Brian Moore - Investor Relations, EVC Group Caren Mason - President and Chief Executive Officer Stephen Brown - Vice President and Chief Financial Officer

Chris Cooley - Stephens, Inc. Matt Larew - William Blair Jim Sidoti - Sidoti Raymond Myers - Benchmark

Thank you, Andrew 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 April 1, 2016.

Joining me on the call today are Caren Mason, President and CEO of STAAR Surgical and Steve Brown, CFO. The news release detailing the first quarter results was issued just after 04:00 PM Eastern Time and is now available on STAAR’s website at www.staar.com.

Before we get started, 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 facts 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 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 uncertainty 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 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 the non-GAAP information is included in today’s financial release, which is available on our website. Now, 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 general commentary on the state of the business.

Steve will then review key first quarter 2016 financial results before we open the call for your questions. Our first quarter revenue of $19.3 million was solid especially following a record Q4 in 2015.

In addition, in Q1 2015 we booked approximately $1 million in ICL revenue directly tied to backlog replenishment. This would then for comparison purposes only reduce the prior year's quarterly demand to $17.8 million.

To further elaborate, if you compare the six months periods of Q4 2014 through Q1 2015 to Q4 2015 through Q1 2016 we increased total revenue by 13% and ICL units by 25%. Performance in this period included the tailwind effect of the manufacturing move to Monrovia and continuing variation in seasonality and distributor inventory demand.

It is important to note that our ability to meet spheric and Toric ICL on-time delivery requirements has been steady for the last several quarters and we expect to continue this positive performance. We have built up inventory to appropriate levels to assure supply and it is reaping dividends in many international markets where the EVO lens formerly known as the CentraFLOW lens can be implanted on the same refractive surgery timetable measured from patient interest to procedure as other refractive surgeries.

We've made it clear that as we move toward becoming a more premium and primary ICL practice partner for our surgeons, the traditional rather up and down cycles of our ordering partners should transition to a more steady and predictable pattern. The achievement of a central base business development is predicated on our becoming a far more significant and revenue generating portion of the refractive surgeon's business than we are today.

In managing the larger and more transformational strategic partnerships we are providing co-marketing and branding support, social media and website integration, practice development, certified training, and other primary practice development support programs. We are working through this model most effectively in China and are bringing that experience to other major markets where we are in discussion with several large multi-clinic and [indiscernible] potential partners.

That being said, we reiterate our 2016 goal to increase ICL units by double-digits, to expand our gross margins and to determine by year end what our ILL offerings should look like as a true cataract care business. I will spend the rest of my time giving a quick update on the FDA progress and the remainder covering the American Society of Cataract and Refractive Surgery, the ASCRS meeting.

FDA remediation and continuation of quality systems overhaul remains at the top of the list of our strategic priorities. The achievement of remediation and quality systems plan commitments as submitted to the FDA and assuring that our global quality certifications are maintained remain as essential goals.

In Q1 our internal goal achievement was on-target and on-budget. Turning to the ASCRS, STAAR successfully introduced its new global branding ten-year clinical data analysis, surgeon training, practice development and brand ambassador in patient appearances at the ASCRS meeting in New Orleans from May 06, through the 10.

The evolution in visual freedom initiative included the introduction of the new EVO+ line of expanded optic ICLs available in selected international markets in April. Dr.

Jaime Aramberri, a renowned refractive surgeon from Spain, implanted the first EVO+ lenses in March. He presented his findings at the meeting and concluded that, "Increasing the optical zone diameter means improving the optics which is the goal of premium refractive surgery."

Our Collamer ICL's with the CentraFLOW technology will be branded as EVO and EVO+ lenses and the EU version of our new consumer facing website will be discoverevo.com. The ICL lenses offered in the U.S.

will remain branded as the Visian ICL with a new consumer facing website online today which is discovervisianicl.com. Major initiatives at the ASCRS included clinical data.

Leading surgeons in ophthalmology presented results from peer-reviewed scientific literature highlighting the safety and effectiveness of STAAR's implantable Collamer lenses. These data presentations included key findings from a comprehensive meta-analysis now in press entitled ICL Decade in Review, authored by internationally recognized leader in Ophthalmology, Mark Packer, M.D.

Dr. Packer cited the authors of a paper from the Journal Ophthalmology who noted that the ICL provides "significant gains across a broad range of life activities, and is clearly a life changing intervention."

Meta-analysis of safety data from the peer-reviewed literature, including up to 10 years of experience, comprehensively demonstrated a low rate of complications. In Surgeon Training and Practice Development, STAAR's new practice development programs and initiation of the inaugural Clinical ICL Training Institute, "CITI", were introduced.

Presenters included Barnett Delaney Perkins' CEO, Mark Rosenberg. Barnett Delaney Perkins is a 15 clinic and 9 surgery center practice in Arizona, which will be providing certified ICL training to surgeons and will become a new Strategic Partner for STAAR.

Mr. Rosenberg's presentation highlighted the practice patterns and economics of successfully integrating ICL implant surgery as a premium and primary offering of a cataract and refractive surgery practice.

Patients and Surgeons also highlighted the patient experience. Patients for whom the ICL truly has been a life changing experience along with their surgeons presented the rationale for choosing ICL and very compelling stories of life before and after the achievement of visual freedom with the ICL.

Patients included, Dr. Alison Tendler, a leading cataract, lens implant and refractive surgeon, Ki-Shui Liao, a professional golfer and Dr.

Jessica Hua, a Professor and Ecotoxicologist. Our newest Brand Ambassador, Eve Torres Gracie, an athlete, WWE champion, actress and advocate/trainer for women's self defense presented her professional and personal evolution to visual freedom upon having the ICL implanted.

Eve's profile and video highlighting her six years with her ICL's can be found on discovervisianicl.com or on www.facebook.com/evetorres. Eve has over one million Twitter followers and advocates for visual freedom with the Visian ICL through social media and personal appearances.

Fundamentally, at the ASCRS our progress in achieving our strategic priorities and creating the visual freedom market for implantable lenses, transforming the surgeon and patient experience, establishing the certified ICL Training Institute and sharing long term safety and effectiveness data for STAAR was clearly demonstrated. I encourage you to visit our new website staar.com and watch the Evolution video and then visit the discovervisianicl.com website designed for patient education and patient experience.

To inspire a new generation to begin their pursuit of visual freedom, the new STAAR branding was largely created for millennial by millennials with a few boomers thrown in for good measure. We've had extraordinarily positive feedback and I am thrilled to launch the new STAAR with such a terrific team.

I will now turn over the call to Steve for a review of our first quarter 2016 financial results.

Thank you, Caren and good afternoon everyone. I'll start the financial overview with the summary of top line results and then provide more details by product and markets.

STAAR achieved sales of $19.3 million in the first quarter of 2016 an increase of 2% over the $18.9 million of sales reported in the first quarter of 2015. The sales increase was driven by a 46% increase in ICL sales in China, a doubling of ICL sales in Germany due to the conversion to direct selling and the impact of increased pricing which occurred in both markets in the fourth quarter of 2015.

These increases were partially offset by lower IOL sales and injector parts sold to a third-party. For our ICL product line total sales were $13.2 million for the first quarter of 2016 increasing 8% from the prior year period with units flat compared to the prior year period.

EMEA ICL sales were $4.9 million during the first quarter an increase of 9% compared to the prior year period on the strength of higher average selling prices. Sales in Germany increased 108% over the prior year period due to the conversion from the former distributor to direct selling.

ICL unit growth in the European markets was offset by decreases in the Middle East and Latin America for decrease in EMEA ICL units of 3% compared to the prior year period. Asia Pac ICL sales were $6.7 million during the first quarter an increase of 10% compared to the prior year period driven by China revenue growth of 46% and higher average selling prices partially offset by a decline in Korea after two strong consecutive quarters.

Similarly, ICL unit growth in China of 40% was partially offset by a decrease in Korea for an increase in Asia Pac ICL units of 4% compared to the prior year period. North America ICL sales were $1.6 million during the first quarter down 5% in revenue and 14% in units from the prior year period.

For our IOL product line total IOL sales were $5.1 million for the first quarter of 2016 and down 5% from the prior year period with units down 8%. As we indicated last quarter we are reviewing the fitness of certain of our cataract lens offerings and choose to delay shipment of certain of our Iowa lenses in the U.S.

until qualification of equipment and inspection methods were completed. This delay combined with the continuing phase out of IOL sales in China was partially offset by growth in Japan.

As Caren mentioned earlier and to provide a broader perspective, if you compare the six-month periods of the fourth quarter 2014 to the first quarter of 2015 to the fourth quarter of 2015 to the first quarter of 2016 we increased total revenue by 13% and ICL units by 25%. Now turning the discussion to margins and spending, our gross profit margin was 67.4% including the cost of the accelerated vesting of stock compensation which had a negative impact of 290 basis points compared to the prior year period gross margin of 68.4%.

Excluding the accelerated vesting, the gross profit margin was 70.3% or a 190 basis point improvement from the prior year period. This improvement resulted from higher average selling prices net of the impact of the weaker euro year-over-year that added 150 basis points, lower ICL unit costs that added 140 basis points and increase myths of higher-margin ICL units that added 80 basis points and lower other costs of 50 basis points all of which were partially offset by higher IOL unit costs of 230 basis points due to lower overhead absorption.

Operating expenses for the first quarter of 2016 increased $8.6 million to $23 million from $14.4 million in the prior year period primarily due to $6.3 million in non-cash expense for the accelerated vesting of stock compensation. Excluding the accelerated vesting, operating expenses increased $2.3 million or 16%.

General and administrative expenses was $8.5 million an increase of $3.3 million compared to the prior year of which $2.9 million was due to the accelerated vesting of stock compensation and $400,000 primarily to reserve for local taxes in Japan. Marketing and selling expense was $7.7 million an increase of $2 million compared to the prior year of which $1.5 million was due to the accelerated vesting of stock compensation and $1 million was for higher international selling and promotional costs primarily headcount related and partially offset by about $500,000 in optimization of North America selling and promotional costs.

Research and development expense which includes remediation and other FDA expenses was $6.9 million an increase of $3.3 million compared to the prior year of which $1.9 million was due to accelerated vesting stock compensation. $900,000 was for investments in clinical affairs and $600,000 was for costs related to quality system improvements.

Remediation expense for the year was on-budget. Turning our attention to the bottom line, the net loss for the first quarter of 2016 was $8 million or $0.20 per share compared with a net loss of $2.3 million or $0.06 per share for the prior year period.

Included in the net loss for the first quarter of 2016 was a non-cash expense of $6.5 million net of taxes or $0.16 per share for the accelerated vesting of stock compensation. As a result, the higher net loss in the first quarter of 2016 versus the prior year period was due to the accelerated vesting.

Excluding the accelerated vesting, the net loss was $1.5 million dollars or $0.04 per share and a lower net loss versus the prior year period due to improved gross margins, higher other income and an income tax benefit primarily due to our net operating losses from our foreign operations and tax benefits related to the dissolution of one of our foreign subsidiaries. On a non-GAAP basis the adjusted net loss for the first quarter of 2016 was $533,000 or $0.01 per share compared with adjusted net income of $987,000 or $0.02 per diluted share for the prior year period.

These adjusted figures exclude nonrecurring expenses such as FDA remediation, gains and losses on foreign currency transactions and stock-based compensation costs. Now turning to the balance sheet, cash and cash equivalents at April 1, 2016 totaled $9 million compared to $10.8 million at the end of the first quarter of 2015 and $13.4 million at year-end 2015.

The company used $4.4 million in cash during the first quarter of 2016. The first quarter normally represents the highest uses of cash of any quarter for the company.

This year was no exception, as approximately $3.3 million of the $4.4 million of cash used in the first quarter is not expected to repeat in the remaining quarters of the year. We believe that our current cash balances, coupled with cash flow from operating activities will be sufficient to meet our working capital requirements for the foreseeable future.

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

Good afternoon Caren and Steve. I appreciate you taking the questions.

Good afternoon.

Three quick ones from me, then I'll get back in queue. When we talk about the core goals of the company to increase ICL units double-digit range this year, expand gross margin and define the cataract business, we understand that the cataract business definition is really more of a I am assuming second half or year-end type of an event.

Gross margin if you make some adjustments did expand in the quarter, but if I heard everything correctly, units only ICL front in the quarter not the select six-month period were flat in aggregate and then in many markets down. So maybe first address what gives you confidence that you'll see meaningful acceleration and unit growth throughout the course of the year such that you can get to the double-digit ICL growth rate for the full year or is that more a function of the price step up in ASP?

Then I have just a quick followup.

Sure. While fundamentally we experience and have as you are aware we've had kind of market that in a particular quarter will be especially robust and then it may be followed by a lessening of demand.

There is as we said fundamentally a very strong you would say trend analysis, we used to do trailing 12 months and other companies have been which we are there is seasonality here. We have a - I don’t know a better expression, a rather lumpiness that's been associated with demand cycles that haven’t been easily predictive.

But when we talk to the surgeons we look at our forecast, we understand the kind of very high level integration we're achieving. For example, as we mentioned in our Chinese hospital partnerships as well as others that are on the horizon, we expect that shows a uptake over time.

And as we said when we talked about how we would get to double-digit we said that we would get there by building sequentially throughout the year and we are still confident that that is the direction that we're heading.

Okay, that's helpful, thank you. And then I believe if I'm not mistaken at the end of calendar year last year you all talked about planned FDA remediation expenses throughout the course of this calendar year of approximately $2 million.

And if I'm backing into the penny that you had in the reconciliation correctly is about $500,000 in the quarter. So I guess, part one is that math correct and so should I assume that that is tracking in line with that roughly $2 million if I just annualize the run rate that's in thing keeping with your expectations, am I thinking about that math correctly?

That's correct Chris.

Okay fine, and then last one from me and then I'll get back in queue. I realize that a little over $3 million is unexpected to repeat in terms of the euro expenses there during the course the quarter that led to the $4.4 million burn in cash in the 1Q with approximately $9 million in cash and assuming that you continue to burn cash for the next several quarters.

Just could you remind us about your liquidity and what additional capacity the company has and general terms on those facilities? Thank you.

Sure, Chris let me – let's talk about the 3.3, those were one time I cash outliers that we had.

Correct.

Okay, so the operational investments were primarily in clinical affairs and in the quality system. There was another $1.5 million that was due to a decrease in working capital, but that decrease included $2.7 million in those cash outlays that will not repeat for the rest of the year.

And then there was another $1 million in property and equipment purchases and we plan to use financing throughout the remainder of the year for other purchases. And then there was another $600,000 that was for - that will also not repeat of the cash outlay that was repurchases of employee shares for withholding taxes in connection with the accelerated vesting of stock compensation.

So I guess just to summarize and make sure I'm on the same page here, you well I can maybe followup with you afterwards, but you definitely, well I'll just call up after the call. Thank you so much.

Hi good afternoon. This is Matt Larew in for Brian today.

My first question is on the quality issue in the first quarter, IOL lenses and the shipments in the United States was that something that was resolved in the quarter or is that going to linger here in second quarter and perhaps throughout the year?

Well we have now completed our work for the particular IOL product that was referenced. We are hoping to make a determination by the end of the quarter.

Can you share what the specific issue was that you are addressing?

Fundamentally as we go through the verification and validation of everything that we do in rebuilding the quality systems we come to an area where we are not satisfied in terms of historically where we've been and we want to kind of reassess and renew all documentation and processes associated, we then make the determination whether it's material or not to start shipment. In this particular case we chose to do that.

We will continue to do our analysis and make a determination of whether we will continue with the appropriate changes in procedure and process and the appropriate reporting to the agency if required. So bottom line is we're doing everything we should be doing and confident that we'll make the right decision.

Okay understood and then the processes you are reviewing, are those things that are quite specific to the certain IOL lenses you are addressing or are they things that perhaps could extend beyond to other products?

No, each product is taken in and of itself in terms of documentation in SOP [ph].

Okay thanks, and then the only other one from me is on the conversion of distributor to direct in Germany, could you just give us what the growth rate contribution was from that conversion or another way would be what the growth was excluding the conversion of distributor to direct?

The unit growth in the quarter-over-quarter was 2%, but if you recall in our fourth quarter call and our third quarter call unit growth in Germany which was also post conversion was strong double-digits.

Okay, that's all.

Hi good afternoon. This is Ashley [indiscernible] filing in for Jason.

Just two quick ones from me, Caren the new SMILE, LASIK procedure seems to be gaining steam in international markets according to our check. Do you foresee this being a competitor for patients to ICL?

No, I think it will be additive to ICL. We understand that also in Europe there has been where the refractive surgeon themselves that make sense there has been a combination of ICL with kind of a finishing off at times using the SMILE procedure.

In terms of indications of use we understand that SMILE is getting a little higher up the diopter [ph] curve, but fundamentally the surgeons that we talked to are still looking at SMILE more as a traditionally LASIK product rather than being specifically better than today's [indiscernible] guided offering.

Okay got it thanks. And I'm sorry if I missed this, but could you give an update on the U.S.

business, specifically the Toric ICL and any regulatory pathway for next gen ICLs in the U.S. market?

Sure, we have a really terrific new clinical affairs team and are working with a number of really outstanding support consultants who with regard to the Toric ICL as we have said in the past, anything further that's required from the FDA will be on hold until such time as we were out from under the warning letter. With regard to EVO and our opportunity there, we certainly are preparing for submission as we see initial pre-ID discussion documentation.

So we are moving ahead in that regard.

Got it and just wondering if I could just sneak one more question in here with regard to your international distribution business, your conversion in Germany has gone pretty well from what we can tell. Do you see any additional opportunities to convert distributors to direct and what guides your decision to make such a conversion?

Really the opportunity for us is depending upon how we have built the business with the distributor and in some Asian country we have got an importer such as China. In some cases such as with our Chinese importer they actually create businesses within their companies that are specific ICL and are an extension of our company and that is really the premier relationship.

In other countries we are one as many products offered in the cataract and refractive market and if they distributor is not expanding our business, is not representing us well, is not supporting all the services and practice development and co-marketing programs that we are currently putting together and if we have in that particular market really strong support with large customers as well as loyal customers such as in Germany it just makes sense to go direct. So it really is dependent upon all of those factors and as we see the opportunity and where we can build these markets successfully independent of a distributor that does not add value we will do.

Great, thank you for the color. I'll get back into queue.

You are welcome.

Good afternoon, can you hear me?

Yes, Jim.

Great. Steve did you mention the impact of currency on revenue in the quarter?

It was not material in the quarter Jim.

Okay, and then regarding the progress with the FDA can you characterize that, is it still generally one-way communication, you communicating with them or have you gotten any feedback from them validating the steps you are taking?

No, fundamentally we remain where we have been in the previous quarters that we submitted a plan and are working the plan and are achieving all of what we promised on a month by month basis.

Okay, so you haven't heard back anything good, bad or otherwise from the FDA?

No.

All right, and the launch of the EVO+ lens you indicated that happened in April in Spain?

Yes.

What are the other regions you tend to launch that device in and can you give us a rough outline of when that will be launched?

Yes, the EVO+ lenses are now being launched throughout the EU and we have a lot of plans going forward for getting the surgeons the right information on the expanded optic and it is orally indications from our first users like we did the marketing team is make sure that some of the surgeons who to implant a number of the CentraFLOW lenses had the opportunity to be the initial implanters. They have reported back very positive indications of performance very happy patients, just as happy if not happier than the current CentraFLOW patients and so now we're ready to explode into all the other markets in the European Union.

Okay and when do you think you will launch in Asia.

It is we see the [indiscernible] when we get registration that we are in every major market that we're in today, with CentraFLOW we are in the process of seeking approval.

And then you said to the previous question that you like to hear all the stages of applying for approval in the United States, is that for the EVO+ or is that for the EVO, EVO generation lenses?

That’s for EVO.

Thank you.

You are welcome.

Thank you. Caren, in the prepared remarks you say that you expected the current level of investment in operations, et cetera to continue for the next several quarters.

Does that imply at some point possibly next year you would expect that investment to tail off?

Yes, year two of the three-year transformation from [indiscernible] is always the most intensive. Year one you are putting your plans together, you are making a determination of how you are going to pace and scale the change.

In year two, we're making a lot of bigger investments as we said earlier in the year. We talked about $3 million around the quality system which was an incremental $2.1 million.

We talked about creating [indiscernible] and visual freedom market which was an incremental $2 million. And improving which really we needed to do and for such systems $4 million.

We expect that most of those investments will then take us through the next at least three to five years in terms of upgrade. We have fundamentally finished 90 plus of the branding in record time and so, we expect now to be reaping the benefits of that and moving into grading, into the practices of refractive surgeons, our ability to get patients in the door to this kind of outreach.

So what we should look for is first the benefits of these on the fundamental business and second, I'm trying o get a visibility as to how much spending levels will decline in 2017?

I'm not really prepared to speak directionally or provide guidance around what the third year looks like, but you can rely on the fact that I am going to be working with the team to very aggressively increase our earnings associated and our positive cash flow associated with the top line growth.

That sounds encouraging. Could you comment briefly on the Congress and contribution from the recent first quarter partnerships that were announced with Memira and Aier?

Aier, which is our Chinese partner, it was explosive growth with them. They are a big part of that 46% growth in China as a whole, so we are thrilled.

And I can tell you that from meeting at ASCRS with our Chinese importer [indiscernible] and our country manager that the planning for the remainder of the year and into the future years is very strong and positive. We are integrating as we hoped we would already as a much bigger part of the total refractive surgery procedures for the eye hospitals of China.

They are excellent co-promoting partners and we as is said in my prepared remarks are learning from them as well as supporting them. And so we expect to bring a lot of that to other markets.

They have phenomenal patient events where they quickly through bringing them and funneling them in through basic eye appointments, they funnel those with the right prescriptive need into a refractive surgery gathering. And then within 48 hours they are usually operating on with financing in place and they, just quickly because it's a fun story they showed me a picture of a van that has been converted, that really is a on-wheels movie theatre and they go into large areas where young millennials hang out and they invite them to watch a movie, including Evolution which you will see at staar.com in Chinese with pop corn and Coca-Cola and they have an 80% convert rate for the uncertain spectacle I should say of certain prescriptive requirements for their vision correction.

So they are a terrific partner. Memira is also starting out strong, not quite at the level that Aier is that we expect over time for them to integrate well with us.

And we have a number of other partnerships as I said that are currently in development and in discussion, plus we'd like to welcome our newest strategic partner, Barnett Delaney Perkins in Arizona.

Thank you, that's great color. My last question would be around the VISX idea targeting presbyopia.

Did you mention where that is in development? In the past you've been talking about approaching design briefs?

Yes, we continue to move forward. We are in discussions with our partners for our first-in-man implants and we hope as we had said I believe in the past to be talking about this at the ESCRS in having not a lot of experience but enough to be able to share at that point in time in terms of our progress and what's left that we feel we need to do to bring that product to market.

Great, thank you very much.

Thank you.

I'd like to thank everyone for calling in today and for being such support for our company and we appreciate your interest and all the best to all of you. Take care.