Q4 2022 STAAR Surgical Co Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the STAAR surgical fourth quarter and fiscal year 2022 financial results Conference call.
During todays 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 followed by the one on your Touchtone phone.
If youre using a speakerphone equipment today, please lift the handset before making your selection. This call is being recorded today Tuesday February 21st 2023.
At this time I would like to turn the conference over to Mr. Brian Moore, Vice President Investor Media Relations and corporate development for STAAR surgical.
Thank you operator.
Afternoon, everyone. Thank you for joining us on the STAAR surgical conference call. This afternoon to discuss the company's financial results for the fourth quarter and fiscal year ended December 31 22.
On the call today are Tom Frenzy chair of the board President and CEO and.
And Patrick Williams, Chief Financial Officer.
The press release of our fourth quarter results was issued just after four PM Eastern time and is now available on Staar's web site at Www Dot Star Dot com.
Before we begin let me quickly remind you that during the course of this conference call. The company will make 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 that was 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 described in the forward looking statements.
The risks and uncertainties associated with the forward looking statements made in this conference call and webcast 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 to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and adjusted earnings per share and sales in constant currency.
We believe that these non-GAAP numbers provide meaningful supplemental information and are helpful to assessing our historical and future performance.
Table reconciling the GAAP information to the non-GAAP information is included in today's press release.
Following our prepared remarks, we will open the line to questions from publishing analysts, we ask analysts limit themselves to two initial questions then re queue with any follow ups.
We thank everyone in advance for their cooperation with this process and with that I would now like to turn the call over to Tom frenzy.
Tom.
Thanks, Brian and good afternoon, everyone and thank you for joining us.
I will begin with an overview of our results for the fourth quarter and fiscal year before turning my commentary to my first 50 days as CEO and our priorities for 2023.
Patrick will then provide additional details on our financial performance and outlook for 2023, we will then open the call to questions.
I am pleased to report that once again in fiscal 2022 star achieved a multi quarter track record of market, leading top line growth.
<unk> sales grew 27% year over year and in constant currency, 32%.
ICL units grew 33%.
We continue to maintain our position as one of the few high growth publicly traded medical device companies with positive GAAP earnings while also increasing our investments in key areas to continue future growth.
As far as also a company that generates strong operating cash flow.
In fiscal 2022, we increased cash on our balance sheet by over $25 million through internal generated funds ending the year with over 225 billion of cash and investments.
Fourth quarter sales results also increase.
Unit growth was up 20% year over year.
ICL sales were up 21% in constant currency year over year.
In the fourth quarter year over year ICL sales growth was led by our APAC and North America regions, while EMEA sales were up slightly on a sequential basis.
Year over year ICL unit growth by country in the fourth quarter was as follows in China.
And it's up 18%, Japan units up 33%.
India.
Units up 19%.
In the U S units up 109%.
I know top of mind for many of you is the state of the market in China and our progress in the U S. So let's begin with China.
During the fourth quarter refractive procedures, including Evo in China were impacted by Covid first beginning with the change in consumer behavior that star called out.
On the November 2nd 2022 earnings call.
Later protest and the lifting of the country's Covid zero policy followed.
Then a subsequent rise in COVID-19 infections further impacted the level of refractive procedures in the fourth quarter.
Against these operating backdrop, we are proud to deliver 18% ICL unit growth in China for the fourth quarter of 2022.
Through the first seven weeks of the first quarter of 2023, we see encouraging signs of market stabilization.
Duration and resilience.
Weekly sales results and end market procedural volumes in China are in line with our expectations.
So while we consider it premature to declare that the China market has fully normalized we do have greater confidence today that the market in China will further normalize as we approach the peak summer implant season for ICL procedures.
The strong evo commitments from our larger customers in China.
The largest refractive market in the world and many of the 200 plus surgeons in China that implant our lenses bolsters our confidence at this time that we can meet our sales outlook for the full year fiscal 2023.
Turning to the U S.
ICL unit growth exceeded the outlook, we previously provided up 55% year over year in fiscal 2022, and up 109% year over year in the fourth quarter.
We exited the fourth quarter with more than 600 surgeons certified to implant Evo lenses in the U S.
While we continue to train and certify surgeons in the U S. Our focus for 2023 is increasing surgeon comfort confidence and commitment to evo by surrounding our surgeon customers with sales clinical and marketing support.
As they work to add evo to their practices indoor transform their practices for more lens based refractive standard.
From a marketing perspective, we are receiving positive feedback from U S. Surgeons that are marketing is raising evo brand awareness and consumer desirability.
The data also illustrates that our marketing is having a positive impact on sales.
As an example.
Our targeted cities during the fourth quarter of 2022.
We achieved greater sales growth, where we activated advertising compared to key cities, where we did not advertise.
In the fourth quarter, when we launched the Joe Jonas advertising campaign, we saw sales growth almost doubled in targeted cities, where we advertise as compared to key cities, where we did not advertise activity on our Doctor Finder has also increased doctor find your visits in the U S were up approximately.
<unk>, 600% year over year in the fourth quarter.
We are also surrounding our U S surgeons with clinical and sales support to demonstrate the medical and economic promise of Evo no matter the surgical setting.
As many of you already know the predominant procedure and our industry laser vision correction has been experiencing challenges at the same time increased compression in reimbursement for cataract Guy OLS and other ophthalmic procedures as more and more doctors showing interest in evo.
Tractive surgery industry has been looking for the next big technology.
We believe it is evo.
My meetings in recent weeks with surgeon customers confirm the growth opportunity for vivo in the U S.
In one meeting I met with an individual surgeon increasing his commitment to evo from 100 lenses per year to 500 plus.
In another instance, I met with a laser vision correction chain.
Increasing its commitment to Evo from 500 lenses to 2000 plus annual lenses.
In 2023.
I'm also encouraged by egos, increasing presence and clinical papers on podiums and industry panels.
Next week as part of the American European Congress of the ophthalmic surgeons.
Bose and their winter Symposium Starz, Chief Medical Officer, Dr. Scott Barnes will participate in a panel with other key opinion leaders and speak to the benefits of Evo.
The panelists title.
Life after lasik.
As I reflect on my first 50 days as CEO I have been able to more closely assess starz business people and overall strategy.
Our international business is well established and we will continue to show growth. We are now focused on realizing the tremendous potential that the U S market represents.
As a direct result of stars prudent fiscal management over the last several years, we are now in a position of financial strength and stability.
We plan to take full advantage as far as financial strength to build the U S market, particularly given the refractive surgery market dynamics I described earlier.
To accelerate consumer awareness surgeon confidence in Evo adoption in the U S Star will move forward with even greater intent and purpose. In 2023. This will include investments in additional sales practice development and clinical applications personnel.
As well as doubling our spend on Evo digital marketing campaigns.
It's time.
It's when space refractive surgeries time.
Which means it's Eva this time.
Patrick.
Thank you Tom and good afternoon, everyone total net sales for Q4 2022 were $64 million consistent with our January 9th pre announcement as compared to net sales of $59 million in Q4 2021.
The $5 million year over year increase in Q4 2022 net sale is.
Attributable to a 15% or $8 1 million increase in ICL sales, partially offset by a $3 $1 million decline in other products, which primarily consists of cataract Iowa.
The company announced on November <unk>, 2022 that we will no longer support our noncore lower margin cataract IOL business after 2023.
ICL sales represented 96% of total company net sales in Q4 2022.
U S sales normalized for allowance for sales reserves were $4 5 million in Q4, 2022 up 94% compared to Q4 2021 sales of $2 3 million.
Evo was approved on March 25, 2022, therefore, the year ago period includes both busy and ICL and Evo ICL sales.
We have posted a U S ICL sales supplement to our investor website under latest quarterly results.
For Q4, 2022 reported net sales included a $3 $8 million negative impact from changes in constant currency, primarily the yen and euro and the impact of the transient headwinds in China that Tom discussed earlier.
For fiscal 2022 reported net sales of $284 million included $12 $9 million negative impact from changes in constant currency as outlined in the constant currency table in today's earning release.
Our outlook for fiscal 2023 net sale is for ICL sales of approximately $340 million, representing 26% growth over fiscal 2022, ICL sales of approximately $270 million.
We anticipate the calendar dates and of sales in fiscal 2023 will be weighted towards the second half of the year as transient headwinds subside.
As a reminder, Q1 and Q4 has historically represented our seasonally lowest quarter.
We expect Q1 2023 net sales will be up sequentially from Q4, 2022, and in the range of $65 million to $67 million.
U S sales in the first quarter are expected to be approximately $5 million, which represents approximately 100% year over year sales growth.
Turning back to Q4 gross profit for Q4, 2022 was $49 8 million or <unk> 77, 7% of net sales as compared to gross profit of $45 million or 76, 3% of net sales for Q4, 2021, and $60 5 million or <unk> 79, 5% of net sales for Q3 2022.
The 140 basis point year over year increase in gross margin due mainly to product and geographic mix, partially offset by increased period costs associated with manufacturing projects.
The sequential decrease in gross margin of 180 basis points from Q3, 2022 is primarily due to product and geographic mix.
For fiscal 2023, we expect gross margin will be approximately 80% for the full year and each quarter.
Moving down the income statement total operating expenses for Q4, 2022 were up 30% year over year to $48 $8 million as compared to $37 6 million in Q4, 2021, and $46 8 million for Q3 2022.
Taking a closer look at the components of operating expenses G&A expense for Q4, 'twenty two was $14 8 million compared to $11 5 million for Q4, 2021 and $14 million for Q3 2022.
The year over year increase in G&A is due to increased compensation related expenses facilities costs and outside services.
Sequential increase in G&A is due to higher facility costs associated with our expanding corporate and manufacturing operations.
For fiscal 2023, we expect G&A expense will be approximately 18% of net sales for the full year.
For Q1, 2023, we expect G&A expense will be approximately $13 million and increased slightly for each subsequent quarter.
Selling and marketing expense was $24 2 million for Q4 2022 compared to $17 1 million for Q4, 2021, and $23 1 million for Q3 2022.
The increase in selling and marketing expense from the prior year due to increased advertising and promotional activities Tradeshows and sales meeting travel expenses and compensation related expenses.
The sequential increase in selling and marketing expense from Q3 2022 is due to increased marketing promotion and advertising expenses, partially offset by decreased trade shows and sales meetings.
For fiscal 2023, we expect selling and marketing expenses will be approximately 38% of net sales as we make the important investments in Evo ICL patient awareness and our sales organization that Tom discussed earlier.
In terms of calendar <unk>, we expect selling and marketing expense will be approximately $30 million for Q1, 2023 and $33 million each quarter thereafter.
Research and development expense was $9 8 million in Q4, 2022 compared to $9 1 million for Q4, 2021, and $9 6 million for Q3 2022.
Year over year and sequential increase in R&D is due to increased expenses associated with our U S post approval studies.
For fiscal 2023, we expect R&D expense will be approximately 13% for the full year, which is approximately $11 million each quarter.
Operating income in Q4, 2022 was $1 million or one 5% of net sales as compared to $7 $4 million or 12, 5% of net sales for Q4 2021.
Operating income for fiscal 2022 was $43 8 million or.
Or 15, 4% of net sales as compared to $33 3 million or 14, 5% of net sales for fiscal 2021.
We expect operating margin for fiscal 2023 will be approximately 12%.
For Q4, 2022, net income was $5 9 million or 12 per diluted share compared to net income of $4 9 million or <unk> 10 per diluted share for Q4 2021.
On a non-GAAP basis adjusted net income for Q4, 2002 was $6 8 million or 14 cents per diluted share compared to adjusted net income of $9 $5 million or <unk> 19 per diluted share for Q4 2021.
A table reconciling the GAAP information to the non-GAAP information is included in today's financial release.
For fiscal 2023, we expect our effective tax rate will be approximately 25% to 30%.
No significant change in our valuation allowance.
Turning now to our balance sheet, our cash cash equivalents and both short term and long term investments available for sale totaled $225 5 million as of December 32022, as compared to $199 7 million at December 31 2021.
In fiscal 2022, we generated $35 $7 million in cash from operations and invested $18 $1 million in property and equipment.
For fiscal 2023, we expect to invest approximately $26 million in property and equipment, which includes approximately $2 million of carryover capital expenditures that were planned for fiscal 2022.
Our strategic investments in property and equipment, primarily to support manufacturing capacity expansion and a strong trajectory of sales growth.
This concludes our prepared remarks, operator, we are now ready to take questions.
Absolutely.
He would like to ask a question. Please press star followed by one on your telephone keypad.
For any reason you would like to remove that question. Please press star followed by two.
Again to ask a question press Star one we will pause here briefly as questions are registered.
Our first question comes from the line of Margaret Kaczor with William Blair. Your line is now open.
Great. Thank you and good afternoon, everyone.
And I wanted to start maybe with the with the guidance for the year and whether you guys can give us some more detailed plans I guess on a geographic unit growth basis sustaining implied.
How the inputs may have changed versus the guidance in January .
I asked because it sounds like the guidance was directionally at least commentary directionally more bullish on China as you expected maybe in Q2 previously and Youre seeing things.
Now and then similarly on the U S with a $5 million start to year.
Sure Margaret This is Tom Thank you for the question and as it relates to China I think.
We would say bullish is the right word, but we certainly are confident.
Our local team.
Certainly as express confidence in terms of what's happening at the street level with China.
We're not seeing Covid testing.
There are no travel restrictions, we're seeing more normal refractive procedures being done.
At the eye clinic show together.
Together with the confidence of our local team I think we remain confident that we can deliver.
On the China is projections for this year as previously stated.
Yes, Margaret I think it relates to your question of the composition Nothing's materially change right. We gave the guidance back on early January and the $340 million. We reconfirm that today you heard Tom's comments just now so we're feeling good about where we're at and where the year is shaping up at this point, but the overall composition is.
Nothing has materially changed when we gave the original guidance.
Okay, Great and then on the U S. Either launch at Tom Appreciate your comments and kind of the outlook there and it was encouraging but.
I'm curious if we could follow up a little bit on the practice development efforts that you spoke to launching what kind of support are you going to provide how broadly might this rollout is a benefit.
Timing of impact and maybe any metrics. If you trial deaths that you saw that made you want to kind of double down on it.
Sure.
Again, I would just say given my experience in launching products I think a team approach makes a lot of sense.
What we're doing in terms of increasing our head count both with sales personnel practice development personnel and clinical apps people is really surrounding the customers specifically from a practice development point of view how do they become.
Our lens based refractive surgery practice, how does it get reduced into the fabric of that practice.
And we're just coming off of a practice development seminar recently held in Austin, Texas, which was well attended by practices, where they learn the tools and the programs. We have available to certainly drive towards that end goal, but I think again surrounding the customer with this team approach where.
Clinically marketing wise and sales wise.
With common management show decision, making is close to the customer is certainly a recipe that has proven successful and we're poised.
For a strong year in the U S.
Thank you Margaret Operator next question.
Absolutely. Our next question comes from the line of Bill <unk> with Canaccord your.
Your line is now open.
Hi, Tom Patrick It's John on for Bill Tonight, Thanks for taking our question.
Just a follow up on John <unk> question could you talk about the.
The hiring cadence preclinical and sales of our spring 'twenty three and beyond the cadence typically how long these reps take to become productive.
Sure. Thank you for the question John .
Again, I think it at an overarching number we're going to increase our field infrastructure by 50%.
We've already hired two or three people in Q1, and we will continue to look to hire people throughout the first half of this year.
They are productive in the back half of the year. So I would say, we're looking at very experienced people people that understand missionary type selling as we bring them into the organization or working in practices that had a cataract refractive mindset. If you will.
So I think the startup is probably a quarter, but we hope to increase our infrastructure in the first half. So they are effective in the back half.
Great Thanks, Tom and just.
Follow up two from me.
He passed the 50 days I'd be really curious what you learned in terms of reality versus your expectations going in and perhaps a little bit on the strategy of more <unk> engagement. Thanks again for taking my question.
Yes, no I appreciate it.
The first 50 days there has been no surprises, which is a good thing.
As I've thought about our strategy our people our business in general I'm extremely encouraged and if anything just bringing maybe more focus.
Two increasing the infrastructure in the U S and continuing to support the infrastructure, we have outside the United States.
There is growth potential in both those segments of our business.
So nothing nothing dramatically changed I think just reinforcing what star has said historically and maybe bringing just some added.
Direction and focus to making sure were putting our best foot forward in in a market, which today is white space in the U S and we're excited about what we're prepared to do here.
Thank you John Operator next question.
Thank you. Our next question comes from the line of Anthony <unk> with Mizuho. Your line is now open.
Alright. Thanks.
Congrats again, Tom on the first 50 days here sub one on China, one on the U S.
On China, maybe just a little bit of the.
The rescheduling of procedures that have been pushed out due to COVID-19.
How substantial was that in <unk> is that still occurring here in <unk>.
And sort of what is the timing to recapture those those surgeries that if you will got put back.
Into your backlog.
And then I will follow up with one on the U S. Thanks.
Hey, Anthony it's Patrick I'll take that it was on my watch before Tom got here. So as we talked about there was about $5 million in Q4 that we took out of our our Q4 number.
In 'twenty two and so.
Tom said, we're feeling really good about it we always talked about it this was transitory in nature.
They werent going out and getting any refractive procedure, because everything was either locked down or getting relieved and people were unfortunately getting affected so.
As Tom said, we're back on track the end market numbers in China are very very encouraging for us and so.
That led to obviously the reconfirmation of guidance once again and the comments that we made in our prepared comments.
Great and a follow up on the U S side would be around the.
FDA proposals for patients.
Disclaimers for Lasik.
The comment period, there came to a conclusion in the end of November .
Last year.
We should see I guess the final draft guidance at some point this year. So a couple of questions here, one what would be your expectation for timing for a final.
Dress document to be published for the Lasik patient disclosure requirements and then too.
Should we expect ICL.
To show up as an alternative to lasik and the final documentation. Thanks.
Thanks, Anthony Let me, let me try to answer that if I could predict what the FDA is going to do I'd, probably be doing something different than what I am doing so.
Can't really comment on the timing of their decision but.
As I've said before.
It's a practice of medicine issue I think star, we don't want to get in the middle of but as it relates to US I mean, let me remind you.
Less than a year ago.
FDA did a careful review of <unk> clinical trial data founded safe and effective and granted us approval. So.
Don't think we are.
We're impacted by this but.
The timing around when it might come out and the tailwind that potentially it could cause for us I think is an unknown at this point in time.
Thank you Anthony Operator next question.
Thank you. Our next question comes from the line of Jack Weiner with Jefferies. Your line is now open.
Hey, Thanks for taking the question just one on after correction average throughout the year can you talk about the average one correction that you saw in China in <unk> and how that trended.
Throughout the year.
Yes, Jack we haven't really given those metrics occasionally we will talk about the majority of the lenses being below minus 10, now and Thats still the case, but.
I think overall as we are in a market we tend to see the migration down the diopter curve and clearly that's an area of focus for the company not just in China, but globally.
And certainly I know Tom has talked about that specifically in the U S, especially as we as we look to go forward.
Got it that's helpful and then just on ASP.
In China, how has that trended throughout the year. Thanks.
Yes, we're getting on ESP I think.
Maybe I'll answer this in terms of the gross margin.
We saw a little bit of a dip in our gross margin for Q4, and I want to make sure everyone understands that that was more of a byproduct of some one timers as we close out the year as.
As you heard in our prepared comments, our gross margin for 2023 is going to hit that I guess, maybe that magical 80% plus number in terms of gross margin as we go forward. So there should be zero concern about asps.
The nature of our contracts the nature of how we set stuff up we don't get variation in pricing.
There should be no concern about gross margins in the fourth quarter as I said, there's a sort of some one timers as we close out the year. It was also one of our lower quarters in terms of overall revenue and of course, you've got absorption of those fixed overhead costs, which said did impacted so we're in good shape overall when it comes to Asps and gross margins as we move through this year.
Thank you Zack operator next question.
Thank you. Our next question comes from the line of David Saxon with Needham. Your line is now open.
Yes. Good afternoon, thanks for taking the questions and congrats Tom on your first earnings call.
Maybe I'll start with Pat just wanted to see if you could talk about how much of the investments tied to the U S. U S launch are expected to continue into 'twenty four.
Should think about the rate of margin expansion over kind of the next 24 months or so as the U S launch France. It seems like guidance is implying some contraction in the first half and then kind of switches to expansion in the back half so.
Is there any reasons why that margin improvement should continue into 'twenty four and if so I mean should we think of the kind of 15% that's implied in that in the back half as a good jumping off point for our 24 estimates.
Yes.
We haven't obviously given 2024, we're getting our arms around 2023 at some point, we've talked about doing an analyst day Investor day, where we would provide.
Long term metrics I think for now Youre on the right track and clearly this is a year as Tom outlined where we want to make some strong investments specifically in the U S market and as we move throughout this year, then we'll see how that goes.
But we're clearly one of the only companies out there that is growing at the rate that we're growing and still throwing off cash and still have a very nice operating margin profile et cetera. So.
Directionally you're okay.
But I don't want to back us into a corner as of yet, but it's a very very elegant and leverages our business model at the end of the day.
Okay got it that's helpful and then on the U S launch.
Can you just talk about the growth.
Is that coming from new doctors or existing doctors, increasing the volumes and then.
I guess for new doctors.
Does it typically take for them to fully incorporate <unk> into their practice and kind of reached a steady state in terms of volumes. Thanks. So much.
Yes. Thank you David Let me, let me attempt to answer your question because I think it's a little bit of a combination of both.
But as I said in our prepared remarks, our focus is certainly we will continue to certify doctors as they come on board, but I think it's equally important for us to go deep with the customers. We currently have and Thats why we are increasing our infrastructure and surrounding the customers. We currently have.
As they continue to reduce evo into the fabric of their practice and.
And make that transition from being more.
Laser vision focus to maybe letting space focus.
So a little bit of both but clearly I think as we go deeper with the customers. We currently have and really drew.
Drive adoption of our procedure.
Business will take care of itself.
Thank you David.
Operator next question.
Thank you. Our next question comes from the line of Stephen <unk> with Stifel. Your line is now open.
Great Hey, guys. Thanks for the questions first one on the U S.
Sort of a modeling question, but Patrick maybe this is for you can you just help us a bit with how we should be thinking about the U S. ICL revenue cadence in 2023 appreciate the.
But once you figure, but I think you said $5 million, but.
Can you just help us with the key assumptions or expectations backing your view on the ramp for 2023, and then as a tack on.
I'll go for it here, but.
On 2020 for any guardrails, you can provide just on the U S ICL sales ramp.
So I'll stick with 2023, and we're probably going to punt on 2024, but in terms of the cadence it's consistent to what we said before we said this is going to take about 18 months journey for the surgeons to get it all up and running that's really going to happen as we move into Q4. This year, we talked about approximately 5 million.
In Q1, we would expect to see some sequential growth as we move throughout the year with really a back end loaded number as we approach honestly looking to approximately double our U S business from 2022 to 2023, and we did provide that supplement out there and if you look at it we did approximately $50 million in revenue in 2012.
Two and the doubling is consistent to some of the comments we've made previously.
Okay.
Got it Thats helpful.
And then if I can pivot to <unk>.
I mean, it sounds like it's coming back very strong and as you know over the past two to three years, it's performed extremely well as.
As well so how should we be thinking about ICL demand just as the economy reopens people can travel they can spend on a greater variety of things. Besides self improvement we saw this a bit with clear liners.
As an example, I guess what I'm trying to ask is what gives you the confidence.
There hasnt been sort of a pull forward in demand that we've heard about.
And then maybe we won't see an air pocket as wallet share competition.
China picks up thanks.
Yes no.
I'll take a crack at that time, and certainly Patrick can add his comments as well but.
As I've said earlier.
Our local team is extremely confident.
<unk>.
In country or end user demand is starting to pick up which tells us the refractive procedures are.
Approaching back to normal status.
Which continues to bolster our confidence in our ability for the China team to meet their goals for this year. So.
We're we're very confident and very excited about what China is going to be as part of our overall business. This year.
And I think it's a good reminder, we've talked about this as well in the past that in our Chinese market. We've got 65 ish STAAR employees on the ground at that Tom referred to and we have a very rigorous forecasting.
Yes.
Cadence around globally, but specifically in China, we know exactly what's being sold and the end market as Tom said and so that gives us further confidence in terms of Reorders and everything else when it comes to China, and whether and not only this quarter as we move throughout the year.
Thanks, Tom Operator next question.
Thank you. Our next question comes from the line of Ryan Zimmerman with <unk>. Your line is now open.
Thanks for taking my questions.
Glad to get on the call here and ask a few I guess I wanted to ask a couple.
If I could number one as you think about China.
What is contractually obligated with your end market customers for the year and what dictates.
Weather.
Those contracts are maintained I mean, if COVID-19 were in a spike again, what kind of impact would you have.
Look at the first quarter implied unit growth, it's about 6% at.
At the midpoint of the guidance and so.
Trying to figure out is.
Is there going to be kind of fits and starts here with inventory levels.
Just given that slowdown in the first quarter I appreciate your comments on kind of both of those topics.
Yes, so I'll give you I'll come back to the guidance right and the $340 million in the composition of it.
I think Tom made a comment that we have over 200 individual physicians out there in China right now and so.
On top of that I know that there was some work done on dock binders and things of that nature, there's not always a one to one ratio between accounts and physician.
And as I said in my my question before we've got very good visibility in the end markets. We know exactly what's happening by procedure by account and so the question around and if you use the word pockets where.
Maybe a pause or something like that we're just not seeing it so.
Just come back to you we feel good about the guidance. We gave we reconfirmed today in China is doing very well as part of our prepared comments.
Okay.
And then I'm going to try and ask two more hopefully Brian will not cut me off I apologize, Brian but number one as you work through the Iot business that separate business I mean, you've had negative price pressure as a result of that through the past few years now that thats going away.
How do you you commented earlier on price metric, but do you anticipate needing to.
Use price as a lever in the U S launch and maybe this is more geared towards Tom will you use promotions with price in the U S launch to spur demand and then I'll sneak in my last question here R&D is going up to $11 million a quarter as you said Patrick.
What are you guys spending on because you are not in a clinical trial. So I'm curious kind of where that R&D is going.
This year I.
We know where the sales and marketing spend is going but I'm curious if you could comment on that as well. Thanks, sorry, Brian I know one over.
Great.
Ryan Let me try to address your price issue as it relates to the U S. I think the old adage holds true even in this case if you sell on price you can lose on price and prices of non factor in terms of our growth strategy in the U S.
And then on the R&D side right. It doesn't include other stuff. Besides just sort of what people think of traditional R&D. We've got clinical in there we're still doing the post follow up on the on the original supplemental PMA right at the three year follow up we did have it.
Second part of that study, we had a deal related to IOP.
But we've also got quality in there and other things. So we just wanted to make sure that we're supporting the organization as Tom talked about one of the big things as clinical and we wanted to make sure we have a strong podium presence et cetera.
And.
We feel good about that number and we'll see how that trends as we move throughout the year.
That concludes the Q&A session I would like to turn the call back to Tom Frenzy.
That concludes our call I want to thank everyone for joining us today, please reach out to Investor relations with any questions you may have.
That concludes today's conference call. Thank you for your participation you have a wonderful day.
Yeah.