STAAR Surgical Company (STAA) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the STAAR Surgical Fourth Quarter 2011 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, March 6, 2012, and I would now like to turn the conference over to Doug Sherk. Please go ahead sir.

Thank you, operator and good afternoon everyone. Thank you for joining us for the STAAR Surgical conference call and webcast to review the company’s financial results for the fourth quarter, which ended on December 30, 2011. A news release announcing the fourth quarter and full year results crossed the wire about half an hour ago and is available at STAAR’s website at www.staar.com. Today’s call is also being broadcast live via webcast. In addition, a slide presentation will accompany remarks by management. To access both the webcast and the presentation slides, go to the investor relations section of the STAAR’s website at www.staar.com. If you are listening via telephone, today’s call to review the accompanying presentation slide -- excuse me, if you are listening via telephone to today’s call, to review the accompanying presentation slides, navigate to the live webcast as I just reviewed and choose the no audio slides only option to review the slides in conjunction with the live conference call. We have arranged for a taped replay of this call, which may be accessed by phone. A replay will become available approximately one hour after the call’s conclusion and will remain available for seven days. In addition, an archive 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, cash or other financial statements; any statements about plans, strategies or objectives of management future operations; any statements concerning proposed new products, government approval of new products or other future actions of the FDA or other regulators; any statements regarding expectations for the success of our products in the U.S. and the international market, the outcome of product research and development or any clinical studies; any statements regarding future economic conditions or performance, statements of belief; and any statements of assumptions underlying any of the foregoing. These statements are based on expectations and assumptions as of the date of this presentation 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 factor section of our 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 loss and basic net income and loss per share information that excludes manufacturing consolidation expenses, gains and 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 and in our slide presentation. Now I would like to turn the call over to Barry Caldwell, President and Chief Executive Officer of STAAR Surgical.

Thank you, Doug, and good afternoon everyone. And I thank you for joining us today for our review of the fourth quarter and our full year 2011 results. Deborah Andrews, our CFO, is with me on the call. I will begin today’s agenda with an overview and a few operational highlights of the quarter, then I will review our success in 2011 against our core operating metrics. Deborah will focus on key highlights of our fourth quarter financial results, and then I will come back and share our success during 2011 and how that’s helped us to position us for an even stronger 2012 and we will review our 2012 target metrics. Following these remarks, we will be happy to take your questions. The fourth quarter was a solid finish to an excellent year for STAAR and we anticipated expanded revenue and profitability growth in 2012. Visian ICL revenue increased 37% in the fourth quarter to a record $9 million. This success drove a 14% increase in total revenue for the quarter. Gross margin was 69.8%, representing a 510 basis point improvement from the prior year. This was the highest gross margin in 15 years at STAAR. The increase was driven by a larger contribution from high-margin Visian ICL sales and improvement in our IOL margins, which we'll discuss later. We were profitable in all 4 quarters and for the year for the first time in 10 years. We also entered 2012 with 6 new products in various stages of launch at this time. Now, turning to our key operating metrics, I’m very pleased to report we met all 4 of our key operating metrics for the quarter and the full year. You may recall we were, we revised upward 3 of the 4 at the midyear term. Revenue in the quarter and the full year grew by 14% the success against our first metric of double digit growth in total revenue. Our second metric was to grow revenue from Visian ICL by at least 30%; again, we met this metric with a 37% increase in the quarter and 32% increase for the full year. The $9 million result for the quarter in ICL sales established a new record by surpassing the previous high by some $700,000 and representing over $16 million in sales to the end user given the majority of our sales are to distributors. Our third metric was to continuously expand gross margin throughout the year, which we did, and achieved full year results of 67.5%, 1 full percentage point increase against our revised target. For the quarter we knocked on the door of the 70% level by finishing at the 69.8%, which was 130 basis points over Q3. For the full year our gross margin was 67.5% or, as I said, 100 basis points above our revised upward full year metric. Deborah will discuss this more as she speaks. Finally, we were profitable in all 4 quarters and the full year. Net income in the fourth quarter was just over $100,000. Adjusted net income for the quarter was $1.5 million or $0.04 per diluted share. We generated $1.3 million in net income or $0.04 per diluted share for the full year. Adjusted net income for the year was $4.4 million or $0.12 per share. Deborah will discuss these items further in her comments. In summary, we made excellent progress in 2011, launching new and innovative products, expanding our market shares worldwide, strengthening our competitive position, while generating much improved revenue growth and profitability. The most exciting aspect of the past year, however, is that we are well positioned for increased success and we are well on our way already in 2012. Now I would like to turn the call over to Deborah for a more in-depth review of the fourth quarter financial results. Deborah?

Thanks Barry good afternoon everyone. Today I will be focusing my comments on the following areas: gross margin, manufacturing transition expenses, income taxes, GAAP net income and adjusted net income and cash. Gross profit margin continued its increasing trend of expansion for the fifth consecutive quarter and the sixth consecutive year and the 69.8% reported for the quarter was the highest reported gross profit margin for STAAR since 1997. The leverage we are getting on our sales was apparent with 106% of our sales increase, or $2.1 million, hitting gross profit for the quarter, and 93% of our sales increase, or $7.3 million, hitting our gross profit for the full year of 2011. Of course the primary contributor to gross profit and to the increase in gross profit margin is the ICL. ICL metrics improved on every front for both the quarter and the year, respectively, including price, volume and cost. The increase in volume resulted in an improvement in product mix, with ICL representing 55% of total sales for the quarter and 51% for the year compared with 46% in Q4 2010 and 44% in fiscal 2010. IOL margins also increased with improved mix for its higher margin IOL. Sales of our Toric IOL, our highest margin IOL, grew 19% in the fourth quarter and 21% for the year. And although IOL sales decreased during the quarter the decrease was due to lower sales of preloaded IOLs at Europe, which are at low margins. IOL costs improved 8% for the quarter and 2% compared to 2010. IOL ASPs were flat for the quarter, but up 5% compared to 2010. Due to the improvements in IOL price, mix and cost, gross profit dollars actually increased 1% for the quarter and 3% compared to prior year. During 2012, we expect further expansion of our gross margins, as ICL mix continues to grow, the mix of higher value IOLs improved and as we continue to work on improving our cost. Operating expenses increased 8% for the quarter and 5% for the year. Included in operating expenses for the quarter and year, respectively, were $597,000 and $1.1 million in manufacturing transition expenses. The total expenses were $250,000 higher for both the quarter and the year than we originally estimated due to accruals we made for estimated asset retirement obligations under facility leases in Japan. We will also take advantage of any opportunities to accelerate expenses as we did in the fourth quarter. We estimate the total cost of the project, including expenses incurred in 2011, will be approximately $6 million, and we expect to spend another $2.4 million on capital, much of which will likely be financed through capital leases. During 2012, we expect to set approximately $2 million to $2.5 million for the project and $2 million for capital. The balance of the spending will be incurred in 2013 and possibly a small amount in 2014. However, as I said, to the extent we can accelerate the project by accelerating spending, we intend to do so. We will continue to show these expenses on a separate line each quarter during the year. Our effective tax rate for the quarter was 77% and 50% for the year. We will not likely realize the tax benefits of our project until 2014 after manufacturing is fully consolidated. At that time we would expect our tax rate to drop to approximately 10%. Accordingly, we estimate our effective tax rate in 2012 will be in the range of 40% to 45%. We reported GAAP net income in the fourth quarter of $109,000 or breakeven per share compared with the net loss in the fourth quarter last year of $691,000 or $0.02 per share. Net income for 2011 was $1.3 million or $0.04 per share compared with a net loss from continuing operation of $4.1 million or $0.12 a share and net income of $53,000 or breakeven per share in 2010. Income from discontinued operations was $4.1 million or $0.12 per share in 2010. So that investors can get a clearer picture of the impact of expenses that you are either non-referring or may fluctuate from period-to-period based on market conditions, we are also reporting net income on adjusted basis. Adjusted net income excludes the following: manufacturing consolidation expense, gain or loss on foreign currency transaction, fair value adjustment of warrants, non-cash stock-based compensation expense and income from discontinued operation. Excluding these items, adjusted net income for the quarter was $1.5 million or $0.04 per diluted share compared to an adjusted net loss of $267,000 or $0.01 per share in Q4 2010. For the year, our adjusted net income was $4.4 million or $0.12 per diluted share compared to an adjusted net loss of $2.6 million or $0.08 per share. We have $16.7 million in cash, cash equivalent and restricted cash on the balance sheet at December 30, 2011. We have $62,000 in cash for operating activities in the fourth quarter due to cash payments made for consolidation expenses and a $2.1 million increase in accounts receivable when compared to Q3 2011. We expect this cash will be collected during the first quarter of 2012. We generated $5.3 million in cash from operations during 2011 compared with $4.4 million used during 2010. This swing of about $9.7 million confirms the quality of our earnings and the resources available to invest in growth. An additional strong sign is our operating income, which reflects the $5.4 million improvement, including the $1.1 million in costs associated with the manufacturing consolidation. That concludes my comments now I would like to turn the call back over to Barry.

Thank you, Deborah. As some of you know, I’ve been traveling extensively over the past few weeks -- attending the World Ophthalmology Conference in Abu Dhabi where STAAR had a significant presence, including the first ever Middle East experts meeting; multiple presentations during the WOC and an evening symposium on the Visian ICL; then on to China for 4 days. We held the first ever ICL China Experts meeting, which was attended by 57 surgeons. Later that day we had a special educational program through an association with the Eye and ENT hospital Fudan University in Shanghai, which 150 surgeons attended, to learn more about the ICL technology. We also had the opportunity to visit the Eye and ENT public hospital and Shanghai Aier Eye Hospital, which has 38 private centers throughout China. I finished with 2 days in Japan working with our direct teams there on the large opportunity we have in Japan now that the Toric ICL is approved. Everywhere I’ve been reaffirms the enthusiasm and commitment to our enhanced Visian ICL and IOL products by leading ophthalmologists around the world and gives me confidence in our continued and expanded progress. Not only was 2011 a very important and productive year for the company, it helped position us well for expanded growth, 2012 and beyond. Though IOLs were flat during 2011, we expect to see growth in 2012 with our new products. The growth of ICLs, however, will continue to outpace IOL growth. You can see that ICLs with their higher gross margins represented about 51% of STAAR revenues in 2011 as compared to 44% in 2010, and we expect ICLs will be at around 60% of our revenues this year, 2012. Looking at our sales distribution, you can see how dramatic our growth has been outside the U.S. During 2011, sales outside the U.S. represented 77% of our sales as compared to 72% in 2010. We are expecting -- sales outside the U.S. increased at the 80% level during this year. We are expecting sales in the Asia Pacific markets to increase the 56% of our total sales. We do anticipate nice gains in our European markets, which have already received approval of the V4c technology. The sales estimates here includes an increase of ICLs sales in the U.S., but does not project any additional approvals anywhere in the world during the year. That would only represent an upside. Now a quick look at the IOL business. The product mix of our IOL business during 2011 reflects the strong IOL sales we have in Japan, which is where the preloaded silicone IOL is mainly sold. As Deborah mentioned, we did continue to increase our overall gross margin in IOLs. It’s grown more quickly than I had originally anticipated. In 2011, it grew 200 basis points to 59% gross margin overall and during the fourth quarter it grew 300 basis points to the 60% level. During 2012, we expect to see increases in our Toric IOL segment, which is the highest gross margin segment, nanoFLEX and preloaded single piece acrylic IOL. Now if we look at the 3 new product launches in the IOL line that we have in various stages during 2012. First the nanoFLEX IOL. It’s just in its second full quarter of introduction in Europe. And the nanoFLEX Toric IOL will begin its premarketing launch late this quarter or early second quarter in Europe. We have struggled from a technical perspective with the preloaded injector system for the KSSP single piece acrylic IOL. There is several markets, particularly in Japan and Europe, with an already pent up demand for this product. We are working to get this already approved product to market. Now on to our fastest growing and highest gross margin product, the Visian ICL. As stated upfront, our growth for the year was 32%, and we expect to have exceeded that growth rate for the full year 2012. Total ICLs for STAAR were $32.1 million, but remember that about 80% of our sales went through distributors. Sales based upon end customer purchases were nearly $60 million for the year. Now turning to the slide on ICL market shares, you can see that we grew market share with the ICL in 8 of our 10 focus markets during 2012. Now -- I’m sorry, during 2011. During 2012, we are adding 1 more market to our focus to make it 11, and that’s Italy, you can see it marked in green. The asterisk marks or points besides each one of the markets, it shows where we are adding sales and marketing personnel to help grow the ICL business during 2012. The gold boxes reflect recent approvals; hence, the Toric ICL in Japan late last year; the V4b ICL in Korea, which we just got approval last week on; and the V4c, which the submission is now been accepted in the Middle East. During the WOC, meeting the surgeons from the Middle East, we could see the excitement about getting the opportunity to use the V4c technology. Now let’s look at the APAC region, Asia Pacific. This slide begins to reflect the growing opportunity we have in key markets around the world. First in the Asia Pacific markets, Japan was our fastest growing market during 2011 at 158% growth rate. I just returned from Japan last week, as I said, and our weekly sales this year -- weekly sales -- are running at the monthly rate during the first 2 months of 2011 last year. You can see also in the chart that China nearly doubled again during 2011 and that could -- so that Korea continues to have a very nice growth rate, 34%, despite its high market shares. Our estimates are that the ICL now represents over 13% of all refractive surgery in Korea. This is based upon the latest market scope data for 2011 of refractive procedures. Remember, the goal of our distributor in Korea is to reach the 25% share level. Both Japan and China had great growth last year, they are still only 1% or less of the market. So we have a lot of opportunity there for expanding growth. Next slide shows Europe and some of the key markets there. Germany grew at 78% last year, the Middle East at 50%. Remember that these markets have the V4c available now, which commands a 10% premium in price. Germany and Latin America are only at 1% market share penetration, while the Middle East is over 7% and Spain is over 3%. Again, a lot of opportunities in these markets as well. Now let’s look at the 3 new ICL products, which are in various stages of market launch and will continue to progress through these 3 products and these 3 areas during 2012. And though in our plan we don’t anticipate any additional V4c approvals in the Asia Pacific markets, if that indeed happens, those will all be upsides. Now to look at our marketing and sales investments we are making, this slide shows we are adding personnel to help fuel the ICL growth in key markets. Thus far, only 4 of the 16 additional employees have been hired at this point, but we are moving quickly to hire the remaining positions. As we do every year, we’ve established target metrics for 2012 that we'll be driving toward and that we'll report to you on each quarter. For new investors this is an approach we’ve taken for the last 3 years, the metrics are challenging we are fair in our assessment and we don’t always meet every one of them each quarter. As seen earlier we did achieve 90% green arrows on that chart for our targets for 2010 [sic]. The achievement in 2010 was 75% and 2009 it was 70%, so we are making progress I think it shows we are getting better overall in our execution. So the 5 new metrics for 2012 include: 1, total revenue growth of 15%; 2, growth in Visian ICL revenue greater than the 32% growth rate we achieved in 2011; 3, continuous expansion quarter-by-quarter of the gross margin and to achieve 71% gross margin for the full year 2012; fourth, profitability in each quarter and for the full year; and, finally, 5, management of the manufacturing consolidation program with no disruption to our customers. We will measure this by tracking the level of our customer back orders each quarter versus prior year. 2011 was a very good year for STAAR, but I’m most excited about the prospects for our continued growth in both revenue and profit in this year ahead. Our recent new product launches have positioned us very well against LASIK and we have additional technology enhancements in our pipeline. We have a very large market opportunity ahead of us that we’ve only begun to address. The potential for growth of our Toric ICL in Japan is extremely promising. As we remain focused on manufacturing efficiencies and cost containment to drive margins and the bottom line. Late last week, we were excited to get additional coverage from Canaccord Genuity and Northland Capital and we welcome them. You will also see that we will be on non-deal road show March 14 and 15 in New York City and Boston with Benchmark, and we will be attending the Stephens West Coast conference in San Francisco on March 22. Before we open the call for your questions I would like to thank the STAAR employees for their dedication and very hard work to drive the company to solid profitability in 2011. I would also like to thank our physician customers for their confidence in our products, and finally our investors for your continued support. Operator, we can now open the line for questions.

[Operator Instructions] Our first question comes from the line of Jason Mills from Canaccord.

So let’s talk a bit, first of all Barry about your 2012 guidance. So 15% growth for the year would put you kind of in the $72.5 million range. And then looking at, I believe it’s slide 13, I could be getting it wrong, the product mix evolution, you are looking for just a touch under 60% of that revenue to be ICL revenue. And that would -- doing the math kind of puts you in the $43 million or a 35% growth consistent with one of your metrics to grow faster than 32%. But the IOL number would actually equate to the $26 million, $27 million range, which would be down on a year-over-year basis even though you’ve said you’ve looked to grow that this year. So could you give us a little bit more color on that? Making sure that my math is accurate. And then secondly, as we look at the cadence of growth through the year, it looks to us like perhaps -- at least the way we are modeling it is better year-on-year growth in the back half of the year than the front half of the year, just as Japan comes on board with Toric ICL, et cetera, and gains traction, the second half of the year growth is a little bit more easier to achieve than first half of the year just after launch. So is that consistent with how you are thinking about the cadence to perhaps meet that 15% or do a little bit better, but perhaps a little bit lower than 15% first half and maybe a little bit higher in the second half. That would be great if you could give me some color on that?

Okay, good questions Jason and good job with your calculator very quickly there as we dice these numbers out. The one component, though, you're forgetting is that we have our other sales segment, which will continue to decline year-over-year. That represented about $40 million of our sales during 2011 and we fully expect that to continue to decline during 2012. That’s a list of our defocused products outside of the ICL and IOL line. So the IOL growth will come in the sense of making it up what we lose on the other line. Did that make sense?

It does, but when it looks like in that model on 13, your graph, you account for that, you know, you have a little orange sliver there that accounts for that. So the 36.6, 59.9 leaves you a few percent that would apply to that other. So I think if you apply the 36.6 for the IOL to $72.5 million, it’s still contemplating a down year-over-year estimate. Perhaps you are just being a little bit conservative, is that the right answer?

Well that’s part of the right answer but I think we certainly expect our IOL growth to happen, we expect for that orange other box to probably be a little less than it has. And hopefully that gives us a little bit of advantage on our pretty aggressive gross margin advancement estimates.

Okay, great. That’s helpful. And then the second part of that question is kind of the cadence of the growth.

I think you know a good way to look at it is to look at last year, and if you recall the slide which shows the metrics, we missed first quarter on the overall revenue growth and the ICL growth. But then what happened second quarter is things really kicked in, and not only did we exceed second quarter, but we got to the point that we were comfortable even increasing our metric at the end of second quarter on our ICL growth. So I think you are right, it’s going to continue to grow throughout the year, and here's a good example. If we look at our V4c sales, which is approved in Europe now and again that carries a 10% premium, during the fourth quarter, 25% of our sales in Europe were the V4c. So far this year through the first 2 months, we are at a 44% level. So as you can see, that will grow and by some time probably late second quarter that will get to the 100% level. I think you are right that we will see larger growth in the second half than we will the first half, we're a little more challenged the first half. And the other thing you mentioned was the Toric IOL in Europe, and that should get started early second quarter. And we think that might be a real product for us, we are very excited about getting that product in the hands of surgeons.

And our next question is from the line of Chris Cooley from Stephens.

Congratulation on all the progress that you guys achieved in 2011, it’s really impressive. Let me try and I guess parse out pictures on slides as well, and if you look at, I think its page 14, you are looking at your geographic dispersion of growth, I’m sorry of sales in the coming year versus in the prior. The question I had is, why wouldn’t the Asia Pacific region -- I realize it’s an area that you’ve been experiencing just phenomenal growth in. But just based on the cadence of the products going into that space, why wouldn’t that segment grow as a percentage of the total pie? Especially when we think about, for the example, the domestic market, there is some surgeons for example in the military which are still abroad. Maybe being a little bit weaker on a relative basis and that’s why IOL and ICL rolled in together on Pacific. And then I have one follow up.

Yes, there is a couple of points to look at is, again the overall pie is getting much bigger. You can see that our European markets are growing almost 2 points overall, and that’s mainly driven because of the V4c premium and also some of the new IOL technologies that we'll have in Europe. The U.S. is set for growth, and actually one of our premier physicians, Dr. Barnes, is just returned from Afghanistan. So we will expect to start to see him back in practice in second quarter. But I will point this out to you Chris, that our civilian sales are looking pretty good with the ICL. During fourth quarter, they grew 15% and so far this year through the first 2 months they’ve grown at a rate of 16%. So our civilian sales are making up now for the military component and as the military starts to kick back in, I think we'll have some good comparators as we get into second, third and fourth quarter for our U.S. sales. That doesn’t mean APAC isn’t grow, it’s going to grow very nicely, but we don’t have planned or we don’t have in our plans any new approvals for the V4c in the Asia Pacific markets. So if we do get new approvals in APAC that’s not in our plan, that’s just upside.

Understood. So it sounds like, if I’m hearing you correctly, that is looks relatively conservative nor thinking about that all in 15% growth rate for the full year.

I think if you ask Don Todd, he would say he has got a pretty high plan for the year.

Okay fair enough. And that I just want to understand a little bit too, I think about the manufacturing consolidation you talked about accelerating those expenditures as you can, which I applaud, but can you help us understand a little bit about the triggers that you'll looking at or the metrics you'll be assessing that will help you determine that and so that we can kind of think about that in modeling perspective as we roll through the year.

Yeah, I’m going to let Deborah take that so she is on the comment team and that team does meet weekly to make sure we are meeting our objectives and the primary one is supply of product as we move.

Yeah, Chris, I think it would very difficult for me to identify items that might cause us -- be accelerate the projects I guess one thing would be as if we needed to hire a person because, for example, we might have some of the evaluations that need to get done and we don’t have enough hands on deck to get it done. We might -- that's a scenario where we might accelerate spending. But overall, I think, you know, you should see anywhere from $500,00 or so a quarter in spending and we don’t foresee anything that we would call it a difference in that at the moment. But it’s possible that there could be fluctuations from quarter-to-quarter. But overall, the spending should remain the same.

And our next question comes from the line of Raymond Myers from Benchmark.

Let me talk about Japan in a little more detail if you would. Could you discuss how sales implementation is progressing at Shinagawa and Optical Express, specifically what you're doing to drive sales in these locations?

Well we have -- thanks Ray. We had very good success in both of those accounts thus far. Though the potential is so high, it’s hard to say that I’m pleased right now with the progress, but it is very exciting to watch the week by week progress. And as I said, I was in Japan just last week with Don Todd and our new General Manager [indiscernible] in Japan and we are seeing very good progress at both of those 2 major accounts and we are -- hired an individual who’s only job is to call Shinagawa and likewise with Optical Express, we are working on training more physicians at both of those sites. We have initiated the first sales commission plan we’ve ever had in Japan with our sales reps, and that commission plan for every rep is on both -- well, for every rep that’s mainly focused on IOLs, he's also focused on ICLs for the first time since we’ve had that technology available at Japan. So I’m very pleased with the trends we are seeing in Japan of course the potential is quite large and that’s what’s exciting.

Can you help us to -- do you get some visibility to the progression to this very large Japanese opportunity.

Do you want to restate that?

Can you help us to understand how fast STAARs likely to capture the Japanese opportunity, it doesn’t [indiscernible]?

I think to me as I said earlier we are seeing weekly sales now at the rate of our monthly sales last year.

In the past we had talked about the training -- sorry, the implementation of one day a week of less implementation at Shinagawa being the first step of the penetration in Shinagawa. Can you describe operationally what’s happening at Shinagawa and how that’s progressing?

Well both Don Todd and I met with Dr. Tomita from Shinagawa in January and Don Todd was with Dr. Tomita over the weekend. They have increased the number of days they're doing surgery there with basic IOLs and the ICL in particular. They’ve part of their logistics issue is having nurses trained also that can go into the OR, because majority of their nursing staff is focused on the excimer-type refractive surgery. So -- and Dr. Tomita is very committed, we are working with him hand in hand, and he is very open as he is continuing to open days and continuing to open OR doors for the ICL.

And our next question is from the line of Bruce Jackson from Northland Securities.

With the gross margin expansion, there is 2 questions there. Number 1, I’m assuming that this is all from improvement in sales mix; and then secondly, can you tell us how that’s going to ramp up over the course of 2012?

Well first of all, mix is a major contributor, but so is IOL gross margin improvement and cost improvement on the ICL. Our gross margin has progressed more quickly than I anticipated it would. We finished the full year with IOL gross margins at the 59% level and we exited fourth quarter with IOLs at a 60% gross margin level. And that’s obviously helpful too, as the mix continues, I think as we’ve said for the full year we are anticipating ICLs to be up near the 60% rate of our total revenues for the year. And with that higher gross margin in the mid 80% range that’s going to continue to help. We grew our gross margin a little bit shy of 400 basis points on a year to year basis, it’s 370, and we are looking for another 350 basis point improvement from the 67.5% to 71% in 2012.

Okay, and then if I could just follow up on the IOL sales estimates for next year, you didn’t actually come out and give us an exact trajectory. But could you possibly give us a range that you are comfortable with and then also talk about some of the swing factors in that growth rate depending upon the product approval timing.

Yeah, I think -- what I’ve been saying for the last year or so is, I think looking forward at STAAR, the way to look at us is that our IOL business should grow at a 5% to 10% rate. Though I’ve stated it a lower gross margin than where we are. I’ve stated it as being between a 55% and 60% gross margin for the next 3 year period, though we are already at the 60% rate. So overall, I would certainly expect at least 5% rate on IOLs on the low side and 10% on the high side. One of the key factors in that will be the acceptance of our nanoFLEX lens in Europe. Our nanoFLEX lens just got started late in the year last year so we are in our full second quarter of launch of that product. But more exciting is the nanoFLEX Toric, which commands a higher price and thus a higher gross margin. It’s our high -- our Silicon Toric IOL is our highest gross margin lens in the company today. And that will be -- the margins will be very similar on our nanoFLEX Toric. So if we get that started second quarter and it starts going very well, then we could be at the higher range of that IOL growth rate.

Our next question is from the line of Joe Munda from Sidoti.

Real quick, this question is actually for Deborah. Deborah, going back to the slide, I believe it's slide 8, would be manufacturing consolidation. You had touched a little -- I’m not sure if I heard correctly on CapEx as well. Did you...

FX?

Yeah, did you happen to state a number as well with that consolidation?

No, we talked about it, I mean we don’t -- I guess I don’t understand the question FX associated with...

Well, yeah, I mean I pulled up the slides real late and I was trying to ruffle through while you guys were talking, and I thought is there going to be any Cap -- you had mentioned capitalized leases. I’m wondering how much of that is going to be incurred with this consolidation. And with this consolidation, is there -- if we were not to consider this consolidation at all, I mean, what would gross margin be if -- how much of a lag is there going to be with this consolidation?

Well, we will see the full amount of the gross margin improvements until the manufacturing is fully consolidated. In fact I wouldn’t project any improvements gross margin because of the manufacturing consolidation in 2012. You may start to see it in 2013 because we will have fully consolidated Japan manufacturing.

Correct, so how much of that consolidation do you think can stand gross margin in 2013?

You know, it’s going to be 1%, maybe. It’s going to be -- the smallest piece of it will be in 2013. Where we really see the kicker is when we transfer the ICL manufacturing in 2013 at the end of 2013, so in 2014.

So I think, Joe, if you look at 2013 gross margins, we are going to be getting close up to the 75 level but probably not quite there. And then in 2014, we should be in the higher 70% gross margin range.

And our next question is from the line of Joanne Wuensch from BMO Capital Markets.

This is Jake in for Joanne. Just on -- with the new product launches and the stocking orders, was there any material contribution from stocking orders? Is the right way to look at that, or because you are doing sort of phased roll outs, is it just going to be consistently -- not really something that would make sales lumpy for any particular period.

Yeah, well in our ICL line Jake, as we are converting to the C, let’s say we go into a country -- first of all, not many countries carry inventory. Spain does, Korea does, a couple of others carry very low inventory. But as we move to the C, we are taking the Bs back from then and selling the Bs in different markets. So we shouldn’t see any kind of impact, positive or negative, from the changes -- on the revenue line from the amount of consignment or stocking that might take place in a particular market.

Got you and then maybe just going on that vein to mark the share for the V4c, you noted that it was 25% in Europe this quarter. Where do you think that goes over the next year or 2?

Well, we will convert all the business in Europe to the V4c, we won’t offer the V4b in that market. And I would expect that, by midyear, we'll be at 100% level in the European markets. I also noted that just last week we got to the V4c application approved in the Middle East, and so we will begin -- we’ve just begun shipping V4cs to the Middle East. And so each one of these markets as they come on in a major way will probably take the market like the Middle East will probably take a full quarter implement to the C.

[Operator instructions] Our next question is from the line of -- a follow-up from Chris Cooley from Stephens.

I just wanted to circle on 2 points, the Toric IOL and then just general GAAP profitability for the full year. In your prepared comments, you mentioned an expectation for increasing growth from the Toric IOL in particular. Now I realize nanoFLEX is starting to roll out, but help me with what -- is there any incremental new clinical data out there that you think is salient that’s helping to drive share versus your primary competitor in that marketplace. Just kind of curious just what you think is -- or is it just greater availability of the bundle. I just want to make sure I understand what you think is really the driver there for growth in the Toric. And then subsequently, could you just help us -- I guess just trying to push a little bit here on profitability, what the bogey is for GAAP profitability in all 4 quarters and for the full year. Can you help us think about that, is there an improvement in that as well as we accelerate throughout the course of the year, is it -- just help us a little bit there with sequentially.

First of all on the Toric IOL, remember that the growth we saw last year in Toric IOL came from our Silicone offering, and that’s mainly in the U.S. market. That’s a nice gross margin product for us with very good sales for us. I would say we have seen more acceptability and better podium presence on the STAAR Silicon Toric IOL in the U.S. than we’ve seen in prior years. So I think that’s had something to do with it. We’ve also run promotions with our U.S. sales team on the Silicon Toric. The nanoFLEX Toric is a totally new product to us. It is not available in any market yet today. And as we go through the pre-marketing launch stage, we do anticipate getting surgeons available to present, particularly at the ESCRS meeting, on that product. And just knowing the benefits that we see in the nanoFLEX from the Collamer material, and also the visual results we get from the Collamer material in the ICL, combining those 2, at least I am very excited about seeing that product hit the market, because I think our clinical results will rival every other Toric lens that's in the market. Now that doesn’t mean we are going to be number one because there is a little company named Novartis happens to control the Toric IOL segment, but I think the clinical results from that lens are going to show that we’ve got a very, very viable, competitive product, which will begin in Europe and then will seek approval in additional markets. Concerning profitability for the full year, I think there is a couple of things you got to consider. Yes, profitability will continue to increase year-over-year. You’ve got to look at, 1, the incremental consolidation cost that we will have. As Deborah pointed out the $2 million to $2.5 million during 2012, that compares to the $1.1 million that we spent during 2011. Now when we began 2011, we didn’t anticipate any expenses for this project because it wasn’t even in place. But we know the long-term benefits it’s going to give us. The other offsetting factor, Chris, I think you got to look at, is these 16 additional sales and marketing personnel that we are putting into place. Now again we’ve only got 4 in place today so that’s 25%. But on a full year end basis the cost of those 16 employees, if they were onboard for 12 months, would be about an incremental $2 million over what we spent this year. So as you look at our increased gross margin and increased sales during 2012, you also got to look at the incremental spend that we are making on these 2 projects. First, the consolidation to increase profitability longer term and second, the sales and marketing to help push the sales line more quickly.

We have a follow up from the line of Joanne Wuensch from BMO Capital Market.

Just a couple of housecleaning items. On the tax rate, you gave a 2012 estimate. Would that be sort of midpoint, say around 30% in 2013.

Yeah, that’s I think that’s fair. I guess I would hedge that a little, maybe 30% to 35%.

Great, and then on the Visian ICL sales in the U.S., you noted double digit growth. Can you be more specific at all or?

That was double digit growth in the civilian market Jake. Which is probably a better indicator of refractive procedures in the economy overall than the military. The military in the past has been about 25% of our overall ICL business in U.S. As we lost two key surgeons last year from the military, one whom Dr. Scott Barnes, who went to Afghanistan and he is just reporting back, and then Dr. Gregory Parkhurst, who retired from the military and has gone to private practice. So, those 2 were in our top 5 in terms of implanters in the U.S. so they’ve clearly had an impact on military sales.

Thank you. And at this time I would now like to turn the conference back over to Barry Caldwell for closing comments.

Again I would like to thank all of you for being in our call today. If you have additional questions or comments you would like to make, please feel free to give Deborah or I a call. And you saw the road shows will be on. If you would like to see us, please contact the appropriate parties, and we look forward to seeing you. Thank you very much. Have a good evening.

Ladies and gentlemen, this does conclude the conference for today. This conference will be available for replay until March 13, 2012, at midnight. You may access the replay system at anytime by dialing (303) 590-3030 or 1 (800) 406-7325 and entering the access code of 4511536 pound. We thank you for your participation and you may now disconnect.