Oct 31, 2012
Executives
Doug Sherk - Investor Relations Barry Caldwell - President and CEO Deborah Andrews - Chief Financial Officer
Analysts
Matthew O’Brien - William Blair Jason Mills - Canaccord Wealth Management Chris Cooley - Stephens Bruce Jackson - Northland Capital Markets Raymond Myers - Benchmark Jim Sidoti - Sidoti & Company
Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the STAAR Surgical Third Quarter 2012 Financial Results Conference Call.
During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.
(Operator Instructions) This conference is being recorded today, October 31, 2012. I would now like to turn the conference over to Doug Sherk.
Please go ahead.
Doug Sherk
Thank you, Operator, and good afternoon, everyone. Thank you for joining us for the STAAR Surgical conference call and webcast to review the company’s financial results for the third quarter which ended on September 28, 2012.
The news release announcing the third quarter results crossed the wire about half an hour ago and it’s 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, I would like to review the slides that accompanying 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 any projections of earnings, revenues, sales, profit margin, expenses, cash or other financial statements.
Any statements about plans, strategies or objectives of management for future operations or prospects for achieving such plans, any statements concerning proposed new products, including expectations for success of the ICL, KS-SP IOL, nanoFLEX Toric IOL or other products in the U.S. or international markets, government approval of new products or developments or other future actions of the FDA or other regulators, the outcome of product research and development or any clinical study, any statements regarding future economic conditions or performance, the size of market opportunities, statements of beliefs and any statements of assumptions underlying any of the foregoing.
These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks are described in the Safe Harbor statement in today’s press release and in the Risk Factors section of our annual report on Form 10-K, investors and 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, 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, 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. Thank you for joining us today for review of STAAR Surgical progress during the third quarter 2012.
With me today on the call is Deborah Andrews, our CFO. Deborah joins me and entire STAAR organization in offering our thoughts and prayers to all of you on the call today who have been impacted by Sandy.
We know that watching the storm on television doesn’t come close to understanding the devastation and loss that has occurred in the Northeast Corridor and we wish everyone as rapid recovery as is possible. I’ll start our call this afternoon with an overview of the quarter and also a review of our 2012 key metrics in light of the third quarter results.
Deborah will provide a detailed look at our third quarter financial results and discuss progress with our manufacturing consolidation project, which we call project common. Before we take your questions, I will provide some additional operational updates.
Now, let’s look at our overall revenue growth in the quarter, which came in at 4%, which drove our sales to $15.9 million in the quarter. On the upside, the Visian ICL revenue grew 15% to establish a new quarterly revenue record for the product line.
ICL sales were 57.4% of total sales, which was also a new all time level. On the IOL side of our business, sales were down 8%, which netted our increase and total core revenues to 5% for the quarter.
As we have planned, the defocus other product category continue to decline at a rate of 11% during the quarter. While our revenue growth was less than we would have liked, we did execute very well in several areas during the quarter.
This include, continued expansion of our gross margin level, generating cash from the business while making key investments for our future, ending the quarter with nearly $20 million in cash, good progress on our manufacturing consolidation plan, as well as enhancing our management organization. Now, let’s drill down on the revenue results.
First, on the ICL slide, or side, this slide illustrates the quarterly growth for the ICL since mid-2005. The third quarter sales of $9.1 million represents a new record quarter for the Visian ICL product.
The growth in sales was in double digits in all three of our region. Our European region grew ICL sales by 17.5% during the quarter, Asia-Pacific region grew 15.5% and our North American region grew 11%.
Our overall ICL growth for the quarter was 15%, which was less than we had anticipated, sales in Korea, which I’ll show in a minute, decline by 15% during the quarter and will get to more detail on those factors behind those developments in just a moment. However, excluding Korea, Visian ICL sales increased by 26% during the quarter and this would have been line with our Visian ICL metric for the second half.
Now, let’s move to the top 11 targeted markets on which we focus and look at the top performing markets during the quarter. This slide depicts ICL revenue in each market during the third quarter of the past three years.
Overall, ICL sales grew 17% in these 11 focused markets. First in Spain, the move to a direct sales model led to a 72% increase in revenue from that market.
ICL unit growth was basically flat during the quarter, but the move towards direct model resulted in our ability to generate revenue at the customer level and thus the large increase. The mix of Toric ICLs to basic ICLs in this market declined during the quarter, which held down the growth rate somewhat in revenues.
During the last week of September, we attained the Annual Spanish Opthalmic Meeting at STAAR that’s the first time in our history we’ve done that. We hired a new direct sales rep and plan to hire another during this quarter.
As we are confident we can return this market to a unit growth, a market with additional focus and our new products. Next in Japan, revenues grew 56% during the quarter, while units more than doubled.
This reflects increases from the two large refractive centers in Japan. Those centers began using the Visian ICL with CentraFLOW technology during the quarter.
In China, while the impact of the negative press coverage on LASIK still lingers in the market, we did start to see a rebound in ICL growth in that important market. Let’s look at the China growth rates in a little more detail for a moment.
This chart shows the excellent quarterly growth rate that we’ve experienced in China over the past two and half years. Now you can see the dip last quarter due to the negative LASIK media coverage.
Yeah, the second quarter growth rate is reflected on this chart as it was flat. According to our research, this coverage resulted in a significant slowdown in all refractive procedures in the market during the second quarter.
As we said on our last call, we believe that we’ll take awhile for growth to recover in China. While the third quarter ICL growth was 52%, it’s not back to our average quarterly growth rate.
Weekend before last, we sponsored an advance ICL Users Meeting in China and the feedback from surgeons there almost unanimously. Was that the majority of patients coming into the office are still asking serious questions about LASIK complications.
This question should help drive the ICL return to our past growth rates more quickly than LASIK. Now, let’s return to the target market -- market growth rates.
Another upside highlight for the quarter was U.S. Our ICL sales increased in the U.S.
by 11.5% due to increase promotional activities, including initial benefits from our social media promotional program. Sales to private sector accounts increased by 20%, which is impressive, compared to the reported results of other refractive technologies during the quarter.
For example, LCA-Vision reported yesterday, their refractive revenues declined 9% during the quarter. Now in the military side of ICLs, there was still a slight decline from prior year was 12% despite having return some of the military personal to the U.S.
During the quarter of last year, there was a large year end order by the military, providing us with somewhat of a higher comparable. Military ICL sales did increase by 92% as compared to the second quarter of this year.
We do expect to see continued improvement in Military ICL sales in the fourth quarter due to surgeons returning from overseas duty and the expansion of surgeons using the Visian ICL. ICL sales in India continued to grow nicely, reflected by the 24% increase and though smaller markets today, you can see good growth rates in Italy at 64% and U.K.
at 17%. Now, let’s look at Europe proper if you would, ICL revenues in Europe grew by 29% during the quarter.
Approximately 82% of ICL shipped to Europe were the CentraFLOW technology as compared to 56% of shipments during the second quarter. We have now successfully implanted well over 7,000 ICLs with CentraFLOW technology.
There were over 100 presentations on the ICL during the week of the European Society of Cataract and Refractive Surgeons meeting during September in Milan. Many of these were on the benefits of this new technology and all were quite positive.
As you know, we invoice a 10% premium on the CentraFLOW technology. Since the introduction of the CentraFLOW, however, the euro has declined by 12% and since we sell ICLs in Europe in euros, we have yet to see the pricing premium reflected in our overall results.
The negative impact from the euro was the highest during the third quarter thus far. Now, let’s turn to Korea.
Sales in Korea came in lower than expected for the second quarter in a row. The third quarter was the first time that we have seen the actual demand for end -- from end customers to large distributors decease on a year-over-year basis.
To get our growth reunited we are in the process of hiring a direct employee in Korea to work with our distributor day-to-day to get ICL growth there back on track. Additionally, I’m headed to Korea tomorrow with our President of Asia-Pacific to participate in a strategic session with our distributor over the weekend to review plans to grow the ICL in Korea.
While we’ve been very successful in Korea in the past, our market share is still only 13% of all refractive procedures in the market. Along with our distributor, our mutual goal is to achieve 25% in this key market.
We should have the Visian ICL with CentraFLOW technology available in Korea in the next several months. With additional focus and support from STAAR, and the new technology, we believe with our distributor, we can capture the opportunity we see in the market.
Now let’s talk about the IOL business. Third quarter IOL sales decreased 8% with IOLs down in all three regions.
The chart at the bottom of the slide shows that decline in three of our four top IOL markets. Our major IOL competitors have reported their third quarter results and they seem to indicate that overall global cataract procedures declined during the third quarter as compared to prior year.
Novartis Alcon reported their surgical sales declined 2%, citing weakness in procedures. Additionally, Abbott AMO reported their surgical sales declined 4.3% during the quarter.
Neither company reports their specific IOL results any longer. While decline in revenues on IOLs was a $0.5 million, the decline in gross margin was half that as we increased our gross margin again during the quarter to 60% from 59% a year ago.
Our average selling price of IOLs had a slight decline globally during the quarter, but there was a continued increase in the U.S. selling price.
Our sales in Japan were lower-than-expected partially due to the continued lack of the KS-SP Preloaded Single Piece Acrylic IOL, which was launched late in the quarter. We have seen a very strong response for the KS-SP initial limited launch in Europe, and European distributors have significantly increased their forecast for the remainder of this year and 2013.
Our supply will still be tight, so we don’t anticipate being able to meet their increased demands in the fourth quarter, but anticipate been able to do so during the first half of next year. Another factor impacting our IOL sales is nanoFLEX Toric IOL, as we are still in the limited launch stage awaiting initial clinical marketing results, which we now expect to have completed during the fourth quarter.
Here is an update on our progress against our second half key metrics. The red arrows reflect what we believe we felt short, green, where we believe we achieve and the yellow is the tossup.
The first metric was to achieve double-digit revenue growth, with 4% growth in the quarter, this is obviously not achieved. Although, our current expectation is to exceed our third quarter revenue growth rate, during the fourth quarter, exceed the third quarter rate, our current estimate is that the growth in the second half will be short of this double-digit objective.
The second metric was to achieve 25% growth in Visian ICL revenue. Well, with 15% growth in ICLs during the third quarter, this was not achieved during the quarter.
Again, we expect strong ICL revenue growth during the fourth quarter. Our current expectation for the second half Visian ICL revenue growth is less than the 25% metric.
The third metric is continuous expansion of gross margin to achieve 71% for the full year. Our gross margin in the third quarter was 70.4%, which was a 190 basis point improvement over prior year.
We believe we’re still on track to achieve our annual target of 71% or above right up against it. Our fourth metric is to achieve profitability in Q3 and Q4.
While we were profitable on a non-GAAP basis, we were break-even during the third quarter on a GAAP basis, included over $700,000 of manufacturing consolidation expenses. Those expenses are higher than we had previously anticipated by about $200,000, as we moved forward from non-cash expenses that were originally planned in 2013.
If not for that forward movement, we would have been profitable on a GAAP basis. That’s why we mark this with an arrow neither up or down, a tossup.
We believe that our fourth quarter earnings will result in profitability for the second half and the full year on a GAAP basis, including all expenses. The fifth metric is to implement our manufacturing consolidation with no disruption to customer and product quality or supply requirements.
This metric continues to be achieved and we believe we will continue our progress on this objective during the fourth quarter as well. Deborah will discuss key financials and manufacturing consolidation in more detail.
Following her review of our financial details, we will return to discuss our key operational progress. Now, I’d like to turn the call over to Deborah for more thorough review of third quarter highlights.
Deborah?
Deborah Andrews
Thanks, Barry, and good afternoon, everyone. Since Barry has already discussed revenue highlights, I’ll be focusing my comments on operating expenses, our gross margin expansion, GAAP net loss and adjusted net income, and cash.
I’ll close with an update on our manufacturing consolidation project. First, let’s review our operating expenses.
Our total operating expenses including manufacturing consolidation expenses increased 15% to $11.3 million. Manufacturing consolidation expenses were over $700,000, an increase of $600,000 over the prior year.
Our operating expenses before manufacturing consolidation expenses were $10.5 million, up 10%. This increase was primarily due to our investment in global marketing and selling expenses, including the addition of 14 new employees and $400,000 related to the change of distribution in Spain to a direct model.
We estimate the annualized costs of the headcount additions will be approximately $2 million and the expense associated with the transition in Spain will continue through February 2013, at which time, the normal logistics cost of being direct in the market will begin. Total operating expenses also nearly increased $300,000, due to non-cash increase in our stock-based compensation.
Our GAAP net loss was break-even on a per share basis, which was the same result as in the third quarter of last year. Through the nine-month period, GAAP net loss was a penny per share as compared to net -- GAAP net income of $0.04 per share in the prior year.
Moving on to our gross margin results. Our gross profit margin was a record 70.4%, up 190 basis points over Q3 2011.
This improvement in gross profit margin is primarily due to improved ICL mix, but is also due to improved ICL and IOL manufacturing costs, and higher ICL average selling prices. ICL revenue represented 57% of our total sales compared with 52% in the third quarter of last year.
We continue to expand our IOL gross margin as well. Overall, IOL gross margin were 60%, which was a 100 basis point improvement over the 59% in Q3 of 2011.
Overall, gross profit margin of 70.4% was also a sequential improvement over the 69.8% we reported in Q2. Moving on to our non-GAAP measures to provide investors with a better basis from which to compare results and understand our business, we also report net income on an adjusted basis, which excludes manufacturing consolidation expense, gain or loss on foreign currency transactions, fair value adjustment of warrants and non-cash stock-based compensation expense.
If we exclude these items, our adjusted net income for the quarter was $1.3 million or $0.04 per share, compared to an adjusted net income of $1.2 million or $0.03 per share in Q3 2011. Our adjusted net income for the first nine months of the year was $3.7 million or $0.10 per share, as compared to adjusted net income of $2.8 million or $0.08 per share in 2011.
We ended the third quarter with $19.8 million in cash and cash equivalents on the balance sheet. This compares to $17.5 million attached at the end of Q2 2012 and $16.6 million at the end of Q4 2011.
We generated $2.5 million in cash from operating activities in the third quarter, despite the increase investments associated with the manufacturing consolidation, including investments in inventory and our sales and marketing expansion. Moving on to our manufacturing consolidation project, which is progressing on schedule, our expenses during the quarter were about $700,000.
We now expect to spend about $2.5 million in total during the year, up from our previous estimate of $2.3 million. This is due to moving forward severance accruals, a non-cash item in 2012 originally budgeted in our plans for 2013.
We began manufacturing non-sterile silicone IOLs in the U.S. for Japan during the quarter and expect to be shipping all non-sterile silicone IOLs for Japan from the U.S.
during the fourth quarter. We remain on schedule to start shipping the first Visian ICL from the U.S.
during the first quarter of 2013. Also, we are very pleased that several employees from Switzerland and Japan are willing to take on special assignments in the U.S.
for period of one month to a year to further assist in the transfer activity. We continue to believe that this transition will be a substantial boost to our ability to drive leverage.
We expect the manufacturing consolidation to improve our cost of goods and once fully implemented, combined with our continued improvements in product mix and selling price. We expect to expand our gross margins to nearly 80%.
We believe that it will improve our tax rate from 50% to $10% beginning in 2014. And we expect the consolidation projects including the impact of our tax strategy will resolve in anticipated savings exceeding $100 million for the aggregate period of 2014 to 2021.
This now concludes my comments and I’ll turn the call back over to Barry.
Barry Caldwell
Thank you, Deborah. Now, let’s review some additional key operational updates, which should help drive our results.
First, on the product development area, we continue to make progress on key projects which will help drive both the ICL and IOL growth in 2013, as well as 2014. This include, good progresses made under Visian for ICL Version 5, which will be preloaded and include an aspheric optics.
This project is on track to commercialization by mid-2013. Secondly, our engineering team has developed some new concepts on the Visian ICL V6 or Version 6.
These concepts are designed to make the ICL more forgiving, which would allow for better sizing accuracy. These concepts could lead to some new patentable position.
The technology also -- V6 technology is also designed to incorporate a multi-focal or presbyopic optic. We are working on this technology internally as well with several external companies and we can see some very good possibility.
Our nanoFLEX Toric IOL for Europe is taking longer to rollout than we had planned. This is mainly been due to surgery schedules during the past quarter.
We expect to have those marketing evaluations completed during the fourth quarter and have good expectation for this product next year. Finally, we’ve had a setback flex on the nanoFLEX II IOL for the U.S.
The FDA did not agree with our position that this was an annual reportable change. We plan to do more -- a more thorough detail on our approach and an official reply to the FDA shortly.
This could, however, turned out to be an OUS or only outside the U.S. product at least initially.
Now, let’s talk about some of the highlights at the recent ESCRS, European Society Cataract & Refractive Surgery Meeting, which was held in Europe. As we noted before, there many presentations on phakic IOLs, including over 100 on the Visian ICL during the week.
There were a lot of key learnings from the surgeon’s experience with the technology. The overall highlight was the new ICL with the CentraFLOW technology.
The feedback from their clinical experiences include things like, better vaulting of the wins, lower complication rates, better overall visual results and of course, happier patients. There was discussion and concern regarding the updated Novartis Alcon, phakic IOL DFU.
Surgeons are now recommended to examine endothelial cells for each patient with a Cachet lens three times in year one and twice per year thereafter. There was also no display of the product in their boot at the meeting.
Also an interesting question was raised during this session, if one believes that the cornea is a potential location for presbyopic lens then why would someone have LASIK performed today. Overall, these sessions were very positive for the Visian ICL technology.
Now some organizational updates, we also made progress during the quarter on enhancing our organization that helped drive, enhanced top and bottom line growth. As Deborah mentioned, we’ve added 14 new sales and marketing personnel, and they are quite talented.
Their talent will become evident as you see their results. We also added a new position to the company, that our Vice President of Business Development.
This position is to focus on external opportunities to grow our business within our area of strategic focus. We were fortunate to have an experienced and talented individual, Craig Felberg already within our organization to assume this new role.
Craig’s transition to this new role allowed us to appoint a new Vice President of Research and Development and Regulatory. Again, we were very fortunate to have an individual in our organization with a very strong technical background, Robin Hughes.
Robin Hughes is already making a difference in both the R&D and Regulatory organizations and cooperation and working together. This allowed us to bring in a new talent to the position of Vice President of Global Marketing.
We were fortunate to recruit a very talented and experience marketing executive in Jim Francese. Jim began making an impact on day one.
Additionally, we added Charles Slacik, former Senior VP and CFO of Beckman Coulter to our Board. He brings 35 years of financial experience to our Board.
STAAR had a solid third quarter. So our revenue growth was below our expectations.
We did see progress with good IPO growth across all regions. We do face some challenges in some of our key markets as we discussed but we’ll continue -- but we do continue to gain market share in most if not all of our targeted ‘11 market.
We’ve been at a competitive disadvantage in IOLs, but we expect our new products will help change that. We expect to see our revenue trends here to improve during the fourth quarter and during next year.
The third quarter in this year shows the ability of this business that generates significant cash. Despite major investments in our future, we are generating good cash and have the largest cash balance in our history.
Those investments and additional talented sales and marketing personnel will help produce increased revenues in 2013. Our investment in the manufacturing consolidation will generate continuous expansion of our gross margin and significant benefit -- tax benefit beginning in 2014.
We look forward to providing update on that growth progress along the way. On our final note, we will be presenting at an investor and analyst breakfast meeting during American Academy of Ophthalmology in Chicago on Saturday, November 11.
We’ll also be at the Stephens Fall Conference on November 14th in New York city and the Piper Jaffray Healthcare Conference on November 27th which is also in New York city. And with that, we’re ready to take your questions.
Operator, please open up the line for that.
Operator
(Operator Instructions) Our first question is from the line of Matthew O’Brien with William Blair. Please go ahead.
Matthew O’Brien - William Blair
Good afternoon. Thanks for taking the questions.
Barry Caldwell
Hi Matt.
Matthew O’Brien - William Blair
Hey, Barry, just was hoping for a little bit more color on Korea. You know the commentary about end market softness is something that we haven’t heard before.
And it’s a little bit concerning. Is there something more there as far as follow-up from patients from the couple of years ago that are causing some hesitancy among surgeons at this point.
And then when you talk about getting up to 25% from 30% penetration today, what gives you the confident. I understand 4c is a very eloquent product but is there something that you’re hearing specifically from your distributor and from the surgeons that they’ll give you that confidence?
Barry Caldwell
Good question. And it is first time, that we’ve seen end market demand being less than a quarter than the prior year.
Certainly, since I have been here but I think that’s true in the history of our sales there in Korea. We’re not hearing anything negative about ICL or results from the ICL.
It’s actually just the opposite but there is some belief here. And again as I said I’m heading to Korea tomorrow and we’ll be meeting with our distributor for a couple of days going through exactly where they are.
So I’ll gain more knowledge then and should have more knowledge to share in the breakfast meeting in Chicago that’s on Saturday, November 10. I think I said 11th as I was speaking.
Our distributor in Korea, Woo Jeon, they’ve done an excellent job for us and for the ICL Technology. I have spoken glowingly about them many times.
I believe there were some things during this year earlier in the year and maybe still up from now that has been focused our organization a bit and I think I mentioned this before. It’s been concerning.
We’ve worked with them to come up with a plan to hire a STAAR direct employee to work day-to-day with our distributor. Matter of fact, we’ll be seeing two or three candidates while I’m in Korea.
The 25% objective is one that Woo Jeon distributor set for the next couple of years. So I don’t believe they’re back and off of that objective and that’s one of the things I want to learn while we’re working with them over the weekend.
Matthew O’Brien - William Blair
Okay. Just a follow-up on that a little bit more.
I know you’re not over there yet at this point but do you have any sense for how long this may persist because if I recall a couple of years ago, you had an ordering issue with them. That snapped back pretty quickly but does seems like it’s a little bit more fundamental in terms of their selling efforts?
Barry Caldwell
I think that’s true, Matt. If you look at the history of Korea sales, there can be big quarterly swings just based upon their inventory levels and where they are based on their demands.
Remember their demands are the highest during the first quarter and the third quarter each year. So they generally buy more in the fourth quarter and the second quarter in preparation for that.
But I will be learning more and this is different though than just filling inventory and replacing inventory. It is in the demand side.
So I do believe it’s something that we can turn around quickly. It may have something to do with the economy in Korea.
We’ve not heard that before and nor do we have any good insight on total reflective procedures in Korea like we have in China. I mean, it was very evident during mid-to-late second quarter event that reflected procedures in China.
We’re not the same as they had been.
Matthew O’Brien - William Blair
Okay. And then just one from me if I may, can you -- you saw some nice growth out of the U.S.
and China and India this quarter. Can you give us a sense for more of same-store sales from somebody that’s been using 6 to 12 months.
What kind of reorder rates you see there versus the growth coming from opening up new accounts?
Barry Caldwell
Well, in all three of these markets, we’re really focused on penetrating accounts, rather than training new surgeons. I know in the U.S.
it would only be a handful of new surgeons that have been trained this year entirely. We do see, though, some positive sign from our consumer media worker.
As a matter of fact, in the U.S. right now we’re generating that may got some of the lot but to us as a lot now at least initially we’re generating 12 to 15 patient referrals from our social media work directly to our customers.
And I think that’s part of the reason that 20% increase in our civilian accounts during the third quarter is pretty strong compared to what we think is going on in the market. Same thing is true in China.
We are training a lot of surgeons at least at the first level but we’re training them at advanced level. And this is the kind of training we had just weekend before last in China and our response there was very positive.
And we generally see very good increase in usage from those surgeons once they go through the second phase of training.
Matthew O’Brien - William Blair
Okay. Great.
Thank you.
Barry Caldwell
Thank you.
Operator
Thank you. And we ask that you please restrict yourself to one question and then one follow-up and then re-queue if you have any further questions.
Our next question is from the line of Jason Mills with Canaccord Wealth Management. Please go ahead.
Jason Mills - Canaccord Wealth Management
Thank you. Barry, can you hear me okay?
Barry Caldwell
Jason, yeah, we can.
Jason Mills - Canaccord Wealth Management
Thank you. So Barry, one of the questions I was going to ask on Korea have been addressed but moving to Japan, perhaps you could give us a little bit more color about the ICL business in Japan there.
What do you expect in the fourth quarter then so what you’ll expect over the next 18 months or so out of Japan. When can that given the Toric, can that accelerate?
What are your thoughts there?
Barry Caldwell
A good question on Japan. We have very high expectations for the Japanese market.
And as you know, the demographics there in terms of higher rates of myopia and also higher rates of stigmatism play right in hands with the Visian ICL technology. We’ve seen very good growth in the two large refractive centers there, Optical Express and Shinagawa and as the results indicate units doubled during the third quarter as compared to a year ago.
Those accounts began using the CentraFLOW technology during the third quarter. And we think overall that’s going to help particularly those accounts a lot more because they are both very much geared towards procedure timing and how quickly they can move patients in and out and we foresee CentraFlOW technology is one that helps patient flow significantly.
So our expectations are quite high. My expectations are higher growth than what we’re seeing right now in Japan because of the opportunity.
We’re just marketed on the ground floor here of the opportunities we have in Japan and getting to our market share level like we have in Korea. Given that we have a direct organization in Japan is something that should be clearly in our short-term window in terms of objectives.
Jason Mills - Canaccord Wealth Management
Okay. A little bit of a tougher question, I’ll take a shot at myself a little bit here too.
The performance over the last couple of quarters, there has been some highlights for sure and then some emerging disappointments. Every time we see something that was disappointing one quarter, it bounces back in the next quarter a bit and then we have an emerging disappointment in that quarter.
I certainly got the strong personally throughout most of this year. And so I guess, what can you tell us that gives you the confidence that we don’t see any additional emerging disappointments that while you may have a bounce back in area that this quarter was weak for you, we don’t have something else that pops up.
Because it seems like it’s like give and take that resulted in a couple of quarters here where it’s been a similar sort of discussion on this conference call. We had some highlights but overall there is a missed expectation.
What’s more realistic way to look at the growth here for the near-term?
Barry Caldwell
Really good question and you know particularly on the revenue side, I totally agree with the disappointment. We’re disappointed here.
This is not what we expected for the year. We seem to be doing really well until you picked this up.
But I know, we haven’t done a good job for you since you initiated but we also know and kind of what’s happened, I think the last two quarters is something and it’s in a major market, it’s raised its ugly head. Last quarter, it was China and to some degree, Korea.
This quarter we’ve retuned to some decent growth in China but not -- it should be twice that rate approval back on our normal pace. And Korea raised its’ head, certainly unexpected in terms of consumer demand for the product.
And what it’s going to take when you go back and think about those 11 key markets on which we’re focused, we’re dependent on three or four key markets overall and if something goes wrong in one of those three or four key markets on the ICL side, it brings everything down. As I pointed out at the Korea results would have just been flat.
We would have met our metric of 25% ICL growth and we would have been happy. No one here expected that demand was going to be less during the third quarter.
I do note to Jason that the fundamental things we’re doing with the business are very solid. And very similar to the position we’ve got financially with this company.
Because two or three years ago, STAAR would have had a tough time with two consecutive quarters like this in terms of only 4% revenue growth or something like that. But as you can see, we built a solid financial foundation and even in quarters like this, we’re generating good cash for the business.
And our cash position is growing quite nicely, which gives us lot more flexibilities than we’ve had. I also know that 14 people that we’ve hired, these have been good hires.
They are already showing some results. We were late in hiring some of these folks during the year.
And I think I even indicated that as early as the first quarter call. I would have liked to gotten these folks on board sooner so they could have produced results.
And then finally, I’d say the manufacturing consolidation is going to really make data much stronger foundation. And we’re expecting 2013.
It’s going to look much better for the company and 2014 is going to take another major report.
Jason Mills - Canaccord Wealth Management
Okay. Thanks for the detail.
One last question, I’ll get back in queue. Any update on the ICL in the U.S.
-- Toric in the U.S, sorry.
Barry Caldwell
You mean with the FDA.
Jason Mills - Canaccord Wealth Management
Yeah.
Barry Caldwell
Okay. So let me give you a quick update with the FDA on two fronts, first with CentraFLOW technology.
We did make a submission to the FDA on October 9. It’s a 180 supplements which means they’ve got 180 days I’m sorry to reply to us and this was a submission to get approval of the CentraFLOW or the port, the actual port right in the center of lens on our current ICL that we have today in the market.
Then secondly, we are knee deep into a, I call, a major and I have these to use the word resubmission to the FDA on the Toric ICL, which -- what we’re doing is we’re putting together a very complete, every question, every data point in regards to the Toric ICL. We’re working with outside consultants as I mentioned earlier.
And this will be submitted on November 16. Now, as result of that submission, there are three things that could happen.
They could accept our submission and approve it. They could say the submission is complete and pass it onto the panel or they could disapprove it.
Now, if they were to do the last thing if they were to disapprove it, we could -- we had three options. We could redo the study.
We could walk away from the U.S. market, not likely we would do that or we could appeal their ruling.
And there are some technical reasons that could support an appeal. So, while there’s no really concrete movement in terms of Toric with the FDA, we’ve made some significant progress going forward with our submissions in our discussion with them.
Operator
Thank you. And our next question is from line of Chris Cooley with Stephens.
Please go ahead.
Chris Cooley - Stephens
Thanks for taking my question.
Barry Caldwell
Hi, Chris.
Chris Cooley - Stephens
Most of my question on the ICL has been addressed. If we can maybe just touch base kind of similar vein on the cataract business, it’s been a little bit of a bane to the existence here over the last kind of 18 months.
And of the lower base and with the premium pricing as you get some new products, one would have thought you would have at least kept pace with prevailing market rates of growth. What can you talk to us about here tonight, from an execution standpoint, should give us added confident that can at least return to a market rate of growth sustainably going forward and then I have a quick follow-up?
Thank you.
Barry Caldwell
Well, I’m not sure today we can tell you what market rate growth is for IOLs. I did sight the two major competitors in the IOL market, though they don’t specifically call out their IOLs.
It’s pretty clear in Novartis Alcon’s result that they are sighting their decline in sales overall to procedure decline in cataract and also pricing in the European market that’s two to things they refer too. So, I’m not sure what that rate is, but I’m sure that I have said it quite a bit that we are going to get to 5% to 10% growth rate in IOL through the strategy we have in place.
Now, we have not been strong on getting to recent IOL products to market after we’ve got proven. First one is the KS-SP that the single piece preloaded acrylic IOL which is important in Europe and in Japan.
We started shipping this product in limited fashion toward the end of the quarter and the results from surgeons, the feedback has been excellent. As we indicated in our comment in Europe and three basic markets, Germany, Italy and France, the distributors of all doubled their forecast for next year.
We are still in a limited product availability of that during the fourth quarter. So we are not going to meet their demand during the fourth quarter.
But during the first half of next we should be able to meet their demand. So, that’s product it’s been accepted at a higher rate than we anticipated.
So, we clearly see growth there. Now, we also know that in Japan and Europe we loss some IOL sales from our three piece customers, who have been waiting for that single piece product and they move to another single piece options and now we’ve got work to get them back.
The second product is the nanoFLEX Toric IOL which is a single-piece Collamer lens for Europe. We want to do a pre-market launch first and we had surgery setup during the third quarter and as it turned out surgery schedules didn’t cooperate well with the surgeons with whom we were working and most of those did not get completed during the quarter.
We believe that will be completed during this quarter. Now, that’s a product that we can get a good price on and good margin and now the distributor can as well.
So, we believe that’s a products that will allow us to expand in Europe into some additional countries in which will not today, because of the cost of goods on the more generic type IOLs.
Chris Cooley - Stephens
Okay. And then just maybe -- just clarification.
I want to make sure that I get expectations right here in the fourth quarter. When I think about your ICL growth you stated you don’t expect to see second half growth rates reaching that 25% level prior guidance for the full year had been near 20% in that category.
And I think you mentioned you expect to see a sequential increase just want to be clear is that an acceleration sequentially in the reported rate of growth for the ICL or is that a increase just in terms of dollars that you are expecting in the 4Q and what’s driving that increase sequentially in the category. Thanks so much.
Barry Caldwell
Yeah. I think overall we are talking about the growth rate of fourth quarter will be higher for Visian ICL in the third quarter growth rate, which was a 50% growth rate that would mean that sales in the fourth quarter would exceed the $9.1 million that we had during the third quarter and thus we will establish another high water mark in terms of Visian ICLs on a quarterly basis.
A lot for fourth quarter is going to depend on Korea and a typically fourth quarter is a good order in quarter for them because they anticipate their procedures. They are going to take place in the first part of the year and they are very conscientious distributor and they want be inventory there for their doctors are ready to go.
So a lot will depend on that market, a lot will depend on if we see a full rebound in China as I previously said didn’t expect that till next year but I would say the rate of growth in the third quarter in China is 52%. Its been higher than expected to see in the third quarter if it continues to grow, we continue to get some good news from surgeons there.
I think the idea that patients in China are asking questions about LASIK complication are good for the ICL long term and maybe even shorter term to get back to our growth rate quicker then LASIK might get back to the growth rate there at.
Operator
Thank you. Your next question is from the line of Bruce Jackson with Northland Capital Markets.
Please go ahead.
Bruce Jackson - Northland Capital Markets
Good afternoon.
Barry Caldwell
Hi, Bruce.
Bruce Jackson - Northland Capital Markets
So, if we could just talk a little bit more about the FDA Toric application is it, are using the same data that you went to them with the four and is the discussion centering out in the same issues that you have been going back in fourth with previously or is there anything new that they are looking for?
Barry Caldwell
Okay. Well, yeah, good question.
Part of what our outside observation have been with all the communication back and forth with the FDA is that it’s very confusing and it’s frustrating. I think its confusing and frustrating for STAAR and I think also for the FDA.
So our decision was that we were going to repackage everything together in a way that’s more manageable, more easy to understand and remember there are two data sets that with the original data sets that were submitted and then there was the audited data set that was audited by third-party group. And it appears that may have been some confusion back and forth in regards to which data sets.
So we put both data sets in this submission. We put all of their questions with the answers resubmitted.
Remember at some point during the last couple of years we were getting repeat questions. So we put it in a format we think which will be much easier for them to understand and follow and also format in which it’s easier for us from which to appeal if needed.
Bruce Jackson - Northland Capital Markets
Okay. And then, just a follow-up question on the IOLs in Japan, so you launched the KS-SP and you talked about the demand in Europe, and affect that you’re going to be limited launch?
Is that also the case in Japan, is going to be a limited launch in Japan for the fourth quarter?
Barry Caldwell
Yeah. Bruce, it is.
Yeah. The KS-SP inventory in total has been allocated between Japan and Europe, and right now we don’t think we’ll be able to meet the fourth quarter demand, but we are working on that and it’s the same kind of reception we’ve experienced in Japan as we experienced in Europe, though we started in Europe with the initial launch.
Bruce Jackson - Northland Capital Markets
Okay. Great.
Thank you.
Barry Caldwell
Thank you, Bruce.
Operator
Thank you. And our next question is from the line of Raymond Myers with Benchmark.
Please go ahead.
Raymond Myers - Benchmark
Thank you. Barry, you touched on this a couple of times, but I was hoping you could specify some dollar amounts of the contribution from KS-SP launch in the fourth quarter and next year?
Barry Caldwell
My guess is going to be in the neighborhood of $0.5 million in revenue.
Raymond Myers - Benchmark
An incremental $1 million of revenue?
Barry Caldwell
Yeah. Assuming we can meet that demand, that’s the demand that we put in or ask for in terms of the product need.
Raymond Myers - Benchmark
And is that…
Barry Caldwell
… that’s the first, I’m sorry, that’s the first number, and it’s not the increase number, so just I get it straight.
Raymond Myers - Benchmark
So it’s an incremental $1 million in the fourth quarter?
Barry Caldwell
No. $0.5 million.
Raymond Myers - Benchmark
$0.5 million.
Barry Caldwell
Yeah.
Raymond Myers - Benchmark
In the fourth quarter?
Barry Caldwell
Yeah.
Raymond Myers - Benchmark
And is that incremental to the third quarter or is some of that already in the third quarter?
Barry Caldwell
There is only a little bit of that in the third quarter. I don’t know, Deborah, do you have a sense for how much KS-SP…
Deborah Andrews
Very little.
Barry Caldwell
Yeah. Very little.
Raymond Myers - Benchmark
Okay. That’s perfect.
Then the next question you mentioned on the call that middle of next year you expected the Version 5 to be commercialized, what are the milestone to doing that and can you elaborate on that, it sounds like an important point?
Barry Caldwell
Sure. On the Version 5 there are two key features to that, one is putting it preloaded and as you know we have been working with an external company on some proprietary technology that will allow us to preload Collamer not just ICL, but also IOLs.
So once we get the Version 5 in ICL this is technology we’ll transfer over through our nanoFLEX and our nanoFLEX Toric IOLs. The second aspect is an aspheric optic and we have been making progress on that here internally.
So we are on track in terms of where we thought would be with that product. And I would say, when you listen to surgeons, since particularly those are using the CentraFLOW technology now that was their first overall improvement they would have like to seen in the technology.
Second, was to get it into a preloaded fashion, because it makes it much easier for the surgeon, for the scrub nurse and then also takes a lot of -- significant amount at least percentage-wise time out of the procedure while patient is on the table. So those are the two key features and we feel very good about where we are overall and been able to get that, that initial commercialization, of course, would come in European market.
Raymond Myers - Benchmark
Okay. Right.
And okay, thank you very much.
Barry Caldwell
Thank you, Ray. Happy Halloween.
Raymond Myers - Benchmark
Yeah. Thanks.
Operator
Thank you. Our next question is from the line of Jim Sidoti with Sidoti & Company.
Please go ahead.
Jim Sidoti - Sidoti & Company
Good afternoon. Can you hear me?
Barry Caldwell
Hi, Jim. Yeah.
We can. We hope you are well.
Jim Sidoti - Sidoti & Company
Yeah. Yeah.
It’s a little dark here. But other than that everything is fine.
Hoping to get power back soon. Question I had regarding Korea.
It sounds like that, Korea and the weak IOL markets, where then primarily responsible for the lower than expected sales in the quarter. Now you mentioned you were hiring a direct person for Korea?
What will the responsibilities for that person be?
Barry Caldwell
Yeah. Good question.
That person will manage the day-to-day activities in Korea. Woo Jeon has done a great job so far.
We haven’t had to provide any direct support to Woo Jeon in the Korean market. It’s just become such an important part overall of our business and we need to work to take it for the next level.
They’ll be working directly with Woo Jeon on a day-to-day basis. We’re targeting key customers.
One of the areas of improvement we want to look at in Korea is increasing our rate of Toric sales in Korea. As an overall percent, Korea is one of our lowest markets in terms of Toric versus ICLs.
So there is certainly an opportunity for us to work to increase to that. So they’ll work both from a sales and clinical perspective marketing between Woo Jeon and our customer -- and their customers.
Jim Sidoti - Sidoti & Company
And was there any pushback from the distributor to adding this direct representative there or were they on board with this?
Barry Caldwell
Absolutely there was pushback. I think, anytime, that company that’s going through a distributor puts a direct employee in the market.
There is always the concern that the company is going to flip the market and go direct. That’s absolutely not our intentions whatsoever.
We want to work with Woo Jeon to improve the business. I’ve already sent my presentation to them a week ago for our meeting this weekend and it’s very, very clear in my presentation with them that we want to work with them and support them.
We have no intentions whatsoever to go direct in the market.
Jim Sidoti - Sidoti & Company
Okay. And then just follow-up on the IOL market, was there any reimbursement change or anything that you could point to explain the decline there?
Barry Caldwell
No. Reimbursement changes during the quarter, I mean, the two key things I think in my mind would be not having the KS-SP available sooner in the quarter.
And then secondly, what seems to be kind of overall procedure pressure during the quarter.
Jim Sidoti - Sidoti & Company
Right. That’s where, I mean, we look at the procedure pressure, do you have anything you can point to is to why that occurred?
Barry Caldwell
No. And we will get shortly gets the U.S.
data from market scope. There is not really any good quarterly data available outside of the U.S.
that there is on an annual basis but not so much on a quarterly basis.
Jim Sidoti - Sidoti & Company
And of those two events, the IOL procedure pressure and weaker sales in Korea, what do you think kind of more significant impact on your quarterly results?
Barry Caldwell
Well, I think, it would have to be Korea, given that the gross margin on the ICL is so much higher. That -- I mean as I said if, Korea, taking Korea out of the mix we have 26% growth rate and, overall we have been very happy with that.
And certainly, that’s the kind of growth rate that will be inline what we would expect from Korea on a quarterly basis. So, if Korea had been there the, I think the topline revenue expectations would have been met and gross margins would have been higher.
And we would have been even though the increase manufacturing costs on -- for the consolidation project we will then on a GAAP basis profitable.
Jim Sidoti - Sidoti & Company
All right. Thank you.
Barry Caldwell
Thank you, Jim. Good luck.
Operator
(Operator Instructions) And we have no further questions at this time.
Barry Caldwell
Great. Thank you, Operator.
Let me reiterate the dates that we are going to be out in the market on Saturday, November 11th there is an Investor/Analyst Breakfast in Chicago, I’m sorry the 10th, I have done that twice, November 10th, Saturday. The Stephens Conference November 14th in New York City, the Piper Jaffray Healthcare Conference, November 27th in New York City and if you’d like to catch up with us in any of those destinations, please feel free to give us a call.
We thank you for participating today. We hope we’ve answered all of your follow-up -- your questions.
But if you have more please feel free to give us a call. Have a good evening.
Operator
Ladies and gentlemen, this concludes the STAAR Surgical third quarter 2012 financial results conference call. Thank you for your participation.
You may now disconnect.