STAAR Surgical Co (STAA) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2013 STAAR Surgical Earnings Conference Call. My name is Jason, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later there will be a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Doug Sherk. Please proceed, sir.

Thank you, Jason, 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 second quarter, which ended on June 28, 2013. The news release announcing the second quarter results crossed the wire about half 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 statement 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, including a discussion in the Risk Factors section of our 2012 Annual Report on Form 10-K. 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 diluted 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 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'd like to turn the call over to Barry Caldwell, President and Chief Executive Officer of STAAR Surgical.

Thank you, Doug, and good afternoon everyone. I want to thank you for joining us today for our review of the second quarter 2013 results, as well as an update on our 2013 first half progress and expectations for our second half performance. With me today on the call is Deborah Andrews, our CFO. I'll start our call this afternoon with an overview of the second quarter results against our key metrics for the year, which were established at the beginning of the year. Deborah will then offer a detailed look at the key second quarter and first half financial results, as well as a detailed update on our manufacturing consolidation project. In closing, I'll discuss key regulatory and new product updates. Then we'll open the call for your questions.

We had a very good overall start to 2013, despite a couple of continued strong headwinds. Our four key 2013 metrics show that we achieved all four during the first quarter and the second quarter was very similar, overall, in results. As we'll see, we repeated the first quarter performance and did achieve all four metrics during the second quarter of this year.

Let me start by reviewing that performance one by one against those four key metrics. First, the revenue growth. Revenues for the second quarter were $18.2 million, which exceeded expectations for the quarter. Throughout the quarter, we consistently grew busy in ICL sales in the refractive surgery space in our major markets. Operationally, we saw continued success in the execution of our plans and are encouraged by the momentum that we are achieving globally. Revenues grew faster than our annual metric of 8% to 10% during the second quarter, so we can check that one off as accomplished. I'll present our thinking about this metric going forward later in my remarks.

One of the continued headwinds was the negative impact of currency, as the value of the yen continued to weaken during the second quarter. Revenues in Japan represented 26% of our global sales during the quarter. And as our sales in Japan increased 38% on a constant currency basis, which is very well, though when translated into US dollars, that was only a 14% increase for the quarter. The value of the yen in the second quarter of 2012 was 80.1, while during the second quarter of this year, it averaged 98.6. That's a 23% reduction in the year-over-year period. You can also see that the value of the yen negatively impacted us during the first quarter as well, which we reported, as the value was 92 during the first quarter as compared to 79.2 in the first quarter of 2012. For the quarter, the global sales growth in US dollars was 14% and on a constant currency basis, total Company sales grew 21%.

Okay, now let's drill down more into the ICL and IOL results. Turning to our product portfolio, sales of our Visian ICL products during the quarter were $11.3 million. That reflects a 31% increase over the same quarter last year and we exceeded the $10 million mark for the second time in our history, establishing a new quarterly sales record. Actually, this was the first quarter we've ever been over $11 million. The achievement reflects a 27% increase in unit sales and a 3% increase in price, as well as what appears to be continued market share gains against LASIK, which seems to be continued under downward pressure. The chart reflects the very nice upward momentum from the past two quarters, the first two quarters of this year, which shows that Visian ICLs have grown 27% in revenue during the first half.

Now let's look at the key markets. We increased in all 11 target markets during the quarter, as well in all three of our regions. In the target markets we show, revenues grew 33%, while units increased 28% during the quarter. ICL revenues in EMEA, which is Europe, Middle East and Africa, grew 47% in the quarter, driven by several factors, our new ICL CentraFLOW technology, productivity from the expanded sales team, and moving to a direct sales model in Spain. Average selling price in this region increased by 16%, driven by the premium pricing for CentraFLOW and the fact that 55% of the region's total revenues were the Toric ICL version.

In our Asia-Pacific market, ICL revenues increased 29% during the quarter, driven by a return to strong growth in China and solid growth throughout the rest of the region. The CentraFLOW technology is being introduced in two key markets currently. That's Korea and India, which we expect -- we've done the marketing launch, which you'll hear later, and we expect to get approval any week now in the Indian market.

ICL sales in North America increased by 9%. Sales in the US increased 10% in dollars and 15% in units during the quarter. Key drivers were sales to the military and continued success seen in the measurement of our social media and practice development initiatives, indicating an increased consumer awareness of the Visian ICL benefits.

Let's dive down into a few key markets. First, China. China was our largest market in ICL revenues during the quarter. ICL revenues increased 77% and for the first half, the increase is 39%. Our focus in this market has been on refractive counselor training and ICL patient education. We expect sales to be strong during the second half with a good third quarter, followed by an even stronger growth during the fourth quarter.

Our second largest market was Korea, which again grew 7%. I said again, because it grew 7% during the first quarter. As you know, we've hired two STAAR employees in the market during the past eight months. I just returned on Sunday from Korea where we officially launched the CentraFLOW technology over the weekend. Dr. Erik Mertens from Belgium was the guest speaker on the new technology at a dinner, Saturday evening, where approximately 100 ICL surgeons attended. You may recall, he was the first to implant CentraFLOW in Europe about 18 months ago. Dr. Mertens has continued to use the Visian ICL technology more extensively in his practice over those 18 months. During the month of June, 84.7% of his refractive procedures were the ICL. With the launch of CentraFLOW, our distributor in Korea, has returned to movie theater commercial ads in five major cities.

We continue to be encouraged by our success in our third largest market this quarter, the US market, where I said revenues grew 10% and units grew 15%. That's against reports that continue to reflect, from both industry as well as surgeons that LASIK is at best flat, if not down, in the US during the first half.

We continue to make progress on our fourth largest market in the quarter, Spain. Sales increased 127% in the quarter and up 141% in the first half. We are focused on shifting more procedures to the Toric ICL CentraFLOW technology in the three major chains, which currently make up 50% of the total ICL sales in Spain. We're also in the process of hiring an unplanned additional sales rep in Spain to expand our coverage in this market.

Finally, in India, which was our fifth largest ICL market during the quarter, we introduced CentraFLOW technology with a marketing launch the first week of July. This occurred during a major meeting with over 1,500 surgeons in attendance. I was present and had the opportunity, along with Don Todd, our President of Asia Pacific region, to present to the Health Minister of India, a large model of the ICL with a CentraFLOW hole in the optic in a ceremony in front of all attendees. [Dr. Oladelsoree] from the Middle East performed live bilateral refractive surgery utilizing the Visian Toric ICL with CentraFLOW, which was also shown to the entire audience. As I said earlier, we expect to gain CentraFLOW approval any day in this market, which will allow us to begin commercializing implants of the new technology.

Now turning to the first half Visian ICL performance, as you can see, grew in all 11 of our key markets. In these markets, ICL revenues for the first six months grew 29% while units grew 23%. Visian ICLs also increased at all three regions during the first six months. In Europe, 53% in dollars and 32% in units, Asia Pacific 19% in dollars and 20% in units, North America 10% in dollars and 14% in units. Overall, we feel quite good about our first half performance. This is continually showing evidence that LASIK is under pressure and we feel like we're making some very nice market share gains in the refractive surgical segment.

Now let's turn to global IOLs, where sales, I would say were a bit of a disappointment, but with several headwinds. $5.9 million was the total revenue, a 13% decline in US dollars, but a decline of 1% in constant currency. The negative impact of foreign exchange on IOLs was $827,000 during the quarter. We ended the quarter with approximately $1.2 million of back orders from our European customers. That compares to the $900,000 in back order at the end of the first quarter. Our supplier of acrylic IOLs has been unable to meet the high demand for the new KS IOL products during the first half of the year, and this represents the second major headwind we continue to face. As a consequence, we had to limit the number of accounts in Japan, in which we offer a consignment of product. During the second quarter, we had to reduce by over 50% the number of accounts in which we have a consignment of KS IOLs from the first quarter.

We've also had to temporarily suspend our allocations of product to China until we have better product supply. The reduction to China was quite a hit during the quarter. It represented over $800,000 decline in IOL sales in the market, comparing the prior year's second quarter, and a $350,000 decline sequentially. Obviously, if not for these supply-related issues and weakening value of the yen, our IOL sales would have shown very nice growth year-over-year.

On the bright side, we shipped our first now nanoFLEX Toric IOLs to Europe during June and are encouraged by the results. We expect to expand to additional markets in Europe during the second half of the year.

Now let's turn to our gross margin expansion metric. Gross margin -- that metric is to expand by a minimum of 250 basis points for the year. Gross margin for the quarter was 69.5%. Our gross margin expansion was limited by a few things during the quarter, again, by the higher than expected low margin injectors to our third-party manufacturer, so inventory for the second half can be increased.

The volume of those injectors systems increased by 23% over the first quarter of this year, while we had expected them to actually decrease in the second quarter. These are very low gross margin products to remind you and had an overall 150 basis points impact upon our gross margin percentage during the quarter. Additionally, the continued weakening value of the yen had a negative impact on gross margin, as our IOLs are now manufactured in US, and Deborah, will speak more to this topic when she speaks.

We remain confident, though, that we will achieve our gross margin metrics for the full year, as the injector sales are expected to become much less of a factor going forward, particularly if these sales are to be offset with additional KS IOL higher margin during the second half. Because of this outlook and because we did generate a slight improvement in gross margin in the second quarter as compared to prior year, we will mark this metric as achieved for the quarter.

Our next metric is to be profitable on a GAAP basis each quarter. Our GAAP profitability first quarter was $278,000 or $0.01 per share. This compares to a loss of $491,000 during the second quarter of 2012. So check it as marked.

Finally, our final metric is on consolidation and making progress with our Project Comet, while product quality and supply are maintained. Our team continued to execute successfully to this metric during the second quarter. So we have taken the decision to extend completion of the project due to concern over the supply of ICL products for the next few quarters.

There were several key milestones during the quarter associated with our manufacturing consolidation project. First, within the month of June, which was the last month of the quarter, we manufactured 100% of all IOLs in the US. 21% of all Visian myopic ICLs taken through final inspection were manufactured in the US. And third, the validations for the Visian Toric ICL were successfully completed during the quarter, though we've not yet shipped the first Toric ICLs from the US. Product supply and quality have always been the key drivers in evaluating our progress during this manufacturing consolidation project. Several factors have driven us to extend the completion date for the project beyond the end of this year. First, the demand for ICLs has been higher than expected during the first half. This demand has not allowed us to build our inventory levels as we had planned. Secondly, our inventory of Visian ICL products was down to about 5,000 units at the end of the quarter. This is an uncomfortable level for us, even without the anticipated second half demand potential we are seeing. We planned all along for the manufacturing startup of the Version 5 pre-loaded ICL, which will take place here in the US. This will be time consuming activity and it just eliminates any flexibility we might otherwise have in this schedule.

The forecasted demand for the second half of the year is higher than originally planned and there is a potential for increased demand of Toric ICLs in the coming months. For these reasons, we felt it was prudent to extend the completion of the project to the first half of next year. Deborah will provide some additional details in her remarks.

Finally, I'd like to comment on our current outlook for the remainder of the year. We've executed to a solid start for the year on all four of our key metrics. The revenue growth has exceeded our expectations, despite the headwinds of the worsening value of the yen and the lack of IOL supply for our new KS IOL line. As we look forward to the remainder of the year, we expect these two headwinds will persist. And it's hard to gauge to what level. In addition, we benefited the first half by having a direct distribution model in Spain with a prior year comparison to a distributor model.

Now during the second half of the year that comparison advantage will be eliminated.

On the positive side for the second half, we do have new markets where the ICL CentraFLOW is available; Korea our largest market, Argentina and soon to be in India. We also have our new nanoFLEX Toric IOL in Europe, where we plan to expand to additional markets during the second half. There may even be some upside to our IOL supply of the KS IOL line.

With all of the above in mind, we feel comfortable raising our revenue metric from the current 8% to 10% growth for the year to 12% to 14% growth.

Now I'd like to turn the call over to Deborah for a more thorough review of the second quarter financial highlights.

Thanks, Barry. And good afternoon everyone. There are five areas on which I will focus my comments. The impact of foreign currency, the impact of manufacturing consolidation, gross margin expansion, GAAP and non-GAAP income results and some key first half results. As we've discussed, the continuing decline in the value of the yen resulted in a negative impact to our revenue of $1 million for the quarter. Most of this $827,000 negatively impacted IOL sales and $143,000 was negative to our other product category. The value of the yen was 80.1 during the second quarter of 2012 and the value during the current quarter was 98.6. The value of the yen has even gotten worse since the end of the quarter, making it difficult to project where it might go in the second half of the year. The strength of the dollar also had a negative impact on gross margin, as I will discuss later. While sales were negatively impacted by exchange, expenses were favorably impacted by exchange. That positive impact for the quarter was $505,000.

Now in terms of our manufacturing consolidation project, our manufacturing consolidation expenses for the quarter were $613,000, a decline of $84,000 from the second quarter of 2012. Expenses for the first half of the year were $1.5 million as compared to $1.2 million during the first half of 2012. As Barry mentioned earlier, we're extending the completion date for the project to the first half of 2014 in order to build supply of our Visian ICL products, so we're prepared to deliver the increased demand for the product. We now expect the expenses for this project to be approximately $750,000 for the second half of the year. About $200,000 will spill into 2014, which would make the total three-year cost of this project about $6.2 million, compared to our original budget of $6 million.

Our tax rate for the second quarter was 68.3% and 55% for the first half of the year. Our effective tax rate for the year is now anticipated to be 45%, based on the decision to continue manufacturing in Switzerland through the first half of 2014. This will obviously have an impact on the effective tax rate for 2014. And while we do believe we will see continued improvement in the rate, we cannot predict at the moment what that will be until we're more certain about the timing of various elements of the plan. We do hope to be able to provide some level of guidance about this on the third quarter call.

Additionally, the effective tax rate for the quarter was impacted by the GAAP requirement to exclude loss jurisdictions from the calculation during interim period. This hasn't been a factor historically, since Switzerland was our only profitable subsidiary. But now that Japan is also profitable, we must also include their profits while leaving out the US and Cayman Companies. The effect of this is expected to result in higher rates during interim periods and lower rates in the fourth quarter, as we adjust the appropriate effective tax rate of 45% for the year.

During June, 100% of our IOLs and 21% of Visian ICLs passing final inspection were manufactured in Monrovia. We now expect that during the month of December 100% of IOLs, two-thirds of ICLs, and one-third of [C ICLs] will be manufactured in the US. We will also be manufacturing ICLs in Switzerland during this time to replenish our inventory levels as well as starting a second shift in Monrovia at the end of August. Once the project is complete, we continue to expect our gross margins to increase to nearly 80% and we estimate our tax rate will go to approximately 10%. We continue to anticipate generating savings of more than $100 million from Project Comet for the aggregate period of approximately 2014 to 2021 and that we'll be able to utilize all of our current NOLs.

Gross profit margin for the quarter was 69.5%. The product mix during the quarter was 62% ICLs and 32% IOLs. Our gross margin expansion was limited by three factors. Number one, a 23% increase in low margin IOL injector system sales to a third-party supplier for build-up of their acrylic pre-loaded supply which appears in our other product category sales. These injector systems were the driving factor in the increase in other product sales, which increased from $562,000 to $1 million during the quarter. These sales generated gross margin considerably below our Visian ICL and IOL product line gross margins. The negative impact to gross margin was approximately 150 basis points during the quarter. Without this impact, gross margin for the quarter would have been approximately 71%.

We expect the sales to increase during the second half, but the effect of the increase should be offset by incremental sales of higher gross margin KS IOLs generated as a result of the incremental supply. In addition, since we're now making all of our silicon preloaded IOLs in the US and selling them to Japan in US dollars, Japan's cost of goods and gross margin have been negatively impacted by the strength of the dollar, compared to the yen.

Reported IOL gross margin for the quarter was 54.6% and without the impact of the yen, it would have been 57.1%. This had about a 250 basis point negative impact on IOL margins for the quarter and then 80 basis point impact on total gross margins.

Finally, we had some manufacturing yields and efficiency issues during the quarter, which are not unusual as manufacturing ramps up, which negatively impacted margins by about 50 basis points. Despite these issues, the forecast for gross margin is expected to improve in the second half with a significant increase in volume in the US, improved manufacturing efficiencies and yields and the closure of our Japan manufacturing facility scheduled for the end of the third quarter.

Now moving on to our non-GAAP measures, to provide investors with a better basis on which to compare results and understand our business, we also report our net income on an adjusted basis, which excludes manufacturing consolidation expense, Spain distribution transition expense, gain or loss on foreign currency transactions, fair value adjustment of warrants and non-cash stock-based compensation expense.

Excluding these items, adjusted net income for the quarter was $1.8 million or $0.05 per diluted share, as compared to the adjusted net income of $1.2 million or $0.03 per diluted share reported in Q2 2012. Our non-GAAP adjusted net income for the first half was $5 million or $0.13 per diluted share, nearly double the adjusted net income of $2.6 million or $0.07 per diluted share reported in the first half of 2012.

Now I'll go over some key financial highlights of first half. Overall, our results for the first half of the year were very solid and encouraging. Revenue growth was 15% on a US dollar basis and 21% on a constant currency basis. Visian ICLs grew 27% during the first half, driven by the success of our CentraFLOW technology. Gross margin increased 10 basis points to 69.9% or 71.4% without the low margin injectors sales for the KS IOL line. Operating income was $1.8 million, which was a $1.7 million increase over the prior first half. Earnings before tax were $1.7 million, which was a $1.4 million increase over the same period last year. And finally, our GAAP net income was $749,000, which was a $1 million improvement over last year and our non-GAAP net adjusted income was $0.13 per share, as compared to $0.07 per share.

That concludes my comments. I'd like to turn the call back over to Barry.

Thank you. Deborah, good job, and I'd like to cover two quick issues before we get to your questions. During the quarter -- first on the regulatory front, we did receive approval, as we previously said of the Visian ICL CentraFLOW technology in both Korea and Argentina and we do expect the same approval to follow in India in the next few weeks. We also did receive a suggested protocol response from the FDA during the quarter for the CentraFLOW technology in the US. Discussion continues on the terms of that protocol and we hope to have finalized shortly, so this clinical trial in the US can begin. We also expect, during the third quarter, late in the quarter, to receive CE Mark approval for the new Visian ICL Version 5.

Additionally, during the quarter, we were told by the FDA of their intent to take the Visian Toric ICL submission to the Ophthalmic Devices Panel. We have been working with the agency to prepare a panel package so that meeting could be scheduled. At this time, we do not know when that date will be, but the ball is currently in our court to complete the work requested by the agency.

Now the new products, here's an update. During the second half of the year, we will have the ability to commercialize current products in some additional markets. As we said, the Visian CentraFLOW technology in Korea and Argentina and hopefully in India in the next few weeks. Next, the new generation Visian Version 5 ICL. As I said, we expect to get approval late in the third quarter. This technology incorporates the very successful CentraFLOW Technology, plus it is a preloaded ICL with a larger optic. Our launch is planned for the ESCRS Meeting in October, so we should have some revenues for this product during the fourth quarter.

During July, we also began clinical trials for the nanoFLEX II IOL. The trial was measuring both near and intermediate visual results, as well as rotational stability. As the version 5 ICL preload technology is completed, we will continue the development to take this technology to the next generation nanoFLEX IOL product line.

Now, finally before I call for questions, let me review our investor meeting schedule with you. On August 14, we will be attending the Canaccord Genuity Conference in Boston. On that day we will make a presentation and we will be present for one-on-one investor meetings. Followed on August 15 and August 16, we will be travelling to Canada for investor meetings with William Blair. Additionally, on August 22, Stephens will be bringing an investor bus tour to our expanded Monrovia facilities here in California. Between October 3 and October 8, we will be attending the ESCRS Meeting in Amsterdam, where we will start that meeting with the annual ICL Experts Meeting. Our third quarter earnings release and call are now scheduled for October 30. We hope to see more or many of you at these events and if you like to set up a time, just let Doug know.

Operator, with that in mind, we are ready to take questions.

(Operator Instructions) Chris Cooley, Stephens.

Thank you. Good afternoon. Can you hear me okay?

Yes, Chris.

Congrats on a great quarter and a really great execution to the first half. Two quick questions and I will hop back in queue. Talk to us about the FDA. I mean right now there is a September 19 and 20 panel scheduled for the Ophthalmic Devices Panel. Is that realistic? I guess I may be just pressing a little bit for -- maybe you can give us some color about what you have to do in the review time before you can potentially be slated for a panel meeting? And then I have one quick follow-up.

I think, Chris, thanks for your comments, first, but I think, given the sensitivities of where we are in the process right now, it's best that I maintain comments with what I have in the script and that is, we have been told by the agency that we will go to panel, we've been working with them for several weeks on the panel package, it's not yet complete. Good progress has been made, but not complete. There are still things that we have to respond to before the agency would be ready to schedule that date and those things have to be completed before that could happen.

Fair, enough. Had to try. If I could switch over then just to the domestic market and the growth that you realize there in the Visian ICL. One of the only public remaining out, LASIK Providers reported results for the quarter and other checks there shown really continued softness. Could you talk to us a little bit about the growth you saw in the military, as well as in the civilian channel and just kind of how those trends are evolving? This really started to build, it looks like at the end of the year last year, just want to get a better understanding of kind of where we are in the adoption continuum? Thanks so much.

Yeah. Okay. Yeah. Good point. And you are right. I think every signals we get from industry insurgents is at best the US market is flat, but it's probably not running at best right now. There seem to be a lot of negative headwinds. We've had good success in both the military and the civilian sector during the first half. Second quarter, more growth was skewed toward the military side. But as you know, last year we were negatively impacted by a couple of surgeons who left the service. One who was off to Afghanistan, but he's now back.

I think, also, what we see is, we've seen increased growing metric from our social media work. We're getting a lot more leads generated. And our initial work in this is being driven here in the US. We're seeing more leads and we're seeing good response. Right now, 30% of the responders through social media actually have an ICL implant put in. So that's a pretty good action rate. That's the good news. The downside is, we found 50% of those that respond are not being followed up by the individual surgeons. So there's training factor here involved to make sure that happens. Now -- and checking back to those 50% that were contacted, 45% still have an interest in learning about the ICL.

So I think as we continue to move forward, we're going to try and experiment more things and we'll learn more. But right now I think we're happy with where we are and how we're situated. And also potentially opportunity for more growth in the second half and into next year.

Can I squeeze one quick follow-up along those lines, and then I'll get back in queue.

Yeah.

Just when you look at the domestic growth in the quarter, can you parse out for us either incremental volume growth within existent Visian ICL implanters versus growth with new implanters? Basically trying to get a feel for it, you're seeing the physician base, how you're seeing that evolve here in the US in the civilian sector?

Yeah, in the civilian sector, we've been more concentrated on driving share in those that are trained and have been doing procedures who have bought into it. So I think thus far that's where we've been. Now, into 2014, depending upon what happens, our tactics may change a little bit and we may look to expanding more surgeons into the Visian ICL line.

Thanks Barry. Keep up the good work.

Thank you.

Matt O'Brien, William Blair.

Hey guys, this is Kayla in for Matt. Just a couple of questions for you. So with respect to Korea, you mentioned the two new hires in the recent launch of the Visian CentraFLOW technology. When do you think that we'll really see those two initiatives begin to contribute to the topline? And then can you just touch on the initial feedback that you've heard in Korea following the launch?

Yeah, good question, especially since I'm still sitting here jet lagged from being in Korea over the weekend. But I'm really glad I went. I saw firsthand what's going on there. I visited several clinics in Korea. Also went to the movie theaters in Korea to see the ad that is being used in all the key markets in Korea. Our distributor, [Woo Jong] has 200 screens in Korea for a three-month period. As a matter of fact, I was told while I was there that we've even had some patients call in and ask for the ICL with no PIs. It is kind of amazing to me that consumers can understand that concept, but particularly in a market where we've done quite a few ICLs for many years, maybe it's a little better to understand that patients are where the PIs are associated with ICLs and now they're not. Another very interesting developing trend I saw in Korea in two different accounts. They are starting to promote what's called Same-Day ICL surgery. What that means is, patient comes in, and now with CentraFLOW, as long as there is an inventory and Woo Jong does carry some inventory and they've made some commitments to certain accounts they have inventory there within two hours, they will do ICL surgery the same day, the very first visit that a patient comes in. We actually had a call from Japan last night to try to develop the same kind of strategy.

So it's not something that that we foresaw, I would say, as we put this product line together. But it's very interesting development. I think, overall, for the back half of year, we're expecting another good solid performance third quarter, but fourth quarter is always a stronger quarter for us overall, and part of the reason in our Comet decision to push back is we're expecting very high demand during the fourth quarter and we are expecting a lot of that high demand to come from Korea and also from China. So we want to be ready for that. So I expect we're going to see continued good growth third quarter and stronger growth fourth quarter in Korea.

Okay, thanks. That's helpful. And then just on IOL side, you did mention the supply issue there, and I am curious as to maybe how long you expect that dynamic to linger?

It's a really good question. You know, I think we have very good communication with the manufacturer. As a matter of fact, in 2.5 weeks I'm going to go back and visit with them again. They have given us some higher numbers, some pretty good numbers. I'd say, for second quarter in terms of what they think we can make. We haven't thought what they can make. We have not baked that into our equations yet for the second half of the year, but if they're able to produce what right now they're saying they will produce, it will be very good news for us the second half.

Okay. That's really helpful. Thank you.

Thank you.

(Operator Instructions) And at this time, there are no further questions. I'll turn the call back to the management for final remarks.

Great. Thank you operator and I'd like to thank all of you for your participation on the call today. (technical difficulty) Oh I'm sorry, I have been told there is someone who wants to ask a question. Operator?

Jack Fraser, Seamark Capital.

Okay.

Thanks and good evening guys and congratulations again on the progress thus far this year. I'm curious, if you wouldn't mind just developing a little further your expected curve for pre-loaded nanoFLEX. I realize your rating CE Mark for like Q3 for the new version, but then the pre-load is going to be probably the big impetus to a really big leg of growth. Can you just give us a little further detail on what you think might play out as the timing for that? Thanks.

Yeah, I'll try to Jack. And thank you for your comments. First of all, we want to make sure we get the Version 5 ICL pre-loaded product across the finish line with CE Mark and into production and out the door. Our engineers have already preliminarily looked at the pre-load technology and it will work with the nanoFLEX product, but it will take some additional validations and some additional sterility work. I don't really have a timeline on it yet, because it won't start until we get finished. But I would suspect that we'd start to see pre-loaded nanoFLEX Toric and also some pre-loaded nanoFLEX IOLs into the market during next year.

Okay, that's helpful. And, Barry, do you -- is it okay for us to be thinking of the technology challenges between nanoFLEX and the ICL to be relatively close? The materials are same, right, and lens sizes are fairly close, I'm guessing?

Yes, it's fair to say. And that's what our engineers, through their initial testing, have found that they believe it's very compatible to the nanoFLEX IOL, the same technology we've been using on the Visian ICL.

Thanks very much and congratulations again.

Thank you Jack.

Yeah, this time we have no further questions.

Okay, thank you again, operator. And I'd like to again thank all of those on the call today and again remind you of our investor activities during the next few months. And if you would like to hook up with us in any one of those sites, please contact Doug Sherk at EVC. And have a good evening. We look forward to an update on our third quarter progress on October 30. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.