STAAR Surgical Company

Greetings and welcome to the STAR Surgical 4th Quarter and Fiscal 2024 Earnings Webcast. As a reminder, this event is being recorded today, Tuesday, February 11, 2025. 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 1 on your touchtone phone. If you are using speaker equipment today, please lift the handset before making your selection. I would now like to introduce your host, Brian Moore, Vice President of Investor Relations with Star Surgical.

Thank you, moderator. Good afternoon, everyone, and thank you for joining us to discuss the company's financial results for the fourth quarter and fiscal year at December 27, 2024. Today's speakers are Tom Frenzy, Chair of the Board and CEO, and Patrick Williams, Chief Financial Officer. The press release of our fourth quarter and fiscal year results was issued just after 4 p.m. Eastern time. We have posted copies of today's earnings release and earnings presentation to the investor relations section of STAR's website at investors.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 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 expressed or implied by such 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 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, 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. Definitions 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 period. Following our prepared remarks, we will open the webcast to questions from publishing analysts. Publishing analysts, please ask your initial two questions when your line is unmuted, 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 and investor relations section. Accordingly, investors should monitor our investor website in addition to following our press releases, SEC filings, and public conference calls and webcast. And with that, I would now turn the presentation over to Tom Frenzy. Tom?

Thank you, Brian, and good afternoon, everyone. Before I get started, I wanted to thank everyone for joining today's webcast on short notice. We originally scheduled our fourth quarter and fiscal 2024 results for February 19th. But as we work through the quarter in year-end closed process, and we learn more about the impact of the China economic slowdown on our results, for 2024 and outlook for 2025, we felt it was important to communicate our findings with investors sooner rather than later. We are still working to complete the year-end audit and expect to file our Form 10-K on or before February 25th, but we did not want to wait to share our results, outlook, and perspectives with you all. I'll begin with an overview of our performance and progress against our growth initiatives. before turning the call to Patrick to discuss our financial performance and provide additional outlook details. I will then make some brief final comments before we open the line to your questions. For fiscal 2024, we reported net sales of approximately $314 million, which were negatively impacted by weak China macroeconomic conditions that were particularly acute in the fourth quarter. Our continued market share gains in 2024 are overshadowed by our heavy exposure to China, where consumer sentiment and spending remain at unprecedented low levels. Despite these headwinds, Star generated $152 million of ICL sales outside of China, which is growth of 17 percent and 13 percent in the fourth quarter and fiscal 2024, respectively. Star's double-digit growth outside of China reflects solid returns on our investments and execution against the vital few strategic priorities and growth levers within our control. This growth would not have been possible without the continued contributions from our global team. And I want to thank all of our star colleagues for their tireless work to drive EVO ICL sales position as the choice for refractive vision correction at minus six diopters and above. It's been a well-documented and difficult macroeconomic environment for companies who do business in China including for Star. We saw a significant decline in our sales in China for the fourth quarter and full year fiscal 2024. In the fourth quarter, ICL sales in China were 7.5 million, and for the full year, $161 million, down 13% year over year. As stated in today's press release, this was driven by a $27.5 million order that we shipped into China in December for which we ended up extending payment terms and, as a result, did not recognize that revenue. This was one order with one distributor. However, it had a significant impact on our results in fiscal 2024, and we expect to recognize this revenue in 2025. Patrick will be providing additional accounting details in his remarks. It is clear that weak consumer confidence in China is negatively impacting demand for our ICLs. As a reminder, our products are a cash-paid discretionary and premium purchase, so consumer confidence is an important data point for us. As shown on slide seven, China consumer confidence remains weak, and retail sales data have been very mixed. Retail sales in the major cities of Beijing and Shanghai were down over the summer, but then there was an uptick in October, presumably driven by golden week and government stimulus. It is because of this that on our October 30th Q3 24 earnings call, we shared our belief that refractive procedures in China had indeed hit a trough and were rebounding. While we and our distributors were encouraged by the rebound, this sales uptick was not sustained as retail sales in major cities turned negative in November and December. Given our distributor model in China, we sell into our distributors in bulk shipments in advance of anticipated procedural demands. Our distributors, in turn, sell through to their hospital customers based on scheduled surgeries. As a proxy for procedural volumes, we track sell-through data, which is estimated based on the movement of product between the distributor and the end-user hospital. To provide some context for the significant variability in our sell-through in 2024, it is helpful to understand how volumes trended. In January 2024, sell-through was up, followed by declines in February and March. Then we saw a spike in April and then sell-through moderated again through August. September saw a steep decline, but then we saw the rebound in October around golden week. Following the short-lived recovery in October, we saw some ups and downs in November and things worsened in December. We believe this volatility in procedural volumes will continue until consumer confidence stabilizes and ultimately improves in China. We expect our sell-through to remain highly correlated to macroeconomic conditions there. Although we cannot predict or control when China consumer confidence and economic conditions will improve, data shows that the China consumer has been saving money with significant increases in household savings over the past several years. As we have stated before, when consumer confidence improves, we have seen rapid improvement in our China sales. For example, we saw a 50 percent plus monthly increase in sell-through in China in the first quarter of 2023 following the China COVID-19 lockdown as the economy reopened. We and our distributors continue to believe the current weakness in China is transitory and the overall refractive market will rebound. As we continue to closely monitor the challenging demand environment in China, We are pleased with our performance across our other regions. Excluding China, ICL sales were up a resilient 17% in the fourth quarter and 13% for the full year. In the Americas, we generated ICL sales growth of 22% in the fourth quarter and 15% for the fiscal year. Our quarterly performance included U.S. sales growth of 22% and unit growth of 21%. We delivered this growth as overall laser vision correction procedures in the U.S. declined 20 percent in the fourth quarter and declined 18 percent for the full year 2024, according to third-party data. We continue to outpace the U.S. refractive market by a large margin as we refine and execute against our Highway 93 and fast lane commercial strategies in the United States. I am particularly pleased with the progress of our Fast Lane initiative as these customers generated sales growth of 45% in fiscal 2024 compared to 2023. These results reflect the significant value that our EVO-ICL solutions provide to both patients and providers and show that our commercial strategies in the U.S., including increased professional education, practice development, and clinical application support, are working. In EMEA, we generated ICL sales growth of 9% in the fourth quarter and 10% for fiscal 2024, driven primarily by strength in our European distributor markets, Spain, and the Middle East. We are pleased with the performance in this important region, which has delivered growth in the face of a dynamic geopolitical backdrop and elevated inflation levels. In APAC, excluding China, we generated ICL sales growth of 20% in the fourth quarter and 14 percent for fiscal 2024. Japan and South Korea contributed to our strong performance, with South Korea boosted by the first ICL-only clinic, which implanted well over 2,000 lenses in 2024, its first year. In India, we generated 21 percent ICL sales growth for fiscal 2024. We continue to invest in this large market with a focus on regions with rising income levels. Star's total business is geographically diverse, with sales in over 75 countries, yet remains heavily indexed to China. Therefore, it'll be difficult for the total company revenue to grow at historic rates until China rebounds. Turning to our outlook for fiscal 2025, we anticipate ICL sales excluding China of $165 million to $175 million, which represents a growth range of 9% at the low end and 15% at the high end. We expect China ICL sales in the range of $75 million to $125 million, which we acknowledge is a large range. I will now turn the call over to Patrick to discuss this in more detail with our outlook assumptions and financial results. Patrick?