STAAR SURGICAL COMPANY 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 theU.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 2022 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 in our Annual Report on Form 10-K in "Item 1A. Risk Factors" filed onFebruary 23, 2022 . 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.
Overview
STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world's leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as "implantable Collamer® lenses" or "ICLs." The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye's natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens ("IOL") to restore the patient's vision. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our cataract IOL lenses used in surgery that treats cataracts based on quality and value.
Recent Developments
During the second quarter, net sales grew 30% and ICL units grew 42% compared to the prior year quarter. Highlights included unit growth inChina up 45%, theU.S. up 36%,Japan up 41%,India up 181%, and Other Asia Pacific markets up 66%, all as compared to the prior year quarter. TheU.S. commercial launch of the EVO Visian ICL family of myopia lenses (EVO) continued with the announced partnership withJoe Jonas , who earlier in the month received EVO lenses to correct his distance vision. In the next several weeks,Joe Jonas and other paid EVO ambassador influencers will share their journey to Visual Freedom via a global advertising, marketing and social media campaigns funded by STAAR regarding the EVO Visian ICL lens. We reaffirm our previously provided outlook for fiscal 2022 net sales of approximately$295 million , which takes into account currency headwinds, and a continuation of the current level of COVID-19 related challenges inChina and elsewhere, offset by stronger than expected global demand for our EVO lenses. We continue to monitor the commercial and operational impact of new variants of COVID-19 in our markets, which remains uncertain at this time and may adversely affect our financial results. We are also monitoring inflation globally, which may adversely affect our financial results in the future if it persists. 16 --------------------------------------------------------------------------------
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 withU.S. generally accepted accounting principles. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates. Management believes that there have been no significant changes during the six months endedJuly 1, 2022 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 endedDecember 31, 2021 .
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 Percentage of Net
for Three Months Sales for Three Months
July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 21.2 % 21.1 % 21.6 % 21.9 %
Gross profit 78.8 % 78.9 % 78.4 % 78.1 %
General and administrative 17.2 % 18.4 % 18.0 % 19.1 %
Selling and marketing 29.9 % 30.2 % 28.8 % 28.4 %
Research and development 10.7 % 13.2 % 11.4 % 14.6 %
Total selling, general and
administrative 57.8 % 61.8 % 58.2 % 62.1 %
Operating income 21.0 % 17.1 % 20.2 % 16.0 %
Total other income (expense), net (1.9 )% 0.1 % (1.5 )% (1.0 )%
Income before income taxes 19.1 % 17.2 % 18.7 % 15.0 %
Provision for income taxes 3.0 % 3.5 % 3.0 % 3.0 %
Net income 16.1 % 13.7 % 15.7 % 12.0 %
Net Sales
Percentage Percentage
Three Months Ended Change Six Months Ended Change
July 1, 2022 July 2, 2021 2022 vs. 2021 July 1, 2022 July 2, 2021 2022 vs. 2021
ICLs $ 77,922 $ 59,235 31.5 % $ 136,597 $ 105,736 29.2 %
Other product sales:
Cataract IOLs 2,547 3,074 (17.1 )% 5,449 6,799 (19.9 )%
Other surgical products 632 58 -* 2,255 584 -*
Total other product sales 3,179 3,132 1.5 % 7,704 7,383 4.3 %
Net sales $ 81,101 $ 62,367 30.0 % $ 144,301 $ 113,119 27.6 %
* Denotes change is greater than +100%.
Net sales for the three months endedJuly 1, 2022 increased 30% from the same period of 2021. The increase in net sales was due to increased ICL sales of$18.7 million . Changes in foreign currency unfavorably impacted net sales by$3.1 million .
Net sales for the six months ended
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Total ICL sales for the three months ended July 1, 2022 increased 32% from the
same period of 2021, with unit increase of 42%. The APAC region sales increased
by 37%, with unit growth up 45%, due to sales growth in India up 192%, other
APAC regions up 65%, China up 39%, Japan up 16% and Korea up 16%. The Europe ,
Middle East , Africa and Latin America region sales increased 6% with unit
increase of 30%, due to sales growth in in distributor markets up 24%, partially
offset by sales decreases in our direct markets down 7%. The North America
region sales increased 42%, with unit increase of 32%, primarily to sales growth
in the U.S. up 47%. In late March 2022 , the U.S. started to sell EVO ICLs.
Changes in foreign currency unfavorably impacted ICL sales by $2.6 million for
the three months ended July 1, 2022 , which impacted our Europe , Middle East ,
Africa and Japan markets. ICL sales represented 96.1% and 95.0% of our total
sales for the three months ended July 1, 2022 and July 2, 2021 , respectively.
Total ICL sales for the six months ended July 1, 2022 increased 29% from the
same period of 2021, with unit increase of 36%. The APAC region sales increased
by 36%, with unit growth up 40%, due to sales growth in India up 92%, other APAC
regions up 58%, China up 41%, Japan up 19% and Korea up 15%. The Europe , Middle
East , Africa and Latin America region sales increased 2% with unit increase of
19%, due to sales due to sales growth in distributor markets up 15%, offset by
sales decreases in our direct markets down 6%. The North America region sales
increased 32%, with unit increase of 25%, primarily to sales growth in the U.S.
up 35%. In late March 2022 , the U.S. started to sell EVO ICLs. Changes in
foreign currency unfavorably impacted ICL sales by $4.0 million for the six
months ended July 1, 2022 , which impacted our Europe , Middle East , Africa and
Japan markets. ICL sales represented 94.7% and 93.5% of our total sales for the
three months ended July 1, 2022 and July 2, 2021 , respectively.
Other product sales, including cataract IOLs for the three and six months ended
July 1, 2022 , increased 1% and 4%, respectively from the same period of 2021,
due to increased preloaded injector part sales, offset by decreased sales of
cataract IOLs. In the first half of 2021, we experienced product yield issues
requiring rework related to preloaded injector parts manufactured on our behalf
by a third-party vendor then sold by us to a third-party manufacturer for
product they sell to their customers. Changes in foreign currency unfavorably
impacted other product sales by $0.6 million and $1.1 million for the three and
six months July 1, 2022 , respectively. Other product sales represented 3.9% and
5.0% of our total sales for the three months ended July 1, 2022 and
July 2, 2021 , respectively and represented 5.3% and 6.5% of our total sales for
the six months ended July 1, 2022 and July 2, 2021 , respectively.
Gross Profit
Percentage Percentage
Three Months Ended Change Six Months Ended Change
July 1, 2022 July 2, 2021 2022 vs. 2021 July 1, 2022 July 2, 2021 2022 vs. 2021
Gross profit $ 63,872 $ 49,203 29.8 % $ 113,136 $ 88,345 28.1 %
Gross margin 78.8 % 78.9 % 78.4 % 78.1 %
* Denotes change is greater than +100%.
Gross profit for the three months endedJuly 1, 2022 increased 29.8% from the same period of 2021. Gross profit margin decreased slightly to 78.8% of revenue for the three months endedJuly 1, 2022 compared to 78.9% of revenue for the three months endedJuly 2, 2021 , due to inventory reserves recognized as a result of discontinuance of our older generation Visian ICL in theU.S. and increased period costs associated with manufacturing projects, offset by increased product and geographic sales mix. Gross profit for the six months endedJuly 1, 2022 increased 28.1% from the same period of 2021. Gross profit margin increased to 78.4% of revenue for the six months endedJuly 1, 2022 compared to 78.1% of revenue for the six months endedJuly 2, 2021 , due mainly to product and geographic sales mix, partially offset by inventory reserves recognized as a result of discontinuance of our older generation Visian ICL in theU.S. and increased period costs associated with manufacturing projects. 18 --------------------------------------------------------------------------------
General and Administrative Expense
Percentage Percentage
Three Months Ended Change Six Months Ended Change
July 1, 2022 July 2, 2021 2022 vs. 2021 July 1, 2022 July 2, 2021 2022 vs. 2021
General and
administrative expense $ 13,983 $ 11,441 22.2 % $ 25,923 $ 21,653 19.7 %
Percentage of sales 17.2 % 18.4 % 18.0 % 19.1 %
General and administrative expenses for the three months ended July 1, 2022
increased 22.2% from the same period of 2021 due to increased stock-based
compensation expenses and facility costs. General and administrative expenses
for the six months ended July 1, 2022 increased 19.7% from the same period of
2021 due to increased facility costs, stock-based compensation expenses and
outside services.
Selling and Marketing Expense
Percentage Percentage
Three Months Ended Change Six Months Ended Change
July 1, 2022 July 2, 2021 2022 vs. 2021 July 1, 2022 July 2, 2021 2022 vs. 2021
Selling and marketing
expense $ 24,233 $ 18,853 28.5 % $ 41,503 $ 32,054 29.5 %
Percentage of sales 29.9 % 30.2 % 28.8 % 28.4 %
Selling and marketing expenses for the three months ended July 1, 2022 increased
28.5% from the same period of 2021 due to increased advertising and promotional
activities and trade shows, partially offset by decreased salary-related and
payroll tax expenses. Selling and marketing expenses for the six months ended
July 1, 2022 increased 29.5% from the same period of 2021 due to increased
advertising and promotional activities and trade shows.
Research and Development Expense
Percentage Percentage
Three Months Ended Change Six Months Ended Change
July 1, 2022 July 2, 2021 2022 vs.2021 July 1, 2022 July 2, 2021 2022 vs. 2021 Research and development expense$ 8,636 $ 8,260 4.6 %$ 16,577 $ 16,519 0.4 % Percentage of sales 10.7 % 13.2 % 11.4 % 14.6 % Research and development expenses for the three and six months endedJuly 1, 2022 increased 4.6% and 0.4%, respectively, from the same period of 2021 due mainly to increased in salary-related and payroll tax expenses and stock-based compensation, offset by decreased clinical expenses associated with our clinical trials. Other Expense, Net Percentage Percentage Three Months Ended Change Six Months Ended Change July 1, 2022 July 2, 2021 2022
vs. 2021
-* $ (2,137 ) $ (1,165 ) (83.4 )%
Percentage of sales (1.9 )% 0.1 % (1.5 )% (1.0 )%
The change in other expense, net for the three and six months ended July 1, 2022
and July 2, 2021 , respectively, was due primarily to foreign exchange losses
(primarily euro).
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Income Taxes
Percentage Percentage
Three Months Ended Change Six Months Ended Change
July 1, 2022 July 2, 2021 2022 vs.
2021
13.2 % $ 4,356 $ 3,395 28.3 %
The effective tax rates for the three months ended July 1, 2022 and July 2, 2021
was 15.7% and 20.0%, respectively, and was 16.1% and 20.0%, for the six months
ended July 1, 2022 and July 2, 2021 , respectively. Our effective tax rates
differ from the U.S. federal statutory rate of 21% for the three and six months
ended July 1, 2022 and July 2, 2021 , respectively, primarily due to the income
taxes generated in foreign jurisdictions. The effective tax rate for the three
and six months ended July 1, 2022 was lower than the same period in 2021
primarily due to jurisdictions in which the income is earned.
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, cash equivalents 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
July 1, 2022 December 31, 2021 2022 vs. 2021
Cash and cash equivalents $ 202.5 $ 199.7 $ 2.8
Current assets $ 296.5 $ 271.4 $ 25.1
Current liabilities 46.5 48.8 (2.3 )
Working capital $ 250.0 $ 222.6 $ 27.4
We invest the net proceeds in short-term interest-bearing obligations,
investment-grade instruments, certificates of deposit or direct or guaranteed
obligations of the
A summary of cash flows for the six months ended
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