STAAR Surgical Reports Third Quarter 2015 Results

MONROVIA, Calif., Oct. 28, 2015 /PRNewswire/ -- STAAR Surgical Company (NASDAQ: STAA), a leading developer, manufacturer and marketer of implantable lenses and delivery systems for the eye today reported financial results for the third quarter ended October 2, 2015.

Third Quarter Overview

• Net Sales of $18.8 Million Up 3% from the Prior Year Quarter and Up 7% on a Constant Currency Basis
• Worldwide ICL Revenue and Units Up 21% with Strong Performance by Market:
  • Europe Middle East Africa (EMEA) ICL Revenue Up 25% and Units Up 37%
  • Asia Pacific (APAC) ICL Revenue Up 21% and Units Up 13%
  • North America (NA) ICL Revenue Up 14% and Units Up 10%
• Worldwide IOL Revenue Down 24% and Units Down 18%
• Gross Margin Improved 3 points from 65.3% to 68.3% Despite Currency Challenges
• FDA Remediation Effort Continues On-Track and On-Budget for the Quarter and YTD
• Third Quarter Net Loss of $0.04 per Share; Adjusted Net Income per Share Breakeven

“Our third quarter results were largely positive due to the continuing momentum in the growth of the ICL business in all markets. Our Toric ICL quarterly shipments surpassed last quarter’s record. Our IOL business performed as planned with unit growth in the Japanese market and continuing downward pressure in all other markets. How we participate in the Cataract Care market in coming years will be a focus for us in 2016,” said Caren Mason, President and CEO. “Enthusiasm for the ICL was very prevalent at the Company’s annual Experts Meeting and European Society of Cataract and Refractive Surgeons Congress in Barcelona in September. Our training session on “Preserving the Cornea and Lens for the Future” led by six of the world’s leading refractive surgeons attracted a standing room only audience of 330 attendees from 68 countries. A highlight of the Experts Meeting was a video presentation by Dr. Roberto Zaldivar of Argentina which captured the implant surgery and then explant surgery twenty years later of one of the first ICL patients. In examining the lens upon removal, he commented upon the excellent condition of the lens with no visible changes. Our commitment to provide continuing education and to sponsor venues for surgeon collaboration is integral for the continued expansion of the ICL market globally,” added Ms. Mason.

Financial Overview
Net sales were $18.8 million for the third quarter of 2015, up 3% compared to $18.2 million reported in the prior year period. On a constant currency basis, third quarter net sales increased 7% compared to the prior period.

The sales increase was driven by higher ICL unit sales in each region, with EMEA, APAC, and North America units growing 37%, 13%, and 10%, respectively. These impacts were partially offset by lower IOL unit sales and foreign currency changes due to the strengthening U.S. dollar against the euro and the yen.

For the third quarter of 2015, the gross profit margin increased 300 basis points to 68.3% compared to the prior year period of 65.3%. An increased mix of higher margin ICL units, higher average selling prices exclusive of currency impacts, and lower unit and other costs improved gross margin by approximately 450 basis points which was partially offset by a decrease of approximately 150 basis points due to the impact of the weaker euro on average selling prices.

Operating expenses for the quarter increased 10% to $14.8 million from $13.4 million in the prior year period due to a bonus accrual reversal of $1.6 million in the prior year period. General and administrative expense was $4.9 million and approximately flat to the prior year when adjusting for the bonus accrual reversal. Marketing and selling expense was $6.3 million and approximately $740,000 lower than the prior year due to optimization of North American selling and promotional costs and decreased selling and promotional costs in Japan, partially offset by increased selling costs in Germany as a result of the conversion to a direct sales force in that market. Research and development expense, which includes remediation and other FDA expenses, was $3.7 million and approximately $550,000 higher than the prior year due to increased validation and remediation expenses. Remediation expense for the first nine months of 2015 is on budget.

The net loss for the third quarter of 2015 was $1.8 million or $0.04 per share, compared with a net loss of $2.7 million or $0.07 per share for the prior year period.

The adjusted net loss for the third quarter of 2015 was $40,000 or breakeven on a per share basis, compared with adjusted net income of $87,000 or breakeven per diluted share for the prior year period. The reconciliation between GAAP and non-GAAP financial information is provided in the financial tables included with this release.

Cash and cash equivalents at October 2, 2015 totaled $16.1 million, compared to $15.3 million at the end of the second quarter of 2015 and $13.0 million at year-end 2014. The Company added $746,000 in cash during the third quarter of 2015, which includes $1.1 million provided by operating activities and $253,000 from the exercise of stock options, partially offset by $595,000 in other uses of cash, primarily purchases of property and equipment.

Conference Call
The Company will host a conference call and webcast on Wednesday, October 28 at 4:30 p.m. Eastern / 1:30 p.m. Pacific to discuss its financial results. To access the conference call (Conference ID 55625107), please dial 855-765-5684 for domestic participants and 262-912-6252 for international participants. The live webcast can be accessed from the investor relations section of the STAAR website at www.staar.com.

A taped replay of the conference call will also be available beginning approximately one hour after the call’s conclusion for seven days. This replay can be accessed by dialing 855-859-2056 for domestic callers and 404-537-3406 for international callers. An archived webcast will also be available at www.staar.com.

Use of Non-GAAP Financial Measures
This press release includes supplemental non-GAAP financial information, which STAAR believes investors will find helpful in understanding its operating performance.

The Company conducts a significant part of its activities outside the U.S. It receives sales revenue and pays expenses principally in U.S. dollars, Swiss francs, Japanese yen and euros. The exchange rates between dollars and non-U.S. currencies can fluctuate greatly and can have a significant effect on the Company’s results when reported in U.S. dollars. When preparing its financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), the Company translates foreign currency sales and expenses denominated in Japanese yen to dollars at the weighted average of exchange rates in effect during the period. As a result, the Company’s reported performance may be significantly affected by currency fluctuations. In order to compare the Company’s performance from period to period without the effect of currency, the Company will apply the same average exchange rate applicable in the prior period, or the “constant currency” rate to sales or expenses in the current period as well. Because changes in currency are outside of the control of the Company and its managers, management finds this non-GAAP measure useful in determining the long-term progress of its initiatives and determining whether its managers are achieving their performance goals. The Company believes that the non-GAAP constant-currency sales results provided in this press release are similarly useful to investors to give insight on long term trends in the Company’s performance without the external effect of changes in relative currency values. The table below shows sales results calculated in accordance with GAAP, the effect of currency, and the resulting non-GAAP measure expressed in constant currency.

“Adjusted Net Income” excludes the following items that are included in “Net Income” as calculated in accordance with GAAP: manufacturing consolidation expenses, gain or loss on foreign currency transactions, stock-based compensation expenses, and FDA panel and remediation expenses.

Management believes that “Adjusted Net Income” is useful to investors in gauging the outcome of the key drivers of the business performance: the ability to increase sales revenue and our ability to increase profit margin by improving the mix of high value products while reducing the costs over which management has control.

Management has excluded manufacturing consolidation expenses and FDA panel and remediation expenses because these are non-recurring expenses and their inclusion may mask underlying trends in our business performance. Expenses associated with the consolidation of the Company’s manufacturing operations to the U.S. were largely completed by the end of the second quarter of 2014.

Management has also excluded gains and losses on foreign currency transactions because of the significant fluctuations that can result from period to period as a result of market driven factors.

Stock-based compensation expenses consist of expenses for stock options and restricted stock under the Financial Accounting Standards Board’s Accounting Standards Codification (ASC) 718. In calculating Adjusted Net Income STAAR excludes these expenses because they are non-cash expenses and because of the complexity and considerable judgment involved in calculating their values. In addition, these expenses tend to be driven by fluctuations in the price of our stock and not by the same factors that generally affect our other business expenses.

The Company has provided below a detailed reconciliation table, which is useful to investors in providing the context to understand STAAR Surgical’s non-GAAP information and how it differs from GAAP.

About STAAR Surgical
STAAR, which has been dedicated solely to ophthalmic surgery for over 25 years, designs, develops, manufactures and markets implantable lenses for the eye and delivery systems therefor. All of these lenses are foldable, which permits the surgeon to insert them through a small incision. STAAR’s lens used in refractive surgery as an alternative to LASIK is called an Implantable Collamer® Lens or “ICL.” A lens used to replace the natural lens after cataract surgery is called an intraocular lens or “IOL.” More than 500,000 Visian ICLs have been implanted to date. To learn more about the ICL go to: www.visianinfo.com. STAAR has approximately 300 employees and markets lenses in over 60 countries. Headquartered in Monrovia, CA, the company operates manufacturing facilities in Aliso Viejo, CA and Monrovia, CA. For more information, please visit the Company’s website at www.staar.com.

Safe Harbor
All statements in this press release that are not statements of historical fact are forward-looking statements, including statements about any of the following: any financial projections; the plans, strategies, and objectives of management for future operations or prospects for achieving such plans, expectations for new products or support for product growth, and any statements of assumptions underlying any of the foregoing. Important additional factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in the Company’s Annual Report on Form 10-K for the year ended January 2, 2015, under the caption “Risk Factors,” which is on file with the Securities and Exchange Commission and available in the “Investor Information” section of the company’s website under the heading “SEC Filings.”

These statements are based on expectations and assumptions as of the date of this press release and are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties include the following: our limited capital resources and limited access to financing; the negative effect of unstable global economic conditions on sales of products, especially products such as the ICL used in non-reimbursed elective procedures; the challenge of managing our foreign subsidiaries; backlog or supply delays; changes in currency exchange rates; the discretion of regulatory agencies to approve or reject existing, new or improved products, or to require additional actions before approval (including but not limited to FDA requirements regarding the Visian Toric ICL and/or actions related to the FDA Warning Letter and Form FDA-483s), or to take enforcement action; unexpected costs or delays that could reduce or eliminate the expected benefits of our consolidation plans; research and development efforts may not be successful or may be delayed in delivering for launch or may exceed anticipated costs; the purchasing patterns of our distributors carrying inventory in the market; the willingness of surgeons and patients to adopt a new or improved product and procedure; patterns of Visian ICL use that have typically limited our penetration of the refractive procedure market, negative media coverage in different regions regarding refractive procedures, and a general decline in the demand for refractive surgery particularly in the U.S. and the Asia Pacific region, which STAAR believes has resulted from both concerns about the safety and effectiveness of laser procedures and current economic conditions. The Visian Toric ICL and the Visian ICL with CentraFLOW are not yet approved for sale in the United States.