IRIDEX Corp (IRIX) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the second quarter of 2012 earnings release conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Thursday, August 2, 2012.

I would now like to turn the conference over to Mr. Dominik Beck, President and Chief Executive Officer. Please go ahead, sir.

Welcome to IRIDEX Corporation's second-quarter 2012 conference call. I am 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. 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 control; 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 December 31, 2011, and the quarterly report on form 10-Q for the quarterly period ending March 31, 2012, 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. For the second quarter, we reported revenues of $8.4 million, a shade below our guidance. However, the quarter contained numerous operational and marketing positives as we grew our revenues compared to the same period last year and sequentially from the first quarter of this year. Revenue growth was driven by our recurring revenues, specifically our laser probes and consumables, which is indicative of growing demand for laser surgical procedures.

Capital equipment results were mixed. Results in Asia-Pacific, Europe and South America were good. We did see some softening in orders for domestic systems, which we attribute to customers' uncertainty and lingering reluctance to commit to capital purchases.

Our gross margins came in at 48.7%, equivalent to the same period last year, an improvement on the first quarter of this year, although just shy of where we expected it to be. We did record a couple of nonrecurring items, the major one being $75,000 of inventory reserves during the period. Without these gross margins, we would have been at 50%, which is our near-term goal. I'm optimistic with the changes that our VP of Operations have put in place, and we will be able to achieve 50% gross margin.

For example, we are focusing on a more linear build plan during the quarter and will likely invest in carrying a little more inventory in our books to allow this to happen, resulting in enhanced labor productivity, which will lower our production costs and improve our margins.

As I have previously mentioned, we have been ramping our operation expenses to invest in the business and its growth drivers. Our operating expenses for this quarter were $4.5 million compared to $3.7 million a year ago and $4.2 million last quarter.

In R&D, we are working hard on bringing new products to market. The launch of our modular and mobile scanning delivery device, TEXEL, is imminent. TEXEL will allow doctors to apply laser spot more efficiently during various retinal treatments and, therefore, save the doctor time and money.

This technology is one of the key factors I have mentioned in the past to productize MicroPulse and accelerate its adoption by the broader community of physicians.

We're also continuing to invest in our glaucoma initiatives, specifically the next-generation glaucoma probe and new opportunities made available by our purchase last year of Ocunetics. Our goal is to steadily increase our glaucoma product portfolio beyond lasers. These initiatives will take time to come to market, but it is important that we have an active pipeline, bringing new and innovative products to market to help drive revenue growth in future years.

In marketing, we have engaged in a number of programs aimed at driving revenue growth, and there is more to come. To mention the most important ones, we continue to build an active MicroPulse community for practicing physicians to share their experiences. We firmly believe that the major driver of MicroPulse adoption will come from physician to physician communication. In June alone, we have 13 citations in national and international trade publications on MicroPulse. I think one of the exciting developments is the increase in interest in the combination of farm-out and MicroPulse therapy.

We introduced the Laser Advantage program focused on capturing new ASC accounts by providing attractive product bundling to meet their cost-sensitive needs. ASC stands for ambulatory surgery centers.

We have seen a good initial response to our bridge to buy program, targeting the comprehensive ophthalmologists and glaucoma specialists with the goal of driving consumption of glaucoma consumables by reintroducing these products as an ideal in-office, non-invasive, long-term effective procedure, while decreasing the barrier to entry with a rental proposition on the accompanying laser.

We launched a domestic trade-in program to promote sales of the newest IQ platform lasers and to prepare the market for our proprietary MicroPulse and TEXEL technologies. And we are ready to launch our new website an integrated marketing animation tool, which we expect to multiply our lead intake and assist in improving customer communications in this high touch environment.

Our goal is a balance of short-term and long-term revenue impact initiatives. With these initiatives underway, we did incur a small operating loss of $400,000. However, the benefit of the final $800,000 payment we received from [Zungetics], which is recorded in other income, we were profitable for the quarter with a net income of $0.4 million, or $0.04 per share.

Now I'll turn the call over to Jim to go through more details of our financial results, and then I will have some concluding remarks. Jim?

Thanks, Dominik. Just to remind everyone, in the first quarter this year, we sold our aesthetics business to Cutera, and therefore, we are presenting our results for our continuing ophthalmology business.

Revenues for the second-quarter 2012 were $8.4 million, up 4% from $8.1 million from Q2 2011 and up 1% from $8.3 million reported for the first quarter of this year. System sales for Q2 2012 were $4.0 million, similar to the $4.0 million for Q2 2011 and $3.9 million for Q1 2012. Recurring revenues for the second-quarter 2012 were $4.4 million, representing 52% of our total revenues. This was up $0.4 million or 10% from Q2 2011 and constant with the $4.4 million reported for Q1 2012.

For retinal consumables, we are benefiting from the ramp-up in sales from our distribution partner, Alcon, and we're also benefiting in the increasing sales of our glaucoma consumables products.

Gross margins were 48.7% for the second-quarter 2012, consistent with 48.7% for Q2 2011, and improved over 48.0% from Q1 2012.

Direct margins remain steady. There were a number of nonrecurring expenses recorded and the major one being $75,000 of inventory reserves that negatively impacted our margin for the period. Excluding these and taking into account the efficiencies we see in our production labor costs going forward, we feel confident of being able to achieve our short-term target of 50%.

Operating expenses were $4.5 million for the quarter, up from $3.7 million for Q2 2011 and $4.2 million for Q1 2012. As Dominik has mentioned, the increase in expenses year over year is in new product development as a result of adding employees and in carrying material costs for new products, notably TEXEL and marketing, also due to increased headcount and also increased investment in the marketing programs Dominik described. The objective is to accelerate the flow of new products and launch marketing initiatives to drive revenue growth.

In other income, we did benefit from our fifth and final annual payment from Synergetics for $0.8 million. With the benefit of this other income, we generated net income from continuing operations of $0.4 million, or $0.04 per share fully diluted, compared to $0.9 million, or $0.09 per share fully diluted for Q2 2011 and a net loss of $0.3 million, or $0.03 per share for Q1 2012.

With regard to discontinued operations, we're almost done. We booked a small loss net of tax from discontinued operations for the period of $61,000.

Looking to the third quarter of fiscal 2012, we're projecting revenues between $8.4 million to $8.8 million; gross margins between 49% and 51% and operating expenses between $4.2 million and $4.4 million and anticipate being at breakeven for operating income.

In May the Board of Directors has approved an extension of the stock buyback program through May 2013 and an increase in the amount of cash available for the program for a total of $4 million. Since the beginning of 2011, approximately 240,000 shares have been repurchased at an average price of $3.93.

And, with that, I will turn the call back over to Dominik.

Thanks, Jim. I'm excited by the uptake we are seeing in the adoption of MicroPulse. I think the clinical benefits to the patients are clear, and we are making inroads on the compelling economic model for doctors.

We are tracking to our internal adoption metric for the year. We see MicroPulse as a catalyst for doctors to upgrade their existing equipment, and we believe this has the potential to accelerate $200 million of additional capital purchases over the next five years.

As an example, we had a doctor in Florida who purchased a green laser at last year's Academy of Ophthalmology and who had purchased a similar model a year earlier. We invited him to attend our webinar of MicroPulse to show the benefits to patients who were nonresponders to drugs and also to explain the economic benefits to the doctor.

Immediately after the webinar, he phoned up his sales rep, and in June we closed the deal in treating in two old lasers for two new IQ577s with MicroPulse. This is exactly what we are looking for, a good example for our marketing program stimulating new sales and our sales team executing on the lead.

We have seen good results from our licensing and distribution relationship with Alcon. The retinal lab deal is on its way to paying off itself multiple times over, and the core rationale of finding small, innovative tuck-ins remains a key part of our strategic focus.

As we mentioned when we closed the Ocunetics deal, this tuck-in will take time to incubate, but we are making progress. We have generated some interesting and what we consider valuable IP and are moving forward with prototyping. We believe it is important to invest in a pipeline of products that will come to market over the near and midterm horizon.

Our investment in the Ocunetics products is intended to converge with our other initiatives in glaucoma. I would remind our listeners that the glaucoma therapy market is undergoing a very dynamic upheaval at this time. [Glocos] recently was awaited FDA clearance for its stent, and other micro-invasive devices are in the approval queue.

IRIDEX is targeting the untapped, in-office first-line laser treatment opportunity, as well as a broader range of the established surgical glaucoma market with its developments.

Our recently created and launched marketing initiative to drive a broader adoption and earlier use of our consumable glaucoma devices and sales are showing signs of success with double-digit growth of our existing glaucoma product.

As we continue our efforts in driving awareness, MicroPulse for treatment of DME, diabetic macular edema, I'm happy to report that we have recorded an increased number of patients reaching out to us who are looking for physicians that have MicroPulse capabilities.

In addition, we have reported on the first case completed worldwide with our proprietary MicroPulse in the OR using one of our probes.

In closing, I want to reinforce that I am enthusiastic about where we are headed with our efforts in creating broader adoption of our proprietary MicroPulse therapy. Q2 was an important quarter that proves that our affinities are paying off, shown not only by an active participation of physician community worldwide in our targeted events, but also by raw data of MicroPulse unit sales. It also indicates that if we focus on execution and commercialization, as we have been doing in the past two quarters, that we will deliver good results.

I'm also enthusiastic about growth results outside the US that suggests that IRIDEX is in a strong position to continue to deliver cost-effective therapies through our product.

I'm expecting that the volatility in capital equipment sales, specifically domestically, will continue to be a factor that we will need to deal with even, as we progress on all of our marketing fronts. I'm very enthusiastic about the opportunities that lie ahead, and I expect that we will continue to see increased growth in and outside the US in the near future and that IRIDEX is in good position to capitalize on its brand strength and strong demographic growth potentials, unleashing IRIDEX as a valuable asset.

I will now open the lines for questions.

(Operator Instructions). Greg Cole, Sidoti & Co.

My first question is, can you talk a little bit about the economics of the trade-in program? I think you mentioned that it would generate $200 million of capital purchases over the next five years. Is that an increase in capital purchases?

Greg, no, I think when Dominik was referencing that, we see that one of the principal drivers that we're trying to unlock is a technology uplift in the market. So the way -- when we talk about $200 million of extra sales, we're talking about $200 million of extra demand coming into the market. And that's driven by taking, if you like, the average life of a laser out there, which is, say, eight years, and having it truncate to five to six years.

To stimulate that, there is near-term projects like trade-ins and those types of things that we're looking to do. So we're trying to unlock the market opportunity and then participate in that $200 million.

Okay. And so are you offering money for people to turn them -- to exchange their laser systems back in?

Typically what we do is we basically put it into the pricing as a discount off their new price, and then in the past, we've had opportunities to also resale the refurb units out as well into certain locations. So we will package it into the pricing of the new system in the form of a trade-in discount.

Okay. Do you have any sort of idea of how quickly this will ramp up? I mean, is most of that $200 million, would it be towards the back half of those five years?

I think what -- we'd expect it to certainly start to be more sizable in the later years, yes. Because, obviously, what we've got to do is we're in a situation where we're trying to get that -- we're trying to bring more and more doctors back in and assess their technology needs. And so they'll come back into the market earlier than they were planning, and that will take time.

Okay. And then I think on the last call, you mentioned trying to expand the sales force. I mean do you have any further commentary on that?

So domestically we are right now on the way of doing some restructural alignments. We have added in Q2 one individual, and obviously, he's a junior individual, but we have enforced our sales force by one. And we'll continue to do that.

So it is our plan to continue to drive more recurring revenues; therefore, we will obviously focus on hiring toward individuals who are experienced in selling recurring revenue products.

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

Will Nasgovitz, Heartland Advisors.

Thanks to taking my question. It's good to see that the buyback, 240,000 shares year-to-date, wondering why the share count is still up, though, on a year-over-year basis?

You mean in the actual basic -- the outstanding shares? We do have -- the 240,000 is from the beginning of 2011. So you have to recall that that's the cumulative since we started engaging in the market. And then, obviously, working to put shares in, there is a steady stream of option exercises. So that is flowing the other way, if you like.

We do remain active. We obviously have SEC limitations a little bit on how aggressive we can be in the market. So that's probably the biggest throttle at the moment on the program.

You mentioned on the prepared remarks about a new VP in terms of operations. Can you just elaborate on what they are doing, their background, how long they've been with the Company, etc.?

So the new VP of Operations just joined in April, and his background has been with operations and medical devices over the last 30 years. His target here is obviously to increase productivity, look at the best ways for us to continue to manufacture our products, to put a plan in place also that has been developed in the first quarter of this year to drive our gross margins up.

So through better ways of manufacturing, better ways of being productive, and you might recall that our previous VP of operations was located remotely. This time it's a person that's on-site, and therefore, his impact is much more direct.

So, similar OpEx guidance for Q3. Year to date first-half OpEx is up over 15% year over year. Sales are up just under 3%. When do you anticipate getting some more traction on the sales front?

Well, we do anticipate that the investments we've made in the first two quarters will eventually produce more sales here in the second part of the year. Obviously, as we just said, we have TEXEL technology that will be presented into the market, very, very soon that we do believe we'll have quite a bit of an impact on the capital sales side or equipment side.

With the programs we have put in place on driving more probes, we currently see that there is demand for that, and we have a relatively good response on it. We will report more back in the next quarter how successful those programs were, but these have been put in place. They will take a while to get -- to really create that traction so it's actually showing beyond the volatility of the current market.

Just back to the share count question, what was the actual ending share count, not the weighted average, but the ending share count at the end of the quarter?

So the number of shares of common stock issued and outstanding -- I will go with July 24 -- was 9,007,300.

Okay. That is fully diluted?

Sorry. I thought you asked for the -- that is the issued and outstanding.

Okay. Do you have a fully diluted figure?

Yes, fully diluted at the end of the quarter, we reported 10,286,000.

That is the weighted average, though, correct or no?

Yes --.

I'm looking for an ending share count.

All right. Hang on.

I can follow up. That's fine.

Yes, let me get back to you on that, will. I'll check and see.

Okay. Thank you.

Thanks.

Stan Mann, Mann Family Investors.

I have a couple of questions. How many shares did you buy back in the quarter? You didn't make that available in your write-up.

I am getting it right here. I think it was like 25,000 or 27,000, off of the top of my head, Stan.

So my basic question is, at that rate, buying in $4 million could take an investor's concept forever. So you have nearly $14 million on the balance sheet and earning very little in this environment.

So, Dominik, what are we going to do with the $14 million? We don't want to waste it. We're growing very slowly in a difficult climate. So what -- are we just going to sit with $14 million? The share buyback, obviously, is so limited that you really can't buy any significant amount at these prices in the quarter or the year. So can you give us some framing on what your plans are? It's a good amount of money. The Company has been really turned around, but what we now need to do is to grow and grow more profitably.

Yes, I agree with that. However, in terms of what are we going to do with the cash, what I don't think is reasonable to do is just do an acquisition for the sake of the acquisition. So we're actively in the market. We're looking to make good deals. So far, the good deals have just not come across that we can report on.

As I reported in Q1, we are working very actively on an alliance, and it's just not a reportable event at this point. We will come back on that. So we're actively looking for targets, and that's what we think is the best use for our cash for it.

Is this -- do we have someone hired to do that? I mean is there someone that is doing it for us, or are we just doing it with internal trade shows and, what I would call, whatever comes along?

We do have an individual on staff whose primary objective is to identify targets that are within our roam of strategy. We're definitely not looking and ranging outside eyecare. We're definitely not looking and getting involved in, at this point, at least, in an acquisition that is outside our current focus. And in terms of our current focus, it is on retina and glaucoma. And we continue to push on that.

Now some of the development and some of the drive will even push us toward -- specifically in glaucoma, push us towards some more clinical trial lifting. But we do have somebody right now focused on that. And we are in -- as I said, we're actively in the market.

Okay. But alliance, do you mean a joint venture, a purchase? Could you just flesh out what you mean by alliance?

Well, it could be anything between a joint venture, a distribution, a commercial relationship, in-license. So there is -- all those alleys are currently open.

Similar to what Alcon -- do you consider Alcon an alliance for my information?

I would.

So my last comment and question is, with that much money on the balance sheet and where we stand, aren't you afraid that we could be bought -- taken out very cheaply since ophthalmology in this area is an area of great interest to many players?

Obviously that situation is real. Yes, there is the potential that this can happen. And in the past, we had similar situations that we faced, and we will bring it forward to the Board if there would be anybody interested in purchasing IRIDEX at this point. That's what I have to say to this topic.

Okay. But it is a distinct possibility since we've got $1.30 or something on the balance sheet of value that's really not reflected in the price or valuation of our equity.

That's correct.

Okay. Thank you, gentlemen.

Thank you, Stan.

Joe Mondillo, Sidoti & Co.

I'm a little new to the story, been working with Greg. I think he's been covering you for a while, and I actually cover Synergetics. And I just had a few quick questions.

You guys mentioned nonsurgical glaucoma offerings. Can you give us a little bit more color on that? What do you mean by nonsurgical glaucoma offerings?

On our end, nonsurgical? No, I didn't say nonsurgical. I think it was non-invasive.

Oh, non-invasive, I'm sorry. Can you expand on that little bit?

Yes, so you might be aware of our technology platform, MicroPulse, which is a tissue-sparing laser delivery technology. And tissue-sparing means we're not destroying. In glaucoma, we also currently have a laser probe that is applied to the outside of the eye, and we treat transsclerally, so we treat sclera. And so, therefore, it's a non-invasive, a non-invasive approach. It is surgical. It is considered a surgical treatment approach.

Okay. I just wanted to clear that up. The other thing, bringing up the last caller, he mentioned alliances. The similarities between you guys and Synergetics, is there a potential synergy there to form an alliance and do something cooperatively like the last caller had suggested?

Well, obviously, the two companies have shared the same accounts, shared the same markets. We're in competition in many, many markets or countries. There is definitely some synergies in terms of product portfolio that could to -- a logical extension could form nice extensions in either Company's product portfolio.

Now, it is also the case that Synergetics has built alliances with laser manufacturers. Obviously, we're close together in terms of serving the same markets. We do have different propositions. We do differentiate ourselves. We are more premium than Synergetics is. And in regards of a possible alliance, I think the phone lines are open.

But at this point, I do not have or know of any approach that would get those two companies closer together.

Okay. And my last question on the med device tax, how are you guys going to handle that? Are you going to raise prices to offset? What is the strategy there?

Obviously, the 2% to 3% excise is going to hit hard, and yes, we're not in the position to absorb that.

Okay. So then you're going to raise prices then?

That's one way of addressing it, yes.

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

Thank you.

Stan Mann.

I have just a question on detail. You mentioned that your emphasis is the physician office -- I think I heard that correctly -- on placing this machine -- laser -- (technical difficulty) disposables. Is that correct?

For glaucoma, absolutely correct, yes.

Right. The reason I ask is that most companies find it extremely expensive to try and sell to a physician's office with a very small sales force. So could you expand on how you're going to grow the business working through physician offices rather than larger hospital and glaucoma or VME centers? I'm puzzled.

So IRIDEX historically has been very strong in the office, and we actually have a very good market share in the office in placing our lasers, and on the glaucoma initiatives, don't have a real good analytical number to share with you on how many of those are used in the office versus in an operating environment. But, inside the US, we see that they are predominantly used in the office, and outside the US in some other countries, they are predominantly used in the OR.

However, the direct sales force that we entertain obviously is in hospital ORs, as well as in offices.

If you look at offices, the difference in an office versus an OR has much more to do, where does he see the patients? So, in terms of expense to the sales force, I don't see a difference. In terms of how much time do I have dedicated time of physician interacting with the sales rep, obviously there is much more time in the OR. However, in terms of having physicians adopt to your technology, the office is a very good field -- is a very good field for selling the equipment, if it's used there. Now, obviously, if it's used outside the office, it's not.

Now, with this laser approach in glaucoma, all our slit lamp-based lasers are used in the office. And, therefore, it's the logical extension of where our sales force would actually go.

Most of the glaucoma patients are diagnosed in an office setup. And that is where we will eventually with this glaucoma initiative, where we have a single-use probe that will be placed on the outside of the eye as eventually a first-line treatment we will be targeting right when the patient is diagnosed. He can have in-office therapy, as well.

The reason I ask that, Dominik, is that it would just seem to me that the sale in a physician office, it would take many, many offices to pay -- a salesman nowadays makes $100,000-something per year. And it would seem to me that there is a problem growing more rapidly if our primary focus is the physician's office. And could you explain why I'm incorrect? Most device manufacturers have distributors like PSS or Henry Schein for their offices. We're different in that we call on the office. So how can we grow rapidly if we're going after a relatively small sale. And I'm trying to learn.

If you look at general ophthalmologists, about 6,000 here in the US, and you look at glaucoma specialists in the order of 2500 here in the US, these are very distinct targets. It's not that we're serving 150,000 medical offices. These are very highly-specialized eye care locations that, by the way, are to a large extent our accounts already. So why would we not go back and sell to the existing accounts?

The point is those physicians are having office diagnostic time, and they are having OR time. Now, for us, it's important to make a distinction of where will he have a better economic model. And for that glaucoma application that we target, the economic model, is much better for him to use it in the office than in the OR.

And the average sale of a laser unit in disposables per year would be $50,000? The laser is $50,000 or $100,000? I guess I am --?

Yes, the lasers are on the order of $40,000 to $50,000.

For the unit.

Per unit, yes.

And the disposables per year, approximately?

Anywhere between $5,000 and $10,000 per account.

Per account. And that's the primary potential in the US for the products that we're producing?

Now, all our recurring revenue in terms of probes is used in a single-use, sterile environment. The one exception is our glaucoma probe that is used in different environments, some in a sterile environment. Some do not have the requirements to use it in a sterile environment.

In regard of selling to the OR, everything that is used in a sterile environment obviously is sold in an operating hospital or ambulatory surgical center in the OR. Applications that are used in the office need to be sold into the office by a visit of the sales individual with the physician.

Now, obviously, very often these are demos that we put out. These are equipment installations that physicians are trying using, and therefore, they are used in the office. That's where we want to get our feedback from the physician.

Now, if it's a probe, we want the physician feedback where he is using it, which is logically in the OR. And that's how that is separated in terms of our product and how our touches are.

Now, if you look at a sales force, the model of somebody selling a piece of capital equipment is not so much a question of, is it in the office or the OR, and the cost of selling it in the OR to the sales force or the cost of selling into the office through the sales force is very similar. It's a call of a sales individual in one of the two locations.

Now, we're targeting where our equipment is going to be used and how it is going to be used. So, in regards of treatment for DME on the slit lamp, which are a peripheral, PRP, a peripheral laser application in the eye, this is a slit lamp, therefore, office treatment. And we wouldn't go and sell and try and sell that equipment in the OR. We wouldn't be able to sell it there.

But that's how we differentiate when is a sales call in the OR necessary, and when is a sales call necessary in the office.

So, in the US, you feel your potential market for DME and for glaucoma, separating them, what do you think the potential market for your products is in each area in the US, approximately? $50 million or $100 million, what are we talking about?

So under glaucoma, it could easily be a $300 million, $400 million or even larger for an office-based, non-invasive, first line treatment, it could be somewhere in the multiple-hundred million dollars.

On the DME side, the market is obviously much smaller. I would guess that in the US the market for a DME, including probes, is somewhere in the $150 million to $200 million range.

Okay. So we are a small player in these markets at this point.

Yes.

Okay. Now just one last clarity. You several months ago mentioned we were cleared or the UK Health Commission recommended our laser use, and the sale outside the US of our products is different because the government is involved. So how do you see the market in UK, Germany in size and how we're going to approach it and what we are selling potential?

I think the notion that outside the US the government is involved is not completely correct. It's very -- it is dependent country by country. However, the UK, that was the National Institute of Health that had a recommendation issued for use of drugs and treatment of DME versus lasers for treatment of DME. And their recommendation was clearly that from a point of view cost-effectiveness, lasers have to be recommended.

So it's not so much that IRIDEX lasers were recommended, but any laser use is recommended. And it had a recommendation impact. In terms of how physicians then have to follow those recommendations, again, that's different from country to country. Some payers do then enforce those recommendations; others do not.

In terms of an impact to us, it is an important factor that cost-effectiveness is what drives laser sales. And as long as we are capable of delivering technologies that are cost effective, it is a driver for growth.

Are we selling very many dollars in UK or Germany outside the US or France or Italy?

Yes, we are.

Okay. And the potential, in your opinion, is, is it equivalent to the US market, if you take all these countries?

So, if we go in the DME market -- or actually, if we look at the overall retina market, it is in the order of maybe $700 million worldwide. So I don't have any numbers here to share with you that really tells us what is our European potential for our applications. This granularity of data is not available. And it's not available to anybody.

But rough guess is, is Europe has a very similar potential. Now in terms of glaucoma, Europe is -- for our glaucoma products, Europe is doing at least as good in glaucoma, if not better than the US at this point.

So just a quick summary, we have these gigantic markets. What do we have to do to get double-digit -- significant growth? That's where I'm getting lost. It seems like we have potential; we have products. What is it going to take for us to kind of, at our size, break loose and get double-digit growth and significant growth, in your opinion?

The significant growth potentials lie in technologies that need adoption. Adoption is not a switch that we can flip. It is a clear program-driven in support through programs to get to adoption.

I don't have a crystal ball. I can tell you what everybody has adopted to a MicroPulse laser. We see growth, we put our targets out, and we see that we are on track with those targets. If you look at how many total units lasers are sold in the year, we clearly set ourselves to a certain market share target, and that's the internal focus we have.

Now, those programs need to be established, need to be put in place, and then we will notice. It's sales processes. It's sales tools. It's the sales force. There's many elements that eventually will help us to get there and capitalize on the potential.

And there's no distributor or way to buy in, since we have a tremendous amount of cash, to leapfrog into these large potentials?

So, if you refer to PSSI or Henry Schein, these are Q-tip distributors. These are not capital equipment distributors, and they definitely are not in our eyecare market. The eyecare market is not attractive for those distributors.

That's not what I asked. I asked, is there a leapfrog approach that -- we have an extraordinary amount of cash either in Europe or here that we could take because I've seen distributors -- people in device markets buy large distributors and accelerate their progress and market entry in getting share potential. So --

I think there are actually --

Is there a way for us to leapfrog by buying a distributor or some mode of distribution in one step, using some of our cash?

In the eyecare market, distribution is quite fragmented. So it is a matter of focusing on the individual markets.

Now we did make reference in an earlier earnings call that we intend to strengthen our sales force domestically, as well as internationally. So obviously, looking at distribution or a more direct approach in selling in other markets is part of our intention.

Okay. So because you came from, I believe, a distributor, a large distributor that was in our market, [Hogstrit]?

Correct spelling, correct pronunciation. Hogstrit here in the US was a manufacturing representation of a manufacturer, not a distribution house.

Oh, they are not, okay. I'm just -- so you don't see a more rapid way to penetrate or leapfrog into the market at this point?

I think we lined out quite well what our intentions are. We clearly describe our programs. We have identified what next steps we're taking. They are multi-leveled. One is technology. Other is commercialization. And third is addressing within the commercialization our channels. And so it is a package, and within our plan, obviously our growth targets are clearer than what we have been showing here in the past two quarters.

Will Nasgovitz.

I'm sorry, this is just a follow-up and more of a comment than a question. Just given your outlook for MicroPulse, as well as the broader opportunity within your space, it just seemed appropriate to continue with the buyback when you can acquire IRIDEX at EBA sale of 0.8. I think doing some type of large deal would pose -- raise the financial risk profile, as well as the operational risk profile of your Company. I don't think that would be appropriate.

So that's all I have. Thanks for your time.

Thanks for your comments.

And there are no further questions at this time. Please continue with closing remarks.

Thank you very much for participating in the call and for your interest in IRIDEX. We look forward to sharing our progress with you on our next call. Thank you.

Ladies and gentlemen, this concludes the second quarter of 2012 earnings release conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 with the access code of 4555596.

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