Staar Surgical Earnings 2020-04-03

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

staa-10q_20200403.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: April 3, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-11634

STAAR SURGICAL COMPANY

(Exact Name of Registrant as Specified in its Charter)

Delaware	95-3797439
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
25651 Atlantic Ocean Drive Lake Forest, California	92630
(Address of Principal Executive Offices)	(Zip Code)

(626) 303-7902

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common	STAA	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The registrant has 45,109,006 shares of common stock, par value $0.01 per share, issued and outstanding as of May 1, 2020.

STAAR SURGICAL COMPANY

INDEX

		PAGE NUMBER

PART I – FINANCIAL INFORMATION		1

ITEM 1	FINANCIAL STATEMENTS	1

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

ITEM 4.	CONTROLS AND PROCEDURES	24

PART II – OTHER INFORMATION		24

ITEM 1.	LEGAL PROCEEDINGS	24

ITEM 1A.	RISK FACTORS	24

ITEM 4.	MINE SAFETY DISCLOSURES	25

ITEM 5.	OTHER INFORMATION	25

ITEM 6.	EXHIBITS	26

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

	April 3, 2020			January 3, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	110,851		$	119,968
Accounts receivable trade, net of allowance of doubtful accounts of $49 and $88, respectively		34,492			30,996
Inventories, net		17,565			17,142
Prepayments, deposits and other current assets		9,168			6,560
Total current assets		172,076			174,666
Property, plant and equipment, net		20,184			17,065
Finance lease right-of-use assets, net		717			1,867
Operating lease right-of-use assets, net		6,038			6,684
Intangible assets, net		287			296
Goodwill		1,786			1,786
Deferred income taxes		5,112			3,750
Other assets		588			751
Total assets	$	206,788		$	206,865
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	1,316		$	1,827
Accounts payable		9,507			8,050
Obligations under finance leases		557			560
Obligations under operating leases		2,531			2,700
Allowance for sales returns		3,761			3,644
Other current liabilities		12,230			17,697
Total current liabilities		29,902			34,478
Obligations under finance leases		132			366
Obligations under operating leases		3,612			4,086
Asset retirement obligations		210			211
Pension liability		7,965			7,840
Total liabilities		41,821			46,981
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized: 45,105 and 44,822 shares issued and outstanding at April 3, 2020 and January 3, 2020, respectively		451			448
Additional paid-in capital		309,480			304,288
Accumulated other comprehensive loss		(3,026	)		(3,048	)
Accumulated deficit		(141,938	)		(141,804	)
Total stockholders’ equity		164,967			159,884
Total liabilities and stockholders’ equity	$	206,788		$	206,865

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	April 3, 2020			March 29, 2019
Net sales	$	35,187		$	32,583
Cost of sales		10,427			8,403
Gross profit		24,760			24,180
Selling, general and administrative expenses:
General and administrative		7,969			6,837
Marketing and selling		11,028			10,143
Research and development		6,898			5,635
Total selling, general and administrative expenses		25,895			22,615
Operating income (loss)		(1,135	)		1,565
Other income (expense), net:
Interest income, net		216			271
Loss on foreign currency transactions		(468	)		(248	)
Royalty income		94			171
Other income, net		1			97
Total other income (expense), net		(157	)		291
Income (loss) before income taxes		(1,292	)		1,856
Provision (benefit) for income taxes		(1,158	)		489
Net income (loss)	$	(134	)	$	1,367
Net income (loss) per share:
Basic	$	—		$	0.03
Diluted	$	—		$	0.03
Weighted average shares outstanding:
Basic		44,953			44,235
Diluted		44,953			46,913

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended
	April 3, 2020			March 29, 2019
Net income (loss)	$	(134	)	$	1,367
Other comprehensive income (loss):
Defined benefit plans:
Net change in plan assets		(25	)		(26	)
Reclassification into other income, net		70			26
Foreign currency translation loss		(27	)		(43	)
Tax effect		4			20
Other comprehensive income (loss), net of tax		22			(23	)
Comprehensive income (loss)	$	(112	)	$	1,344

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Three Months Ended
	Common Stock Shares		Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Compre- hensive Income (Loss)			Accumulated Deficit			Total
Balance, at January 3, 2020		44,822	$	448	$	304,288		$	(3,048	)	$	(141,804	)	$	159,884
Net loss		—		—		—			—			(134	)		(134	)
Other comprehensive income		—		—		—			22			—			22
Common stock issued upon exercise of options		196		2		2,002			—			—			2,004
Stock-based compensation		—		—		3,190			—			—			3,190
Vested restricted stock		87		1		—			—			—			1
Balance, at April 3, 2020		45,105	$	451	$	309,480		$	(3,026	)	$	(141,938	)	$	164,967
Balance, at December 28, 2018		44,195	$	442	$	289,584		$	(1,320	)	$	(156,280	)	$	132,426
Net income		—		—		—			—			1,367			1,367
Impact of the adoption of lease accounting standard		—		—		—			—			113			113
Impact of adoption of nonemployee share-based payment standard		—		—		(315	)		—			315			—
Other comprehensive loss		—		—		—			(23	)		—			(23	)
Common stock issued upon exercise of options		74		—		623			—			—			623
Stock-based compensation		—		—		2,830			—			—			2,830
Vested restricted stock		178		2		—			—			—			2
Balance, at March 29, 2019		44,447	$	444	$	292,722		$	(1,343	)	$	(154,485	)	$	137,338

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	April 3, 2020			March 29, 2019
Cash flows from operating activities:
Net income (loss)	$	(134	)	$	1,367
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property, plant, and equipment		766			1,222
Amortization of intangibles		9			8
Deferred income taxes		(1,369	)		79
Change in net pension liability		173			119
Loss on disposal of property and equipment		3			—
Stock-based compensation expense		2,921			2,641
Provision for sales returns and bad debts		80			(34	)
Inventory provision		336			455
Changes in working capital:
Accounts receivable		(3,462	)		(554	)
Inventories		(491	)		(7	)
Prepayments, deposits, and other current assets		(2,446	)		(2,317	)
Accounts payable		907			(185	)
Other current liabilities		(5,464	)		(2,063	)
Net cash provided by (used in) operating activities		(8,171	)		731
Cash flows from investing activities:
Acquisition of property and equipment		(2,185	)		(2,203	)
Acquisition of patents and licenses		—			(30	)
Net cash used in investing activities		(2,185	)		(2,233	)
Cash flows from financing activities:
Repayment of finance lease obligations		(236	)		(365	)
Repayment on line of credit		(505	)		(499	)
Proceeds from the exercise of stock options		2,004			622
Proceeds from vested restricted stock		1			2
Net cash provided by (used in) financing activities		1,264			(240	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(25	)		(24	)
Decrease in cash, cash equivalents and restricted cash		(9,117	)		(1,766	)
Cash, cash equivalents and restricted cash, at beginning of the period		119,968			103,999
Cash, cash equivalents and restricted cash, at end of the period	$	110,851		$	102,233

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 1 — Basis of Presentation and Significant Accounting Policies

The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of January 3, 2020 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2020.

The Condensed Consolidated Financial Statements for the three months ended April 3, 2020 and March 29, 2019, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three months ended April 3, 2020 and March 29, 2019, are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in 000’s):

	April 3, 2020		January 3, 2020		March 29, 2019
Cash and cash equivalents	$	110,851	$	119,968	$	102,111
Restricted cash⁽¹⁾		—		—		122
Total cash, cash equivalents and restricted cash	$	110,851	$	119,968	$	102,233

⁽¹⁾	Included in other assets on the Condensed Consolidated Balance Sheets.

The Company had restricted cash set aside as collateral for a standby letter of credit required by the California Department of Public Health for unforeseen future regulatory costs related to the decommissioning of certain manufacturing equipment. Since the quarter ended June 28, 2019, the Company was no longer required to set aside collateral for this standby letter of credit.

Vendor Concentration

There were no vendors which accounted for over 10% of the Company’s consolidated accounts payable as of April 3, 2020. There was one vendor which accounted for over 11% of the Company’s consolidated accounts payable as of January 3, 2020.

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)

Use of Estimates

During the COVID-19 pandemic, the Company believes it has used reasonable estimates and assumptions in determining valuation allowances for uncollectible trade receivables, sales returns reserves, obsolete and excess inventory reserves, deferred income taxes, and tax reserves, including valuation allowances for deferred tax assets, pension liabilities, evaluation of asset impairment, in determining the useful life of depreciable and definite-lived intangible assets, and in the variables and assumptions used to calculate and record stock-based compensation. Toward the end of the quarter ended April 3, 2020, the Company’s customers began experiencing delays in customer payments. At this time, the Company is not aware of any impairment of customer receivables. The Company’s sales representatives throughout the world remain engaged with customers conducting online training and other educational courses which have been very well attended. This activity gives the Company insight as to the impact to customers of COVID-19 and potential impairment of receivables.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted

On January 4, 2020 (beginning of fiscal year 2020), the Company adopted Accounting Standards Update (“ASU”) 2016‑13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model; and (ii) provides for recording credit losses on available-for-sale debt securities through an allowance account. ASU 2016-13 also requires certain incremental disclosures. Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2020-02 and ASU 2020-03 to clarify and improve ASU 2016-13. The adoption of ASU 2016-13 did not have a material impact on the Condensed Consolidated Financial Statements.

On January 4, 2020 (beginning of fiscal year 2020), the Company adopted ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies certain disclosures requirements for reporting fair value measurements. The adoption of ASU 2018-13 did not have a material impact on the Condensed Consolidated Financial Statements.

On January 4, 2020 (beginning of fiscal year 2020), the Company adopted ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20); Disclosure Framework – Changes in the Disclosure Requirement for Defined Benefit Plans,” which modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. The adoption of ASU 2018-14 did not have a material impact on the Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 removes the following exceptions: exception to the incremental approach for intra period tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception to interim period tax accounting for year to date losses that exceed anticipated losses. ASU 2019-12 also improves financial reporting for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021 (beginning of fiscal year 2021) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 2 — Inventories

Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands):

	April 3, 2020		January 3, 2020
Raw materials and purchased parts	$	4,252	$	3,334
Work in process		2,079		1,870
Finished goods		12,316		12,976
Total inventories, gross		18,647		18,180
Less inventory reserves		1,082		1,038
Total inventories, net	$	17,565	$	17,142

Note 3 — Prepayments, Deposits, and Other Current Assets

Prepayments, deposits, and other current assets consisted of the following (in thousands):

	April 3, 2020		January 3, 2020
Prepayments and deposits	$	4,382	$	3,031
Prepaid insurance		1,079		1,488
Consumption tax receivable		1,192		875
Value added tax (VAT) receivable		1,355		713
Other⁽¹⁾		1,160		453
Total prepayments, deposits and other current assets	$	9,168	$	6,560

⁽¹⁾	No individual item in “other current assets” exceeds 5% of the total prepayments, deposits and other current assets.

Note 4 — Property, Plant and Equipment

Property, plant and equipment, net consisted of the following (in thousands):

	April 3, 2020		January 3, 2020
Machinery and equipment	$	20,431	$	17,173
Computer equipment and software		6,475		6,244
Furniture and fixtures		4,523		4,169
Leasehold improvements		10,912		10,151
Construction in process		7,742		8,477
Total property, plant and equipment, gross		50,083		46,214
Less accumulated depreciation		29,899		29,149
Total property, plant and equipment, net	$	20,184	$	17,065

Note 5 –Intangible Assets

Intangible assets, net consisted of the following (in thousands):

April 3, 2020

January 3, 2020

Long-lived amortized intangible assets

Gross

Carrying

Amount

Accumulated

Amortization

Net

Gross

Carrying

Amount

Accumulated

Amortization

Net

Patents and licenses

9,352

Price	27.18	EPS	0
Shares	47	P/E	145
MCap	1,274	P/FCF	80
Net Debt	-112	EBIT	11
TEV	1,161	TEV/EBIT	104
TTM 2019-09-27, in MM, except price, ratios

10-Q	2020-04-03	Filed 2020-05-06
10-K	2020-01-03	Filed 2020-02-26
10-Q	2019-09-27	Filed 2019-10-30
10-Q	2019-06-28	Filed 2019-07-31
10-Q	2019-03-29	Filed 2019-05-01
10-K	2018-12-28	Filed 2019-02-21
10-Q	2018-09-28	Filed 2018-10-31
10-Q	2018-06-29	Filed 2018-08-01
10-Q	2018-03-30	Filed 2018-05-02
10-K	2017-12-29	Filed 2018-02-28
10-Q	2017-09-29	Filed 2017-11-08
10-Q	2017-06-30	Filed 2017-08-02
10-Q	2017-03-31	Filed 2017-05-03
10-K	2016-12-30	Filed 2017-03-02
10-Q	2016-09-30	Filed 2016-11-03
10-Q	2016-07-01	Filed 2016-08-03
10-Q	2016-04-01	Filed 2016-05-11
10-K	2016-01-01	Filed 2016-03-11
10-Q	2015-10-02	Filed 2015-11-04
10-Q	2015-07-03	Filed 2015-08-07
10-Q	2015-04-03	Filed 2015-05-12
10-K	2015-01-02	Filed 2015-03-13
10-Q	2014-10-03	Filed 2014-11-07
10-Q	2014-07-04	Filed 2014-07-31
10-Q	2014-04-04	Filed 2014-05-13
10-K	2014-01-03	Filed 2014-03-12
10-Q	2013-09-27	Filed 2013-11-01
10-Q	2013-06-28	Filed 2013-08-06
10-Q	2013-03-29	Filed 2013-05-03
10-K	2012-12-28	Filed 2013-03-12
10-Q	2012-09-28	Filed 2012-11-05
10-Q	2012-06-29	Filed 2012-08-07
10-Q	2012-03-30	Filed 2012-05-03
10-K	2011-12-30	Filed 2012-03-08
10-Q	2011-09-30	Filed 2011-11-02
10-Q	2011-07-01	Filed 2011-08-04
10-Q	2011-04-01	Filed 2011-05-04
10-Q	2010-10-01	Filed 2010-11-10
10-Q	2010-07-02	Filed 2010-08-11
10-Q	2010-04-02	Filed 2010-05-12
10-K	2010-01-01	Filed 2010-04-01

8-K	2020-06-02
8-K	2020-06-01
8-K	2020-05-06
8-K	2020-05-03
8-K	2020-05-01
8-K	2020-04-13
8-K	2020-02-26
8-K	2020-02-26
8-K	2020-02-04
8-K	2020-01-30
8-K	2020-01-13
8-K	2019-12-17
8-K	2019-12-11
8-K	2019-11-08
8-K	2019-11-01
8-K	2019-10-30
8-K	2019-08-27
8-K	2019-08-07
8-K	2019-07-31
8-K	2019-07-31
8-K	2019-06-20
8-K	2019-06-05
8-K	2019-05-15
8-K	2019-05-02
8-K	2019-05-01
8-K	2019-05-01
8-K	2019-02-28
8-K	2019-02-21
8-K	2019-02-21
8-K	2019-01-17
8-K	2019-01-07
8-K	2019-01-07
8-K	2018-11-06
8-K	2018-10-31
8-K	2018-10-31
8-K	2018-09-13
8-K	2018-08-22
8-K	2018-08-08
8-K	2018-08-07
8-K	2018-08-01
8-K	2018-08-01
8-K	2018-06-20
8-K	2018-06-14
8-K	2018-05-02
8-K	2018-05-02
8-K	2018-03-13
8-K	2018-02-28
8-K	2018-02-28
8-K	2018-01-08

EX-31.1	staa-ex311_8.htm
EX-31.2	staa-ex312_7.htm
EX-32.1	staa-ex321_6.htm

STAA 10Q Quarterly Report

Staar Surgical Earnings 2020-04-03