Yahoo Finance STAAR Surgical Company (NASDAQ:STAA) Q1 2024 Earnings Call Transcript
STAAR Surgical Company (NASDAQ:STAA) Q1 2024 Earnings Call Transcript May 7, 2024
STAAR Surgical Company misses on earnings expectations. Reported EPS is $-0.06827 EPS, expectations were $0.05. STAAR Surgical Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the STAAR Surgical First Quarter 2024 Earnings Call and Webcast. [Operator Instructions] Please note, this call is being recorded today, Tuesday, May 7, 2024. I would now like to turn the call over to Brian Moore, Vice President of Investor Relations of STAAR Surgical. Please go ahead.
Brian Moore: Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss the company's financial results for the first quarter ended March 29, 2024. On the call today are Tom Frinzi, President and Chief Executive Officer; and Patrick Williams, Chief Financial Officer. The press release of our first quarter results was issued just after 4:00 p.m. Eastern Time. We have posted the earnings release and our earnings presentation supplement to the Investor Relations section of STAAR's website at www.staar.com. Before we begin, let me quickly remind you that the company comments during this call will include 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 expressed or implied by such forward-looking statements. The risks and uncertainties associated with these forward-looking statements 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, on this call and in the press release, we discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA per share.
We also provide sales data in constant currency. Definitions and reconciliations to GAAP are included in today's press release. For brevity, unless otherwise specified, all comparisons on today's call will be on a year-over-year basis versus the relevant period. Following our prepared remarks, we will open the call to questions from publishing analysts. [Operator Instructions] Finally, we intend to use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the Investor Relations section. Accordingly, investors should monitor our investor website in addition to following our press releases, SEC filings, and public conference calls and webcast.
And with that, I would now like to turn the call over to Tom Frinzi. Tom?
Tom Frinzi: Thank you, Brian, and good afternoon, everyone. I'm pleased to report STAAR generated net sales of $77.4 million for the first quarter of 2024, which exceeded our outlook. Our enhanced commercial focus is yielding positive results. And our proprietary EVO ICL lens-based technology, again delivered above-market rates of growth across all key geographies. We exceeded our original expectations for the quarter, even in a down market for the predominant procedure in our industry, laser vision correction. EVO is taking market share, building the channel for refractive vision correction and our momentum is growing. We are proud to report multiple business and execution milestones in the first few months of 2024. Including today's announcement of the largest commitment ever to EVO ICL in the U.S., a strategic agreement with Dr. Robert Lin and IQ Laser Vision as part of our U.S. Highway 93 go-to-market program.
Thus far in 2024, we generated 21% sequential sales growth in the U.S., achieving record quarterly U.S. ICL sales of $5 million. We believe this represents a new base level of quarterly sales in the United States. Our agreement with Dr. Lin is the largest ever commitment to EVO ICL in the U.S. to date and follows on the agreement we announced with sharp vision also in the first quarter. We have qualified a dozen U.S. Highway 93 EVO ready customers to move into the fast lane, if you will, and signed agreements with half since the program launched in the fourth quarter of 2023. These fast lane customers believe in the merits of EVO ICL and are increasingly recommending the EVO procedure to their patients. They are committed to growing EVO as a percentage of the refractive procedure mix, initially targeting 15% to 30%.
Dr. Lin has implanted over 1,000 ICLs in the prior 12 months and his initial target under our new strategic agreement is 1,500 ICLs, representing significant growth over the prior year period. Last month, we engaged hundreds of surgeons at the ASCRS, the American Society of Cataract and Refractive Surgery's Annual Meeting in Boston, where ICL was featured in 44 poster and paper presentations during scientific sessions at the meeting. At least 2 papers were presented that we believe will meaningfully increase surgeon confidence in the measurement of the eye in ICL lens size selection. We also launched STAAR University, our medical science website at ASCRS for surgeons and other healthcare professionals. STAAR University will feature clinical data and research, including the papers I just discussed.
And work is underway to further expand STAAR University's features, including videos and the surgeon training portal. We also introduced our Stella ordering and planning system at ASCRS. Stella will enhance surgeon efficiency and practice flow and is the initial step towards a comprehensive EVO ICL ecosystem. We have drawn a line in the sand to be the choice for minus 6 and above as our next step in moving down the diopter curve, which represents a significant growth opportunity. When we surveyed surgeons with our clinical data at both ASCRS and our recent Asia Pacific Expert Summit, 93% of those surveyed agreed or strongly agreed that based on the data presented, they were more comfortable recommending EVO ICL for patients minus 6 and above.
And finally, in the first quarter, we reached and celebrated 3 million total implantable collamer lenses sold. Half of those ICLs were sold in just the last 3 years. Turning my attention now to our regional results for the first quarter of 2024. We generated ICL sales growth of 9% in the Asia Pacific region, including 10% growth in China. In the first quarter of 2024, the APAC region outperformed our full year fiscal 2024 outlook of 7% and China growth in the first quarter was ahead of our expectations despite a tough comp in the year ago quarter, which reflected pent-up demand following the removal of COVID-19 restrictions in the fourth quarter of 2023. We generated 11% sales growth in the EMEA region, which exceeded our outlook for flat sales growth for the full year fiscal 2024.
Growth was driven by the Middle East and our European distributor markets, which includes newer hybrid markets such as Belgium and the Netherlands, where we began investing just a few years ago and now have reached approximately 20% share in each market. In our Americas region, we generated sales growth of 12%, including 15% sales growth in the U.S., which also grew 21% sequentially. Our results in the U.S. outperformed our outlook for flat growth in the first half. And once again, we believe we have achieved a new base level of U.S. quarterly sales. We saw returns on our strategic investments in 2023 during the first quarter of 2024. As many of you may recall, it was just about a year ago when we began making critical investments to drive our business forward.
In April 2023, we made an investment in people, adding a Chief Operating Officer and a Chief Clinical Regulatory Medical Affairs Officer to our leadership team. In the third and fourth quarter, we added 3 new customer-facing vice presidents. And last week, we announced our new General Counsel and Chief Marketing Officer. These individuals are already having a positive impact on our business and will further accelerate EVO ICL uptake, our market share capture and innovation. We have invested in our field organizations globally with new hires in both large and emerging markets, including China, the U.S., India and Brazil. In China, for example, we expect to end the year with more than 100 STAAR employees as we lean into the growth opportunity in the largest market for refractive vision correction.
We aim to continue the strong business momentum we have achieved against the headwind of lower consumer discretionary spending. We have been disciplined in our investments, and as a result, have built a record level of cash on our balance sheet. We are confident that our business model is structured to continue to generate and build cash. Based on current trends, we are reiterating our fiscal 2024 net sales outlook range of $335 million to $340 million. We acknowledge the challenging and dynamic macroeconomic and geopolitical environment. But based on our stronger-than-expected first quarter results, we expect to be at the higher end of the range. Patrick?
Patrick Williams: Thank you, Tom, and good afternoon, everyone. Our Q1 2024 results were slightly better than what we reported in our April preliminary announcement in the key areas of net sales, profitability and cash. Total net sales for Q1 2024 were $77.4 million as compared to net sales of $73.5 million in the prior year quarter. As a reminder, Q1 and Q4 have historically represented our seasonally lowest quarters. The $3.8 million increase in Q1 2024 net sales is attributable to a 9% or $6.5 million increase in ICL sales, partially offset by a decrease in cataract IOL, which the company wholly exited in fiscal 2023. Changes in constant currency negatively impacted total net sales by approximately $1 million or approximately 130 basis points in the first quarter of 2024.
During the quarter, we successfully added a second distributor for our China operations. We are very pleased with how smoothly this has gone and the new agreements in place have resulted in higher net ASP realized across our total business in China. For Q1 2024, gross profit was $61 million or 78.9% of net sales as compared to gross profit of $57.6 million or 78.3% of net sales for the prior year quarter and $60.7 million or 79.6% of net sales for Q4 2023. The year-over-year increase in gross margins is primarily due to country and product mix. The sequential decline in gross margin is primarily due to inventory adjustments. For 2024, we continue to expect gross margin will be approximately 80% of net sales for each quarter and the full year.
Moving down the income statement. Total operating expenses for Q1 2024 were $63.3 million as compared to $54.8 million in the prior year quarter and $50.3 million in Q4 2023. The increase in operating expenses reflects our decision to lean into investments to build the market for EVO ICL as we build a foundation for future growth and margin expansion in the later years of our strategic plan. Taking a closer look at the components of operating expenses. G&A expense for Q1 2024 was $23.2 million compared to $18.1 million in the prior year quarter and $16.9 million in Q4 2023. The year-over-year increase in G&A is primarily due to increased outside services and facilities costs. The sequential increase in G&A is due to compensation-related expenses and outside services.
For 2024, we continue to expect G&A expense to be approximately $24 million per quarter. Selling and marketing expense was $26.7 million for Q1 2024 compared to $26.4 million in the prior year quarter and $22.6 million in Q4 2023. The increase in selling and marketing expenses from the prior year was due to increased compensation-related expenses, trade shows and meeting expenses offset by decreased advertising and promotional activities. For 2024, we continue to expect selling and marketing expense will be approximately $30 million per quarter, which is consistent with prior periods as a percent of net sales. Research and development expense was $13.4 million for Q1 2024 compared to $10.3 million in the prior year quarter and $10.9 million for Q4 2023.
The year-over-year increase in R&D is due to compensation-related expenses. For 2024, we now expect R&D expense will be slightly higher at approximately $14 million per quarter, as we increase investments in our Department of Global Professional Education and Training as well as STAAR University. For Q1 2024, net loss was $3.3 million or $0.07 loss per share compared to net income of $2.7 million or $0.05 income per share in the prior year quarter. During the quarter, we had a $2.3 million loss related to foreign currency exchange, which drove the majority of our net loss in the quarter. This is related to cash generated from our Japan business, which requires us to mark all cash and investments back to U.S. dollar from yen, which has been weak at record levels versus the U.S. dollar.
Consistent with our previously communicated profitability expectations for the first quarter, we did have a GAAP loss in the quarter but significantly outperformed on adjusted EBITDA coming in at $5.3 million or $0.11 per share compared to adjusted EBITDA of $10 million or $0.20 per share in the prior year quarter. As a reminder, we introduced adjusted EBITDA as a profitability metric that we believe more accurately represents the underlying performance of our business model on an absolute basis and relative to our peers. We believe that an adjusted EBITDA financial metric or adjusted earnings before interest, taxes, depreciation, amortization and stock-based compensation, provides investors with an additional tool for evaluating the company's core operating performance and a proxy for cash generation.
We use this non-GAAP financial measure in our own evaluation of operating performance and believe it is a more useful reflection of our progress. A table reconciling net income to adjusted EBITDA for prior periods is included in today's financial release. In order to reconcile adjusted EBITDA from net income for our fiscal 2024 profitability outlook, we are providing the following line item details. Provision for income tax unchanged to be calculated using an effective tax rate of approximately 35% per quarter, subject to no significant change in our valuation allowance. We now expect other income expense to be slightly better at approximately $0 per quarter. Depreciation unchanged at approximately $1 million per quarter. Amortization unchanged at $0 per quarter.
And we now expect stock-based compensation to be slightly higher at approximately $8 million per quarter. As Tom said, we are reiterating our fiscal 2024 sales outlook range of $335 million to $340 million. So based on current trends, we do expect to be at the higher end of this range. For the second quarter of 2024, we anticipate net sales of approximately $95 million, which continues to contemplate above market rates of growth globally in all key markets. Based on our Q1 profitability performance and after mentioned changes to our income statement line items, we now expect our full year adjusted EBITDA will be approximately $3 million higher or $39 million and using approximately 52 million shares outstanding resulted in an adjusted EBITDA per share of approximately $0.75 up from $0.70.
Turning now to our balance sheet. Our cash, cash equivalents and investments available for sale reached a record $252.1 million at the end of the first quarter 2024 as compared to $232.4 million for the fiscal year-end 2023. This was better than anticipated in our preliminary announcement as was our progress on reducing accounts receivable to $64.6 million. Notably, this reduction in accounts receivable was related to our China business, and we are back to historical levels as a percent of sales across all customers globally. We look forward to meeting with many of you in the days and weeks ahead. We will participate in the Morgan Stanley Virtual Asian Conference next week and the Goldman Sachs Healthcare Conference in June. We will also participate in in-person investor meetings in Hong Kong, Shanghai, New York and Southern California.
We expect to report our second quarter results in early August. This concludes our prepared remarks. Operator, we are now ready to take questions.
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