STAAR SURGICAL CO

The following table shows the percentage of our total sales represented by certain items reflected in our Condensed Consolidated Statements of Income for the periods indicated.

Net Sales

The following table presents our net sales, by product (dollars in thousands):

Net sales for the three months ended March 28, 2025 decreased 45% from the same period of 2024, primarily due to decreased China sales, partially offset by increased other product sales. The sales decrease was driven by the APAC region, which decreased by 61%, with ICL unit decrease of 62%. The decrease in the APAC region was driven by decreased sales in China, partially offset by sales growth in Korea and Japan. The Company expects China sales to return to normalized levels beginning in the third quarter of 2025. The EMEA region sales increased 10% with ICL unit growth up 10%, due to sales growth in our distributor and direct markets. The Americas region sales increased 9%, with ICL unit growth up 3%, primarily due to sales growth in the U.S. and our Latin America distributor markets. Changes in foreign currency unfavorably impacted net sales by $0.5 million.

Other product sales includes delivery systems and normal recurring sales adjustments such as sales return allowances.

Gross Profit

The following table presents our gross profit and gross profit margin (dollars in thousands):

Gross profit for the three months ended March 28, 2025 decreased 54.1%, from the same period of 2024. Gross profit margin decreased to 65.8% of revenue for the three months ended March 28, 2025 compared to 78.9% of revenue for the three months ended March 29, 2024, due primarily to higher manufacturing costs per unit due to lower production volume, increased excess and obsolete inventory reserves and period costs associated with the expansion of the Company’s manufacturing capabilities in its Nidau, Switzerland facility.

General and Administrative Expense

The following table presents our general and administrative expenses (dollars in thousands):

General and administrative expenses for the three months ended March 28, 2025 increased 5.3% from the same period of 2024 due to increased salary-related and payroll tax expenses.

Selling and Marketing Expense

The following table presents our selling and marketing expenses (dollars in thousands):

Selling and marketing expenses for the three months ended March 28, 2025 decreased 7.8% from the same period of 2024 due to decreased advertising and promotional activities.

Research and Development Expense

The following table presents our research and development expenses (dollars in thousands):

Research and development expenses for the three months ended March 28, 2025 increased 2.1% from the same period of 2024, due mainly to increased salary-related and payroll tax expenses, partially offset by decreased clinical expenses.

Restructuring, Impairment and Related Charges

The following table presents our restructuring, impairment and related charges (dollars in thousands):

In the first quarter of 2025, we took a number of steps to change our leadership team, realign our leadership structure to better address market needs, reduce costs and discretionary spending and better position the Company to return to sustainable growth. As part of the leadership realignment and related efforts, during the three months ended March 28, 2025, we recognized costs related to severance, reduction in workforce, and consulting expenses of $9,447,000; impairment expenses on leasehold improvements and machinery and equipment of $7,059,000 as we will no longer be using these assets; and impairment on real property right-of-use assets of $3,407,000, as we are actively pursuing subleasing opportunities for two of our leased properties. In addition, we also recognized impairment of $2,751,000 for internally developed software that we will no longer be using as we will transition to a cloud-based software solution.

Other Income, Net

The following table presents our other income, net (dollars in thousands):

The increase in other income, net for the three months ended March 28, 2025, was due mainly to higher foreign exchange gains for the three months ended March 28, 2025.

Income Taxes

The following table presents our income tax provision (benefit) (dollars in thousands):

The effective tax rates for the three months ended March 28, 2025 and March 29, 2024 were 0.5% and (51.0)%, respectively. Our effective tax rates differ from the U.S. federal statutory rate of 21%, primarily due to the income tax expense generated in foreign jurisdictions.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, investments available for sale (“AFS”) 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. 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 March 28, 2025 and December 27, 2024 included the following (in thousands):

Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions. Our investment policy’s 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 of 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.

A summary of cash flows for the three months ended March 28, 2025 and March 29, 2024 was as follows (in thousands):

For the three months ended March 28, 2025, net cash used in operating activities consisted of $54.2 million in net loss; partially offset by $29.4 million in working-capital changes primarily rated to changes in accounts receivable, partially offset by changes in inventory, and $19.1 million in non-cash items primarily related to impairment on fixed assets and operating leases and stock-based compensation. For the three months ended March 29, 2024 net cash provided by operating activities consisted of $16.8 million in working-capital changes primarily related to changes in accounts receivable and cloud-based software, partially offset by changes in other liabilities and inventories; and $8.2 million in non-cash items primarily related to stock based compensation expenses, partially offset by a net loss of $3.3 million.

For the three months ended March 28, 2025, net cash provided by investment activities was $35.4 million which consisted of $51.1 million of proceeds from the maturity of investments AFS, partially offset by $14.7 million in purchases of investments AFS. For the three months ended March 29, 2024, net cash provided by investment activity was $16.2 million which consisted of $20.5 million of proceeds from the maturity of investments AFS, partially offset by $5.2 million in purchases of property, plant and equipment.

Net cash used by financing activities for the three months ended March 28, 2025 was $0.9 million which primarily consisted of $1.3 million to repurchase employee common stock for taxes withheld. For the three months ended March 29, 2024, net cash provided by financing activities was $4.1 million which consisted of $5.3 million of proceeds from the exercise of stock options, partially offset by $1.2 million to repurchase employee common stock for taxes withheld.

Commitments

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective February 26, 2025. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements.