IRIDEX Corp (IRIX) 2014 Q3 法說會逐字稿

Greetings and welcome to the IRIDEX Corporation third-quarter 2014 earnings call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Will Moore. Thank you, Mr. Moore. You may now begin.

Thank you, operator. Good afternoon and thank you for joining us to discuss the results of the third quarter of 2014. My name is Will Moore and I'm the CEO of IRIDEX. I'm joined today 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'll open the floor for questions. Before we get started, Susan Bruce will read the required Safe Harbor statement. Susan?

This conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934 as amended 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, TxCell delivery devices and the XR probe and the impact of these new products on the Company's business, 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 acquisitions, technology investments and strategic relationships, pricing of the Company's products, the Company's operating expense controls and cost-reduction programs and the impact of these controls and programs on the Company's financial results, the Company's share repurchase program, the Company's financial outlook and performance in the remainder of fiscal 2014 and future periods, regulatory development and approvals for Company products and the impact of sales cycles, international currency fluctuations and other industrywide factors affecting the Company's business.

These statements are not guarantees of future performance and actual results may differ materially from those described in these forward-looking statements as a result of a number of factors. Please see a detailed description of these and other risks contained in our Annual Report on Form 10-K for the fiscal year ended 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.

Thank you, Susan. Through the first nine months of 2014, we have delivered on our goal of double-digit revenue growth. In the third quarter, we generated $10.1 million in revenues, which is a record for a Q3 and the fourth consecutive quarter with sales above $10 million. To date, the growth has been the result of strong demand for our laser consoles both in the US and internationally. We believe this strong demand will continue, especially given the growing interest both domestically and internationally in IRIDEX's proprietary MicroPulse technology and our new pattern-generating TxCell delivery device.

Legacy laser sales are driven by two factors -- replacement cycle purchases in the developed world and expanding healthcare coverage resulting in new sales in the developing world. We believe that the IQ family of MicroPulse lasers and TxCell are allowing IRIDEX to win increased marketshare in the developed and to stimulate new demand in the developing world markets. Together, these factors help IRIDEX increase laser console sales by more than 20% in Q3 versus the prior year. I'm going to stop now and then return after Jim's remarks to provide information regarding our upcoming glaucoma market introduction. 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 Q3 2014 of $10.1 million were a record for our third quarter and were up 6% from Q3 2013 revenues. It's worth noting that Q3 2013 revenues were up 21% from Q3 of 2012. The business continues to display underlying strength in both domestic and overseas markets. Total system sales in Q3 2014 were $5.5 million, up 17% from $4.7 million in Q3 2013 with year-over-year increases both domestically and internationally.

The summer months can be a little soft for capital purchases, but with Q3 behind us, we can now see that, for the first nine months of this year, we have seen overall system sales increase $3.5 million, or 26%, compared to the first nine months of 2013 and we can see that this growth is being driven by demand for our MicroPulse lasers. In the first nine months of this year, we sold 31% more MicroPulse lasers than we did in the first nine months of last year and currently one in every three lasers we sell is a MicroPulse-enabled laser. In addition, the demand for MicroPulse lasers pulls with it the demand for TxCell scanning delivery devices and currently, 50% of our MicroPulse lasers are sold with a TxCell scanning delivery device.

Recurring revenues were $4.6 million in Q3 2014 compared to recurring revenues of $4.8 million in Q3 2013. We did have a one-time sale of $200,000 of our GreenTip consumables to one of our distribution partners last year. Excluding that, our recurring revenues have remained constant between the two periods. We do continue to experience strong competition in our historical base. The addition of the independent salesforce focused on the ASC here in the US has helped mitigate this threat and the recent addition of our patented XR probe gives us a new product to win new business. We've already seen four new account wins since the launch of the XR probe at AAO earlier this month.

Overall gross margins in 2014 third quarter continued to move in the right direction. We came in at 50.9% above our stated near-term goal of 50%. This compares to 50.0% in Q2 and 49.6% for Q3 2013 and indicates a good trend. This is particularly noteworthy because our gross margin is impacted by our strong system sales, especially via international distributors where margins are more constrained.

We're already beginning to reap some of the benefits of the IQ cost-reduction program in which we have been investing and anticipate seeing more benefits in 2015. Our long-term goal has our product mix including a higher percentage of consumable products and this rebalancing towards consumables, together with the full benefits of the cost-reduction program and increased production efficiencies associated with revenue growth are part of our plan to achieve our longer-term target of 55% or better.

Operating expenses for Q3 2014 were $4.5 million, up from $4.1 million in Q3 2013, but down from $4.9 million for Q2 of this year. The growth over last year reflects a variety of investments, both commercial and product development, aimed at both near and long-term strategies to continue growing our marketshare and to take advantage of opportunities in both retina and glaucoma markets. And the reduction from the preceding quarter shows some of these programs coming to an end.

Specifically, as we've noted over the last couple of quarters, R&D expenses increased due to the cost reduction program for the IQ platform and the development efforts on the new glaucoma product offerings, amongst other things. And we indicated these programs were finite in nature and would benefit both the revenue line and gross margins. The good news is that we are already seeing some of the margin improvement as a result of the cost reduction program for the IQ platform and the majority of the investment is behind us. We had originally targeted a cost savings of $2,000 per unit and we've raised that target to $2,500. We're already benefiting from $1,000 per unit savings and anticipate the additional $1,500 to come online towards the middle of 2015. And at our current unit volumes, this program will enhance our gross profit by over $0.6 million on an annualized basis.

Operating income in 2014 third quarter was $0.6 million compared with operating income of $0.7 million in last year's third quarter. Net income was $0.5 million or $0.05 per diluted share for the third quarter of 2014 compared to net income in last year's third quarter of $0.5 million or $0.05 per diluted share. Looking ahead to the fourth quarter of 2014, we're projecting revenues between $10.9 million to $11.2 million compared to revenue of $10.6 million for 2013. And this could possibly represent our first $11 million revenue quarter. Gross margin is anticipated to come in between 49% and 51% and operating expenses are expected to be between $4.7 million and $4.9 million. During the quarter, we purchased 146,000 shares at an average price of $7.98 per share and at the end of the quarter, we had $2.2 million left to invest. And with that, I'll turn the call back over to Will.

Thank you, Jim. Over the past year or so, we have spent most of our time with the investment community in our quarterly calls talking about MicroPulse, our proprietary tissue-sparing laser technology. MicroPulse has undoubtedly become an established part of ophthalmology landscape. Ophthalmologists are gaining confidence with its safety record, along with its durable outcomes and are using it as a first-line treatment for a variety of ophthalmology disorders such as DME in retina and more recently improving the outflow efficiency in the trabecular meshwork to reduce IOP in glaucoma.

Today, we'd like to provide a glimpse into our future product offerings in glaucoma. Let's start with the opportunity. As many of you may know, glaucoma is a degenerative optic nerve condition, which is affected by elevated intraocular pressures or IOP estimated to affect more than 50 million people. The cost to society and to global healthcare systems from the effects of this disease, including millions of cases of blindness, are immense. It is one of the leading causes of blindness and unfortunately growing at an epidemic pace worldwide. Glaucoma is at present incurable and therefore treatment protocols focus on delaying or temporarily halting the progress of the disease.

Elevated IOP is caused by either increased inflow of fluid into the eye or decrease in outflow. IRIDEX currently offers two products that can be used in the treatment of glaucoma, our IQ 532 MicroPulse laser introduced to the glaucoma market in 2012 for trabeculoplasty or MLT, which is used to improve outflow and our G-Probe, which is used to reduce inflow. These two products put us in front of glaucoma doctors around the world and it is these doctors who have made us keenly aware that more and better solutions are needed in the market.

In the early stages of glaucoma treatment, a doctor will usually prescribe medication in the form of eye drops. These treatments work, but for many patients, the issue is compliance. The drug cannot treat the illness when a patient forgets to use the drops or does not administer the medicine as prescribed. The next stage of treatment is often to use a laser such as an IQ 532 MicroPulse to improve the outflow in the trabecular mesh network. In those cases where the trabecular meshwork loses its ability to drain, surgery becomes the next option. Unfortunately, trabeculotomies have a high complication rate with one year of post-surgical procedure. When the condition reaches the late stage, there is no other choice but to reduce the inflow.

When you talk to doctors that treat glaucoma patients, it is very common to hear deep dissatisfactions with the available treatment options. Drops work, but noncompliance means disease progression and the need to supplement with other treatments. We believe that and an enormous market opportunity lies in this space between the meds and the surgical procedures. This is the target for our new Cyclo G6 MicroPulse laser with our proprietary MP3 probe. Our provocative early data indicates this MicroPulse procedure may improve outflow much the same way as meds. Data has been submitted to the American Glaucoma Society, which should result in a poster or a presentation at the annual Society meeting February 26 through March 1, 2015 in San Diego. From a regulatory standpoint, we will file a special 510(k) with the FDA tomorrow, Friday, October 31. A special 510(k) has an expedited review process, typically 30 days and our product development operational teams are gearing up, which should allow for introduction of the Cyclo G6 laser and MP3 probe in early 2015.

The Cyclo G6 glaucoma laser is expected to be an important part of IRIDEX's business evolving to a more procedural-based model. Introduction of sophisticated, single-use probes will result in higher revenue based on the number of treatments provided versus the number of consoles placed. Results of this change in model will be more predictable revenues that track with the adoption of the technology and utilization of the system.

As we reminded you last quarter, we are still a small company with significant upside, but significant exposure to international and system sales cycles do still exist. The impact of those factors will continue to create lumpiness in our revenue line, but we remain committed to profitable operations even during those periods such as now when we are developing and releasing significant new product offerings.

Finally, it has been a long time since we discussed business development. We have been focused on gaining leverage in our existing product platforms and innovation in the glaucoma space. As those products come to market, we expect to turn more of our attention to a number of potential opportunities outside of the Company. We now have a larger salesforce and are represented in a broader slice of the ophthalmology marketplace. It makes sense to seek out technologies that can be complementary to our proprietary technologies to better leverage our selling network. Don't look for any major announcements between now and early next year, but it's important to mention that those efforts are active and we hope to identify opportunities that deliver growth and value to the Company.

I want to thank our employees and distribution partners around the world for their hard work. With that, I will turn the call over for questions and please one question with a follow-up question and then requeue. Operator?

(Operator Instructions). Joe Munda, Sidoti & Company.

Good afternoon, Will and Jim. Congrats on the quarter. Jim, maybe you can help me out here. System sales up 17%, consumables down about $200,000 year-over-year, yet gross margin seems to be improving at a rapid rate here. I mean not an incredibly rapid rate, but a nice bump here of 130 basis points year-over-year. Can you quantify what the cost reductions were as it impacted gross margin, as well as some of the margin on the systems that you sold? Thank you.

Okay, Joe. I'll try and do my best on that. So I think you can just take the recurring revenue as constant, as you said, in the sense that it's a little bit down on the revenue growth, but the pricing within that and the cost within that side of the business has remained constant. So it really hasn't moved anything on the margin. So the margin improvement really has been worked out through the systems. I don't know if I have it to the specificity you're looking at, but I would say that what really happened was, as we brought MicroPulse to the forefront, we've continued to gain pricing power within the MicroPulse on the laser itself. So that has allowed us to walk the ASP up.

It has been compounded by the fact that we have, as I mentioned, started to take some of the cost out. So those two elements both have a net positive. And then when we launched the TxCell, we had a TxCell V1. TxCell has been very successful, but the initial TxCell V1 was a little bit heavier on its [bottom] cost because we really wanted to get it into the market timely and with the launch of the TxCell V2, that similarly has had some cost reduction and we've also walked the price of the TxCell up. So it's really been a situation of continuing to get better margins with better pricing and cost reduction on the complete MicroPulse system, the laser and the TxCell.

Okay. And then as far as a follow-up goes, I'm not sure why -- why are consumables down then if you're selling more systems? Usually wouldn't consumable sales track faster than system sales? Am I missing something?

Well, I think the easiest way to think of it is the growth in the MicroPulse sales is focused on the clinic side of the equation. So the systems that are being placed in the clinic have driven the growth and they are not systems that pull the consumable probe. So what we've seen is we've seen a lot of consistency on the continuous wave probe side of the business, but growth coming from MicroPulse being sold into the clinic, which is just a capital sale at this time.

Okay. And there is no corresponding consumables behind it?

Not on the MicroPulse in the IQ platform [today] sold for retinal conditions. It segues a little bit to what Will was mentioning about us looking at the glaucoma part of the market where we do see an opportunity for a consumable attached to a new MicroPulse laser.

Oh, okay. That makes sense. Thank you.

Larry Haimovitch, Haimovitch Medical.

Thanks, operator. So following on Joe's question, Will, going back to -- looking at the glaucoma productline, I remember when you were at Nellcor, one of the things that drove that Company to do so well was a very modest piece of capital equipment, but tremendous use of disposables. It sounds like perhaps what we're doing here is we're going back to the future with IRIDEX and following that model. Do I read that right?

Yes, you read that right. In a different way to the previous questions that Joe had just asked, that surgical laser business is highly competitive and there were -- disposables were attached to that and we were doing quite well. And then we moved into the MicroPulse and Jim and I spent a lot of time talking to engineering and doctors and said we've got to find a way to capture that procedural volume because the locations where treatments of these patients is not growing but maybe in the 3% to 5% range, but the procedures are growing in the double-digit range.

So engineering went to the drawing board and came up with this ability to create a captive disposable for glaucoma and it is exactly what you're talking about. Doctors will be rewarded by making a decision on a fairly inexpensive laser. I'm sorry, but I can't talk about pricing until the FDA has approved, but then we will be rewarded by having a continuation of that sale for years to come. And it is set up in the same manner, which is there is a proprietary technology, there is technology that prevents others from plugging into our boxes so that we will be the only one that uses a probe on our new lasers.

And Will, hopefully, over time, that will lift the disposables again because when I look at your last two, three, four quarters, I see tremendous, tremendous progress on the capital equipment side driven by MicroPulse, but a lag in disposable revenues, which I guess are roughly half the business. So we're not really seeing the full benefit of how well you're doing with the MicroPulse business because we're seeing the disposal business kind of drag down the overall corporate growth.

I think that's correct. That is correct. I mean we've been trying to talk about MicroPulse and how to look at it so people can see the real value at IRIDEX. And I think Jim's done a good job on this call to be able to separate legacy lasers from MicroPulse lasers, the surgical retina person from the medical retina person and when we do that, we look at the medical retina side where we're selling in the clinic and that is growing in the 20%, 30% range while we're seeing the other side, the replacement cycle in the hardware being relatively flat and you see a little degradation in the disposables.

Now what we're looking at going forward is we did a good job and Jim did a great job on getting the Peregrine line into our house and now as we come out with the glaucoma product with the disposables, we're not only going to have 10 salespeople; we'll have close to 30 salespeople selling the new product.

Great. One quick question for Jim and I'll jump back in queue. On the buyback, I see you bought 146,000 shares. How many shares remain in the buyback, Jim?

Well, we have $2.2 million left to invest.

Okay. So obviously, there's plenty of room here considering where the stock price is for you to -- that works out to around 300,000 shares, I think, correct? Something like that?

Yes, I'd go with that.

Okay, great. I'll jump back in queue. Thanks, guys.

(Operator Instructions). [Paul Swetz,] Private Investor.

Yes, thank you very much. I have two questions; I'll ask one and get back in queue. One of the strategies this year was to leverage the distribution channel by putting other noncompetitive products in the channel. I'm wondering how that is working and if there is further opportunity?

Well, I think -- this is Will and I'll try to answer your question. The strategy has always been to look for products that are complementary, but we did the business with -- there's been a couple. One, we did the business with RetinaLabs. We're doing quite well. We have a great partnership with Alcon that sells a lot of that product for us. We did another project with [Oxygenics]. That project is still under development and then we did the agreement with Peregrine, which brought us the disposable probes.

At the end of my prepared remarks, I said we have now reached the point where we're comfortable with our salesforce, we're comfortable with the momentum on MicroPulse, we're comfortable with the introduction of the new glaucoma series. And so Jim and I are beginning to go back to that strategy of finding additional products that we could put into the system. We're not talking about large acquisitions; we're talking about complementary, we'll call them fill-in products that make our salesmen more efficient.

I understand that, but I laud you for it because you've got an expensive channel in terms of your worldwide distribution and I'm sure it helps with overhead.

Well, any time, we can make the salespeople more efficient, it does and we're looking at that. And I think you'll see that -- maybe you'll call it a forward load as we get ready to come out with a brand new product that's going to take a lot of time and we went from 10 salespeople to close to 30 over the last year in preparation for the new glaucoma product coming online.

I'll get back in queue. Thank you.

Sam Bergman, Bayberry Asset.

Good afternoon, Will and Jim; nice quarter. I have a couple questions. One in regard to the tenders in the third quarter versus the second quarter, can you tell us if there were any and compare the activity of tenders in the second and third quarter -- third quarter versus second quarter?

The tender activity was pretty mild and there was nothing of any real significance that we delivered in the second quarter and third quarter. I anticipate larger ones as we move through the fourth quarter. So all the sales hitting the $10.1 million and that starts -- now you're really getting into what we call in this lumpiness and we get a tender of 10, 20, 30 instruments in and it changes the dynamics real fast. But I think what we're trying to say there is the stability of our business in the $10 million plus is there and now we're looking at maintaining that and adding on top of that some tender activity.

So are we saying that there's a backlog going into the fourth quarter of MicroPulse products or not?

We've really never commented on backlogs before and I think the answer for us on this one, Sam, is that we feel very confident in our business at this point in time.

In regard to tenders or RFPs, have there been any RFPs written with your Company's specified product or not?

Yes, there have been a few of those of substantial size. Those generally take quite a long time from the time of the request until the time it turns into a tender until the time it turns into a shipment, but we are seeing some tenders coming in that are requesting MicroPulse specifications only.

Do you have any idea when we could expect those RFPs to become orders?

Well, I'm an optimistic guy and I'm going to say (inaudible) by the time I receive one of those, we're talking about six months to nine months to maximum of a year before we see it. So I think it's a good sign for 2015. We've been working on some in the past and there might be one or two that comes about over the next 60 -- next quarter or two.

If and when they do come, is there an add-on to production or can production handle those larger orders?

Well, production can handle it. It's one of the reasons why we've done the outsourced project to reduce the cost and have them help build, so we have flexibility in the system. I think Jim has done a great job working with sales to improve communication, so understanding when these orders will arrive so that he then can spend time with production so we're not bloating inventory, but being able to build in time so we can ship. I don't see any real issue. If we start talking about a quarter that goes from $10 million or $11 million to $13 million, that's a problem, but when we start talking about these growth rates we're talking about now, no.

And just one question on the glaucoma product, how large is that market for lasers?

Wow, we know there's over 55 million people in the world that are affected. We're talking about thousands of doctors around the world and this product will start out as an ASC surgery center hospital-type product and I'd have to sit down and ask marketing and I think the real answer to that is, Sam, when I get into a point with the FDA authorization that I can talk about pricing and things of that nature, I can give you better clarity.

You're expecting FDA approval by the end of the year, is that what you're expecting?

Yes. This is a 510(k) special, which I'll applaud our regulatory person for working with consultants on the outside. This is not a PMA, it's just a 510(k), but it's special because of how it works with MicroPulse, that it's a review process that is accelerating and it's a 30-day window. So I had been assured today that everything is done and it's going in the mail tomorrow to the FDA and so I would expect some time early December we'll have the ability to have the approval.

So when you said you have a larger salesforce to sell that product, it's up to 30 now, should we expect it only to be that salesforce or do you feel that there's more growth to come if you aligned yourself with another partner?

Well, I think, at this stage of the game, when you come out with a brand-new product like this and as Larry talked about the captive disposable piece, it is really important that the first few physicians, maybe 100, are using the device with great education and understanding how it works and you eliminate what I'll call cockpit errors. And therefore, when they use it, it works every time. At that point in time, you start thinking about expanding if you can't handle it, handle the demand with your salesforce.

I think with our 10 direct people and pushing -- I mean 16, 18, 20 independents, that's enough for the US to begin with and that's where we'll start and then we'll introduce to the rest of the world sometime in the middle of the year and there we have 70 plus distributors with -- I couldn't even begin to count how many sales people involved there. So I think we're okay, but products like what we have for a company like ours with $40 million, I think your question really is could somebody bigger like an Alcon or Zeiss or something like that sell more than we could, the answer is probably yes.

In the last show you were at, the AAO, what kind of excitement was prevalent in the booth on that product? What were you hearing?

Oh, on the glaucoma product?

Yes. I know you couldn't show it; it was (multiple speakers).

The glaucoma product was under lock and key because of the FDA situation. We do have approval already on the probe, but we're waiting for the box, so you can't show it, you can't price it. So we had two people from marketing that were there answering questions to glaucoma doctors looking for prospective clients that would use more than 100 probes a year. And the response was pretty good.

Sounds great. Thank you very much.

[Stan Mann], [Mann Family Investors].

Good job, gentlemen. It sounds like we're onto a big, big breakthrough, by the way. But my question is docs make a lot of money on a procedure and sometimes sell the drug. So a procedure becomes -- even if it's expensive, they use it and push it. So my question is you've got a laser and a disposable that will go with it that will save a lot of money for the people that it will be used on. So my question is what is your market research or you're talking to docs, what is the feedback on the drug profitability for a doc versus using our system? Once again, through beta testing or what I would call doctor approval.

Well, I'm going to put a little background to your question. Because we play in two spaces, retina and glaucoma, there's two distinctive things going on with what you've said. In the retinal side, I totally agree with you. Doctors use injections, meds, whatever you want to call it and they make money doing that and to the tune of our government spending $1.6 billion a year in those types of injections for DME and AMD. When you come to glaucoma, it is completely different. These are prescriptions that are given out or scripts; the doctors do not make money doing that.

They don't?

(multiple speakers). Sorry, Sam, go ahead.

They don't handle the drug?

No. They do get their office visits and the patient comes back. The standard process is -- I mean glaucoma is usually a disease that affects people 70 or 80 years old, which becomes difficult to take the drops. That's why the compliance is such a big issue. The patient comes in, their pressure is up; they give them the meds, they send them home. They come back again; their pressure is up. If the doctor asks are you taking your meds, well, I tried to. This goes on for a while until the pressure builds to the point where the doctor has to intervene.

What we have targeted is using the laser at a very early stage in this process when the doctor begins to lose compliance and the pressure builds. Now, in the very beginning stages, we're going to be in a place right before laser trabeculoplasty or surgery. But, over time, it's our viewpoint that the doctors will push this regimen or this treatment to an earlier and earlier stage for a variety of reasons. What we've seen with our studies is that MicroPulse does not cause any damage and it allows for repeatable action and it does not prevent the doctor from doing further procedures as the glaucoma progresses. So we don't have that same issue that we have in retina where you're arguing with the doc, you're selling the doctor why to use MicroPulse versus doing the injections and there is patient benefits as you described, but there's income issues. That's not the same in glaucoma.

Okay. So in glaucoma, just let's say on glaucoma quickly, is this a repetitive process? In other words, they'd have to come back or retreatment over time? I have a friend that has had glaucoma for, I don't know, 10 years now and is on the drug. So is there a repetitive procedure and disposable usage in this process, your process, our process?

Yes, in my opinion at this point in time and in talking with a few doctors, as the process is used -- as the MicroPulse procedure is used and the patient's ability to have improved outflow decreases, they will do it again. Once they reach a point where the timeframe of having to do that over and over again is too short, they will move to a more advanced type of treatment. So the idea for us is, sure, a patient comes in, presents himself, they might have a MicroPulse treatment for glaucoma two or three times before they get to a different laser treatment for the trabecular mesh network.

Okay. So you did work with the national health program in Great Britain I remember with the MicroPulse system. Is this a procedure since it would save them money that could go through these national programs where they then specify it [or] the procedure?

I'll let Jim answer that since he's of British descent.

(multiple speakers).

I did have only one more question.

I'll answer it -- I'm not going to speak from any position of authority, but I will answer it this way, which is, within the national health system, interesting enough, we do have -- it's one of our best markets for our existing glaucoma probe and I would suggest it's two reasons. One is because within the UK, they do mandate single use and so that does mean our existing product is only used one time. The other thing is I do think it gets back to your other point, Stan, about economics, which is even though the G-Probe is a very late-stage proposition, they do recognize the economics of trying to deliver a cost-effective treatment to a vast majority of patients. So based on that and based where we're going, I think you're right. This could be something that is compelling to healthcare systems that look at that economic trade-off. So yes, we would like to try and take it there and see if we can't get a similar success to our G-Probe if not more.

Okay. And that's the timetable that's reasonable, a year -- within a year with normal procedure? You have experience in it with the MicroPulse in Great Britain. Is this something that takes about six months or a year for qualification?

Well, I think we're going to be focused on the US in the initial stages because we feel there's a lot of opportunity here and we just need to continue to push with what we have in front of us. So probably towards the back end of next year before we start to look at the overseas markets.

Okay, use of cash is my last question. What do you see the use of cash for other than stock repurchase? You've got $13 million on the balance sheet.

Well, I think this gets back to what Will alluded to at the end is now we've moved through a lot of these internal projects, I think we find we're getting a little bit more mindshare and so I think to rephrase your question, you're saying are we looking to do tuck-ins and I would say, as a lot of this starts to become more executional, I think we've got more bandwidth to get back on that and that would be our desire. There was a question that came in earlier about leveraging the salesforce with additive products. So we definitely want to get back on that and try and see if we can't make some of those happen.

Okay. This looks like a breakthrough, so good job.

Thanks, Stan.

Hopefully, we'll get some pickup. Thank you.

Paul Swetz, Private Investor.

Yes, thank you. In your introductory remarks, you mentioned the significant competition and I'm curious about if you can elaborate a little bit on that. In the macular degeneration area, is that the drug you're speaking of, is that another laser competitor or were you talking about the future glaucoma market? Could you elaborate a little bit on the competitive environment?

Well, Paul, I'll take first crack at it in the sense that I think the significant competition came from a part of my script, which was addressing the EndoProbe part of the market, so I'll just take a couple of seconds on that. So that is the traditional continuous wavelength laser being sold into the surgical suite, as Will refers to the surgery side of retina. And that is a situation where we've got a very good part of our business, but we do face ongoing competition from a number of players, the big guys like Alcon and the smaller guys who may just sell consumable bits and pieces into it. So that's the competitive landscape. We just recently introduced our extended reach EndoProbe, which we think is a very good and patent-protected product. We now have the independent salesforce as well, which gives us a bit more girth and drawing this full circle to one of your suggestions and then also Stan's question, this is where we would look to try and find additive tuck-ins to continue to have more to play in that space. So that's the specific answer. I'll throw it to Will in case there's more general commentary on competition at large.

So, Paul, I think that, in a more general response, first, you used the term AMD versus DME. We do play a little bit only beginning in AMD. Our predominant area today where the competition is is in DME in the retina. Now what we see on a general basis, there's about eight companies that are selling lasers and probes and things into that surgical setting that Jim talked about and that's a highly competitive market for what we call our legacy lasers and legacy probes.

The MicroPulse that we introduced a few years ago, that is still by itself a singular product that people that do not have MicroPulse compete with us on price. As Jim noted in his comments, we're beginning to get to that point where we can creep the price up because the doctors are seeing the benefit of MicroPulse. So there's getting separation in pricing and differentiation in outcomes between our product and the other legacy continuous lasers.

When we talk about glaucoma, we're back to the point of dealing with MicroPulse. This new laser we're talking about will be one by itself; we'll be the only ones talking about MicroPulse in glaucoma. We have not licensed it to other people. It is just us and so there will be some of that missionary selling going on for a while. But that is -- there's no competition there. We do have competition in the area of MicroPulse in the trabecular mesh network with a slit lap type [game], which there is a product called a SLT made by a couple of the people that competes with our MLT, but other than that, we're home free as far as competition goes in glaucoma.

That's very clear. Thank you for the answer and thanks to the whole team for another solid progress quarter.

Thank you.

Thank you. At this time, I'll turn the floor back to management for closing comments.

All right, I want to thank everybody for attending. It's our pleasure to be able to present the results and we look forward to providing more information on our glaucoma offering as it becomes available and we will hopefully deliver a fourth quarter that everybody is satisfied with. Thank you very much.

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