STAAR Surgical : Fourth Quarter 2023 Transcript

Item 7.01 Regulation FD Disclosure.

On February 26, 2024, STAAR Surgical Company (the "Company") held a conference call to discuss its financial results for the quarter and year ended December 29, 2023. A transcript of the conference call is furnished as Exhibit 99.1 to this report and is incorporated herein by this reference.

The information furnished herewith pursuant to Item 7.01 of this Current Report, including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section. The information in Item 7.01 of this Current Report and Exhibit 99.1 shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Current Report, regardless of any general incorporation language in the filing.

Item 9.01 Financial Statements and Exhibits

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FEBRUARY 26, 2024 / 9:15PM, STAA.OQ - Q4 2023 STAAR Surgical Co Earnings Call

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 risks and uncertainties associated with these forward-looking statements are described in the safe harbor statement in today's press release as well as STAAR's public periodic filings with the SEC. Except as required by law, STAAR assumes 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 discuss 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 period. Following our prepared remarks, we will open the line to questions for 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, 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 releases, SEC filings, and public conference calls and webcast.

And with that, I would now like to turn the call over to Tom Frinzi. Tom?

Thomas Frinzi - STAAR Surgical Co - President and Chief Executive Officer

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'm pleased to share that STAAR has an increased podium presence and there continues to be significant interest in our lens-based technology, EVO ICL.

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.

STAAR's business model is rare to find. We're 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 and 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 STAAR's business. STAAR's geographic diversity provides a strong underpinning for refractive procedure growth, and that 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 STAAR 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.

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FEBRUARY 26, 2024 / 9:15PM, STAA.OQ - Q4 2023 STAAR Surgical Co Earnings Call

Third, we will innovate with new products and solutions. We recently launched the new surgeon-loaded injector in the US, which is easier to load and should result in better efficiency. We launched 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+, 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?

Patrick Williams - STAAR Surgical Co - Chief Financial Officer

Thank you, Tom, and good afternoon, everyone. Total net sales for Q4 2023 were $76.3 million as compared to net sales of $64 million in the prior-year quarter. As a reminder, Q1 and Q4 have historically represented our seasonally lowest quarters. The $12.2 million increase in Q4 2023 net sales is attributable to a 22% or $13.5 million increase in ICL sales and a decrease in other product cataract IOLs, which the company has discontinued consistent with our previous announcement.

The spread between ICL sales and unit growth was minimal for both the quarter and the fiscal year, which illustrates the stability of our ASPs with fluctuations based primarily on country mix and spheric versus toric product mix. For the quarter, ICL sales and units increased 22% and 19%, respectively. For the year, ICL sales and units increased 18% and 19%, respectively.

As Tom mentioned, we anticipate total net sales for fiscal 2024 of $335 million to $340 million. Our outlook contemplates above-average rates of growth in the two largest markets for refractive surgery, China and the US, at approximately 10% ICL sales growth and flat growth across all other geographies, primarily due to the dynamic macroeconomic environment. Our outlook also reflects higher growth rates in the second half of 2024.

For Q4 2023, gross profit was $60.7 million or 79.6% of net sales as compared to gross profit of $49.8 million or 77.7% of net sales for the prior-year quarter and $63.6 million or 79.2% of net sales for Q3 2023. The 190 basis point year-over-year increase in gross margin is due primarily to product mix. For 2024, we expect gross margin will be approximately 80% for each quarter and the full year.

Moving down the income statement. Total operating expenses for Q4 2023 were $50.3 million as compared to $48.8 million in the prior-year quarter and $57.3 million in Q3 2023.

Taking a closer look at the components of operating expenses. G&A expense for Q4 2023 was $16.9 million compared to $14.8 million in the prior-year quarter and $19.3 million in Q3 2023. The year-over-year increase in G&A is primarily due to increased outside services and facility costs. For 2024, we expect G&A expense will be approximately $24 million per quarter and slightly higher as a percent of net sales than prior periods as we invest further in back-office infrastructure and scalability.

Selling and marketing expense was $22.6 million for Q4 2023 compared to $24.2 million in the prior-year quarter and $26.6 million in Q3 2023. The decrease in selling and marketing expense from the prior year is due to decreased compensation-related expenses and marketing, promotional, and advertising activities. For 2024, we expect selling and marketing expense will be approximately $30 million per quarter, which is consistent with prior periods as a percent of net sales.

Research and development expense was $10.9 million in Q4 2023 compared to $9.8 million in the prior year quarter and $11.5 million for Q3 2023. The year- over-year increase in R&D is due to increased compensation-related expenses. For 2024, we expect R&D expense will be approximately $13 million per quarter, which is also consistent with prior periods as a percent of net sales.

GAAP operating income in Q4 2023 was $10.4 million or 13.7% of net sales as compared to $1 million or 1.5% of net sales in the prior-year quarter. GAAP operating income for fiscal 2023 was $28.1 million or 8.8% of net sales as compared to $43.8 million or 15.4% of net sales for fiscal 2022.

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FEBRUARY 26, 2024 / 9:15PM, STAA.OQ - Q4 2023 STAAR Surgical Co Earnings Call

We continue to expect GAAP operating margin for fiscal year 2024 will be at least breakeven as we stated during our preliminary results and outlook in early January. For Q4 2023, net income was $7.8 million or $0.16 per diluted share compared to net income of $6.8 million or $0.14 per diluted share in the prior-year quarter.

Moving forward, we will be introducing a profitability metric that we believe more accurately represents the underlying performance of our business model, and we will report on this quarterly. We believe that an adjusted EBITDA financial metric, or adjusted earnings before interest, taxes, depreciation, amortization, and stock-based compensation, provides investors with an additional tool for evaluating the company's core operating performance and a proxy for cash generation.

We use this non-GAAP financial measure in our own evaluation of operating performance and believe it is a more useful reflection of our progress. A table reconciling net income to adjusted EBITDA for prior periods is included in today's financial release.

In order to reconcile adjusted EBITDA for net income for our fiscal 2024 profitability outlook, we are providing the following line item details: provision for income tax to be calculated using effective tax rate of approximately 35% per quarter, subject to no significant change in our valuation allowance; other income expense of approximately $500,000 expense per quarter; depreciation to be approximately $1 million per quarter; amortization to be zero per quarter; and stock-based compensation to be approximately $7.5 million per quarter.

Depending on where we end up in the net sales range of $335 million to $340 million for fiscal year 2024, we expect adjusted EBITDA will be approximately $36 million or approximately 10.5% of net sales and using approximately 52 million shares outstanding, results in adjusted EBITDA per diluted share of approximately $0.70.

Turning now to our balance sheet. Our cash, cash equivalents and investments available for sale reached a record $232.4 million for fiscal year-end 2023 as compared to $225.5 million for fiscal year-end 2022. Accounts receivable is $94.7 million at the fiscal year-end 2023 compared to $62.4 million at fiscal year- end 2022.

In the middle of 2023, we saw an increase in accounts receivable, but we viewed this as temporary. Further, we are increasing account receivable collections this quarter and expect to bring down our accounts receivable balance to approximately $65 million by the end of Q1 2024.

In fiscal 2023, we invested $18.2 million in property and equipment. For fiscal 2024, we expect to invest approximately $30 million in property and equipment. Our strategic investments in property and equipment are primarily to support manufacturing capacity expansion, information technology, and support.

We look forward to meeting with many of you in the days and weeks ahead. Tomorrow, we will participate in the Jefferies West Coast Bus Tour. And in March, we will participate in the Oppenheimer Healthcare Conference and the Sidoti Small Cap Conference.

As Tom mentioned earlier, we will also participate in in-person investor meetings in China in the cities of Shanghai and Shenzhen. We expect to report our first- quarter results in early May.

This concludes our prepared remarks. Operator, we are now ready to take questions.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions)

Patrick Wood, Morgan Stanley.

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FEBRUARY 26, 2024 / 9:15PM, STAA.OQ - Q4 2023 STAAR Surgical Co Earnings Call

Patrick Wood - Morgan Stanley - Analyst

Amazing. Thank you very much taking for the questions. I think for the first one, I'd love to hear a little bit more about Sharpe. Obviously, 25% of the refractive volume is a vote of confidence lower down the diopter curve. So how did that discussion come about? And how did you land on that side of things?

And equally, you suggested that going forward, there was an anticipation that we might see a few more deals of this magnitude, and that's what's giving you confidence in the second half for the US. Am I understanding that right, the larger sort of long-term collaboration is driving a lot of that growth?

Thomas Frinzi - STAAR Surgical Co - President and Chief Executive Officer

Yes, Patrick, this is Tom. First of all, thank you for the question. I think SharpeVision is a great example of our Highway 93 initiatives beginning to bear fruit, as we've indicated in the press release and reiterated in my prepared remarks.

I think how it came about with Dr. Sharpe was they saw the results they were getting as they began that journey with EVO and just got more and more comfortable such that they were willing to commit 25% of the volume. And I think that's only going to grow as they continue to do the procedure, see the postoperative outcomes, see the quality of vision that we produce, no dry eye syndrome, preserving the integrity of the cornea, et cetera, et cetera. So I think it was a logical progression as they used EVO more and more.

I think relative to additional deals, our commercial team is working hard. I can tell you as I sit here at this AECOS meeting, this morning, there was a discussion among about 150 surgeons in attendance what's their threshold for considering the ICL surgery. And I can tell you probably the majority of the room was very comfortable going down to minus 3, 4 and 5 myopes as they walk in the door. That's very different than when I sat in this meeting a year ago. So certainly, the momentum is shifting and we feel very good about how we're positioned.

Patrick Wood - Morgan Stanley - Analyst

Very helpful. And then maybe very quickly one follow-up on the margin structure looking into '24. Obviously, a chunk of selling and marketing incremental dollars year on year driving some of that margin down. I guess where is the highest priority spend? And how should we think about the return in terms of growth from that, driving that 26% sort of mid-term outlook?

Patrick Williams - STAAR Surgical Co - Chief Financial Officer

Yes. Patrick, it's Patrick over here. You know, at the end of the day, we still value ourselves a growth company and we believe we're in the early innings, not just in markets like China, where we have 20% market share, but across the world. So we're heavily investing that incremental dollar into the commercial organization, whether that be sales infrastructure or whether that be marketing.

What I would say on the marketing, though, historically, you've seen us do a little bit more brand awareness and global brand awareness. We are changing that a little bit, where we will be focused more on co-marketing with the practices at the -- we'll call it the ground root or the roots level.

And we believe that's going to help us drive a lot more adoption within some of these key accounts, which gets along the lines of focus on Highway 93. And then, as Tom said in his prepared remarks, rolling that out to other regions like Europe.

Operator

John Young, Canaccord.

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FEBRUARY 26, 2024 / 9:15PM, STAA.OQ - Q4 2023 STAAR Surgical Co Earnings Call

John Young - Canaccord Genuity Corp. - Analyst

Hi, Tom and Patrick, thanks for taking our questions tonight. Just to circle back to the SharpeVision announcement, too, and what you spoke about on the call this evening. I'd be interested if you could just kind of talk about what are the factors that got the ability to make the economics work in terms of being both prices at just a slight premium to LASIK. And how repeatable will that be across the US and possibly elsewhere, OUS? And as a follow-up to that, what should we assume for US ASPs in 2024?

Thomas Frinzi - STAAR Surgical Co - President and Chief Executive Officer

Well, again, I think the economics work because SharpeVision controls their own setting of care environment. And I think that plays a very important role, as we've said often, going forward. So I think our procedure deserves to be marked at a premium. I think we all believe that based upon the outcomes we produce.

But does it need to be double? Probably not. And I think setting of care certainly plays a role in that. And that certainly is how SharpeVision is able to maintain a premium because the procedure deserves it but not such a premium that it becomes a deterrent as a minus 4 or 5 walks in the door contemplating vision correction.

The second part of your question, John, was?

John Young - Canaccord Genuity Corp. - Analyst

It was just on ASPs in the United States for next year and just how repeatable will this pricing structure of a slight premium base to the rest of the US.

Thomas Frinzi - STAAR Surgical Co - President and Chief Executive Officer

Yes. Listen, I believe ASPs will hold their own. I'll let Patrick speak to specific numbers. But again, with the healthy margins, we can afford to be as flexible as we need to be, but certainly our ASPs are still contemplated very strongly within our budget.

Patrick Williams - STAAR Surgical Co - Chief Financial Officer

And I would just add, as a reminder, we did say that this should be about 80% gross margin in our outlook. When we did Vision 2026 last year, we talked about the fact that we wanted to keep a little bit of extra cushion in our gross margin, which we also said around 80% in that Vision 2026. So that has contemplated that.

As we penetrate markets like the US, which is still less than 10% of our revenue overall, that there would be some reduction in ASP, mostly related to just higher volume. And so we still feel very good about maintaining that 80% as we go forward.

And in fact, we believe, as we move forward over the next several years, there could be some upside to that from efficiencies within our manufacturing, as well as more opportunities with economics across many markets that we're in right today.

Operator

Margaret Andrew, William Blair.

FEBRUARY 26, 2024 / 9:15PM, STAA.OQ - Q4 2023 STAAR Surgical Co Earnings Call

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