STAAR Surgical Company — Form 10-Q Summary
Business context and reporting period
STAAR designs, manufactures, and sells implantable ophthalmic lenses and delivery systems, primarily implantable Collamer lenses (ICLs) for refractive surgery and intraocular lenses (IOLs) for cataract surgery. The filing covers the three months ended April 2, 2021; April 3, 2020 is the comparable period. The request identifies “2020 Q1,” but the filing is for the first quarter of fiscal 2021.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $50.8 million | $35.2 million | Up 44.2% |
| Gross profit | $39.1 million | $24.8 million | Up 58.1% |
| Gross margin | 77.1% | 70.4% | Up 670 basis points |
| Operating income (loss) | $7.5 million | $(1.1) million | Improved |
| Net income (loss) | $5.0 million | $(0.1) million | Improved |
| Diluted EPS | $0.10 | $0.00 | Improved |
| Cash flow from operations | $6.8 million | $(8.2) million | Improved |
- ICL sales were $46.5 million, up 58.5%, with ICL unit growth of 54%. ICLs represented 91.6% of total sales versus 83.4% in the prior-year quarter.
- Other product sales declined 27.3% to $4.3 million, including a 6.7% decline in IOL sales and a 71.6% decline in other surgical products.
- General and administrative expense increased 28.1% to $10.2 million; selling and marketing expense increased 19.7% to $13.2 million; and research and development expense increased 19.7% to $8.3 million.
- Other expense increased to $1.2 million from $0.2 million, primarily because of increased foreign-currency losses.
- The income tax provision was $1.2 million, compared with a $1.2 million tax benefit in the prior-year period, which included a $1.4 million U.S. valuation allowance release.
- Cash and cash equivalents were $162.3 million at April 2, 2021, up from $152.5 million at January 1, 2021. Working capital was $187.4 million.
- Capital expenditures were $2.2 million. Financing cash flow included $6.2 million from stock-option exercises and $0.2 million of finance-lease repayments.
- The company had $1.3 million outstanding under a Japanese line of credit, with approximately $3.2 million available. A $1.1 million Swiss facility had no borrowings outstanding and was fully available. The company reported compliance with credit covenants.
Material changes versus the prior comparable period
- Sales recovery following COVID-19-related disruptions drove substantial growth across major ICL markets, including China, Japan, South Korea, India, Europe, Canada, and the United States.
- Gross margin expanded because of geographic sales mix, a lower proportion of lower-margin injector-part sales, and $0.2 million of COVID-19-related period costs recorded in Q1 2020.
- Operating performance shifted from a loss to profitability, supported by higher revenue and operating expense leverage despite increased compensation, marketing, clinical-trial, and research costs.
- Operating cash flow improved by $14.9 million year over year, aided by net income and more favorable working-capital movements.
- Shares outstanding increased, partly reflecting 376,000 shares issued upon option exercises; diluted weighted-average shares increased to 49.2 million from 45.0 million.
Guidance, outlook, commentary, risks, and unusual items
- Management expects less business interruption and continued interest in EVO ICL solutions during 2021, while cautioning that COVID-19 hotspots and government mandates may recur and affect regional sales.
- The FDA received clinical data for the EVO myopia-lens family in late April, with management targeting a U.S. market launch later in 2021. The company is continuing the phased international rollout of EVO Viva, which received CE Mark approval in 2020.
- Management stated that cash, operating cash flow, and available borrowing capacity should meet anticipated needs for at least 12 months from issuance of the financial statements.
- Other product sales were affected by product-yield issues requiring rework involving preloaded injector parts manufactured by a third-party vendor, as well as lower IOL sales.
- Sales concentration remains material: a Chinese distributor represented 39% of Q1 2021 sales and 37% of trade receivables at April 2, 2021.
- COVID-19 remains a significant uncertainty, including potential elective-surgery restrictions, uneven geographic recoveries, customer payment delays, supply-chain effects, and valuation impacts on receivables, inventory, deferred taxes, and pensions.
- A stockholder derivative lawsuit alleging fiduciary-duty breaches and misleading China sales disclosures was voluntarily dismissed without prejudice on March 9, 2021.
- The company maintained a $41.5 million valuation allowance on certain U.S. deferred tax assets and had no unrecognized tax benefits.
- No material off-balance-sheet arrangements or material changes in market risk were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm whether ICL unit growth and demand recovery continue after the post-shutdown comparison period.
- Monitor China distributor concentration, collections, credit exposure, and any changes in sales or receivables concentration.
- Assess whether the 77.1% gross margin is sustainable as product mix, injector-part issues, foreign exchange, and geographic mix change.
- Track FDA review and potential U.S. commercialization timing for EVO lenses, as well as the international EVO Viva rollout.
- Evaluate the effect of COVID-19 resurgences, elective-surgery restrictions, and related supply or manufacturing disruptions.
- Review the recurring cash impact of stock-based compensation, option exercises, pension obligations, lease commitments, and foreign-currency volatility.
- Verify future tax expense and deferred-tax-asset realizability, including the continuing U.S. valuation allowance.