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 listen-only mode. Following the presentation, the call will be open for questions. If you have a question, please press STAR followed by the number 1 on your touchtone phone. If you're using a speaker equipment today, please lift the handset before making your selection. This call is being recorded today, Wednesday, November 1st, 2023. This time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor Relations and Corporate Development for Star Surgical.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us. on the Star Circle conference call this afternoon to discuss the company's financial results for the third quarter ended September 29, 2023. On the call today are Tom Frenze, President and Chief Executive Officer, and Patrick Williams, 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 day 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 column 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 income for ICL, the corresponding adjusted earnings per share and sales in constant currency. We believe that these non-GAAP and adjusted numbers provide meaningful supplemental information and are helpful in assessing our historic 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. Finally, we intend to use our website as a means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the investor relations section. And accordingly, investors should monitor our investor website in addition to following our press releases, SEC filings, and public conference calls and webcasts. And with that, I would now like to turn the call over to Tom Frenze, President and CEO of STAR.

Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. For the third quarter, we achieved net sales of $80.3 million and ICL sales growth of 13%, which was consistent with the outlook we provided on our last earnings call, despite a declining market for refractive procedures. We're also reporting another quarter of positive earnings for STAR, which puts us on track in 2023 for our sixth straight year of double-digit ICL sales growth and GAAP earnings profitability. We're also on the path to deliver 15 to 20 percent compound annual growth over the next three years. The combination of high growth and profitability is a rarity for medtech companies our size. We continue to engage our surging customers and prospects, raise ICL consumer awareness, and make progress on the initiatives I spoke to you about on our last earnings call and in our recent investor day. As you will have seen in our earnings release, we now expect to come in at the low end of our previously provided fiscal 2023 outlook for ICL sales of $320 million to $325 million due to macroeconomic weakness in certain regions and potential disruption to our sales in the Middle East. The Middle East represents sales of approximately $2 million in the fourth quarter. Returning to our financial results, for the third quarter of 2023, ICL units globally were up 14%, and global ICL sales of 81.1 million were up 13% as reported, and 13% in constant currency. By region, APAC ICL sales were up 13%. EMEA ICL sales were up 14%, and in the Americas region, ICL sales were up 5%. India, which overtook China earlier this year as the world's most populous country, was a standout market for us in the third quarter. Currently, India represents less than 3% of our global ICL sales, but it is a market where we are making investments in both resources and distribution, and one which we believe represents an attractive opportunity for our future growth. In Europe, where the refractive market is down, our two largest markets, Spain and Germany, grew 9% and 8% respectively. Turning to the two largest refractive markets, in China, ICL sales grew 14% in the third quarter. We remain confident in our long-term growth prospects in China, bolstered by comments on our investor day from our largest customer's chief medical officer that EVO-ICL has a long runway for growth. Recent actions by the Chinese government, including additional stimulus, should support consumer demand as well. In the U.S., Refractive Surgery Council reports that industry procedure volumes declined 15% in the third quarter, continuing an eight-quarter negative trend. Our ICL sales in the U.S. grew ahead of the market, up 6% in the third quarter. EVO ICL was launched in the U.S. in the second quarter of 2022. On an apples-to-apples basis, U.S. EVO ICL sales growth totaled 13% for Q2 and Q3 2023, compared to a 15% decline in refracted industry procedures for that same period. Year-to-date, industry procedures are down 13%. All told, we are achieving solid growth, despite a less certain economic and geopolitical environment. The pace of our growth is well ahead of the industry due to our market-building initiatives, including elevating ICL awareness, and we are taking share as a result of our best-in-class lens-based technology and its benefits, including removability, no dry eye syndrome, and excellent night vision that ICL surgeons and their patients tell us they greatly value. I talked to you on our last earnings call about my current state assessment of our business and the actions we have been taking to accelerate EVO adoption. We shared more details in September at our investor day, and today I am pleased to report additional progress. First, with respect to making our company even easier to do business with, we are in the final stages of developing the EVO standard, which is a comprehensive set of enhanced training, education, and practice development tools and processes that we will use to support our surgeon customers and their staff. We are also supporting several investigator-initiated studies designed to increase surgeon comfort and confidence in measurement and lens size selection. The first study is nearing completion, and we anticipate the study will be published in a peer-reviewed journal in the first quarter of 2024. Second, we are introducing and advancing new and novel products. We received 510 clearance from FDA in late September for the AccuJet Refra single-use injector for our EVO family of lenses in the US. The new customized user-loaded injector for EVO is designed to increase ease of use and efficiency. We are introducing this delivery device to a subset of surging customers through the end of the year and anticipate making it more broadly available in the U.S. and other markets beginning in 2024. Turning to our extended depth of focus lens, EvoViva, for the early presbyopia with myopia ages 45 to 55. We are expanding the rollout of the product following the annual meeting of the European Society of Cataract and Refractive Surgeons in September. We have identified protocols to assist with surgeon and patient satisfaction, and we are supporting our VIVA surgeons to help set proper patient selection, expectations, and outcomes. Third, we are leveraging new analytic tools implemented in 2023. In conjunction with our new organizational structure and leadership in the U.S., we have segmented our U.S. customers and identified one group we are calling U.S. Highway 93. U.S. Highway 93 is a group of 93 U.S. practices, approximately 20% of our total practices and 50% of our U.S. sales that have favorable parameters for EVO adoption and where we will focus our efforts on driving growth through tailored programs. One early example of our success is a new alliance agreement with a multi-center practice in the Southeast. We signed the agreement in September and the customer is moving quickly down the diopter curve with utilization of lower diopter lenses between minus three diopters and minus six diopters up 300% compared to his prior year-to-date utilization and also compared to all customers in the U.S. The alliance agreement offers attractive pricing and support to the customer while maintaining solid gross margins for STAR. U.S. Highway 93 is consistent with our stated goal of going deeper with our existing customer base. Alliance agreements with other U.S. Highway 93 customers are in process. And finally, we launched a patient call center partnership linked to our doctor finder in two cities in October. The call center is intended for surgeon referral and EVO patient education. Today, we expanded our call center to several additional cities, including Los Angeles, Chicago, and Boston. While still in the early stages, we have a lot of enthusiasm around our ability to answer patient questions and create a closed-loop process for our Doc Finder website aimed at increasing the return on our sales and marketing investments. Patrick?