Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAAR Surgical Second Quarter Financial Results Conference Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the call will be open for questions.
Please lift the handset before making your selection. This call is being recorded today, Wednesday, August 4, 2021. At this time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor, Media Relations and Corporate Development for STAAR Surgical.
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 Q2 ended July 2, 2021. On the call today are Karen Mason, President and Chief Executive Officer and Patrick Williams, The press release of our 2nd quarter results was issued just after 4 pm Eastern Time and is now available on STAAR's website at www.staar.com. Before we begin, let me I'd like to 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, 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 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 seems no obligation to 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 limit themselves to 2 initial questions, then re queue with any follow ups. We thank everyone in advance for their cooperation with this process. And with that, I'd now like to turn the call over to Karen Mason, President and CEO of STAAR.
Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. This afternoon, we reported record results Call for the Q1 of 2021. My thanks once again to the entire STAAR team and particularly those in manufacturing and our commercial organization for tremendous results in the second quarter and first half of 2021. In the Q2 of 2021, we continue to 65% Japan up 95%, South Korea up 57% APAC Distributor Markets up 88 percent India up 173 percent Spain up 118 Germany up 65%, European distributor markets up 81%, the Middle East and North Africa up 3.78% and the U.
S. Up 2.55%, all as compared to to the prior year quarter. All told, global ICL unit growth for the Q2 of 2021 was up year over year to $62,400,000 In China, the largest market for refractive Surgery in the world, the busy implant season began in earnest in June. We kicked off the season with new exciting and innovative The marketing campaigns were designed to amplify the message of glasses free visual freedom with our lenses and Campaign where we supported our largest customer with an EVO 5 ks running event co branded with a popular video game theme. Several weeks of mall based advertisements and other promotions led up to and surrounded the 5 ks run, which was held at the Oriental Sports Center in Shanghai.
The day of the 5 ks, our customer had On-site EVO patient education supported by us and ophthalmology consultations including eye exams available to the runners and spectators. This 5 ks run marketing campaign in China resulted in more than 3,000,000 The operator of the clinics has a stated goal of opening at least 5 new EVO only clinics each year as we move forward. In Spain, our EVO ICL Lenses achieved record breaking levels of units sold with unit growth up 118% year over year for the Q2. We observed certain refracted femtosecond laser vision correction technology, removability, excellent night vision and no dry eye syndrome, just to name a few. We anticipate surgeons in Spain and globally will increasingly focus on premium lens based business and greater revenue per procedure.
During the quarter, we continued the controlled rollout of our VIVA lens as select in the Octane OC Ophthalmology Technology Summit in Southern California. It was the first in person conference The FDA received in late April our U. S. Clinical trial data for marketing approval of our EVO We will not provide further comment on the process with the FDA until permitted and prudent to do so. We continue to anticipate pending FDA approval that our EVOL family of myopia lenses will be available to the U.
S. Market in the Q4 of this research firm named STAR the fastest growing company in ophthalmology among a list of peers, including all of the publicly traded ophthalmology companies with which many of you are already familiar. We anticipate surgeon focus globally on higher dollar patient paid procedures Such as our ICL may grow particularly as we consider the recent headwinds associated with reimbursed ophthalmic If we are correct, our sales opportunity may broaden to the large number of cataract surgeons, But in the U. S, for example, is more than double the number of refractive surgeons we currently target. As we look to the second Half of 2021, we are mindful that COVID-nineteen is still with us and that we have an upcoming cold and flu season in the Northern In several major markets in the second half of twenty twenty one, we are today increasing our net sales outlook for the full year fiscal 2021.
For the full year fiscal 2021, we now Total net sales to be in the range of $227,000,000 to $230,000,000 up from our previously provided outlook of $215,000,000 to $217,000,000 that we shared on May 5. The higher sales outlook we are introducing today represents a growth rate at the midpoint of approximately 40% year over year. I will now turn the call over to Patrick to discuss our financial performance
$2,400,000 up 77 percent as compared to $35,200,000 of net sales in Q2 2020 and up 23% on a sequential basis from Q1 2021. The year over year increase in net sales for Q2 2021 was attributable to global ICL sales growth, which was up 93%. We anticipate robust levels of ICL unit growth in 21 informs the increased sales outlook for full year fiscal 2021 that Karen just outlined. Looking at historical pre COVID sales trends, we now expect Q3 total net sales to be in the range of $57,000,000 to $58,000,000 In terms of product mix, ICL sales represented 95% of total company net sales for Q2 2021 and other products Represented 5%. As a reminder, our other product sales primarily consist of our apacic or cataract IOLs and injectors which serve only certain markets globally.
The mix of ICLs for Q2 was higher than recent trends due to $28,500,000 higher sales in the quarter and approximately $1,300,000 of lower other product sales, which are primarily low margin injectors. We continue to anticipate other product sales will be approximately $15,000,000 for the full year 2021, which is Gross profit for Q2 'twenty one was $49,200,000 or 78.9 percent of net Sales as compared to gross profit of $24,400,000 or 69.4 percent of sales for Q2 2020 $39,100,000 or 77.1 percent of net sales for Q1 2021. The year over year sequential increase in gross margin is due to the higher mix of ICL, Yelp, this command a higher margin than our other products business. In addition, for the year over year comparison, there was $1,000,000 of period costs recorded in Q2 2020 as a result of our voluntary COVID-nineteen related manufacturing pause, which concluded on April 26, 2020. For the second half and full year 2021, we now expect gross margin to be in the range of 75% to 77%
due to
a higher mix of other product sales. Moving down the income statement. Total operating expenses for Q2 2021 were $38,600,000 or And $31,700,000 or 62.4 percent of net sales for Q1 2021. Taking a closer look at the components of operating G and A expense for Q2 2021 was $11,400,000 compared to $7,800,000 for Q2 2020 and 10.2 for Q1 2021. The year over year increase in G and A is due to increased compensation related expenses, We expect quarterly G and A to continue to be between $10,000,000 $11,000,000 a quarter for the balance of 2021.
Selling and marketing expense was $18,900,000 for Q2 2021 compared to $10,300,000 for Q1 2020 and $13,200,000 for Q1 21. The increase in selling and marketing expense from the prior year was due to increased compensation related expenses, advertising and promotional activities, Trade shows and travel expenses. The sequential increase from Q1 2021 was due to advertising promotional activities and compensation related expenses. We expect Q3 and Q4 twenty twenty one selling and marketing to be approximately $17,000,000 per quarter. Research and development expense was $8,300,000 in Q2 2021 compared to $7,300,000 for Q1 2020 and flat with $8,300,000 for Q1 2021.
The increase in R and D expense was primarily due to compensation related $7,000,000 or 17.2 percent of net sales as compared to an operating loss of $600,000 or negative 1.8 percent of net sales for 2020. The improvement in operating income is due to higher sales and leverage on fixed and variable operating expenses during the quarter. Net income in Q2 2021 was $8,600,000 or $0.17 per diluted share compared to a net loss For Q2, 2021 and the 6 months ended July 2, 2021 was approximately 20%. For the second half of fiscal twenty We expect our effective tax rate to be approximately 25% to 30%. On a non GAAP basis, adjusted Net income for Q2 2021 was $13,500,000 or $0.27 per diluted share compared to adjusted net income of $1,400,000 or $0.03 per diluted share in Q2 2020.
A table reconciling the GAAP information to the non GAAP information is included in today's financial Turning now to our balance sheet. Our cash and cash equivalents as of July 2, 2021, Q4 of 2020. The increase in cash from the Q4 is attributable to $13,100,000 in by $5,700,000 in capital expenditures. For the full year 2021, we continue to anticipate total CapEx the Piper Sandler West Coast Field Trip in Dana Point, California on August 24th and the Morgan Stanley Annual Global Healthcare Conference on September 14. We look forward to speaking with many of you at these events.
And this concludes our prepared remarks. Operator, We are now ready to take questions.
Your first question comes from the line of Anthony Petrone from Jefferies. Your line is open. You may ask your question.
Thank you. Good afternoon, everyone. Congratulations on another strong quarter here. I think, Karen, I'm intrigued by the comments in Spain, just sort of the comparison in laser vision correction. And it looks like there that ICL is sort of gaining ground in a larger way In moderate myopia patients, and so maybe across the 2 core regions where we've seen outsized growth, China and Europe, Just to recap on the dynamics between laser vision correction, the variety of procedures that are out there for refractive Surgery and ICL, and it just seems that ICL is now certainly gaining an outsized proportion of even moderate myopia So, just to recap there and I'll have a follow-up.
Sure. Thank you very much, Anthony. We have Put into play for probably 3 years now, a focus on the one moderate MYOP As a real opportunity for surgeons, and in terms of moving them from a laser vision correction procedure, which may have Some issues around night vision or dry eye syndrome, and also with our lens, the advantage of removability and not in any And so when we work with our customer base, we have now A lot of studies that support that in the lower myo, the ICL has equal or better patient satisfaction. And surgeons are delighted by the patient response. So we then marry that To the fact that the economics associated with this premium procedure are outstanding.
And so you put those together and what we're finding is that many surgeons around the world offer their patient the ICL Regardless of a lower diopter correction need and for the regions I previously mentioned, the patients are
That's helpful. And then, a couple of follow ups would be just on the complexion of the mix In China specifically, when you think of Spheres and torics, just how that played out in the quarter, it seems like that And then we'll sneak one in on the U. S. FDA side. Just curious, I know that there was A couple of dates out there, the 100 day interim meeting and then obviously it's a 100 day 180 day limit as to a final ruling on the PMA So just kind of thinking about those 2 dates in particular, do you think there'll be an interim meeting just going over sort of High level questions on submission or should we be thinking that looking at October as sort of the final drop dead date?
Thanks again and congratulations.
Thank you, Anthony. So, yes, we had What I would consider an exceptional Q2 in China in terms of spirit demand and turmeric demand, Our mix there was definitely beneficial for STAAR. And we're starting obviously to see Q3 after 1 month. And we had the best month in history in China. And the mix was to our advantage, so more to come.
With regard to the The bottom line is that the FDA is following the procedures as required And the process as we expected. And so, as a result of that, we are in a customary interactive review. I'm not going to comment on the 100 days or the 180 days at this point in time, but I can tell you that we are very pleased with the level of interaction and communication with the FDA.
Your next question comes from the line of Andrew Brackmann from William Blair. Your line is open.
Congrats on the quarter. Karen, maybe to start here on the U. S. Market and certainly appreciate all the commentary that you've provided so far. That's been helpful.
But I guess more specifically as we sit here on what could sort of be the cusp of approval in Q4, can you just maybe provide Some thoughts on how you're thinking about revenue building for that launch throughout 2022? Are there any sort of predicate devices That we should be comping against here. Just trying to get some level framework around your expectations there.
Well, we just came off what we considered a very successful APOS and ASCRS meetings where we met with a number of And what we are talking to them about is the transformation opportunity with EVO getting approved. And what we're hearing back from surgeons is tremendous enthusiasm to build our practices around the ICL with, of course, the EVO version. So, when you think about the Predicate device, we are the original and the only in terms of having an Just quick story, we just got On Sunday morning, I was greeted with an amazing e mail from a doctor, who was fearful that she would have to Potentially give up her ability to practice medicine due to her very severe myopia and astigmatism. And after having suffered through a lot of challenging visits with surgeons over the years And having been in a situation where she did not want to replace her healthy Lens natural, crystalline Lens, she discovered us. She had the So this is The kind of device that we so proudly are fortunate enough and blessed enough to represent.
So, We're very much looking forward and so are the surgeons to us getting approval for the United States market.
Andrew, if I could Pat, I think when we think about the contribution of revenue, we're obviously very excited about U. S. EVA as you outlined and of course, Veeva as we continue that Roll out, but we can't forget the fact that the bulk of our growth is really coming from where we're in the current markets right now. And that's really going to drive The revenue over the next several quarters here and so we're excited about that and of course when U. S.
EVO comes online, Karen and I and the rest of the management team have talked about the ability to grab market share much like we did in China A few years back and so we're very focused on that and how that can be a big catalyst as we move forward to the introduction of that product
Maybe just secondly, and again, sticking on the U. S. Market here for a second. I think in the past, you've sort of talked about alliance agreements with centers throughout the U. S.
Could you
So,
our customer base that's Developing in the United States is everything from the one practitioner to multiple surgeons and a practice to those that are part of the chain. And each strategic agreement is designed and developed uniquely for the needs of that particular practice. What our normal components are a strong commitment for growth, usually 30% plus, A combined effort for digitally, really kind of reinventing websites, Doing digital marketing, working on also other types of media to promote the fact That ICL is available. We also are doing more and more outbound supporting the surgeons We're helping them build the stories that they're happy with patients. And there is also a opportunity for the practice To determine the mix, so their business models get adjusted and then we help support them In terms of helping them get started paying potentially for marketing or advertising, as well as working with them Patient Education.
So, I think the bottom line is, these strategic agreements, which we started in China In 2016 are the way we work and the way our customers are truly satisfied and happy with
Great. Thank you.
Thank you.
Your next question comes from the line of Bill Frobenic from Canaccord Genuity. Your line is open.
Hey, this is Rohan on for Bill. Thanks for taking my questions and congrats on an amazing quarter.
Thank you.
I just wanted to touch on evoviva in Europe. Any significant additional learnings that you all have had from the limited market release? How many countries are you in now? And when are you expecting a full market release? And kind of going on that, what do you need to see
So, we are making progress with the VIVO rollout. We are in multiple countries. We have identified surgeons in 4 countries that we believe will be champions For Aviva, they are going to be writing a lot of the playbook. We have experienced As we hoped, a lot of interactions with multiple patient types, those who Have some residual accommodation, those who are most interested in near vision, those who want to retain their inotropic Distance vision, what we are trying to do is understand how to make sure The lens is probably used for each of those patient types. Because of COVID and because of the recovery work That a number of practices have been doing evidenced by our Q2 volume.
I have to say that our presbyopic program with this controlled rollout is absolutely producing for us the results in terms of learnings that we want, But we're not at a volume level yet, where I feel that we're ready to go fully commercial. We have more work to do. And so, as a result of that, we are weighing the merits of instead of having a full term rollout in October, where now There are some concerns that EFCRS may be more virtual than in person. And this lens in terms of learnings and training, we want to do in person as we said repeatedly. So, we'll kind of hold on the exact timing of the rollout, but we are very excited.
Let me tell you, this is a good launch And we have a high level, we believe, of patient satisfaction with the number of surgeons happy with the lens.
Great. And thanks for that color. And the only other question I have was, Especially in China and Japan, how should we think about the potential for the COVID variance on the business?
Well, we have updates weekly with our team on the ground in every country. And today, we talked to the team from China. And what we found out is that all the 30 cities that have some type of lockdown. They are limited lockdowns and there is only one eye hospital In Tier 1 cities and Tier 2 cities, there is no delay. As a matter of fact, as I said earlier In the call, we just were happy to have a record month for our 1st month of the busy season in China.
So, it's looking good. In Japan, during the Olympics and with some of the concerns of a very conservative Japanese government in terms of Fear around making sure that all appropriate precautions are taken. There's been for the first I'm a little bit of less than expected lenses implanted in the last week or so, But we expect that after the Olympics and with the normal way that Japan so well handles And our Japanese customers so well continue to do implants that that will be back to normal.
Great. Thanks for taking my questions.
You're welcome.
The next question comes from the line of Steve Reichman from Oppenheimer. Your line is open.
Hi. Steve actually takes it
on for Steve. Thanks for taking our questions. Just maybe one for me. Relative to the anticipated approval of EVO in the U. S, I'm just curious what do you happening to the current VISION ICL lenses following approval of EVO.
Do you expect those physicians to switch over So the new lens is falling pretty well?
We will discontinue selling current dizzying ICL lens If and when the EVO is approved, that's what's happened in every market because the elimination of the Pearl iridotomy procedure is so valued. It's so great for patient and surgeon that usually there's very little interest in The older version of the lens.
Next question comes from the line of Ryan Zimmerman from BTIG. Your line is open.
Hey, Karen, Patrick. Thanks for taking the questions. Really impressive this quarter. I guess maybe to start, a few for me. Number 1, Karen, you talked about the June busy season in China continuing in July.
I mean, what's Your expectation for how long that busy season may last? And is that any different from what we've seen maybe historically, just given
At this point, as of this morning in our discussions, August started out as strongly as July delivered. But if you look at typically, your strongest month is July and then August is good and it starts To taper off toward the end of August, and you're pretty much done by mid September. So, I don't think that There's going to be much variation of that this year from last year and unless of course there's more restrictions associated with COVID. But right now, there is no visible, no predictive change in that normal cycle.
Okay. And then the strength that you're seeing, and I How much of your growth, whether it's the U. S. Or Europe or China or wherever, do you
That's a great question. I'm not sure we have a full handle on it, to be honest. We know that the patients are usually, as time has gone on, offered their choice. We also know that patients come in saying they only want ICL. And so, So, I think from our vantage point, we expect that when the U.
S, the 2nd The largest market in the world has approval for EVO. You're going to have a global expansion, just like China has been building A really strong EVO market and China's numbers have gone up, while laser vision was pretty much in single digits. So I think over time, we're going to see a global expansion of these procedures
If I could just squeeze one more in. Just can you talk about Veeva a little bit? And one of the comments that you made, I was struck by, Just marketing approval outside of the specific geographies that you're in already. I mean, I know you're still in this kind of controlled launch in Europe, but what's Giving you that confidence or kind of where are you targeting and when, if you could share with us, expanding the VIVA
We definitely have been seeking regulatory approval outside of Europe in a number of markets. And when we do the full commercial Release of this product, we will also release it to those markets, in addition to Europe That have approved the product and we expect those approvals.
Thank you.
Yes. Your next question comes from the line of Jim Sidoti from Sidoti and Company. Your line
Probably a little reluctant to talk about U. S. Sales once you get approval. But can you talk a little bit about What you anticipate your R and D spend will be once the approval comes through, will that continue to be at this level or do you think that drops off?
No, I think we're going to continue to see that in some of your comments around that $9,000,000 a quarter. Although we don't have the EVO clinical U. S. As we talked about other things go into R and D like the clinical, like the regulatory, we want to continue to tout Really the benefits of EVO out there through peer publications, etcetera. And then of course, as we've mentioned many times, we continue to look at iterations Of the lens, whether that be the materials from a polymer standpoint or other things that we can do to continue to enhance.
So I think we're at a decent run rate right now and that will continue.
And how about sales and marketing?
Do you anticipate a big investment in sales and marketing once approval is received?
Yes, I think you can expect that as we said for the balance of this year, we said around 17 ish, maybe $1,000,000 A quarter for Q3 and Q4. As we've talked about, the way that brand awareness and the Direct to consumer has really evolved over the last decade or so. It's very cost effective now as you go down the path of influencers and things of that So look, we're excited about U. S. We know that it is going to lift all countries as we build brand awareness But I will tell you that we're also prudent about the investments we made.
But yes, you can expect that We will look to increase some sales and marketing as U. S. Comes on board, but that will result in what we believe will be a very robust Top line.
Okay. And then finally, if you could just repeat what you said about gross margin for the remainder of this year. Sorry, I didn't catch that.
No problem. So we had another good quarter of gross margins, primarily due to product mix. As we start selling more of our IOLs in the second half of this year, we expect gross margins to between 75% to 77%. The reason why there is a 200 basis point range there is really is predicated on product mix. If we end up doing more ICLs as a mix, where we're sitting at 90% plus and clearly we'll be Closer to that 77% gross margin and that's why I gave that large range.
The last question comes from the line of Bruce Jackson from Benchmark Company. Your line is open.
Hi. Thanks for taking my question. Looking at the launch of EVO in the United States, One of the rate limiting factors sometimes can be the training of the physicians. Maybe you could talk to us a little bit about What plans do you have in place to make sure that the doctors get changed quickly? And are there any could that be a rate limiting factor for you?
Thanks for the question, Bruce. In training of U. S. Surgeons is already Scoped to meet the surgeons who have the largest requirement in terms of growth And then to move from market to market to make sure that we get everyone trained in a timely fashion. So all of that is done.
The training materials are done. The training videos are done.
The certification
requirements have been approved. Patient requirements have been approved. And so we have a what we think a very robust plan with a really excellent team that's ready to go. So we do not see that as a limiting factor to get the lens out to those who want it and who are prioritized by their demand needs over the initial weeks months of the rollout.
Okay, great. And then a follow-up question, if I may. You also partnered with some physicians to test out some marketing And messaging with outdoor advertising, etcetera. Do you have also programs in place to help the physicians Margit, EVO to the patients?
Yes. We have extensive options and opportunities that And to have a full media outreach from multiple sources, some of them local, some of them national, It's all built into the way that we build the partnership. So, all of that's ready to go. So, with that, I'd
like to turn the call back to Karen Mason for closing remarks.
Thank you 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. All the best to all of you.
This concludes today's conference call. Thank you for participating. You may now disconnect.