Q1 2025 STAAR Surgical Co Earnings Call
Steve Simon: Sterling K. Moore, Richard Noyton, Rick Dwayne Kirkpatrick, Tom Webber Rollage, Al Fragel, Philip Leenberger Dickens, panelists Steve Simon, Disciple Bernard Richard Noyton, Rick Dwayne Kirkpatrick, Tom Webber
Steve Simon: Carlton yarrds interview Jonathan G. Sanchez, the show's screenwriter Kai Turner, The Nerd Dean C Addison, The Kid Who Lived Before He Was Born Carlton Yarrds, The Kid Who Lived Before He Was Born
[inaudible]
Speaker Change: Greetings and welcome to the STAAR Surgical First, Water 2025 Warning School and Webcast.
Speaker Change: As a reminder, this event is being recorded today, Wednesday, May 7, 2025. During today's presentation, all parties will be in a listen-only mode. If you need any assistance during this time, please
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star, then two.
Brian Moore: I would now like to introduce your host, Brian Moore, vice-president of in-missed relations with STAAR Surgical. Please go ahead.
Brian Moore: Thanks operator. Good afternoon and thank you for joining us. On the call today are Steve
Warren Faust, President and COO, and Deborah Andrews, Interim CFO .
Brian Moore: Earlier today we reported our first quarter results via press release and form 8K. 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.
Brian Moore: Webcast participants can also send questions for today's Q&A session to IR at STAAR.com.
Brian Moore: 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 risk of uncertainties that may cause actual results different materially from those expressed or implied by such forward-looking statements.
Brian Moore: I encourage you to read the disclaimers in today's release, the presentation as well as the closing of our filing with the SCC.
Brian Moore: Except as required by law, STAAR seems no obligation to update these four looking statements to reflect future events or actual outcomes.
Brian Moore: In addition, during today's discussion we will reference certain non-GAAP financial measures including adjusted EBITDA and constant currency sales. Please refer to days release and the presentation for definitions and reconciliation of non-GAAP metrics.
Brian Moore: For brevity, unless otherwise specified all comparisons on today's call, we'll be on the year-over-year basis versus the relevant period.
Brian Moore: Finally, a quick reminder, we intend to use our website as a means of disclosing material non-public information, and for complying with our disclosure obligations under regulation
Brian Moore: Sex 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.
Speaker Change: And with that, I would now like to turn the presentation over to CEO Steve Ferrell. Steve?
Steve Farrell: 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.
Steve Farrell: The building blocks for the company's successor 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.
Steve Farrell: As we said in today's earnings release, we have to do better and we will. My commitment to you is for transparency.
Steve Farrell: The good and the bad as we return this great company to sustainable growth that reflects our brand's earnings power and strength.
Steve Farrell: 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
Steve Farrell: Globally, the prevalence of myopia continues to grow, and patient preference for reversible, proven, high quality solutions is increasing.
Steve Farrell: 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.
Speaker Change: Well, we have made excellent progress in my first 70 days as CEO . We have worked to do to return to the level of financial performance that our shareholders expect and deserve and that we are capable of achieving.
Let me give you a few highlights of our accomplishments.
Speaker Change: One, we streamline the management structure to be more effective and more efficient. This includes promoting Warren Fost to President overseeing our day-to-day operations.
Speaker Change: Warren, who has joined me on the call, is a proven industry executive and a problem solver who shares my enthusiasm for disrupting the market.
Speaker Change: Our new management structure also includes bringing back Deborah Andrews as interim chief financial officer.
Speaker Change: Deborah was previously CFO of STAAR and she built trustwood investors through transparency.
Speaker Change: Deborah was the architect of cost optimization and financial initiatives that resulted in a period of high cash flow generation.
Speaker Change: We also elevated Magdameshna to the newly created role of chief development officer.
Speaker Change: Magda is leading our renewed efforts to diversify our product portfolio and improve the pipeline and has already brought disciplines to our R&D efforts.
Speaker Change: Collectively, with the entire management team, we are committed to winning in the market place and to driving shareholder value.
Speaker Change: 2. We are working with our distributors in China to manage through their inventory levels so that our Q3 revenue more closely aligns to in market procedure volume.
Speaker Change: Better days are ahead as a macroeconomic headwinds appear to be diminishing in China and we expect a good second half of the year.
Speaker Change: Three, to mitigate the potential impact of tariffs, we negotiated consignment agreements and shipped consigned inventory to our distributors in China.
Speaker Change: That is inventory that we own that's on our books and it's held by our distributors.
Speaker Change: We believe that this mitigates most of the China tariff issue through at least the beginning of 2026.
Speaker Change: I want to thank the team for acting so quickly and decisively to meet this tariff challenge head on.
Speaker Change: Moore, we have identified a series of actions to meaningfully reduce costs, including reduction of underutilized facilities and fixed assets, marketing savings and personnel reductions.
Speaker Change: We believe these actions will position us to exit 2025 with an S-GNA run rate of approximately $225 million.
Speaker Change: Our approach to cost optimization is designed to reinforce not restrict our top line growth ambitions.
Speaker Change: And we will spend and invest every dollar like it is our own.
Speaker Change: This streamlining, which mostly focused on inefficiencies in our U.S. operations, prepares us for future strong cash flow generation after our revenue rebounds in Q3.
Speaker Change: Five, we are devoting corporate resources to drive growth initiatives in our global operations, including Asia Pacific, which is our largest market.
Speaker Change: To that end, I want to thank Ways Yang, who is a board member for stepping in as interim chief of APAC strategy.
Speaker Change: Let me take a minute to elaborate on what we're seeing in terms of ICL demand in China.
Speaker Change: In market demand in China is getting stronger and I believe that should be a key takeaway from today's call.
Speaker Change: In the first quarter of 2025, we saw an improvement in ICO procedures that is set through to hospitals by our two distributors following a week back half of 2024.
Speaker Change: First quarter reported China sales this year were just $389,000, as our two distributors consumed their existing inventory instead of ordering from us.
Speaker Change: This $389,000 compares to first quarter China reported sales in the year ago quarter of $38.5 million.
Despite the dramatic reduction year over year in our reported revenue,
Speaker Change: We are bullish because we believe in market ICO procedures in the first quarter of 2025 we are similar to or perhaps even better than the first quarter of 2024.
Speaker Change: We are on track to resume more normalized reported sales for China beginning in Q3 as planned. We expect to recognize in Q3 the 27.5 million of sales associated with the Q4 2024 order by one of our distributors in China.
Speaker Change: As previously reported, we did not recognize revenue on this order upon shipment, but will recognize revenue upon payment.
Speaker Change: During our Q4 earnings call, we indicated that we thought having these ICLs in country in China.
Speaker Change: Could help address challenges and delays associated with importation and logistics and could mitigate potential impacts from geopolitical risk and tariffs.
Speaker Change: I think we are fortunate and perhaps a bit lucky to have this inventory in country given the current tariff environment.
Speaker Change: I am proud of what the team has accomplished in a short period of time.
Speaker Change: I will now turn it over to Warren to share additional commentary on our China tariff response and an update on the launch of our Evo Plus lens in China.
Warren
Warren Faust: Dave Steve, and hi everyone, it's really nice to speak with you in this form for the first time.
Speaker Change: 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 shipped ICLs ahead of tariff implementation deadlines.
Speaker Change: This confined 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.
Speaker Change: 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 star employees pull together and execute under pressure.
Speaker Change: 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.
Speaker Change: We hope the tariff situation eases before then, but we're also planning for the long term.
Speaker Change: That includes increasing our production capacity in Switzerland which we believe will allow us to shift product to China without an additional tariff on U.S. origin and goods. Of course, tariff policies and rates are evolving and difficult to predict.
Speaker Change: We have made great progress in Switzerland and are now very close to our facility having the validations and product approval necessary to manufacture products for China and other markets from Switzerland.
We expect to be fully validated and approved this summer.
Speaker Change: Once we cross that finish line, we'll be able to manufacture EVO ICLs for the China market from the US and Switzerland. Importantly, we're already building lenses there in Needow in advance of being able to release them to the market.
Speaker Change: Switzerland has a long-standing reputation for precision engineering, innovation, and quality. So this just reinforces the quality and expertise that goes into creating a high-performance product like EVO ICL.
Speaker Change: Our Swiss facility will have the capacity to make over 300,000 lenses a year by the end of 2020-26 with longer-term potential for more than 800,000 lenses annually.
Speaker Change: We're on track to finish up final inspections and certifications in the coming months.
Speaker Change: That's especially true in Asia where surgeons have years of experience with our technology and therefore the evil brand is the strongest.
Speaker Change: We are building that same clinical and economic confidence globally and that's really the foundation of what we call the culture of EVO, the mindset and approach that helps drive consistent EVO ICO procedure growth.
Speaker Change: We believe the future of refractive surgery is lens-based, and this is further validated by new market entrants, which should help raise awareness and adoption, and that's good for us.
Speaker Change: With over 30 years of clinical experience with columnar, we offer a differentiated premium solution that will continue to win in the market.
Speaker Change: It's our first new lens in that market in over 10 years offers larger optical zone and has been eagerly anticipated by ophthalmic surgeons and patients alike. We're excited to further extend EVO ICL's position as the standard for lens-based refractive vision correction in this market.
Speaker Change: Deborah is now going to share additional commentary on our Q1 financial results. Deborah?
Deborah Andrews: Thank you, Warren and Steve, and good afternoon, everyone. Let me start with some high-level comments on sales, profitability and margins.
Deborah Andrews: Historically, the company has reported net sales and ICL sales separately.
Deborah Andrews: Sales Attributive to our IOLs and other products have decreased over time.
Deborah Andrews: 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 10Q file today.
Deborah Andrews: 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.
Deborah Andrews: 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.
Deborah Andrews: China sales were 389,000 in the first quarter of 2025 as compared to 38.5 million in the year ago quarter.
Deborah Andrews: Nest Sales, excluding China, we're 42.2 million for the first quarter of 2025 representing 9% sales growth over the year ago quarter.
Deborah Andrews: 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.
Deborah Andrews: These restructuring charges were incurred in order to rightsize the business and its operating footprint in order to improve long-term profitability.
Deborah Andrews: 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.
Deborah Andrews: As the company continues to implement cost savings initiatives during Q2, we expect to report additional restructuring, impairment, and related charges.
Deborah Andrews: Please note that you will see a higher level of confinement sales as a component of our total net sales in future quarters based on the confinement lenses we ship to China in April but for which we have not yet recognized revenue.
Deborah Andrews: We will recognize revenue on that consummate inventory when it is sold to our distributors in future quarters.
Deborah Andrews: Car are already has consignment sales in other large markets, which as disclosed in our financial filings have averaged approximately 20 million per year since 2022.
Deborah Andrews: Turning to our regional sales performance, net sales excluding China were at 9% driven by growth in 8-pack sales outside China.
Deborah Andrews: In the Americas, sales growth was 9% in the first quarter. [inaudible]
Deborah Andrews: In Amia, sales growth was 10% in the first quarter, and APAC sales, excluding China, were up 8% in the first quarter. Japan, South Korea, and India all contributed to the solid first quarter performance.
Deborah Andrews: Moving down the Intim Statement, for the first quarter of 2025, Grove Spargeon was 65.8% as compared to 78.9% in the year ago quarter.
Deborah Andrews: Gross Margin declined primarily due to higher manufacturing costs per unit based on the lower production volume in our U.S. manufacturing operations.
Deborah Andrews: and other costs of sales, including period costs associated with the expansion of the company's manufacturing capabilities in Switzerland, which reduce gross margin by approximately six points.
Deborah Andrews: and increased excess and obsolete inventory reserves, which reduce gross margin by approximately four points.
Deborah Andrews: We are targeting 70% gross margin in the second half of 2025, which is better, but still at a temporarily depressed level since we expect a higher cost per unit and period costs associated with ramping up our Swiss manufacturing will persist through 2025.
Deborah Andrews: Due to lower production volume and the initial inefficiencies associated with new manufacturing.
Deborah Andrews: We will, however, continue to drive gross margin improvement. After we ramp up manufacturing in our Switzerland facility and drive higher output levels, we expect a return to gross margin in the range of 75 to 80 percent.
Deborah Andrews: 13.3 million of the charges or for non-cash impairment of fixed assets, operating leases, property right abuse assets, and internally developed software, also reported on our statement of cash flows under impairment of fixed assets and operating leases.
Deborah Andrews: Turning to our balance sheet, STAAR ended its first quarter with 222.8 million of cash, cash equivalents and investments available for sale at March 28, 2025.
Deborah Andrews: We reduced our accounts receivables in the first quarter by 38% year-over-year and 49% from year-end 2024. Our accounts receivable balance at March 28, 2025 was 40 million.
Deborah Andrews: Our cash balances will dip temporarily in Q2 and Q3, but we do not expect our cash to drop below 140 million before we start improving cash flows in the back half of the year.
Deborah Andrews: We do believe we will return to profitability in the second half of the year and we do expect to also resume cash generation as we exit 2025. STAAR continues to have no debt. But now we'll turn the call back over to Steve.
Steve: Thank you, Deborah. In our press release today, we withdrew the company's outlook provided on February 11th, 2025.
Speaker Change: Despite confidence in our recent efforts to mitigate tariff exposure and our optimism regarding short-term and long-term business trends.
Speaker Change: Government Policy and Economic Uncertainty make it more challenging the forecast, particularly in this short term.
Speaker Change: 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.
Speaker Change: First, our short-term tactical challenges will mostly be addressed by the end of Q2.
Speaker Change: We are monitoring inventory in China more closely, cost controls are in place, and the new management team is committed and motivated.
Speaker Change: 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.
Speaker Change: As we return to higher levels of sales and growth in Q3, you can expect to see the savings from our cost initiatives fall to the bottom line.
Speaker Change: The second reason I'm optimistic about the future is because we have a unique proprietary polymer material and a first mover advantage that creates a sustainable competitive advantage.
Speaker Change: The scales are tilted in our favor from a technology perspective and we have a 30-year head start over new entrance.
Speaker Change: We have a proven solution and Ebo-ICL should be the choice procedure across all markets.
Speaker Change: Our lenses are comprised of a biocompatible column or material that is stable in the eye and that is extremely difficult to reproduce, especially at scale.
Speaker Change: We believe that our EBOISPL will become the preferred surgical solution because it is an additive procedure and our lenses are implanted in front of the natural crystalline lens.
Speaker Change: Evo does not compromise the integrity of the eye because it does not permanently reshape the cornea and it's removable.
Speaker Change: Ebo offers UV protection and an improved visibility in a quick procedure with a fast recovery.
Speaker Change: Although we are just getting started, we believe there are opportunities to use our proprietary columnar material in other therapeutic areas, especially within the eye.
Speaker Change: The third reason I'm optimistic about the future is that we operate in a very large and growing market so we will generally enjoy tailwinds even though that has not been the case recently.
Speaker Change: While data regarding laser vision correction indicates overall procedure volumes are dropping.
Speaker Change: ICL procedure volumes are increasing, and we believe the total addressable market for the lens-based refractive vision correction is a much bigger opportunity.
Speaker Change: Although my assessment of our current addressable market is a work in process, I thought it was important to give you some preliminary thoughts on how we think about this opportunity.
Speaker Change: We believe that the benefits of the Evo ICL procedure will make it the clear choice for refractive vision correction globally over time.
Speaker Change: As it has already become in markets like Japan, we are surging confidence as high, where patients have a greater awareness of ICL as an alternative to laser vision correction, and where the market environment has been favorable to ICLs.
Speaker Change: Although the data is not perfect, market scope estimates the global refractive surgical market at almost 5.2 million procedures in 2025.
Speaker Change: We think that might be a little bit high, but it's in the ballpark of our estimates.
Speaker Change: We sell our individual lenses at prices that average $500 to $600 globally.
Speaker Change: But that pricing vary significantly from a little under $400 per lens to over $1,200, depending on the specific attributes of the lens and the volume of purchases.
Speaker Change: As we mentioned in our press release, we succeeded this quarter in expanding our labeling in Brazil so that we can now effectively address the entire global refractive market there.
Speaker Change: We are pursuing labeling changes, including spherical power in other key markets globally so that we eventually have the approval to participate in most of those 5.2 million procedures.
Speaker Change: So, on the low side, our market opportunity could be defined as the 5.2 million global refractor procedures times our ASP of $500 to $600.
Speaker Change: However, we think that perspective of the market understates our opportunity.
Speaker Change: We have historically focused on attracting the surgeons who treat the small percentage of patients who have elected the surgical option, which includes Lasit, PRK, Smile, and our Evo ICL.
Speaker Change: However, the overwhelming majority of people with myopia have not taken the surgical route and have often instead to go untreated or to wear glasses or contact lenses.
Speaker Change: Roughly one-third of the global population, or 2.7 billion people, have myopia today.
Speaker Change: Approximately 1.1 billion of whom are between 21 and 45 years old, which is the target market for our EVO ICL technology.
That's 2.2 billion potential procedures.
Speaker Change: Many of these people could be treated using our lens without any labeled expansion.
Speaker Change: Our challenge is to find ways to overcome the obstacles that prevent our target population from seeking visual freedom with EVO ICL.
Speaker Change: These obstacles include efforts to keep patients in glasses and contacts.
Surgeon Reluctance, Lack of Patient Awareness [inaudible]
Patience Ability to Pay David.
in patient aversion to eye surgery among others.
Speaker Change: These obstacles will be challenging to overcome, and we don't have all the answers yet. However, we know that we need to identify pathways to capture the tens of millions of patients who have not elected the surgical vision correction option.
Speaker Change: but are able to afford our ICL and would benefit from the visual freedom that our ICL could provide.
Speaker Change: We are spreading the word about EVO, and surgeons and patients are increasingly turning to EVO ICL's for refractive vision correction.
Speaker Change: The prevalence of myopia is growing globally as a result of excessive use of computers and smartphones combined with decreased exposure to natural light and reduced outdoor activities.
Speaker Change: We have only just begun to tap into this market opportunity and it's growing fast.
Speaker Change: We have worked to do, but I'm confident in our path forward. I look forward to sharing our progress with you each quarter, and more importantly, delivering financial results that will speak for themselves.
Speaker Change: Warren and I will meet with investors in Asia next week, including at the CICC Investor
Speaker Change: The team also looks forward to meeting with many of you at the upcoming Steeple Ophthalmology Summit, the Wells Fargo West Coast bus tour, the William Blair Annual Growth Stock Conference, and the Jeffries Global Healthcare Conference.
Speaker Change: Thank you for your interest and your continued support of STAAR.
Operator, we will now take questions.
Speaker Change: Thank you. We will now begin the question and answer session to ask a question you may
Speaker Change: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press STAAR then to. At the time we will pause momentarily to assemble our roster. Thank you very much.
Speaker Change: Our first question comes from Tom Stephan, let's see, please go ahead.
Great, everyone. Thanks for taking the questions.
Tom Stephan: Sorry if any of this was addressed, hop in between calls. But maybe if I can start on China, curious if you can elaborate a bit more on how ICL sell out, tracked in 1Q25, if you're able to [inaudible]
Tom Stephan: Any color by month, that'd be great. It sounds like possibly flat top, but 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 then I have to follow.
Tom Stephan: Yeah, hey Thomas Warren, great, great to hear from you. Good question. Look, we're pleased with how the year started, particularly coming out of the back half of 2024 that was soft. And so to your question around the pace of January , February , versus March, they were all in-market sales. We're all fairly constant.
Tom Stephan: So, don't know that I would make a distinction between any one of the three months [inaudible]
Tom Stephan: But again, I would just say consistent with what we said, we were pretty pleased with the base and gave us a chance for the distributors that we partnered closely with to burn down some of the inventory that they had built up. So coming out a few on in a reasonable spot.
Speaker Change: That's great. Appreciate that. And then pivoting to competition, maybe if you can talk about eyebrow and what you're seeing there in terms of the competitive impact on ICL today, no it's still early, but what are your customers saying? Are there any adoption tendencies you're noticing? And then is there any rough revenue impact we should think about?
for 2025. Thanks.
Speaker Change: Yes, 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. Any time a new lens comes into the market.
Speaker Change: The provider will offer those lenses at no charge oftentimes. They're trying new pricing deals to get some adoption. It's just been in material thus far. So we kind of welcome competition. We certainly don't discount it, but just haven't seen a lot of uptake and.
Speaker Change: 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 nothing much to report as far.
Speaker Change: Hey, 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.
Speaker Change: is a good thing. So we think that pie can grow.
and we thank Bringing Awareness
to that is a helpful thing in the long run.
Speaker Change: And then just Tom, as you think about and others, as you think about what to model and the second part of your question, I really couldn't give any guidance on what to model from the standpoint of, it's just, it's 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.
Speaker Change: This is Brian Moore with STAAR Surgical. STAAR management team, we do have a webcast to ask a specific question, so let me read that.
Speaker Change: As many other companies have done this, you have withdrawn guidance because of the terror situation and economic uncertainty.
Speaker Change: But you also indicated that procedure trends in China have improved and that your cost cutting is working.
Speaker Change: Does that mean that if economic trends around the world do not deteriorate from here?
Speaker Change: 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're...
Speaker Change: 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.
Speaker Change: We're also working through inventory and as you mentioned in your question, we're making good progress on the cos side, but we've got a new team and a new approach.
Warren Faust: Warren Debra and I want to be certain or near certain that we can do what we tell you that we're going to do.
Warren Faust: Do we think we have a good shot at hitting our guidance? Yes, we do, but we hold ourselves to a higher standard than a good shot. We want to be certain or near certain.
Warren Faust: That means that we need to really share with you our thoughts and help you think through
Warren Faust: 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 than to produce good results. So let me take the guidance question kind of one by one.
and let me start with...
Warren Faust: with the sales ex-China. The outlook a couple of months ago was 165-175.
Warren Faust: in Revenue and 40 million per quarter in the first two quarters. We obviously hit Q1 with 42 and a half
Warren Faust: and our range for the year is up 9 to 15. [inaudible]
Warren Faust: So, can we hit the 9-15? Yeah, I think we have a good shot.
is that how we want to work with investors? [inaudible]
Warren Faust: Not really, we want to be certain with the with the guidance that we give you.
Warren Faust: So the guidance of 165-175, do we have a shot to be in there? It's a pretty good shot. Yeah, I think we do. Moving to China. China is coming back quickly. We guided 75 million to 125.
Warren Faust: Do I think we're going to hit that? Yeah, I feel really good about hitting that. And so we feel pretty good on the China side. Moving to
Gross Profit [inaudible]
Warren Faust: We guided to 70% gross profit. We missed that in Q1 by a bit.
Warren Faust: But I think we've got excellent reasons for missing that, and I think there are reasons that will help drive shareholder value in the long term. We're ramping our Switzerland facility that's going to help us with tariffs, it's going to help us.
Warren Faust: with our overall supply and from a strategic perspective, it's an excellent choice. In the short term, we've got too much fixed cost running through two few units.
Warren Faust: and we need to be efficient from a facility's perspective and we need our facilities running closer to capacity to get back to that 75 or 80 percent.
Warren Faust: We, will we get there? Yes, we'll get there over time. Are we going to get there during this year? Probably not. So if you're thinking about long-term models, I think that 75-80% range is a very good range for us.
Warren Faust: But right now, we are ramping and we're accelerating our ramp. We think that's in the best interest of shareholders, but does that put our 75% gross margin for the year at some risk? Yes, it does.
Warren Faust: Today we announced that we think that the 225 range is good so we're going to be at the low end of that range which I think is is a good thing and we are being efficient there and so we've given you [inaudible]
Warren Faust: Some commentary on that front. And then I'll turn to the last piece of the guidance which is
Warren Faust: Our cash, we announced today that we might drop to 140 million, we're pretty confident we won't drop below that.
Warren Faust: and doubt compares to exiting the year at 150 to 175.
Speaker Change: Do we think that continues to be a good outlook for Casher here in?
Warren Faust: Sure, but we've got a long way to go between here and there [inaudible]
on the adjust delivery to our side, we guided to...
Warren Faust: Approximately 30 million dollar loss. We came in ahead of that at 26.4.
So, we feel pretty good, especially with our cost controls.
Warren Faust: that we're going to attain the EBITDA outlook. But I think to take away for investors here.
Warren Faust: We are committed to transparency with you. We want you to think about the business, the way we do. We're excited about the business.
Warren Faust: and we don't want to be in a position where something happens to us that's outside of our control that causes us to look bad. We're a new administration here and we want to earn your trust and we think the best way to do that is by hitting results.
Thank you, Steve.
Operator
Speaker Change: Will you please unmute the next questioner you have in queue?
Speaker Change: Yes, the next question comes from Anthony Petrone, with Mrs. Woodbrook, please go ahead.
Anthony Petroni: 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.
Anthony Petroni: You know, as a mitigation exercise in the face of the global trade warrior tariffs.
Anthony Petroni: Is there any way to just quantify, I guess, how much inventory there is in the channel and consignment?
Anthony Petroni: 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.
Anthony Petroni: You mentioned we give some props to our team. With three days notice we even had folks from the US 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
in the capital markets.
efforts to build inventory in advance of receiving those approvals.
Anthony Petroni: should have us in best position to mitigate. So I think that's kind of part one and part two of your question because it gives us the next effort to mitigate is going to be either reduction in the terrorists. We certainly can't predict that. So we're planning for the long term and then building inventory in Switzerland to offset the demand. Let's go ahead and see what we can do.
Anthony Petroni: Now 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 busy an ICL should be priced?
Anthony Petroni: 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.
Anthony Petroni: Yeah, good question. No major changes. 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 is really, really high.
Anthony Petroni: We're going to continue to, of course, to look at levers to unlock growth with our customers. So, fresh can always be a component of that, but it's not the main component of it.
Anthony Petroni: The reality is the value of the device, change in 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.
Speaker Change: The next question comes from the Ryan Zimmerman with B.D. I.D. Please go ahead.
Great, thanks for taking my question.
Oh.
Speaker Change: Steven, I just want to understand something, and this isn't a question so much as—
Speaker Change: You're talking about numbers for the year, but you withdrew guidance. I'm a little confused as to what you're saying about where numbers can or can't go given the withdrawn guidance. [inaudible]
I'm not sure I'm following the question.
Speaker Change: 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.
Speaker Change: Maybe that's more of a comment than a question, but I don't know if you want to address that or not.
Speaker Change: But, you know, that's right. Yes, thanks. Thanks, Ryan. Now 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
Speaker Change: We are having a discussion and I think that's a little bit different than formal guidance and so I think one of the things that you heard during that discussion was
Speaker Change: That in ex-China, we were at 9% growth, our range is 9 to 15. One of your takeaways should have been that we are a bit worried about our ability to get to 15.
Speaker Change: and so, you know, we would rather have that discussion with you now and be transparent.
Speaker Change: Then we would find out that at the end of the year we were 8.5% and have you guys be upset with us. So we are trying to give you color for where we think we can go with the business.
Speaker Change: and we've also worked clear in my commentary that...
Speaker Change: The gross margin guidance is probably not going to be hit for this year because we're ramping up our Switzerland manufacturing. Our objective is not to confuse. I apologize if I did. Our objective is to be transparent and help you understand how we're thinking about the business.
Warren, he talked about a version 5. [inaudible]
Speaker Change: going to China. That's the first, you know, we've heard about this. How does this differ from EVO Plus, and what's the difference in price?
If there is a price in a tiered price in strategy within China?
Speaker Change: We're still contemplating the commercial opportunity from a pricing standpoint, particularly with what's happened most recently from a terrorist standpoint. We certainly have to take all things into consideration. We believe it will be a premium.
Speaker Change: 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're going to launch to stay tuned. We'll make those plans as we get the approval, but we're feeling pretty good about it.
Speaker Change: Okay. And then just, you know, I want to understand, sorry for all these questions. You know, there's a lot of moving parts to Steven that, you know, you're undertaking with the business.
Speaker Change: You have inventory levels in China. You talked about getting back to the third quarter, you know, kind of a more normalized sales cadence. You now have this consign inventory in China as well.
You know, that being said, if the market doesn't…
Speaker Change: Turn, maybe as fast as you'd like. The sell-out rate doesn't turn because of global macro dynamics, recessionary impact. What have you?
Speaker Change: How do you think about the inventory levels and the consignment in China?
Speaker Change: going beyond kind of early 26 because arguably they would get extended further out if your distributors can't work that demand out and maybe you know it speaks to the question speaks to maybe
Speaker Change: 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.
Speaker Change: Sure, you got a good question. So just to be clear, the consignment inventory in China is owned by us.
Speaker Change: and so that's no different than having it in a warehouse.
in California.
Speaker Change: 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.
Speaker Change: If it doesn't turn, I think was the second part of your question, how will we work through the
Speaker Change: The inventory levels and it's turned and by the end of next month we're going to be at our contractual levels.
Speaker Change: and so we're going to get there from an inventory perspective because we're almost there already and literally and the next month will be at contractual levels on average in China.
Thank you.
Thank you, Ryan.
Operator. Please unmute the next questioner. Thank you very much.
The next question comes from...
from Simon Corridt, Leigh Fart. [inaudible]
Lovett School, please go ahead.
Hey guys, thanks for taking the questions here.
Speaker Change: Maybe just to follow up on Ryan's questions around China, you've re-aligned some of the leadership at Bristol and China.
Speaker Change: So could you elaborate on how this new leadership is helping to inform just your broader strategy?
Speaker Change: in China, especially given that the macro backdrop does seem to be improving in the region.
Speaker Change: And, you know, Steven, I can appreciate that you're not providing formal guidance anymore, but you aren't necessarily...
Speaker Change: 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
Speaker Change: You know, what's underpinning your level of confidence of sort of being in that original guidance range?
Warren Faust: Yeah, hey, Zimmer, it's Warren. Maybe I'll start with the China question and then see if Steve has anything to add.
Warren Faust: and then 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.
Warren Faust: So we're really proud of the team that we have. From a leadership standpoint, we Asia is 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
Warren Faust: co-located in the region. So that was really the decision that we made from a strategic standpoint. We have the benefit as we announced publicly of ways young joining us.
Warren Faust: to take a leadership position in China on a bit of an interim basis as the A-pack 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.
Warren Faust: 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 [inaudible]
Warren Faust: and so we're really excited about what he and what the team he's taking with him brings 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.
Warren Faust: Great, and then the second part of the question was pace of recovery.
Warren Faust: 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, Raid Cuts.
Warren Faust: We will work 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.
Speaker Change: and maybe just for my follow-up regarding the cost-cutting measure that you're implementing, it seems like it's...
Targeted primarily at the US business. [inaudible]
Speaker Change: You talked about inefficiencies and spend there. Could you elaborate on what those inefficiencies were and what does this signal about your US strategy or just broader commitment to the US opportunity longer term?
Thank you.
Speaker Change: Yeah, I'll take a shot at it. It's a good question. Look, the US is a critical market for us. It remains a critical market. It also remains a very very small percentage of our total global business.
Speaker Change: and we invested very heavily to get uptake in the U.S. business and we could argue we've done it. There's 11% growth even in the quarter in the back drop of what again is another quarter of if you listen to or practice surgery council they'll tell you lasers are down 15 and a half percent almost.
Speaker Change: and so there's still a very wide delta between the laser market and what we've performed in the US. So we're proud of that.
Speaker Change: But when you think about the direct-to-consumer marketing, when you think about some of the efforts we've faced in which are very large to expand the organization to invest heavily in every conference, every meeting, oftentimes at the golden 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 measure to approach as we get growth but we get measured growth.
Speaker Change: So resources are valuable. We're going to continue to put some in the US, 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. [inaudible]
Speaker Change: So we'll balance the investments. We'll be measured in our approach with reductions in the US, but we're going to make sure we rightsize any particular business for the amount of revenue that we're getting.
Speaker Change: Yeah, I'd make a couple other comments. The first is we're a big part of what we're doing is right sizing our facilities. So we've got underutilized facilities and we need to improve that. The other thing I would say about the cuts is, although they're fairly...
Speaker Change: 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.
Speaker Change: and we had a very successful business 18 months ago and we're just really putting our SGNA level back to that 2023 run rate.
Speaker Change: So, you know, 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 SGNA levels.
Speaker Change: Are you assuming anything in terms of retaliatory tariffs going into effect after the 90-day pauses listed?
Speaker Change: We don't know what's going to happen from a tariff perspective.
Speaker Change: But we are really in good shape through the end of this year. We may, if the tariffs stay at 145%, we're probably going to have to ship.
Speaker Change: Some inventory to China that's not in country. We don't think it'll be material, but I'm going to use a thousand excuse. And so we may have to to ship some inventory in 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.
Speaker Change: and so we are 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.
Speaker Change: You may have seen that the Vice Premier of China and Scott Bessent are meeting in Switzerland because it's a neutral site. Well, that's what we're trying to set up our manufacturing. So we feel pretty good about our position longer term.
Great.
Thank you, Femre.
Speaker Change: Operator, we are at time, but let's meet the last questioner please.
Speaker Change: The last question comes from Patrick Wood with Morgan Stanley , please go ahead.
Patrick Wood: Beautiful. Thanks, guys. I'll keep it to one, just to keep it snappy. You know, the US side of thing is kind of a fall on from Simon's side of things.
Patrick Wood: You know, how do you think about the go-to market there? Get the investment side of things, but you know, there was a bunch of mischiefs, there was, you know, Highway 93, and then there was like, Toronto Support Surgeons on length selection. Do you think the strategic approach was the right one, or was that something you think you might end up changing? That's good. Thank you very much.
Yeah, thanks, Patrick, for the question. Look, I, um,
We're never, we're never satisfied.
Patrick Wood: But I would say I'm proud of what we've done in the U.S. The reality is the two years in a row since we started in...
Speaker Change: Assecuring some of those strategic initiatives that's been against the backdrop of a sort of a soggy economy and a challenge laser refracted 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 in 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 to the funnel so you're going to you're going to hear us.
Speaker Change: Looking for opportunities there, but as far as strategic initiatives, specific ones you name like US Highway 93 and others.
Speaker Change: 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.
Speaker Change: And when we accomplish that, that really allows them to create a culture in their own practice that says, we're evil ready and we have an ecosystem which will welcome a patient who could be open to an evil ICL and can take them down a road of conversion which leads to a great clinical outcome for that patient.
Speaker Change: So, none of that's changed. The only thing I would say is in addition to what we've been doing, because USI-193 was really just
Speaker Change: Language around, how do we segment and target customers? So we use our scarce resources to go after customers who can do more with Evil YCL because of their practice economics, because that they're willing us to operate.
Speaker Change: on the eye rather than just use lasers, because they already have a refractive [inaudible]
Speaker Change: stream of patients coming in. Those are all reasons why we would focus on a customer. We'll still do that.
Speaker Change: 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, allow us to invest alongside them.
Speaker Change: 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 write that as we go forward.
Thanks, guys.
Thanks, Patrick.
Operator, I turn the call back to you.
Speaker Change: Thank you. This concludes our question and answer session and this also concludes the conference. Thank you for attending today's presentation. You may all now disconnect.
Thank you very much.