Q2 2023 STAAR Surgical Co Earnings Call
Yes.
[music].
Good day, ladies and gentlemen, thank you for attending by welcome to the Star Surgical's second quarter 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 you are using speaker equipment today. Please lift the handset before making your selection.
Call is being recorded today Wednesday August 2nd 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, and good afternoon, everyone. Thank you for joining us on the STAAR surgical conference call. This afternoon to discuss the company's financial results for the second quarter ended June 32023.
On the call today are Tom Frenzy, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer.
A press release of our second quarter results was issued just after four P. M. Eastern time and is now available on staar's website 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 statements.
This includes remarks about the company's projections expectations plans beliefs and prospects.
These statements are based on judgment and analysis as of the date of this conference call.
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 adjusted net income for ICL the corresponding <unk>.
Adjusted earnings per share and sales in constant currency.
During the quarter. The company also recorded various accounting adjustments related towards other products cataract IOL business.
Please refer to the non-GAAP financial measures tables to adjusted net sales adjusted cost of sales adjusted gross profit margin adjusted operating expenses.
The income tax provision.
We believe that these non-GAAP and adjusted numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance.
Table reconciling the GAAP information to the non-GAAP information is included in today's press release.
For brevity, all references to growth rates on today's call refer to year over year growth unless otherwise stated.
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 like to now turn the call over to Tom Frenzy, President and CEO of STAAR.
Thank you, Brian and good afternoon, everyone and thank you for joining us on today's call.
I am pleased to report STAAR achieved record sales and profitable growth for the second quarter of 2023 <unk>.
Results were driven by our Evo family of proprietary implantable column or lenses.
<unk>, which are designed to correct refractive error for people seeking visual freedom from the hassles of contacts and eyeglasses.
For the second quarter of 2023 total ICL sales of $93 1 million were in line with the outlook of approximately $93 million that we provided on our last earnings call in May.
Globally ICL sales growth in the second quarter was up 19% as reported and up 20% in constant currency.
Global ICL unit growth was up 21% with results in the second quarter driven by strength in APAC, the largest region for refractive procedures APAC was up 29% in units and 26% in sales for the second quarter of 2023 in China.
<unk> ICL units were up 35% and sales up 33% for the second quarter of 2023, and we are encouraged by our strong start to the peak implant season for ICL in that market.
For the second quarter sales in our EMEA region declined 9% impacted by the ongoing macroeconomic and geopolitical environment as well as an inability to ship icl's into one non European country. As a result of a country specific product labeling change.
However, looking at European markets, only ICL units were up 6% and sales up 2% for the second quarter of 2023.
Turning attention to the United States.
<unk> sales grew 10% for the second quarter, well ahead of U S refractive industry procedure volumes, which the refractive surgery Council recently reported declined approximately 15% in the quarter sequentially. Our U S sales in the second quarter were relatively flat.
Lower than expected results in the U S. The macroeconomic impact in Europe , and certain other refractive markets merits additional conservatism as we look to the second half of 2023. We are therefore today updated our fiscal 2023 ICL sales outlook to a range of approximately.
$320 million to $325 million at the midpoint, our new outlook represents a high level of sales growth and approximately 20%.
Since becoming CEO in January I've, now had the opportunity to make a more complete assessment of the business in the U S and around the world. We have implemented a high performance management system that helps us get closer to our customers and other stakeholders and identify top priorities for accelerating Evo.
Adoption.
We have created cross functional teams for each top priority, who are accountable for achieving the desired results.
Along the priorities and actions we have taken to accelerate adoption in the U S and globally are the following.
Number one we've enhanced our leadership in April appointing two seasoned executives warrant fast as chief operating officer, and Magna merchandise, Chief clinical regulatory and Medical Affairs Officer.
Number two we are taking actions to make our company even easier to do business with.
The projects related to this top priority are focused on increasing surging confidence in measurement and lend size selection simplifying our ordering process.
Liberty and IR lenses to customers faster and longer term, making the evo ICL, even easier to deliver to the eye number.
Number three we have developed and are implementing new analytic tools.
<unk> is allowing us to better target high volume customers with favorable economics. For example, we have mapped the over 430 practices, representing our 600 plus surgeon customers in the U S and as a result, we are implementing tailored programs that effectively lever.
The knowledge, we have gained from these tools.
Number four we will pilot a patient call center education, and surgeon referral program aimed at better answering patient questions and shepherding patients to the most appropriate evo customers. We believe the call center will create a closed loop for a patient Doc finder, allowing us to better support.
<unk> and track the patient journey, and thereby better monitor the effectiveness of our investment in the U S and consumer awareness and other activities.
We anticipate the actions and projects I, just outlined among others will accelerate evo adoption in the U S. As we exit 2023 and beyond.
Our vital few priorities and our learnings in the U S. We will also have positive implications for our markets globally.
I have previously stated that laser vision correction is well established.
I remain confident in <unk> ability to be successful in the U S and beyond and my confidence is buoyed as I spend time in the field with key opinion leaders discussing the impact that Evo is and can have on their practices.
The investment rationale for STAAR remains compelling.
We have a fantastic technology without peer.
Define good medicine as I do excellent patient outcomes high patient and surgeon satisfaction and favorable economics Evo is indeed good medicine.
<unk> is the dominant player globally and lens based refractive vision correction for 'twenty, one to 60 year olds, who are facing an increasing epidemic of myopia.
Next we expect to remain a high growth company based on our strength in APAC, the largest region for refractive procedures in the world.
Additional growth will come as we deliver similar results in the U S. The second largest market for refractive procedures in the world and Europe emerges from the current macro and geopolitical headwinds and finally, we are profitable we generate cash and we have a rock solid balance sheet.
For those of you that would like to learn more we will host an investor and analyst meeting in New York next month on September 14th where we will outline in more detail initiatives projects, including some next generation product pipeline initiatives and the significant growth opportunities ahead for STAAR.
We also expect to have several evo surgeons from around the world, who will speak to their experience.
Patrick.
Thank you Tom and good afternoon, everyone before I go through the various financial metrics I want to reference an additional non-GAAP reconciliation table in this quarter's earnings release.
As we have previously mentioned on prior earnings calls and in our filings we are exiting our other product cataract IOL business as we focus on our core ICL products.
This resulted in some accounting adjustments, primarily due to excess inventory and a smaller sales return reserve adjustment.
Please refer to the non-GAAP financial measures tables in our earnings release as I will be referencing both as reported and adjusted impact in my prepared comments.
Total net sales for Q2, 2023 were $92 3 million up 14% as compared to the $81 1 million of net sales in Q2, 2022 and up 26% on a sequential basis from Q1 2023 net sales of $73 5 million.
The year over year increase in net sales is attributable to a $50 million or 19% increase in ICL sales, partially offset by a $4 million decrease in other product sales.
This included a $742000 sales return reserve adjustment or a reduction in sales for our other product cataract IOL business, resulting in adjusted net sales of $93 million.
Or up 15% year over year.
We continue to expect other products will represent a smaller and smaller percentage of net sales as we move through fiscal 2023 and paper are supported this noncore cataract IOL business.
Gross profit for Q2, 2023 was $70 7 million or <unk> 76, 6% of net sales as compared to gross profit of $63 9 million or <unk> 78, 8% of net sales for Q2, 2022, and $57 $6 million of 78, 3% of net sales for Q1 2023 to.
220 basis point decrease in gross margin as compared to Q2 2022 is primarily due to inventory reserves related to the other product cataract IOL business.
That 170 basis point sequential decrease in gross margin from the first quarter is also due to the other product cataract, Iowa inventory reserve.
The total amount of additional inventory reserves with $2 8 million.
And when adjusted our gross margin was 79, 8% in the quarter.
Due to the additional reserves booked in the second quarter, but primarily driven by the lower sales outlook for fiscal 2023, we now expect gross margin will be approximately 79% for both Q3 and Q4 and approximately 78% for the full year.
We continue to drive initiatives to improve our manufacturing efficiencies.
When combined with more favorable geographic mix related to direct markets like the United States. We believe company gross margins can exceed 80% as we move beyond 2023.
Moving down the income statement total operating expenses for Q2 2023 were at $62 1 million as compared to $46 9 million in Q2, 2022, and $54 8 million in Q1 2023. This included $154000 intangible asset impairment adjustment related to our other product cataract IOL.
Yeah.
Taking a closer look at the components of operating expenses G&A expense for Q2, 2023 was $18 1 million compared to $14 million for Q2, 2022, and $18 1 million for Q1 2023, the year over year increase in G&A is due to increased compensation related expenses outside services and facilities costs.
For fiscal 2023, we continue to expect G&A expense will be approximately $19 million per quarter.
Selling and marketing expense was $32 3 million for Q2 2023 compared to $24 2 million for Q2, 2022, and $26 4 million for Q1 2023.
The increase in selling and marketing expense from the prior year was due to increased advertising and promotional expenses compensation related expenses trade shows and meetings.
The sequential increase in selling and marketing was due to increased advertising and promotional expense trade shows and meetings and compensation related expenses.
As we have said before driving Evo adoption is a multi pronged approach focused on physician training and confidence along with increased brand awareness through our marketing efforts.
We are not seeing the type of returns on our digital marketing investments that we had expected and that's made the decision to reduce such investments until we can be more certain that patient conversion and the overall cost of patient acquisition meets our internal targets.
We now expect selling and marketing expenses will be approximately $30 million in Q3 and $27 million in Q4 down from approximately 33 $33 million each quarter previously.
As we have said the ability to flex our digital marketing investments allows us to react quickly to the market and we will revisit this as we move beyond 2023.
Research and development expense was $11 8 million in Q2, 2023 compared to $8 6 million for Q2, 2022, and $10 3 million for Q1 2023, the year over year and sequential increase in R&D is due to increased compensation related expenses and U S. Evo post approval clinical trial expenses associated with it.
Three year study.
For fiscal 2023, we now expect R&D expense will be slightly higher at approximately $12 million for Q3 and Q4 as we have made additional investments in our clinical and medical affairs, which falls into R&D as we look to drive increase physician confidence through training publications and other clinical studies.
Operating income in Q2, 2023 was $8 $6 million or nine 3% of net sales as compared to 17% $17 million or 21% of net sales for Q2 2022.
We now anticipate other income expense will be slightly down at approximately $500000.
Income per quarter for the balance of the year, primarily due to foreign exchange gain losses that are booked on this line item.
We remain proud of our multiyear track record of profitability and cash generation, which we expect to continue and is rare for a high growth medical device company.
The reduction in our sales outlook for the full year and being primarily in high gross margin direct markets like the United States does reduce our overall operating income.
But when partially offset with the reduction in sales and marketing investments. We now expect operating margin for the fiscal year 2023 will be approximately 5%.
Net income in Q2, 2023 was $6 $1 million 12 per diluted share compared to net income of $13 million or 26 per diluted share in Q2 2022.
After taking into account the aforementioned adjustments related to our other product cataract IOL business as well as the $405000 tax affected benefit from those adjustments.
Our adjusted net income for ICL was $9 $4 million or <unk> 19 per diluted share.
Tables reconciling the GAAP to non-GAAP information and <unk> accounting adjustments are included in today's financial release.
For fiscal 2023, we now expect our effective tax rate will be slightly higher at approximately 35% in Q3 and Q4 due to the reduction in United States profitability and is always subject to no significant change in our valuation allowance.
Turning now to our balance sheet, our cash cash equivalents and investments available for sale as of June 32023 totaled $209 5 million as compared to $225 5 million at the end of the fourth quarter of 2022.
The decrease in overall cash is due to the timing of accounts receivable, which historically grows in the second quarter and should be converted to cash in the third quarter.
Though we have only booked approximately $6 million in capex at the end of Q2, we continue to expect we will invest approximately $26 million in property and equipment for the full year, primarily related to manufacturing capacity expansion, including some larger projects in the second half of this year.
As Tom mentioned earlier today, we updated our ICL net sales outlook to a range of $320 million to $325 million for fiscal 2023.
We expect our other product sales will be essentially zero for the full year fiscal 2023 due to the cataract IOL business adjustments I had referenced previously.
A reconciliation to the midpoint of our outlook results in an approximate $22 million change from our prior ICL outlet.
This includes an approximate $12 million lower sales contribution from the United States.
Approximately $5 million lower sales contribution for EMEA or flat sales year over year.
And an approximate $5 million reduction of sales from certain APAC market, primarily South Korea, which has faced some economic headwinds.
For Q3, 2023, we expect global ICL sales and overall net sales will be approximately $80 million.
Next week Star will be participating in the Canaccord Genuity annual growth conference in Boston on August nine.
We will also be participating in the Needham virtual Med Tech and diagnostics conference on August 15th.
Piper Sandler West Coast Bus tour on August 23rd the William Blair West Coast Bus Tour on August 30, and the Goldman Sachs Annual European Med Tech and Health Care Services Conference in London on September six.
Chin.
Your first question comes from Bill provide Nick from Canaccord. Please go ahead.
Hey, John on for Bill Tonight, Thanks for taking my questions.
I I think it started on the U S trailing somebody.
Okay everyone's focused on I I I I appreciate all the details that you gave their Tom but what's the sequential flaccid decline revenue and.
I know you've made previous commercial investments there too beyond just adding one C. C O. But can you talk about just when do you expect productivity from those commercial at ramp I know you felt about <unk> expecting you in the back half of this year, but just any incremental detail what you're seeing there and also just you know what you're hearing from.
Surgeons.
Yeah, Thanks, John and good to hear from me give our best Bill as well you know I think look at we said all along that laser vision correction is is very well entrenched in the United States market, we've talked about the inertia of Lasik and I think until we move evo from a niche.
Procedure.
Two or more mainstream in a in a given refractive practice, it's just gonna take time, but we believe we better understand the market today as we made some investments in new analytical tools and.
Certainly putting more feet on the street and getting candid feedback so we remain.
Very optimistic about as we execute on the vital few projects that we've identified that we believe in the U S. <unk> breakthrough opportunities, we're gonna be just fine.
I've said, all along and as late as June It was an 18 to 24 month process and I think we're still working on that same timeline.
Great. Thanks, and just for a follow up to I was a bit surprised on the commentary about the digital marketing not working out as yet had anticipated I've seen Oh you at what do you think isn't working correctly there cause it seems like you had good patient traction.
These patients you become aware of the procedure the physicians, who are not aware of Evo 19 converted to other procedures or what what do you think that the hiccup.
Yeah, I I think we you do see some of that bait and switch happening in the marketplace and again, we said all along the beauty of digital marketing is you can redirect it you could turn it off you can turn it on and that's exactly what we're doing I think we're just being more prudent about where we're spending the money and I think a great example of that is the cost.
Center project that we're initiating in the back half of this year because it really gives us for the first time the opportunity to create this closed loop as a result of our Doc find if you've heard us talk.
Positively about the amount of traffic, we're seeing on the dock finder, but it's always been a challenge to understand what happens to those patients and now through this process. We're gonna know exactly what's happening and we're gonna be able to direct interested patients to an appropriate Evo center, where we know they're going to be treated well so.
Again, I think we're just a little smarter, a little wiser and we're being a little bit more prudent about how we're going to spend those digital dollars.
Got it thanks Tom.
Your next question.
Alright. Please go ahead.
[noise]. Thanks, Good afternoon, everyone, everyone for Tom on a guidance and then a follow up just on balance sheet for.
For Patrick So so any time just walking through the shift here.
To $20 million to $23 million revision in total from the prior range.
Look at the two Q performance, China was actually ahead of our expectations.
A light in the United States, who was also like Japan.
So when we reconcile the quarterly performance the guidance.
Is it mostly just U S or are we.
Splitting that between Japan and U S.
Or should we also be taking a little bit of deceleration into the back half of the year for China as well and I'll have one follow up.
Yeah No I. Thank you Anthony further question.
I think you're right, we see a little bit of softness is Patrick and his prepared remarks called out South Korea in particular, Japan to a lesser degree a little softer we think China will continue to grow as I mentioned in my prepared remarks, very encouraged by the first month month and a half of the of the high season.
Really off to a phenomenal start so I think China will continue to.
To show that kind of growth, but again globally, we believe we're 20%.
Per year growth company, we continued to be a high growth organization and I think that will continue beyond 2023.
Particularly as we begin to execute on these vital few projects so.
A 20% top line growth is always going to be our goal and hopefully beyond that as we execute on these priorities.
Alright tell blood in the the follow up for Patrick maybe just on the balance you don't understand this seasonality here.
I guess sequentially, it's up $34 million and the prior two years. It was up about 15 million Q over queue from one two to two Q. So.
So maybe you just walk through the outsized increase in receivables.
This cycle visa visa prior to cycle.
Yeah sure. It's it's a little higher some of it has to do with just the timing of product as we deliver it into the various markets primarily into Asia Pacific.
No issues with Collectability will look to see that number grow quite a bit down in Q3, as we monetize or convert that are into cash. So we're in good shape. Their inventory levels are very good across all of our region, including APAC and so we're feeling very good about where we're at from all this temple.
Thanks, I'll help I can too.
Hey, Yeah next question cause I'm Margaret <unk>.
Please go ahead.
Hey, good afternoon, guys. Thanks for taking my question.
The first one I want to ask about the U S at like money and my colleagues, but you know I'm trying to do the math and it seems like you're sort of assuming relatively flat sales here I guess sequentially three year, and maybe can turn me up on that and yeah.
We think about that decrease down certainly you're you're maybe not saying they are why on somebody how much you expected, but how do you think about the macro element here and second yeah. How much success. If any are you assuming in terms of the measures that Tom mentioned like the call center specialist to get them to keep for.
Hi, Margaret is Tom. Thank you for the for the question first to answer the first part of your question. Yeah. I think it's not unreasonable to assume a relatively flat back half of the year for the U S. As these priorities take shape and we moved full bore into an execution phase. So I think that's not.
Unreasonable for you to to to expect but I think you know again the U S business as I've said all along is this gonna take some time, but I think as we focus in on enhanced training additional clinical and magic medical education efforts that we have going on looking at.
Things of driving surging confidence at a higher level or they will all bear fruit in 2004 and beyond.
Yeah, I'll, just piggyback off of that so just to get to the guidance in general cause I think we'll get a lot of questions on this.
The program and the initiatives that we outline do not contemplate those having.
The material traction in the second half of 2023, as we said and I think when we talk about all the markets.
Did the bridge at least semi prepared comments from the old guidance to the new updated guidance. We wanted to put a number out there that we feel very very confident about and that's the number that you're getting between that $320 million of that $325 million for the full year and it takes into account uhm all the stuff that we talked about.
And as always.
Some of these things get a little tracks earlier than potentially we can see some upside to that but this is in our minds, a very very achievable number.
Okay. Yeah. That's that's helpful. And then I know we're sitting here in mid 2023. So it's not really fair of me to ask this question, but I'll ask it anyways, yeah. As we look at 2024, I guess can you walk us through what gets you to that 20 per cent top line growth between the different geographies specialist, we're gonna exit the U S around that $4 million.
Let's say revenue number <unk>, yeah, what what's kind of the gap to get to that 20 per cent and then second let me think about margin expansion.
I I assume we will see some of that in 22.4, yeah. It was 2023 being alone.
Yeah. How are you guys thinking about that expense structure. Thank you.
Yeah I'll jump in it.
<unk> question.
The 20% is clearly of 2023 number we're not going to get into 2024 and beyond we currently have an investor day coming up I think it's fair to say that it.
Internally, we continue to view ourselves a high growth company.
However, you define that that 15% to 20% range is probably about right and as I said that number could go higher we can be on the high end of that range as some of these programs that we're putting together come to fruition and so based off of the new outlook that we provided for 2000 twenty-three, which we feel is very achievable.
I think as people think about going beyond that cause I said that 15 to 20 per cent probably makes sense.
But we will provide more details as we get more visibility to these things and we have the opportunity to really set the stage more so at our analysts stay on September 14th.
Okay. Thank you guys.
Your next question.
Please go ahead.
Alright, great Uhm. Thanks, so much for taking my question I guess, you know you have a lot of online initiatives.
Focus on the U S launch I was wondering you know by the analyst.
What do you think you can share with us related to the trajectory of the U S launch and.
You can give us a preview for we should expect to hear maybe.
Maybe more longer term information out of them.
Yeah Young this is Tom Thanks for the question I think as we said we continue to give guidance for this year at 20%. We believe we will continue to be a high growth company.
Beyond twenty-three and the 15% to 20% range and we think to the degree that.
As we execute on these initiatives it could go higher in September I think you'll be able to hear more granularity both from us as well as from some leading kols that will join us.
In New York to talk about their own individual expectations and how <unk> is impacting your practices and we believe that these will be global kols that represent.
Not only U S, but Europe and Asia Pacific region. So I think more to come I think it's going to be an exciting discussion and many of the questions that you all are asking already will.
Will be.
Fully answered in September so I hope you make the time to join US in New York, it's going to be an exciting time.
Alright, great looking forward to that maybe to follow up uhm on China.
You know pretty strong performance in second quarter Uhm hurt the comments on the strong start to the peak season, but you know we see a lot of the you know negative macro headlines coming out of China. So just wanted to put a finer coin on the level of confidence China performance in the second half.
<unk>.
Yeah Young I can tell you first hand, having just spent 10 days in China.
Across three different markets within that country.
Enthusiasm is high activity is high surgeons support and surging confidence is high I've met with economists there as well as clinicians and there's a bullishness there at the street level that I felt that I saw and I continue to be extremely confident in the quality of our team.
<unk> and the quality of of.
The level of activity where scene.
In that market again through really half of June and all of July .
R and market sales are are really at a very very strong level.
Alright.
Sure.
Yeah next question comes from Ryan.
Please go ahead.
Hello. This is Sam on for Ryan and thank you for taking our questions could you give us an update on the geographic unit growth that is implied with your new 2000 twenty-three guidance. Thank you.
Yeah, I don't think we get into many specifics on that but it'll be pretty close it might be slightly above that from a unit standpoint, because we do see depending on geography's, a little bit of mixture right on the AFP. So.
We might have maybe a percentage you hire that on a unit growth when it's all said and done but it should be pretty close.
To the 20%.
Thank you that's helpful. Then it.
It sounds like China's performing very well, how the Sps in China trended throughout the year and how do you expect us to trend in the second half of the year. Thanks again.
I'm, sorry, Sam how is what trendy.
How old Asp's trend that in China This year.
Strong no no price degradation no real pressure on price.
If that's what you were asking again, having just spent time there on the street myself I can tell you.
We're holding price heavy we continue to be position as a premium choice and the market's reacting favorably.
Yeah, just as a reminder for everyone.
We don't have one single price for China, It's a byproduct of multiple customers that we have there that have different pricing as well as the fact that we sell spherically detore cleanser would have different pricing as well. So we know our pricing and et cetera, basically the entire year any change. It you see is really due to product mix and our customer mix within the.
Selling into that throughout the year.
Your next question.
Brian .
Please go ahead.
Hi, This is Sam.
Thanks, So much for taking my question Uhm I guess.
Could you talk a little bit about.
Talking in China in the second quarter compared to a year ago and also are there any signs of moving download die off occurred during the corner.
Yeah like I said the inventory levels are good in China is always has a market share continues to grow in China and I'm just trying to other markets. We might look to further increase our service levels as we like to say, meaning we wanted to make sure inventories much closer to the physician and their then user patients. So that we can make sure that even though.
Happens as rapidly as possible, but nothing unusual with Q2. It is our high season, where we sell in in in the high season in terms of implants and procedures starts really in that July timeframe and continues through August and maybe a little in September so.
Was I said, we're very comfortable with where we're at on an inventory level across the globe.
Relative to the Diopters I would say.
Anecdotally, we certainly have heard and seen examples of surgeons globally coming down the curve I would say an aggregate as we look at it internally there's been about a half a diopter to a diopter movement down.
In our aggregate numbers.
But more and more I think individual docs are are certainly starting to make moves bigger than that a good example of that again from a K well here in the United States, who has gained a high degree of confidence now his whole marketing effort is gonna be around Evo and he has indicated.
That he is going to be very comfortable offering evo to anyone minus three or above.
Oh, that's great. Thanks, so much for that color I guess, one more question for that and you'll have mentioned being very confident in your updated guidance I guess could you give us.
Uhm, what gives you that confident thing updated guidance and exactly what all.
Does that bacon. Thank you.
Yeah as I tried to indicate in my prepared remarks, I mean, I've spent a lot of time in the field around the world, but also particularly here in the United States and and talking with key opinion leaders East West North and South.
Continue to be encouraged by the positive rhetoric.
Commitment people have to the technology trying to find ways to fit it into their practices on a more routine basis to move it out of a niche mindset and more into the mainstream and as we.
Better understand the nuances of these practices and how we can help them achieve.
The kind of position.
That evo deserves in their practice.
I remain confident that we're gonna be able to make that happen.
One of our prescript divisions are monitoring the company has to become the first choice.
Patients and doctors, who are seeking visual freedom and we're on our way that's aspirational, we're doing all the right things to make that happen, but we know today, we are not the first choice.
But that's R. Aspirational goal in the organization is highly focused on achieving that.
Pay your next question comes from charged salaries Stephens Inc. Please go ahead.
Good afternoon. This is Harrison on for George Thanks for.
Taking the questions.
My first is on the.
The U S refractive market down 15% year over year I was wondering if you had.
Had any idea of the drivers there is that a is that.
Economic.
Issue or is there something else going on in the offices that we need to be aware of.
Yeah, I don't think there's anything unusual it's happened, but the refractive surgery Council.
Here in the United States tracks tracks that pretty routinely and they just came out with their queue to assessment and it's down 15% and again, we're not pleased with where the U S growth is but I think it's worth noting again that we were up 10% in a market that's down 15%. So we know we're have an impact it's.
Not maybe at the level you all wanted to see it certainly not at the level, we wanted to see and we've got plans in place to know that it's going to improve so.
When you put it in the context of what's happening in the.
Laser vision correction market in general are performance in Q2 is certainly beating the market.
Got it yeah. That's that's helpful and then I'm switching over to China.
I'm just curious I know, you've you've spoken about moving down the diopter curve there, but I was just wondering how patients were responding I'm just given the elevated price.
Compared to.
Sick.
Really recognizing that the clinical benefits.
The better medicine that you'll have and they're willing to pay for that is that something you what I'm, saying.
Yeah again firsthand.
There are 11.
Evil only centers.
Across China were all they do is evo surgery, and a premium price so.
Again people see the outcome the patient satisfaction as we've previously reported continues to be at 99% to 90, 95% high patient satisfaction. So clearly.
Price is always an issue for a certain type of patient, but overall.
Price has not been an obstacle to our growth, particularly in that marketplace.
Your next question comes from the line.
Please go ahead.
[noise], Great Hey, guys. Thanks for the questions and sorry, if some of these were asked jumping between calls.
But our service just on the financial side profitable high growth really has been a differentiating aspect of stars financial profile for for many years now this.
This year operating margin, obviously is expected to step back a bit from last year, but I guess they could picture can you talk philosophically about if the thinking has changed at all about the focus on I guess those are very high levels of profitability.
Whether maybe the thinking is shifting more towards Grove.
Given the early stages of ICL penetration globally.
More notably in the U S.
Yes, Tom Thanks for the question and good to hear from you.
I think look at we have to serve both masters right. We want to grow top line and we want to continue to grow bottom line, but as we've said in the past we have a strong balance sheet and we want to leverage that balance sheet. We've made some investments in the first part of this year, we knew it would compromise.
Our bottom line, but we continue to be profitable on the bottom we believe generating high growth.
Is is.
Preferable.
And we're going to continue to focus on continuing to be a high growth company.
This year and beyond but will be fiscally prudent and disciplined about how we spend that balance sheet. So I'll, let patrick add a little bit more color, but we will continue to focus on both but our emphasis will be on continuing to drive top line growth.
Yeah, Thanks to Tom and so I think I talked a little bit about gross margins as we we continue to see very good gross margins and as we bring on the direct markets like the U S. Like some of the direct markets in Europe , that's only going to help give us a tailwind on our overall gross margin by raising our asp's.
As you know whenever you're launching in a in a new market, especially a direct market you're going to have a little bit more.
Infrastructure and investment that you do at the beginning I ER Salesforce that we did the beginning of the year and so we're laying the groundwork for that we'll talk more about this in September at our analysts day, but internally and as we look at it we don't see any issues with being able to continue to have some good bottom line performance, but no doubt we want to make sure that we are taking mark.
Sure wherever we can and we realized that we have a really good opportunity here, especially with being the leading lens base.
Product out there to really drive market share across the globe.
Got it that's helpful and then submit it to the United States I actually Wanna ask cut a longer term you know in the past the company talked about 20% share maybe as soon as the 20th 25 timeframe, maybe that's pushed out a little bit but can you speak to your level of confidence and ultimately.
Achieving a number like that longer term kind of no matter.
However, many years that May tell you can maybe more importantly than the crux of my question. Tom can you just talk to what you believe the main foundational and big picture challenges in the U S market or whether it's infrastructure I'll.
I'll, let you answered had but more.
More importantly, what star is doing to solve those problems I guess lower those hurdles. Thanks.
Yeah. Thanks again for the for the follow up question look it is.
And as I mentioned earlier in the call I think look at we need to move Evo beyond.
Ah niche mindset.
The minds and hearts of many ophthalmologist and clearly the challenge we have is moving evo into the mainstream of their practice one of the ways. We will do that as is taking some of the art.
Out of of the procedure and putting more science and predictability into the procedure and we're gonna do that through a real focus on enhanced training additional independent medical education as well as investigated investigator initial trials that were.
Looking at.
We're exploring some other <unk>.
Intermediate sizes to address.
Some of the concerns we've heard about from from Doctor. So I think all in all I am confident because people <unk>.
<unk> the outcomes that the procedure drives the procedure is.
Is not difficult, but it is delicate and that delicate portion equates to a little more art than science compared to a normal dry anoma Grand and come with Graham wrote procedure that laser vision correction has become.
We've learned through these first seven months some issues that we need to focus on to make this a little bit more predictable in the hands of any surgeon, whether you've done 10 or whether you've done 10000.
And I'm confident that we're smarter today when we were in January as I said, we had these vital few projects that focus on a lot of these areas cross functional teams that wake up every day working on how we improve those areas and we're beginning now to get to the execution phase.
That I think will carry us through this year keep the U S business moving forward keeping our growth engines outside the United States moving forward and sets us up for a consistent high growth company for 24 and beyond.
Your next question.
Please go ahead.
Yeah. Thanks.
For your comment Pat Thanks for taking my questions.
I guess, maybe starting on on the U S.
At the <unk> conference, we picked up delivery times can be around six weeks I'm sure that varies.
But you obviously called out out of something you're you're working on so I wanted to ask you what specifically needs to be done.
On that front end, how quick do you think you can get the order to celebrate time.
Yeah No I appreciate that question, Dave as we said one of our initiatives is is really dealing with manufacturing operations ability to deliver product quicker to the customer.
I think right now our inventory levels are such that we're doing extremely well and beating that six week period of time I think as we can move more and more closer to let let me.
Say like a lasik like outcome or delivery, where a patient walks in the door and certainly within a matter of days can be treated that's our ultimate goal.
Okay got it and then the EMEA country that you can't ship to any more maybe just a little more color on that how much impact with that in the quarter.
And that 5 million guide down as it relates to the media region is that all related to this one country or does that assume kind of slower growth.
Across the broader EMEA region. Thanks, so much.
Sure David.
Suffice to say the countries in the middle East.
I think if that order winter went through we probably would have had the region.
Almost flat. So you can do the math and figure that out certainly are direct markets and as I said in in Europe , Europe's specific was up.
In queue to not significantly.
Six and 2%, respectively relative to sales and units so.
They are holding their own.
But clearly we have opportunities for growth in Europe , and EMEA across the board, but I'll, let Patrick add any other.
More color he liked to those numbers.
I think Tom hit it. So I think we're good and we did take down a little bit on guidance, but as I said before we wanted to put a number out there globally that we felt very comfortable with in my prepared comments, we tried to do and give a lot of transparency on bridging.
The old guidance to the new guidance and as everyone can see a big part of the underperforming and the lowering is related to the U S. But we're coming off the record breaking queue to.
And as I said, we feel good about what we're doing and where we're going to end of the year and where we move forward.
Your next question comes from.
Company. Please go ahead.
Hi, good afternoon, and thanks for taking the questions just.
Just wanted to follow up with you you said you are going to scale back on.
Of your digital marketing until you figure out a more efficient strategy, but you you also said you're gonna spill.
Continue to ramp up the capital spending for 2023, so should that <unk> does that imply that.
You still think you can become a 15% to 20%.
<unk>, 15% to 20% market share in the U S.
You still think that you'll need that capacity over the next couple of years.
Yes. So you are absolutely right and to be clear, we are reallocating some of our spin on a sales and marketing as Tom said, but we clearly want to make sure that as we're making these investments were getting the type of return we want we will revisit. This is some of these programs and initiatives related to worry vital few come through the capex.
That's a good observation on your part Jim I mean, we continue to be very bullish about what our prospects are and we have to start planning capacity now for what will be higher market share globally and all of these geography. So yes, we are spending the money to bid on our capacity et cetera. So.
We believe very strongly in Evo and it should be the first choice for customers and their patient seeking visual freedom.
And you know.
Good I think other endosymbiosis, but you still think long term you can be at least a 15 per cent market share in the U S.
I think more to come during the analyst day, but I think we've said it a couple of times now that we view ourselves internally as high growth and.
We think thats between 15, and 20 and where.
More to come as a we show some of the pathway to get there.
Hey, your next question.
Steve.
Okay.
Go ahead.
Thank you eating guys.
On the on the vital few Tom in terms of some of the projects you have under way he talked about.
Simple firing ordering process things like that how should we think about the implementation time.
Those when when do you anticipate them sort of being up and running.
Well some are up and running now some will kick in in Q3 and Q4, but certainly throughout the back half of this year every one of our priorities will be in various forms of execution, which is why we're saying it's gonna create a tailwind tours through the balance of this year and set us up for a.
Very solid 2000 2004.
Okay, and then just as a follow up can you talk to a little bit more detail on the call center, what sort of pressure point in the field do you think that that will will help address and how how big.
That initiative to be.
Time will tell we're doing a test pilot and then we're going to expand it to regions of the country as opposed to nationally while we grow together, we're working with a third party, who certainly has a a successful track record in this area and I think as I indicated earlier.
We know through our Dot finder, we're continuing to get consistent.
Visits.
But a lot of those visits you lose visibility to what happens to them after they come and try to find a doc in their particular area. This is now taking back control of that and through this call center will be able to communicate with these patients really understand their motivation are they ready.
To have a procedure and then direct them to the appropriate practices that we know a bait and switch won't go.
And there'll be more than likely turned into surgical procedures. So again as I said, it's creating a rural closed loop. So we can create a cause and effect relative to the dollars, we spend generating brand awareness driving people to adopt find or what.
<unk> site, and then funneling those patients appropriately that was not happening until we're until returning on this this call center.
Okay last question.
Jackson.
Company. Please go ahead.
Hi, Thank you for taking my question I wanted to see if I could get some color on the decline in Japan and Korea, how much of that was due to the discontinuation of the other products and how much was due to just general market conditions and.
Do you still think that in Japan, and Korea can be up for the year in total thank you.
Yeah, Thanks for asking that Bruce because I think it's important and everyone understands it within our Japan breakout that we do on our disclosures of our 10-Q, an arcade that does include other products in a pretty significant amount of it as you know we're not we're basically doing nothing and Q2 related to the IRL, Japan itself was actually a year over year on the icy.
Business and so overall, what we're seeing is a little bit of pressure as I said in South Korea, maybe a little bit in Japan, but that equates to that $5 million take down that we did related to APAC.
Got it thank you.
Okay.
Alright.
Thank you for joining our call today, we look forward to speaking with many of you in the coming days and weeks, including next month that our New York investors and analysts meeting.
Thank you.
Ladies and gentlemen.
Thank you for joining.
Disconnect your lines. Thank you.
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