Star Surgical (STAA -2.64%)a pioneer in implantable contact lenses, reported its third quarter results on October 30. Its sales climbed 10% year-over-year to $88.6 million, illustrating continued strong demand for its key product, the Collamer Implantable Lens (ICL). Despite this increase in sales, gross profit margins fell to 77.3%, compared to 79.2% in the prior-year period, primarily due to a decrease in unit production that reduced overall profitability. Overall, although Staar’s sales figures demonstrated promising demand, declining margins and increased operational costs resulted in an operating profit of $5.7 million, down from to the previous year’s $6.3 million, raising concerns about its profitability prospects amid rising spending.

Staar Surgical Business Overview

Staar Surgical develops and manufactures implantable Collamer lenses that provide permanent refractive vision correction. Sales of these glasses represent 99% of its turnover. Staar has a distinctive advantage with its proprietary collamer material, which provides superior biocompatibility compared to competing silicone or acrylic lenses. This advantage has positioned Staar as a key player in this niche of the ophthalmology sector.

Innovations, particularly its EVO lens for the treatment of moderate and high myopia, illustrate its commitment to pioneering advances. Staar’s success will depend on obtaining new regulatory approvals for its innovative lenses and greater acceptance of them by clinicians and patients.

Quarterly Highlights and Financial Developments

Staar Surgical’s 10% increase in net sales to $88.6 million dominated the third-quarter highlight, as strong traction from the EVO lens line boosted ICL sales. This growth was attributed to strategic expansions and increased demand in the Americas, EMEA and APAC regions. The Americas led the way with sales up 14%, followed by EMEA at 12% and APAC at 9%, despite sluggish economic activity in the Asia-Pacific region, particularly in China.

Research and development (R&D) spending increased significantly to $14.5 million, up from $11.5 million in Q3 2023. These significant expenses demonstrate Staar’s commitment to developing cutting-edge technologies, potentially sacrificing short-term gains for the benefit of long-term profitability. Operating expenses jumped to $62.8 million from $57.3 million the year before, mainly due to increased costs related to personnel and facilities. Despite these operational challenges, Staar’s operating profit remained resilient at $5.7 million, or 6.4% of sales. This represents a slight decrease from $6.3 million (7.8% of net sales) in the third quarter of 2023.

Net income of $10 million was a jump from $4.8 million in the previous year’s third quarter. Staar does not pay dividends, preferring to devote its funds to R&D and sales expansion.

The road ahead

Staar Surgical reiterated its previous outlook for 2024 with projected net sales between $340 million and $345 million and adjusted EBITDA of approximately $42 million. However, it adjusted its regional sales expectations, notably reducing APAC growth projections due to conditions in China.

For the coming quarters, investors should pay attention to Staar’s strategic execution, particularly as it attempts to amplify ICL’s sales.