STAAR Surgical Company

Greetings and welcome to the STAR Surgical first quarter 2025 learnings call and webcast. As a reminder, this event is being recorded today, Wednesday, May 7th, 2025. During today's presentation, all parties will be in a listen-only mode. If you need any assistance during this time, please press star and zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. I would now like to introduce your host, Brian Moore, Vice President of Investor Relations with Star Surgical. Please go ahead.

Thanks, Operator. Good afternoon, and thank you for joining us. On the call today are Steve Farrell, CEO of Warren Faust, President and COO, and Deborah Andrews, Interim CFO. Earlier today, we reported our first quarter results via press release and Form 8K. We've posted our earnings release and presentation to our investor website at investors.star.com. Today's call is scheduled for one hour and will include Q&A for publishing analysts. Webcast participants can also send questions for today's Q&A session to ir.com. Before we get started, I want to remind you that during today's discussion, we will be making forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. I encourage you to read the disclaimers in today's release, the presentation, as well as disclosures in our filing with the SEC. Except as required by law, SAR assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes. In addition, during today's discussion, we will reference certain non-GAAP financial measures, including adjusted EBITDA and constant currency sales. Please refer to today's release and the presentation for definitions and reconciliations of non-GAAP metrics. For brevity, unless otherwise specified, all comparisons on today's call will be on a year-over-year basis versus the relevant period. Finally, a quick reminder, 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 Accordingly, investors should monitor our investor website in addition to following our press release, SEC filings, and public conference calls and webcasts. And with that, I would now like to turn the presentation over to CEO Steve Farrell. Steve?

Steve Farrell Good afternoon, everyone, and thank you for joining us today. I'm excited to speak with you as STAR's new CEO. While I've been a member of the company's board, I'm honored to now lead the management team at this critical time for STAR. The building blocks for the company's success are in place, and I'm eager to work with our stakeholders around the world as we continue to deliver upon our vision to be the first choice for surgeons and patients seeking visual freedom. As we said in today's earnings release, we have to do better, and we will. My commitment to you is for transparency, the good and the bad, as we return this great company to sustainable growth that reflects our brand's earnings power and strength. Like other companies, we find ourselves in interesting times. but the structural drivers for lens-based vision correction and the adoption of our proprietary EVO-ICL technology remain intact. Globally, the prevalence of myopia continues to grow, and patient preference for reversible, proven, high-quality solutions is increasing. With rising wealth in emerging markets and the growing middle class demand for premium procedures, we believe we are well positioned to continue to take share. While we have made excellent progress in my first 70 days as CEO, we have work to do to return to the level of financial performance that our shareholders expect and deserve and that we are capable of achieving. To that end, we have spent the past few months addressing the short-term tactical issues like channel inventory, cost discipline, and tariffs so that we can soon turn our complete focus to more strategic growth-oriented activities. Let me give you a few highlights of our accomplishments. One, we streamlined the management structure to be more effective and more efficient. This includes promoting Warren Faust to president overseeing our day-to-day operations. Warren, who has joined me on the call, is a proven industry executive and a problem solver who shares my enthusiasm for disrupting the market. Our new management structure also includes bringing back Deborah Andrews as interim chief financial officer. Deborah was previously CFO of Star, and she built trust with investors through transparency. Deborah was the architect of cost optimization and financial initiatives that resulted in a period of high cash flow generation. We also elevated Magda Mishina to the newly created role of Chief Development Officer. Magda is leading our renewed efforts to diversify our product portfolio and improve the pipeline, and has already brought discipline to our R&D efforts. Collectively, with the entire management team, we are committed to winning in the marketplace and to driving shareholder value. Two, we are working with our distributors in China to manage through their inventory levels so that our Q3 revenue more closely aligns to in-market procedure volume. Better days are ahead as the macroeconomic headwinds appear to be diminishing in China, and we expect a good second half of the year. Three, to mitigate the potential impact of tariffs, we negotiated consignment agreements and shipped consigned inventory to our distributors in China. That is inventory that we own, that's on our books, and it's held by our distributors. We believe that this mitigates most of the China tariff issue through at least the beginning of 2026. I want to thank the team for acting so quickly and decisively to meet this tariff challenge head on. Four, we have identified a series of actions to meaningfully reduce costs, including reduction of underutilized facilities and fixed assets, marketing savings, and personnel reductions. We believe these actions will position us to exit 2025 with an SG&A run rate of approximately $225 million. Our approach to cost optimization is designed to reinforce, not restrict, our top-line growth ambitions. And we will spend and invest every dollar like it is our own. This streamlining, which mostly focused on inefficiencies in our U.S. operations and prepares us for future strong cash flow generation after our revenue rebounds in Q3. Five, we are devoting corporate resources to drive growth initiatives in our global operations, including Asia Pacific, which is our largest market. To that end, I want to thank Wei Zhang, who is a board member, for stepping in as interim chief of APAC Strategy. Let me take a minute to elaborate on what we're seeing in terms of ICL demand in China. In-market demand in China is getting stronger, and I believe that should be a key takeaway from today's call. In the first quarter of 2025, we saw an improvement in ICL procedures, that is, sell-through to hospitals by our two distributors following a week back half of 2024. First quarter reported China sales this year were just $389,000 as our two distributors consumed their existing inventory instead of ordering from us. This $389,000 compares to first quarter China reported sales in the year-ago quarter of $38.5 million. Despite the dramatic reduction year-over-year in our reported revenue, we are bullish because we believe in-market ICL procedures in the first quarter of 2025 were similar to or perhaps even better than the first quarter of 2024. We are on track to resume more normalized reported sales for China beginning in Q3 as planned. We expect to recognize in Q3 the 27.5 million of sales associated with the Q4 2024 order by one of our distributors in China. As previously reported, we did not recognize revenue on this order upon shipment, but will recognize revenue upon payment. During our Q4 earnings call, we indicated that we thought having these ICLs in-country in China could help address challenges and delays associated with importation and logistics and could mitigate potential impacts from geopolitical risk and tariffs. I think we are fortunate and perhaps a bit lucky to have this inventory in-country given the current tariff environment. I am proud of what the team has accomplished in a short period of time. I will now turn it over to Warren to share additional commentary on our China tariff response and an update on the launch of our EVO Plus lens in China. Warren?