Full Press Release Details
| THOMSON REUTERS STREETEVENTS |
| EDITED TRANSCRIPT |
| STAA - Q2 2014 STAAR Surgical Co Earnings Call |
| EVENT DATE/TIME: JULY 31, 2014 / 09:00PM GMT |
Sherk EVC Group - IR
Caldwell STAAR Surgical Company - President & CEO
Brown STAAR Surgical Company - VP & CFO
O'Brien William Blair & Company L.L.C. - Analyst
Cooley Stephens Inc. - Analyst
Mills Canaccord Genuity - Analyst
Sidoti Sidoti & Company LLC - Analyst
Wald The Benchmark Company - Analyst
day ladies and gentlemen and welcome to the STAAR Surgical Second Quarter 2014 Financial Results Conference Call and Webcast.
My name is Denise and I'll be the operator for today. At this time all participants are in listen-only mode. (Operator Instructions)
As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Mr. Doug Sherk, EVC
Group. Please proceed.
Sherk - EVC Group - IR
you Denise and good afternoon everyone. Thank you for joining us for the STAAR Surgical Conference Call to review the company's
financial results for the second quarter which ended on July 4, 2014 as well as recent corporate developments.
news release detailing the second quarter results was issued just after 4:00 pm Eastern Time today and is now available at STAAR's
website at www.staar.com. In addition a slide presentation will accompany management's remarks during today's call. To access
both the webcast and presentation slides go the investor relations section of STAAR's website at www.staar.com. If you are listening
by a telephone to today's call and would like to review the slides and company management's remarks please navigate to the live
webcast that I just reviewed and choose the no audio, slides only option. In addition an archive replay of the event will be available
on the STAAR website.
we get started 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 corporation's
projections, expectations, plans, beliefs and prospects. These statements are based on judgments 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. These 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 including the discussion in the risk factors section of our 2013 annual report on form 10-K
and our quarterly report on form 10-Q filed today. Investors or potential investors should read these risks. STAAR assumes no
responsibility 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 diluted net income per share
information that excludes manufacturing consolidation expenses, Spain distribution transition expenses, gains or losses on foreign
currency, fair market value adjustments for warrants, stock based compensation expense and FDA TICL panel expenses. 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 the non-GAAP information is included in our financial release
is available on our website and in our slide presentation. Now with that out of the way, I'd like to turn the call over to Barry
Caldwell, President and Chief Executive Officer of STAAR Surgical.
STAAR Surgical Company - President & CEO
Doug and good afternoon everyone. Thank you for joining us on the call and the webcast this afternoon for a review of our second
quarter results as well as an update on our performance for the first six months of 2014 and expectations for the remainder of
the year. With me today on the call remotely is Steve Brown our CFO, Deborah Andrews our Chief Accounting Officer is with me here
we review the agenda, I'd like to apologize for any inconvenience from our delay of this call by one day but we felt that it was
important that senior management be in Japan for the funeral services of Hideo Watanabe, President of STAAR Japan. Hideo joined
STAAR three years ago and though he had no previous ophthalmic medical device experience, he quickly gained the respect of our
customers and our employees. He led the efforts on the manufacturing transfer of IOLs from Japan to the U.S. and the return to
growth of IOL sales in the very important Japan market. Hideo leaves a wife and three sons. He loved his family and was very proud
of them as well as a deep desire and love for fishing. He will be missed. He was a friend to all of us and a strong leader. Hideo
reported directly to Don Todd our President of the Asia Pacific region. Don and other members of our management team will be present
in Japan until we make a final decision on future organizational changes.
that I'll begin our discussion on the business this afternoon with an overview of the second quarter results against the five
key metrics we established at the beginning of this year. Steve will then offer a detailed look at the key second quarter and
first half financial results. I'll then discuss key operating results for the quarter and then open the call for your questions.
first let's go to the five key annual metrics we established at the beginning of the year which are our objectives that we set
for the business and are as follows: revenue growth of 8% to 10%, annual ICL growth of 20%, expand our gross margins by 300 basis
points for the total year to 72.7, be profitable on a GAAP basis for the entire year and successfully complete our Project Comet
which was our manufacturing consolidation by midyear. We review each quarter how our performance tracks to each objective. As
we said at the beginning of the year, these objectives are not meant to be a slam dunk and that we have to execute well in order
let's start that review for the second quarter and the first half. With 10% revenue growth for the second quarter and 11% revenue
growth for the first half of the year we are achieving this objective and ahead of our initial expectations. During the second
quarter we achieved that growth, though perhaps in a little different way than expected. Second quarter revenue came in at $20
million or $20.1 million in constant currency which is an 11% growth rate. We were not as impacted by the valuation of the dollar
to the Japanese yen in the second quarter and as a result currency impacted sales by only about $90,000. Our growth was driven
by increasing Visian ICL and other sales as well as an increased growth rate in IOL product sales. As you can see, ICL revenue
declined slightly as an overall percentage of our total business. IOL revenue was basically the same and our lower gross margin
other sales grew to 7.2% of total sales driven by the increased IOL injector sales to our third party supplier of acrylic IOLs.
As you know, these are lower gross margin sales and total sales increased by 39% in this category during the quarter. For the
first half of 2014 our reported revenue growth of 11% or 13% in constant currency is above the annual growth objective we set
at the beginning of the year of 8% to 10%. Based on a number of factors that we'll review during this call we believe the second
half offers an opportunity to increase the growth rate we saw during the first half.
to our IOLs, during the first quarter we generated 4% revenue growth and our momentum continued to build during the second quarter.
Global revenue for the quarter in IOLs grew 10% to $6.4 million and represented 32% of our total sales. Global IOL units increased
17% during the quarter. IOL growth was driven by the increased supply of the KS IOL acrylic preloaded products which drove sales
in the European region. In addition, we experienced a return to growth in China despite not being able to restart the KS IOL commercialization
in this market at this point. We did reduce our backlog for KS IOLs during the quarter by approximately 1/2. During the first
quarter we invested, you will recall, KS IOL supply to rebuild the consigned account levels in Japan which we had to reduced back
in early 2013. We started to see the benefits of those consignments as KS IOL units increased approximately 80% during the final
eight weeks of the quarter. We are continuing to see a very high rate of KS IOL growth in Japan through the first three weeks
of the third quarter. As our confidence continues to build in the supply of KS IOL products we now expect a revenue increase greater
than anticipated at the beginning of the year for the IOL product line.
me drill down into the regions for IOLs for just a minute. IOL revenue in Japan, our largest market represented 46% of the global
IOL revenues. IOL revenue in local currency decreased 9% from prior year. You may recall that during the first quarter IOL units
increased 22% driven by some by in by key accounts of silicone IOLs ahead of a tax increase in Japan. Total IOL units have increased
5% during the first half in Japan. Sales in Europe which represented 28% of our total IOL sales increased by 117% and an increase
of 99% in units during the quarter due to having that increased supply of KS IOLs. IOL sales in China increased by 65%, again
here that despite the fact that we haven't relaunched the KS IOL products. Supply to that market was suspended during the second
quarter of last year. IOL sales in the U.S. declined by 11% during the quarter. IOL revenue for the first half was 7% as reported
and 11% on a constant currency basis. IOL units increased 17% while overall average selling price had a decline due to the geographic
let's turn to our second annual objective which is ICL revenue growth for the year of 20%. Though our ICL grew only 8% during
the quarter our growth rate for the first half is at 12%. We have some key initiatives during the second half which we believe
to allow us to achieve this objective for increasing selling prices and increasing promotional support. We'll go into more details
later on this call. ICL revenue in our 12 target markets increased by 9% during the quarter. As you can see, our European region
grew 22% led by Spain up 26%, Middle East up 37%, France up 47% and Germany up 21%. Our overall revenue growth in APAC was only
2%. Growth in APAC was limited somewhat by higher comparables in the year ago period, ordering patterns particularly in China
and a continued slowdown and the overall refractive procedures in Japan. In China, there was some delay in ICL ordering based
upon a potential tax savings for distributors. Revenue in the Asia Pacific region was led by a 9% increase in China, a 6% increase
in Korea and India increased 9%. Revenue in North America of ICLs declined by 1% during the quarter which was an improvement from
the first quarter decline. Second quarter revenues of ICLs with the CentraFLOW technology represented 63% of total ICL revenue.
To date there have been more 70,000 implants of the ICL with the CentraFLOW technology. As you can, see the overall procedure
growth up 5%. With the growth at 5% our average selling price did increase and that increase was 3%. In the more than 60 markets