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STAAR SURGICAL CO - Quarter Report: 2023 June (Form 10-Q)

10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2023

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 0-11634

 

STAAR Surgical Company

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

95-3797439

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

25651 Atlantic Ocean Drive
Lake Forest, California

 

92630

(Address of Principal Executive Offices)

(Zip Code)

 

(626) 303-7902

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common

STAA

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The registrant has 48,499,892 shares of common stock, par value $0.01 per share, issued and outstanding as of July 28, 2023.

 


STAAR SURGICAL COMPANY

 

INDEX

 

 

 

 

PAGE

NUMBER

 

 

 

 

PART I – FINANCIAL INFORMATION

 

1

 

 

 

 

ITEM 1

FINANCIAL STATEMENTS

 

1

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

17

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

23

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

23

 

 

 

 

PART II – OTHER INFORMATION

 

23

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

23

 

 

 

 

ITEM 1A.

RISK FACTORS

 

24

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

24

 

 

 

 

ITEM 5.

OTHER INFORMATION

 

24

 

 

 

 

ITEM 6.

EXHIBITS

 

25

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

 

 

 

June 30, 2023

 

 

December 30, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,695

 

 

$

86,480

 

Investments available for sale

 

 

97,312

 

 

 

125,159

 

Accounts receivable trade, net of allowance for credit losses of
   $
31 and $20, respectively

 

 

94,442

 

 

 

62,447

 

Inventories, net

 

 

25,482

 

 

 

24,161

 

Prepayments, deposits and other current assets

 

 

16,072

 

 

 

13,476

 

Total current assets

 

 

328,003

 

 

 

311,723

 

Investments available for sale

 

 

17,525

 

 

 

13,902

 

Property, plant and equipment, net

 

 

55,924

 

 

 

50,921

 

Finance lease right-of-use assets, net

 

 

257

 

 

 

342

 

Operating lease right-of-use assets, net

 

 

31,530

 

 

 

30,270

 

Intangible assets, net

 

 

 

 

 

173

 

Goodwill

 

 

1,786

 

 

 

1,786

 

Deferred income taxes

 

 

4,672

 

 

 

4,824

 

Other assets

 

 

954

 

 

 

957

 

Total assets

 

$

440,651

 

 

$

414,898

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

11,441

 

 

$

11,576

 

Obligations under finance leases

 

 

162

 

 

 

169

 

Obligations under operating leases

 

 

4,013

 

 

 

3,524

 

Allowance for sales returns

 

 

6,653

 

 

 

5,706

 

Other current liabilities

 

 

31,925

 

 

 

30,741

 

Total current liabilities

 

 

54,194

 

 

 

51,716

 

Obligations under finance leases

 

 

125

 

 

 

210

 

Obligations under operating leases

 

 

28,189

 

 

 

27,136

 

Deferred income taxes

 

 

1,295

 

 

 

1,489

 

Asset retirement obligations

 

 

101

 

 

 

220

 

Pension liability

 

 

3,050

 

 

 

1,935

 

Total liabilities

 

 

86,954

 

 

 

82,706

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value; 60,000 shares authorized: 48,499 and
   
48,212 shares issued and outstanding at June 30, 2023 and
   December 30, 2022, respectively

 

 

485

 

 

 

482

 

Additional paid-in capital

 

 

419,594

 

 

 

404,189

 

Accumulated other comprehensive gain (loss)

 

 

(2,521

)

 

 

156

 

Accumulated deficit

 

 

(63,861

)

 

 

(72,635

)

Total stockholders’ equity

 

 

353,697

 

 

 

332,192

 

Total liabilities and stockholders’ equity

 

$

440,651

 

 

$

414,898

 

 

See accompanying notes to the condensed consolidated financial statements.

1


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Net sales

 

$

92,306

 

 

$

81,101

 

 

$

165,834

 

 

$

144,301

 

Cost of sales

 

 

21,580

 

 

 

17,229

 

 

 

37,546

 

 

 

31,165

 

Gross profit

 

 

70,726

 

 

 

63,872

 

 

 

128,288

 

 

 

113,136

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

18,097

 

 

 

13,983

 

 

 

36,195

 

 

 

25,923

 

Selling and marketing

 

 

32,277

 

 

 

24,233

 

 

 

58,631

 

 

 

41,503

 

Research and development

 

 

11,755

 

 

 

8,636

 

 

 

22,065

 

 

 

16,577

 

Total selling, general and administrative expenses

 

 

62,129

 

 

 

46,852

 

 

 

116,891

 

 

 

84,003

 

Operating income

 

 

8,597

 

 

 

17,020

 

 

 

11,397

 

 

 

29,133

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

1,775

 

 

 

43

 

 

 

3,597

 

 

 

37

 

Loss on foreign currency transactions

 

 

(1,890

)

 

 

(1,860

)

 

 

(1,856

)

 

 

(2,775

)

Royalty income

 

 

 

 

 

177

 

 

 

 

 

 

450

 

Other income, net

 

 

10

 

 

 

89

 

 

 

73

 

 

 

151

 

Total other income (expense), net

 

 

(105

)

 

 

(1,551

)

 

 

1,814

 

 

 

(2,137

)

Income before income taxes

 

 

8,492

 

 

 

15,469

 

 

 

13,211

 

 

 

26,996

 

Provision for income taxes

 

 

2,428

 

 

 

2,431

 

 

 

4,437

 

 

 

4,356

 

Net income

 

$

6,064

 

 

$

13,038

 

 

$

8,774

 

 

$

22,640

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.27

 

 

$

0.18

 

 

$

0.47

 

Diluted

 

$

0.12

 

 

$

0.26

 

 

$

0.18

 

 

$

0.46

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

48,418

 

 

 

47,889

 

 

 

48,333

 

 

 

47,822

 

Diluted

 

 

49,516

 

 

 

49,223

 

 

 

49,524

 

 

 

49,264

 

 

See accompanying notes to the condensed consolidated financial statements.

2


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Net income

 

$

6,064

 

 

$

13,038

 

 

$

8,774

 

 

$

22,640

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

Net change in plan assets

 

 

(547

)

 

 

2,593

 

 

 

(1,724

)

 

 

6,661

 

Reclassification into other income (expense), net

 

 

(51

)

 

 

33

 

 

 

(103

)

 

 

85

 

Investments available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss)

 

 

(142

)

 

 

 

 

 

(26

)

 

 

 

Reclassification into other income (expense), net

 

 

 

 

 

 

 

 

(2

)

 

 

 

Foreign currency translation gain (loss)

 

 

(1,342

)

 

 

(1,502

)

 

 

(1,471

)

 

 

(2,516

)

Tax effect

 

 

498

 

 

 

188

 

 

 

649

 

 

 

67

 

Other comprehensive income (loss), net of tax

 

 

(1,584

)

 

 

1,312

 

 

 

(2,677

)

 

 

4,297

 

Comprehensive income

 

$

4,480

 

 

$

14,350

 

 

$

6,097

 

 

$

26,937

 

 

See accompanying notes to the condensed consolidated financial statements.

3


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

Common
Stock Shares

 

 

Common
Stock Par
Value

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Other
Compre-
hensive
Income
(Loss)

 

 

Accumulated
Deficit

 

 

Total

 

Balance, at March 31, 2023

 

 

48,331

 

 

$

483

 

 

$

409,303

 

 

$

(937

)

 

$

(69,925

)

 

$

338,924

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,064

 

 

 

6,064

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,584

)

 

 

 

 

 

(1,584

)

Common stock issued upon exercise of options

 

 

155

 

 

 

2

 

 

 

1,475

 

 

 

 

 

 

 

 

 

1,477

 

Stock-based compensation

 

 

 

 

 

 

 

 

8,951

 

 

 

 

 

 

 

 

 

8,951

 

Repurchase of employee common stock for taxes withheld

 

 

(3

)

 

 

 

 

 

(135

)

 

 

 

 

 

 

 

 

(135

)

Unvested restricted stock

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted and performance stock

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at June 30, 2023

 

 

48,499

 

 

$

485

 

 

$

419,594

 

 

$

(2,521

)

 

$

(63,861

)

 

$

353,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at April 1, 2022

 

 

47,810

 

 

$

478

 

 

$

378,690

 

 

$

(1,063

)

 

$

(101,788

)

 

$

276,317

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,038

 

 

 

13,038

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,312

 

 

 

 

 

 

1,312

 

Common stock issued upon exercise of options

 

 

202

 

 

 

2

 

 

 

2,232

 

 

 

 

 

 

 

 

 

2,234

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,406

 

 

 

 

 

 

 

 

 

6,406

 

Unvested restricted stock

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted and performance stock

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at July 1, 2022

 

 

48,024

 

 

$

480

 

 

$

387,328

 

 

$

249

 

 

$

(88,750

)

 

$

299,307

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

4


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

Common
Stock Shares

 

 

Common
Stock Par
Value

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Other
Compre-
hensive
Income
(Loss)

 

 

Accumulated
Deficit

 

 

Total

 

Balance, at December 30, 2022

 

 

48,212

 

 

$

482

 

 

$

404,189

 

 

$

156

 

 

$

(72,635

)

 

$

332,192

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,774

 

 

 

8,774

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(2,677

)

 

 

 

 

 

(2,677

)

Common stock issued upon exercise of options

 

 

195

 

 

 

2

 

 

 

2,004

 

 

 

 

 

 

 

 

 

2,006

 

Stock-based compensation

 

 

 

 

 

 

 

 

15,385

 

 

 

 

 

 

 

 

 

15,385

 

Repurchase of employee common stock for taxes withheld

 

 

(34

)

 

 

 

 

 

(1,984

)

 

 

 

 

 

 

 

 

(1,984

)

Unvested restricted stock

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted and performance stock

 

 

116

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance, at June 30, 2023

 

 

48,499

 

 

$

485

 

 

$

419,594

 

 

$

(2,521

)

 

$

(63,861

)

 

$

353,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at December 31, 2021

 

 

47,716

 

 

$

477

 

 

$

373,519

 

 

$

(4,048

)

 

$

(111,390

)

 

$

258,558

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,640

 

 

 

22,640

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

4,297

 

 

 

 

 

 

4,297

 

Common stock issued upon exercise of options

 

 

251

 

 

 

3

 

 

 

3,143

 

 

 

 

 

 

 

 

 

3,146

 

Stock-based compensation

 

 

 

 

 

 

 

 

10,666

 

 

 

 

 

 

 

 

 

10,666

 

Unvested restricted stock

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted and performance stock

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at July 1, 2022

 

 

48,024

 

 

$

480

 

 

$

387,328

 

 

$

249

 

 

$

(88,750

)

 

$

299,307

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

8,774

 

 

$

22,640

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation of property, plant, and equipment

 

 

2,398

 

 

 

2,024

 

Amortization of intangibles

 

 

171

 

 

 

15

 

Accretion/Amortization of investments available for sale

 

 

(1,824

)

 

 

 

Deferred income taxes

 

 

75

 

 

 

 

Change in net pension liability

 

 

(627

)

 

 

52

 

Loss on disposal of property and equipment

 

 

24

 

 

 

 

Stock-based compensation expense

 

 

14,488

 

 

 

9,648

 

Change in asset retirement obligation

 

 

(107

)

 

 

 

Provision for sales returns and bad debts

 

 

1,004

 

 

 

800

 

Inventory provision

 

 

3,630

 

 

 

1,428

 

Changes in working capital:

 

 

 

 

 

 

Accounts receivable

 

 

(32,344

)

 

 

(20,137

)

Inventories

 

 

(4,382

)

 

 

(1,825

)

Prepayments, deposits, and other current assets

 

 

(2,665

)

 

 

(2,260

)

Accounts payable

 

 

(1,447

)

 

 

3,243

 

Other current liabilities

 

 

1,432

 

 

 

(6,992

)

Net cash provided by (used in) operating activities

 

 

(11,400

)

 

 

8,636

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(5,915

)

 

 

(7,810

)

Purchase of investments available for sale

 

 

(42,602

)

 

 

 

Proceeds from sale or maturity of investments available for sale

 

 

68,622

 

 

 

 

Net cash provided by (used in) investing activities

 

 

20,105

 

 

 

(7,810

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of finance lease obligations

 

 

(82

)

 

 

(45

)

Repurchase of employee common stock for taxes withheld

 

 

(1,984

)

 

 

 

Proceeds from the exercise of stock options

 

 

2,006

 

 

 

3,146

 

Proceeds from vested restricted stock

 

 

1

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(59

)

 

 

3,101

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(431

)

 

 

(1,143

)

Increase in cash and cash equivalents

 

 

8,215

 

 

 

2,784

 

Cash and cash equivalents, at beginning of the period

 

 

86,480

 

 

 

199,706

 

Cash and cash equivalents, at end of the period

 

$

94,695

 

 

$

202,490

 

 

See accompanying notes to the condensed consolidated financial statements.

6


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 1 — Basis of Presentation and Significant Accounting Policies

The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December 30, 2022 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2022.

The Condensed Consolidated Financial Statements for the three and six months ended June 30, 2023 and July 1, 2022, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three and six months ended June 30, 2023 and July 1, 2022, are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries.

Vendor Concentration

There was one vendor that accounted for over 10% of the Company’s consolidated accounts payable as of June 30, 2023. There were no vendors that accounted for over 10% of the Company’s consolidated accounts payable as of December 30, 2022.

Note 2 — Investments Available for Sale

During the second half of 2022, the Company started to invest its cash in slightly higher yielding securities. Investments available for sale (“AFS”) and the related fair value measurement consisted of the following (dollars in thousands):

 

 

 

June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Level 1

 

 

Level 2

 

Commercial paper

 

$

28,519

 

 

$

 

 

$

(19

)

 

$

28,500

 

 

$

 

 

$

28,500

 

Certificates of deposit

 

 

10,774

 

 

 

1

 

 

 

(13

)

 

 

10,762

 

 

 

 

 

 

10,762

 

U.S. Treasury securities

 

 

30,318

 

 

 

 

 

 

(203

)

 

 

30,115

 

 

 

30,115

 

 

 

 

U.S. agency securities

 

 

11,034

 

 

 

 

 

 

(32

)

 

 

11,002

 

 

 

 

 

 

11,002

 

Corporate debt securities

 

 

34,625

 

 

 

3

 

 

 

(170

)

 

 

34,458

 

 

 

 

 

 

34,458

 

Total investments AFS

 

$

115,270

 

 

$

4

 

 

$

(437

)

 

$

114,837

 

 

$

30,115

 

 

$

84,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Level 1

 

 

Level 2

 

Commercial paper

 

$

44,054

 

 

$

11

 

 

$

(62

)

 

$

44,003

 

 

$

 

 

$

44,003

 

Certificates of deposit

 

 

17,355

 

 

 

4

 

 

 

(75

)

 

 

17,284

 

 

 

 

 

 

17,284

 

U.S. Treasury securities

 

 

21,847

 

 

 

3

 

 

 

(15

)

 

 

21,835

 

 

 

21,835

 

 

 

 

U.S. agency securities

 

 

10,688

 

 

 

16

 

 

 

(3

)

 

 

10,701

 

 

 

 

 

 

10,701

 

Corporate debt securities

 

 

45,522

 

 

 

4

 

 

 

(288

)

 

 

45,238

 

 

 

 

 

 

45,238

 

Total investments AFS

 

$

139,466

 

 

$

38

 

 

$

(443

)

 

$

139,061

 

 

$

21,835

 

 

$

117,226

 

 

7


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 2 — Investments Available for Sale (Continued)

The Company obtains the fair value from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events.

The Company assessed each debt security with gross unrealized losses for impairment. As part of that assessment, the Company concluded that it does not intend to sell and it is more-likely-than-not that the Company will not be required to sell, prior to the recovery of the amortized cost basis. The Company did not recognize impairment for the three and six months ended June 30, 2023.

The following table shows the fair value of investments AFS by contractual maturity (dollars in thousands):

 

 

 

As of June 30, 2023

 

 

 

Within one year

 

 

After one year through five years

 

 

 

Total

 

Commercial paper

 

$

28,500

 

 

$

 

 

 

$

28,500

 

Certificates of deposit

 

 

10,762

 

 

 

 

 

 

 

10,762

 

U.S. Treasury securities

 

 

16,613

 

 

 

13,502

 

 

 

 

30,115

 

U.S. agency securities

 

 

10,030

 

 

 

972

 

 

 

 

11,002

 

Corporate debt securities

 

 

31,407

 

 

 

3,051

 

 

 

 

34,458

 

Total investments AFS

 

$

97,312

 

 

$

17,525

 

 

 

$

114,837

 

 

During the six months ended June 30, 2023, the Company sold $600,000 in securities during the first quarter of 2023 due to a downgraded credit rating. The Company recognized a realized gain upon sale of $2,000 during the six months ended June 30, 2023.

 

Note 3 — Inventories

Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands):

 

 

 

June 30, 2023

 

 

December 30, 2022

 

Raw materials and purchased parts

 

$

7,341

 

 

$

6,703

 

Work in process

 

 

5,865

 

 

 

5,499

 

Finished goods

 

 

16,502

 

 

 

13,633

 

Total inventories, gross

 

 

29,708

 

 

 

25,835

 

Less inventory reserves

 

 

(4,226

)

 

 

(1,674

)

Total inventories, net

 

$

25,482

 

 

$

24,161

 

 

Note 4 — Prepayments, Deposits, and Other Current Assets

Prepayments, deposits, and other current assets consisted of the following (in thousands):

 

 

June 30, 2023

 

 

December 30, 2022

 

Prepayments and deposits

 

$

4,968

 

 

$

3,986

 

Prepaid insurance

 

 

1,190

 

 

 

2,620

 

Prepaid marketing costs

 

 

3,353

 

 

 

2,534

 

Consumption tax receivable

 

 

802

 

 

 

864

 

Value added tax (VAT) receivable

 

 

3,880

 

 

 

2,661

 

BVG (Swiss Pension) prepayment

 

 

1,211

 

 

 

111

 

Other(1)

 

 

668

 

 

 

700

 

Total prepayments, deposits and other current assets

 

$

16,072

 

 

$

13,476

 

 

(1)
No individual category in “other current assets” exceeds 5% of the total prepayments, deposits and other current assets.

8


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 5 — Property, Plant and Equipment

Property, plant and equipment, net consisted of the following (in thousands):

 

 

 

June 30, 2023

 

 

December 30, 2022

 

Machinery and equipment

 

$

29,836

 

 

$

28,026

 

Computer equipment and software

 

 

9,591

 

 

 

9,266

 

Furniture and fixtures

 

 

4,491

 

 

 

4,276

 

Leasehold improvements

 

 

16,840

 

 

 

14,965

 

Construction in process

 

 

35,109

 

 

 

32,269

 

Total property, plant and equipment, gross

 

 

95,867

 

 

 

88,802

 

Less accumulated depreciation

 

 

(39,943

)

 

 

(37,881

)

Total property, plant and equipment, net

 

$

55,924

 

 

$

50,921

 

 

Note 6 – Intangible Assets

Intangible assets, net consisted of the following (in thousands):

 

 

 

June 30, 2023

 

 

December 30, 2022

 

Long-lived amortized intangible assets

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net

 

Patents and licenses

 

$

9,195

 

 

$

(9,195

)

 

$

 

 

$

9,240

 

 

$

(9,067

)

 

$

173

 

 

During the three and six months ended June 30, 2023, the Company recognized full impairment of $154,000 for its Japan patents and licenses related to cataract IOLs.

 

Note 7 – Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

 

 

 

June 30, 2023

 

 

December 30, 2022

 

Accrued salaries and wages

 

$

11,511

 

 

$

10,862

 

Accrued bonuses

 

 

1,707

 

 

 

6,925

 

Income taxes payable

 

 

7,202

 

 

 

3,845

 

Marketing obligations

 

 

1,354

 

 

 

1,374

 

Other(1)

 

 

10,151

 

 

 

7,735

 

Total other current liabilities

 

$

31,925

 

 

$

30,741

 

 

(1)
No individual category in “Other” exceeds 5% of the other current liabilities.

Note 8 – Leases

Finance Leases

The Company entered into finance leases primarily related to purchases of equipment used for manufacturing, computer-related equipment or furniture and fixtures. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases consisted of the following (dollars in thousands):

9


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 8 – Leases (Continued)

Finance Leases (Continued)

 

 

 

June 30, 2023

 

 

December 30, 2022

 

Machinery and equipment

 

$

 

 

$

30

 

Computer equipment and software

 

 

6

 

 

 

18

 

Furniture and fixtures

 

 

475

 

 

 

475

 

Finance lease right-of-use assets, gross

 

 

481

 

 

 

523

 

Less accumulated depreciation

 

 

(224

)

 

 

(181

)

Finance lease right-of-use assets, net

 

$

257

 

 

$

342

 

 

 

 

 

 

 

 

Current finance lease obligations

 

$

162

 

 

$

169

 

Long-term finance lease obligations

 

 

125

 

 

 

210

 

Total finance lease liability

 

$

287

 

 

$

379

 

Weighted-average remaining lease term (in years)

 

 

1.8

 

 

 

2.2

 

Weighted-average discount rate

 

 

4.23

%

 

 

4.10

%

 

Supplemental cash flow information related to finance leases consisted of the following (dollars in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Amortization of finance lease right-of-use asset

 

$

38

 

 

$

39

 

 

$

77

 

 

$

82

 

Interest on finance lease liabilities

 

 

3

 

 

 

5

 

 

 

7

 

 

 

8

 

Cash paid for amounts included in the measurement of finance lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows

 

 

3

 

 

 

5

 

 

 

7

 

 

 

8

 

Financing cash flows

 

 

40

 

 

 

27

 

 

 

82

 

 

 

45

 

Operating Leases

The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse facilities), automobiles and copiers. These operating leases are two to ten years in length with options to extend. The Company does not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. Supplemental balance sheet information related to operating leases consisted of the following (dollars in thousands):

 

 

June 30, 2023

 

 

December 30, 2022

 

Machinery and equipment

 

$

752

 

 

$

789

 

Computer equipment and software

 

 

446

 

 

 

446

 

Real property

 

 

36,756

 

 

 

34,465

 

Operating lease right-of-use assets, gross

 

 

37,954

 

 

 

35,700

 

Less accumulated depreciation

 

 

(6,424

)

 

 

(5,430

)

Operating lease right-of-use assets, net

 

$

31,530

 

 

$

30,270

 

 

 

 

 

 

 

 

Current operating lease obligations

 

$

4,013

 

 

$

3,524

 

Long-term operating lease obligations

 

 

28,189

 

 

 

27,136

 

Total operating lease liability

 

$

32,202

 

 

$

30,660

 

Weighted-average remaining lease term (in years)

 

 

7.2

 

 

 

7.5

 

Weighted-average discount rate

 

 

4.44

%

 

 

3.87

%

 

10


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 8 – Leases (Continued)

Operating Leases (Continued)

Supplemental cash flow information related to operating leases was as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Operating lease cost

 

$

1,357

 

 

$

1,166

 

 

$

2,464

 

 

$

2,304

 

Cash paid for amounts included in the measurement of operating lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows

 

 

1,152

 

 

 

1,034

 

 

 

2,325

 

 

 

1,966

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

1,511

 

 

 

2,081

 

 

 

3,420

 

 

 

2,756

 

Future Maturities of Lease Liabilities

Estimated future maturities of lease liabilities under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of June 30, 2023 is as follows (in thousands):

.

As of June 30, 2023
12 Months Ended

 

Operating Leases

 

 

Finance Leases

 

June 2024

 

$

5,990

 

 

$

171

 

June 2025

 

 

5,834

 

 

 

127

 

June 2026

 

 

4,463

 

 

 

 

June 2027

 

 

4,432

 

 

 

 

June 2028

 

 

4,476

 

 

 

 

Thereafter

 

 

13,433

 

 

 

 

Total future minimum lease payments

 

$

38,628

 

 

$

298

 

Less amounts representing interest

 

 

(6,426

)

 

 

(11

)

Total lease liability

 

$

32,202

 

 

$

287

 

 

Note 9 — Income Taxes

The Company recorded an income tax provision as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Provision for income taxes

 

$

2,428

 

 

$

2,431

 

 

$

4,437

 

 

$

4,356

 

The effective tax rates for the three months ended June 30, 2023 and July 1, 2022 were 28.6% and 15.7%, respectively, and were 33.6% and 16.1% for the six months ended June 30, 2023 and July 1, 2022, respectively. The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ended June 30, 2023 and July 1, 2022, respectively, primarily due to the income tax expense generated in foreign jurisdictions.

11


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 10 – Defined Benefit Pension Plans

The Company has defined benefit plans covering employees of its Switzerland and Japan operations. The following table summarizes the components of net periodic pension cost recorded for the Company’s defined benefit pension plans (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Service cost(1)

 

$

254

 

 

$

309

 

 

$

503

 

 

$

635

 

Interest cost(2)

 

 

90

 

 

 

21

 

 

 

177

 

 

 

41

 

Expected return on plan assets(2)

 

 

(91

)

 

 

(123

)

 

 

(178

)

 

 

(241

)

Prior service credit(2),(3)

 

 

(45

)

 

 

(46

)

 

 

(90

)

 

 

(91

)

Actuarial loss recognized in current period(2),(3)

 

 

(6

)

 

 

79

 

 

 

(13

)

 

 

176

 

Net periodic pension cost

 

$

202

 

 

$

240

 

 

$

399

 

 

$

520

 

 

(1)
Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income.
(2)
Recognized in other expense, net on the Condensed Consolidated Statements of Income.
(3)
Amounts reclassified from accumulated other comprehensive income (loss).

The Company currently is not required to and does not make contributions to its Japan pension plan. The Company’s contributions to its Swiss pension plan are as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Employer contribution

 

$

245

 

 

$

220

 

 

$

462

 

 

$

436

 

 

Note 11 — Stockholders’ Equity

Stock-Based Compensation

The cost that has been charged against income for stock-based compensation is set forth below (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Employee stock options

 

$

3,479

 

 

$

2,457

 

 

$

6,456

 

 

$

4,784

 

Restricted stock

 

 

79

 

 

 

442

 

 

 

146

 

 

 

551

 

Restricted stock units

 

 

2,148

 

 

 

1,231

 

 

 

3,749

 

 

 

1,993

 

Performance stock units

 

 

2,403

 

 

 

1,310

 

 

 

3,509

 

 

 

1,692

 

Nonemployee stock options

 

 

314

 

 

 

314

 

 

 

628

 

 

 

628

 

Total stock-based compensation expense

 

$

8,423

 

 

$

5,754

 

 

$

14,488

 

 

$

9,648

 

 

The Company recorded stock-based compensation costs in the following categories (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Cost of sales

 

$

223

 

 

$

106

 

 

$

372

 

 

$

176

 

General and administrative

 

 

3,695

 

 

 

2,806

 

 

 

7,058

 

 

 

4,587

 

Selling and marketing

 

 

2,492

 

 

 

1,324

 

 

 

3,349

 

 

 

2,213

 

Research and development

 

 

2,013

 

 

 

1,518

 

 

 

3,709

 

 

 

2,672

 

Total stock-based compensation expense, net

 

 

8,423

 

 

 

5,754

 

 

 

14,488

 

 

 

9,648

 

Amounts capitalized as part of inventory

 

 

528

 

 

 

652

 

 

 

897

 

 

 

1,018

 

Total stock-based compensation expense, gross

 

$

8,951

 

 

$

6,406

 

 

$

15,385

 

 

$

10,666

 

 

12


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 11 — Stockholders’ Equity (Continued)

Incentive Plan

The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Options under the Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of restricted stock outstanding under the Plan generally vest over periods of one to three years. Grants of RSUs and PSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. On June 15, 2023, stockholders approved a proposal to increase the number of shares under the plan by 2,170,000 shares, for a total of 20,205,000 shares. As of June 30, 2023, there were 2,844,500 shares available for grant under the Plan.

Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated a 7% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Expected dividend yield

 

 

0

%

 

 

0

%

 

 

0

%

 

 

0

%

Expected volatility

 

 

58

%

 

 

54

%

 

 

59

%

 

 

54

%

Risk-free interest rate

 

 

3.41

%

 

 

3.27

%

 

 

3.87

%

 

 

1.83

%

Expected term (in years)

 

 

4.87

 

 

 

5.10

 

 

 

5.02

 

 

 

5.10

 

 

Stock Options

A summary of stock option activity under the Plan for six months ended June 30, 2023 is presented below:

 

 

 

Stock
Options
(in 000’s)

 

 

Minimum
Exercise
Price

 

 

Maximum
Exercise
Price

 

Outstanding at December 30, 2022

 

 

2,469

 

 

 

 

 

 

 

Granted

 

 

584

 

 

 

 

 

 

 

Exercised

 

 

(195

)

 

 

 

 

 

 

Forfeited or expired

 

 

(31

)

 

 

 

 

 

 

Outstanding at June 30, 2023

 

 

2,827

 

 

$

5.54

 

 

$

154.96

 

Exercisable at June 30, 2023

 

 

1,903

 

 

 

 

 

 

 

 

Restricted Stock, Restricted Stock Units and Performance Stock Units

A summary of restricted stock, RSUs and PSUs activity under the Plan for the six months ended June 30, 2023 is presented below (shares in thousands):

 

 

 

Restricted
Stock

 

 

RSUs

 

 

PSUs

 

Unvested at December 30, 2022

 

 

4

 

 

 

192

 

 

 

118

 

Granted

 

 

10

 

 

 

259

 

 

 

178

 

Vested

 

 

(4

)

 

 

(80

)

 

 

(36

)

Forfeited or expired

 

 

 

 

 

(6

)

 

 

(11

)

Unvested at June 30, 2023

 

 

10

 

 

 

365

 

 

 

249

 

 

13


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 12 - Commitments and Contingencies

Severance Payable

As of June 30, 2023 and December 30, 2022 there was severance payable of $508,000 and $410,000, respectively. recognized in other current liabilities on the Consolidated Balance Sheets, which included approximately $341,000 and $300,000, respectively, in one-time employee benefits to be paid to certain employees in STAAR Japan who work primarily in IOL sales. During the three and six months ended June 30, 2023, the Company recognized $159,000 and $1,351,000, respectively, related to this. The Company is expected to incur through the end of 2023, one-time employee benefits of approximately $1,440,000 related to this. These one-time employee benefits are recognized in general and administrative expense on the Consolidated Statements of Income.

Litigation and Claims

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective January 1, 2023. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements.

Note 13 — Basic and Diluted Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands except per share amounts):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,064

 

 

$

13,038

 

 

$

8,774

 

 

$

22,640

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding

 

 

48,428

 

 

 

47,893

 

 

 

48,343

 

 

 

47,826

 

Less: Unvested restricted stock

 

 

(10

)

 

 

(4

)

 

 

(10

)

 

 

(4

)

Denominator for basic calculation

 

 

48,418

 

 

 

47,889

 

 

 

48,333

 

 

 

47,822

 

Weighted average effects of potentially diluted common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

986

 

 

 

1,299

 

 

 

1,050

 

 

 

1,386

 

Unvested restricted stock

 

 

3

 

 

 

3

 

 

 

3

 

 

 

2

 

RSUs

 

 

46

 

 

 

24

 

 

 

77

 

 

 

45

 

PSUs

 

 

63

 

 

 

8

 

 

 

61

 

 

 

9

 

Denominator for diluted calculation

 

 

49,516

 

 

 

49,223

 

 

 

49,524

 

 

 

49,264

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.27

 

 

$

0.18

 

 

$

0.47

 

Diluted

 

$

0.12

 

 

$

0.26

 

 

$

0.18

 

 

$

0.46

 

The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, RSUs and PSUs with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive.

14


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 13 — Basic and Diluted Net Income Per Share (Continued)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Stock options

 

 

1,874

 

 

 

1,153

 

 

 

1,625

 

 

 

862

 

Restricted stock, RSUs and PSUs

 

 

127

 

 

 

267

 

 

 

24

 

 

 

122

 

Total

 

 

2,001

 

 

 

1,420

 

 

 

1,649

 

 

 

984

 

 

Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales

In the following tables, sales are disaggregated by category, sales by geographic market and sales by product data. The following breaks down sales into the following categories (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Non-consignment sales

 

$

88,068

 

 

$

76,444

 

 

$

155,231

 

 

$

134,013

 

Consignment sales

 

 

4,238

 

 

 

4,657

 

 

 

10,603

 

 

 

10,288

 

Total net sales

 

 

92,306

 

 

 

81,101

 

 

$

165,834

 

 

$

144,301

 

 

The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China and Japan, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Domestic

 

$

4,346

 

 

$

3,872

 

 

$

8,897

 

 

$

6,502

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

 

China

 

 

61,339

 

 

 

46,150

 

 

 

96,429

 

 

 

74,389

 

Japan

 

 

8,415

 

 

 

10,302

 

 

 

19,351

 

 

 

21,935

 

Other(1)

 

 

18,206

 

 

 

20,777

 

 

 

41,157

 

 

 

41,475

 

Total foreign sales

 

 

87,960

 

 

 

77,229

 

 

 

156,937

 

 

 

137,799

 

Total net sales

 

$

92,306

 

 

$

81,101

 

 

$

165,834

 

 

$

144,301

 

 

(1)
No other location individually exceeds 10% of the total sales.

100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company operates as one operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

ICLs

 

$

93,112

 

 

$

77,922

 

 

$

163,737

 

 

$

136,597

 

Other product sales:

 

 

 

 

 

 

 

 

 

 

 

 

Cataract IOLs

 

 

40

 

 

 

2,547

 

 

 

1,516

 

 

 

5,449

 

Other surgical products(1)

 

 

(846

)

 

 

632

 

 

 

581

 

 

 

2,255

 

Total other product sales

 

 

(806

)

 

 

3,179

 

 

 

2,097

 

 

 

7,704

 

Total net sales

 

$

92,306

 

 

$

81,101

 

 

$

165,834

 

 

$

144,301

 

 

(1) Other surgical products include delivery systems and normal recurring sales adjustments such as sales return allowances.

 

 

15


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales (Continued)

One customer, the Company’s distributor in China, accounted for 66% and 57% of net sales for the three months ended June 30, 2023 and July 1, 2022, respectively, and the same customer accounted for 58% and 52% for the six months ended June 30, 2023 and July 1, 2022, respectively. As of June 30, 2023 and December 30, 2022, respectively, one customer, the Company’s distributor in China, accounted for 74% and 59% of consolidated trade receivables.

Note 15 — COVID-19 Developments

In December 2019, COVID-19 surfaced and in March 2020, the World Health Organization declared a pandemic related to the rapid spread of COVID-19 around the world. The impact of the COVID-19 outbreak on the businesses and the economy in the U.S. and the rest of the world is, and is expected to continue to be, uncertain and may continue to be significant as COVID-19 variant strains emerge. The Company’s revenues have been adversely impacted, and the Company experienced a substantial slowdown in sales beginning March 20, 2020 in global geographies characterized as “hot spots” for the COVID-19 virus, including parts of Europe, North America, Asia, the Middle East and India. In certain of these markets, sales have paused as elective surgeries are discouraged to support COVID-19 related needs. While COVID-19 restrictions have since eased globally during 2022, a resurgence of the COVID-19 pandemic in global geographies, depending upon its duration and severity, could material adversely impact the global economy and the Company's industry, operations and financial condition and performance. The Company continues to monitor the commercial and operational impact of new variants of COVID-19 in its markets.

16


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “should,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements about any of the following: any projections of or guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, product mix, capital expense or any other financial items; the expected impact of the COVID-19 pandemic and related public health measures (including but not limited to their impact on sales, operations or clinical trials globally), the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved products; commercialization of new or improved products; future economic conditions or size of market opportunities; expected costs of operations; statements of belief, including as to achieving 2023 business plans; expected regulatory activities and approvals, product launches, and any statements of assumptions underlying any of the foregoing.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and we can give no assurance that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on February 23, 2023. We undertake no obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or to reflect actual outcomes.

The following discussion should be read in conjunction with the audited consolidated financial statements of STAAR, including the related notes, provided in this report.

We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the ‘Investor Relations’ sections. Accordingly, investors should monitor such portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.

Overview

STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or “ICLs.” The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens (“IOL”) to restore the patient’s vision. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our cataract IOL lenses used in surgery that treats cataracts based on quality and value.

 

Recent Developments

STAAR achieved 19% growth in ICL sales in the second quarter, compared to the second quarter of 2022, with sales growth in the Asia Pacific markets up 26%, EMEA markets down 9%, and the U.S. up 10%. In China, ICL sales were up 33% compared to the second quarter of 2022. Sales in our EMEA markets were impacted by the on-going macroeconomic and geopolitical environment, as well as an inability to ship ICLs into one non-European country as a result of a country-specific product labeling change. We have taken a number of steps and implemented initiatives that we expect will accelerate EVO adoption in the U.S. as we exit 2023 and beyond. Also, we have adjusted the timing of certain marketing investments as we remain committed to prudent spending and return on our investments. Given increased conservatism related to the global

17


 

environment, and slower than expected growth in the U.S, we updated our fiscal 2023 ICL sales outlook to a range of approximately $320 million to $325 million.

As part of our previously disclosed decision to wind down (i.e., no longer manufacture and reduce support) our Other Products business (i.e., our low margin cataract IOLs and related delivery systems), we decided to take additional sales return and inventory reserves for our remaining Other Products business. This included a $0.7 million sales return reserve for expected returns of our acrylic IOLs; $1.2 million inventory reserve for acrylic IOLs; and $1.6 million inventory reserve for silicone IOLs. As previously disclosed, in March 2023 we issued a Field Safety Notice to affected customers in parts of Europe and Japan to stop using our acrylic cataract IOLs. This was done as a precautionary measure in response to a Field Safety Notice issued by another company regarding a similarly manufactured product. To date, testing of our acrylic cataract IOL and injector system has been inconclusive and has not identified a root cause that would result in a safety issue. Nevertheless, in an abundance of caution, STAAR Japan has asked clinics to no longer use the acrylic IOL system and return them for a credit.

Critical Accounting Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Income discusses and analyzes data in our unaudited Condensed Consolidated Financial Statements provided in this report, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.

Management believes that there have been no significant changes during the six months ended June 30, 2023 to the items that we disclosed as our critical accounting estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 30, 2022.

Results of Operations

The following table shows the percentage of our total sales represented by certain items reflected in our Condensed Consolidated Statements of Income for the periods indicated.

 

 

 

Percentage of Net
Sales for Three Months

 

 

Percentage of Net
Sales for Six Months

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

Net sales

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of sales

 

 

23.4

%

 

 

21.2

%

 

 

22.6

%

 

 

21.6

%

Gross profit

 

 

76.6

%

 

 

78.8

%

 

 

77.4

%

 

 

78.4

%

General and administrative

 

 

19.6

%

 

 

17.2

%

 

 

21.8

%

 

 

18.0

%

Selling and marketing

 

 

35.0

%

 

 

29.9

%

 

 

35.4

%

 

 

28.8

%

Research and development

 

 

12.7

%

 

 

10.7

%

 

 

13.3

%

 

 

11.4

%

Total selling, general and administrative

 

 

67.3

%

 

 

57.8

%

 

 

70.5

%

 

 

58.2

%

Operating income

 

 

9.3

%

 

 

21.0

%

 

 

6.9

%

 

 

20.2

%

Total other income (expense), net

 

 

(0.1

)%

 

 

(1.9

)%

 

 

1.1

%

 

 

(1.5

)%

Income before income taxes

 

 

9.2

%

 

 

19.1

%

 

 

8.0

%

 

 

18.7

%

Provision for income taxes

 

 

2.6

%

 

 

3.0

%

 

 

2.7

%

 

 

3.0

%

Net income

 

 

6.6

%

 

 

16.1

%

 

 

5.3

%

 

 

15.7

%

 

18


 

Net Sales

The following table presents our net sales, by product (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

ICLs

 

$

93,112

 

 

$

77,922

 

 

 

19.5

%

 

$

163,737

 

 

$

136,597

 

 

 

19.9

%

Other product sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cataract IOLs

 

 

40

 

 

 

2,547

 

 

 

(98.4

)%

 

 

1,516

 

 

 

5,449

 

 

 

(72.2

)%

Other surgical products

 

 

(846

)

 

 

632

 

 

 

*

 

 

581

 

 

 

2,255

 

 

 

(74.2

)%

Total other product sales

 

 

(806

)

 

 

3,179

 

 

 

*

 

 

2,097

 

 

 

7,704

 

 

 

(72.8

)%

Net sales

 

$

92,306

 

 

$

81,101

 

 

 

13.8

%

 

$

165,834

 

 

$

144,301

 

 

 

14.9

%

 

* Denotes change is greater than +100%.

Net sales for the three months ended June 30, 2023 increased 14% from the same period of 2022. The increase in net sales was primarily due to increased ICL sales of $15.2 million, slightly offset by decreased other product sales of $4.0 million. Changes in foreign currency unfavorably impacted net sales by $0.4 million.

Net sales for the six months ended June 30, 2023 increased 15% from the same period of 2022. The increase in net sales was primarily due to increased ICL sales of $27.1 million, slightly offset by decreased other product sales of $5.6 million. Changes in foreign currency unfavorably impacted net sales by $2.4 million.

Total ICL sales for the three months ended June 30, 2023 increased 19% from the same period of 2022, with unit increase of 21%. The APAC region sales increased by 26%, with unit growth up 29%, due to sales growth in China up 33%, India up 14% and Japan up 13%, partially offset by sales decreases in Korea down 15%. The Europe, Middle East, Africa and Latin America region sales decreased 9% with unit decrease of 23%, due to sales decreases in our distributor markets down 14% and direct markets down 4%. The North America region sales increased 10%, with unit growth up 10%, primarily due to sales growth in the U.S. up 10%. Changes in foreign currency unfavorably impacted ICL sales by $0.4 million for the three months ended June 30, 2023, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 100.9% and 96.1% of our total sales for the three months ended June 30, 2023 and July 1, 2022, respectively.

Total ICL sales for the six months ended June 30, 2023 increased 20% from the same period of 2022, with unit increase of 21%. The APAC region sales increased by 23%, with unit growth up 25%, due to sales growth in China up 30%, other APAC regions up 13%, India up 11%, Japan up 9% and Korea up 5%. The Europe, Middle East, Africa and Latin America region sales were flat with unit decrease of 7%, due to sales decreases in our distributor markets down 1%, offset by growth in in our direct markets up 1%. The North America region sales increased 29%, with unit growth up 30%, primarily due to sales growth in the U.S. up 34%. In late March 2022, the U.S. started to sell EVO ICLs. Changes in foreign currency unfavorably impacted ICL sales by $2.1 million for the six months ended June 30, 2023, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 98.7% and 94.7% of our total sales for the six months ended June 30, 2023 and July 1, 2022, respectively.

Other product sales, includes cataract IOLs, delivery systems and normal recurring sales adjustments such as sales return allowances. As a result of third-party materials and supply chain challenges that affect our cataract IOLs and associated delivery devices, we will no longer manufacture cataract IOLs, though we will continue to support these products through the end of 2023, as supplies permit. We do not expect this decision to have a significant impact to revenue growth in future years. Other product sales for the three and six months ended June 30, 2023, decreased 125% and 73%, respectively, from the same period of 2022, due to primarily to a reduction in cataract IOL sales, decreased sales of cataract IOL injector parts and sales return reserves related to cataract IOLs. Changes in foreign currency unfavorably impacted other product sales by $0.3 million for the six months ended June 30, 2023. Other product sales represented (0.9%) and 3.9% of our total sales for the three months ended June 30, 2023 and July 1, 2022, respectively, and represented 1.3% and 5.3% of our total sales for the six months ended June 30, 2023 and July 1, 2022, respectively.

19


 

Gross Profit

The following table presents our gross profit and gross profit margin (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

Gross profit

 

$

70,726

 

 

$

63,872

 

 

 

10.7

%

 

$

128,288

 

 

$

113,136

 

 

 

13.4

%

Gross margin

 

 

76.6

%

 

 

78.8

%

 

 

 

 

 

77.4

%

 

 

78.4

%

 

 

 

 

Gross profit for the three and six months ended June 30, 2023 increased 10.7% and 13.4%, respectively, from the same periods of 2022. Gross profit margin decreased to 76.6% and 77.4% of revenue for the three and six months ended June 30, 2023, respectively, compared to 78.8% and 78.4% of revenue for the three and six months ended July 1, 2022, respectively, due mainly to reserves related to cataract IOLs.

General and Administrative Expense

The following table presents our general and administrative expenses (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

General and administrative expense

 

$

18,097

 

 

$

13,983

 

 

 

29.4

%

 

$

36,195

 

 

$

25,923

 

 

 

39.6

%

Percentage of sales

 

 

19.6

%

 

 

17.2

%

 

 

 

 

 

21.8

%

 

 

18.0

%

 

 

 

General and administrative expenses for the three months ended June 30, 2023 increased 29.4% from the same period of 2022 due to increased salary-related and payroll tax expenses, outside services and facility costs.

General and administrative expenses for the six months ended June 30, 2023 increased 39.6% from the same period of 2022 due to increased bonus and stock-based compensation expenses, salary-related and payroll tax expenses, Japan one-time employee benefits, outside services, and facility costs.

Selling and Marketing Expense

The following table presents our selling and marketing expenses (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

Selling and marketing expense

 

$

32,277

 

 

$

24,233

 

 

 

33.2

%

 

$

58,631

 

 

$

41,503

 

 

 

41.3

%

Percentage of sales

 

 

35.0

%

 

 

29.9

%

 

 

 

 

 

35.4

%

 

 

28.8

%

 

 

 

Selling and marketing expenses for the three months ended June 30, 2023 increased 33.2% from the same period of 2022 due to increased advertising and promotional activities, especially in the U.S., salary-related and payroll tax expenses, bonus and stock-based compensation expenses, sales commission expenses and trade shows and sales meetings expenses.

Selling and marketing expenses for the six months ended June 30, 2023 increased 41.3% from the same period of 2022 due to increased advertising and promotional activities, especially in the U.S., salary-related and payroll tax expenses, sales commission expenses, trade shows and sales meetings expenses and bonus and stock-based compensation expenses.

20


 

Research and Development Expense

The following table presents our research and development expenses (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

Research and development expense

 

$

11,755

 

 

$

8,636

 

 

 

36.1

%

 

$

22,065

 

 

$

16,577

 

 

 

33.1

%

Percentage of sales

 

 

12.7

%

 

 

10.7

%

 

 

 

 

 

13.3

%

 

 

11.4

%

 

 

 

Research and development expenses for the three and six months ended June 30, 2023 increased 36.1% and 33.1% from the same period of 2022, respectively, due mainly to increased salary-related and payroll tax expenses and clinical expenses associated with our U.S. post-approval clinical trials, and for the six months ended June 30, 2023, increased bonus and stock-based compensation expenses as compared to the six months ended July 1, 2022.

Other Expense, Net

The following table presents our other expenses, net (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

Other income (expense), net

 

$

(105

)

 

$

(1,551

)

 

 

93.2

%

 

$

1,814

 

 

$

(2,137

)

 

 

*

Percentage of sales

 

 

(0.1

)%

 

 

(1.9

)%

 

 

 

 

 

1.1

%

 

 

(1.5

)%

 

 

 

 

* Denotes change is greater than +100%.

The change in other income (expense), net for the three and six months ended June 30, 2023 and July 1, 2022, respectively, was due to increased interest income mainly due to our investments held available for sale and for the six months ended June 30, 2023 lower foreign exchange losses as compared to the six months ended July 1, 2022.

Income Taxes

The following table presents our income tax provision (dollars in thousands):

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Six Months Ended

 

 

Percentage
Change

 

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

 

June 30, 2023

 

 

July 1, 2022

 

 

2023 vs. 2022

 

Income tax provision

 

$

2,428

 

 

$

2,431

 

 

 

(0.1

)%

 

$

4,437

 

 

$

4,356

 

 

 

1.9

%

The effective tax rates for the three months ended June 30, 2023 and July 1, 2022 were 28.6% and 15.7%, respectively, and were 33.6% and 16.1% for the six months ended June 30, 2023 and July 1, 2022, respectively. Our effective tax rates differ from the U.S. federal statutory rate of 21%, primarily due to the income tax expense generated in foreign jurisdictions.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

21


 

Liquidity and Capital Resources

We believe that current cash and cash equivalents, investments available for sale (“AFS”) and future cash flow from operating activities will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the financial statements included in this quarterly report. Our financial condition at June 30, 2023 and December 30, 2022 included the following (in thousands):

 

 

 

June 30, 2023

 

 

December 30,
2022

 

 

2023 vs. 2022

 

Cash and cash equivalents

 

$

94,695

 

 

$

86,480

 

 

$

8,215

 

Investments available for sale

 

 

114,837

 

 

 

139,061

 

 

 

(24,224

)

Total

 

$

209,532

 

 

$

225,541

 

 

$

(16,009

)

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

328,003

 

 

$

311,723

 

 

$

16,280

 

Current liabilities

 

 

54,194

 

 

 

51,716

 

 

 

2,478

 

Working capital

 

$

273,809

 

 

$

260,007

 

 

$

13,802

 

 

Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions. Our investment policy primary objective is capital preservation while maximizing our return on investment. Investments available for sale may include U.S. government and corporate debt securities, commercial paper, certain certificates deposit and related security types, that are rated by two nationally recognized statistical rating organizations with minimum investment grade ratings of AAA to A-/A-1+ to A-2, or the equivalent. The maturity of individual investments may not extend 24 months from the date of purchase. There are also limits to the amount of credit exposure in any given security type. We do not have any off-balance sheet arrangements.

A summary of cash flows for the six months ended June 30, 2023 and July 1, 2022 was as follows (in thousands):

 

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

July 1, 2022

 

Cash flows from:

 

 

 

 

 

 

Operating activities

 

$

(11,400

)

 

$

8,636

 

Investing activities

 

 

20,105

 

 

 

(7,810

)

Financing activities

 

 

(59

)

 

 

3,101

 

Effect of exchange rate changes

 

 

(431

)

 

 

(1,143

)

Net increase in cash and cash equivalents

 

 

8,215

 

 

 

2,784

 

Cash and cash equivalents, at beginning of year

 

 

86,480

 

 

 

199,706

 

Cash and cash equivalents, at end of year

 

$

94,695

 

 

$

202,490

 

 

For the six months ended June 30, 2023 net cash used by operating activities consisted of $39.5 million in working-capital changes partially offset by $19.3 million in non-cash items and net income of $8.8 million.

Starting in the second half of 2022, we decided to invest our cash in slightly higher yielding securities. For the six months ended June 30, 2023, net cash provided by investment activities was $20.1 million which consisted of $68.6 million of proceeds from the sale or maturity of investments AFS, partially offset by $42.6 million in purchases of investments AFS and $5.9 million in purchases of property, plant and equipment. For the six months ended July 1, 2022, net cash used in investment activity consisted of $7.8 million in purchases of property, plant and equipment.

Net cash used in financing activities for the six months ended June 30, 2023 was $0.1 million which consisted of $2.0 million to repurchase of employee common stock for taxes withheld and $0.1 million to repay finance lease obligations, offset by $2.0 million of proceeds from the exercise of stock options. For the six months ended July 1, 2022, net cash provided by financing activities consisted of $3.1 million of proceeds from the exercise of stock options.

22


 

Commitments

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective January 1, 2023. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the six months ended June 30, 2023, there have been no material changes in the Company’s qualitative and quantitative market risk since the disclosure in the Company’s Annual Report on Form 10-K for the year ended December 30, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company. Based on that evaluation, our CEO and CFO concluded, as of the end of the period covered by this quarterly report on Form 10-Q, that our disclosure controls and procedures were effective. For purposes of this statement, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, including the CEO and the CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud or material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

23


 

ITEM 1A. RISK FACTORS

Our short and long-term success is subject to many factors that are beyond our control. Investors and prospective investors should consider carefully information contained in this report and the risks and uncertainties described in “Part I—Item 1A—Risk Factors” of the Company’s Form 10-K for the fiscal year ended December 30, 2022. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

Following our June 15, 2023 Annual Shareholders Meeting, the Board of Directors determined to continue our past practice, supported by the most recent shareholder non-binding advisory vote, to include a shareholder vote on the compensation of executives in our proxy materials every year until the next required vote on the frequency of shareholder votes on the compensation of executives.

(c)
Trading Plans

During the quarter ended June 30, 2023, no director or officer adopted or terminated:

(i)
Any contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b51-1(c); and
(ii)
Any “non-Rule 10b5-1 trading arrangement” as defined in paragraph (c) of item 408(a) of Regulation S-K.

 

 

24


 

ITEM 6. EXHIBITS

 

    3.1

Amended and Restated Certificate of Incorporation.(1)

 

 

    3.2

Amended and Restated Bylaws.(2)

 

 

    4.1

Form of Certificate for Common Stock, par value $0.01 per share.(3)

 

 

  †4.2

Amended and Restated Omnibus Equity Incentive Plan.(4)

 

 

  31.1

Certifications Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

  31.2

Certifications Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

  32.1

Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

 

 

  101

Financial statements from the quarterly report on Form 10-Q of STAAR Surgical Company for the quarter ended June 30, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL), are filed herewith and include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.*

 

 

  104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, has been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101.

 

(1)
Incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018.
(2)
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on February 1, 2023.
(3)
Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8‑A/A as filed with the Commission on April 18, 2003.
(4)
Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, for the period ended July 3, 2020, as filed with the Commission on August 5, 2020.

* Filed herewith.

** Furnished herewith.

† Management contract or compensatory plan.

25


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

STAAR SURGICAL COMPANY

 

 

 

 

 

 

Dated:

 

August 2, 2023

By:

 

/s/ PATRICK F. WILLIAMS

 

 

 

 

 

Patrick F. Williams

 

 

 

 

 

Chief Financial Officer

 

 

 

 

 

(on behalf of the Registrant and as its principal financial officer)

 

26