STAAR Surgical Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAR Surgical Third Quarter Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. If you have a question, please press STAR followed by 1 on your touchtone phone. If you're using speaker equipment today, please lift the handset before making your selection. We will have approximately 45 minutes for today's call. This call is being recorded today, Wednesday, November 2, 2022. At this time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor Media Relations and Corporate Development for Star Surgical. Please proceed.

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 third quarter ended September 30, 2022, On the call today are Karen Mason, President and Chief Executive Officer, and Patrick William, Chief Financial Officer. The press release of our third 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 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 recue 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. Star achieved 30% net sales growth in the third quarter, which reflects strong Evo ICO unit growth in APAC and strong accelerating growth in the U.S. despite constant currency challenges and in Europe, macroeconomic headwinds. In the third quarter, global ICL unit growth was up 40% year over year. We advanced our patient awareness, engagement, and market-building initiatives for Evo in the U.S. during and subsequent to the third quarter, highlighted by media campaigns with global entertainment celebrity Joe Jonas and NBA player Max Struess, and introduced our presbyopia lens, EvoViva, to surgeons at our experts meeting preceding the annual Congress of the European Society of Cataract and Refractive Surgeons. In China, we concluded another successful peak busy season that put EVO on track to exceed a 25% share of refractive surgery market units by year end. However, due to tighter COVID restrictions in China, resulting in expected delayed demand in the fourth quarter, ongoing headwinds in Europe, weakness in the yen and euro, and lower other product sales, we now anticipate total net sales will be approximately $285 million for fiscal 2022, which represents $300 million adjusted for constant currency. Our fiscal 2022 outlook includes ICL sales of approximately $272 million, representing 28% year-over-year growth, and other product sales of approximately $13 million. As you know, today it is vital that STAR focus on the significant growth opportunities we have with our premium EVO products. At the same time, our low-margin other products business which represents approximately 5% of sales and consists of cataract IOLs, IOL injectors and injector parts, has faced increasing supply chain challenges. As a result of third-party materials and supply chain challenges that only affect our other products business, we will no longer be able to support other products as we have historically. We will continue to support customers of other products through the end of 2023. As we look to fiscal 2023, despite the aforementioned challenges, we expect to achieve approximately 30% ICL sales growth year-over-year to approximately $355 million in total company net sales, which contemplates limited sales from other products. We see tremendous growth potential for our EVO family of lenses globally and look forward to continuing our focus, efforts, and resources on especially large growth opportunities in the U.S. and Asia in 2023. Turning back to the third quarter of 2022, for the third quarter, global ICL unit growth was up 40% year over year. By geography, we achieved strong ICL unit growth. In China, up 52%. The United States, up 63%. Japan, up 40%. South Korea, up 49%. And APAC distributor markets, up 47%, all as compared to the prior year quarter. In the US, we are pleased with our progress in advancing the adoption of EVO lenses through patient awareness and surgeon engagement. After our August partnership announcement with singer, songwriter, and actor, Joe Jonas, we launched EVO brand advertising featuring Joe in the US on September 26th. The campaign included targeted geographic and multi-channel advertising to our core 21 to 35 year old target population on YouTube, Instagram, Snapchat, TikTok, display advertising, and search engine marketing. Last month, we announced our partnership with NBA player Max Strews, a sharpshooter for the Miami Heat. Max is another example of a person with a myopia prescription of less than minus five diopters who had evil lenses implanted and is now thrilled with his new 2010 vision, which is better than 2020. Max joins other Evo brand ambassadors in the US, including a top model, a TV chef, a style expert and blogger, a fitness and wellness coach, and others who are helping to inform potential patients about the benefits of Evo based on their own Evo experiences. Each of our ambassadors speaks to potential Evo patients with a unique voice that we believe will continue to build momentum and contribute to Evo's broad success in the US. YouTube is the second most popular search engine for our target audience. In August, we launched our EvoICL educational series on YouTube, which has now expanded to eight videos as we added individual videos about Joe and Max's decision to choose Evo. The EvoICL channel on YouTube is now approaching 6 million video views. Going forward, we will continue to partner with new micro, macro, and celebrity EVO brand ambassadors in the U.S. since we have experienced through our earlier partnerships that we can successfully expand our engagement with potential patients. We are also engaging with U.S. refractive surgeons. Our goal is to accelerate education of our lens so that surgeons may increasingly transition the mix of vision correction options or entire practices to lens-based solutions with our EVO family of lenses. As of today, we have trained and certified over 550 US surgeons on EVO since FDA approval approximately seven months ago. We remain on track to meet or exceed our goal of training and certifying 600 U.S. surgeons on EVO in 2022. Please take note that, quote, the number of surgeons trained, unquote, is just one of the metrics we establish, manage, and measure for surgeon and patient engagement. Our U.S. commercial organization and star management is working diligently to assist patients in their journey for visual freedom from glasses and contact lenses and and to assist surgeons in their confidence and desire to offer the EVO lens-based solution to appropriate patients seeking visual freedom. We're focused on transforming the refractive industry for qualified patients to an EVO lens-based industry. We are pleased to report accelerating unit growth in the U.S. of 63% year over year in the third quarter, and up from 36% in Q2. We anticipate unit growth in the U.S. will further accelerate in the fourth quarter to approximately 100% year over year. Innovation and strengthening the moat around our business remains a strategic imperative for STAR. This includes potential expansion and enhancements of our EVO lenses to new indications and execution of other R&D, clinical and regulatory pathways to get our existing and next generation products to market and to certified surgeons. As we look to fiscal 2023, our outlook is for a strong trajectory of growth for EVO-ICL, continued market share gains, prudent investment, growing earnings, and many happy new EVO ICL Patients and Surgeons.