Q3 2026 Financial Results Call and Webcast - STAAR SURGICAL CO

Financial Performance:

• Third-quarter 2026 net sales were $83.4 million, down 12% year-over-year; excluding $25.9 million in deferred China sales from the prior year, net sales grew 21% to $83.4 million against a $68.8 million base.
• China net sales reached $39.3 million (down from $55.8 million); excluding the deferred sales impact, China grew 31% driven entirely by a 31% increase in average selling price (ASP) due to mix shifts toward V5 and Toric lenses.
• Ex-China net sales grew 13% to $44.1 million, with APAC (ex-China) up 4%, EMEA up 31% (51% ex-Middle East), and Americas up 14% led by the U.S. (>$6M sales for three consecutive quarters).
• Third-quarter gross margin was 70.9% (vs. 82.2% prior year), impacted by 6.7 percentage points from the deferred sales revenue recognition in the prior year (which would have been 75.5% without it), plus temporary pressures from ERP implementation, freight, tariffs, and inventory provisions.
• Operating expenses were $53.7 million (vs. $59.4 million prior year); excluding $6 million in one-time restructuring/merger costs, expenses were flat. R&D rose to $10.5 million.
• Adjusted EBITDA was $14.4 million ($0.28/share); excluding the deferred sales impact, prior year adjusted EBITDA would have been $8.9 million ($1.18/share), highlighting a profitable year-over-year recovery.
• Net income was $5.6 million ($0.11/share); excluding the deferred sales benefit ($15.2M tax impact), prior year would have reflected a net loss of $6.3 million.
• Balance sheet is debt-free with cash, cash equivalents, and investments totaling $206.4 million as of October 2, 2026.
• The company announced a $50 million share repurchase program authorized in September.

Guidance and Future Outlook:

• Management declined to provide specific full-year 2026 or 2027 financial guidance, citing macro and geopolitical uncertainties, though they expect strong full-year GAAP net income and free cash flow based on the first nine months.
• Q4 revenue is expected to be lower than Q3 due to seasonal demand patterns in China, but year-over-year growth is still anticipated.
• Gross margins are expected to improve in Q4 and continue to rise in 2027 as unit costs decline once U.S. and Swiss facilities run at full capacity.
• Long-term goals include launching a meaningful new product in a critical market every 18 to 24 months, with first-in-human trials for two presbyopia products (multifocal and aspheric) expected to begin patient enrollment in the coming months.
• The structural market shift from laser to lens-based correction is identified as a primary long-term growth driver, supported by U.S. laser procedure declines (-5.8%) and double-digit ICL growth.

Business Segments and Product Lines:

• China: Distributor unit shipments grew 12.4% YTD; growth is driven by higher ASP from increased adoption of EVO Plus (V5) and Toric lenses. Mid-tier hospital adoption is accelerating to close the gap with top-tier centers.
• U.S.: Gained market share despite declining laser volumes; the market report highlights "silicon" (silicone) ICLs as a preferred option for patients avoiding laser surgery.
• EMEA: Strong double-digit growth in Spain, Germany, and the U.K.
• Innovation: Two new Colomer-based presbyopia products are advancing toward clinical trials. R&D leadership strengthened by new CTO Ben Park.
• Commercial: David Bailey (former CEO) returned as Chief Commercial Officer to drive surgeon adoption; Pascal Ashleman appointed VP Asia-Pacific; label expansion added ~34 million potential patients in the U.S. (age 60+) and Brazil (lowered diopter limit).

Market and Competitive Landscape:

• The market is undergoing a structural shift from lasers to lenses, with ICLs capturing share as laser procedures decline in the U.S. and stabilize in China.
• EVO ICL is described as the most clinically validated phakic IOL globally (100k+ eyes studied, 4M+ lenses distributed).
• In China, despite overall market stability, STAR is outpacing the broader refractive market with mid-tier hospitals increasingly citing EVO Plus as a growth driver.
• South Korea faced market weakness (estimated 5-10% decline) and currency headwinds, while Japan saw a slight decline primarily due to currency.
• Competitive advantage relies on the unique Colomer technology allowing for complex, high-volume customization (hundreds of thousands of SKUs).

Risks and Challenges:

• Supply Chain Constraints: Inability to fully meet demand for V5 and Toric lenses in Q3 due to manufacturing complexity (Colomer) and high SKU variety, though inventory is now being managed to target levels.
• Tariffs: U.S. tariffs impact margins on U.S.-made products sold to China; mitigated by transitioning all China-bound ICL manufacturing to the Swiss facility by end of Q3.
• Regulatory: Progress on presbyopia trials is contingent on receiving remaining regulatory authorizations.
• Macro/Geopolitical: Global economic conditions and geopolitical issues remain potential risks to future performance and guidance.
• One-Time Costs: ERP implementation caused temporary production inefficiencies and inventory provisions in Q3.

Management Commentary and Tone:

• Tone was confident and forward-looking, emphasizing progress on three strategic goals: revenue growth, profit expansion, and innovation acceleration.
• Management highlighted the successful transition of China-bound manufacturing to Switzerland to reduce tariff exposure and improve supply chain resilience.
• Warren Faust (CEO) and Deborah Andrews (CFO) displayed strong alignment on capital allocation, prioritizing R&D, operational efficiency, and disciplined share buybacks.
• The company emphasized that Q3 growth was organic and ASP-driven rather than inventory-driven, indicating healthy underlying demand.

Analyst Questions and Answers:

• Inventory Dynamics: Confirmed that China distributor inventory depletion was driven by strong in-market demand (12.5% growth) rather than active destocking; supply constraints limited total fulfillment.
• Q4 Outlook: Reiterated that Q4 is typically seasonally lower but expects to grow vs. prior year; declined to forecast specific numbers or Q4 restocking volumes.
• U.S. Market: Noted that while laser procedures decline, ICLs are capturing patients previously on the sidelines; potential growth exists in vertical integration by optometric providers.
• Yield Improvements: Each 1% yield improvement generates ~$750k-$1M in annual gross profit; yields are expected to return to normal levels post-ERP stabilization.
• Product Mix: Higher mix of Toric and V5 lenses is sustaining ASP growth; demand for V5 exceeded supply capacity, indicating runway for further growth.
• Market Softness: South Korea's decline attributed to broad market weakness, not competitive loss.

Other Key Points:

• Completed the operational transition to manufacture all China-bound ICLs in Switzerland.
• SECRA certification obtained for a second clean room at the Medallion (NEDAL) facility to support scaling.
• New leadership appointments: Ben Park (CTO), David Bailey (CCO), Andrew Pilon (VP Business Development), Pascal Ashleman (VP Asia-Pacific).
• Record nine-month revenue and strong free cash flow generation position the company for continued investment in R&D and capital returns.