I really like STAAR Surgical’s recent second quarter report. The company is doing what it said it would do, and its US-based sales growth is boosting its overall profitability.

Here are a few key takeaways

• Overall sales were up 9% to $100.4 million, in constant currency
• ICL unit sales were up 3%

LASIK refractive surgery procedures have declined in annual comparisons for several years. Implantable Collamer Lenses (STAAR’s technology) continues to grow at a positive rate and gain share.

• US sales of $5.5 million were up 25% year-over-year.

This is key, since STAAR’s new EVO ICLs that are sold in the US are among its highest-priced and highest-margin globally.

• China sales of $63 million were up only 3% year-over-year.

China still accounts for nearly two-thirds of the overall business. But it’s cut back (pun intended) on refractive surgery this year; procedures are down 10% as compared to 2023. China’s eye centers are often replacing traditional LASIK with a new “SMILE” procedure (Small Incision Lenticule Extraction) which is more expensive but also provides a faster healing time. Both SMILE and LASIK are ‘traditional’ refractive surgeries that are battling one another and are competitive technologies to ICL.

Even with only 3% growth this quarter, STAAR re-affirmed that it expects to achieve 10% sales growth in China during fiscal 2024.

• Gross margin improved 260 basis points, to 79.2% from 76.6% a year ago
• Operating margin improved 270 basis points, to 12.0% from 9.3%.
• Adjusted EBITDA margin improved 290 basis points, to 22.7% from 19.8%
• Operating cash flow generated in the first half of 2024 was $11 million, up from a loss of ($11 million) in 1H’2023

STAAR’s $0.15 of earnings per share in the second quarter beat consensus expectations of $0.096 by nearly 60%. The bar is too low and the company is executing well in the very-important US market. It also raised its full-year guidance for sales and EBITDA.

STAAR’s stock got hammered in recent years, as consumers chose to delay elective vision procedures in a more challenging economy. There’s also some lumpiness in the quarterly numbers, which is largely due one massive customer in China named Aier who gets favorable receivables terms. Aier is pro-ICL and is introducing it in the new eye centers that it acquires through M&A transactions.

There’s no doubt that ICL is taking share from LASIK globally and that the company’s new CEO Tim Frinzi has hit the ground running. The combination of US sales growing nicely due to EVO and marketing & overhead expenses both declining as a percentage of revenue have resulted in gross, operating, and net profit margins all improving.

This is a good long-term investment and the shares are inexpensive.

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