Full Press Release Details
Event Name: Q3 2015 STAAR Surgical Co Earnings Call
Event Date: 2015-10-28 / 4:30 pm ET
Operator^ Good day, ladies and gentlemen. Thank you for standing
by. Welcome to STAAR Surgical's Third Quarter 2015 Financial Results Conference Call. (Operator Instructions) This call is being
recorded today, Wednesday, October 28, 2015. At this time, I would like to turn the conference over to Mr. Brian Moore with EVC
Brian Moore^ Thank you, Operator, and good afternoon, everyone.
Thank you for joining us on the STAAR Surgical conference call this afternoon to review the Company's financial results for the
third quarter, which ended on October 2, 2015. Joining me on the call today are Caren Mason, President and CEO of STAAR Surgical,
and Steve Brown, CFO. The news release detailing the third quarter results was issued just after 4 PM Eastern Time and is now available
on STAAR's website at www.staar.com.
Before we get started, let me quickly remind you that during
the course of this conference call the Company will make forward-looking statements. We caution you that any statement that is
not a statement of historical fact is a forward-looking statement. This includes remarks about the Company's projections, expectations,
plans, beliefs and prospects. These statements are based on judgement and analysis as of the date of this conference call and are
subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described
in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference
call and webcast are described in the Safe Harbor statement in today's press release, as well as STAAR's public periodic filings
with the SEC. 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. We believe that these non-GAAP numbers provide meaningful
supplemental information and are helpful in assessing our historical and future performance. Also, in order to compare our performance
from period-to-period without the effect of currency fluctuations, we apply the same average exchange rate application to the prior
period, or constant currency rate to sales. A table reconciling the GAAP information to the non-GAAP information is included in
today's financial release, which is available on our website. Now, I would like to turn the call over to Caren Mason, President
and Chief Executive Officer of STAAR Surgical.
Caren Mason^ Thank you, Brian, and good afternoon, everyone.
I will begin our discussion with general commentary on the state of the business. Steve will then review key third quarter fiscal
year 2015 financial results before we open the call for your questions. When I first joined STAAR's board of directors in June
of 2014, I was a bit skeptical and encouraged to make my way to London to experience an extraordinary experts meeting and European
Congress. As it turned out, I was unable to clear my schedule to attend. This year, although no longer skeptical, I was still unsure
about the designation of extraordinary. Before this year's experts and ESCRS meetings in Barcelona, we welcomed Dr. John Hayashida
and Dr. Keith Holliday to STAAR, who head our Clinical and Medical Affairs and R&D departments, respectively. The timing was
good in that they are both ophthalmic industry veterans and they were anxious to attend and learn and properly position the significance
of this meeting and the takeaways in their planning.
As it turns out, all three of us were stunned by the exceptional
and very unique commitments by leading surgeons to share the ICL's superlatives and challenges with each other, and any surgeon
willing to engage at the experts meeting, at the ESCRS, and at working group special sessions we conducted. At the experts meeting
topics included: Over two decades of ICL-proven safety; Collamer, a Unique Material for Long-term Safety; literature review of
Visian ICL safety, long-term clinical outcomes of the Visian ICL; Clinical Grand Rounds, Learning from my Mistakes and Challenging
Cases. At the ESCRS, between educational symposia, training and instructional courses, posters and papers, there were over 40 opportunities
to learn about the ICL at the ESCRS. Topics there included 20 Years of Preserving the Cornea for the Future; Correcting Astigmatism
in Today's Refractive Practice; Visian ICL Selection Criteria and Preoperative Examination and Planning; and Visian ICL Surgical
Technique and Postoperative Care.
At the working groups combined, over 20 leading surgeons debated
for several hours the merits of potential ICL presbyopic correction parameters and sizing for the ICL and its relative significance
and successful placement. Having the attention and attendance of leading surgeons in various venues for multiple days and evenings
was a feat I have never witnessed. Our verdict is that extraordinary to characterize these combined events is an understatement.
Much of what we learned is being put into planning and practice just one month later.
The clear challenge for STAAR is to apply these tenets of wisdom
and deep appreciation for this technology to a much larger global user base. This is where we are focused. We have significant
work to do in each market to properly position our vision care solutions as productive and profitable practice additions for the
surgeon while delivering the best possible outcomes for patients. The technology is proven and performing. The uptake this quarter
in usage is very promising but not yet a predicate for base business certainty. We do not collectively believe that the ICL, whatever
vision correction classification we offer, is an outlier or secondary solution to other refractive procedures. However, today it
accounts for less than 10% of refractive surgery in the majority of practices. We believe that the promise of the ICL is as fresh
as when it was introduced. The market building and foundational operational excellence needs to be applied and achieved. In that
vein, we have completed a number of deliverables we talked about beginning in April.
The FDA remediation and improvement of our quality system continues,
and is achieving internal metrics and budget projections. We have begun the transition from a strong contingent of consultant support
to the hiring of several new quality leaders including a vice president of global quality assurance, quality systems managers,
principal quality engineers, microbiology quality engineers, quality system auditors, and quality control inspectors. We continue
to fund the remediation and significant executive and staff additions, QMS systems, facilities and equipment monitoring upgrades
from operating capital. We place significant performance criteria on cash generation, and in the second quarter added $800,000
in cash followed by cash generation in the third quarter of $1.1 million. We have added global strategic marketing to lead our
market building. We have adopted a much stronger project management focus for the addition of a more rigorous phase review discipline
which will be in place by year-end. We have created a clinical affairs department led by industry-recognized leaders, both on staff
and supporting us on a consultative basis.
Every aspect of our current commitment to regulatory bodies
and future opportunities for clinical studies and validation is being reviewed and plans solidified. We have hired the very talented
and accomplished Dr. Keith Holliday as leader of research and development. His initial focus is on supporting our remediation work,
presbyopic ICL development, material and visionary projects, and new categories that blends development.
We have selected and recruited clinically leading surgeons to
serve on our working groups for special projects, including presbyopia. We have completed our intellectual property patent (inaudible)
review and filing new applications for recent developments is underway. Our plans to introduce the new expanded optic CentraFLOW
lens are on schedule for targeted introduction beginning in Europe in Q1 2016, pending review and approval of the CE mark submission.
We are finalizing a new branding strategy for this lens with a goal of increasing the appeal of the Visian ICL, the surgeons and
their millennial patients.
All in all, I am pleased with the strength and commitment of
the team to deliver ever-improving results for our shareholders. We need to rebuild, repurpose and reposition both operationally
and commercially. We believe Implantable Collamer lenses will provide an integral evolution to visual freedom for patients all
over the world. I will now turn over the call to Steve for a review of our Q3 financial results.
Steve Brown^ Thank you, Caren, and good afternoon, everyone.
I will start the financial overview with top line results by product and market. First, for our ICL product line, total sales were
$12.9 million for the third quarter of 2015, increasing by 21% from the prior year period with units increasing 21% as well. We
experienced strong performance with sales and units increasing by double-digits in each regional market. EMEA ICL sales were $4.8
million during the third quarter, an increase of 25% compared to the prior year period with strong unit growth of 37%. Sales in
Germany tripled over the prior year period due to the conversion of the market from the former distributor to direct selling, which
began July 1, 2015, and increased unit growth of 44%. The increase in average selling price in Germany offset approximately one-third
of the $1.1 million impact on EMEA sales from the weakening of the euro against the US dollar.
In other key markets, EMEA unit sales were similarly strong
with the Middle East up 67%, France up 38%, Latin America up 33%, and Spain up 16%. Asia-Pacific ICL sales were $6.4 million during
the third quarter, an increase of 21% compared to the prior year period, with unit growth of 13%. Korea ICL sales increased 54%
compared to the prior year period, when sales were first impacted by negative LASIK media coverage. Korea sales continue to recover
as September year-to-date sales are now 7% behind prior year compared to being 21% behind the prior year through June. China ICL
sales increased 20% due to the adoption of the CentraFLOW technology introduced in December 2014, and a price increase of 4% in
July 2015. North America ICL sales were $1.7 million during the third quarter, up 14% from the prior year period, with unit growth
For our IOL product line, total IOL sales were $4.4 million
for the third quarter of 2015, and down 24% from the prior year period, with units down 18%. The decline was due to the weakening
yen affecting Japan sales, the weakening euro affecting France sales, and a planned phase-out of sales in China; a planned hold