Q3 2023 STAAR Surgical Co Earnings Call

Okay.

Yes.

[music].

Good day, ladies and gentlemen, thank you for standing by.

Welcome to the STAAR surgical third quarter financial results Conference call.

During todays presentation, all parties will be in listen only mode.

Following the presentation the call will be opened for questions.

If you have a question. Please press star followed by the number one on your Touchtone phone.

If you are using speaker equipment today, please lift the handset before making your selection.

This call is being recorded today Wednesday November 1st 2023.

This time I would like to turn the conference over to Mr. Brian Moore, Vice President Investor Relations and corporate development for STAAR surgical.

Thank you operator, and good afternoon, everyone.

Thank you for joining us on the STAAR surgical conference call. This afternoon to discuss the Companys financial results for the third quarter ended September 29 2023.

On the call today are Tom <unk>, President and Chief Executive Officer, and Patrick Williams, Chief Financial Officer.

Press release of our third quarter results was issued just after four PM Eastern time and is now available on staar's website at Www Dot Star Dot 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 day 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 risks 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 adjusted income for ICL, the corresponding adjusted earnings per share and sales in constant currency.

We believe that these non-GAAP and adjusted numbers provide meaningful supplemental information and are helpful. In assessing our historic and future performance.

Reconciling the GAAP information to the non-GAAP information.

As included in today's press release.

For brevity, all references to growth rates on today's call refer to year over year growth unless otherwise stated.

Following our prepared remarks, we will open the line to questions from publishing analysts.

Analysts limit themselves to two initial questions then re queue with any follow ups.

Finally, we intend to use our website as a means of disclosing material nonpublic information and for complying with our disclosure obligations under regulation FD.

Such disclosures will be included on our website in the Investor Relations section and accordingly investors should monitor our investor Web site.

<unk> to following our press releases.

SEC filings and public conference call and webcast.

And with that I would now like to turn the call over to Tom Frenzy, President and CEO of STAAR.

Thank you Brian Good afternoon, everyone and thank you for joining us on today's call.

For the third quarter, we achieved net sales of $83 million in ICL sales growth of 13%, which was consistent with the outlook. We provided on our last earnings call. Despite a declining market for refractive procedure features. We're also reporting another quarter of positive earnings for star, which puts us on track.

In 2023 for our sixth straight year of double digit ICL sales growth and GAAP earnings profitability.

We're also on the path to deliver 15% to 20% compound annual growth over the next three years the combination of high growth and profitability is a rarity for med Tech Med tech companies our size.

We continue to engage our surgeon customers and prospects raise ICL consumer awareness and make progress on the initiatives I spoke to you about on our last earnings call and then at our recent Investor day.

As you will have seen in our earnings release, we now expect to come in at the low end of our previously provided fiscal 2023 outlook for ICL sales of $320 million to $325 million due to macroeconomic weakness in certain regions and potential disruption to our sales in the middle East.

The middle East represents sales of approximately $2 million in the fourth quarter.

Returning to our financial results for the third quarter of 2023, ICL units globally were up 14% and global ICL sales of $81 1 million were up 13% as reported and 13% in constant currency.

By region.

Pac ICL sales were up 13%.

EMEA ICL sales were up 14% and then the Americas region ICL sales were up 5%.

India, which overtook China earlier this year as the world's most populous country was a standout market for us in the third quarter.

Currently India represents less than 3% of our global ICL sales, but it is a market, where we're making investments in both resources and distribution and one which we believe represents an attractive opportunity for our future growth.

In Europe, where the refractive market is down our two largest markets, Spain, and Germany grew 9% and 8% respectively.

Turning to the two largest refractive markets in China.

<unk> sales grew 14% in the third quarter.

We remain confident in our long term growth prospects in China bolster by comments at our Investor day from our largest customers Chief Medical Officer, John recorded Evo ICL has a long runway for growth.

Recent actions by the Chinese government, including the additional stimulus.

Support consumer demand as well in.

In the U S refractive surgery Council reports that industry procedure volumes declined 15% in the third quarter.

<unk>, an eight quarter negative trends.

Our ICL sales in the U S grew ahead of the market up 6% in the third quarter.

Evo ICL was launched in the U S. In the second quarter of 2022 on an apples to apples basis U S. Evo ICL sales growth total, 13% for Q2, and Q3 2023 compared to a 15% decline in refractive industry procedures.

For that same period.

Year to date industry procedures are down 13%.

All told we are achieving solid growth, despite a less certain economic and geopolitical environment.

The pace of our growth is well ahead of the industry due to our market building initiatives, including elevating ICL awareness and we're taking share as a result of our best in class lens based technology and its benefits, including remove ability no dry eye syndrome and excellent.

Night vision that ICL surgeons and their patients tell us they greatly value.

I talked to you on our last earnings call about my current state assessment of our business and the actions we've been taking to accelerate Evo adoption, we share more details in September at our Investor day, and today I am pleased to report additional progress.

<unk>.

With respect to making our company even easier to do business with we are in the final stages of developing the Evo standard which is a comprehensive set of enhanced training education and practice development tools and processes that we will use to support our surgeon customers and their staff.

We are also supporting several investigator initiated studies designed to increase surgeon comfort and confidence in measurement and lend size selection.

The first study is nearing completion and we anticipate the study will be published in a peer reviewed journal in the first quarter of 2024.

Second.

We are introducing and advancing new and novel products. We received five 10-K clearance from FDA in late September for the Acura jet referenced single use injector for our Evo family of lenses in the U S.

The new customized user loaded injector for Evo is designed to increase ease of use and efficiency.

We are introducing this delivery device to a subset of surgeon customers through the end of the year and anticipate making it more broadly available in the U S and other markets beginning in 2024.

Turning to our extended depth of focus lens Evo veeva for the early Presby up with Myopia ages, 45% to 55%.

We are expanding the rollout of the product following the annual meeting of the European Society of cataract and refractive surgeons in September.

We have identified protocols to assist with surgeon and patient satisfaction and we are supporting our veeva surgeons to help set proper patient selection expectations and outcomes.

Third we are leveraging new analytic tools implemented in 2023 in conjunction with our new organizational structure and leadership in the U S. We have segmented our U S customers and identified one group, we're calling U S Highway 93.

U S. Highway 93 is a group of 93 U S practices, approximately 20% of our total practices and 50% of our U S sales that are favorable parameters for evo adoption, and where we will focus our efforts on driving growth through tailored programs.

One early example of our success is the New Alliance agreement with a multicenter practice in the southeast we signed the agreement in September and the customer is moving quickly down the diopter curve with utilization of lower diopter lenses between minus three diopters and minus six diopters.

Up 300% compared to his prior year to date utilization and also compared to all customers in the U S. The.

The alliance agreement offers attractive pricing and support to the customer while maintaining solid gross margins for STAAR.

U S. Highway 93 is consistent with our stated goal of going deeper with our existing customer base alliance agreements with other U S. Highway 93 customers are in process.

And finally, we launched a patient call center partnership linked to our Doctor Finder in two cities that October the call centers intended for surgeon referral and Evo patient education.

Today, we expanded our call center to several additional cities, including Los Angeles, Chicago, and Boston, while still in the early stages, we have a lot of enthusiasm around our ability to answer patient questions and create a closed loop process for our Doc finder website aim.

That increasing the return on our sales and marketing investments.

Patrick Thank.

Thank you Tom and good afternoon, everyone. As a reminder, all of my references to growth and comparisons will refer to year over year growth relative to the prior year period, unless otherwise stated.

Also please note that we have provided a geographic sales table with today's press release to match. The three major regions. We showed during our September Investor Day, and also provide key country breakout of our ICL business.

Total net sales for Q3, 2023 were $83 million up 6% compared to net sales of $76 1 million a year ago.

The increase in net sales was attributable to a $9 1 million or 13% increase in ICL sales.

Which was mostly offset by a $4 $9 million decrease in other product sales.

We are nearing completion of the previously announced exiting of our low margin noncore other products cataract IOL business gross profit for Q3, 2023 was $63 6 million or <unk> 79, 2% of net sales compared to gross profit of $60 5 million or <unk> 79, 5% of net sales a year ago.

$70 7 million or 76, 6% of net sales for Q2 2023.

The 30 basis point decrease in gross margin as compared to Q3 2022 is primarily due to increased sales return reserves and period costs associated with manufacturing projects, partially offset by product and geographic sales mix.

The 260 basis points sequential increase in gross margin from the second quarter is due to an other products cataract IOL reserves that did not recur in the third quarter.

Normalizing our Q2 2023 gross margin results resulted in a 60 basis point decrease sequentially for the third quarter, which is related to geographic and product mix.

Operator: Good day ladies and gentlemen. Thank you for standing by. Welcome to the STAAR Surgical third quarter financial results conference call. During today's presentation, all parties will be in listen only mode. Following the presentation, the call will be open for questions. If you have a question, please press star followed by the number one on your touch tone phone. If you're using a speaker equipment today, please lift the hand set before making your selection. The calls being recorded today, Wednesday, November 1st, 2023.

We continue to expect gross margin will be approximately 79% for Q4 and approximately 78% for the full year.

Moving down the income statement total operating expenses for Q3, 2023 were $57 3 million up from $46 8 million in the year ago quarter and down sequentially from $62 1 million in Q2 2023.

<unk> total operating expenses were as follows.

<unk> expense for Q3, 2023 was $19 3 million compared to $14 million, a year ago, and $18 1 million for Q2 2023 the.

Brian Moore: This time, I would like to turn the conference over to Mr. Brian Moore, Vice President, Investor Relations and Corporate Development for STAAR Surgical.

The year over year increase in G&A is due to increased compensation related expenses outside services and facility costs as we position the company for future growth.

Brian Moore: Thank you operator and good afternoon everyone. Thank you for joining us on the STAAR Surgical conference call this afternoon to discuss the company's financial results. For the third quarter ended September 29, 2023. On the call today are Tom Frinzi, 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 STAAR's website at www.star.com.

For fiscal 2023, we continue to expect G&A expense will be approximately $19 million in the fourth quarter.

Selling and marketing expense was $26 6 million for Q3, 2023 up from $23 1 million a year ago and down from $32 3 million in Q2 2023.

The increase in selling and marketing expense for the prior year was due to increased advertising and promotional expenses and compensation related expenses, partially offset by lower trade show costs.

Brian Moore: 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 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 day of this conference call. And our subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

The sequential decrease in selling and marketing expense was due to decreased marketing promotion and advertising expenses trade shows and meetings and timing.

We now expect approximately $1 $5 million of expense will shift to Q4 due to timing of investments, resulting in approximately $28 $5 billion of selling and marketing expense in Q4.

Research and development expense was $11 5 million in Q3, 2023, compared to $9 6 million a year ago and $11 8 million for Q2 2023.

Brian Moore: The risk of uncertainty associated with the forward-looking statements made in this conference call, a webcast or described in the State Harbor statement in today's press release as well as start public periodic filings with the SEC. Except as required by law star seems no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to be so. In addition to supplement the gap numbers, we have provided non-gap adjusted net income, adjusted income for ICL, the corresponding adjusted earnings per share and sales and constant currency.

The year over year increase in R&D is due to increased compensation related expenses and U S. Evo post approval clinical trial expenses associated with the three year study.

For Q4, we continue to expect R&D expense will be approximately $12 million.

Brian Moore: We believe that these non-gap and adjusted numbers provide meaningful supplemental information and are helpful in assessing our store and feature performance. A table records on the gap information, the non-gap information is included in today's press release. For brevity, all references to growth rates on today's call refer to year-over-year growth unless otherwise stated.

Brian Moore: 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-cube with any follow-ups.

Brian Moore: 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 exposures will be included on our website and investor relations section. Incredibly, investors should monitor investor website in addition to following our press releases, SEC filings and public conference calls and webcasts.

Cash equivalents and investments available for sale as of September 29th 2023, total $201.7 million as compared to $225 $5 million at the end of the fourth quarter of 2022. The decrease in overall cast is due to the timing of accounts receivable based.

Tom Frinzi: And with that, I would now turn the call over to Tom Frinzi, President and CEO of STAAR. Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. To the third quarter, we achieved net sales of 80.3 million and ICL sales growth of 13%, which was consistent with the outlook we provided on our last earnings call, despite the declining market for refractive procedures. We were also reporting an other quarter of positive earnings for STAAR, which put us on track in 2023 for our sixth straight year of double digit ICL sales growth and gap earnings profitability.

Based on current forecasted payments.

We do expect our <unk>, our balance to meet down by year end two R Q2, 2023 levels and even further down in Q1 2024.

We invested $9.2 million in Capex during the third quarter and 15 $1.1 million total year to date to the end of the third quarter.

We now expect full year physical 2000, twenty-three capex will be approximately $21 million down from my previous $26 million estimate due to manufacturing projects, which will move into 2024.

Tom Frinzi: We're also on the path to deliver 15 to 20% compound annual growth over the next three years. The combination of high growth and profitability is a rarity for med tech, med tech companies, our size. We continue to engage our surge in customers and prospects. Raise ICL consumer awareness and make progress when the initiatives I spoke to you about on our last earnings call, and then our recent investor day.

As Tom said due to the economic environment is certain geography as in recent world events. We now expect to be at the low end of our previously announced revenue range, which would result in net sales of approximately $74 million in the fourth quarter.

When additional items on October 25th we began a voluntary recall of approximately 300 Evo Evo plus lenses distributed in the U S. Beginning of September 2022 with.

Tom Frinzi: As you will have seen in our earnings release, we now expect to come in at the low end of our previously provided fiscal 2023 outlook for ICL sales of 320 million to 325 million due to macro economic weakness in certain regions and potential disruption to our sales in the Middle East. The Middle East represents sales of approximately 2 million in the fourth quarter. Returning to our financial results for the third quarter of 2023 ICL units globally, we're up 14% in global ICL sales of 81.1 million, we're up 13% as reported, and 13% in constant currency.

With the measurement deviating, plus or minus half a diopter from the AD labeled power, we have identified and fixed the problem and we do not expect any material operational costs related to this matter.

Star will be attending the Stevens conference on November 16th in Nashville, and Btg's virtual Ophthalmology day on November 27th.

We will also be conducting in person investor meetings in New York, Boston in Hong Kong with Mizuno, William Blair and Jeffries, respectively in November and December.

Tom Frinzi: By region, APEC ICL sales were up 13%. Emia ICL sales were up 14% and in the Americas region, ICL sales were up 5%. India, which overtook China earlier this year as the world's most populous country, was a standout market for us in the third quarter. Currently, India represents less than 3% of our global ICL sales, but it is a market where we are making investments in both resources and distribution, and one which we believe represents an attractive opportunity for our future growth.

Tom.

Thank you Patrick.

10 months in the chair Chief Executive Officer, I can tell you. The world has changed the war in Europe continues inflation and higher interest rates are exacerbating broad economic challenges and now a new war and our refracted industry has not been immune yet star continues to grow we continue.

To take market share grow the overall refractive market and generate earnings and cash as I mentioned before our technology is without peer in our opportunity remains large the epidemic of myopia that impacts more than 2 million people globally.

Today, our growth opportunity is led by China, the largest market in the world for refractive procedures and other APAC geography's.

Tom Frinzi: In Europe, where the refractive market is down, our two largest markets, Spain and Germany, grew 9% and 8% respectively. Turning to the two largest refractive markets in China, ICL sales grew 14% in the third quarter. We remain confident in our long-term growth prospects in China. Both are by comments and our investor day from our largest customers chief medical officer, evil ICL has a long runway for growth. Recent actions by the Chinese government, including additional stimulus, should support consumer demand as well.

But as we look to the future we see many other markets representing a more meaningful contribution to our growth.

Our vision remains to become the first choice for those doctors and patients seeking visual freedom.

And I am confident with our growing momentum we will achieve that vision.

This concludes our prepared remarks, operator, we are now ready to take questions.

Thank you ladies and gentlemen, we will now begin the question and answer session.

Tom Frinzi: In the US, refractive surgery council reports that industry procedure volumes declined 15% in the third quarter, continuing an 8-quarter negative trend. Co-Field. Our ICL sales in the U.S, grew ahead of the market, up 6% in the third quarter. Evo ICL was launched in the U.S, in the second quarter of 2022. On an apples-to-apples basis, U.S. Evo ICL sales growth total 13% for Q2 and Q3 2023 compared to a 15% decline in refractive industry procedures for that same period.

If you have a question. Please press star one and your Touchtone phone.

You will hear a three tone prompt acknowledging your request and your question will be pulled in the order that you received.

If you would like to withdraw from the question queue. Please press star too.

If you're using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.

Your first question comes from.

<unk> from Mizuho Your line is already open.

Tom Frinzi: Year-to-date industry procedures are down 13%. All total, we are achieving solid growth despite a less certain economic and geopolitical environment. The pace of our growth is well ahead of the industry due to our market building initiatives including elevating ICL awareness and we are taking shares and results of our best-in-class lens-based technology and its benefits including removability, no dry-eye syndrome and excellent night vision that ICL surgeons and their patients tell us they greatly value.

Thank you for good afternoon, everyone, maybe toss start off with you know just a commentary on.

You know geographic weakness.

You know when you think of the major regions, the Americas Amir and a pack.

Should we be thinking about that across the geographies and is there any geography in particular, where you're seeing more early pressures here just as it relates to economy, and then I'll have a couple of follow ups stinks.

Yeah sure. Thanks, Anthony good to hear from you again, we had a solid quarter I think we continued to grow in the Asia Pacific region, China with solid.

Tom Frinzi: I talked to you in our last earnings call about my current state assessment of our business and the actions we have been taking to accelerate Evo adoption. We shared more details in September at our investor day and today I am pleased to report additional progress. First, with respect to making our company even easier to do business with, we are in the final stages of developing the Evo standard, which is a comprehensive set of enhanced training, education, and practice development tools and processes that we will use to support our surgeon customers and their staff.

Do you have a very good quarter other Asia Pacific Geography's were favorable as I mentioned in the prepared remarks in Europe, certainly our two biggest direct markets, Spain, and Germany had had good quarters in in the U S. Despite continue declining refractive market you know, we we sure.

Good growth, but again, we're mindful of of what we read in the newspapers as you do as well and you know we're constantly monitoring those factors and keeping our ear to the ground with our people in all those markets globally.

Tom Frinzi: We are also supporting several investigator-initiated studies designed to increase surgeon comfort and confidence in measurement and lens size selection. The first study is nearing completion and we anticipate the study will be published in a peer-reviewed journal in the first quarter of 2024. Second, we are introducing and advancing new and novel products. We received 510K clearance from FDA in late September for the AccuJet reference single use injector for our Evo family of lenses in the US.

That's helpful. Maybe just a quick one on on China, Yeah, There's a lot on the anti corruption campaign it doesn't seem like.

There was any notable impact in the corner and when you think about where that's really being focus it seems like it's more hospital based and I'm not sure your largest customer <unk>.

Has any exposure there, but can you just speak to the dynamics on China anti corruption and how that relates to <unk> ICL volumes and I'll leave it at that and and hop back in queue. Thanks again.

Tom Frinzi: The new customized user loaded injector for Evo is designed to increase ease of use and efficiency. We are introducing this delivery device to a subset of surgeon customers through the end of the year and anticipate making it more broadly available in the US and other markets beginning in 2024. Turning to our extended depth of focus lens, Evo Viva for the early Presbyope with myopia ages 45 to 55. We are expanding the rollout of the product following the annual meeting of the European Society of Cataract and refractive surgeons in September.

Yeah sure Anthony Thank you for the question and again just as you stated we agree it it is predominantly geared towards the public hospital system.

Versus the private hospital system, a majority of our business close to 80% is on the private side.

20% to 25% on the public side, but we're constantly monitoring that situation today, it really hasn't been material, but we're keeping close tabs on it.

Thanks again.

Back in.

Sure.

Thank you.

Your next question.

Tom Frinzi: We have identified protocols to assist with surgeon and patient satisfaction and we are supporting our Viva surgeons to help set proper patient selection expectations and outcomes. Third, we are leveraging new analytic tools implemented in 2023. In conjunction with our new organizational structure and leadership in the US, we have segmented our US customers and identified one group we were calling US Highway 93. University, US Highway 93 is a group of 93 US practices, approximately 20% of our total practices and 50% of our US sales that have favorable parameters for EVO adoption and where we will focus our efforts on driving growth through tailored programs.

Comes from.

<unk>.

Your line is already.

Oh. Thank you so much for taking our questions I guess maybe.

Maybe it's just on the on the U S. You know you you highlighted U S Highway 93.

The and give an example on the multicenter practice a lion.

I guess I'm kind of wondering.

Tom Frinzi: One early example of our success is a new alliance agreement with a multi-center practice in the southeast. We signed the agreement in September and the customer is moving quickly down the diopter curve with utilization of lower diopter lenses between minus three diopters and minus six diopters, up 300% compared to his prior year-to-date utilization and also compared to all customers in the US. The alliance agreement offers attractive pricing and support to the customer while maintaining solid gross margins for STAAR.

How big is that practice, what's driving the move down the diopter curve to minus three and my innocence.

As a patient demand or are they getting better at selling the procedure.

<unk>, maybe you can talk a little bit about the economic arrange arrangements offered and you know.

You'll be expanding that to other U S practices.

Sure younger again, thank you for your question. The practice, we reference is a big Multilocation cataract refractive practice based in southeast part of the country. They do a lot of cataract surgery. They do a lot of carneal base refractive surgery, and certainly have a very <unk>.

This growing lens base refractive surgery practice I I think in terms of what's driving the move down a diopter curve I think it's a little bit of both of what you mentioned, we certainly continue to increase consumer awareness through our investments.

Tom Frinzi: US Highway 93 is consistent with our stated goal of going deeper with our existing customer base. Alliance agreements with other US Highway 93 customers are in process. And finally, we launched a patient call center partnership linked to our doctor finder in two cities in October. The call center is intended for surgeon referral in EVO patient education. Today, we expanded our call center to several additional cities, including Los Angeles, Chicago, and Boston.

In terms of digital marketing, but I also think internally. The practice has done enough procedures that their confidence level is extremely high and they've made an absolute commitment that anyone minus three and above that falls within our our treatment range email is going to be part of that discussion and I think is.

Consumers hear more and more about the benefits of Evo Icl's surgery, there are opting for it versus laser base vision correction, yes.

Tom Frinzi: While still in the early stages, we have a lot of enthusiasm around our ability to answer patient questions and create a closed loop process for our doctor finder website aimed at increasing the return on our sales and marketing investments.

Yeah, just add the last part I would say that we did noted this specific practice has made the price of lasik that they offer in their practice.

Or evo as well a little bit more on parity he's still start charging a slight premium, but certainly down from a prior maybe six to nine months ago. When he was charging for you though.

Patrick Williams: Patrick, thank you, Tom, and good afternoon, everyone. As a reminder, all of my references to growth in comparisons will refer to year-over-year growth relative to the prior year period unless otherwise stated. Also, please note that we have provided a geographic sales table with today's press release to match the three major regions we showed during our September investor day and also provide key country breakout of our ICO business. Total net sales for Q3 2023 were $80.3 million of 6% compared to net sales of $76.1 million a year ago. The increase in net sales was attributable to a $9.1 million or 13% increase in ICO sales, which was mostly offset by a $4.9 million decrease in other product sales.

Alright. Thank you that's very helpful maybe to follow up or a second question on the.

China business wanted to hear a little bit more detail in the spring and the resilience of the consumer of their.

To someone with the same how long is that you do on the macro data luxuries.

But you know what are you seeing from tier one tier two cities vs on with a lower tier cities. What are you seeing from some of your larger customers.

Patrick Williams: We are nearing completion of the previously announced exiting of our low margin non-core other products cataract IOL business. Gross profit for Q3 2023 was $63.6 million or 79.2% of net sales compared to gross profit of $60.5 million or 79.5% of net sales a year ago and $70.7 million or 76.6% of net sales for Q2 2023. The 30 basis point decrease in gross margin as compared to Q3 2022 is primarily due to increased sales return reserves and period costs associated with manufacturing projects partially offset by product and geographic sales mix. The 260 basis points sequential increase in gross margin from the second quarter is due to another product cataract IOL reserve that did not recur in the third quarter.

Sure Young let me take a stab added and certainly Patrick can add any color. He would like are they begin work certainly monitoring the macroeconomic environment closely.

Read the same newspapers you read so I think our ears, certainly to the ground as well as talking to our people as we do on a routine basis.

But I will tell you certainly in the tier one tier two cities. We're very pleased within market sales. They continued to be strong in the month of October and on a year over year basis, we expect to deliver shortly north of 25% growth for Q4 sales in China. So we.

We have to be mindful of of the trends, but we certainly.

Like what we hear in like what we continue to see and market.

Patrick Williams: Director. Normalizing our Q22023 gross margin results in a 60 basis point decrease sequentially for the third quarter, which is related to geographic and product mix. We continue to expect gross margin will be approximately 79% for Q4 and approximately 78% for the full year. Moving down the income statement, total operating expenses for Q32023 were $57.3 million up from $46.8 million in the year of go quarter and down sequentially from $62.1 million in Q22023.

Alright, Thank you very much.

Thank you.

Your next question comes from.

David Saxon I'll need your line is already open.

Hi, This is Joseph on for David.

Maybe maybe even the operating margin could you maybe discuss some of the the cadence improvements that you guys are you expecting three 2026 to get to that.

Patrick Williams: The components of total operating expenses were as follows. G&A Expans for Q32023 was $19.3 million compared to $14 million a year ago and $18.1 million for Q22023. The year over your increase in G&A is due to increased compensation related expenses, outside services, and facility costs as we position the company for future growth. For fiscal 2023, we continue to expect G&A Expans will be approximately $19 million in the fourth quarter. Selling and marketing expense was $26.6 million for Q32023 up from $23.1 million a year ago and down from $32.3 million in Q22023.

While the 16 per cent range, you know maybe how much of that is leveraging from from increased revenues versus maybe moderating some of the commercial investments.

Yeah. This is Patrick of course.

As we outlined on our I R. Dan and the deck is still on the website. So people can certainly reference that we didn't talk about it pretty good expansion of up to a thousand basis points over time. So we said, we would hit 12% to 16% in 2026th.

One should expect that as revenue goes operating margin expansion will go so we talked about 15% to 20% <unk> as a reminder, where we sit in the <unk> holds today, we expect to growth.

Patrick Williams: The increase in Selling and Marketing Expans for the prior year was due to increased advertising and promotional expenses and compensation related expenses, partially offset by lower trade show costs. The sequential decrease in Selling and Marketing Expans was due to decreased marketing, promotion, and advertising expenses, trade shows and meetings, and timing. We now expect approximately $1.5 million of expense will shift to Q4 due to timing of investments, resulting in approximately $28.5 million of selling and marketing expense in Q4.

As we move from 25 to 26 years will certainly be higher than probably in the near ears of 23 to 2424 to 25 and then it has a lot to do with all the initiatives we're putting in place.

The structure that we're putting in place and just getting more traction as we move down that dioptric curve and increase our brand awareness as we get the practices set up so.

We're confident about the expansion in the operating margin. It just comes down to where do we want to continue to make investments to build out what we see is a strong franchise and really take more and more market share and eventually build the overall market as well.

Patrick Williams: Research and development expense was $11.5 million in Q32023 compared to $9.6 million a year ago and $11.8 million for Q22023. The year over your increase in RID is due to increased compensation related expenses and USEVO post-approval clinical trial expenses associated with the three-year study. For Q4, we continue to expect RID expans will be approximately $12 million. Occurring income in Q32023 was $6.3 million or 7.8% of net sales as compared to $13.7 million or 18% of net sales for Q32022.

Okay, Great and then just one more from us charges package into one.

Could you maybe discuss some of the progress you guys have made on I'm getting you know the delivery times down.

I guess, how big of an issue is that for for for adoption you know in the U S. Currently and just maybe on the sales force in the U S. You guys happy with the current size or are you looking to more to add more people you know in the sales first before so I don't know if you mentioned that in the comments I might've missed that.

No I think certainly from a the ability to meet the demand of the customer in terms of timing of product inventory levels are shot yields are up and we certainly are are meeting most orders right from inventory and then in terms of customizing, particularly on the.

Patrick Williams: For fiscal year 2023, we continue to expect operating margin will be approximately 5%, and we anticipate expanding operating margins in future years while continuing to make investments across the business in order to support the 15 to 20% three-year sales cager outlined at our Vision 2026 investor day in September. Net income in Q32023 was $4.8 million or 10 cents per diluted share compared to net income of $10.3 million or $21 cents per share in Q32022. On a non-gap basis, adjusted at income for Q32023 was $15 million or 30 cents per diluted share compared to adjusted net income of $18.1 million or 37 cents per diluted share in Q32022.

Torok side.

And a six week period of time, which is our stated goal and that's always improving.

Relative to you know.

What we're doing in the U S from a structure point of view Warren trials, and our Chief operating officer is taking that much more of an active involvement with R. U S team as we.

Certainly implement across the U S Highway 93 initiatives.

And I think keeping his ear to the ground.

Patrick Williams: A table reconciling the gap information to the non-gap information is included in today's financial release. We continue to expect our effective tax rate will be approximately 35% in Q4 subject to no significant change in our valuation.

And bringing his wealth of experience and leadership will only help as we continue to gain momentum and the second biggest refractive market.

Well.

Patrick Williams: Challenge. Turning now to our balance sheet, our cash, cash equivalence, and investments available for sale as of September 29, 2023, total $201.7 million, as compared to $225.5 million at the end of the fourth quarter of 2022. The decrease in overall cash is due to the timing of accounts receivable. Based on current forecasted payments, we do expect our AR balance to move down by year end to our Q2 2023 levels, and even further down in Q1 2024.

Okay, great. Thanks for taking my questions much appreciated.

Sure.

Thanks, and your next question comes from John Young from.

From Canaccord your line is already open.

Hi, Tom Patrick Thanks for taking my questions Tonight.

I just wanted to start on the C. U S. Highway 93, I'm curious about this program and maybe some of the company made during the Q&A about being able to off that one practice at least offering a line is that near parity tip lasik.

Patrick Williams: We invested $9.2 million in CAPEX during the third quarter, and $15.1 million total year to date to the end of the third quarter. We now expect full year fiscal 2023 CAPEX will be approximately $21 million, down from our previous $26 million estimate due to manufacturing projects which will move into 2024. As Tom said, due to the economic environment and certain geographies in recent world events, we now expect to be at the low end of our previously announced revenue range, which would result in net sales of approximately $74 million in the fourth quarter.

Discounting the lines as part of the route 93 yard as a part of the co marketing initiative in.

<unk> about longterm hefty specific to the United States banks.

Yeah, Hey, John how are you first of all How's your vision.

It's great [laughter].

Good good I always wanted to check in and make sure that the egos performing as it as it should but yeah. It's specific to your question as part of the Alliance agreement and the volume commitment that a surgeon and that practice give us there is some erosion of price, but it's relatively.

Patrick Williams: One additional item. On October 25, we began a voluntary recall of approximately 300 EVO and EVO plus lenses distributed in the US beginning of September 2022, with a measurement deviating plus or minus half a diopter from the AS labeled power. We have identified and fixed the problem, and we do not expect any material operational costs related to this matter.

Within expectations and I think again it cuts both ways right, we give a little bit on price they give a little bit on what the consumers pain and the combination thereof, given our strong balance sheet and know that and.

Cash we generate we're in a position to to be a little bit more flexible to drive growth.

Patrick Williams: Start will be attending the Stevens conference on November 16th in Nashville, and BTIG's virtual Ophthalmology Day on November 27th. We will also be conducting in-person investor meetings in New York, Boston, and Hong Kong, with Mizzouho, William Blair, and Jeffries respectively in November and December.

And remember John at the Investor Day, we outlined our division 2026, we provided a full P&L out on the gross margin I, specifically address the fact that we would still stay at about 81% for all three years, which gives us a little bit of leeway wiggle room to be aggressive if we need to but more importantly to make sure as Tom said, we're given a little they're giving.

Tom Frinzi: Tom, thank you, Patrick.

Tom Frinzi: Ten months in the chair of Chief Executive Officer, I can tell you the world has changed. The war in Europe continues. Inflation and higher interest rates are exacerbating broad economic challenges and now a new war. In our refractive industry has not been immune, yet star continues to grow. We continue to take market share, grow the overall refractive market, and generate earnings and cash. As I mentioned before, our technology is without peer, and our opportunity remains large.

A little and so we did contemplate in our numbers currently in in our future numbers as well.

Okay. That's great. Thank you and then just for a follow up to.

The sales and marketing expand came down a lot quarter over quarter.

I heard you talk about this pulling back on the digital AD, but is that part of the macro concerning too that you'll be pulling back more here.

Cause it's outline when you think about the macro environment and I. Appreciate the information you gave in the United States.

Tom Frinzi: The epidemic of myopia that impacts more than 2 million people globally. Today, our growth opportunity is led by China, the largest market in the world for refractive procedures, and other APEC geographies. But as we look to the future, we see many other markets representing the more meaningful contribution to our growth.

Overall procedure volumes continue to decline in the past you've covered the macro conservancy, primarily in Europe do you take care and see some impact now here in the United States. Thanks again for taking my question.

Yeah look I think.

There's a couple of things there are certainly in Europe, we've talked about the refractive market as being down.

We are seeing it in the U S. Tom outlined that in his call right. We're in.

Tom Frinzi: Our vision remains to become the first choice for those doctors and patients seeking visual freedom. And I am confident with our growing momentum, we will achieve that vision.

Teens, when you look at year to date, we're starting to see that and even areas outside of China, which continue to grow but is down overall from a refractive I would say from this year compared to last year with that they were being very mindful about where we make our investments.

Tom Frinzi: This concludes our prepared remarks, operator. We are now ready to take questions. Thank you, ladies and gentlemen.

We did have a step down in Q3, some of that was timing, which we pushed into Q4, but at this point, we're not reducing I would say, notably anything related to macro issues. We're seeing out there because we are still grilling is Tom outlined during the call. So as long as you're seeing the grocery seeing the good return will continue to grow I think the big thing for us is there.

Operator: We will now begin the question and answer session. If you have a question, please press R1 on your touch tone phone. You will hear a three-tone prompt acknowledging your request and your question will be pulled in the order they are received. If you would like to withdraw from the question cue, please press STAAR 2. If you're using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question.

We get things in place, where can we start putting more investment into areas in order to drive further adoption whether it is in the U S are certainly outside areas of the U S.

I would only add John I think we've gotten smarter about how we're investing and we're gonna invest dollars, where we think they're gonna be rewarded the most and that's what's happening.

Got it thanks, and then if I can sneak in one last one ear.

Anthony Petrone: Your first question comes from Anthony Petrone from Mizzouho. Your line is already open. Thank you for good afternoon to everyone.

It may have Mister Patrick but did you to reiterate the $80 million in your balance for this year.

For guidance.

We did it but where essentially on the same track that we've been on right. So you know we reported obviously a little north of $4 million again, So I think at this point.

Tom Frinzi: Maybe Tom start off with just a commentary on geographic weakness. When you think of the major regions, the Americas, India, and APAC, how should we be thinking about that across the geographies? Is there any geography in particular where you're seeing more early pressures here, just as it relates to economy? And then I'll have a couple of follow-ups. Thanks. Sure. Thanks, Anthony. Good to hear from you. Again, we had a solid quarter.

We didn't reiterated that that that's a good catch but we're kind of on the what I would call the steady state.

Around $4 million.

We might do a little north of that as we go into Q4, but we're thinking about that as we contemplate 2024 and beyond but I think consistent with what Tom is that what we have said the U S is going to be a little bit of a slow go in the short term here until we move into 2024, and we think will achieve more meaningful acceleration.

Tom Frinzi: I think we continued to grow in the Asia-Pacific regions. China was solid. India had a very good quarter. Other Asia-Pacific geographies were favorable. As I mentioned in the prepared remarks in Europe, certainly are two biggest direct markets. Spain and Germany had good quarters. And in the U.S., despite continued declining refractive market, we showed good growth. Again, we're mindful of what we read in the newspapers as you do as well. And we're constantly monitoring those factors and keeping our ear to the ground with our people in all those markets globally. That's helpful.

<unk> as we move into the second half of 2024.

Thank you again.

Thank you. Your next question comes from George Sellers.

Of Stevens your line is already open.

Hey, good afternoon, and thanks for taking the question [noise].

Maybe to follow up a little bit on the highway 93 customer base I'm just curious how many of those customers have an office space surgical suite and is that an important factor when you're thinking about which physicians you're targeting.

Tom Frinzi: Maybe just a quick one on China. There's a lot on the anti-corruption campaign. It doesn't seem like there was any notable impact in the quarter. And when you think about where that's really being focused, it seems like it's more hospital-based and not sure your largest customer eye has any exposure there. But can you just speak to the dynamics on China anti-corruption and how that relates to ICL volumes? And I'll leave it at that and hop back in queue.

Yeah, Hey, George Thanks for the question I think between both office space surgery suite, and a physician dog ASC I think it's a little north of 50% of the 93 fall into a setting of care that's extremely favorable.

Okay. That's that's helpful and then I'm thinking about the geographic breakdown.

A lot of the the non U S. In China Geography's are what really outpaced our expectations in the quarter and you touched on Spain, and Germany, and India, but I'm just curious if you could give us a little bit more color on some of the maybe economic.

Tom Frinzi: Thanks again. Yeah, sure Anthony, thank you for the question. And again, just as you stated, we agree. It is predominantly geared towards the public hospital system versus the private hospital system. You know, majority of our business close to 80% is on the private side, you know, 20 to 25% on the public side. But we're constantly monitoring that situation to date. It really hasn't been material, but we're keeping close tabs on it. Thanks again. I'll hop back in. Sure. Thank you.

Reasons for for what was driving strengths and some of those markets and then the sustainability of that strength into fourth quarter in 2024 as well.

Well as we said at our Investor day.

Beyond China, we thought there were markets that we are poised for growth and we're starting to see that India being a great example, again, it's a small base, but given the population there in the knee, we see India growing also in smaller markets in the Asia Pacific region like Vietnam like milk.

John Young: Your next question comes from Mr. Yang Lee. Your line is already open. Thank you so much for taking our questions. I guess to start maybe just on the U.S., you know, you highlighted U.S. Highway 93, and then gave an example on the multi-center practice alliance. I guess I'm kind of wondering how big is that practice? What's driving their move down the diopto curve to minus three and minus six? Is a patient demand or are they getting better at selling the procedure to patients? Maybe you can talk a little bit about the economic arrangements offered and, you know, if you'd be extending that to other US practices?

Asia have all been showing consistent growth.

As we wind down 2023, and we think that will continue room of 2024, certainly the initiatives were doing in the U S. We've said.

Will take time, but we believe in and Patrick just reiterate it.

I think we'll start seeing some real inflection in the back half of 2004, leading into 25.

Europe. Shortly are are hybrid markets, like France, and Italy, Benlox continue to show consistent double digit growth.

So we're very pleased and really.

We're we're very encouraged to see Spain, and Germany have the quarters. They had and I think Europe is poised to fight through the economic.

Advantage or disadvantage as they are facing and in spite of that producing reasonably good numbers, which sets us up for a solid 24 and beyond.

John Young: Sure, John again, thank you for the question. The practice we reference is a big multi-location cataract refractor practice based in the southeast part of the country. They do a lot of cataract surgery. They do a lot of corneal based refractor surgery and certainly have a very nice growing lens based refractor surgery practice. I think in terms of what's driving the move down the diopto curve, I think it's a little bit of both of what you mentioned.

Yeah, and we and we provided the additional table, which I think everyone will appreciate and sort of breakout ICL, especially to show how Japan is doing we still have some FX headwinds there.

And we are showing revenue growth, but on a unit stampfli. They still continue to deliver very well as many of you are aware of the yen is that at all time weakness over the last 30 plus years here compared to the U S. Dollar and then consistently in terms of macro economic headwinds Korea. Once again had what we would call.

John Young: We certainly continue to increase consumer awareness through our investments in terms of digital marketing. But I also think internally the practice has done enough procedures that their confidence level is extremely high and they've made an absolute commitment that anyone minus three and above that falls within our treatment range. Evo is going to be part of that discussion. And I think as consumers here more and more about the benefits of Evo ICL surgery, they're opting for it versus laser-based vision correction.

As a strong quarter, we outlined that in the the table as well as kind of flattish up 1% year over year and that's consistent what we talked about on our queue to call. When we did bring the numbers slightly down notably for Korea. When we pointed out in Asia Pacific, but everything else, Tom said or things are going pretty well, there and we're feeling optimistic about some of those other areas.

John Young: Yeah, just to add the last part, I would say that we did know that this specific practice has made the price of lacy that they offer in their practice, or Evo as well, a little bit more on parity. He still starts charging a slight premium, but certainly down a little bit more. Now from prior maybe six to nine months ago, what he was charging for Evo. All right. Thank you. It's very helpful.

At this point.

Okay, Great. That's really helpful color. Thank you I'll I'll leave it there.

Thank you.

Your next question comes from Margaret Kaiser Andrew William Blair. Your line is already open.

Hey, good afternoon, thanks for taking my questions.

I just wanted that to follow up first on you know market trends in front of the comments that you just made it sounded like maybe you're not saying Annapolis a week macroenvironment correlating with your trends to take down guidance are kind of rethink that so yeah. I guess two two fold questions within that one our market trends at this point stable. So there.

Tom Frinzi: Maybe to follow up or a second question on the China business, wanted to hear a little bit more detail on the strength and resilience of the consumer there. We see some of the same headlines that you do on the macro data, luxury sales, et cetera. But what are you seeing from tier one, tier two cities versus some of the lower tier cities? What are you seeing from some of your larger customers?

But maybe not getting much worse, and then too yeah. How should we think about correlation of you all to market trend I know, you're a smaller piece of the market, but <unk>.

You look at the past how correlate argued thanks.

Yes, it's a fair question and.

You know as we said we're coming down on the low end of the guidance range. It we said that'd be about $74 million for Q4, we still believe though based on everything we're listening to and everything we're seeing out there. It's a bit early for us to start contemplating and talking about 2024, clearly, we're taking market share and I think what what Tom outlined his prepared.

Tom Frinzi: Sure, young. Let me take a stab at it and certainly Patrick can add any color he would like. I think, again, you know, work, certainly monitoring the macro economic environment closely. We read the same newspapers you read. So I think our ears certainly to the ground as well as talking to our people as we do on a routine basis. But I will tell you, certainly in the tier one, tier two cities, we're very pleased within market sales.

Comment is showing that even in light of a declining refractive market in many parts of the world, we are taking share or even making a growing share. So I don't want to be overly optimistic at the same time, we wanted to make sure. We see another 90 days here before we start talking about 2024, but it is pretty clear that there are some slowdowns that are happy.

Tom Frinzi: They continue to be strong in the month of October. And on a year over year basis, we expected deliver certainly north at 25% growth for two, four sales in China. So, you know, we have to be mindful of the trends, but we certainly like what we hear and like what we continue to see in market. All right, thank you very much. Thank you.

Hang out there and we're being very mindful and trying to attract those receive it will have it ultimately any sort of impact on our business.

Okay, and then yeah, I guess moving to T U S Highway 93.

I'll, maybe take a different cracking at the question here, Yeah, I guess I'm trying to get an idea of what the peak potential sale. When these practices can be as they moved down that dioptric or so.

Joseph Conway: Your next question comes from David Saxon of Needham. Your line is already open. Hi, this is Joseph on for David.

Can you double sales here, if you really succeed within these practices and what does it mean for the practices.

I don't know if you want to take it down a penetration route or capacity or out with you, bringing your patient practice. It how did it again, how do you think of Roy and and potential kind of revenue within the next.

Patrick Williams: Maybe maybe maybe an operating margin, could you maybe discuss some of that the cadence improvement that you guys are expecting through 2026 to get to that. Well, the 16% range, you know, maybe how much of that is leveraging from from increased revenues versus maybe moderating some of the commercial investments. Yeah, this is Patrick, of course, as we outlined on our IR day and the deck is still on the website so people can certainly reference that we did talk about a pretty good expansion up to a thousand basis points over time.

Again, Margaret does Tom and as we stated at our Investor Day, and the three year K you resolve it you exclusiveness going from high teens to roughly $50 million franchise over that three year period of time, certainly highway 93 is a step in that right direction as we have always said we needed to.

Go deeper not wider and as we do that.

<unk> and we come down to die after curve the opportunity to grow the business at those rates is very real.

Yeah, and you know we talked about the U S that I might as well addressed a question. We got earlier because you guys ask the questions. So as I said, we expect that will continue to see sort of flattish growth.

Patrick Williams: So we said we would hit 12 to 16% in 2026. One should expect that as revenue goes, operating margin, expansion will go. So we talked about a 15 to 20% cager as a reminder what we said in the IR day holds today. We expect the growth as we move from 25 to 26 years will certainly be higher than probably in the near years of 23 to 24, 24 to 25. And that has a lot to do with all the initiatives we're putting in place, the structures that we're putting in place and just getting more traction as we move down that diopter curve and increase our brand awareness as we get the practices set up.

In the U S sequentially here now until we move into the second half of 2024 at.

At the same time that doesn't take away from our conviction of that 30% to 50% Taggard that we specifically outlined for the U S and our vision 2026, and as I said at the beginning we do expect to see higher growth rates. When we go throughout that three year caviar right. So as these initiatives take place getting back to your question Margaret about adoption within those <unk>.

Patrick Williams: So we're confident about the expansion in the operating margin. It just comes down to where do we want to continue to make investments to build out what we see as a strong franchise and really take more and more market share and eventually build the overall market as well.

<unk> as they begin to see a minus three walk in the door I make and thinking their heads the first choice for them as Evo, that's where we started garnering a larger piece of the market share that they have within those individual practices and that's what's really going to grow the business overall over the next three years.

Patrick Williams: Okay, great. And then just one more from us, which I just packaged into one.

Okay. Thanks.

Tom Frinzi: Can you maybe discuss some of the progress you guys have made on getting the delivery times down? I guess how big of an issue is that for adoption, you know, in the US currently and just maybe on the sales force in the US, you guys happy with the current size. You know, are you looking to more to add more people in the sales force? I don't know if you mentioned that in the comments.

Thank you.

Your next question comes from Ryan Zimmerman of B T. I G. Your line is already open.

Hi, everyone. This is is he on Verizon. Thanks for taking my question. So heard your comments on the roll out of the initiatives from the analysts time.

I was just wondering if he could ride some any updates on what you guys have learned from the first month or sell as operating the call Center and have you seen any tangible benefits from it so far.

Tom Frinzi: I might have missed that. Now, I think certainly from a ability to meet the demand of the customer in terms of timing and product inventory levels or such yields are up. And, you know, we certainly are meeting most orders right from inventory and then in terms of customizing, particularly on the TORIC side, you know, we're within a six week period of time, which is our state of goal. And that's always improving relative to, you know, what we're doing in the US from a structure point of view.

Yeah.

Thanks for the question specifically it is too early as we indicated to make some broad statements, but we've been very encouraged by the activity level and quite frankly.

Then one of the market's we generated 18 solid leaves that we passed on to practices ready to convert so it's encouraging but it's way too early to make any determination of the real impact, but the enthusiasm and the activity level is certainly encouraging.

Tom Frinzi: Warren Faust, our chief operating officer is taking much more of an active involvement with our US team as we certainly implement across the US Highway 93 initiative. And I think keeping his ear to the ground and bringing his wealth of experience and leadership will only help as we continue to gain momentum in the second biggest refracted market in the world.

And I think importantly, the practices, especially especially with U S. Highway 93 are on board with this and that's always what are your concerns when he started doing a call center, but this is something that other companies have done and we're seeing very good cooperation and partnership with our practices and we expect that to continue.

Yeah.

Got it. Thank you and then just transitioning a little bit over to China. So what are you guys seeing from a competitive standpoint, right now and is there anything that we should be looking out for for 2025. Thanks for taking the go ahead shoot.

Tom Frinzi: Okay, great. Thanks for taking our questions. Much appreciated. Sure. Thanks.

Sure as we talked about that the Investor day and.

John Young: Your next question comes from John Young from Canacred. Your line is already open. Hi, John Patrick. Thanks for taking our questions tonight. I just want to start on this US Highlight 93. I'm curious about this program and maybe from the company you made during the Q&A about being able to off that one project, at least offering the ones that near parity to Lisa. Are you just counting the lens as part of the root 93 or as a part of the co-marketing initiative?

I think it came up earlier and some conversations I.

Bryan is new technology that could come to the market in China, It's an acrylic base as opposed to a column or based ICL and we think that could gain approval mid two third quarter of 2004.

But again, we think competition coming in as a positive.

Certainly imitation being the highest form of flattery.

And we certainly have first mover advantage with well over 2 million and a half and plant sold around the world.

John Young: And how should we think about long-term ASP specific C9 states? Thanks. Yeah. Hey, John, how are you? First of all, how's your vision? It's great. Good. I always want to check in and make sure that Evo's performing as it should. But yeah, specific to your question, as part of the Alliance Agreement and the Vine commitment that a surgeon in that practice give us, there is some erosion of price, but it's relatively within expectations.

And we also have a pricing and market segmentation ready to.

Ready to to implement.

Upon competition coming to the marketplace, but the real differences the polymer material than we have pioneered the biocompatibility on the performance of it from our quality of vision postoperatively.

Yeah It gives us.

Continued confidence that even with competition coming we will we will maintain our first mover advantage.

John Young: And I think, again, it cuts both ways, right? We give a little bit on price. They give a little bit on what the consumers paying and the combination thereof, given our strong balance sheet and note that, and the cash we generate, we're in a position to be a little bit more flexible to drive grumps. Yeah, and remember, John, at the investor day, we outlined our vision 2026. We provided a full P&L on the gross margin.

Okay. Thanks for taking my questions.

Operator will take the next question.

Your next question comes from the line of Steve Linkman. Your line is now open.

John Young: I specifically addressed the fact that we would still stay at about 81% for all three years, which gives us a little bit of leeway wiggle room to be aggressive if we need to, but more importantly, to make sure, as Tom said, we're given a little, they're given a little, and so we did contemplate in our numbers currently and in our future numbers as well.

Thank you evening guys.

You mentioned expanding rule out a VEBA in your up here.

Post the September meeting can you talk a little bit more about what what that could look like and and what you see is the opportunity as you as you ramp that.

Patrick Williams: Okay, that's great. Thank you. And then just for our follow-up, too, the sales and marketing expense being down a lot, quarter over quarter. I heard you talk about just pulling back on the digital ads. But, you know, is it part of the macro concerns, too, that you're going to be pulling back more here? And maybe some is outlined, when you think about the macro environment, and I appreciate the information you gave on the United States about, you know, the overall procedure volumes continue to decline.

Yeah. Thanks for the question again as I've stated before I think it's important as a business for us to be in the presbyopia.

<unk>, if you will even though we're talking about my optic patients that are suffering from presbyopia early in their stage 45 to 55 years old. So as we met with a group of surgeons in Vienna at the most recent ER Crs meeting in September.

Patrick Williams: In the past, you've talked about macro concern and being primarily in Europe. Do you think you're going to see some impact now here in the United States, too? Thanks again for taking our questions. Yeah, look, I think we're, we're, there's a couple of things. There's certainly, in Europe, we've talked about the refractive markets being down. We are seeing it in the US, Tom outlined that in his call, right? We're in mid teens, when you look at your date.

We we were encouraged by the feedback we received and we're going to continue to work with a subset of surgeons.

Certainly less than 100 in that marketplace as we continued to refine the positioning.

Externally and internally of the product.

And think over the coming.

Patrick Williams: We're starting to see that in even areas outside of China, which continues to grow, but is down. Overall, from our refractive, I would say, from this year compared to last year. With that, say, we're being very mindful about where we make our investments. We did have a step down in Q3. Some of that was timing, which we pushed into Q4, but at this point, we're not reducing, I would say, notably, anything related to macro issues we're seeing out there, because we are still growing as Tom outlined during the call.

Three year horizon.

Eva Eva will play a role we have yet to define how big of a role it will play.

Yeah. It is a reminder, we actually did not include any material.

The <unk> the lens.

In our three year Calgary that we put out there an investor day.

Okay got it and then just back on the initiative in the U S, where you're you're focusing on a subset of accounts for those nine focused on accounts I know you talked to any investor day that they're still they still will certainly get a support are you seeing any.

Patrick Williams: So, as long as we're seeing the growth, we're seeing the good return will continue to grow. I think the big thing for us is, as we get things in place, where can we start putting more investment into areas in order to drive further adoption, whether it is in the US, or certainly outside areas of the US? I think I would only add, John. I think we've gotten smarter about how we're investing. And we're going to invest dollars where we think they're going to be rewarded the most. And that's what happens.

Is there any concern or or about potential.

Potential negative impact on that group as a result, potentially a little less focus is that so you're building that into your or something for the next couple of quarters. Sir what are you seeing so far initially there.

Patrick Williams: Thank you for joining me. Got it. Thanks. And then if I can speak in one last one here, just I may have missed the Patrick, but did you reiterate the $18 million in US sales for this year? For guidance? We didn't, but we're essentially on the same track that we've been on right. So, you know, we reported obviously a little north of $4 million again. So I think at this point, we didn't reiterate it.

Yeah, No I I I.

We have built into our assumptions and again I think we are structured in a way that will be able to maintain any type of new interest. It comes beyond the 93 and again as.

As I said the 93 in my prepared remarks represent a little over 50 per cent of our volume in the U S. So clearly the remaining volume we're gonna manage through our current infrastructure as well as through our customer service organization.

Patrick Williams: That's it. That's a good catch. But we're kind of on the what I would call the steady state of around the $4 million. We might do a little north of that as we go into Q4, but you know, we're thinking about that as we contemplate 2024 and beyond. But I think consistent with what, you know, Thomas said and what we have said, the US is going to be, you know, a little bit of a slow go in the short term here until we move into 2024. And we think we'll achieve more meaningful acceleration as we move into the second half of 2024.

Patrick Williams: Thank you.

Okay understood. Thanks ma'am.

Mmm.

Operator next question please.

Operator next question.

Thomas give your closing remarks, well. Thank you for joining our call today, we look forward to speaking with many of you in the coming days and weeks.

George Sellers: Your next question comes from George Sellers of Stevens. Your line is already open. Hey, good afternoon. And thanks for taking the question. Maybe to follow up a little bit on the highway 93 customer base. I'm just curious. How many of those customers have an office based surgical suite? And is that an important factor when you're thinking about which physicians you're targeting? Yeah. Hey, George. Thanks for the question.

Thank you everyone.

Patrick Williams: I think between both office based surgery suite and a physician known ASC, I think it's a little north of 50% of the 93 fall into a setting of care that's extremely favorable. Okay, that's helpful. And then thinking about the geographic breakdown, a lot of the non-US and China geographies are what really outpaced our expectations in the quarter. And you touched on Spain and Germany and India. But I'm just curious if you could give us a little bit more color on some of the maybe economic reasons for what was driving us.

[noise].

Patrick Williams: [inaudible] Yeah, and we provided the additional table, which I think everyone will appreciate and sort of break out ICL, especially to show how Japan is doing. We still have some FX headwinds there. And we are showing revenue growth, but on a unit standpoint, they still continue to deliver very well. As many of you are aware of the yen is that all time weakness over the last 30 plus years here compared to the US dollar.

Patrick Williams: And then consistently in terms of macro economic headwinds, you know, Korea once again had what we would call not not quite as a strong quarter, we outlined that in the table as well as kind of flatish up 1% year over year. And that's consistent with what we talked about on our Q2 call when we did bring the numbers slightly down, notably for Korea when we pointed out in Asia Pacific. But everything else, Tom said or things are going pretty well there. And we're feeling optimistic about some of those other areas at this point. Okay, great. That's really helpful color. Thank y'all. I'll leave it there. Thank you.

Margaret Kaiser Andrew: Your next question comes from Margaret Kaiser Andrew of William Blair. Your line is already open. Hey, good afternoon guys. Thanks for taking the questions. I just wanted to follow up first on, you know, market trends and some of the comments that you just made. It sounded like maybe you're not saying enough of a week macro environment correlating with your trend to take down guidance or kind of rethink that. So, I guess two, two fold questions within that one, you know, our market trend at this point stable, so they're down, but maybe not getting much worse.

Margaret Kaiser Andrew: And then to, you know, how should we think about correlation of you all to market trend? I know you're a smaller piece of market. But, you know, if you look at the past, how correlate are you? Yeah, look, it's a fair question. And, you know, as we said, we're coming down on the low end of the guidance range that we said that'd be about $74 million for Q4. We still believe, though, based on everything we're listening to and everything we're seeing out there, it's a bit early for us to start contemplating and talking about 2024.

Margaret Kaiser Andrew: Clearly, we're taking market share. And I think what Tom outlined on his prepared comments is showing that even in light of a declining refractive market in many parts of the world, we are taking share or even making our growing share. So, I don't want to be overly optimistic. At the same time, you know, we want to make sure we see another 90 days here before we start talking about 2024. But, you know, it is pretty clear that there are some slowdowns that are happening out there. And we're being very mindful in trying to track those to see, but we'll have it ultimately any sort of impact on our business. Okay.

Tom Frinzi: And then, you know, I guess moving to the US Highway 93. I'll maybe take a different crack at the question here. You know, I guess I'm trying to get an idea of what the peak potential sales in these practices can be as they move down that diaptor curve. So, you know, can you double sales here if you really succeed within these practices? And what does it mean for the practices? Yeah, I don't know if you want to take it down a penetration route or capacity route with you bringing your patients into the practice, but how do you think of ROI and potential kind of revenue within these things?

Tom Frinzi: Well, again, Margaret does, Tom. And as we stated at our investor day in the three year Kager, we saw that US business going from high teens to roughly $50 million franchise over that three year period of time. Certainly, Highway 93 is a step in that right direction as we have always said we needed to go deeper, not wider. And as we do that. And we come down the diaptor curve, the opportunity to grow the business at those rates is very real.

Tom Frinzi: Yeah, and you know, we talked about the U.S, that I automatically addressed a question we got earlier, because you guys asked the question. So, as I said, you know, we expect that we'll continue to see sort of flatish growth in the U.S, sequentially here now, until we move into the second half of 2024. At the same time, that doesn't take away from our conviction of that 30 to 50% Kaggle that we specifically outlined for the U.S, in our Vision 2026.

Tom Frinzi: And as I said at the beginning, we do expect to see higher growth rates when we go throughout that three year Kaggle, right? So as these initiatives take place, getting back to your question Margaret about adoption within those practices, as they begin to see a minus three walk in the door and make and think in their heads, the first choice for them is Evo. That's where we start garnering a lot. There's a larger piece of the market share that they have within those individual practices, and that's what's really going to grow the business overall over the next three years. Thank you.

Ryan Zimmerman: Your next question comes from Ryan Zimmerman of BTIG. Your line is already open.

Unknown Attendee: Hi, everyone. This is Izzy on for Ryan. Thanks for taking the question. So heard your comments on the rollout of the initiatives from the analyst day.

Tom Frinzi: I was just wondering if you could provide some any updates on what you guys have learned from the first month or so of operating the call center, and if you've seen any tangible benefits from it so far. Yeah, thanks for the question. Specifically, it is too early as we indicated to make some broad statements, but we've been very encouraged by the activity level. And quite frankly, within one of the markets, we generate 18 solid leads that we passed on to practices ready to convert.

Tom Frinzi: So it's encouraging, but it's way too early to make any determination of the real impact, but the enthusiasm and the activity level is certainly encouraging. And I think importantly, the practices, especially associated with US-HIVEN-93, are on board with this, and that's always one of your concerns when you start doing the call center. But this is something that other companies have done, and we're seeing very good cooperation and partnership with our practices, and we expect that to continue. Got it. Thank you.

Tom Frinzi: And then just transitioning a little bit over to China. So what are you guys seeing from a competitive standpoint right now? And is there anything that we should be looking out for for 2024?

Tom Frinzi: Thanks for taking the question. Sure. As we talked about at the investor day, and I think it came up earlier in some conversations. Ibrite is a new technology that could come to the market in China. It's an acrylic base, as opposed to a polymer based ICL. And we think that could gain approval mid to third quarter of 24. But again, we think competition coming is a positive. Certainly imitation being the highest form of flattery.

Tom Frinzi: And we certainly have first mover advantage with well over two million and a half implant sold around the world. And we also have a pricing and market segmentation ready to implement upon competition coming to the marketplace. But the real difference is the polymer material that we have pioneered the biocompatibility of it, the performance of it from a quality of vision postoperatively, gives us continued confidence that even with competition coming, we will maintain our first mover advantage.

Operator: Thank you for taking the questions. Operator will take the next question.

Steve Lichtman: Your next question comes from the line of Steve Lichtman. Your line is now open. Thank you, evening guys. You mentioned expanding the role out of Viva in Europe here, post the September meeting. Can you talk a little bit more about what that could look like, and what you see as the opportunity as you ramped that? Yes, Steve, thanks for the question. Again, as I've stated before, I think it's important as a business for us to be in the Presbyopia channel, if you will, even though we're talking about myopic patients that are suffering from Presbyopia early in their stage 45 to 55 years old.

Steve Lichtman: So as we met with a group of surgeons in the NAT, the most recent ESCRS meeting in September, we were encouraged by the feedback we received, and we're going to continue to work with a subset of surgeons, certainly less than 100 in that marketplace as we continue to refine the positioning both externally and internally of the product, and think over the coming three-year horizon, you know, the Evo Viva will play a role. We have yet to define how bigger the role it will play.

Tom Frinzi: Yeah, and as a reminder, we actually did not include any material Presbyopia Viva lens in our three-year category that we put out there in yesterday. And then just back on the initiative in the US where you're focusing on a subset of accounts. For those non-focused on accounts, I know you talked about an investor day that they still will certainly get support. Are you seeing any, is there any concern or about, you know, potential negative impact on that group as a result, potentially a little less focus?

Tom Frinzi: Is that you building that into your assumptions for the next couple quarters? What are you seeing so far initially there? Yeah, no, I think we have built it into our assumptions. And again, I think we are structured in a way that will be able to maintain any type of new interest that comes beyond the 93. And again, as I said, the 93 in my prepared remarks represent a little over 50% of our volume in the US. So clearly, the remaining volume, we're going to manage through our current infrastructure as well as through our customer service organization. Understood. Thanks, Tom.

Tom Frinzi: All right.

Operator: Operator next question, please. Operator next question. Thank you for joining our call today. We look forward to speaking with many of you in the coming days and weeks.

Unknown Executive: Thank you, everyone.