Ladies and gentlemen, thank you for standing by and welcome to the Second Sight First Quarter 2018 Results Call. During the presentation, all participants will be in a listen-only mode and afterwards we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded Thursday, May 10, 2018. And now I'd like to turn the conference over to Lisa Wilson, Investor Relations for Second Sight. Please go ahead.

Thank you. Good afternoon and welcome to Second Sight's first quarter 2018 earnings call. This is Lisa Wilson of In-Site Communications' Investor Relations for Second Sight. With me on today's call are Will McGuire, President and Chief Executive Officer and John Blake, Chief Financial Officer of Second Sight. At the close of market, the company issued a press release detailing financial results for the three months ended March 31, 2017. The press release can be accessed through the Investor Relations section of the Second Sight website at secondsight.com. You can also access the webcast of this call from there. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Second Sight management as of today and involve risks and uncertainties, including those noted in this afternoon's press release and Second Sight's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Second Sight specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. A telephone replay of the call will be available shortly after completion of this call for the next two weeks. You'll find the dial-in information in today's press release. The archived webcast will be available for one month on the company's website, secondsight.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 10, 2018. Since then, Second Sight may have made announcements related to the topics discussed. So, please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to Second Sight's CEO, Will McGuire.

Thank you Lisa, and thank you all for joining our call this afternoon. With several key developments during and since the first quarter, I believe Second Sight is better positioned than ever before to treat the blind by expanding the reach of our Argus solution and advancing our Orion technology. I'd first like to review key changes to our management team and board of directors. Let me begin by welcoming John Blake to his first call as Second Sight CFO. John is a seasoned financial executive with broad life sciences industry experience and a track record of delivering results. I am pleased that he has joined Second Sight's leadership team and that I will be working with him once again. I'd also like to take a moment to thank Tom Miller for his many contributions to the company. Tom was a valued member of the management team and integral to the company's successful IPO. He graciously helped ensure a seamless transition to John and we wish him well. As you know, in April, we announced the resignation of Dr. Robert Greenberg from our Board of Directors and as an officer of the company. Bob is a pioneer in the industry and as contributed extensively to expanding options for the blind. I enjoyed working with Bob to advance Second Sight's breakthrough technologies and bring them to market worldwide. Second Sight has benefited from his clinical insights and extensive industry and technical knowledge. On behalf of the entire leadership team, we sincerely appreciate his contributions over the years and wish him well. Also, as previously announced in March, Gregg Williams was appointed Chairman of the Board. As a board member, he has provided valuable guidance to the leadership team and we appreciate his continued confidence in the strategy and future of our…

Thank you, Will. I'm pleased to be joining you on my first call as CFO Second Sight and I'm excited to be part of the team. I'm looking forward to meeting with investors and sharing my optimism about our products and our plans to create shareholder value now that I've been able to dive in and get a closer look. Our implant volume during the first quarter of 2018 increased 16 units compared to 14 during the prior quarter. During the quarter, ten implants were performed in North America with the remaining six in Europe, the Middle East, and Asia. Net sales were $1 million in both the first quarter of 2018 and 2017. Revenue was recognized for nine units and four units were deferred this quarter as we apply the new revenue recognition guidance to our new sites without MAC coverage or without prior reimbursement experience. In the same quarter last year, we recognized nine units and deferred two. The average invoice price for implants in the quarter was approximately $109,000 compared to $106,000 for the first quarter of 2017. Gross margin for the quarter was $0.3 million compared to a gross loss of $0.1 million in the first quarter of 2017. We are making progress with our cost reduction efforts on a per unit basis. As a reminder, our unit costs are subject to variability based on our production volumes primarily due to the overhead absorption rate. We expect our cost of goods to stabilize particularly related to overhead absorption and excess inventory reserves as we produce more units. R&D expenses were $2.5 million during the first quarter of 2018 compared to $1.9 million in the prior quarter, largely driven by an increase in personnel outside services and internally produced prototypes for next-generation products. Clinical and regulatory expenses…

[Operator Instructions] And our first question is from the line of Dallas Salazar, please proceed.

Hey guys, thanks for taking questions. I have a few here. So if we can work through them. The first one I have is regarding the Argus implant ramp in Q2. Can you talk about any level of optimism that you have and then further how you expect the ramp to conclude into year end.

Sure Dallas, this is Will, I'll take that. In short, we're optimistic about Q2. I can tell you right now we have about 20 surgeries that are either complete or scheduled for the quarter. Now keep in mind that some of those surgeries are scheduled could be rescheduled for a future period, but also on the flip side, we still have plenty of time left in the quarter to have additional surgery scheduled. But at this point, we have about 20 that are either completed or are scheduled to occur. So I think - in short, I think it'll be another strong quarter for us in Q2. As for the remainder of the year, I expect growth - continued growth. As I've said many times before, if you look outside of North America, we're going to have much more fluctuations with our business there. The Europe, Middle East, and Asia consist of different markets, some direct, some distributors, some with reimbursement, others without reimbursement, and in some cases, we don't even have product registration. But over time, that business will definitely grow and I would expect the quarter to quarter fluctuations to become smaller through time. As for North America, I do expect meaningful growth for the remainder of the year starting with Q2. I'm optimistic because we have a growing patient database as I mentioned during the call, 160 patients that have been clinical qualified at this point. I also mentioned that we've increased our team; a year ago, we probably only covered about 60% of the US, now, we're covering probably 100% or we are covering 100% of the U.S. And then we're adding Centers of Excellence, our new centers. We added one in Q1 and so far in Q2, I think we've signed contracts and hopefully we'll do surgeries with two more new Centers of Excellence in the U.S. in Q2. So I think a lot of indicators would tell me that Q2 is going to be good in the US and the remainder of the year will be quite strong in the US as well.

And just to clarify that your outlook is baked on the assumption of zero label expansion for Argus, is that right?

That's right, that's right. Zero label expansion, we have plenty of room to expand just by expanding our centers right now and increasing in our outreach efforts. If we are able to expand the label that would just put us in a much better position in which we could then funnel more patients through each one of the Centers of Excellence, but good question.

And just on that, really quickly if I ask kind of a part B to that. Like can you elaborate as to maybe the stage progress you've made with conversations with the FDA or just any color at all sort of in the background?

Sure. I can't say too much other than we made - we had a submission to the FDA, we actually had a phone call in the last couple of weeks with the FDA to discuss that submission and we will be scheduling another call with them here in the near future. And what we're trying to do through these discussions is just get a better understanding of the scope of the label change that they would consider appropriate under our HDE approval. So let's say one conversation down, another one to go, and then potentially there would be another submission to the FDA to try to get to a point that they're comfortable with. To be clearer, we remain very excited about the opportunity to treat these better vision RP patients. We think they'll respond really well to Argus, in general, they're going to have a less diseased retina. It's also a much better - a much larger market with as much as a 3x increase in the patient population which is I just said a minute ago would translate into the ability to a significant increase in the number of patients treated by each of our Centers of Excellence. So, would really allow us to get more of our investment in the commercial organization. So, very excited, hopefully, we'll have some positive news to report here in the near future.

And then just to round out my questions here and this is the last one, I promise. Regarding kind of expansion of market and some of the things in the pipeline, any more color you guys can provide on the Orion patients and then, any additional kind of anecdotes on the testing that you're conducting? And I'll jump back in the queue.

Sure. I mean the Orion patients, if I were to - I can describe them generally, we can't disclose any confidential patient information, of course. But, first of all, they are all excited to participate in the trial. These are patients who are blind and who have no other option out there to regain any sort of their vision. So Orion is very exciting to them as it is to us. I would also say there's a wider range of ages than we typically treat with Argus. A typical Argus patient is older. Here we have two of the four subjects that are much younger than our typical Argus patient. And I'd say on average also we think that they're probably going to be blind for a shorter period of time. And then finally, if you look at these first four patients, they are blind for three different reasons. So again, we're not just focused on one disease or one type of blindness. So it's really a large swath that we cut and as we said before, we can treat almost any form of blindness as long as they have a functioning visual cortex and there's not a technology or a therapy that's currently approved to treat them like Argus. The testing, maybe a few more comments on the testing, and I'll kind of go through what I did in this script and maybe explain it a little bit better. We are trying to go through three phases of testing right now. And the first phase involves - and which we've done with the first two patients, it involves especially energizing each one of the 60 electrodes and then we go through a process of basically fine-tuning each one of the electrodes at certain parameters we can change to fine-tune…

No, it does. The risk of other folks kind of being upset that I'm taking a little bit more liberty here, but you did, you sort of caused me to ask just another follow up here, which is you know regarding that the path to commercialization for Orion and the breakthrough device program. What type of impact does that have on the path of commercialization? I know that you're getting ultimately familiar with the regulatory processes here including FDA and [indiscernible] some of these things. So what can you take from some of your history with getting things approved through regulatory bodies and how would that break the device program, how does all that factor into the path to commercialization for Orion?

Yeah, got it. A few comments, first of all, the breakthrough device program is designed or was designed by the FDA to basically assist promising new technologies that treat an unmet clinical need to get them to commercialization faster. So, we view it as a very much a positive for us. And so, the way it works is and we just submitted our first application to the FDA - our first document to the FDA. And basically in that document, we won't get into the details, we don't want to disclose the details yet, but in that document we lay out what we think should be done with the feasibility patients, so the first five patients, a type of follow-up should happen and what we should see from those patients. Then we also propose what should be done with the pivotal trial, so the approval trial, how many patients and what type of endpoints and what type of follow-up, the length of follow-up that we think is appropriate. And then finally, we propose what we want to or what we think should happen in the post-market setting. And the post-market setting is after we receive commercial approval, we'll continue collecting data to support the safety and efficacy of the product. So we have proposed all of that, it will now be a back and forth with the FDA and we want to get to a point sometime later this year where we have agreement with the FDA. And the advantage of that is, of course, we can share it with you and then you know what kind of timeline you should be thinking of to get Orion to market, you could take that timeline and number of patients and start translating into dollars of expenses and things like that. And it allows us to understand that entire pathway much earlier. So, expectations I'd say, again, just generally speaking with a breakthrough device the intent and what we would expect is that we can in the feasibility and then in the pivotal or approval trial that as opposed to a non-breakthrough device designation, we would implant a smaller number of patients to get the initial approval and then the follow-up on those patients could perhaps be shorter as well before we would get a commercial approval. And then to fill out the dataset if you will for the FDA, we would continue collecting data post approval in the post-market trial with agreed to endpoints and follow-up with the FDA and along the way provide all of that data to the FDA. But the advantage of the program should be getting us to commercialization sooner with perhaps less cost and less patients.

[Operator Instructions] And we have a question from Amit Dayal from H. C. Wainwright & Co. Please go ahead.

Congrats on all the progress with Orion, really exciting stuff. I know you answered a lot of the questions on Orion. Maybe just one question for me on that front is, first patient seems to be slightly ahead of the others in terms of the stage of testing et cetera. So what are the next steps for this patient and how does that maybe situate you with discussions with FDA et cetera?

So this patient, we have just - the first patient we have just turned the camera on, so I would say over the next - I don't know the time period, but I'll say the next 30 to 60 days what we will do is we will be doing more and more work with the camera on and basically we'll start feeding live video, so real-time video. So we'll have the entire Orion system working. They'll have just like an Argus system, they'll have a camera capturing video in front of them and we have the algorithm developed and each algorithm right now is developed specifically for each patient because we do an individual spatial map for each patients. And we'll start developing and producing artificial vision for this patient. And they can start using it to walk around and do task and things like that. So it gets really exciting now with this first patient. And then per the protocol, at some point after we get to a certain point in the testing, per the protocol the patient would then be able to actually take the system home and start using it outside of the setting in the lab. And so that would happen here at some point in the near future. I don't know the exact timing of that, Amit, but at some point in the near future. And then the second patient is going to be maybe 30 or 45 days behind that patient. And then patients three and four, we just recently implanted them and we expect that we will probably have the initial activation session in the next couple of weeks for each one of those patients. And so that's where we will start activating each one of the electrodes individually for those patients. And then finally, as I said, hopefully, in the near future, certainly we think before the end of this quarter, we'll enroll the fifth patient out of five that we're agreed to for the feasibility study.

And just out of curiosity, so this is just turned on while you guys are doing testing or is it turned on at other times for the patient?

Good question. So, right now, it is just turned on in a controlled environment at the hospital while we're doing testing and that's because we want to do testing with someone there and we're watching them very closely to make sure there's no adverse events or pre-seizure or seizure type activities of which we have not seen. Still, we want to watch closely and get a high confidence that the system is not going to cause any adverse events or unexpected adverse events with the patient. So, we'll be getting to that point here hopefully in the near future with patients one. And then at that point, we will basically say you can now take the system home and start using it without us overseeing it or without someone from UCLA or Baylor overseeing the use of it. So getting closer to that, we're not there yet, Amit, that's certainly to goal.

Just on the Argus II side, we saw 30 implants in the fourth quarter, 16 implants in the first quarter of 2018. Can you help us understand what is driving some of this variability, is it just the queue of the patients you're screening to get in line for the implant and going forward, is this type of variability going to continue to play out?

Good question. It's a lot of different factors, outside of North America is the most variable. I think even from 2016, I believe it was in Q4 outside of North America to six. And again that's just that's a lot of factors driving that variability. There may be a few units that ordinarily would have happened in Q1, maybe the team pushed to get it at the end of the year. But that's just driven by variability in each one of the direct and indirect markets there. We did show a sequential decline in the US as well. Much less like 14 to 4 if I recall, so…

To 10.

To 10, I'm sorry; it's a 10, 14 to 10, difference of four. And I would expect to see less variability in the US or in North America should I say going forward, Amit, because in the past, if you take last year, let's take last year in North America, we had a much smaller team, we would do say even in the fourth quarter we implanted ten patients, but the team it was - at that point, it was a bit of a stretch for the team to do the implants to do the activations to get rehab going and things like that. So I would say we were kind of stretched parts of last year as far as our manpower or person power in the US and in North America. We don't think that's an issue going forward. And we also have quite a - as is said one new site in Q1, two more sites we think coming on in Q2 and then quite a few in the second half of the year. So I think you're going to see more consistent growth both versus prior year versus prior quarter in the US for the rest of the year, but I do think as I've said many times you'll see some variability outside of the US and it will be some time before we eliminate that variability. But again, very, very optimistic about the North American situation and the ability to do consistent growth quarter to quarter going forward.

On the cash front, the commentary of the call indicated that you guys aren't good until the end of the year. But looking at sort of your expenses in the first quarter, it looks like included the 10 million placement that just happened, we have maybe another two quarters worth of sort of - unless I'm reading this wrong. So could you help me reconcile this, please?

Hi Amit, this is John. With the recent financing, I projected that will extend our runway into late Q3 or early Q4. And importantly that will enable us to execute on the key milestones in our Argus II and Orion programs that we talked about earlier. And most importantly will be able to report on the interim results with our first five subjects in the Orion feasibility study regarding safety and efficacy. So we really believe that this financing takes us to a position later in the year to be able to achieve a lower cost of capital.

Just one final one from me. Are reimbursement rates holding steady for you guys, any changes on that front?

No changes since the beginning of the year. Our average reimbursement in the US for the device and the procedure is 122,500. As we talked in the past that's an average, the actual reimbursement could vary based upon geographic location. So higher cost areas have a higher reimbursement, lower cost areas have a lower reimbursement. And so the one thing that could cause the US reimbursement to vary quarter to quarter would be just actual location of the implants. Outside of US, I don't think we had any in changes in our reimbursement and the Canadian reimbursement is - reimbursement in Ontario is very close to and very much in line with the US, maybe actually a little bit more than the US. So good strong reimbursement in Ontario as well.

Just wanted to add that given our overall geography mix that we project this year favoring the North American region versus Europe that will support ASPs to be as good or better than what we had in 2017 overall.

I was going to ask what kind of reimbursement rates on average we're seeing in the international market.

I think we're seeing in the 90s. So, some variability there between the indirect markets and some of the direct markets, but I think it's pretty consistent - our ASP there is pretty consistent, Amit, with what we've reported in the last couple of years somewhere around 90,000, maybe in the low 90s or something like that on average.

I believe that's all the questions or time for questions we have at this time. I like to hand it back to Will McGuire.

Thanks again everyone for joining our call today and I look forward to providing an update on our next call. Have a great day, thanks.

Thank you.

Ladies and gentlemen that concludes the call for today. We thank you for your participation and ask that you please disconnect your line.