STAAR Surgical first quarter total revenue increases 4% to $15.5M

STAAR Surgical Company (NASDAQ: STAA), a leading developer, manufacturer and marketer of minimally invasive ophthalmic products, today reported that sales of its Visian ICL product in the first quarter ended March 30, 2012 increased 25% to $8.6 million.  Total revenue grew 4% to $15.5 million from $14.8 million in the first quarter of 2011.  Gross margin set another quarterly record at 70.3%, 550 basis points above the 64.8% margin in the first quarter of 2011 and 50 basis points above the 69.8% margin in the fourth quarter of 2011.  This was the highest gross margin since 1998 and represented the sixth consecutive quarterly gross margin increase.  The gross margin improvement continues to reflect the increased contribution of Visian ICL sales and margin improvement in IOLs.

Net income, calculated in accordance with GAAP, was $232,000, or $0.01 per diluted share, compared with net income of $300,000, also $0.01 per diluted share, in the first quarter of 2011.  This marked the fifth consecutive quarter of profitability for the Company.  Adjusted net income (excluding manufacturing consolidation expenses, gain on foreign currency transactions, fair value adjustment of warrants, and non-cash share-based compensation expense) for the quarter ended March 30, 2012 was $1.4 million, or $0.04 per diluted share.  Adjusted net income for the year ago quarter was $313,000, or $0.01 per diluted share.  Cash and cash equivalents at March 30, 2012 totaled $16.4 million. 

"We continued to make good progress in our business during the first quarter evidenced by our 30% increase of ICL revenues in our top 11 targeted markets," said Barry G. Caldwell, President and CEO.  "This increase in ICL sales combined with our product cost improvements led to significant year over year expansion in gross margin.  Our IOL sales were not as strong as expected but we understand why and expect growth for the remainder of the year.  Our key metrics are developed on an annualized basis and our first quarter is always the most challenging when compared to our annualized targets.  The 2012 start is very similar to the start of 2011 when we missed two of our metrics in the first quarter; only to exceed them as the year progressed.   We remain confident that we will achieve our metrics for 2012 which include ICL revenue growth in excess of 32% and total revenue growth of 15%."

"We continue to make progress in the roll-out of the V4c ICL in markets where approved," added Mr. Caldwell.  "Our participation at recent ophthalmology conferences in the Middle East and U.S. has confirmed the growing interest in Visian ICL as a true competitor to both standard and customized LASIK with significant patient benefits including improved vision, comfort and safety.  The V4c ICL with CentraFLOW technology is gaining traction in Europe and represented 58% of total European ICL sales in the quarter.  Surgeons in Europe have already implanted over 1,000 V4c ICLs and the AquaPORT™ has performed as expected in all cases.  This data further proves the CentraFLOW technology eliminates the need for an iridotomy prior to surgery making the procedure much more convenient and less complicated for both the surgeon and patient."

"We reached another key milestone in gross profit margin expansion by achieving a 70.3% gross margin for the first quarter, our highest margin in 14 years," Mr. Caldwell continued.  "Our increased gross margin was due largely to the improved mix toward higher margin ICL sales and improved costs.  ICL gross margin for the quarter was 85%, while our IOL margin continued to expand to 60% during the quarter.  We expect continued margin improvement during the year due to increased ICL sales and further market penetration of the V4c version."

"Our operating income in the first quarter increased 34% compared with the first quarter of 2011.  We continued execution on our plan to consolidate manufacturing and recorded approximately $0.6 million in expenses for that effort in the first quarter.  Net income for the recent quarter of $0.2 million was below last year's $0.3 million, attributable to the increase in manufacturing consolidation expenses and the $0.3 million lower gain on foreign currency transactions.  Looking ahead, we expect enhanced growth in sales of Visian ICL and total revenue based on the ramp of our newly approved product introductions, expanded awareness of the benefits of our technology and the improvements we continue to make in our operations.  We expect to meet all of the key metrics we established earlier this year for the full year 2012," Mr. Caldwell concluded.

2012 Key Metrics

The Company reaffirmed its key target metrics for 2012:

1. Increase in revenues of 15%.
2. Exceed the 2011 Visian ICL revenue growth rate of 32%.
3. Continuous expansion of gross margins to achieve 71% for the full year.
4. Profitable each quarter and for the full year.
5. Implement manufacturing consolidation with no disruption to customer supply requirements.  This metric will be measured by the amount of customer backorders.

Recent Visian Implantable Collamer® Lens (ICL) Highlights

• First quarter Visian ICL sales grew to $8.6 million, a 25% increase from $6.9 million in the first quarter of 2011.
• Sales in STAAR's top 11 targeted markets increased 30% in the first quarter.  Asia/Pacific sales grew 50% in the first quarter.  Leading the growth were China, up 110%; Japan up 93%; India, up 47%; and Korea, up 37%.
• Sales in EMEA grew an unusually slow 2% in the quarter, primarily due to three factors.  First, during March 2011 the Company had two distributors stocking the expanded range for the V4b which had just been introduced.  With this introduction there were new powers which needed to be placed into their inventories.  Secondly, the WOC held in February slowed refractive surgery particularly in the Mideast.  This meeting was not held in 2011.  Finally, the Company had two fairly large ICL orders which were delayed at quarter end due to some logistics issues. 
• 58% of total ICL sales to European markets during the first quarter of 2012 were of the Visian V4c ICL.  There have been over 1,000 implants of the V4c in Europe with the AquaPORT performing as expected in all cases.
• ICL sales in North America increased by 4% during the quarter.  U.S. ICL sales in the first quarter grew 2%.  Sales to private sector accounts increased by 6% while military sales of ICLs during the quarter decreased 34% from the prior year due to key ICL surgeon deployment or retirement.  The Company expects to see an improvement in military ICL sales during the second half of 2012.

Recent Intraocular Lens (IOL) Highlights

• First quarter IOL sales decreased 11% or $0.8 million to $6.4 million compared with $7.1 million in the first quarter of 2011. 
• During the first quarter of 2011 the Company transitioned the business in Australia from a direct distribution model to an indirect model.  In that transition it sold its inventory to the new distributor creating a revenue comparison for the quarter unrelated to actual demand.  That negative impact for comparative purposes was over $0.4 million or approximately half of the quarter over quarter decline.
• Preloaded IOLs in Japan declined by 7% or $0.2 million.  Key factors were aggressive competitive pricing during the quarter though the Company's price actually increased by 2%.  Finalizing the KS-SP preloaded single piece acrylic IOL is important for that market.  The Company believes it has now solved the technical issues regarding delivery of the lens.  A focus remains on gaining incremental university accounts where the average prices are higher.  During the month of April the Company saw a return to IOL revenue growth in Japan.
• In the U.S., silicone IOL sales decreased nearly $0.3 million.  Sales of nanoFLEX and Silicone Toric IOLs did not outpace the loss in standard silicone lenses.
• IOL gross margins improved by 200 basis points to 60% for the quarter.  Cost improved reflecting an improved gross margin percentage in all five categories of IOLs year over year.
• Shipments of the nanoFLEX IOL have occurred for on-going trials with surgeons in two key European markets.  The pre-market launch of the newly approved nanoFLEX Toric IOLs are expected to begin during the second quarter, at which time, the Company will introduce both nanoFLEX models to additional European markets.

First Quarter Financial Highlights

• Total net sales in the first quarter increased 4%, or $0.7 million, to $15.5 million from $14.8 million in the first quarter of 2011.  Foreign currency transactions had a favorable impact on sales of $0.1 million which is $0.3 million less gain than the prior year first quarter impact.  Net sales were also affected by a $0.3 million, or 34%, decline in sales of the "other" product category on which the Company is not focused.
• Gross margin increased to a record 70.3% of revenue compared with 64.8% in the prior year's first quarter.  The increase reflected a higher mix of ICL to total sales of 56%, as compared to 46% during the first quarter of 2011, and a 200 basis point improvement in IOL margins.
• Total operating expenses were $10.6 million, a 13% increase over $9.4 million in the first quarter of 2011.  Manufacturing consolidation expenses totaled $0.6 million during the quarter.  Excluding consolidation expenses, operating expenses were $10.1 million, a 8% increase over the 2011 first quarter.  The non-cash charge during the quarter for stock-based compensation increased by $332,000 despite the issuance of the same number of options, reflecting an increase in the Company's stock price from the prior year period.  
• Other expenses contributed $186,000 versus $395,000 in the prior year period.  This was driven by the over $300,000 decrease in gains on foreign currency transactions offset to some degree by an increase in royalty income and a decrease in interest expense.
• GAAP net income in the first quarter of 2012 totaled $232,000, or $0.01 per diluted share, compared with net income in the first quarter last year of $300,000, or $0.01 per diluted share.  Adjusted net income was $1.4 million, or $0.04 per diluted share, compared with adjusted net income during the first quarter of 2011 of $0.3 million, or $0.01 per diluted share.
• Cash and cash equivalents and restricted cash totaled $16.4 million at March 30, 2012 compared with $16.7 million at December 30, 2011 and $10.4 million at April 1, 2011.  The Company used $0.4 million in cash for operating activities during the first quarter due to expenditures associated with the manufacturing consolidation including an investment in inventories.  This investment in inventory is to help guarantee no disruption in customer supply during the transitions and $0.4 million in cash was used for this purpose during the quarter. 

Second Quarter and Remainder of Year Key Events

• Continued penetration of the V4c ICL into the currently approved markets.  Penetration rate was 58% during first quarter.
• Expanding the approval of the V4c ICL to additional targeted markets outside of Europe.
• Release of nanoFLEX Toric IOL for pre-market launch to Europe which is planned during the second quarter of 2012.
• Complete the transfer of the enhanced KS-SP preloaded single piece acrylic from R&D to manufacturing in order to begin shipping this new product.
• With the completion of the R&D inventions for the V5 Preloaded ICL, complete the file for CE Mark and plan to gain additional surgeon input and support prior to the ESCRS meeting in Milan during September.

SOURCE STAAR Surgical Company