STAAR Surgical Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAR Surgical First 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 the star followed by the one on your touchtone phone. If you are using speaker equipment today, please lift the handset before making your selection. This call is being recorded today, Wednesday, May 3rd, 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. Please go ahead.

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 first quarter, end at March 31, 2023. On the call today are Tom Frenze, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer. The press release of our first 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 statement 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. For brevity, all references to growth rates on today's call refer to year-over-year growth unless otherwise stated. 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 Frenzy, President and CEO of Star.

Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. The first quarter results we reported today illustrate continuing market share gains for our Evo ICL family of lenses, even as total refractive surgery procedure volumes are challenged or declining in many markets. Global ICL growth in the first quarter, up 20% for both sales and units. was broad-based across APAC, EMEA, and the United States. These strong results and the further momentum that we are experiencing globally confirm our confidence in the year. We are therefore raising our fiscal 2023 net sales outlook to approximately $348 million, which includes the approximate $3 million in other product sales we reported for Q1. Our raised outlook represents 28% ICL sales growth. For the first quarter, global ICL sales of $70.6 million were $3.6 million above the high end of our $65 million to $67 million outlook. Results were driven by a restorative quarter for ICL procedures in China, which commenced in mid-January and has continued unabated. ICL unit growth in China was 20% for the first quarter of 2023. China indeed is back, and as a result, ICL procedures in China are certainly back. To deliver the strong results in China, our team hosted surgeon training events, academic conferences, and advanced practice development and consumer marketing activities, often in partnership with our surgeon customers. One live stream surgery training was attended by over 1,800 doctors and clinical staff. Another young surgeon conference was attended by over 1,300 doctors and residents. And a conference in collaboration with a key university hospital account was attended by over 3,800 ophthalmic doctors and clinical staff. Consumer marketing in country was diversified across digital content channels and emphasize the sharp, clear, and high-quality vision provided by Evo ICL, as well as our custom toric lenses specifically developed for myopia with astigmatism. One marketing program with influencers received over 1 million views during the quarter. Two weeks ago, we hosted leadership from our largest customer in China, IRI Hospital, at our Lake Forest, California, headquarters. And during that meeting, IHR's leadership reinforced the importance of ICL to their overall growth strategy globally. As a region, overall, APAC delivered solid performance, up 19% in units and 20% in sales for the first quarter of 2023. In the United States, ICL units grew 78% for the first quarter, well ahead of industry volumes in the U.S., which the Refractive Surgery Council reported declined 9.1%. Sequentially, our U.S. sales in the first quarter were relatively flat. However, we are coming off a strong march and remain confident in our Q2 projections and the doubling of sales in the U.S. for the full year. During the first quarter, we executed on the planned infrastructure additions to our U.S. commercial organization which we believe are important to driving growth and better serving our customers. The number of account executives, clinical application specialists, and practice development personnel across our U.S. commercial organization has markedly increased and will continue to grow in targeted markets when appropriate. We expect our new team additions will become productive in the second half of 2023 and even more so beyond that. This month, we entered the eighth month of our direct-to-consumer-supported EVO launch in the U.S. Our DTC marketing efforts, which target potential patients primarily ages 21 to 35, are working to build awareness and the funnel of future ICL patients. In the first quarter of 2023, we saw a 402% increase in visits to our U.S. doctor finder. We anticipate that these visitors will begin their journey of discovery, learning more about Evo and the ICL procedure for their visual freedom selection. I would like to share with you an email from one of our customers, who is a surgeon CEO of a multi-centered chain of U.S. clinics. The email reads as follows, and I quote, I just wanted to let you and your team know that STARS marketing seems to be really paying off with Evo ICL. There's a lot more consumer awareness. For the surgeons and staff, it is less of a sell. It has become quite easy to convert patients to surgery. Our volume is still relatively low, but I think it is because we are still targeting the higher myos for ICO. But our surgeons and staff are getting more comfortable with EVO-ICL. We have reduced the number of appointments in patient anxiety by eliminating the need for laser peripheral iridotomy. This gives us comfort to reduce the level of myopia we are comfortable treating with ICL. Our plan is to make our website more EVO-ICL friendly. Thanks to STAR for having the foresight to do effective DTC marketing. Thanks to your whole STAR crew for being forward-thinking and putting patients and docs first." End of quote. Another doctor, a young surgeon based in California, has increased his ICL utilization 6X over the past year to approximately 12% of his practices procedure mix and tells me that he expects to move his minus eight diopter cutoff even lower. This surgeon told me he expects to see ICL gain significant market share in the coming year. The anecdotes I just shared are just two examples that we're building the market for EvoICL in the U.S. New and exciting influencer and customer co-marketing partnerships in the U.S. have or will soon be finalized. These investments are budgeted and consistent with the investments we talked with you about on our last call, which Patrick will also cover shortly. Overall, based on my decades of experience in ophthalmology, and my knowledge of our EVO-ICL launch status, I'm quite pleased with where we are at this point in time. I'm confident that awareness, adoption, and selection by surgeons and patients will continue to accelerate in the U.S. Turning to our EMEA region, ICL units were up 18% in the first quarter, with sales up 10%, which were impacted by currency headwinds. Five of the six major regions we track in EMEA had positive growth in the first quarter as compared to just two of six regions in the fourth quarter of 2022. We saw standout growth in European hybrid markets where we've made investments. As a reminder, Star invested in its first European hybrid market in 2020 in the Benelux and then Italy and France in 2021. These hybrid markets have consistently outperformed our pure European distributor markets. For example, in the first quarter of 2023, we saw year-over-year ICO unit growth in the Benelux up 34 percent, France up 20 percent, and Italy up 45 percent. The STAR team globally is focused on executing against the targeted priorities that are important for our growth and to our customers and shareholders. In March, we added two highly regarded ophthalmic leaders to our team, Warren Faust as Chief Operating Officer and Dr. Magna Michna as Chief Regulatory, Clinical, and Medical Affairs Officer. We look forward to the contributions we are confident each will make for STAR, our customers, and patients. The big picture growth drivers for our business remain highly favorable. The number of people with myopia continues to grow, which further increases our already large addressable market globally. Millions of contact lens wearers stop wearing contacts every year due to intolerance, discomfort, hassle, and the like. And many of these former contact lens wearers have the ability to pay for EVO-ICL. Second, we have an EVO procedure that offer surgeons favorable economics and profitability. And third, we have a great product that many patients have determined is a preferable solution, which they have chosen to break free from contacts and eyeglasses. In early April, we completed a customer survey with just over 900 responses from our surgeon customers globally. In response to the statement, I am satisfied with Star Surgical product quality and clinical outcomes. Ninety-nine percent of over 300 China Surgeon customer respondents agreed. In the U.S., 100 percent of approximately 100 U.S. Surgeon customers responding agreed with the statement, I am satisfied with Star Surgical product quality and clinical outcomes. is the real deal. When surgeons and patients are exposed to Evo, they overwhelmingly agree. Our focus is to make Evo the first choice for doctors and patients seeking visual freedom. We're confident we'll continue to drive faster and faster growth as awareness of Evo continues to rise. As I've said on many occasions, the time for Evo is now. Patrick?

Thank you, Tom, and good afternoon, everyone. Total net sales for Q1 2023 were $73.5 million, up 16%, as compared to the $63.2 million in net sales in Q1 2022, and up 15% on a sequential basis from Q4 2022, net sales of $64 million. The year-over-year increase in net sales is attributable to a 20% increase in ICL sales, partially offset by a 36% decrease in other product sales. ICL sales of $70.6 million represented 96% of total company net sales for the first quarter, as compared to 93% of total company net sales in the year-ago quarter. Other product sales were $2.9 million for the first quarter. We continue to expect other product sales will represent a smaller and smaller percentage of net sales as we move through fiscal 2023 and taper our support of the non-core Cataract IOL business. Gross profit for Q1 2023 was $57.6 million or 78.3% of net sales as compared to gross profit of $49.3 million or 77.9% of net sales for Q1 2022 and $49.8 million or 77.7% of net sales for Q4 2022. The 40 basis point increase in gross margin as compared to Q1 2022 is primarily due to geographic and product mix. partially offset by increased period costs associated with manufacturing projects. The 60 basis point sequential increase in gross margin from the fourth quarter is due to the higher ICL sales mix in Q1 2023 and geographic mix. For fiscal 2023, we continue to expect gross margin will be approximately 80% for the full year and each quarter. Moving down the income statement, total operating expenses for Q1 2023 were $54.8 million as compared to $37.2 million in Q1 2022 and $48.8 million for Q4 2022. Taking a closer look at operating expenses, total operating expenses for Q1 2023 were consistent with our plans, that we did have some expenses which we had anticipated to be sales and marketing that ended up being booked in G&A for Q1 and will continue moving forward. G&A expense for Q1 2023 was $18.1 million compared to $11.9 million for Q1 2022 and $14.8 million for Q4 2022. The year-over-year increase in G&A is due to increased compensation-related expenses, including a $1.5 million severance expense related to our IOL business in Japan, outside services, and increased facilities costs. The sequential increase from Q4 2022 was due to increased compensation-related expenses, severance expenses related to our ILL business, and increased outside services. For fiscal 2023, we now expect G&A expense will be approximately $19 million per quarter. The increase from our prior outlook primarily relates to higher stock-based compensation and additional executive hires. Selling and marketing expense was $26.4 million for Q1 2023 compared to $17.3 million for Q1 2022 and $24.2 million for Q4 2022. The increase in selling and marketing expense from the prior year was due to increased advertising and promotional expenses, compensation-related expenses, and trade shows and meetings. The sequential increase in selling and marketing expense was due to increased advertising and promotional expenses and compensation-related expenses. We continue to expect selling and marketing expense will be approximately $33 million for Q2 and each quarter for the balance of the year. Research and development expense was $10.3 million in Q1 2023 compared to $7.9 million for Q1 2022 and $9.8 million for Q4 2022. The year-over-year increase in R&D is due to increased compensation related expenses and the US EVO post-approval clinical trial expenses associated with the three-year study. The sequential increase in R&D is primarily due to increased compensation-related expenses. For fiscal 2023, we continue to expect R&D expense will be approximately $11 million for each quarter. Operating income in Q1 2023 was $2.8 million or 3.8% of net sales as compared to $12.1 million or 19.1% of net sales for Q1 2022. We anticipate other income will be approximately $1 million per quarter for the balance of the year. Due to the aforementioned growth investments and increase of stock-based compensation, we now anticipate operating margin for the fiscal year 2023 will be approximately 10% at the middle of the range of our five-year average. Star initially achieved positive annual operating margin and GAAP profitability in 2018, and we remain proud of our five-year track record of profitability and cash generation, which we expect to continue in 2023 and is rare for a high-growth medical device company. Net income in Q1 2023 was $2.7 million or $0.05 per diluted share compared to net income of $9.6 million or $0.18 per diluted share in Q1 2022. On a non-GAAP basis, adjusted net income for Q1 2023 was $8.7 million or $0.18 per diluted share compared to adjusted net income of $14.4 million or $0.29 per diluted share in Q1 2022. The table reconciling the GAAP information to the non-GAAP information is included in today's financial release. For fiscal 2023, we continue to expect our effective tax rate will be approximately 25% to 30%, subject to no significant change in our valuation allowance. Turning out our balance sheet, our cash, cash equivalents and investments available for sale as of March 31st, 2023, totaled $217.3 million as compared to $225.5 million at the end of the fourth quarter of 2022. The decrease in overall cash is due to the timing of annual compensation payouts that occurred in the first quarter. We continue to expect we will invest approximately $26 million in property and equipment. We also anticipate generating positive cash from operations for the balance of the year and ending fiscal 2023 with a higher cash balance than fiscal 2022. As Tom mentioned earlier, we today raised our net sales outlook from $340 million to approximately $348 million for fiscal 2023, including approximately $345 million of ICL sales and an approximate $30 million U.S. ICL sales contribution For Q2, we expect total ICL sales to be approximately $93 million, including sequential sales growth in China and a U.S. sales of approximately $5.5 million. We anticipate generating approximately 47% of our fiscal 2023 ICL sales outlook in the first half of the year and 53% in the second half of the year. Finally, this Friday, May 5th, STAR will host a surgeon lunch and panel during the American Society of Cataract and Refractive Surgery. ASCRS Conference in San Diego. Please reach out to Brian Moore in Investor Relations if you would like to attend. Star will also be participating in the Benchmark Company Virtual Healthcare Conference and Barclays Southern California Investor Bus Tour, both on May 23rd. The William Blair Annual Growth Conference in Chicago on June 6th and the Sidoti and Company Virtual Investor Conference on June 14th. This concludes our prepared remarks. Operator, we are now ready to take questions.

Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to withdraw your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Anthony Patrone from Mizuho Group. Anthony, your line is now open. Please go ahead.

Thank you, and congratulations here on a strong first quarter result. Maybe, Tom, I'll start with just the performance in China, obviously describing it as back to normalized levels. A couple of follow-ups here would be, one, as we look into the seasonal peak, the normal seasonal peak, which would be 2Q and 3Q, how does it play out this year versus prior years? Is there any backlog that's going to be also in that number, and then I'll have a follow-up for Patrick. Thanks.

No, Anthony, good to hear from you, and thank you for the question. China is indeed back, and we anticipate Q2 and Q3 being equally as strong. So as we enter into the high season, we're poised for a good run in China.

Excellent. And maybe just a quick one if I could sneak it in there. Can you provide maybe the data on where ICL is as a percent of total refractive in China and maybe the aspirational target? And then the quick one for Patrick would be just the sales and marketing expense ramp this year was actually a little bit lower than we expected in one queue. Just wondering how we should be thinking about it as the year progresses. Again, thanks and congratulations.

Sure, from a market share point of view again, I think it's a moving target as we look to kind of confirm the number of refractive procedures, but I think we're comfortable that we're around 20% and growing.

And then Anthony on my side, as per my prepared comments, we did have some expenses that we thought were going to be in sales and marketing when we gave the original guidance back in late February. We ended up booking those in. We also saw a slight increase in stock-based compensation. And so, as I said, we're at about $33 million a quarter in absolute dollars for sales and marketing, and that's what you'll see in Q2, Q3, and Q4. And so, I think if you guys go back and reference the prepared remarks, it should get the models very much in line.

All right. Thanks again. I'll hop in, too. Thanks.

Thank you. Our next question comes from Margaret from William Blair. Margaret, your line is now open. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. I wanted to start on guidance, if I could, and specifically on the U.S. side. So first, you know, can you confirm the Q1 number, you know, being maybe close to $4.5 million if it's flat sequentially? And then maybe you're up, it sounds like, maybe a million sequentially in Q2 to $5.5 million. I think he also referenced maybe doubling by the end of the year, which gets me to about 9 million. So I just wanted to walk through that and make sure that I'm thinking about that correctly. And if you could provide any drivers around that, that'd be useful. Thanks.

Yeah, sure. Thanks, Margaret, for the question. I'll let Patrick add his color as well. But your assumptions are correct in both what we think will happen in Q2 where Q1 was, and we remain confident that we'll double our business in the U.S. for the entire year 2023. We're encouraged by some of the metrics we look at, such as, you know, Doc Finder visits continue to go up in Q1. They were up over 400%. And we continue to see very good conversions on a day-to-day basis of doctors committing more and more of their total refractive procedures to EVO-ICL.

Okay. Great. I appreciate that. And so, you know, maybe going a little bit deeper, right, on the U.S. side, I really appreciate the additional examples you provided in terms of the few calls on accounts and going down on the diopter curve. You know, we've heard the same. But maybe, Tom, you could speak to kind of the most important or maybe even most successful practice development initiatives for the next few quarters And I guess, when do you expect them to have a more material impact on utilization, particularly in those borderline EVO accounts? Thanks.

Yeah, sure. Margaret, as you know, change takes time. And we're seeing that in the U.S. But we're confident as we have made the investment in practice development and adding headcount and quota carrying salespeople and clinical apps people, we're starting to see that bear fruit. And I can tell you, almost on a weekly basis, I get calls from end users that are really pleased with their outcomes. They're continuing to push the diopter trend down. They're continuing to see brand awareness, people coming in, asking for EVOs. So I think as we continue to monitor those, I remain very confident that, you know, we're Each month, we're cracking the code more and more, and, you know, we remain very optimistic and confident that the U.S.

is going to be where we want it to be. Okay, great. Thank you.

Thank you. Our next question comes from Ryan Zimmerman of BTIG. Ryan, your line is now open. Please go ahead.

Hi guys, this is Sam on for Ryan and thank you for taking my questions. This one's on the 2023 operating margin guidance. You brought down operating margin expectations to 10%, but have also previously commented that spend will ramp into 2024. And right now the street is sitting at around 17.8% operating margins in 2024. I know you're not going to guide to 2024, but what are your thoughts on that 2024 street consensus operating margin? Do you think it's too high or too low given the spend in the U.S.? And I have a follow-up, too. Thank you.

Sure. Yeah, we're not going to comment, as you said, on 2024. You know, we'll take a look as we continue to move through the quarter to see if we want to give some color as we move through this year and going into 2024. As I mentioned, the primary driver was a non-cash adjustment on the operating income, which was stock-based compensation. And so some of the other metrics that we look at internally, and I know a lot of the street does as well, is what are we doing with op cash flow, free cash flow, and certainly more of an adjusted EBITDA type number. And when I look at those, I'm very satisfied with where we're going. And we'll hold off on anything going into 2024 now, but You know, we want to make sure that we're investing appropriately and being able to grow the U.S. commercial specifically. But, you know, honestly, the 95 percent of the other revenue across the world where we still have very low market share.

Thank you. That's really helpful.

Ben, as we look ahead for the remainder of 2023 into 2024, how are you thinking about the impact of competition with the development of some domestic ICO companies in China? Thank you.

Yeah, Sam, thanks for the question. Again, we really don't see competitive forces impacting our ability to continue to grow in China. I think 2 million implants sold worldwide, the safety, the efficacy of our technology has been well established, and we see that continuing to move forward unabated.

And just to clarify, I heard you say domestic, so I want to make sure if you're talking China or the U.S., but we are a PMA device, and so if anyone is going to do something here in the U.S., there's a long road to go as well as high investment dollars on that, so to be clear.

Thank you.

Thank you. Our next question comes from Bill Plovenick from Canaccord. Bill, your line is now open. Please go ahead.

Hi, Tom, Patrick. It's John for Bill this evening. Thanks for taking our questions. I'll probably circle back to the U.S. where a lot of the focus is. It was a little bit lighter than the original guidance I put out last quarter. And just a little bit more color on what you saw in the quarter. I know you said you saw a strong March, but could you talk a little bit about that? Any productivity gains you're seeing and how many of the plan 10 reps you had mentioned in the last call were hired and just what do you expect for productivity out of those 10 hires? Thanks.

Yeah, no, I appreciate appreciate the call and and certainly we have filled, I think about 90% of those job openings that that we had posted and talked about in previous calls and we feel good about the quality of the people we've attracted. And I think, as we've said previously, It'll take a quarter or two for those people to be very productive. So we feel good about the second half of the year. I think March was a strong month. April, we continue to see conversions happening, which gives us confidence in where we think Q2 will be and the fact that we've reiterated that we believe we will double our business for the year in 2023. So... You know, again, in my years of being in this ophthalmic business, you know, when you're creating a market and growing a market, it takes time. And quite frankly, we're right where we need to be. When you think about it, even though we were approved a year ago, we're really only about six to seven months into our launch mode when we really started to gear up our direct-to-consumer spend in creating brand awareness, increasing our infrastructure. So when you look at it from that viewpoint or that context, I think we're right where we need to be. And I feel very confident as we keep growing month to month to month, we're right where we need to be. And we remain confident that the U.S. is growing at the rate it should be. Put that in further context, when you think about where we were in China back in 2016, We're growing at a rate in the U.S. greater than we were in China at a similar point in time. So, again, another reason for being confident.

Great. Thanks. And just maybe to go a little bit deeper into that strategy, can you talk a little bit about any context around KOL engagement, which I know is a new focus for you, Tom, and then also just the new account versus go or deep strategy and just how many surgeons today are trained? Thanks.

Surgeons trained today are approaching, I think, 650 to 700 in that range. But as I said, we're more focused on going deeper than wider. Obviously, demand's going to be there. We'll certify new surgeons as that demand comes in. But we're really trying to concentrate on ensuring the surgeons that are already certified to do EVO-ICL are surrounded with practice development support, clinical application support, and quota carrying sales support to ensure they really are reducing this into the fabric of their practice and moving towards being the first choice when it comes to patients seeking visual freedom. We're not there. That's our aspirational goal. But we think we have the people, the programs, and the process to get us there.

Thank you.

Thank you. Thank you. Our next question comes from Young Lee of Jefferies. Your line is now open. Please go ahead.

All right, great. Thanks for taking our questions. Maybe first one for Tom, just on the quote in the press release about evil increasingly becoming a patient's first choice. Where are you seeing that? You know, is there an inflection point in terms of patient awareness or surgeon experience?

Well, I mean, thank you for the question, but I would say the fact that we're growing, we're up 70 plus percent. you know, year over year suggests that more and more patients are walking in the door and more and more docs are starting to convert. As I said, our aspirational goal is to be the first choice. We're not there yet. You know, the inertia of LASIK is real. Laser vision correction has been around a while. And EVO is very early in its launch phase in this particular market in the U.S. But as previously stated, I think we're right where we need to be. And I remain confident as previously stated that we're right where we are. We need to be. We're growing. We have momentum and we really feel good about the US growth.

And I'll just add, we're about to go to here and we're going to be doing a surgeon panel there on Friday, which we talked about. And I think people are going to be excited to hear the takeaways from that. And you're going to start hearing a lot more doctors talk about exactly what you just asked, which is that they're thinking evo first when a patient walks in the door asking for a refractive surgery.

Okay, great. Yeah, looking forward to that. I'll be there. Maybe for the follow-up, for Patrick, I guess, you know, it's been a little bit more than a year since the U.S. approval. Um, you know, this high level, you know, how do you think the US launches going relative to your expectations? You know, what's going better than expected or what's been a little bit more challenging than expected.

Yeah, I think Tom hit the nail on the head right whenever you're trying to launch into a new market. You'll learn as you go along and I think what you heard in the prepared comments now. is a definite focus from tom on voice of the customer and listening to that and trying to figure out what are those things that we need to knock down in order to make evo the first choice and so and i'm very pleased with where we're at we're better today than we were yesterday and certainly a year ago and we're feeling really good of how we're starting off and uh excited about how the year will end up all right thank you thank you

Our next question comes from David Saxon of Needham. David, your line is now open. Please go ahead.

Yeah, thanks. Hi, Tom. Hi, Patrick. Congrats on the really strong quarter. Thanks for taking my questions. Maybe I'll start with one on the US. I mean, by my math, I think you're tracking right around 3% volume share. That's for the whole market. So one test, is that what you're seeing internally? And then since you're taking the approach of going deep versus wide, can you talk about the share ramp you see, you know, once you do get into an account?

You know, look, I would say that our, you know, the goal I put out for the team, let's put it that way, is I think we should, going into accounts, thinking we should earn our way to 50% of their total refractive procedure volume. Are we there today? No, absolutely not. Do we have practices that are approaching 20 to 25% of their refractive procedures are Evo ICO? Yes. And we're continuing to grow those types of practices. But as I said, you know, when you're creating a market, when you're changing the market, when you're moving the inertia of LASIK, it takes time. And I think that this Evo launch is going to be no different. But I'm not discouraged at all by anything we're seeing. Quite frankly, just the opposite I'm encouraged is I've had dinner meetings and phone calls with KOLs across the country. They're excited about what STAR is doing and how EVO is performing.

Okay, that's helpful.

Let me just make one final comment for you. As further testimony to that, our top 30 customers that we stay very close to are up 2x year over year. So again, we're seeing the kind of growth we want to see, and it keeps us feeling very bullish about the future.

Okay, that's super helpful. Thanks for that. And then in the script, I think you talked about in Europe, you're seeing hybrid markets grow faster than distributor markets. So I wanted to ask, you know, how big of a growth opportunity is that, you know, to get more of your distributor markets converted to hybrid markets? And then maybe I'll tack on another one for Europe. Maybe just talk about the Viva launch. I think that was launched in September. So, you know, how is that going? And then thoughts on, you know, the timeline for Viva getting into the U.S. And thanks so much.

You know, look, I think hybrid versus distributor, it's depending on the market and, you know, what we find. We're trying to be responsive to what moves the market the most. As we said in the prepared remarks, we're very pleased with what we've seen in Benelux, in France, in Italy. It doesn't mean that our distributor markets aren't performing, but we're very pleased with those three in particular, and that's where we've put some investment dollars to work, and it seems to be bearing fruit. I'm glad you mentioned EMEA because, again, I get that a lot of you were focused on the U.S., but quite frankly, we're a global company, and we're continuing to grow around the world. China, Asia-Pac in general had a great quarter. Europe had a great quarter. The U.S. is continuing to grow, and I think it speaks to the excitement of Evo around the world.

Great. Thank you. Thank you.

Thank you. Our next question comes from Steven Lichtman from Oppenheimer. Steven, your line is now open. Please go ahead.

Hi, guys. This is Ron on for Steve. I wanted to ask on China, continuing to see really great growth, how long do you guys think this high growth can continue? I mean, obviously, China is a very big part of Starz revenue.

how far do you guys think the refineries market over there is going to shift in your favor and do you have any targets and trends like that in other countries that would be similar thanks you know i i think the the the runway is is big in china uh you know we're well established there but but boy we have great opportunity for continued growth uh china is back as we said earlier uh all indications are um it's back to normal levels we're seeing very good in country Uh, demand, so the sky's the limit.

And I'll just add on that 1, I think 1 of the big things that we talked a little early is the, what the total addressable market sizes and we are now talking more along the lines of a 1.5Million to 1.6Million eyes. We just had our largest customer here. The higher hospital group is Tom talked about this prepared remarks. They supported that. In fact, we're starting to hear numbers that are even higher. They're approaching that 2 million. And we're obviously trying to vet some of that out. But we very much have a long runway, as Tom just said.

Okay. Thanks, guys. And one follow-up. Sorry if I missed this. On the diopter range, we know that our recommendations are changing, change between countries, and they keep getting updated and going down and down. Can you tell us what trends you're seeing generally across as you look at your markets with regard to ICL use in lower diopter ranges, and are you seeing ICL use growing in lower diopter ranges anywhere specifically? Maybe any trends in the U.S. that you could talk about?

You know, I don't know if it's appropriate to speak on trends, but what I will tell you is as surgeons gain confidence and more experience, in the use of EVO-ICL, they naturally began to start coming down that diopter curve. You know, our pivotal trial in the US was I think the average diopter treated was a minus seven. You heard in my prepared remarks, you know, some people have arbitrarily established a minus eight as kind of that cutoff period when they, you know, think LASIK versus lens-based refractive surgery. And we're seeing more and more minus threes, minus fours, minus fives being treated. So I think the trend is moving down, but I think it's predicated on gaining the experience, seeing the confidence of happy patients, happy staff, happy surgeon usually equates to coming down the diopter curve. Okay, thank you guys. Thank you.

Thank you. Our next question comes from George Sellers of Stevens Inc. George, your line is now open. Please go ahead.

Hey, guys. This is Harrison on for George. Good afternoon. Thanks for taking the question. My first was about as you see the U.S. surgeons ramp in utilization, I was wondering where specifically you see investment opportunities to drive that utilization higher and How does that investment compare to what was needed in China during the early days of that launch?

Yeah, I wasn't here in the early days of China, but I would tell you the investment that we've put forward relative to this year is appropriate. And we're confident in the return on that investment. So I think our monies are being well utilized at this stage of where we are in the U.S. versus when we started that process in 2016 in China.

Got it. Yeah, that makes sense. And then secondly, I was wondering, in order to convert the U.S. practices from a laser-based practice to a lens-based practice, what are some of your biggest hurdles and where have you found the most success? I know you've had a lot of success in the direct-to-consumer campaign reaching the million viewers, but anything on the surgeon awareness side we should be aware of?

You know, again, I really don't think it's a or situation. I think it's an end situation. I think EVO-ICL fits very well into a comprehensive refractive practice. It doesn't have to be is it LASIK or is it Evo ICL? And that's why we're trying to build brand awareness. So patients are coming in inquiring about it. We're spending time educating and training surgeons. So they're comfortable offering a range of modalities to meet the needs of a practice. Clearly, the fact that you can maintain the quality of the cornea, you're not severing corneal nerves, it's removable. you know, patients like that story and as practices see those kinds of outcomes manifest in their patients postoperatively, their confidence level goes up, particularly at the staff level. The staff level gets more and more comfortable. You know, the surgeon becomes even that much more comfortable. And you begin to see that inflection point. Are we there in the U.S. as we are around other markets globally? No. But are we approaching that? Yes. And I think Q2 will be stronger Q3, Q4, as we move into 24. Again, if you use our international experience, in particular China, it was about a two and a half year process, as I've stated. And we're about, in my mind, six, seven months into it. So we have about a two year run to really get to that inflection point. And I think we're right where we need to be and confident that we're going to be able to achieve that.

Great. Yeah, thank you. And congrats on the quarter.

I appreciate it. Thank you.

Thank you. Our next question comes from Tom Stefan from Stiefel. Tom, your line is now open. Please go ahead.

Great. Hey, guys. Thanks for the questions. Hopping in between calls, so apologies if some of these were asked. But I want to start in China. Tom, if you want to maybe elaborate a bit more on kind of trends to date and what you believe the slope of the recovery there year to date has looked like, I guess the past two to three months, maybe how did April look relative to March? And then as a follow-up to that, where do we stand in terms of the recapture of the procedures that had to be deferred in 4Q22 and early 1Q23. I guess if this is still ongoing, you know, when do we think we see that backlog benefit ultimately work down, if not already? And then I can follow up.

Yeah, thanks, Tom, for the questions. I would say that as it relates to the backlog, the fact that we saw some really record levels of in-market procedures in Q1 would suggest to me that If there was a backlog, it's being handled. You know, we had a very strong Q1 and as stated, you know, we remain very confident that Q2 and Q3 as we enter into the real high seasons in that particular market, we're very well positioned to have record quarters. So, you know, the growth has been very consistent We previously stated, you know, February is much stronger than January. March was much stronger than February. We're coming off of a really solid April. We think Q2 is going to be really strong. And then obviously the real high season kicks in July, August into early September. So we continue to feel good about where China is.

Yeah, and I'll just add, there's some sensitivity, right? And just want to make sure the question is, we understand it completely. Um, it is a challenge sometimes to figure out if, you know, if there was someone that put off the surgery back in the Q3 Q4 when there was the no covid policy. But as Tom said, it's we're off to very good starting Q1 record breaking quarters and we're off to a great starting Q2. And so. In our minds, you know, things are moving along there, and as we've said with China, it is just a very, very robust market, affirmed once again by what we said in the prepared comments of our biggest customer being here a couple weeks ago and reiterating their focus and their investment into continuing to build that market for ICL, EVO specifically.

Very helpful.

Makes sense. And then I want to shift to the U.S., and I'm sorry to harp on this, but And Tom, you've given, and Patrick, a lot of really good color. But the US came in a bit below for 1Q. And I think 2Q also looks light, at least versus our estimates. But you are encouragingly reiterating the full year 23 guidance. It does imply a pretty meaningful 2H inflection, basically doubling of sales and utilization. And I guess what I'm asking is, what gives you that confidence? Just given the start of the launch, maybe hasn't ramped really in that upward direction that maybe some people had hoped. And, you know, I know there's Doc Finder metrics and investments you're making, but it's still a pretty significant number implied for 2H, especially with the Doc's train number slowing down a bit. So, you know, what gives you confidence in that 2H inflection? And then I wanted to ask about 1Q in particular. Tom, you called out, I think, a strong March. But you got into the 5 million in late February. So I'm just curious where the disconnect is in terms of the slight miss on the on the one key guide. Thanks.

Sure. Again, appreciate the question. I think, you know, confidence comes from certainly my years of launching different technologies in ophthalmology and in knowing what it takes. And I think we're doing all of the right things in terms of where we've made investments how we're surrounding customers, and it's being well received. Our DTC spend is having an impact where we are spending dollars in targeted cities. We're seeing the kind of growth we want to see in those targeted cities. So it gives us confidence that we have the right people, we have the right programs, and we have the right processes in place that are going to bear fruit. Now, I would agree with you puts a big number on the back half of the year, but, you know, we, we think we're doing the right things to be able to to pull that off. And it's just going to take time. Right? I think the other part of your question was, I think, relative to. Q1 or Patrick.

Yeah, look, it's a, it's a fair comment Tom. And what I would tell you is. We were very pleased with where we ended March in clearly was a little shy of what we had told this treated approximately 5Million dollars. But I know that you've heard from me. You've heard from Tom. Brian as well that when you're launching a product like this, you know, a couple 100,000 dollars here there doesn't make or break us. Right? And we believe that we're continuing to do the right things. You are right about the ramp up in the 2nd half. But we're confident in what we saw, and clearly we've had internal discussions on this. And we came through and gave a number for Q2, which we hadn't given before. But it does imply a doubling in the second half, and we're sticking with the approximately 30 million for the full year.

Got it. Thanks for taking the questions. Appreciate it, Tom.

Thank you. Our next question comes from Jim from and companies. Jim, your line is now open. Please go ahead.

Hi, good afternoon. Thanks for taking the questions. You know, I know you said other products are being phased out, but you did have about $20 million of revenue in the quarter. Was that higher than you thought it would be?

Yeah, a little bit higher than we thought. I think as we started talking about exiting the business Clearly, customers wanted to buy more. And so, we thought this would spread out into Q2 and maybe even into Q3. But as a reminder, Jim, our guidance did not imply any other product IOL business. So, it's low margin. It doesn't add a lot to the bottom line. But yeah, definitely, you know, we'll take the revenue for sure.

Okay. And then, you know, if I look at the guidance updated today relative to where you were at the end of the year, the The only real change is on the G&A line, which looks like it's going to be up maybe $8 or $9 million from where you thought it was going to be when you last gave guidance. Is that all related to stock-based compensation?

Primarily, we did talk about the fact that we added a couple of executives. as well and some of the other infrastructure things. But, yeah, it's a high majority of it is stock-based compensation. And you did hit the nail on the head. It's a little bit of an increase in G&A. And I gave ourselves a little bit of wiggle room maybe in that number for the full year, but there's not a lot of modeling changes for sure.

Right. So other than, you know, the upside of revenue in this quarter and the change in G&A, it seems like your guidance is pretty much exactly the same as it was the last time you issued it.

I would say that we upped our guidance on the revenue side clearly, right? So, we're feeling good about that. But that, if you want to say that was the beat associated within Q1, then we can debate that. But you are correct. On the rest of the model, we kept margins, OpEx, everything else very steady.

Okay.

All right. Thank you. Thank you. Our next question comes from Bruce Jackson of Benchmark Company. Bruce, your line is now open. Please go ahead.

Hi, thanks for taking my question. I was hoping to get some clarification on the pacing of the sales guidance. Historically, second quarter is like super strong and then it trails off for the rest of the year. This year, do you think that the U.S. is going to contribute to the revenue growth rates up sequentially for the rest of the year? Can you give us a little help on the back half of the year for the sales guidance?

Yeah, so we talked about the second quarter all in being approximately 93Million with the US being 5 and a half. I think, as you model that out, at least when I was looking at some of the models, you're not going to see perhaps. the large or the outsized Q2 as compared to the other three quarters in the year. And some of that has to do with what we've been talking about quite a bit on the call now, which is the U.S. by math has to do about $20 million in the second half. And so that's what's sort of making up for what I would call a more even spread of revenue to hit that 348 between Q2 to Q4.

Okay, perfect. Thank you.

Thank you. At this time, we have no further questions, so I'll hand back the call to Tom Frenzy for any closing remarks.

Thank you, operator, and thank you for joining our call today. We look forward to speaking with many of you later this week at the ASCRS meeting in San Diego and our other upcoming events in the days and weeks ahead. Thank you.

Thank you all for joining today's call. You may now disconnect your lines.