IRIDEX Corp (IRIX) 2014 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the IRIDEX Corporation first-quarter 2014 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Will Moore, Chief Executive Officer for IRIDEX. Thank you, sir. Please begin.

Thank you, operator. Good afternoon and thank you for joining us as we discuss the results of the first quarter of 2014. My name is Will Moore and I am the CEO of IRIDEX. Today I'm joined by Jim Mackaness, our CFO and COO. Jim and I will be delivering some prepared remarks related to the quarter and to the business and then we will open the floor for questions. Before we get started Susan Bruce will be 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 global and domestic market conditions; demand for the Company's products and market acceptance of the Company's new products such as MicroPulse enabled laser devices; trends in the global healthcare marketplace with respect to the treatment of eye diseases such as diabetic macular edema and glaucoma; development of new products and new applications for existing products; the Company's growth strategy and growth opportunities, including the acquisitions, technology investments, and strategic relationships; pricing of the Company's products; the company's office operating expense control; the Company's share repurchase program; and the Company's financial outlook in performance in the remainder of fiscal 2014 and future periods.

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 28, 2013, 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. The first quarter of 2014 was another excellent quarter of double-digit revenue growth for IRIDEX. We generated $10.3 million in revenues, up 16% over the first quarter of 2013. We continue to see growing demand for our products in the marketplace, both in the US and internationally. And our proprietary tissue-sparing MicroPulse Technology is gathering increased support from physicians as a first-line treatment for a variety of ophthalmology disorders.

As most of you know, MicroPulse represents an important part of our future. As a trio of leading ophthalmologists, Drs. Ike Ahmed, David Gossage, and Elias Reichel told a room full of approximately 300 ophthalmologists this week at the American Society of Cataract and Refractive Surgery meeting in Boston, MicroPulse is a unique and disruptive laser therapy.

What is distinctive about MicroPulse is that it is allowing the treated tissue to cool between laser pulses. This means doctors can perform laser therapy without the laser treatment damage associated with continuous-wave laser procedures.

Treatment without damage means that laser treatments can be used by more doctors in more situations including diabetic macular edema, glaucoma, and possibly advanced macular degeneration.

There is a growing body of clinical anecdotal evidence that it is a safe and effective procedure that provides positive durable outcomes at a reduced cost, compared to the prevailing drug therapies. That's a critically important advantage when you're competing in today's global healthcare system.

To give one example, physicians, healthcare systems, and payers in the United States and throughout the world are today struggling with the impact of aging populations and the dramatic growth of diabetes. The recent article in The New York Times by Lipska at Yale School of Medicine describes the debilitating effects of diabetes on society and how it is becoming an enormous global healthcare problem.

Up to 30% of all diabetics will develop some form of diabetic retinopathy during their lifetime, of which an early and common form is diabetic macular edema, or DME. We believe and we think the evidence is clear that the current approach of teaching treating DME, drug treatments via injections every six to eight weeks, is unsustainable. It's too expensive and becoming logistically impossible for the literally millions of patients treat seeking treatment in both the developed and the developing world.

MicroPulse, with its single treatment efficacy and positive outcome, represents a more efficient and more cost-effective alternative. It's what I call value-based medicine, and it's increasingly becoming more relevant in today's global healthcare marketplace.

We know from talking to physicians around the world and from the actions of government healthcare systems like the UK's national health system that the growing expensive drug treatments for DME simply cannot be sustained. Just a few weeks ago in the US, the skyrocketing increases in expenses of ophthalmology drugs billed to Medicare became a national front page news story. That's the kind of real-world evidence for value-based medicine that has a so excited and has us making a concerted effort to educate doctors, patients, and healthcare payers on the treatment benefits of MicroPulse.

As I mentioned earlier, the benefits of MicroPulse are not limited to just DME. In 2013 we began promoting our IQ532 MicroPulse laser for MLT procedures. This year we will focus on making further inroads in the therapeutic treatment of glaucoma. On Monday at the ASCRS meeting, Dr. Ike Ahmed gave a presentation on a one-year multicenter study and follow-up regarding the positive effects of MicroPulse for glaucoma. And just last week, we issued a press release containing a newscast video in which Doctor Neal Adams, of DC Retina in Maryland, praised MicroPulse as a treatment for a form of age-related macular regeneration, or Wet AMD.

As the CEO of IRIDEX, what is especially exciting to me is that we are now commercially and operationally prepared to take advantage of the global opportunity MicroPulse and all our other products present. Jim and I and the rest of our team have for the past year focused on making IRIDEX an agile, market-oriented, and commercially oriented company. We now have partnership relationships in place to help us implement quicker product of element cycles -- our distribution and supply agreement with Peregrine is a good example of how these relationships help us accelerate product development cycles for disposable products.

We believe we are ready to make the next big steps to grow and prosper the Company. With that, I'll turn the call over to Jim to discuss the financials in more detail. Jim?

Thanks, Will. As we noted in our press release and in Will's comments, our revenues for Q1 2014 reached $10.3 million, up 16% from Q1 2013 revenues. Our business is typically slower for the first quarter when compared sequentially to the preceding fourth quarter; however, given the continued underlying strength we are seeing in our business, our total Q1 2014 revenues were down only a modest 2.5% from our record-setting Q4.

Overall system sales in Q1 2014 were $5.5 million, up 28% from $4.3 million in Q1 2013 with year-over-year increases both the domestically and internationally. On a sequential basis, system sales were 8% lower than the $6.0 million reported in Q4 2013.

Domestic system sales were slow out of the gate in the first quarter but picked up later and ended up 18% over the prior year quarter with good momentum as we exited the quarter. The international system sales continued to be very strong throughout the first quarter and were up 31% from over last year's first quarter.

We continued to see sales of our MicroPulse-enabled IQ products becoming a larger portion of our product sales as sales of our Tx Cell delivery device outstripped our ability to supply. Recurring revenues were $4.8 million in Q1 2014 compared to recurring revenue of $4.5 million in Q1 2013 and Q4 2013, an increase of 6% in both prior periods. We did benefit from the addition of revenue from our independent sales force this quarter compared to Q1 2013 and, therefore, we were pleased to see sequential growth as well.

Overall gross margins in 2014 first-quarter was 48.9%, up 1.6% over gross margins in last year's first quarter, which was a good result. Our direct margins improved in aggregate across our product lines, increasing from 66.3% in the first quarter of last year to 67.1% in this year's first quarter. The increase reflects the positive impact of improved pricing and reduced product material costs, notably, in our new Tx Cell product. These are good, sustainable improvements. The full impact of these improvements was dampened by the continued shift in channel mix towards increased international system sales.

Our gross margins also benefited from improved operational efficiencies. Although production costs in terms of absolute dollars spent increased, as a percentage of sales it decreased from 19.6% to 17.6%. The full impact of these benefits was offset by a negative swing in our manufacturing variances of 1%. One major element here was the result of management's attention to rebalancing inventories. We reduced our inventories by three-quarters of $1 million in the quarter through usage, scrapping, and reserving at-risk items.

Operating expenses for Q1 2014 were $4.5 million, up from $3.3 million in Q1 2013, but the first thing to note is that in Q1 2013 we recorded a $0.5 million one-time credit as a result of receiving funds from the demutualization of one of our insurance carriers. Adding back the credit, operating expenses for Q1 2013 were $3.8 million.

As we previously referenced, R&D expense have increased due to the commencement of various programs. The cost reduction program for the IQ platform is fully underway. We anticipate that we will invest approximately $0.5 million in this program. The goal is to reduce $2000 of cost per unit from the product platform, and based on today's volumes, this would generate approximately $0.5 million annually in additional gross profit. The benefits of this program are expected to come on stream beginning 2015.

Additionally, we are making progress on our glaucoma product family. This family will consist of four consumable products supported by a new laser system. We are working hard to have this ready for commercial launch by the end of this year. The four consumable products will be focused on treating moderate to late-stage glaucoma, and we have additional products that are being developed.

Sales expenses increased in 2014 first quarter compared to the prior year quarter, due to the addition of the independent sales channel. G&A expenses in 2014 first-quarter are up, due to a $150,000 in severance costs as we continue to work through aligning our workforce and $60,000 in increased non-cash stock compensation.

Operating income in Q1 2014 was $0.6 million compared to $0.9 million in last year's first quarter. Excluding the one-time gain of $0.5 million from Q1 2013, operating income increased 41% over the prior-year quarter.

Maintaining a leverage growth model is important to us. This means we are focused on growing revenues in a way that generates a large growth in income. At the same time we have to balance this with the fact that we know the value of IRIDEX is enhanced through innovation. Therefore, although we may not see the leverage show up in every single quarter we report, when we are firing on all cylinders we believe we can achieve a greater than 10% revenue growth rate and a greater than 20% operating income growth rate.

Net income in this year's first quarter was $0.5 million or $0.05 per diluted share compared to net income in last year's first quarter of $0.9 million or $0.09 per diluted share, which included the $0.5 million of insurance gain.

Looking ahead to the second quarter of 2014, we are projecting revenues between $10.3 million and $10.6 million, representing growth of 12% to 15% over the second quarter of 2013. Gross margin is anticipated to come in between 48% to 50%. Operating expenses between $4.4 million to $4.6 million, and the Company anticipates generating operating income.

The anticipated increase in operating expenses is attributable to building out some bench strength in R&D and marketing to support our growth initiatives and our decision to host a major seminar at this year's ASCRS, which took place last Monday, as Will mentioned, where we hosted the 300 doctors for the lunchtime event and had an excellent panel of leading ophthalmologists reporting on the benefits of MicroPulse.

We believe this is an excellent opportunity as the doctors attending ASCRS are typically characterized as comprehensive ophthalmologists and, therefore, represent a largely untapped market for our products. So where we believe MicroPulse can be a compelling proposition.

We did have some activity in the stock repurchase program. During the quarter we purchased 40,000 shares at an average price of $8.69 per share, and at the end of the quarter we had approximately $2.2 million available for future repurchase. With that, I will turn the call back over to Will.

Thank you, Jim. To summarize my earlier remarks, we believe we are well-positioned to take advantage of the current macroeconomics and demographic trends in the global healthcare marketplace. We achieved double-digit revenue growth and see no reason why that will not continue. We have the unique disruptive technology, MicroPulse, that is clinically proving itself on a daily basis as a safe and effective treatment for a very large and rapidly growing healthcare issue in ophthalmology today for Diabetes and DME, an absolutely enormous global issue, and for glaucoma and age-related macular degeneration, which are becoming significant global issues given the fast-growing post-65 demographic.

At the same time we have created a kind of company that can address these large and fast-growing issues. That's been our goal since I became CEO, and I believe we have made huge strides in our ability to be successful in these efforts. Our focus remains on profit. In fact, our cost reduction program is just that. But this also says we have an eye on the future as growth rates increase and we deliver new, innovative products. I'd like to thank the our employees and partners for all their hard work and your interest in IRIDEX. With that, I'll turn the call over for questions -- and please -- one question with a follow-up question and then re-queue. Operator?

(Operator Instructions) Larry Haimovitch, HMTC.

Good afternoon, Jim and Will. Just a couple of housekeeping items, actually. I think, Jim, you said international was up 31% in Q1 over last year?

Yes. On the systems.

Not the entire product line then?

Correct. Yes. Systems (multiple speakers).

Okay. What was the breakdown of international versus US in terms of their respective growth rates in Q1?

Well, then we do the recurring in aggregate, so we don't split out the recurring by region. But overall, we had a domestic of 47% and international of 52%, in the overall mix. So, you can always work your way backwards from there. But that has shown a continued swing towards the international side.

I noticed, as you said, Jim the receivables -- or rather the inventories were down. I see you did a good job on receivables as well. I'm assuming there was positive cash flow in the quarter.

Yes. If you want to do it on and EBITDA basis, there was basically $900,000. And if you want to do it on a pure cash basis, in cash from operations came in at around $600,000.

Okay. Well, I will follow the rules and I'll jump back in queue.

Sam Bergman, Bayberry Asset Management.

Good afternoon, Will and Jim. Nice quarter. A couple of things and then I will get back in queue. Salient Medical, from Canada, you recently aligned with them. How big a sales force do they have? And when are they going to be up and running?

Well their sales force is only four people. They are located in the major cities across Canada. It's simply a distributor operation and they are up and running now. They just finished their training, so we expect positive things from them going forth for the rest of the year.

And internationally, do you expect to align yourself with other distributors such as Peregrine and Salient as the growth continues and moves higher?

That's kind of a mixed question because Peregrine is on the supply side partner relationships and Salient is on the distributor relationships. We will continue to migrate and work our way through our distributed relationships, making sure that they can stay on point with what we want but MicroPulse. And if they can, great; if they can't, we will select additional ones. On the side of our partner relationships we are always looking for ways to increase the supply chain efficiencies and improve our revenues. So, we may do it either through a partnership or through small tuck-in acquisitions.

Thank you. I'll get back into queue.

Joe Munda, Sidoti & Company.

Real quick, just taking a look at the income statement -- nice growth on the top line but I'm just wondering, sales and marketing was up 20% year-over-year, outpacing the sales growth. And I know Jim had made some comments about adding to the bench here, and some of the marketing activities that you are involved in obviously are helping the top-line growth. I'm just wondering, how should we look at -- going forward into the back half of this year, are we still going to expect sales and marketing to be outpacing the top-line growth?

No. I think the one phenomenon just to remember is that we picked up the Peregrine independent sales forces in April of last year. So, I think when you're comparing sales and marketing for this year with last year you've got to remember that there is that step-up that's going to just happen as a one time as we get onto comparable quarters going forward. So, I think that's probably one of the big drivers there. But I would say we certainly are looking for opportunities, if you like, discrete opportunities I'll refer to them, like we just did with this ASCRS show where we do decide to sort of go a little bit heavier on marketing then we would classically, if we think the audience is there and if we think the proposition really make sense. But generally we shouldn't see the sales and marketing outpacing the revenue.

Okay. And my one follow-up here is just taking a look on the website, you guys have a lot of events scheduled. I know you touched on some of the commentary, but can you give us some color on what you expect from the future events and how you think that will continue to drive adoption towards MicroPulse?

Joe, are you speaking about the events like EURETINA and ACRS and AAO?

Correct. Yes. And then I saw there was the one in Hawaii, I think.

Those are ones that we've -- give you an example, about a year and a half ago we had a workshop in Las Vegas and then Hawaiian Eye on MicroPulse. We had 25 people attend. Last year at EURETINA we had a little over 100. This year, at ASCRS we had a little over 300. So, I think it will drive additional adoption. The things that -- what we've done is there's -- we have been consistently a surgically related retina company until MicroPulse came on track and we started to transfer ourselves over to this medical retina, which leads us into the comprehensive space. So there will be some, what I will call market awareness educational dollars that will be spent, but I think is well worth it for what we're doing and the sales revenue coming from it.

And if I may, just one other quick follow-up totally off-topic -- Alcon reported and, obviously, Bausch & Lomb -- what they have going on with Valeant. If you could give us some sense of what's going on in the industry as far as what you're seeing from your competitors and where you guys stand and how you feel in the landscape going forward.

I think what I see is I see some prices that are being reduced in the continuous-wave lasers. So, it's a pretty competitive landscape but I think we're holding our own and gaining share there. And then we're seeing increased pricing on our MicroPulse because it's really a modality that no one can compete with. The areas that we are focused on -- diabetes and glaucoma -- it's like the tide is raising up and bringing more and more patients into the mix. So, I don't really see them -- I hate to say this but I don't see them as competitors. My biggest issue and worry has more to do with how drug companies respond.

Okay. Okay. Thank you.

(Operator Instructions) Larry Haimovitch, HMTC.

In the quarter you mentioned international system sales were up 31%. Were there any unusually large orders in that number, Will or Jim? Anything from India, for example? Or any of the countries you have been working on that potentially could bring in large orders?

We had our standard flow of orders out of India and China but the big marker was a substantial order out of Japan. They ordered a large number of yellow IQ lasers.

Could you quantify what that -- how much large order means? A couple of hundred thousand?

It was 17 lasers, plus Tx Cells.

So --

They sell any -- you could look at someplace around $50,000.

I think we didn't make reference to it because it wasn't -- we would normally call that tenders. I think it's a great question, Larry. Thank you for asking. It didn't really hit the radar screen since it wasn't like a tender. It was a situation where our distributor just basically came to us with an unusually large amount of business.

Yes. It's great that you got the business. It just concerns me, obviously, next year's first quarter we'll be looking at the fact that you had a big, big order this quarter, and therefore, you've got a tougher comparison.

We said that last year.

Yes, you did. That's true. Well, keep making me wrong. That's fine. I have no problem with that. Jim, on the shares outstanding, they were up, I'm assuming, even though you did a small buyback. I'm assuming that strictly relates to the fact that the stock is higher and it's put more of the options in the money and therefore they have to be counted in the fully diluted number?

Yes. You are correct.

Okay. Great. That's all I've got. Thanks.

Brian Lancaster, Clayton Partners.

Thanks, guys. Great quarter. I was wondering if you could talk a little more about the recent show. It's very impressive to hear you had 300 plus comprehensive doctors there. I wondered if you could just talk a little more about that opportunity and whether you are starting to see real traction in orders from that community and how do you expect that opportunity to play out over the next year or two.

Okay. We are always excited to talk about something like that. The show has not been a big one for us in the past. In fact, we generally had a 10 by 10 or maybe even a 10 by 20 booth, so it's pretty small. This year I think we went to 10 by 30. The traffic was quite substantial. These are doctors that are predominantly cataract refractive, and so we're kind of one the periphery of their excitement level. They spend a lot of time over at Zeiss and things of that nature, but our booth traffic was good. We sold lasers while we were there.

The response from the lecture was quite substantial. It wasn't easy to get to -- you had to leave the convention floor, go across the skywalk to a hotel and when you have an audience of 300 people that are really brand-new customers -- because they are all comprehensives; they do a little retina, do a little glaucoma and stuff. So, I think the point we are trying to make there is marketing is doing a phenomenal job of getting the message out with regard to the benefits of MicroPulse.

At the same time we are starting to see these studies percolate up and become visual or published. One was Dr. Ahmed's presentation on glaucoma, one year of multicenter studies with the follow-up data which was very good. We had a study accepted for publication in this audience out of Singapore. I'm waiting for the date of when is going to be published. We had another study published in Europe, so it's all working in this area. It's all brand new for us and my excitement has to do with glaucoma and the budding support we are seeing in the AMD side.

That's great. That's great to hear, and we appreciate all the work you've done. It's great to see the leverage as the top-line growth here. So congrats on all that, and we look forward to seeing the progress.

[Stan Mann], Private Investor.

Hi, gentlemen. Good job. Just two questions. One is, we've got a lot of cash that is sitting there not earning anything, and, really, the only use we've had is a small share buyback. So my question is, do you have a near-term, like this-year plan, to profitably utilize the cash that we've got on hand?

Yes. We are always looking at ways to utilize the cash on hand. We do the share buyback. We are always on -- we're on the look for small tuck-in acquisitions. But they have to be right for us because the one thing I don't want to do is go out and buy something that takes our eye off the MicroPulse ball. So, we have to be strategic about it. We'll see. It is being used, but it's not going to be used foolishly. We've made investments in the development of the cost reduction program. We've made investments in buying back shares. We've made investments in new product development. As Jim mentioned, the glaucoma product coming out and there is another product behind that. It's being utilized.

Okay. But you don't see a bolt-on or something near term that makes sense that will utilize say half of it, significantly?

Well, that question is really difficult for me to answer. We are always looking for something. Whether we find something or not, I don't know. I won't talk about it until it's available.

Okay. Second question is simpler. And that is, Alcon is or was our customer, and is there anything going on with the Alcon relationship?

So Alcon continues to be a licensee of part of our technology on the GreenTip Cannula, and we are actually working with them for them to sell our GreenTip Cannula product. So we have that relationship; that's what we have historically had in place. And we do continue a dialogue to see if there are ways to broaden it, but I wouldn't want to lead any expectations that anything that is imminent. But we continue to work with them.

They are a small customer, relatively.

Yes, in the grand scheme of things. Yes.

And they are not a potential licensee of the MicroPulse or one of the newer technologies.

I wouldn't say currently because they focus on the surgery suite. So, they do have a laser, but it's a continuous wavelength laser that satisfies the surgery needs. MicroPulse that we focus on is sold into the clinic, and it's a multipurpose laser. So given where they are and where their focus is it doesn't seem that that would be an imminent opportunity.

Okay. Thank you, gentlemen. Good job.

[Ian McKidis], Maxim Group

Good morning. Or rather good afternoon, guys. I had a quick question to follow up on the tradeshows. Is there a way to quantify kind of a conversion rate between the amount of people that stop by your booth or go to meet you guys at the show and then eventually end up buying a product? And I understand is probably very difficult to quantify that.

It's difficult to quantify. I will tell you what we do, so maybe it will help you. All leads generated, whether they are from tradeshows or inbound from the website, et cetera, all to drop to dropped into our salesforce.com. What we do is we have inside salespeople that start to call them and we touch then them one, two, three, four, five, six, seven -- whatever number of times that we take. We have analyzed the point and say most people don't buy until after they've been touched at least five times. Therefore, we are going to have the five-times touch come from here where it's not expensive by sending a salesperson. Once it's gone over five it's turned over to the salesperson. The salesperson then has to respond back and fill the data out on salesforce, so we track that.

Okay.

We give all these leads point systems, if you will, by depending upon -- we send something to the doctor. Do they open it up, not open it up? If they open it up, they get a point; if they don't -- and once it hits a certain level, it's time to close and we said somebody there. To track that from a tradeshow, I can't because it drops in the whole thing.

Okay. All right. So then follow-up question to that is, of the people in the CRM that you guys are tracking and calling on, is there any way to quantify conversion rates for that? And that could from all sources that gets dropped into the CRM. Any way to say we have 1000 people in the CRM and eventually we convert approximately 10% of them?

Yes. We do look at that, internally. We've had that question in the past. That's a very soft metric that we obviously spend a lot of time on looking at just for the very reason you are curious, but we don't make it publicly (multiple speakers).

Mr. Buckley and his marketing group does an outstanding job of tracking these things, putting together digital media, and I think the Company has become incredibly efficient in the sales process because of it.

Understood.

Joe Munda, Sidoti & Company.

Thanks for taking the follow-up. Real quick, the Company has been around, obviously, for a long time. I'm just wondering, how many -- I guess it's a follow-up kind of to the previous question. I want to get a sense of how many people may have or doctors have left using your product to turn to the drugs and now you see them coming back to you. I want to get a sense of how that's going and how that conversion rates is occurring.

So I am going to try to clarify something, Joe. It's like all our products for the years we were in business were surgically related, dealing with retinal surgery, detachments, tears, et cetera, et cetera. The products that we're selling today are going towards the medical -- retinal and glaucoma guys. So you are seeing the MicroPulse going out, it's not a replacement to existing technology. We still sell a lot of continuous-wave lasers to replace those. When you see the MicroPulse sales you are seeing new customers coming on board.

Not 100%, because a lot of people will do both medical and surgical and they've got an IRIDEX and they see it and read about MicroPulse, so they own both. We're not seeing people calling us up and saying, here's my old laser, I want to get a new one. That's not the point.

No. That's not what I'm trying to say. I'm just saying guys who have used continuous-wave in the past have gone to treating the disease with going to drugs and then saying, wow, the cost benefit for me going back and using my laser -- and, wow, this new MicroPulse laser. I'm just trying to get sense of that. That's what I'm saying.

I think when I was at the convention last week, that was a good question that came from Larry Haimovitch. We were talking about it -- the doctors, it was quite simple to make a decision to go from continuous-wave lasers to drugs because it gave you an acute response. Instantaneously the drugs helped, and that was better than creating collateral damage caused by the continuous-wave laser. What's happened is their business model has gone from a low volume, high-margin business of doing a lot of surgeries to a low margin, high-volume business and they are looking at the situation with the infections and nonresponders, which can be as many as 30%. They are starting to look for alternatives and that's what we call a pendulum swing from continuous-wave to pharma back to MicroPulse or photo simulation. That's was happening today. And I think to quantify it is, we are -- in a baseball metaphor -- in the first inning.

In the first -- that's exactly what I was looking for. So you are in the first inning. And then just one follow-up, housekeeping item. Jim, you spoke about R&D and the new glaucoma system that you are going to be launching. Is there any significant CapEx associated with that? And if you could let us know what CapEx was in the quarter, that would be great. And I'll hop back in the queue.

Sure. So CapEx for the quarter was about $100,000. Not a lot. There is a little bit of tooling on some of the consumable elements. We had to get those out. But again, I don't think, all told, it is going to add more than, say, $100,000 for the CapEx, for the year in tooling.

Sam Bergman, Bayberry Asset Management.

Hi. Again, on the Tx Cell product, where there was lack of product in the quarter, does that leave you with a backlog that wasn't shipped, and if it did, what is the dollar amount of that backlog?

It was just a couple of orders, right at the end, so it wasn't a huge amount at the end. What we had was we definitely had a situation where we had an annual plan for this year and within the first -- which, obviously, we lay into the production build side. And you've got to get all your supply chain up and in alignment. And we were virtually 40% to 45% of the annual plan in the first quarter, which is what put a little bit of strain on the supply chain and we had to get all of the items. We did manage to get some items expedited right at the end, so we were able to fulfill most of the orders and we just had a couple that carried over.

So how are you going to deal with the larger than expected demand for it in the upcoming quarters?

Well it's one of these where you -- once we started to see it in the early part of the quarter, it took us to the end of the quarter to get expedited part in but it also gave us a chance to raise the forecast through the supply chain for the Q2, Q3, Q4. So, we got ourselves a little bit of breathing room to try and keep pace. Now, having said that, obviously we have a revised target. I would like the challenge of having the revised target to keep going up, if you know what I mean, but we can build to the revised target.

Sounds good. Thank you.

Ladies and gentlemen, at this time there are no further questions. I would like to turn the conference back over to management for any closing comments.

I would just like to say thank you today for your attention and interest in IRIDEX, and we look forward to another positive quarter in Q2 and the next quarter's conference call. Thank you.

Thank you. Ladies and gentlemen, this conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.