STAAR Surgical Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Star Surgical Third Quarter Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be an open for questions. If you have a question, please press Star followed by 1 on your touch-tone phone. If you are using a speaker equipment today, please lift the handset before making your selection. This call is being recorded today, Wednesday, November 4th, 2020. At this time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor, Media Relations and Corporate Development for Star Surgical.

Thank you, Stacey, and good afternoon, everyone. Thank you for joining us on the STAR Surgical Conference call this afternoon to discuss the company's financial results for the third quarter ended October 2nd, 2020. On the call today are Karen Mason, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer. The press release of our third quarter results was issued just after 4 p.m. Eastern time and is now available on STAR's website at www.star.com. Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs, and prospects. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risk and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the Safe Harbor Statement in today's press release, as well as STARS public periodic filings with the SEC. Except as required by law, STARS seems no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. In addition, to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and adjusted earnings per share and sales in constant currency. We believe that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance. A table reconciling the gap information to the non-gap information is included in today's press release. Following our prepared remarks, we will open the line to questions from publishing analysts. We ask analysts limit themselves to two initial questions, then re-queue with any follow-ups. We thank everyone in advance for their cooperation with this process. And with that, I'd like to turn the call over now to Karen Mason, President and CEO of STAR.

Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. The third quarter 2020 results we reported today represent yet another record level of quarterly sales and a return to the levels of growth that are more representative of the demand for our EvoVision ICO family of lenses. For the third quarter of 2020, STARS net sales increased 21% over the prior year, driven by 25% global ICO unit growth as markets more fully reopened following COVID-19 related shutdowns. On a regional basis, ICO unit growth in the third quarter was positive in a large majority of the top markets we tracked. as compared to the second quarter of 2020, when just three of our top markets achieved positive ICL unit growth, both metrics on a year-over-year basis. Standout markets for ICL unit growth in the third quarter of 2020 compared to prior year included China up 33%, Japan up 67%, South Korea up 21%, rest of Asia Pacific up 67%, Spain up 24%, European distributor markets up 17%, and Germany up 13%. India and the Middle East were the two markets that remained most challenged by COVID-19 during the third quarter, with each market down more than 50% in ICL units over the prior year period. Excluding India and the Middle East, global ICL unit growth for the third quarter of 2020 would have been 32%, or seven points higher than the 25% we reported. Several factors contributed to our growth during the third quarter. First, we benefited from our strong presence and growing share in Asia-Pacific markets. Many APAC countries seem to be ahead of the curve with respect to effectively meeting and managing the COVID-19 challenge. Life appears to be returning to normal in Asia Pacific geographies earlier than many other locations around the globe. For example, our employees in Japan and China report that COVID-19 impacts daily life less than we are hearing from our employees in other parts of the world. Globally, we continue to support our customers in getting back to pre-COVID norms while also monitoring any developing trends or actions that could lead to business disruption. Second, we are observing an EVO patient in Asia and Europe that seems more motivated to reach a quick decision regarding refractive surgery, often selecting the first doctor he or she consults whereas historically these same patients may have met with two or three doctors before making a final decision. The feedback we are receiving from clinicians is that patients are increasingly more motivated to quickly seek visual freedom as the pandemic has been quite challenging, as expressed by their patients who wear glasses and contact lenses. There also appears to be a sentiment amongst patients to do something good for themselves, as one of our clinicians in Spain shared with us. Third, COVID-19 related closures and delays, such as in the National College entrance exam in China, which was pushed back a month to July, may have shifted some of our normal demand cycle from the second quarter into the third quarter. And fourth, we effectively targeted and supported geographies with significant volume opportunity during the third quarter, with patient recruiting, surgeon training, and marketing. During the peak season in China, we resumed in-person, on-site patient educational roadshows at hospitals and hotels in the third quarter, where our customers promoted EVO with high definition and premium messaging. We had active marketing campaigns in China, Japan, and Korea via digital, outdoor, commuter train and subway stations, and or social media platforms. We also resumed advertising in Germany and Spain as those markets were fully reopened. In the U.S., we expanded our strategic relationships with surgeons through a refractive restart program to support clinics as the U.S. market reopened. The success of this program has prompted a continuance of many facets of our surgeons' support into and through the fourth quarter. As a measure of our success and awareness beyond just sales, our EVO websites drew twice as many unique visitors in the third quarter compared to the year-ago period. On a year-to-date basis, through the third quarter, our DocFinder visits are up nearly 250% over the prior year period. Turning now to our pipeline of products and potential key catalysts for STAR in 2021 and beyond, we have made meaningful progress relating to our two new products for the U.S. and European markets. In the U.S., the primary study analysis cohort of 300 subjects has been enrolled and implanted with our EVO family of myopia lenses, which sets the stage for a first-half 2021 submission to the FDA, and if marketing approval is obtained, the opening of the U.S. market to our EVO lenses. Our clinical trial sites continue to adhere to clinical trial protocols. We look forward to sharing additional details when appropriate in 2021. Today, we also announced the initial launch and commercialization of our EvoViva presbyopia correcting lens in Europe. Details on our progress, including publication of the first peer-reviewed clinical paper, consumer websites launching in several countries, and the first patient implant of the EvoViva lens in Belgium are contained in the separate press release we issued this afternoon. With Viva, STAR has introduced an implantable lens to treat presbyopia designed to deliver all of the benefits of the EvoLens for myopia with the added benefit of addressing near, intermediate, and distance visual acuity. Clinical trial results have been evaluated and reported in an article written by our principal investigators and medical monitor, and recently published in Clinical Ophthalmology. The conclusion of the study authors is as follows, quote, this multicenter prospective clinical investigation demonstrated the ability of the Edof-ICL to correct myopia and presbyopia, resulting in improvement of uncorrected near intermediate and distance visual acuity without compromising the quality of vision. The EDOF ICL allowed subjects to perform tasks of daily living without glasses or contact lenses. Subjects reported significant improvements in quality of life with high levels of spectacle independence and satisfaction, unquote. We are conducting a phased rollout of our EvoViva lenses to gather information on best practices in patient selection and patient management to optimize the objective and subjective factors that will delight patients in this large addressable market. The initial surgeons, recognized as leaders in their respective markets for refractive surgery, will be implanting the lens as well as making significant contributions to the EvoViva playbook of best practices, thereby providing a pathway to full commercialization of the lens in the second half of 2021. The third quarter of 2020 was a strong quarter for STAR on multiple levels. Most importantly, we believe the essential fundamental demand for our Evo lenses has gained momentum and is reflecting what we experienced pre-COVID. the STAR team remains focused on creating a lens-based future within refractive vision correction, where we believe we have the opportunity to move our global market share from 10% in the near term to 20% to 30% plus global market share in the foreseeable future. We feel very good about our business today, and with the exception of the unknowns which the pandemic holds, we are reiterating our outlook for the remainder of 2021 provided in August, which has us close out the year with the fourth quarter in the range of approximately $43 million in net sales, with the caveat of increased spending to support a strongly developing outlook for 2021. Patrick?