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TearLab Corporation (NASDAQ:TEAR)

Q4 2012 Earnings Conference Call

March 20, 2013 08:30 ET

Executives

Elias Vamvakas - Chairman and Chief Executive Officer

Bill Dumencu - Chief Financial Officer

Analysts

Steven Crowley - Craig Hallum Capital

Matt Dolan - ROTH Capital

Jeff Frelick - Canaccord

Chip Saye - AWH Capital

Ben Haynor - Feltl and Company

Jack Wallace - Sidoti & Company

Operator

Good day, ladies and gentlemen, and welcome to the TearLab Fourth Quarter and Full Year 2012 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to the company’s CFO, Bill Dumencu. You may begin.

Bill Dumencu

Thank you, Lataria. Just to remind everyone, certain matters discussed in today’s conference call or answers that maybe given to questions asked are forward-looking statements that are subject to risks and uncertainties relating to future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in the company’s most recent public filings with the U.S. Securities and Exchange Commission and the Canadian Provincial Securities Administrators and can be accessed through the EDGAR and CEDAR databases found at www.sec.gov and www.cedar.com respectively. Please note that the company is under no obligation to update any forward-looking statements discussed today and investors are cautioned not to place undue reliance on these statements.

I’d like to now turn the call over to Elias Vamvakas, TearLab’s Chairman and CEO.

Elias Vamvakas

Thanks, Bill, and good morning everyone. As with previous calls, I want to update you on the progress with respect to the commercialization of our TearLab system. Total revenues in Q4 of 2012 were $1.6 million, that’s up more than threefold from Q4 2011 and up 33% sequentially from the previous quarter.

Looking at the rest of the quarter numbers, excluding non-cash charges associated with the continual revaluation of outstanding lines, our adjusted net loss was $0.12 per share. Importantly, even with our increased marketing spend and without the vast majority of revenues and contracts sold in Q4 not hitting our income statement yet, we only used up about $2.7 million in cash during the quarter. As a result, our bank balance remains solid with $15.4 million at the end of December.

I closed out for last call by giving everyone a brief overview of how things were going at the American Academy of Ophthalmology’s annual meeting in Chicago, which was just getting set to wrap up at the time. As demonstrated by the fact that we booked 232 system orders in Q4, which was up significantly from the 92 in Q3, we obviously had a very strong showing there. In fact, we sold about twice as many contracts at the AAO in November than we did at ASCRS earlier in the year. When we look at the year as a whole, it’s important to put into perspective that 45%, almost half of our 2012 sales came in the fourth quarter alone.

You may recall that at the end of the previous quarter, the number of devices that had been ordered, but not yet activated stood at 79. As we discussed in the past few calls, the lag time between when we receive an order and when we ship systems and cards and ultimately when we recognize revenue has been caused primarily by our requirement that a doctor has a clear license before we ship to them. While a lot of that is out of our control, the delay has been successfully mitigated to a large extent by the internal efficiencies that we have built. Not surprisingly though especially with the strong contract sales levels that we saw in the fourth quarter, the number of not yet activated systems had grown to 179 at year end. On the positive side, the number would have ballooned much higher if we hadn’t started to make some of the key investments in our sales and customer support infrastructure that we discussed on our last call.

Moving forward, the strong sales momentum that we saw in Q4 has continued into Q1. While it’s a relatively small event compared to ASCRS or the AAO, our experience at (indiscernible) in January demonstrates that. At last year’s meeting, we had four sales, lots of interest, lots of follow-ups, but just four sales. This year, we sold 30 units just at the show. The bottom line is that as good as the fourth quarter of 2012 was from a contract sales perspective, we are seeing the momentum continue with similar system orders in the first quarter of this year.

The unexpected increase in demand along with what we are seeing is a very strong early interest in our masters’ program, which I will talk a bit later on has left us in a backorder position with a device manufacturer. To address this, we have tripled our manufacturing capacity and are currently producing close to 200 units per month. But even so, we expect the demand we are experiencing is going to leave us in a manufacturing backorder situation well into the second quarter.

Now, let me share with you where we stand today with our sales organization. As of today, we have 45 people in our sales group that consist of one VP, four regional sales directors, four professional relations coordinators, 23 of our own direct territory managers, plus 10 independent reps and sub-reps, along with three implementation specialists. This is the new position for us. The ISS, as we call them, are at least in addition to our sales force, the ophthalmic technicians that have become experts in integrating TearLab into large practices. We originally designed the role to help large practices properly implement TearLab into their testing protocol, but early response from the customers may see that program expanded into much more wide adoption.

As you know, we invested more heavily in medical marketing in the back half of 2012, because we identified that as a critical first stop through widespread acceptance and clinical use of TearLab. The result has certainly convinced me that it was the right move and we plan on continuing to execute those programs this year. We would all expect to incur much in the way of incremental marketing spend and anticipate the bulk of our new investment would be directed towards building our sales force and continuing to ramp up our commercialization efforts to increase adoption. Unlike most medical technology rollouts, our primary goal is not to just build doctor awareness.

We know that once a doctor sees the potential opportunity that is inherent in managing dry disease and experiencing our test, they understand TearLab’s value and integrated test in a normal practice patterns, but this may take a little time. Once integrated, TearLab becomes critical to their success and their utilization of device increases significantly. So, our sales organization doesn’t just concentrate on selling devices. We see ourselves in partnership with doctors and believe that it is very important for us to provide them with the tools and support they need to fully integrate TearLab into their practice. Our plan is to ultimately grow our sales regions to around 40, that on TearLab is hiring five or six more direct territory managers over the next little while.

Moving forward, we will continue to reassess our needs as our footprint grows. To put the scope of our sales organization build into perspective, we moved from just three of our own territory managers at the beginning of last year to expecting to have 30 by the end of 2013. Naturally, as our sales function expands, so do will the cost associated with it. Well, I don’t have specific projections. To put some numbers around you, as I will say, that I can see us spending somewhere in the neighborhood of $9 million over the course of 2013 on building and supporting our sales organization.

Let me turn to private insurance reimbursement, which I believe is a big challenge and one of the biggest opportunities over the next couple of years. Let me first take a minute to highlight the job that our reimbursement support group has done. While it’s difficult to estimate the exact number of lives that are currently covered across the U.S., we do know that we added 37 million lives or about 12% of the U.S. population just last year. The success has continued into 2013, and for example, Blue Cross and Blue Shield of Alabama reversed its non-coverage products for the TearLab test in January, and another very important win, WellPoint, the largest managed healthcare for-profit company in the Blue Cross Blue Shield Association, out of our CPT code to its physician office, laboratory, or POL list, throughout its network nationwide allowing the test to be performed at the doctor’s office, as a couple of weeks ago. Just as a reminder, you can monitor our progress by accessing our reimbursement section in our website, that’s www.tearlab.com.

One last update for this call, in our last call, I introduced the new evolution in our sales and marketing programs that we call a masters’ multi-unit program. The rationale behind that is depending on the size of the practice and some of multiple locations, multiple doctors, and numerous technicians saying hundreds of people a day, some of our customers need to significantly increase the number of devices they have in order to maximize efficiency. The trend seems to be having a TearLab in each lane for each examination room. The difference in this program versus our 315 or 324 programs is that the number of units placed, are based on practice protocols, needs and utilization parameters rather than minimum card requirements. The key difference is that it takes TearLab to the next level if it incorporates our test into routine patient evaluation protocols and accordingly makes it standard of care for their practice. The rollout of our masters’ program is still in its initial stages. But having said that, we have got a few major program signings and I look forward to providing information of those specifically in our future calls. At this point, I can tell you that I believe it could be seen as much as 50% by device placements through this new program in 2013.

As in the past, I will end here by providing some device tallies to assist everyone in monitoring our progress. All the numbers that I am about to give you are as the close of 2012 and exclude devices and cards being used strictly for research or educational purposes. At the end of Q4, we had 744 commercial units ordered in the U.S. Of those, 514 were part of an access program and as discussed earlier, 179 units have been ordered, but not activated. All those units were part of an access program. In the rest of the world, at the end of the year, we had 403 devices.

So, thank you again for taking the time to join us today and I will turn it over to questions now.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from Steven Crowley of Craig Hallum Capital. Your line is open.

Steven Crowley - Craig Hallum Capital

Good morning gentlemen and congratulations on the progress you are making out there in the marketplace.

Elias Vamvakas

Thank you, Steve.

Steven Crowley - Craig Hallum Capital

A question for you, in terms of the masters’ program activity that seems to be cranking up obviously to a significant extent, in your system order numbers that you have talked about for the fourth quarter, was there much – were there any numbers influenced by the masters’ program in those totals?

Elias Vamvakas

None for the fourth quarter, we really haven’t, Steve we really haven’t put out any masters’ numbers under than a few units that we put out in our third quarter on the (resource for the program in), but we actually haven’t decided exactly how we are going to report the masters’ numbers, and it’s something we are going to figure out within the next 30 days as we have to report our fourth quarter, because we haven’t had a significant increase in the program. But because there isn’t a guaranteed minimum in the contract, we haven’t really put in a plan in place as to how to disclose all those numbers, but we will and we will have that for you in the first quarter, but all the numbers that you have seen are standard contract at regular programs that we have added in the past and none of the numbers include masters.

Steven Crowley - Craig Hallum Capital

And conceptually should we think about the masters’ initiative providing largely an incremental layer of business to you versus the access program thinking before or will be – there will be some slight cannibalization, but significant increment, we are just trying to frame what the expectation should be about that program?

Elias Vamvakas

Yes, I honestly think it will be – it won’t be that much different ultimately. When I first got involved in this business, I looked at it and said that given the volumes that doctors do, and then they will be doing way more than our expectation of $20,000 of revenue per unit. What I see today is that they are actually going to use way more units per doctor, but I do believe that ultimately those units we will come to that, to the levels that we have talked about. So, even though there isn’t a guaranteed minimum in those contracts, I do believe that ultimately we will see that $15,000 to $20,000 of annual revenue that comes out from every unit, including all the masters’ units that we put out.

Steven Crowley - Craig Hallum Capital

And I was really referencing more tapping this market segment for demand for the TearLab, we have some expectations for system placement contracts, you did a really nice job in 2012 relative to those expectations. And as we look forward, does the masters’ program give you an extra gear to deliver above and beyond those expectations or does that really just captured some of that big ramp that we were expecting out there. It sounds like at least it’s partially incremental to the equation we were thinking about before?

Elias Vamvakas

Yeah, certainly the numbers are, I would agree with that, and certainly the numbers of the program are much bigger and much higher levels of interest than that we wouldn’t originally thinking about it overall. I mean, the nice part about it is that it really speaks only of a plan of the most prominent doctors, the largest practitioners adopt first, and we are seeing a significant adoption. But the great thing for me is that the plans are working out exactly as we expected. They got a couple of units. Then they realized that it’s an integral part to their protocol, they see the value of the TearLab testing in new lanes that they have to have in every one of their exam lanes. So, it’s really working out exactly as I hope it would.

Steven Crowley - Craig Hallum Capital

Great. One follow-up from me and then I will hop back in the queue. In terms of the backorder situation which you are dealing with some constraints on your ability to get TearLab systems manufactured at the pace you have now deemed ideal. What are you able to do around that situation to keep things in motion with the docs getting ready to receive those units, is it are there other things you can do in parallel to get the docs moving along while you are waiting for units, so such that you are not losing as much time as you would if at all had to be done in serial fashion?

Elias Vamvakas

Yeah, I think that’s a great question. One of the things that it has allowed – the backorders allowed us to, is to get doctors to speed up their process. So, we used to ship a unit to them and then tell them to start the clear process, and then it took 30 days and then we shipped cards to them and we had revenue. So, now what we are saying to them is get the clear process order, because we are not even going to put you in the queue until you have the clear number ready and waiting. So, while the backorder number, there is a significant number, the actual time is much shorter than that for doctors waiting, because they are now going through their clear process and as they get their clear process, we are able to start filling them quicker.

Steven Crowley - Craig Hallum Capital

Great, thank you.

Elias Vamvakas

Thank you.

Operator

Thank you. The next question is from Matt Dolan of ROTH Capital. Your line is open.

Matt Dolan - ROTH Capital

Can you hear me alright?

Elias Vamvakas

Matt, we can.

Matt Dolan - ROTH Capital

You can hear me?

Elias Vamvakas

Or maybe not, no.

Operator

Matt, your line is open.

Matt Dolan - ROTH Capital

Can you guys hear me?

Operator

Yes.

Matt Dolan - ROTH Capital

Okay, great. So, I wanted to follow-up on the masters’ program Elias, I don’t know if you mentioned this, but obviously your placement rate ticked up in Q4 as that program starts to kick in, what is your typical account going to look like in terms of the number of units they are willing to take on based on your conversation so far?

Elias Vamvakas

It really varies based on the size of the accounts like I said what’s happened in our evolution has been, Matt, rather than looking at how many doctors are in the practice. It’s really looking at how many lanes, examination lanes they have. So, I can do as an example these might be on the high end, so don’t think that they all look like this way, but we have had couple of practitioners, where we had two or three units go in, then decided that they like the device wanted to put one in every one of their location. So, they might have had five or six devices added to those initial units and now they have come back and said we actually need 20, 30, 40, because so many exam lanes we have in our location. So, it’s a multiple per doctor that we are seeing in the larger practitioners at least.

Matt Dolan - ROTH Capital

Okay, fair enough. And then secondly on placements the rate that you saw in Q4 was clearly a big step up, you mentioned the benefit in the fourth quarter, but maybe you could help us now that you are pretty much well through the first quarter, what sense can you give us in terms of the placement rate we should anticipate per quarter in 2013? Does it become a smoother process as you move away from just selling at a lot of these big eye care events or should we look for some spikes around those events and then some softening in other times of the year?

Elias Vamvakas

As we build our sales force, we are building consistency into the number of units that we are selling on a weekly basis, the monthly basis, or quarterly basis. So, clearly as the organization gets bigger, you will see some level of consistency. I still think we will see spikes. I still see, I still think you will ASCRS be a significant spike which comes up in the second quarter. I also think you will continue to see a significant low in the third quarter as most doctors go on vacation and the summer time is very quiet for us. And again, I think you will see an increase again in Q4 with the academy. So, I think you will see a little bit of those spikes, but I think as time goes by, I think you will see those leveling out. And you certainly will see those leveling out from a revenue perspective as our revenue continues to increase and we get revenue every quarter from the existing units that the new units coming on aren’t going to really make as big of a difference as they become a small percentage of the installed base.

Matt Dolan - ROTH Capital

Okay. And I guess if I can just follow-up on that, if I take the 232 orders that you had in the fourth quarter, can you pay any type of trajectory from there. I mean, I know you have tripled your manufacturing. So, I think that gives us some indication, but should we expect consistent sequential increases here in the next couple of quarters outside of obviously the Q3 phenomenon?

Elias Vamvakas

Yeah, I would think of that. It might make sense. A lot of that will have to do with kind of how we report masters’ programs. So, I think that the masters’ program will play a significant role in that discussion. But yeah, I would think that is true that even though we had a very strong quarter in the fourth quarter, we are seeing as I mentioned similar numbers come up in the first quarter and then we have our masters’ program to discuss. So, I would certainly hope that we would see continued growth on that basis.

Matt Dolan - ROTH Capital

Okay. And then last one is on the sales force, you mentioned $9 million in spend, just to clarify is that an absolute number specific to the sales group or is that incremental from what we saw in 2012?

Elias Vamvakas

That is specific to the sales group. So, when I look at our internal budget that’s about how much we are looking to spend on our sales force.

Matt Dolan - ROTH Capital

And what was the spend in 2012 then?

Elias Vamvakas

I don’t have that number handy. Bill, would you know what that number was?

Bill Dumencu

The spend in 2012 was about $5.5 million.

Matt Dolan - ROTH Capital

Okay. So, it’s the whole, you are talking about the whole sales and marketing line going to about $9 million for ‘13?

Elias Vamvakas

No, we are just talking about the sales line going to $9 million for ’13, so there is couple of million dollars in addition to that from a marketing perspective.

Matt Dolan - ROTH Capital

Okay. Okay, I will follow-up. Thank you.

Operator

Thank you. And the next question is from Jeff Frelick of Canaccord. Your line is open.

Jeff Frelick - Canaccord

Great, thanks guys. I am sorry Elias, I might have missed this. What was the actual instrument number placed in the quarter? The number placed in the quarter was 232, okay, that is actually shipped to doctors’ offices.

Elias Vamvakas

No.

Jeff Frelick - Canaccord

Sorry, where were, being specific in terms of where we are at. We contracted or we sold 232 devices?

Elias Vamvakas

Right.

Jeff Frelick - Canaccord

And what we said was that our not activated number at the end of the year was….?

Elias Vamvakas

179.

Jeff Frelick - Canaccord

179. Thank you.

Elias Vamvakas

Okay.

Jeff Frelick - Canaccord

Okay. With respect to the masters’ program, is the sales organization compensated any differently for masters’ sales?

Elias Vamvakas

Yes, our sales organization is compensated significantly different for the masters’ program. And I won’t get into it, because it’s a little complicated, but let me just say that we don’t care about placing boxes in a doctors’ office, we care about the utilization of our cards. So, how those devices are used and you know what their revenue run rate that comes out of the devices, not of those practices is really the basis for compensating our sales guys. So, they are not going to make a nice big paycheck by putting in 20 units in a practice, they are going to make a nice big paycheck when those 20 units start generating $20,000 a year of revenue per unit.

Jeff Frelick - Canaccord

Got you, okay. And is the sales organization, are they still working some of the leads that came out of the ophthalmology leading in November is there still leads in the funnel from that conference?

Elias Vamvakas

Yeah, it’s hard to distinguish, it’s hard to distinguish exactly, where leads originate, because 130 days go by, you got to remember that we have lots of meetings, we have doctors that call us in. We have reps that have previous locations or relationships. We have, at the end of last quarter we are putting what I would think is a pretty sophisticated lead process coming in. And what we did was we also matched the doctors out with prescriptions rates for the (spaces) and segment of the whole country. So, I think they have a pretty sophisticated understanding of who really focuses on dry disease, who likes to manage dry disease, who has been dry disease practitioners, and those are primary targets. And as I mentioned before, we sort of start with large practice high-profile MDs, then we see sort of the whole MD community, and then we look at the OD community sort of as the three points of marketing priorities. So, we have a pretty sophisticated approach that has much more than sort of what showed (us all that). The process by the way also includes a front state reimbursement or local reimbursement from private carriers. And so all those things are taken into a formula that says here is the best practice to go after.

Jeff Frelick - Canaccord

Okay.

Elias Vamvakas

I don’t know if that really answered your question, Jeff, sorry, but it is because we touched people at so many different points, it’s hard to say exactly what leads are being followed up, I can tell you that we got hundreds of leads at this point that are being followed up on, but they are not necessarily from the last show?

Jeff Frelick - Canaccord

Okay, it’s clear. And then just last question on the manufacturing, you said about, you have kind of now ramped up to around 200 a month, basically we are at the end of kind of Q1, you think maybe one more quarter of hovering us around 200 a month productions, and then that starts picking up after 2Q, you should assume that or sometime during 2Q just trying to kind of they are picking here just trying to get a handle on that?

Elias Vamvakas

It’s hard to say that I am almost personally hoping that we are in that quarter or well into Q3 if we have a very strong quarter and a very strong showing at ASCRS. So, a lot of that has to do with obviously how much we sell in the next quarter, but when I look at our current projections, I am thinking that we will be into that quarter probably by the end of Q2, but if sales continue the way they are going we might be into Q3.

Jeff Frelick - Canaccord

Okay. What’s capacity at the manufacturing site in Colorado?

Elias Vamvakas

Well, capacity is whatever we wanted to be, but at the same time we can’t go in and say we want 400 units this month and 600 units next month. So, we have to give them a number that they will be comfortable in staffing up and ramping up and whatever. So, we went from producing 50 devices adding some backorder to producing 200 devices. We can go to 300; we can go to 400 as long as we are comfortable in taking 400 for the next six months. So, it’s one of those things that we have to manage, analyze what we are doing and manage what we are doing. And frankly we are also from a backup perspective this also gives us an opportunity to look at secondary manufacturing we use ourselves as well. So, we are looking at that at the same time. So, it’s managing sort of long-term what we need from a manufacturing standpoint and because our sales are – our experience is just only a year, we really have been selling for only a year. If you remember, we got our clear wave that came at the end of January last year. So, it’s not as if we have a lot of experience to go through, but we are closely monitoring it. And we are excited about the growth that we are seeing. We want to make sure that we can match capacity at the same time, but at the same time we kind of go crazy, because we don’t want to build up (ridiculous) inventory.

Jeff Frelick - Canaccord

Okay, that was helpful Elias. Thanks. Nice job.

Elias Vamvakas

Thank you.

Operator

Thank you. The next question is from Chip Saye of AWH Capital. Your line is open.

Chip Saye - AWH Capital

Good morning, Elias. Can you hear me?

Elias Vamvakas

Good morning.

Chip Saye - AWH Capital

Yes, I have a question, could you go over the tally numbers again, for some reason in my phone I missed some of those?

Elias Vamvakas

The final tally numbers?

Chip Saye - AWH Capital

Yes. So, in your prepared numbers when you gave the numbers, walk all of them again?

Elias Vamvakas

At the end of Q4?

Chip Saye - AWH Capital

Yeah.

Elias Vamvakas

Yes. So, at the end of Q4, we had 744 commercial units.

Chip Saye - AWH Capital

Okay.

Elias Vamvakas

514 of those were part of an access program and 179 units had been ordered, they are not yet activated. And all of those were part of an access program.

Chip Saye - AWH Capital

Okay, thank you. And a follow-up on Matt’s question, my second question you think that barring the seasonality of Q3 that if we are trying to project this for 2013 that you will have based on what you are seeing so far in Q1, you should have up numbers of placements in Q1, Q2, and then as you said with the academy in Q4 you should close strong, correct?

Elias Vamvakas

That’s what I am saying today and that will also require me to include masters’ programs into those numbers to make that happen, but that’s correct.

Chip Saye - AWH Capital

Okay. And as far as the capacity to follow-up on the last question, what is your lead time on telling the manufacturing capacity, we would like to go from say 200 a month to 400 a month, how long does that take to make that change?

Elias Vamvakas

That should probably take I am going to say 30 to 45 days to increase capacity. Now, they – having said that, sorry, let me be clear with that, that’s what we need to get them going. Now, they have to order parts at a higher level, they have to hire people. So, I wouldn’t see the actual numbers increasing for probably two or three months to that if you got significant number.

Chip Saye - AWH Capital

Okay, alright. Congratulations and thanks.

Elias Vamvakas

Thanks very much.

Operator

Thank you. And the next question is from Ben Haynor of Feltl and Company. Your line is open.

Ben Haynor - Feltl and Company

Good morning gentlemen.

Elias Vamvakas

Hi, Ben.

Ben Haynor - Feltl and Company

When did the manufacturing ramp up start to get to the 200 a month level?

Elias Vamvakas

We are actually as I said we are getting close to 200 a month, so we are just under that as we speak. This would be the first month that I would be going on. So, we basically started from 50 to 75 in January and brought it up to 200 as we speak.

Ben Haynor - Feltl and Company

Okay. And does that help out anyway on the gross margin or is it the same price per system?

Elias Vamvakas

It doesn’t affect their gross margins, no.

Ben Haynor - Feltl and Company

Okay. And then on the clear front in California and Pennsylvania are you seeing anything new there, things getting easier or has it been status quo?

Elias Vamvakas

We have not – we haven’t had any real experience. We are seeing in places as to be able to speed up the process. We have not seen that yet in California or Pennsylvania.

Ben Haynor - Feltl and Company

Okay. And then when you hire a new sales guy, generally how long does it take them to get ramped up where he is productive, does it happen pretty quickly?

Elias Vamvakas

It really depends on their ophthalmic experience. We have been really fortunate that a lot of the people that we have recently hired have been experienced ophthalmic reps. Yeah, I mean, there has been an awful lot of consolidation in the eye care space with a lot of the pharma companies buying some of the smaller groups. So, we have been able to pickup a lot of very experienced reps in the process. So, it’s been good. They are up to speed and running within 30 days, and they are out calling on people that they have had experiences with in the past. So, so far I think we have been lucky and that they are experienced guys. We will see how that trend continues.

Ben Haynor - Feltl and Company

Okay, great. That’s all I had. Very nice quarter, gentlemen.

Elias Vamvakas

Yeah, thanks very much.

Operator

Thank you. The next question is from Steven Crowley of Craig Hallum Capital. Your line is open.

Steven Crowley - Craig Hallum Capital

Hey, guys. Just one follow-up, I am wondering if you have any information or color on the dimension of the TearLab’s use in clinical research or by pharmaceutical companies developing new therapeutics, what are you seeing on that front that might be helpful to us?

Elias Vamvakas

Honestly, Steve we have very limited visibility into what happens. I mean, we get the occasional order, which is in the big context of saying with cards that, that’s not significant, that would make a big difference. And we never know when it comes. So, I would say, that the companies are very secretive in terms of what they are doing and how they are using them. You know that there is and I think we have close to 100 devices that are out there that are in research, and what we call, partners in education doing studies and so on. So, we know that they are actively being used. Specifically, yeah, we are not sure. We always check the .gov site for what’s been registered with the FDA. And I think if you do that, you will see that there is a bunch of tests and a bunch of trials going on that are using the TearLab systems. So, other than that, other than what’s publicly available, we really don’t know what’s going on.

Steven Crowley - Craig Hallum Capital

And then in terms of key opinion leader activity, you have mentioned cranking it up in terms of funding some of those activities, supporting some of those activities, how are we likely to see that translate into some more signposts and advocates for the product? Is it in the clinical study data? Is it in podium presentations? Would you have brewing there?

Elias Vamvakas

All of that, actually we are very excited about sort of the acceptance of TearLab with the clinical leadership in the ophthalmic community primarily. I think doctors are embracing or starting to embrace the whole concept of doing lab testing in the ophthalmic offices as you know this is new. So, doctors especially opinion leaders here is an opportunity to help the profession kind of take it to the next level, where they can start like other disciplines start using lab tests to be able to determine these indications. So, I see – they are seeing sort of as TearLab as the beginning to implement in a whole new way of working with the ophthalmic community. So, they are very excited about it. I mean, I think if you look at what’s happening at, what’s going to be happening at ASCRS, ASCRS is actually dedicating a whole section of their conference on to new technologies and lab testing and up-screen testing and TearLab is going to be one of the featured products in terms of how ophthalmology is changing. So, we are very excited about what we are doing to the ophthalmic community and how the ophthalmic community is embracing TearLab.

Steven Crowley - Craig Hallum Capital

Great, thanks for taking the questions.

Elias Vamvakas

Thank you.

Operator

Thank you. (Operator Instructions) The next question is from Jack Wallace of Sidoti & Company. Your line is open.

Jack Wallace - Sidoti & Company

Thank you for taking my questions this morning. Just a couple of quick questions with regards to cards, maybe can you give us just a little bit of color on what utilization has been for some of the non-masters programs. Earlier, we had talked about how some of the kind of initial slowness in usage had been maybe besides some of the text where it’s starting to get used to – using the TearLab in the practice, while the doctors were all setting behind it. Can you give us a little bit more color on utilization at least for some of the recently activated accounts?

Elias Vamvakas

I am going to say that I am happy with the initial response that we are seeing from a utilization perspective again. It is really early in most cases most of our doctors have the device for one quarter or something for two quarters, but I am seeing that practices who have incorporated that into the practice have put together a protocol in terms of for their text to understand when a patient comes in and has these symptoms, when a patient comes in and needs to have laser vision correction or patient comes in and has to have cataract surgery, we need to have this test done, so that those practices that have incorporated that have actually been utilizing it well, very well, which actually has resulted in kind of our masters’ program, where they are now realizing that they don’t need one device, but they need five devices for their five lanes, and they want their text to have an another lane that they are at.

So, our initial response is good. There are – again there are practices that are slower to adopting that frankly says that, well we have found I can tell you what we found is that the better run practices adopt a lot faster. So, that’s what we are seeing and somehow will become some of the practices will be adopting very quickly and that usually take a little bit longer, which is why by the way we have started to hire this new position that we talked about where we have experienced techs that know how to adopt that TearLab that can actually go into a practice and help it adopted quickly. So, we are very excited about that program. We will see it having great success at the initial stages. And I would think you will see that program expanded significantly.

Jack Wallace - Sidoti & Company

Okay, thank you. That was certainly helpful. And kind of what we saw in cards here talked about at least with the readers having a backlog and adding on a capacity for manufacturing there. Can you maybe talk a little bit about manufacturing capacity of the cards and maybe at some point down the future what expansion of capacity might look like?

Elias Vamvakas

Yeah. So, we have no issues with manufacturing capacity of cards. And we have a very strong relationship with our device manufacturer out of Australia. And we believe that they can increase capacity fairly quickly as we needed. We are in constant in touch with them with our volumes, our requirements. And on top of that, because of the relatively low cost of cards, we also have a significant inventory. So, we have kind of 6 to 12 months inventory as we speak of cards, so we don’t expect any near-term or frankly long-term issues with card manufacturing.

Jack Wallace - Sidoti & Company

Okay, thank you. And then could you just kind of give me a little more color and kind of the breakdown between sales optometrists versus ophthalmologists that’s still somewhat in 18-20 range?

Elias Vamvakas

I would say, our initial experience, I guess our initial experience was that it was fairly even. What we are finding is that the ophthalmic community is adopting much quicker than the optometric community. So, I would say that our sales today are more like 95% ophthalmology and 5% optometry. And we don’t see that changing in the very near term. The optometric community was lagging a little behind which is fairly normal in terms of adopting new technology. So, our focus for this year at ophthalmology and I think that’s, that might be part of the reason why we are seeing a much higher level of sales to ophthalmology versus optometry.

Jack Wallace - Sidoti & Company

Thank you. And one last question is just in regards to tradeshows and other conferences etcetera, is the number you guys still have planned somewhere in the high 20s, low 30s for the year?

Elias Vamvakas

The number of tradeshows?

Jack Wallace - Sidoti & Company

Correct.

Elias Vamvakas

That was said, I think we are, yeah I think whatever the number we did last year it’s kind of hard to tell because there is virtually little tradeshows almost every weekends that are regional. So, what we are doing is we are basically looking at every tradeshow that we go to. We analyze it in terms of kind of return on our investment both from a financial standpoint and from the people’s standpoint. We are still at the early stages and we are seeing lots of interest and lot of exciting stuff, but we aren’t making any changes from what we did the last year this year, but we are monitoring it very closely.

Jack Wallace - Sidoti & Company

Okay, thank you. That will be it for me.

Elias Vamvakas

Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to the speakers for closing remarks.

Elias Vamvakas

Thank you very much. Again, thank you everybody for taking the time to join us this morning and feel free to call us if you have any other specific questions, have a great day.

Operator

Ladies and gentlemen, this concludes today’s program. You may now disconnect. Good day.

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