Q4 2023 Earnings Summary
- STAAR Surgical is outpacing the declining U.S. refractive surgery market, with ICL sales up 14-15% in the U.S., while the market was down significantly, demonstrating strong demand for their products despite market headwinds.
- **Their Highway 93 initiative is gaining traction, exemplified by the strategic agreement with Sharp Vision, which committed to purchase 1,000 ICL units annually, representing approximately 25% of their refractive procedure volume. STAAR anticipates several more such customers, leading to meaningful sequential growth in the U.S. in the second half of 2024. , ,
- Expansion in China with the addition of a second large distributor to penetrate Tier 3 and 4 cities positions STAAR to capitalize on expected growth in APAC markets. Furthermore, they anticipate introducing EVO+ in China in early 2025, which may further drive growth. , ,
- Cautious Guidance Reflects Potential Growth Concerns: Management provided conservative revenue guidance for fiscal 2024, citing macroeconomic uncertainties and a dynamic environment. They anticipate approximately 10% ICL sales growth in China and the U.S., with flat growth expected in all other geographies. This prudence may indicate concerns about sustaining high growth rates amidst global economic headwinds.
- Declining Refractive Surgery Market May Limit Growth: The overall refractive surgery market experienced significant declines in 2023, particularly in the U.S., where the market was down by as much as 20% in the fourth quarter. Although STAAR Surgical has outpaced market trends, a shrinking market could pose challenges to achieving robust growth moving forward.
- Rising Operating Expenses Could Pressure Margins: The company anticipates higher operating expenses in fiscal 2024, especially in general and administrative (G&A) costs due to increased compensation and investments in infrastructure. Additionally, increased spending on sales and marketing is planned to support growth initiatives. These rising expenses may exert pressure on operating margins and profitability if not offset by proportional revenue growth.
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China Outlook and Competition
Q: How are trends and pricing in China shaping up, and how will you respond to upcoming competition?
A: Management expressed confidence in China, noting a strong start to the year and encouraging spending during the Lunar New Year. They believe they are well-positioned to continue growth, especially with the addition of a second distributor. Regarding competition, they expect it may arrive in late 2024 or early 2025, but emphasize that the competitor's product is only spherical and made of acrylic, while STAAR's EVO ICL offers a toric option and features their proprietary Collamer material. Having both EVO and EVO+ in the market gives them flexibility to compete on price if necessary. -
Pricing Strategy in China
Q: Can you speak to pricing in China and your relationships with distributors?
A: Management is pleased with the economics negotiated with their distributors, including the new partner, and feels good about pricing. They noted that Aier continues to charge a premium for EVO ICL lenses, up to 2x what they charge for LASIK and SMILE. They do not anticipate significant fluctuations in their ASP due to changes in customer pricing. -
U.S. Pricing Strategy
Q: What's your view on lowering prices in the U.S. to drive growth?
A: Management believes their procedure deserves a premium price due to superior outcomes but acknowledges pricing flexibility. They don't expect any price reduction greater than 20%. They emphasize that end-user pricing is influenced by internal mechanisms within practices, and operational efficiency and surgeon confidence are more critical drivers for adoption than pricing alone. -
Sharp Vision Partnership
Q: Can you elaborate on the Sharp Vision agreement and its impact?
A: Sharp Vision committed 25% of their refractive volume to EVO ICL after seeing excellent results and growing comfortable with the procedure. Management views this as evidence of their Highway 93 initiatives bearing fruit and expects more deals of this magnitude, boosting confidence for second-half U.S. growth. -
Margin Outlook and Investments
Q: What are your spending priorities affecting margins in 2024?
A: The company is investing heavily in the commercial organization, focusing on sales infrastructure and marketing. They anticipate operating at approximately 80% gross margin. G&A expenses reflect increased compensation, including stock-based compensation tied to new C-suite members. They introduced an adjusted EBITDA profitability metric, expecting it to be north of 10%. -
Overall Refractive Market Trends
Q: What was refractive market growth in '23, and what's the outlook for '24?
A: In the U.S., the refractive market saw a significant deceleration, with the fourth quarter down about 20%. Global markets were flat to down, but STAAR continues to outpace the market, expecting to grow even in flat markets by promoting lens-based refractive surgery. -
Guidance and Trends in Key Geographies
Q: How have trends moved throughout the quarter in key geographies?
A: Management feels very good about how the year has started, with positive developments in China, the U.S., and Europe. They maintained revenue guidance and are focused on execution. -
Lens Selection and Operational Efficiency
Q: What steps have you taken to make lens selection easier?
A: They are focusing on making the procedure more predictable and efficient through initiatives like global training, clinical practice development, and exploring AI applications. They believe surrounding the customer appropriately will make EVO ICL a very routine procedure. -
Second Distributor in China
Q: What's the rationale for adding an additional distributor in China?
A: The addition of a second distributor is a natural evolution to capitalize on growth opportunities, especially in Tier 3 and Tier 4 cities. Both distributors coexist nicely and position STAAR for future growth. -
U.S. ASPs and Volume Commitments
Q: What should we assume for U.S. ASPs in 2024?
A: Management expects ASPs to hold their own and feels good about maintaining approximately 80% gross margin. They are open to price flexibility where volume commitments are made but aim to balance volume and price while delivering premium outcomes.
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