# STAAR SURGICAL CO (STAA) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from STAAR SURGICAL CO's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/718937/000095017025024813/staa-20241227.htm
Accession: 0000950170-25-024813
Filing date: 2025-02-21
Report date: 2024-12-27
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/STAA/
All MD&A years: /company/STAA/mda/
Previous year: /company/STAA/mda/fy2023/ (FY 2023)
Next year: /company/STAA/mda/fy2026/ (FY 2026)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to promote understanding of our financial condition and results of operations. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the Consolidated Financial Statements and the Notes to those statements included in this Annual Report. This discussion includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors, including those described in this Annual Report in Item 1A. “Risk Factors.”

Overview

STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and accessory delivery systems used to deliver the lenses into the eye. We are the leading manufacturer of phakic implantable lenses used worldwide in corrective or “refractive” surgery. We have been dedicated solely to ophthalmic surgery for over 40 years. 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.

STAAR generates worldwide revenue almost exclusively from sales of our implantable Collamer lenses, or “ICLs.” Our ICLs are made from Collamer, which is a proprietary collagen copolymer material created and exclusively used by STAAR to make our lenses soft, flexible and biocompatible with the eye. Our ICLs are phakic lenses, meaning that they are implanted into the eye without removing the eye’s natural crystalline lens. This distinguishes an ICL procedure from other refractive procedures, as it does not involve the removal of corneal eye tissue. All of our ICLs are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Further, while ICLs are intended to be permanent, our ICLs are reversible lens implants, meaning they can be removed by a doctor if desired.

We market and sell our ICLs for refractive surgery to treat myopia (nearsightedness) as our “EVO” family of lenses. We believe our EVO lenses are an “Evolution in Visual Freedom” designed to provide premium refractive outcomes while optimizing patient comfort. Our EVO family of lenses includes our EVO ICL, EVO+ ICL, and EVO Visian ICL. Our newest offering, EVO Viva, has an extended depth of focus (EDoF) optic, which is designed to treat myopia with presbyopia (age-related loss of ability to focus). We also market and sell an ICL lens to treat hyperopia (farsightedness), which we call our Visian ICL. We make our ICL product offerings available in multiple models, powers and lengths, including some with toric ICL (TICL) versions to correct for astigmatism (blurred vision). Not all of our products are currently available in all markets where we sell ICLs today.

STAAR employs a commercialization strategy that strives for sustainable, profitable growth. Our growth strategy includes making our complete ICL product line available in our existing geographic markets and expanding into attractive markets where we do not sell our products today. In addition, we are focused on driving awareness of the ICL procedure and the clinical benefits of our ICLs, and providing surgeon training, support and education, particularly in our newer markets. Historically, the Company also manufactured and sold intraocular lenses (or IOLs) for use in surgery to treat cataracts. As the Company has focused its business and strategy on its ICL product offerings, we have phased out our cataract IOL product line. For the fiscal year ended December 27, 2024, approximately 100% our net sales were generated from sales of ICLs.

Business Environment and Factors Affecting Comparability

Given the size of the Company’s business in China relative to its net sales in the rest of the world, macroeconomic conditions in China have a significant impact on the Company’s business, operations, and financial results. For the fiscal year ended December 27, 2024, we reported $313.9 million of net sales, a decrease of 3% compared to $322.4 million in fiscal 2023, and we incurred a net loss of $20.2 million compared to net income of $21.3 million in fiscal 2023. Prior to fiscal 2024, we had reported over ten years of annual net sales growth, and we had delivered net income profitability since 2018. Our results in fiscal 2024 were negatively impacted by a significant decline in ICL sales in China in the fourth quarter ended December 27, 2024, where the sluggish economy and weak consumer consumption contributed to fluctuating demand for ICL procedures.

During the fourth quarter ended December 27, 2024, we shipped a $27.5 million order of ICLs to one of our distributors in China. After the shipment was received, the distributor raised concerns about the ongoing fluctuations in procedural volumes in China and forecasted demand for fiscal 2025. Following discussions with the distributor, the distributor requested extended payment terms for the order, and we agreed. From time to time, we agree to extended

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payment terms with our distributors, but given that these payment terms were significantly longer than the terms included in our distributor agreement, we determined that under accounting principles generally accepted in the U.S. (“GAAP”), collectability was not probable, and we did not recognize the revenue associated with the shipment in the quarter ended December 27, 2024. As the shipment was received by the distributor, and control of the product passed to the distributor, the product is no longer recorded in our inventory. Ordinarily, we recognize revenue upon shipment of product, and we record cost of sales when we recognize revenue based on the matching principle under GAAP. In this instance, we did not recognize the revenue, but we did recognize costs of sales associated with this order of $3.9 million, which had a negative impact on our gross profit and gross profit margin for the fourth quarter and fiscal year ended December 27, 2024. As the control of the inventory transferred to the distributor, accounting rules require us to record the costs of sales upon such transfer, even if revenue is not recognized until a future period.

Under the extended payment terms, the distributor agreed to pay for the $27.5 million order by the end of the quarter ending September 26, 2025. Revenue for the order will not be recognized until payments are received from the distributor, at which point the collectability concern is alleviated. Because the cost of sales associated with this order was recognized in the quarter ended December 27, 2024, there will be no associated cost of sales for this order when the revenue is recognized, resulting in a 100% gross profit in the period payments are received. While we did not recognize revenue on this order upon shipment, we believe that having these ICLs in-country in China can help address challenges and delays associated with importation and logistics and can mitigate potential impacts from geopolitical risk and tariff changes.

Our agreements with our distributors in China provide for minimum inventory requirements based on forecasted demand. During fiscal 2024, our distributors purchased lenses above such minimums in anticipation of higher procedural volumes during what is typically a summer “high season” in China. Due to dynamic macroeconomic conditions and other factors, the number of ICL procedures performed during the high season and the second half of 2024 overall was lower than expected. Accordingly, our distributors in China held, as of December 27, 2024, elevated levels of ICL product inventory. We believe that volatility in surgical procedure volumes will continue until consumer confidence stabilizes and ultimately improves in China. As a result, we believe that the level of ICL inventory held by our distributors in China is sufficient to meet currently expected procedure volumes for at least the first half of fiscal 2025. We therefore anticipate we will report minimal China ICL sales in the first half of fiscal 2025. As China in-country inventory is reduced during the first half of fiscal 2025, we would expect our China revenue to normalize. However, our ability to successfully address these challenges will depend on a number of factors, including the risk of a prolonged slowdown or disruption in China and the institution of trade tariffs both globally and between the U.S. and China, as set forth in Item 1A. “Risk Factors.”

During fiscal 2025, we will continue to assess appropriate inventory levels, both inventory held by us and inventory held by our distributors. We generally keep sufficient inventory on hand to ship product immediately or shortly after receipt of an order. In addition, our distributors hold their own inventory in-country based on forecasted demand. During fiscal 2024, we increased our inventory levels to meet the significant level of anticipated demand for our ICL lenses, to support quick and efficient delivery and fulfillment for surgical procedures, and to mitigate risks associated with potential disruptions to our manufacturing and production process. During fiscal 2025, we expect to adjust our production output based on forecasted demand and optimize the level of inventory held by us and held by our distributors.

See Item 1. “Business,” for a discussion of:

•
Operations

•
Principal Products

•
Distribution and Customers

•
Competition

•
Regulatory Matters

•
Research and Development

Strategic Imperatives for 2025

We believe we have a significant opportunity to fundamentally transform how myopia and other refractive conditions are treated. We want to be the first choice for doctors and for patients seeking visual freedom from wearing eyeglasses or contact lenses. A key focus in 2025 will be supporting our business in China as we work to navigate the macroeconomic challenges and position the Company for growth once the market recovers. Across our markets, we

35

recognize the need to further educate and train ophthalmic surgeons about our ICLs and our ICL procedure. In 2025, we intend to increase the number of strategic collaborations with leading refractive surgeons and practices in the U.S. to collaborate on marketing, training and education activities. We also plan to leverage our new EVO Experience Center at our headquarters in Lake Forest, CA, to conduct additional hands-on training and education in lens-based vision correction. In addition, we are continuing to invest in enhanced systems and tools to make ordering and fulfillment faster and easier. In 2025, we will also continue to drive awareness of the ICL procedure to reach even more potential patients and effectively communicate the clinical benefits of our ICLs. While we work to launch our existing product portfolio in attractive global markets, we also intend to continue to invest in product innovation in 2025.

Results of Operations

The following table sets forth the percentage of total sales represented by certain items reflected in the Company’s Consolidated Statement of Operations for the period indicated.

[[GREPCENT_TABLE]]
[["","","Percentage of Net Sales"],["","","2024","","","2023","","","2022"],["Net sales","","","100.0","%","","","100.0","%","","","100.0","%"],["Cost of sales","","","23.7","%","","","21.6","%","","","21.5","%"],["Gross profit","","","76.3","%","","","78.4","%","","","78.5","%"],["General and administrative","","","28.6","%","","","22.4","%","","","19.2","%"],["Selling and marketing","","","34.5","%","","","33.4","%","","","31.2","%"],["Research and development","","","17.2","%","","","13.8","%","","","12.7","%"],["Total selling, general and administrative","","","80.3","%","","","69.6","%","","","63.1","%"],["Operating income (loss)","","","(4.0",")%","","","8.8","%","","","15.4","%"],["Total other income, net","","","1.0","%","","","1.7","%","","","0.6","%"],["Income (loss) before income taxes","","","(3.0",")%","","","10.5","%","","","16.0","%"],["Provision for income taxes","","","3.6","%","","","3.8","%","","","2.1","%"],["Net income (loss)","","","(6.6",")%","","","6.7","%","","","13.9","%"]]
[[/GREPCENT_TABLE]]

Net Sales

The following table presents our net sales, by product for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","","2023","","","2022"],["","","% of Total","","","Sales","","","% of Total","","","Sales","","","% of Total","","","Sales"],["ICLs","","","99.6","%","","$","312,543","","","","99.1","%","","$","319,427","","","","94.8","%","","$","269,712"],["Other product sales"],["Cataract IOLs","","","0.0","%","","","\u2014","","","","0.3","%","","","1,139","","","","3.4","%","","","9,638"],["Other surgical products","","","0.4","%","","","1,358","","","","0.6","%","","","1,849","","","","1.8","%","","","5,041"],["Total other product sales","","","0.4","%","","","1,358","","","","0.9","%","","","2,988","","","","5.2","%","","","14,679"],["Net sales","","","100.0","%","","$","313,901","","","","100.0","%","","$","322,415","","","","100.0","%","","$","284,391"]]
[[/GREPCENT_TABLE]]

Net sales for 2024 decreased 3% from 2023. The decrease in net sales was due to decreased ICL sales of $6.9 million and decreased other product sales of $1.6 million.

Net sales for 2023 increased 13% from 2022. The increase in net sales was due to increased ICL sales of $49.7 million, partially offset by a decrease in other product sales of $11.7 million.

Total ICL sales for 2024 decreased 2% from 2023, with units down 6%. The sales decrease was driven by the APAC region, which decreased 6% with units down 9%. The decrease in the APAC region was driven by decreased sales in China, primarily related to the $27.5 million order in December 2024 for which we did not recognize revenue discussed above, partially offset by sales growth in India, other APAC Distributors, Japan and Korea. The Europe, Middle East and Africa region sales increased 10% with unit growth up 17%, due primarily to sales increases in our distributor markets. The Americas region sales increased 16%, with unit increase of 17%, due primarily to sales growth in the U.S. Changes in foreign currency unfavorably impacted ICL sales by $2.7 million, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 99.6% of our total sales for fiscal year 2024.

Total ICL sales for 2023 increased 18% from 2022, with unit growth up 19%. The sales increase was driven by the APAC region, which grew 21% with unit growth of 22%, primarily due to sales growth in China, other APAC Distributors, India, Japan and Korea. The Europe, Middle East and Africa region sales increased 7% with units similar to prior year, due to sales growth in our distributor markets and direct markets. The Americas region sales increased

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11%, with unit increase of 9%, due primarily to sales growth in the U.S. Changes in foreign currency unfavorably impacted ICL sales by $1.8 million, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 99.1% of our total sales for fiscal year 2023.

Other product sales include 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 affected our cataract IOLs and associated delivery devices, we have phased out sales of our cataract IOLs as we focus on growing our ICL business. During 2023, we stopped manufacturing cataract IOLs, and we did not sell any cataract IOLs in 2024. Other product sales for 2024 decreased 55% from 2023, mainly due to decreased sales of cataract IOLs and cataract IOL injector parts, partially offset by increased sales of delivery systems. Changes in foreign currency unfavorably impacted other product sales by $0.1 million. Other product sales represented less than 1.0% of our total sales for fiscal year 2024.

Other product sales in 2023 decreased 80% from 2022, mainly due to decreased sales of cataract IOLs and cataract IOL injector parts and increased sales returns reserves related to cataract IOLs. Changes in foreign currency unfavorably impacted other product sales by $0.3 million. Other product sales represented 1.0% of our total sales for fiscal year 2023.

Gross Profit

The following table presents our gross profit and gross profit margin for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","Percentage Change"],["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["Gross profit","","$","239,582","","","$","252,651","","","$","223,383","","","","(5.2",")%","","","13.1","%"],["Gross profit margin","","","76.3","%","","","78.4","%","","","78.5","%"]]
[[/GREPCENT_TABLE]]

Gross profit for 2024 decreased 5.2% from 2023. Gross profit margin decreased to 76.3% of revenue for 2024 compared to 78.4% of revenue for 2023. The decrease in gross profit and gross profit margin was primarily due to the recognition of $3.9 million of cost of sales associated with our shipment of $27.5 million of ICLs to one of our distributors in China in the quarter ended December 27, 2024, for which we did not recognize revenue due to extended payment terms with the distributor. Gross profit and gross profit margin for fiscal 2024 were also negatively impacted by period costs associated with the expansion of the Company’s manufacturing capabilities in its Nidau, Switzerland facility, as well as the temporary idling of its U.S. manufacturing facility during the holiday season and for facility upgrades.

Gross profit for 2023 increased 13.1% from 2022. Gross profit margin increased to 78.4% of revenue for 2023 compared to 78.5% of revenue for 2022, due to reserves related to cataract IOLs and increased period costs associated with manufacturing expansion projects, offset by an increased mix of ICL sales, which carry a higher margin.

General and Administrative Expense

The following table presents our general and administrative expense for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","Percentage Change"],["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["General and administrative expense","","$","89,898","","","$","72,319","","","$","54,742","","","","24.3","%","","","32.1","%"],["Percentage of sales","","","28.6","%","","","22.4","%","","","19.2","%"]]
[[/GREPCENT_TABLE]]

General and administrative expenses for 2024 increased 24.3% from 2023, due to increased outside services, facilities costs, salary-related and payroll tax expenses and bonus and stock-based compensation expenses.

General and administrative expenses for 2023 increased 32.1% from 2022, due to increased salary-related and payroll tax expenses, outside services, facilities costs, bonus and stock-based compensation expenses and Japan one-time employee benefits.

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Selling and Marketing Expense

The following table presents our selling and marketing expense for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","Percentage Change"],["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["Selling and marketing expense","","$","108,322","","","$","107,834","","","$","88,856","","","","0.5","%","","","21.4","%"],["Percentage of sales","","","34.5","%","","","33.4","%","","","31.2","%"]]
[[/GREPCENT_TABLE]]

Selling and marketing expenses for 2024 increased 0.5% from 2023, due to increased salary-related payroll tax expenses, trade shows and sales meeting expenses, costs and charges associated with the opening of our new EVO Experience Center, sales commission expenses and travel expenses, offset by decreased advertising and promotional activities.

Selling and marketing expenses for 2023 increased 21.4% from 2022, due to increased advertising and promotional activities, salary-related payroll tax expenses, sales commission expenses and travel expenses, partially offset by bonus and stock-based compensation expenses.

Research and Development Expense

The following table presents our research and development expense for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","Percentage Change"],["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["Research and development expense","","$","53,973","","","$","44,401","","","$","35,983","","","","21.6","%","","","23.4","%"],["Percentage of sales","","","17.2","%","","","13.8","%","","","12.7","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses for 2024 increased 21.6% from 2023 due to increased salary-related and payroll tax expenses, purchases of in-process research and development related to external AI tools for measurement and lens size selection and outside services related to professional and medical education, partially offset by decreased clinical expenses associated with our U.S. post-approval clinical trials.

Research and development expenses for 2023 increased 23.4% from 2022 due to increased salary-related and payroll tax expenses and clinical expenses associated with our U.S. post-approval clinical trials.

Research and development expense consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products, the regulatory and clinical activities required to acquire and maintain product approvals globally and medical affairs expenses. These costs are expensed as incurred.

Other Income, Net

The following table presents our other income, net for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","Percentage Change"],["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["Other income, net","","$","3,559","","","$","5,599","","","$","1,750","","","","(36.4",")%","","","\u2014","*"],["Percentage of sales","","","1.0","%","","","1.7","%","","","0.6","%"]]
[[/GREPCENT_TABLE]]

* Denotes change is greater than +100%.

The change in other income, net for 2024 was due to increased foreign exchange losses (primarily Japanese Yen and euro) and lower interest income as a result of lower balances of investments available for sale. The change in other income, net for 2023 was due to increased interest income as a result of higher interest rates during 2023.

Other income, net generally relates to interest income earned on cash, cash equivalents and investments available for sale, interest expense on finance lease obligations, gains or losses on foreign currency transactions, and royalty income. The table below summarizes the year over year changes in other income, net (in thousands):

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[[GREPCENT_TABLE]]
[["","","Favorable (Unfavorable)"],["","","2024 vs. 2023","","","2023 vs. 2022"],["Interest income, net","","$","(1,075",")","","$","4,538"],["Foreign exchange","","","(1,766",")","","","(202",")"],["Royalty income","","","434","","","","(730",")"],["Other","","","367","","","","243"],["Net change in other income, net","","$","(2,040",")","","$","3,849"]]
[[/GREPCENT_TABLE]]

Provision for Income Taxes

The following table presents our provision for income taxes for the fiscal years presented (in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","Percentage Change"],["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["Provision for income taxes","","$","11,156","","","$","12,349","","","$","5,887","","","","(9.7",")%","","","\u2014","*"],["Effective tax rate","","","(123.2",")%","","","36.6","%","","","12.9","%"]]
[[/GREPCENT_TABLE]]

* Denotes change is greater than +100%.

Our effective tax rates differ from the U.S. federal statutory rate of 21% for 2024, 2023 and 2022, respectively, primarily due to the income taxes generated in foreign jurisdictions and realizability of deferred tax assets. Also impacting our effective tax rates was a $4.5 million recapture of our U.S. valuation allowance in 2024, $3.3 million recapture of our U.S. valuation allowance in 2023 and a $0.9 million release of our U.S. valuation allowance in 2022. Also during 2024, we recognized $1.5 million of unrecognized benefits, including interest, related to uncertain tax positions taken by us. There were no unrecognized benefits related to uncertain tax positions taken by us in 2023 or 2022.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, investments available for sale and cash flow from operating activities. We believe these sources of liquidity 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 Annual Report. We expect that cash flow from operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, working capital needs, capital expenditures, and capital deployment decisions. In addition, future capital requirements will depend on many factors including our growth rate in net sales, the timing and extent of spending to support our growth strategy, the expansion of selling and marketing activities, the timing of introductions of new products, as well as global macroeconomic factors. If our anticipated future cash flow from operating activities is insufficient to satisfy our future capital requirements in the long-term, we may need to seek additional capital.

Our financial condition at December 27, 2024, December 29, 2023 and December 30, 2022 included the following (in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","","2023","","","2022","","","2024 vs. 2023","","","2023 vs. 2022"],["Cash and cash equivalents","","$","144,159","","","$","183,038","","","$","86,480","","","$","(38,879",")","","$","96,558"],["Investments available for sale","","","86,335","","","","49,391","","","","139,061","","","","36,944","","","","(89,670",")"],["Total","","$","230,494","","","$","232,429","","","$","225,541","","","$","(1,935",")","","$","6,888"],["Current assets","","$","367,940","","","$","365,269","","","$","311,723","","","$","2,671","","","$","53,546"],["Current liabilities","","$","70,306","","","$","65,036","","","$","51,716","","","$","5,270","","","$","13,320"],["Working capital","","$","297,634","","","$","300,233","","","$","260,007","","","$","(2,599",")","","$","40,226"]]
[[/GREPCENT_TABLE]]

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.

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Our current liquidity and capital resources, as discussed above, will enable us to meet our known contractual obligations as of December 27, 2024 (in thousands):

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["Contractual Obligations","","Total","","","1 Year","","","2 \u2013 3 Years","","","4 \u2013 5 Years","","","More than 5 Years"],["Finance lease obligations (Note 8)*","","$","42","","","$","42","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Operating lease obligations (Note 8)*","","","51,301","","","","6,449","","","","11,533","","","","14,076","","","","19,243"],["Pension benefit payments (Note 10)*","","","6,737","","","","137","","","","353","","","","4,171","","","","2,076"],["Asset retirement obligation (Note 12)*","","","42","","","","28","","","","\u2014","","","","14","","","","\u2014"],["Open purchase orders (Note 12)*","","","12,948","","","","11,536","","","","1,148","","","","264","","","","\u2014"],["Total","","$","71,070","","","$","18,192","","","$","13,034","","","$","18,525","","","$","21,319"]]
[[/GREPCENT_TABLE]]

* Refer to the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Overview of changes in cash and cash equivalents and other working capital accounts

The following table presents a summary of cash flows for the fiscal years presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","","2023","","","2022"],["Cash flows from:"],["Operating activities","","$","15,725","","","$","14,594","","","$","35,715"],["Investing activities","","","(59,217",")","","","74,347","","","","(156,376",")"],["Financing activities","","","5,724","","","","7,415","","","","8,297"],["Effect of exchange rate changes","","","(1,111",")","","","202","","","","(862",")"],["Net change in cash and cash equivalents","","","(38,879",")","","","96,558","","","","(113,226",")"],["Cash and cash equivalents, at beginning of year","","","183,038","","","","86,480","","","","199,706"],["Cash and cash equivalents, at end of year","","$","144,159","","","$","183,038","","","$","86,480"]]
[[/GREPCENT_TABLE]]

For 2024, cash provided by operating activities consisted of $41.3 million in non-cash items primarily related to stock-based compensation expenses, partially offset by a $20.2 million net loss and $5.4 million in working-capital changes primarily related to the capitalization of cloud-based software and changes in inventories, partially offset by changes in accounts receivable. For 2023, cash provided by operating activities consisted of $34.1 million in non-cash items primarily related to stock-based compensation expenses and $21.3 million in net income, offset by $40.8 million in working-capital changes primarily related to changes in accounts receivable and inventories, partially offset by changes in other current liabilities. For 2022, cash provided by operating activities consisted of $39.7 million in net income and $24.9 million in non-cash items primarily related to stock-based compensation expenses, offset by $28.9 million in working-capital changes primarily related to changes in accounts receivable.

Since 2022 we decided to invest our cash in investments available for sale, in accordance with our investment policy. For 2024, cash used in investing activities resulted from $80.2 million in purchases of investments available for sale and $23.4 million in purchases of property, plant and equipment, partially offset from proceeds from the sale or maturity of investments available for sale of $44.4 million that was used to supplement working-capital. For 2023, cash provided by investment activities resulted from proceeds from the sale or maturity of investments available for sale of $144.8 million that was used to supplement working-capital, partially offset by $52.3 million in purchases of investments available for sale and $18.2 million in purchases of property, plant and equipment. For 2022, cash used in investment activities resulted from $155.7 million in purchases of investments available for sale and $18.1 million in purchases of property, plant and equipment, partially offset by $17.5 million of proceeds from the maturity of investments available for sale. Our investment in property, plant and equipment during 2024, 2023 and 2022, was primarily due to investments in manufacturing facilities.

For 2024, cash provided by financing activities of $5.7 million consisted primarily from the exercise of stock options of $7.4 million, partially offset by $1.5 million to repurchase employee common stock for taxes withheld. For 2023, cash provided by financing activities of $7.4 million consisted primarily from the exercise of stock options of $9.7 million, partially offset by $2.1 million to repurchase employee common stock for taxes withheld. For 2022, cash provided by financing activities of $8.3 million consisted primarily of proceeds from the exercise of stock options.

Accounts receivable, net was $77.9 million and $94.7 million at December 27, 2024 and December 29, 2023, respectively. Days’ Sales Outstanding (DSO) was 145 and 113 days for 2024 and 2023, respectively. As of December 27, 2024 and December 29, 2023, the Company’s China distributors accounted for 58% and 70%, respectively, of the Company’s consolidated trade receivables. During fiscal 2024, the Company’s China distributors increased their purchases in anticipation of higher procedural volumes during what is typically a summer “high

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season” in China. Due to dynamic macroeconomic conditions and other factors, the number of ICL procedures performed during the high season and the second half of 2024 overall was lower than expected. Accordingly, our distributors in China held, as of December 27, 2024, elevated levels of ICL product inventory. Our distributor agreements typically provide for payment terms between 30 and 90 days. Our DSO was higher in 2024, in part, due to the higher levels of purchases by our China distributors during the year and the lower than anticipated procedural volumes. Our China distributors have made additional payments since December 27, 2024. Prior to adding a second China distributor in fiscal 2024, we had one distributor in China. The increase in DSO in 2023 was due to extended payment terms with our China distributor due to unfavorable foreign currency conditions at such time. We have solid relationships with our distributors in China, and we believe collectability for such accounts receivable balances are reasonably assured. We do not believe the increases in net accounts receivable reflect a trend, nor that it would have a material impact on cash flows as our available liquidity and capital resources had sufficient working capital despite the increases in net accounts receivable.

Inventories, net was $43.3 million and $35.1 million at December 27, 2024 and December 29, 2023, respectively. Days’ Inventory on Hand (DOH) was 194 and 142 days for 2024 and 2023, respectively, for finished goods, including consignment inventory. In fiscal 2023 and fiscal 2024, we increased our production and inventory to support anticipated sales growth of ICL products and to support quick and efficient delivery and fulfillment for surgical procedures. Increasing our inventory levels also helps mitigate risks associated with potential disruptions to our manufacturing and production process. We intend to continue to assess appropriate inventory levels, and during fiscal 2025, we expect to adjust our production output based on forecasted demand and optimize the level of inventory held by us and held by our distributors.

Critical Accounting Estimates

Our accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make significant estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ, significantly at times, from these estimates if actual conditions differ from our assumptions.

We believe the following discussion represents our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Sales Return Reserves

We provide allowances for sales returns such that returns are matched against the sales from which they originated. While such allowances have historically been within our expectations, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Measurement of such returns is based on an expected loss model which requires consideration of, among other factors, historical returns experience and current/anticipated trends, including the need to adjust for current conditions and product lines, the entry of a competitor, and judgments about the probable effects of relevant observable data. We consider all available information in our quarterly assessments of the adequacy of the allowance for sales returns.

Stock-Based Compensation

We account for the issuance of stock options by estimating the fair value using the Black-Scholes pricing model. This model’s calculations include the exercise price, the market price of shares on grant date, risk-free interest rates, expected term of the award, expected volatility of our stock and expected dividend yield. Stock-based compensation expense for other stock-based awards is measured at the date of grant based on the fair value of the award, which is the closing price of our common stock on the date of grant. For those awards which contain a performance condition, stock-based compensation expense will be recognized when it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures, over the requisite service period based on the grant-date fair value of the stock. We reassess the probability of vesting at each reporting period and adjust stock-based compensation expense based on our probability assessment.

Income Taxes

In evaluating our ability to recover the deferred tax assets within a jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions including overall current and projected business and industry

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conditions, projected sales growth, margins, costs and income by jurisdiction, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the successful implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates management uses to manage its businesses. In evaluating the objective evidence that historical results provide, we also consider three years of cumulative operating results. Valuation allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more likely than not that some portion or all of the deferred tax asset may not be realized.

Inventories

We provide estimated inventory allowances for excess, slow moving, expiring and obsolete inventory as well as inventory whose carrying value is more than net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on the expiration of products with a shelf life of less than four months, estimated forecasts of product demand and production requirements for the next twelve months. Several factors may influence the realizability of our inventories, including significant changes in demand, decisions to exit a product line, technological change, and new product development. While such inventory losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past.

Employee Defined Benefit Plans - Pension

The liabilities and annual income or expense of our pension plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, expected years of service, salary increases and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices.

Foreign Exchange Rate Impact

Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its suppliers or customers in the last three fiscal years has materially adversely affected our ability to purchase or sell products at agreed upon prices. However, currency exchange fluctuations do impact our net sales and results of operations as discussed under Item 7A. Quantitative and Qualitative Disclosures About Market Risk. No assurance can be given that adverse currency exchange rate fluctuations will not occur in the future, which could significantly affect our operating results. We do not currently hedge transactions to offset changes in foreign currency.

Inflation

Management believes inflation has not had a significant impact on our net sales and revenues and on income from continuing operations during the past three years.

Recent Accounting Pronouncements

See “Part II. Item 8. “Financial Statements and Supplementary Data – Note 1 – Organization and Description of Business and Accounting Policies – Recent Accounting Pronouncements Not Yet Adopted” of this Annual Report on Form 10-K.