Good day, ladies and gentlemen. Thank you for standing by. Welcome to the STAAR Surgical Third Quarter 2018 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be opened for questions. [Operator Instructions] This call is being recorded today, Wednesday, October 31, 2018. At this time, I would like to turn the conference over to Mr. Brian Moore with EVC Group.

Thank you, Andrew, and good afternoon, everyone. Thank you for joining us on the STAAR Surgical conference call this afternoon to review the Company's financial results for the third quarter, which ended on September 28, 2018. On the call today are Caren Mason, President and CEO of STAAR Surgical; and Deborah Andrews, Chief Financial Officer. The release of the third quarter results was issued just after 4:00 p.m. Eastern Time and is now available on STAAR's website at www.staar.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 STAAR's public periodic filings with the SEC. Except as required by law, STAAR 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 or loss, adjusted earnings per share and net income and or loss per share information. 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 call to questions from publishing analysts. We ask analysts to limit themselves to two initial questions then re-queue with any follow-ups. We thank everyone in advance for their cooperation with this process. Now, I'd like to turn the call over to Caren Mason, President and Chief Executive Officer of STAAR Surgical.

Thank you, Brian, and good afternoon everyone. I'll begin this afternoon with an overview of the continuing momentum in the global market for our ICL product line as well as for solid financial performance generated by our company during the third quarter. Additionally, I'll provide an updated outlook of our full year financial performance. And finally, I'd like to share with you our team's updated research on the total viable patient population for both myopia refractive vision correction and presbyopia vision correction to help illustrate the significant opportunity that lies ahead for STAAR surgical. Deborah will then review key third quarter and year-to-date financial results. The ICL's momentum in the global market established during the first half of 2018 continued through the result and resulted in a 46% increase in ICL sales as compared to the prior year period. Total revenue for the quarter grew 35% over the third quarter of last year. Our gross margin continued to expand primarily due to higher ICL contribution to total sales. The gross margin 75.1% of sales was up 330 basis points over the prior year quarter. ICL sales represented 83% of sales mix while other products accounted for the remaining 17% of sales. During the quarter, we also continue to execute our plan to make targeted investments designed and faster continued future growth. And despite these investments, we earn $0.03 per share on a GAAP basis and $0.07 per share on a Non-GAAP basis. I'd also like to note that we generated $8 million in cash from operations during the quarter, which is a new record for our company. Combined with the proceeds from our very successful placement of slightly less than 2 million shares in early August, STAAR's balance sheet has never been stronger. Cash and cash equivalents as of September…

Thank you, Caren. Good afternoon everyone. I'll start the financial overview with a summary of top line results and then provide more details by product and market. STAAR reported net sales of 31.8 million in the third quarter of 2018 an increase of 35%, over the 23.5 million reported in the year ago period. As Caren mentioned, the strong top line increase was driven by ICL revenue growth of 46%. Other product sales were essentially flat down 0.2% in the third quarter of 2018 and accounted for approximately 17% of our 31.8 million in net sales. Moving down the income statement, our gross profit margins of third quarter was 75.1% up 330 basis points compared to the prior year period gross margin of 71.8%, and while sales increased 35%, gross margin dollars increased 42%. The improvement in gross margin resulted from lower unit cost, favorable product and country mix, and lower freight and inventory provisions partially offset by the effect of lower average selling prices. For the 9 month period ended September 28, 2018, net sales grew 41% to $93 million and our gross margin expanded from 73.9% -- to 73.9% from 71.3%. Total operating expenses for the third quarter were $22.3 million essentially flat on a quarter-to-quarter sequential basis and a 41% increase compared to the prior year quarter of $15.8 million. Adjusting for the calendar shift of the ESCRS Trade Show, total operating expenses would have increased approximately 32% compared to the prior year quarter. Taking a closer look at the components of operating expenses, G&A expense was $6.1 million as compared to $4.7 million during the year ago period. The increase in G&A spending is due to increased compensation cost including stock based compensation, facility cost, travel and investments in enhanced cybersecurity systems. Marketing and selling expenses…

[Operator Instructions] Our first question comes from the line of Jason Mills with Canaccord Genuity. Your line is now open.

So I'll try to limit myself to two questions. Caren, you know that's difficult for me, but I'll do my best to follow Brian's rules. The first question I'll ask and I'll shut up the most likely answer and I'll come back for the second. The first one has to do with whatever you're willing to give us in terms of initial expectations for 2019 or how you see 2019 date in terms of your ICR business? And as a sort of a Part B to that, how you see the United States market playing into your growth profile for the next 12 months? And clearly where I'm going with that Caren, is any discussions or thoughts you can share with respect to the EVO family of lenses and the potential launch in the United States markets?

Okay, very good. So as you can imagine, we're deep into planning for 2019 and we're continuing to benefit from the momentum that we have experienced in the past quarters and look forward to enhancing in the coming quarters. With regard to what those numbers would look like in January we'll be talking about that at the JP Morgan Conference. But in terms of outlook, momentum, confidence, we're feeling exceptionally bullish about 2019. In terms of the U.S. market, we expect the U.S. market as I said in the press release to positively really reenter the positive column for our business in terms of sales, units and profit. We know that's the Toric ICL based on the fact that, we actually had early implants starting on October 22nd in major cities such as Los Angeles, San Antonio, St. Louis and Phoenix. We have excellent reports from doctors and patients and a lot of media coverage both television and newspaper with enthusiasm. Just quick Halloween story. One of our first patients was implanted a young mother with three children who was so thrilled about her vision correction that when they carved pumpkins for Halloween, their pumpkins were made with ICL images on the pumpkins. So and we shared those yesterday with our corporate Halloween party and it was quite fun. I think the bottom line here is that we can expect the United States to have a strong but orderly rollout to make absolutely sure that our surgeons are certified and their staffs are ready and that patient communication materials and practice development is outstanding. We're talking about 15 major markets over the next several months. And in talking to a number of surgeons at AAO, they're very excited and they have waiting lists of patients. So its impact on this year will be moderate, but its impact next year is why we will be in the plus column. With regard to EVO, we're very excited about what we are putting together in terms of a package for submission that we believe is very, very compelling. We have surgeon input. We have lot of data. And when the time is right and I'm able to, I will be excited to share that submission information.

Second question around presbyopia and thank you for all the targeted market data, I get that question a lot and that was so much clear than I could have put it personally. It's clearly a big market and I think a lot of folks go for reasons of potentially investing in the stock and as a potential customer are interested in that product and that data. I know I am struggling with the reading vision as we speak at the lower end of that age range you talked about. And so, my question is, can you update us in terms of how you see that product progressing through the regulatory channels in Europe and the United States and whether anything is changed there? And what specific metrics those trials are looking at? What you think you need to see from a clinical data standpoint or clinician need to see for that product to realize the potential that you very well outlined in European analysis? And I'll get back in queue. Thanks, Caren.

So my Vice President of Clinical and Medical Affairs and my Head of Regulatory are listening in. So you can only imagine what they're feeling right now. Because obviously, I have great answers to your questions, but there is so much I can share at this point since we have an active pivotal clinical trial. So here is what I can share. Bottom line is that the EDOF element associated with visual optic, the presbyopic lens whether it'd be in a cataract form or where that's the only company we believe that will have phakic IOL for presbyopia. We would exceed the expectations that you would imagine are being promised or delivered or detailed today by surgeons for cataract lens with an EDOF optic. Our goal is to exceed that in terms of targeting refractive correction and patient satisfaction. In terms of where want to sell pesbeyopic lens is everywhere. We're starting certainly in the CE Mark countries in Europe where we will initially submit our data from the study. We are also talking to our partners in Asia-Pacific in China. And we certainly are talking about the EVO family of lenses as we approach CDRH in the U.S. So all-in-all, we feel very confident and excited about the presbyopic product and what it can mean.

Thank you. And our next question comes from the line of Chris Cooley with Stephens. Your line is now open.

I'll keep it to two as well. Could you -- you gave some great detail in terms of kind of the changing mix as you go low in terms of the diopter curve and what that means to potential growth. So if I can maybe take a page from Jason's playbook for my first question. Could you just talk to us a little bit about how that change in mix overtime plays through the P&L both from a margin but also from a growth -- I should say from a growth and then also from a margin perspective? And then, is that maybe as an offshoot of that question, is that, what's really driving that step up in the moderate -- mid-to-moderate myopia estimate when I think about that versus your prior number which I believe was 500,000 you had a 120,000 high myopes? So is that really what's driving the step up in your end market? Than I have a follow-up.

Yes, where we are in terms of lower diopters which would qualify as mid is that, as we began to expand the total market share and growth requirements of our larger strategic partners, where they have already had such success with expanding dramatically their use of the lands, we work on making sure that we can provide an appropriate volume to price ratio for improvement and increased volume with the use of going down diopter curve. So the best way to look at it is, if in fact we want to grow much faster there 30% or 40% or even higher, then it we make absolutely sure that price elasticity makes sense at the lower diopter range as compared to volume. So, our expectation is over time, you're going to see a much higher volume trajectory, you're going to see a leveling of price points of the lower diopter levels, and the retention of premium pricing for all Toric and high diopter level lenses. The manufacturing costs et cetera continue to get us in the mid 80s range for gross margin and we see that not changing other than upwards or improving. So, it's all about volume, Chris, and everything else falls afterwards, but we're managing it I think quite well with our partners. And so where you saw the higher volume as compared to sales and ICLs in Q3, it was really related to the fact that those were very high volume, more down the mid diopter range purchases in that particular quarter.

That's most helpful and if I could my second question. China and the Asia-Pacific region have just been phenomenal stand else for the Company and I look back here through the year, you had 91% growth I believe in units in China in the first quarter a 127 in the second and now you know 81% unit growth, and if I'm doing the math right about over 40% of revenue. Could you talk to us about your confidence in the sustainability of growth in China where you know a little bit north of 10% market share? And what if any implications we should think about from both an economic and also maybe from a tariff perspective you know, is this sustainable? And does the new model insulate you somehow here? Or just help us think about that a little bit more? Thank you so much.

Sure. And that's a great question and I have a great answer. So, bottom line is that, our partnerships in China have never been stronger. We've just met with all of our key larger accounts including our largest account Aier. We have agreed to a very strong 2019 and beyond. We are very aware in sharing appropriately about how we manage tariffs, how we manage growth, and what a trajectory is for market in terms of total percentage and share of all procedures for all of our biggest partners. And I can tell you that everyone is signing up very aggressively for '19 and beyond. So, we're feeling very good about China.

Thank you. And our next question comes from the line of Brian Weinstein with William Blair. Your line is open.

This is actually Andrew on for Brian. I wanted to first start with the question on guidance exceeding 30% for the year. And I think your comment was that the ICL growth should be in that same ballpark that implies a pretty substantial step down in the fourth quarter. So maybe time that into your commentary on the second and third quarter strong. And maybe a little bit more on the visibility into why you're calling to that guidance in the fourth quarter?

Okay. So, the 30% was total, not ICL. So, it was we are going to increase our top line in excess of 30% for the year. We did not call out ICL growth, but certainly it would be near to the range that we have been reporting over the last quarters in terms of the growth for the ICL. There is no relaxation there. There is no decrease. The increase from 25% to in excess of 30% again Andrew is the top line.

So then maybe going back to your comment on the second and third quarter being the strongest and can you maybe just provide a little bit more detail on why that is you caught out the busy seasons in the press release? So I'm just trying to tie into next couple of quarters.

Sure. So we have in 2017 had sequential growth every quarter. And then when the age specific region became more and more of our total volume and the busy season was in the second quarter in terms of making sure, we order enough in preparation to start in June and then in the third quarter to actually deliver and build for procedures. Q2 is now our largest quarter we believe going forward, Q3 second largest followed by Q4 and Q1. And so, that's the way we see it; however, we expect that Q4 will still be a strong fourth quarter in growth over prior year. So when you look at the year as a whole, we're seeing in excess of 30% and as you know we like to be prudent.

Thank you. And our next question comes from the line of Bruce Jackson with the Benchmark Company. Your line is now open.

If we could talk about the Toric ICL launch in the U.S., if you could give us a few more details on your launch plans, and how you anticipate that the sales are going to are grow over the course of 2019?

Well, we certainly see double digit growth in the 2019 in the U.S. and a lot of that being the mix of lenses especially for the Toric growth. We have talked to doctors who have set to us that they want to in some cases wait to implement Toric because they believe that some of their patients are borderline et cetera. But I think, we expect that the MICL will also pick up as we begin to show what we can do with the Toric. And that a number of these practices haven't been aggressively using our lenses for a while, they kind of used us under the old not premium and primary but more about if you don't qualify for LASIK as a rationale. So now by introducing the Toric, we are re introducing the ICL in its entirety in terms of the business model, the clinical model, the patient, advertising and that's why in the markets where we went first with some of our highest implanting ICL surgeon partners, there was a lot of media coverage, a lot of patient in terms of waiting lists. And so, we expect that the Toric will rejuvenate and it's a wonderful reentry into the U.S. market. And the next question that we always get is. When can I have EVO? EVO is a game changer we see it as a skyrocketing moment and potentially we've been told by some surgeons that they expect to flip their mix from 80%, 90% laser to 20% to 10% percent ICL to the opposite with ICLs becoming 70% or 80% of their total volume. So, we believe the combination of getting Toric, reenergizing the U.S. market with the ICL then following on with EVO, will get us some very, very strong numbers and we'll manage it like we've managed China.

And then, India, the press release you've talked about the enthusiastic receptions from the surgeons at [Oscars] when they were looking at the EDOF data. Can you, without going into the actual data details, can you maybe comment on some of the aspects of the product performance or the use of use that made the surgeons so enthusiastic?

Well, certainly, we covered the performance of the lens in terms of best corrected visual acuity. We talked about patient satisfaction and there was very excellent and positive response from the attending surgeons. That's the most that I can give you until we get permission from our regulatory authority that we have approval on the pivotal trial and then all the data will be released.

[Operator instructions] Our next question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open.

So, Caren, you guys really waited in Asia to get EVO approved before you put on the gas with the strategic cooperation agreements and the marketing programs. Do you think you'll be a little quicker here in the U.S. with the Toric? Or do you anticipate waiting for the next generation here in the U.S. before you really pushed the lens?

Well, just to clarify. When I joined the Company as CEO in March of '15, there was a different positioning of the ICL. With Aier Hospital Group and in China as well as in Scandinavia, we began to rebuild of business at clinical models as well as the positioning. And so, EVO was reintroduced in China with all of this new strategic cooperation, agreement, mechanics associated with building a market and assisting our partners in moving from laser vision correction where it makes sense to ICL. In the U.S., we have a different in some ways. We are reintroducing the Company the ICL in to a number of surgeons as well as expanding and reenergizing other surgeons. But my expectation is that with EVO because of the extraordinary performance of the lens and because of the elimination of peripheral iridotomy presurgical requirement, we're going to end up in the U.S. having a quicker adoption, and we believe faster growth because the work we're going to do with the Toric over the next several months to a year.

Okay. So I guess what you say is, you're going to aggressively promote the Toric and then you think when you do get EVO approved, it will be even easier to make that transition here in the U.S. because the Toric awarded and accepted a lot of physicians. Is that what you say?

Yes, very good, Jim.

Okay.

You said it better than I did.

And then, as you look at the balance sheet, I think Toric up couple of million this quarter from last quarter. Is that in anticipation of the Toric launch? Or is that in anticipation of sales outside the U.S.?

No, no. I mean it's of course we are building Toric ICLs for the U.S. market. So that's part of it. but we've really have to significantly increase our inventory levels based on the current level of sales that we've been seeing and now forecasted growth for the future.

And is there any opportunity for your customers to stock or are most of the ones as you shift implanted within a few weeks?

The later, almost all of our lenses are made and shipped to order.

So there is no channel to fill basically. These are all ones who got implanted and need more than a few weeks of shipments?

The majority, most of our distributors pass their order to us when they get the order. However, in some markets where there is very high volume and there is a real strong interest in lessening the lead time on Toric for example, we do have inventory but was managed very carefully. And the majority of the time we have a maximum of 30 days inventory in any one location.

Thank you. And I'm showing no further questions at this time. So with that, I like to turn the call back over to Caren Mason for closing remarks.

Thank you everyone for your participation on our call today. We'll be on the road again meeting with our financial community in the coming weeks including at the Stephens Conference on November 7th in New York and the Benchmark Conference on November 29th in Chicago. We appreciate your interest and investment in our company. All the best to all of you. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.