Full Press Release Details
Good day, ladies and gentlemen, thank you for standing by. Welcome
to the STAAR Surgical Second Quarter 2018 Financial Results Conference Call. (Operator Instructions) This call is being recorded
today, Wednesday, August 1, 2018.
At this time, I would like to turn the conference over to Mr.
Brian Moore with EVC Group.
Thank you, Haley, 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 second quarter,
which ended on June 29, 2018. On the call today are Caren Mason, President and CEO of STAAR Surgical; and Deborah Andrews, Chief
Financial Officer. The release of the second 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 risk and uncertainties that could cause actual results to differ materially from those described in the forward-looking
statements. The risk 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. Except
as required by law, 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/or
loss adjusted earnings per share, 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 press 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
Thank you, Brian, and good afternoon, everyone. I will begin
the discussion with an overview of our strong second quarter performance and will follow with an update on our outlook for the
remainder of the year. Deborah will then review key second quarter financial results before we open the call for your questions.
I am very pleased to report that the momentum in the second
quarter was stronger than we anticipated and appears to be continuing into Q3. We set an all-time quarterly sales record for the
company of $33.9 million, with ICL sales growing 67% and ICL unit growth of 66%. In addition, we achieved an overall gross margin
of 74.4%. While we elected to make targeted investments during the quarter designed to foster continued growth into the future,
we did earn $0.04 per share on a GAAP basis and $0.09 per share on a non-GAAP basis. It is also gratifying to note that we secured
a significant strategic imperative for the company during the quarter, with the receipt of the closeout letter from the FDA on
June 19. This closeout letter lifted the warning letter that dated back to 2014. The implementation of our Culture of Quality initiative
here at STAAR, which began in the spring of 2015, in my opinion, played a major role in this achievement, and our entire organization
continues to be committed to continuing and strengthening STAAR's emphasis on excellence.
Turning to the strong financial results for the quarter. I'd
like to offer a few highlights. Our net sales for the quarter grew nearly 55%. As I mentioned, ICL revenue grew 67%, and our other
products segment, which includes IOLs and injector parts grew 18%. Our gross margin for the quarter of 74.4% was up 390 basis points
from the second quarter of 2017. The improvement in gross margin is primarily due to significantly increased production volumes
of ICLs, resulting in lower production unit costs.
Once again, STAAR's key international markets are driving our
growth. Japan, which is currently our second largest market, generated 131% year-over-year unit growth. This performance follows
56% ICL unit growth in Japan during the first quarter. As we discussed on our last call, we did expand our team in Japan during
the second quarter to facilitate the significant increase in ICL demand in this market.
China, our largest market, turned in another exceptional quarter
with 127% unit growth. Strong demand for lenses for the busy season in China began in June, resulting in more than anticipated
ordering and shipment of lenses in Q2. Expectations are that our Q2 preparation has garnered strong results, enabling a strong
Q3 in China for implants. How this may tamper ordering and replenishment in Q3 is being carefully monitored. Thus far though, in
Q3, ordering remains strong. And July is looking to be the largest implant month for ICLs in our history in China.
I'd also like to highlight our growth of 61% in ICL units in
India. Since the end of the second quarter, we've increased our investment in this market through the addition of team members
with exceptional refractive surgery market track records. Our objective is to build on this momentum we are currently experiencing
in India. Additional excellent performance for the quarter was delivered by Germany with 30% unit growth, our European distributors
with 20% unit growth and Canada with 64% unit growth.
The U.S., which is the second-largest refractive surgery market
in the world remains an underperforming key market. We believe, we are one step closer to a possible Toric Visian ICL launch in
the U.S. and while we are not making any projections about timing for such a development, we continue to prepare for that opportunity.
At this point in my presentation, I'd like us all to step back
for a moment and acknowledge the superb execution of the entire STAAR organization during the first half of 2018. Overall, from
a sales perspective, we are 1 full year ahead of the 3-year plan we launched less than 12 months ago. I believe that the team is
continuing to demonstrate on a worldwide basis, that our disciplined approach to surgeon's certification, practice development
and consumer outreach in each of our key markets is leading to the increased premium and primary positioning we have earned and
will continue to expand in our largest international markets.
The financial progress during the second quarter supports our
view that our go-to-market strategy, in cooperation with the right partners, is generating better-than-expected returns and is
leading us today to increase our target for growth for the full year 2018, which I will review in a few moments.
Turning to our new product pipeline. Our clinical programs remain
ongoing. We are in the early stages of our European multi-EVO with EDOF presbyopia clinical trial. In addition, we have had discussions
with the FDA about our submission for the Visian Toric ICL. We are also planning our submission for FDA approval of the EVO family
of lenses. We will provide updates on these matters as appropriate and permitted.
On the marketing side, we made investments during the quarter
in preparation for opening the U.S. market. These investments are anticipated to increase during the second half of the year. With
a 55% increase in net sales during the period, operating expenses increased 32% as compared to last year's second quarter. Despite
additional investment during the quarter, we achieved profitability.
Before I turn the call over to Deborah, I would like to update
you on our target for 2018. In early May, we raised the bar on our 2018 sales target from low double-digit growth to closer to
20% growth. Today, based on our first half performance, and our belief that we may exceed 20% revenue growth for the second half
of the year, we are raising our revenue and bottom line targets. We now believe our sales growth for the full year 2018 may now
exceed 25% based on current market conditions. These growth targets continue to be based solely upon the momentum we are seeing
in international markets and does not yet include any incremental U.S. contribution beyond our previous targets for currently approved
products. From a profitability perspective, we are making investments to foster our longer-term growth. However, at this point,
we do expect to achieve at least breakeven GAAP net income for the full year as compared to the $0.05 loss in 2017.
And with that, I'll now turn the call over to Deborah.
Deborah Andrews STAAR Surgical Company - CFO
Thank you, Caren, and good afternoon, everyone. I will start
the financial overview with a summary of top line results and then provide more details by product and market.
STAAR reported net sales of $33.9 million in the second quarter
of 2018, an increase of 55% over the $21.9 million reported for the second quarter of 2017. As Caren mentioned, the strong top
line increase was driven by ICL revenue growth of 67% with unit growth of 66%. In addition, we did -- as we did with last quarter's
reporting, we have combined the presentation of IOL sales, injector parts and other product sales into the Other Products category
that better reflects STAAR's strategic ICL focus. The other product sales category grew 18% during the second quarter of 2018 and
accounted for approximately 20% of our $33.9 million in net sales. Focusing on ICLs, as Caren mentioned during her remarks, the
67% ICL revenue growth during the second quarter was driven by strong unit growth in the company's key markets.
Moving down the income statement. Our gross profit margin for
the second quarter was 74.4%, up 390 basis points compared to the prior year period gross margin of 70.5%. And while sales increased
55%, gross margin dollars increased 63%. The increase in gross margin resulted from lower unit costs and lower inventory provisions.
For the 6-month period ended June 29, 2018, net sales grew 44% to $61 million and our gross margin has expanded to 73.2% from 71.1%.