Full Press Release Details
Good day, ladies and gentlemen, thank you for standing by. Welcome
to the STAAR Surgical Third Quarter 2018 Financial Results Conference Call. (Operator Instructions) This call is being recorded
today, Wednesday, October 31, 2018.
At this time, I would like to turn the conference over to Mr.
Brian Moore with EVC Group.
Thank you, Andrew, 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 September 28, 2018.
On the call today are Caren Mason, President and CEO of STAAR
Surgical; and Deborah Andrews, Chief Financial Officer. The release of the third 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. 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 adjusted earnings per share. 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 CEO of STAAR Surgical.
Caren L. Mason STAAR Surgical Company - CEO, President
Thank you, Brian, and good afternoon, everyone. I'll begin
this afternoon with an overview of the continuing momentum in the global market for our ICL product line as well as the solid
financial performance generated by our company during the third quarter. Additionally, I'll provide an updated outlook of our
full year financial performance. And finally, I'd like to share with you our team's updated research on the total viable patient
population for both myopia refractive vision correction and presbyopia vision correction to help illustrate the significant opportunity
that lies ahead for STAAR Surgical. Deborah will then review key third quarter and year-to-date financial results.
The ICL's momentum in the global market established during the
first half of 2018 continued through the third quarter and resulted in a 46% increase in ICL sales as compared to the prior year
period. Total revenue for the quarter grew 35% over the third quarter of last year.
Our gross margin continue to expand, primarily due to higher
ICL contribution to total sales. The gross margin of 75.1% of sales was up 330 basis points over the prior year quarter. ICL sales
represented 83% of sales mix, while other products accounted for the remaining 17% of sales.
During the quarter, we also continued to execute our plan to
make targeted investments designed to foster continued future growth. And despite these investments, we earned $0.03 per share
on a GAAP basis and $0.07 per share on a non-GAAP basis.
I'd also like to note that we generated $8 million in cash from
operations during the quarter, which is a new record for our company.
Combined with the proceeds from our very successful placement
of slightly less than 2 million shares in early August, STAAR's balance sheet has never been stronger. Cash and cash equivalents
as of September 28 exceeded $102 million.
Turning to our regional ICL performance. As we expected and
planned for, the growth was driven by our Asia Pacific markets. The second and third quarters are the high season for refractive
surgery in this region of the world, and this year was no exception. In units, China grew 100%; Japan grew 95%; India grew 27%;
and the rest of Asia Pacific grew 38%. Overall, the Asia Pacific region grew 79% over prior year's third quarter in units.
As I mentioned, China, our largest market, turned in another
exceptional quarter with 100% unit growth. Our strategy of building the market for visual freedom through patient awareness, education,
marketing and strategic agreements with our customers has positioned the ICL as a premium and primary solution for vision correction
and is the largest refractive market in the world. We have been doing internal analysis to determine how our strong growth in China
has translated into refractive procedure market share. Our analysis to date indicates that STAAR's capturing market share from
laser vision correction and in China, our data indicates, we have more than tripled our market share from low-single-digits in
2016 to more than 10% as the end of Q3 of the current year. Our goal is to continue to grow in China, expand the overall market
for refractive vision correction and replicate this growth in market share achievement in other key markets.
A key driver of the accelerating adoption of the ICL as a premium
and primary solution for vision correction is the increasing demand down the diopter curve. Just a few quick examples. In China,
the average ICL diopter implanted in 2016 was 10.92. In the first half of 2018, it was down 1 diopter to 9.9. In Sweden, the average
ICL diopter implanted in 2016 was 8.32, and in the first half of 2018, it was down to 7.84. We believe our enhanced relationship
with strategic partners in these countries contributed to these results. This increased demand down the diopter curve as well as
pricing based on volume growth at lower diopters is why our unit growth for the quarter is higher than our revenue growth.
Let's now turn to the rest of the world. The third quarter has
always been our slowest growth period of the year in Europe and Middle East given holiday schedules and the annual ESCRS Conference.
Nonetheless, we experienced healthy unit growth in Germany of 20%, Spain of 16% and European distributors, 18%. In total, EMEA
grew 13% year-over-year in units. Based on current trends, we expect the year-over-year fourth quarter growth rate in EMEA will
accelerate from the third quarter level.
In North America, Canadian ICL units grew 18%, though our total
revenue for North America declined 8.6% primarily due to the decline in other product sales. Overall, ICL revenue from the region
was flat, while units increased 1%.
On September 13, we received the FDA's approval of the Toric
ICL. I'm pleased to announce that the first patient implants of the TICL took place last week, and we're ahead of schedule for
a staged rollout. Interest among U.S. surgeons is very encouraging and currently we expect North American revenue to grow as we
further progress with our rollout.
During the quarter, we conducted our annual experts summit and
exhibited at the ESCRS, Both were in Vienna, Austria, and both were the most successful STAAR participation ever at these events.
The quality of dialogue among surgeons about the ICL was remarkable and their enthusiasm for the current and future products was
During our invitation-only experts meeting, our Principal investigator
from the initial first-in-person clinical trial of the EVO lens for presbyopia presented his study data to surgeons. The data was
very well received by the audience. We look forward to sharing data more broadly in the future when permitted and appropriate.
I would now like to update you on our thoughts regarding 2018.
We exceeded expectations for all key financial metrics during the third quarter, and we expect to meet our expectations for the
fourth quarter. We continue to believe that for the foreseeable future, our quarterly revenue cadence is likely to be the highest
in the second quarter followed by the third. The success of our strategic alliance agreements has established greater global consistency
in how STAAR manages the business and clinical partnerships with all ophthalmologists that want to elevate the ICL to the premium
primary vision correction solution in their practice. And our announcement about the extension of this model to a single-site practice
in Munich provides some direction about our approach for the global market.
For the full year, we expect that sales growth should exceed
30% based on current market conditions. Furthermore, we believe that for the full year, our ICL unit growth and revenue growth
will be approximately equal. From a profitability perspective, as we demonstrated during the third quarter, we are making investments
to foster our longer-term growth and are also achieving profitability ahead of our internal expectations. Based on the 9 months'
results and our achievement of $0.09 a share on a GAAP basis so far in 2018, we now expect to be profitable for the full year as
compared to the $0.05 loss in 2017.
Finally, I'd like to take a few moments to share with you some
of the data our team has collected and evaluated during the past several months on both the myopia and presbyopia market opportunities.