STAAR Surgical Company — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, with comparative fiscal years ended January 1, 2021 and January 3, 2020. The request metadata references 2020 Q4, but the supplied filing is the fiscal 2021 Form 10-K. Fourth-quarter 2021 results are also presented below.
Business Context
STAAR designs, manufactures and sells implantable ophthalmic lenses and delivery systems. Implantable Collamer lenses (ICLs) used in refractive surgery generated 92.4% of 2021 sales, while cataract IOLs generated 5.4% and other surgical products 2.2%. The company sells in more than 75 countries and operates as one ophthalmic surgical products segment.
International sales represented approximately 96% of 2021 revenue. China and Hong Kong sales were $107.3 million, or 46.6% of consolidated sales, and Shanghai Lansheng was the company’s largest distributor and customer.
Financial Performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $230.5 million | $163.5 million | +41% |
| ICL sales | $212.9 million | $141.4 million | +51% |
| Gross profit | $178.6 million | $118.4 million | +50.9% |
| Gross margin | 77.5% | 72.4% | +5.1 percentage points |
| Operating income | $33.3 million | $6.8 million | +392.6% |
| Operating margin | 14.5% | 4.1% | +10.4 percentage points |
| Net income | $24.5 million | $5.9 million | +314.3% |
| Diluted EPS | $0.50 | $0.12 | Improved |
| Operating cash flow | $44.0 million | $21.0 million | +109.8% |
ICL unit volume increased 48% in 2021. Growth was broad-based, including APAC sales growth of 51%, EMEA and Latin America growth of 46%, and North America growth of 57%. Other product sales decreased 20% to $17.6 million, driven by injector-part yield and rework issues and lower cataract IOL sales.
Gross-margin expansion reflected the higher ICL sales mix, favorable geographic mix, lower injector-part mix and the absence of certain 2020 COVID-19 manufacturing-pause costs. Selling and marketing expense increased 47.0% to $67.3 million, general and administrative expense increased 30.2% to $44.1 million, and research and development expense increased 6.1% to $33.9 million.
Fourth-Quarter 2021
| Metric | Q4 2021 | Q4 2020 |
|---|---|---|
| Net sales | $59.0 million | $46.0 million |
| Gross profit | $45.0 million | $34.3 million |
| Net income | $4.9 million | $3.3 million |
| Diluted EPS | $0.10 | $0.07 |
The filing does not provide a separately stated fourth-quarter gross margin or operating income.
Cash Flow, Liquidity and Capital Structure
- Cash and cash equivalents were $199.7 million at December 31, 2021, compared with $152.5 million at January 1, 2021.
- Working capital was $222.6 million, comprising current assets of $271.4 million and current liabilities of $48.8 million.
- Operating cash flow was $44.0 million; investing cash flow was $(13.6) million, primarily for property and equipment; financing cash flow was $17.8 million, including $19.4 million from stock-option exercises.
- The Japan line of credit was fully repaid and cancelled, and the Swiss framework agreement was cancelled. No line-of-credit borrowings remained at year-end.
- Finance lease obligations totaled $0.5 million and operating lease liabilities totaled $31.6 million at year-end.
- Contractual obligations totaled $63.5 million, including $36.6 million of operating lease payments, $17.3 million of open purchase orders and $8.8 million of pension benefit payments.
- Management stated that cash, cash equivalents and expected operating cash flow should satisfy anticipated needs for at least 12 months from the financial-statement issuance date.
Material Changes Versus Prior Period
- Revenue accelerated sharply, primarily because of ICL demand and post-pandemic recovery across international markets.
- Profitability improved substantially: operating margin rose to 14.5% from 4.1%, and net margin rose to 10.6% from 3.6%.
- Cash increased by $47.3 million, while capital expenditures increased to $13.6 million from $8.4 million as manufacturing capacity expanded.
- Foreign-exchange losses increased, producing $2.0 million of net other expense versus $1.5 million of net other income in 2020.
- Sales concentration increased: Shanghai Lansheng represented 46.6% of 2021 sales versus 43.9% in 2020.
- Product mix shifted further toward ICLs, while cataract IOL and other surgical-product sales declined.
Outlook, Commentary and Risks
- Management’s 2022 priorities include expanding EVO implantable lenses, developing next-generation Collamer-based lenses, supporting lens-based refractive surgery, maintaining quality, advancing ESG objectives and delivering shareholder value.
- The EVO family’s U.S. marketing submission remained under interactive FDA review as of the filing date. Approval timing and scope remain uncertain.
- EVO Viva received CE Mark approval in 2020 and had a limited launch in Spain, Belgium and Germany; commercial adoption remains uncertain.
- COVID-19 variants, elective-surgery interruptions and regional restrictions could continue to affect demand, operations and regulatory activities, particularly in Europe and Asia.
- Production output and supply-chain challenges resulted in a backlog of more than 20,000 ICL lenses at the end of the fourth quarter. Management is focused on restoring standard inventory levels in 2022.
- Manufacturing expansion and increased production were accompanied by product-yield declines in the second half of 2021. The company relies heavily on its Monrovia, California facility and has certain single-source suppliers.
- Refractive procedures are generally elective and paid out of pocket, making ICL demand sensitive to consumer confidence, employment and economic conditions.
- Foreign-exchange risk is significant because approximately 96% of sales are outside the United States; the company generally does not hedge currency exposure.
- The company reported an $8.8 million underfunded pension position, including $7.5 million for Switzerland and $1.3 million for Japan.
- U.S. federal net operating-loss carryforwards were approximately $194.7 million, but the company maintained a $51.5 million U.S. deferred-tax-asset valuation allowance.
- The company reported no material pending litigation expected to adversely affect financial condition or results, but product liability, recalls, regulatory enforcement, intellectual-property disputes and tax audits remain potential contingencies.
Important Facts for Investors to Verify
- Whether manufacturing capacity, yield and supply-chain initiatives eliminate the reported ICL backlog and support 2022 demand.
- The timing and outcome of FDA review for EVO and EVO+ lenses in the United States.
- Whether the unusually high growth rate and 77.5% gross margin are sustainable after post-pandemic recovery effects and mix changes.
- The financial and strategic exposure associated with Shanghai Lansheng and China/Hong Kong representing approximately 47% of sales.
- The effect of COVID-19 disruptions, elective-surgery volumes, foreign exchange, inflation and geopolitical or trade developments on international sales.
- Future pension funding requirements, lease commitments, open purchase orders and the continued availability of substantial tax-loss carryforwards.
- Potential dilution from outstanding equity awards and stock-option exercises; 2021 financing cash flow included $19.4 million from option exercises.
- The filing’s audited financial statements and internal-control opinion, both of which received unqualified opinions from BDO USA, LLP.