AUGUST 10, 2022 / 8:30PM, STAA.OQ - Q2 2022 STAAR Surgical Co Earnings Call C O R P O R A T E P A R T I C I P A N T S Brian Moore STAAR Surgical Company - VP of Investor, Media Relations & Corporate Development Caren L.

AUGUST 10, 2022 / 8:30PM, STAA.OQ - Q2 2022 STAAR Surgical Co Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Brian Moore STAAR Surgical Company - VP of Investor, Media Relations & Corporate Development

Caren L. Mason STAAR Surgical Company - CEO, President & Director

Patrick F. Williams STAAR Surgical Company - CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Andrew Frederick Brackmann William Blair & Company L.L.C., Research Division - Associate

Christopher Cook Cooley Stephens Inc., Research Division - MD

David Joshua Saxon Needham & Company, LLC, Research Division - Senior Analyst

Ryan Benjamin Zimmerman BTIG, LLC, Research Division - MD & Medical Technology Analyst

Steven Michael Lichtman Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

William John Plovanic Canaccord Genuity Corp., Research Division - Analyst

Zachary Ross Weiner Jefferies LLC, Research Division - Equity Associate

P R E S E N T A T I O N

Hello all, and thank you for standing by. Welcome to the STAAR Surgical Second Quarter Financial Results Conference Call. (Operator Instructions)This call is being recorded today, Wednesday, August 10, 2022.

At this time, I'd like to turn the conference over to Mr. Brian Moore, Vice President, Investor, Media Relations and Corporate Development for STAARSurgical. Please go ahead.

Brian Moore - STAAR Surgical Company - VP of Investor, Media Relations & Corporate Development

Thank you, operator, and good afternoon, everyone. Thank you for joining us on the STAAR Surgical conference call this afternoon to discuss thecompany's financial results for the second quarter ended July 1, 2022.

On the call today are Caren Mason, President and Chief Executive Officer; and Patrick Williams, Chief Financial Officer. The press release of oursecond quarter results was issued just after 4 p.m. Eastern Time and is now available on STAAR's website at www.star.com.

Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. Wecaution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company'sprojections, expectations, plans, beliefs and prospects. These statements are based on judgment and analysis as of the date of this conference calland are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in theforward-looking statements.

The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the safeharbor statement in today's press release as well as STAAR's public periodic filings with the SEC. Except as required by law, STAAR assumes noobligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

In addition, to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and adjusted earnings per share and sales inconstant currency. We believe that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our

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AUGUST 10, 2022 / 8:30PM, STAA.OQ - Q2 2022 STAAR Surgical Co Earnings Call

historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in today's press release.(Operator Instructions)

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

Caren L. Mason - STAAR Surgical Company - CEO, President & Director

Thank you, Brian. Good afternoon, everyone, and thank you for joining us on today's call. The second quarter results we reported today representa record level of quarterly sales for STAAR at $81.1 million, which represents 30% year-over-year sales growth and considerable progress in advancingour EVO ICL family of lenses.

Considerable progress in the quarter includes a fantastic start in introducing our game-changing EVO lenses to the U.S. market, the second largestmarket for refractive vision correction. We could not be more thrilled to announce today in a separate press release our partnership with musicianJoe Jonas, who will drive awareness of EVO and the visual freedom possible with our lenses among the millions who suffer from myopia globally.I will touch on the partnership more shortly.

For the second quarter, we achieved record results despite COVID-19-related challenges and foreign currency headwinds. We also held fast to ourculture of quality and manufacturing excellence in generating the second quarter results. Last month, on July 15, we received our official 5-yearMDR certification from our European notified body, DEKRA. As many of you know, MDR certification is a change to the regulatory framework andrecent data suggests fewer than 25% of medical device companies have received MDR certification. My thanks to the STAAR teams involved in thismilestone accomplishment and particularly the regulatory and quality teams, which further demonstrates our commitment to STAAR's culture ofquality imperative.

For the second quarter of 2022, global ICL unit growth was up 42% year-over-year despite some ongoing softness in Europe, which we attributeto macroeconomic factors. By geography, we achieved strong ICL unit growth: in China, up 45%; the United States, up 36%; Japan, up 41%; India,up 181%; and Asia-Pacific distributor markets, up 66%, all as compared to the prior year quarter.

In China, the peak summer implant season for EVO procedures is well underway. As we talked about on our last call, China began implementingCOVID-19 related lockdowns in multiple cities associated with the 0 tolerance policy at the end of March. While refractive surgeries were temporarilyhalted in various provider locations in China, in other parts of China, refractive surgeries continued.

STAAR's China team and our customers have been extremely agile in responding to the lockdowns. In some hospitals and clinics, our surgeoncustomers continue to perform refractive surgeries 7 days per week. Lockdowns in China are also currently below the peak levels we saw duringthe second quarter. We expect to successfully navigate the current COVID-19-related challenges and meet anticipated levels of future demand.

In the U.S., the commercial introduction of our EVO family of myopia lenses is off to a strong start. Each day seemingly represents a new and excitingmoment or milestones for STAAR and EVO in the U.S., including the announcement of our partnership today with singer, songwriter and actor JoeJonas. With tens of millions of followers on social media, Joe Jonas is now our most recognizable EVO ambassador globally.

Importantly, Joe Jonas is an actual EVO patient and not simply a spokesperson. This is the case for all of our EVO ambassadors. Joe needed EVOlenses below minus 5 diopters, which once again illustrates that EVO lenses are suitable as the vision correction solution for a wide range of patientsin myopia, low, mid and high. Joe Jonas was a great candidate for EVO and is thrilled to have his EVOs.

Beginning next month, he will begin sharing more details of his visual freedom with EVO via a global advertising, marketing and social mediacampaign. We are inspired by Joe's personal story and appreciate his willingness to share his EVO journey with millions of others who can alsobenefit from living a life with visual freedom.

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Enthusiasm and adoption of EVO by U.S. refractive surgeons is also growing. Many of our surgeon customers and their staffs are actively on socialmedia, LinkedIn and in local market media providing positive EVO testimonies. We remain on track to train and certify at least 600 U.S. surgeonson EVO by the end of this year with already more than 400 surgeons trained and certified today.

Existing and potential U.S. surgeon customers tell us they are excited about the EVO surgeon experience when they speak to their peers outsidethe U.S., when they consider the EVO opportunity here and when they review EVO's safety and efficacy data from our U.S. clinical trial.

In addition to the paper available on STAAR's Investor website published by our medical monitor, Dr. Mark Packer, discussing the U.S. EVO clinicaltrial, data from our U.S. clinical trial has also now been updated on clinicaltrials.gov. We invite investors and analysts to review key findings fromthe 629 eyes of 327 subjects implanted with EVO lenses in the trial.

Next month, in September, we will showcase our entire EVO family of lenses at our Experts Meeting and the 40th Annual Congress of the EuropeanSociety of Cataract and Refractive Surgeons in Milan, Italy. We will feature Viva, our innovative lens for presbyopia at both our Experts Meeting andESCRS. We will also begin commercialization of Viva to certify surgeons where approved, which is the CE mark countries and geographies recognizingthe CE mark.

Looking ahead to future surgeon customer engagement, we plan to host our second U.S. Surgeons Council Meeting in San Antonio, Texas inNovember.

Looking at full year fiscal 2022. In today's earnings release, we reaffirmed our previously provided outlook for fiscal 2022 net sales of approximately$295 million, which takes into account the significant currency headwinds and a continuation of the current level of COVID-19-related challengesin China and elsewhere, offset by stronger-than-expected global demand for our EVO lenses, which continued through the beginning of the thirdquarter.

Organizational energy and enthusiasm at STAAR is especially exciting. In addition to the surgeon engagement and other activities I just shared,we have a planned lineup of additional EVO ambassador influencers in the U.S., including an NBA player and a Gen Z actress, model and style icon.We are also introducing new ambassadors and campaigns outside the U.S., including Japan and South Korea. Like Joe Jonas, all of our EVOambassadors have had or will soon have the EVO procedure. Our EVO ambassadors will begin sharing their journeys in the coming months.

It took over 22 years for STAAR to sell the first 1 million ICLs and just about 3 years to sell the second 1 million lenses, a milestone we achieved inJune of 2022. Now and in the future, STAAR aims to be the visual freedom company. For those who want to experience an active and fulfilling lifefree from contact lenses and glasses, the choice is EVO. Patrick?

Patrick F. Williams - STAAR Surgical Company - CFO

Thank you, Caren, and good afternoon, everyone. Total net sales for Q2 2022 were $81.1 million, up 30% as compared to $62.4 million of net salesin Q2 2021 and up 28% on a sequential basis from Q1 2022. The year-over-year increase in net sales is attributable to a 32% increase in ICL sales.

For Q2 2022, ICL sales represented 96% of total company net sales, similar to the year ago quarter in which ICL sales represented 95% of totalcompany net sales. We continue to expect other product sales will be approximately 5% of total company net sales for fiscal 2022.

Q2 2022 reported net sales includes an approximate $3.1 million negative impact year-over-year from changes in currency, primarily the Japaneseyen as well as the euro. In constant currency, net sales for Q2 2022 would have been $84.2 million, up over 35% year-over-year. Please refer to theconstant currency table in today's earnings release for additional detail.

For analyst modeling purposes, due to currency headwinds, we expect Q3 net sales to be approximately $74 million to $75 million. Our outlookfor fiscal 2022 global ICL unit growth remains robust and is actually higher than our outlook entering the year. Therefore, even in the face ofsignificant currency headwinds, we are today able to reaffirm our previously provided outlook for fiscal 2022 net sales of approximately $295million.

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Turning back to Q2. Gross profit for Q2 2022 was $63.9 million or 78.8% of net sales as compared to gross profit of $49.2 million or 78.9% of netsales for Q2 2021 and $49.3 million or 77.9% of net sales for Q1 2022. The 90 basis point sequential increase in gross margin from Q1 2022 is primarilydue to favorable geographic and product mix and manufacturing efficiencies, partially offset by increased inventory reserves due to the discontinuanceof our older-generation Visian ICL in the U.S. and increased period costs associated with manufacturing projects. For fiscal year 2022, we now expectQ3 and Q4 gross margin to be approximately 79% of net sales.

Moving down the income statement. Total operating expenses for Q2 2022 were $46.9 million as compared to $38.6 million in Q2 2021 and $37.2million for Q1 2022. Taking a closer look at the components of operating expenses, G&A expense for Q2 2022 was $14 million compared to $11.4million for Q2 2021 and $11.9 million for Q1 2022. The year-over-year increase in G&A is due to increased facility costs and compensation-relatedexpenses. The sequential increase from Q1 2022 was due to increased compensation-related expenses. We now expect G&A expense to beapproximately $15 million for both Q3 and Q4 2022.

Selling and marketing expense was $24.2 million for Q2 2022 compared to $18.9 million for Q2 2021 and $17.3 million for Q1 2022. The increasein selling and marketing expense from the prior year was due to increased marketing, promotion and advertising expenses, trade show expenses,partially offset by decreased compensation-related expenses.

The sequential increase in selling and marketing expense from Q1 2022 is due to increased marketing, promotion and advertising expenses andtrade show expenses as well as compensation-related expenses. We now expect selling and marketing expenses as a percent of sales to beapproximately 35% for both Q3 and Q4 2022, reflecting the timing of the exciting new marketing investments globally that Caren just discussed.

Research and development expense was $8.6 million in Q2 2022 compared to $8.3 million for Q2 2021 and $7.9 million for Q1 2022. The year-over-yearincrease in R&D is due to increased compensation-related expenses, partially offset by lower clinical trial expenses. The sequential increase in R&Dfrom Q1 2022 is primarily due to compensation-related expenses. We now expect R&D expense to be approximately $10 million for Q3, rampingto $11 million for Q4 due to the timing of investments.

Operating income in Q2 2022 was $17 million or 21% of net sales as compared to $10.6 million or 17.1% of net sales for Q2 2021. We now expectoperating margins for fiscal year 2022 to be approximately 15% due to higher-than-anticipated gross margin and lower-than-anticipated operatingexpenses.

For Q2 2022, net income was $13 million or $0.26 per diluted share compared to net income of $8.6 million or $0.17 per diluted share for Q2 2021.On a non-GAAP basis, adjusted net income for Q2 2022 was $20.7 million or $0.42 per diluted share compared to adjusted net income of $13.6million or $0.27 per diluted share for Q2 2021.

A table reconciling the GAAP information to the non-GAAP information is included in today's financial release. Also for analyst modeling purposes,please note that we continue to expect our quarterly tax rate will be approximately 25% for Q3 and Q4 2022, subject to no significant change inour valuation allowance.

Turning now to our balance sheet. Our cash and cash equivalents totaled $202.5 million as of July 1, 2022, as compared to $193.1 million at theend of Q1 2022. In Q2 2022, we generated $13.2 million in cash from operations and invested $5.3 million in property and equipment. We continueto expect CapEx for the full year fiscal 2022 will be approximately $20 million. We also continue to anticipate generating positive cash from operationsfor the balance of fiscal 2022 and ending the year with a higher cash balance than fiscal 2021.

Finally, STAAR will be participating in several investor conferences and events in the coming weeks, including the Needham Virtual MedTech andDiagnostics Conference on August 16; the Piper Sandler West Coast field trip on August 23 in Dana Point, California; and the William Blair WestCoast field trip in San Diego, California on August 30. We look forward to speaking with many of you at these events.

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

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AUGUST 10, 2022 / 8:30PM, STAA.OQ - Q2 2022 STAAR Surgical Co Earnings Call

Q U E S T I O N S A N D A N S W E R S

(Operator Instructions) Our first question today comes from Andrew Brackmann of William Blair.

Andrew Frederick Brackmann - William Blair & Company L.L.C., Research Division - Associate

Maybe on this influencer platform, obviously, this has been a big part of the playbook internationally before. So as you think about this coming tothe United States and helping with the U.S. launch, what can you sort of tell us about sort of what you've seen in sort of terms of sales trajectoryand past experiences when you have announced a big partnership like this? And then separate from historical sort of experiences, anything thatyou're expecting from this partnership in particular moving forward?

Caren L. Mason - STAAR Surgical Company - CEO, President & Director

Andrew, thank you for joining us today. So when we launch with a major influencer, the focus is really on getting the message out that there is animplantable collamer lens called EVO. And the focus is to get individuals who are very interested in the lives of those influencers, especially thosewho are also challenged with glasses and contact lenses, to immediately learn more.

And so what we do with the information that we have, like we've done today, is on evoicl.com, if you were to go there today, Joe is on our frontpage of our consumer-facing website talking to you personally about his journey. And what tends to happen is we get, as you can imagine, a verynice bump in interest, a huge increase in DAC finders and a very nice transformation and transition rate to actually having the surgery done.

So our expectation is that in the U.S., as Joe's campaign rolls out over the next especially 6 weeks, culminating on September 12 -- or September7 with a full Media Day in New York City and a number of appearances on national television as well followed up by Joe publishing and postingon Instagram, TikTok, Twitter and others where he has over 30 million followers combined, you're going to see a lot of immediate interest.

Also, we're expecting Joe, who has been interviewed today by People Magazine, to be featured on their online website. And they're -- I think theyhave approximately 77 million unique visitors a month on People Magazine online, actually, make that daily and then People Magazine's Instagramwith 11 million.

So on this particular influencer, we love Joe. We think Joe is terrific. And we believe Joe's story is real and important. And so our expectation is therewill be a lot of interest more than we've experienced anywhere else around the world.

Andrew Frederick Brackmann - William Blair & Company L.L.C., Research Division - Associate

There's some big numbers in there for visitors and sort of unique hits. And then maybe I guess I could ask a question around China. So obviously,another strong quarter of performance there. But I guess as we're thinking longer term here and as you sort of continue to move up the ladder onmarket share in that region, can you just sort of talk to us about how maybe some of the drivers of that share might change over the next severalyears? Is it still going to be predicated on sort of growing the share in the large clinics that are already using EVO? Or does it shift a little bit moreto getting into smaller clinics or different geographies within the country?

Caren L. Mason - STAAR Surgical Company - CEO, President & Director

Well, we're going to continue on the successful path that has gotten us where we are. And that means that we're going to continue with ourstrategic alliance partners, many of whom are very large, the largest being Aier to work very successfully with them as they grow and to make surethat their business model shift toward lens space, namely EVO, continues aggressively.

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So we just participated actively in the 20th anniversary celebration of Aier, and we continue to be impressed with their growth and their commitmentto especially the refractive space. But we have actually grown our base in China to now over 1,000 hospitals and clinics. We continue to move inall directions in China, wherever there is opportunity. We're increasing our distribution centers to make absolutely sure that we are able to get toany surgeon anywhere in the country when needed. And so our commitment in China continues to be very strong. And we expect, by the way,the U.S. to give them a run for their money.

Our next question today comes from Bill Plovanic of Canaccord Genuity.

William John Plovanic - Canaccord Genuity Corp., Research Division - Analyst

Great. First of all, I'll just start with the U.S. One, that number was up nicely and just kind of trying to understand how should we think about theU.S. for 2022. Was there any swap-outs or destocking in the second quarter that may have impacted the numbers?

And then my second question is on backlog from a manufacturing standpoint, I don't think there's any commentary on that. But where are you in kind of burning off that 20 million lens backlog that you had at the beginning of the year? And how should we think about that impacting the backhalf?

Patrick F. Williams - STAAR Surgical Company - CFO

Bill, it's Patrick. Yes, the U.S. was phenomenal. And so when we got the approval in late March and we ended up launching, what we did see weredoctors wanting to switch over to EVO almost right away. And so as Caren mentioned, we're very much on track, in fact, ahead of where we wantedto be in terms of training of docs with over 600 now.

So we did talk about that in our financials, where we did take a reserve on our old Visian product in the U.S., and that speaks to just how quicklythe adoption has happened in the U.S.

Your second question, I'm sorry, was -- on back orders, yes. So on the backlog, look, we're not going to get into the details on it. I think what weproved in Q2 is our ability to deliver a substantial number of lenses worldwide. And we're very happy about that, and we continue to work throughsatisfying all our customer needs, especially on the custom lenses that take a little bit longer for us to produce. But we're in a very good shape thereand continue to bolster that up through our operational team as we move through the rest of the year.

William John Plovanic - Canaccord Genuity Corp., Research Division - Analyst

Yes. Patrick, the question on the U.S., was there a negative hit to revenues when you took the reserve? Or is that just the impact to the COG line orsomewhere else or SG&A line?

And then on the backlog, I mean it's kind of important for us to understand is if you burn that off like and refill that? Or is it still sitting there becauseif you kind of stocked in versus kind of -- and just got rid of the old orders or you still have some of it sitting there?

Patrick F. Williams - STAAR Surgical Company - CFO

Yes. So the cost of goods, it's the cost of goods reserve that we took, so no impact on revenue. On backlog, once again, I would just say that wehave worked through some of that backlog. There's still a little bit to go. But we've accounted for that in our full year guidance. And so I'll just leaveit at that.

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AUGUST 10, 2022 / 8:30PM, STAA.OQ - Q2 2022 STAAR Surgical Co Earnings Call

Our next question today comes from Chris Cooley of Stephens Inc.

Christopher Cook Cooley - Stephens Inc., Research Division - MD