STAAR Surgical Company

Good afternoon, ladies and gentlemen, and welcome to the STAR Surgical Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press the star then zero on your touchtone telephone. I would now like to turn the conference over to your host, Mr. Brian relations and corporate development. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on the Star Surgical Conference call this afternoon to discuss the company's financial results for the fourth quarter and fiscal year ended January 1, 2021. On the call today are Karen Mason, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer. The press release of our fourth quarter results was issued just after 4 p.m. Eastern Time and is now available on STAR's website at www.star.com. Before we begin, 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 fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs, and prospects. These statements are based on the judgment and analysis as of 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 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 STARS public periodic filings with the SEC. Except as required by law, STARS seems no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. 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 two initial questions, then re-queue with any follow-ups. We thank everyone in advance for their cooperation with this process. And with that, I would now like to turn the call over to Karen Mason, President and CEO of STAR.

Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. The fourth quarter and fiscal 2020 results we reported today are consistent with our January 11th pre-announcement and represent yet another year of record results, increased consumer awareness, and growing surge in commitment to our proprietary EvoVision family of implantable columnar lenses. The COVID-19 global pandemic challenged our generally high levels of growth, particularly in the first half of 2020. However, for the second half of 2020, we were able to meet the original sales targets we entered the year with prior to the global pandemic taking hold in late January. 2020 demonstrated the continuing momentum of the industry shift towards our lens-based solutions for patients seeking visual freedom. In addition, in 2020, we launched a new presbyopic lens, EvoViva, and made progress towards introducing our Evo family of lenses in the U.S. and introduced new programs to increase customer engagement. Our 2020 performance confirms our position as a consistent and rapidly growing innovative leader in the refractive industry. Turning now to the fourth quarter, ICL unit growth in the fourth quarter continued the rebound we saw in the third quarter as more of our markets more fully reopened. We achieved strong growth in several markets, including China up 17%, Japan up 52%, Germany up 28%, APEC distributor markets up 71%, and Latin America up 26%, all as compared to the prior year quarter. We also saw a significant sequential improvement in India during the fourth quarter, where ICL units, on a year-over-year basis, were down just 10% in the fourth quarter of 2020 as compared to down 55% in the third quarter. The Middle East remained our most challenged market due to COVID-19 during the fourth quarter. For fiscal year 2020, ICL units were up 11% as compared to the prior year. our positive ICL unit growth must be considered in the context of the global pandemic and also the total market for refractive procedures. Industry reports estimated a decline of 21% in total refractive industry procedures in 2020 as compared to the prior year. The chasm between STAR's positive ICL unit growth rate and the decline in total refractive industry procedures demonstrates that we are continuing to capture market share. Therefore, while our growth in certain markets remains impacted by COVID-19, our enthusiasm for even brighter days ahead is bolstered by solid second half results in 2020 and a solid start to 2021. Our strategic imperative remains to position our EVO-ICL family of implantable lenses as a transformational pathway to visual freedom for patients seeking a life independent of glasses and frequent replacement contact lenses. Our strategies support the transformation to a lens-based future for refractive vision correction and should allow STAR to capture a disproportionate share of the 5.8 million annual refractive procedures that industry market reports project in 2025. Today, and as we look ahead, we are laying the foundation for a star that can grow from selling hundreds of thousands of lenses per year to millions of lenses per year through increasing consumer awareness, surge in commitment, new product introductions, and appropriate investments to scale the company consistent with our significant growth opportunity. I will briefly touch on each of these areas to illustrate our focus and commitment. First, we have increasing evidence that our multi-channel consumer awareness and marketing activities globally are showing positive results. Where we promote the exceptional desirability of our Evo ICL family of references to consumers, we see greater enthusiasm among consumers on social media. More visits by consumers to our doctor finder and higher ICL unit growth. including in China, Japan, Korea, and Germany, to name a few. EvoVisian ICL patient influencers, from television or music personalities to everyday people, are creating meaningful interactions with their followers on various social media platforms, such as TikTok, Little Red Book, and Instagram, that result in these followers becoming prospective patients. Our investment in consumer marketing is supported by marketing research that shows 40-point-plus upticks in ICL interest in key markets when consumers understand the advantages of our ICL lenses, including removability, no dry eye syndrome, and excellent night vision. This same marketing research shows a 60-point increase in interest among U.S. consumers. Second, we are gaining increasing surgeon commitment with our lenses, which is supported by clinical validation. 2020 is the first year STAR sold more lower diopter lenses between minus 0.5 and minus 10 than higher diopter lenses between minus 10 and minus 20. Our opportunity with surgeons includes training and certifying more refractive surgeons globally and also increasing the number of ICM lenses implanted by currently certified surgeons. Increasing lens utilization remains a significant growth opportunity for STAR, as surgeons can move from implanting tens of lenses per year to hundreds or even thousands, as we've seen in certain Asian markets. Turning to a third strategic priority, which is introducing our innovative products to large and new markets globally, we are continuing the controlled rollout of our EvoViva Presbyopia lens in Europe. The initial commercial surgeons are implanting the Viva lens while gaining valuable insights for delighting patients at each distance, near, intermediate, and far. These insights will be part of the EvoViva playbook of best practices that we will share with certified surgeons during full commercialization of the lens expected in the second half of 2021. In the coming weeks, we will add more surgeons as part of our phased rollout of the Viva lens. In the U.S., we have implanted all patients in the study for our Evo family of myopia lenses and follow-up is being conducted per the trial protocol. Our plan remains to submit the data to the FDA for marketing approval in late April. We will provide an update on the status of our submission and any other details when appropriate and permitted. The U.S. as the number two market in the world for refractive procedures has long been a market where we look forward to introducing our family of vivo lenses. We believe we remain on track, pending FDA approval, to introduce our EVO lenses to the U.S. market in the fourth quarter of this year. Finally, we continue moving forward with scaling the company to meet increasing demand and position Star to sell millions of lenses in the future. Capital investments include the following. Establishment of our EVO manufacturing operations in Middow, Switzerland. and our advanced presbyopia VivaLens manufacturing facility in Lake Forest, California. Also expanding capacity of our Monrovia manufacturing facility. Operating investments include scaling our revenue generating sales and marketing teams and programs. We have recently added key hires to the US sales team and will continue to support our growth in China with additional in-country STAR account executives. We will also invest in marketing programs and geographies that can demonstrate strong returns by driving higher levels of ICL unit growth. Before turning the call over to Patrick, let me conclude my prepared remarks by welcoming two new members to the STAR Board of Directors, Dr. Elizabeth Yu, and Dr. PMEU, who joined the Board as previously announced on January 21st. I would also like to thank retiring Board Member John Moore for his more than decade of service to STAR. Patrick?