Full Press Release Details
day, ladies and gentlemen. Thank you for standing by. Welcome to the STAAR Surgical First Quarter 2017 Financial Results Conference
Call. (Operator Instructions) This call is being recorded today, Wednesday, May 3, 2017. At this time, I'd like to turn the conference
over to Mr. Brian Moore with EVC Group.
you, Latoya, 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 31, 2017. On the call today are Caren Mason, President
and CEO of STAAR Surgical; and Deborah Andrews, Interim Chief Financial Officer. The news release detailing the first quarter results
was issued just after 4 p.m. Eastern Time and is now available on STAAR's website at www.staar.com.
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 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.
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. A table reconciling the GAAP information to the non-GAAP information is included in today's financial release.
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. And with that, 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
you, Brian, and good afternoon, everyone. I will begin our discussion with an abbreviated overview of Q1 performance highlights
and conclude with progress on select strategic priorities for 2017. Deborah will then review key first quarter financial results,
before we open the call for your questions.
are pleased with momentum that continues to build in our ICL business. ICL highlights for Q1 includes sales growth in Canada of
65%, Japan of 65%, and China of 45%. Region growth was strong in ICL units as well with EMEA up 11% and Asia Pacific up 28%. India,
which is included in the APAC region number, did experience stronger-than-anticipated growth. Distributors servicing India placed
stocking orders to compensate for a delay in registration renewal, which could impact normal import timing in Q2. We do anticipate
achieving our full year growth plan in India and signed a strategic cooperation agreement in the first quarter with a large eye
hospital group. As anticipated, total units were appreciably down in Korea, but we are pleased with the growth in the Toric ICL
orders in Korea. Globally, Toric ICL shipments hit a new quarterly record and continue to account for a growing percentage of the
ICL mix. In Q1 2017, Toric ICLs accounted for 51% of sales versus prior year of 46%, and 44% of units versus prior year of 40%.
For the quarter, IOL sales and injector parts were behind prior year. With the discontinuation of our U.S. silicone IOL business,
we do anticipate flat to declining growth in 2017 for our IOL product line. Injector parts, however, should resume their growth
trajectory in coming quarters.
to our progress on select strategic priorities. As you know, our work in Quality is continual and remains as our top strategic
priority. With regard to FDA remediation, we have completed the internal work in Q1 per our submitted plan to the agency and have
notified the FDA that we are ready for inspections. We just completed our 5-year recertification inspections with DEKRA, our European
notified body, which grants the CE mark and ISO certification and anticipate full recertification in July.
the new product front, our first-in-man clinical trial for the next generation ICL with EDOF continued in the first quarter, and
the results continue to be positive. We recently conducted a meeting in Madrid, Spain, with our principal investigator and our
surgeon working group to discuss the initial findings of the clinical study and directionally next steps. We plan to introduce
the lens upon approval this year to a select group of surgeons for early effectiveness observational use. A beta analysis to seek
surgeon feedback on their experience with the EVO aspheric EDOF lens, including performance, patient acceptance, OD practice development,
et cetera. Overall, the working group's comments were positive and supportive of our rollout plans for this important addition
to the EVO lens family. Regarding the new preloaded ICL injector delivery system, we recently completed surgeon preference testing
at our new technology center, where ICL experienced surgeons took the new preloaded ICL injector delivery system for a test drive.
We're very pleased with the feedback and results and will plan to submit this device for CE mark approval in the coming months.
are continuing to build the evolution in visual freedom market for implantable lenses. At the upcoming ASCRS meeting at Los Angeles
this weekend, we will showcase the strengthening of the product branding launched last year, and we'll be introducing an enhanced
surgeon training and practice development program continuum. Just a few highlights include: Dr. Greg Parkhurst and Dr. William
Schiff's session on Visian ICL optometry co-management and training; Dr. Jason Brinton and Dr. Luke Rebenitsch will be sharing
best practices in business management and practice development as part of a successful refractive practice. Additional sessions
will include in-depth discussion on the performance of the ICL, and the addition of the Collamer IOL to a cataract practice. These
sessions will be led by Dr. Mark Packer, Dr. John Vukich and Dr. Joaquin Fernandez. Additionally, we will be exhibiting again at
the ASCRS Refractive Surgery Day after an 8-year absence with an all-day focus on the ICL as the premium refractive option and
Dr. Erik Mertens will be on the podium presenting "Non Corneal Refractive Surgery: Next Generation Phakic IOLs."
to reaffirm our view of the business for 2017. We expect double-digit ICL unit growth for the year, driven primarily by increasing
market acceptance of the EVO Visian ICL in established markets with the exception of the U.S. and Korea. We expect IOL sales in
2017 to be similar to IOL sales in 2016 with the exception of the decrease associated with the discontinuation of the silicone
IOL product line in the U.S. We anticipate gross margin expansion again in 2017 as compared to year-end 2016. We anticipate 2017
operating expenses may trend above 2016 total operating expenses. We are planning further investments in our operations to primarily
include, clinical affairs, corporate infrastructure and systems, sales and marketing and research and development. As we complete
our 3-year strategic transformation priorities and investments in 2017, our goal is to provide a preview of 2018 to 2020 strategic
priorities and financial results direction during the fourth quarter of this year. That concludes my prepared remarks for this
Deborah Andrews - STAAR Surgical Company - Interim CFO,
you, Caren. Good afternoon, everyone. I'll start the financial overview with the summary of top line results and then provide more
details by product and market. STAAR reported net sales of $20.4 million in the first quarter of 2017, an increase of 6% over the
$19.3 million of sales reported in the first quarter of 2016. The sales increase was driven by ICL revenue growth of 16% and unit
growth of 20% and partially offset by decreased IOL and injector part sales. For the first quarter of 2017, total sales for our
ICL product line were $15.3 million compared to $13.2 million in the prior year quarter. Asia Pacific ICL sales were $8.2 million
during the first quarter, an increase of 23% in revenue and 28% in units compared to the prior year period. China, Japan and India
experienced strong double-digit growth, that was offset by softness in Korea. EMEA and Latin America ICL sales were $5.3 million
during the first quarter, an increase of 9% in revenue and 11% in units compared to the prior year period. All 3 regions within
EMEA and Latin America reported growth in sales and units with Latin America and Middle East reporting double-digit unit growth.
North America ICLs were $1.8 million during the first quarter, up 7% in revenue and 6% in units from the prior year period. The
increase in sales was driven by the successful commercialization of the EVO Toric lens in Canada, which was approved in September
of 2016. For our IOL product line, total IOL sales were $4.6 million for the first quarter of 2017, which was down 9% in revenue,
but up 1% in units from the prior year period. Solid growth in EMEA was offset by the phaseout of silicone IOL sales in North America
and softness in Japan sales during the quarter.
turning the discussion to margins and spending. Our gross profit margin was 71.6% compared to the prior year period gross profit
margin of 67.4% or an increase of 4.2 points. This improvement primarily resulted from a favorable mix of higher-margin ICL units
and lower other cost of sales attributable to the lower stock-based compensation compared to Q1 2016, when approximately $600,000
was recorded related to the acceleration of stock compensation that would have been recorded in future years. Operating expenses
for the first quarter decreased $6.4 million to $16.7 million from $23 million in the prior year quarter. The decrease in operating
expenses was primarily due to lower expenses as a result of the onetime noncash charges in Q1 2016 related to the immediate vesting
of all invested equity awards. This accelerated vesting occurred as a result of the triggering of the change of control provision
of the company's equity incentive plan during the quarter ended April 1, 2016, and was not repeated again during the quarter ended
March 31, 2017. Excluding this prior year charge, operating expenses were slightly favorable to the prior year. General and administrative
expense was $5.4 million, $3.1 million lower than the prior year quarter. The accelerated vesting represented $2.9 million of the
decrease and the balance, the result of lower local taxes in Japan. Marketing and selling expense was $6.5 million, $1.1 million
lower than the prior year quarter. The accelerated vesting represented $1.5 million of the decrease and was partially offset by
increased trade show spending internationally.
and development expense was $4.8 million, $2.1 million lower than the prior year quarter. The accelerated vesting represented $1.8
million of the decrease and the balance, the result of lower quality remediation expenses. With regard to the bottom line, the
net loss for the first quarter of 2017 was $2.2 million or approximately $0.05 per share compared with the net loss of $8 million
or $0.20 per share for the prior year period. On a non-GAAP basis, the adjusted net loss for the quarter -- for the first quarter
of 2017 was $1.4 million or $0.04 per diluted share compared with an adjusted net loss of $0.5 million or $0.01 per diluted share
for the prior year period. Net loss and adjusted net loss benefited in 2016 from the $1.6 million income tax benefit recorded during