Greetings, ladies and gentlemen and welcome to the IRIDEX Corporation First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Will Moore, Chief Executive Officer for IRIDEX. Thank you, sir. Please begin.

Thank you, operator. Good afternoon and thank you for joining us as we discuss the results of the first quarter of 2014. My name is Will Moore, and I am the CEO of IRIDEX. Today, I am joined by Jim Mackaness, our CFO and COO. Jim and I will be delivering some prepared remarks related to the quarter and to the business and then we will open the floor for questions. Before we get started, Susan Bruce will read the required Safe Harbor statement. Susan?

This conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934 as amended relating to global and domestic market conditions; demand for the company’s products and market acceptance of the company’s new products such as MicroPulse enabled laser devices, trends in the global healthcare marketplace with respect to the treatment of eye diseases, such as diabetic macular edema and glaucoma, development of new products and new applications for existing products, the company’s growth strategy and growth strategy and growth opportunities, including acquisitions, technology investments and strategic relationship, pricing of the company’s products, the company’s operating expense controls, the company’s share repurchase programs, and the company’s financial outlook and performance in the remainder of fiscal 2014 and future periods. These statements are not guarantees of future performance and actual results may differ materially from those described in these forward-looking statements as a result of a number of factors. Please see a detailed description of these and other risks contained in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013, which was filed with the Securities and Exchange Commission. Forward-looking statements contained in this conference call are made as of this date and will not be updated. I will now turn it back over to Will.

Thank you, Susan. The first quarter of 2014 was another excellent quarter of double-digit revenue growth for Iridex. We generated $10.3 million in revenues, up 16% over the first quarter of 2013. We continue to see growing demand for our products in the marketplace both in the U.S. and internationally. And our proprietary tissue-sparing MicroPulse technology is gathering increased support from physicians as a first line treatment for a variety of ophthalmology disorders. As most of you know, MicroPulse represents an important part of our future. As the trio of leading ophthalmologists, Drs. Ike Ahmed, David Gossage and Elias Reichel told a room of approximately 300 ophthalmologists this week at the American Society of Cataract and Refractive Surgery Meeting in Boston. MicroPulse is a unique and disruptive laser therapy. What is distinctive about MicroPulse is it is allowing the treated tissue to cool between laser pulses. This means doctors can’t perform laser therapy without the laser treatment damage associated with continuous-wave laser procedures. Treatment without damage means that laser treatments can be used by more doctors in more situations, including diabetic macular edema, glaucoma, and possibly advanced macular degeneration. There is a growing body of clinical anecdotal evidence that it is a safe and effective procedure that provides positive durable outcomes at a reduced cost compared to the prevailing drug therapies. That’s a critically important advantage when you are competing in today’s global healthcare systems. To give one example, physicians, healthcare systems and payers in the United States and throughout the world are today struggling with the impacts of aging populations and the dramatic growth of diabetes. A recent article in New York Times by Lapinska at the Yale School of Medicine describes the debilitating effects of diabetes on society and how it is becoming an enormous global healthcare problem.…

Thanks Will. As we noted in our press release and Will’s comments our revenues for Q1 2014 reached $10.3 million, up 16% from Q1 2013 revenues. Our business is typically slower for the first quarter when compared sequentially to the preceding fourth quarter. However, given the continued underlying strength we are seeing in our business our total Q1 2014 revenues were down only a modest 2.5% from our record sales in Q4. Overall, system sales in Q1 2014 were $5.5 million, up 28% from $4.3 million in Q1 2013 with year-over-year increases both domestically and internationally. On a sequential basis system sales were 8% lower than the $6.0 million reported in Q4 2013. Our domestic sales – system sales were slow out of the gate in the first quarter, but picked up later and ended up 18% over the prior year quarter with good momentum as we exited the quarter. International system sales continued to be very strong throughout the first quarter and were up 31% over last year’s first quarter. We continued to see sales of our MicroPulse enabled IQ products becoming a larger portion of our product sales and sales of TxCell delivery device outstripped our ability to supply. Recurring revenues were $4.8 million in Q1 2014 compared to recurring revenues of $4.5 million in Q1 2013 and Q4 2013 and the increase of 6% in both prior periods. We did benefit from the addition of revenue from our independent sales force this quarter compared to Q1 2013 and therefore we were pleased to see sequential growth as well. Overall, gross margins in 2014 first quarter were 48.9%, up 1.6% over gross margins in last year’s first quarter, which is a good result. Our direct margins improved in aggregate across our product lines increasing from 66.3% in the…

Thank you, Jim. To summarize my earlier remarks, we believe we are well-positioned to take advantage of the current macroeconomics and demographic trends in the global healthcare marketplace. We achieved double-digit revenue growth and see no reason of why that will not continue. We have a unique disruptive technology, MicroPulse. It is clinically proving itself on a daily basis of the safe and effective treatment for a very large and rapidly growing healthcare issue in ophthalmology today. For diabetes and DME, an absolute enormous global issue and for glaucoma and possibly age-related macular degeneration, which are becoming significant global issues given the fast growing post 65 demographic. At the same time, we have created a kind of company that can address these large and fast growing issues. That’s been our goal since I became CEO and I believe we have made huge strides in our ability to be successful in these efforts. Our focus remains on profits. In fact, our cost reduction program is just that, but it also says we are having our eye on the future as growth rates increase and we are delivering new innovative products. I’d like to thank our employees and partners for all their hard work and your interest in IRIDEX. With that, I will turn the call over for questions and please one question with a follow-up question and then re-queue. Operator?

Thank you. (Operator Instructions) Our first question comes from the line of Larry Haimovitch with HMTC. Please proceed with your question.

Good afternoon, Jim and Will.

Good afternoon, Larry.

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

Yes, on the systems.

Not the entire product line then?

Correct, yes.

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

Well, then we do the recurring in aggregate. So we don’t split out the recurring by region, but overall, we had a domestic of 47% and international of 52% in the overall mix.

Okay.

So, which lay back us in there, but that’s shown a continued swing towards the international stuff.

In the quarter, I noticed, as you said, Jim the receivables – rather the inventories were down. I see you did a good job on receivables as well. I am assuming there was positive cash flow in the quarter?

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

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

Thank you.

Thanks.

Thank you. Our next question comes from the line of Sam Bergman with Bayberry Asset Management. Please proceed with your question.

Good afternoon, Will and Jim. Nice quarter.

Thank you.

You are welcome. A couple of things. And then I will get back in the queue. Salient Medical from Canada, you recently aligned with them, how big a sales force do they have? And when are they going to be up and running?

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

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

Well, that’s kind of a mixed question, because Peregrine is on the supply side partner relationships and the Salient is on the distributor relationships. We will continue to migrate and work our way through our distributor relationships making sure that they can stay on point with what we want with MicroPulse. And if they can create it, they will select additional ones. On the side of our partner relationships, we are always looking for ways to increase the supply chain efficiencies and improve our revenues. So we may do it either through a partnership or through small tuck-in acquisitions.

Thank you. I will get back into queue.

Thank you. Our next question comes from Joe Munda with Sidoti & Company. Please proceed with your question. Joe Munda, your line is (open now), ask your questions. Joe Munda - Sidoti & Company: Can you guys hear me?

Yes we can. Joe Munda - Sidoti & Company: Okay, sorry about that I had it on the mute. Real quick just taking a look at the income statement, nice growth on the top line, but I am just wondering sales and marketing was up 20% year-over-year outpacing the sales growth and I know Jim had made some comments about adding to the bench here and some of the marketing activities that you are involved in obviously are helping the top line growth. I am just wondering how should we look at going forward into the back half of this year, are we still going to expect sales and marketing to be outpacing the revenue – the top line growth?

No I think the one phenomenon just to remember is that we picked up the Peregrine independent sales force in April of last year. So I think when you compare your sales of last year – this year with last year you got to remember that there is that step up that’s going to just happen as a one-time as we get on to comparable quarters going forward. So I think that’s probably one of the big drivers there. But I would say that we certainly are looking for opportunities if you like discrete opportunities I will refer to them like we just did with this ASCRS show where we do decide to sort of go a little bit heavy on marketing that we would classically if we think the audiences is there and if we think the proposition really makes sense. But generally we should see – we shouldn’t see the sales and marketing outpace in the revenue. Joe Munda - Sidoti & Company: Okay. And then my last – my one follow-up here is just taking a look on the website, you guys have a lot of events scheduled and I know you touched on some of the commentary, but can you give us some color on what you expect from the future events and how you think that will continue to drive adoption towards the MicroPulse?

Joe, you are speaking of the events that like EURETINA and ESCRS and AAO. Joe Munda - Sidoti & Company: Yes and then I saw there is one in Hawaii I think was…

Yes, those are ones we have – to give you an example about a year and a half ago we had a workshop in Las Vegas and then Hawaiian Eye on MicroPulse. We had 25 people attend. Last year at EURETINA we had a little over 100 and this year at ESCRS we had over 300. So I think it will drive additional adoption. The things that – what we have done is there is we have been consistently surgically related retinal company until MicroPulse came on track. And we started to transfer ourselves over to this medical retina and then which leads us into the comprehensive space. So there will be some what I will call market awareness, educational dollars that will spent, but I think it’s well worth it from what we are doing and the sales revenue coming from it. Joe Munda - Sidoti & Company: And if I may just one other quick follow-up totally off topic, Alcon reported and obviously Bausch & Lomb what they have going on with Valeant, if you could give us some sense of what’s going on in the industry as far as what you are seeing from your competitors and where you guys stand and how you feel in the landscape going forward?

Well, I think what I see is I see some prices that are being reduced in the continuous wave lasers, that’s pretty competitive landscape but I think we are holding on and gaining share there. And then we are seeing increased pricing on our MicroPulse because it’s really a modality that no one can compete with. The areas that we are focused on diabetes, glaucoma I mean there is a – I mean it’s like the tides raising up and bringing more and more patients into the mix of I don’t really see them – I hate to say this but I don’t see them as competitors, my biggest issue and worry has more to do with it how drug companies respond. Joe Munda - Sidoti & Company: Okay. Thank you.

Thank you. (Operator Instructions) Our next question comes from Larry Haimovitch with HMTC. Please proceed with your question.

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

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

Could you quantify what that – how much large order means, a couple of hundred thousand?

They were 17 lasers plus TxCells.

So….

It’s those they sell and you can look at some place around 50 grand.

I think we didn’t make reference to, because it wasn’t in the – we have normally called out tenders, I think it’s great question, Larry, thank you for asking. You didn’t really hit the radar screen since it wasn’t like a tender it was a situation where I have distributed just basically came to us with a unusually large amount of business.

Yes, yes. It’s great that you got the visit. It just concerns me obviously, next year’s first quarter we will be looking at the fact that you had a big, big order this quarter. And therefore, you have got a tougher comparison.

We said that last year.

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

Yes, yes, you are correct.

Okay, great. Okay, that’s all I have got. Thanks.

Thank you. Our next question comes from the line of Brian Lancaster with Clayton Partners. Please proceed with your question.

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

Okay. So we are always excited to talk about something like that. The show has not been a big one for us in the past. In fact, we generally had a 10/10 or maybe even a 10/20 booth, so it’s pretty small. This year, I think it went to 10/30. The traffic was quite substantial. These are doctors that are predominantly cataract refractive. And so we are kind of on the periphery of their excitement level. They spent a lot of time over Zeiss and things of that nature, but our booth traffic was good. We sold lasers why we are there? The response from the (indiscernible) was quite substantial. It wasn’t easy to get to, you had to lead the convention floor, go across the skywalk to a hotel. And when you have an audience of 300 people that are really brand new customers, because they are all comprehensive, they are not – I mean, they do a little retina, do a little glaucoma and stuff. So, I think the point we are trying to make there is marketing is doing a phenomenal job of getting the message out in regards to the benefits of MicroPulse. At the same time, we are starting to see these studies percolate up and become visual or publish one was Dr. Ahmed’s presentation on glaucoma, one year of multi-study center study with the follow-up data, which is very good. We had a study accepted for publication in this audience out of Singapore. I am waiting for the date that when it’s going to be published. We had another study published in Europe. So it’s all working in this area. It’s all brand new for us. And my excitement has to do with glaucoma and the budding support we are seeing in the AMD side.

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

Thank you.

Thanks, Brian.

Our next question comes from the line of Stan Mann, Private Investor. Please proceed with your question.

Hi, gentlemen. Good job.

Hi, Stan.

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

Yes, I mean we are always looking at ways to utilize the cash on hand. We do the share buyback. We are always on that – we are on the looking for smaller tuck-in acquisitions but they have to be right for us because the one thing I don’t want to do is go out and buy something that takes our eye off the MicroPulse. So we have to be strategic about it and we will see I mean it’s being used, but it’s not going to be used foolishly. We have made investments in the development of the cost reduction program we have made investments in buying back shares, we made investments in new product developments. Jim mentioned the glaucoma product coming out and there is no other product behind that. It’s being utilized.

Okay, but you don’t see a Bolton on something near-term that makes sense that we will utilize say half of it significant?

Well, that question is really difficult for me to answer. That would be see – look we are always looking for something whether we find something or not I don’t know, I won’t talk about it and tell it’s available.

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

So Alcon continues to be a licensee of our technology on the Green Tip Cannula and we are actively working with them for them to sell our Green Trip Cannula product. So we have that relationship that’s what we have historically had in place. And we do continue a dialogue to see if there are ways to broaden it, but I wouldn’t want to sort of lead any expectations or anything that’s imminent, but we continued to work with them, excuse me.

Well, that’s if they are a small customer relatively?

Yes.

They are not significant and they are not a potential licensee of the MicroPulse or one of the newer technologies?

I wouldn’t say currently because they are focused on the surgery suites they do have a laser, but it’s a continuous wave length it was sort of laser that satisfies the surgery needs. MicroPulse that we are focused on is sold into the clinic and as a multipurpose laser. So given where they are and where their focus is it doesn’t seem that there will be an imminent opportunity.

Okay. Thank you, gentlemen. Good job.

Thank you.

Thank you. Our next question comes from the line of (indiscernible) with Maxim Group. Please proceed with your question.

Good morning rather afternoon guys. I had a quick question to follow-up on the tradeshows is there a way to quantify kind of conversion rates between the amount of people that stop at your booth or go to – meet you guys at the show and then eventually end up buying a product. And I understand it was probably very difficult to quantify that but…?

It’s difficult to quantify. I will tell you what we do, maybe it will help you.

Yes.

All leads generated whether they are from tradeshows or inbound from the website etcetera, all are get dropped into our salesforce.com. And what we do is we have inside sales people that start to call them, we put it and we touch them 1, 2, 3, 4, 5, 6, 7 whatever number of times if we take. We have analyzed the point and say that most people don’t buy until after they have been touched at least five times. Therefore we have the five times touched coming from here where it’s not expensive by sending a sales person. Once it’s gone over five it’s turned over to sales person. The sales person then has to respond back and fill the data out on salesforce, so we track that. And we give all these leads point systems if you will by depending upon we send something to doctor to the open up, not open it up, they open up they get a point, if they don’t and once it hits at certain level it’s time to close and we send somebody there.

Okay.

Track that from a tradeshow, I can’t because it drops in the whole thing.

Okay, alright. So, then the follow-up question to that is of the people in the CRM that you guys are tracking and calling on, is there any way to quantify conversion rate for that? And that could be from all sources that gets dropped into the CRM, any way to say, okay, we have 1,000 people in the CRM and eventually we convert approximately 10% of them?

Yes. We do look at that internally, but I would have had that, we have had that question, I mean, that’s a very soft metric that we obviously spend a lot of time on looking at just for the very reasons.

Right.

But we don’t make it publicly discuss.

Okay.

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

Understood.

Thank you. Our next question comes from the line of Joe Munda with Sidoti & Company. Please proceed with your question. Joe Munda - Sidoti & Company: Thanks for taking the follow-up. Real quick, guys, the company has been around, obviously, for a long time. And I am just wondering, how many, I guess, it’s a follow-up kind of to the previous question. I want to get a sense of how many people may have or docs have left using your product to turn to the drugs and now you see them coming back to you. I want to get a sense of how that’s going and how that conversion rate is occurring?

So I am going to try to clarify something, Joe. It’s like all our products for the years we are in business were surgically related dealing with retinal surgery detachments, tears etcetera, etcetera. The products that we are selling today are going towards the medical retina and glaucoma guidance. So, you are seeing the MicroPulse going out, it’s not a replacement to existing technology. We still sell a lot of continuous wave lasers to replace those. When you see the MicroPulse sales, you are seeing new customers coming on board, not 100%, because a lot of people will do both medical and surgical and they have got IRIDEX and they see and read about MicroPulse as they own both. We are not seeing people calling us up and saying oh, here is my old laser, I want to get a new one with it, that’s not the point, when they get a new one. Joe Munda - Sidoti & Company: No, no, I am not. That’s not what I am trying to say. I am just saying guys who have used continuous-wave in the past, right, have gone to treating the disease with going to drugs and then saying wow, the cost benefit for me going back and using my laser – and wow, this new MicroPulse laser. I am just trying to get a sense of that, that’s what I am saying like….

Okay. Yes, I think that was at the convention last week. That was a good question that came from Larry Haimovitch. We were talking about it. It’s the doctors it was twice simple to make a decision to go from continuous-wave lasers to drugs, because it gave you an acute response. I mean, instantaneously the drugs helped. And that was better than creating collateral damage caused by the continuous-wave laser. What’s happened is their business model has gone from a low volume, high margin business of doing a lot of surgeries to a low margin, high volume business. And they are looking at the situation with the infections and the non-responders, which can be as many as 30%. They are starting to look for alternatives and that’s we call it depends on swings from continuous-wave to pharma back to MicroPulse or photo simulation. That’s what’s happening today. And I think to quantify it is we are probably in a baseball metaphor in the first inning. Joe Munda - Sidoti & Company: In the first, that’s exactly what I was looking for. Okay, so you are in the first inning. And then just one follow-up, housekeeping item, Jim, you spoke about R&D and the new glaucoma system that you are going to be launching, is there any significant CapEx associated with that? And if you could let us know what CapEx was in the quarter? That would be great. And I will hop back in the queue.

So, CapEx for the quarter is about $100,000 and not a lot, there is a little bit of tooling on some of the consumable elements. We had to get those out, but again, I don’t think I was told it’s going to add more than say $100,000 for the CapEx for the year in tooling.

Thank you. Our next question comes from the line of Sam Bergman with Bayberry Asset Management. Please proceed with your question.

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

It was just a couple of orders right at the end. So, it wasn’t a huge amount at the end. What we had was we definitely had a – we had a situation where we had our annual plan for this year and within the first, which obviously relay into the production side and you have got to get on with the supply chain up and alignment and we were virtually I think 40% to 45% of the annual plan in the first quarter, which is what put a little bit of strain on the supply chain and begin to get all of the items. We did manage to get some items expedited right at the end. So we are able to fulfill most of the orders and we just had a couple that carried over.

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

Well, it’s one of these where you sort of once we started to see it in the early part of the quarter, it took us till the end of the quarter to get expedited part in, but it also gave us a chance to raise the forecast through the supply chain for the Q2, Q3, Q4. So, yes, we have got ourselves a little bit of bringing the room to try and keep pace. Now, having said that, obviously, yes, we have the revised target, I would like the challenge of having the revised target to keep going up, if you are not I mean, but we can build to the revised target.

It sounds good. Thank you.

Thanks.

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

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

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