STAAR Surgical Company 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 29, 2023, compared with fiscal years ended December 30, 2022 and December 31, 2021. The provided filing is a fiscal-year 2023 Form 10-K, not a 2022 fourth-quarter filing.
Business Context
STAAR designs, manufactures and sells implantable Collamer lenses (ICLs) and delivery systems for refractive eye surgery. ICLs represented 99.1% of 2023 sales, compared with 94.8% in 2022. The company has substantially phased out its cataract intraocular lens business and does not expect cataract IOL or related surgical-product revenue in fiscal 2024 or thereafter.
- Products are sold in more than 75 countries; 95% of 2023 revenue was generated outside the United States.
- China-related sales, including Hong Kong, were $185.6 million, or approximately 57.6% of consolidated sales.
- Shanghai Lansheng, the company’s China distributor, accounted for approximately 57.6% of consolidated net sales and 70% of trade receivables at year-end.
- The company operates as one reportable segment: ophthalmic surgical products.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $322.4 million | $284.4 million | Up 13% |
| ICL sales | $319.4 million | $269.7 million | Up 18%; units up 19% |
| Gross profit | $252.7 million | $223.4 million | Up 13.1% |
| Gross margin | 78.4% | 78.5% | Down 0.1 percentage point |
| Operating income | $28.1 million | $43.8 million | Down 35.9% |
| Operating margin | 8.8% | 15.4% | Down 6.6 percentage points |
| Net income | $21.3 million | $39.7 million | Down 46.2% |
| Diluted EPS | $0.43 | $0.80 | Down 46.3% |
| Effective tax rate | 36.6% | 12.9% | Up 23.7 percentage points |
| Operating cash flow | $14.6 million | $35.7 million | Down $21.1 million |
| Capital expenditures | $18.2 million | $18.1 million | Approximately flat |
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $183.0 million at December 29, 2023, compared with $86.5 million a year earlier.
- Investments available for sale were $49.4 million, producing total cash and investments of $232.4 million versus $225.5 million in 2022.
- Working capital increased to $300.2 million from $260.0 million.
- The company had no bank debt; its Japan line of credit and Swiss framework agreement had previously been cancelled. Finance lease obligations were $0.2 million, and operating lease liabilities were $35.6 million.
- Accounts receivable increased to $94.7 million from $62.4 million, while days sales outstanding rose to 113 from 89, primarily because of extended payment terms for the China distributor.
- Inventory increased to $35.1 million from $24.2 million, and finished-goods days on hand increased to 142 from 94 as the company built inventory to support expected ICL demand.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by ICLs, particularly in Asia-Pacific. China sales increased 25%, Japan 11%, India 14% and Korea 11%; Americas ICL sales increased 11% and EMEA sales increased 7%.
- Other product sales declined 80% to $3.0 million as cataract IOL production was stopped and related products were phased out.
- Operating profitability declined despite sales growth because general and administrative expense rose 32.1%, selling and marketing expense rose 21.4%, and research and development expense rose 23.4%.
- Net income was pressured by higher operating expenses, a higher effective tax rate and a $3.3 million recapture of the U.S. valuation allowance.
- Operating cash flow declined because of increased accounts receivable and inventory, partially offset by non-cash expenses and higher accrued liabilities.
- Interest income increased by $4.5 million because of higher interest rates and larger cash and investment balances.
- Foreign currency movements reduced 2023 sales by approximately $2.1 million and ICL sales by approximately $1.8 million.
Outlook, Management Commentary and Unusual Items
- Management’s 2024 priorities include expanding surgeon training and strategic collaborations, increasing patient awareness, improving ordering and fulfillment systems, launching the existing portfolio in additional markets, and developing new delivery devices and lens technologies.
- The company is qualifying its Lake Forest facility to manufacture EVO Viva and its Nidau, Switzerland facility to manufacture ICL products. Timing of regulatory approval and commercial production is not assured.
- No specific 2024 revenue, earnings, margin or cash-flow guidance is provided in the filing text.
- Gross margin was affected by cataract IOL reserves and manufacturing-expansion costs, partly offset by the higher-margin ICL mix.
- Research and development expense included clinical expenses related to U.S. post-approval trials. The company plans continued development of presbyopia-correcting products, preloaded injectors and next-generation devices and materials.
- The company recorded $1.4 million of one-time employee benefits in Japan in 2023, primarily related to cataract IOL sales personnel, and $0.2 million of impairment related to a Japan cataract-IOL patent.
- Pension plans were underfunded by approximately $5.1 million at year-end, including $4.6 million for Switzerland and $0.5 million for Japan.
- Contractual obligations totaled approximately $69.4 million, including operating leases, pension payments, open purchase orders and other obligations.
- Key risks include heavy dependence on China and one distributor, elective-procedure demand, regulatory approvals, supply-chain concentration, reliance on a principal manufacturing facility in Monrovia, foreign exchange exposure, competition, product liability, cybersecurity and changing medical-device regulations.
- The company reported effective disclosure controls and effective internal control over financial reporting. BDO USA, P.C. issued unqualified audit opinions.
Most Important Facts for Investors to Verify
- Whether China and Shanghai Lansheng concentration remains at approximately 58% of sales and whether receivable collection and payment terms normalize.
- Whether inventory growth and manufacturing expansion convert into sustained ICL unit growth without causing excess inventory, product-yield issues or additional reserves.
- Whether selling, general and administrative investment moderates enough to restore operating-margin expansion.
- The timing and regulatory status of EVO Viva manufacturing in Lake Forest and ICL manufacturing in Switzerland.
- The impact of the cataract IOL exit on future revenue, margins, reserves and employee-related costs.
- Future effective tax rates, including the impact of U.S. valuation allowances and the expiration or extension of the Swiss tax holiday.
- Foreign-exchange sensitivity, particularly to the Chinese yuan, Japanese yen, euro and Swiss franc, because the company does not actively hedge these exposures.
- Potential effects of regulatory changes, product recalls, product-liability claims, cybersecurity incidents and supply interruptions at single-source suppliers or the Monrovia facility.