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STAAR SURGICAL CO - Quarter Report: 2023 September (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: September 29, 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 48,817,473 shares of common stock, par value $0.01 per share, issued and outstanding as of October 27, 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

 

19

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

24

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

24

 

 

 

 

PART II – OTHER INFORMATION

 

25

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

25

 

 

 

 

ITEM 1A.

RISK FACTORS

 

25

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

25

 

 

 

 

ITEM 5.

OTHER INFORMATION

 

25

 

 

 

 

ITEM 6.

EXHIBITS

 

26

 

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

 

 

 

September 29, 2023

 

 

December 30, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

127,432

 

 

$

86,480

 

Investments available for sale

 

 

60,681

 

 

 

125,159

 

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

 

 

112,367

 

 

 

62,447

 

Inventories, net

 

 

31,061

 

 

 

24,161

 

Prepayments, deposits and other current assets

 

 

15,527

 

 

 

13,476

 

Total current assets

 

 

347,068

 

 

 

311,723

 

Investments available for sale

 

 

13,627

 

 

 

13,902

 

Property, plant and equipment, net

 

 

62,886

 

 

 

50,921

 

Finance lease right-of-use assets, net

 

 

220

 

 

 

342

 

Operating lease right-of-use assets, net

 

 

34,992

 

 

 

30,270

 

Intangible assets, net

 

 

 

 

 

173

 

Goodwill

 

 

1,786

 

 

 

1,786

 

Deferred income taxes

 

 

8,560

 

 

 

8,744

 

Other assets

 

 

2,382

 

 

 

957

 

Total assets

 

$

471,521

 

 

$

418,818

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,786

 

 

$

11,576

 

Obligations under finance leases

 

 

164

 

 

 

169

 

Obligations under operating leases

 

 

4,003

 

 

 

3,524

 

Allowance for sales returns

 

 

7,557

 

 

 

5,706

 

Other current liabilities

 

 

36,265

 

 

 

30,741

 

Total current liabilities

 

 

56,775

 

 

 

51,716

 

Obligations under finance leases

 

 

84

 

 

 

210

 

Obligations under operating leases

 

 

31,643

 

 

 

27,136

 

Deferred income taxes

 

 

1,295

 

 

 

1,489

 

Asset retirement obligations

 

 

98

 

 

 

220

 

Pension liability

 

 

3,031

 

 

 

1,935

 

Total liabilities

 

 

92,926

 

 

 

82,706

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value; 60,000 shares authorized: 48,817 and
   
48,212 shares issued and outstanding at September 29, 2023 and
   December 30, 2022, respectively

 

 

488

 

 

 

482

 

Additional paid-in capital

 

 

436,117

 

 

 

404,189

 

Accumulated other comprehensive gain (loss)

 

 

(2,886

)

 

 

156

 

Accumulated deficit

 

 

(55,124

)

 

 

(68,715

)

Total stockholders’ equity

 

 

378,595

 

 

 

336,112

 

Total liabilities and stockholders’ equity

 

$

471,521

 

 

$

418,818

 

 

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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Net sales

 

$

80,308

 

 

$

76,046

 

 

$

246,142

 

 

$

220,347

 

Cost of sales

 

 

16,670

 

 

 

15,584

 

 

 

54,216

 

 

 

46,749

 

Gross profit

 

 

63,638

 

 

 

60,462

 

 

 

191,926

 

 

 

173,598

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

19,266

 

 

 

14,011

 

 

 

55,461

 

 

 

39,934

 

Selling and marketing

 

 

26,607

 

 

 

23,130

 

 

 

85,238

 

 

 

64,633

 

Research and development

 

 

11,470

 

 

 

9,616

 

 

 

33,535

 

 

 

26,193

 

Total selling, general and administrative expenses

 

 

57,343

 

 

 

46,757

 

 

 

174,234

 

 

 

130,760

 

Operating income

 

 

6,295

 

 

 

13,705

 

 

 

17,692

 

 

 

42,838

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

1,690

 

 

 

897

 

 

 

5,287

 

 

 

934

 

Loss on foreign currency transactions

 

 

(1,384

)

 

 

(2,129

)

 

 

(3,240

)

 

 

(4,904

)

Royalty income

 

 

74

 

 

 

77

 

 

 

74

 

 

 

527

 

Other income, net

 

 

71

 

 

 

27

 

 

 

144

 

 

 

178

 

Total other income (expense), net

 

 

451

 

 

 

(1,128

)

 

 

2,265

 

 

 

(3,265

)

Income before income taxes

 

 

6,746

 

 

 

12,577

 

 

 

19,957

 

 

 

39,573

 

Provision for income taxes

 

 

1,929

 

 

 

2,315

 

 

 

6,366

 

 

 

6,671

 

Net income

 

$

4,817

 

 

$

10,262

 

 

$

13,591

 

 

$

32,902

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

0.21

 

 

$

0.28

 

 

$

0.69

 

Diluted

 

$

0.10

 

 

$

0.21

 

 

$

0.27

 

 

$

0.67

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

48,613

 

 

 

48,102

 

 

 

48,426

 

 

 

47,915

 

Diluted

 

 

49,370

 

 

 

49,549

 

 

 

49,494

 

 

 

49,371

 

 

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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Net income

 

$

4,817

 

 

$

10,262

 

 

$

13,591

 

 

$

32,902

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

Net change in plan assets

 

 

(115

)

 

 

465

 

 

 

(1,839

)

 

 

7,126

 

Reclassification into other income (expense), net

 

 

(51

)

 

 

54

 

 

 

(154

)

 

 

139

 

Investments available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss)

 

 

149

 

 

 

(432

)

 

 

123

 

 

 

(432

)

Reclassification into other income (expense), net

 

 

 

 

 

 

 

 

(2

)

 

 

 

Foreign currency translation gain (loss)

 

 

(494

)

 

 

(958

)

 

 

(1,965

)

 

 

(3,474

)

Tax effect

 

 

146

 

 

 

312

 

 

 

795

 

 

 

379

 

Other comprehensive income (loss), net of tax

 

 

(365

)

 

 

(559

)

 

 

(3,042

)

 

 

3,738

 

Comprehensive income

 

$

4,452

 

 

$

9,703

 

 

$

10,549

 

 

$

36,640

 

 

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 June 30, 2023

 

 

48,499

 

 

$

485

 

 

$

419,594

 

 

$

(2,521

)

 

$

(59,941

)

 

$

357,617

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,817

 

 

 

4,817

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(365

)

 

 

 

 

 

(365

)

Common stock issued upon exercise of options

 

 

305

 

 

 

3

 

 

 

7,255

 

 

 

 

 

 

 

 

 

7,258

 

Stock-based compensation

 

 

 

 

 

 

 

 

9,380

 

 

 

 

 

 

 

 

 

9,380

 

Repurchase of employee common stock for taxes withheld

 

 

(1

)

 

 

 

 

 

(112

)

 

 

 

 

 

 

 

 

(112

)

Vested restricted and performance stock

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at September 29, 2023

 

 

48,817

 

 

$

488

 

 

$

436,117

 

 

$

(2,886

)

 

$

(55,124

)

 

$

378,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at July 1, 2022

 

 

48,024

 

 

$

480

 

 

$

387,328

 

 

$

249

 

 

$

(85,740

)

 

$

302,317

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,262

 

 

 

10,262

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(559

)

 

 

 

 

 

(559

)

Common stock issued upon exercise of options

 

 

166

 

 

 

2

 

 

 

5,032

 

 

 

 

 

 

 

 

 

5,034

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,088

 

 

 

 

 

 

 

 

 

6,088

 

Vested restricted and performance stock

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at September 30, 2022

 

 

48,202

 

 

$

482

 

 

$

398,448

 

 

$

(310

)

 

$

(75,478

)

 

$

323,142

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

4


 

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Nine 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

 

 

$

(68,715

)

 

$

336,112

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,591

 

 

 

13,591

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3,042

)

 

 

 

 

 

(3,042

)

Common stock issued upon exercise of options

 

 

500

 

 

 

5

 

 

 

9,259

 

 

 

 

 

 

 

 

 

9,264

 

Stock-based compensation

 

 

 

 

 

 

 

 

24,765

 

 

 

 

 

 

 

 

 

24,765

 

Repurchase of employee common stock for taxes withheld

 

 

(35

)

 

 

 

 

 

(2,096

)

 

 

 

 

 

 

 

 

(2,096

)

Unvested restricted stock

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted and performance stock

 

 

130

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance, at September 29, 2023

 

 

48,817

 

 

$

488

 

 

$

436,117

 

 

$

(2,886

)

 

$

(55,124

)

 

$

378,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at December 31, 2021

 

 

47,716

 

 

$

477

 

 

$

373,519

 

 

$

(4,048

)

 

$

(108,380

)

 

$

261,568

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,902

 

 

 

32,902

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

3,738

 

 

 

 

 

 

3,738

 

Common stock issued upon exercise of options

 

 

417

 

 

 

4

 

 

 

8,175

 

 

 

 

 

 

 

 

 

8,179

 

Stock-based compensation

 

 

 

 

 

 

 

 

16,754

 

 

 

 

 

 

 

 

 

16,754

 

Unvested restricted stock

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted and performance stock

 

 

62

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance, at September 30, 2022

 

 

48,202

 

 

$

482

 

 

$

398,448

 

 

$

(310

)

 

$

(75,478

)

 

$

323,142

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


 

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

13,591

 

 

$

32,902

 

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

 

 

 

 

 

 

Depreciation of property, plant, and equipment

 

 

3,743

 

 

 

3,101

 

Amortization/Impairment of intangibles

 

 

169

 

 

 

22

 

Accretion/Amortization of investments available for sale

 

 

(2,172

)

 

 

(307

)

Deferred income taxes

 

 

65

 

 

 

23

 

Change in net pension liability

 

 

(766

)

 

 

40

 

Loss on disposal of property and equipment

 

 

41

 

 

 

 

Stock-based compensation expense

 

 

23,334

 

 

 

15,375

 

Change in asset retirement obligation

 

 

(104

)

 

 

 

Provision for sales returns and bad debts

 

 

1,925

 

 

 

361

 

Inventory provision

 

 

4,090

 

 

 

2,020

 

Changes in working capital:

 

 

 

 

 

 

Accounts receivable

 

 

(50,436

)

 

 

(13,108

)

Inventories

 

 

(9,975

)

 

 

(4,123

)

Prepayments, deposits, and other current assets

 

 

(3,584

)

 

 

526

 

Accounts payable

 

 

(3,266

)

 

 

(1,834

)

Other current liabilities

 

 

5,970

 

 

 

(2,253

)

Net cash provided by (used in) operating activities

 

 

(17,375

)

 

 

32,745

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(15,100

)

 

 

(14,083

)

Purchase of investments available for sale

 

 

(52,314

)

 

 

(95,576

)

Proceeds from sale or maturity of investments available for sale

 

 

119,359

 

 

 

 

Net cash provided by (used in) investing activities

 

 

51,945

 

 

 

(109,659

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of finance lease obligations

 

 

(121

)

 

 

(85

)

Repurchase of employee common stock for taxes withheld

 

 

(2,096

)

 

 

 

Proceeds from the exercise of stock options

 

 

9,264

 

 

 

8,179

 

Proceeds from vested restricted stock

 

 

1

 

 

 

1

 

Net cash provided by financing activities

 

 

7,048

 

 

 

8,095

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(666

)

 

 

(1,645

)

Increase (decrease) in cash and cash equivalents

 

 

40,952

 

 

 

(70,464

)

Cash and cash equivalents, at beginning of the period

 

 

86,480

 

 

 

199,706

 

Cash and cash equivalents, at end of the period

 

$

127,432

 

 

$

129,242

 

 

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 nine months ended September 29, 2023 and September 30, 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 nine months ended September 29, 2023 and September 30, 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.

Revision of Financial Statements for Correction of Immaterial Misstatements

Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 30, 2022, the Company determined that it had not correctly deducted compensation expense in calculating its income tax provision, deferred tax asset and valuation allowance under the Incremental Cash Tax Method. This resulted in an understatement of the net deferred tax asset, an overstatement in the valuation allowance, an overstatement of the provision for income taxes and understatement of net income. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the error and determined that the related impact was not material to results of operations or financial position for any prior annual or interim period, but that correcting the cumulative impact of the error would be material to our results of operations for the year ended December 29, 2023. Accordingly, the Company has corrected the consolidated balance sheet as of December 30, 2022 and the consolidated statements of income and comprehensive income for the years ended December 30, 2022 and December 31, 2021. The effects of the revision on the previously issued consolidated financial statements were as follows:

Condensed Consolidated Balance Sheet

(in thousands)

(Unaudited)

 

 

 

December 30, 2022

 

 

 

As Previously Reported

 

 

Adjustment

 

 

As revised

 

Deferred income taxes

 

$

4,824

 

 

$

3,920

 

 

$

8,744

 

Total assets

 

 

414,898

 

 

 

3,920

 

 

 

418,818

 

Accumulated deficit

 

 

(72,635

)

 

 

3,920

 

 

 

(68,715

)

Total stockholders’ equity

 

 

332,192

 

 

 

3,920

 

 

 

336,112

 

Total liabilities and stockholders’ equity

 

 

414,898

 

 

 

3,920

 

 

 

418,818

 

 

7


STAAR SURGICAL COMPANY

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

 

Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)

Revision of Financial Statements for Correction of Immaterial Misstatements (Continued)

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(Unaudited)

 

 

 

As Previously Reported

 

 

Adjustment

 

 

As revised

 

At December 31, 2021

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(111,390

)

 

$

3,010

 

 

$

(108,380

)

Total stockholders’ equity

 

 

258,558

 

 

 

3,010

 

 

 

261,568

 

At December 30, 2022

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(72,635

)

 

 

3,920

 

 

 

(68,715

)

Total stockholders’ equity

 

 

332,192

 

 

 

3,920

 

 

 

336,112

 

 

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share amounts)

(Unaudited)

 

 

 

December 30, 2022

 

 

December 31, 2021

 

 

 

As Previously Reported

 

 

Adjustment

 

 

As revised

 

 

As Previously Reported

 

 

Adjustment

 

 

As revised

 

Provision (benefit) for income taxes

 

$

6,797

 

 

$

(910

)

 

$

5,887

 

 

$

6,803

 

 

$

(3,010

)

 

$

3,793

 

Net income

 

 

38,755

 

 

 

910

 

 

 

39,665

 

 

 

24,501

 

 

 

3,010

 

 

 

27,511

 

Comprehensive income

 

 

42,959

 

 

 

910

 

 

 

43,869

 

 

 

25,998

 

 

 

3,010

 

 

 

29,008

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.81

 

 

$

0.02

 

 

$

0.83

 

 

$

0.52

 

 

$

0.06

 

 

$

0.58

 

Diluted

 

$

0.78

 

 

$

0.02

 

 

$

0.80

 

 

$

0.50

 

 

$

0.06

 

 

$

0.56

 

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

December 30, 2022

 

 

December 31, 2021

 

 

 

As Previously Reported

 

 

Adjustment

 

 

As revised

 

 

As Previously Reported

 

 

Adjustment

 

 

As revised

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

38,755

 

 

$

910

 

 

$

39,665

 

 

$

24,501

 

 

$

3,010

 

 

$

27,511

 

Deferred income taxes

 

 

(1,344

)

 

 

(910

)

 

 

(2,254

)

 

 

1,495

 

 

 

(3,010

)

 

 

(1,515

)

 

 

8


STAAR SURGICAL COMPANY

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

 

Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)

Cloud-Based Software Implementation Costs

The Company has entered into cloud-based software hosting arrangements for which it incurs implementation costs. Certain costs incurred during the application development stage are capitalized and included within Prepayments, deposits and other current assets or Other assets on the condensed consolidated balance sheet, depending on the short or long-term nature of such costs, in line with the Company's policy on the accounting for prepaid software hosting arrangements. Costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred. Capitalized cloud-based software implementation costs are amortized, beginning on the date the related software or module is ready for its intended use, on a straight-line basis over the remaining term of the hosting arrangement. Amortization is recognized as a component of selling, general, and administrative expenses, in the same line item as the expense for the associated hosting arrangement.

As of September 29, 2023, the Company recognized $1,318,000 of net capitalized cloud-based software implementation costs recorded within Other assets on the condensed consolidated balance sheets. There were no capitalized cloud-based software implementation costs recognized at December 30, 2022. As of September 29, 2023, these assets are not currently placed into service. No amortization of capitalized cloud-based software implementation costs were recognized during the three and nine months ended September 29, 2023.

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):

 

 

 

September 29, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Level 1

 

 

Level 2

 

Commercial paper

 

$

17,102

 

 

$

1

 

 

$

(5

)

 

$

17,098

 

 

$

 

 

$

17,098

 

Certificates of deposit

 

 

4,080

 

 

 

1

 

 

 

(2

)

 

 

4,079

 

 

 

 

 

 

4,079

 

U.S. Treasury securities

 

 

24,828

 

 

 

 

 

 

(188

)

 

 

24,640

 

 

 

24,640

 

 

 

 

U.S. agency securities

 

 

9,771

 

 

 

 

 

 

(21

)

 

 

9,750

 

 

 

 

 

 

9,750

 

Corporate debt securities

 

 

18,812

 

 

 

2

 

 

 

(73

)

 

 

18,741

 

 

 

 

 

 

18,741

 

Total investments AFS

 

$

74,593

 

 

$

4

 

 

$

(289

)

 

$

74,308

 

 

$

24,640

 

 

$

49,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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.

9


STAAR SURGICAL COMPANY

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

 

Note 2 — Investments Available for Sale (Continued)

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 nine months ended September 29, 2023.

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

 

 

 

As of September 29, 2023

 

 

 

Within one year

 

 

After one year through five years

 

 

 

Total

 

Commercial paper

 

$

17,098

 

 

$

 

 

 

$

17,098

 

Certificates of deposit

 

 

4,079

 

 

 

 

 

 

 

4,079

 

U.S. Treasury securities

 

 

14,855

 

 

 

9,785

 

 

 

 

24,640

 

U.S. agency securities

 

 

9,354

 

 

 

396

 

 

 

 

9,750

 

Corporate debt securities

 

 

15,295

 

 

 

3,446

 

 

 

 

18,741

 

Total investments AFS

 

$

60,681

 

 

$

13,627

 

 

 

$

74,308

 

 

During the nine months ended September 29, 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 nine months ended September 29, 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):

 

 

 

September 29, 2023

 

 

December 30, 2022

 

Raw materials and purchased parts

 

$

9,591

 

 

$

6,703

 

Work in process

 

 

6,451

 

 

 

5,499

 

Finished goods

 

 

18,944

 

 

 

13,633

 

Total inventories, gross

 

 

34,986

 

 

 

25,835

 

Less inventory reserves

 

 

(3,925

)

 

 

(1,674

)

Total inventories, net

 

$

31,061

 

 

$

24,161

 

 

Note 4 — Prepayments, Deposits, and Other Current Assets

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

 

 

September 29, 2023

 

 

December 30, 2022

 

Prepayments and deposits

 

$

5,830

 

 

$

3,986

 

Prepaid insurance

 

 

455

 

 

 

2,620

 

Prepaid marketing costs

 

 

4,543

 

 

 

2,534

 

Consumption tax receivable

 

 

777

 

 

 

864

 

Value added tax (VAT) receivable

 

 

2,189

 

 

 

2,661

 

BVG (Swiss Pension) prepayment

 

 

801

 

 

 

111

 

Other(1)

 

 

932

 

 

 

700

 

Total prepayments, deposits and other current assets

 

$

15,527

 

 

$

13,476

 

 

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

10


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):

 

 

 

September 29, 2023

 

 

December 30, 2022

 

Machinery and equipment

 

$

29,461

 

 

$

28,026

 

Computer equipment and software

 

 

8,329

 

 

 

9,266

 

Furniture and fixtures

 

 

4,110

 

 

 

4,276

 

Leasehold improvements

 

 

10,047

 

 

 

14,965

 

Construction in process

 

 

40,174

 

 

 

32,269

 

Total property, plant and equipment, gross

 

 

92,121

 

 

 

88,802

 

Less accumulated depreciation

 

 

(29,235

)

 

 

(37,881

)

Total property, plant and equipment, net

 

$

62,886

 

 

$

50,921

 

 

Note 6 – Intangible Assets

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

 

 

 

September 29, 2023

 

 

December 30, 2022

 

Long-lived amortized intangible assets

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net

 

Patents and licenses

 

$

9,180

 

 

$

(9,180

)

 

$

 

 

$

9,240

 

 

$

(9,067

)

 

$

173

 

 

During the nine months ended September 29, 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):

 

 

 

September 29, 2023

 

 

December 30, 2022

 

Accrued salaries and wages

 

$

11,813

 

 

$

10,862

 

Accrued bonuses

 

 

2,517

 

 

 

6,925

 

Income taxes payable

 

 

8,540

 

 

 

3,845

 

Marketing obligations

 

 

1,571

 

 

 

1,374

 

Other(1)

 

 

11,824

 

 

 

7,735

 

Total other current liabilities

 

$

36,265

 

 

$

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):

11


STAAR SURGICAL COMPANY

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

 

Note 8 – Leases (Continued)

Finance Leases (Continued)

 

 

 

September 29, 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

 

 

(261

)

 

 

(181

)

Finance lease right-of-use assets, net

 

$

220

 

 

$

342

 

 

 

 

 

 

 

 

Current finance lease obligations

 

$

164

 

 

$

169

 

Long-term finance lease obligations

 

 

84

 

 

 

210

 

Total finance lease liability

 

$

248

 

 

$

379

 

Weighted-average remaining lease term (in years)

 

 

1.5

 

 

 

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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Amortization of finance lease right-of-use asset

 

$

37

 

 

$

39

 

 

$

114

 

 

$

121

 

Interest on finance lease liabilities

 

 

3

 

 

 

5

 

 

 

10

 

 

 

13

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows

 

 

3

 

 

 

5

 

 

 

10

 

 

 

13

 

Financing cash flows

 

 

39

 

 

 

40

 

 

 

121

 

 

 

85

 

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):

 

 

September 29, 2023

 

 

December 30, 2022

 

Machinery and equipment

 

$

726

 

 

$

789

 

Computer equipment and software

 

 

446

 

 

 

446

 

Real property

 

 

41,313

 

 

 

34,465

 

Operating lease right-of-use assets, gross

 

 

42,485

 

 

 

35,700

 

Less accumulated depreciation

 

 

(7,493

)

 

 

(5,430

)

Operating lease right-of-use assets, net

 

$

34,992

 

 

$

30,270

 

 

 

 

 

 

 

 

Current operating lease obligations

 

$

4,003

 

 

$

3,524

 

Long-term operating lease obligations

 

 

31,643

 

 

 

27,136

 

Total operating lease liability

 

$

35,646

 

 

$

30,660

 

Weighted-average remaining lease term (in years)

 

 

7.5

 

 

 

7.5

 

Weighted-average discount rate

 

 

5.15

%

 

 

3.87

%

 

12


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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Operating lease cost

 

$

1,419

 

 

$

1,167

 

 

$

3,883

 

 

$

3,471

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows

 

 

1,259

 

 

 

1,103

 

 

 

3,584

 

 

 

3,069

 

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

 

 

4,580

 

 

 

126

 

 

 

8,000

 

 

 

1,166

 

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 September 29, 2023 is as follows (in thousands):

.

As of September 29, 2023
12 Months Ended

 

Operating Leases

 

 

Finance Leases

 

September 2024

 

$

5,957

 

 

$

171

 

September 2025

 

 

5,630

 

 

 

85

 

September 2026

 

 

4,987

 

 

 

 

September 2027

 

 

5,319

 

 

 

 

September 2028

 

 

5,381

 

 

 

 

Thereafter

 

 

18,105

 

 

 

 

Total future minimum lease payments

 

$

45,379

 

 

$

256

 

Less amounts representing interest

 

 

(9,733

)

 

 

(8

)

Total lease liability

 

$

35,646

 

 

$

248

 

 

Note 9 — Income Taxes

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Provision for income taxes

 

$

1,929

 

 

$

2,315

 

 

$

6,366

 

 

$

6,671

 

The effective tax rates for the three months ended September 29, 2023 and September 30, 2022 were 28.6% and 18.4%, respectively, and were 31.9% and 16.9% for the nine months ended September 29, 2023 and September 30, 2022, respectively. The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for the three and nine months ended September 29, 2023 and September 30, 2022, respectively, primarily due to the income tax expense generated in foreign jurisdictions.

13


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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Service cost(1)

 

$

256

 

 

$

306

 

 

$

759

 

 

$

941

 

Interest cost(2)

 

 

91

 

 

 

22

 

 

 

268

 

 

 

63

 

Expected return on plan assets(2)

 

 

(92

)

 

 

(125

)

 

 

(270

)

 

 

(366

)

Prior service credit(2),(3)

 

 

(45

)

 

 

(44

)

 

 

(135

)

 

 

(135

)

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

 

 

(6

)

 

 

98

 

 

 

(19

)

 

 

274

 

Net periodic pension cost

 

$

204

 

 

$

257

 

 

$

603

 

 

$

777

 

 

(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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Employer contribution

 

$

269

 

 

$

230

 

 

$

731

 

 

$

666

 

 

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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Employee stock options

 

$

3,517

 

 

$

2,865

 

 

$

9,973

 

 

$

7,649

 

Restricted stock

 

 

201

 

 

 

67

 

 

 

347

 

 

 

618

 

Restricted stock units

 

 

2,214

 

 

 

1,249

 

 

 

5,963

 

 

 

3,242

 

Performance stock units

 

 

2,449

 

 

 

1,240

 

 

 

5,958

 

 

 

2,932

 

Nonemployee stock options

 

 

465

 

 

 

306

 

 

 

1,093

 

 

 

934

 

Total stock-based compensation expense

 

$

8,846

 

 

$

5,727

 

 

$

23,334

 

 

$

15,375

 

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Cost of sales

 

$

223

 

 

$

233

 

 

$

595

 

 

$

409

 

General and administrative

 

 

4,049

 

 

 

2,584

 

 

 

11,107

 

 

 

7,171

 

Selling and marketing

 

 

2,561

 

 

 

1,335

 

 

 

5,910

 

 

 

3,548

 

Research and development

 

 

2,013

 

 

 

1,575

 

 

 

5,722

 

 

 

4,247

 

Total stock-based compensation expense, net

 

 

8,846

 

 

 

5,727

 

 

 

23,334

 

 

 

15,375

 

Amounts capitalized as part of inventory

 

 

534

 

 

 

361

 

 

 

1,431

 

 

 

1,379

 

Total stock-based compensation expense, gross

 

$

9,380

 

 

$

6,088

 

 

$

24,765

 

 

$

16,754

 

 

14


STAAR SURGICAL COMPANY

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

 

Note 11 — Stockholders’ Equity (Continued)

Stock-Based Compensation (Continued)

As of September 29, 2023, total unrecognized compensation cost related to non-vested stock-based compensation arrangements were as follows (in thousands):

 

 

 

September 29, 2023

 

Stock options

 

$

23,888

 

Restricted stock, RSUs and PSUs

 

 

24,690

 

Total unrecognized stock-based compensation cost

 

$

48,578

 

 

The cost is expected to be recognized over a weighted-average period of approximately two years.

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 September 29, 2023, there were 2,784,909 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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Expected dividend yield

 

 

0

%

 

 

0

%

 

 

0

%

 

 

0

%

Expected volatility

 

 

60

%

 

 

54

%

 

 

60

%

 

 

54

%

Risk-free interest rate

 

 

4.18

%

 

 

2.91

%

 

 

3.91

%

 

 

1.88

%

Expected term (in years)

 

 

5.05

 

 

 

5.10

 

 

 

5.05

 

 

 

5.10

 

 

15


STAAR SURGICAL COMPANY

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

 

Note 11 — Stockholders’ Equity (Continued)

Stock Options

A summary of stock option activity under the Plan for nine months ended September 29, 2023 is presented below:

 

 

 

Stock
Options
(in 000’s)

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Term (years)

 

 

Aggregate
Intrinsic
Value
(in 000’s)

 

Outstanding at December 30, 2022

 

 

2,469

 

 

$

39.63

 

 

 

 

 

 

 

Granted

 

 

622

 

 

 

55.84

 

 

 

 

 

 

 

Exercised

 

 

(500

)

 

 

18.54

 

 

 

 

 

 

 

Forfeited or expired

 

 

(38

)

 

 

72.49

 

 

 

 

 

 

 

Outstanding at September 29, 2023

 

 

2,553

 

 

$

47.22

 

 

 

6.77

 

 

$

19,641

 

Exercisable at September 29, 2023

 

 

1,663

 

 

$

39.11

 

 

 

5.52

 

 

$

19,641

 

 

Restricted Stock, Restricted Stock Units and Performance Stock Units

A summary of restricted stock, RSUs and PSUs activity under the Plan for the nine months ended September 29, 2023 is presented below (shares in thousands):

 

 

 

Restricted
Stock

 

 

RSUs

 

 

PSUs

 

Unvested at December 30, 2022

 

 

4

 

 

 

192

 

 

 

118

 

Granted

 

 

12

 

 

 

269

 

 

 

182

 

Vested

 

 

(4

)

 

 

(94

)

 

 

(36

)

Forfeited or expired

 

 

 

 

 

(6

)

 

 

(13

)

Unvested at September 29, 2023

 

 

12

 

 

 

361

 

 

 

251

 

 

Note 12 - Commitments and Contingencies

Severance Payable

As of September 29, 2023 and December 30, 2022 there was severance payable of $422,000 and $410,000, respectively. recognized in other current liabilities on the Consolidated Balance Sheets, which included approximately $258,000 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 nine months ended September 29, 2023, the Company recognized $80,000 and $1,441,000, respectively, related to this. The Company is expected to incur through the end of 2023, one-time employee benefits of approximately $1,457,000 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.

16


STAAR SURGICAL COMPANY

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

 

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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,817

 

 

$

10,262

 

 

$

13,591

 

 

$

32,902

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding

 

 

48,625

 

 

 

48,106

 

 

 

48,438

 

 

 

47,919

 

Less: Unvested restricted stock

 

 

(12

)

 

 

(4

)

 

 

(12

)

 

 

(4

)

Denominator for basic calculation

 

 

48,613

 

 

 

48,102

 

 

 

48,426

 

 

 

47,915

 

Weighted average effects of potentially diluted common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

679

 

 

 

1,336

 

 

 

933

 

 

 

1,378

 

Unvested restricted stock

 

 

 

 

 

2

 

 

 

3

 

 

 

2

 

RSUs

 

 

17

 

 

 

64

 

 

 

67

 

 

 

55

 

PSUs

 

 

61

 

 

 

45

 

 

 

65

 

 

 

21

 

Denominator for diluted calculation

 

 

49,370

 

 

 

49,549

 

 

 

49,494

 

 

 

49,371

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

0.21

 

 

$

0.28

 

 

$

0.69

 

Diluted

 

$

0.10

 

 

$

0.21

 

 

$

0.27

 

 

$

0.67

 

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.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Stock options

 

 

2,453

 

 

 

864

 

 

 

1,853

 

 

 

865

 

Restricted stock, RSUs and PSUs

 

 

341

 

 

 

2

 

 

 

26

 

 

 

20

 

Total

 

 

2,794

 

 

 

866

 

 

 

1,879

 

 

 

885

 

 

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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Non-consignment sales

 

$

75,296

 

 

$

71,223

 

 

$

230,527

 

 

$

205,236

 

Consignment sales

 

 

5,012

 

 

 

4,823

 

 

 

15,615

 

 

 

15,111

 

Total net sales

 

$

80,308

 

 

$

76,046

 

 

$

246,142

 

 

$

220,347

 

 

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):

17


STAAR SURGICAL COMPANY

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

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Domestic

 

$

4,164

 

 

$

3,873

 

 

$

13,061

 

 

$

10,375

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

 

China

 

 

48,287

 

 

 

42,246

 

 

 

144,716

 

 

 

116,635

 

Japan

 

 

9,175

 

 

 

10,546

 

 

 

28,526

 

 

 

32,481

 

Other(1)

 

 

18,682

 

 

 

19,381

 

 

 

59,839

 

 

 

60,856

 

Total foreign sales

 

 

76,144

 

 

 

72,173

 

 

 

233,081

 

 

 

209,972

 

Total net sales

 

$

80,308

 

 

$

76,046

 

 

$

246,142

 

 

$

220,347

 

 

(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

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

ICLs

 

$

81,069

 

 

$

71,953

 

 

$

244,806

 

 

$

208,550

 

Other product sales:

 

 

 

 

 

 

 

 

 

 

 

 

Cataract IOLs

 

 

(221

)

 

 

2,191

 

 

 

1,295

 

 

 

7,640

 

Other surgical products(1)

 

 

(540

)

 

 

1,902

 

 

 

41

 

 

 

4,157

 

Total other product sales

 

 

(761

)

 

 

4,093

 

 

 

1,336

 

 

 

11,797

 

Total net sales

 

$

80,308

 

 

$

76,046

 

 

$

246,142

 

 

$

220,347

 

 

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

 

One customer, the Company’s distributor in China, accounted for 60% and 56% of net sales for the three months ended September 29, 2023 and September 30, 2022, respectively, and the same customer accounted for 59% and 53% for the nine months ended September 29, 2023 and September 30, 2022, respectively. As of September 29, 2023 and December 30, 2022, respectively, one customer, the Company’s distributor in China, accounted for 78% 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, 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.

18


 

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. 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. 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.

 

Recent Developments

STAAR achieved 13% growth in ICL sales in the third quarter of 2023, compared to the third quarter of 2022, with ICL sales growth in the Asia Pacific markets up 13%, EMEA markets up 14%, and the Americas up 5%. In China, ICL sales were up 14% compared to the second quarter of 2022. The uncertain economic environment globally and world events may have an impact on our surgeon customers and patients. As a result, while we are reaffirming our previously provided outlook for fiscal 2023 ICL sales of $320 million to $325 million, revenue may come in at the lower end of the range should macroeconomic weakness and/or other disruptions materialize.

On October 25, we began a voluntary recall of approximately 300 EVO/EVO+ lenses with a measurement deviating +/- 0.5 diopters from the as labeled power. We have identified and fixed the problem. We do not expect material operational costs related to this matter.

19


 

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 nine months ended September 29, 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 Nine Months

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Net sales

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of sales

 

 

20.8

%

 

 

20.5

%

 

 

22.0

%

 

 

21.2

%

Gross profit

 

 

79.2

%

 

 

79.5

%

 

 

78.0

%

 

 

78.8

%

General and administrative

 

 

24.0

%

 

 

18.4

%

 

 

22.6

%

 

 

18.1

%

Selling and marketing

 

 

33.1

%

 

 

30.4

%

 

 

34.6

%

 

 

29.3

%

Research and development

 

 

14.3

%

 

 

12.7

%

 

 

13.6

%

 

 

12.0

%

Total selling, general and administrative

 

 

71.4

%

 

 

61.5

%

 

 

70.8

%

 

 

59.4

%

Operating income

 

 

7.8

%

 

 

18.0

%

 

 

7.2

%

 

 

19.4

%

Total other income (expense), net

 

 

0.6

%

 

 

(1.5

)%

 

 

0.9

%

 

 

(1.5

)%

Income before income taxes

 

 

8.4

%

 

 

16.5

%

 

 

8.1

%

 

 

17.9

%

Provision for income taxes

 

 

2.4

%

 

 

3.0

%

 

 

2.6

%

 

 

3.0

%

Net income

 

 

6.0

%

 

 

13.5

%

 

 

5.5

%

 

 

14.9

%

 

Net Sales

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

ICLs

 

$

81,069

 

 

$

71,953

 

 

 

12.7

%

 

$

244,806

 

 

$

208,550

 

 

 

17.4

%

Other product sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cataract IOLs

 

 

(221

)

 

 

2,191

 

 

 

*

 

 

1,295

 

 

 

7,640

 

 

 

(83.0

)%

Other surgical products

 

 

(540

)

 

 

1,902

 

 

 

*

 

 

41

 

 

 

4,157

 

 

 

(99.0

)%

Total other product sales

 

 

(761

)

 

 

4,093

 

 

 

*

 

 

1,336

 

 

 

11,797

 

 

 

(88.7

)%

Net sales

 

$

80,308

 

 

$

76,046

 

 

 

5.6

%

 

$

246,142

 

 

$

220,347

 

 

 

11.7

%

 

* Denotes change is greater than +100%.

Net sales for the three months ended September 29, 2023 increased 6% from the same period of 2022. The increase in net sales was primarily due to increased ICL sales of $9.1 million, slightly offset by decreased other product sales of $4.9 million. Changes in foreign currency favorably impacted net sales by $0.1 million.

20


 

Net sales for the nine months ended September 29, 2023 increased 12% from the same period of 2022. The increase in net sales was primarily due to increased ICL sales of $36.3 million, slightly offset by decreased other product sales of $10.5 million. Changes in foreign currency unfavorably impacted net sales by $2.3 million.

Total ICL sales for the three months ended September 29, 2023 increased 13% from the same period of 2022, with unit increase of 14%. The APAC region sales increased by 13%, with unit growth up 15%, due to sales growth in India up 40%, China up 14%, Japan up 12% and other APAC regions up 6%. The EMEA region sales increased 14% with unit growth up 13%, due to sales increases in our distributor markets up 20% and direct markets up 9%. The Americas region sales increased 5%, with unit growth up 3%, primarily due to sales growth in Canada up 26% and the U.S. up 6%, partially offset by sales decrease in Latin America of 12%. Changes in foreign currency favorably impacted ICL sales by $0.1 million for the three months ended September 29, 2023. ICL sales represented 100.9% and 94.6% of our total sales for the three months ended September 29, 2023 and September 30, 2022, respectively.

Total ICL sales for the nine months ended September 29, 2023 increased 17% from the same period of 2022, with unit increase of 19%. The APAC region sales increased by 20%, with unit growth up 21%, due to sales growth in China up 24%, India up 20%, other APAC regions up 10%, Japan up 10% and Korea up 4%. The EMEA region sales increased 4%, with unit decrease of 2%, due to sales increases in our distributor markets up 5% and our direct markets up 3%. The Americas region sales increased 18%, with unit growth up 16%, primarily due to sales growth in the U.S. up 23%. In late March 2022, the U.S. started to sell EVO ICLs. Changes in foreign currency unfavorably impacted ICL sales by $2.0 million for the nine months ended September 29, 2023, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 99.5% and 94.6% of our total sales for the nine months ended September 29, 2023 and September 30, 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 nine months ended September 29, 2023, decreased 119% and 89%, respectively, from the same period of 2022, due primarily to a reduction in cataract IOL sales, decreased sales of cataract IOL injector parts and increased sales return reserves. Changes in foreign currency unfavorably impacted other product sales by $0.3 million for the nine months ended September 29, 2023. Other product sales represented (0.9%) and 5.4% of our total sales for the three months ended September 29, 2023 and September 30, 2022, respectively, and represented 0.5% and 5.4% of our total sales for the nine months ended September 29, 2023 and September 30, 2022, respectively.

Gross Profit

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

Gross profit

 

$

63,638

 

 

$

60,462

 

 

 

5.3

%

 

$

191,926

 

 

$

173,598

 

 

 

10.6

%

Gross margin

 

 

79.2

%

 

 

79.5

%

 

 

 

 

 

78.0

%

 

 

78.8

%

 

 

 

 

Gross profit for the three months ended September 29, 2023 increased 5.3%, from the same period of 2022. Gross profit margin decreased to 79.2% of revenue for the three months ended September 29, 2023 compared to 79.5% of revenue for the three months ended September 30, 2022, due mainly to increased sales return reserves and period costs associated with manufacturing projects, partially offset by product and geographic sales mix.

 

Gross profit for the nine months ended September 29, 2023 increased 10.6%, from the same period of 2022. Gross profit margin decreased to 78.0% of revenue for the nine months ended September 29, 2023 compared to 78.8% of revenue for the nine months ended September 30, 2022, due mainly to reserves related to cataract IOLs.

21


 

General and Administrative Expense

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

General and administrative expense

 

$

19,266

 

 

$

14,011

 

 

 

37.5

%

 

$

55,461

 

 

$

39,934

 

 

 

38.9

%

Percentage of sales

 

 

24.0

%

 

 

18.4

%

 

 

 

 

 

22.6

%

 

 

18.1

%

 

 

 

General and administrative expenses for the three months ended September 29, 2023 increased 37.5% from the same period of 2022 due to increased salary-related and payroll tax expenses, outside services, facility costs and bonus and stock-based compensation expenses.

General and administrative expenses for the nine months ended September 29, 2023 increased 38.9% from the same period of 2022 due to increased salary-related and payroll tax expenses, outside services, bonus and stock-based compensation expenses, facility costs and Japan one-time employee benefits.

Selling and Marketing Expense

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

Selling and marketing expense

 

$

26,607

 

 

$

23,130

 

 

 

15.0

%

 

$

85,238

 

 

$

64,633

 

 

 

31.9

%

Percentage of sales

 

 

33.1

%

 

 

30.4

%

 

 

 

 

 

34.6

%

 

 

29.3

%

 

 

 

Selling and marketing expenses for the three months ended September 29, 2023 increased 15.0% from the same period of 2022 due to increased advertising and promotional activities, salary-related and payroll tax expenses, and bonus and stock-based compensation expenses, partially offset by decreased trade shows and sales meetings expenses.

Selling and marketing expenses for the nine months ended September 29, 2023 increased 31.9% 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 and sales commission expenses.

Research and Development Expense

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

Research and development expense

 

$

11,470

 

 

$

9,616

 

 

 

19.3

%

 

$

33,535

 

 

$

26,193

 

 

 

28.0

%

Percentage of sales

 

 

14.3

%

 

 

12.7

%

 

 

 

 

 

13.6

%

 

 

12.0

%

 

 

 

Research and development expenses for the three and nine months ended September 29, 2023 increased 19.3% and 28.0% 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 nine months ended September 29, 2023, increased bonus and stock-based compensation expenses as compared to the nine months ended September 30, 2022.

22


 

Other Expense, Net

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

Other income (expense), net

 

$

451

 

 

$

(1,128

)

 

 

*

 

$

2,265

 

 

$

(3,265

)

 

 

*

Percentage of sales

 

 

0.6

%

 

 

(1.5

)%

 

 

 

 

 

0.9

%

 

 

(1.5

)%

 

 

 

 

* Denotes change is greater than +100%.

The change in other income (expense), net for the three and nine months ended September 29, 2023 and September 30, 2022, respectively, was due to increased interest income mainly due to our investments held available for sale and lower foreign exchange losses.

Income Taxes

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

 

 

 

Three Months Ended

 

 

Percentage
Change

 

 

Nine Months Ended

 

 

Percentage
Change

 

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

 

2023 vs. 2022

 

Income tax provision

 

$

1,929

 

 

$

2,315

 

 

 

(16.7

)%

 

$

6,366

 

 

$

6,671

 

 

 

(4.6

)%

The effective tax rates for the three months ended September 29, 2023 and September 30, 2022 were 28.6% and 18.4%, respectively, and were 31.9% and 16.9% for the nine months ended September 29, 2023 and September 30, 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.

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 September 29, 2023 and December 30, 2022 included the following (in thousands):

 

 

 

September 29, 2023

 

 

December 30,
2022

 

 

2023 vs. 2022

 

Cash and cash equivalents

 

$

127,432

 

 

$

86,480

 

 

$

40,952

 

Investments available for sale

 

 

74,308

 

 

 

139,061

 

 

 

(64,753

)

Total

 

$

201,740

 

 

$

225,541

 

 

$

(23,801

)

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

347,068

 

 

$

311,723

 

 

$

35,345

 

Current liabilities

 

 

56,775

 

 

 

51,716

 

 

 

5,059

 

Working capital

 

$

290,293

 

 

$

260,007

 

 

$

30,286

 

 

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.

23


 

A summary of cash flows for the nine months ended September 29, 2023 and September 30, 2022 was as follows (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 29, 2023

 

 

September 30, 2022

 

Cash flows from:

 

 

 

 

 

 

Operating activities

 

$

(17,375

)

 

$

32,745

 

Investing activities

 

 

51,945

 

 

 

(109,659

)

Financing activities

 

 

7,048

 

 

 

8,095

 

Effect of exchange rate changes

 

 

(666

)

 

 

(1,645

)

Net increase (decrease) in cash and cash equivalents

 

 

40,952

 

 

 

(70,464

)

Cash and cash equivalents, at beginning of year

 

 

86,480

 

 

 

199,706

 

Cash and cash equivalents, at end of year

 

$

127,432

 

 

$

129,242

 

 

For the nine months ended September 29, 2023 net cash used by operating activities consisted of $61.3 million in working-capital changes partially offset by $30.3 million in non-cash items and net income of $13.6 million.

Starting in the second half of 2022, we decided to invest our cash in slightly higher yielding securities. For the nine months ended September 29, 2023, net cash provided by investment activities was $52.0 million which consisted of $119.4 million of proceeds from the sale or maturity of investments AFS, partially offset by $52.3 million in purchases of investments AFS and $15.1 million in purchases of property, plant and equipment. For the nine months ended September 30, 2022, net cash used in investment activity was $109.7 million which consisted of $95.6 million in purchases of investments AFS and $14.1 million in purchases of property, plant and equipment.

Net cash provided by financing activities for the nine months ended September 29, 2023 was $7.0 million which consisted of $9.3 million of proceeds from the exercise of stock options, partially offset by $2.1 million to repurchase of employee common stock for taxes withheld. For the nine months ended September 30, 2022, net cash provided by financing activities consisted of $8.2 million of proceeds from the exercise of stock options.

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 nine months ended September 29, 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.

24


 

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 September 29, 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.

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

(c)
Trading Plans

During the quarter ended September 29, 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.

 

 

25


 

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 September 29, 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 September 29, 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.

26


 

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:

 

November 6, 2023

By:

 

/s/ PATRICK F. WILLIAMS

 

 

 

 

 

Patrick F. Williams

 

 

 

 

 

Chief Financial Officer

 

 

 

 

 

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

 

27