February 28, 2024
VIA EDGAR TRANSMISSION
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
100 F Street, N.E.
Washington, D.C. 20549
Attention: |
Nudrat Salik |
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Terence O’Brien |
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RE: |
STAAR Surgical Company |
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Form 10-Q for Period Ended September 30, 2023 |
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Form 8-K Filed November 1, 2023 |
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File No. 000-11634 |
Ladies and Gentlemen:
STAAR Surgical Company (the “Company”) received your letter dated February 15, 2024 (the “February Letter”). In the February Letter, you acknowledged the Company’s responses to the comments of the Staff of the Division of Corporation Finance (the “SEC” or the “Staff”) contained in your letter dated December 6, 2023 (the “December Letter”), related to the Company’s filings referenced above. In the February Letter, you requested additional information regarding the Company’s Form 8-K Filed November 1, 2023. This letter provides the Company’s response to the Staff comment contained in the February Letter. For your convenience, we have reproduced below in bold the Staff comment, and we have provided our response immediately below the comment.
Form 8-K, Filed November 1, 2023
Exhibit 99.1
Response:
Given investor focus on the Company’s business, operations and financial results associated with its implantable Collamer lenses (“ICL”) product line, the Company intended to provide greater clarity for investors on its core ICL business by presenting Adjusted Net Income for ICL and including multiple tables in its earnings release (Exhibit 99.1). As discussed in the Company’s response to the December Letter, the Company had stopped manufacturing its preloaded silicone cataract intraocular lenses (“IOLs”) in 2023, and it increased its sales return reserve and inventory reserve related to cataract IOLs during 2023. The Company does not consider net sales from cataract IOLs material to its financial results, nor does it consider its cataract IOL product line material to its business. Given that the Company does not expect any revenue or expense associated with cataract IOLs in 2024 and thereafter, nor does it expect any changes to associated sales return reserves and inventory reserves in 2024 or thereafter, the Company made a determination not to include the Non-GAAP information related to Adjusted Net Income for ICL contained in Exhibit 99.1 in its earnings release issued on February 26, 2024 with respect to the Company’s fourth quarter and year ended December 29, 2023. Further, the Company will not include such information in future earnings releases going forward.
25651 Atlantic Ocean Drive | Lake Forest, CA 92630 | (626) 303-7902
The table below sets forth the amount of net sales associated with the Company’s ICLs, cataract IOLs and other surgical products on a quarterly basis for the trailing twelve months ended September 29, 2023 (dollars in thousands):
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Quarter Ended |
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September 30, 2022 |
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March 31, 2023 |
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June 30, 2023 |
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September 29, 2023 |
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Sales |
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% of Total |
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Sales |
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% of Total |
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Sales |
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% of Total |
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Sales |
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% of Total |
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ICL Sales |
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$ |
71,953 |
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94.6 |
% |
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$ |
70,625 |
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96.1 |
% |
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$ |
93,112 |
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100.9 |
% |
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$ |
81,069 |
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100.9 |
% |
Cataract IOL Sales |
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2,191 |
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2.9 |
% |
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1,476 |
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2.0 |
% |
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40 |
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0.0 |
% |
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(221 |
) |
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(0.3 |
)% |
Other surgical products sales(1) |
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1,902 |
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2.5 |
% |
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1,427 |
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1.9 |
% |
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(846 |
) |
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(0.9 |
)% |
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(540 |
) |
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(0.6 |
)% |
Net Sales |
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$ |
76,046 |
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100.0 |
% |
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$ |
73,528 |
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100.0 |
% |
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$ |
92,306 |
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100.0 |
% |
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$ |
80,308 |
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100.0 |
% |
_______________
(1) Other surgical products sales includes delivery systems and normal recurring sales adjustments such as sales return reserves.
The Company acknowledges that sales return reserves and inventory reserves for products are normal, recurring types of operating expenses, and that such reserves for the Company’s ICL product line are reflected in the Company’s financial results. However, the Company did not believe that the sales return reserves and inventory reserves associated with its cataract IOL product line were normal, recurring types of operating expenses as of the quarter ended September 29, 2023, nor that these reserves and expenses were material. This is supported by the fact that the Company had phased out sales of its cataract IOLs and did not record any revenue or any additional reserves from cataract IOLs in the third quarter ended September 29, 2023, did not record any revenue or expense from cataract IOLs in the fourth quarter ended December 29, 2023, and did not and does not expect to sell any cataract IOLs in 2024. In assessing materiality, the Company considered the impact of the excluded amounts on its reported non-GAAP financial results, as set forth in the table below (dollars in thousands):
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Three Months Ended September 29, 2023 |
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As reported |
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Revised |
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Difference |
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% of Sales |
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$ |
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% of Sales |
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$ |
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% |
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$ |
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Net sales: |
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Net sales, GAAP |
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100.0 |
% |
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$ |
80,308 |
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100.0 |
% |
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$ |
80,308 |
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Less: Cataract IOL (sales) returns |
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— |
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221 |
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Add: Cataract IOL sales return reserve(1) |
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— |
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— |
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Adjusted Net sales, Non-GAAP |
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100.0 |
% |
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$ |
80,308 |
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100.0 |
% |
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$ |
80,529 |
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0.0 |
% |
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$ |
221 |
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Cost of sales: |
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Cost of sales, GAAP |
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20.8 |
% |
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$ |
16,670 |
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20.8 |
% |
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$ |
16,670 |
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Add: Cataract IOL cost of sales |
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— |
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135 |
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Less: Cataract IOL inventory reserve |
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— |
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— |
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Adjusted Cost of sales, Non-GAAP |
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20.8 |
% |
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$ |
16,670 |
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20.9 |
% |
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$ |
16,805 |
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0.1 |
% |
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$ |
135 |
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Gross profit and gross profit margin: |
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Gross profit and gross profit margin, GAAP |
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79.2 |
% |
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$ |
63,638 |
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79.2 |
% |
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$ |
63,638 |
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Less: Cataract IOL gross margin |
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— |
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86 |
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Add: Cataract IOL sales return reserve(1) |
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— |
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— |
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Add: Cataract IOL inventory reserve |
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— |
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— |
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Adjusted Gross profit and gross profit margin, Non-GAAP |
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79.2 |
% |
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$ |
63,638 |
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79.1 |
% |
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$ |
63,724 |
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(0.1 |
)% |
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$ |
86 |
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_______________
(1) Amount included in other surgical products sales.
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Nine Months Ended September 29, 2023 |
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As reported |
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Revised |
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Difference |
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% of Sales |
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$ |
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% of Sales |
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$ |
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% |
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$ |
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Net sales: |
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Net sales, GAAP |
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100.0 |
% |
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$ |
246,142 |
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100.0 |
% |
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$ |
246,142 |
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Less: Cataract IOL (sales) returns |
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— |
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(1,295 |
) |
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Add: Cataract IOL sales return reserve(1) |
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742 |
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742 |
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Adjusted Net sales, Non-GAAP |
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100.0 |
% |
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$ |
246,884 |
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100.0 |
% |
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$ |
245,589 |
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0.0 |
% |
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$ |
(1,295 |
) |
Cost of sales: |
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Cost of sales, GAAP |
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22.0 |
% |
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$ |
54,216 |
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22.0 |
% |
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$ |
54,216 |
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Add: Cataract IOL cost of sales |
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— |
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(790 |
) |
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Less: Cataract IOL inventory reserve |
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(2,800 |
) |
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(2,800 |
) |
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Adjusted Cost of sales, Non-GAAP |
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20.8 |
% |
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$ |
51,416 |
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20.6 |
% |
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$ |
50,626 |
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(0.2 |
)% |
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$ |
(790 |
) |
Gross profit and gross profit margin: |
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Gross profit and gross profit margin, GAAP |
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78.0 |
% |
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$ |
191,926 |
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78.0 |
% |
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$ |
191,926 |
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Less: Cataract IOL gross margin |
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— |
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(505 |
) |
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Add: Cataract IOL sales return reserve(1) |
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|
742 |
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|
742 |
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Add: Cataract IOL inventory reserve |
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2,800 |
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2,800 |
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Adjusted Gross profit and gross profit margin, Non-GAAP |
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79.2 |
% |
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$ |
195,468 |
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79.4 |
% |
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$ |
194,963 |
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0.2 |
% |
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$ |
(505 |
) |
_______________
(1) Amount included in other surgical products sales.
The Company considered the guidance in Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations, including the nature and effect of the non-GAAP adjustment and how it relates to the Company's operations, revenue generating activities, business strategy, industry and regulatory environment and non-GAAP measures. The Company did not and does not view sales of cataract IOLs, and the associated sales return reserves and inventory reserves which were not repeating by the quarter ended September 29, 2023, as material to its operations, revenue generating activities, business strategy, industry and regulatory environment, and non-GAAP measures.
* * *
We hope that this response satisfactorily addresses the comment in your February Letter. If you have any further comments or questions or require any additional information, please contact me at (626) 303-7902 extension 2204, or pwilliams@staar.com.
Very truly yours,
/s/ PATRICK F. WILLIAMS
Patrick F. Williams
Chief Financial Officer
STAAR Surgical Company
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