STAAR Surgical Company

Ladies and gentlemen, thank you for standing by. Welcome to the STAR surgical second quarter financial results conference call. During today's presentation, all parties will be in a lesson-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 touch-tone phone. If you're using speaker equipment today, please lift the handset before making your selection. This call is being recorded today, Wednesday, August 2nd, 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, 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 second quarter ended June 30, 2023. On the call today are Tom Frenze, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer. The press release of our second 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 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 adjusted net income for ICL, the corresponding adjusted earnings per share, and sales in constant currency. During the quarter, the company also recorded various accounting adjustments related to its other products cataract IOL business. Please refer to the non-GAAP financial measures tables to adjusted net sales, adjusted cost of sales, adjusted gross profit margin, adjusted operating expenses, and adjusted income tax provision. We believe that these non-GAAP and adjusted 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 like to now turn the call over to Tom Frenze, President and CEO of STAR.

Thank you, Brian, and good afternoon, everyone, and thank you for joining us on today's call. I am pleased to report STAR achieved record sales and profitable growth for the second quarter of 2023. Results were driven by our Evo family of proprietary implantable columnar lenses, ICLs, which are designed to correct refractive error for people seeking visual freedom from the hassles of contacts and eyeglasses. For the second quarter of 2023, total ICL sales of 93.1 million were in line with the outlook of approximately 93 million that we provided on our last earnings call in May. Globally, ICL sales growth in the second quarter was up 19% as reported and up 20% in constant currency. Global ICL unit growth was up 21% with results in the second quarter driven by strength in APAC, the largest region for refractive procedures. APAC was up 29% in units and 26% in sales for the second quarter of 2023. In China specifically, ICL units were up 35% and sales up 33% for the second quarter of 2023. And we are encouraged by a strong start to the peak implant season for ICLs in that market. For the second quarter, sales in our EMEA region declined 9%, impacted by the ongoing macroeconomic and geopolitical environment, as well as an inability to ship ICLs into one non-European country as a result of a country-specific product labeling change. However, looking at European markets only, ICL units were up 6% and sales up 2% for the second quarter of 2023. Turning attention to the United States, ICL sales grew 10% for the second quarter, well ahead of US refractive industry procedure volumes, which the Refractive Surgery Council recently reported declined approximately 15% in the quarter. Sequentially, our U.S. sales in the second quarter were relatively flat. Lower than expected results in the U.S., the macroeconomic impact in Europe and certain other attractive markets merits additional conservatism as we look to the second half of 2023. We have therefore today updated our fiscal 2023 ICL sales outlook to a range of approximately 320 million to 325 million. At the midpoint, our new outlook represents a high level of sales growth at approximately 20%. Since becoming CEO in January, I've now had the opportunity to make a more complete assessment of the business in the US and around the world. We have implemented a high performance management system that helps us get closer to our customers and other stakeholders and identify top priorities for accelerating EVO adoption. We have created cross-functional teams for each top priority who are accountable for achieving the desired results. Among the priorities and actions we have taken to accelerate adoption in the U.S. and globally are the following. Number one, we've enhanced our leadership in April, appointing two seasoned executives warren faust is chief operating officer and magna mitchina is chief clinical regulatory and medical affairs officer number two we're taking actions to make our company even easier to do business with the projects related to this top priority are focused on increasing surgeon confidence in measurement and lens size selection simplifying our ordering process delivering our lenses to customers faster and longer term making the Evo ICL even easier to deliver to the eye. Number three, we have developed and are implementing new analytic tools, which is allowing us to better target high-volume customers with favorable economics. For example, we have mapped the over 430 practices representing our 600-plus surging customers in the U.S., and as a result, we are implementing tailored programs that effectively leverage the knowledge we have gained from these tools. Number four, we will pilot a patient call center education and surgeon referral program aimed at better answering patient questions and shepherding patients to the most appropriate Evo customers. We believe the call center will create a closed loop for our patient doc finder, allowing us to better support and track the patient journey and thereby better monitor the effectiveness of our investment in the U.S. in consumer awareness and other activities. We anticipate the actions and projects I just outlined, among others, will accelerate EVO adoption in the U.S. as we exit 2023 and beyond. Our vital few priorities and our learnings in the U.S. will also have positive implications for our markets globally. So while I previously stated that laser vision correction is well established, I remain confident in EVO's ability to be successful in the U.S. and beyond. And my confidence is buoyed as I spend time in the field with key opinion leaders discussing the impact that EVO is and can have on their practices. The investment rationale for STAR remains compelling. We have a fantastic technology without peer. If you define good medicine as I do, excellent patient outcomes, high patient and surgeon satisfaction, and favorable economics, Evo is indeed good medicine. Star is the dominant player globally in lens-based refractive vision correction for 21 to 60-year-olds who are facing an increasing epidemic of myopia. Next, we expect to remain a high-growth company based on our strength in APAC. the largest region for refractive procedures in the world. Additional growth will come as we deliver similar results in the US, the second largest market for refractive procedures in the world, and Europe emerges from the current macro and geopolitical headwinds. And finally, we are profitable, we generate cash, and we have a rock-solid balance sheet. For those of you that would like to learn more, we will host an investor and analyst meeting in New York next month on September 14th, where we will outline in more detail initiatives, projects, including some next-generation product pipeline initiatives, and the significant growth opportunities ahead for STAR. We also expect to have several EVO surgeons from around the world who will speak to their experience. Patrick?