Greetings and welcome to the STAAR Surgical Second Quarter 2024 Earnings Webcast. As a reminder, this event is being recorded today Wednesday, August 7, 2024. During today's presentation, all parties will be in a listen-only mode. Following the presentation, management will be taking questions. [Operator Instructions] I would now like to introduce your host Brian Moore, Vice President of Investor Relations of STAAR Surgical.

Thank you, moderator. Good afternoon everyone and thank you for joining us to discuss the company's financial results for the second quarter ended June 28, 2024. Today's speakers are Tom Frinzi, Chair of the Board, President and CEO; and Patrick Williams, Chief Financial Officer. The press release of our second quarter results was issued just after 4:00 p.m. Eastern Time. We have posted copies of today's earnings release and earnings presentation to the Investor Relations section of STAAR's website at investors.star.com. Before we begin, let me quickly remind you that the company's comments during this call will include 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 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 expressed or implied by such forward-looking statements. The risks and uncertainties associated with these forward-looking statements 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, on this call, and in the press release, we discuss certain non-GAAP financial measures including adjusted EBITDA and adjusted EBITDA per share. We also provide sales data in constant currency definitions and reconciliations to GAAP are included in today's press release. For brevity unless otherwise specified all comparisons on today's call will be on a year-over-year basis versus the relevant period. Following our prepared remarks we will open the webcast to questions from publishing analysts. [Operator Instructions] Finally, we intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the Investor Relations section. Accordingly investors should monitor our investor website in addition to following our press releases SEC filings and public conference calls and webcast. And with that I would now like to turn the presentation over to Tom Frinzi. Tom?

Thank you, Brian. Good afternoon everyone. STAAR reported record net sales of $99 million. And on a constant currency basis we delivered our first ever $100 million quarter. We exceeded our sales outlook for the second quarter of 2024 demonstrating continued global adoption of our proprietary EVO ICL lens-based technology. I am proud of our organization my thanks to our global STAAR teams for a record-breaking quarter and a strong first half. Our company is growing and we are winning market share throughout the business cycle. For the quarter, we generated year-over-year and sequential sales growth in the U.S. and China, the two largest markets in the world for refractive procedures. We are executing well against our strategy, driving increased commercial momentum and benefiting from the inherent leverage in STAAR's business model. As a result, we are raising our fiscal 2024 outlook for both net sales and adjusted EBITDA. For fiscal 2024, we now expect net sales of approximately $340 million to $345 million, and adjusted EBITDA of approximately $42 million. I attribute our commercial momentum to the investments we have made to accelerate uptake of our EVO ICL lenses. This includes three main areas of focus: first, making it easier for surgeons to choose EVO increasing surgeon confidence in measurement of the eye and lens size selection by surrounding our surgeon customers with education activities including peer-reviewed publications practice development and robust training. Second, broadening the EVO market opportunity. We are moving down the diopter curve. And as a result are beginning to realize our near-term goal of becoming the choice for surgeons and their patients minus six diopters of myopia and above via sales execution including landing strategic agreements supporting health care professional level marketing campaigns and amplifying compelling proof points which demonstrates the patient and practice benefits…

Thank you, Tom and good afternoon everyone. Total net sales for Q2 2024, our seasonally strongest quarter were $99 million as compared to net sales of $92.3 million in the prior year quarter. The $6.7 million increase in Q2 2024 net sales is attributable to a 7% or a $6.3 million increase in ICL sales and a $0.4 million increase in other products. Constant currency net sales for Q2 2024 were $100.4 million, up 9% as compared to the prior year period, which adjusts for FX headwinds due to the strong US dollar and our second largest sales market today Japan. For Q2 2024, gross profit was $78.4 million or 79.2% of net sales as compared to gross profit of $70.7 million or 76.6% of net sales for the prior year quarter and $61 million or 7.9% of net sales for Q1 2024. The year-over-year increase in gross margin is primarily due to changes in reserves related to cataract IOLs in the prior year quarter. As a reminder, the company exited its cataract IOL business in fiscal 2023. For 2024, we continue to expect gross margin will be approximately 80% for each remaining quarter. Moving down to income statement. Total operating expenses for Q2 2024 were $66.5 million as compared to $62.1 million in the prior year quarter and $63.3 million in Q1 2024. The increase in operating expenses reflects our decision to lean into investments to build the market for EVO ICL, as we lay a foundation for future growth and margin expansion including surgeon education, tools to improve surgeon experience and investments in sales teams to drive long-term growth. Taking a closer look at the components of operating expenses, G&A expense for Q2 2024 was $23.6 million compared to $18.1 million in the prior year quarter and $23.2…

Thank you, Patrick. We met or exceeded our targets in the first half of 2024 and our commercial momentum is accelerating. Our deep engagement with our surgeon customers is guiding the way. We conducted two global customer surveys in 2023, which significantly broaden our understanding of the needs of our customers and allowed us to design programs to reduce friction and speed EVO ICL adoption. We are building upon this customer focus with the study we recently commissioned in the U.S. with The American-European Congress of Ophthalmic Surgery. AECOS is an organization I've mentioned in the past. It represents Leading-Edge Cataract and Refractive Surgeons. The study we commissioned in June, analyzed approximately 1,900 refractive procedures in the U.S. across laser-and lens-based vision correction procedures. The data shows that EVO ICL commands a 13% procedure mix among these U.S. AECOS surgeons significantly above our approximate 3% share of the overall U.S. refractive market today. Surveyed AECOS surgeons have also moved down the diopter curve more quickly than the U.S. market overall. The AECOS surgeon average diopter implanted is minus 8.5 diopters versus nearly minus 10 diopters for all U.S. EVO ICL surgeons certified. The AECOS data illustrates our larger opportunity in the United States but our total addressable market is even bigger. As you can see on Slide 17, moving from 3% share in the U.S. today to the 13% share currently with AECOS surgeons represents 70,000 U.S. procedures and an additional $70 million in annual sales. Assuming we reach 20% share in the United States, as we have in other large markets this equates to $140 million in U.S. annual sales. However, none of these growth vectors contemplated us growing the market which we have done in other geographies and intend to do that in the United States with 52…

Thank you. [Operator Instructions] Our first question will be from Ryan Zimmerman with BTIG.

Okay. Hopefully, I unmuted. I did that right. Can you guys hear me okay?

Yeah, we hear you Ryan.

Wonderful. Okay. My biggest fear right there. All right. So I want to ask about China, it's obviously very topical. There's been mixed messages about China in terms of some of your peers in the refractive market. You guys did about 5.7% growth in the first half of China, guidance to just 10%. So talk to us about what informs your mid-teens growth profile in the second half of 2024? And what your prevailing views are around recovery and health of the consumer in China potentially in longer term?

Yeah. Hey, Ryan good to hear from you and thanks for the question. Again, look, as we sit here today, we feel good about where we are in China. If you think about the headlines in the areas that people seem to have a lot of questions around whether it's competition, whether it's anticorruption, whether it's PPP, or whether it's the economy, I would say three out of those four really have minimal if any impact for our business. Economy, clearly we read the same things you see. We know there's some headwinds out there. But as we look at our business certainly through the first half and halfway through the high season, we're very pleased with where we are. In a declining market, we continue to grow. We're taking market share and we feel good about our business not only today but for tomorrow.

Thank you. Our next question will come from Tom Stephan at Stifel.

Okay. Can you guys hear me okay?

Yeah, we can, Tom. How are you?

Perfect. Good. Thanks. Maybe if I can start as both upfront. I wanted to ask about 2025 if that's all right. I think you grew 6% in 1H. Guidance implies 6% growth again in 2H. Patrick or Tom, what are your early thoughts about growth accelerating in 2025, I think Street modeled revenue growth of 15% coming into this afternoon. Are you comfortable with that type of reacceleration next year maybe as we sit here today? And then hopefully a quicker follow-up. Just on M&A, I mean as it relates to the headlines that were put out there, why would now be the right time for STAAR from an M&A perspective? I understand, it's obviously part of your fiduciary responsibilities, but the stock is back at pre-COVID levels. Refractive end markets arguably at a low point and the US is still so early. So maybe if you can elaborate a bit on I guess, kind of, the company's motivation and your long-term vision for STAAR? Thanks.

I'll take the first one Tom. Look we're not giving out 2025 or even beyond guidance at this point. But to be fair, we did give our Vision 2026 guidance out there which was a 15% to 20% 3-year CAGR. And so as Tom said in his prepared remarks, we feel good about where we are six, seven months into a 36-month plan. I think the initial question was we have a reacceleration in the second half of 2024 which is very apparent. We're going to see double-digit to maybe mid-teen growth in revenue across the board. And so let's judge us as we move through it out this year, but we believe all the things that we're putting in place, we got to give them some time to really take effect. There's a lot of really good stuff that Tom outlined in his closing statements that we believe will result in a much quicker adoption of moving down the diopter curve in all geographies around the world and that gives us more conviction about hitting that Vision 2026 ultimately.

And I think Tom from your question around M&A activity, look as I've said many times our head is down. We're focused on execution continuing to grow our business around the globe. And quite frankly, rumors are what they are, but we're focused on our business and that's what matters to us.

Thank you. Our next question will be from Margaret Kaczor Andrew with William Blair.

Hi, Margaret.

Hi. Good afternoon. I am going to do everyone ask and say, can you hear me now?

We can.

All right. Appreciate it. So I was hoping to talk a little bit about the US. You guys are seeing now some nice sequential traction two quarters in a row, up 10% sequentially in Q2. And I get some of the comments around seasonality as we go into Q3 and Q4. But all things being equal on average it seems pretty similar flat sequentially from what we saw in Q2 in dollars. So I guess is that not conservative in your view, especially assuming the sequential increases we're seeing in new Highway 93 accounts, maybe continued traction you're seeing in those Highway 93 accounts? And I guess net-net with all of that is when will you guys feel comfortable enough to start seeing that more significant sequential increase in guidance and traction in the US? Thank you.

Yeah sure. Listen, thanks for the question, Margaret. I think as we said in our prepared remarks and you've probably heard from Patrick and I anecdotally, we feel good about where the US is. And if I were to use an analogy, I think for the US business we crawled. We're starting to walk. We might start to jog by the end of the year and we'll be running in 2025. So -- I mean I feel really good about what we're doing. All the initiatives we rolled out are being well received. And I think we're setting ourselves up for the right kind of cadence of growth that's really both near term and long term sustainable. So the initiatives we have, the contracts we've signed, the contracts that are pending everything is clicking on all cylinders. So I think just we're trying to be balanced. We're trying to be prudent. We don't want to get out ahead of ourselves. But again, I would just say we feel very good, not only about our US business, but where our business hits globally.

Thank you, moderator. Moderator let's take Ryan Zimmerman's second question please.

Perfect. We will do. Ryan, go ahead and ask your question.

Thanks for taking the follow-up. I just want to ask a second question and it was similar to my first. But Tom, you laid out this slide about kind of growth of the refractive market particularly in the US And you're [Technical Difficulty]

Ryan you're breaking up Ryan.

Ryan let's pause and you repeat your question.

Try to get into a stronger cell service there Ryan.

Moderator, let's go to the next question. We'll come back to you Ryan.

Thank you. Our next question will be from David Saxon at Needham.

Hi, David.

Yeah. Hi. Can you hear me, okay?

Yeah. We can.

Okay. Great. Well, thanks for taking the questions. Maybe I'll start in China with Aier. I know that's a key account for you guys. I think there were some reports there that Aier lower their pricing for LASIK. So it's about half of ICL procedure pricing. Just given the consumer over there, have you seen any impact from that pricing move from them? And then secondarily, as it relates to Aier I mean they -- we all know their strategy involves M&A. And I think they just acquired 34 more hospitals in the last week or so. So as we think about that strategy, how does that factor into your China volumes? Are you in those hospitals that they tend to acquire? If not, I guess what does that do for your volumes? And on the flip side if you are in those hospitals, how should we think about that pricing headwind as they may be convert those volumes into their preferred pricing? And I'll just have one quick follow-up. Thanks.

Yes. Thanks for the question David. I think just to clarify what we're aware of is SMILE has lowered their price not so much LASIK has lowered pricing within Aier to be maybe a little bit more competitive with LASIK. But listen our relationship with Aier is very strong. They continue to be a solid customer. We're continuing to grow EVO within the Aier hospital systems and we feel good about our growth strategy with Aier not only through the first half of this year but certainly continuing on through the back half and into 2025 and 2026 and beyond. So, hope that gives you some color as to how we're doing there. Again I think some of the noise out there is more laser vision correction competing with each other. And from our perspective though we continue to grow. We continue to take share. And as I said earlier in my comments we feel very good about where our business is in China broadly but certainly within our relationship with Aier Hospital.

Okay, great. And then I guess maybe if you could comment on just kind of how their M&A strategy factors into your volumes and pricing there? And then my follow-up or second question is just on guidance. So, the third quarter guidance implies growth accelerates on a two-year stack basis at least into the fourth quarter. So, is that conservatism around third quarter? Or what are you seeing that gives you confidence in that two-year stack acceleration into the fourth quarter? Thanks so much.

Sure David, it's Patrick. I think on the Aier recent M&A that they did it's a little early for us to speculate. We're still kind of bidding through if you want to call it existing accounts et cetera, but we don't think there's a lot of crossover there. In terms of our guidance, look, I think Tom hit on the head. We're trying to be very balanced. We did less $87 million approximately for Q3. We all can do the math of what that is on a year-over-year basis compared to last year. It is a reacceleration of revenue growth going into Q3. And we know that that implies a number for Q4 that's probably closer to 80-ish million if you pick the midpoint of our guidance which is also pretty strong growth. And clearly this is now I think the third quarter where we've been able to beat and raise and certainly coming into 2024, it's the second quarter of us doing a good beat on the top line and we've given some of that in our full year guidance. So, a lot of momentum setting ourselves up for what I believe to be a very strong second half and we look forward to reporting in the next 90 days.

Thank you. Our next question will be from Anthony Petrone with Mizuho.

Hey Anthony.

Hey Tom, can you hear me?

Yes, I can.

Excellent. Thank you very much. Congrats on a good quarter here. Maybe I'll start with China. I'll have one on the U.S. as well. When we look at China maybe a few questions in there. One would be how much contribution came from the second distributor? I know it's maybe six months or so now into having two distributors there. So, what factor did that play in the market in 2Q for STAAR specifically? And was there any price tailwind in China in the quarter? And then the last quick one on China. Just anything your team is on the ground talking about as it relates to stimulus? Just timing of when stimulus could be enacted and what that may mean for business there? And I'll just have one on U.S. after that.

Yes, I think the second part of your question first, I think, again, too early to tell but it's encouraging that the Chinese government continues almost on a daily basis to put out some reports around stimulus. And I think our local intelligence feels it will have an impact in the back half of this year and beyond. Relative to the first part of your question--

HTDK and just their contribution.

Yes, I think look we've been very pleased with how that integration has gone with both Lansheng and HTDK. And I think the impact they're having is certainly our outreach and our ability to get inventory closer to the customer certainly is having a very positive impact. But in terms of just outright top line revenue I think it's a push if you will. Both are working well and we're pleased with how smooth quite frankly the integration has gone and how customers are getting taken care of.

And I think the word you said which is we're about six months into this key Anthony for both distributors but with HTDK coming on board they're getting their feet wet. They're six months into it. And so certainly as we close out this year going to 2025 and beyond we do expect the reason why we chose them and to partner with them to see even more efficiency, productivity, whatever words you want to use from them and their expanded sales force that we're able to use. In terms of tailwinds with pricing no nothing different than Q1. We baked that in. We've been pretty consistently saying that there's maybe 300 bps or so of pricing economics that we were able to get when we re-signed a new deal with Lansheng and then of course with the HTDK the new deal. But that's already factored into everything as we move forward.

Anthony on a much lighter note thank you for at least congratulating us on a strong quarter. You're the first to do so.

Tom, absolutely. Absolutely. It's been a quarter of MedTech all around. So good to see beat in race here. And then just on US that number raising the guidance for US contribution. You've announced a number of wins in the last few quarters. SharpeVision for one for example, and obviously digging into that Highway 93 initiative. So is this increase linked to those wins that you spoke about over the past two quarters? Or is this more just new account openings within Highway 93? Thanks.

Yes. I think look Highway 93 was the right focused program and initiative we undertook. We're seeing a disproportionate amount of growth in our Highway 93 accounts versus our accounts at large. So I think it's certainly the high-profile accounts and strategic agreements we've signed are having their impact but we're seeing it across the entire Highway 93 initiative. As I said we're growing significantly more within those accounts than we are accounts in general. Specifically I think it's somewhere around 29% growth within Highway 93 accounts versus 19% growth in our accounts that aren't part of Highway 93. So it's across the board and I think it just proves the appeal that EVO ICLs are having.

Thank you.

Next question, moderator.

Yes. Next question will be from George Sellers with Stephens.

Great. Can you hear me?

Yes. We can. George, how are you?

Great. Thanks for taking the question. Congrats on a great quarter. Maybe to stick with the US. I just wanted to dig in a little bit on the Highway 93 commentary. Obviously, an important piece of the growth both sequentially and year-over-year. Can you give us any additional color on maybe what's driving that growth within those accounts? Is there more buy-in from those accounts in terms of spending on marketing dollars? Maybe any change in affordability of EVO with those accounts that have their own surgical suite? Any acceleration on the diopter curve in those accounts? Anything would be helpful there.

Yes. I think it's a combination of all of that George to be honest. As we've said we kind of made a pivot relative to how we were spending our marketing dollars and driving it more down to the practice level versus consumer awareness. I think that's having an impact. Clearly a surgeon confidence increases within the Highway 93 accounts. But I would say with any account we're working with we do see EVO adoption go up. We've had certainly certain practices demonstrate that as they brought their pricing more in line still a premium to laser vision correction but maybe not a doubling of laser vision correction, but something a little closer to with the prevailing laser vision correction pricing is that has had an impact. So I think all of it -- and coming down the diopter curve again as we said in our prepared remarks we are very encouraged by what we saw within the group of AECOS surgeons where we did the study and showed that not only do we have a higher rate of adoption 13% of their total procedural volume, but also the fact that they've come down the diopter curve, a lot sooner than any market around the world has. And we were encouraged by again, surgeon confidence equates to growth, equates to coming down the diopter curve. It all feeds into one another. And again, I think the US is really starting to click on all cylinders.

Okay. Great. That's really helpful. And then outside the US Highway 93 group still really strong growth there. Could you just speak to maybe any impact combining some of the clinical data with your marketing team? How that's going if that's part of what's driving this growth? And where you're seeing doctors really latch on from that perspective?

Yeah. No. Well, look as I said, our growth outside of Highway 93 is 19%. Put that in context the US refractive market in Q2 was down significantly, I think somewhere in the area of around 15% to 17%. So I mean, that's a remarkable growth factor when you keep that in context. And again, EVO is producing happy patients, and happy patients make a happy practice, and a happy practice makes EVO grow.

Yeah. I think I tried to hit it a little bit in this -- the question that was about our ability to accelerate revenue as we leave 2024. And I think the question you just asked is a great one George, because such things is that whether it's clinical data that we want to put in the hands of the sales team not just in the US, but globally we're really just at the beginning stages of that. There's a lot of different initiatives we're working on to help deploy it, and to make sure that we do get it in the hands of everyone in a compliant manner, as well as what Tom talked about, which is a lot of stuff on labeling and other types of things that we're working on. So we're really excited about a lot of these initiatives and the sales force is also getting pumped up globally about things that are going to be coming down the pipeline.

Thank you. We will now take our final question from John Young at Canaccord.

Great. Thanks for putting me in and congrats on a nice quarter here. Thanks, again. I just want to start on the US first. Last quarter you talked about the six fast lane accounts. Have you identified more of those that fit that fast lane criteria? How many if so? And plans for signing more strategic alliances in the second half of this year any way to quantify that?

Yeah. John, we've signed nine new agreements total so far this year in the US against a target list of about 15. So there's still a few more pending. But again, I think last time we spoke we were at six. We're now up to nine against that 15 targeted list.

And we're actually starting to hear accounts approach us now and we call that the halo effect. And so in one of the large DMA we have we've got other accounts now saying, how do I get in on it? So that was always part of the plan. Whatever you call it FOMO whatever you want to call it things again are starting to click very nicely for us.

Thank you for your participation. That now concludes the call for today. You may now disconnect.