IRIDEX Corporation (IRIX) Q4 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the IRIDEX Corporation Fourth Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. William Moore. Thank you Mr. Moore, you may begin.

Thank you, operator. Good afternoon and thank you for joining us as we discuss the results of the fourth quarter of 2015. My name is Will Moore, and I'm the CEO of IRIDEX. I'm joined by Romeo Dizon, who is recently been promoted to our Vice President in Controller; and Timothy Buckley, our Vice President of Global Sales & Marketing. I will be delivering some prepared remarks and then we'll 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 products in future periods and market distributor, insurer, and government acceptance of our new products including our Cyclo G6 product system and a MicroPulse technology product mix and sales of Consumables, the timing and outcome of any steps that we may have taken or may take to address supply chain issues, and the impact of these issues and corrective measures on production and operations, changes to our business model including any plans to increase sales of consumable products and develop greater procedure revenue streams, future product developments, the size of the market for our products including Cyclo G6 product system, our financial outlook and performance in the fiscal year 2016, the quarterly periods in fiscal year 2016 and future periods; including margins, revenues, expenses, sales associated with the Cyclo G6 system in glaucoma product sales as a percentage of our overall revenue in future periods, trends in the global healthcare marketplace and global health trends, 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, the impact of changes in currency exchange rates on our business and operating results, personnel and sales force development, marketing initiatives, our share repurchase program, regulatory developments and approval for our products, the impact of sales cycle, tax rates and cash requirements related to tax obligations in future periods and other industry-like factors affecting our 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 2nd, 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'll now turn the call back over to Will.

Thank you, Susan. We had a strong close of 2015 as noted in our preannouncement in January. We work through our supply chain issue, putting it behind it and close out the year in strong fashion, generating a record $12.1 million in revenue for the fourth quarter. This was more revenue than we had expected and frankly we receive more orders than we could deliver at year end. I’m pleased to add today this momentum is continuing in the first quarter of 2016. And I’m confident it will built throughout the year, although I do believe we will continue to see some gross margin compression due to currency exchange rates, product mix weighted towards hardware, and introductory prices for the G6 on a global basis. Our laser product line now includes two solid growth engines. The first is our core technology, MicroPulse for retina condition. That business continues to gain penetration and clinical acceptance generating steady, stable, and predictable revenue growth on a global basis. The second is our glaucoma platform with its centerpiece, the Cyclo G6 laser system featuring MicroPulse. Based on the feedback we are receiving from physicians and patients, we see this product line as a breakthrough for IRIDEX. We launched the G6 and MP3 disposable probe in the spring of 2015 and it's already generating a ground full of interest and interaction in multiple ways, which we -- is exceeding even the high end of our internal expectations. As of the end of 2015, we had placed 116 G6 laser systems and sold about 7,000 new MP3 disposable probes. Again we believe this to be just a start because we introduced the G6 with a stage controlled rollout, especially as it related to the pace of conference presentations and data. Since then we’ve expanded our sales force, delivered more marketing muscle, including our recent European launch. Based on the reaction we received in U.S., our distribution network is looking forward to demonstrating and selling the G6 system and MP3 probes. We, again, will have a limited launch in each country making sure the training and service elements of our business are in place. In the U.S., we're also stepping up efforts to promote the G6 and the MP3 probe. We will have workshops, data presentations, KLL [ph] demonstrations and other special events at the AGS going on now through this weekend, the AAS CRS and RVO. There will be KLL [ph] Physician podium presentation from such institutions as UCSF and we'll buy providing year outcome data of up to a 40% reduction in IOP. As you know, glaucoma represents enormous opportunity for us. It is a chronic, global disease and the leading cause of adult irreversible blindness. It is a large and growing patient population effecting more than 4 million people in the U.S. and approximately 60 million people worldwide. In the recent U.S. publication it is estimated that one in two patients do not know they have the disease. It’s also estimated there are 9.4 million patients in glaucoma medications who we believe are looking for another option, something minimally invasive, effective with no side effects. We consider all of these people to be candidates for the G6 and MP3 procedures. Our estimates for the market are between 75 million and a 100 million in the U.S. alone. Based on what we are already hearing from patients and physicians, our Cyclo G6 laser system and a MP3 probe is the right product filling a void in the marketplace. A few real-life examples of patients that have really benefited from our technology includes, a female with functioning eye had developed COPD from her beta blocker eye drop med combination. Post her G6 procedure for IOP was reduced a few points and she is now a no med. A 75 year old female who could not afford the pre-meditated control her glaucoma. She had an IOP of 25 without med, 18 IOP on three meds. Post the G6 procedure, her IOP was 15 and on no meds. A 67 year old patient who is blind in one eye with an IOP of 44 and the other IOP of 29 on two meds. Post G6 procedure, IOP was 20 in both eyes and on one med. A key advantage and key differentiator of the G6 is its array of disposable probes including the MP3. The platform provides solutions for several distinct stages of glaucoma treatment. Our competitors tend to specialize in products that treat a particular stage of the disease. So, the purchase of a G6 represents an efficient investment for our customers, an example of our model of value-based medicine. From a practice management and economics vantage point, our G6 and MP3 procedures take about two to three minutes to perform. It's minimally invasive and non-incisional. It's titratable to the patient's condition, an important attribute in this area of personalized glaucoma therapy. The patient's downtime or recovery time is significantly less than other option. The reimbursement is good for the physician and the healthcare facility and more importantly, the procedure is repeatable since it causes minimal to no damage to the healthy tissue. We have a growing evidence of the MP3 should migrate towards earlier stage of the treatment and the excitement in the glaucoma community has been spreading. We received a communication from a physician in Florida today; they just saw a woman yesterday who was one of the first insurance patients treated with the G6 MP3 procedure. Before the procedure, her IOP was 22 on two meds. Both on a three week and now on in her five months follow-up, her IOP is 16 with no meds. That means that longer the procedure, the pressures remain under control, the physician can choose to perform the treatment with G6 every six to 12 months to push the time when a more invasive procedure such as implant or surgery is necessary. And the data is showing the timeframe maybe as much as here where we continue to gather more long-term data and we'll continue to share that as we move forward. Finally, the MicroPulse trademark is well respected, physicians understand MicroPulse is safe and repeatable and we have a patent on the MP3 with additional path keeps worth coming. For IRIDEX, the Cyclo G6 and its array of disposable probes provides a great new business model, with the growing install base and an increase in procedures comes a growing stream of high margin recurring revenue which has been one of our premier goals at the company. So far, we have released two other planned disposable probed to the G6, the lead product being them has an MP3. Our plan is to launch additional probes in 2016, adding flexibility for the physician and more revenue potential for the platform. Today, sales from our glaucoma platform represent about 5% of our total revenue. By mid-2018, we expect glaucoma product sales to be approximately 50% of total revenue. Obviously, that's a huge runway ahead of us and a big reason we're also excited about the next couple of years. Another important differentiator for payers, patients, and the economics of healthcare systems overall, our products deliver real value. They are effective, durable; support our goal of creating value-based medicine. That means delivering the best in medicine at the lowest possible price. I cannot overemphasize how important this is as the cost of glaucoma therapies is increasingly straining the resources of healthcare and U.S. and all over the world. Its particular important in developing countries those have major markets like china and India. MicroPulse is and will to be continually to be viewed as the value based medicine solution, which has been a different trader for us with our retinal solutions that I believe that governments and issuers across the global we'll identify the G6 platform as a cost-effective way to treat the growing population, suffering from glaucoma and avoiding the massive deicidal cost of blindness. In a similar fashion right in the U.S., we believe the value of MicroPulse technology will be recognized overtime by the payer community. As that occurs the value provided by our laser treatments compared to other new more costly technologies will be recognized and reimbursement strategies maybe developed to promote its use. At this time, I'd like to turn the call over to Romeo Dizon to summarize our financials. Romeo?

Thank you, Will. In terms of the financials, as Will mentioned earlier and as we noted in our press release today, our revenues for Q4 2015 were $12.1 million and $41.8 million for the full year. Total year end revenues were down slightly from 2014 due to the supply chain issues we encountered in the fall. Overall, system sales in Q4 2015 were $7.1 million, compared to $6.7 million in Q4 2014. System sales were $21.8 million for the year, compared to $23.5 million for the full year of 2014. Recurring revenues were $5.0 million in Q4 2015 and $20.0 million for the full year of 2015, compared to $5.1 million in Q4 2014 and $19.3 million for the full year 2014. Shipments of our Cyclo G6 probes in Q4 2015 while small in terms of absolute dollars, partially offset the decrease in recurring revenues. We expect the G6 MP3 to have a significant impact going forward. Gross margins for the 2015 fourth quarter came in at 45.3%, compared to 50.1% for Q4 2014. Our margins were impacted in 2015 by the special introductory prices for the G6, by the product mix, currency exchange rates, and lower manufacturing overhead absorption, due to the decrease in revenue resulting from the previously reported supply chain issues that we encountered in the second and third quarter of 2015. We expect margins to be improved late 2016 and should accelerate in 2017. We delivered 77 G6 lasers in the fourth quarter and many customers are already repurchasing probes which deliver much higher margins. Operating expenses for Q4 2015 were $5.0 million, versus the same as last year's Q4 of 2014. Operating expense for the full year 2015 were $19.7 million, about $0.8 million more than in 2014. The increase in spending is mainly attributable to our ongoing investments in new product development and in commercializing our products. In addition, we also incurred additional expenditures relating to solving the production and quality issues we encountered in the beginning of 2015. Net income for the 2015 fourth quarter was $0.4 million or $0.04 per diluted share, compared to net income of $8.8 million or $0.86 per diluted share for the year ago. Net income in the fourth quarter 2014 included an adjustment this company's earn-out liability of $1.0 million in expense and a credit to income tax expense of $8.8 million for the release of the company's deferred tax valuation allowance, both of which were non-cash items. For the full year 2015, net income was $0.5 million, or $0.05 per diluted share compared to net income of $10 million or $0.97 per diluted share for the year ago period. In terms of guidance, for Q1 of 2016, we anticipate revenues to be about $11.5 to $11.8 million, which represents growth of 7% to 8% from the first quarter of 2015. Finally, for the full year 2015, the company repurchased approximately 200,000 shares at an average price of $7.82 per share, approximately $1.1 million remains available under the program which will expire in August 2016. And now with that, I will turn the call back to Will for his closing remarks. Will?

Thank you, Romeo. In conclusion, I'd like to reiterate that we are all very excited about the progress we have made and the runway we see at others. We have a solid base business or retinal products that are generating steady revenue growth. On top of that, glaucoma products are taking off. We put out a fairly aggressive target number G6 laser systems and beat it. Who know what would have happened with the supply chain issue. Both way saying more time and our issue in the late summer and the fall of 2015 was never about demand. Nobody canceled order. These were growing pains. IRIDEX is a company that have been stable for around $30 million in nearly revenue when I joined three years ago. I mean now feel like a company that's headed towards $100 million in revenue and balance sheet of our value-based and our product lines is superb with both equipment and disposable so that it meets the needs of patients and doctors in society. We have never been excited about what lies ahead. We're prepared, we had a great team and there to meet to goals. I want to thank all of our employees for their outstand efforts and I also want to thank you our investors who believe our story, and understand we're doing everything possible to enhance shareholder value. With that I'll turn the call over to the operator for questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Larry Haimovitch with HMTC. Please state your question.

Good afternoon gentleman, congrats on a very exciting year, despite the manufacturing glitches. Will, I a couple of questions for you. Question number one, given how strong the glaucoma product line has taken-off, do you think to be devoting even resources to sales and marketing? I know you mentioned in your prepared remarks, you're doing that, but I wondered there's even further opportunity to really press the accelerator down and take advantage of the fact that you have a fully dominant position in the marketplace right now.

Well, I think when I saw we've expanded the sales force in the U.S., we’ve added couple of sales manages and we have territories we have been selling. So, we're doing that. But I think the real issue is for our product that much excitement. And this much opportunity, whatever you do, you better do it right, and sometimes, you have to have a little more patience with your passion and by that I mean, the product has some art and some technique requirements that if are not done -- if not done correctly, the physician position may in turn think the product is not working appropriately. And so for us we’ve taken very controlled approach to it and making sure that every doctor that tries it, used it, understands the speed at which to go around the eye and the angle of which to hold the probe so that you're not undertreating and then having expectations not met. And we'll continue to do that. We have in the U.S. released the product to everybody now and our sales are continuing to ramp quite rapidly. As far as the international marketplace, we're going to replicate what we’ve done in the U.S. Basically after thinking about it is we’ve got to get a community of physicians together that are talking to each other, that when one has an issue, they sell the other one and why it's not working appropriately and they get it fixed and it's working. So, it's not like taking a pill, it's not as much education trying to tell somebody why they need it, it's really simply an in-service point that takes maybe two to three cases.

Okay. Second question have you seen any indications of competition at this point? I'm not aware of any, but obviously you know the market better much better than I do?

At this point in time, there is no evidence of competition. As I stated in my prepared remarks, the trademark of MicroPulse is well respected. We do have a patent issued, we have another one that’s been published and we have a couple more behind that that are forthcoming and these are on a global basis. So, -- but I do expect, you can’t -- I do expect competition to come at some point in time, but I think we have the -- a head start of a quite a bit and the models that was put together by marketing for pricing is why Romeo's brute prepared remarks talked about some compression on margins. You can't sell razor blades without the razor. And so we're putting them in -- the razors or the G6 lasers in at a reduce cost to get the use of the disposables which are rewarded substantially by 2017 and beyond.

Great. And I have one more and I'll turn back in queue Will. And that is you rose my curiosity tremendously when you said G6 is now 5% of our revenue, but by mid-2018, I think you said 50% of the revenue, did I hear that correctly?

You heard that correctly.

So, what is your assumption for sales in mid-2018 or what is your assumption for glaucoma revenue mid-2018, I mean what’s the math on that? It's obviously going to be a real rocket ship of a grower for you, but just curious if you could provide a little more color beyond the percentages?

Okay. So, you know I am not going to tell you the exact numbers and provide guidance. But what I will do is let Tim give you an understanding of the model on how we reach those kind of numbers. With that I will turn back to Tim Buckley.

Hi, Larry. So, the model as Will has pointed out is based on the razor, razorblade model. And what we specifically target our objective going on in was to drive revenue per unit upwards of $20,000 to $30,000 in an annual recurring basis. So that was the proposition going in. So, what we do know -- the data that we do know in the market, there are approximately 5,000 locations that performed a farm-like surgery of some capacity, albeit cataract, glaucoma. Those are the targets. So, such as just back of envelope will do conservative side, $20,000 per laser systems 5,000 sites that’s where we get to $100 million. But the factors we are specifically watching that how is it excited is we're assuming a certain percent of those accounts will overachieve that annual revenue. We're assuming a certain percent of those accounts will buy more than one unit and we're assuming a certain percent will come back for additional. So, what we have and the excitement is we're exceeding on many of those fronts.

So, I do have one additional question on what you just said. So, if its 50% of revenue at mid-2018, Will, is most of that disposal revenue? By then I would assume most of -- much of the installed base would already be in that would be heavily disposable recurring revenue at that point, correct?

That’s not totally correct. I think the situation is -- well Tim -- the answer to your question is no that’s not correct, and I'll explain why and then I'll add a little bit to it. We will still be doing the international installs on the G6 lasers. So, you’re still going to seeing a lot of hardware going out in 2018. We just entered the European market and Australia market, the people that use the CE Mark as their clearance piece. But that doesn’t allow us to sell in China or sell in Japan or places that make triad. That will take some time. So, you will see that hardware for another year and a half to two. What Tim has alluded to, in the U.S., there is 300 accounts that do more than 50% of the glaucoma procedures. We already have over 30 of those. And the game there is to make sure that we have the highest possible percentage of those 300 before any competition comes into play. And so when start thinking about it -- and you can do the math, it's simply saying that right now we're on a run rate, doing $12 million a quarter and saying okay and we're going to be doing another $25 million in revenue with glaucoma. And that’s being done by I think 5,000 of locations, they buy between one and four instruments, each one of those instruments users 10 to 12 plus probes and you just go from that point.

Okay, great. Thank you.

All right. Thank you, Larry.

Our next question comes from Lisa Springer with Singular Research. Please state your question.

Good afternoon.

Hi Lisa.

I was wondering if you can -- could you comment on units sales for the G6 system versus plan for January and February of this year.

I can say that we're very excited that the momentum is continued in Q1 and we're comfortable as Romeo said we did 76 lasers in Q4.

Right. Okay.

But we will be out in a couple of more weeks with Q1 results.

I'll be waiting for it. Next question, do you -- have sold any units in Europe yet?

Yes.

Okay. And I know you mentioned the system has been -- you're selling the system at a discount, are you also selling the disposable probes at a discount in Europe?

No.

Okay.

We're augmenting -- and we're doing the same thing in Europe as we did in the U.S., which is introductory bundles and in the U.S., we've raised the price four times for that bundle by either raising the total dollar amount or reducing the number of probes that go with the bundle. And in Europe, we're doing the same thing. We started that -- we now understand that there's an extra layer of cost in there with the distributor, but our distributor prices are $14,500 which is the same as what we have in the retail side in the U.S. when we started.

Okay, great. Thank you.

Our next question comes from Stan Mann with Mann Family Investors. Please state your question.

Very good job Will.

Thanks Stan.

I have some significant question. As you know I have attended the glaucoma show today.

Yeah. Did you -- were you the one that bought the product today?

No. it was before me.

Okay.

But I did help your Sales Marketing Manager because rather than talk to me, I gave my customer that was answering my questions the post-discussion, but I have some serious question. And I think you can answer them. Incoming orders ships is -- have you shipped everything that's coming?

There was a background noise, I couldn’t hear that -- have we ship what?

Have you shipped all the orders that have come in or is there a backlog?

We've not shipped all the orders that have come in.

Right. Does that mean that your output is limiting our sales?

No. That’s not the case. There is -- we're doing everything we can and to improve our efficiency when it comes to forecasting. It's really easy to forecast a product that's been in business for a while and there is a lead-time for pieces parts. So, it is not -- there's not a slowdown in orders. The slowdown if you will that satisfy your point is getting the piece parts in to do the production we have the people, the capacity to meet the demand. We just need to have the parts in and we're ordering fast as we can, but some of these things have lead-times as well weeks and weeks.

Okay. But I don’t I get a feeling and I'm in agreement with Larry, we’ve got nearly $10 million in cash, why don’t we build an inventory anticipating a 20% or 30% growth, which seems to be reasonable, but we're holding ourselves back. So, Larry expressed that and I’d like to kind of understand a better use of cash. I mean we have the opportunity to grab a large good chunk market share because we're the only system and it seems like we're the best -- tremendous options, but it seems like we have a lot of opportunity and we're doing to -- it I know it’s carefully, but too slowly.

Okay. I appreciate your comments. There is a time to step on the gas and there is a time to be a little more reserved. I’ve been in the medical business for 40 years with multiple new products and I can tell you this when you get new product out the door and it doesn’t meet the doctor's expectations, there is not a doctor out there that's going to tell you it's his fault or her fault. Everyone is going to blame you.

I understand that.

And so the issue what’s Marketing has done here is spend the time creating the community through the internet and through the KLL process that allows for these physicians who get a brand new product to be able to communicate with another physicians versus our salesperson. As that community expands, the doctor are selling each other. Ones that starts, that's when you step on the gas and that’s what we're beginning to do in the U.S. We'll replicate that outside. As I said before, we went from having one sales manager to we have two sales managers and each one now has another seven plus territories in there. We’ve added extra people on the independent side and we're opening the door to go to more than 80 distributors as we get regulations and registrations taken care of.

There is a reason that we can’t -- the teams like your--

Yeah. The reason is me.

Okay. So,--

What I don’t want to do is make a mistake and have you call me up and go why isn’t it growing faster? And I don’t want to do is to spin -- there' a time, there's a push and a pull and I could spend a lot of money advertising and marketing and I don’t think it’s going to making much of an impact at this point in time. What I can do is spend more money which we're doing and developing the G6 family of probes. And we can spend more money with our doctors generating more data, so that as the product advances further, there's a plenty of data, not just for podiums, but there are different papers that are saying I’ve got this reduction, I have done this reduction, I've got this reduction and it's lasting for 12 months, it's lasting for 18 months. I'll spend money on that. And all that does for us is to be able to create more efficiency in the salesman. Every time that salesman goes into a door of a hospital or so, I'm spending $25,000 plus. If they don’t sell that product on that one call, its cost me too much money. And what I'm saying right now is not everybody is ready to answer that call to bite on the day one. So, therefore, I'm being a little more cautious.

Okay. I understand all it and I agree with care. So, -- but my experience in this industry also says if you want to grow 20%, you got to put the sales, all the assets in to back that up and you've seen to solve -- probably -- I need to tell you the problem. So, my question is when will we accelerate? When we will put our foot on gas?

Stan, I don’t know what do you mean by accelerate? I did 77 units in Q4 out of 116 for the year -- or for eight months I should say.

Okay.

That’s acceleration. And I said in my prepared calls, the momentum is continued in Q1 and it’s not like building -- to go from standstill to 100 units a quarter, there's a training part of hiring people. And for me, hire whole bunch of technicians before we start getting the evidence that this is really what we think it is. I would have bloated the OpEx line. And so we're hiring people, we’ve gone from having one tech building to now the three tech building and we have got racks out for more. Moving along and the answer to your point is there is no reason why we can’t think about having a big business and there's no reason why we can’t invest more in to it and we are. That will be in salespeople, it will be in clinical data, it will be in production, it will be in marketing cloud raw material. And on the other side of that, I will continue to invest in other new products that will meet the same kind of success that we're seeing with the G6.

All right. But we have $10 million in cash, to think about, it's okay to make a lot of money and grow a little faster. I mean that's my opinion.

Right. No, you’re correct and the team here has a perspective, the number one goal is growth rate and the number one goal is growth rate. And we're looking at a situation where it is not -- we do not believe we’re going to get paid by making $0.02 to $0.20. We believe we will get paid by taking $30 million and taking into $75 million. I'm not worried about the margins, I'm not worried about making more than $0.02 to $0.04 a share, I'm worried about growing the topline and investing in a new products, so we'll continue to accelerate that.

Okay. I've made that point. I think -- I would like to see it grow faster and --. Thank you.

Yeah. You’re welcome.

Our next question comes from Jason Stankowski with Clayton Partners LLC. Please state your question.

Hey, guys. Thanks for taking the call.

Good morning Jason.

Patience is a virtue and it can also be quite remunerative too so we're highly supportive of the measured pace you've taken to grow and not b low our cash. So, we want to grow as fast as possible, but we're pretty confident you do too, and we're highly supportive of the path you've taken, just brought $0.02 on rom that. I was wondering as you laid out the 5,000 -- the math on your 5,000 surgical locations, that's in U.S., is that correct?

U.S. alone.

That’s U.S. alone. And so you've talked about moving up the continuum of care, is the opportunity in non-surgical available to us as well or is it just there's so much pain or people won't do some of pain relief things in a non-surgical setting. How are you seeing that opportunity potentially expand your adjustable market? It's hard how to believe that you're basing your opinion on the fact that you're getting every single one of the 5,000 may be I guess if we become standard of care, but that seems like it’s a tough nut to crack every single one, but may be your thoughts on that opportunity?

I'm going to give you a quick answer, then Tim will provide a little more clarity to it. The premise when you are talking about technologies like this that are deemed safe and do no harm, physicians will explore and try things when they are looking for possible solutions. And so our theory was if we could demonstrate MicroPulse in the retina world as being safe and the community talks about -- and as we move in glaucoma, they will start where the risk reward ratio is such that if it didn’t work, it didn’t cause any problems which is very late stage glaucoma. With the idea that as you migrated and you delivered good results, they would continue to use it earlier and earlier and more often and that’s what we're seeing -- and that’s the kind of the mind set we have. Now with that, I'll let Tim give you little more clarity on those things. He is better at that than I am.

Yeah. So, the way we're addressing the market now as you mentioned Jason, it's been more on surgical setting. And the requirement has been because the preferred sedation and anesthetic requirement at this point has been driving in into a surgical sale. That being said, this technology has been excited from the standpoint of -- it has the make-up to cross that Holy Grail of moving from the surgical environment into out-patient into the office setting, which is a whole order of magnitude larger. We have non-incisional, it doesn’t require the antibiotics necessary and to that exact point, we have specific anesthetic protocols under-development as we speak that will be a catalyst to transfer it into that environment as well. And just to give it some scale, we did the math showing you a very conservative $100 million opportunity on 5,000 sites. When you look at the office setting now, we're going 18,000, 24,000 locations just in the U.S. So, we have our eye on it. We have significant clinical work that's ongoing with that. And you'll be hearing more about over the coming year.

Are there any doctors that do it in the office setting right now that we know of?

I would estimate probably about 5% of our specialists are comfortable performing the required anesthetic in their office setting. They have about -- sometime they have a minor procedure room, like a casual Permanente, or they have sterile protocols already in place. So, right now it's been -- it’s a small portion of it, but if we can move from its current preferred anesthetic to a more gentler version, we'll see that. It will be a faster catalyst.

Okay. And I guess -- that's helpful. And I guess in the spirit of Larry's and everybody else's question on growth, as you see the opportunity rolling out, I guess is the reason your -- sort of your guidance for kind of the -- I think you said mid-teens I guess, or teens for the year, is that relatively conservative and primarily driven by the fact that we have to do the same measured procedure that we did here in Europe, such that buy sort of going into 2017 or more likely to have kind of fuller picture of the fully kind of developed global demand kind of stuff, supplying and not being quite as constrained for 2017 with regard to the sales process, is that a good way to look at it?

I'm going to try to answer that question, but not sure I got it all the way you're phrasing it. I think that what we're talking about is a low-teen growth. I'm service guys, growing faster than that, possible, but I'm going to -- I'm always going to try to tell you what I know, what we can do.

Right.

And the next part of that is, I think you'll see a growth rate in the U.S. at more than that and you'll see the growth rate in Europe and CE Mark approved countries slowly ramping up until we get through the controlled launch piece. And I don't think you see all factors meaning all these places such as U.S., Europe, Japan, et cetera, cleared beyond the controlled piece. And each time they go to new country, we can do less when you talk about controlled launch, because the community is bigger. The beauty of today when it comes about internet and things of that nature, when I was running marketing departments, I was paid to be clever. Today, we're paid to be transparent and better. And the AGS, for example, has its own blog, that these doctors around the world are reading on a daily basis. And last -- few weeks ago, I was down in Argentina as that government changes, and the export rule change, I walk in a doctor's office and the doctor will say to me I'm going to make your day, I'm going to read a quote that's on the AGS site. And that's what I'm talking about, do not make a mistake in the beginning and you'll be rewarded because the doctors will sell each other. So, we will see the growth rate being -- you watch it kind of move along here this year and it will keep accelerating and as you move into 2017 and 2018, I think we can see huge numbers because it will have both hardware. And just think about it this way, let's just say -- I'm not giving you guidance, Jason, but let's say we have 300 instruments at the end of that -- end of 2016, using approximately 10 to 12 probes per month. And top of that, we're going to sell another 300 the next year. Now, you start seeing the magnitude of the growth rates and why we want to do this the right way.

Yeah. And I think -- I guess that's just -- I think you answered my question, it wasn’t -- I didn’t try to make it kind of alluded but -- so that makes sense and so it sounds like as you get everybody up and running, you sort of have a more -- whether its later this year or early 2017, you're likely to have kind of the process of getting everybody accustom to have -- to doing it right and the seeds planted correctly within the respective organizations around the world and that are telling people how to do it and believing in it. I guess along with that on the other side of the business, from what you said, you haven’t seen a material -- you have headwinds, but you haven’t seen us going backwards at all with regard to the growth. You don't see that side of the business as being a drag. Obviously -- clearly not as big as a grower, but helping nonetheless slightly over the year, that's your view.

No, I think you can look at it this way. I look at it this is what's -- three-prong approach, which is continuous way of legacy lasers. If that stays stable 1% growth -- 1% negative, that stays stable and we continue to get tenders like we just delivered 35 lasers to China off of a tender like that. So, we'll still see that and then we have that next leg of the business which is our MicroPulse for retina and DME type things. That's growing quite nicely. It’s a very stable growing business, it just doesn’t have the recurring revenue piece to it.

Right.

And then we're at the third leg of that piece which is the G6 and MP3 probe. And just to give you an idea, I mean that -- it wouldn’t surprise me at all, if I saw a number that exceeded 40,000 plus probes in 2016. They wouldn’t phase me in the slightest [ph].

That's great. And I'll get back in the queue, but anything to speak to with regard to the eye -- closure -- the Wound Closure or the surgical operation closure -- little call option we have?

Yeah. I'll speak about it. It's -- we decided to put that on a hold because we had some FDA questions and the risk of moving further forward with the FDA on that pushed us closer and closer to a possible PMA. So, we pulled back and we're gathering more data to be able to make sure when we go the FDA with 510-K that we can get the appropriate approval. And not to be coy on that, but we kind of got crunched on time and we didn’t know every single question which the FDA was going to ask. And if you submit without knowing every question, they can reject you and then say, hey I want human data. So, we made call to say halt, regroup, go sit, what's it's called the pre-sept [ph] meeting at the FDA, get all the questions laid out that you have to have and then go back and gather all that and then return back to the FDA.

Great. Thanks guys. And I appreciate all the color and good luck here in 2016.

Thank you very much Jason.

Our final question comes from George Monk [ph] a Private Investor. Please state your question.

Hi Will. A few conference calls ago, you were asked about competition and you commented that what kept you most worried was the potential placing moves by a drug manufacturers. Are you seeing anything along those lines?

Yeah, I think -- well, first of all, George, I lay awake a lot of things, but you do not necessarily -- this one is one. I see drug companies doing the following things. I see them taking meds and trying to have a prolonged period of the device -- of that med working. For example, with Anti-VEGF today, they last about six weeks, they are expensive. So, they have a choice either to reduce their cost, or to prolong the life of the drug, meaning it lasts now 12 weeks. And we're seeing that kind of stuff. We're seeing things like people trying to come up with an implantable type of mechanism that allows drugs to be dispensed on a regular basis. I see that more on -- and I'm going to let Tim answer this too in a second, I see that more on the DME side, the diabetic side, the glaucoma side, the eye drops, I'm not really worried about them doing something of that nature because that's not the problem was with meds in the glaucoma side is compliance. I don't care how long it last, I don't care how much it cost, a 95 year old person has a hard time putting the drugs in and they forget and the other parties, you're talking about a chronic disease that one doesn’t take their meds day one, they notice the difference. The doctor will notice the difference because the pressure is up slightly. On the DME side, those are all injectables, and so you go and see the doctors and the doctors slit a needle in your eye. I see that -- those two things, and we see the situation with glauco's and recent acquisition by [Indiscernible] about putting stents in the eye to decrease aqueous fluids. I think those are good things for us because it brings a lot of visibility into our space, but we don't compete with them. I mean we're -- they are incisional surgery and where we are, the patients really doesn’t want to have their eye opened up. So, it’s a different game. That eludes you George?

No, I'm here. You said that you're going to have your sales guys talk as well.

No, no. Did I answer your question?

Yes, thanks.

All right. Do you have another one?

No, that's it. Thanks. Bye

Okay. Thank you.

There are no further questions. I'd like to turn the call back over to Mr. Moore for closing remarks.

Thank you operator. And thank you to everyone for attending our call today. I appreciate the time. I appreciate your interest and support. And I can guarantee you that our team here has your interest at hard and will do everything they can to enhance shareholder value and look forward to our next quarter's call. Thank you operator.

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