STAAR Surgical Company (STAA) Earnings

Management highlights

### Leadership Update - Six months after serving as interim co-CEOs, Warren Foust was appointed permanent President and Chief Executive Officer, and Deborah Andrews was promoted to Executive Vice President while retaining her role as Chief Financial Officer. - The company achieved the strongest first half revenue performance in its history, driven by focused execution across core priorities. ### Core Priority Progress - **Revenue Growth**: The company delivered broad-based growth, with sequential growth in China, double-digit growth in the Americas, and double-digit growth in EMEA excluding the Middle East. The EVO Plus launch in China drove significant market share gains, with no evidence of distributor or hospital inventory buildup, confirming growth is driven by end consumer demand. The U.S. delivered back-to-back record quarters above $6 million, with ongoing underpenetration and opportunity to gain share from declining laser-based procedures. - **Profit Expansion**: The company expanded gross margins, delivered positive net income, and generated strong free cash flow, building cash reserves while maintaining a clean balance sheet with no debt. A company-wide ERP implementation was completed successfully in Q2; the system is now live and will be optimized in Q3, serving as a foundational investment to improve operational visibility, enable scaling, and support future AI-enabled capabilities. - **Innovation Acceleration**: Management is moving beyond a single-product mindset to build a diversified platform leveraging the company's proprietary Collamer columnar material technology. The R&D team is actively preparing for first-in-human studies for next-generation products, and the company will soon hire a Chief Technology Officer to formalize and lead the long-term innovation agenda. Operational updates: As of Q2 end, EVO Plus represented approximately one-third of total unit volume in China, exceeding management's initial launch expectations, and maintains a significant price premium that has been well accepted by patients and providers.

Guidance

- For Q3 2026, management notes the year-over-year comparable base is $68.8 million after excluding the non-recurring $25.9 million 2024 order revenue recognized in Q3 2025. Q3 2026 China revenue is expected to be moderately lower sequentially than Q2 2026 due to seasonal shifts, but management expects year-over-year growth on the adjusted comparable base. - Q4 2026 is expected to remain seasonally softer than the first three quarters of 2026, but management also expects year-over-year growth for the quarter. - 100% of products shipped to China are expected to be manufactured in Switzerland (eliminating China tariff impacts on gross margin) by the end of 2026. - The company remains on track to hit its full year 2026 spending target of $225 million, though it may make targeted incremental investments that result in marginally higher full year spending if attractive opportunities arise. - ERP consulting expenses are expected to decline significantly beginning in Q4 2026, and one-time severance costs recorded in Q2 will not repeat. - Management expects the company will generate significant free cash flow in H2 2026, ending 2026 with well over $200 million in total cash. - Full supply capability to meet all EVO Plus demand in China is expected by the end of Q3 2026, with full tariff-free V4C production for China achieved by the end of 2026.

Segment performance

AAR Surgical (STAR) reported Q2 2026 consolidated net sales of $93.5 million, representing a 111% year-over-year increase from the prior year quarter's $44.3 million. Performance by regional segment is as follows: - **APAC**: Net sales increased 189% year-over-year. China net sales grew over 100% year-over-year and 10% sequentially to $52.3 million, contributing 56% of total consolidated net sales. Excluding China, APAC net sales grew 7% year-over-year. In Japan, unit volume rose 14% year-over-year, but currency headwinds limited reported sales growth to 2%. - **Americas**: Grew 12% year-over-year. The U.S. delivered a second consecutive quarter of approximately $6 million in sales, contributing ~6.4% of total consolidated net sales. - **EMEA**: Overall net sales declined 1% year-over-year due to ongoing conflicts in the Middle East. Excluding the Middle East, EMEA grew 12% year-over-year, contributing approximately 0% to negative overall growth to net sales when including the Middle East. Profitability segment performance: Gross margin for the quarter was 74.5%, up 50 basis points from 74% in the prior year quarter. Total operating expenses were $59.6 million, down from $62.8 million in the prior year quarter; after adjusting for $5.2 million in prior year restructuring and merger-related costs, operating expenses increased only ~3.7% year-over-year. The company reported net income of $8.1 million ($0.16 per diluted share), compared to a net loss of $16.8 million ($0.34 per diluted share) in the prior year quarter. Adjusted EBITDA was $20 million ($0.39 per diluted share), compared to an adjusted EBITDA loss of $14.8 million ($0.30 per diluted share) in the prior year. Ending cash, cash equivalents, and available-for-sale investments totaled $181.5 million, up from $163.9 million at the end of Q1 2026, with zero outstanding debt.

Risks & headwinds

- Ongoing geopolitical conflict in the Middle East is negatively impacting EMEA regional sales performance. - Currency exchange headwinds are dampening reported sales growth for international markets, most notably Japan. - China tariffs on U.S.-manufactured products continue to negatively impact gross margins until full Switzerland-based production for China is completed by end of 2026. - Global demand for EVO products has outpaced the company's existing supply chain projections, creating temporary supply constraints that have limited sales in some markets, including the U.S. - Increasing domestic competition in the China refractive market is emerging, though management believes its proprietary material technology and long-standing surgeon trust create a durable competitive advantage. - Macroeconomic challenges and local competition create long-term headwinds for growth in smaller markets such as India.

Analyst Q&A

• Q: With the adjusted Q3 2025 comparable base of $68.8 million, is the current consensus Q3 2026 forecast of $80.9 million reasonable, and how should investors model Q3 2026 growth? /

  A: Management does not comment on consensus estimates, but confirmed they expect year-over-year growth off the adjusted $68.8 million base for Q3, and also expect year-over-year growth for Q4 2026. Growth is expected to be driven by ongoing market share gains in China from the EVO Plus launch, paired with solid performance across the rest of global markets despite external headwinds.

• Q: How does EVO Plus penetration in China compare to initial expectations, and what is the current price premium for the product? /

  A: EVO Plus demand has outstripped both initial expectations and the company's current supply capabilities. By the end of Q2, EVO Plus represented almost one-third of total unit volume in China, which beat launch forecasts. The product continues to command a considerable price premium that has been accepted by customers and patients, and management expects this premium to persist into the near term.

• Q: Management framed China share gains as coming primarily from laser-based procedures. Is this driven by patient preference or surgeon adoption, and how durable are these gains against growing domestic competition? /

  A: Both dynamics are contributing: patients are increasingly asking for EVO Plus upfront, and surgeons are expanding their ICL offerings to meet this demand. A halo effect also boosts demand for existing EVO V4C products when EVO Plus is out of stock or out of patients' price range. Management notes the company's 32-year track record of safety and efficacy with its proprietary Collamer material gives it a strong durable advantage over new domestic competitors using different materials.

• Q: Could you expand on your comment about moving beyond a single product to a broader platform business? Will this expansion be within refractive or move into new ophthalmic markets, and what is the timeline? /

  A: The company is building out internal infrastructure and capabilities to become a broader long-standing successful ophthalmology company, leveraging its unique material capabilities. Refractive surgery and sulcus lens placement remain core competencies, but the company is developing a broader pipeline of products, including options for presbyopia/extended depth of focus correction. A new CTO will be hired to lead this agenda, and first-in-human trials for next-generation products are expected to begin as early as early 2025, with more formal pipeline updates planned for future disclosures.

• Q: U.S. sales were steady at ~$6 million in Q2 after sequential growth every quarter since launch. What explains the small sequential decline, and what is the current growth trajectory? /

  A: Two key factors explain the sequential decline: first, the overall U.S. refractive market declined in Q2, driven by falling laser procedure volumes that impact the broader market, even as STAR gains share. Second, supply constraints to meet high EVO Plus demand in China created temporary backorders for made-to-order lenses in the U.S., limiting near-term sales. The U.S. market remains massively underpenetrated with massive long-term opportunity, and the company is working to resolve supply constraints to reaccelerate growth.