Greetings, and welcome to the Sight Sciences Third Quarter 2021 Earnings Results Conference Call. [Operator instructions] This call is recorded. It is my pleasure to introduce your host, Philip Taylor from Gilmartin Group. Thank you. You may begin.

Thank you for participating in today's call. Presenting today are Sight Sciences' Co-Founder and Chief Executive Officer, Paul Badawi; Chief Financial Officer, Jesse Selnick; and Chief Commercial Officer, Shawn O'Neil. Earlier today, Sight Sciences released financial results for the three months and nine months ended September 30, 2021. A copy of the press release is available on the company's website at investors.sightsciences.com. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements within the meaning of the Federal Securities laws. Those include statements related to Sight Sciences' anticipated financial performance and operating results, market opportunity, the future impact of COVID-19 on operations, business strategy, and plans for developing and marketing new products. Forward-looking statements are based on estimates and assumptions as of today and are neither promises nor guarantees and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. A description of some of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in the Risk Factors section of the Form 10-Q filed today and other filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. For more information, please refer to the forward-looking statement notices and risk factors in the recent SEC filings. I will now turn the call over to Paul.

Thank you, Philip, and thanks to everyone for joining us on our second earnings call as a public company. I'm very excited to update you on our business and share our significant accomplishments across our commercial, clinical, regulatory, and patient access initiatives, as well as our thoughts on the 2022 payment rules released by CMS last week. Jesse will then discuss our third quarter financial results before we open up the call for questions. To start, I will highlight [Technical Difficulty] our resilient site team persevere, and we set new records for quarterly revenue as a company and for our surgical glaucoma segment. Our total revenue increased to 13.1 million, representing growth of 51% compared to the third quarter of last year. We believe we are also one of the very few eye care businesses to report meaningful sequential US growth in Q3 over Q2 2021, despite significant reimbursement noise in surgical glaucoma and the continuing impacts of COVID. Although, the third quarter is typically seasonally lower than the second quarter, our surgical glaucoma segment revenue increased to 12.4 million, representing 4% sequential growth from our then record second quarter revenues and growth of 58% versus the third quarter of last year, driven by strong new account growth and increased utilization of our surgical glaucoma product, OMNI. I'd like to remind everyone of the core principles of our company that allow us to persevere and succeed in any operating environment. We focus on the patient first always. We improved the lives of patients suffering from eye diseases by protecting and enhancing their most precious sense, vision. We aim to develop safe and effective products that address the underlying causes of the world's most prevalent eye diseases. Our current commercial products are OMNI and TearCare. Both products are the result of…

Thank you, Paul. Our total revenue for the three months ended September 30, 2021, was a record 13.1 million, a 51% increase from the 8.7 million in the same period of 2020 and a 5% sequential increase from 12.5 million in the second quarter of 2021 in what normally is a seasonally weak sequential quarter in our industry. Our combined gross margin for the third quarter was 84%, compared to 70% in the corresponding prior-year period and 82% in the second quarter of 2021. Our surgical glaucoma segment revenues for the third quarter were a record $12.4 million, up 58% from 7.9 million in the third quarter of 2020, a sequential increase of 4% from 12 million in the second quarter of 2021. While we believe that COVID remains a factor in how all companies now conduct business, its impact on our commercial opportunity did not significantly change from when we spoke to you in August. Further, we did not observe any tailwind in the quarter from increased OMNI trialing due to the proposed rate changes at CMS that were announced in July. We trained modestly more surgeons in the third quarter than we did in the second quarter, reflecting more of the long-term growth trajectory in our business rather than any onetime improvement. As I said, rather than enjoying any one-time growth benefit, we believe a number of customers actually offset the hypothetical reimbursement tailwind by deferring OMNI trainings until they could work through their canal implant inventory, since there was a concern that reimbursement for canal implants will lose significant value after the year end. Very simply, our results point to the continuation of exemplary, consistent commercial execution. As Paul alluded to in his comments, we have set a standard of consistent market-leading growth at the center of…

Thank you, Jesse. I hope we've made it very clear how our fundamental commitment to delivering the power of Sight to patients with eye disease informs every decision we make. We believe we are one of the very few companies in the medical device sector with the demonstrated capabilities to both innovate disruptively and commercialize with excellence. We strive to operate at an entirely different level, and that was on display this past quarter where we rose to the occasion, excelled on all fronts, and set commercial records across the board. Jesse and I will now be joined by Shawn O'Neil, our Chief Commercial Officer, to answer your questions. Operator, please open up the call for questions.

[Operator instructions] Our first question comes from the line of Ms. Cecilia Furlong from Morgan Stanley.

I wanted to start with the account growth that you highlighted in the quarter for OMNI. If you could just walk through kind of what you saw both from a headwind standpoint, anything due to COVID seasonality, but then also how you are able to open the accounts to where the trajectory you saw and as you look into 4Q as well kind of the road map you see there for further account opening.

Cecilia, it's Jesse. I'll take the first stab at that. We had a very strong quarter. It was a quarter in line with the second quarter in terms of new account openings, amount of trial activities, and the like. Our retention metrics are very strong as well. We -- but what we didn't see is -- we didn't see a -- my comments were really around the fact that it's not a one-off level of growth based on sort of noise in terms of the reimbursement market. It was just very much in line with the trajectory that we've enjoyed over the course of the year. And so I think COVID is baked into how we operate and our customers operate at this point in time. And we have the opportunity to continue to sell and to grow, and we're taking advantage of that opportunity. And so that's why we were able to put up the results that we did.

Yes, Cecilia. This is Shawn. I would add on that that it continues -- our trajectory and confidence continue to be fueled by our focus on the exceptional customer experience that we demonstrated actually across both businesses, OMNI and TearCare. And it's really the care and the training of the surgeon, doctor, and staff to ensure positive outcomes from their perspective as well as a positive outcome for their patients. And with that just continues to grow the confidence for greater utilization and for OMNI specifically than in the stand-alone market as Paul discussed in his comments.

And I guess, I wanted to ask just in terms of 4Q guidance, what you're factoring in, both from a reimbursement now that everything has been finalized. But any potential benefits from that as you think about 4Q, just ahead of '22 implementation, backlog impact, COVID pressures. Just any other dynamics you would call out as well as what you expect with the new label to be able to see just from the stand-alone opportunity and continuing to drive that.

Yes. I'll start and then Paul and Shawn, obviously, pile on. The guidance is based on the continuation of the growth metrics that we've been posting, largely obviously in the surgical glaucoma business. We're not -- it doesn't reflect anything. It reflects the current operating environment. We're not, Cecilia, guessing as to competitive reaction based on 2022 changes. We -- our view is that those changes will benefit us. But the 2021 rates are still in place and our guidance reflects really just a continuation of the results that we put forward and sort of the forward-leading KPIs that we track closely.

I'll just add on to that, Jesse. As it relates to CMS and the final rule and our outlook, I'd like to first state, our outlook was -- has always been extremely strong prior to our IPO, leading up to it, and through it, which coincided with the proposed rule. The proposed rule and more importantly, the final rule improved our relative position vis-a-vis our competition on both the professional fee for our 66174 surgeon fee premium widened over canal implant injection fees following a thoughtful rock survey of almost a hundred ophthalmic surgeons. The surgeon survey results, placing a premium on 66174 over implant injections was frankly expected since we know we asked our surgeons to perform more time-intensive, skillful, circumferential, multiprocedural work that ultimately drives up the consistency and degree of IOP-lowering clinical effects for patients. On the facility fee side, I think, we are pleased to see our 66174 facility fee disadvantage narrowed. The cataract stents have always had an advantage on the facility fee and that advantage narrowed in the final rule. So net-net, to your question, we're relatively better off in 2022 versus 2021, relative to our cataract stent competitors. Our outlook for commercial scale and growth has only been reinforced with more wind behind our backs as we enter 2022 and build on the OMNI acceleration we've seen quarter-after-quarter in 2021 without the CMS relative improvement to 66174. And the last thing I just want to mention quickly is there's a lot of comparison when these rules come out, they're important, and there's a lot of comparisons between us and the combo cataract stent competition. I think it's really important to remind everybody that our focus and growth market at Sight, it's the five times larger stand-alone market, where we stand alone and are pioneering that space. So on that front, in stand-alone, the 66174 pro fee and facility fee in the final rule is very competitive and attractive compared to cataract surgery alone, both on the professional fee and ASC fee. So generally, we are very bullish in both the combo cataract segment as well as the much larger stand-alone segment.

Cecilia, this is Shawn. I would add on to your question around the label. The label continues to be a positive for us as well with the expanded label for OMNI and the breadth of the adult patients with primary opening glaucoma and IOP lowering that really is going to be the cornerstone of our market-leading disease state education campaign as well as where we're going to be investing resources to educate the primary eye care provider. So we are definitely leveraging that expanded label to educate the community on the stand-alone and continue to pioneer and create leadership role in the stand-alone space.

Our next question comes from the line of Mr. Matt O'Brien from Piper Sandler.

I guess just a follow-up on what Cecilia was asking as far as new accounts go. Can you kind of frame up what you saw in terms of training competitive clinicians versus kind of those new to MIGS? And then what did you see in Q3 as far as stand-alone sales versus combo cataract?

This is Shawn. Yes. So as far as the training of new surgeons, we continue to focus on the high-volume MIGS surgeons. There's a bolus of our trained universe. As we continue to penetrate into those roughly 3,000 MIGS-trained comprehensive surgeons in the United States, so we've definitely seen as we continue to penetrate into that group because they are the ones that are already well informed on the anatomy and angle surgery, and we're gaining confidence with them in that combo space, ultimately leading into our expansion in the stand-alone space. I know that we are getting some additional data, CPT level data, to really quantify our penetration of the stand-alone space. As we've mentioned before, we do have internal information that shows that we are growing in that space based on our training and conversations with surgeons and we look forward to providing more detailed information in the future as we get that additional data.

Sorry. Go ahead, Paul.

Just on that real quick. We do want to get granular data to report quarterly on our stand-alone progress -- market development progress. We have done some initial CPT analyses for now, just annual results, and we can say that the year of OMNI launch in 2018, when we look at CPT-66174 used alone, so stand-alone 66174, there were approximately 11,800 claims. In 2018, that grew in 2019, the second year of OMNI, after OMNI's launch, this number doubled to just over 26,900 claims. And then in 2020, despite the COVID pandemic, obviously impacting nonlife-threatening surgical procedures, saw that number grow significantly again. And there were 30,000 -- just over 30,000 claims processed for stand-alone use of 66174. So we've asked our market access team to get even more granular data, and we believe that we're going to be able to have at least quarterly data almost current very soon. And so we look forward to -- in the not-too-distant future, hopefully being able to share quarterly stand-alone growth at 66174 if we can get that data.

And then I don't know if this is for Paul or for Jesse. But as we think about the fourth quarter, again, it's a nice progression versus Q3, and it sounds like you probably had some headwinds here in Q3. But the guidance -- it's a nice little step up. It's not a huge step up versus Q3, which, again, is a seasonally softer quarter. So why not a little bit more on the guidance side for Q4? And then what I'm really trying to get to is if you just annualize Q4, you're not -- there's a lot of growth that needs to happen to kind of get to where the Street is at for '22. And I know there's new reps coming in, but just what gives you the confidence or what can you help us see that should give us all the confidence in hitting some of these '22 numbers that are pretty steep ramp?

Matt, I would encourage you to take a look at it this way. How much quarterly dollar growth does the guidance imply in 2021 versus how we exited 2020? And where -- and given all the factors and momentum in the business, where -- does it actually imply a slope increase or not as you look and sort of get comfortable to 2022 number? We're exiting -- when we developed our forecast, we're going to be exiting the year stronger than given sort of the step-ups in guidance than we initially thought to be able to confidently support that number. And we feel pretty confident we're going to be exiting the year right in that place. It's -- the back half -- the first half of the year is healthier in terms of step function of the growth often like what our experience has been in this market. I think it's going to be a little bit of a noisy December, to be honest, like in terms of vacations taken, vacation days, true selling opportunity in the back half of the month. But we think, as we said about the third quarter, when you look at the comps, that this guidance implies a very healthy amount of sequential growth for an eye care business, particularly a surgical eye care business.

Our last question comes from the line of Joanne Wuensch from Citi.

This is Anthony on for Joanne. Thank you all for squeezing us in here. I just have one question, and it's a bit more open ended. What surprised you the most and the least over the past three months, especially just given all the reimbursement price? Thanks for taking the question.

Sorry. Could you repeat that? What surprised us the most or what surprised --

Yes. Sorry if I was breaking up. I just asked what surprised you the most and the least over the past three months?

I mean, I don't know. We've been executing to our fundamentals across our three value drivers in a very predictable way and as you can tell from our top performance this quarter. So we've been, frankly, just focused on taking -- continuing to take share in combo cataract expanding use in stand-alone and advancing all of our TearCare initiatives, and I think we've done that in a very predictable and compelling way. So I don't look back at the last quarter seeing too many surprises. Sorry, that's not an exciting answer, but Shawn or Jesse, maybe you guys were surprised by something.

No. I would agree, Paul. And Anthony, this is Shawn. I would say it's not a surprise, but I think the thing that's really been a pleasure for us from an execution -- commercial execution standpoint is just the advocacy that we received from our customer base and the acceptance of the -- both technologies, OMNI and TearCare within our strategies to develop the stand-alone market with the mild to moderate stand-alone market with OMNI and to execute against our strategy for patient access with TearCare and MGD. So I think the acceptance and just the advocacy that we've had from our customer base with these technologies and our go-to-market strategy has been really a high point for us and continues to fuel our confidence as we continue to move forward in both these markets.

My answer quickly is I was surprised about how strong our results were relative to peers and competitors that have also reported results.

We have a question from the line of Matt O'Brien from Piper Sandler.

Just two quick follow-ups. There was some consolidation in this space earlier this week. I'm just curious as far as how you think about that consolidation and the impact of the business in '22? And then there's also a little bit more competition on the canaloplasty side that was recently approved. And I'm just curious as far as your thoughts as far as if that would be a headwind for you guys? Or if it's just it maybe opens up the market just because there is so much opportunity in that category?

Yes. I'll take a crack at that, Matt. This is Paul. On the consolidation side, obviously, I'm guessing you're referring to the acquisition of Ivantis by Alcon. I think what -- for me, what comes to mind -- two things come to mind. One, the stents, whether it's Hydrus or iStent, those are products indicated in combination with cataract surgery, where we've already demonstrated an ability to take share effectively. And it's -- that's one-fifth of the market. We have the five times larger stand-alone market that we are focused on and penetrating effectively. So it's -- that doesn't affect us there. And also, we have Shawn on the line. Shawn was at Alcon for 20-plus years. He's best-in-class commercially. He's built out a best-in-class commercial leadership team and team throughout the organization. So as it relates to our ability to compete effectively and win, I think our confidence grows every day. Shawn, if you want to comment a bit on that?

Yes. Absolutely, Paul. We obviously anticipate Alcon's presence to meet additional investment and just recognition of the importance of the MIGS space for patient care. But I think that additional investment in education awareness is overall positive for the marketplace. And because of the performance of OMNI to date and our confidence and this differentiated efficacy profile and with a broad indication for use that we have to enter into a stand-alone MIGS market, we're still really confident in our ability to lead that stand-alone MIGS market and continue to leverage our top commercial talent that we have here and continue to invest and expand here at Sight Sciences to meet our strategic objectives. So, I think overall, it's a positive. And frankly, those are the same things that are going to allow us to compete regardless of what competitor comes into the marketplace is going to continue to be focusing on our points of differentiation of OMNI's ability to address all three points of resistance for those mild to moderate, either in combination with cataracts and most definitely in the stand-alone space and just continue to leverage that in our exceptional customer experience to continue to build our leadership position in stand-alone.

And Matt on your second question regarding potential canaloplasty entrants. I think a couple of things come to mind, maybe four things. Number one is R&D, and I'll get into -- we are the pioneers of ab interno canaloplasty, ab interno canaloplasty, and trabeculotomy. We've been at it for many, many years and have been iterating. So the clinical excellence that is OMNI is the result of tens of thousands of cases, significant clinician feedback, significant iteration. I can tell you it's been a long road to get to the device that we have today that is delivering such incredible results for surgeons and their patients. So it's not easy. So generating a prototype, showing a prototype, maybe even getting a clearance may be straightforward. But delivering a highly dependable reproducible canaloplasty device that is capable of consistently helping the surgeon circumnavigate 100, 200-micron diameter delicate canal for 36 to 40 millimeters around consistently is not easy, period. On the clinical front, I haven't seen -- I personally haven't seen any clinical data from anybody on another ab interno canaloplasty entrant. I think if we're going to be talking about canaloplasty and labels, I think we need to see clinical data, I think it brings us to the third point from a regulatory perspective. I would ask whichever companies or products that we're discussing here. I would ask them what is the indication for use? Is it for canaloplasty? Is it for pressure lowering? Is it for primary open-angle glaucoma? Because I'm pretty sure the pathway that we've gone through requires significant clinical data to be -- to have a canaloplasty indication and to promote for canaloplasty and I mean, we have -- we just announced earlier today, maybe some of you have seen it, we put out a press release just before this call on our IDE for a canaloplasty alone indication. So we have a very large MIGS trial, I think the largest that will ever be conducted, 459 patients, to seek this canaloplasty alone indication. And then lastly, beyond R&D, clinical and regulatory, again, I don't -- I haven't seen any of these devices, but I will say, we've been at this for over a decade, and we have a very broad and deep patent estate intellectual property covering methods and devices of circumferential canalicular glaucoma surgery. So those are the four things that come to mind as it relates to any potential entrants.

This concludes our question-and-answer session. I would like to turn the call back to Paul Badawi for closing remarks.

Just want to say thank you all for your time, attention, and interest in Sight Sciences.

This concludes today’s conference call. You may now disconnect.