Full Press Release Details
Good day, ladies and gentlemen. Thank you for standing by. Welcome
to the STAAR Surgical First Quarter 2018 Financial Results Conference Call. (Operator Instructions) This call is being recorded
today, Wednesday, May 2, 2018.
At this time, I would like to turn the conference over to Mr. Brian
Moore with EVC Group.
Thank you, Gigi, 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 first quarter, which
ended on March 30, 2018.
On the call today are Caren Mason, President and CEO of STAAR Surgical
Company; and Deborah Andrews, Chief Financial Officer. The release of the first quarter results was issued just after 4:00 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. 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 judgment and analysis as of the date of this conference call and are subject
to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the
forward-looking statements. 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 or loss and net income and/or loss per share information. We believe that these non-GAAP numbers provide meaningful
supplemental information and are helpful in assessing our historical and future performance. A table reconciling the GAAP information
to the non-GAAP information is included in today's financial release.
Following our prepared remarks, we will open the line to questions
from publishing analysts. (Operator Instructions) We thank everyone in advance for their cooperation with this process.
Now, I'd like to turn the call over to Caren Mason, President and
Chief Executive Officer of STAAR Surgical.
Caren L. Mason STAAR Surgical Company - CEO, President and
Thank you, Brian, and good afternoon, everyone. I will begin our
discussion with an overview of our strong start to 2018 and will update you on our outlook for the remainder of the year. Deborah
will then review key first quarter financial results before we open the call for your questions.
Our team at STAAR Surgical is focused upon generating returns for
our shareholders by building a company that provides a compelling business model to ophthalmic surgeons and visual freedom to their
patients. The first quarter financial results illustrate that we are executing to this vision. Furthermore, our progress since
the end of the first quarter leads us to believe that our momentum is continuing.
When we last talked with you in late February, we noted that one
of our objectives for fiscal 2018 was to generate more than $100 million in revenues. Today, based on our building momentum and
the continued evidence that a growing number of surgeons are depending on STAAR and our EVO product line to enhance their business
plan profitability and produce their happiest patients, we are raising the bar on the 2018 sales target from low-double digit to
closer to 20% growth over 2017. Our increased growth outlook is based solely on the momentum we are seeing in international markets
and does not include any incremental U.S. contribution beyond our previous forecast. Also even though we are continuing to increase
the investments required to maintain our emerging sales growth trajectory, we expect profitability improvement as compared to 2017
and to increase cash from operations for the full year.
As noted in today's earnings release, we are currently enrolling
patients in our European multisite EVO with EDOF presbyopia clinical trial. The cost to conduct this pivotal study and other clinical
studies, increasing regulatory submission fees and expanded effort to build IP protection on new variations of our Collamer material
and EDOF products, commercial infrastructure expansion and consumer outreach will lead to an increase in overall spending as compared
to prior periods. In the first quarter of 2018, operating expenses increased 12% as compared to last year's first quarter. This
rate of growth was significantly below our top line growth rate, and we were, therefore, able to achieve profitability for the
quarter and increase our cash position by approximately $2.3 million from December 31, 2017. To reiterate, we are not modifying
our earnings projection at an improvement over 2017 EPS of negative $0.05 at this time but are certainly getting more comfortable
around the prospect of delivering breakeven to slightly profitable results by year-end.
While Deborah will go through the numbers in more detail, there
are a few highlights that I'd like to offer. First, our net sales for the quarter grew 33% and were driven by 39% ICL revenue growth.
ICL units grew 41%, and our other products segment, which includes IOLs and injector parts grew 17%.
Second, while we expected our gross margin percentage to dip slightly
during 2018 due to strong injector part sales, we are pleased to report that our gross margin actually grew 10 basis points in
the first quarter due to the exceptional ICL growth.
STAAR's key international markets contributed to the strong first
quarter performance, with China once again leading the way with 91% ICL unit growth. We continue to make investments in China and
now have more than 60 combined STAAR and distributed dedicated personnel servicing a growing number of strategic partners and providers.
In May, we'll be traveling to China as our largest strategic partner, Aier Eye Hospital Group, features STAAR Surgical and their
positive experience with EVO Visian ICLs at their second international annual refractive surgery meeting.
We also recently expressed confidence to you that our challenges
in Korea were being addressed. And during the first quarter, ICL units in that market grew 54%. Key factors behind the Korean turnaround
are new strategic partnerships, renewed and solidified commitments from our distributor partner and the digital marketing and social
media campaigns that STAAR is introducing to the market.
Japan at 56% ICL unit growth is another market with 50%-plus unit
growth as compared with last year. In Japan, we are benefiting from strong and significant strategic partnerships and solid digital
marketing and media support. We plan to expand our team in Japan in the near term to meet increasing demand also fueled by recent
Facebook, Instagram and Twitter postings of very happy EVO patients, some with celebrity status.
Other key international markets contributed to our strong first
quarter unit growth, including the Middle East with 25% growth and Germany with 22% growth.
Our North American results are benefiting from the building interest
in EVO in Canada, with unit growth of 14% in the first quarter as well as our disciplined approach to surgeon certification, practice
development and consumer outreach. We are committed to ensuring that these relationships provide the outstanding premium and primary
positioning we enjoy in our largest international markets. We are demonstrating that we can change the way the ICL is marketed
and perceived in North America as we have in Europe and Asia with the right partners. We continue to prepare for a possible Toric
Visian ICL launch in the United States by year-end, dependent upon achieving an in-compliance QSR rating by the FDA. In addition,
with recent clinical data and patient registry reporting from around the globe, we believe we are on steady footing to present
a very positive picture of the safety and effectiveness and patient satisfaction of the EVO Visian ICL family of lenses as our
next targeted product family for U.S. approval.
Our patient registry has now grown to nearly 1,600 patients, surveyed
post-ICL implementation, with 99.4% reporting they would have the surgery again.
Turning now to our quality system audit updates. During Q1 2018,
STAAR completed an extensive series of audits of our facilities, products and processes, most notably, the ISO 1345:2016 and Medical
Device Single Audit Program known as MDSAP certification audits. ISO 13485:2016 is the latest upgrade to the global ISO quality
system standard used in many markets, including the European Union. The Medical Device Single Audit Program is an assessment of
the quality system for conformance to quality system requirements of 5 countries, which are Australia, Brazil, Canada, Japan and
the U.S. And the audit results are recognized by the regulatory bodies of these countries. The results of 19-person days of auditing
by the certifying body resulted in a positive outcome, and we anticipate certification in the near future.
In addition to these audits, on April 30, the FDA commenced a reinspection
of our Monrovia facility in relation to the 2014 warning letter. We will provide an update when appropriate and permitted after
the inspection is completed.
I have 2 quick updates I'd like to share before turning the call
over to Deborah. First, STAAR has purchased lab and manufacturing equipment and tools, office finishing equipment and hired operations
leadership from ReVision Optics, which recently closed its stores. In addition, we secured their office and manufacturing space
south of us in Lake Forest and Orange County on a 5-year lease. We are intent upon designing and building our Foundations 2020
operations improvements, including precision manufacturing and engineering at the site.