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 open for questions. If you have a question, please press STAR followed by 1 on your telephone keypad. If you are using speaker equipment today, please lift the handset before making your decision. This call is being recorded today, Wednesday, November the 3rd, 2021. At this time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor Media Relations in Corporate Development for Star Surgical. Brian, please proceed.

Thank you, operator, 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 1, 2021. 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 STAR's public periodic filings with the SEC. Except as required by law, STAR assumes 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 GAAP information to the non-GAAP 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 would now like to turn the call over to Karen Mason, President and CEO of STAR.

Thank you, Brian. Good afternoon everyone and thank you for joining us on today's call. I am pleased to report that we experienced outstanding demand for our ICLs during the third quarter and achieved net sales above the high end of our previously provided outlook. Enthusiasm for our implantable polymer lenses continues to grow and has never been higher. In fact, orders for ICLs outstripped our supply of lenses in the quarter. With China being our largest market, our distributors' inventory levels in China were drawn down to historically low levels to meet surgeon and patient demand. While we were able to meet 35% growth levels to the surgeon and patient community from our distributors' inventory, we were only able to ship units equaling 19% growth to our distributor. COVID-related employment, production output, and modest supply chain challenges impacted the quarter and resulted in a backlog of over 20,000 lenses at the end of the third quarter, representing several million dollars of orders in-house. As many of you are aware, we have typically been able to meet the vast majority of demand for our spherical lenses and non-custom toric lenses through real-time production and finished goods inventory on hand at STAR within a few days of receiving an order. Continued strong demand combined with the aforementioned production challenges resulted in what we believe is a temporary, longer than usual delay in lens order fulfillment during the third quarter, which we are addressing and aim to fully resolve in the coming quarters. With regard to China, I am pleased to report that our EVO-ICL momentum in China continues unabated. We continue to increase our refractive market share projections for China next year and beyond. Overall, we achieved strong year-over-year global ICL unit growth of 29% in the third quarter of 2021 as compared to a significant achievement in the third quarter of 2020 where we met our pre-COVID growth projections. ICO unit growth by geography for Q3 included Japan up 44%, South Korea up 21%, India up 338%, Germany up 25%, European distributor markets up 22%, the Middle East and North Africa up 242%, and the US up 66% all as compared to the prior year quarter. I would also like to highlight the exciting levels of growth in distributor markets where we have recently made significant investments to convert to a hybrid market structure in several countries. As many of you know, we have star personnel working alongside our distributors in hybrid markets, leading the important commercial, clinical, and practice development work with our surgeon customers. In Belgium, the Netherlands, France, and Italy, we achieved 32% ICO unit growth in aggregate year over year in the third quarter of 2021 as compared to 20% in the year-ago quarter and just 10% in the third quarter of 2019. We are continuing to expand our plans for more distributor markets to move to the hybrid model in 2022 and 2023. Turning now to our strategic imperatives and the drivers of growth for STAR in the fourth quarter and beyond. In the US, our submission of clinical data for STARS evil family of myopia lenses remains under customary interactive FDA review. While our expectation of pre-COVID approval timelines by the FDA has now passed, we remain confident regarding an approval of our PMA supplement. We will provide further comment on the process and our interactions with the FDA when permitted and appropriate to do so. We are laying the foundation for growth in the U.S., which represents a tremendous market share opportunity for STAR, as the U.S. is the second largest refractive market in the world. During the third quarter, we made incremental marketing investments in several key U.S. cities with customers who have demonstrated a commitment to offering the ICL as a premium and primary refractive option through alliance agreements, which in other markets have resulted in meaningful increased levels of ICL unit growth. Investments include social media, patient education, training, and targeted digital marketing. Upon FDA approval, we will add at least one additional major metropolitan market to our advertising program, and in 2022, markedly increase our consumer advertising investment related to celebrity social media and digital campaigns designed to increase brand awareness and drive consumer desirability for our premium lens-based refractive vision correction procedure. We are also continuing our increased engagement with existing surgeons and potential new surgeon customers in the US. We currently plan to hold our second US Surgeons Council Summit next month in Dallas. The goal of our Surgeon Summits is to educate surgeons on our products through clinical presentations and highlight the patient, clinical, and revenue opportunity for surgeons by presentations from US and OUS surgeons who are already transitioning to a lens-based future of refractive vision correction with our implantable polymer lenses. Surgeon interest in next month's summit has been robust, and we anticipate a strong presence of leading surgeons from across the U.S. Additionally, to further engage the U.S. surgeon community, we are in the process of building an ICL experience center at our California corporate headquarters in Lake Forest. A first of its kind for STAR, the ICL Experience Center will offer surgeons and their staff in-person didactic training, surgical simulation, and marketing education and training. The center will feature STAR's next generation ICL planning ecosystem, which connects and integrates with the diagnostic equipment surgeons currently use for case management. We plan to open the U.S. ICL Experience Center in the first half of 2022. Given the outstanding demand for our ICLs, we are today raising our outlook for full-year fiscal 2021 net sales to a range of $230 million to $231 million, which represents growth of over 40% year over year. We are also reaffirming our previously communicated pre-COVID three-year outlook for 25% plus compound annual sales growth for fiscal 2020 through 2022, despite the 2020 COVID impacted growth rate of 9%. I will now turn the call over to Patrick to discuss our financial performance in more detail. Patrick?