STAAR Surgical Reports Third Quarter 2020 Results

Rhea-AI Summary

STAAR Surgical Company (NASDAQ: STAA) reported a strong performance for Q3 2020, achieving record net sales of $47.1 million, up 21% year-over-year. Key drivers include ICL sales of $41.5 million, representing a 23% increase, and a 25% rise in ICL units sold. Gross margin was 74.1%, slightly lower than 74.4% in Q3 2019. Net income rose to $3.9 million or $0.08 per share from $2.4 million or $0.05 per share in the prior year. Cash reserves increased to $128.3 million. Despite strong growth, markets in India and the Middle East were adversely affected by COVID-19.

Positive

• Record quarterly net sales of $47.1 million, up 21% year-over-year.
• ICL sales reached $41.5 million, reflecting a 23% increase.
• Gross margin at 74.1%, sustaining high profitability despite slight year-over-year decline.
• Net income rose to $3.9 million, increasing from $2.4 million in Q3 2019.
• Cash and cash equivalents improved to $128.3 million.

Negative

• Gross margin slightly decreased from 74.4% in Q3 2019 due to geographic sales mix and manufacturing costs.
• Operating expenses rose to $30 million, up from $25.7 million in the prior year.

LAKE FOREST, Calif.--(BUSINESS WIRE)--STAAR Surgical Company (NASDAQ: STAA), a leading developer, manufacturer and marketer of implantable lenses and companion delivery systems for the eye, today reported financial results for the third quarter ended October 2, 2020.

Third Quarter 2020 Overview

• Record Quarterly Net Sales of $47.1 Million Up 21% from the Prior Year Quarter
• Record Quarterly ICL Sales of $41.5 Million Up 23% from the Prior Year Quarter
• Record Quarterly ICL Units, Up 25% from the Prior Year Quarter
• Gross Margin at 74.1% vs. 74.4% in the Prior Year Quarter
• Net Income of $0.08 per Share vs. Prior Year Quarter Net Income of $0.05 per Share
• Cash and Cash Equivalents Ended the Quarter at $128.3 Million up from $116.3 Million in Q2 2020

“STAAR achieved 25% year-over-year global ICL unit growth for the third quarter of 2020 with demand building each month throughout the quarter. Third quarter results reflect strong growth in our North America, Europe and APAC markets, partially offset by the India and Middle East markets which significantly underperformed and were more greatly impacted by COVID-19,” said Caren Mason, President and CEO of STAAR Surgical. “Standout markets in the third quarter included China up 33%, Japan up 67%, Korea up 21%, Rest of Asia Pacific up 67%, Spain up 24%, Germany up 13% and distributor markets in Europe up 17% in ICL units year over year. ICL implanted units in the U.S. were up 74% sequentially in the quarter as STAAR supported our physician customers with a Refractive Restart program designed to encourage doctor recommendation and patient selection of our current Visian ICL lenses. Lens-based practice support in the U.S. using STAAR-provided clinical and business development validation continues to gain adoption by surgeons who speak to us of happy patients today and excitement about the possibilities of a future with the EVO version of our ICL lenses.”

“In a year of considerable uncertainty, STAAR is endeavoring to provide a level of predictability to both our financial performance and the clinical experience. We achieved strong unit and sales growth while also demonstrating an operating discipline that allowed increased operating income. During the third quarter we also advanced our pipeline of new products for the U.S. and Europe. We completed enrollment for the primary study analysis cohort of 300 subjects in our U.S. EVO clinical trial and are pleased to report they have now been implanted with the EVO lens and will be followed pursuant to the clinical trial protocol. Today, we also announced via press release, the initial implementation of the phased rollout of STAAR’s innovative EVO Viva™ presbyopia-correcting lens in Europe. A paper on the EVO Viva lens has been published in Clinical Ophthalmology, consumer websites were recently launched, and the first commercial EVO Viva lens patient has been implanted in Belgium,” concluded Ms. Mason.

Financial Overview – Q3 2020

Net sales were $47.1 million for the third quarter of 2020, up 21% compared to $39.1 million reported in the prior year quarter. The sales increase was driven by ICL revenue and unit growth of 23% and 25%, respectively, as compared to the prior year period. Other Product Sales increased 7% compared to the prior year quarter due to increased injector parts sales. ICL revenue was 88% of total Net sales for the third quarter of 2020.

Gross profit margin for the third quarter of 2020 was 74.1% compared to the prior year period of 74.4%. Factors negatively impacting gross margin in the third quarter of 2020, as compared to the prior year period, include geographic sales mix, period costs associated with manufacturing expansion projects, and the increased mix of injector part sales which carry a lower margin.

Operating expenses for the third quarter were $30.0 million compared to the prior year quarter of $25.7 million. General and administrative expenses were $8.6 million compared to the prior year quarter of $7.1 million. The increase in general and administrative expenses was due to due to increased salary-related expenses, variable compensation and facility costs. Selling and marketing expenses were $12.6 million compared to the prior year quarter of $12.5 million. The increase in selling and marketing expenses is due to increased salary-related expenses, advertising and promotional activities and variable compensation, offset by decreased trade show and travel expenses. Research and development expenses were $8.8 million compared to the prior year quarter of $6.2 million. The increase in research and development expenses is primarily due to increased clinical expenses associated with the EVO clinical trial in the U.S., and increased salary-related expenses and variable compensation.

Net income for the third quarter of 2020 was $3.9 million or $0.08 per diluted share compared with net income of $2.4 million or $0.05 per diluted share for the prior year quarter. Adjusted Net Income for the third quarter of 2020 was $6.7 million or $0.14 per diluted share compared to $5.5 million or $0.12 per diluted share for the prior year quarter. 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, 2020 totaled $128.3 million, compared to $116.3 million at July 3, 2020. The Company had $1.4 million drawn on its line of credit in Japan and no other debt at October 2, 2020. The sequential increase in cash is primarily due to $9.6 million of cash generated from operations during the third quarter.

Conference Call

The Company will host a conference call and webcast today, Wednesday, November 4 at 4:30 p.m. Eastern / 1:30 p.m. Pacific to discuss its financial results and operational progress. To access the conference call (Conference ID 6253229), please dial 833-350-1429 for domestic participants and 647-689-6661 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 (Conference ID 6253229) will be available beginning approximately one hour after the call’s conclusion for seven days. This replay can be accessed by dialing 800-585-8367 for domestic callers and 416-621-4642 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. “Adjusted Net Income” excludes the following items that are included in “Net Income” as calculated in accordance with U.S. generally accepted accounting principles (“GAAP”): gain or loss on foreign currency transactions, stock-based compensation expenses, and valuation allowance adjustments. 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 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. Valuation allowance adjustments can occur from time to time based on forecasted changes in operating results until all net operating loss carryforwards are fully utilized. In calculating Adjusted Net Income, STAAR excludes these expenses because they are non-cash expenses and because of the 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 also uses Constant Currency as a Non-GAAP financial measure to exclude the effects of currency fluctuations on net sales. 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. 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 measures 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.

About STAAR Surgical

STAAR, which has been dedicated solely to ophthalmic surgery for over 30 years, designs, develops, manufactures and markets implantable lenses for the eye with companion delivery systems. These lenses are intended to provide visual freedom for patients, lessening or eliminating the reliance on glasses or contact lenses. All of these lenses are foldable, which permits the surgeon to insert them through a small incision. STAAR’s lens used in refractive surgery is called an Implantable Collamer® Lens or “ICL”, which includes the EVO Visian ICL™ product line. More than 1,000,000 Visian^® ICLs have been implanted to date and STAAR markets these lenses in over 75 countries. To learn more about the ICL go to: www.discovericl.com. Headquartered in Lake Forest, CA, the company operates manufacturing and packaging facilities in Aliso Viejo, CA, Monrovia, CA and Nidau, Switzerland. For more information, please visit the Company’s website at www.staar.com.

Safe Harbor

All statements that are not statements of historical fact are forward-looking statements, including statements about any of the following: any financial projections, plans, strategies, and objectives of management for 2020 or 2021 or prospects for achieving such plans, expectations for sales, revenue, margin, expenses or earnings, the expected impact of the COVID-19 pandemic and related public health measures (including but not limited to its impact on sales, operations or clinical trials globally), product safety or effectiveness, the status of our pipeline of ICL products with regulators, including our EVO family of lenses in the U.S., and any statements of assumptions underlying any of the foregoing, including those relating to our product pipeline and market expansion activities. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include risks and uncertainties related to the COVID-19 pandemic and related public health measures, as well as the factors set forth in the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2020, and Annual Report on Form 10-K for the year ended January 3, 2020 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.” We disclaim any intention or obligation to update or revise any financial projections or forward-looking statement due to new information or events. 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: global economic conditions; the discretion of regulatory agencies to approve or reject existing, new or improved products, or to require additional actions before approval, or to take enforcement action; international trade disputes; uncertainty caused by the outcome of the U.S. election; and the willingness of surgeons and patients to adopt a new or improved product and procedure. The EVO version of our ICL lens is not yet approved for sale in the United States.

Consolidated Balance Sheets
(in 000's)
Unaudited
		October 2, 2020				January 3, 2020
ASSETS
Current assets:
Cash and cash equivalents		$	128,338			$	119,968
Accounts receivable trade, net			42,063				30,996
Inventories, net			18,234				17,142
Prepayments, deposits, and other current assets			7,368				6,560
Total current assets			196,003				174,666
Property, plant, and equipment, net			22,662				17,065
Finance lease right-of-use assets, net			640				1,867
Operating lease right-of-use assets, net			7,725				6,684
Intangible assets, net			275				296
Goodwill			1,786				1,786
Deferred income taxes			5,007				3,750
Other assets			600				751
Total assets		$	234,698			$	206,865
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit		$	1,353			$	1,827
Accounts payable			7,830				8,050
Obligations under finance leases			422				560
Obligations under operating leases			2,215				2,700
Allowance for sales returns			4,427				3,644
Other current liabilities			17,612				17,697
Total current liabilities			33,859				34,478
Obligations under finance leases			73				366
Obligations under operating leases			5,571				4,086
Asset retirement obligations			216				211
Pension liability			8,587				7,840
Total liabilities			48,306				46,981
Stockholders' equity:
Common stock			461				448
Additional paid-in capital			328,074				304,288
Accumulated other comprehensive loss			(2,925	)			(3,048	)
Accumulated deficit			(139,218	)			(141,804	)
Total stockholders' equity			186,392				159,884
Total liabilities and stockholders' equity		$	234,698			$	206,865

Consolidated Statements of Income
(In 000's except for per share data)
Unaudited
		Three Months Ended																			Nine Months Ended
		% of		October 2, 2020				% of		September 27, 2019				Fav (Unfav)							% of		October 2, 2020				% of		September 27, 2019				Fav (Unfav)
		Sales						Sales						Amount				%			Sales						Sales						Amount				%
Net sales		100.0	%	$	47,081			100.0	%	$	39,055			$	8,026			20.6	%		100.0	%	$	117,462			100.0	%	$	111,302			$	6,160			5.5	%
Cost of sales		25.9	%		12,210			25.6	%		10,004				(2,206	)		-22.1	%		28.4	%		33,401			25.3	%		28,172				(5,229	)		-18.6	%
Gross profit		74.1	%		34,871			74.4	%		29,051				5,820			20.0	%		71.6	%		84,061			74.7	%		83,130				931			1.1	%
Selling, general and administrative expenses:
General and administrative		18.2	%		8,589			18.2	%		7,098				(1,491	)		-21.0	%		20.8	%		24,406			19.3	%		21,443				(2,963	)		-13.8	%
Selling and marketing		26.9	%		12,649			31.9	%		12,463				(186	)		-1.5	%		29.0	%		34,003			30.8	%		34,288				285			0.8	%
Research and development		18.6	%		8,751			15.8	%		6,156				(2,595	)		-42.2	%		19.5	%		22,960			16.1	%		17,889				(5,071	)		-28.3	%
Total selling, general, and administrative expenses		63.7	%		29,989			65.9	%		25,717				(4,272	)		-16.6	%		69.3	%		81,369			66.2	%		73,620				(7,749	)		-10.5	%
Operating income		10.4	%		4,882			8.5	%		3,334				1,548			46.4	%		2.3	%		2,692			8.5	%		9,510				(6,818	)		-71.7	%
Other income (expense):
Interest income, net		0.0	%		1			0.6	%		266				(265	)		-99.6	%		0.2	%		237			0.7	%		796				(559	)		-70.2	%
Gain (loss) on foreign currency transactions		1.0	%		468			-1.5	%		(584	)			1,052			180.1	%		0.3	%		388			-0.7	%		(821	)			1,209			147.3	%
Royalty income		0.2	%		93			0.3	%		106				(13	)		-12.3	%		0.2	%		239			0.4	%		440				(201	)		-45.7	%
Other income (expense), net		-0.1	%		(63	)		0.1	%		26				(89	)		-342.3	%		0.0	%		(83	)		0.1	%		124				(207	)		-166.9	%
Total other income (expense), net		1.1	%		499			-0.5	%		(186	)			685			368.3	%		0.7	%		781			0.5	%		539				242			44.9	%
Income before provision for income taxes		11.5	%		5,381			8.0	%		3,148				2,233			70.9	%		3.0	%		3,473			9.0	%		10,049				(6,576	)		-65.4	%
Provision for income taxes		3.2	%		1,489			1.9	%		760				(729	)		-95.9	%		0.8	%		887			2.1	%		2,380				1,493			62.7	%
Net income		8.3	%	$	3,892			6.1	%	$	2,388			$	1,504			63.0	%		2.2	%	$	2,586			6.9	%	$	7,669			$	(5,083	)		-66.3	%
Net income (loss) per share - basic				$	0.08					$	0.05												$	0.06					$	0.17
Net income (loss) per share - diluted				$	0.08					$	0.05												$	0.05					$	0.16
Weighted average shares outstanding - basic					45,903						44,563													45,394						44,426
Weighted average shares outstanding - diluted					48,180						46,857													47,589						46,848

Consolidated Statements of Cash Flows
(in 000's)
Unaudited
			Three Months Ended								Nine Months Ended
			October 2, 2020				September 27, 2019				October 2, 2020				September 27, 2019
Cash flows from operating activities:
Net income			$	3,892			$	2,388			$	2,586			$	7,669
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation of property and equipment			758				870				2,276				2,853
	Amortization of long-lived intangibles			9				9				26				26
	Deferred income taxes			154				133				(1,215	)			526
	Change in net pension liability			146				61				522				264
	Stock-based compensation expense			3,126				2,558				8,965				7,778
	Loss on disposal of property and equipment			-				14				3				14
	Provision for sales returns and bad debts			210				341				815				309
	Inventory provision			379				435				1,195				1,222
Changes in working capital:
	Accounts receivable			(2,566	)			2,273				(10,975	)			(4,260	)
	Inventories			(421	)			(285	)			(1,353	)			(179	)
	Prepayments, deposits and other current assets			1,536				924				(636	)			(230	)
	Accounts payable			(954	)			(17	)			(657	)			546
	Other current liabilities			3,320				2,090				(151	)			(536	)
	Net cash provided by operating activities			9,589				11,794				1,401				16,002
Cash flows from investing activities:
	Acquisition of property and equipment			(2,049	)			(2,568	)			(6,259	)			(7,169	)
	Increase in patents and licenses			-				-				-				(30	)
	Net cash used in investing activities			(2,049	)			(2,568	)			(6,259	)			(7,199	)
Cash flows from financing activities:
	Repayment on line of credit			(3	)			(513	)			(511	)			(1,512	)
	Repayment of finance lease obligations			(109	)			(317	)			(455	)			(998	)
	Proceeds from vested restricted stock and exercise of stock options			4,429				719				13,987				1,831
	Net cash provided by (used in) financing activities			4,317				(111	)			13,021				(679	)
Effect of exchange rate changes on cash and cash equivalents				166				(39	)			207				204
Increase in cash and cash equivalents				12,023				9,076				8,370				8,328
Cash, cash equivalents and restricted cash, at beginning of the period				116,315				103,251				119,968				103,999
Cash, cash equivalents and restricted cash, at end of the period			$	128,338			$	112,327			$	128,338			$	112,327

Reconciliation of Non-GAAP Financial Measure
Adjusted Net Income and Net Income Per Share
(in 000's)
Unaudited		Three Months Ended						Nine Months Ended
		October 2, 2020			September 27, 2019			October 2, 2020			September 27, 2019
Net income (as reported)		$	3,892		$	2,388		$	2,586		$	7,669
Less:
Foreign currency impact			(468	)		584			(388	)		821
Stock-based compensation expense			3,126			2,558			8,965			7,778
Valuation allowance adjustment			154			-			(1,215	)		-
Net income (adjusted)		$	6,704		$	5,530		$	9,948		$	16,268
Net income per share, basic (as reported)		$	0.08		$	0.05		$	0.06		$	0.17
Foreign currency impact			(0.01	)		0.01			(0.01	)		0.02
Stock-based compensation expense			0.08			0.06			0.20			0.18
Valuation allowance adjustment			-			-			(0.03	)		-
Net income per share, basic (adjusted)		$	0.15		$	0.12		$	0.22		$	0.37
Net income per share, diluted (as reported)		$	0.08		$	0.05		$	0.05		$	0.16
Foreign currency impact			(0.01	)		0.01			(0.01	)		0.02
Stock-based compensation expense			0.07			0.06			0.19			0.17
Valuation allowance adjustment			-			-			(0.02	)		-
Net income per share, diluted (adjusted)		$	0.14		$	0.12		$	0.21		$	0.35
Weighted average shares outstanding - Basic			45,903			44,563			45,394			44,426
Weighted average shares outstanding - Diluted			48,180			46,857			47,589			46,848
Note: Net income per share (adjusted), basic and diluted, may not add due to rounding

STAAR Surgical Company
Reconciliation of Non-GAAP Financial Measure
Constant Currency Sales
(in 000's)
Unaudited
	Three Months Ended
	October 2, 2020		Effect of			Constant			September 27, 2019			As Reported						Constant Currency
Sales			Currency			Currency						$ Change			% Change			$ Change			% Change
ICL	$	41,493	$	(346	)	$	41,147		$	33,815		$	7,678		22.7	%		$	7,332		21.7	%
IOL		3,325		(76	)		3,249			4,093			(768	)	-18.8	%			(844	)	-20.6	%
Other		2,263		(25	)		2,238			1,147			1,116		97.3	%			1,091		95.1	%
Other Products		5,588		(101	)		5,487			5,240			348		6.6	%			247		4.7	%
Total Sales	$	47,081	$	(447	)	$	46,634		$	39,055		$	8,026		20.6	%		$	7,579		19.4	%
	Nine Months Ended
	October 2, 2020		Effect of			Constant			September 27, 2019			As Reported						Constant Currency
Sales			Currency			Currency						$ Change			% Change			$ Change			% Change
ICL	$	101,561	$	(251	)	$	101,310		$	96,033		$	5,528		5.8	%		$	5,277		5.5	%
IOL		9,880		(117	)		9,763			11,984			(2,104	)	-17.6	%			(2,221	)	-18.5	%
Other		6,021		(92	)		5,929			3,285			2,736		83.3	%			2,644		80.5	%
Other Products		15,901		(209	)		15,692			15,269			632		4.1	%			423		2.8	%
Total Sales	$	117,462	$	(460	)	$	117,002		$	111,302		$	6,160		5.5	%		$	5,700		5.1	%