STAAR Surgical Co (STAA) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the STAAR Surgical fourth quarter 2012 financial results conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions)

This conference is being recorded today, Wednesday, February 27, 2013. At this time, I would like to turn the conference over to Doug Sherk with the EVC Group. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us for the STAAR Surgical conference call and webcast to review the Company's financial results for the fourth quarter, which ended on December 28, 2012. The news release announced in the fourth quarter results crossed the wire about 0.5 an hour ago, and is available at STAAR's website at www.staar.com.

Today's call is also being broadcast live via webcast. In addition, a slide presentation will accompany remarks by Management. To access both the webcast and the presentation slides, go to the Investor Relations section of STAAR's website at www.staar.com. If you are listening via telephone to today's call and would like to review the slides that accompany Management's remarks, please navigate to the live webcast as I have just reviewed and choose the no audio, slides only option. In addition an archived replay and slides will be available on the STAAR website.

Before we get started, during the course of this conference call, the Company will make forward-looking statements. We caution you that any statements that is not a statement of historical fact is a forward-looking statement. This includes remarks about the corporation's projections, expectations, plans, beliefs and prospects. These statements are based on judgment and analysis as of the date of this conference call, and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

These risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the Safe Harbor statement in today's press release, as well as STAAR's public periodic filings with the SEC, included in a discussion in the Risk Factor section of our 2011 Annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Investors or potential investors should read these risks. STAAR assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

In addition to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and dilution net income per share information that excludes manufacturing consolidation expenses, Spain distribution transition expenses, gains or losses on foreign currency, fair market value adjustments for warrants and stock-based compensation expense. We believe that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in our financial release, which is available on our website and in our slide presentation. Now I would like to turn the call over to Barry Caldwell, President and Chief Executive Officer of STAAR Surgical.

Thank you, Doug, and good afternoon, everyone. Thank you for joining us today for our review of the fourth quarter and [physical] year 2012 results, as well as our first look at how 2013 is shaping up. With me today on the call is Deborah Andrews, our CFO. I will start a call -- I will start our call this afternoon with an overview of the fourth quarter results and operational highlights for the year, as well as how we did against our metrics. Deborah will provide a detailed look at our fourth-quarter financial results and review our progress to date on Project Comet. That is our manufacturing consolidation project. Then I will provide a perspective on our progress in 2012, which will lead to our key metrics for 2013, and finally take your questions.

When you look only at the top sales numbers for the fourth quarter, yes, it only reflects 1% growth. With total ICL sales down about 2.5% from the year ago period, it might be hard to imagine why, with the exception of the results from Korea, we felt the quarter was a pretty strong one overall. Yes, short of where we had planned or expected. Let me first review our key metrics, and then explain our perspective. From the key metrics view, we only achieved 1.5 of our 5 objectives, if you would. First, we did not achieve double-digit revenue growth for the fourth quarter. If, and I only say if, the Korea results were out of the revenue line, we would have grown over 10%. But of course, you can't do that. And overall, we did not achieve this metric. Fourth quarter ICL growth excluding Korea was 18%, which would have also fallen short of the 25% growth metric.

Third, we did not achieve our targeted 71% gross margin for the year. However, we did increase our gross margin by 190 basis points for the entire year, and this is the seventh consecutive year in which we have expanded gross margin percentage. We give you more detail later, but the lower ICL sales as an overall percent of sales, are higher KS-SP sales on the IOL side, and also our higher other product category sales during the quarter resulted in a reduction in our gross margin percentage for the quarter, which then didn't allow us to reach the annual goal we had. Fourth, though we were profitable on a non-GAAP basis, we were not profitable for the quarter on a GAAP basis. And finally, we made very good progress on our manufacturing consolidation project. We are basically on target with product, quality and expenses, and achieved some very key milestones.

Now let's turn to our overall ICL and IOL business for a moment, before we address Korea which is our largest ICL market. First, why do we feel so strongly about our ICL business overall? Our total ICL business for the quarter without Korea, as I said was up 18%. European ICLs grew 25%, and I will come back to talk more about this in a minute. Japan grew 45%. In the US, where the overall refractive surgical market appears to be declining according to other published traded -- publicly traded companies, we grew ICL sales by 9%. Across the board with the exception of Korea, we grew sales. And as I will explain in a moment, we grew market share in virtually every focused market on which we have data, including Korea for the year.

Another factor behind our belief that the fourth quarter was pretty strong from a top line top side perspective, was our turn in the IOL business. Year-over-year, IOL sales in the fourth quarter were essentially flat, but they grew 12% or $734,000 over the third quarter of 2012, reflecting the market's acceptance of our recently launched KS-SP IOL product, and we will talk more about this. We had supply issues here related to third-party supplier, and this will continue for some time. We ended the year with about $0.5 million in back order on that product alone.

So let's turn to Korea. What happened in Korea? What are we doing about it, and what do we expected 2013? Our distributor partner adjusted their inventory levels to a degree carried at year-end, and as a result our sales to them were down 50%, as compared to the fourth quarter of 2011. Now we have titled this slide Korea on the rebound, and here is why we have done that. In 2012, our total ICL unit sales to Korea dipped 17%.

According to Market Scope, refractive procedures overall in Korea declined during the year, yet our distributor actually sold more Visian ICLs to the end customer. And thus, the ICL gained market share in Korea. Their decline in purchases from us was directly related to the reduction in inventory levels. During January, our distributor sales to end customers set a new monthly record for their organization. And through the first two months of this year their purchases from us are up 60% from the first two months of 2012. Again, reflecting the decline in their inventory levels and the need for product in January and February.

Let me provide you with a little more detail on why we believe Korea is on the rebound. Here are some of the actions which have been taken place in the last few months. First, you may recall in November, Don Todd, our President of the Asia-Pacific market and I went to Korea to discuss the year and our plans for 2013. We gained a very good understanding of how we need to work together, and what we need to do to drive the ICL to the next level of market share in Korea.

In December, we hired a STAAR employee. This is the first one we have ever had in Korea who will work everyday with the distributors organization to assure that additional support we have developed at STAAR can be transferred and helpful to them, in their driving the increase of ICL market position. Some of the support that we'll work to provide with them, is marketing assistance, access to our work, and knowledge in the social media marketing area, and consumer awareness, and assist in the launch of new products.

January was their best month ever, beating the previous monthly record in their history by 7%. The president of our distributor partner visited Monrovia for two days earlier this month. They reconfirmed their commitment and focus to the ICL business, and why it is so important to their overall success. We spent time clarifying roles, and the direction for this year. Our new employee will now actually be housed in their offices in Korea. Finally during this visit, we spent time in the regulatory status of the CentraFLOW technology in Korea. Working with their team, we are in the process of answering KFDA's questions regarding the technology.

We believe we will have approval by mid-year, and I have committed to going back to Korea to participate in the launch. There is no doubt we are at the highest level of alignment and communication we have ever had between the two companies. And I am confident this will lead to more effective marketing and increased sales of the ICL in Korea. Just to reiterate, we are off to a strong start in Korea this year. Sales are up 60%, the first two months of this year, versus last year.

Now, let's look at the other markets. This slide shows how we did in the other top 10 markets outside of Korea. In Europe, the increase in Visian ICL sales during the fourth quarter was 25%. That is reflecting the growing acceptance of our new ICL CentraFLOW technology. Nearly 14,000 ICLs with the CentraFLOW technology have now been implanted, and the lens continues to be very well-received by surgeons and patients. Within Europe, we had some very impressive growth, as you can see. Germany up 132%, Italy 120%, and the UK, up 47%.

In Spain, where you will recall we moved to a direct sales mode late in the second quarter, ICL sales were up 24%. Now that sounds low, but since we moved to a direct model, you would expect this number to be higher. But under the distributor model in 2011, there was a purchase of inventory for -- at year's end, for the new year, which obviously does not occur in a new direct model configuration. So our sales in Spain only grew 24% in the fourth quarter. However, during the first two months of 2013, our sales to customers in Spain have already exceeded our total sales to the market for the first quarter of 2012.

What CentraFLOW is doing in Europe, let's look back. I think most of us thought at the beginning of the year, Europe would be a challenge for medical device companies. Our third quarter sales in Europe were up 29%. Now a lot of that was attributable to the fact that was the first quarter in which we had direct sales in Spain, rather than going through a distributor. So obviously, our gain in Spain was a big part of that. But then we followed the fourth quarter with a 25% increase in Europe, and Spain was just average, because of that year-over-year comparison. Now Europe is up 55% for the first two months of this year. And I would say that reflects a couple of things. We will talk about a minute, our increased headcount, but also the growing acceptance of our CentraFLOW technology where it is available, and that's in Europe.

Now Asia-Pacific, again, not including Korea, our sales were up 23%. The growth was led by Japan which I have already mentioned had a 45% increase in ICL sales during the fourth quarter. Our annual ICL unit volume in Japan doubled during the year, while refractive procedures declined at a double-digit rate in that market, again showing increased market share for the ICL. In China, our sales growth partially rebounded from the continuing downward pressure on refractive procedures from the negative LASIK publicity out of Taiwan early in 2012. Despite these challenges, we grew ICL sales by 38% during 2012 in China, which reflects again an increase in the overall market share for the ICL as compared to the Market Scope data.

Now let's turn to the US. ICLs as I said increased 9% during the quarter, largely the result of our increased promotional activities, including benefits from recently launched social media marketing programs. We saw increases on both the civilian and the military sectors during the fourth quarter. These results are extremely encouraging, particularly in light of recent disclosures suggesting a decline in refractive surgery in the US. One of the developing strategies in which we have invested is in the social media market, and that is to create a better consumer awareness of the premium alternative to LASIK, the ICL.

Some of these key measures reveal we are making progress. Visits to our visianinfo.com website increased 122% year-over-year. We generated over 600 patient leads for ICL surgeons, most of these in the final months of the year. Viewing of the Visian ICL on YouTube increased 10 times during the year of 2012 versus 2011, over 60,000 visits to our new Visian ICL blog during the second half of 2012. Another initiative was created -- was to create I should say, newly designed and more user-friendly Visian ICL website, and that website is www.visianinfo.com. We just recently learned that our new site received the best-in-class award in the medical category from IMA, Interactive Media Awards. There were five categories in which the scoring took place, and we received 100 on content and 99 on feature functionality. A perfect score was 100.

Deborah will provide more details on our financial performance in a moment,. But now I would just like to turn to few operating highlights from 2012. During the year, we took significant steps to position the Company for growth in 2013 and beyond. These include the addition of 19 new sales and marketing personnel over the last 15 months. Two of these individuals we hired at the end of last year. And you can see by this chart, overall, that is a 39% increase in head count in our three regions.

Europe, as you can see, we more than doubled our sales organization there. Again, I would say this has had some impact the second half in Europe, with our growth in ICLs and what we have seen early in 2013. Now looking at Asia Pacific and North America, remember, we are direct in the US and Spain. And so that' is why the percentages wouldn't be that high overall. But in total, it is a 39% increase, which is a significant investment for the Company. We also took significant steps to enhance and promote social media messaging on the Visian ICL, which I have already demonstrated the results.

We increased our R&D spending by 10% during 2012, to support the introduction of additional technologies to our key markets later in 2013 and beyond. For example, I have already mentioned that we anticipate receiving regulatory approval of the CentraFLOW technology in Korea in mid-2013. We have the same time frame for approval of this technology in India as well. R&D resources were also focused on the Version 5 ICL, which we plan to launch in Europe, full launch at the ESCRS meeting during early October. Prior to that, we should have a pre-marketing launch during the first few months of the third quarter. The Version 5 ICL will be preloaded with new proprietary technology and the optics will be enhanced.

Of course, the continued successful execution of Project Comet, which is designed to significantly lower our tax rate for many years and increase our gross margin through manufacturing consolidation was another very worthwhile operational highlight during the year. Deborah will update you more on this during her remarks. But I would just like to add, that we are on time, we are on schedule, we are on budget, product quality has been great. Product supply has been great.

And I really want to thank all of our employees, worldwide, so much work has been done by employees in Japan and Switzerland who are going to lose their job. But they have, they have done everything they can to make sure this transfer is successful. And I think for a Company our size to say, we are on budget, we are on target, is pretty good to say, after 2.5 years of a 3 year project. I believe these investments and this progress will position STAAR for a return to overall good growth, in both revenue and income. Now I will turn the call over to Deborah for a more review of the fourth quarter financial highlights. Deborah?

Thanks, Barry. Good afternoon everyone. While Barry has discussed the top line in some detail, let me add a couple of items. ICL sales represented 53.2% of total sales during the fourth quarter, and 55% for the full year. IOL sales represented 41.2% of total sales in the fourth quarter, and 40.7% for the full year. The other product category, which has been a decline due to our intentional de-emphasization, actually grew in the fourth quarter to $922,000 due to increased injector sales to our acrylic len supplier for the KS-SP. This increase was an additional driver to our decline in gross margin year-over-year.

I will discuss gross margin in a minute, but first let's review operating expenses. Operating expenses for the fourth quarter including manufacturing consolidation expenses increased 15% to $12.4 million. Manufacturing consolidation expenses were $656,000, an increase of 10% over the prior year. Our operating expenses before manufacturing consolidation expenses were up $11.8 -- were $11.8 million, up 16%. As Barry discussed, this increase was primarily due to our investment in the global marketing and selling expenses, including the addition of 17 new employees in 2012, and $582,000 related to the change in distribution in Spain to a direct model.

We estimate the annualized cost of the headcount additions will be approximately $2.5 million, and the expense associated with transition in Spain will continue through the current quarter. After which time, the normal logistic costs of being direct to the market will begin. In addition to being the investments we made in sales and marketing, we also made investments in R&D, and our G&A increased $261,000 due to an increase in non-cash stock-based compensation expense.

Our net loss for the fourth quarter of 2012 calculated in accordance with GAAP was $1.4 million or $0.04 on a per share basis, compared with net income of $109,000 or breakeven on a diluted per share basis in the fourth quarter 2011. Gross margin for the quarter was 67.8%, down from 69.8% in the fourth quarter of 2011, and reflected the lower overall sales mix of ICLs, and increased sales of the KS-SP IOL which carry a lower gross margin outside of Japan. In addition, sales of our preloaded injector parts to our acrylic lens supplier, which are included in other product sales also negatively impacted our margins for the quarter.

Now to provide investors with a better basis on which to compare results and understand our business, we also are reporting net income on an adjusted basis, which excludes manufacturing consolidation expense, Spanish distribution transition expense, gain or loss on foreign currency transactions, fair value adjustment of warrants, and non-cash stock based compensation expenses. Excluding these items, adjusted net income for the quarter was $495,000 or $0.01 per share, compared to adjusted net income of $1.5 million or $0.04 a share in Q4 2011.

We ended the quarter with $21.7 million in cash and cash equivalents on the balance sheet, and included the $3.5 million in cash drawn down as required under the terms of our revised line of credit with Mizuho Bank at a lower annual interest rate. This compares to $19.8 million of cash at the end of Q3 2012, and $16.6 million at the end of Q4 2011. We used $489,000 in cash for operations in the fourth quarter.

Our team continually successfully -- continued to successfully implement Project Comet during the fourth quarter. Specifically, we completed validation of V4, V4b and V4c ICLs, initiating manufacturing, and shipped the first US manufactured Visian ICLs to customers on January 24, 2013. We have also now obtained regulatory approval for US manufactured ICLs in Europe, Japan, Korea and China. When combined with other markets where approved, this represents approximately 70% of our ICL unit volume demand. In addition, we were successful in completing the requirements, transferring cartridges, gaining final inspection, and assembling and pouching for preloaded silicone IOLs. All nonsterile IOLs for Japan are now shipped out of the US.

Finally, we received commitments from some key employees from Japan and Switzerland to relocate either temporarily or permanently to the US. For 2013, we expect to spend an additional $2 million to $2.5 million to complete Project Comet and transition all of our manufacturing to California. Once the project is complete, we expect our gross margin should increase to nearly 80%, and we estimate our tax rate will go from the current 50% to approximately 10%. We will continue to anticipate -- we continue to anticipate generating savings of more than $100 million from Project Comet for the aggregate period of 2014 to 2021.

Now let me briefly review the full-year results. Total sales of $63.8 million reflected a 2% year-over-year increase. Foreign currency changes unfavorably impacted net sales by $62,000 in 2012, and favorably impacted net sales by $1.7 million in 2011. Visian ICL sales totaled $35.1 million, 9.4% above sales of $32.1 million reported in 2011, and IOL sales totaled $26 million compared to sales of $27.5 million in 2011. Our gross margin increased to 69.4% of revenue, from 67.5% for 2011, representing an increase of 190 basis points. This increase was largely attributable to a higher mix of ICL sales, 55% as compared to 51% and improved cost of goods. This represents the seventh consecutive year of gross margin expansion for the Company.

Our total operating expenses were $45.5 million, a 15% increase over 2011 expenses of $39.6 million. Manufacturing consolidation expenses totaled $2.6 million for the year. Excluding consolidation expenses, our operating expenses were $42.9 million, an 11% increase over 2011. Expenses associated with the transfer of sales to a direct model in Spain added approximately $1.1 million in expenses, and will be completed before the end of the first quarter. And calculated in accordance with GAAP, our net loss was $1.8 million in 2012 or $0.05 per diluted share, compared with net income of $1.3 million or $0.04 per share in 2011.

Adjusted net income which excludes manufacturing consolidation expenses, Spain distribution transition expenses, gain or loss on foreign currency transactions, fair value adjustment of warrants, and non-cash stock-based compensation expense was $4.8 million or $0.13 per diluted share in 2012, compared to adjusted net income of $4.4 million or $0.12 per share in 2011. This concludes my comments, and I would like to turn the call back over to Barry.

Thank you, Deborah. Now let's turn to the metrics our team will be focused on achieving during 2013. Our key metrics are our objective targets. And while we are very bullish on 2013, here are the four key targets upon which we will report each quarter. Number one, total revenue growth in the range of 8% to 10%. The first quarter should start at the lower range, and this should increase throughout the year, particularly when you take into consideration the expectations for approval with CentraFLOW in Korea and India at midyear, and the introduction of V5 the second half of 2013.

Secondly, our gross margins should expand by a minimum of 250 basis points for the year. Third, we should be profitable on a GAAP basis each quarter. Number four, continuous quarterly progress toward the full implementation and success of Project Comet by the end of 2013. Finally, I would like to conclude with a few comments on the results for 2012. 2011 was a very strong year for the Company, in both revenue and income growth. The expectations were high coming into 2012. We did not achieve those expectations with our revenue and our income results. There was, however, a tremendous amount of progress in the business, which is less visible to the outsiders than the top and bottom-line results.

These include our increased spending investments in sales and marketing and in R&D, the anticipated new products we will get as a result of this, enhancements to our Management team, continued excellent progress on manufacturing consolidation, converting the Spanish market to a direct model, continued market share gains with the ICL in virtually every market, despite the challenges to the global refractive market. Continued gross margin expansion for the seventh consecutive year. Our cash generation and cash position at the end of the year.

I believe the progress in these less visible areas will be key drivers to our renewed growth during 2013 in the more visible revenue and income lines. And though we are only two months into the first quarter, and I would caution that March is a tough comparable from 2012, we are off to a very solid start and we feel good. And with that, we are ready to take your questions. Operator, if you could please open the line?

(Operator Instructions)

First question is from the line of Matthew O'Brien, William Blair Company. Please go ahead.

Good afternoon, and thanks for taking the question. Can you hear me okay?

Hi, Matt. Yes, we can.

Okay, great. I hate to keep continually talking about Korea, but the performance there was quite soft. You talked a lot about all the adjustments that you are making there. But can you just give us a little bit more -- the timing of when all these adjustments may really start to impact the results? And then what kind of headwinds you are building in from Korea, on estimates here, and on the revenue targets for 2013. Because 8% to 10% is a little bit less than I was kind of thinking, if you get a snap back in Korea like you have seen through the first two months of the year so far.

Okay, good. Several components there. But first of all, let me say -- our alignment and our communication with our Korean distributor is at an all-time high. We have had a lot of face-to-face time in the last 2.5 months. They okayed and approved the hire of our employee in Korea. We are looking to make more investments in Korea, if necessary. There is a tremendous market opportunity for us there, as there has already been established a high consumer awareness of the ICL product, by the previous investments that our distributor has made there.

We are, as I pointed out, we are off to a strong start in January, February. But that is because last year they ordered in December for their products, mainly in January, February. Their January, at least six out of the last seven years has been the highest out the door month of each year. So they are on target right now with where we expect them to be for the full year. We are expecting growth from Korea in our model. Could it be higher? Yes, I think it could. One of the key factors for us will be the launch of the V4c product, the CentraFLOW technology at midyear. It is important we do that well. We are already working with them on the plans, and also working with them on what we learned from Europe, as we rolled that product out.

Now that type of communication and alignment were never there before with Korea. Korea has done a lot of good stuff with the ICL. And time and time again I applaud their efforts. They have done at all on their own. But now, we are working together, both companies. I feel very confident in what we will accomplish and '13 and beyond in the Korean market.

Okay. I mean, you are not coming off the target of -- I think you have said in the past, about 25% of refractive cases in Korea being done with ICL?

No. Not at all. You are exactly right. We just slowed down a bit in 2012. Though as I said, their sales out the door to the end customers went up, while Market Scope says for the year Korean procedures went down. We did gain share in 2012. And now we've got more visibility of what their out the door sales are on a month-to-month basis, much, much more than we have ever had.

Okay. Moving over to Japan and China, given that Koreans continue to be a little bit of a headwind or an anchor here. Can you give just us some comfort or visibility in terms of the opportunities you see in China and Japan as those are two of your bigger growth drivers in '13 and '14?

Yes. Good question, Matt, and they are two very different markets. Let me first take China. That is the tougher one. As you know, last year, the market in China was hit by the negative communication on LASIK. To me, fourth quarter results in China were disappointing, 13% growth, I would have thought we would have had better rebound than that. And as I said during second-quarter call, sometimes it takes the year for a rebound to take place. We are spending a lot of time focusing on China, and we have added a social media body in China. We have also added a clinical marketing individual for China.

So we are -- there is a lot of opportunity in China. We are only 1% of the market. So even though we gained market share, we were up 37% for the year. We want to get back closer to what we have been tracking in previous years. We think the opportunity is there. I think we are very focused on it with our employees.

In Japan, it really comes down to the two key refractive centers. Now we did very well there last year. In both key centers, we more than tripled our business, almost four times in both. So they both did very well. We are trying to work with them, and our own organization and the third-party ad group to see if there is more, and more quickly that we can push the consumer awareness of the Visian ICL in Japan. So that is a project we are working on here, the first half of the year. To see if -- if there looks like there is potential, we will make an investment. And hopefully even drive more the second half of the year in those two key centers.

Okay. And then one more for me if I may. And this one is for Deborah. As we look throughout 2012 here, should we expect any kind of SG&A leverage on a full-year basis? Or actually on a quarterly basis, but full-year as well? Or just asked another way, should we anticipate any kind of EPS, or material EPS growth from the other [$0.06] that you put up in 2012?

EPS growth from SG&A?

Any kind of SG&A leverage --?

I mean, we have lots of leverage now in our SG&A. So really, we should start seeing any profits flowing through to the bottom line, basically.

I think there's a real good chart that you will see in our 10-K, which shows three years of spending in G&A, sales and marketing, R&D. And what you will see in that, over that three-year period, we have done what we did last year. We increased our investment in sales and marketing and R&D, but our G&A is pretty flat.

And that will continue. We will have a full year of sales and marketing -- the 17 individuals, people we that hired, they will be in for a full year. That is about $2.5 million on an annualized basis. Other than that, everything else should be pretty much the same. R&D spending will be about 10% which it has been for some time.

Okay. Just asked a different way. I know that there is some Comet spending in the 2012 numbers, but the SG&A number grew 20% year over year, even though revenue is up about 2%

Right.

Can we anticipate the growth rate in SG&A being up 10%, 15% inclusive of Comet this year? And then, given that outlook, would EPS for the full year be something similar to 2012 where -- is the 2013 number be similar to 2012? Thank you.

I would assume, as long as the spending stays consistent with 2012, that we would see an increase in EPS based on increased sales. I am not expecting the same as 2012, for sure.

Understood. Thank you.

Thank you. Our next question is from the line Chris Cooley with Stephens Inc. Please go ahead.

Thank you, and good afternoon. Can you hear me okay? I apologize, I am at an airport right now.

Yes, hi, Chris, we can hear you.

Thanks. Just a couple of quick ones. I have a number of calls this afternoon. Could -- maybe first, just from a housekeeping standpoint, Deborah, could you tell us what you are assuming your adjusted earnings rate or effective tax rate? I realize you are going down to 10% longer-term with Project Comet, but talk a little bit about the near-term? And then secondly, and I apologize if I missed this in your prepared commentary, can you talk a little bit about the European growth on an apples to apples basis? Obviously, the Spanish distributor now is there, so you have a pretty meaningful step up in the price that you realize there.

Help us think about the growth rate that you saw in Spain and in Europe during the quarter on an apples to apples type basis. And then just lastly, was curious what you were seeing, or what your perception was of the Asia-Pacific marketplace in terms of through the first quarter. Clearly, you had some headwinds there in the prior quarter, in the 4Q period from an operating standpoint. Have those head winds abated and you are now seeing strong growth? Or are you seeing the type of growth that you referenced in your prepared commentary in a challenged market? Just trying to understand the macro backdrop there.

Your third part, Chris, is in which markets? I couldn't understand.

I'm sorry. Asia-Pacific.

Okay. Okay. Got you. Okay, Deborah, if you will take the first part, I will take the next two.

Okay. All right. In terms of taxes, our tax rate is going to continue to be high in 2013 as we continue on with our tax project. As you know, we pay taxes in Switzerland at the rate of 22.3% on their income. Most of our income is in Switzerland. This is evolving, started evolving the beginning of last year and will continue to evolve this year. So, our tax rate will continue to be high. But by next year, we expect to will be applying for and hope to obtain a lower tax rate in Switzerland, which will drive along with the other initiatives, tax initiatives, we have a lower tax rate next year. This year -- we are using about a 50% tax rate.

Okay. Thanks.

So, your second part was in regard to the European markets. If we go back to our fourth quarter results in Europe, as we said we were up 24%. So take Spain -- I am sorry, we were up 25%. Take Spain out of the equation, we were up 25%. Even with the direct pricing in Spain, the fourth quarter, we were only up 24%. That's why I say only up -- and this is one I missed is, I would have expected fourth quarter sales in Spain to be higher.

Right.

But I am looking at a comparable that has their inventory from the distributor purchases for their high January results. So, to me, as I look at fourth quarter, Spain is out of the equation. Europe grew 25%, which I think is quite strong. Then if I look at first quarter, the start already, we have got two months under our belt and we have grown 55% in Europe. Now, that is got to Spain in it, at about 2 times what they did last year because of the direct pricing. So still, if I take Spain out of the equation, Europe is growing in the 30%, 35% range. That is off top of my head, without doing the math. So to me, there are two factors there. It is the new folks that we have hired, they are starting to make an impact. And number two, it is the acceptance of the CentraFLOW technology.

That's encouraging. Thanks.

So now you ask about APAC, and let me take that in four different slices. Korea, we have talked a lot about, but we feel very good about Korea going into 2013 with our alignment, our communication, our working together, but also CentraFLOW sometime around mid-year approval. China, that's a little tougher to read. I really, as I said, would have expected fourth-quarter to be higher. Those headwinds from LASIK publicity are still lingering.

So we are working that market. That can be -- that can continue to be a headwind, or it could turn positive. And it is going to turn positive at some point, I don't know what quarter that might be. In India, we had a very strong year. We are expecting, again, to get approval of CentraFLOW around mid year. So we are expecting India to kick in at a higher rate in 2013. (Multiple speakers).

Barry, may I interrupt you? I apologize, maybe I wasn't very clear. I was referring to the macro market environment that you are facing. I understand the drivers that you have -- (Multiple Speakers) -- that can project you forward. (Multiple Speakers) -- But can you tell me where you thought Korea was in the current quarter, and the analogy for Japan, China, are those markets accelerating off the fourth quarter and year over year? Or are they still mixed? Or are they in decline? That is really what I am really looking for there.

Well, first of all, I think it's difficult to describe the headwinds for all three markets in one sentence. Or in one -- (Multiple Speakers).

Okay. (Laughter).

Every one of the dynamics of those markets are different. Yes, there are consumer awareness trends that are similar in markets, but in the market we face, they are all four a little bit different. If I were to take the four, I would say three out of the four beginning this year, we see good progress in. And still in China, where there is still a lot of unanswered questions.

Okay. Thank you very much.

Thank you, Chris.

Thank you. Our next question comes from the line of Jason Mills with Canaccord. Please go ahead.

Hi, Barry, how are you?

Hi Jason, good.

Good. Let's start with the US. I'm sorry if I missed it, been bouncing around calls here. Did you give the split in the US between civilian and military sales? And just a general overview on the trends in each of those segments of the domestic business?

I did not, except to say they were both up. But, as you asked me, let me pull something out. For the fourth quarter, civilian was up 4%, military was up 63%. So that also tells you that military overall as a total percent is less of our business than what it used to be. On an annual basis, our civilian market was up 9%, while the military market was down 4% for the year.

Interesting. So you had a big fourth quarter, and military that bounced back. As I take a couple of steps out, and look more globally about the business, your guidance for 8% to 10% growth, again, I apologize if you have already gone over this. How would you break down the components of that growth between the two businesses? ICL and IOL, just worldwide growth for those two segments?

I would certainly expect ICL growth to be double-digits and IOL growth to be single-digit. But there are some interesting dynamics within the IOL market today. We were very pleased with our $6.7 million in sales fourth quarter in IOLs. I think we said on the last quarter call, we expected the sequential growth to be $500,000 and it was $700,000. But we were limited with product. So we are challenged in trying to find alternatives and also ways to increase supply from a third-party vendor, at a time when a major player, particularly in Japan has had a recall. So the demand in IOLs -- the opportunity for IOLs is stronger than it was three months ago. So we are working very hard to find ways to help fill that gap. But I would say ICLs are in double-digit and IOLs are in single-digits.

Okay. That is helpful. On the ICL front, hating to state the obvious year, but just wanted your take on it, to see where sort of on the margin, we -- you could provide incremental information? But so, it's -- we are now five straight quarters of kind of bumping around $9 million, give or take $200,000. You really broke out in December quarter of 2011. And sort of set a new mark. And obviously, as you have stated, the year progressed a little bit less robustly than you expected.

But, how do you break out of that $9 million? You have had -- as we talked about last quarter, you bounced back in areas of the world where you had a disappointing quarter, the previous quarter throughout the year, only to have something else pop up. And we talked a little bit about this last quarter, Barry. What can you say about how you are seeing things here in the next four quarters, should we expect a new level, new plateau here going forward? Just breaking out of this $9 million a quarter realm?

Yes, really good question and good point, Jason. Thank you. As we grow through the year, with new product introductions in various markets, CentraFLOW in two or three markets and then followed by the Version 5 ICL. We are expecting to see that plateau, that level raise above $9 million, above $10 million. That will come, I think, in the second part of the year. One of the real question marks though, going back to Chris's comment about APAC would be China. And how quick and how much of the bigger rebound we can see in the China market. I am not seeing it yet, like we had anticipated seeing it. So, that will be another big factor. China is in our top three markets.

Got it. That's very helpful. Last question for me. Just in terms of your guidance again -- it seems like I think one of the first questions was, someone saying that the guidance was a little bit more conservative than they had expected. Over the last year or two, well, at least last year, the guidance, it came down pretty consistently throughout the year. So obviously, you set it too high. As you think about setting guidance, I guess, what would you tell us about any religion you've gotten about setting guidance? And how you feel about this guidance relative to how you felt last year, in terms of the risk, upside, downside scenarios? Do you feel like you have -- is there any different feeling that you have about the guidance you are giving this year, relative to the guidance this time last year for '12?

Well, I would say this, Jason, coming into 2012, it was a bit of a challenge for us, because 2011 was so good.

Yes.

I mean, the expectations were high on us, and our expectations on ourselves were high in 2012. We didn't achieve that. So, maybe it gives me an opportunity to move from being too optimistic from being too conservative.

Yes.

So if I do that and I get claimed for being too conservative from this point out, the rest of my life, I guess I will just have to handle that.

Yes, thank you. You will feel better about that though, at the end of the day, if you end up beating conservative expectations. (Laughter). Thanks, Barry, I'll get back in queue.

Thank you. Our next question comes from the line of Bruce Jackson with Northland Capital Markets. Please go ahead.

Hi, good afternoon, can you hear me okay?

Hi, Bruce. Yes, we can. Thank you.

Okay. Super. You've got some exposure to Japan revenue. And as you know the yen has gone through some significant gyrations right now. Can you tell us how that is factored into your guidance? And then also, if you could just refresh everyone's memory on how you deal with foreign exchange, whether you hedge or not?

We do not hedge. Japan is the only place right now that we are really significantly exposed to foreign currency. And obviously, the dollar has gotten a lot stronger. So, that first line of a negative impact of that was in the fourth quarter when we had the translation -- a foreign currency translation adjustment of about $272,000. So, as long as the -- if that should continue for a while here, as long as the US dollar continues to be strong against the yen, at least for the first few quarters.

Okay. So would you say that the yen is -- would you say that it's -- is that factored into the revenue guidance that you just gave us today?

Yes.

Or is it a potential of downside?

Yes, I mean it is always a potential source of downside. We haven't been perfect, and it's very difficult to get exact science on that, but it is factored into our projection. And we have updated, based on the current situation.

Okay. So to some extent, the fact that the revenue guidance is somewhat below where consensus was, is a factor of the yen?

Yes.

Okay. The other thing I wanted to get some color on is the KS-SP lens. Just can you just tell us how your supplier is coming along, and when you anticipate having full availability of the product?

That's a really good question. I think Bruce, as I said on the third-quarter call, we did expect that we would have limitations in supply. And that I expected that this would be a headwind for us the first half of 2013. I think, right now, as I look at it, it's all of 2013. I went to our supplier in Japan in December, specifically to go through this. They are -- they did during this month, February, enhance the size of their manufacturing capabilities. But the demand for them and for us has just gone through the roof. As I point out, through the first two months of the first quarter, we are almost at the $1 million backlog right now.

We don't see any immediate relief from that. We are looking at alternative suppliers, maybe in our European markets that could help us there, and then relieve our supply to give more to Japan. Japan is a higher margin, it's a higher average selling price market. So as much as we can do, in terms of sending products to Japan, rather than China and Europe, we try to do that. But it's a challenge. We have spent a lot of time in the last three months working on this, and we are still very much focused on it. We don't have an answer right now. And I would expect supply, right now, as we see it today, to be limited for the year with the demand just going up.

Okay. Okay. And then last question just on Korea. So, we had a really good year in 2011, and then we had some adjustment going on in 2012. Where do you think the underlying growth rate is in Korea, in terms of what we should be kind of tracking towards in 2013?

Well, I think in Korea, as we look at it, a lot depends on getting approval of CentraFLOW, because as you know, CentraFLOW gives you a 10% premium. If we got that at midyear, that means the second half of the year, we would have -- just at flat units, we would have 10% growth, which would be nice. But what we have seen in Europe, is after we have had the CentraFLOW out for a quarter or so, we are starting to see pretty good growth, momentum. But that, obviously, if we get approval mid year that wouldn't kick in until fourth quarter.

Okay.

So trying to put a bucket around what accretive growth would be for the year is very much dependent on that approval and effective launch of the product.

Okay. Great. That's it for me. Thank you very much.

Thank you, Bruce.

Thank you. Our next question comes from the line of Raymond Myers with Benchmark. Please go ahead.

Barry, can you talk about -- a little bit more on Korea? I want to drill down a bit here. How has the Korean distributor's investments in their own market changed since last year, assuming that they have. Have they?

Well, I would say this, Ray. As we spoke about on the third-quarter call, they did take on a new product early in 2012. It was the second quarter of 2012. And so these guys have done a great job for us historically, and I applaud them, I do think that took away some of their focus during the year. I would say this. They are -- I mentioned earlier that there was a major IOL competitor who has had a recall. That's the IOL they market in Korea.

So now as they look to 2013, the ICL is even much more important to them. Because at least for some extended period of time, they are basically not going to have an IOL to sell. They reconfirmed to us, when they were here in February, their commitment and why the ICL is so important to them. It's even more so today, after they left, since this recall has taken place. So I am very encouraged by Korea. We are closer with our distributor then we have ever been since I have been here, five years with the company. I feel very good with our working relationship, our alignment and some of the things we can help them and support, that we just haven't done before in the past. Because that alignment wasn't there.

Right. You said in your remarks that January and February were record months, or maybe just January was a record month in terms of end market sales in Korea. But given that the market is growing, we would expect every month to be a new record. Can you give us a bit more color about changes in the trajectory of sales? Has the growth rate of sales declined? It sounds like it probably has, in Korea. And can you give us any color as to why?

Well, according to the Market Scope report, which just came out a few weeks ago, they had the Korea refractive market declining in 2012. And as I said, the out the door sales by our distributor went up. So we did gain share in the refractive market overall. I think what we have also seen the first two months, is they are very much ahead of where they were last year. But that is a bit deceptive, because last year they ordered their supply for January in December, where as they didn't do that this year. But we are very encouraged by what we've seen thus far, the first two months. March becomes a high comparable as I said, but we are very optimistic for the year.

Is the reason for the decline in inventory now, simply to match inventory levels to lower projected sales? Or is there some other catch-up or reason for doing that?

Well, if that were the case, they wouldn't have bought so much product in January and February. If they thought they had lower their levels, their inventory levels -- and this is -- this is one area that we just don't get involved with our distributors on, is how much inventory they carry and when they buy it. And as you know, I was in Korea in November. So if I was there and they didn't order in December and we influenced it, you would think my trip was a total failure. But we just don't -- all we want is our distributor to carry enough inventory so he can meet his demand in a timely fashion with those customers.

It sounds like it was too much inventory at the end of the year. And it sounds like a one-time $1.5 million adjustment, is that basically what happened?

Well, I can't say that, it just moved. I mean, we have seen that, from their purchases in January and February. That volume has moved, and I think they are up 60%? Yes? Yes, over 60% in January and February. So the product they have needed for the beginning of the year, you would have to argue they didn't have it on the shelf. And if you looked in previous years, as I said, six out of the last seven years, their out the door sales in January were the highest month of that year. So January is a high month for them.

But it is a high month for sales, not necessarily for ordering though, right? Because they order --? (Multiple speakers).

Historically, they have ordered that in the fourth quarter. They didn't do that this year, which is fine. But that meant they had to order in January and February, when they typically would have not.

Okay. So, last year you did about $1.9 million of sales in Korea in the first quarter, right?

Right.

So if you are doing 60% more in January and February, I am a little reluctant to assume you will do 60% more than $1.9 million, because I don't know that March is truly going to carry forward. But can we make that assumption?

I wouldn't make any assumption on March, based upon January and February. But I would say this, looking at their ordering patterns, March and April, their out the door sales start to go down. So their heaviest volume typically has always been fourth quarter. So it wouldn't come in March and April.

Okay.

I think we clearly expect them to be up first quarter, about 60%, to be up.

Okay. That's enough about Korea. Thank you very much for the detail.

Thank you, Ray.

Thank you. Our next question comes from the line of Jim Sidoti with Sidoti & Company. Please go ahead.

Good afternoon, can you hear me?

Hi, Jim, yes, we can.

Okay. So if you, sorry I didn't catch it -- if you excluded Korea altogether from 2011 and 2012, what would the total revenue have grown?

ICLs would have grown 18% in the quarter.

Okay. And how about overall revenue?

For the year? (Multiple Speakers)

For the quarter.

We have to do -- we will get back to you, we have to do back of the envelope.

Okay. All right then, is there any update on the Toric approval in the US?

Good question. Jim, as we did report, in November, we put a new submission in on the Toric, it is a supplemental submission. It's been under review with them. We continue to check. They have no questions at this time. We can only speculate whether that is good news or bad news. But, and we have spoken to them as early as this week. So they are still going through the document we submitted November 15.

Okay. Is there a 90 day clock on that submission?

Well, typically there is. And we have had good communications with them and we continue to ask them, like every other week, is there anything you need from us. So the word that we have received this week is that they are deep into the detail, and they will get to us if they need anything from us.

Okay. But assuming there is a 90 day clock, you should hear something one way or another within the next month?

Assuming they follow a 90 day clock, you would be right.

Okay. And then, just a general question. Over the past five or six months, you put out some pretty aggressive metrics for what the Company should look like in 2014 and '15 after you complete this manufacturing transition, and you get to the lower tax rate. Has anything happened over the past quarter to make you change some of those -- change that outlook?

Nothing in the model, in terms of the percent for gross margin, Op expenses and net income. No. I mean, the revenue will drive it all.

Right. So, I mean obviously we are starting from a lower base -- (Multiple Speakers).

Yes, those all still remain our goals, yes.

Okay. All right. Thank you.

Thank you, Jim.

Thank you. Our next question comes from the line of Rick D'Auteuil with Columbia Management. Please go ahead.

Good afternoon.

Hi, Rick.

Just I wanted -- I know we have dug at this thing a number of different ways. But if I look at your last year's first quarter and grow it by 8%, I barely get more than what you just did in revenues in the fourth quarter. So I get 2% more than what you just did in the fourth quarter. When I look at the components you provided to us, they are all pointing north and significantly north in some cases. So what is the offset? What is doing horribly in the first-quarter year over year that you haven't told us about? Because otherwise, I can't get to the low end of the 8% to 10%. I heard you say you want to set the bar low, but I just want to understand what I am missing here?

Rick, I don't think you are missing anything, except the caution I have about March. March is a high comparable. So far through the first two months of the year, we are very happy with where we are, except I would love to ship that $1 million of IOLs we have in back orders. That would make me feel a lot better. But it is March, and what is going to happen in China? Are we going to continue the growth rates we have had the first two months? There is still a lot of things that have to play out in March. I hope you are exactly right that we aren't missing anything, and the results turn out to be a lot better. So, I think you have done the math right. We will just continue to play March out week by week.

Okay. On the supplier issue, with the KS-SP, I thought we had talked about this. And it seemed like you had -- you were aggressively pursuing other sources of supply. And that it would have been rectified in a reasonable time period. And I am not saying 12 months from now is reasonable. I don't think a month ago, you were thinking that you were not going to be able to solve that issue for 12 more months, for the whole year of 2013. So, what happened there?

Okay. Well, first let me clarify, Rick. When I say about the whole year 2013 supply issue, I mean with our current supplier.

Okay. But you are -- (Multiple Speakers).

Yes --

But you are pursuing other sources.

Yes. Yes, we are. Let me explain to what that involves. And we have been working with six or seven alternatives in this area. What we are looking for is an alternative lens that will work well with our injector system. If we have to go out and make revisions in a lens or revisions in our injector system, that is longer-term, that will take longer. That would also mean would have to go get approval for something that is newly designed. What we are looking to find is a lens that will work well with the KS-SP injector system, which is our technology. And we are working tirelessly on that. So there is nothing more we'd like to do than fulfill the backorder we have, and the demand that is out there in the market. Because, the recall product is an acrylic preloaded system just like the KS-SP. So it is that market buoyed that even putting more pressure on us and our suppliers.

Okay. So of the six or seven, have you -- you haven't yet exhausted them, as it relates to the compatibility of your injector system with their material?

50% of them, we have not.

What -- I mean, and it is a priority. So is there -- what kind of time frame will you be able -- will you know definitively on those six or seven sources whether it's successful?

The criterion we followed, Rick, and looking at alternatives, we are looking for alternatives that within 60 days we could get to market. So anything longer-term than that -- that is in a different bucket of things we are looking to do. We are looking for a short-term fix. As I pointed out, if we can find one, and we are focused on the CE markets. If we can find one, what we will do is send that product to Europe, and keep our current product in Japan.

Okay. I mean, should you know this by the next conference call, whether they are going to work or not work?

We should, unless we start looking more options. We have to get product in here. Our engineers end up meeting face-to-face, with each one of these companies and their engineers. We have to work the system in the injector system. We have to sterilize them. We have too -- what we want to do is make sure that the delivery of the IOL is right. Otherwise, we are just hitting ourselves against the head, if we introduce a product that doesn't work well.

I understand that. Okay. And then lastly, you talked about what you did on the hiring front in 2012. And some of that will be incremental expense for '13, given the timing of those hires. What hires are you planning for 2013? I don't recall you specifying that on a call yet.

Currently, we don't have any others plan. We are evaluating opportunities. And any place -- I think as we showed in 2012 -- any location where we think can help drive sales, we will make that investment.

Is there -- I think you said earlier that Korea, you hired one, but there is some consideration about more resources there?

Not just Korea, but any place.

Okay. Korea is an important, though, so I am just -- is that -- did I read that right (multiple speakers).

Yes, if we found that made sense, we would certainly do it.

Okay. All right. Thank you. Thank you, Rick.

Thank you. Our next question is from the line of [Matt Aarons] with [Tuft Investments]. Please go ahead.

Great. Thanks for taking the question. I just want to piggyback on the question that Jayson asked about guidance. And I am wondering if you could help us understand. Has there been a change to your approach in guidance? And specifically, I am wondering, because you truly are operating worldwide, and you have all these different geographies, do really have to go in and go geography by geography? And get to our best guess on what the quarter and the year are going to look like, and then just put a fudge factor in there? Because seemingly, every quarter there is something going wrong in one or two countries that is fairly major. And I am just wondering if you can get -- forget about conservative or not -- if you can just -- if you found an approach that you think can lead to achievable guidance, and hopefully move past the issues that we have had over the last several quarters.

That, Matt, that is a really good question. I would say yes and yes, and let me try to answer that a little bit more. Is that as we look at what we think we can do, we have baked in more of what could go wrong into the goals and metrics that we have established. And I would say coming into 2013, I know that I personally don't feel such a burden that those numbers have to be high. Coming into 2012, to be honest with you, I did. I mean, number one, we had a great year in 2011. Expectations from outside and inside for 2012 were big. So it would have been hard to come back with less growth than what you had in 2011, which was 14% overall. But coming into this year, there isn't that pressure. So I think it's both. Looking at, okay, we had some things that hit us in 2012 we didn't expect. What if that happens 2013? And let's make sure we give ourselves some wiggle room here.

Okay. Great. Thank you for the clarification.

Thank you, Matt.

Thank you. Our next question is from the line of Jack Fraser with Seamark Capital. Please go ahead.

Hi, during the process of Project Comet, you have obviously begun moving inventory and the like, and that is significant. You have gotten a lot done. Yet, when we think about the Korean orders thus far this year, and the fact that you begun supplying product out of Monrovia, it suggests that you have avoided the classic problem of inventory mismatch for a complex product line array, if you will, during that time. Could you just comment a little bit on inventories, and your ability to meet demand and orders on a short time frame basis? As you may know, there have been some pundits writing that your inventories are too high? And that if you could just address that, I would appreciate it.

Yes, thank you, Jack. And we really did have a big celebration here when we shipped the first ICL out of Monrovia. That was a big deal. And the fact that we have regulatory approval in the markets in which 70% of our units shipped last year. So we made just excellent progress on getting the production here. Now on top of that, weigh all the different -- call it SKUs, variations of models on the V4, the V4b and the V4c. There is a lot to manage in inventory. One of the things we told our teams is, no sacrifice in quality, no sacrifice in supply.

So we made investments in 2011 and 2012, and purposely raising our inventory levels so we didn't have any disruption from Project Comet. Yes, we had disruption on KS-SP. That wasn't related to Project Comet at all. But on ICL, which is a very difficult product to manufacture, and to manage all the different varieties, we have done an excellent job. And part of the reason for that is that we increased our inventories to make sure we had safety levels. And we will continue to do that. We will continue to carry those higher inventory levels until we feel we can match from the US the global demand.

Okay.

But I hope we have to keep Switzerland open a lot longer. That means that the demand will even be higher than we anticipate.

Okay. That's fair. And then, just switching over to the injectors for a second. V5 and preloaded nanoFLEX implies a growing dependency on injectors. And obviously, that's good news for meeting market demand. Can you just comment a little bit about the broader picture of injectors supply, and how we should be thinking of the reliability of that supply, as more and more of your product line becomes injector dependent?

Okay, well, first of all, the injectors come from us.

Okay.

We make those. Alluding to the KS-SP, we make the injector, we don't make that lens. So the supply issues come from the lens side, not injector side. (Multiple Speakers).

So do you --

The reason our other sales went up so much fourth quarter is injectors, because the Company who makes that lens buys injectors from us.

Right.

So the injector technology and the manufacturing and supply all rely within us. And we transferred a lot of that from Japan. We have also moved engineers from Japan to help us. So we don't see -- we are driving to continue to make the injectors proprietary, but we don't see an issue with manufacturing and supply of injectors.

Okay. That's helpful. And then one last item on this. And that is the -- we are getting quite far along in new generation ICLs becoming available across our global markets, and yet still of course, not yet available in the US market. Can you comment on any pressures or feedback that you are picking up from doctors and customers about that issue?

Well, yes, we do. Obviously, US surgeons are not blinded to just what happens in the US. When we go to any major medical meeting, global presentations are made. As our head of sales in North America told me last week, I am getting many more questions about CentraFLOW now than I am about Toric. And obviously, we are way behind in Toric in the US, in that we are the only major market in the world that product is not available. But there is a lot of excitement in the US about CentraFLOW. And at some point in time, when we are able to get approvals on Toric and CentraFLOW, it will -- I think it will just open up the gates to the US market that we can't open today. I mean, we are working hard to get a 9% increase. And that is good, in light of what is going on in the market, but I believe the ICL technology will do a whole lot better, once we can get the newer versions out there.

Thanks so much.

Thank you, Jack.

At this time, I would like to turn the conference back over to management for any closing remarks.

Thank you, operator. And I would like to thank all of you on the call for your participation today. We look forward to providing you an update of our progress on our first quarter. Thank you and good night.

Thank you, sir. Ladies and gentlemen, if you would like to listen to a replay of today's conference, please dial 1-800-406-7325, 303-590-3030 using the access code 4592160 followed by the pound key. This does conclude the STAAR Surgical fourth quarter 2012 financial results conference call. Thank you for your participation. You may now disconnect.