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?