All right. Good afternoon, everyone. Tom Stefan with Stifel . Very excited to have STAAR Surgical here with us today. Pleased to be joined by Stephen Farrell, CEO, Warren Foust, President and COO, Deborah Andrews, Interim CFO, and Brian Moore, Investor Relations. I'll start with some more recent news, I would say, just on the share buyback. You announced a $30 million, I believe, share repo program a few weeks back. Stephen, maybe to start with you, can you talk about kind of the genesis of this decision and ultimately the motivation to make this move, particularly given that it was not contemplated, I do not believe, in your cash guidance that was conveyed a week prior?
Sure. Thanks, Tom. Pleasure to be here. Management's an iterative process. So, you know, we're constantly assessing what's happening in the marketplace, both from a business perspective and from an investor relations perspective. Our perspective here as a management team is we like to make small bets, and some of them will pay off, some of them won't. There wasn't any M&A that was imminent at the time that we made the decision. There still is not. We just have looked at our stock price and don't understand the current valuation. We think there's a very good opportunity to acquire and invest in our own stock. We also feel like we will be, in the long run, generating significant cash. We felt like investing in the short term in our stock was the right decision.
Got it. That makes sense. A good segue into my follow-up. As you return to generating cash, hopefully exiting this year, I mean, can we now think about share repo as a more established part of your capital allocation strategy? Or conversely, is the $30 million maybe more one-time in nature?
Sure. The board has only authorized this one repurchase. In general, I think that companies that are generating strong cash flow, I'm supportive personally of having some meaningful share repurchase aspect from a capital allocation perspective. It is hard to predict that. M&A could change that perspective. You know, we could find that we want to accelerate our spend on the R&D front, and that could change our perspective. We have only made the decision for this single repurchase.
Got it. But it sounds like maybe more of an openness relative to kind of the prior regime's view. Is that fair?
Yeah, certainly at the current values.
All right. Perfect. That's helpful. I will shift to China and ask a couple of questions on inventory. Stephen, on the call, you mentioned that you expect to be at contractual inventory levels with your China distributors, I believe, by the end of June. Is that still the expectation? One. I will ask a follow-up after that.
Sure. We're on track. Our demand has been as we expected it to be through the end of May, from the beginning of January. We have worked through most of our inventory issue. By the end of June, we expect to fully work through so that we're at contractual levels and entering Q3.
Got it. And so the $27.5 million in revenue from one of the distributors, is that still anticipated? Is the rev rec there still anticipated to occur in 3Q 2025? Or is there a chance normal rev rec could commence with at least one of the two distributors in 2Q? Maybe if you can talk about both of those dynamics.
Sure. In terms of the $27.5 million, we fully expect that in Q3, as expected. Nothing's changed from that perspective. We've had recent conversations with our distributor partner, and we are not losing sleep from that perspective. As it relates to Q2 revenue, one of the things that's important is we've got thousands of SKUs. What our guidance, and it's a little bit of a flaw in the averaging, but guidance assumed no revenue at all in China till June 30th. Then July 1st, the switch goes on, and we're full on track. That doesn't really reflect how the world works. If you think about our inventory level, it kind of follows a bell curve. The fact that we're targeting 6 months inventory does not mean that there aren't SKUs that will be required outside of that.
What we're expecting is a gradual ramp- up over time. But we're expecting to have a solid Q3 and Q4.
Okay. So, when you say gradual ramp up over time, is that starting in 2Q and the latter parts of 2Q? Or talk me through what you mean by kind of the timing of that gradual ramp up.
Sure. We are already getting some orders on either end of the spectrum. We are not expecting any real meaningful revenue in Q2 as a result of that. It is likely to be greater than zero.
Okay. Okay. And greater than, I assume, 1Q as well, given 1Q was light, or similar to 1Q, not to split hairs here.
I don't know because a lot of our sales occur in the third month, and we haven't entered that. We are expecting some small amount of revenue from China in Q2.
Okay. Great. And then last one here on inventory. I guess moving forward, you know, how can you better ensure that your sales are, I'd say, truly reflective of demand, of trends, and as closely aligned with end market procedure volume? I think consignment sales probably are a good start. In what ways can China visibility improve for investors moving forward?
Sure. Great question. I think as an organization, we've perhaps overcomplicated this. It's really just a matter of being close to the distributor, understanding what the distributor needs are, and really walking arm in arm with our distributor, which we are, our distributors, which we're currently doing. There's really not a detailed science to it. As much of it is making sure that we are managing to the contractual levels, which is a 6-month inventory, and not more than that. We, as an organization, are very close to the distributors. We're making sure that we are managing to those contractual levels. Because if their inventory is at a 6-month level, then we know that our revenue is more or less the procedure volume because that's what's going out to the hospitals and surgeons.
Got it. That makes sense. Maybe shifting to kind of China trends. You talked on the call, on the 1Q call, about ICL sellout. That was flat or perhaps even up year-over-year in 1Q 2025. Broadly, it seems as though China is at a minimum stabilizing. Can you discuss a bit just what you're seeing so far in 2Q 2025, just in terms of ICL growth, or just how the demand picture in China has trended for ICL compared to 1Q?
Yeah, Warren, do you want to take that?
Yeah, sure. I think we were all, Tom, elated at Q1 relative to Q3 and Q4 of last year because it was so soft. We said we think the procedural volume, which you're calling sellout, which is appropriate, we think that was flat to maybe slightly up versus Q1 of a year ago, April and May, when we were just in China a couple of weeks ago, Steve and I together. When you talk to the customers there, I think they're reflecting some of the same sentiment you've heard from ZEISS and maybe others. That is still better than it was certainly at the end of last year, but it slowed a bit, maybe softer than Q1. I think overall, the sentiment around China stabilizing, that feels right.
The end market demand feels like we're in a much better place than we've been in China compared to the prior 6 months.
Got it.
I'd also add that we feel very bullish about the long run. As Warren suggested the week before last, we were in China meeting with customers and hospitals. There is a lot of excitement around our product and our ability to capture share there.
Got it. That's great. And sticking, you know, with kind of trends, Warren, you mentioned maybe 2Q a little bit softer than 1Q potentially. And it could relate to the question I'm about to ask. But in 1Q, as I'm sure you're aware, one of your later peers did note there was seemingly a bolus of China military refractive demand just due to changes in post-op recovery requirements, I believe it was. So, are you aware of whether ICL experienced this dynamic as well in the quarter in 1Q at the end market level? I'll start there.
Yeah, it's a good question, Tom. You're referring to the military, typically around the June timeframe in China, they get submitted for laser refractive procedures. ICLs are not part of that. We're not involved in that military portion of the business. It represents an opportunity for us as we go forward, certainly something we care about, but in a good way. In this example, we're not impacted by that. Those procedures were pulled forward and requested that they start those in January. You saw the laser refractive business see a bit of an artificial or just a pull-forward bump that will be determined what's going to happen with that for the rest of the year from a laser perspective. Good news for us is demand in the market was still, as I described, we were pleased with it.
Certainly, we'd like for it to be better, but it was okay. We are not impacted by that at all.
Yes. That did not inflate our Q1 results.
Got it. Perfect. Perfect. That's super helpful. You know, Warren, again, maybe Q2 potentially softer than 1Q. Is that, you know, not sure how 1Q, 2Q seasonality works exactly at the end market level. I know Chinese New Year, there is a bit of a higher level of demand. As we think about those 1Q and 2Q dynamics, you know, what are the early signals for China summer high season? What are your distributors saying? Have the conversations with them around end market forecasts started to pick up a bit since, you know, June is right around the corner? Maybe if you can talk to just kind of expectations for summer high season.
Look, we've had a couple of years in a row where we had a successful Q1, and then we got excited and sort of projected things were going to be better and better and sort of the old beaten ways. The high season didn't really come. Some of that is our own fault. I think we had too much inventory in the system. We weren't disciplined around the 6-month inventory. We'll never make that mistake again. Some of that was self-inflicted. The market certainly was softer in the high season. That starting in June, going even through to the September timeframe, we, of course, in discussions with the distributors, everybody's optimistic that it's going to come back. I think that the market wants some stimulus for the population.
That stimulus needs to trickle down and become consumer confidence for the Chinese population in order for them to get back to a roaring high season. I think for our perspective, we're trying to take the moderate approach and to say that we believe that the business is coming back nicely so far in China. We'll certainly be ready. We have plenty of inventory in the country, tariff-proof already sitting there because we ship product in advance on consignment. We're ready for a high season if it comes. The good news is we're not going to sell in a way that we have to be concerned about because hoping that it's going to come through because now we're inventory positioned, tariff-free, ready for a high season. Gosh, I hope it comes.
That's great. No, appreciate that.
I'd add one other thing on the conclusion that Q2 is softer. I don't know that we're signaling that right now. What we're signaling is we don't know. That the third month is an important month. We're hearing from people that we know and respect, like ZEISS, like our hospital partners, that things are a little soft. It's a fine distinction. What we're saying is that we are seeing softness in the market as opposed to predicting what our Q2 is going to be.
Okay. Got it. Got it. No, that's appreciate the delineation there. Sticking with China, a couple more questions. Just wanted to ask about competition. And Eyebright's FACEC IOL specifically, you know, Warren, I think on the call you talked about their launch so far maybe being a bit quiet from your perspective. But maybe if you can discuss kind of key learnings in the field in China around their product. I mean, what should investors know or be aware of, you know, based on everything you're kind of learning, you know, week- by- week, month- by- month?
Yeah, it's a good one. Look, I think investors should be aware that in 30 years of history, there have been quite a few companies, some of the big names, big strategics that have internally tried to develop an ICL to bring it to the market because they see the opportunity in it. They've stopped those programs. If products have gotten to market, they've not been so effective. We believe it's because of the material. We uniquely created and continue to manufacture and develop our material. It's collagen-based. We co-polymerize actual porcine collagen and create a very, very soft, very safe product that acts a bit as a biologic in the eye.
When other companies have tried with acrylic materials or silicone or PMMA materials, those materials have just proven over time to not be as effective in that very delicate space tucked in just behind the iris in front of the natural capsular bag. Differently than an IOL, which goes safely inside the capsular bag where the cataract companies play. There is a level of safety that exists. The material is important, but it is more important from a refractive index standpoint than it is from a softness and a carefulness of the material. We believe that is why any acrylic lens, Eyebright happens to be an acrylic lens that comes to the market, surgeons will often take a wait-and-see approach to see if they are going to end up with iris issues or if they are going to end up with cataract issues.
These things take 1, 2, 3, sometimes 5 or 7 years before you really understand the impact of it. I'm not suggesting customers are going to wait five to seven years. I'm just simply saying that for a tried-and-true 30-year product to be upseated by maybe a new acrylic model, I just think that's why you're seeing it be probably slow. That's one. Secondly is we have Sphere and Toric. Toric is for a patient that has an astigmatism. Your investors, the investors there may understand the eye is naturally shaped to be like a globe, like a round, like a basketball. Very common, and particularly as we age, patients will start to get a more football-shaped eye, which is an astigmatism which causes you to get a little bit of blur even in your normal line of distance.
If you do not have the ability to rotate the lens on the axis of that football, then you do not have a Toric and they do not. That is about 55% of the population in China, roughly around the world, but in China in particular. Today it is not a complete offering. Today it is a new product in the face of 30 years of trusted products. I just think we are excited that there is competition because it is more people talking about ICLs. I do not think you are going to see a massive swing to any particular competitor. As far as what we are learning in the market, we are really seeing where they are going to price the product. It is not clear yet. Pricing strategy from the hospital, of course, is different than pricing strategy from the manufacturer to the importer or to the distributor.
Clearly, they're going to offer incentives to the distributor, try and move more product. We know that's happening, no doubt. Their sales may even reflect that. It's really the question of what's happening at the hospital level when they go downstream to the patient. We believe they'll try and price it somewhere close to EVO. Probably good pricing economics would tell you that you would go at or just slightly below the incumbent, and then you'd be willing to discount based on volume. The question is, what kind of volume are they going to get from the market, which is going to allow them to discount? From the volumes they're selling now, it's just not clear. I think so far what I said weeks ago was it's slow, and I think it's still fairly slow.
Got it. That's super helpful.
Tom, the other thing I'd add here is the competition is good. We're not operating in a zero-sum game here. There were a little over 2 million or I guess 2.6 million people who elected the surgical option. There are over a billion people who've decided to stay in contacts or glasses or untreated. For every one person that's made the surgical decision, there are 400 that have not or who have not. We see that the additional conversation around ICL as an option is a net plus for us because we're trying to grow that 2.6 million, not just fight over the components of it.
Got it. That's helpful. Stephen, maybe I'll stick with you. Just on 2025, you withdrew guidance, but said you thought you had a good shot of hitting 2025 total revenue guidance, the prior management team's numbers. Maybe can you talk about the thinking there a bit? Secondly, would you expect to potentially reinstitute 2025 guidance come August on the 2Q call?
Sure. This is a bit around semantics, but we are committed to transparency with the investment community. We're committed to, at the end of every call, we want you to be thinking about the market, the opportunities, and the risks the same way we are. That is our commitment, to help you understand how we are viewing the market. In terms of specific guidance, we've missed, I think, either two or three times in the last couple of years. That is not an acceptable hit rate for this management team. We want to be certain or near certain when we provide guidance that we're going to hit it. The situation right now is, even though we have substantially or are in the process of substantially mitigating the tariff risk, the risk still exists because it impacts the psyche of people who are making major spending decisions.
Even though we talk about we've mitigated the tariff risk, it still has an impact on people. There is concern about the trade war in general. There are macroeconomic concerns. It felt to us like the right thing was to pull that guidance. That does not change our commitment to making sure that you're thinking about all the risks and opportunities the way we are. We intend to continue to be transparent. We intend for at the end of each of our quarterly calls for you to have enough information so that you can make intelligent investment decisions. That is kind of where we are from a process perspective. In terms of whether we intend to reissue guidance or to start giving guidance again, I do not know. I think we have to wait and see kind of how it plays out.
We're committed to helping you and helping you in a more effective way than we've historically done to understand how we're thinking about the business. If you look over the last couple of three years, I don't think our guidance has really helped investors make better investment decisions. What we're committed to is giving you our mindset and our way of approaching the business and how we're thinking about the risks and opportunities.
Got it. That's great. Appreciate that. You know, on the 1Q call, just to dig in a little bit into 2025, at least to us, you seem to suggest that China, you felt good about the original, I think it was $165 million-$175 million, but maybe ex-China growth of 9%-15%, there was a little more caution. A, is that kind of fair? More importantly, is that kind of still how you're viewing the 2025 outlook big picture?
I thought you were going to let us off the hook on this one, Tom. You're trying a second time.
To give it a shot.
Yeah, fair enough. I think we're where we were in our quarterly call, which is we feel pretty good towards the lower end of both of those ranges. You know, we continue to be very bullish about this business long term and are confident in our ability to grow this business and to open new markets. You know, we're probably towards the lower end of the range. This current team is of a mindset of when we tell you something firm, we want it to be firm. I don't think that's necessarily been our historical practice.
Appreciate that. Got it. That's helpful. A couple of minutes left. I'm going to try to squeeze in maybe two or three questions. Starting with R&D, on the call, you talked about opportunities to use the Collamer material in other therapeutic areas, particularly within the eye. If you're willing to share, can you elaborate a bit more on that? You know, what could that entail?
Look, Collamer is well tested in the eye. It is a unique capability for us to be able to create and in some ways manipulate as needed material. We want to take advantage of that capability. Certainly, there are other reasons to believe there are other disciplines which Collamer or a version of Collamer could be used in. Set that aside because that is something that we are going to take a look at and see what the opportunity is. Then it is about do we have a right to win in that space? Is there an incumbent already that already does really well there? We are not looking to just go out and prospect into some new space. We are looking to take advantage of a core capability that we have. That is most likely in the eye. There are clearly opportunities that we have been working on in the background.
We spend a lot of money on R&D. You can see how much that is. We have really brought nothing to bear for it with the exception of EVO, which is really critically important with the central hole and with the opportunity to bring intermediate sizes and things for the future. EVO+ is a meaningful opportunity for us in China. Beyond that, what's next? We are just signaling that we are going to establish clarity around skinning down the scope of opportunity of what we are going to spend our resources on and what we can bring to meaningful markets in an appropriate amount of time. We think that focus represents opportunity for the organization.
I think you said it.
Got it. That's great. Last question from me. Just on the United States, the EVO launch has been a bit challenging. End markets here domestically certainly have not helped. But Stephen or Warren, you know, how are you thinking about the long-term opportunity maybe from a market share standpoint? I think roughly your EVO is low to mid-single digit share in the U.S. today. Over time, should investors be thinking about this as a 20%+ share market, maybe closer to 10%? Talk to us about kind of the long-term opportunity for EVO in the U.S., maybe from a share perspective. Then we can wrap up.
Sure. I think part of what happened in the U.S. was expectations. I think if a couple of years ago we'd said that, you know, we thought we'd grow this business 9%, 10%, 11%, and we'd be kind of $20 million-$25 million in revenue, I don't know that there would be the same level of disappointment. I think we set up expectations that we've missed. That's at least a part of the problem. The U.S. market continues to be an absolutely critical market for us. We are continuing to stay focused. We're just spending there in a disciplined fashion. We are making sure that we are being good stewards of your capital as we're investing. We've achieved over 50% share in Japan. When the right elements come together, you know, we can get a very good share.
We're not going to predict that. I don't think right now we are going to be with the U.S.
Fair enough. All right, Stephen, Warren, Deborah, Brian, thank you guys so much. Appreciate you participating.
Thanks, Tom.
All right, take care.