Q3 2026 Financial Results Call and Webcast - STAAR SURGICAL CO

Explicit Guidance:

• Q4 2026 Gross Margin: Expected to rise above the Q3 2026 level (70.9%) due to lower tariffs and reduced inventory provisions; specific numerical targets not provided.
• FY 2026 Full Year: Management expects "strong full-year GAAP net income and free cash flow," driven by record nine-month performance. No specific dollar or percentage guidance provided.
• FY 2027 Gross Margin: Anticipated to improve further as unit costs decline once U.S. and Swiss manufacturing facilities operate at full capacity.
• Q4 2026 Revenue (China): Confirmed to grow year-over-year despite historical sequential seasonality (Q4 typically down ~$10M vs. Q3); Q1/Q2 identified as high season.
• Operating Expenses: On track to meet the FY 2026 adjusted operating expense target of $225 million established at the start of the year.
• FY 2027 Guidance: Management explicitly stated they are "stopping short" of providing formal FY 2027 guidance at this time, citing macro/geopolitical unknowns; potential disclosure window not specified.

Business-Segment Outlook:

• China Market: "In-market" unit volume growth is healthy at ~12.5% (H1-H3), outpacing the broader refractive market; growth driven by mid-tier hospital adoption and mix shift to EVO Plus (V5) and Toric lenses.
• Asia Pacific (Ex-China): Growth of 4% for YTD, driven by India, Taiwan, and others; growth partially offset by declines in Japan (currency) and South Korea (market weakness).
• EMEA: Grew 31% YTD (51% excluding Middle East), fueled by double-digit growth in Spain, Germany, and the U.K.
• Americas: Grew 14% YTD; U.S. achieved >$6M in sales for three consecutive quarters, decoupling from the 5.8% decline in U.S. laser procedures.
• Product Mix & Pricing: Revenue growth in China Q3 was 100% driven by ASP increases (no volume growth in Q3 net sales) due to supply constraints on EVO Plus/Toric; management expects ASP tailwinds to persist as mix shifts to higher-value SKUs.
• Supply Chain: All China-bound ICL manufacturing transitioned to Switzerland as of Q3 2026; Swiss capacity expansion (second clean room certified) expected to resolve supply bottlenecks and allow supply to match underlying demand.

Market and Competitive Outlook:

• Structural Shift: Confidence in a long-term "foundational shift" from laser-based to lens-based vision correction globally; U.S. laser market declining while ICLs grow double digits.
• Patient Demand: Consumer research indicates strong demand for "freedom from glasses/contacts"; U.S. market potential expanded by ~8M new patients due to FDA label expansion to age 60.
• Brazil Market: Potential added ~26M eligible patients following label expansion lowering minimum prescription to -0.5 diopters.
• Competitive Positioning: EVO ICL cited as the most clinically validated Phakic IOL globally; mid-tier hospitals in China increasingly adopting EVO Plus, narrowing the gap with top-tier centers.
• Innovation Pipeline: First-in-human trials for two new Colomer-based presbyopia products (multifocal and aspheric) to begin patient enrollment in the "next few months," contingent on regulatory approval.
• Launch Cadence: Ambition to achieve a "meaningful product launch in a critical market every 18 to 24 months."

Macro / Industry Outlook:

• China Volume: End-market refractive surgery volume described as "stable" in China; growth is mix-driven (higher price procedures) rather than volume expansion.
• South Korea: Facing "market softness" potentially 5–10% below prior levels; no specific turnaround date provided.
• Tariffs & FX: Q3 impacted by tariffs on U.S.-made products sold to China and FX headwinds in Japan; transition of China-bound production to Switzerland expected to reduce future tariff exposure.
• Global Macroeconomics: Management cites "global, both macro and geopolitical issues" as variables that could impact future performance, justifying the lack of specific guidance.
• U.S. Refractive Landscape: Laser procedures in the U.S. have declined from ~1.5M to ~200k–300k; management views ICL as the solution to bring "sideline" patients into the market.

Strategic Initiatives:

• Capital Allocation: Board authorized $50 million share repurchase program (Sept 2026), signaling belief that shares are undervalued.
• Commercial Leadership: David Bailey (former CEO) returned as Chief Commercial Officer to drive deeper surgeon adoption; Pascal Ashleman appointed VP of Asia-Pacific; Andrew Pilon appointed VP of Business Development.
• Manufacturing Optimization: DECRA certification completed for a second clean room at Nedal (Switzerland); expansion of machining capacity at Monrovia (U.S.); focus on automation and yield improvement.
• Financial Impact of Yield: Estimated $750,000 to $1 million in annual incremental gross profit for each percentage point of yield improvement.
• Inventory Management: Target inventory levels for distributors set at six months; current levels below target due to inability to meet demand; no large "restocking" orders expected in Q4.

Risks and Headwinds to Outlook:

• Supply Constraints: Inability to fully meet demand for EVO Plus/Toric lenses in Q3 resulted in lost sales potential and inventory depletion in China; complexity of Colomer manufacturing (hundreds of thousands of SKUs) remains a supply constraint.
• Regulatory: New product launches (presbyopia trials) are subject to "remaining required regulatory authorizations."
• Cost Pressures: Q3 margins impacted by temporary factors: ERP implementation costs, higher freight, inventory provisions, and low production volumes during transition; unit costs expected to remain elevated for the remainder of 2026.
• Market Volatility: South Korea market weakness (5–10% decline) and Japan currency headwinds pose regional risks.
• Backorder Dynamics: Difficulty quantifying lost sales vs. delayed treatment for patients unable to receive specific lens configurations (MTOs) in the U.S. and China.

Management Tone on the Future:

• Confidence Level: "Encouraged," "Pleased," and "Excited" regarding China growth, operational transition, and innovation pipeline; expressed strong belief in the long-term structural shift from lasers to lenses.
• Cautious Guidance: Explicitly avoided specific numerical forward-looking guidance for FY 2027 or Q4 revenue, citing "unknowns" and "global geopolitical issues."
• Execution Focus: Emphasis on "financial discipline," "operational excellence," and "selective investment" with clear ROI.
• Strategic Confidence: Board and management fully aligned; confidence in capital deployment via buybacks and R&D to drive long-term value.

Miscellaneous:

• Financial Performance: Q3 2026 adjusted EBITDA was $14.4M ($0.28/share); GAAP net income was $5.6M ($0.11/share). Excluding the $25.9M China deferred sales from Q3 2025, Q3 2025 would have shown a net loss of $6.3M.
• Balance Sheet: Cash, equivalents, and investments totaled $206.4M as of Oct 2, 2026; company remains debt-free.
• Operational Milestone: Completed move of all China-bound ICL manufacturing to Switzerland; new ERP system implemented.
• R&D Leadership: Ben Park appointed Chief Technology Officer to lead R&D across therapeutic areas.