STAAR Surgical Co (STAA) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the STAAR Surgical third-quarter 2014 financial results and webcast conference call. My name is Lacey and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Thank you, Lacey, and good afternoon, everyone. Thank you for joining us for the STAAR Surgical conference call to review the Company's financial results for the third quarter, which ended on October 3, 2014, as well as recent corporate developments.

The news release detailing the third-quarter results as well as the Chinese approval yesterday to market the ICL with CentraFLOW technology in China, that release was issued just after market closed this afternoon and is now available on STAAR's website at www.staar.com.

In addition, a slide presentation will accompany management remarks during today's call. To access both the webcast and 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 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 of the event 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 2013 annual report on Form 10-K and our quarterly report on Form 10-Q for the period ended July 4, 2014.

Investors and potential investors should read these risk. 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, stock-based compensation expense, and FDA panel and remediation expenses.

We believe these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance. Now also in order to compare our performance from period to period without the effect of currency fluctuations, we apply the same average exchange rate application to the prior period or constant currency rate to sales.

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.

Thanks, Doug, and good afternoon, everyone. Thank you for joining us on the call and on the webcast this afternoon to review our third-quarter results as well as an update on our performance for the first nine months of 2014. With me today on the call is Steve Brown, our CFO.

I will begin our discussion on the business this afternoon with an overview of the third-quarter results against our annual key metrics we established at the beginning of this year. Steve will then offer a detailed look at key third-quarter and first nine months financial results.

I will then come back and provide some key operating updates from the quarter and we'll open it up then for your questions.

The five key metrics we established at the beginning of the year are the annual objectives that we established for the business. And as you can see, relate to revenue growth, ICL growth, our gross margin improvement, profitability, and completing our manufacturing consolidation project.

With 10% revenue growth for the first three quarters of the year and 12% growth in constant currency, we're achieving the upper end of the overall revenue growth objective year to date. The third quarter resulted in good revenue gains for IOLs and other products sales, while ICL revenue was basically flat, due primarily to a decline in what is normally our largest market, Korea.

Reports from key refractive practices in Korea have detailed how refractive procedures were impacted from quite negative media coverage of LASIK complications. We will go into more detail in a few minutes, but with Korea off to a good start in the first half, being up 18%, we certainly did not expect to see ICL sales decline in the market during the third quarter.

For the third quarter, total revenue grew to $18.2 million, which was 6.3% higher than the year-ago period. In constant currency, revenue in the quarter was $18.6 million or approximately $400,000 higher, which equates to a 9% growth rate.

As you can see, ICL revenue declined as an overall percentage of total sales to 58.5%. Our momentum in the IOL segment continues to build as we generated 8% growth during the quarter.

Revenue of our lower gross margin other products increased by 68% and grew to 9.8% of total sales. That's driven by the increased IOL injector sales to our third-party supplier. For the first three quarters of 2014, our reported revenue growth of 10% -- or 12% in constant currency, as I said earlier -- is at the higher range of our annual objective.

Obviously, our lack of ICL growth in the quarter was disappointing and was driven by a decline of nearly $900,000 in the Korean market. Additionally, though to a lesser degree, we continue to see a negative impact on refractive surgery in the Japan market. In these two markets, ICL sales declined by $1.1 million or 41%.

While the ICL overall performance is below expectations, there are many positive indicators about the product line's continued gains in market share and opportunity for growth. Excluding Korea and Japan, we generated ICL revenue growth of 12% in the rest of the world. We will also discuss later that we learned yesterday of the marketing approval for the ICL with CentraFLOW in China.

Visian ICL revenue increased in 8 of the 10 other focus markets, with good growth in China, up 27%; Middle East, up 24%; Spain, up 19%. We did see higher growth rates in Italy and in the UK, but of course, off of a much lower base. ICLs in the US increased 2%.

We also continue to gain on price as we introduce new ICL technologies to the market. ICL selling prices increased by 2% during the quarter.

Now let's turn to the Korean market impact. Negative press on LASIK complications started on a regional network and then later expanded to a national network, MBC. The coverage only presented LASIK patients with what they called complications of LASIK -- severe dry eye, double vision, glare, and keratoconus -- with very little balance.

As we've seen in other markets, negative LASIK coverage impacts the consumer's interest in all refractive procedures during the short term. The overall theme in the coverage was that patients were giving up their dreams because of LASIK complications.

Major refractive practices in Korea reported a 50% decline in patients coming in the door for refractive procedures. Demand out the door from our distributor in Korea declined by 40% during the quarter as compared to the year-ago period. Our ICL sales to our distributor declined by 45% in the quarter and were $1.1 million as compared to $2 million in the third quarter of last year.

Now during October, we are starting to see some encouraging signs regarding the number of patients coming back in the door. But as you know, in other markets, it can take time. We do, however, have proactive plans with our distributor during this quarter and into 2015 to counter the negative news and decline in overall demand.

Together with our distributor in Korea, Woo Jeon, plans have been established for a direct-to-consumer campaign designed to impact potential refractive patients with a positive messaging of the ICL.

The campaign is called the Big Model Strategy. They have engaged a famous Korean actress, Lee Bo-Young, who has had ICLs for eight years and is a very happy patient -- and I might add, living her dreams. They plan to use her in the first ever television commercials for the ICL in the Korean market.

They also plan to use her in movie theater commercials, bus banners, and online marketing activities. We are working with Woo Jeon to incorporate some of the insights we have gained while attempting to find the right messaging regarding the most important features of the ICL procedure for those potential patients making a decision on refractive surgery. The plan is to start those efforts in December to help turn momentum going into their peak season, which begins in January.

Now turning to our ICL and procedure growth year to date for the first three quarters, ICL revenue and procedures increased in 9 of our 12 focus markets. ICL revenue growth was at 8%, while procedure growth was at 5%, with significant revenue growth in our European region, where revenue growth was 20%, while -- and procedure growth 17%.

Overall revenue growth in the Asia Pacific region was 3%. Growth in Asia Pacific was -- region was, of course, limited by the Korea and Japan refractive market challenges. Overall, the Asia Pacific region represents 50% of total ICL sales year to date.

Now shifting to our IOL product line. We continue to see stronger-than-expected performance. During the third quarter, we generated 8.3% revenue growth and an even more impressive 13% growth in constant currency.

Global revenue for the quarter grew to $5.8 million, while units increased 13% overall in the quarter. IOL growth was driven by the continued positive market acceptance and the increased supply of the KS-IOL acrylic preloaded products, which benefited sales in both Europe and Japan.

KS-IOL units increased approximately 58% during the quarter. And the acrylic preloaded units now represent 41% of all IOL units compared to 29% during the third quarter of last year.

For 2015, it does appear the KS-IOL supply will continue to strengthen, which has now allowed us to tell our distributors in Europe they can actively promote the product without concern of supply issues and we plan to enter new markets during the fourth quarter and early 2015.

Now let's take a look at the Q3 IOL revenue and unit growth by markets. IOL revenue in Japan -- which remember is our largest market and represents 51% of our global IOL revenues -- grew overall 7.4% as reported. However, the growth was 16% in constant currency during the quarter, evidenced by the fact total IOL units in Japan increased by 14% during the quarter.

Sales in Europe, which represented 18% of total IOL sales, increased by 45% and 41% in units during the quarter. This growth is primarily due to the increased supply of KS-IOLs and again, the continued market acceptance of that technology. IOL sales in the US declined by 6% and represented 22% of total IOL sales, while in the rest of the world, IOL sales declined 1%.

Year to date for the first three quarters of 2014, IOL revenue growth was 7.3% as reported and 12% on a constant currency basis. IOL units increased 15%, while overall average selling price declined due to geographic mix of sales.

Now let's turn to gross margin. We continue to be challenged on our planned gross margin improvements for the year. Gross profit margin for the quarter was 65.3% compared to 70.5% last year.

Our gross margin was negatively impact by the mix of our IOL sales, higher cost -- higher startup costs for manufacturing ICLs in the US and a higher mix of low-margin IOL injector part sales. Steve will go into more detail on the puts and takes impacting our gross margin in a moment.

Now let's turn to the net income line. We were not profitable in the third quarter. Our net loss was basically driven by increased investment in key areas, which are important to our overall future growth.

There was a negative impact of $900,000 on the other income line as compared to last year due to foreign currency transactions and lower-than-expected gross margin in the quarter. We are targeting profit in the fourth quarter, though we still have investment spending to do. We will not be profitable on the full-year basis.

Our manufacturing consolidation project was completed in June, as we reported on the last call. All approved products are now being manufactured in our Monrovia facility, but we're still working through some inventory of products that was manufactured in Switzerland, which did negatively impact our gross margin -- gross profit margin in the third quarter.

Facility and other overhead costs in Switzerland impacted our gross margin improvement to some degree, but do provide the Company with flexibility and diversification in manufacturing product if needed.

Finally, manufacturing yields at Monrovia continue to improve, though not yet at the level to which we experienced in Switzerland. We remain confident these are achievable goals and we will see improvement in gross margin next year.

As we looked at the puts and takes through the first three quarters of this year, our revenue growth has been within the upper range of our stated objective of the beginning of the year and is at 12% on a constant currency basis. IOL and other products sales have exceeded expectation, while ICL growth has not.

We do anticipate that further adoption of our new technologies, like the ICL with CentraFLOW, and the future full launch of the preloaded ICL system in Europe will drive ICL growth as we look forward.

To date, there have been over 80,000 CentraFLOW ICLs implanted and we now have some three-year clinical data, which we will discuss later. We do expect continued headwinds on our gross margin percentage achievement, with a higher than expected sales in the lower gross margin other products.

These, of course, do add gross profit dollars, but weaken our overall gross margin percentage. We will also continue to invest in the key areas of our business important to the expanded growth opportunities we have -- like R&D, with new exciting products and improvement in our quality systems and sales and marketing to increase our presence in the markets.

Steve will now provide additional financial details for the quarter and year to date. Steve?

Thank you, Barry, and good afternoon, everyone. There are several areas in which I will focus my comments: GAAP and non-GAAP, P&L results, gross margin expansion challenges, operating expenses, and below-operating income line items, such as our tax provision and other income.

First, let's review the P&L highlights for the third quarter. As Barry said, revenue increased by 6% as reported and 9% in constant currency. Gross profit decreased by 2%. I will review the gross profit margin profile and operating expenses in a moment.

The GAAP net loss for the third quarter of 2014 was $2.7 million, or $0.07 on a per-diluted share basis, compared with a net income of $525,000 or a profit of $0.01 on a per-diluted share basis in the third quarter of 2013.

On a non-GAAP basis, adjusted net income for the quarter was $87,000 or no cents per diluted share as compared to the adjusted net income of $1.7 million or $0.04 per diluted share reported in the third quarter of 2013.

On a GAAP basis, for the first three quarters of 2014, sales increased by 10%, while gross profit increased by 6%. Overall, we lost $0.15 as compared with the net income of $0.04 per share. This has been driven by additional investments in R&D and sales and marketing, negative impact on the other income line, and increased provisions on the tax line.

On a non-GAAP basis, we earned $0.05 in adjusted net income as compared to $0.17 during the same period of 2013. There are several key headwinds impacting our gross margin for the nine-month period ending September, which in total has had a negative impact of approximately 260 basis points.

First, the increased startup costs of ICLs caused 136 basis point negative impact. We are still selling through higher-cost inventory made in Switzerland, as we transitioned out of the facility during the first six months of this year, and higher-cost inventory made in the US as we ramp up production.

The Swiss inventory should be sold through before the year is ended and US production costs have been trending down, giving us confidence we will achieve lower costs next year.

Second, the negative impact of increased sales of the IOL injectors was 94 basis points during the first nine months. Third, the higher proportion of preloaded acrylic sales negatively impacted gross margins by approximately 93 basis points.

Finally, higher distribution costs and increased inventory reserves impacted gross margins by 60 basis points. These headwinds were partially offset by approximately 123 basis point improvement from lower IOL unit production cost and higher average selling prices for the ICLs.

I would like to provide a bit more color on our third-quarter operating expenses. Our spending increase primarily has been in areas of investment for growth. R&D spending increased by approximately $1.5 million, which was driven by key projects related to V5 and V6a ICLs of about $200,000 and also the associated headcount costs. Approximately $600,000 was spent for remediation activities in response to the warning letter.

Sales and marketing investment spending increased by approximately $1.5 million. We had added expenses associated with the expected launch of the Toric ICL in the US of approximately $250,000 and also the timing of the expenses and the Company's increased presence at that ESCRS totaled $1.2 million. The ESCRS expenses last year fell into the fourth quarter.

G&A costs declined approximately $900,000 in the third quarter, driven by the reversal of bonus pool accruals. We did benefit from having no manufacturing consolidation expenses in the quarter, which were nearly $500,000 in the third quarter of 2013.

Expenses below the operating income line also impacted our results in the quarter. The other income line provided a negative of $932,000 as compared to the third quarter of 2013. The other income and expense line was an expense of $605,000 as to compare to income of $327,000 in the third quarter of 2013.

This was primarily driven by the loss on foreign currency transactions of $628,000 as compared to a gain of $226,000 in the prior year. The income tax provision was $548,000 during the third quarter of 2014 compared to a small benefit of $25,000 during the third quarter of 2013.

The income tax benefit recorded in the prior year was due to the release of a $400,000 valuation allowance that lowered the tax provision for both the quarter and the year-to-date period.

This concludes my comments and I would like to turn the call back to Barry.

Thanks, Steve. Let me update a few operational activities, including progress on the warning letter, regulatory approvals in various stages, and new clinical data evolving from three years of CentraFLOW technology being in the market.

First, let's address our progress on the warning letter. We continue to stay focused with a very comprehensive review of our entire quality system. It has taken a high level of intensity from our internal teams aided with a benefit of outside resources having extensive experience in this area.

I want to recognize and thank our employees and outside consultants for their efforts to improve our quality system, not just for today, but for many years to come.

Our diligence in resolving this matter has included a total of eight responses to the FDA with data. This includes our responses to the Agency on the issues identified in the May warning letter as well as the monthly progress reports to which we proactively committed to identify and resolve additional quality opportunities within our processes.

On October 15, we submitted a response to the compliance branch regarding the current selection processes for the approved myopic ICL. We have made substantial progress in responding to the issues identified in the warning letter and also continue to follow up on additional opportunities for improvement and quality to which we have committed in our monthly updates.

At some point, we expect the Agency will come back in for another inspection. We do not yet know when this would take place.

Now let's turn to the regulatory approval process, first for CentraFLOW ICL in China. We reported what we believed was a successful expert meeting, you will recall, back in May. That was followed by a technical recommendation of approval by CMDE on September 24.

Yesterday, we learned of the marketing approval from CFDA. The final step is the approval certification, which is normally issued within 10 working days of the marketing approval. This is a necessary step to begin shipping product.

According to MarketScope, China was the largest refractive market in 2013, with an estimated 875,000 refractive procedures. Today, the Visian ICL is about 2% of total procedures in China. With approval of the CentraFLOW technology, we have the opportunity to further expand our share in this very important market.

Now to the Toric ICL. We continued interface with the FDA on the regulatory process of the Toric ICL PMA supplement after the favorable panel vote on March 14. Since the advisory panel meeting, we have provided data to the Agency as per their request.

On September 3, we received questions in regard to the new Toric ICL calculator system, which was included in our TICL submission. We were required to respond by October 3. We updated, verified, and validated the software in the calculator system and responded to the Agency on September 25. We are currently waiting to hear next steps from the Agency.

Next, the V6a. The V6s ICL design addresses the needs of patients nearing age 40 and over who will soon need near and intermediate range correction vision -- correction of vision. This large presbyopic vision correction market is estimated at over 3 billion eyes and is a new market for STAAR.

The V6a ICL differentiates the ICL for myopic patients by adding a near vision enhancement feature to the ICL platform to treat the early onset and progression of presbyopia.

The new optical design on the ICL utilizes the EDOF, or extended depth of focus, concept. The bench results have been very promising and Dr. Robert Ang will conduct a confirmatory study with the new design when released for implant.

We have filed a patent application on the new design to seek intellectual property protection. We believe we could gain CE Mark approval during next year.

Now to CentraFLOW. We have over 80,000 ICLs implanted with the CentraFLOW technology and we are starting to hear and see some very interesting clinical data. During the ESCRS meeting, Dr. Alfonso from Spain presented data from his approved peer-review article on over 1,000 ICLs with CentraFLOW having been implanted during the past two years.

The overall rate of cataract complications is low and his rate before CentraFLOW was 0.7% incidence. Based upon his review after 2 years, he has not seen one cataract formation with the CentraFLOW technology. And he would have typically seen 19% of any such formations after 2 years of follow up.

Also during the recent AAO meeting, Dr. Mertens from Belgium presented a retrospective review of his data on nearly 1,000 ICLs with CentraFLOW technology over the past three years. Based upon his review, he has not seen one cataract formation in those 3 years. His cataract rate before CentraFLOW was 0.81%. Using Dr. Alfonso's chart, over time, he would have seen about 48% of any such formations.

The CentraFLOW technology has also driven the adoption rate of the ICL in both of these practices. Dr. Mertens reported at the American Academy of Ophthalmology meeting that so far this year, the ICL has represented 96.6% of all of his refractive procedures.

Before we open the call for questions, let's review our investor plans going forward. You can see in November, we will be presenting and be at the Stephens fall investment conference in New York. In November 20, 21, we will be at the Canaccord Genuity Medtech Conference in New York, and then December 2 and 3 at the Piper Jaffray conference, also in New York.

We do expect to report fourth-quarter and fiscal-year end results on February 25 of 2015. Before we open it up for your questions, I would like to summarize our review today with what we believe are potential growth drivers for our business during the fourth quarter and into 2015.

First, there's the continued adoption of the CentraFLOW technology, which is generating a higher average selling price from our customer base. During the third quarter, CentraFLOW ICLs represented 57% of total ICL revenue.

The next new driver of the CentraFLOW technology we'll find in China, with the regulatory news we received yesterday. With CentraFLOW adoption, we believe our China growth rate can expand.

With over 80,000 ICLs implanted with CentraFLOW, as we saw, we are starting to see some very interesting clinical data and we'll continue to follow that closely. Our team has worked hard and we've invested significant resources to address the observations in the warning letter.

While we can't predict outcomes or timing, the process we've gone through has certainly improved our overall quality systems and processes and we will continue to do so.

We continue to dialogue with the FDA about the Toric ICL submission and while we aren't predicting outcomes or timing, any positive decision here by the Agency would of course be a driver for our growth.

We are quite excited about the V6a ICL technology and look forward to following the clinical work from the confirmatory study. The supply of IOLs has increased, as we discussed, and should allow us to expand into new markets that we can serve.

Finally, we are implementing aggressive actions with our distributor in Korea to address the decline in refractive procedures generated by the impact of the negative publicity of LASIK complications. While timing of the market's rebound is uncertain, we look forward to following the impact of the direct-to-consumer campaign. We are excited about our potential and are working hard to execute on our opportunities.

With that, we are ready, operator, to open the line for questions.

(Operator Instructions) Matthew O'Brien, William Blair.

I was hoping we could start with Korea. I know, Barry, that this has been an area that's been problematic in the past as far as some of the distributor inventory factors that have gotten you historically, but this time around, it seems like it's more of a market issue and it seems like one that could persist for awhile.

So I just want to get a sense for your comfort level in re-accelerating performance there. And then if this distributor has done any kind of this direct-to-consumer type advertising via TV campaigns in the past and have seen relatively quick success with that -- with those type of programs?

Yes, Matt, thank you and really very good questions. First, let me say, and we've gone through in detail the transcript of the media coverage, this -- I don't know what the right word is. It's the worst. It's the strongest that I've seen from any other market. It was really very much one-sided.

They basically took patients who had had complications from LASIK -- and we know overall the percentage is not high. But they found seven or eight patients and this theme of the patient having given up basically their life dreams because of LASIK complications was just very hard-hitting.

And we got calls from multiple large refractive centers that patients just stopped coming in the door on that Monday morning after the media show was exhibited on MBC.

Now we have learned through what's happened in other markets -- we've seen this in China, we have also seen it in the US, but I think we are better prepared this time. And so that's why I'm very anxious to see how what we've learned -- how that can translate into turning the market around.

And the timing is good in the sense of typically, January is the highest month of the year in Korea for all refractive procedures, and the first quarter is the highest quarter. And our distributor, Woo Jeon, is obviously investing a lot of dollars.

We have been doing consumer interfacing with trying to understand the right messaging for refractive patients regarding the ICL and we are integrating that in with Woo Jeon into the direct-to-consumer that they are going to do.

Now in the past, Woo Jeon has done movie theater ads, they've done bus wraps, but this time, for the first time ever, we're going to hit it with television commercials and also on the other end with a more aggressive online presence, which we haven't had that strong in Korea.

So while we can't predict anything, I am very anxious to see if what we have learned in the past from other markets can translate into a quicker return of refractive procedures in the market.

Okay, fair enough. And then Barry, we have all been waiting for quite a while for the Toric approval. And I'm just curious if you could give us a little bit more color as far as what might be taking the Agency so long to make a decision at this point versus your expectations maybe in middle of -- or later last year.

And along those lines, is it still safe to assume that Toric and the warning letter are completely separate issues at this point?

Okay, I hate to be able to say don't know and don't know, but let me try to say a little bit more than that. Obviously, at this point in the stage of the Toric ICL review, it is -- we want to be very careful.

We do know they are reviewing everything that we send in. And we do know that the last set of questions they had regarding the Toric ICL calculator system, they did put a due date on it. And as I said, that was October 3.

We beat it by a week. That was the first time since the panel meeting they had put a due date on any request they had of us.

Now obviously, before the panel meeting, there were a lot of due dates they had given us. So we don't know that that means anything or not. We do know they are actively reviewing it and we are -- all we can do this point is wait to learn what the next steps would be.

Now in regards to the warning letter and the impact, there's really no way for us to know. The thing that is a little different here is that our submission for Toric ICL approval, as you know, is for product made in Switzerland and we have built inventory, which remains in Switzerland, for Toric ICL launch in the US.

We will obviously eventually move that to the Monrovia facility, but our quality system as was examined by the auditor here in Monrovia is what produced the warning letters.

And will that or will that not have an impact, we don't know. It could result in an improvable letter until the warning letter is resolved. We will just have to wait and see and work through any additional requests we get along the way.

Understood. Thank you.

James Sidoti, Sidoti and Company.

I just want to be clear. On the direct-to-consumer campaign in Korea, will that be the distributor who pays for that or will that be on you?

Good question, Jim. Yes, we are providing resources and assistance, but the cost of doing the television commercials and doing the movie theater ads, they are all being budgeted by Woo Jeon.

Okay. And then moving to China, you said all you need now is an approval certificate. Is that kind of mechanical in that process at this point? Is there anything that could hold that up?

Nothing that we could foresee. It's very typical that that is issued within 10 working days in China.

Okay. So there's no data or nothing that you have to do. You just pretty much have to wait for the process to work -- run its course.

That's right. We've been through all of the major tests in terms of the technical side and the marketing side.

All right. And then just following up on the Toric approval, are you at a point where you could come in one day and have the approval letter there? Is that in the realm of possibilities?

We just don't know. In my dreams, yes. And since I haven't had LASIK, I can still dream.

Okay. And then finally, Barry, you announced about -- I guess it was a couple weeks ago now, you will be leaving in March. What's the process for finding a new CEO?

Sure. First of all, the Board has put together a committee -- three members on that committee. They are currently in the process of interviewing search firms. I believe they are interviewing four firms.

Their goal is to have one of those firms selected before Thanksgiving to begin the search and then they will work through the process with the search firm in finding a successor.

All right. I'm sorry, there's one more question. On the slides, the first slide regarding guidance was -- it was topline growth at 10% to 12% for the year and you are in that range through three quarters. Do you still --

Our annual objective was 8% to 10% for the year.

Okay.

Yes, that was as reported and we ended -- through three quarters, we are at 10% as reported and 12% on constant currency.

Do you still think that 8% to 10% is a viable target, considering what's gone on in the third quarter?

Well, that's an annual number, so -- and all of our annual objectives were set at the beginning of the year and we are continuing to run against those.

Okay, so --

Yes, go ahead.

I guess you still think that that's achievable?

It is still our annual objective, though as -- I would say we certainly didn't expect in the third quarter to see the yen value turn back. And it's still up around [$1.09], even though we thought it was headed back down. So that is something that will I think continue to be a watch out for us in the fourth quarter.

Okay, but outside of currency, you think that 8% to 10% annual growth is still an achievable target?

That is certainly still our annual objective. And again, we are at the highest end of that after three quarters.

Okay. All right, thank you.

Chris Cooley, Stephens.

If I could, maybe just following on to Jim's question there, on the July 31 call after the second quarter -- I realize you don't give guidance, but you referenced that your corporate objectives were still 8% to 10%, but you thought that corporate growth would accelerate in the second half versus the first half of the year.

And clearly that wasn't the case in the third quarter, and so while I realize you don't give guidance, do you still expect total corporate growth to accelerate in the second half versus the first half? And if not, kind of help walk us through what changed over the last 60 days, outside of the deterioration that you saw in Korea in particular?

Thanks, and I've got a follow-up after that in particular.

Sure. Well, obviously, that's a pretty big deterioration. I think if I had told you when the quarter started that Korea would be down nearly $1 million in sales and we'd have a $400,000 negative impact on the yen, you probably would have ended up about where we finished up, in terms of projecting where we were.

As I just said to Jim, the impact of the yen looks like it may still be a factor on the negative side during the fourth quarter. After the end of the third quarter, we thought we started to see it going back to the [$1.02], [$1.03] range, but I think as of today, it's still crept back up to [$1.09]. So that will be an impact during the fourth quarter.

We know what we know; we don't know what we don't know. And as we look at fourth quarter going forward, we are anticipating a good quarter overall and we are anticipating to run that against our annual objective that we established at the beginning of the year.

Okay. And then Steve, I want to thank you for this slide that you had in here on gross margin. That was a great bridge there in terms of the different puts and takes and how it affected the quarter.

Could you just maybe talk to us a little bit thematically here as we look forward? If hypothetically, in-market demand in Asia Pac for the refractive procedures in total remain under pressure here, how does this -- and you continue to see the demand that we have seen so far, which is very favorable in the IOL side, how would this kind of -- with that backdrop, how would that affect the prior guidance that the Company gave -- or targets, I guess I should say that the Company gave on gross margin.

And maybe what's more realistic now as we look to 2015? I don't -- realize you don't have objectives out there for 2015 yet, but kind of help walk us through -- walk through that.

Right, yes. We don't have those objectives yet set, but we do expect for our unit costs on the ICL to go down, because to a large extent, the higher costs have been attributable to the winding down of need out and the ramp-up in the US.

And as I said, the trend in the US on ICL unit costs has been positive and positive in terms of our labor content, our materials cost, and even on overhead. We're still going to have the headwinds with the higher IOL mix and also the injector system volumes. Those are going to continue to be drags on our margin going forward. I would anticipate that our ICL average selling prices will continue to improve.

And then if I may, just another quickie and then I'll get back in queue.

And Chris?

Yes.

Let me just jump in on that, too, just add one thing. I think -- as -- and we're going through the process right now with looking at the IOL demand for next year, along with our third-party partner in making the lens. That will have an impact on how we look at 2015.

Obviously, something like Toric approval in the US would also have an impact, so I think after we finish the year, we will set down and look to reset overall the expectations for gross margin in the year, but as we look in the overall set of circumstances, taken aside for a moment the IOL expansion, I think we still see what we projected for the rest of the line to be in line with what we said in the past.

And probably what's going to happen, though, is our IOL growth factor is going to go higher than we anticipated, as we've seen this year.

Okay. And then I guess just finally, when we look at the coming quarter -- or I should say the current quarter, the fourth quarter, kind of help us think about the materiality of stocking versus in-market demand, because clearly, you're going to now have the ability to do some initial shipments to your distributors in China.

You have preloaded ramping up in Europe and potentially maybe some better shipments there in the fourth quarter typically, which we've always seen in Korea in anticipation of the March quarter.

Is that enough to help you get to your corporate objectives for the full year or do you have to have that, I guess, to get to your corporate objectives on topline growth for the full year? And I will get back in queue. Thank you.

Chris, jump back in. I don't know if I understand your distinction there at the end. Do we have to or is -- yes. You said do we have to or is it enough?

I guess what I'm trying to discern is are you banking on that in addition to in-market growth to reach those corporate objectives of 8% to 10% or would that be additive beyond just what you are seeing in the in-markets to get you to those corporate objectives of 8% to 10%?

Okay, and when you say banking on, what are you talking about? Are you -- what -- are you talking about stocking up on CentraFLOW in China?

Most definitely as well as preload in Europe and other places where you now have more capacity?

The answer is we're not banking on it.

So just to be clear, you are assuming you don't see traditional 4Q stocking to get to your corporate objective of 8% to 10% for the year?

We -- it's the normal order patterns. But if you're talking about preloaded and if you are talking about CentraFLOW and you are asking are we banking on that, no, we're not. But we do project normal order patterns.

Understood. Thank you.

(Operator Instructions) And at this time, I show that we have no questions in queue. I would like to turn the call back over to management for any closing comments.

I would like to thank all of you for your participation today on the call and the webcast. We look forward to providing you with an update on our progress early next year. Thank you very much and good night.

Thank you for your participation in today's conference. As this concludes your presentation, you may all disconnect. Good day, everyone.