Full Press Release Details
STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
EVENT DATE/TIME: FEBRUARY 23, 2022 / 9:30PM GMT
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FEBRUARY 23, 2022 / 9:30PM, STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
C O R P O R A T E P A R T I C I P A N T S
Brian Moore STAAR Surgical Company - VP of Investor, Media Relations & Corporate Development
Caren L. Mason STAAR Surgical Company - CEO, President & Director
Patrick F. Williams STAAR Surgical Company - CFO
C O N F E R E N C E C A L L P A R T I C I P A N T S
Andrew Frederick Brackmann William Blair & Company L.L.C., Research Division - Associate
Bruce David Jackson The Benchmark Company, LLC, Research Division - Senior Equity Analyst
Christopher Cook Cooley Stephens Inc., Research Division - MD
David Kuang Oppenheimer & Co. Inc., Research Division - Research Analyst
James Philip Sidoti Sidoti & Company, LLC - Research Analyst
Ryan Benjamin Zimmerman BTIG, LLC, Research Division - MD & Medical Technology Analyst
Zachary Ross Weiner Jefferies LLC, Research Division - Equity Associate
P R E S E N T A T I O N
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAAR Surgical Fourth Quarter and Fiscal Year Financial ResultsConference Call. (Operator Instructions) This call is being recorded today, Wednesday, February 23, 2022.
At this time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor, Media Relations and Corporate Development forSTAAR Surgical.
Brian Moore - STAAR Surgical Company - VP of Investor, Media Relations & Corporate Development
Thank you, operator, and good afternoon, everyone. Thank you for joining us on the STAAR Surgical Conference Call this afternoon to discuss thecompany's financial results for the fourth quarter and fiscal year ended December 31, 2021.
On the call today are Caren Mason, President and Chief Executive Officer; and Patrick Williams, Chief Financial Officer. The press release of the fourthquarter results was issued just after 4 p.m. Eastern Time and is now available on STAAR's website at www.staar.com.
Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. Wecaution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company'sprojections, expectations, plans, beliefs, and prospects. These statements are based on judgment and analysis as of the date of this conference calland are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in theforward-looking statements.
The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the safeharbor statement in today's press release, as well as STAAR's public periodic filings with the SEC. Except as required by law, STAAR assumes noobligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.
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FEBRUARY 23, 2022 / 9:30PM, STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
In addition, to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and adjusted earnings per share and sales inconstant currency. We believe that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing ourhistorical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in today's press release.
Following our prepared remarks, we will open the line to questions from publishing analysts. (Operator Instructions) We thank everyone in advancefor their cooperation with this process.
And with that, I would now like to turn the call over to Caren Mason, President and CEO of STAAR.
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call.
The fourth quarter results we reported today are consistent with the preliminary results we announced last month. Fourth quarter results contributedto another record year of sales, profit, cash flow and growth achievement for STAAR in fiscal 2021. We achieved all of this, despite some ongoingCOVID and operations-related headwinds. Our results were driven by global ICL unit growth for the full-year fiscal 2021, which was up 48%year-over-year, and almost 3x to 17% increase in global industry refractive procedures.
Turning to the fourth quarter. We achieved strong growth in several markets, including ICL unit growth in China, up 44%; Japan, up 45%; SouthKorea, up 35%; India, up 74%; and Latin America, up 30%, all as compared to the prior year quarter. All of the major regions we track achievedpositive ICL unit growth year-over-year for the fourth quarter of 2021.
European geographies, as many of you know, were most impacted by the emerging Omicron COVID variant during the fourth quarter of 2021.COVID impacted certain of our European customers, and in the US, STAAR's manufacturing operations. Employee absenteeism was the majorheadwind in both cases, with staff and employees quarantining at various times during the fourth quarter, mostly due to household or contact-tracingCOVID protocols. We believe the worst of these headwinds are now lessening.
Global demand for our ICL continues unabated through the first seven weeks of the first quarter of 2022, including record orders from surgeonsin China. Based on our current demand and supply forecast, we are reaffirming our previously provided outlook for fiscal 2022 net sales ofapproximately $295 million, subject to no unforeseen impact from COVID on our business. $295 million in net sales represents 28% year-over-yeargrowth, which is an acceleration from our pre-pandemic level of growth in fiscal 2019 and would represent another record year of sales for STAAR.Patrick will provide details on the calendarization and composition of our sales outlook shortly.
Turning to the US. Our submission of clinical data for STAAR's EVO family of myopia lenses remains under customary interactive FDA review. Whileour expectation of pre-COVID approval time lines by the FDA has now passed, we remain confident regarding an approval of our PMA supplement.We will provide further comment on the process and our interactions with the FDA when permitted and appropriate to do so.
The US is the second largest market in the world for refractive procedures. We estimate that there are a very significant 100 million US adults, whoare potential candidates for our implantable Collamer lenses. These adults are aged 21 to 45 with myopia in the range of minus 3 diopters andminus 15 diopters, which are our currently approved ranges in the US.
In 2022, we plan to invest more heavily in consumer awareness building programs designed to accelerate the paradigm shift to lens-based visioncorrection. We are seeking commitments from new and exciting celebrity brand ambassadors in the US and abroad, who plan to share their journeysto the visual freedom provided by our EVO lenses.
We will also continue to engage surgeons and their staffs globally through clinical validation, education and strategic cooperation in fiscal 2022.Our implantable Collamer lenses are suitable for a wide range of vision correction, which in some markets extends down the diopter curve to minus
0.5 diopters. I am pleased to report today that for the full year of fiscal 2021, almost two-thirds of our ICLs sold globally were in the range of minus
0.5 to minus 10 diopters.
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FEBRUARY 23, 2022 / 9:30PM, STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
In April, we will engage the ophthalmic community with a strong presence at the American Society of Cataract and Refractive Surgery, the ASCRSAnnual Meeting in Washington, D.C., where we anticipate thousands of US surgeon and clinic attendees. Our Medical Monitor for our US study,Dr. Mark Packer, submitted his abstract to ASCRS and we look forward to sharing the clinical data at that time.
Later this year in September, we plan to host an Experts Meeting ahead of the European Society of Cataract and Refractive Surgery, the ESCRSAnnual Congress, which is also historically attended by a strong contingent of global surgeons, where we plan to kick off the full commercializationof our presbyopia lenses. All told, we anticipate fiscal 2022 will be another record year of commercial and financial progress for STAAR.
Patrick F. Williams - STAAR Surgical Company - CFO
Thank you, Caren, and good afternoon, everyone.
Total net sales for Q4 2021 were $59 million, up 28% as compared to the $46 million of net sales in Q4 2020, and up 1% on a sequential basis fromQ3 2021. The year-over-year increase in net sales was attributable to a 33% increase in ICL sales, partially offset by declines in other product sales.
As Caren mentioned, our outlook for fiscal 2022 is net sales of $295 million. We anticipate returning to a more normal pre-pandemic calendarizationof sales in 2022 with approximately 48% of net sales in the first half of the year, which is consistent with our 2019 results. As a reminder, Q1 andQ4 have historically represented our seasonally lowest quarters. We expect net sales for Q1 2022 to be similar or slightly up from Q4 2021, and Q2net sales to still represent our seasonally highest quarter for the year.
Turning back to Q4 2021. In terms of product mix, ICL sales represented 90% of total company net sales for the fourth quarter as compared to 87%of total company net sales in the year ago quarter. Other product sales represented 8% of total company net sales for the full-year fiscal 2021. Andfor the full-year fiscal 2022, we anticipate other product sales will be approximately 5% of total company net sales as our ICL business continuesto grow at a much higher rate.
Gross profit for Q4 2021 was $45 million, or 76.3% of net sales as compared to gross profit of $34.3 million, or 74.6% of net sales for Q4 2020, and$45.3 million, or 77.6% of net sales for Q3 2021. The 170 basis point increase in gross margin as compared to Q4 2020 is primarily due to the highermix of ICL, partially offset by higher expenses related to manufacturing projects.
The sequential decrease in gross margin from the third quarter is due to lower ICL sales mix in Q4 at 90% as compared to 93% in Q3. For fiscal year2021, gross margin was 77.5%. We expect Q1 and full-year 2022 gross margin to be approximately 77%, as we increase investments in manufacturing,including at our Nidau, Switzerland and Lake Forest, California manufacturing facilities.
Moving down the income statement. Total operating expenses for Q4 2021 were $37.6 million as compared to $30.2 million in Q4 2020, and $37.5million for Q3 2021. Taking a closer look at the components of operative expenses, G&A expense for Q4 2021 was $11.5 million compared to $9.5million for Q4 2020 and $11 million for Q3 2021. The year-over-year increase in G&A is due to increased compensation-related costs, facility costsand outside services. The sequential increase from Q3 2021 was due to increased compensation-related expenses.
For the full-year 2021, G&A expense was $44.1 million, or 19.1% of total net sales. For full-year 2022, we expect G&A expense to be approximately$13 million to $14 million per quarter. Selling and marketing expense was $17.1 million for Q4 2021 compared to $11.8 million for Q4 2020, and$18.2 million for Q3 2021. The increase in selling and marketing expense from the prior year was due to increased advertising and promotionalexpenses, compensation-related expenses, and trade show and meeting expenses due to the ICL awareness-building activities Caren mentionedearlier.
For fiscal 2021, selling and marketing expense was $67.3 million, or 29.2% of total net sales. For the full-year 2022, we expect selling and marketingexpenses as a percent of sales to represent approximately 30% to 32% per quarter and to be at the higher end of this range in Q2 and Q3 to supportsales during our busiest quarters.
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FEBRUARY 23, 2022 / 9:30PM, STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
Research and development expense was $9.1 million in Q4 2021 compared to $9 million for Q4 2020, and $8.3 million for Q3 2021. The sequentialincrease in R&D is due to increased compensation-related expenses, offset by a decrease in our US EVO clinical trial expense. For fiscal 2021, researchand development expense was $33.9 million, or 14.7% of total net sales. And for the full-year 2022, we expect R&D expenses to be approximately$10 million per quarter.
Operating income in Q4 2021 was $7.4 million, or 12.5% of net sales as compared to $4.1 million or 8.8% of net sales for Q4 2020. The 370 basispoint year-over-year expansion in operating margin was due to leverage on fixed and variable operating expenses during the quarter.
Operating margin for the full-year fiscal 2021 was a record 14.5%. We expect operating margin for full-year 2022 to be similar to fiscal 2021, asanticipated leverage on general and administrative and research and development expenses is offset by important investments in selling andmarketing, targeted building ICL awareness and market share.
Net income in Q4 2021 was $4.9 million, or $0.10 per diluted share compared to net income of $3.3 million, or $0.07 per diluted share in Q4 2020.On a non-GAAP basis, adjusted net income for Q4 2021 was $9.5 million or $0.19 per diluted share compared to adjusted net income of $6.8 million,or $0.14 per diluted share in Q4 2020.
For the full-year 2022, subject to no significant change in our valuation allowance, we anticipate our tax rate by quarter and for the full year willbe approximately 30%. A table reconciling the GAAP information to the non-GAAP information is included in today's financial release.
Turning now to our balance sheet. Our cash and cash equivalents as of December 31, 2021, totaled $199.7 million, up $47.2 million compared to$152.5 million at the end of the fourth quarter of 2020. The increase in cash is primarily attributable to $44 million in cash generated from operations.We invested $13.7 million in property and equipment in fiscal 2021. For the full-year 2022, we anticipate our CapEx will be approximately $20million as we continue to invest in scaling our manufacturing infrastructure.
Finally, STAAR will be participating in the Canaccord Non-Deal Roadshow on March 10th and the Oppenheimer Annual Healthcare Conference onMarch 15. We look forward to speaking with many of you at these events.
This concludes our prepared remarks. Operator, we are now ready to take questions.
Q U E S T I O N S A N D A N S W E R S
(Operator Instructions) Our first question is from Bill Plovanic of Canaccord.
It's [John] on for Bill. I just wanted to dive a little bit deeper on where you are currently in your discussions with the FDA. Can you just talk abouthave you begun discussing the label and/or the post-approval study?
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
So, this is Caren. Thank you for joining us today, John. Can you hear me okay?
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FEBRUARY 23, 2022 / 9:30PM, STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
Okay. Great. So what we said in the script remains true. We are in customary interactive review with the FDA, and we really don't comment anyfurther as to process or progress other than to tell you confidently that we feel very good about getting a positive result for our submission.
Got it. And then just as a follow-up. Just maybe touching just on China and the Olympics. How should we think about the impact? The Olympicsprovide any unique branding opportunities for STAAR in China? And do you think that could portend to a stronger growth than what we seasonallysee from China in Q1?
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
Well, as we addressed, the first seven weeks of the year in China have been particularly strong. We had record orders from surgeons. And so,obviously, we've had a lot more patient flow and I can't say that that's attributed to the Olympics. But what I can say is that there is a lot of positiveprogress with regard to social media and digital marketing, as well as a lot of streaming media associated with the benefits of EVO. And so wecontinue those great programs very successfully. And so we attribute that and a lot of the great work of our team in China and the outstandingwork of the surgeons in China to why EVO continues to gain market share in refractive procedures in China.
Our next question is from Zach Weiner of Jefferies.
Zachary Ross Weiner - Jefferies LLC, Research Division - Equity Associate
I just wanted to jump in on the backlog that you called out in your pre-announcement, you caught out 20,000 lenses. I believe that's consistentwith the 3Q release also. Just curious where backlog currently stands and if any of that backlog is factored into full-year 2022 guidance.
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
So thanks for joining us, Zach. In terms of backlog, yes, we continue to have a healthy backlog. Some of that is figured in, but I wouldn't be surprisedwith momentum as strong as it is with current orders and backlog. It certainly gives us an opportunity to overperform.
Zachary Ross Weiner - Jefferies LLC, Research Division - Equity Associate
Got it. That's helpful. And then just one on Viva. The launch, obviously, coming later this year in Europe. Any commentary on bringing the Viva lensto other markets outside of Europe? And if so, do you have any commentary on what the approval pathway would be either in US or in China?
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
So, we have a number of countries, where we are in regulatory review. We expect that by the time we have our Experts Meeting in Milan inSeptember, there will be a number of markets open for the Viva lens. And so we expect very good attendance in Milan unless, of course, there isanother COVID spike. But without that we see in-person ophthalmic surgeon meetings being very well attended. And we expect that there will becountries approved in Asia and Europe that will benefit from the Viva playbook that we are building.
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FEBRUARY 23, 2022 / 9:30PM, STAA.OQ - Q4 2021 STAAR Surgical Co Earnings Call
Zachary Ross Weiner - Jefferies LLC, Research Division - Equity Associate
Got it. That's helpful. And then just one last one. For -- the guidance for 2022, does that include any potential revenue outside of the couple ofmillion dollars pre-EVO Visian approval? Or is FDA approval not factored into current 2022 guidance?
Caren L. Mason - STAAR Surgical Company - CEO, President & Director
We have a modest amount of 2022 volume in our guidance. Obviously, again, we'd love to overachieve, but we are being very prudent in terms ofwhat timing we'll end up being. But we're very confident. I tell you that, that we're ready. So, we'll give it all we have, but we have a very modestamount, yes, in our 2022 guidance at this time.
Our next question is from Chris Cooley of Stephens.
Christopher Cook Cooley - Stephens Inc., Research Division - MD
Caren and Patrick, maybe if I could just start just on the guide. I just want to make sure we're thinking about this correctly, and then I've got afollow-up. But on the guidance, help us think a little bit about the gating on the increased spend. I appreciate the color you provided on kind of areturn to normalcy when we think about the top line and the seasonal trends there. But help us think about how you make these incrementalspend through, both from a consumer awareness perspective and also clinical education perspective? Just kind of how we should think about thegating of that? And I've got one quick follow-up.
Patrick F. Williams - STAAR Surgical Company - CFO
Sure, Chris. This is Patrick. I'll fill that one. So as Caren and we said in our prepared comments, this is really a big year for us as we look to increasethe brand awareness of EVO worldwide, especially with the pending approval that we see on the US market being the number one market. Andwe do believe the US market will be able to drive a global influence for us.
And so that's what you're seeing in the color that we gave around the uptick in investment in sales and marketing. The rest of the business, R&D,G&A, some modest increases there as we continue to scale. So nothing, I would say, really worthwhile there other than scaling to -- approaching$300 million plus company and starting to prepare us for what we hope to be with the US coming onboard a very, very robust growth rate overthe next several years.
Christopher Cook Cooley - Stephens Inc., Research Division - MD
Appreciate that color. And just as a follow-up from me. When we think about just the US market in anticipation of Viva's FDA approval and thenthe subsequent commercialization here, it's a highly fragmented market when we think about the space versus what you have, for example, inChina. Can you help us think a little bit about those kind of how we should think about the rollout? Is this an initial focus on KOLs and get goodtraction and then expand over time? Or is this somewhat rapid type of a launch post-commercialization that we should think about? Obviously,the KOLs going first, but subsequently, a much faster push into the broader market based on training and education.