IRIDEX Corp (IRIX) 2015 Q3 法說會逐字稿

Greetings and welcome to the IRIDEX Corporation 2015 third-quarter results conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Will Moore. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining us as we discuss the results of the third quarter of 2015. My name is Will Moore and I am the CEO of IRIDEX. I'm joined by Romeo Dizon, our Corporate Controller.

I will be delivering some prepared remarks and then open the floor for some 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. Forward-looking statements include statements with respect to sales of product in future periods and market acceptance of our new products, including the Cyclo G6 product systems; the timing and outcome of any steps that we may take to address supply chain issues and the impact of these issues and corrective measures on production and operation; changes to our business model, including any plan to increase sales of consumable products and develop greater procedure revenue streams; future product developments, including plans to introduce additional [products] for use with the Cyclo G6 product system; the size of the market for our products, including the Cyclo G6 product system; our financial outlook and performance in the fourth quarter of 2015, fiscal year 2015, and future periods, including margins, revenues, expenses, and sales associated with the Cyclo G6 system; trends in the global healthcare marketplace; our growth strategy and growth opportunities, including acquisitions, technology investments, and strategic relationships; product pricing; operating expense controls and cost-reduction programs, and the impact of these controls and programs on our financial results; changes in personnel; marketing initiatives, including our plans in relation to the AAO conference; our share repurchase program; regulatory developments and approval for our products; the impact of sales cycles; tax rates and cash requirements related to tax obligations in future periods; and another industry-like factors affecting our business.

These statements are not guarantees of future performance and actual results may differ materially from those described. 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. I will turn now it back over to Will.

Thank you, Susan. I am pleased to say we had a very productive third quarter. As we discussed on the Q2 call, certain challenges had arisen within our supply chain that required corrective action and which consumed a lot of energy. We now have the technical issues resolved, although production is still ramping back to normal as those fixes are being fully integrated.

I am also happy to report that we saw real progress on the commercial side, building on the successful launch of our Cyclo G6 platform featuring MicroPulse. This is the centerpiece of IRIDEX's push into the glaucoma market, which is a game changer for us. In addition to the G6, we have begun releasing other important programs in glaucoma that further our drive for more recurring revenues.

Correcting the supply chain disruption was obviously a big focus during the quarter. With the work beginning in the second quarter and carrying through in the third quarter, we are pleased to report that we have largely put this issue behind us.

As most of you know, dealing with these challenges slowed down our operations, had an impact on revenue, and added some expenses as we put in place more stringent quality systems. The short-term impact of these efforts resulted in, for the first time in 16 quarters, missing our guidance in the second quarter, but we made our adjusted numbers for Q3, returned to profitability, and see our operations largely back on track going forward.

As I said last quarter, I consider our recent production challenges to be a growing pain. It was never a demand issue or even a safety issue. These issues had no apparent impact on order cancellations, which were consistent with historic levels.

The demand for our products remain very strong. In fact, we were not able to fill all orders this quarter. It was an unfortunate disruption, but the team managed through it quite well.

Looking forward, we remain very enthusiastic about all our products, but especially the Cyclo G6 and MP3 probe, which we launched earlier this year. It is a prime example of the capabilities across the IRIDEX organization, including innovation, product development, and commercialization. The G6 system is truly unique and disruptive, and while it is still early, it is already gaining traction in the marketplace, tracking ahead of our initial projections.

As of November 3 we had delivered a total of 71 G6 systems. Based on what we see now, we remain confident we will meet or exceed our target of 100 units by the end of the year. Furthermore, the utilization of the disposable probes is better than anticipated. Some very prestigious academic centers, the institutions training the next generation of ophthalmologists, are now making the MicroPulse MP3 part of their glaucoma armamentarium.

We look forward to making the success of the G6 a large part of our presentation at the American Academy of Ophthalmology meeting in November 14 through 17 in Las Vegas.

Part of what makes us so excited about the prospects for the G6 is its potential for providing solutions to doctors and patients in every stage of glaucoma treatment. Our competitors tend to specialize in products designed to treat a particular stage of the disease. We are now a company with a solution that can be used to treat patients with early-, mid-, or late-stage glaucoma. That is a key advantage.

The G6 platform, with its array of disposal probes, also represents a prime example of the shift in our business model. With the planned introduction of additional consumable products and the development of greater per-procedure revenue streams, we are transitioning from a traditional equipment-based laser company to a treatment-based ophthalmology company. The G6 platform anchors that shift towards a recurring razor/razor blade platform, with more to come.

Early evidence shows our business model is valid. One of the teaching hospitals using the G6 platform has already purchased four G6 lasers and 264 MP3 probes. Our facility has -- excuse me, other facilities have been ordering at double the pace forecasted in our model. All of this tells us that the utilization rates we had hoped to see when we launched the product are achievable and may be surpassed.

I would like to highlight the name G6 represents an intention to have a platform that includes a dedicated laser and six different single-use probes. Right now we have released two of the planned probes with the lead being our patented MP3 probe. We intend to induce additional probes in 2016, but with just the two initial probes, some institutions are already buying 60 probes at a time and averaging more than 10 procedures a month.

As the number of lasers placed and rate of probe use increase, the market potential for G6 increases exponentially. Initial market in the United States serving the patient population for which the G6 was designed is approximately 1,500 to 1,800 locations, so you can see we are just getting started and see plenty of runway ahead.

In addition to the G6 platform, we have been busy with other new products, primarily focused on expanding our portfolio of glaucoma solutions. In March, we announced a patent for our proprietary disposable device we call the iClip, intended to replace certain suturing techniques in eye surgeries such as trabs. In September, we were granted a patent on a second member of the iClip family, a drainage device attachment for the iClip. As both products still require FDA authorization, we do not have currently an estimate for market introduction.

In September, we added a novel intraocular pressure, or IOP, monitoring device called a tonometer to our suite of commercial products for the global glaucoma market. The new device came to IRIDEX through a global distribution agreement with Icare Finland, which created the tonometer. Outside of the glaucoma space, we are developing a product that will provide recurring revenue stream for our installed base of MicroPulse lasers for retina conditions that should be ready for market introduction by mid-2016.

All the products I've just described are designed to support our value-based model -- excuse me our value-based medicine model, delivering the best in medicine at the lowest possible price. This approach is increasingly important as the cost of therapies increases, draining the resources of healthcare providers in every nation, but particularly among developing countries including such major markets as China, India, and Brazil.

We hope that many of you will take the time to visit us at the AAO this year. We are planning a high-profile symposium featuring our innovative and unique products. We have an outstanding list of speakers from around the world on MicroPulse for both retina and glaucoma, and especially the G6.

Now turning to financials. First, I would like to thank Romeo, who is here with me today to help with the Q&A. Romeo has been our Corporate Controller for the past seven years and has stepped in and really done a great job of keeping the finance organization running smoothly, including closing the books for the quarter and preparing for this call.

As we noted in our press release, our revenues for Q3 2015 were $9.8 million, compared to $10.1 million in Q3 2014 and $9 million in Q2 2015. Overall system sales in Q3 were $4.8 million compared to $5.5 million in Q3 2014.

Recurring revenues were $5 million in Q3 2015, compared to recurring revenues of $4.6 million in the year-earlier period. Although small terms of absolute dollars, the launch of the Cyclo G6 had a positive impact on this year's third-quarter recurring revenues.

Gross margins in the 2015 third quarter came in at 49.3% compared to 50.9% for Q3 2014. Margins were impacted by lower overall revenues during the quarter and reflect the currency movement creating some downward pressure on international system pricing. We see opportunities for margin improvements during the fourth quarter through volume efficiencies with anticipated revenue increases and an anticipated increase in consumable sales associated with the Cyclo G6 system.

Operating expenses for Q3 2015 were $4.7 million, up slightly from $4.5 million in Q3 2014. The growth over last year's reflect 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 retina and glaucoma markets.

Net income for this year: third quarter was $0.4 million, or $0.04 per diluted share, compared to net income of $0.5 million, or $0.05 per diluted share, for the prior period.

For 2015 fourth quarter, we anticipate revenues to improve over Q3 and come in between $11.5 million and $11.9 million. Gross margin is anticipated to be between 48% and 50%. Operating expenses are expected to be between $5.3 million and $5.5 million. And we anticipate the fourth quarter should be free of any [residual] impact from the shipment interruptions and back to a more normal pace.

Lastly, during the quarter, under our share repurchase program, we purchased approximately 120,000 shares at an average price of $7.25 per share. At the end of the quarter, we had [$1.1] million left to invest.

In conclusion, I would like to reiterate that we had a very strong, productive quarter. We managed our way through the supply chain disruption and have upgraded a number of quality and supply chain protocols and enhanced incoming and pre-shipment quality checks to be sure there will be no issues affecting our customers.

That setback cost us in terms of delayed revenues and increased expenses, but our corrective actions strengthened the Company and did nothing to dim our enthusiasm for 2016 and beyond.

We are at a very important milestone with IRIDEX, moving from a traditional laser company that is reliant on capital equipment and replacement cycles to a broader ophthalmology company with a strong recurring revenue model. The G6, which is winning broad acceptance and support from the medical community, is a great example of our innovation, product development, and commercialization capabilities. It was just launched the spring, and based on its early returns, there is a very large market runway ahead of us.

Before I turn the call over to the operator for questions, I would like to thank each and every one of the IRIDEX team members for an outstanding job during the quarter. We are all focused on producing quality products, which in turn will enhance shareholder value.

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

(Operator Instructions) Larry Haimovitch, HMTC.

Good afternoon. A couple different questions; one on the current ops. It seems to me you had really two headwinds in Q3: one was the supply issues you referred to; second was currency.

Are you in any position to give us a little quantification on what that might have cost you? Is there any ballpark number; you would say we lost x number of sales because of currency and also the supply?

As I said in the call, we didn't notice any cancellations of orders. The supply chain because it's -- the issue really had to do with the IQ systems, not the legacy or the disposable probes. We didn't see any pricing issues on the disposable probes internationally, but we did see pricing pressure on the IQ system with that.

Now when it got outside of the US, predominantly what happened is the distributors just stopped ordering while we were dealing with the supply issues. So that was the slowdown in that regard. It would really be hard for me to put that quantity on there, but I think the supply issue probably has cost us a delay in orders of maybe upwards of $1.5 million [would be my] guess.

Asking the question a little differently, obviously from past history we know that you have had some success with tenders in India and China and other places. Your two principle competitors have a real currency advantage on you in those markets. Did you notice any loss of business to either Quantel or LX, or anyone else who had a currency advantage?

I didn't notice anything with LX. I did notice there was an uptick in Quantel's activity, and that affected us because we really couldn't respond as we would like to because of the quality issue. Wasn't really the pricing. It was really that we couldn't deliver in the times they needed.

Then on a happier note, I would like to ask a little bit about the glaucoma, the G6. Obviously, you are very pleased with it; it's going very, very well.

Are there any metrics or any way we can kind of gauge the progress of this business? It's obviously doing well, 71 placements already, and you only started shipping I think in real earnest, I think you told me at one point late second quarter if I'm not mistaken. So it has done very, very well.

Can you try to give us some more quantity on the quality of, hey, it's going great?

What I'm going to do, I'm going to break that up into two parts if you don't mind. One, I will give you a couple of cases that were reported to us with just the hospital is excited about what we're doing, and then I will give two other facts which I think are important.

One, we had a report on a 52-year-old male with neovascular glaucoma and had elevated risk for incisional surgery, so they used the MP3 probe. Pre-operatively he had a pressure of 32 and he was on four meds. Post-operatively one week later, he was 19 IOP on two meds.

Another case was a moderate glaucoma patient, female, 80 years of age. Pre-operative pressures were 36 on three meds. Post-operatively, one week later 12, no meds. Post-operatively six months later 12, no meds.

Another one where we did the -- where we were doing the clinical studies, we now have longer-term data. We have one patient that was in advance of glaucoma, pre-operatively 28 millimeters of pressure and four meds. One year later 10 millimeters of pressure, one med. Those are the kind of things that get people really excited and I think that starts to lead us into this point, which I will give you in the next part, which is a little more color on the device.

The first case was not a commercial basis. It was not until March 30 this year. Since then, we've delivered over 70 units. Six accounts have purchased more than one laser. 10 accounts have had their G6 for more than six months and, of those, four of those accounts have already repurchased probes. And those were at 60 units each.

We have had six other accounts that have already repurchased probes in less than six months. We've had one account use more than 240 probes. There's roughly 300 accounts that have -- that account for the top 20% of all accounts doing 50% of the cases. Of that, we have already installed 12 accounts in that.

We've done more than 1,000 cases and I think what it gets down to are a couple of very simple things. The doctors tell us it is titratable to the patient's condition in this era of personalized glaucoma therapy. It's non-incisional, it's repeatable, it's minimal, and there's no inflation or the eye is really quiet post-operatively. And the patient downtime or recovery time is significantly lower than anything else they've done.

That is the part that gets us really excited. And I think we're really solving this problem, as we've talked about in the past, which was let's get into this what we call compliance war between the patient not taking their meds on time and the physician trying to get them to take their meds. This is a real solution for that.

As I recall, Will, the reimbursement for the doctors is quite favorable, too, which I'm sure is helping the demand as well I'm assuming.

The reimbursement is quite good. The procedure takes about two minutes and there is a fee for both the facility and the physician.

Let me ask just one more question and I'll jump back in queue. When you ship an initial order, I think you are shipping the laser and is it 100 probes with the initial order?

60.

60. And for that they pay, is it about $18,000? Is that about the ASP?

It goes between $18,000 and $22,000.

Okay. So an average of $20,000 and for that they get the laser plus 60 probes. When they run out of their probes, obviously they order more?

That's correct.

And the probe price, $175-ish?

We have increased the price. We're up over $200 a probe now.

Okay. Well, let me jump back in queue. I have a couple other questions but I can come back later. Thanks.

Raymond Myers, Benchmark.

Thank you, Jim. I want to ask two questions and maybe you can relate them a little bit, because one flows into the next.

The first one is with the G6 launching and the manufacturing issues now behind you, why is the Q4 revenue guidance basically flat to slightly down from last year? The second question is can you describe the G6 opportunity and how much and the timing of when you anticipate that contributing meaningfully to results?

Okay. So the question on the first part, as I said in the very beginning of the prepared remarks, we think we have this pretty much behind us. I didn't say it was completely behind us, so there may be a difference between what we book and what we ship is one thing. And then last year, Ray, if you look at those numbers, that was produced off of one extra week in the quarter. Last year we had, how many weeks?

14.

14 and this year we have 13 in our quarter.

Second part of your question comes with G6: When does it start to produce meaningful revenue? I think you'll start seeing meaningful revenue sometime as we move into the mid part of next year. We're still understanding -- we have produced less than 100, so there's going to be a few bugs in those as we go through that process as we get it geared up. We are not ready to open the spigot completely yet, meaning turning it over to everyone to sell.

This has only been sold in the US. And as we went through that process, in the first number of months it was only handled by Tim Buckley and Mike Scott, our marketing people. Then there was a training session in June, late June, something of that nature which the salesforce in the US started delivering it. We hope to start rolling it out next year internationally.

And I think why we're doing it in this pattern is there is a possibility that there could be what I will call a cockpit error, meaning the patient -- the physician could undertreat by going too fast during the procedure. The physician could not hold the angle of the probe perfectly to get the right distribution of light on the eye in the right place. Therefore, we wanted to go at a very controlled, slow launch to make sure we had a community of users that were incredibly happy before we started running into people using it and not listening to what we were saying.

For example, you go into a hospital and there might be 10 physicians and you train two. You want to make sure those other eight know that the other two are using it and it's working appropriately. So we're taking it very slow because the opportunity is pretty strong.

Well, good. And that leads me to my next question which is: If you look out two to three years, how much of an opportunity do you think this is for IRIDEX?

Okay. The way we have looked at it is taking -- there is roughly between 1,500 to 1,800 accounts that are billing for this type of procedure today. That doesn't include office space -- and we believe this can be performed in the office later -- and it does not include cataract surgeries, which we believe cataract surgeons will probably do this as well because many patients who have cataracts have glaucoma as well.

We modeled it out to be approximately one to four lasers per site or location, which gets us upwards between 3,500 to 5,000 lasers. With approximately 10 procedures per month at a revenue of between $200 to $250 a probe, because the new probes, the additional probes we will be coming out with in 2016 have illumination so they will be a little more expensive. And so, if you do that -- so you are looking at 10 probes per month times 12, times the number of lasers -- you start talking about an annualized market of someplace between $150 million to $300 million on probes. So it's a pretty big market.

You can go down through the number of patients on meds; there's 9.4 million of them and there's almost 2 million laser procedures done a year for glaucoma. And if you do that, take those numbers -- $200, $250 a probe -- you have massive market. So I think the market is quite strong.

That's great. That sounds exciting. Just before I sign off, do you have any comments about your partial competitor, Synergetics, being acquired by Valeant, which means that it's combined with Bausch & Lomb? Does that change the competitive dynamics in any way for you?

Well, Ray, I'd say that in two terms: in short and long term. Short term I might see some pricing pressures as the distributors who were handling Synergetics -- this is all speculation, by the way.

The Synergetics distributors might sell their probes to get out of that business because it's predominantly direct with Bausch & Lomb. Once that process is done, I see Bausch & Lomb as a very solid business who has great pricing discipline, so I think the prices of their probes will inch up a bit.

And the other side of that is I don't think Bausch & Lomb salespeople are as probe or disposable salespeople as much as they are heavy equipment. So I think the exposure is going to be less and the prices will be a little bit higher, which should, I believe, in the long term help us.

Thank you.

[Stan Mann, Mann Family Investors.]

I just have some kind of questions that continue the discussion that the Benchmark gentlemen asked you. You feel there is a market of $150 million to $300 million, so my question to you, it seems like somehow we should have a plan to gear up. That's pretty big number and if we took 30% of it, 40% for just the probes alone, it seems that we are not geared or set up to really grow rapidly once you get your 2016 pilot, your detail work to make sure the laser and the probe and everything works together to get it launched big time.

So we have a lot of cash on the sheet. And I guess my question is how are we going to take advantage of this opportunity, which is a big opportunity, before 20 other people jump in that are more geared to take the business and move with it?

I think there is a couple of answers I will give you, Stan. Whenever you have a great market, there's always a threat of competitors jumping in. We do have very good IP around the MicroPulse, both as a trademark and then in the IP on the probes. And the way we are manufacturing these probes with RFID tags going to the installed base, no one can put their probe into ours and make it work.

So we are on a real estate grab for boxes, which would assure us the long-term viability of the product. We have done a few things differently on this than we have on others and we have priced it to market. We are selling the G6 box in a bundle for $20,000. That is kind of unheard of for a laser business with 60 probes. If you did the math backwards, you are talking about a laser that in the $9,000 to $10,000 range, which is going to be hard for people to do.

And then on the other side: How do we position ourself for growth? Well, we have expanded our salesforce. We are now -- we've just added another -- let's put it, we're adding another regional manager. We are adding a few more territories.

We have got plans on the books for putting in clinical specialists to do the teaching and the follow-up education. So when a hospital buys a G6 with an MP3 probe, somebody can follow up and train the other doctors and start teaching them how to use the other five probes.

That's all on the books. That's all put forth for our 2016 plan, and if we end up with 14 salespeople, we might end up with more than that. And on top of that we still have our 20 independents.

What concerns me is the opportunity and our ability to staff and build to move to a $100 million a year company. I don't get the feel -- and I've been a stockholder forever. I don't get the feel that we are ready for a real acceleration to what I would call the big time. (multiple speakers)

You have to -- I'm sorry, keep going.

Somehow I think I have invested in growth companies that grow 20%, 25% per year and I don't get the feeling that we're moving towards $100 million type company in a -- as fast as we can to protect our asset and to make the Company what I call significant. As you know, below $100 million there is not great significance in the equity market and we're sitting with $10 million, $12 million on the balance sheet, minimum, with no borrowings. So can you kind of convince us that we're going to be ready and we have a plan to move to the $100 million or more per year?

Sure. I could just say yes, but I will give you a little more detail. I have been through those growth companies and been a part of them and I understand what has to be done.

This company was stable at $30 million for years (multiple speakers) and take that and move it to $100 million, you just can't step on the gas and say let's go. There's all kinds of procedures and policies that you have to put in place to be able to leverage your business. One of those is looking at how do we go from manufacturing 1,000 lasers to 2,000 lasers in the same place. And that's just says you have to tighten up your specs and get it outsourced so you can have other people manufacturing the devices for you as you keep coming out with new products.

That's being done. We started outsourcing last year; we have got a few products that are doing it now. I think if we hadn't had the six-month delay on the current quality, we would've had more lasers being outsourced.

All our probes, all our probes are made outside now. We have five people involved with making probes that do half our business. It's all done outsourced. So that's the kind of leverage thing that is going on in the production side.

The other side; on the sales side, we went from having eight sales people direct to now looking at 14. We went from having no independents to 20 and we are now putting together the model for clinical specialists to follow up on the trading. I'm looking at areas around the world where I can go and start building a direct operation to where I can take care of the currency issue and improve ourselves on some tax structures. All those things are ongoing.

I'm kind of a conservative guy. I don't really talk a lot about stuff that is in the planning stages until which time I can pretty much show it to you, but there are plans.

I'm worried about -- somebody once told me that your vision kind of limits what you are going to do and I need to be convinced that we can do the $100 million, $200 million because I've seen what we have done, which is a miracle, going from bankruptcy to where we are profitable and solid. What I am looking to kind of feel and understand is how are we going to go from that to what I call big time, over $100 million in sales a year?

And I think I would like to -- as we move out in the next six months, a year, I would like to hear some flesh out of looking down the road two, three, four years and kind of try to put a frame around it so we understand that.

Okay. (multiple speakers) It's always hard as a public company talking about goals versus guidance, but I will answer your question in a different way, Stan.

I don't like doing anything that is boring and having a company doing $50 million a year is boring to me. I didn't step in to take over a company to take it to $50 million, so --. I was comfortable living the way I was and I love a challenge and this is a challenge. And I see an opportunity what we are doing now that makes it exciting for me to be here every day.

You can look at other things that I've done in companies and I have the same plans and intentions. I have to have the right team in place, which means I have to have the right people with the right character that like each other and can support each other from the back, versus having a great individual contributor that nobody trusts. The team is together. They are tight and there are all looking at ways to make the business more efficient and faster and better.

It's one of those things where you've got to spend time taking people that are used to doing $30 million a year and talk to them and let them know that we're going to be taking it to $100 million or $200 million and have them look at you like they are crazy. They don't believe it until they start seeing the growth. Well, they are seeing the growth and they are believing it and I think -- I am comfortable.

I may not be the best at explaining, from my conservative measure, to say how we're going to do it all the way through. I am more (multiple speakers) I was telling you when we're getting close to it and give you an idea of where I'm headed.

Okay. So two last questions. One, will you be comfortable giving us some goals or framing over the next six months to one year? Framing, goals; not forecasts, framing and goals.

I think I'm very comfortable at this point in time to say to you I have every intention to be growing at a rate that's better than 10% over the next number of months. That's about as far as I'll go on that.

I think I explained earlier to Ray and to Larry about the model and I don't have any intention of creating a market for somebody else to have.

So I have last the easiest question. Somebody -- it seems that somebody has a large position in our company. I think 27%. Is that correct, Will?

25%.

25%, okay. But there seems to be more accumulation, from what I can see just as an investor, in IRIDEX. So is there something on that we've got another accumulator that you are aware of? Because it does seem --.

We have had accumulation. It's been public knowledge that Paragon in Dallas has bought more shares over the last number of months. They own about 11% now.

Okay, so that's public knowledge. But that's the only thing that's public? It seems like somebody (multiple speakers).

I continue to go out and talk to small boutique funds and they do their buying. I don't go to New York and try to talk to somebody to buy $3 million or $5 million worth. Waste of my time because I can't get in.

They can't find it. Anyway, I appreciate what you've done and hopefully we'll get to that over $100 million significance level sooner rather than later.

I think so and all I can say to you, Stan, is I appreciate your support and just have a little patience with your passion.

(Operator Instructions) Larry Haimovitch, HMTC.

Will, I just wanted to clarify one thing. The impression I had with the G6, it was much more office-based. I thought I heard you say a little bit earlier on the call that it was more hospital-based and I was wondering if you could clarify that for me.

I think that it -- what I'm going to say is it can be done in either place, but I do believe at this stage we're going to see more in the ASCs or the hospital, because the patient is either going to have a block or maybe some slight anesthesia or a --. It is an infrared laser so there is some slight pain to it.

But it can be delivered --?

The other part, Larry, is that the reimbursement codes are quite good for an ASC, especially if a physician owns the ASC.

Okay, thanks for clarifying that.

[George Monk], private investor.

Can you explain to me how you've made the glaucoma probes so they are not reusable?

How we've made the probes so they are not reusable?

Correct.

Well, we haven't. We've got them cleared through the FDA as single use. There is what we'll call -- what is a clock which allows for that probe to be used for a certain period of time and that is 90 minutes before it would be no longer usable.

So that really becomes the physician's -- once a physician or a hospital takes title to the equipment, I can't do anything about it what they do with it. All we can tell them is it's licensed for use as a single-use device. If they ever had a problem and they used it on more than one patient, then that would be their problem to deal with.

But it's not -- George, it's not a situation where they plug it in once and it disintegrates like a mission impossible. They could use it again if they wanted to, but at this stage we don't have anybody doing that.

So, in theory, these things could be hacked and reused multiple times?

No, they couldn't be hacked from that regard. Now, I said that as an absolute; I'm not an engineer, but the way I understand at this point in time is once that device is plugged into our system, the RFID communication system identifies that probe, what it is, what procedure it's going to do and it starts a time clock for that probe's use. Once it reaches the end of that timeframe, that probe is dead.

Got it. Okay, thanks very much. I'm a long-time investor and I'm looking forward to the future. Thanks very much.

Stan Mann, Mann Family Investors.

Yes, I'm wondering, on M&A, do you see any bolt-on or additional technology add-ons in glaucoma that could help accelerate our growth and build our potential?

Well, I see -- both in glaucoma and retina there's always a number of small companies like IRIDEX that are more inventors. The issue I have at this point in time is I really want to be careful at taking our team's eye off the ball selling G6s and getting that installed base up. So whatever we would find would have to be a product that would be what I call efficient girth, not a product that requires education, so that we could stay focused on the G6 and expanding that market.

But they are out there. I just have to have the time to do it.

Okay, thank you.

There are no further questions at this time. I would like to turn the floor back over to Mr. Moore for closing comments.

Thank you, operator. Thank you all for attending this call today. Hopefully we answered your questions and provided you the information to make your investing strategies work.

Thank you. We look forward to talking to you next quarter.

This concludes today's teleconference. You may disconnect your line at this time and thank you for your participation.