Brian Moore - EVC Group, IR Caren Mason - President and CEO Deborah Andrews - Interim Chief Financial Officer.

Raymond Myers - Benchmark David Rescott - Canaccord Genuity Jim Sidoti - Sidoti & Company.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAAR Surgical First Quarter 2017 Financial Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the call will be opened for questions.

[Operator Instructions] This call is being recorded today, Wednesday, May 3, 2017. At this time, I’d like to turn the conference over to Mr. Brian Moore with EVC Group..

Thank you, Victoria, and good afternoon, everyone. Thank you for joining us on the STAAR Surgical conference call this afternoon to review the company’s financial results for the first quarter, which ended on March 31, 2017. On the call today are, Caren Mason, President and CEO of STAAR Surgical; and Deborah Andrews, Interim Chief Financial Officer.

The news release detailing the first quarter results was issued just after 4 p.m. Eastern Time and is now available on STAAR’s website at www.staar.com. Before we begin, let me quickly remind you that during the course of this conference call the company will make forward-looking statements.

We caution 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 described in the forward-looking statements.

The risk 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.

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, to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and diluted net income per share information.

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 to non-GAAP information is included in today’s financial release. Following our prepared remarks, we will open the line to questions from publishing analysts.

We ask analysts to limit themselves to two initial questions during the Q&A then re-queue with any follow-ups. We thank everyone in advance for their corporation with this process. And with that, I’d like to turn the call over to Caren Mason, President and Chief Executive Officer of STAAR Surgical..

Thank you, Brian, and good afternoon, everyone. I will begin our discussion with an abbreviated overview of Q1 performance highlights and conclude with progress on select strategic priorities for 2017. Deborah will then review key first quarter financial results, before we open the call for your questions.

We are pleased with momentum that continues to build in our ICL business. ICL highlights for Q1 includes sales growth in Canada of 65%, Japan of 65% and China of 45%. Region growth was strong in ICL units as well EMEA up 11% and Asia-Pacific up 28%. India which is included in the APAC region number did experience stronger than anticipated growth.

Distributors servicing India placed stocking orders to compensate for a delay in registration renewal which could impact normal import timing in Q2. We do anticipate achieving our full year growth plan in India and signed a strategic corporation agreement in the first quarter with a large eye hospital group.

As anticipated, total units were appreciately down in Korea but we are pleased with the growth in the Toric ICL orders in Korea. Globally, Toric ICL shipments hit a new quarterly record and continue account for a growing percentage of the ICL mix.

In Q1 2017, Toric ICLs accounted for 51% of sales versus prior year 46% and 44% of units versus prior year 40%. For the quarter, IOL sales and injector parts were behind prior year. With the discontinuation of our U.S. silicone IOL business, we do anticipate flat to declining growth in 2017 for our IOL product line.

Injector parts, however, should resume the growth trajectory in coming quarters. Turning to our progress on select strategic priorities, as you know our work in quality is continual and remains as our top strategic priority.

With regard to FDA remediation, we have completed the internal work in Q1 per our submitted plan to the agency and have notified the FDA that we are ready for inspection.

We just completed our five-year re-certification inspections with DEKRA, our European notified body which runs the CE Mark and ISO certification and anticipate full re-certification in July.

On the new product front, our first-in-man clinical trial for next generation ICL with EDOF continued in the first quarter and the results continue to be positive. We recently conducted a meeting Madrid, Spain, with our principal investigator and our surgeon working group to discuss the initial findings of the clinical and directionally next steps.

We plan to introduce the lens upon approval this year to a select group of surgeons for early effectiveness observational use. A data analysis to seek surgeon feedback on their experience with the EVO aspheric EDOF lens, including performance, patient acceptance, OD practice development, et cetera.

Overall, the working group’s comments were positive and supportive of our rollout plans to this important addition to the EVO lens family.

Regarding the preloaded ICL injector delivery system, we recently completed surgeon preference testing in our new technology center, where ICL experienced surgeons took the new preloaded ICL injector delivery system for a test drive.

We are very pleased with the feedback and results and we will plan to submit this device for CE Mark approval in the coming months. We are continuing to build the Evolution in Visual Freedom market for implantable lenses.

At the upcoming ASCRS meeting in Los Angeles this weekend we will showcase the strengthening of the product branding launch last year and we will be introducing an enhance surgeon training and process development program continuum. Just a few highlights, include, Dr. Greg Parkhurst and [ph] Dr.

William Session (7:29) are visiting ICL optometry co-management and training. [Ph] Dr. Jason Bretton and Dr. Luke Rubenish (7:37) will be sharing best practices and business management and practice development as part of the successful refractive practice.

Additional sessions will include in-depth discussion on the performance of the ICL and the addition of the Collamer IOL to a cataract practice. These sessions will be led by Dr. Mark Pyfer, [ph] Dr. John Bukesh (8:00) and Dr. Joaquín Fernández.

Additionally, we will be exhibiting again at the ASCRS Refractive Surgery Day after an eight-year absence with an all day focus on the ICL as the premium refractive option and Dr. Erik Mertens will be on podium presenting non-colonial refractive surgery next-generation phakic IOLs.

So to reaffirm our view of the business for 2017, we expect double-digit ICL unit growth for the year, driven primarily by increasing market acceptance of the EVO Visian ICL in established markets with the exception of the U.S. and Korea.

We expect IOL sales in 2017 to be similar to IOL sales in 2016, with the exception of the decrease associated with the discontinuation of the silicon IOL product line in U.S. We anticipate gross margin expansion again in 2017 as compared to year end 2016. We anticipated 2017 operating expenses may trend above 2016 total operating expenses.

We are planning further investments in our operations to primarily include clinical affairs, corporate infrastructure and systems, sales and marketing and research and development.

As we complete our three-year strategic transformation priorities and investments in 2017, our goal is to provide a preview of 2018 to 2020 strategic priorities and financial results direction during our fourth quarter of this year. That includes my prepared remarks for this afternoon.

Deborah?.

Thank you, Caren. Good afternoon, everyone. I will start the financial overview with the summary of topline results and then provide more details by product and market. STAAR reported net sales of $20.4 million in the first quarter of 2017, an increase of 6% over the $19.3 million of sales reported in the first quarter of 2016.

The sales increase was driven by ICL revenue growth of 16% and unit growth of 20%, and partially offset by decrease IOL and injector part sales. For the first quarter of 2017, total sales for ICL product line were $15.3 million, compared to $13.2 million in the prior year quarter.

Asia-Pacific ICL sales were $8.2 during the first quarter, an increase of 23% revenue and 28% units compared to the prior year period. China, Japan and India experienced strong double-digit growth that was offset by softness in Korea.

EMEA and Latin America ICL sales were $5.3 million during the first quarter, an increase of 9% revenue and 11% units compared to the prior year period. All three regions within EMEA and Latin American were reported growth in sales and units, with Latin American and Middle East reporting double-digit unit growth.

North America ICLs were $1.8 million during the first quarter, up 7% revenue and 6% unites from the prior year period. The increase in sales was driven by the successful commercialization of the EVO Toric lens in Canada, which was approved in the September of 2016.

For our IOL product line total IOL sales were $4.6 million for the first quarter of 2017, which was down 9% revenue, but up 1% units from the prior year period. Solid growth in EMEA was offset by the phase-out of silicone IOLs sales in North America and softness in Japan sales during the quarter. Now turning the discussion to margins and spending.

Our gross profit margin was 71.6% compared to prior year period gross profit margin of 67.4% or an increase of 4.2 points.

This improvement primarily resulted from a favorable mix or higher margin ICL units and lower other cost of sales attributable to the lower stock-based compensation compared to Q1 2016 when approximately $600,000 was recorded related to the acceleration of stock compensation that would been recorded in future years.

Operating expenses for the first quarter decreased $6.4 million to $16.7 million from $23 million in the prior year quarter. The decrease in operating expenses was primarily due to lower expenses as a result of the one-time non-cash charges in Q1 2016 related to the immediate vesting of our invested equity awards.

This accelerated vesting incurred as a result of the triggering of the change of control provision of the company's equity incentive plan during the quarter ended April 1, 2016 and was not repeated again during the quarter ended March 31, 2017. Excluding this prior year charge, operating expenses was slightly favorable to prior year.

General administrative expense was $5.4 million, $3.1 million lower than the prior year quarter. The accelerated vesting represented $2.9 million of the decrease and the balance the result of lower local taxes in Japan. Marketing and selling expense were $6.5 million, $1.1 million lower than the prior year quarter.

The accelerated vesting represented $1.5 million of the decrease and was partially offset by increased trade shows spending international. Research and development expense was $4.8 million, $2.1 million lower than the prior year quarter.

The accelerated vesting represented $1.8 million of the decrease and the balance the result of lower quality remediation expenses. With regard to the bottomline, the net loss for the first quarter of 2017 was $2.2 million or approximately $0.05 per share compared with a net loss of $8 million or $0.20 per share for the prior year period.

On a non-GAAP basis, the adjusted net loss for the quarter -- for the first quarter of 2017 was $1.4 million or $0.04 per diluted share compared with an adjusted net loss of $0.5 million or $0.01 per diluted share for the prior year period.

Net loss and adjusted net loss benefited in 2016 from the $1.6 million income tax benefit recorded during the quarter, primarily as a result of the dissolution of a foreign subsidiary and also by the accelerated vesting and equated to approximately $0.04 per diluted share.

Adjusted net loss exclude expenses such as FDA remediation, gains and losses on foreign currency transaction and stock-based compensation costs.

Now turning to our balance sheet, our cash, cash equivalents and restricted cash at March 31, 2017 totaled $13.6 million, compared to $14.1 at the end of the fourth quarter of 2016 and $9.1 million at the end of the first quarter of 2016.

Continue focus on optimizing the company's cash position through revenue growth, expense management and working capital management, resulted in a decrease in cash of $500,000 compared to a $4.4 million decrease in cash in the first quarter of 2016.

Finally, it should be noted that by achieving our targeted double-digit ICL unit growth by continuing our strengthening of gross margins and by prudently managing expenses, we should realize operating leverage and the positive cash flows we are seeking as our investments in quality, clinical, research and development, and sales and marketing begin to pay back.

This concludes my comments and with that we are ready to take your questions. Operator, please open the line for questions..

Thank you. [Operator Instructions] The first question will come from Raymond Myers of Benchmark. Your line is now open..

Great. Thank you. Caren congratulations on the progress with the remediation efforts. That’s been a long time in coming. So congratulations there.

Can you describe what happened in the process, maybe a little bit more detail and outline the process going forward to lift the FDA's issues?.

Okay. Thank you by the way Ray. I appreciate always your comment and thank you for joining us. In terms of the process with FDA, really everything from this point forward is at the evolution of the FDA, the timing, the process, et cetera, is totally up to them.

Our progress was in having created a plan and having delivered on that plan as promised in terms of the amount of information. We believe the quality of information and the timing of the delivery of that information. And we did have outside console around our progress along the way which we had commented upon previously.

So we do believe we are in the right position and as result of that, we did communicate with the FDA as to our readiness for inspection..

That's great. And in Korea that was one area of weakness in the quarter.

Can you help us understand, is it continuing to get weak or is it just a year-over-year comparison? What is the current recent trend?.

Yes. We had an agreement with our Korean distributor around guaranteed purchases per quarter as we have talked about last year and we have paste the purchases based on Korea’s ability at that time to properly ream the market and their ability to respond.

Unfortunately, toward the end of last year, we were surprised with their analysis and their ability in 2017 to keep up that pace. That is on the spheric ICLs. On the Toric ICLs we are seeing nice growth.

We expect that over the next four months to six months, hopefully, certainly by the end of the year that the programs that are being put in place by our team will start to reflect to more growth from both spheric and Toric and more strategic cooperation agreements that will also hopefully take us back in Korea..

Okay. That's great and that's my two questions. So I will get back in queue. Thank you..

Thank you, Ray..

Thank you. The next question is from Jason Mills of Canaccord Genuity. Your line is open..

It is David Rescott on for Jason.

Can you hear me all right?.

Can you speak a little louder please..

Yes. Sorry, this is David Rescott on for Jason..

Hi, David..

Can you hear me all right now?.

Yes..

Good. Yeah. So it looks like for ASPs and IOLs, we are kind of modeling something that was higher than what we saw.

Can you kind of talk a little about, what you saw kind of bring this down or driving this down and also kind of how we should think about that going forward? And I think, secondly, give a little more color on you know what gross margins were this quarter per category and how we should look at those going forward as well?.

Well, I think, that in terms of IOLs, certainly the market continues to be quite competitive. Our offerings now in the United States are limited to nanoFLEX Collamer product and that is considered a moderate to premium products from many of our optometric surgeons.

In terms of being competitive, they may have been some adjustments in terms of price points, yes. I think in terms of gross margin I will turn that over to Deborah..

No. In terms of gross margin on our IOL product line, although as repeat declines of gross marginal decline, cost structure is still good and I expect overall to be -- ASPs to be steady throughout the year..

All right. Thanks. That’s it for me..

Thank you. [Operator Instructions] The next question is from Jim Sidoti of Sidoti & Company. Your line is now open..

Good afternoon.

Can you hear me?.

Yes, Jim. We can hear you loud and clear. Hi..

Great.

I am, so, can you just on, excuse me, what I invest on the FDA to inspect, I believe it took about five months or six months, is that about right and is that the time, is that about how much time you think it will take at this time?.

Okay. I don’t recollect, I wasn’t on Board at the time. I think it was three months or so, but I have no idea as to the inspection timing for the FDA. So I couldn’t tell you what that would be..

And is there any cost that starts now for them to come in or can they come in whenever they want?.

They can come within whenever they want. There is no statue associated with their response to our readiness..

Okay.

And then the last one, you mentioned you signed a new strategic corporation agreement in India, was that the only one sign in the quarter or were there other signed as well?.

No. There was another one, new one signed in the Middle East and then there were renewals from previous agreements as well and then number of others are currently in negotiation..

Okay. Thank you..

You’re welcome..

Thank you. And at this time, I would like to turn the call back over to Caren Mason for closing remarks..

I’d like to thank everyone for their participation on our call today. We appreciate your interest and investment in our company and we look forward to speaking with many of you in the coming weeks and months. All the best to all of you. Thank you..

Thank you. Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day..