Greetings and welcome to the STAAR Surgical First Quarter 2025 Earnings Webcast. As a reminder, this event is being recorded today Wednesday, May 07, 2025. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. [Operator Instructions] I would now like to introduce your host, Brian Moore, Vice President of Investor Relations with STAAR Surgical. Please go ahead.

Thanks, operator. Good afternoon and thank you for joining us. On the call today are Steve Farrell, CEO Warren Faust, President and COO and Deborah Andrews, Interim CFO. Earlier today, we reported our first quarter results via press release and Form 8-K. 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@star.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 filings with the SEC. Except as required by law, STAAR assumes no obligation to update these forward looking 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 webcast. And with that, I would now like to turn the presentation over to CEO, Steve Farrell. Steve?

Good afternoon, everyone, and thank you for joining us today. I’m excited to speak with you as STAAR’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 STAAR. 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 of 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…

Thanks Steve. Hi everyone. It's really nice to speak with you in this forum for the first time. A couple of thoughts on tariffs. In April, when China announced retaliatory tariffs on U.S. goods, we moved quickly. We worked with our distributors in China to set up consignment agreements and shift ICLs ahead of tariff implementation deadlines. This consigned inventory is still owned by STAAR, but instead of sitting in our U.S. or Swiss warehouses, it's now positioned with our distribution partners in China offering additional tariff free product available to surgeons in China. I want to give another shout out to our teams, especially in Switzerland, but really across three continents who pulled this off in under three days. It was a great example of how STAAR employees pull together and execute under pressure. Between the inventory our distributors already had and the consignment stock we've now forward deployed, we believe we will have enough ICLs in China to meet most demand through early 2026. We hope the tariff situation eases before then, but we're also planning for the long-term. That includes increasing our production capacity in Switzerland, which we believe will allow us to ship product to China without an additional tariff on U.S. origin goods. Of course, tariff policies and rates are evolving and difficult to predict. We have made great progress in Switzerland and are now very close to our facility having the validations and product approval necessary to manufacture product for China and other markets from Switzerland. We expect to be fully validated and approved this summer. Once we cross that finish line, we'll be able to manufacture EVO ICLs for the China market from the U.S. and Switzerland. Importantly, we are already building lenses there in [Indiscernible] in advance of being able to release…

Thank you, Warren and Steve. And good afternoon everyone. Let me start with some high level comments on sales, profitability and margins. Historically, the company has reported net sales and ICL sales separately. As sales attributed to our IOLs and other products have decreased over time, the difference between our net sales and ICL sales is now quite small. With today's report and moving forward we intend to discuss our total net sales. Additional details are available in our 10-Q filed today. Our total net sales for the first quarter of 2025 were $42.6 million as compared to $77.4 million in the year ago quarter. The change in net sales was due to minimal purchases by the company's China distributors as they consumed existing in country inventory, partially offset by positive global sales growth outside of China. China sales were 389,000 in the first quarter of 2025 and as compared to $38.5 million in the year ago quarter. Net sales excluding China were $42.2 million for the first quarter of 2025, representing 9% sales growth over the year ago quarter. Our profitability in the quarter was impacted by lower sales, lower gross profit and $22.7 million for restructuring impairment and related charges, which include severance, operating, lease and other impairment costs. These restructuring charges were incurred in order to right size the business and its operating footprint in order to improve long-term profitability. Excluding these charges, total operating expenses for the first quarter of 2025 decreased by 574,000 to $62.7 million from $63.3 million in the year ago quarter. As the Company continues to implement cost savings initiatives during Q2, we expect to report additional restructuring, impairment and related charges. Adjusted EBITDA for the first quarter of 2025 was a loss of $26.4 million as compared to earnings of $5.3…

Thank you Deborah. In our press release today, we withdrew the company's outlook provided on February 11, 2025. Despite confidence in our recent efforts to mitigate tariff exposure and our optimism regarding short-term and long-term business trends. Government policy and economic uncertainty make it more challenging to forecast, particularly in the short-term. Let me take a minute to highlight some of the reasons why I'm optimistic for the future and excited about being part of the STAAR team. First, our short term tactical challenges will mostly be addressed by the end of Q2. We are monitoring inventory in China more closely. Cost controls are in place and the new management team is committed and motivated. We have mitigated most of the short-term tariff risk in China by increasing our inventory in country and believe we will be able to mitigate most of the longer-term risk with the expansion of our manufacturing capabilities in Switzerland. As we return to higher levels of sales and growth in Q3, we expect you can expect to see the savings from our cost initiatives fall to the bottom line. The second reason I am optimistic about the future is because we have a unique proprietary column or material and a first mover advantage that creates a sustainable competitive advantage. The scales are tilted in our favor from a technology perspective and we have a 30-year head start over new entrants. We have a proven solution and EVO ICL should be the choice procedure across all markets. Our lenses are comprised of a biocompatible Collamer material that is stable in the eye and that is extremely difficult to reproduce, especially at scale. We believe that our EVO ICL will become the preferred surgical solution because it is an additive procedure and our lenses are implanted in…

Thank you. [Operator Instructions] Our first question comes from Tom Stephan with Stifel. Please go ahead.

Great. Hi everyone. Thanks for taking the questions. Sorry if any of this was addressed up in between calls, but maybe if I can start on China. Curious if you can elaborate a bit more on how ICL sellout tracked in 1Q25. If you're able to give any color by month, that'd be great. It sounds like possibly flat top, but any more granularity would be appreciated. And then any comments on how 2Q has trended so far and early insights into the summer high season kind of as we approach that. And then I have to follow up.

Yes, hey Tom, it's Warren. Great to hear from you. Good question. Look, we're pleased with how the year started, particularly coming out of a back half of 2024 that was soft. And so to your question, around the pace of January, February versus March, they were all for end market sales were all fairly constant. So don't know that I would make a distinction between any one of the three months. But again, I would just say consistent with what we said, we were pretty pleased with the pace and gave us a chance for the distributors who we partnered closely with to burn down some of the inventory that they had built up. So coming out of Q1 in a reasonable spot.

That's great, appreciate that. And then pivoting to competition, maybe if you can talk about iBright and what you're seeing there in terms of the competitive impact on ICL to date, no, it's still early. But what are your customers saying? Are there any adoption tendencies you are noticing? And then is there any rough revenue impact we should think about for 2025? Thanks.

Yes, it's a good follow up. Look, it's been quiet. We've certainly asked our customers about it, have a few customers that have had some experience with it. Anytime a new lens comes into the market, the provider will offer those lenses at no charge. Oftentimes they try and do pricing deals to get some adoption. It's just been immaterial thus far. So we kind of welcome competition. We certainly don't discount it, but just haven't seen a lot of uptake and potentially could be the establishment of EVO for so many years in China and around the world. But in China and so we'll keep a watch on it, certainly our teams are prepared for it, but nothing much to report thus far.

Hey, it's Steve Farrell. I'd also add that we welcome the competition on the surgical side because we think increasing awareness that there are options besides glasses contacts is a good thing. So we think that pie can grow and we think bringing awareness to that is a helpful thing in the long run.

And then just Tom, as you think about and others, as you think about what to model in the second part of your question, I really couldn't give you any guidance on what to model from the standpoint of it just pretty. It's immaterial to us. It was contemplated in our original thinking and so again, we'll keep a watch out for it. But pretty quiet so far.

Super helpful. Thanks again.

Thanks for the questions. Tom, this is Brian Moore with Star Surgical Star Management team. We do have a webcast participant question. Great. So let me read that as many other companies have done this quarter, you have withdrawn guidance because of the tariff situation and economic uncertainty. But you also indicated that procedure trends in China have improved and that your cost cutting is working. Does that mean that if economic trends around the world do not deteriorate from here on the current picture, the current picture seems better than what was expressed by STAAR in February?

Yes. Thanks for that question. There's clearly some global uncertainty. We are mitigating our tariff issue, but it's evolving and frankly, we don't know exactly what target we're trying to hit. We're working hard to anticipate that, but it is an evolving situation. We're also working through inventory and as you mentioned in your question, we're making good progress on the cost side, but we've got a new team and a new approach. Warren, Deborah and I want to be certain or near certain that we can do what we tell you that we're going to do. Do we think we have a good shot at hitting our guidance? Yes, we do. But we hold ourselves to a higher standard. We than a good shot. We want to be certain or near certain. We are committed as a team to transparency with investors and we're committed to helping investors think about the business in the same way that we think about the business. That means that we need to really share with you our thoughts and help you think through the future. So let me try to do that. We want to earn your trust and we think there's no better way to earn your trust and to produce good results. So let me take the guidance question kind of one by one and let me start with the sales ex-China. The outlook a couple of months ago was 165 to 175 in revenue and 40 million per quarter in the first two quarters. We obviously hit Q1 with $42.5 million of revenue and in terms of the global sales ex-China, we were up 9% and our range for the year is up 9% to 15%. So can we hit the 9% to 15%? Yes, I think we have a…

Thank you, Steve.

Operator, will you please unmute the next questioner you have in queue?

Yes, the next question comes from Anthony Petroni with Mizuho Group. Please go ahead.

Thank you and congrats on all the new appointments and good luck as we navigate the rest of the year. Maybe a little bit on the China commentary on consignment inventories, as a mitigation exercise in the face of the global trade war here, tariffs, is there any way to just quantify, I guess, how much inventory there is in the channel and consignment and when we sort of think about, and I know it's a little bit early, looking ahead to 20, 26, where perhaps they'll have to be additional mitigation efforts. Maybe just walk us through the high-level thinking on how that can play out and then I'll have a quick follow up. Thanks.

Yes. Hey, Anthony, good to hear from you. Look, we said we have enough inventory to mitigate tariffs through about the end of the year into 2026. So I think what was said previously was we had too much inventory on the owned side. So prior to the tariffs, our two distributors had some excess inventory that we wanted to give them the chance to burn down this year through consumption in the market, which has been strong. So we're happy about that. So we're on track to get down to the levels of inventory that are contractual by around the middle of the year. So that's good progress. Happy about that. As it turns out, we're happy the inventory is in China along with having only a few days you mentioned, we give some props to our team. With three days notice we even had folks from the U.S. over working in the facility and had a chance to go grab them out of the room where they were implementing our new ERP system and took them down to the warehouse and put them to work. And they were very grateful that they did it. They graciously gave their time and helped us get inventory onto pallets, ultimately onto airplanes within a three-day window and got it to China to our distributors. And so a three continent effort getting consignment agreements in place to have that inventory there. So that'll get us through this year. That gives us the chance to be building inventory in our Swiss facility, which we're ramping up now. You heard me say we are waiting on the validations internally and the approvals externally. We feel confident about those and those efforts to build inventory in advance of receiving those approvals should have us in best position to mitigate. So I think that's kind of part one and part two of your of your question because it gives us the next effort to mitigate is going to be the reduction in the tariffs. We certainly can't predict that. So we're planning for the long term and then building inventory in Switzerland to offset the demand.

Very helpful. And the follow up would be maybe just a fresh view from the company now on the pricing strategy, I would say maybe even globally here. What is the latest thinking on how Visian ICL should be priced in China and perhaps how it should be priced in the United States? Is there any major changes in how the team is thinking about the global pricing strategy? Thanks.

Yes, good question. No major changes. Patients, patients love EVO ICL 99% plus of the time they say they would do it again. And so we know that the value that EVO ICL provides to our patients and to our surgeons, really, really high. We're going to continue to of course to look at levers to unlock growth with our customers. So price can always be a component of that, but it's not the main component of it. The reality is the value of the device changing a patient's life is what drives the patient's desire for so we'll continue to look at ways, but we believe in the value of the product. Thank you, Anthony. Operator, please unmute the next questioner.

The next question comes from Ryan Zimmerman with BTIG. Please go ahead.

Oh, great. Thanks for taking my question. Stephen, I just want to understand something, and this isn't a question so much as you're talking about numbers for the year, but you withdraw through guidance. I'm a little confused as to what you're saying about where numbers can or can't go given the withdrawn guidance.

I'm not sure I'm following the question.

Well, I think you were talking about kind of where you think you can perform, but you're withdrawing your guidance. So I guess I'm struggling reconciling these two things. Maybe that's more of a comment than a question, but I don't know if you want to address that or not. But, that said….

Thanks, Ryan. No, I get it. We're trying to give you some color on what we think. We're trying to be transparent with you. And so the answer is we are having a discussion. And I think that's a little bit different than formal guidance. And so we. I think one of the things that you heard during that discussion was that in ex-China, we were at 9%, 9% growth. Our range is 9% to 15%. One of your takeaways should have been that we're a bit worried about our ability to get to 15%. And so, we would rather have that discussion with you now and be transparent than we would, find out that at the end of the year we were at 8.5% and have you guys be upset with us. So we're trying to give you color for where we think we can go with the business. And we've also, we're clear, I think, in my commentary that the gross margin guidance is probably not going to be hit for this year because we are ramping up our Switzerland manufacturing. So our objective is not to confuse. I apologize if I did. Our objective is to be transparent and help you understand how we are thinking about the business.

Okay, yes, maybe it's me. I apologize. I appreciate what you're trying to achieve, but it comes off maybe confusing to me. Let me ask a more fundamental question. Warren, you talked about a Version 5 going into China. That's the first we've heard about this. How does this differ from EVO+? And what's the difference in price if there is a pricing, a tiered pricing strategy within China?

Yes. Sorry for the confusion there. So it's the same product, EVO+ is often referred to infact, internally it's referred to as V5. So those are ubiquitous. It's the same, so no different there. We have been signaling that we would get V5, or, excuse me, EVO+ at some point in 2025, around mid-year. We are on track to do that. We believe from an approval standpoint. We are still contemplating the commercial opportunity from a pricing standpoint, particularly even, with what's happened most recently from a tariff standpoint, we certainly have to take all things into consideration. We believe it will be a premium. Our customers believe that as well. And the feedback that we've gotten from them. Final determinations to be made on that. So stay tuned. Final determinations on the quantity and the customers with which we are going to launch to stay tuned. We'll make those plans as we get the approval, but we are feeling pretty good about it.

Okay. And then just, I want to understand. Sorry for all these questions. There's a lot of moving parts here, Stephen, that you're undertaking with the business. You have inventory levels in China. You talked about getting back to the third quarter, kind of a more normalized sales cadence. You now have this consigned inventory in China as well. That being said, if the market doesn't turn maybe as fast as you'd like, the sellout rate doesn't turn because of global macro dynamics, recessionary impact, what have you, how do you think about the inventory levels and the consignment in China going beyond kind of early 2026, because arguably they would get extended further out if your distributors can't work that demand down. And maybe, it speaks to the question, speaks to maybe like what you've done since taking the helm to see more transparently in China so that this doesn't become another issue again. Thank you.

Sure. Good question. So, just to be clear, the consignment inventory in China is owned by us, and so that's no different than having it in a warehouse in California. It's just through the tariff process. And so that inventory is no different than if it was sitting here. So that doesn't create any kind of excess issue from a distributor perspective, if it doesn't turn I think was the second part of your question. Yes, how we work yes, how we work through the inventory levels. And it's turned and by the end of next month, we're going to be at our contractual levels. And so, we're going to get there from an inventory perspective because we're almost there already and literally end of next month, we'll be at contractual levels on average in China. Thank you.

Thank you.

Thank you, Ryan. Operator, please unmute the next questioner.

The next question comes from Simran Korb [ph] with Wells Fargo. Please go ahead.

Hey guys, thanks for taking the questions here. Maybe just to follow up on Ryan's questions around China. You have realigned some of the leadership for STAAR in China. So could you elaborate on how this new leadership is helping to inform just your broader strategy in China, especially given that the macro backdrop does seem to be improving in the region. And Stephen, I can appreciate that you're not providing formal guidance anymore, but you aren't necessarily shying away from the original guidance in China. So could you talk about the sort of pace of recovery that you expect in China throughout the year and what's underpinning your level of confidence of sort of being in that original guidance range?

Yes. Hey Simran, it's Warren. Maybe I'll start with the China question and then see if Steve has anything to add and he can take the other. Look, we have a great team in Asia broadly and in China in particular, we have a very experienced team. They do an incredible job of training and partnering with our distribution partners. So we're really proud of the team that we have from a leadership standpoint. Asia is the most, it's the most revenue in the organization. Of course, China is the most valuable country from a dollars and unit standpoint. And therefore we want to have our leadership, particularly high level leadership co located in the region. So that was really the, the decision that we made from a strategic standpoint. We have the benefit, as we announced publicly, of Wei Jiang joining us to take a leadership position in China on a bit of an interim basis as the APAC head of strategy. And he's an accomplished man, he's an accomplished leader, has great experience in the region, not just in China, understands in local language and local custom how to operate in China. And so he really is helping us. I won't even say double click, I would say triple click on where the opportunities are, where we've had success and can replicate that and where we've had challenges and can overcome those. And so we're really excited about what he and what the team he's taking with him bring to China. But it doesn't change the underlying fundamental of we've got the right team on the field there in China as it is.

Great. And then the second part of the question was pace of recovery. We know ICL procedures are up year-over-year, they're up dramatically over Q4. The prevalence of myopia is continuing to grow. The Chinese government just this morning announced across the board rate cuts we will have worked through our inventory by the end of next month. And so, we feel like the trends are all moving in the right direction for a strong second half of the year for us in China.

Okay, that's helpful. And maybe just for my follow up regarding the cost cutting measures that you're implementing, it seems like it's targeted primarily at the U.S. business. And you talked about inefficiencies and spend there. Could you elaborate on what those inefficiencies were and what does this signal about your U.S. strategy or just broader commitment to the U.S. opportunity longer term?

Yes, I'll take a shot at it. Simran. It's a good question. Look, the U.S. is a critical market for us. It remains a critical market. It also remains a very, very small percentage of our total global business. And we invested very heavily to get uptake in the U.S. business and you could argue we've done it. There's 11% growth even in the quarter in the backdrop of what again is another quarter of if you listen to Refractive Surgery Council, they'll tell you lasers are down 15.5%.almost. And so, there's still a very wide delta between the laser market and what we've performed in the U.S. So we're proud of that. But when you think about the direct to consumer marketing, when you think about some of the efforts we've taken, which are very large, to expand the organization, to invest heavily in every conference, every meeting, oftentimes at the gold and platinum level sponsorships. It doesn't mean we're not going to sponsor and support. It just means we need to make sure we take a measured approach as we get growth, but we get measured growth. So resources are valuable. We're going to continue to put some in the U.S. but we're also going to make sure that we're putting maximum resources in the markets that can matter most. Many of those are in Asia, but we're also having success in Europe, particularly in some of our distributor markets where you see the emerging opportunities. So we'll balance the investments, we'll be measured in our approach with reductions in the U.S. but we're going to make sure we right size any particular business for the amount of revenue that we're getting.

Yes, I'd make a couple other comments. The first is a big part of what we're doing is rightsizing our facilities. So we've got underutilized facilities and we need to, to improve that. The other thing I would say about the cuts is although they are fairly, the cuts are not small, let's put it that way. All they're doing is getting us back to where we were 18 months ago and we had a very successful business 18 months ago and we're just really putting our SG&A level back to that 2023 run rate. So are the cuts meaningful? Yes, but they're not so deep that they're going to impact the day to day operation. We were a very successful business 18 months ago and we're going back to those SG&A levels.

Got it. That's very helpful. And sorry, just one quick point of clarification on the tariffs. Are you assuming anything in terms of, retaliatory tariffs going into effect after the 90-day pause is lifted?

We don't know what's going to happen from a tariff perspective, but we are, we're really in good shape through the end of this year. We may, if the tariffs stay at the 145%, we are probably going to have to ship some inventory to China that's not in country. We don't think it'll be material, but we've got hundreds of thousands of SKUs and so we may have to ship some inventory in country. Broadly speaking, though, I don't think that President Trump's approach or his intent is to throw us into a global recession. And so we're optimistic that there will be a solution worked out that dramatically reduces those tariffs. If that doesn't happen, we'll be ramping up our Switzerland facility and we have a safety valve. You may have seen that the vice premier of China and Scott Besant are meeting in Switzerland because it's a neutral site. Well, that's where we're trying to set up our manufacturing. So we feel pretty good about our position longer term.

Great.

Thank you, Simran. Operator. We are at time but let's take, let's unmute the last questioner, please.

The last question comes from Patrick Wood with Morgan Stanley. Please go ahead.

Beautiful. Thanks guys. I'll keep it to one just to keep it snappy. The U.S. side of things kind of a fallen from Simmons side of things. How are you thinking about the go to market there, get the investment side of things. But there was a bunch of initiatives. There was, Highway 93 and then there was like trying to support surgeons on lens selection. Do you think the strategic approach was the right one? Or is that something you think you might end up changing? Thanks, guys.

Yes, thanks, Patrick, for the question. Look, we're never satisfied, but I would say I'm proud of what we've done in the U.S. the reality is, two years in a row since we started executing some of those strategic initiatives, initiatives that's been against the backdrop of sort of a soggy economy and a challenged laser refractor market. And that's why I think you heard Steve talk about we've got to open up our aperture and stop talking about just laser vision correction procedures and which one of those can spit out the funnel to us. We've got to talk about getting folks out of glasses and contacts and getting people into the funnel. So you're going to hear us looking for opportunities there. But as far as strategic initiatives, specific ones you named like U.S. Highway 93 and others. Look, we are still focused on helping our customers be clinically capable. We want them to be clinically competent. We want them to be economically competent. And when we accomplish that, that really allows them to create a culture in their own practice that says we're EVO ready and we have an ecosystem which will welcome a patient who could be open to an EVO ICL and can take them down a road of conversation which leads to a great clinical outcome for that patient. So none of that's changed. The only thing I would say is in addition to what we've been doing, because U.S. Highway 93 was really just language around how do we segment and target customers. So we use our scarce resources to go after customers who can do more with EVO ICL because of their practice economics, because of their willingness to operate on the eye rather than just use lasers, because they already have a refractive stream of patients coming in. Those are all reasons why we would focus on a customer. We'll still do that. We'll also create pathways, and we've already done it to bring other customers who want to be part of the ICL revolution. They come to us and say, we want to do EVO as well. We have to have an onboarding for them. And so we're creating that pathway through their commitment allows us to invest alongside them. So I'm probably as excited as I've ever been about the U.S. and the opportunity. We're just simply saying, from a cost management standpoint, we're going to make sure that we right size that as we go forward.

Thanks, guys.

Thanks, Patrick. Operator, I turn the call back to you.

Thank you. This concludes our question-and-answer session. And this also concludes our conference. Thank you for attending today's presentation. You may all now disconnect.