STAAR Surgical Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAR Surgical fourth quarter and fiscal year 2022 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 the star followed by the one on your touchtone phone. If you are using speakerphone equipment today, please lift the handset before making your selection. This call is being recorded today, Tuesday, February 21st, 2023. 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.

Thank you, operator. 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 December 30, 2022. On the call today are Tom Frenze, Chair of the Board, President and CEO, 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 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 risk and uncertainties associated with the forward-looking statements made in this conference call or 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 Tom Frenze. Tom?

Thanks, Brian, and good afternoon, everyone, and thank you for joining us. I will begin with an overview of our results for the fourth quarter. and fiscal year before turning my commentary to my first 50 days as CEO and our priorities for 2023. Patrick will then provide additional details on our financial performance and outlook for 2023. We will then open the call to questions. I am pleased to report that once again in fiscal 2022, Star achieved a multi-quarter track record of market-leading top-line growth. ICL sales grew 27% year-over-year and in constant currency, 32%. ICL units grew 33%. We continue to maintain our position as one of the few high-growth, publicly traded medical device companies with positive gap earnings while also increasing our investments in key areas to continue future growth. Star is also a company that generates strong operating cash flow. In fiscal 2022, we increased cash on our balance sheet by over $25 million through internal generated funds, ending the year with over $225 million of cash and investments. Fourth quarter sales results also increased. ICL unit growth was up 20% year over year, and ICL sales were up 21% in constant currency year over year. In the fourth quarter, year-over-year ICL sales growth was led by our APAC and North America regions, while EMEA sales were up slightly on a sequential basis. Year-over-year ICL unit growth by country in the fourth quarter was as follows. In China, units up 18%. Japan, units up 33%. India, units up 19%, and the U.S., units up 109%. I know top of mind for many of you is the state of the market in China and our progress in the U.S., so let's begin with China. During the fourth quarter, refractive procedures, including EVO, in China were impacted by COVID, first beginning with the change in consumer behavior that Star called out on the November 2nd, 2022 earnings call. Later, protests and the lifting of the country's COVID zero policy followed. Then a subsequent rise in COVID infections further impacted the level of refractive procedures in the fourth quarter. Against these operating backdrop, we are proud to deliver 18% ICL unit growth in China for the fourth quarter of 2022. Through the first seven weeks of the first quarter of 2023, we see encouraging signs of market stabilization, restoration, and resilience. Weekly sales results and in-market procedural volumes in China are in line with our expectations. So while we consider it premature to declare that the China market has fully normalized, we do have greater confidence today that the market in China will further normalize as we approach the peak summer implant season for ICL procedures. The strong EVO commitments from our larger customers in China, the largest refractive market in the world, and many of the 1,200-plus surgeons in China that implant our lenses bolsters our confidence at this time that we can meet our sales outlook for the full year, fiscal 2023. Turning to the U.S., ICL unit growth exceeded the outlook we previously provided, up 55% year-over-year in fiscal 2022 and up 109% year-over-year in the fourth quarter. We exited the fourth quarter with more than 600 surgeons certified to implant EVO lenses in the U.S. While we continue to train and certify surgeons in the U.S., our focus for 2023 is increasing surgeon comfort confidence, and commitment to Evo by surrounding our surgeon customers with sales, clinical, and marketing support as they work to add Evo to their practices and or transform their practices for a more lens-based refractive standard. From a marketing perspective, we're receiving positive feedback from U.S. surgeons that our marketing is raising Evo brand awareness and consumer desirability. The data also illustrates that our marketing is having a positive impact on sales. As an example, in our targeted cities during the fourth quarter of 2022, we achieved greater sales growth where we activated advertising compared to key cities where we did not advertise. During the fourth quarter when we launched the Joe Jonas advertising campaign, we saw sales growth almost double in targeted cities where we advertised as compared to key cities where we did not advertise. Activity on our doctor finder has also increased. Doctor finder visits in the U.S. were up approximately 600% year over year in the fourth quarter. We are also surrounding our U.S. surgeons with clinical and sales support to demonstrate the medical and economic promise of Evo no matter the surgical setting. As many of you already know, the predominant procedure in our industry, laser vision correction, has been experiencing challenges. At the same time, increased compression and reimbursement for cataract IOLs and other ophthalmic procedures has more and more doctors showing interest in EVO. The refractive surgery industry has been looking for the next big technology. We believe it is EVO. My meetings in recent weeks with surgeon customers confirmed the growth opportunity for EVO in the US. In one meeting, I met with an individual surgeon, increasing his commitment to EVO from 100 lenses per year to 500 plus. In another instance, I met with a laser vision correction chain that is increasing its commitment to EVO from 500 lenses to 2000 plus annual lenses in 2023. I am also encouraged by EVO's increasing presence in clinical papers, on podiums, and industry panels. Next week, as part of the American European Congress of Ophthalmic Surgeons, ACOS, and their Winter Symposium, STARS Chief Medical Officer, Dr. Scott Barnes, will participate in a panel with other key opinion leaders and speak to the benefits of EVO. The panel is titled, Life After LASIK. As I reflect on my first 50 days as CEO, I have been able to more closely assess Star's business, people, and overall strategy. Our international business is well established and will continue to show growth. We are now uber-focused on realizing the tremendous potential that the U.S. market represents. As a direct result of Star's prudent fiscal management over the last several years, We are now in a position of financial strength and stability. We plan to take full advantage of Star's financial strength to build the U.S. market, particularly given the refractive surgery market dynamics I described earlier. To accelerate consumer awareness, surge in confidence, and Evo adoption in the U.S., Star will move forward with even greater intent and purpose in 2023, This will include investments in additional sales, practice development, and clinical applications personnel, as well as doubling our spend on EVO digital marketing campaigns. It's time. It's lens-based refractive surgeries time, which means it's EVO's time.