Full Press Release Details
Good day, ladies and gentlemen, thank you for standing by. Welcome
to the STAAR Surgical Fourth Quarter and Full Year 2018 Financial Results Conference Call. (Operator Instructions) This call is
being recorded today, Thursday, February 21, 2019.
At this time, I would like to turn the conference call over
to Mr. Brian Moore with EVC Group. Please go ahead.
Thank you, Candice, 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 fourth quarter,
and fiscal year ended December 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 fourth 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
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 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, today we will open the line to questions
from publishing analysts, we ask analysts to limit themselves to two initial questions then requeue with any followups. We thank
everyone in the advance for their cooperation with this process.
At this time, I'd like to turn the call over to Caren Mason,
President and CEO of STAAR.
Caren L. Mason STAAR Surgical Company - CEO, President
Thank you, Brian, and good afternoon, everyone. 2018 was an
exceptional year for STAAR, we achieved record net sales, record ICL sales, significant gross margin improvement and positive net
income for the 12 months that ended December 28, 2018. And we are positioned to set new records for these four financial metrics
In this breakout year for our business, we believe we have made
noteworthy progress toward paradigm change in refractive vision correction delivering visual freedom. Implanting an EVO ICL lense
to correct myopia is becoming a preferred surgical solution as evidenced by global ICL net sales, surpassing the $100 million revenue
mark for the first time, this milestone was achieved through exceptional 54% ICL unit growth for the year, a rate that illustrates
the global momentum in our business.
For 2018 total ICL net sales grew 48% over prior year. On a
regional basis, we achieved solid double-digit ICL sales growth in most of our markets. China grew 91%, Japan 90%, Korea 37%, Germany
31%, the rest of our Asia Pacific distributed markets 22%, Canada 21%, Europe 21% and the Middle East 21%.
In terms of momentum going into 2019, we ended 2018 with strong
ICL sales and unit growth despite moving into a seasonally weaker fourth quarter for refractive procedures in our highest volume
market which is China. ICL unit volume growth in China over the fourth quarter of last year was 99%. China is the largest refractive
market in the world representing approximately one quarter of refractive procedures globally. We believe the high level of myopia
in the China population, the increasing demand for the ICL down the vision correction or diopter curve and our uniquely successful
business model for our strategic partners is also contributing to our high level of growth in China.
Ultimately, our strategy of building the refractive market for
visual freedom through surgeon training and certification, practice development, consumer outreach, patient education, digital
marketing and strategic agreements with our customers has positioned ICL in more and more clinics and doctors' offices as a premium
and primary solution for vision correction, around the globe. EVO ICL only clinics are opening and many others are already offering
primarily ICL lens implants in both Asia and Europe. And ever more data supporting the safety and effectiveness of the ICL is being
published. In December 2018, Dr. Mark Packer published a literature review of 67 papers from 10 countries on the EVO lens in the
journal, Clinical Ophthalmology. The analysis covered 6,000 eyes with up to five years of follow up concluding "improved
safety and effectiveness across a broad range of refractive errors makes EVO an attractive option for surgeons and their patients."
Our clinical studies, clinical validations and the publishing
of numerous peer-reviewed papers supports continued adoption of our ICL refractive products.
We have submitted our EVO PMA supplement to the FDA for review.
We will not be entertaining questions on our progress regarding this process. We are very appreciative of the dedicated team at
CDRH for working with us even through a number of government shutdown days. With regard to our pivotal trial for the EVO with EDOF
lens for presbyopia, the patient enrollment for our European trial is complete and we are conducting the required six month patient
follow-up for this study. Once we complete this follow-up, our plan is to submit our CE Mark application to our regulated body
by mid-year 2019. We look forward to sharing data from this study more broadly in the future when permitted and appropriate.
Throughout 2018, we executed our plan to make targeted investments
designed to foster continued growth, including the launch of the Toric ICL in the United States and future ICL product launches.
Even with these investments, we earned $0.02 per share in the fourth quarter and $0.11 per share for the year. We also generated
$12.8 million in cash from operations during the year and had $104 million in cash and equivalents on the balance sheet at year-end.
To continue STAAR's strong growth in 2019 and to ensure
STAAR's readiness for continued strong growth well into the future, we have established a number of imperatives for 2019, which
require prudent investment in capital and operating expense.
For expansion of the ICL in the U.S., we are in the process
of establishing a U.S. surgeons console with a strong cadre of ICL experts and key opinion leaders, whom we will partner with for
the rebuilding of our U.S. business and the pending addition of our family of EVO ICL products. Several of these prominent surgeons
were first implanters of our recently launched Toric ICL in their respective markets in the U.S. We are planning for and making
initial investments in 2019, in manufacturing and facilities expansion that include the doubling of manufacturing capacity at our
Monrovia, California facility for our myopia ICLs; the reopening and expansion of our manufacturing and distribution facilities
in Nidau, Switzerland to manufacture EVO ICLs primarily for sale in Asia and in coming years, Europe as well; we are also moving
our outside the U.S., administrative and sales and marketing offices to larger quarters in Nidau; we've begun moving into our newly
renovated Lake Forest facility, which now includes executive and corporate offices; and we are preparing for the validation of
our Lake Forest facility for the manufacturing of our ICL with EDOF for presbyopia lenses expected to be for sale initially in
Other imperatives include continued market penetration in China,
where we have increased share five-fold in less than three years; continued market share gains in all global markets with the increasing
adoption of low and mid diopter ICLs; increasing investment in direct to consumer marketing and patient education in targeted markets
strengthened existing and new strategic agreements and alliances with global partners at contracted unit volumes and prices, co-marketing
initiatives, practice development programs, surgeon training, patient education and clinical research projects.
And so in conclusion, our growth outlook for 2019 is as follows
: ICL unit growth percentage target increase of 30% plus over 2018; overall, revenue growth percentage target increase of 20% over
2018.; our overall revenue target is expected to be impacted by our other product segment sales decline of approximately $3.6 million,
including a $2.6 million reduction in sales of low margin injector parts; GAAP net income is anticipated to increase over 2018;
and we anticipate achieving positive full year cash flow and cash balance increase.
Those are my prepared remarks. I'll now turn the call over to
Deborah, to further review fourth quarter and full-year financial highlights. Deborah
Deborah Andrews STAAR Surgical Company - CFO
Thank you, Caren, and good afternoon, everyone. I'll start the
financial overview with the summary of top line results and then provide more detail down the income statement. STAAR reported
net sales of $31.2 million in the fourth quarter of 2018, an increase of 26% over the $24.9 million reported in the year ago period.
As Caren mentioned, the strong top line increase was driven
by ICL revenue growth of 41%, which represented 84% of total Company net sales in the quarter.
Moving down the income statement, our gross profit margin for
the fourth quarter was 73.7%, up 380 basis points compared to the prior year quarter gross profit margin of 69.9% and while total
Company net sales increased 26%, gross margin dollars increased 32.3%. The improvement in gross margin was due to favorable product