Staar Surgical Co (STAA) November 10, 2026 Conference Transcript

Okay, great. Good morning, everyone. Tom Steffen, Stiefel Research. Really excited to have Star Surgical here at the conference this year. Warren, Deborah, thank you guys so much for joining. I'm going to dive right in. 30 minutes, a lot of questions I want to try to get to. And so, Warren, I'll start off on kind of China trends. In-market ICL shipments year-to-date, you noted on the call, up a little over 12%, an acceleration from full year 25 up mid-single digits. So very encouraging. To kick things off, Warren, can you elaborate a bit more on the ICL demand picture in China and, you know, kind of what you're seeing on the ground from a volume standpoint?

Sure. First of all, thanks for having us. Great, great conference. Good to see everybody. Look, we're excited about, and it's tepid excitement because you think about the China market and the way the economy has been challenged each of the last couple of years. And so starting in 2023, we saw a pretty sharp decline. That same metric around ICL volume shipments in that time period was down about 14.5% by our numbers. 2025 was up 6%. So the 12.5% needs to be put in context. Again, that's just volume shipments, but it is more closely a proxy for what we believe is happening because as inventory levels have come down from 2023, we had far too much inventory in the country. Now, Debra and I have a real commitment. We look at it on a weekly basis. Inventory is very healthy now, healthy in a good way from a low volume of inventory, just enough for service levels. So I think that speaks to the refractive market in China, which is pretty widely publicized as probably flat. If you listen to Zyce and if you listen to Ayer and Bright Eye and Washa and all the public reporting that goes on, the market's flat and folks are taking advantage of the higher average selling price products. So you see IRSA, they've moved a higher percentage of their procedural mix to higher-priced products, Torque being one, Evo Plus being another, I think the most notable, which is why we feel we're in a position of taking share and also having a little better than market performance.

Got it. That's great. And on the call, um... You noted that 3Q in-market shipments were even higher than that 12-plus percent year-to-date figure. So it sounds like summer high season, from an in-market shipment standpoint, finished strong for you in the third quarter. 4Q is seasonally weaker in China, but from a year-over-year standpoint, I guess for the fourth quarter, What factors are most important that we should be considering in assessing, I'll call it the sustainability of recent trends?

Sure. Yeah. So Q3, we are trying to provide as much transparency as we can. So the data that we use to manage the business is the data that we're providing. So when we say that there's the in-market shipments, that's distributor numbers that they report to us, looking at them on a quarterly basis, which is why we didn't give the quarter because it's kind of an eye-popping number. But the reality is the underlying in market volume is pretty good for us right now. To your question, how does that apply to Q4? Q4 last year was pretty soft for a bunch of reasons. We've said we believe we're going to grow bigger than what we had Q4 last year. When you think about advantages that we have this Q4 that we didn't have last Q4, mix is a big piece of that. It's not just when we say price, what we really mean is mix. It's average selling price based on percentage of V5, which is growing, and percentage of toric procedures. Does everyone know what a toric is? So when you have an astigmatism, many of us do, probably half the population does, when you put an ICL in, a monofocal ICL essentially is for a patient with an eye that is shaped like a basketball. Think of it that way. When you have an astigmatism, your eye is getting more and more shaped just slightly like a football, which means that the steep axis on your eye is slightly different than the steep axis on my eye. We're willing to manufacture all the way 360 degrees to that steep axis as a custom lens for a patient, which is different than most of our competitors. Even the ones that provide a torque typically do it only on a made-to-order. It's a competitive moat for us. So the higher the percentage of torque procedures, the more revenue we get because we charge a premium for that. So mix is higher torque and higher V5. That's happening in Q4. We already know that. And the difference in Q4 versus Q3 is we're going to be able to supply what they need because we were unable to fully supply in Q3. And last year, the same quarter, we didn't have V5 available to the market. So that's beyond the fact that we're taking share. I think there's that dynamic that's going to be helpful.

Got it. And the supply dynamic I will revisit very shortly. Maybe last one, just on kind of trends. You know, you mentioned the mix of V5 is growing. I think you said exiting 2Q, it was close to a third. Roughly, what was the V5 mix in China exiting the third quarter, roughly speaking?

So we got scolded a little bit by our distributors and by some of our hospitals because they compete. Remember price is a component that we charge more for these things. And so the reality is they've asked us just like share they've asked us to keep that confidential. So what I'll say is we did say exit share q2 was 30% v5. That's true. It grew in q3. So it's more we're going to see continued adoption of v5 because patients want it there's no shortage. There's a million or a billion and a half patients. And V5 is the first offer that the practices are giving because it's their highest economics. If a patient can't afford it, then they go down to V4 or they go down to a Smile Pro if the patient's appropriate. So we believe it's going to continue. To the extent that we have a large premium between V5 and V4, I think simple pricing economics would tell you that as long as we're able to charge a premium, we'll continue to do that. And you don't want in that scenario to get all of the patients on v5. I mean, you would want that. But in order to have a premium, you would need to have a difference. So the higher the mix comes, the more the price will slightly come down. There'll always be a premium until we get to some point distant in the future where it just makes sense financially to stop manufacturing it. We'll be good shareholder capital investors that way and make sure that we titrate that. But for now, we're going to continue to grow it, but we don't anticipate growing it all the way. Okay.

Okay. That's great. That's great. And then shifting back to kind of China inventory, you know, in-market ICL volume has been outpacing kind of – or did outpace your ability to supply in 3Q with price being all of the year-over-year growth in the quarter in China. So, Warren, for you, can you talk about the path forward operationally to better support downstream demand? And how should investors think about the relationship between distributor shipments, stars selling, and channel inventory? Sorry, I packed in a lot of questions.

No, it's okay. You may have to help me if I don't answer it all. When you think about the impact, Deborah will talk a little bit about gross margin. But as we were scaling up our supply, strategically, we want to supply China out of Switzerland because that's in our best interest, both from a perception of the product for the premium, but also because it eradicates the tariff that we've been paying for years, and it improves our economics. So one of the hidden opportunities for us is the fact that now that we are fully manufacturing product destined for China in Switzerland, from now on when we ship, there won't be tariffs associated with it. Now, there's still a tale of inventory that we have sitting in our warehouses in Brugge, Switzerland, that were U.S. made, that when it goes to China, they'll still pay a tariff. We'll share in that tariff, and that's a cost to gross margin. The reality is that's going to start to decline fast, so we'll start to see that go away more in Q4, and then as we go into 27, it'll be a benefit to us from less tariff on products going to China. When you think about we were standing up our Swiss manufacturing to supply China, we have to determine how much is torque. We have to determine how much is V4, how much is V5 torque. So there's a complicated supply chain associated with this. What we realized is that when we launched V5 in Q1 with low volume expectation, we had higher than expected demand. And then as we had the price premium still fairly extreme in our view, we started that way because we knew that that would limit the adoption. But it didn't. And so then we had to scale our, we had to change over the demand plan for Switzerland to build more V5. And that slowed down our production. Because the idea was build as much V5 as we needed to. Think about it in two dimensions. We started scaling manufacturing in Switzerland with no ability to produce. And by the end of the year of 26, we would be able to produce three or 400,000 units. But that doesn't start in January. It finishes by the end of December. That can stay on track, assuming that you are able to produce the right mix. When the mix changed, then it changed our trajectory there. So now that we've gotten V5 under control, because Q3, we weren't able to fully supply V5. Now that we believe we'll be able to do that for Q4, we're building V4C also. So we think as we go into Q4, and then as we go into next year, we'll be out in front of that demand.

Got it.

That makes sense?

Yeah, no, that's super helpful. So I guess, you stated for 4Q China, you expect year-over-year revenue growth. So is that all price, or do you expect some positive volume growth contribution as well? Or maybe if you can just, I guess, speak to pricing mix and volume factors that kind of support that 4Q China outlook.

Mix feels like it's in our favor, certainly for Q4, no doubt. Q1 and two, it even seems in our favor, if you're just logical that we didn't have full boat of V5 at launch time in Q1 of last year. So the high season in China, the shape of the demand in China now, two years in a row, and we believe will hold, is Q1 and two are strongest. Q3 is a slight step down, and Q4 is a further step down, although we continue to show strength, and so we're excited about that. So it's hard to predict, and we're not giving guidance, but Q4 will grow. Q4 will have the dynamic where we have increasing amount of mix, V5 and torque, so we'll benefit from that on price. To your question about units, there's no reason to believe that if our ability to supply is there, that we should have a slowdown in units, but we acknowledge we're getting the biggest benefit from increase in price because people are adopting V5 at rates higher than we expected. But the other thing that was unique about Q3 that was pleasing to us was we were getting a lot of our growth, some now, from the public hospital, and we were getting growth at lower diopter, which tells us that dynamic of the hospital's... Promoting higher-priced procedures, V5, instead of Smile, Smile Pro, LASIK, Wavelight LASIK, etc., that's happening, and that's causing lower diopter adoption.

Got it. Okay. So maybe to wrap that up, so 3Q, kind of all price and mix per your comments on the earnings call. 4Q, it sounds like the year-over-year growth, you feel confident it can extend beyond just being price and mix. And given your improved ability to supply, there's confidence that, you know, unit volume shipment can also grow year-over-year.

That's right. And that's all China, of course. We had 13% growth ex-China, and that's both volume and price.

Got it. So, sorry. So, for 4Q, confidence in positive China volume. Okay. Okay, perfect. And then this is a little bit of a random aside, but I think it sticks with the theme of China inventory. I'll just ask it kind of up front. I mean, could Starship to direct selling in China? Is this something the company could feasibly execute on at some point in the future? And if so, kind of what would that take? I feel like it would certainly improve visibility for all parties. I'd imagine there should be a margin benefit, but there's obviously a lot of complexities in China. You've been doing business there for a long time. But talk about kind of that dynamic of potentially shifting to selling direct in China.

Sure. So we enjoy a great relationship with our two distributors in China. They're importers and distributors, and they're fantastic. And so we're very pleased with them. The reality is there's a lot of margin that is sitting in the channel that could otherwise belong to Star. It is logical. I had the privilege of running J&J Vision for four years, and we were a direct model. I think Alcon is and B&L and others. You get to a certain scale, and it makes sense for you to be direct. You control compliance. You control economics. You control messaging and so on. I think the company in the past has had a view of short-term. It was not the company. It was not building infrastructure for the future. It was not building pipeline and portfolio for the future, and we've taken a much different approach. We have a board that is now supportive of the long term. The ERP system enables us to do things like what you're talking about, to be able to take markets that make sense around the world and to tie them in in a direct fashion. So, yes, we absolutely have the capability. Is it amongst the things that's on a board of considerations? Of course. And when you think about the long term future of a market like China, which represents half our business, as we want to build out infrastructure there, these are things that are on the table. But we're not in any way saying that we're going to do that. We're not in any way saying that that's underway. We just know it's an option. And of course, there's margin opportunity there. Really helpful.

And then I'll shift gears, stick with China, shift gears a bit, and talk about competition. And, you know, I'll kind of just start with what's topical. Zeiss introduced its new Fakic IOL Lunana, if I'm pronouncing that correctly, in China over the weekend. It's now NMPA approved. And I guess high-level Warren, you know, how does the product compare to ICO from what you're aware of? What do star investors need to know about that product?

Yeah, so we're actually happy to have more competition because there's a global – we actually put out a report. We surveyed about 7,000 or 8,000 patients or people and found out what people thought about the laser vision correction market versus the ICO market and what they flagged for us. We know that the global market for LASIK is on a double-digit decline three years in a row. People are getting their information from social media, and when you look for LASIK as a potential option, you see scary things. You see removal of cornea, you see melted corneas, you see pain and neuropathy, and so on. And as a result, they're looking for an alternative, and Evo being reversible and removable seems to be the biggest thing. So what you're seeing is a proliferation of companies, even the laser companies now, who are bringing forward competitive options. We actually think that's going to be really helpful because it's going to get people off of the sidelines into a category. So there's going to be a category lift here. Now, there'll be some short-term dynamics. We'll see how those play out. But if history is any indicator, does anybody have any idea how many competitive ICLs have launched in the past, in the last 20 years? Pray 20. They're acrylic. They're non-columers. We created columers. So we actually, interestingly, we're an optics company because we have Evo, but the reality is we're a material science company that created columers. We took polymers and inextricably covalently bonded them with collagen, creating a Jurassic Park material that is elegant in the eye, that can stay in the eye for 30 years and then be removed in advance of cataract surgery, and it literally looks like it was just put in today, with the exception of maybe the footplates out on the periphery. But the optic is pristine. And so the fact that we can, in an IOL, I describe it, you're probably tired of me saying it, I describe it, think of an M&M, and you open it up and you take the peanut out and you put a new synthetic peanut in and it's protected. That's an IOL. It sits in a capsular bag, it's been irrigated and aspirated, and it sits there sort of comfortably. In an ICL, you make a two-and-a-half millimeter incision, you inject the lens, and you tuck it into just under the iris, and it sits there almost free-floating in what they call the sulcus. And unless the material is really biologically friendly, over time, sometimes three, four, five years, it rubs against the posterior surface of your cornea, and it creates endothelial cell damage, and it causes cataracts, and it causes damage, and it causes iris pigmentation, All of which are reasons to remove the device and they impact your vision. Because of that history from companies like J&J where I worked, like Alcon who tried to buy us, they've tried and they have failed because they don't have the material. So I think that history is important when you talk about Lunana. I'm not suggesting they're going to fail. I'm just saying Eyebrite launched. They're an IOL company. They launched over a year ago now. They've made virtually no impact and they don't have a Toric, which we already know is when your eye gets shaped like a football and you make a custom lens, they haven't done it. I suspect they'll pursue a torque. A company like Zeiss and Wuxi together, they can probably pursue one. You need hundreds of thousands of SKUs to manufacture at the discrete diopter. Hundreds of thousands of SKUs. That's a moat for manufacturing because the cost associated with that. So we'll see what they do. But Candidly, I'm more excited about market uplift than I am concerned about the impact of competition, because we know the material advantage that we've had for so many years. Now, we're not arrogant about that. We're not discounting competition. And the reality is when a new product launches, they typically give away thousands of lenses, which means thousands of lenses that would otherwise be EVO might not be implanted. So we'll face that on a short-term basis, but on the long-term, I think we benefit from market lift.

Got it. Got it. That's super helpful. And then maybe to follow up quickly, so Lunana is acrylic. Is that correct? Aquaflex, is it taking any sort of unique angle or spin from what you're aware of or too soon to say?

It's probably too soon to say. What it sounds like, they're taking the point of view that there's no biological product in it, which is an interesting take. I think, because I think that's a good thing. I think anyone who injects collagen into their face and otherwise, they would say the same. But they're going to say it's a soft material. They're going to say it's column or like. These are the things that all of the competitors say. They'll likely go on things like, they'll create more sizes. We don't think sizes are so important because the material is so elegant. What companies are doing now is they're coming and saying we have more sizes. We think that introduces more complexity, not less. So we'll see how the market reacts to that. But you'll hear the standard things. You'll hear soft. You'll hear high water content, which doesn't have a clinical benefit. That just means it is a softer material. It does give it the downside benefit of it could fold over when you inject it. But who knows? I'm not saying anything negative about that lens. They'll be formidable competitors, and we're happy to have them. Got it. Okay.

And then maybe last one here on kind of competition more broadly, Lunana, it does add another fake IOL to China, I think bringing the market to maybe four fake IOLs, possibly more maybe on the come. So my question here is, does an expanding competitive field in China change how investors should assess potential VBP risk in fake IOLs?

That's a good question. You know, those of you that are familiar with VBP, it almost is exclusively, not entirely, but almost exclusively to government reimbursed products. So IOLs have been hit hard. Cardiology was crushed. Orthopedics, where I lived for a long time, it actually, it caused the exit of some of the big multinationals. This isn't that, so I don't see it. There were a couple of... Places, the Western provinces, for example, where they did it for Ortho-K. They did a VBP for Ortho-K, which was unusual. So there's been a few places where they've gone into the consumer cash pay only, but we are entirely cash pay. We are 75% or so in the private sector. So it's private hospital systems, IR, Brian Eye, Washa, Eurowise, et cetera. So it's unlikely. But you also, before you go down that road, you have to say, do we have four competitors? Because we don't even have competitors that have Torx. So it's more than half the market is TORIC. So until you have multi-competitors, there's no golden rule of four. Until you have multiple competitors that are putting impact against the Chinese society and you have like-for-like products, I don't think you'll have a VBP. It's curious that they've had LASIK for years and Smile and other lenticular procedures and they've not done a VBP there. So I think you can point at things like that. It doesn't mean it could never happen. You asked a question earlier, though, that I think is connected to this. Gosh, the time that you would take margin out of the channels whenever a VBP would be launched, wouldn't it? Because that would be a good offset to things like that. So I'm not so concerned about VBP. I still think that the benefit of the – when you think about the small impact of ICLs from a percentage of the refractive error population, More noise in the system is going to be a really good thing. Okay. Okay. Fantastic.

I want to spend a little time on ex-China. Growth, really nice there in 3Q at 13%. Accelerated, I think, off of a comp as well. And that was despite softness in key markets, relative softness in key markets like Japan and South Korea. So can you talk about the areas of strength in your ex-China revenues more broadly And what markets in particular do you view as the most exciting growth drivers in the near term, as well as, I'd say more importantly, the long term?

Yeah, I mean, look, Europe's been a delighter now for quite a few quarters in a row, despite some of the challenges with the Middle East, which when you take the Middle East out of it, you see 50 plus percent growth. Is that sustainable? No, I don't think so. But I think we're going to continue to get high growth in Europe. You're seeing the same thing. You're seeing the, you know, it's a bit of a die-off of lasers. Lasers are now getting more and more niched for a post-IOL adjustment of half-adopter to a diopter or so that's remaining of refractive error post-IOL procedure. For patients that come in that have full transparency from the clinicians around what their options are, if the pricing is even reasonably close, and that's a big lever for these practices, they're choosing a reversible option. If you describe LASIK and you say, okay, I'm going to take a 270 degree arc, I'm going to flap your eye back, I'm going to ablate your cornea irreversibly, it might cause neuropathy and pain, and you can potentially get endothelial cells that are going to grow back. So it's going to, you've heard about LASIK wearing off, that's what happens. It's the endothelial cells grow back. Or I can give you a reversible procedure that you're going to be able to see on day one, and you don't wear a bandage contact, et cetera. If a patient's fully informed, then they typically are going to choose that if they can afford it. So we're seeing that. As I said, globally, lasers are declining double digits three years in a row now. So Western Europe is going to be a good market for us. U.S., look, U.S. continues to trot along. It's been less exciting than people thought, I think, originally. If you remember back in 2023, Starr scaled up the U.S. organization, had about 50 people almost in the organization, embarked upon a $10 million Jonas Brothers campaign, drove patients to practices, and guess what? When the patient showed up and said, I want what Joe Jonas got, guess what the practice said? I don't know what you're talking about. Because it's like building a website, but you haven't built it yet, and you start driving traffic to the website, and people show up and go, holy smokes, there's nothing here. That was sort of what happened. So now we have a strategy where it's very clear. We cut our organization in half, yet we're still growing beyond where we were growing in 23 and 24. Now the base is around $25 to $26 million. We have, we're getting customers clinically confident who are operating in a site of care that's advantageous to them. Think if I'm a surgeon and I'm seeing patients and I'm doing LASIK or IOLs all day long, and then to do an ICL, I have to get in my car, leave my practice, go through traffic, go two miles away, and pay $1,900 an eye to perform a procedure. I'm not going to do that very often, and if I do, I'm going to have to charge the patient $10,000. That's not our customer. Our customer is clinically confident that has side of care economics either in their office, an office suite, or in a surgeon-owned ASC. So we've now triaged our customers that way, and that's who we're attacking. And then those are the customers we're partnering with from a marketing standpoint. Locally, we're helping those surgeons attract patients. They come in. They get offered Evo ICL adjacent to LASIK as an option. And then at some diopter, they get offered EVO as the primary procedure, and we're seeing that work. So we think the U.S. will continue to grow. And then for the future, Taiwan's growing hugely for us. This is a market with 80,000 or 90,000 procedures. It's smile only. We just went into that market. So you see a little bit of our APAC Other growing. That's because largely Taiwan. Southeast Asia should be similar. We just hired a new chief commercial officer who was a former CEO of Star. So we're bringing back some real capability from a commercial standpoint. He has hired Pascal Ashleyman, who's living in Singapore, who has experience in the region. He's going to help us grow out our Southeast Asia. The number of patients or potential patients that exist in those markets is massive. This is hundreds of millions of people with high refractive error. Now, it's lower on the economics, but we're going to see that grow over time, of course. And this is a long-term discussion, not a next-quarter discussion. But we think there's high growth coming from those markets. And then lastly, I'll say Africa is going to be huge in the next 15, 20 years. So the next China is probably sitting in Africa. Several of the world's largest cities will be right there in Africa in 20 years.

I guess with that in mind, I mean, do you believe ex-China revenue can be a durable double digit plus growth segment of the business? Or are there maybe some growth offsets that would maybe support a different average growth profile?

You know, we're not giving guidance, so it's hard to predict. I'll just say the fundamentals are low share of ICLs against a declining base in lasers. The refractive landscape, the number one point I have to make while we're here, the refractive landscape is shifting. Lasers are being really relegated to low-to-opter correction of IOL procedures, and the surgeons that are comprehensive refractive surgeons are offering ICLs now, and it's still a fraction of the percentage of market share. Japan is an example, 70% market share in Japan. No other country touches that, and there's a bunch of reasons why, and there's dynamics, but it shows you what's possible. And so when you think about a global share rate, I don't know exactly what it is, but you can probably assume it's 15%, something in that neighborhood. There's real opportunity for growth here in the next five to 10 years. Absolutely.

Last minute or two, I'm going to squeeze in some on profitability. Gross margin, Debra, for you, can you kind of touch on what happened with gross margin in the quarter? And more importantly, what are the drivers of the gross margin recovery, and how should investors think about the timing there?

Well, really, Warren already touched on the big issues impacting our gross margin this year, which were the transition of manufacturing from the U.S. to Switzerland of our China. Business, and The volumes were very low in the beginning as we ramped up, which resulted in low overhead absorption of those units and a very high cost per unit. That was exacerbated in the second quarter when we launched our ERP system and had to shut down for a couple of weeks as we transitioned from one ERP system to the next ERP system. So we've had very high unit costs in the first half of the year, and we expect that to improve going forward. We now manufacture all of our lenses out of Switzerland, and that result means there will be no tariffs on those units that we ship to China. So those two factors, lower unit costs and reduced tariffs, will significantly improve our gross margins going forward.

Okay, great. I'm going to squeeze in one or two more. I guess, how does the company view kind of long-term adjusted EBITDA margins? I think 26% margin in one queue, 20% to 25% in the first half. How do you think about, I guess, yeah, that longer-term adjusted EBITDA margin opportunity for the business?

You know, I think 20% is a nice round number that we can target going forward, and we should be able to achieve that kind of level.

Got it. Okay, perfect. Last one, I'll squeeze this in. Recent share repurchase authorization, really encouraging to see that. Clearly a sign of confidence in the business, including cash generation. I guess, like, why now with this authorization? And then what specifically do you view, or I guess, did you view with shares around $20 as, I think, the quote in the PR was substantially undervalued, or was that maybe a broader statement? And then we can wrap up.

So, look, the board continues to believe that the price remains pretty dislocated and substantially undervalued. When the authorization happened originally, it was for that purpose. When the reauthorization happened, it was a bit of a double down of we'd made some share repurchase previously, but now if the stock is going to continue to be depressed in our view, we get a lot of feedback that we don't give guidance, and therefore, because we're not giving guidance, people have a hard time getting on board. We've given guidance in the past and not delivered on our goals and objectives. Now we've been trying to give commentary and try to be helpful about what we should expect, but we've not been giving guidance, but we've been beating estimates and also beating our internal plans. So I think the board's position is let's reauthorize and let's take advantage as long as the stock stays in a place where they believe or we believe that it is substantially undervalued, then we're going to take actions against it.

Got it. That's a great note to end on. Maren, Deborah, thank you so much.

Thank you, everybody.