Q1 2020 Earnings Call

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Ladies and gentleman. This is the operator States Cup too scared to begin momentarily until the time, you're likely place I mean, it's a cold. Thank you for your patience.

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Thank you for standing by and welcome to the Star surgical one Q. 2020 finance for adults conference call and web cast out.

At this time, all participants are no listen only mode actually the speakers presentation there'd be a question to answer session. That's the question during the session you need to press star one on your telephone.

Must be a biases days conferences being recorded if you require new further assistance. Please press start zero I now like to hand, the comments over to your speaker today, Brian Moore, Vice President Infest Your media relations and corporate development. Thank you. Please go ahead.

Thank you just see.

Good afternoon, everyone.

Deeper joining us on the Star search will conference call. This afternoon to discuss the company's financial results for the first quarter under April 3rd 2020.

On the calls a day or carrying Mason, President and Chief Executive Officer.

Endeavour Andrews Chief Financial Officer.

The press release of our first quarter results was issue just after four PM Eastern time and is now available on stars website is W.W.W. Dot star Dot com.

Before it again, let me quickly remind me that during the course at this conference call. The company will make forward looking statements. We costs knew that any statement that it's not a statement of historical fact is a forward looking statements. This includes remarks about the company's projections expectations plans belief and prospects.

These statements are based on judgment and analysis out of the data. This conference call and are subject to numerous important redskin uncertainties that could cause actual results to different materially from those described in the forward looking statements.

The rest uncertainties associated with the forward looking statements made in this conference call webcast. One are described in the Safe Harbor statement in today's press release.

As well as stars public periodic filings with the F.C.C.

Except as required by law Star seems no obligation to update these forward looking statements to reflect future events were actually outcomes and does not intend to do so.

In addition to supplement the gap numbers, we had provided non gap adjust it net income and adjusted earnings per share in sales in constant currency.

We believe that these non gap numbers provide meaningful supplemental information and are helpful. In assessing art historical in the future performance.

Your table reconciling the gap information to the non kept information was included in today's press release.

But we're not prepared remarks, you open the lines of questions from publishing analyst.

We ask analysts limit themselves to achieve initial questions then ricci with any follow ups.

We thank everyone in advance for their cooperation with this process.

Now, it's trying to call over to Karen Mason, President and C.E. of Star.

Thank you Brian Good afternoon, everyone and thank you for joining us on today's call.

Let me start by saying that the health and safety of everyone around the globe remains Paramount and we continue practicing by countries served the directive from national and local governments and public health officials.

We have been fortunate at star that our global employee team has fared well three that's most difficult at times, we continue to wish the best for all of our surgeon partners their staff and patients frontline healthcare workers shareholders and analysts and their teams.

The first quarter results, we recorded today illustrate the advantages of stars positioning and the global company with business that over 75 countries star achieved admirable growth. Despite coated 19, headwins, commenting upon send elective procedures across different mark.

And various duration.

Global I.C.L., yet engrossed in the first quarter of 2020.

Nine per cent as compared to the prior year corridor.

With European distributor business, usually more heavily weighted to the third most of the quarter.

No not performing I.T.L.M. plans for seven weeks at the corner and the rest of our markets, mostly shut down for the last two or three weeks at the corner.

Terrific started in January and the momentum in Asia late in the winter really proved to be significant.

Consistent with the business update we provided on April 13th.

C O units pretty strongly intonation geography is first quarter year over year ice T.L. unit growth was as follows Japan, Yeah, that's up to 79% Korea units at 14%, China units at 7% and the rest of Asia Pacific excluded.

Japan Korea in China, 37%.

Star also achieved solid unit ground and markets outside of Asia in Canada, I feel yet at ground for 710 per cent in the first quarter and in Germany, I feel <unk> five per cent, even with the discontinuation of procedures commencing and the second week of March.

I am pleased to report that we received production last Monday April 27th at our Monrovia, and we sent me a whole, California manufacturing facilities, we have them for me to implemented wide, ranging cohmad 19 safety enhancements and protocols and both facilities.

With respect to where U.S. evil clinical trial, our contract research organization is providing clinical studies support for the evil principal investigators, including the restart impatient Roman following up costs associated with recommendations from states and medical societies with respect.

Elective procedures and clinical trials several of our principal investigator sites have already reopened and resents patient recruiting screening and implementation our implementation.

This time.

Our principal investigator sides plan to reopen by May 15th.

Are evil, we don't have plans for presbyopia remains under review by Dacra are notified body.

The pandemic may costs are delayed Deckers response to our submission.

Well, we remain optimistic already got twins would be approved it introduced in a staged real out to see more countries either in the second or third quarter. This year.

Designed for early Presby ups ages 45 to 55 are Eva eat off lens targets millions of eyes of opportunity for star for those who want to dispense with their reading glasses.

I am pleased to announce that N. visa fulfills health regulatory agency renewed the approval of stars evolve answers for promotion recently after a protracted preview cycle.

Results or country with an affinity for aesthetic procedures and the larger three five to have surgery market in Latin America.

We are excited to retail sales in this market during the second quarter of 2020 subject to the potential impact of covert 19, I'm surgeons or patient.

Governments and public health officials globally are beginning to lift stay at home work and other restriction said many hot spot geography.

For example.

They'll make surgeons in China, the largest refracted procedure market in the world are once again performing evil I see all procedures across the country.

Preparation for the upcoming peak implant season is well underway with planned advertising and patient marketing events.

S.R.T. customers begin to resume work around the world. There is significant interest in growing there I see Allen evil lens business as we've been reporting since November of last year.

Move to Lance bass surgery and continues.

During numerous and well attended virtual Webinars, an education events sponsored by Star and select societies around the globe. The question and answer sessions would routinely go an hour or longer than scheduled regarding I feel patient profiling surgical technique and practiced development.

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The reasons, most often cited by our customers says we surveyed them for their interest include an emerging email patient file that is younger and perhaps less concerned about coping 19, then it older demographic as well as a higher profit per I with an evil procedure that many.

Either refractories procedures.

The cockpit 19 pandemic as highlighting the utility of our eval family of lenses not only for surgeons, but for their patients as well.

Patient stories of lost disposable contact lenses fears of running out of contact lenses glasses that fog up while wearing a mask and concerns about not touching one face or eyes have been more prevalent on social media in recent months.

Frontline health care workers or perhaps experiencing these challenges most acutely <unk>.

Recently at U.S. surgeon posted the following note online regarding a front line work or requesting I see else.

<unk>.

After five weeks out of the O.R. It feels so great to be back taking care of one of our own today, a nurse to treats patients at the hospital and feels unsafe touching her eyes to manipulate her contact lenses right now.

In closing I'd like to comment on how we see them on to head.

As previously noted in discussions with her surgeon partners. It is clear that there is a strong desire to resume or attractive surgery quickly. Once selection procedures are allowed by local government and public health authorities.

However, we expect you to will be negatively impacted by the markets that are just returning to reopen their clinics and practices and late may into June.

We started 2020 off with the highest I.C.L. sales and get a gross experience in the last five years and January time frame.

And every open market that trend continued into the middle of March.

The large Asian markets are growing well now.

Less there is another force closure or challenging covered 19 scenario for surgeons and patience the onto too we fully expect to resume the double digit growth outlook originally targeted for two three and two four.

Those are my prepared remarks about turned to call over to Deborah to further review, our first quarter financial results Deborah.

Thank you Karen and good afternoon, everyone I'll start with a financial for me too with a summary of top line results and then provide more detailed down the income statement.

Star recorded net sales for 35.2 million for the first quarter of 2020 and 8%.

Increase over the 32.6 million report than the year ago period.

Top line growth was driven by 1.6 million or 6% sales increase in I.C.L. and a 1 million increase another product sales, primarily injectors and inject apart I.

I feel sales represented 83% of told company sales for the first quarter of 2020.

Moving down the income statements are gross profit margin for the first quarter, where 70.4% as compared to 74.2% in the prior your quarter.

Gross margin in the first quarter decreased approximately 160 basis points due to the higher mixed with other products sales whichever lower gross margin that or I see else. The remaining 220 basis point I change was primarily due to period costs associated with the expansion of manufacturing capacity.

In the second quarter, the company expects to record $1.4 million manufacturing charges associated with a six week pause in production at our Californian facilities that would normally be capitalized inventory.

Total operating expenses for the first quarter were 25.9 million and increase the 15% compared to the prior your quarter of 22.6 million. The company did begin moderating non essential variable spending in February.

Picking a closer look at the components of operating expenses Gee, they expense and the first quarter with 8 million compared to the prior your quarter of 6.8 million.

The increase in general administrative expenses with due to increase headcount and salary related expenses increase tax consulting costs and increase facilities costs.

Marketing and selling expenses were 11 million compared to the prior your quarter of 10.1 million the increase in marketing and selling expenses was due to increased advertising and promotional activities and increase hadn't Calvin salary related expenses, partially offset by decrease travel expense.

Research and development expenses were 6.9 million compared to the prayer your quarter, a 5.6 million the increase in research and development expenses was due to increased critical expenses associated better with our evoke clinical trial in the U.S. increase quality validation expenses and an increase in headcount salary.

Related expenses.

Because we and our customers remain optimistic for the future for proactive surgery, we have not reduced our workforce and continue to invest in the future well prudently managing variable spending where we can't.

During the quarter, we released another 1.4 million of evaluation all at once again started to <unk>.

Due to a shifted forecasted foreign income, which caused more piano well to be used to offset domestic income and profitable years, thereby increasing the benefit of D.N., a wealth and the V.A. release.

The operating lost in the first quarter of 2020 was approximately 1.1 million as compared to an operating profit of 1.6 million a year ago quarter.

The net loss for the first quarter was 0.1 million or approximately break even on a diluted per share basis as compared to net income of 1.4 million or three cents per diluted sharing a year ago quarter.

On a knockout basis adjusted net income for the quarter for the first quarter was 1.9 million or 40 cents per diluted share as it as compared to adjusted net income for the year ago quarter, a 4.3 million or nine cents, particularly chair.

A table reconciling gap information to the non gap information is included in today's financial release.

Turning now toward balance sheet or cash in cash equivalents at April 3rd 2020 totals 110.9 million. The company you save point 2 million and cash for operations due primarily to an increase in accounts receivable and due to the payment of bonuses both of which are typical and the first call.

Order.

And Q1 2020, we also experienced an additional increase in a yard due to cope with 19 related delayed payments.

Started discussions with our largest customers, we expect to attitude to with more cash than q. what.

Fortunately our past due receivables we're at an all time low at the beginning of the quarter and the company expects collections to resume as elective surgeries are committed and customers return to their practices.

The company also invested 2.2 million and property equipment during the quarter.

These uses up cash were partially offset by 1.3 million and cash for financing activities, primarily stock option exercises.

As a reminder, the company typically generates most of its cash in the second half a year and the company does anticipate a year over year, increasing cash we believe our cash balances and operating cash flows including anticipated cost containment measures will provide sufficient liquidity for the next 12 months it'd be on.

This concludes our prepared remarks, operator for now ready to take question.

Thank you.

I'm I'd like to remind everyone in order to ask the question. Please press star than one on your telephone keypad again, a star one to ask the question will pause just a moment take a barbecue and day roster.

Yeah.

Your first question concerning cecelia for a long with <unk> your line or something.

Hi, Karen endeavor, I think he's heard of taking the questions I wanted to ask just about what you're seeing to date in China coming back just in in terms of relatives carrying capacity given enhanced sanitation practices can how you've seen not trend to save slowly started to ramp all year.

Where's that goes going forward relative to pre cope it's awful.

[noise]. Thank you <unk> I appreciate your calling today.

Regarding China, when China first started to reopen.

There were what I would call extraordinary safety measures.

That would limit substantially the normal pace of patients procedures.

In that there was an hour or two hours between patients for very strong application of sterile procedures to be sure that there would be no possible transmission of virus.

Ads time went on through April there was more confidence and being able to increase capacity and still maintain exceptional safety and security for patients. So what we're seeing as a ramping up in China at.

Aggressive level in terms of the number of patients who are in waiting rooms, which we happily received videos from our China team in terms of the amount of special promotions that the largest clinics hospitals and practices are putting.

Into effect in fact during the recent time frame of May 1st through May 5th.

There is in Asia Golden weekend, they're special holidays, and a number of retailers, we're providing promotions and young people in our major markets like China and Korea, Japan, we're very much I'm excited about and scheduling there I feel surgeries.

So I believe that in our large Asian markets, China of course at the lead whereas seeing as I'm really exciting fundamentals back in place.

Productivity and we're seeing the right concern obviously about patient safety.

<unk>.

Great. Thank you for all the color and then I guess, just turning to the U.S. trial I I recognize some senators are starting to normal again can you talk about just how senators were able to engage with patients in the interim maybe build patient tunnels and move centers, but haven't yet open kind of what their positioning wellbeing when they do open.

And to really start and ramp procedures backup.

Sure. So our contract research organization as I mentioned in my April 13th State of the business report have maintained constant contact.

With each of our clinical trials sites and each of those sites were in a different face with regard to screening patients.

Valuating the results of the screenings.

Drilling patience actual implantations and implantation follow up all according to the protocol of R.F.T.A. study.

So during that time frame when these clinics, we're not open everything related to clinical trial, and making sure that we were absolutely not deviating in any way from protocol requirements continued and so what we're seeing now it's as result, we're just picking up.

Where we left off and so depending upon where are you wearing the queue in terms of waiting printing plant waiting to be determined whether you qualify as a patient.

All of that work really continue to unencumbered an appropriately and so now we're really excited that by the middle of the month, we expect every site to be up and running an open.

Okay. That's good to hear thank you can just you're welcome.

Your next question comes from Chris Tooling with Steven Your line is open.

But after that first and foremost hope I creswell.

Yeah.

And also congrats on the results in a very challenging period.

I guess Shakespeare's for me if I could follow that up files question on the ego trial here in the states.

I think many of us have been assuming there's obviously been push out of sorts. There in terms of time, but could you just press a little bit more here maybe give us.

Some more color as to how far along you are in terms of total enroll but.

It is centrally put you back but of course you get.

A couple of quarters I'm, just trying to get a better read on time to completion versus maybe a ritual expectation score.

I have a problem like.

Well, we have not changed the dates on our clinical trial protocol, which we just updated on clinical trial that go.

So we are continuing to run to our original completion time frames, where we end up if we need to adjust based on how things go over the next two to three months well do so but at this point in time, we've made no adjustment.

On our clinical trial protocol commitments.

Understood appreciate that and then I guess to swap.

<unk>.

Could you can't trust for US maybe just you think about the various.

Countries that comprise T.H. a pack region in particular.

Into a lesser extent the European theater.

Some of the regional differences use all throughout the course the quarter.

He's a quarter from a run right basis that way, we can kind of maybe get a little bit better baseline expectation about the decline we should see here.

And to counter to to you before you rescinded double digit growth to choose head referencing to press release it on your prepared.

<unk>.

Sure. Thank you Chris.

So we we made sure that we got information and every one of the market's we serve both direct hybrid and also of course full distributor coverage from our country managers in our team at our executive team.

Several times a week and most of the time, we would have a little different point of view than what you might have been reading and local media or national or global media.

When we look at your.

Definitely, Spain, Italy or impacted greatly.

And those markets shut down permanently.

However, even in the worst of time.

Some of the best training education in virtual connection was happening with our Spanish and Italian surgeon is as well as in other parts of France for example, the Netherlands et cetera Belgian.

When we look at Germany in Germany had some.

Clinics that remained open most of the times that others were shut down in other parts of Europe.

Germany's still of course practices, the appropriate guidelines and work at home, but we found that in Germany, which probably contributed obviously to their grows surgeons were continuing to provide patients who one of them I see else.

We've had some interesting stories I'm going to share very quickly to it then.

One is that whatever European patience is actually had her I see I will experience tattooed on her arm from top to bottom and was unable to you haven't completed because today tattoo parlor when shut down but she was.

So taken with a life change that during the coded shut down she was on social media showing her tattoo in progress and how everybody's shit I see else because her life had so dramatically changed we also had a German.

Bachelorette from the Bachelor show, who also was covered during the shut down for her I.C.L. enthusiasm in multiple magazines and trade publications. So in Europe, we really had the gamut between what we would call.

Oh closed.

Emerging an open and those are the three categories that we would check multiple times a week to determine what we needed to do when when we also kept day running tab of all of our Webinars et cetera, and then we also created a library of educational excellence that we shared around the globe.

When you look at Asia Korea, really never slowed down Korea continued to do the right thing, but the surgeon managed to be open through.

They're challenge same with Japan, even in the highest recently have shut down Japan continues to aggressively help patients who really want to be visual free with official safety.

And then also.

Obviously, China, we were shut down from the end of January it through the end of March a little bit into March and then we really saw them pick up in the last few weeks in April.

Thank you stay well.

You're welcome thank you.

Your next question 'cause Ryan Summer with B.T.I.G. Carolina's open.

Great. Thank you.

During your your commentary about double the double digit hour, you know remaining intact and Q3 and two for.

One of you could put a finer point on that is that it's respective is is that indicative of your original guidance of 15% to 20% heading into the year or is that you know just double digit broadly I'm. Just wondering if you could frame that a little more and then my second question I'll ask her right now is.

Depended on pricing in in the corridor last quarter, we we thought notes we hire pricing.

By Toric up taking the U.S. and and so you know the implied price in here is a little bit lower this quarter I'm just wondering if any kind of common on your expectations for pricing through the balance of the year. Thank you for taking the question.

<unk>.

With regard to double digit growth getting we hope to be able to achieve in Q3 M.Q. for certainly based on where we are h. The markets that we serve regarding covered 19 at any any public health directives.

If in fact, we have a more normal operating environment.

<unk> are a practice is an elective surgeries are allowed our expectation is that we should be able is especially in our highest growth market, we should be able to achieve in units.

No growth.

On a relative basis above 20%.

That's you know and we think we can do better if we if at all possible, but you know at this point is hard for us and there's no real outlook, but providing for the right. When you sense, but what I am seeing is that in those markets, where they're open for business and where they we classify them and Oh.

We are seeing double digit growth now.

[noise] [noise] appreciate that with <unk> with regard to the price price thing.

Yeah. So it really depends on mix when you're looking at R.S.P.'s, how many tourists are out there as well as what we're doing in the spirit world.

At this point, we do not believe there's gonna be pressure on R.S.P.'s I think we're going to end up having a that becoming quite positive for us.

We will be advancing some support.

Insurgent for surgeons around the world and special promotions that we think are going to really advantage in two ways.

One is we want <unk> gives surgeons tools to bring back their patients as soon as possible and second of all we want to help where we can help to encourage for periods of time during opening maybe a month or two that we provide lenses here in there.

<unk> help so I think overall, it's got to be a great combination of supporting the surgeons pricing to the market and also managing to get higher demand faster.

Thank you Sir.

You're welcome Ryan.

[noise]. There next question goes from 10, so dodi with so Dodi Inco your alignments open.

Oh, you didn't have to it's good to hear your voice I hope everybody as well.

Yeah same here Jam help same to you.

Deborah can you do to repeat the comments you made about the charge you're going to take in the second quarter I Miss that.

I guess.

The facility the plans were shut down for a month basically or six weeks.

Because we didn't manufacturer any product and of course, we didn't lay off any employees the the.

The operating expense the manufacturing expense for that that six week period will have to be recorded as a as a charge on the P.N.L. and that equates to about 1.4 million.

It will not go into gross margin.

Yes.

Okay.

Right and.

Lobby for your your accounts people up in the quarter or do you think this sport you some goodwill with those details and something you can leverage later on in New York.

Well definitely our customers have been very appreciative of you know our understanding.

The circumstances.

During this really tough time, but we stayed in very close calls the good news is that we've been in very very close contact with all of them.

They've been very responsive you know, it's not like they're not picking up the phone or answering or calls or whatever and we've had a lot of interaction as Karen mentioned with sales training meetings and things like that to stay in touch So right now we've got to got a great email today, you know summarizing our situation.

Internationally and you know it looks like we'll start to get back on track here in the second quarter and then hopefully returned to normal you know in the third quarter.

Okay, and the the increase in P.P.D.N., a quarter, which point was that.

A little bit of everything we we've made a number of manufacturing improvements in Monrovia Lake Forest and again are switched facility in detail.

So if you if you do have a big pick up and you accuse three and four you think you have to be so that.

Oh absolutely.

Absolutely.

When we did is we made the decision to discontinue production out of an abundance of caution for employees. When the fear was at its highest and concern was at its greatest.

And overtime on a weekly basis, we communicated with all of those employees tell them. All the policies that we were looking at all the protocol changes all the safety enhancements that we would have so when our employees came back I can tell you it wasn't a I long path to productivity.

It was immediate productivity and we know we will have the infant 20 necessary for demand is we see it going forward beyond double digits. So we're in good shape.

Okay. Thank you.

Thanks, a lot.

[noise] [noise] and there are no further questions I turn the call back to Karen Mason pretty closing remarks.

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 will be participating and virtual investor conferences and excited to speak more with you then.

We always appreciate your interests investment in Star. Please take good care on the best to all of you.

[noise] disclose stays conference call you May now just connect.

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Yeah.

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