probably can't talk about the size of the deal. Can you talk about the potential for the Alcon product distribution, what potential is out there US, and outside US?

Well, I think -- perhaps to help you understand, we mentioned that -- currently we are just talking about the one real product, the green tip. And as Dominik referenced, it goes for about a $20 ASP. We think that through the Alcon channel once we get up to full rate, expect to see north of $1 million coming our way and on an annual basis.

$1 million. That is the potential for them. Will you be selling that product?

We will sell IRIDEX branded green tips as well, yes. Different SKUs, different sizes and different variations. They are opportunities for platform extensions around that singular product that they are currently offering.

Do you think that potential is equal in size, in your opinion -- the potential?

It is hard for us to match Alcon's channel muscle. I would anticipate -- success for our store will be some discount off their number. But given that it is again, a relatively small straightforward piece of our overall product portfolio, we would be very excited by that type of result.

Okay. A question on the Alcon. The deal that Alcon drove [with your competitor, Synergetics], involved an upfront payment for the goods, and we will say then shipped against it and supposedly deleted. Is your deal different than that with Alcon?

Yes, the payment you saw in Q4 was recognized for settlement due to historical items. There is no balance sheet item for any prepayments. We are now just on -- it will start up as a royalty, but the ultimate goal is for it to transition into a very classic distribution relationship where they would buy from us and sell through as a distributor, and they would be buying an IRIDEX branded product.

So they in some areas will be competing against you on your branded product?

Yes.

Second question on consumables again. Are consumable line the potential and growth through 2014, is that going to be significant? What I'm trying to get at just so you know is to understand if there are going to be new consumables that are a major contributor, or are existing line of consumables sold in an improved marketing mode, et cetera?

We see that this is probably also 50/50 new consumables that are currently on a drawing board or targeted to be on a drawing board. Some might be completely new.

And we look at acquisition this is definitely a target for us as well, but also any strategic alliance or distributor agreement for consumables. And then there is internal growth of our current products that we eventually grow as well. Maybe not at the same pace, but definitely growth in there.

Are consumables higher gross margin than machines?

In general, yes.

In general, yes. Okay. Just a last question is you talk about growing through acquisitions, and product growth and the Alcon deal. Would you say that you could see acquisitions in this year, 2012, have you been looking? Can you give us a little more color on where you stand on acquisitions and size that you are looking at?

In terms of growth with Alcon, Alcon is opening doors for additional growth in the consumable piece. That's just a side [comp]. In terms of acquisition target, they are anywhere between IP and a low number million number of sales or revenue e eventually. But in 2012, I do see that we focus on smaller tuck-ins.

Meaning several million is your smaller tuck-in?

At maximum.

Okay. And that would be acquisitions that would add product sales?

That is, correct. For several million we would expect sales.

Okay. Thank you very much. Good job, gentlemen.

Thank you, Stan.

Thank you, Stan.

Thank you, sir. (Operator Instructions). We do have a follow-up question from the line of Larry Haimovitch. Please go ahead.

I wanted to follow up on Stan's questions around my earlier questions, so I just did a back of the envelope. And if my math is correct and I am not too terribly jet lagged, it looks like you are looking for roughly 14% compounded annual growth over the next three years getting you to roughly $50 million. I don't know if that fits with your math, but that is what I came up with the literally back of the envelope.

That is my number.

Okay. Great. As you well know, Dominik, although I know you haven't been onboard a long time -- as you well know that is considerably faster than the Company has grown in the past and I want to understand that a little bit more.

Would you want to give us a little more help in understanding how much you think comes out of accelerating internal growth versus acquisitions? You touched on it a little bit with Stan. Any other color, or any other thoughts on that would be helpful.

In the past we guided that internal will be just above 10%, and that will continue to be so. So you --

Well, you haven't been growing really 10% recently, have you?

This is, correct.

Okay. But you view the business as now particularly with aesthetics out of the way as a 10% grower on its own without any acquisitions?

Correct.

Okay. And the difference between 14% and 10% thus would be the acquisition side?

Correct.

Okay. So obviously you are very bullish that internally things can really pick up? Because as I say you have not been doing that recently.

Without a doubt, Larry.

Good.

I'm also very excited and convinced that we have a very good technology on hand that is now ready, and if we do execute in our commercialization plans as we built them up, I do see that 10% as achievable.

Okay. Well, we'll be watching and hoping that you can do that well, or even better.

Thank you.

Okay.

Thank you, sir. At this time I show no further questions in the queue. You may continue with any closing remarks.

Thank you for participating in this call and for your interest in IRIDEX. We look forward to sharing our progress with you at our next call. Goodbye.

Ladies and gentlemen, this concludes the 4Q 2011 earnings release conference call. If you would like to listen to a replay of this conference please dial 1-800-406-7325, and enter the code 4517801. AT&T would like to thank you for your participation. You may now disconnect.