What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-27 · 132 added, 95 removed, 200 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The matters addressed in this Item 7 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created therein.

In some cases readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “plan,” “believe,” “will,” “should,” “could,” “forecast,” “potential,” “continue,” “ongoing” (or the negative of those words and similar words or expressions), although not all forward-looking statements contain these words.

In particular, these include statements about any of the following:

any projections of or guidance as to future 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 the U.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 business plans for 2024 and beyond;

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 materially from those expressed or implied by such forward-looking statements because of numerous factors, many of which are beyond our control.

These factors include, without limitation, those described in this Annual Report in “Item 1A.

Risk Factors.” We disclaim any intention or obligation to update or review any financial projections or forward-looking statements due to new information or other events except as required by law.

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.”

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 lenses used worldwide in corrective or “refractive” surgery.

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.

12 unchanged sentences

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.

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 year ended December 29, 2023, the Company reported worldwide revenue of $322.4 million, 99% of which was generated from sales of ICLs.

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

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.

“Business,” for a discussion of:

7 unchanged sentences

We want to be the first choice for doctors and for patients seeking visual freedom from wearing eyeglasses or contact lenses.

As more patients look to ICLs as a potential treatment option, we recognize the need to further educate and train ophthalmic surgeons about our ICLs and our ICL procedure.

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

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.

In addition, we are investing in enhanced systems and tools to make ordering and fulfillment faster and easier.

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 are also investing in product innovation.

In 2024, a key focus will be on our new lens delivery devices, as well continuing to develop our next generation lens technologies.

Finally, we will continue to evaluate opportunities to acquire new product lines, technologies, and companies.

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 Income for the period indicated.

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.

Percentage of Net Sales

4 unchanged sentences

Total selling, general and administrative

Operating income

Total other income (expense), net

Income before income taxes

Operating income (loss)

Total other income, net

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

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

3 unchanged sentences

Total other product sales

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.

Changes in foreign currency unfavorably impacted net sales by $2.1 million.

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.

Changes in foreign currency unfavorably impacted net sales by $12.9 million.

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 up 25%, India up 14%, other APAC Distributors up 13%, Japan up 11% and Korea up 11%.

The Europe, Middle East and Africa region sales increased 7% with units similar to prior year, due to sales increases in our distributor markets up 8% and direct markets up 7%.

The Americas region sales increased 11%, with unit increase of 9%, due to sales growth in the U.S.

up 14% and Canada up 5%, partially offset by a sales decrease in our Latin America distributor markets down 3%.

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.

1 unchanged sentence

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 32% with unit growth of 36%, primarily due to sales growth in other APAC Distributors up 43%, China up 38%, India up 37%, Korea up 18% and Japan up 14%.

The Americas region sales increased 43%, with unit increase of 35%, due to sales growth in the U.S.

up 59%, Latin America distributor markets up 11% and Canada up 10%.

The Europe, Middle East and Africa region sales decreased 2% with unit increase of 16%, due to sales decrease in our direct markets down 8%, partially offset by sales growth in our distributor markets of 9%.

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

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, includes cataract IOLs, delivery systems and normal recurring sales adjustments such as sales return allowances.

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 do not plan to sell cataract IOLs in 2024.

We do not expect this decision to have a significant impact to revenue growth in future years.

Other product sales for 2023 decreased 80% from 2022, mainly due to decreased sales of cataract IOLs, decreased sales of cataract IOL injector parts and increased sales return reserves related to cataract IOLs.

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 1.0% of our total sales for fiscal year 2023.

Other product sales in 2022 decreased 16% from 2021, mainly due to decreased cataract IOL sales.

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.

3 unchanged sentences

Gross profit margin

Gross profit for 2023 increased 13.1% from 2022.

Gross profit margin decreased 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.

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 78.5% of revenue for 2022 compared to 77.5% of revenue for 2021, due to geographic sales mix and an increased mix of ICL sales, which carry a higher margin, partially offset by increased period costs associated with manufacturing expansion projects.

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

3 unchanged sentences

Percentage of sales

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.

General and administrative expenses for 2022 increased 24.0% from 2021, due to increased facilities costs, bonus and stock-based compensation expenses, outside services and salary-related and payroll tax expenses.

Selling and Marketing Expense

1 unchanged sentence

Percentage Change

Selling and marketing expenses

Selling and marketing expense

Percentage of sales

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.

Selling and marketing expenses for 2022 increased 32.0% from 2021, due to increased advertising and promotional activities, trade shows and sales meetings expense, travel expenses and bonus and stock-based compensation expenses.

Research and Development Expense

3 unchanged sentences

Percentage of sales

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 expenses for 2022 increased 6.3% from 2021 due to increased salary-related and payroll tax expenses and bonus and stock-based compensation expenses, partially offset by decreased clinical expenses associated with our U.S.

EVO 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 (Expense), Net

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

Other Income, Net

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

Percentage Change

Other income (expense), net

Other income, net

Percentage of sales

* 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.

The change in other income (expense), net for 2022 was due to increased interest income, as a result of our investments held available for sale and higher interest rates and decreased foreign exchange losses (primarily euro).

Other income (expense), 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 (expense), net (in thousands):

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):

Favorable (Unfavorable)

Interest income (expense), net

Interest income, net

Foreign exchange

Royalty income

Net change in other income (expense), net

Net change in other income, net

Provision for Income Taxes

7 unchanged sentences

Also impacting our effective tax rates was a $4.5 million recapture of our U.S.

valuation allowance in 2023 and a $0.9 million and $3.4 million release of our U.S.

valuation allowance in 2022 and 2021, respectively.

During 2023, 2022 and 2021, there were no unrecognized benefits related to uncertain tax positions taken by us.

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

3 unchanged sentences

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):

10 unchanged sentences

There are also limits to the amount of credit exposure in any given security type.

Additionally, during 2021 we fully repaid and cancelled our Japan line of credit and cancelled our Swiss framework agreement given our current cash resources.

We do not have any off-balance sheet arrangements.

2 unchanged sentences

Contractual Obligations

More than 5 Years

Finance lease obligations (Note 8)*

14 unchanged sentences

Cash and cash equivalents, at end of year

For 2023, net cash provided by operating activities consisted of $34.1 million in non-cash items and $21.3 million in net income, offset by $40.8 million in working-capital changes.

For 2022, net cash provided by operating activities consisted of $39.7 million in net income and $24.9 million in non-cash items, offset by $28.9 million in working-capital changes.

For 2021, net cash provided by operating activities consisted of $27.5 million in net income and $18.8 million non-cash items, offset by $2.4 million in working-capital changes.

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, net 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.

For 2021, cash used in investing activities resulted from $13.6 million in purchases of property, plant and equipment.

Our investment in property, plant and equipment during 2023 and 2022, and the increase during 2022, relative to 2021, was primarily due to investments in manufacturing facilities.

For 2023, net 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, net cash provided by financing activities of $8.3 million consisted primarily of proceeds from the exercise of stock options.

For 2021, net cash provided by financing activities consisted of $19.4 million of proceeds from the exercise of stock options, partially offset by $1.3 million repayment on the Japan line of credit and $0.3 million repayment of finance lease obligations.

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 113 and 89 days, respectively for 2023 and 2022.

The increase in DSO in 2023 was temporary and was due to extended payment terms to our largest customer outside of the U.S.

due to unfavorable foreign currency conditions.

We have a solid and lengthy relationship with this customer, for which collectability is reasonably assured.

We do not believe the temporary increase in net accounts receivable reflected 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 increase in net accounts receivable.

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

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.

The increase in DOH was due to a planned increase of production to support sales growth of ICL products.

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

15 unchanged sentences

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 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.

In projecting future taxable income, we begin with historical results and incorporate assumptions including overall current and projected business and industry

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.

10 unchanged sentences

The fair values of plan assets are determined based on prevailing market prices.

Foreign Exchange

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 adversely affected our ability to purchase or sell products at agreed upon prices.

No assurance can be given, however, that adverse currency exchange rate fluctuations will not occur in the future, which could significantly affect our operating results.

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.

14 unchanged sentences

In addition, we are exposed to transaction risk because we incur some of our sales and expenses in currencies other than the U.S.

Our most significant currency exposures are to the Japanese yen, the euro, and the Swiss franc, and the exchange rates between these currencies and the U.S.

Our most significant currency exposures are

to the Japanese yen, the euro, and the Swiss franc, and the exchange rates between these currencies and the U.S.

dollar may fluctuate substantially.

4 unchanged sentences

dollar, may negatively affect our consolidated sales and gross profit as expressed in U.S.

Fluctuations during any given reporting period result in the re-measurement of our foreign currency denominated cash, receivables, and payables, generating currency transaction gains or losses and are reported in total other income (expense), net in our Consolidated Statements of Income.

Fluctuations during any given reporting period result in the re-measurement of our foreign currency denominated cash, receivables, and payables, generating currency transaction gains or losses and are reported in total other income, net in our Consolidated Statements of Operations.

In the normal course of business, we also face risks that are either non-financial or non-quantifiable.

4 unchanged sentences

Our sales in China, for example, are denominated in U.S.

During 2023, foreign currency exchange rates between the U.S.

dollar and the Chinese yuan experienced volatility.

dollar strengthened relative to the Chinese yuan, it became more expensive for our China distributor to purchase ICLs and to pay prior accounts receivable balances.

Our China distributor, who sells into China and Hong Kong, accounted for approximately 58% of our consolidated net sales during fiscal 2023.

Given the volatility in exchange rates, the Company agreed to extend payment terms to the distributor, which had a solid and lengthy relationship with the Company, and for which collectability was reasonably assured.

Our China distributors, who sell into China and Hong Kong, collectively accounted for approximately 51% of our consolidated net sales during fiscal 2024.

dollar strengthens relative to the Chinese yuan, it becomes more expensive for our China distributor to purchase ICLs and to pay prior accounts receivable balances.

In the event of significant foreign exchange volatility in the future, the Company may extend or modify payment or other terms with its customers to mitigate the potential impact on our sales.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis