STAAR Surgical Company — Form 10-Q Summary
Reporting period: Quarter and six months ended July 2, 2021, compared with July 3, 2020. The provided metadata identifies “2020 Q2,” but the filing is the 2021 second-quarter Form 10-Q, filed August 4, 2021.
Business Context
STAAR designs, manufactures, and sells implantable ophthalmic lenses and delivery systems. Its principal products are implantable Collamer lenses (ICLs) for refractive surgery and intraocular lenses (IOLs) for cataract surgery. The company operates as one ophthalmic surgical products segment, manufactures in the United States, and sells in more than 75 countries.
Key Financial Metrics
| Metric | Three Months Ended July 2, 2021 | Three Months Ended July 3, 2020 | Six Months Ended July 2, 2021 | Six Months Ended July 3, 2020 |
|---|---|---|---|---|
| Net sales | $62.4 million | $35.2 million | $113.1 million | $70.4 million |
| Gross profit | $49.2 million | $24.4 million | $88.3 million | $49.2 million |
| Gross margin | 78.9% | 69.4% | 78.1% | 69.9% |
| Operating income (loss) | $10.6 million | $(1.1) million | $18.1 million | $(2.2) million |
| Net income (loss) | $8.6 million | $(1.2) million | $13.6 million | $(1.3) million |
| Diluted EPS | $0.17 | $(0.03) | $0.27 | $(0.03) |
| Cash flow from operating activities | Not separately provided | Not separately provided | $13.1 million | $(8.2) million |
ICL sales were $59.2 million in the second quarter and $105.7 million for the first half, representing 95.0% and 93.5% of total sales, respectively. Second-quarter ICL sales increased 92.8%, with unit growth of 79%. China represented 53% of second-quarter net sales and 55% of trade receivables at quarter-end.
Balance Sheet, Debt, and Liquidity
- Cash and cash equivalents were $173.1 million at July 2, 2021, up from $152.5 million at January 1, 2021.
- Working capital was $206.3 million, compared with $175.2 million at year-end 2020.
- Total liabilities were $59.8 million; stockholders’ equity was $234.6 million.
- The Japanese subsidiary had approximately $1.3 million outstanding on an unsecured line of credit, with approximately $3.2 million available. The facility was expected to be renewed in August 2021 on similar terms.
- The Swiss subsidiary cancelled an immaterial framework agreement during the second quarter. The company stated that it was in compliance with its credit-facility covenants.
- Operating lease liabilities totaled $11.4 million and finance lease liabilities totaled $0.1 million at quarter-end.
- Management stated that cash and expected operating cash flow should satisfy anticipated needs, including working capital, capital expenditures, and contractual obligations, for at least 12 months.
Material Changes Versus the Prior Comparable Period
- Second-quarter sales increased 77.2%; first-half sales increased 60.7%, primarily due to recovery in elective refractive surgeries and higher ICL demand as markets reopened after COVID-19 disruptions.
- Gross margin expanded by 9.5 percentage points in the quarter and 8.2 percentage points for the first half, reflecting geographic mix, a lower proportion of lower-margin injector-part sales, and the prior-year COVID-19 manufacturing-pause costs.
- Operating results shifted from losses to profitability. Selling and marketing expense increased 82.6% in the quarter as compensation, advertising, promotional activity, trade shows, travel, and entertainment resumed.
- Other product sales declined 29.9% in the quarter and 28.4% year-to-date, partly because of product-yield issues involving preloaded injector parts supplied by a third-party vendor and lower IOL sales.
- Operating cash flow improved by $21.3 million year over year, from an $8.2 million use to $13.1 million provided. The improvement reflected higher net income and noncash items, partially offset by working-capital investment, particularly accounts receivable.
- Financing cash flow included $14.1 million of proceeds from stock-option exercises, contributing to the increase in cash.
Guidance, Outlook, Risks, and Unusual Items
- Management raised fiscal 2021 net-sales guidance to $227 million–$230 million from the prior range of $215 million–$217 million.
- Management expected less business interruption from COVID-19 and continued interest in EVO ICL solutions, but acknowledged that renewed hotspots and public-health mandates could disrupt operations and sales.
- The FDA was conducting an interactive review of the company’s EVO myopia-lens submission, with a goal of bringing the product to the U.S. market later in 2021. The company was also continuing the phased international rollout of EVO Viva for presbyopia.
- Sales and receivables are highly concentrated in one Chinese distributor, which accounted for 53% of quarterly sales, 46% of first-half sales, and 55% of quarter-end trade receivables.
- Foreign-currency losses reduced other income during the quarter and produced $1.4 million of foreign-currency losses for the first half.
- The company recorded a $3.4 million first-half income-tax provision, including an $0.8 million recapture of a U.S. valuation allowance. U.S. federal and state valuation allowances totaled approximately $45.2 million at quarter-end.
- Known litigation, including contractual, employment, and product-liability matters, was not expected by management to have a material adverse effect, although unexpected outcomes could be financially significant.
- The company identified no material off-balance-sheet arrangements and reported effective disclosure controls with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the reporting-period discrepancy between the request metadata and the actual filing period ended July 2, 2021.
- Assess the sustainability of ICL growth and the extent to which comparisons benefit from the COVID-19-affected 2020 base period.
- Monitor dependence on the Chinese distributor and concentration of related accounts receivable.
- Track progress, regulatory timing, and commercialization risks for EVO and EVO Viva products.
- Evaluate the impact of injector-part yield issues and declining non-ICL product sales on future revenue and margins.
- Review COVID-19 developments, foreign-exchange exposure, tax valuation allowances, lease obligations, and the renewal of the Japanese credit line.