STAAR Surgical Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Star Surgical fourth quarter and fiscal year 2023 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 key followed by the one on your touch-tone phone. If you are using speaker equipment today, please lift the handset before making your selection. This call is being recorded today, Monday, February 26, 2024. At this time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Industrial Relations and Corporate Development for Star Surgical. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Thank you for joining us on the Star Surgical conference call to discuss the company's financial results. For the fourth quarter and fiscal year ended December 29, 2023. On the call today are Tom Frenzy, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer. The press release of our fourth quarter and full year results was issued just after 4 p.m. Eastern time. We have posted the earnings release in the investor relations section of STAR's website at www.star.com. Before we begin, let me quickly remind you that the company comments during this call will include 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 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 expressed or implied by the forward-looking statements. The risk and uncertainties associated with these forward-looking statements are described in the safe harbor statement in today's press release, as well as SAR's public periodic with the SEC. Except as required by law, SAR 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, on this call and in the press release, we discussed certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA per share. We also provide sales data in constant currency. Definition and reconciliations to GAAP are included in today's press release. For brevity, unless otherwise specified, all comparisons on today's call will be on a year-over-year basis versus the relevant periods. Following our prepared remarks, we will open the line to questions from publishing analysts. We ask analysts to 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 non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the investor relations section. 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 Frenzy. Tom?

Thanks, Brian. Good afternoon, and thank you, everyone, for joining us. I join you today from the American European Congress of Ophthalmic Surgeons Symposium, where I am pleased to share that STAR has an increased podium presence, and there continues to be significant interest in our lens-based technology With that as a backdrop, I am pleased to report that we delivered strong net sales, cash generation, and profitability in 2023. For the third consecutive year, global ICL unit growth exceeded refractive industry growth by over 25 points. SAR's business model is rare to find. We are growing profitably with high gross margins, and we have the ability to continue to drive higher operating margins. And with a record $232 million of cash in investments as of year end, we have a pristine balance sheet and significant flexibility. The number of patients with myopia, which our technology treats, continues to grow and is expected to reach 5 billion by 2050. Our strong financial position allows us to execute against this opportunity through the business cycle. Turning to our results. The net sales we reported today are consistent with the preliminary results we projected in early January. We achieved 22% ICL growth in the fourth quarter and 18% ICL sales growth in fiscal 2023. Our APAC and EMEA regions up 26% and 18%, respectively, drove ICL sales growth in the quarter. EMEA up 9% sequentially in the fourth quarter generated solid growth, demonstrating the geographic breadth and diversification of Star's business. Star's geographic diversity provides a strong underpinning for refractive procedure growth, and it expands the target market for EVO procedures. By country, standout ICL sales growth in the fourth quarter included China up 30%, Japan up 16%, South Korea up 39%, Germany up 21%, and our other APAC region, which includes emerging markets such as Singapore, Thailand, and Vietnam, was up 21%. We anticipate that APAC, including China and India, will remain a region of remarkable growth for Star as the ICL continues to take market share and expand the overall addressable market. The region has some of the highest GDP growth among large economies, with many markets seeing increases in incomes and population. China, for example, has 12 cities with populations larger than New York City. To continue spurring our development in this market, we are investing in people and infrastructure to realize the growing opportunity. We have added a second large distributor with broad reach, including Tier 3 and 4 cities. We have also extended our relationship with our longtime reliable distributor, Shanghai Langshan. Our expanded hybrid infrastructure in China, with over 80 in-country star employees responsible for demand generation, will allow for improved customer service, including more real-time and next-day availability of our lenses. I look forward to traveling to Okinawa, Japan for our APAC Expert Summit next month before proceeding to mainland China to support our local operations as well as host investor meetings in Shanghai and Shenzhen. Turning to the U.S., our sales for the fourth quarter were approximately 4.2 million, flat sequentially and consistent with our previously provided expectations for the period. The U.S. is the second largest market in the world for refractive procedures, remains an important growth opportunity for STAR. our U.S. Highway 93 go-to-market initiative is beginning to show progress, as demonstrated by the strategic agreement we announced last month with Sharp Vision. The initial target purchase amount under that agreement of 1,000 ICL units annually represents approximately 25% of the group's refractive procedure volume. Given the outstanding outcomes Sharp Vision has experienced with the EVO ICL, They want to make it available to more of their patients, and they are pricing the procedure at a small premium relative to laser vision procedures. Star and Sharp Vision see this as a great win-win opportunity, and we believe it is a model we can continue to leverage as we drive growth in the U.S. We anticipate several more customers will join the fast lane of our Highway 93 initiative with large volume commitments in 2024. placing us on a path, along with other initiatives, to achieve meaningful sequential growth in the U.S. in the second half of this year. Further, we believe we can successfully deploy aspects of our U.S. Highway 93 initiative in other regions to drive growth. Using Highway 93 as a model, we are in the process of launching similar initiatives in key European markets. Now, I would like to turn to the projects and investments we are making to drive growth in global ICL market share. The first of our initiatives is increasing surgeon confidence in measurement of the eye and lens selection. We anticipate publication of two peer-reviewed clinical papers relating to preoperative measurement of the eye around the ASCRS conference in April. The papers should help our surgeons utilize the ICL nomogram for their specific biometer, which is a measuring device. We're also exploring technical solutions such as AI-based lens size selection tools currently used successfully by some surgeons. Our diligence phase includes the funding of a study already underway. Additionally, we're preparing to introduce intermediate lens sizes as requested by surgeons in China to further increase their confidence and willingness to select Evo as their solution of choice for patients seeking visual freedom, from eyeglasses and contacts. Finally, we recently established a Department of Global Professional Education and Training under our chief medical officer, which brings together strategic and professional education, clinical training, and commercial training under a single leadership point. The department will more closely align training, education, and commercial activities globally to enhance knowledge, and understanding of our ICL technology and its benefits to patients and practices. Our second initiative to drive growth is increased focus on further expanding our market opportunity by moving down the dioptric curve to lower levels of vision correction. Initially, by becoming the first choice in minus six diopters to minus eight diopters globally. The mix of lenses we sell less than or equal to minus eight diopters today is approximately 32% of our ICL sales. As many of you know, Evo ICL is already the preferred choice for higher diopter levels of correction above minus eight diopters. Our strategy to move down a diopter curve includes focused and coordinated downstream marketing for our physician customers that advances Evo's customer value proposition, support it by easily understood clinical evidence, a master brand message, and other proof points. Third, we will innovate with new products and solutions. We recently launched the new surgeon-loaded injector in the U.S., which is easier to load and should result in better efficiency. We will launch our new Stella ICL ordering and planning system in the first half of 2024, which is also designed to enhance efficiency. In early 2025, we anticipate that EVO Plus, already available in nearly all of our other large markets, will be available in China. Work is also underway on the next generation of EVO lenses to extend our leadership in lens-based refractive vision correction. The initiatives and developments just discussed give us increased confidence, and today we affirm our net sales outlook for fiscal year 2024 of $335 million to $340 million. And we continue to believe the path towards our Vision 2026 three-year CAGR of 15% to 20% remains intact. Patrick?