IRIDEX Corp (IRIX) 2015 Q1 法說會逐字稿

Greetings and welcome to the IRIDEX Corporation 2015 first-quarter results conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Will Moore, CEO of IRIDEX Corporation. Mr. Moore, you may begin.

Thank you, operator. Before we get started with today's call, I'm going to turn the line over to Susan Bruce, our executive administrator, to read the Safe Harbor message.

Thank you, Will. This corporate call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, in Section 21E of the Securities Act of 1934 as amended, relating to the effect of currency exchange rates and other global and domestic market conditions and the Company's business.

The product mix composing sales and future periods, demand for the Company's products and market acceptance of the Company's new products, the launch date and adoption of the Company's iClip closure device, the adoption, continued development, pricing model, and contribution to earnings in future periods of the Company's Cyclo G6 product platform, the impact of these and other new products in 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, 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 second quarter of 2015, fiscal year 2015, and future periods, changes in the Company's margins in future periods, regulatory developments and approval for Company products, and the impact the sales cycles. Tax rates and cash requirements related to tax obligations and future periods, and other industry-wide factors affecting the Company's business.

These statements are not guarantees of future performance, and actual results may differ materially from those described in these forward-looking statements as a result of a number of factors. Please see a detailed description of these and other risks contained in our annual report on Form 10-K for the fiscal year ended January 2, 2015 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, Will.

Thank you, Susan. I've been looking for to today's call and the opportunity to report on several items of very good news. To start, the first quarter of 2015 was the best Q1 we've ever had. Revenues were $10.8 million, with growing contributions from the US sales channel with a modest decrease in the system sales internationally. This was accomplished despite a currency volatility headwind that had been affecting all US dollar sellers. We estimate the pricing pressures created by the strong dollar cost us as much as $500,000 in the first-quarter revenue. We expect this will likely continue to be an issue in future quarters, and we'll be monitoring it closely.

Even better news than our continuing revenue strength is the rising contribution from consumables. This includes probes and other single-use products associated with ophthalmologic laser procedures. Our total recurring revenue were up over $400,000 in the first quarter of 2015 -- excuse me, in comparison with 2014.

Our main goal to increasing value of the business is developing a steady, predictable, recurrent razor/razor blade revenue stream that feeds off of laser equipment sales.

One exciting new addition to this effort is the single-use MP3 probe use with our new G6 laser platform. In addition, we recently received a patent for our single-use iClip closure device, which we hope to launch towards the end of this year or early next year. The iClip is intended to replace certain suturing techniques in eye surgery.

In terms of building a larger consumable product portfolio, we are making good progress.

Another high out of the quarter was the strong reception of our new glaucoma product platform, the Cyclo G6. This platform includes a dedicated laser and initially two single-use probes, including the newly patented MicroPulse P3. We expect to introduce additional single-use probes for the Cyclo G6 in the near future, adding to our consumable product line in the glaucoma space.

We launched the Cyclo G6 with two supporting poster presentations from our investigators at the February American Glaucoma Society AGS meeting. The response was rapid, and our sales team took orders immediately, providing evidence, products, and positioning are correct.

As most of you know, glaucoma is a focus of ours and we believe an important part of our future. Glaucoma is a chronic, global disease and the leading cause of adult irreversible blindness. It has a large and growing patient population due to aging worldwide demographics. Current estimates are there are more than 4 million people in the US affected and approximately 60 million people worldwide. We estimate our US market opportunity is in excess of $75 million today.

Glaucoma is a progressive disease requiring careful management over a long term, and treatment generally begins with a regimen of expensive eye drops. As the condition worsens, treatment typically escalates to a variety of more invasive procedures. The current standard of care is unsustainable in most parts of the world. Data presented at the AGS focused on the high cost to patients and their families.

Worse, the current standard of care frequently fails due to the great difficulty most patients have with maintaining the strict regimens. We see physicians as eager for new treatments bridging the gap between eye drops and invasive surgical procedures. We believe there is a huge promise in the new in-between approach offered by our Cyclo G6 platform featuring our MicroPulse MP3 probe for glaucoma. It is cost effective, reimbursable, and may limit thermal spread and collateral tissue damage.

We believe it is a single-treatment procedure with durable results. One study by Dr. Chu showed the treatment provided relief for up to 18 months. And is easily administered and repeatable, giving it a huge advantage in emerging, undeveloped markets in Asia, Latin America, and Africa as well as the developed markets like the US, Europe, and Japan.

Concluding my comments on this portion of the call, we believe our new Cyclo G6 laser platform featuring MicroPulse provides multiple benefits to the Company. It will deliver additional revenue via a series of proprietary single-use delivery devices. It is a means to expand our reach to a broader group of ophthalmologists both within the US and around the world. We now have a substantial product offering for the glaucoma specialists, so they, as well as comprehensive ophthalmologists, have a reason to listen to us and try our new products.

With that, I will turn the call over to our CFO and COO, Jim Mackaness. Jim?

Thanks, Will. As we noted in our press release and in Will's comments, our revenues for Q1 2015 were $10.8 million, up 5% from Q1 2014 revenues. Total system sales in Q1 2015 were $5.6 million compared to $5.5 million in Q1 2014. We showed excellent growth in domestic system sales, up 25% to $2.1 million, driven by increased sales of our premium product, the IQ 577 with MicroPulse, and sales of our tech sales scanning delivery device. International system sales did suffer from the movement in exchange rates and declined 9% to $3.5 million.

Recurring revenues were $5.2 million in Q1 2015, up from $4.8 million in Q1 2014, an increase of $400,000 or 8%. The growth was in part due to the (inaudible) launch of the Cyclo G6 system, which is being introduced as a package consisting of the laser console and probes for 60 procedures. And we also saw an increase in our base business of single-use devices.

Gross margins in 2015 first quarter came in at 50.1%, compared to 48.9% for Q1 2014. We were pleased with this result given the challenges we faced with the currency movement and the pricing pressure it creates internationally.

For the remainder of 2015, we see opportunities for margin improvement through volume efficiencies with anticipated revenue increases and anticipated increase consumable sales associated with the launch of the Cyclo G6 system. However, we are launching the Cyclo G6 system with a disruptive pricing model and may choose to absorb some gross margin compression in the short term. In addition, the impact of the recent foreign currency movement is likely to have a temporary negative impact on our gross margins.

On a final note, related to the Cyclo G6 platform, we have launched it with a business model that we think will be a plus going forward. To this point, we have worked under either a capital equipment model or a consumable model, where we have not combined the two in the razor/razor blade market. Cyclo G6 platform provides us the advantages of both revenue streams and the associated benefits of having a growing installed base providing a regular, predictable consumable revenue. As the market develops, we look forward to updating you on the success of that model within our overall business.

Operating expenses for Q1 2015 were $5.0 million, up from $4.5 million in Q1 2014. The growth over last year reflects a variety of investments, both commercial and product development for near- and long-term strategies to continue growing our market share and to take advantage of opportunities in both the (inaudible) and glaucoma markets.

Consequently, operating income in 2015 first quarter was $0.4 million, compared with operating income of $0.6 million in the prior year's first quarter. Net income for this year's quarter was $0.2 million, or $0.02 per diluted share, compared to $0.5 million, or $0.05 per diluted share, for the prior-year period.

Please note that commencing with the first quarter of 2015 we were using a more normative effective tax rate of 37.9% to book our tax provision, which resulted in us booking a provision of $150,000. Last year, our effective tax rate was only 2.6% for the quarter because of the movement in the valuation allowance we've booked against our deferred tax asset. This resulted us booking a provision of only $13,000 in Q1 2014. If you recall, we released a vast majority of the valuation allowance in the fourth quarter of last year. And at end of the last year, we had a federal NOL of $12.5 million, and therefore anticipate our cash tax payments to be fairly minimal for this year.

Looking ahead to 2015, we are projecting revenues between $48 million to $51 million, although we, like many others, have our eye on the impact to our business with the recent significant currency movement.

For the 2015 second quarter, we anticipate revenues of between $10.7 million to $11.1 million, gross margin is anticipated to come in between 49% and 51%, and operating expenses are expected to be between $5.0 million to $5.2 million.

Lastly, during the quarter, under our share repurchase program we purchased 22,000 shares at an average price of $8.89 per share. And at the end of the quarter, we had $0.7 million left to invest.

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

Thanks, Jim. In conclusion, this is a very exciting time for IRIDEX. We are making steady progress in expanding the predictable recurrent portion of our revenue stream, particularly via expanding our reach within the captive to single-use probes. We are also making inroads with our value-based medicine approach to emerging markets, which is additive to our growth in the US.

We have just begun our entrance into the huge and rapidly growing glaucoma market, which we believe is a natural fit for our technology and distribution channels. We now provide a new option to literally millions of people around the world with glaucoma, a durable and cost-effective method of managing this dreadful disease.

Dr. Chu's study, poster presentations, and preliminary studies underway with the Cyclo G6 and MP3 probe point to a solution for doctors who are losing the compliance battle with their patients yet are reluctant to advance to more invasive treatment procedures. This new product and our new pricing model will improve our ability to reach more patients, provide less lumpiness to our business, allow more predictability, and provide additional efficiencies. We think we have identified a very large problem, developed a great solution, which in turn could change the size and the market perception of IRIDEX. In our opinion, we're becoming more relevant to the world of ophthalmology once again.

Before closing, I will continue to look for strategic areas to grow organically through acquisitions, and we will also consider corporate relationships first, be it private labels or distribution that enhance our product portfolio.

With that, I will turn the call over to the operator for questions. Operator?

(Operator Instructions) Larry Haimovitch, HMTC.

So on your guidance, if I'm not mistaken, you reiterated the same guidance you provided at the fourth-quarter conference call. It was $48 million to $51 million. Correct?

Correct.

Okay. And you did $10.8 million this quarter -- did I catch your guidance right? $10.8 million to $11.1 million for Q2, Will?

It was $10.7 million to $11.1 million.

Okay. So roughly -- it would be roughly $21.5 million for the half if you came in at the low end. So I'm just wondering -- that's a pretty big -- it's a very strong second half. Can you discuss that? Is that something you are looking for because of the glaucoma initiative or perhaps the dollar not being such a problem in the second half? Or what's your thinking on that, Will?

I think that the demand for the products has been consistent and strong. Whenever you have some kind of volatility and currency, whether it's going up over going down, the distributors tend to pause. If it's going down, they're thinking as far as the dollar getting weaker, they are going to wait to see about placing orders later. It's going up, they sit back and say, oh, this is going to cost me more. So we see a pausing affect.

I think what's happening now is as the currency is somewhat stabilized, the euro is getting a little better. We have seen a couple of things that happened. Our Japanese partner has come back on and said, all right, we are ready to start doing business again. We have gone through a few pricing programs with our distributors to deal with the fluctuations by putting volume purchases together versus buying them one at a time. So I'm comfortable at this stage, as Jim said in the call, that we're going to monitor it looking forward. But I think the situation just is exactly as you said; it's a steep climb, but I don't think we are ready to say we can't make it yet.

Okay. So with the rise in the euro and with distributors getting more comfortable with the fluctuations and so on, you think you'll have a stronger second half. Now, did I hear -- Jim, did I hear you say that Q1 international revenues were actually down versus the year before? I didn't catch the number, but I thought that's what I heard.

You did on the system side, yes, Larry.

Yes, and I would assume that's strictly to do with the currency issue.

Yes. That's what we -- Will mentioned we felt we left some revenue on the table, if you like, pushed out. Because, again, you have this pause effect, just people trying to adjust to the change in the rates.

Will, I know you have traveled in China recently. I know you've been spending a lot of time overseas. Are you feeling that momentum generally overseas is still very, very strong, notwithstanding the temporary challenge with the currency -- or currencies?

Yes, I do. The currency does cause me some concerns, but the advantage of MicroPulse is there. So the example you just mentioned, China. We are about to commence a program in China I think that starts 18 of May. We have established a program where there are two doctors from the US going to China along with Mr. Buckley, our VP of marketing, that will be joined with the physicians at four different universities. One in Beijing, one in Shanghai, one in Tuan Cao, and the other in Taipei City, where there will be approximately 100 physicians at each one listening to lectures and presentations by microphone.

That's going along with what we have put together before with the remote vision project. We have initiated our study in India with Harvin and [LV Persot] to look at the cost element, not whether the science works or not, but is this better socioeconomically for the society. And we are working on another study in another country, which I will wait until the next one, that concludes with 14 different universities -- looking at it from a socioeconomic standpoint, deciding how many injections they will use along with microfills versus just using injections alone.

So, yes, I feel very confident in that regard.

Okay, good. I have a couple of other questions, but I will jump back in queue right now.

Paul Stead, private investor.

If we look at the minus 9% in the international system sales that I assume are mostly accounted for by the currency issues, I'm wondering if you look behind the curtain there, are there competitor substitutes? Is there alternative purchases? Or is this primarily an issue with inventories? I know you have a direct sales force as well as distributors, so you must have some insight into this area. Are these delayed purchases?

Paul, this is Will. I will answer the question. The direct operation is strictly the US. We do have our own employees throughout the world, but all sales outside the US are through distributors. So, yes, there's always questions about inventories coming and going. We think we do a pretty good job of managing this story. We do get affected by tenders, which we did not have any in Q1.

And the other side is there is one competitor that pays us a royalty for when they sell a product. But all of the competitors do not have the feature programs that we do. So what you are seeing, in my mind, is two things. One, a slight delay in the international side, and two, the price compression caused by the strength of the dollar. So I really don't see something behind the scenes that we're losing any kind of business out of other distributors -- excuse me, other manufacturers.

Thanks. And if I could just put one more in, I will get in the queue, introducing products is -- there's also a transient investment mode you're in -- getting demos out there, getting advertising, distribution, presentations, et cetera. Which would kind of imply that the expense profile relative to revenues might be going up in the second half. Have you got some kind of insight into that?

Yes. I think in many regards we're using a staged launch, with Cyclo G6 in particular we're talking about here, and we feel that we have a good distribution channel in the US already set up with the combination of directs and independents. I would anticipate, to your point, we are increasing our expenditure a little bit in things like the trade shows and some of our press and direct mail, which we typically do electronically, to make sure that we reach out and publicize it. So there will be a little bit of an increase there.

I think probably the other element that is for us to consider when we continue to chew on it is the need for clinical. And so as we go forward with this product in glaucoma, we continue to listen very closely to the doctors to see if we have sufficient clinical evidence or if we need to start making those investments.

So you could see a little bit more. At the moment, we don't have anything dramatically lined up. But as I said, it's logical that depending on the adoption rate we may have to even put a little bit more into it, or we will find that we have enough investments as we currently see it.

And so in the second half, we should think about an improved revenue growth rate from the new products, probably somewhat of a lagging earnings growth rate until all these things -- these one-time expenses are worked through.

I would say that is correct. Yes.

Thank you.

Sam Bergman, Bayberry Asset Management.

A couple questions. In terms of tenders, did you have a backlog from tenders in the fourth quarter going into the first quarter? And can you give me a little color on the tenders for the second quarter and the rest of the year?

We didn't have any backlog on tenders in the fourth quarter. Tenders generally don't allow you to do that. You get the order and you have a specific time to ship them. So we didn't have that part.

Now, going forward, we are working on a number of tenders -- and when I start talking about working on tenders, I'm talking about ones today when I get involved that I like 10 units or more. And I've got a few of those that I am working on. Some -- a couple of them are in the 10- to 12-unit range, and a couple others are larger.

Did you have any backlog that weren't tenders in the fourth quarter going into the first quarter?

No.

No. In terms of the glaucoma product, 2 modules to complete, and there's a total of 6. Are there any more complete, or what is the expectations of those others coming live or going mainstream?

Sam, this is Jim. So I think you're talking about the fact that we have two of the probes released already. Is that what you are saying, with the MicroPulse, (inaudible) probe, and the G-Probe?

Right.

Okay, yes. And so you are correct in point again. We've made reference that there are another two that are currently, if you like, finalizing here. We do have to go through various steps including making sure we get our FDA supply 10-K. But we need some FDA approvals. So that has its own sort of timeline.

But we had it pegged in that we anticipate seeing the other two coming into the market before the end of this year. And then there's a potential for two more behind that, hence G6, that will fall into next year.

But we think the main sort of probes for sales would be the MicroPulse (inaudible) probe that we already have in, and perhaps one of the probes coming out later on this year because it offers some illumination. Will be a little bit of a unique feature.

So we have two good probes in, two more coming before the end of the year, and then possibly two after.

So you feel the one with illumination could increase sales or move the product better than what it is right now even though you need some more clinical studies?

No. I think we would say that the MicroPulse Pass Planar probe is the real sort of -- the real sizzle, the real got-you one which we have in the market. We have an illumination probe coming that we think is a good variation on a theme, so we're excited about it. But I think we would say that currently the MP3 is the one that's grabbing all the attention.

Thank you very much.

Larry Haimovitch, HMTC.

Following up on the previous question about the glaucoma probes, you've had the benefit now of two trade shows where you have shown the product. I would love to get some of your feedback on what the doctors are saying, what they like, what they want to see improved, and their overall reaction to using this in day-to-day practice.

Good questions, Larry. We did two things at these tradeshows, the American Glaucoma Society meeting as well as the -- AES (multiple speakers) meeting, both of them in San Diego.

What we did is not only had our booth where we did demonstrations, but we had what we call the wet lab where people could go and touch it and try it and deal with it on pigs eyes, for example. So the response has to do with both a verbal-visual type of thing that we generally do at trade shows, but also with the ability to touch it and see it and feel how it works. And that's where you tend to get the ah-ha moments over the excitement.

I spent time, and I know Jim did as well, in both locations. The response, I think, I'm going to say as having introduced a number products over the years, it's very positive. And the reason it is positive is the problem the physicians face today is that the patient comes in and they start out by giving them eye drops. And we have to realize most of these patients are substantially over 65. And doing these eye drops and making sure you get them in on a regular basis happens correctly, not only in time but also getting them in your eye versus running down your cheek, et cetera, et cetera.

And when the physicians begin to lose that discussion with the patient by saying, are you taking your drops, and they say, well, I try. Well, you know your pressure is up; you've got to do better.

This goes on for a little while. The physician is reluctant to move into a little more severe type of intervention.

By coming to them and saying, we have this product, the MicroPulse, which you have all heard about and seen and read that provides limited to no tissue damage, it has a very safe profile, gets people start to thinking about, oh, here is a solution that says I don't have to tell Mr. Jones again one more time he's got to do this. I can treat them, the procedure takes about eight minutes, and the results are showing in both a clinical study and multiple posters presentations at seven different university settings that it's safe, it reduces pressure, and it stays down.

So we really don't get into discussions about pricing. We get into discussions about how fast can we send the demo, things of that nature. So it's very exciting if the positioning is right. And as I said earlier, I think marketing companies -- department did a great job at identifying the problem. Engineering did a great job of designing a product that fits in a price point that works. So I'm pretty happy.

Jim, when you put together -- and Will too, obviously, and the Board -- but when you guys put your guidance together and your 2015 plans, was the glaucoma business going to be in the seven-figure range? In other words, $1 million or more, in your thinking?

Yes. We got a stage launch, which we support just getting us over $1 million for the year. And we are staging it because, as Will identified, there's a lot of excitement. There is a little bit of art for the doctor in how they actually apply. It's very straightforward procedure. As Will mentioned, it only takes a couple of minutes. But there is quite a bit of art at just understanding how to do it.

So we really want to make sure that we have time to spend with the doctors to train them on that to make sure they get good efficacy. So we are staging the rollout. So we have a fairly sensible number of units that we are looking to track to, but we would be looking to generate north of $1 million this year.

Okay. And then Jim, you and I talked about the new product that I saw at the [ASTRIS] meeting. That nifty surgical tool that could be used both for glaucoma and for other uses. Could you update in terms of where we are from a likely launch into the US market?

Yes, that was the iClip. This is this very microscopic -- think of it almost as a microscopic stapler. It allows for wound closure in eye surgery situations. The original target that we're looking for is the trabeculectomy. We think it's very, very beneficial in that situation.

We have made great steps of certainly the prototyping on the product. Probably the biggest risk item, if you like, it will be continuing its progression through the FDA process. We've had some very good early dialogue. We feel we have a path that we can move forward on. And presuming that we can come back to the FDA with the answers to their questions, we're looking to see if we can't move that through and therefore have it cleared and have the product available for commercial offering right at the end of this year, beginning of next year. Probably, as I said, it will really depend on how integrative the FDA process is.

And what about overseas, Jim?

For use overseas, Larry, you mean?

Yes. For sale and use overseas.

I think initially at the moment, we are pacing -- how can I put it. Our pacing with FDA and our pacing on the development is concurrent. So we're kind of saying we will stay focused here. If for some reason we were to find that that becomes a longer lead item, maybe then it becomes relevant to look at trying to bring it out in overseas markets because it's common sometimes to do that if you feel you can get the local regulatory clearance a little bit easier.

At the moment, as I said, we seem to be making good progress here, so that's our focus.

Okay. Got you. Thanks.

Jason Stankowski, Clayton.

New last name, but that's okay.

We understood you were when they said Clayton.

Good job in another good quarter. I was just curious as you look at the glaucoma opportunity, being down in one of the conferences, I was kind of impressed with interest from docs as well. Is our manufacturing capacity up to the task? Are we able to add extra shifts if the poll becomes very good? Or do we have to think about partners and other outsourced manufacturing if things ramp in the back half of the year?

We have the capability of doing it here. We don't need to get extra partners. We could easily do an extra shift. We could easily do -- we have a partner now called Generate that makes a lot of our laser components for us and does some assembly. So that's not an issue.

I think it's -- really, Jason, it's the understanding of the mix between probes, whether they are MP3s, G probes, et cetera, and the laser. By that, I mean I place the laser -- are they using five per month? They using 10 per month? 20 per month? -- and making sure there's a controlled process on that because the worst thing that would happen to us is to sell a lot of these lasers and then not be able to supply the probes.

So that's the reason why Jim talked about the staged launch. So you get the model right. We are going out and we're saying, all right, it's going to be between 5 and 20 probes per month. What is it? And that gives us a chance to be able to produce at the level we want before we release it to all our salespeople including internationally.

Are we producing the probes ourself, or is that outsourced as well? I would have thought that would be the least gating factor. Maybe I have a misperception there.

Jason, you're correct; they are outsourced. We use third-party on the probes.

Can they scale up if we need them to?

Yes, yes, yes, yes. To Will's point, we just want to try and understand the throughput rate, if you like, that we're going to start to see. But yes, as you said, it's easier to have that in the hands of third parties because they can scale more quickly.

And is that more because you have to make volume commitments to know your pricing once you have things settled in here in terms of the rate, so you don't want to over-commit? Just trying to understand that logic.

Well, typically, you're going to take multiple weeks, if not a number of months, to rebalance your supply chain at any one time. If you come out too fast and you find out that your volume rates per box is too high, you can get yourself to basically run out of air for a little bit. And the biggest thing here is we want to make sure that the procedure becomes a habit to the doctor. So you could argue that if the guy basically stops out for one to two weeks, is that a big problem? Well, then you have just lost the habit for two weeks, and you would rather not do that.

Right.

So we would rather have them placed out with people, start to understand their volume rates. And then we do buy ahead -- we are buying ahead a couple of months. But we're still talking about relatively small numbers as we scale up. So we just want to make sure we understand the rates and therefore we get the forecasting and commitments lined up properly.

Can -- you know, you -- I think the group that was using our control group or test group over the last -- what, it's got to be about a year now or so -- sort of the proof-of-concept group. Can you give us any feedback on where those doctors are in terms of have they continued their interest in the product? Are they being weaned off of the test group pricing and turned into commercial customers? Are they still using it in their practice even though perhaps they are paying for it now rather than just getting it for free?

Well, I can definitely tell you that we are weaning them onto the commercial products. So that's underway. So they are all being moved into that, and there's been no pushback on that at all.

I did have a chance to meet with the sales guys on the East Coast in April, and we were fortunate to have a visit by one of the doctors -- one of the key opinion leaders, Dr. Radcliffe. He made reference to the fact -- the actually has three sites that he operates in the New York area, and he actually was claiming that he carries his laser in a backpack as he moves from site to site to site because he doesn't want to be in any site without opportunity to do it. So I think that's a pretty strong testament that he's found it a very useful tool in his arsenal.

His volumes are good. I did ask him why his volumes weren't better, and his answer was he just gets busy. So I think that's one of the reasons why we talk about making this -- we have to make sure we focus and spend time to make it a habit -- high-profile usage. But he was very, very keen, and he was talking to the sales guys and explaining his enthusiasm. So it's great.

Yes, hopefully they sold him two more users so he doesn't have to have one under his arm all day. All right. Good to hear it's going well. Thanks a lot for the hard work.

(Operator Instructions) Stan [Lane], [Lane Family Investors.

I understand what our proprietary position is with these products that you are introducing and developing in (inaudible) China. So what do you feel is the protection on the products that you are developing for glaucoma?

I'll respond first, and then Jim can jump in. I think, Stan, the protection comes in the beginning from three sources, one of which is intellectual property. You've heard us talk about the patent being issued on the iClip. There's a patent on the MicroPulse PIII probe. And on top of that, the other protection has to do with the way we manufacture this using an RFID tag system that prevents others from tapping into our laser by producing some other probe and then trying to get our -- to work with our laser. So there's three mechanisms.

The other part that I think the protection comes from the standpoint -- and you may have heard Jim talked about this in the past, which is we tend to call this an appliance versus a full laser system internally. And that is because we have tried to find a way to make this product -- this laser product specific so we can reduce the cost structure so that we can come up with this model, which Jim has described earlier, about razor/razor blade. Vis-a-vis, meaning the laser is so cheap we can put it in on a contract basis for the use of our probes. And then it becomes a rapid real estate grab. And our pricing structure is such that I think we have a substantial window in front of us before somebody else shows up.

So commercially you feel very comfortable that we're not going to get a lot of copycats -- cheap copycats?

Well, I think to my comments in my prepared remarks talked about I think IRIDEX is relevant again. We are having people watch and hear what we're doing on a constant basis. So we don't get to sneak up on people as fast as we used to. So then we have to be a little more precise with what we do.

And in the past, I've developed products -- developed new things with some IP and whatever. And in the beginning, your price is so high to make all your margin up. So what that does is attract so many competitors that you are fighting them later. So Jim and I spent time picking out the right pricing model. They gave us the margins we want, which are substantial, but not to the point where they are greedy, which attracts a lot of competitors.

So I think we're in pretty good shape. We're certainly going to find out. So far I'm pretty happy with the results.

(multiple speakers) But to answer your -- just a second, Stan. To answer to your question, I can't ever say we will never have competitors. They will show. I guarantee you.

Okay. So in your -- you seem to be volume or dollar sale limited. When do you see us start breaking out a little bit from our past history? We're doing good, but we're not doing what I call great. Do you see that occurring in the next year or two? You are doing -- now you are trying to model the program. So when do you stop modeling and start really being able to sell the concept? [Glaucoma], you don't have the clip yet, so you can't sell that. When do you see sort of a breakout, a change in what we've been used to the last several years?

If you are asking for when do we see greater uptick in the increase in sales, I can sit here and look at Jim and come back and go, well, when we started talking about these things, our quarters were less than $8 million. Now we are reaching right around $11 million to $11 million-plus. That's a pretty good increase, and I expect that they continue to go up.

Now, the issue -- what we've had until today has been it's very lumpy. It's hardware related. You could have a good quarter or a weak quarter, a good quarter, a weak quarter.

Right, right, right, right, right.

Now we've got a program in place that we place the laser -- and this is what you're talking about. Can we get exponential growth? You place a laser, they use probes every month; the next month you place new lasers, they use probes every month. And after about a year or so, you've got this install base using probes that is on top of what you sell in hardware going forward.

So I think what you are seeing, you are talking strategically and you are asking when that exact time is. And that -- I will say an inflection point starts to increase up a little bit, even higher. It's probably 2016. I think you'll see -- continue to see growth rates that are going to stay in the 10 -- so we've always said if we go better than 10, we should get upwards of an A. Less than that, we shouldn't. And I think we can start seeing some (technical difficulty) in that will we have this exponential growth caused by the consumable that is captive to our product.

Do we have the marketing and sales capability domestically to do higher growth?

Sure. Yes. The thing that Jim did a couple of years ago is buying the sales channel from Peregrine when we made that deal. We now have 30 people in the field. 10 are on direct and 20 are independent. And a lot of those guys that are independent have been selling glaucoma products. We can touch a lot of physicians with 30 people, both in retina and glaucoma, along with the comprehensives.

Okay. So the margin on these new products would move us up from where we are. We've been in kind of a range of in the 50% range. Do you envision that we can move up the curve, especially with these unique disposables?

Yes, Stan. Yes. As we have counted in the past year, that's definitely been part of the long-term plan was to get to -- an issue was to get into the 50%, which is where we are now. And then to your point, once we start to seed the market with the Cyclo G6 appliance and we start to see the pull-through on the probe side of the equation, the probes are one of our better-margin products. So we are anticipating -- we're going to take this up and get us to the -- we have always set ourselves a longer-term goal of 55%, and that's how we are planning to get there.

And the show -- the response you got from the show was extraordinary?

I will respond to that, Stan. I would say yes it was. There was one thing that became even very exciting for me besides our posters that we knew about was a poster presentation from a university in Mexico City. It was looking at glaucoma and the cost to treat their patients in their country. And they said that the cost of treating glaucoma was reaching 40% of the personal family income. That (multiple speakers) unsustainable. We've got to find a new way to do it. And he saw our poster, and he was over at our booth and was asking me to get a hold of our Mexican rep to go see him.

These things -- this is really kind of -- I find to be quite exciting.

So this is really a break. Well, that's good, that's good. Okay. Thank you. I don't want to tie your call up. Thank you.

(Operator Instructions) There are no further questions at this time. I would like to turn the floor back to Mr. Will Moore for closing comments.

Thank you, operator. And thank you all for listening today and participating in our call. I hope you can understand how excited we are in regards to the glaucoma initiative.

The one thing I'll say with this is we have to make sure that we maintain our patience with this passion because the technique that Jim talked about is critical, as well as a continued supply of our product, both in lasers and probes. And as we get that process well oiled out, I think we can see a substantial ramp in the upcoming quarters in our revenues.

With that, I will say thank you, and look forward to talking to you in the future.

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