STAAR Surgical Co (STAA) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the STARR Surgical Second Quarter 2008 Earnings Release Conference Call. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. This is Doug Sherk with the EVC Group and thank you for joining us this afternoon for the STARR Surgical conference call to review the Company's strong progress and financial results in the second quarter of 2008, which ended on June 27, 2008.

The news release announcing second quarter results crossed the wire this afternoon shortly after the market closed and is available at STAAR's website, www.staar.com. Additionally, we've arranged for a taped replay of this call, which may be accessed by phone. The replay will become available approximately one hour after the call's conclusion and will remain available for seven days. The operator will provide the dial-in information at the conclusion of today's call. In addition, today's call is being broadcast live and is, along with an archived replay, will be available at STARR.com. That's STAAR's website, www.staar.com.

Before we get started, during the course of this conference the Company will make projections or other forward-looking statements. We caution you that such statements that are not statements of historical facts are forward-looking statements, including any projections of earnings, revenues, sales, cash, or other financial statements; any statements of the plans, strategies, or objectives of management for future operations; any statements regarding expectations for success of the ICL or other products in the U.S. or international markets, any statements concerning proposed new products or government approval of new products; any statements regarding future economic conditions or performance; statements of belief and any statements of assumptions underlying any of the foregoing.

These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements.

The risks and uncertainties include our limited capital resources and limited access to financing, the challenge of fully integrating STAAR Japan into our business and managing our other foreign subsidiaries; the need to realize product development goals to improve profitability of our U.S. IOL product line; our ability to address FDA concerns over the clinical study for the Toric ICL and to overcome negative publicity resulting from warning letters and other correspondence from the FDA Office of Compliance; the willingness of surgeons and patients to adopt a new product and procedure; the affect of a possible U.S. recession on elective procedures such as refractive surgery and the potential affect of recent negative publicity about LASIK and the demand for refractive surgery in general in the U.S. and other factors beyond our control, including those detailed from time to time in our reports filed with the Securities and Exchange Commission. STAAR assumes no obligation to update these forward-looking statements to reflect future events or outcomes and does not intend to do so.

Now I'd like to turn the call over to Barry Caldwell, President and Chief Executive Officer of STAAR Surgical

Thanks, Doug, and good afternoon, everyone. I'd like to thank you for joining us today to review our second quarter 2008 financial and operational results.

With me today is Deborah Andrews, our Chief Financial Officer. After my opening remarks, Deborah will cover in more detail the financial highlights of the quarter and then I will add a few additional comments about our operational progress before we move to any questions you may have.

If you've had an opportunity to review our press release issued this afternoon, I believe you will agree that our rate of progress has accelerated. We have executed our plans well and are basically on plan at the midyear point.

As you might expect, our plan calls for continued improvements in a number of our operating metrics during the second half of the year and all of our employees must stay highly focused on executing an order for us to improve our performance and achieve our goals. To date, the team as done an excellent job of implementing our strategy to conserve cash and return to profitability. We just need to keep up the same intense effort during the second half of the year.

During our past two calls, we've reviewed the five key metrics by which you could measure our progress throughout this year, 2008. I'd like to begin today's call again by updating you on our progress.

The first metric is to reduce our operating cash burn each quarter of 2008. First, in the area of expense control our cost reduction efforts, which have been focused on U.S. operations, generated over $1.0 million of savings from prior year. This was accomplished despite the increased investment spending in the 15-member sales and support team for the Visian ICL.

Overall, the operating expenses in the U.S. declined by 13% as compared to a year ago, while sales and gross margins improved. The bottom line is that we're making progress at reducing our cash burn. During the second half of the year we have to continue our spending reductions in the U.S., while we also focus on already identified areas for reduced spending and ways to leverage our first half investments in our international operations.

Based on our progress to date, we're on track to achieve our current goals without raising additional capital. Furthermore, if we can meet the remaining four metrics during the second half of the year, we would expect to be cash flow positive in the fourth quarter.

The second metric we discussed was continued gross margin improvement. We stated that Japan would help our gross margins and we would start to see the beginning of that impact during this second quarter. We were quite successful in this area, as our gross margin increased by 700 basis points to 56%. This improvement was led by our results in Japan, but each STAAR location increased gross margin results from the second quarter of last year.

We continue to believe we're on track to improve gross margin, sequentially, for the third and fourth quarters of 2008. However, I would hope that you don't expect those gains will match the sequential increase generated in the second quarter.

Our third metric was to continue the strong international revenue growth we experienced during 2007. You may recall last quarter our growth rate was 37%, but only 8.0% excluding Japan. We discussed the impact of holidays and that we expected second quarter international growth to show progress. It did. The growth rate was 58% over last year and 24% excluding Japan. For the first half, international revenue increased by 47% and 16% excluding Japan, clearly on plan.

Our fourth metric was to achieve sales from STAAR Japan in excess of $12 million. Japan contributed $3.3 million in sales for the quarter and is over $6.0 million for the first half. The integration has gone well, so we must continue to focus on making additional progress as the year progresses. This remains a key objective and focus of Dave Bailey, our President of International, and we are on track for the first six months.

Finally, the fifth metric we discussed was to grow Visian ICL sales in the U.S. After the first quarter increase of 9.0%, we have followed with a 39% increase for the second quarter, as compared to the second quarter of last year.

There continue to be several dynamics, which have contributed to our reversal of flat sales in 2007. The Visian ICL continues to receive very good and frequent media attention. There have been news stories on each major network in over 20 cities during the first half of the year.

Another great example of this happened just this morning. The Visian ICL procedure was performed and videotaped for the CBS Morning Show by Dr. Paul Dougherty in Los Angeles on a seven-year-old girl in danger of losing the use of one eye. We expect that this procedure will appear on a CBC program during a segment featuring medical miracles and we will be sure to let you know of the airing as soon as we can confirm.

In addition, the media focus on the complications of LASIK continues to drive potential patients to ask questions of alternatives to LASIK. At the same time, our enhanced marketing programs and the new direct sales organization focused on the Visian ICL have been significant contributors to our momentum in the U.S.

Several of our investors have asked about the revenue impact of no longer promoting bulk Visian ICL orders at the end of the quarter. So, for example, during June of last year we shipped 205 ICLs, which came from bulk orders. Compare that to this June when we only shipped 25. This change should help reflect a more true growth picture of the Visian ICL technology as we move forward. Bottom line is that we are making good progress on this last metric also.

To summarize, we have accelerated our progress during the second quarter on the five key performance standards we laid out at the beginning of the year. We must remain focused on our efforts to increase revenues globally, while controlling our expenses to our second half plan and you should expect to see progress with each of the five metrics during the second half of the year.

I'd lie to turn to call over to Deborah, who will review some of our financial highlights for the quarter, including giving more color to three of these five key metrics. Deborah?

Thanks, Barry. Good afternoon, everyone. Our release offers detail on the quarter, so I'd like to spend a few minutes this afternoon reviewing the highlights of our financial performance.

P&L results for the second quarter can be summarized as follows -- 38% increase in revenues, a 59% increase in gross profit and a 24% increases in operating expenses resulting in a 46% decrease in operating losses. Overall, these ratios illustrate the progress we're making.

Before we discuss our operating performance in more detail, let's discuss our cash situation. We exited 2007 with $10.9 million in cash and now that cash position stands at $8.9 million at the end of the second quarter, which is favorable to our internal expectations for cash at the end of June.

The $2.0 million net change in our cash position is the result of the following. $6.1 million was used for operating activities. This includes $3.0 million used by STAAR Japan for the six months; $2.5 million of that was used in Q1 as STAAR Japan began selling directly rather than through a distributor. They effectively had no receivables at the end of 2007 and had to use existing cash balances until they generated cash from sales.

Because their day sales outstanding is approximately 66 days, they did not start seeing cash from direct sales until the end of the first quarter and as a result, utilized much of their cash on hand during the quarter. During the second quarter, cash used in operating activities at STAAR Japan improved to $500,000 and receivables from sales were collected and the Company improved its margins.

The rest of the Company used approximately $3.1 million for operating activities, which is a 56% improvement over the $7.0 million used for operating activities in the first six months of 2007. This significant improvement is the result of increased sales of high margin products globally, including in the U.S., and operating costs reductions in the U.S.

The $6.1 million in cash used for operating activities was partially offset by $2.2 million in cash provided by investing activities, primarily related to the $2.5 million net cash acquired in the acquisition in the STAAR Japan, and was further offset by the $1.5 million provided by financing activity, which represents borrowing by STAAR Japan against a revolving credit facility and by the $400,000 favorable effect of exchange on cash.

For the second half of 2008, we expect STAAR Japan to be profitable and cash flow positive and for the U.S. to reduce its cash burn significantly and in Q3 and beyond with the objective of being cash flow positive in the fourth quarter.

Cost cutting is obviously a very important part of the cash equation. That is why our cost reduction efforts to date in the U.S. are so important. For example, through a variety of measures we've been able to improve productivity and streamlined a wide variety of processes and procedures, especially on the administrative sides, which has led to a 15% reduction in U.S. headcount since the beginning of the year.

In addition, we recently negotiated a significant reduction in our audit costs and reduced the number of sales and marketing consultant retainer agreements from seven to one, so that we only pay if we require services.

On the manufacturing side, lean manufacturing tools and workshops are being used to improve efficiencies. We've reengineered the manufacturing process for IOL cartridge loading systems and as a result, now follow a much more efficient process that utilizes fewer people and increases capacity. For our silicon three-piece IOL, for both the standard, optic and our aspheric optic, we have significantly improved yield rates, reducing scrap costs and increasing capacity.

In addition to implementing the cost cutting within our U.S. operations, we've also begun to analyze our international operations to identify ways to lower the ratio of our operating costs to revenue. We believe we've identified several opportunities and will shortly be implementing actions to improve our cost structure in Japan and the European markets, which should result in lower operating expenses in the second half of 2008.

Our gross margin improvement during the second quarter was quite significant, compared to both prior year and prior quarter. All five sales groups expanded their gross margins. Japan led the way. Japan's gross margin was significantly above our plans for the second quarter. The main reason was sales mix, as a large percentage of sales during the quarter were directly to the customer base in Japan, while distribution sales decreased.

In the U.S., Germany and Australia, gross margin improvements were driven largely by increased sales of Visian ICL, mix in product sales and a higher percentage of sales of proprietary products. In Switzerland, the gross margin increased because the increased ICL sales and the increased percentage of those sales being the Toric ICL, which commands a higher selling price.

All five sales groups also generated an improvement in the operating income line during the second quarter. In total, we had a $1.7 million improvement in our operating income. The U.S. and Australia organizations lowered their operating expenses, which helped to drive more operating income. Germany is essentially on plan for the quarter and favorable to plan for six months and Japan's operating income for the period came in slightly above plan and expected to improve in the second six months of 2008.

Expenses in Switzerland did increase, but certainly not more than the expansion in gross profit margin, which drove the increased operating income. As I mentioned earlier, we're looking to implement steps to improve efficiencies in those operations during the third quarter and are quite optimistic about our organization's dedication to achieving our cost reduction goals, as I witnessed during two recent visits to Germany and Switzerland.

Breakeven at operating income, our gross profit margin should improve to 60% versus the 56% reported for the second quarter, through increased sales of high margin products and improved efficiencies and operating expenses. And operating expenses should decrease to 60% of sales versus 65%. We believe this target is within reach and achievable some time in the second half of 2008. If not achieved during the third quarter, certainly we should see significant progress to that end.

Finally and most importantly, the cost of the Japan acquisition now gone and the effort to cut costs in full swing in the U.S., we'd like to note that during June we generated positive cash flow from operations. One month does not a trend make, but it does provide another indicator of our progress.

As we look to our third quarter, we normally experience a fair amount of seasonality in Europe during this period of the year and we expect to do so again this year. However, our managers in Japan tell us they experience less seasonality than our other geographic markets during the quarter. Since Europe now represents a lower percentage of our overall business, we believe that our third quarter may experience less impact from seasonality than in the past.

I would now like to turn call back over to Barry.

Thank you, Deborah. I'd like to spend a few more moments reviewing our operational progress during the quarter in each of our locations and those five being the United States, Germany through our Domilens organization, Switzerland, Australia and Japan.

In the U.S., we're very pleased that we're able to return to growth in the overall business after three consecutive quarters of decline. We have discussed the ICL performance. The cataract performance reflects a decline of 9.0%, as compared to prior year, but that decline is about one-half less than we've been experiencing for the past year.

We announced a few days ago that we have received NTIOL status on our single-piece Aspheric Collamer and three-piece Aspheric Silicon IOLs. It will take us a few months to complete the transition from our non-aspheric IOL products. These approvals, along with the March NTIOL approval for the three-piece Aspheric Collamer IOL were critical steps in our seven-step strategy of reengineering our cataract product line and returning both the product line and the U.S. business to profitability.

The four steps completed to date with our domestic IOL product line enhance our overall competitive position in the U.S. landscape. For years we've been forced to sell on price and now we're better positioned to sell the features and benefits of our products.

At Domilens in Germany, we experienced the third consecutive quarter of record-breaking revenues. Revenues increased by 23% over prior year, which is 6.0% in local currency and 7.0% over the first quarter of this year. Our cataract business was back on track and our new distribution for ICLs resulted in increased Visian ICL sales.

Our organization in Switzerland also drove a record-breaking quarter in terms of revenue results. Revenues increased by 34% over prior year and 23% over first quarter of this year. During the quarter we were able to deliver from stock 73% of Visian, Toric ICL orders, which was originally a custom designed product.

Visian ICL sales more than doubled in both China and Japan, which are key growth markets managed from Switzerland. Remember that in Japan the Visian ICL is not yet approved, so our sales are based upon individual requests from ophthalmologists who have government approval to implant the lens.

Sales from Australia also grew during the quarter. During June, a leading Australian ophthalmologist was the first to have Toric ICLs implanted in both eyes. This has lent additional credibility to the Visian ICL technology in Australia.

In Japan, we're right on target and made very good progress during the second quarter. We have not lost any customers and our direct sales were at a very high point, which Deborah described.

In our distribution markets the cataract growth, with our proprietary preloaded technology, was over 25% and that's without the benefit of the acrylic version, which should be available during the first quarter of next year.

Two points on the regulatory front. First of all, we've submitted all the data in Japan for approval of the Visian ICL. We will be discussing with PMDA the timetable for potential approvals in the coming weeks. In the United States, we continue to work with a third party audit firm on our resubmission for the Toric ICL approval. To put the plan in perspective, there are 230 eyes and six postop visits per eye, which creates nearly 90,000 data points for the study.

The third party audit firm has completed the onsite audit of the seven clinical sites and the internal audit of the Monrovia clinical department. We're now in the process of answering questions from the audits.

We expect to start new data tables next week and remain on schedule for making our resubmission to the FDA late this quarter. We continue to make progress and are right on track with the timetable we've discussed throughout the year.

In summary, we're encouraged by our accomplishments during the first half of the year. There is still much more to be done and we have to remain focused on the fundamentals. We're on a journey, which is more than just one or two quarters, and we're committed to a successful result from all our efforts.

Finally, I'd like to remind everyone that we'll be presenting at the upcoming BMO Focus on Healthcare Conference, Tuesday, August 5th at 10:45 in the morning. The presentation will be available via webcast if you'd like to join.

We're also going to be meeting investors in Boston on August 4th and in New York on August 6th and invite you to contact EVC Group if you'd like to schedule some time with us.

And we'll also be presenting at the Noble Financial M.A.D. MAX Equity Conference in Lake Las Vegas on August 18th at 11:00 a.m.

At this point in the call, I'd like to return the call over to the operator to take any questions you may have.

(OPERATOR INSTRUCTIONS) Our first question comes from line of Joanne Wuensch with BMO Capital Markets. Please go ahead.

Thank you very much for taking the question. Let's talk about the gross margin, which is quite impressive. Can we piece together how you went from 43.2% margins to 55.8% gross margins in the second quarter?

Sure, Joanne, thanks for the question. Let me answer the first part and then I'll turn it over to Deborah. You'll recall that our first quarter was, as I described, cluttered with the purchase accounting of the Japan acquisition and that did distort the gross margins during the first quarter significantly. I think if you were to look at that on a non-GAAP basis, it would have been more like 50 or 51%. But with that, then, I'll let Deborah add some more color.

That's correct. That was the significant issue affecting gross profit margins in the first quarter. Additionally, STAAR Japan's and some of our other companies' gross margins as well, internationally, are really affected by the locations they sell their products into, so a geographical mix.

For STAAR Japan, they had a much larger mix of sales into the Japanese markets where their ASPs are significantly higher than in some of our other markets, like China for example. Additionally, our margins in the U.S. were really improved by increased sales of the Visian ICL and that has a significant impact on our overall margins.

There have also been some cost improvements that have improved margins, but those are the three significant factors -- the purchase accounting factor that didn't hit us in the second quarter, mix, geographical mix in Japan in particular, and increased sales of ICLs.

When you talk about getting to 60% gross margins, was that this year?

That's our objective. I'd like to see us there.

Well, we've said, Joanne, that we intend to improve that each quarter. We had, as you point out, a big jump during the second quarter. To say I'm a little nervous is right, but I trust that we're going to continue to make improvements in that, so we're expecting to see an improvement in the third quarter and the fourth quarter. So it's got to get close to that number, at least.

Okay and when I take a look at the model it looks like your intraocular lenses are in the positive growth territory, ex the STAAR Canon acquisition. What do you think has moved? Is that all NTIOL designation that's helping that from a dollar basis or are you also gaining a unit share?

Well, first of all, I think we still had a decline during the quarter in the U.S. in terms of IOL sales and we've not yet seen the biggest impact from NTIOL designation, as we will expect to see that to continue at a much higher rate in third quarter and then fully implemented during fourth quarter. So we expect to see better results from that the remainder of the year.

I don't think, at this point, Joanne, I could say in the U.S. we're gaining any market share, but I will say this. We are much better positioned right now in this competitive landscape in the U.S. and we have three major competitors we compete against, but we're in a position now where we can start selling on features and benefits and not just sell on price.

Okay.

And the rate of decline has slowed significantly in the U.S. versus previous quarters.

All right. Shifting slightly to the Toric ICL, you'd commented that you're still working with your consultants. What type of timing should we be thinking of or should we not be thinking of any timing?

Well, I think the timing that we have control on, to some degree, is when we're able to resubmit the Toric approval to the FDA and we are working with the third party audit group now and getting responses from the seven clinical sites on additional questions that they had and the FDA had.

Once those are completed, which we think will be next week, we can start running those data tables again and again, to remind you, there are 90,000 data points in those tables, so it takes a little bit of time to re-crank all that data. And we believe we're still on track to be able to resubmit to the FDA during this quarter, during the third quarter. Then it'll be up to the FDA. We'll have to see what their response is and where we go from that point in time.

All right. My final question before I get back in queue is do you have an impression, of the ICLs, which are being sold into the United States, what percentage of them are for let's call it moderate to severe or the minus-7.0 diopter franchise? And what percentage of them are to the more severe type of diopter patients? Thanks.

Yes, really good question. Joanne, and what we see -- the number of patients coming in above a minus-7.0, minus-8.0 or severe myopia, those numbers aren't increasing. What's happening is we're further penetrating the refractive error curve. Meaning that our advocates are moving further down the chain and treating below a minus-6.0, below a minus-5.0.

A good example is I was with Dr. Rob Rivera from the Phoenix area last week. He was here helping Dr. Paul Dougherty teach a training class on the Visian ICL. And he's currently at a mix of about 30% of his refractive practice is ICL versus LASIK and he has a rather large practice, as you might imagine and he believes that that will turn to 60%, 70% within 12 months.

Interesting. Okay, thank you very much.

Thank you.

Steve Willoughby, Cleveland Research

Hi. Good evening, thanks for taking my call.

Hi Steve.

I apologize if I missed this in the beginning because I had to jump on a little late, but I was wondering if you could give an update on the ICL advocate numbers and kind of what your outlook for the back half of the year?

Yes, good question and we did not -- I did not comment on that front. The number is the same as we last reported. We haven't made any progress on the number of advocates.

Now there are some reasons for that. The way we track it its based upon an annual tracking rate and so, for example, if a surgeon took vacation time in July that would hurt his run rate for the year. So we think that had some impact in terms of why the number didn't move, so I think we're still at the 30 number in terms of overall advocates.

Okay. Any idea or where you can see people growing into for the back half?

Oh yes. Our refractive sales team was out here last week for two days and they reviewed their targets for new advocates that they're working with and that's in terms of working with how their practice handles patients, how they approach the media, and where they use the ICL in their overall refractive armamentarium.

Okay, very good. Thank you very much.

Thank you.

Jon Hickman, MDB Capital

Hi. Thanks for taking my call.

Hi Jon.

I want to talk about the expense line. You -- last time on the call, you talked about taking $5.0 million out of the expense line by the end of the year.

Right.

So you're still holding to that?

Correct.

Okay, so then could you explain to me, in this quarter, you had a fairly significant jump, $600,000 to $700,000 in R&D and a huge jump in sales and marketing. And actually, sales and marketing costs went up to 37% of sales.

Yes. Let me take the sales and marketing point and then I'll let Deborah take the R&D, since that's a re-class item, I believe, in terms of R&D expenses.

We made some investments the first half of the year in our international markets in terms of sales and marketing expenses. We also attended several new shows that we hadn't attended in the past. And we made a pretty significant expense item at the World Ophthalmic Congress meeting recently in Singapore where we did live video ICL surgery at the Congress meeting. And it was very well attended and we got, we think, our bang for the bucks in terms of that investment.

So those were first half investments that won't repeat the second half. As we said, the U.S. has had a reduction in our expenses and that's where our initial focus has been. And as we continue through the back half of the year we've got to -- we have to stay focused on the U.S. but expanding to the international markets where we've already identified where we think we'll get the savings.

Okay.

And then on the R&D side, Deborah?

Well, on the R&D side -- well, first of all, remember that these expenses include the expenses of STAAR Japan, so they're distorted somewhat from the previous year and --.

Well, I'm looking at them from last quarter.

I'm sorry?

Talk to me about sequentially.

Okay, so you're talking sequentially.

Yes.

Well, anyway, the main reason was -- well, first of all we expected expenses in the second quarter to increase over the first quarter. The second quarter's typically our largest expense quarter of the year, due to trade shows and audits and things like that, so that's one reason.

The second reason is that, in looking at STAAR Japan's expenses in detail, we found that there were classification issues in their expenses and we re-classed. They had a number of expenses, but the rest of the Company classified was R&D expenses. They had those included in their G&A line and we reclassified them into the R&D line, so it's a little misleading, I would say.

So are you -- so, in your remarks earlier, are you guiding us for 60% operating margins for the year, I mean, for the next couple quarters?

Its our objective to get to 60% operating expenses. We were at 65% through the second quarter and our objective is 60%.

And that matches --?

And the first six months are significantly higher in terms of expenses than they are in the second six months. We think that's a reasonable target for the second half.

And Jon, you may recall that we did mentioned during the first quarter call that we expected an increase is cash usage during the second quarter, anticipating these expenses.

Okay. I'm just trying to jibe that with the $5.0 million that is supposed to come out, but I guess I'll work on that and talk to you later.

Okay, yes, we can take it offline. Remember, $1.0 million of that came from the U.S., which we said. That was during the second quarter alone.

A million in cash reduction?

In spending reductions in the U.S., yes, during the quarter.

That's even more confusing, but I'll talk to Deborah later. Okay.

Okay, Jon.

Larry Haimovitch, HMTC

Good afternoon, Barry, hi Deborah.

Hi Larry.

Hi.

Barry, I want to make sure I understand the importance of the new technology IOL designations. I understand that you will be getting a higher price from CMS. I understand it relates to ambulatory surgical centers. So does this, in effect, mean there's $50 more of revenue or will you share some of that with the physicians? I guess that's what I wanted to try to get a better understanding of. How much of that bang will you benefit by?

Yes, good question. First, the CMS reimbursement goes to the physician or the facility, not to us.

Okay.

And it is $50 for Medicare patients in an ASC. Now, in an ASC, a physician may not do a 100% Medicare patients in that ASC. It may be 90%.

Sure.

So the 10% he will not get this increased fee on. So, when we go into an account, we're looking for in the range of $35 to $40 incremental of the $50 and (inaudible - multiple speakers) --.

So, a good chunk of (inaudible - multiple speakers).

Assuming the sort of $40, $45 range, the facility remains whole in terms of what they get.

Yes. So you're going to get the lion's share of that, so to speak.

Correct.

You're going to get a significant amount and that's obviously all gravy to you, because there's no incremental costs in that except perhaps a little bit of selling commission.

That's correct.

Yes. Yes. And are you comfortable trying to give us some guidance about how much of the worldwide sales are U.S. sales that accounts for? Or is that something you're not -- you would rather not disclose, competitively?

Yes, I'd have to spend some time looking at that. It only relates to our U.S. business, recall, remember.

Yes, which is now only 40% of -- was it 40% of worldwide?

Well, let's say -- let's just -- I mean, if we did some rounding of numbers, the cataract business is probably 65% of the U.S. business I think.

Yes. Okay. Yes, we can talk about that in more detail another time. On the sales side, as you well know when you came aboard, Barry, the salesforce was not a very happy lot. There'd been a lot of turmoil. Contracts were terminated, etc, etc. I don't recall hearing anything in the prepared remarks about progress with the salesforce and I imagine there's been some, considering the sales growth. So could you talk about that a little bit?

Yes, good question, Larry. I think we continue to make progress, but one of the things we had to do for the sales team is to give them some things that we've been working on and I think having given them the nanoPOINT Injector for the Collamer Single-Piece Lens was very important. Now, with NTIOL for the aspheric version, they've got a fully benefited product they can go out into the market and sell.

Having gotten these three NTIOL approvals, which is something we went to the sales team earlier in the year and we gave them the timelines, in terms of when we thought we'd get them. We beat those timelines.

So I think we're gaining credibility as a Company with our sales team and as I've said before, it's a very good team that we have out there of independent reps who focus on our cataract line and assist in the ICL line. And we're expecting now that, as we're making these reengineering of our IOL line and making these improvements to products that we're putting the ball back in their court, in terms of performance and I think they're up to it.

Is the salesforce growing in terms of numbers, Barry?

No it's not. It's pretty much the same as it has been.

Okay, great. Thanks very much.

Thank you.

(OPERATOR INSTRUCTIONS) Bill Nasgovitz, Heartland Funds

Good afternoon.

Hi Bill.

Hi Bill.

Hey, congratulations on some very material progress. This is quite exciting to see as a shareholder.

Thank you, sir.

So I just wanted to compliment you and one short question. On a scale of 1 to 10, in terms of the salesforce, 10 being the best, where are we today?

And your question is in terms of best, in terms of quality of people?

Rating the salesforce into where you want the salesforce to be.

Well, we have a very strong group of reps in the field. They're very experienced. They know how to sell and I think in the past we've not given them the type products they can go out and use their selling skills on. I think now we're making significant steps to give them the products they can go out and enjoy, have fun selling, know their going to work and enjoy making more commissions.

So on a scale, they're very high in my eyes, because they have a lot of credibility. They're very strong, they're very good and I know they can perform. Through the remainder of the year, we're expecting a lot out of the group in terms of our cataract line.

Okay, thank you.

Thank you.

Mark Malcolm;; Private Investor

Thank you very much for taking my call. Can you hear me okay?

Yes, Mark, hi.

In regards to the U.S. salesforce, normally with Europe you have the downturn in the third quarter and not so much with the U.S., but with this, relative to the 2007 total cataract sales versus where you stand with 2008, where do you think you'll be at the end of the year, in terms of total sales?

I'm sorry, Mark. Are you asking -- is that a U.S. question or a global question?

I'm asking a U.S. question with this

Okay, well --.

Because since that's where your weakest segment of growth is, is at least you've gone positive relative to year-over-year with cataract sales from the second quarter of 2007, but overall that's with the U.S. sales as a whole.

Correct.

It's the cataract sales that are still holding you back from really showing strong growth in the U.S. overall.

That's exactly right, Mark. It's a good observation and I think we certainly expect that during the third quarter and the fourth quarter we're going to have increased sales on the cataract side, at a better gross margin because of the new products we've put in their hands and because of these three NTIOL designations we've received.

The issue that's coming in is what they -- you have a great sales team. It's the ASCs with their current buying models are based on the lowest-cost providers of certain products and you're a premium-priced product. Relative to that, how do you break the ASC buying practice to get the STAAR IOL sold?

Actually, we're in a much better position today, Mark, than we were before the NTIOL, because these ASCs now will get an additional $50 on all Medicare patients that they treat. So that's going to allow us to go in there at a higher price than we were selling at and be on a competitive footing with our three main competitors in the ASC setting.

So we feel very good about where we're positioned now. Where we were positioned first quarter was in a much weaker position.

Totally agree. I do have a couple of questions regarding on the international side. I'm sorry to have joined late. You may have had these questions addressed earlier. One is with -- noticed the increased sales in Japan, but the issue comes with the ICL approval in Japan has yet to occur that I'm aware of.

(Inaudible - multiple speakers)

So that you can expand from the 13 that you currently have certified or listed as certified.

Yes. That's exactly correct. You probably did miss it. We did say earlier that all the data has now been submitted for ICL approval in Japan and that we're working with the agency in terms of what the process will be.

We would expect to get approval some time next year on the ICL in Japan, but we do continue to have sales in Japan. They more than doubled during that quarter, during the second quarter versus second quarter of last year and that's with those positions that you mentioned that are approved by the government to use a product which has yet to receive Japanese approval.

The last question follows focusing on China. It's a two-part question. Are the sales in China attributed to STAAR Japan or to Domilens? And then the follow-on to that, originally, before you came onboard, the plan with expansion of the ICL franchise in China was using train-the-trainer concepts through the hospitals. And there's been no growth, as shown through your website, of expansion of ICL physicians in China from the 68 that there are listed currently.

Yes, first --.

(Inaudible - multiple speakers) you comment to that?

Yes. Yes I can. The ICL sales in China go through Switzerland, our AG organization. They do not go through Japan. That distribution is handled from Switzerland. We have adopted the train-the-trainer model in China. We think its working, as we noted that ICL sales in China more than doubled Q2 this year versus Q2 of last year.

Understand. It's just looking at that there had been, over the past quarter, no increase in the number of physicians (inaudible - multiple speakers).

I'll look at the website. That's something, Mark, I don't really look at that much and as I've told our U.S. group, I don't really care if we trained another physician this year. We've got to focus on the over 500 that we've already trained and get them up and growing with the ICL product.

Relative to the U.S., as you said, you got your superstars, again not listening earlier. And you had stated in an earlier press release there were more than 30 now that were projected to have over 100. You list as Visian ICL specialists as opposed to ICL certified a larger group. What is the standard for that group in the U.S.?

They're ranked upon the number of procedures that they've done.

Understand for the superstars more than 100. The ICL specialists that at the beginning of each state listing, what is that problem?

The lesser amount, Mark. I don't what it is. I can check with our marketing guys and if you'd call me back I'll give you the answer.

I'd appreciate that very much and congratulations. In seeing overall there are more than 1,000 listed on for all of the countries and I'm sure there are a heck of a lot more (inaudible).

I think you're right, Mark. Thank you, sir.

Thank you, sir. And ladies and gentlemen, that does conclude the question and answer session. I would now like to turn it back to management for any closing remarks.

Thank you, operator, and thank you, everyone, for participating in the call this afternoon. If you have any additional questions or would like some clarification on anything we've said here today, please feel free to give Deborah or me a call. Goodbye for now and have a great evening.

Ladies and gentlemen, this concludes the STAAR Surgical Second Quarter 2008 Earnings Release Conference Call.

Hello, STAAR Surgical. Hello?

Pardon me. If you'd like to listen to a replay of today's conference please dial 303-590-3000 or 1-800-405-2236, entering passcode 11117158. Once again, if you'd like to listen to a replay of today's conference please dial 303-590-3000 or 1-800-405-2236, entering passcode 11117158. AT&T would like to thank you for your participation. You may now disconnect. Have a pleasant day.