TearLab Corporation's (TEAR) CEO Elias Vamvakas on Q1 2014 Results - Earnings Call Transcript

May. 8.14 | About: TearLab Corporation (TEAR)

TearLab Corporation (NASDAQ:TEAR)

Q1 2014 Earnings Conference Call

May 8, 2014 16:30 ET

Executives

Bill Dumencu - CFO

Elias Vamvakas - Chairman & CEO

Seph Jensen - President & COO

Analysts

Bill Bonello - Craig-Hallum

Chris Lewis - ROTH Capital

Jeff Frelick - Canaccord

Morgan Frank - Manchester Management

Ben Haynor - Feltl and Company

Ben Natter - Emrose Capital

Operator

Good day ladies and gentlemen and welcome to the TearLab First Quarter 2014 Earnings Conference Call. (Operator Instructions). I would now introduce your host for today’s conference, Mr. Bill Dumencu, Chief Financial Officer. You may begin.

Bill Dumencu

Thank you, Nicole. 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 to other 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 SEDAR data basis found at www.sec.gov and www.sedar.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. Good afternoon everyone. As with previous calls I want to update you on our progress with respect to the commercialization of the TearLab system. As we reported earlier today total revenues in Q1, 2014 were $4.2 million, that’s up 70% from Q1, 2013 and down approximately 5% from Q4. Given all the changes that we have made with our sales organization and compensation structure in Q1, we will expect the quarter to be relatively flat sequentially. On top of that I’m sure you already know that there is also some business disruptions with a severe winter weather especially in the North East where the majority of our business resides today.

Our net loss for Q1 was $0.17 per share. In terms of expanding our installed base a total of 254 system orders were booked in the first quarter, off those 201 systems were under the Masters Multi Unit Program, 40 were through our minimum use access programs, and six were direct purchases and seven were purchased outside of the U.S.

At the beginning of the year we issued full year 2014 revenue guidance of between 30 million and 33 million. At that time we explained that that was based on our current recurring revenue base, new system placement estimates and our expectation the average utilization rates will increase over the course of 2014 to approximately 85% for our used contracts and 70% for our Masters agreements.

Quite frankly well that’s still the case the utilization rates we cited confused a lot of people. They didn’t know how they were calculated, how to track them and how to back them into our financials to match our progress. So after a lot of discussion and input from investment community to make things easier we have decided to simply report annualized revenue for U.S. device. That should make it easier for investors and analyst to track our progress, to what we believe to be a realistic goal of $15,000 of revenue for each active device in the U.S.

We will continue to provide these revenue and utilization metric for each type of contract for as long as it makes sense to that.

In Q1, the annualized revenues per device for purchased units was $3267, for use agreement devices it was 11,716 and for Masters it was 3732. We’re also reporting revenue per account to provide further granularity and insight into our business. By account the annualized revenue was obviously the same $3267 for purchased units, for used accounts it was $13,059 and for Masters Accounts it was $30,997.

I think this makes their focus on Masters Accounts obvious. Not only do we make so much more revenue per account but the potential revenue opportunity is much bigger. Once they get up to the 15,000 per device goal, Masters will be a huge contributors to our overall revenue. As you all know our stock price has taken a pretty dramatic hit over the past few months. I have been out talking to investors for the past while and not surprisingly the first question I get is what’s wrong? Well I certainly I wish our stock price reflected this, I’m going to tell you that I feel our business is as good as it has ever been. In fact based on every customer discussion I have had and the all conferences and doctor meetings we have been to, I’m now more confident about our value proposition than ever.

Just a few days ago at ASCRS we enjoyed the distinction on being labeled the foundational test in understanding health of the eye. What was also existing at this year’s conference was the elevation of dry to a serious vision threatening disease rather than an inconvenience. And the recognition and acceptance that clinical outcomes from both refractive and cataract surgery are significantly influenced by the unstable tear film that is ever present in dry disease patients.

A survey taken at ASCRS serves to reinforce this point. It revealed that 86% of doctors agreed that mild to moderate dry eye significantly affects post-operative satisfaction in cataract and refractive patients. In one presentation Dr. McDonald said and I quote, “Dry symptoms are present. In half the normal patients who do not have dry eye and only in half the patients with significantly dry eye. Symptoms alone cannot be used to diagnose dry eye. Dry must be diagnosed and treated before surgery in order to assure excellent clinical outcomes.”

By the way, she also said, and I quote again, “Osmolarity is by the far the best test with the best positive predictive value and it's backed by 45 years of peer review research behind it.” What was also highly gratifying at ASCRS was the recognition that the historic modality of modality of testing was insufficient and not sensitive enough to identify dry patients and that the industry had to adopt newer generation diagnostics to be able to provide appropriate patient care.

Speaking of new generation diagnostics, the synergistic value of using tear test like TearScience LipiView and RPS has recently introduced InflammaDry test along with TearLab and TearLab’s Osmolarity was discussed quite a bit at this conference.

For example in the presentation entitled, developing the latest point of care ocular surface testing protocol, making advance decisions from advanced diagnostics, Dr. Yu [ph] said that peer analysis including Osmolarity and inflammatory markers should be done before exposing the eye with the eyes dilation dilate in direct contact. For presentation concluded by saying, “Advanced Point-of-Care Diagnostics provide quick, objective and highly specific results that are easy to use and easy to explain to patients.”

The pharma [ph] community is really standing to support in new diagnostic regime with strong conviction that diagnostics and lab tests are going to play an important part in the future of eye care.

As we discussed in our call our primary focus in 2014 continues to be an improving, the integration of the TearLab Osmolarity test in a daily routine of our customers. Just about all of our efforts in that regard are being filtered down into two central aspects. First, how doctors interpret and use that number and second, making sure that doctors are reimbursed appropriately for performing the test.

As I discussed earlier I think our experience at ASCRS a few days ago shows that the medical education focus of our marketing team is the right way to go. We’re excited at the continuing flow of peer review publications and expect to see a lot more research coming out that will clearly demonstrate the value of Osmolarity in the diagnosis and treatment of dry disease.

With respects to reimbursement we continue to find good support and reasonable reimbursement from third party insurance companies. As we have discussed in our last call we recently added four regional reimbursement support specialist to our organization. Their role is to grow in the field and perform reimbursement audits in our customers’ accounts and help them understand their local reimbursement levels.

So far we’re very encouraged with what we’re finding and we are excited about the positive impact that these audits are having to our utilization numbers. Let me give you an example, one of our first reimbursement audits involve the doctor who was concerned because he had heard from his admin staff that a large private insurer had denied covering of the test. In fact he had put all testing on hold until the issue was resolved. We performed an audit and revealed few interesting facts. First, they were correct that the insurer was not paying for the test but it turned out that this payer represented only 2.8% of the practices claims and including the amounts from that insurer, the average reimbursement for the practice was just over $21 per test and $42 per patient.

Now that the doctor understands the full reimbursement picture in his market, he is back on Board, testing again and is very excited. It's still early days that our team has performed more than 30 audits. We have found very low work load [ph] denials and the average reimbursement for testing in this potential reimbursement challenge regions is in the $19.80 level just below current Medicare rates of $22.71.

In closing I just want to remind everyone that many of our new sales and marketing initiatives have just started to get implemented and while we’re seeing improvement in many of our accounts we’re definitely seeing signs of improved virtualization and we still expect to see their impact weighted more in the second half of the year. As with previous calls I will end here by sharing with you where we stand with our device tallies. All of the numbers that I’m about to give you are as of the close of Q1 and exclude devices used strictly for research or educational purposes. At the end of Q1, we had 2678 commercial units ordered in the U.S. Of those, 2454 were active while 224 have not yet been activated. Of the 2454 active devices, 190 were purchased, 802 were under minimum use contracts and 1462 were under Masters program. In the rest of the world at the end of the quarter we had 518 devices.

Thank you again for joining us. Nicole will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Bill Bonello of Craig-Hallum. Your line is now open.

Bill Bonello - Craig-Hallum

So Elias, can you just elaborate a little bit more on ASCRS and whether the tone this year relative to Osmolarity testing was different than it was in the past and sort of maybe where you’re at in terms of just being on the radar screen in terms of people thinking of that this is an important precursor to surgery.

Elias Vamvakas

I’m going to tell you that what I saw this year was really different I think from where we were. What was kind of neat for me was we started off a couple of years ago with explaining what Osmolarity was and how TearLab test that, last year we focused as an organization and saw that doctors were saying that testing with TearLab was an important part of testing dry disease. What I saw as being really different this year was an understanding that dry disease is just not an inconvenience. All the talks that I saw and went to made it abundantly clear that any type of surgery, refractive, cataract surgery, anything that doctors were doing on the eye was affected significantly by the tear film and the instability of the eye and the value and importance of understanding that tear film before actually doing any kind of surgery.

So what I was excited about was that Osmolarity (indiscernible) we took up big level jump in that now it became sort of a main stay and what doctors really cared about and that is the surgical outcomes.

Seph Jensen

I would certainly add the surgical component was everywhere, it was prevalent. On top of that one of the things that struck me is that whether you were observing a promotional event that industry pays for where you attract doctors or an educational event that actually has no industry input into the content. Osmolarity was mentioned routinely whenever there were topics about ocular surface. So we were attending events sponsored by other people in the industry but even before the doctors would talk about their case studies almost routinely they would always talk about what the Osmolarity number was for the patient as a core component of the description of the case. So that type of integration into the daily routine, it just made it more of a normal thing versus something that was new. So I think it is very quickly getting to be a tone of wide acceptance and something that is common place.

Bill Bonello - Craig-Hallum

And then just one question on the process with the practices. As you’ve been out and your sales people have been out working with these practices, what’s your feeling today on sort of whether all the systems that are out there in the field they are actually systems that are going to end up being utilized and what’s the risk that maybe there is 10%, 20% of those systems that are sitting in doctor’s offices but really just not needed.

Seph Jensen

I have been fortunate to be on the field for a week in the past month and I’ve got a couple more weeks coming up. So I can both speak from speaking to our management team as well as personally being out there. Our average return rate to-date is 2% to 3% and when we go out there, certainly what we’re trying to do right now is make sure that all customers are integrating the device successfully and certainly there maybe some examples where in an effort to right size an account as we learn more and we get further down through these larger Masters Accounts I certainly -- opened to the fact that we may find some accounts where we need to take some devices back but my experience today, and the feedback that I’m getting from all of the managers is that we think and expect a max out of that to be in the 5% to 6% range versus the 2% to 3% that they are at now. So I don’t think it will be anywhere near the numbers that you mentioned.

Bill Bonello - Craig-Hallum

Okay so when we think about sort of as revenue for potential for the install base as it is today, it's pretty reasonable to take that $15,000 number across the total system base or something close to the total system base in your opinion.

Seph Jensen

As I said we’re going to go through a process making sure each existing account, it's having an optimal experience and we’re working on integration to make sure it works for that account. At the same time we’re judiciously working with new accounts and making sure that the new accounts get setup appropriately. So, I think it is a fair estimate that you’ve out there in terms of number of devices.

Elias Vamvakas

Just one quick comment and that is the $15,000 for year, what we’re trying to do is simplify the business. We try not to confuse people and we’re trying to give high level of granularity so that you can assess how we’re doing and how we’re integrating so that you can actually watch the revenue for the base increase as time goes by. The $15,000 is our best guess of what realistic we can expect to see all of our business get to and as I’ve said before we don’t see that as a huge hurdle because it really represents testing three patients a day.

Operator

Thank you. Our next question comes from Chris Lewis of ROTH Capital. Your line is now open.

Chris Lewis - ROTH Capital

I wanted to start on the sales strategy and the reorg there, it's been about I think 3 to 4 months since that really has taken affect. So, maybe you can provide some more granularity on just the overall response you’re seeing in the field. You talked about kind of some improvements you’re seeing. So maybe if you can provide some more details on how that’s kind of ramping up versus expectations and kind of what gives you the confidence going forward particularly in the second half of the year that you start to see some meaningful utilization pick-ups.

Seph Jensen

So, maybe the first thing I will do for those of you who haven't heard it, I will just quickly hit some of those changes. If you look at when we moved into the early parts of ’14 we really looked at the large audience of eye care doctors that are out there, ophthalmologist and optometrist and made sure we were segmenting and targeting effectively. So that was a big focus of how we were going to go after the opportunity both existing and new in the market. We looked at aligning our compensation strategies with what the company needs to do both to grow as well as how successful customers integrate the device. So there were significant efforts to make sure that we’re prioritizing utilization in our current customers and then growing smartly.

And we have also done some structure optimizations in terms of changes to our sales force. So all of that is various stages of being done really started late in January at our National Sales meeting. So I think the best update I would give you is that we’re all of those strategies are in place now. Many of them are relatively new. We have had a chance by now to really get into all of our account. So I think we have awareness of where the business is across all the different accounts in the country and I would say that large majority of those, our estimate is 75% or 80% of our accounts. We feel very comfortable we have an action plan, we have resources allocated whether we’re focusing on explaining the clinical value and making sure all the doctors in larger accounts understand it, deploying the reimbursement specialist that Elias has talked about to clarify that landscape.

So as we go through and work through the rest of the second quarter we will start to see various output from that but many of them are just now starting, a few of them we have had enough time to where we’re seeing the early results and I will give you one anecdotal example. This is a large Masters account. Several sites, many devices and equally important many doctors and they were joined TearLab in 2013 and if you look at the revenue that they provided throughout all of Q1 it's approximately $38,000.

We have continued to work with this account throughout the end of last year and through this year so that improvement really didn’t start to drive until later in the first quarter and for the first month of the second quarter in April alone were $35,000 already. So it's just one example but I think it is indicative of lot of the changes we’re working on are going to start paying off but again most of this stuff is brand new and relatively recent in Q1.

Chris Lewis - ROTH Capital

And then on the reimbursement side of things, sounds like there is some positive outcomes from the initial audit reports you’re doing. I assume there is a further more problem oriented reimbursement accounts as well, or probably a positive. But how long does it take for once you know this account see -- this reimbursement kind of audit report. How long does it take for them to integrate the test within the protocol and then start ordering test cards?

Elias Vamvakas

Chris, generally when we go in because of a reimbursement audio, obviously it's the customer that’s using the device and then for some reason may have slowed down or stopped. So really the issue is not how long will it take them to get started from a knowledge perspective or a business perspective, it's more about how much inventory did they have when they stopped and then when they get started again how long will it take to go through the inventory and put their next order in. I think the most time consuming thing frankly is how long it takes for us to get a doctor to have a meeting, because they are very busy and getting the data, analyzing the data and then setting up another meeting. A lot of times that could take months before we actually even get a meeting to give them the good results.

On a positive note what I’m going to say is what I’m most excited about is that everything that we have seen out there has been positive meaning that we’re actually surprised as the low, the low rates of non-payments I’m going to say the average less than 5% which is really surprising in a positive way. And I think the average reimbursement rates have been good even from accounts that are assuming to have challenges. So we don’t think that there is anything there that’s a major rock that we can’t move but certainly it will take some time to get it into the system.

Chris Lewis - ROTH Capital

Okay. And then just one more for me. Obviously the focus is kind of on driving the utilization and integrating those devices and the current customers. For the new orders on that side of the business, is this 250, is that kind of a normalized quarterly level to think about that going forward or they are one time orders in this or kind of how should we think about new orders on a quarterly basis going forward? Thanks.

Elias Vamvakas

I think what you need to look at is that those are orders that happen when we’re focused on utilization. So as I’ve mentioned many times we cannot take any business but it's not something that people are focused on. So I’m going to say that you will see that number increase as our reps start to spend more time on new accounts as opposed to dealing with existing accounts. Seph do you have to add?

Seph Jensen

Yes, I mean you hit the highlights. I was simply going to say that with our focus now I would simply say that the focus is on spending more time upfront and making sure that accounts, get really excited about the technology we do our first-in service that -- we are staying around longer to make sure that they understand the protocol and that there is buy-in and that the reimbursement picture is clarified going forward. So I think it's a pretty fair number for the first quarter. Elias is right, as we go forward we expect that number to grow but we’re not prioritizing getting as many new accounts or devices as we did in 2013 because again the focus is different.

Operator

Thank you. Our next question comes from the line of Jeff Frelick of Canaccord. Your line is now open.

Jeff Frelick - Canaccord

Maybe just a follow-up for Seph. You started to kind of walk through the kind of the phases of the strategy to drive utilization, I mean made the first stage, you said you kind of got out there and basically touched every account. I think the second phase you said you put maybe an action plan in place in about 75% of those accounts. If you kind of go to the third phase Seph where the active plans start to bear fruit, let’s say by the second half of ’14, what percent of that do you think starts to really contributing again to the revenues?

Seph Jensen

I think you pretty much answered it. We expect to start to see the return on that real gain momentum as we move into the back half of the year. Obviously I can’t give you an exact trend by month so we do know that we will probably be through the majority of initial action plans as we move into the back half of the year. We’re starting to see the very early signs, I gave you one little example earlier. So I think you will start to see the more positive impact and momentum as we move in to the back half of the year.

Jeff Frelick - Canaccord

Most of those should be corrected in ordering second half, correct?

Seph Jensen

Yes, we have been very clear about where we’re with our utilization rates as we started the year and we believe that these changes that we’re making are going to get us to where we need to be by the end of the year. So I expect that turn to really accelerate as we move into latter part of the year.

Jeff Frelick - Canaccord

And maybe if you boil it down, what are the few -- the most common challenges that you have uncovered as you revised the accounts?

Seph Jensen

Elias has spoken to this as well. Clearly when people get the technology and they sign up there is no lack of enthusiasm or excitement. One of the nice things is even in accounts where utilization is dropped off it's not due to a lack of excitement or desire, perhaps they don’t understand though exactly how to use the data that the Osmolarity test gives them. So really explaining the clinical value, how to use the number? How it impacts the management of their patients? There is a core component that -- we’re making sure as we dive deeper into these larger accounts Masters Accounts that have multiple physical locations and multiple doctors. It's more of a making sure that they understand how Osmolarity is different and how they can use it.

I think the second key thing is making sure that as they integrate a new test same way they would any new integrate in a new drug or any new element to their business that they understand the financial impact and it's very easy to get one denial, Elias is right, that the rate is 6% or under and overreact to that when we go in and explain what their average reimbursement is. Many times that can be the key to getting utilization back up where it is. So I think those are two of the primary ones that we have to consistently make sure people understand.

Jeff Frelick - Canaccord

And last question for me, so the 201 Masters Accounts this quarter; those are kind of addressed up front now? What those accounts -- is that early on? Is that before you kind of hand over the keys to them to operate the devices just how has that changed from prior year?

Seph Jensen

Well there is, I would say one thing, we’re certainly doing more upfront on those two key components that I said, but whenever we sign up a new account there are still normal onboarding processes independent of how much time you spend upfront they are still going to be required. If they are not CLIA waived, or clear [ph] license for the office, they still have to go through that process. So there are other steps that sometimes take longer for an account to be using consistently that may not reflect their desire, their ability at all. It's just that they have to get the proper license and proper setup.

Elias Vamvakas

And Jeff maybe I can add something to that which might be helpful. Last year and the year before we were so excited to announce the result, 100 units at ASCRS that’s part of the process. I can tell you that this year we weren’t even selling devices on the floor. Doctors came in and instant purchasing, our approach was we like to meet with your administrator, we like to meet with your billing person, and we like to meet with all your partners before we actually put together an order because we need to understand how you’re going to use it? What your protocol is going to be and how to appropriately implement it.

Because what we found out was that people get excited, we go to the show and it would take them six months before they actually had that meeting and today we know that that meeting is critical and we won't start without having that meeting.

Seph Jensen

I will add one thing to that which is important, when we talk about the clinical value and understanding how to use the test, we have a process now that when a new account joins up until we have that signed clinical protocol which all that you really need to know it's an agreement with the doctor and his staff of how they are going to integrate the device. We do not ship the first unit nor do the in-service. So that was a component of our strategy that didn’t exist in 2013 and we feel it's going to definitely result in higher quality starts with new accounts than what we have had in the past.

Operator

Thank you. Our next question comes from Morgan Frank of Manchester Management. Your line is now open.

Morgan Frank - Manchester Management

I appreciate the granularity of the active devices and accounts break out for Q1. Could you give us a little historical context on that maybe what that look like at the end of Q4 and the end of Q3 last year?

Elias Vamvakas

Yes I could give you a bit feel for that. If you look at the Masters units, the Masters units have basically on average been coming down as we have added units. If you look at kind of Q1, Q2 of last year they went up a little bit. We put a lot of devices out in Q3 and Q4, so they dropped and then they are just to the point where they are actually increasing slightly over where we were in the previous quarter. With our used accounts they have been pretty steady, this quarter was lower than last quarter and we think a significant aspects of that has been two things really both the weather as well as we decided to pick a very strict policy with any account that was more than 60 days late in paying the bills but we stop shipping to them until they came up to 30 days from an accounts receivable perspective.

So we really wanted to right size the accounts make sure that they had the proper systems in place and they want to make sure that every one of our customers are happy and so therefore we looked at everything. If someone hadn’t paid their bills for 30 days, 60 days we want to understand what was there if there was an issue and so on. So, I would say the granularity that you see is that both the weather, some of our new policies probably affected the used accounts but kind of 10% or 15%.

Morgan Frank - Manchester Management

So I’m not sure I understand, why would weather reduce the number of active devices in the field? If a doctor didn’t use (multiple speaker) presumably is still using it at the end of the week?

Elias Vamvakas

Sorry. We are not talking about active devices, we are talking about utilization.

Morgan Frank - Manchester Management

So can you just tell me how many active devices there were at the end of Q4?

Elias Vamvakas

Sure. At the end of Q4 we had 707 used accounts and we had 1288 Masters Accounts.

Morgan Frank - Manchester Management

And purchased?

Elias Vamvakas

It was 187 purchased devices.

Operator

Thank you. Our next question comes from Ben Haynor of Feltl and Company. Your line is now open.

Ben Haynor - Feltl and Company

Just following on Jeff’s question a little bit, you mentioned the account planning off on the protocol and then I believe Seph will say, you’ve to take the time to get the CLIA waiver so and so forth to get them on-boarded. Once those accounts that you’ve signed up since the kind of protocol the deal was in place. How have those compared to -- provide any numbers on maybe the average how they started out this year versus under the new regime versus what they were running at say nine months ago or a year ago on the Masters program last year?

Seph Jensen

The one thing that is somewhat limiting at this stage is simply amount of history. Like I said a lot of these things have been implemented only recently so that, it's kind of get a control group in 2013 or compare that to you know a group today where we’re doing more of this. Certainly we will be looking at all of that and all of our strategies to see, where is it paying off? Where is it not? I would simply say that we just don’t have enough data, we don’t have a number of accounts to really give you meaningful comparisons at this point.

We obviously believe it's the right thing. Again we have anecdotal information but I can’t give you large level analysis at this stage.

Elias Vamvakas

I was just going to mention the other thing that’s a little unique because doing a same store analysis isn't obvious. The thing that becomes challenging with Masters Accounts is that we don’t actually go in and say, here is all the accounts and you’re going to practice. So we will go in and get a couple of doctors who want to start using our device and we will put in 3 or 4 devices and then maybe four months later we will put in another 3 or 4 devices when another couple of doctors and it may take a year where we just constantly put in the devices as we bring the doctors on-board. So it's really hard to do an analysis of per use, one of the reasons why we put together the per account analysis is I think you will see that number go up significantly because as we’re opening new Masters Accounts I think you will see revenue increase significantly from the start.

Ben Haynor - Feltl and Company

And then just a couple of questions on the calculations there, are you using the end of period active devices and also are you using the number of days or just multiplying it by four?

Elias Vamvakas

What we have done is we -- and the revenues are not going to match a little bit because we have gone very specific and looked at card revenue for those specific devices. So we haven't included any revenues from obviously we haven't included any income from, any sales of devices revenues, any international revenue, we haven't used any revenue from cards that were used for educational purposes, for research purposes. So they are the exact revenue for that device and all we have done is we have taken the revenue for the quarter and divided by the number of active units at the end of the quarter.

It's not exact but if we keep to that methodology consistently I think you will be able to see the right trends.

Ben Haynor - Feltl and Company

And then I noticed you recently hired a VP of International, what’s the plan there? How soon do you think you can get that up and running and additional cost that we might be expecting?

Seph Jensen

Yes sure. So I think the first thing that I would say about that is that, it's a big world out there and we want to make sure that we’re very disciplined about how we go after that opportunity. So we’re going to look at it in phases. The urgency for us is that we know that there is ongoing activity in this space. Elias spoke about it but I can echo it again, the amount of interest in ocular surface health, in dry eye, in how these things correlate and impact with all types of surgery. I have never seen that level of excitement, noise and activity higher and that’s not only here in the U.S. It's starting to become very high level everywhere. So we first have to assess the market and figure out where it makes sense to deploy resources. So that phase, we’re going to go through that and with plenty of due diligence and not rush it. Then I think as we start to put a strategy together and look at work and impact revenues and what type of resources it's going to require that will be our second phase and then only when we are through with that and we feel comfortable with our plan, will we then go forward and say, okay now we’re going to start to execute upon that.

I do not anticipate that process to be quick. I would -- certainly no impact definitely in 2014 and we’re going to go through that methodically and very specifically throughout 2015 and we may or may not start to see some actual execution of those strategies as we move later into 2015 but that would be the earliest.

Ben Haynor - Feltl and Company

And then lastly it seems to me that I’m hearing that, you guys are quite comfortable with the original 30 million to 33 million guidance that you gave for 2014. Am I correct in my assessment?

Elias Vamvakas

Yes you’re.

Operator

Thank you. Our next question comes from Bill Bonello of Craig-Hallum. Your line is now open.

Bill Bonello - Craig-Hallum

My question was just answered. Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Ben Natter of Emrose Capital. Your line is now open.

Ben Natter - Emrose Capital

Just want to ask how long exactly do you spend when you go through these accounts and work with them to increase utilization? How long does it take typically?

Seph Jensen

Well that’s all over the place and it really depends on two things, customer size and by that I mean it could be physical locations. It could be the number of stake holders and the second thing would be as long as it takes.

I can tell you this we’re constantly looking at our models not only how we’re executing and what we’re doing but how we’re structured and how we’re sized both within our rep level positions as well as our management positions. We continually look at that as our business evolves and we feel comfortable that we’re sized to deliver the guidance for 2014 as we continue to go forward, as we continue to grow certainly we’re going to look at if we need to scale differently to adjust our reach and frequency but at this stage the answer to your question is there really is -- I am sure there is an average but it is all over the place because you’ve small used accounts, when you start them out one doctor, one device and huge Masters Accounts and the direction to the team that they are embracing and were going forward with this, really we’re staying as long as it takes to either have that account, have a good experience and integrate it successfully or we mutually agree that something is for whatever reason it's not going to work at this time and then we will move on.

But again in those scenarios we have had less than 3% so far and my expectation is that we will stay under 5% even going forward as we try to right size.

Ben Natter - Emrose Capital

And just looking at the revenue and it's been kind of quite sequentially for couple of quarters and we’re kind of hoping to exit last year at 5 million kind of was our understanding. I mean is that still -- do you still feel like you’ve -- like you did 4.2 million in revenue in this quarter, do you still feel like the business is operating at that $20 million run-rate or what’s the kind of run-rate of the current business?

Seph Jensen

I was simply going to say, no we don’t think it's at the 20 million run-rate. As we have said multi-times we expect the major return of our efforts to be in the back half of the year. We had a lot going on in Q1 as Elias said, I don’t think you can ignore the weather and the majority of our business in the North East. I don’t think you can ignore that we took a hard stance in our business in making sure, we understand all the nuances and part of that include of really enforcing our AR hold policy [ph] and in the middle of all the structural reorganization and new strategies. So these are not insignificant changes. They are deep investments in our commercial model and we fully expect those to pay dividends as we move later in the year.

So this is not a 28 million year model and again we’re not moving off our guidance and we expect the payoff to be in the back half of the year.

Operator

Thank you. And I’m showing no further questions at this time. I would like to hand the call back over to Mr. Elias Vamvakas for closing remarks.

Elias Vamvakas

Thanks very much. Again we appreciate everyone’s time being with us this afternoon. Feel free to call us if you’ve any other questions and we will talk to you soon. Thank you.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Have a great day everyone.

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