Laser Vision Centers, Inc. – Bringing Vision to America

Healthcare
Medical Services
NASD: LVCI

Laser Vision Centers, Inc.

John L. Klobnak
Chairman and
Chief Executive Officer

540 Maryville Center Dr., Suite 200
St. Louis, MO 63141
Phone: 314-434-6900
Fax: 314-434-2424

Interview conducted by:
Walter Banks, Co-Publisher

CEOCFOinterviews.com
June 2001

BIO OF CEO

Mr. Klobnak has served as Chairman of the Board and Chief Executive Officer of LaserVision Since July 1993. From 1990 to 1993, Mr. Klobnak served as LaserVision’s Chairman, President and Chief Executive Officer. From 1986 to 1990, he served as chief Operating Officer and subsequently President of MarketVision, a partnership acquired by LaserVision upon its inception in 1990. Prior to 1986, Mr. Klobnak was engaged in marketing and consulting.

About
Laser Vision Centers, Inc.

LaserVision® Centers, Inc., is one of the world’s largest providers of excimer lasers (a cool laser that changes the shape of the cornea by eliminating tissue), related equipment and support services for the treatment of nearsightedness, farsightedness and astigmatism. As of January 31, 2001, the company’s most recently completed quarter, there have been more than 316,500 LASIK (Laser Assisted in-situ Keratomileusis) procedures performed worldwide under the guidance of LaserVision. LASIK is a proven procedure combining the advantages of a skilled surgeon, for treating higher degrees of nearsightedness and astigmatism. Approximately 10,000 procedures per month are being added.

As of February 1, 2001, LaserVision operated 105 lasers in the United States providing access to over to 700 surgeons in more than 300 locations in 47 states. LaserVision’s® Midwest Surgical Services division provides ophthalmologists mobile access to cataract related equipment, and is the world's largest provider of mobile cataract services.

CEOCFOinterviews - Mr. Klobnak, can you give us a brief history of Laser Vision Centers? 

Mr. Klobnak: "Laser Vision Centers was founded in l986 as Market Vision, an advertising and marketing agency for eye doctors. In l988, the company had decided to change its focus from a marketing business to opening centers providing access to the excimer laser, which was then a new yet to be approved device for the correction of nearsightedness, farsightedness and astigmatism. Since that time we have begun the process of developing our service provider business in refractive surgery. The company went public in l991. First, we operated our centers in Canada, and then went to Europe and ultimately began operating in America in 1996, when the excimer laser was finally approved here. To date we have about 350 centers globally."

CEOCFOinterviews - Where is your greatest revenue coming from?

Mr. Klobnak: "We no longer work in Canada, but we are still in Europe. However, the American business provides over 95% of the revenue. In l998, we went into the mobile cataract business. We were looking at your strategic options and it was clear to us that we have a very large group of customers, the eye surgeons most of whom also did cataracts. Therefore, we acquired a company which was doing what we are doing in that business and now it is a fairly large part of our venture, accounting for about 20% of our sales."

CEOCFOinterviews - How many revenue-generating segments for your business are there?

Mr. Klobnak: "We have two and soon to be three. Refractive surgery or excimer laser surgery, commonly known as LASIK, is our primary core business. Then there is our mobile cataract venture and, as we have recently announced, we are going to go into the development of ambulatory surgery centers for ophthalmology. These will be practice based, single specialty eye ambulatory surgery centers in which our customers will do cataract surgery. We will operate those centers on an equity-sharing basis with our customers, the ophthalmologists. So in the middle of next fiscal year, we will have three businesses."

CEOCFOinterviews - Which of them do you see as your greatest revenue producer in the future.

Mr. Klobnak: "The laser business, I think, still is and has the potential to remain our biggest business, yet we see the cataract business as one that has great promise. Estimates show that as baby-boomers retire, they will get cataracts, the number of which will grow in the next five years from two to three million. That is a pretty big increase and doctors are very interested in taking part in that, as well as in the basic business which continues to grow 25-30% a year."

CEOCFOinterviews - What is your current market share?

Mr. Klobnak: "We have about 10%, or one of every ten laser surgeries performed in America. The cataract business is very fragmented, however, we believe we do about one and a half percent of all the cataracts performed in the U.S. and if our estimates are correct we will see that percentage growing."

CEOCFOinterviews - Do you create any products?

Mr. Klobnak: "We use equipment made by other companies and provide the doctors who actually do the surgery, with a way to do the procedure in a more profitable, and cost effective manner."

CEOCFOinterviews - Are the centers owned by you or do you franchise?

Mr. Klobnak: "We like to say that we are a low cost provider with no bricks or mortar, though it is not entirely accurate. We do have several centers where we are responsible for the bricks and mortar. However, by and large, the laser surgery is done in a doctor's office, therefore, basically we provide the equipment in someone else's facilities, leveraging other people’s assets. Some centers we operate in partnerships with surgeons, doing it both ways."

CEOCFOinterviews - Are you planning to growing your center business and expanding in the near future?

Mr. Klobnak: "We continue to look at opportunities as they occur. We are currently in 47 states, yet there are markets that we do not serve. We do not look at this as a geographic thing, but more as an opportunity with a surgeon with whom we think we may do well. We historically have been a small and middle-sized market company and have stayed out of the big cities early on. That proved to be a very good decision as many people went to the big cities, competed heavily, and did not do as well. We made our mark in rural America and now we moving into some of the bigger cities.  As we go forward we would probably look to complement our rural strategy with an urban strategy."

CEOCFOinterviews - Do you have a projected number of centers you would like to open?

Mr. Klobnak: "We do not. We now have in America some 310 locations we serve and we hope to see that number grow. It has been flat for a couple of quarters but as you may know, we have been in the midst of a price war in our industry. The entire industry has been going sideways as we have dealt with the recession and more than that, with the confusion in the marketplace perpetrated by these predatory pricing discount companies who apparently just wanted to loose money and make it up on volume."

CEOCFOinterviews - What do you feel gives you a competitive edge on that?

Mr. Klobnak: "Our competitive edge is being a low cost provider, no bricks and mortar. All of these other companies with whom we compete have very large infrastructures; they generally build up very opulent facilities with a much higher break-even in number of cases they need to perform. We on the other hand have a business model that leverages other peoples' assets, i.e. their facilities, staff and phone systems; therefore, the break-even is much lower. Moreover, throughout the difficult last one year period we have seen in our industry, LaserVision has been the only company to remain profitable."

CEOCFOinterview - It looks like your partnering program works very well for both you and the doctors.

Mr. Klobnak: "That is correct. Not all of our doctors are the biggest doctors but they serve the local communities, are well known brand names in their areas and many of them simply could not do this surgery without us providing the equipment. Moreover, we are the largest provider of mobile access to the lasers having the ability move these lasers from location to location, as it is required. That is another leverage point that allows us to not have to put a very expensive piece of equipment in each location. With this we are pretty much in all of the states and about 40% of our refractive business comes from the mobile side."

CEOCFOinterviews - What is your current cash and credit position?

Mr. Klobnak: "We have about 20 million dollars in the bank and a 20 million dollar line of credit, out of which we have only used about 2 million. We pro-forma all of our deals as if we have borrowed the money. The use of cash is backed up either way, whether we decide to use our capital for the acquisition opportunity, ultimately will use leverage. Currently we generate positive cash flow, have remained profitable throughout the storm and think that we are in a very good position as many of the undercapitalized players in the business had seemingly hit the wall here and are seeking various redress in terms of their future. We have known for a long time and have said publicly that this procedure cannot be sold for some of the prices we were seeing, that these companies will either raise their prices or go away. I think that we are starting to see that now."

CEOCFOinterviews - Is your approach to acquisitions very aggressive?

Mr. Klobnak: "Our approach to acquisitions is very disciplined. Almost all, if not all of the acquisitions we have made over the past 3 years or so have been immediately accretive. We have announced publicly that our company is here for the benefit of our shareholders. We are open to any strategic discussions with any party who might feel that they have an opportunity that would be in the best interest of our shareholders. I guess what I am saying is that we are interested in either being the acquirer, or on the other hand, if something came along where we might be a part of another opportunity we are open to that as well.  We are open to what we see as being a good opportunity for someone, that is, the roll up of this industry. I hope that whatever we would do, the result would be a much stronger company, very well, or even better positioned for the exciting future in this business."

CEOCFOinterviews - What are your closing thoughts to your current shareholders and potential investors?

Mr. Klobnak: "I think that our industry has really been beaten down, most of the companies, LVCI included, recently traded at levels of less than the cash we had in the bank. There has been a slight recovery over the past month or so, nothing close to the level we saw a year ago. We believe, and have said over the past year that we are going to need to invest in the future, to position this company to succeed. We have been doing that. We have been buying not only basic opportunities but have acquired two companies in the mobile cataract business. Moreover, we have announced that we are going to enter the ambulatory surgery center business and we made a small acquisition in a consulting company involved in that business. Fortunately, we have enough cash to do some investing right now and to remain profitable while doing it. We do believe that our business is volume dependent. We have fixed assets against which we apply volume. The better the volume, the better the results. While we are probably still at the tail of the pricing turmoil we have suffered over the past year due to these discounters, we think we can see the light at the end of the tunnel now. The company has survived and remains the leader in the industry. In the long term, we do see much more responsible pricing levels which can only be good for us. We are cautiously optimistic about the future. We think we have done a good job maintaining the company's profitable status during the storm and we are looking forward to a little more predictable next couple of years."