Jul 31, 2013
Executives
Doug Sherk - IR, EVC Group Barry Caldwell - President and CEO Deborah Andrews - CFO
Analysts
Chris Cooley - Stephens Kayla Crum - William Blair Jack Fraser - Seamark Capital
Operator
Good day, ladies and gentlemen and welcome to Second Quarter 2013 STAAR Surgical Earnings Conference Call. My name is Jason and I will 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) This conference is being recorded today. I would like to turn the conference over to your host today, Mr.
Doug Sherk. Please proceed sir.
Doug Sherk
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 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 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 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.
Those 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 and 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 let’s turn the call over to Barry Caldwell, President and Chief Executive Officer of STAAR Surgical.
Barry Caldwell
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 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 will 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 Visian 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% growth during the second quarter, so we can check that one off as accomplished. I will present our thinking about this metric going forward later in my remarks.
One of the continuous 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 our sales in Japan increased 38% on a constant currency basis which is very well though when translated to U.S. 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, it averaged 98.6. That's a 23% reduction in the year-over-year period.
You can also see the value of 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 first quarter of 2012. For the quarter the global sales growth in U.S.
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 $10 million mark for the second time in our history, establishing a new quarterly sales record.
Actually this was the first quarter that we have 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 Visian ICLs have grown 27% in revenue during the first half. Now let's look at the key markets.
We increased in all eleven targeted 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 versions. 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 has been introduced in two key markets. Currently that's Korea and India, which we expect; we have done the marketing launch which you’ll hear later and we expect to get approval in a week now, in the Indian market.
ICL sales in North America increased by 9%, sales in the U.S. 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’ve said again because it grew 7% during the first quarter.
As you know we have hired two star employees in the market and 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 a 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 5 major cities.
We continue to be encouraged by our success in our third largest market this quarter, the U.S. 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 the best flat, if not down in U.S.
during the first half. We continue to make progress in the fourth largest market in quarter Spain.
Sales increased a 127% in the quarter and up a 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 makeup 50% of the total ICL's sales in Spain.
We are also in a process of hiring an unplanned additional sales reference in Spain to expand our coverage in this market. Finally in India, which was our 5th largest ICL's 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 1500 surgeons in attendance. I was present and had the opportunity along with Don Todd, 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 the ceremony in front of all attendees.
Dr (inaudible) from the Middle-East performed a 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 our key markets. In these markets ICL revenues for the first six months grew 29%, while units grew 23%.
Visian ICL also increased in all three regions during the first six months. In Europe 53% in dollar 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 are making some very nice market share games in the refractive surgical segments.
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 U.S.
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 in backorders from our European customers that compares to the 900,000 in that quarter 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 counts in Japan, in which we offer a consignment of product. During the second quarter we had reduced by over 50% the number of accounts in which we have a consignment of KS IOLs from the first quarter.
We have also had to temporarily suspend our allocations our product to China until we have better product supply. The reduction to China was quite a hit during the quarter.
It represented as over an 800,000 decline in IOL sales in the market comparing the prior year second quarter and a $350,000 decline sequentially. Obviously if not for this supply related issues and weakening value of the Yen, our IOL sales would have shown a very nice growth year-over-year.
On the bright side, we shift our first 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 metrics. Growth margin metrics 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 the inventory for the second half can be increased.
The volume of those injector 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 this quarter.
Additionally the continued weakening value began, had a negative impact on gross margin as our IOL's are now manufactured in U.S. and Deborah will speak more to this topic when she speaks.
We remain confident though that we will achieve our gross margin metric 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 margins during the second half. Because it is (inaudible), and because we did generate a slight improvement in gross margins in the second quarter as compared to prior year, we will mark this metrics has 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 was $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 in making progress with our project comment, while a product quality and supply are maintained. Our teams continue to execute successfully to this metric during the second quarter, though we had 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 projects. First, within the month of June, which was the last month of the quarter we manufactured 100% of all IOLs in the U.S.
21% of all Visian myopic ICLs taken through final inspection were manufactured in U.S. And third, the validations for the Visian Toric ICLs were successfully completed during the quarter though we have not yet shipped the first Toric ICLs from US, product supply and qualities have always been a key drivers in evaluating our progress during this manufacturing consolidation project.
Several factors has driven us to extend the completion date for the project beyond the end of this year. First the demand for ICLs is 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 Visian ICL products was down to about 5000 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 have planned all along for the manufacturing startup of the version 5 preloaded 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 forecast of demand for the second half of the year is higher than originally planned and there is a potential for increase demand of Toric ICLs in the coming months. For these reasons, we felt it was proved to extend the completion of project to the first half of the next year.
Deborah will provide some additional details in her remarks. Finally I would like to comment on our current outlook for the remainder of the year.
We have executed to a solid start for the year, on all four of our key metrics. The revenue growth has exceed our expectations despite the headwinds of the worsing value of the yen and the lack of IOL supply for our new KS IOL line.
As we look forward to remainder of the year, we expect these two headwinds to persist and it’s hard to gauge at what level. In addition, we have benefited the first half by having an direct distribution model in Spain with our prior year comparison to distribute our models, now during the second half of the year that comparison will be eliminated.
On the positive side for this second half, we do have new markets with the ICLs CentraFLOW is available in 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 a additional markets during the second half, there may have 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 would like to turn the call over to Deborah for more review of the second quarter financial highlights.
Deborah Andrews
Thanks Barry. 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 result and some key first half results. As we have discussed the continuing decline in the value of the yen resulted in 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 categories. 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 got worse since the end of the quarter making it difficult to project to where it might go in the second half of the year. The strength of dollar also had a negative impact on gross margin as I will discuss this later.
Sales for negatively impacted by exchange expenses 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 was 1.5 Million as compared to 1.2 Million during the first half of 2012.
As Barry mentioned earlier we are extending the completion date for the project to the first half of 2014. In order to build supply over Visian IOL ICL products, so we are 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 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 rates, we cannot predict at the moment what that will be until we are more certain about the timing of various elements of the plan. We do hope to be able to provide some levels of guidance about this on the third quarter call.
Additionally, effective tax for the quarter was impacted by the GAAP requirements to exclude loss jurisdictions from the calculation during interim periods. This hasn’t been a factor historically since Switzerland was our only profitable subsidiary, but now that Japan has also profitable we must also include their profits while leaving out the US (inaudible) company.
The effect of this is to expect the results in higher rates during interim periods and lower rates in the fourth quarter as we adjust fee appropriate effective tax rate of 45% for the year. During June, a 100% of our IOLs and 21% of Visian ICL passing final inspection were manufactured in Monrovia.
We now expect that during the month of December, a 100% of bio health, two-thirds of ICLs and one-third of TICLs will be manufactured in the US. We’ll also be manufacturing ICLs in Switzerland during this time to replenish our inventory level 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 would go to approximately 10%. We continue to anticipate generating savings of more than a $100 million for Project Comet for the aggregate period of approximately 2014 to 2021 and that we will be able to utilize all of our current NOLs.
Gross profit margin for the quarter were 69.5%, the product mix during that 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 systems sales to a third party supplier for buildup of their acrylic preloaded product 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 lines gross margins. The negative impacted 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 these sales to increase during 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 are now making all of our silicone 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 were 54.6% and without impacted Yen it would have been 57.1%.
This add about a 250 basis point negative impact on IOL margins for the quarter and then 8 basis point impact on total gross margins. Finally, we have some manufacturing yields and efficiency issues during the quarter which were not unusual once 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 facilities scheduled to the end of the third quarter. Now moving on to our non-GAAP measures.
To (drive) investors with a better basis on which they 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 will go over some key financial highlights of first half.
Overall our results for first half of the year was very solid and encouraging, revenue growth was 15% on a US dollar basis and 21% on constant currency basis. Visian ICLs grew 27% during the first half driven by the success of our CentraFLOW technology.
Gross margin increase 10 basis points 69.9% or 71.4% without the low margin injector sales for KS IOL line. Operating income was 1.8 Million which was at 1.7 Million increase over the prior first half, earnings before tax were 1.7 million which was at 1.4 million increase over same period last year.
And finally our GAAP net income was 749,000 which was moved $1 million improvement over last year. Our non-GAAP net adjusted income was $0.13 per share as compared to $0.07 per share.
This concludes my comments. I would like to turn the call back over to Barry.
Barry Caldwell
Thank you, Deborah. Good job.
And I would 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 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 received a suggested protocol response from the FDA during the quarter for the CentraFLOW technology in US. Discussion continues on the terms of that protocol and we hope to have finalized shortly so this clinical trial in 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 FBDA 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 can be scheduled, at this time we do not know when that day will be but the ball is currently in our court to complete the work requested by the agency. Now the new products is in 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 Stevens 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 led Doug know. Operator with that in mind, we are ready to take questions.
Operator
(Operator Instructions) The first question comes from the line of Chris Cooley with Stephens. Please proceed.
Chris Cooley - Stephens
Congrats on a great quarter and a really great execution to the first half. Two quick questions and I will hop back in queue.
You talked to us about the FDA, right now there is a September 19 and 20 panel, scheduled for the Opthalmic Devices Panel, is that realistic, I guess maybe just pressing here a little bit for maybe if you can give us some color about what you have to do and the review time before you can potentially be slated for a panel meeting and then I have one quick follow up.
Barry Caldwell
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 have 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 is 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.
Chris Cooley - Stephens
Fair, enough. Had to try.
If I could switch over then just to domestic market, and the growth that you realize there in the Visian ICL, one of the only public remaining LASIK providers reported results for the quarter, (inaudible) they have shown really continued softness; could you talk to us little bit about the growth you saw in the military as well as in the civilian channel and how those trends are evolving, it just really started to build, looks like at the end of the year, last year, just wanted to get a better understanding of kind of, where we are in the adoption continuum. Thanks.
Barry Caldwell
Yes, okay. Good point and you are right, I think every signals we get from industry and surgeons 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 have had good success in both military and the civilian sector during the first half, second quarter more growth which skew towards 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 is now back, I think also what we see is, we’ve see increased growing metric from our social media work. We are getting a lot more leads generated and our initial work in this has been driven here in the U.S., we are seeing more leads and we are 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 is training factor there involved to make sure that happens. Now in checking back to those 50% that weren’t contacted, 45% still have an interest in learning about the ICL.
So, I think as we continue to move forward, we are going to try and experiment more things and we will learn more. But right now I think we are happy with where we are and how we are situated, and also potentially opportunity for more growth in the second half and in the next year.
Chris Cooley - Stephens
Can I squeeze one quick follow up along those lines and then I’ll get back in the queue?
Barry Caldwell
Yeah.
Chris Cooley - Stephens
Just when you look at the domestic growth in the quarter, can you parse out for us, either incremental volume growth with an existent Visian ICL implanters versus growth with new implanters? Basically trying to get a feel for if you are seeing the physician base how you’re seeing that evolve here in the U.S.
in the civilian sector?
Barry Caldwell
Yeah, in the civilian sector, we have 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 have been.
Now into 2014 depending upon what happens, our tactics may change a little bit. We may look to expanding more surgeons into the Visian ICL line.
Operator
And your next question comes from the line of Matt O’Brien with William Blair.
Kayla Crum - 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 hires and the recent launch of the Visian CentraFLOW technology. When do you think that we really see those two initiatives begin to contribute to the top line?
And then can you just touch on the initial feedback that you’ve heard in Korea following the launch?
Barry Caldwell
Yeah, good question, especially since I’m still sitting here jetlagged from being in Korea over the weekend. But I’m really glad I went.
I saw firsthand what was 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 Jeon has 200 screens in Korea for a three month period.
As a matter of fact, I was told while I was there that we have even had some patients call in and asked for the ICL with no PIs. It is kind of amazing to me that consumers could understand that concept, but particularly in a market where we have done quite a few ICLs for many years, maybe it’s a little better to understand that patients are aware that PIs are associated with ICLs and now they are not.
Another very interesting developing trend I saw in Korea in two different accounts they are starting to promote what is 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 Jeon does carry some inventory, and they have made some commitments to certain accounts to 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 and develop the same kind of strategy. So it’s not something 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 the year, we are 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 common decision to push back is we are expecting very high demands 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 are going to see continued good growth in third quarter and stronger growth fourth quarter in Korea.
Kayla Crum - William Blair
Okay, thanks. That’s helpful.
And then, just on the IOL side, you did mention the supply issues there and I’m curious as to how maybe how long you expect that dynamic to linger?
Barry Caldwell
It’s a really good question. I think we have very good communication with the manufacturers.
As a matter of fact, in the two and a half weeks, I’m going to go back and visit with them again. They have given us some higher numbers, some pretty good numbers I would say, for second quarter in terms of what they think they can make.
We have not baked that into our equations yet for the second half of the year. But if they are able to produce what right now they are saying they will produce, it will be very good news for us in the second half.
Operator
(Operator Instructions) And at this time there are no further questions. I’ll turn the call back to the management for final remarks.
Barry Caldwell
Great, thank you operator. And I would like to thank all of you for your participation on the call today.
Oh I’m sorry; I’ve been told there is someone who wants to ask a question. Operator?
Operator
We do have a question from the line of Jack Fraser with Seamark Capital.
Jack Fraser - Seamark Capital
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 preloaded nanoFLEX.
I realize your rating CE mark for Q3 for the new version, but then the preloaded is going to be probably the big impetus to a really big ladder of growth. Can you just give us a little further detail on what you think might play out of the timing for that?
Thanks.
Barry Caldwell
Yeah I will try to Jack. And thank you for your comments.
First of all, we want to make sure we get the version 5 ICL preloaded product across the finish line with CE mark and in the production and out the door. Our engineers have already preliminarily looked at the preloaded 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 would start to see preloaded nanoFLEX Toric and also some preloaded nanoFLEX IOLs into the market during next year.
Jack Fraser - Seamark Capital
Okay that’s helpful. 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.
Barry Caldwell
Yeah, it’s fair to say, and that’s what our engineers through their initial testing have found that they believe it’s very compatible for the nanoFLEX IOL the same technology we have been using on the Visian ICL.
Operator
And we have no further questions.
Barry Caldwell
Okay, thank you again, operator. 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 EBC. And have a good evening; we look forward to an update on our third quarter progress on October 30th.
Thank you.
Operator
Ladies and gentlemen that concludes today’s conference. Thank you for your participation.
You may now disconnect. Have a great day.