STAAR Surgical Company — Form 10-K Summary
Reporting period: Fiscal year ended December 30, 2022, with comparative fiscal years ended December 31, 2021 and January 1, 2021. The request metadata references “2021 Q4,” but the supplied filing is the fiscal 2022 annual report, not a 2021 quarterly filing.
Business context
STAAR designs, manufactures and sells implantable lenses and delivery systems for ophthalmic surgery. Implantable Collamer lenses (ICLs), including EVO, EVO+, Toric ICL and EVO Viva, are the core business. The company sells in more than 75 countries and operates as one ophthalmic surgical products segment.
- Approximately 95% of fiscal 2022 sales were generated outside the United States.
- ICLs represented 94.8% of fiscal 2022 sales, compared with 92.4% in 2021.
- China-related sales, including Hong Kong, were $148.2 million, or 52.1% of consolidated sales.
- Shanghai Lansheng, the company’s China distributor, accounted for approximately 52% of fiscal 2022 sales and 59% of trade receivables at year-end.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $284.4 million | $230.5 million | +23% |
| Gross profit | $223.4 million | $178.6 million | +25% |
| Gross margin | 78.5% | 77.5% | +100 bps |
| Operating income | $43.8 million | $33.3 million | +31% |
| Net income | $38.8 million | $24.5 million | +58% |
| Diluted earnings per share | $0.78 | $0.50 | +56% |
| Effective tax rate | 14.9% | 21.7% | Down 680 bps |
- ICL sales increased 27% to $269.7 million, with unit growth of 33%. Growth was led by APAC, North America and particularly China, while EMEA and Latin America sales declined slightly.
- Other product sales declined 16% to $14.7 million, primarily because of lower cataract IOL sales.
- Gross margin benefited from a higher ICL and favorable geographic mix, partly offset by manufacturing expansion costs.
- Selling and marketing expense increased 32% to $88.9 million, including higher advertising, promotional, trade-show and travel costs. Advertising expense increased to $37.9 million from $22.0 million.
- Research and development expense increased 6.3% to $36.0 million, but declined to 12.7% of sales from 14.7%.
- Net income benefited from higher operating income, increased interest income and lower foreign-exchange losses. The effective tax rate also benefited from a $0.8 million U.S. valuation allowance release and foreign earnings.
Cash flow, liquidity and capital structure
| Metric | 2022 | 2021 |
|---|---|---|
| Cash flow from operations | $35.7 million | $44.0 million |
| Capital expenditures | $18.1 million | $13.6 million |
| Cash flow from investing | $(156.4) million | $(13.6) million |
| Cash and cash equivalents | $86.5 million | $199.7 million |
| Investments available for sale | $139.1 million | None reported |
| Total cash and investments | $225.5 million | $199.7 million |
| Working capital | $260.0 million | $222.6 million |
- The large investing outflow primarily reflected $155.7 million of purchases of investment securities and $18.1 million of property and equipment purchases.
- Management stated that cash, investments and expected operating cash flow should cover working capital, capital expenditures and contractual obligations for at least 12 months from the financial statement issuance date.
- The filing reports no off-balance-sheet arrangements and no outstanding bank debt. Financing activities primarily reflected $8.4 million of stock-option exercise proceeds.
- Accounts receivable increased to $62.4 million from $43.5 million; days sales outstanding increased to 89 from 67, attributed primarily to temporary collection delays following COVID-related restrictions in certain markets.
- Inventory increased to $24.2 million from $17.3 million, and days inventory on hand increased to 94 from 79 as production was expanded to support ICL growth.
- Contractual obligations totaled $56.6 million, including $36.0 million of operating leases, $17.6 million of open purchase orders and $1.9 million of pension benefit payments.
Material changes versus the prior comparable period
- Revenue growth accelerated the company’s shift toward ICLs, while lower-margin cataract IOL and other product sales continued to decline.
- The FDA approved EVO and EVO+ Visian ICLs in March 2022 for myopia and myopia with astigmatism.
- In July 2022, the company’s notified body certified its commercially available ICLs, delivery systems and calculation software under the European Union Medical Device Regulation.
- The company expanded manufacturing capacity and increased property, plant and equipment, including construction in process, to $50.9 million from $35.9 million.
- STAAR decided to discontinue manufacturing cataract IOLs and certain other products because of third-party material and supply-chain challenges; customer support is expected through the end of 2023, as supplies permit.
- Stock-based compensation expense increased to $20.4 million from $14.6 million, while total gross stock-based compensation, including amounts capitalized in inventory, was $22.3 million.
- The company’s Swiss and Japanese defined-benefit plans remained underfunded by approximately $1.9 million in aggregate at year-end, a substantial improvement from the prior year’s $8.8 million pension liability.
Outlook, commentary and risks
Management’s 2023 priorities are to position EVO lenses as the preferred pathway to visual freedom, develop next-generation Collamer lenses, expand lens-based refractive surgery, maintain quality and ESG initiatives, and evaluate acquisitions. The filing does not provide a specific 2023 revenue, earnings or margin forecast.
- COVID-19 impacts remained uncertain, particularly in China and other Asian and European markets; management expected some effects to continue through the first half of 2023 or longer.
- The business is highly concentrated in elective, generally self-pay refractive procedures, making demand sensitive to consumer confidence, disposable income and financing availability.
- China and one distributor represent significant concentration risk. Trade restrictions, local regulation, COVID-related disruptions or distributor underperformance could materially affect results.
- Supply-chain risks include single-source components, third-party acrylic lenses and injector materials, and the company’s dependence on its own collagen-containing raw material for ICL production.
- All ICL products are manufactured at the Monrovia, California facility, creating facility, earthquake, equipment and regulatory-transfer risks.
- Foreign exchange risk is significant because approximately 95% of sales are international; the company does not actively hedge currency exposure.
- Regulatory, product liability, recall, healthcare compliance and intellectual-property risks could affect product approvals, sales or operating costs. A 2022 Japanese trade association ruling found that a program involving cataract-surgery videos was improperly implemented.
- Through the end of 2023, the company expects approximately $1.5 million of additional one-time employee benefits related primarily to the transition away from IOL sales.
- The company reported effective disclosure controls and effective internal control over financial reporting. BDO USA, LLP issued unqualified opinions on the financial statements and internal controls.
Investor verification points
- Verify the filing period, since the supplied document is fiscal 2022 rather than 2021 Q4.
- Assess the sustainability of 2022 ICL unit growth and the extent to which China and Shanghai Lansheng contributed to it.
- Monitor receivable collections, DSO and credit exposure to the China distributor.
- Evaluate whether manufacturing expansion and capacity investments can support demand without eroding the 78.5% gross margin.
- Track the discontinuation of cataract IOL and other products, including the effect on revenue, costs, inventory and the expected $1.5 million of transition benefits.
- Review the absence of formal 2023 financial guidance and the sensitivity of results to COVID-19, foreign exchange, regulation, supply-chain interruptions and elective-procedure demand.
- Reconcile cash and investments of $225.5 million with contractual obligations, capital expenditure plans and potential pension funding requirements.