STAAR Surgical Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 1, 2021, compared with October 2, 2020. The supplied request metadata identifies “2020 Q3,” but the filing itself is for fiscal 2021 Q3. Financial statements are unaudited and prepared under U.S. GAAP.
Business Context
STAAR designs, manufactures, and sells implantable ophthalmic lenses and delivery systems. Implantable Collamer lenses (ICLs) used in refractive surgery represented 92.8% of quarterly sales and 93.2% of nine-month sales. The company manufactures in the United States and sells in more than 75 countries, with China and Japan as its largest country markets.
Key Financial Metrics
| Metric | Three Months Ended October 1, 2021 | Year-over-Year Change | Nine Months Ended October 1, 2021 | Year-over-Year Change |
|---|---|---|---|---|
| Net sales | $58.4 million | +23.9% | $171.5 million | +46.0% |
| Gross profit | $45.3 million | +29.9% | $133.6 million | +59.0% |
| Gross margin | 77.6% | Up from 74.1% | 77.9% | Up from 71.6% |
| Operating income | $7.8 million | +60.5% | $26.0 million | +864.2% |
| Net income | $6.0 million | +54.7% | $19.6 million | +657.4% |
| Diluted earnings per share | $0.12 | Up from $0.08 | $0.40 | Up from $0.05 |
| Operating cash flow | Not provided quarterly | — | $35.5 million | Up from $1.4 million |
| Capital expenditures | Not separately provided quarterly | — | $9.0 million | Up from $6.3 million |
- Quarterly selling, general and administrative expenses were $37.5 million, or 64.2% of sales, versus 63.7% in the prior-year quarter. Selling and marketing expense increased 43.7% to $18.2 million.
- Nine-month research and development expense increased 8.0% to $24.8 million; quarterly R&D declined 5.5% due mainly to lower EVO clinical-trial costs.
- Foreign exchange losses contributed to other expense of $0.5 million for the quarter and $1.6 million for the nine months.
- Cash and cash equivalents were $196.2 million at October 1, 2021, compared with $152.5 million at January 1, 2021. Working capital was $217.1 million.
- Total liabilities were $75.5 million and stockholders’ equity was $249.1 million. The company had $1.3 million outstanding under a Japanese line of credit and $3.2 million of remaining availability.
- Net cash provided by financing activities was $18.0 million, primarily from $18.3 million of stock-option exercise proceeds.
Material Changes Versus the Prior Comparable Period
- Growth was driven by ICL sales, which increased 30.5% in the quarter and 57.4% for the nine months. ICL unit growth was 29% in the quarter and 52% for the nine months.
- Other product sales declined 24.9% in the quarter and 27.2% for the nine months, reflecting lower cataract IOL sales and product-yield and rework issues involving preloaded injector parts.
- Gross-margin expansion reflected geographic sales mix, a lower proportion of lower-margin injector-part sales, and comparison with $1.2 million of COVID-related manufacturing-pause costs in the 2020 nine-month period.
- Operating profitability improved substantially despite higher general and administrative and selling and marketing expenses.
- The company issued or sold shares through option exercises, increasing outstanding shares from 46.4 million at January 1, 2021 to 47.6 million at October 1, 2021.
- Property, plant and equipment increased to $32.3 million from $24.0 million, while operating lease right-of-use assets increased to $22.0 million from $8.8 million, primarily reflecting manufacturing and facility investments.
Guidance, Outlook, Risks, and Unusual Items
- Management did not provide a clear formal revenue or earnings guidance figure in the filing. The company stated that current cash and expected operating cash flow should meet anticipated needs for at least 12 months.
- ICL orders exceeded available supply during the quarter. COVID-related employment and production constraints and modest supply-chain challenges contributed to a backlog exceeding 20,000 lenses at quarter-end, representing several million dollars of orders.
- The company stated that its EVO ICL U.S. submission remained under customary interactive FDA review. A formal response had extended beyond the late-October date implied by MDUFA IV performance goals, although management reported nothing unusual in the review process.
- COVID-19 continues to create uncertainty around elective procedures, geographic recovery, production, supply chains, customer payments, and future sales. Management reported improved collections since the third quarter of 2020 and no known material impairment of receivables or assets.
- One Chinese distributor accounted for 49% of quarterly sales and 47% of nine-month sales and represented 47% of trade receivables at October 1, 2021, creating significant customer and geographic concentration.
- The Japanese credit facility was scheduled to mature on November 21, 2021; management expected to repay it in full using existing cash. The company reported compliance with its credit-facility covenants.
- Known litigation consists of ordinary-course contractual, employment, and product-liability matters. Management did not believe known claims were likely to materially affect financial condition or results, but adverse developments could cause significant harm.
- U.S. federal and state deferred-tax valuation allowances totaled $46.5 million at October 1, 2021. The nine-month tax provision included an $0.8 million recapture of a U.S. valuation allowance.
- Stock-based compensation expense was $11.0 million for the nine months, compared with $9.0 million in the prior-year period.
Most Important Facts for Investors to Verify
- Whether production capacity and supply-chain actions reduce the reported backlog and allow shipments to catch up with demand.
- The timing and outcome of FDA review and potential U.S. approval of the EVO ICL family.
- The sustainability of ICL growth, particularly in China, and the concentration risk associated with the principal Chinese distributor.
- Whether gross margins remain near 78% as product mix, manufacturing costs, and injector-part issues evolve.
- The impact of COVID-19 resurgences, elective-surgery restrictions, foreign exchange movements, and customer payment conditions.
- Future capital expenditures and lease commitments, including approximately $22.1 million of recognized finance and operating lease liabilities and $25.9 million of undiscounted operating-lease payments.
- Changes in deferred-tax valuation allowances and the company’s ability to realize U.S. deferred tax assets.