Good afternoon, ladies and gentlemen, and welcome to the STAAR Surgical Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
[Operator Instructions] I would now like to turn the conference over to your host, Mr. Brian Moore, Vice President, Investor, Media Relations and Corporate Development. Please go ahead sir..
Thank you, operator, and good afternoon everyone. Thank you for joining us on the STAAR Surgical conference call this afternoon to discuss the company's financial results for the fourth quarter and fiscal year ended January 1, 2021. On the call today are Caren Mason, President and Chief Executive Officer; and Patrick Williams, Chief Financial Officer.
The press release of our fourth quarter results was issued just after 4:00 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 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, belief, 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 risks 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.
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, to supplement the GAAP numbers, we have provided non-GAAP adjusted net income, and adjusted earnings per share, and sales in constant currency.
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 the non-GAAP information is included in today's press 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, and then re-queue with any follow-ups. We thank everyone in advance for their cooperation with this process. And with that, I would now like to turn the call over now to Caren Mason, President and CEO of STAAR..
establishment of our EVO manufacturing operations in Nidau, Switzerland, and our advanced presbyopia VIVA lens manufacturing facility in Lake Forest, California, Also expanding capacity of our Monrovia manufacturing facility. Operating investments include, scaling our revenue generating sales and marketing teams and programs.
We have recently added key hires to the U.S. sales team and we’ll continue to support our growth in China with additional in-country STAAR account executives. We will also invest in marketing programs in geographies that can demonstrate strong returns by driving higher levels of ICL unit growth.
Before turning the call over to Patrick, let me conclude my prepared remarks by welcoming two new members to the STAAR Board of Directors, Dr. Elizabeth Yeu and Dr. Peony Yu, who joined the Board as previously announced on January 21. I would also like to thank retiring Board members John Moore for his more than decade of service to STAAR.
Patrick?.
Thank you, Caren, and good afternoon, everyone. Total net sales of Q4 2020 were $46 million, up 18%, as compared to the $38.9 million of net sales in Q4 2019 and down 2% on a sequential basis from Q3 2020. The year-over-year increase in net sales was attributable to the growth Caren highlighted earlier.
The sequential decrease in sales was due to the moderate seasonality in our business. As a reminder to our investors and analysts, Q1 and Q4 have historically represented our seasonally lowest quarters and thus we continue to believe Q1 2021 will be slightly down from our Q4 2020 results.
In terms of product mix, ICL sales represented 87% of total company net sales for the fourth quarter of 2020, and other products represented 13%, which is consistent with recent trends.
Gross profit for Q4 2020 was $34.3 million or 74.6% of net sales, as compared to gross profit of $28.8 million or 74.1% of net sales for Q4 2019 and $34.9 million or 74.1% of net sales for Q3 2020.
The 50 basis point increase in gross margin as compared to Q4 2019 is primarily due to geographic sales mix, partially offset by inventory reserves taken on certain lower margin IOL products which are being discontinued and manufacturing projects.
The sequential increase in gross margins from the third quarter is due to sales mix, partially offset by inventory reserves taken on certain lower margin IOL products which are being discontinued. We expect Q1 and fiscal year 2021 gross margins to be similar or slightly up from our Q4 2020 results.
Moving down the income statement, total operating expenses for Q4 2020 were $30.2 million, as compared to $26.5 million in Q4 2019, and $30 million for Q3 2020. Taking a closer look at the components of operating expenses, G&A expense for Q4 2020 was $9.5 million, compared to $7.9 million for Q4 2019 and $8.6 million for Q3 2020.
The year-over-year increase in G&A is due to increased salary-related cost, variable compensation, corporate insurance and facilities cost. The increase from Q3 2020 was due to increased variable compensation, corporate insurance and salary-related costs.
We expect G&A dollars for Q1 2021 to be slightly higher than Q4 2020 and to continue at a similar level of absolute dollars each quarter for the balance of 2021. Selling and marketing expense was $11.8 million for Q4 2020, compared to $11.2 million for Q4 2019 and $12.6 million for Q3 2020.
The increase in selling and marketing expense from the prior year was due to increased salary-related costs and advertising and promotional expenses, partially offset by decreased travel, and sales meetings and trade shows expenses.
And the decrease from Q3 2020 was due to decreased advertising and promotional expense, partially offset by increased salary-related costs and variable compensation.
We expect selling and marketing as a percent of sales to represent approximately 33% of sales for the first quarter and the fully are of 2021 as the company makes appropriate investments in scaling the company consistent with Caren’s comments earlier.
Research and development expense was $9 million in Q4 2020, compared to $7.4 million for Q4 2019 and $8.8 million for Q3 2020. The increase in research and development expense as compared to the prior year quarter was primarily due to increased clinical expenses associated with our EVO clinical trial in the U.S.
and the increased variable compensation. The slight sequential increase in R&D is due to an increase in salary-related cost, partially offset by lower clinical spending.
We expect quarterly R&D for 2021 to remain similar to our Q4 2020 in absolute dollars, which should yield some leverage in R&D as a percentage of a higher level of anticipated sales throughout 2021. Operating income in Q4 2020 was $4.1 million or 8.8% of sales, as compared to $2.3 million or 6% of sales for Q4 2019.
The 280 basis point year-over-year expansion in operating margin is due to leverage on the fixed and variable operating expense during the quarter. Net income in Q4 was $3.3 million or $0.07 per diluted share, compared to a net income of $6.4 million or $0.14 per share in Q4 2019.
The lower net income in the fourth quarter of 2020 as compared to 2019 is due to a higher provision for income taxes, as the result of a $0.07 per share tax benefit from our 2019 tax valuation release.
On a non-GAAP basis, adjusted net income for Q4 2020 was $6.8 million or $0.14 per diluted share, compared to adjusted net income of $5.5 million or $0.12 per diluted share in Q4 2019. A table reconciling the GAAP information to the non-GAAP information is included in today's financial release.
Turning now to our balance sheet, our cash and cash equivalents as of January 1, 2021, totaled $152.5 million, up $24.2 million, compared to $128.3 million at the end of the third quarter 2020. The sequential increase from the third quarter is primarily attributable to $19.6 million in cash generated from operations.
As we look ahead in 2021, we anticipate increasing our CapEx investments as we continue investing in expanding our manufacturing capacity footprint, scaling production for our new VIVA lens, and infrastructure scalability. For the full year 2021, we anticipate a total CapEx spending to be in the range of $15 million to $20 million.
Finally, STAAR will be participating in the Credit Suisse Virtual West Coast Investor Bus Trip on March 22 and we look forward to speaking with many of you there. This concludes our prepared remarks. Operator, we are now ready to take questions..
[Operator Instructions] We have your first question from Chris Cooley from Stephens. Your line is open. .
Good evening and hope everyone is well. Just maybe, just my first two and then I’ll hop back in queue. When we think about the growth that you saw in the second half of the year, clearly a strong rebound there, Caren, on the ICL front.
But didn’t hear just a reiteration of kind of the long-term targets, and also you don’t have guidance for 2021 formally, but just when you think about unit growth longer term for the ICL, just curious what you are seeing now is still keeps those long range plan targets within reach.
And then, what gives you confidence along that just also base business and then I have a follow-up. .
Sure. Thank you very much, Chris. We definitely are very confident around momentum in the business as obviously we are seeing a lot of the great trajectory in the second half of 2020 continue into 2021.
So, if you look at our long-term commitments, three year growth rate of 25%, and 35% ICL unit growth at the end of 2022, we are very committed to achieving those growth goals.
Ideally, as we look at 2021, we think about obviously in the first half very fine growth year-over-year and we talked a little bit about when we look for sequential growth we’ll retain the seasonality, but when we look at year-over-year growth especially in the first half it could be very healthy.
And then, as we are projecting half of the year, we have a number of entities even with EVO VIVA addition and in the fourth quarter with EVO in the U.S. to even add on to what we think will be very healthy growth in 2021. .
Hi, Chris, maybe I can just add something with our prepared remarks as we said it will give hopefully a very strong signal of our longer term confidence and I talked about the CapEx spend where we are increasing it in 2021 as a really scaling year for us or a scalability year of about $15 million to $20 million, which is about twice of what we did in 2020.
So, hopefully, that’s another strong signal by us that we have a lot of confidence in where we think this business can go over the next several years. .
That’s great. I appreciate it. And then, just from a second question topic, I really appreciate all the granularity you provided down to the middle of the income statement and also as it pertains to the growth line as we think about 2021 it really helps.
I am curious though, as you make these understandable investments in infrastructure in personnel, getting ready for the launch of EVO in the fourth quarter here in the United States and obviously the continued ramp up of VIVA abroad, I mean, hopefully, here in the U.S. and shortly thereafter.
When we exit 2021, and I am just curious, are we at the spend or if we are – how I should say, is the company have to spend right at that point where you can start to drive leverage or is that just the initial kind of push you’ll need to further continue that kind of operating expense step up in the year thereafter as we think about building out the commercial infrastructure here in the U.S.
and it sounds like China, as well now. Thank you. .
Sure. It’s a good question and certainly Caren can add on. I think, it’s a little early for us to give, I would say, some of those longer term projections since we are starting to – we are awaiting the U.S.
approval and we are starting to see the penetration within some of the other markets including getting our – or beginning of VIVA right in Europe, and then hopefully as we spread that out throughout the world.
So, I think what you are seeing in the model is that, it’s a fairly simplified model leveraged on a fairly nominal, what I would say, a revenue scale compared to peer groups or other medical device companies that are in a high growth stage like we are. So, I am very confident in our ability to have expansion.
I would expect you will see expansion as we move forward to the years. We’ve got a nice tailwind related to our gross margins as a relation to geography mix. As a reminder, with the U.S. coming on board, it will be a direct market. It’s one of the larger or more premium markets out there from an ASP standpoint.
And so, we are going to get a nice tailwind over the next several years related to building out that market. And then, some of the other direct markets, as well including VIVA which is right now a premium product for as compared to our current EVO lens. So, that does not keep me up in night any sort of marked operating margin expansion.
So, we feel very good about the ability to move forward.
With all that said, we will hold off and now people are eager to see kind of what does this look like since our last Investor Day, we are looking forward to doing an Investor Day at some point in the not so distant future and you can expect we’ll give some future looks not only on the sales side, but through some of the leverage in the P&L. .
We have your next question from Anthony Petrone from Jefferies. Your line is open. .
Thanks. Good afternoon everyone. I hope everyone is staying healthy. Couple of questions, one would be on VIVA, one on U.S. EVO and then one for Patrick, just on distributor trends.
On VIVA, and maybe just an update on expectations for the full scale European launch and the European Cataract Meeting later this year, what are the latest thoughts there just as we continue to navigate COVID? So that would be question one.
And more so, what does that full scale launch look like? Will there be more direct sales reps added ahead of that and then, also in regards to DTC, will you ramp that up ahead of the ESCRS Meeting in later this year? The second question on EVO timelines would be similar.
Should we expect a ramp in DTC and sales force ahead of that? And then, I’ll have a follow-up for Patrick. Thanks. .
Okay. Thanks for joining us, Anthony. When we put out VIVA in Europe, our goal is to continue to add surgeons who are certified and doing very well with myopia lenses throughout Europe over the next six plus months. And during that time, we continue to add which we’ve already begun.
We already have initial commentary on what works and what we can advice surgeons to do to well prepare a patient for their expected vision near, intermediate and distance. We should have that playbook ready to go for all surgeons who are in approved markets probably by, I would say, September.
We were thinking of doing an expert meeting which we do every year a few days to our ESCRS having the VIVA lens in playbook being the primary discussion points with surgeons on the podium who would be able to share their prose, as well as the patient experience and the direct-to-consumer experience.
We were hesitating a bit on the timing not because we won’t be ready, but because we are really not sure yet let the Amsterdam Meeting is going to take place in terms of an in-person meeting rather than virtual.
And we would really prefer to roll this out if we can either in a combined hybrid virtual in-person meeting or an in-person meeting there is so much to share.
When you are at a one of our experts meeting and there are 350 people in the room and everyone is trying to grab the microphones to share their experiences, it’s truly exciting and it’s something we think VIVA deserves.
So, we will see what the timing will be of the experts meeting to roll out VIVA with our leading surgeons around the world in approved markets.
With regard to adding sales people, we definitely are adding direct, indirect markets, and we have been very, very good at building new hybrid markets such as in Benelux, France and Italy and we have done a good job of upgrading distributors who are now ready. All three, direct, hybrid and distributors will be managing the VIVA rollout.
In terms of EVO in the U.S., we have a full roll out and that is already in approval phases. We have been hiring people in the U.S. who are really strong in strategic account management.
We have a number of exceptional programs that we’ll be rolling out that have been very successful in Europe and in China, both on social media from digital marketing as well as testimonials and individuals who are very well respected to share their VIVA – excuse me, their EVO experience. So, the U.S.
will be a exceptional market we believe for consumer outreach and in each of the markets in the United States where we will be rolling out the EVO lens with significant and strong partners who are strategic partners of STAAR, who are KLOs, who are in big practices with lots of refractive procedures a year, all of that is being planned to be ready and available for the fourth quarter.
.
Thank you so much. And if can, just for, Patrick, can you maybe walk us through how distributor destocking restocking kind of played out exiting 2020? And how those trends will play out in the first half of 2021? Thank you so much. .
Yes. So we got a quite a few questions about that and I think what everyone needs to takeaway is that, there is no unusualness to the business from a stocking, destocking, et cetera.
What we see at the end of the year is, what I would call a normal pattern of the business where some of the distributors are looking to make sure that their levels are appropriate across the different SKUs, right. And so, they are really looking to right set that.
And so, we saw a little bit of that in some of the larger distributors like we have in China, the single one we have there. But people shouldn’t read anymore into that where normal course of business we are moving forward. There is a lot of momentum in the business right now. Everyone is ordering direct markets, distributor markets et cetera.
So, everything is really running at a normal pattern. .
Thank you. .
Of course. .
We have your next question from Brian Weinstein from William Blair. Your line is open. .
Hi, good afternoon. This is Andrew on today. Thanks for taking the question. Maybe we can start on U.S. market dynamics here. Caren, you’ve sort of always talked about the core demographics for EVO in Asia and sort of being that bucket of – upon the young professionals at the higher level of disposable income. So, maybe as we think about the U.S.
market here, can you just give us a little bit of an idea of how you view that demographic here for that product? And as a corollary to that, any differences in how we should be thinking about, maybe some consumer macro sensitivity to the product here versus other areas around the globe?.
Thank you for joining us, Andrew. And the answer to your question is, yes. We do believe the demographic holds globally.
21 to 35 year olds many of whom wearing contact lenses and glasses more than they would like and a strong interest in having visual freedom they are able in the workplace through exercise, sports, enough activities, just be totally free to do what they need to do without any dependence on dish collection apparatus.
So, we expect that to continue and to be very strong. We think that the U.S. consumer is especially interested in lenses that have such great benefits such as the ability to be upgraded. The fact that there is no dry eye syndrome. The fact that there is exceptional night vision and also, the vision that this keeps quiet in the eye and biocompatible.
And so, I think we see some tremendous strength which have picked up so beautifully in the social media around the world as really excited and happy recipients of the EVO lenses loved sharing their stories. So we expect it to happen in the U.S. and maybe even be more aggressive and that we have the greatest consumers in the world in the United States.
And I think that, in terms of going forward, our enthusiasm for being prepared and ready for a consumer world in the United States that becomes aware of EVO, I know that we are there. .
Great. Thank you. That was very helpful. And then, I guess, maybe a question on cash here. Obviously, what a difference couple of years makes for you guys and certainly congrats to the team for all the cash flow generation over the last couple of years.
But now I guess, with over a $115 million sort of on the balance sheet and recognizing, Patrick, you gave a lot of good color on the internal investments here. We did notice that shelf that you have.
So maybe, I guess, bringing that bigger picture here, can you talk maybe some longer term strategic function that you might be investing in behind what you’ve outlined today or even some maybe some thoughts on M&A. That might make you want to tap into that shelf. Thanks for the questions. .
Yes. No, great question and I actually get kind of glad you brought it up. People should not be reading into the shelf other than that’s just good corporate governance. Public companies should have a shelf that’s registered and current at all time. So, that will be my response related to the shelf.
In terms of capital, capital deployment, et cetera, in my short time here and you can look back, the company has done just an incredible job of generating nice cash flow once again what I consider to be off of a smaller revenue base compared to other high growth companies.
And so, I think that’s a testament to the discipline that we have in making good investments, as well as the simplicity and beauty of the model that we have in our ability to penetrate.
We’ll continue to make investments, primarily in the sales and marketing side as we talked about to drive market share, but we will continue to believe that we can generate the cash. So, at this point, we’ve got a healthy balance sheet.
No debt to speak of, and we are in a good space to grow our business organically and I think from that standpoint, that will be our answer unless something else pops up. But we’ve got early innings in terms of where we are on the EVO business and so, we are very excited and have the capital means to support that. .
We have your next question from Bruce Jackson from The Benchmark Company. Your line is open. .
Hi. Good afternoon. Thank you for taking my question. I’d like to go back to a comment you made during your prepared remarks about the product mix now being tilted more towards the low diopter lenses.
And I was wondering if you got there with any actions in price for promotion? And what other further actions you might take to get more of a low diopter mix, because you are coming up against the lasik procedures where price may become a factor. I’d like to get your thoughts just generally on that. .
Sure. Thank you, Bruce for joining us.
In terms of what we have done over the past few years to encourage the lower diopter ranges Photorefractive patients, first of all, we – on the pricing front, for civic lenses only we did have lesser cost associated with those lenses for the surgeon with their choice as to whether or not they wanted to pass and it’s on to a patient to further encourage them to go with lens rather than a lasik procedure.
At the same time and I think this is really important a number of our strategic partners around the world and KOLs did clinical validation studies and presented papers about the fact that the lower diopter patient is equally well served as the higher diopter patient with outstanding results.
And then, we also made sure that in the societies in major countries which we talked about before such as Japan and Germany, the standard of care has really been reflected these changes in practice patterns for lens-based practices by moving approval levels from medium minus 8 or minus 9 down from minus 3 and in certain instances down to a minus 0.5.
So, it is a combination of clinical validation, backing by the leading KOLs with papers in society standard of care and then by properly pricing to incentivize the surgeon and the patient to look at the ICL is always premium in primary and will be more expensive than laser vision. But we believe – so, narrowing the gap a bit. .
Okay. That’s great. Very helpful.
And then, if I could just get one more question about China, coming out of the Chinese New Year, if you could just give us a little color around how things are developing? And how it relates – addresses your plan for the year?.
We are very excited about China’s enthusiasm with our lens and its resolving, yes. After Chinese New Year, we already are picking up to levels at or above where we and our growth trajectory in China to be very strong. We are very excited about Q1 and getting ready for the real distribution in Q2 and Q3. So, things are going very, very well up in China.
.
All right. Fabulous. Thank you very much. .
Thank you. .
We have your next question from Ryan Zimmerman from BTIG. Your line is open. .
Yes. Thanks for taking the questions. Appreciate it. Just may be a follow-up around some of the pricing trends.
It was up about a little over 5%, I think, and just some of the investors signal on and Patrick, maybe if you want to chime in, just kind of how to think about pricing into 2021? And what was the result in the quarter here? Was it a function of geography, of lens type, maybe more torics, help us understand that and maybe how you think that plays out particularly in 2021 with all of the new products that you are potentially introducing really in the later part of the year?.
Yes. Sure. Well, go ahead, Caren. .
I’ll take it. .
Yes..
So, we are really are is that toric is becoming a bigger part of the mix in almost every market. There is just tremendous enthusiasm in bringing patients and who have traditionally entered this being on a very good options with any, if they need the toric lens. And so, we are getting a lot of demand even more than usual in Asia as a percentage.
In some cases we are moving beyond 47% to 50% or above 50% for toric. That obviously benefits us in terms of ASC. In terms of price around the globe, we are marketing based on what we think is the value story. We also worked very diligently with our partners on those strategic commitments.
And so, we ask our partners to build their businesses in excess of 20% or 30% on average in terms of what they are going to commit to you in return for a lens that we provide.
But definitely, in terms when you add mix and when you add much increasing volumes, and a consistency around the way we sell and the way we reward, we expect this positive pricing trend to continue and advantage us in 2021. .
Okay. That’s very helpful. And I don’t know, if Patrick you have anything else to add on that one. .
No, she did on this. .
Okay. Okay. Great. And then, Caren, just another one, with the EVO launch, over the course, really in the back half of 2021 in the U.S., given the number of physicians that are currently implanting within, how do you expect adoption to play out with EVO in the U.S.
Should this mimic kind of how VIVA is going right now? Or do you expect all those physicians that are in the U.S.
to adopt EVO, let’s call it day one? Just trying to get a sense for how quickly kind of out the gate you could have sales on that lens in the U.S.?.
So, different story with movement from Visian ICL with reports to EVO Visian ICL versus VIVA. Myopia and distance recorrection is straightforward.
And so, what we expect is that right out of the gate, there will be surgeons who have either participated in a clinical trial or already KOLs or already signing with strategic partners or who have very successfully joined us in refractive research over the last several months.
And we have surgeons who are committing to almost freelance base from others who expect that their percentage of laser vision correction versus ICL procedures will flip. So, if they were 70 for laser vision, it will be 70 30 for EVO.
So we expect a much faster adoption to aim much stronger prospect at the gate with on surface because it is a multi refractive correction procedure in just from every possible advantage. They have a great lens like ours and want to make this as simple as possible, very few have done in the refractive presbyopia.
So, this is a whole new game to be able to do this wonderful lens without doing an inlay or a clip on the cornea. So, we are taking our time to have an extraordinary experience, but also can handle VIVA. So, bottom-line is, stay tuned with the FDA approval in the U.S., we expect to have a great launch. .
I am showing no further questions at this time. I would now like to turn it back to Ms. Caren Mason, President and CEO for any closing remarks. .
Thank you, operator and thanks, everyone for your participation on our call today. We look forward to speaking with many of you in the days and weeks ahead. We appreciate your interest and investment in STAAR Surgical. Please take good care, and all the best to all of you..
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect..