Good afternoon ladies and gentlemen. And welcome to today's Conference Call to discuss IRIDEX first quarter 2017 financial results. My name is Valerie and I'll be your operator on this call. After the presentation we will conduct a question-and-answer session instructions will be provided at that time. [Operator Instructions] As a reminder this call is being recorded today Wednesday May 3rd 2017 and will be available on the investor relations section of IRIDEX's website at www.iridex.com. I would now like to turn the meeting over to Ms. Lynn Lewis. Ma'am, you may begin.

Thank you, Valerie. Thank you all for participating in today’s call. Joining me are Will Moore, Chief Executive Officer; and Atabak Mokari, Chief Financial Officer. Earlier today IRIDEX released financial results from quarter ended April 1, 2017. A copy of the press release is available on the Company’s website. Before we begin I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of Federal Securities Laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact including statements concerning future reimbursement trend, future product utilization rates, future demand and order levels and timing of future orders for the company's product, future operating expenses, changes in personnel, product development and intellectual property related matters, the adoption and effect of Company products on its results, the markets in which the Company operates, usage and efficacy of the Company’s products, the Company’s future financial results, and the Company’s strategic plans and objectives should be deemed to be forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of risk and uncertainties associated with our business please see our filing with the Securities and Exchange Commission. IRIDEX disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 3, 2017. With that I’ll turn the call over to Will. Will?

Thank you, Lynn. Good afternoon everyone and thank you for joining us. Our first quarter was marked by combination of lower than expected financial results and significant progress towards the commercialization of our G6 platform. Starting with our commercialization process, we have obtained the support of numerous additional KOLs across the globe. Two, we have repeat customers that are purchasing multiple systems based on their positive experience from clinical and economic perspective. Three, we are continuing to see a broadening base of clinical data that support our value proposition. And four, we recently received regulatory approval in Japan, which came in early than our expectations. This ongoing momentum fuels evolutions [ph] about the prospects of G6 platform to transform our business for years to come. We have also made significant progress towards our two primary execution objectives, to expand our commercial infrastructure, so that we have adequate resources to pursue this opportunity and two, to develop new product and enhancements to existing products so we can continue to stay ahead of any potential competition from a product feature and cost perspective. Our first quarter revenues however were below our expectations with total revenue of 10.5 million versus 11.9 million in the comparable quarter last year. Our overall business was impacted by the significant expansion in transition of our sales organization over the past several months as we ramped up to meet the growing opportunity worldwide. While these activities such as hiring and on boarding of new reps, sales training, revised compensation structure, and alignment of territories to maximize the reach and penetration were all vital to our long-term success. They do result in some near-term disruption that we have been actively managing. I'd like to take the next few minutes to review several business highlights as relative progress we have…

Thank you Will. Revenues for the first quarter of 2017 were 10.5 million compared to 11.9 million in the prior year period. Revenue growth in our G6 platform for glaucoma, which grew in a low double digit compared to the first quarter of 2016 was offset by a decline in revenues in both our medical and surgical retina product lines. In the first quarter of 2017, domestic system sales decreased 4% to 2.1 million from 2.2 million in the first quarter of 2016, while our international system sales decreased 35% to 3.0 million from 4.5 million in the comparable quarters. On a global basis, we experienced lower revenues from our laser systems. Our business generates recurring revenues through sales of consumable products, predominantly single use laser probe devices and other instrumentation, as well as repair, servicing, and extended service contracts for our laser systems. Recurring revenues in the first quarter of 2017 increased 4% to 5.4 million from 5.2 million in the prior year period. The increase is primarily attributable to an increase in the sales of our proprietary G6 and P3 probes that offset the declines in the sales of our legacy EndoProbe in our surgical retina business. Gross margin in the first quarter of 2017 was 42.6% compared to 44.4% in the first quarter of 2016. Gross margin was primarily impacted by less efficient overhead resources and due to lower than anticipated revenues. Operating expenses for Q1 2017 were 6.3 million up from 5.1 million in Q1 2016. The level of our operating expenses met our expectations as we have made investments to support our commercial infrastructure including increased marketing expenses. Consequently, our operating loss in the first quarter of 2017 was 1.9 million compared to operating income of 0.2 million in the prior year’s first quarter. We…

Thank you, Atabak. In summary as evidenced by the softness in our Q1 top line results, we anticipate that 2017 will be a year of some transition as we maximize the potential and certain characteristics expanding regionally and then focus on the G6 opportunity. We remain steed fast in our enthusiasm for the G6 platform to transform our business. Moreover, we are confident that we have the right products and our expanding our influence with the right people to execute on our strategy that will deliver long-term sustainable and profitable revenue growth. I want to personally say thank you all of our employees for all of your hard work during this time of transformation. With that I'd like to turn the call over to the operator for questions. Operator?

Thank you. Our first question comes from Chris Lewis. Your line is now open.

Will, just wanted to start just dig in little bit deeper on what's going on in the sales force in terms of the disruptions you are experiencing related to kind of the expansion in territory realignment I. guess what's been the biggest area or areas of disruption and kind of what are the expectations for how long you expect this to last before you can work through some of these issues?

I think first of all the disruption has to do with just getting whole of the recruitment done. Given the fact that it takes our U.S. Director Atabak, our VP of the Marketing and myself it just takes time away from the selling activities, that's one. Two, we haven’t had this type of expansion before, so there is a little bit of just, what's going to happen to me. Salesmen always get nervous in their regards, that I think. And then the last one is, okay so what's really going to be my comp plan and how that is going to work out given what it's been over the preceding couple of years. Now to answer that question well the first part is I think what droves the, what I'll call the salesmen [indiscernible] are uncomforted by having territory changed and realigned. I think it was over the compensation issue and I think Atabak has done a great job of developing that to meet the needs of the sales force. So I think we are on the back side of that process and now it's just getting the sales people comfortable with our product lines, they are all experienced optimality reps, but we have a fairly broad base of products and there is a substantial amount of training that goes on with that. But I would say as Atabak said and I said in my calls, we're generally looking at about 4 to 6 months of our training process in getting up to the speed they need to do to really start producing at a relatively good level.

Got it, and do you feel, it's had more of an impact on specific segment of your businesses? I mean your G6, surgical and medical retina, so has it had more of an impact on one of those segments versus the others?

I think Chris, it's impacted all of our businesses and just given the magnitude of the changes in the dynamic that Will mentioned. One of the things is that as the new reps come on board we have been focusing on the G6 so we would expect that to be the one that they've got off to speed first on and has less of a you know, so less of a disruption to that business and then over time they get up to speed on the rest of business.

And moving to the kind of the probe utilization for G6, the lowered outlook there can you help -- can you just elaborate on just what you're seeing with G6 probe utilization, why that's so far this year trended below expectations and what strategies your kind of implementing now going forward to start improving that?

Sure, so similar to what we talked about before. We put our install base in the kind of three different categories. One is set of users that are using it at levels that we're happy with, call it north of six probes a month. And there's another set of customers that are more recently purchased the systems so they're not up for reordering yet, so they're still in that sort of installation phase and then there's the last bucket, it's the ones that aren’t doing, they're not ordering at the levels that we find satisfactory and ultimately where we're -- our focus is on improving across all of those categories and underlying themes across that is to improve the touch points with the customers so that they can have a successful install and have continual interactions so that they are going deeper within that practice and then also moving across the continuum of care. And a big part of that ultimately is training the physician to improve their patient selection process and to improve the user interface between the doctor with the device on the patient to improve the result. So we got a number of -- a big piece of that -- I mean the good news is you asked about timing of when we would expect to see the benefits of that, the good news is, the one that takes the longest to react to is adding the sales force and we've already done that. So we're just going to see the impacts of that sooner, so we're well into that process. And then there's also other marketing programs that we haven’t placed or will be rolling out here shortly that are intended to address that.

In terms of sales force expansion sounds like you're going to have a short pause here at least in terms of new hires, but you know do you feel like getting to 24 in the back half of this year is still the appropriate metric to look at and the appropriate expectation?

Yes, that's the plan I think what we're trying to communicate on the timing is that we as Will mentioned it takes a lot of effort across the company at the senior level as well as down to the regional managers to what add folks. And what we are trying to do is make sure that the resources are -- over the next few months are focused on training the folks that we just recently hired, before we get distracted and look to add other folks. So that basically having a stronger foundation before we move forward. So we expect the second half of the year to start that process again to look into expand into the team.

Thank you, our next question comes from Lisa Springer of Singular Research. Your line is open.

Talking about shift to the larger type customers, I wonder if you could comment on what percent of the installed base of the G6 systems is already with like a university hospital, a major medical center customer, and what will be the sale cycle with them as opposed to selling to an individua position or office?

I am going to led Atabak comment on the percentage is the universities -- but the sale cycle what happens -- and I think that’s part of Chris's earlier question about adoption, is that originally we are selling them private practice that may have maybe one or two physicians, so it's pretty easy to call somebody talking about it and get them up and going. When you go to some place like an university or a much larger ASC you have to train anywhere from two to six eight plus doctors and that’s where the timing flies. They don’t operate on the same day so our people there a little bit longer. But I think where we had in the very beginning and I'll give you anecdotally and as they -- there is a number of universities we have from right off the get go, from which we'll call the opinion leaders, the UCSF, Vanderbilts, [indiscernible] you can go through that list, everyone knows them and those jumped in right away, and they started to will, I mean it's clear, but then the situation is once you've got those -- and maybe use the term forward-thinker or a cowboy or somebody that’s really looking at trying to push the business they get on and then the other people start to come along. And that’s when we start seeing the change. Atabak, I really -- do you have a good answer to what would be the percentage of --?

No, it's not something we have disclosed.

I wanted to ask you about the probes as well. You introduced the new illuminate probe last quarter can you comment on what you are seeing in terms of sales of that and if we might see additional probes introduced this year?

I think the G Probe Illuminate is the evidence of what we are trying to do to broaden the exposure across the continuum of care or especially in the late stage. In the past, we've used those legacy G probes and now we have an ability to illuminate the eye which brings in the focus the auxiliary body of process which is something that's not been done before and we've had good results on that. What we're doing is providing results numbers on total probes not breaking up by G probe, MP3s or illuminate, but the results have been -- we're satisfied with what we are seeing at the moment. And I suspect as more people get into this and get comfortable the market will be fairly good, but it's not going to be as large as say the MP3, which is the earlier stage that product.

Do the probes have different price points?

They are roughly in the same ballpark, there is some difference, but roughly.

Thank you. Our next question comes from Larry Haimovitch of HMTC. Your line is open.

First on Japan, from my recollection this approval comes at least a few months early than expected, is that correct or am I wrong in my timing here?

It's a little early than what we have expected. It's a -- but we are not going to say demonstrably. Yes, you are right.

Okay, so that’s good news for you, that obviously.

That’s very good news.

Yes, so Japan is a distribution network not a direct sales network, should we expect that you would get a nice starting order from your distributor or will we get more like -- what if you would directly get orders as they come in, as oppose to the stocking order?

Well, we don’t really take stocking orders. We will get it from the distributor, we will get an order from them to begin with which will provide some demo equipment for their salesforce. But we are not selling it and having it put on the shelf. So I don’t expect a large thing, but I would expect it to be a reasonable order. Since we just received the approval we are working with them at this point in time to established do salesforce training and I just returned from Japan working with KOL over there, bigger things up and going.

So should we expect some business from Japan in Q2?

I think it's a -- the timing of it is unclear, I mean I think by -- we do expect some business from Japan in 2017.

Okay. And China, I know you are expecting an approval in China, any update on the regulatory process in China?

Just ongoing and still with expectations is the same.

Which would be some this year?

Late this year.

Okay. My next question concerns probe sales, probes utilization, from several quarters in the past and several of us, me and a few others have modeled about 10 -- probably eight to 10 probes per month, as we built our models toward 2018 thinking that if we model number of units in place, times number for monthly probes, et cetera. I have been modeling some work maybe more aggressively, 10 per months and maybe conservatively eight per months. Atabak, just mentioned a number which kind of caught me by surprise which was, something like the good accounts or doing six or more. Has something changed there, because in the past the guidance to me at least have been more like eight or 10 would be the expectations for monthly probe sales per machine?

Yes, and so our -- and thanks for asking, so I can clarify. So our goal remains the same of the targeting 10 probes versus some per month as the goal. And we have -- and as I have mentioned in the past, we've got a number of customers that are well above that. But in terms of having that broad set of buckets that I was talking about, call it customers that we think are reusing that in attractive rates are close to it, that’s why I sort of included it down to six. But -- and that’s why I specifically mentioned we've got room for improvement across the board there, if not that those in that bucket is sort where not -- fairly not the focus areas for us. So does that answer your question, Larry?

Yes, somewhat. And then next question with regard to the larger buyers. The bad news is obviously as they take longer, you got to convinced more people, you got purchasing departments, et cetera. The good news though I assume is if you get a big order maybe it comes from the big health system like Kaiser or someone like that, that could overtime the a nice big bonus of orders. Is that a fair way to look at it, that yes it's one longer to get the orders, but could be more significant when they come in?

As the fair way to think about it almost. Some of these customers even Kaiser or one of these larger hospital chains or ASC chain, they tend to -- it’s hard to break in at the beginning, and then you go out and once you break in and that's the real time-consuming part, it's not that they buy for the entire system at one point, so they tend to still come in overtime. But you've now got a much easier process to work through. So as I guess the answer to your question is yes and no, in that we do -- so there is a bit of that lag and then it will start coming in might not coming in and the huge bonus, but it come in at a much steadier pace.

Okay, and then I'll ask one more question and jump back in the queue and that is. Average selling prices for probes, could you update us as to where you are at and has that changed over the last few quarters I think it's been pretty steady, but I want to get a clarification?

And that's right it's pretty steady and consistent with what we talked about in the past, roughly 200 in the U.S.

So no pressure there for any price concessions. With larger buyers potentially want to use that as a way to work against you in the way that they say they will buy more probes, but we want a price break, has that happened at all yet?

We tend not to have a lot of pushback on price. And so as that's given the economics in the reimbursement profile if that's not something that we have been getting a lot of push back around. Will do you want to?

Larry, I think what you are looking for is answered by, as Atabak says, they'll by a system like this, they'll buy a G6 and some probes and that will do two things they are looking seeing if they are getting new the price of the pressure reduction and secondly are they getting the reduction emits [ph]. And when you look at the reduction emits from the study, so they are saying they're reducing the by 1.6 perb that's such a cost savings, that the price pressure on our probes is not really come into that much of discussion. So I think your analogies and your thoughts and your logic is correct, that all these larger households are going to squeeze you a bit more, but I think the reality is that they are looking at it from what we'll call that value based situations as they're X number of dollars and by switching from a pharmaceutical, that they are buying something every month to buying something that they buy a laser once and they treat the patient. It saves some substantial amount of money and this would be exactly what you would be looking at it if you were to at dispositions like Kaiser or Mayo Clinic or places like that.

I do have a couple of more question, but I'd happy to jump back in queue if there is couple of waiting for me and then I can to jump back in whatever you suggest. [Multiple Speakers] So on the cost side are there any studies underway to show in fact what these cost savings could mean to a Kaiser, it could mean to a Mayo because your point is very well taken. If you stop taking two or three or four drugs a month, overtime it could end up being a big, big saving and I'm curious if there is going to be anything coming out that would really substantially if that in a very effective way for you as the selling tool.

There is a variety of what I'll call observation studies going on around the globe some of which we know about, some of which we don't as evidenced by what's happening with the ASDRS and ARVO, but on the other side we made a focus for the company to identify a number of institutions to have a multi centered study like we have with the NIH on economics for DNE. And we're working through the process and having meetings with them and we would expect something that would begin in the not too distant future, but that will take some time before you see the results. We're more inclined to look at multicenter studies on this project than we were on some others just because of economics on both sides. The cost and the benefit.

Okay and my final question is on Medicare reimbursement which is obviously an important piece of the puzzle, but you've perhaps heard that the northern California Medicare carrier Noridian has proposed a pretty drastic cut for i-stent. Clearly that doesn't relate directly to you, but I'm curious have you had any pushback from any of the local carriers across the country on reimbursement for MP procedures or is it continued to be very solid and steady for you?

It's very stable we've had no pushback on that and you know Glaucos and i-stent they can worry about their reimbursements. I think as a business person you're always going to be concerned about finding a way to be economically feasible for yourself as well as your customer and you have to cognizant that rates changes, but I think because ours is very stable, it's been like that for quite a while. And I think as I said earlier about the cost studies around the institutions, I don't think we're going to have the same pushback because this overall cadence of the system is substantial when you're talking about reduction of drugs of 1 to 3, 1 to 2 drug or medications per month reduction on the patient that's a big number.

Okay, thanks Will, thanks Atabak.

Thank you, our next question comes from Joel Westerstrom, your line is open.

I had some questions, one of them relates to the probe usage per system per month and when I've done modeling here I obviously it’s a little bit lower than I had expected here and it seems if you divide it with your install base, it's just below four right now and can you sort of, give some more flavor to that. So how many probes for example do you have in the starter package, so we can understand how many of the probes are actually follow up orders.

Sure so the, the starter package is includes 30 probes, so that’s basically it’s the case over the past year or so. We've experimented with different programs but ultimately I think that's been the consistent number over the past 12 months and so I think that the challenge with doing the math that you just did, look at the overall system as I think you're getting to is some of the -- when we said, when I made the buckets, the three different buckets, the one that's not ready to reorder they're still working through their initial package.

But still if -- because I've actually used 30 probes and then you sold about 5,100 probes as follow up orders last quarter and then this quarter it dropped slightly to 4,700 would you say it's a sales forces issue or have you got new customers that are not as good as customers if you want them to be or what do you see happening?

Joe, so I think everyone builds their models and I think that as Atabak said your consumption rate if you do it the way you did it going to be lower than what we look at. And we have to take these customers and give them that period of time. For example let's say you get bundle of 30 probe we shipped it out, its going to be a minimum of 30 days before they get the system through into their hospital, in through biomed, into training and get it going and then you look at -- they're not going to reorder for at least three months or four months after they place their order. So you've got to put that tailing piece into it. The other side is, all our customers are going to be customers, so when we say they are not ordering at our expectation, that’s the -- we look at it and there is as bi-model distribution, if you take away the ones that are not ready to reorder yet. You have got ones that are performing at the level you want and ones that is not performing at the level you want, and if you take a deep look at it, a lot of it has to do with proximity of that hospital or center to where we have representation which gives you the primus of why we need more bodies. When you get further drive time and windshield time they get fewer touches and they don’t quite perform as well as we'd like. And it has nothing to do with the science, as Atabak said it has everything to do with our touches, which says we're either not giving enough information as to the products of the patient selection or not giving enough teaching or education to the physician when they do the treatment, so therefore they might not be getting exactly what they want. But those are resolvable and we've done that by expanding the sales force. So I think we will see the curve start shifting to more customers doing as we expect which should bring up our calculation on average monthly usage.

So if I understand you correctly your most of those that use more than 10 probes per month those would be the ones that are well covered by sales breadth and do you see its already improving where when you have had in sales rep that's been working for a while now?

The ones we just added you are not going to see that right away, but the ones what I was talking about is the people that have been around for about a year. For example in Atlanta, having a rep in Atlanta we see better distribution of that utilization in Atlanta than we do say in Mississippi, further way. So that will work its way out. I am perfectly comfortable with that. Another way to think about that is where we've seen the most success and highest volume usage is that, within any customer you have than one doctor that does procedures with that center. So it's key for us to development relationships with all of those physicians so that we can -- because that ultimately will lead to better utilization. And so the only way to get to that is by spending more time with that one customer, and so to make sure not just eventual customer hat you started off with is happy, but then you are also adding others from the practice to it. And so when you have broader territories, it's hard to do that and so -- and there have been slight cases where we -- where they fit, because of the type of customer and whatnot that we've done a better job of doing that. And so that’s the model that we are trying to replicate as we expand the salesforce and they have smaller territories, so then they're able to perform there.

Okay thanks. And then a follow up, another follow up on just the number of probes you expect to sell in 2017 being significant can be shifted downwards. I suppose that a big contributor to that is also sales are sort of shifted forward in time. You talked about some of the major potential customers taking longer time to decide and so on. I guess it's more of sales being shifted fixed in time like a quarter forward or something than sales actually being lost, is that correct?

I think that’s fair. I mean they are related in terms of the system sales and to the probe utilization. So that’s one big aspect of it and obviously the sooner you get the sale, the sooner you will start getting more probes out of that system. So your thinking is correct. The other aspect of it is that, it's all over we've been talking about the salesforce expansion and time for it and other marketing programs, there is a delay until it starts impacting and so that’s -- so it doesn’t happen starting tomorrow, for example, right; and so it tends to -- it's not -- to put in your words, it's not loss revenues, it's push out revenues.

Joe, I’ll comment little bit. Being in Sweden you understand the process with a government or public hospitals versus private practice physicians. And as we have moved into Europe and other countries we are dealing with a lot more of the public hospitals control by government expenditures which is a perfect example of we have to go in, we got to make out presentations, we got to go through the process and that is not loss business, it's just takes more work to get that done. Once it's done, you got [Multiple Speakers].

This is Will talking, but you understand the process. And I think that’s --.

[Multiple Speakers]. I was going to ask you about Germany, because I know you shifted to handling the distribution yourselves over in Germany and you see that having a positive impact already or how is that working out for you?

The contract we have is phasing out with the distributor and we have hired the first person, they will effectively begin selling in late August. But they are going now through training and dealing with stuff and getting ready to go and establishing KOLs. If you think about Germany, it is the market in Europe, we do fairly well and Italy, Spain, France and UK through distributors and so I think we will do better than that when we get to Germany, given the fact when we include Germany, Denmark and Australia you are talking more than 90 million people so and the reimbursement rates are similar to what we have elsewhere.

Okay, perfect. Thanks, I'll get back in line, if I had some more questions. Thank you very much guys.

Thank you. I’m showing no further questions. I would now like to turn the conference back over to Will Moore for closing remarks.

Thank you, again for joining us on the call today. We appreciate your interest in the IRIDEX and look forward to our next progress report. Have a good evening and will talk to you soon. Thank you.

Thank you, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.