UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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: September 27, 2019
Or
☐ | |
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 nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)
Delaware | 95-3797439 |
(State or
| (I.R.S. Employer Identification No.) |
25651 Atlantic Ocean Drive | 92630 |
(Address of Principal Executive Offices) | (Zip Code) |
1911 Walker Avenue
Monrovia, California 91016
(Address of principal executive offices)
(626) 303-7902
(Registrant’s telephone number, including area code))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 þ☑ No o
☐
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 þ☑ No o
☐
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. (Check one):
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 þ
☑
The registrant has 44,131,50944,609,387 shares of common stock, par value $0.01 per share, issued and outstanding as of October 26, 2018.
25, 2019.
STAAR SURGICAL COMPANY
INDEX
PAGE NUMBER | |||
1 | |||
ITEM | 1 | ||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 | |
ITEM 3. | 26 | ||
ITEM 4. | 26 | ||
26 | |||
ITEM 1. | 26 | ||
ITEM 1A. | 26 | ||
ITEM 4. | 27 | ||
ITEM 5. | 27 | ||
ITEM 6. | 27 |
PART I – FINANCIAL INFORMATION
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(Unaudited)
September 28, 2018 | December 29, 2017 |
| September 27, 2019 |
|
| December 28, 2018 |
| |||||||||
ASSETS |
|
|
|
|
|
|
|
| ||||||||
Current assets: |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 102,195 | $ | 18,520 |
| $ | 112,327 |
|
| $ | 103,877 |
| ||||
Accounts receivable trade, net of allowance for doubtful accounts of $616 and $350, respectively | 23,732 | 20,035 | ||||||||||||||
Accounts receivable trade, net of allowance of doubtful accounts of $75 and $550, respectively |
|
| 30,789 |
|
|
| 25,946 |
| ||||||||
Inventories, net | 16,180 | 13,674 |
|
| 16,440 |
|
|
| 16,704 |
| ||||||
Prepayments, deposits, and other current assets | 5,190 | 4,207 | ||||||||||||||
Prepayments, deposits and other current assets |
|
| 5,406 |
|
|
| 5,045 |
| ||||||||
Total current assets | 147,297 | 56,436 |
|
| 164,962 |
|
|
| 151,572 |
| ||||||
Property, plant and equipment, net | 11,462 | 9,776 |
|
| 14,846 |
|
|
| 11,451 |
| ||||||
Finance lease right-of-use assets, net |
|
| 2,006 |
|
|
| — |
| ||||||||
Operating lease right-of-use assets, net |
|
| 6,677 |
|
|
| — |
| ||||||||
Intangible assets, net | 244 | 271 |
|
| 252 |
|
|
| 243 |
| ||||||
Goodwill | 1,786 | 1,786 |
|
| 1,786 |
|
|
| 1,786 |
| ||||||
Deferred income taxes | 1,201 | 1,242 |
|
| 1,460 |
|
|
| 1,278 |
| ||||||
Other assets | 998 | 967 |
|
| 752 |
|
|
| 1,009 |
| ||||||
Total assets | $ | 162,988 | $ | 70,478 |
| $ | 192,741 |
|
| $ | 167,339 |
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
|
|
| ||||||||
Line of credit | $ | 4,162 | $ | 4,438 |
| $ | 2,340 |
|
| $ | 3,780 |
| ||||
Accounts payable | 8,282 | 6,033 |
|
| 7,535 |
|
|
| 6,524 |
| ||||||
Obligations under capital leases | 1,359 | 1,278 | ||||||||||||||
Obligations under finance leases |
|
| 752 |
|
|
| 1,098 |
| ||||||||
Obligations under operating leases |
|
| 2,789 |
|
|
| — |
| ||||||||
Allowance for sales returns | 2,802 | 2,546 |
|
| 3,691 |
|
|
| 2,895 |
| ||||||
Other current liabilities | 10,935 | 7,339 |
|
| 12,865 |
|
|
| 13,431 |
| ||||||
Total current liabilities | 27,540 | 21,634 |
|
| 29,972 |
|
|
| 27,728 |
| ||||||
Obligations under capital leases | 662 | 531 | ||||||||||||||
Obligations under finance leases |
|
| 471 |
|
|
| 459 |
| ||||||||
Obligations under operating leases |
|
| 4,003 |
|
|
| — |
| ||||||||
Deferred income taxes | 679 | 350 |
|
| 1,539 |
|
|
| 1,022 |
| ||||||
Asset retirement obligations | 201 | 202 |
|
| 211 |
|
|
| 206 |
| ||||||
Deferred rent | 203 | 172 |
|
| — |
|
|
| 188 |
| ||||||
Pension liability | 4,839 | 4,653 |
|
| 7,205 |
|
|
| 5,310 |
| ||||||
Total liabilities | 34,124 | 27,542 |
|
| 43,401 |
|
|
| 34,913 |
| ||||||
Commitments and contingencies (Note 12) | ||||||||||||||||
Commitments and contingencies |
|
|
|
|
|
|
|
| ||||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
| ||||||||
Common stock, $0.01 par value; 60,000 shares authorized: 44,104 and 41,383 shares issued and outstanding at September 28, 2018 and December 29, 2017, respectively | 441 | 414 | ||||||||||||||
Common stock, $0.01 par value; 60,000 shares authorized: 44,606 and 44,195 shares issued and outstanding at September 27, 2019 and December 28, 2018, respectively |
|
| 446 |
|
|
| 442 |
| ||||||||
Additional paid-in capital | 287,000 | 204,920 |
|
| 299,597 |
|
|
| 289,584 |
| ||||||
Accumulated other comprehensive loss | (1,201 | ) | (1,150 | ) |
|
| (2,520 | ) |
|
| (1,320 | ) | ||||
Accumulated deficit | (157,376 | ) | (161,248 | ) |
|
| (148,183 | ) |
|
| (156,280 | ) | ||||
Total stockholders’ equity | 128,864 | 42,936 |
|
| 149,340 |
|
|
| 132,426 |
| ||||||
Total liabilities and stockholders’ equity | $ | 162,988 | $ | 70,478 |
| $ | 192,741 |
|
| $ | 167,339 |
|
See accompanying notes to the condensed consolidated financial statements.
1
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 28, 2018 | September 29 2017 | September 28, 2018 | September 29, 2017 |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| |||||||||||||||||||||
Net sales | $ | 31,770 | $ | 23,473 | $ | 92,768 | $ | 65,759 |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
| ||||||||
Cost of sales | 7,910 | 6,624 | 24,250 | 18,859 |
|
| 10,004 |
|
|
| 7,910 |
|
|
| 28,172 |
|
|
| 24,250 |
| ||||||||||||
Gross profit | 23,860 | 16,849 | 68,518 | 46,900 |
|
| 29,051 |
|
|
| 23,860 |
|
|
| 83,130 |
|
|
| 68,518 |
| ||||||||||||
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
General and administrative | 6,087 | 4,716 | 18,054 | 14,380 |
|
| 7,098 |
|
|
| 6,087 |
|
|
| 21,443 |
|
|
| 18,054 |
| ||||||||||||
Marketing and selling | 10,620 | 6,495 | 28,733 | 20,473 |
|
| 12,463 |
|
|
| 10,620 |
|
|
| 34,288 |
|
|
| 28,733 |
| ||||||||||||
Research and development | 5,570 | 4,594 | 16,323 | 14,418 |
|
| 6,156 |
|
|
| 5,570 |
|
|
| 17,889 |
|
|
| 16,323 |
| ||||||||||||
Total selling, general and administrative expenses | 22,277 | 15,805 | 63,110 | 49,271 |
|
| 25,717 |
|
|
| 22,277 |
|
|
| 73,620 |
|
|
| 63,110 |
| ||||||||||||
Operating income (loss) | 1,583 | 1,044 | 5,408 | (2,371 | ) | |||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest expense, net | (29 | ) | (27 | ) | (65 | ) | (88 | ) | ||||||||||||||||||||||||
Operating income |
|
| 3,334 |
|
|
| 1,583 |
|
|
| 9,510 |
|
|
| 5,408 |
| ||||||||||||||||
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest income (expense), net |
|
| 266 |
|
|
| (29 | ) |
|
| 796 |
|
|
| (65 | ) | ||||||||||||||||
Gain (loss) on foreign currency transactions | 52 | 444 | (545 | ) | 738 |
|
| (584 | ) |
|
| 52 |
|
|
| (821 | ) |
|
| (545 | ) | |||||||||||
Royalty income | 159 | 141 | 465 | 400 |
|
| 106 |
|
|
| 159 |
|
|
| 440 |
|
|
| 465 |
| ||||||||||||
Other income (expense), net | 40 | (19 | ) | 61 | 17 | |||||||||||||||||||||||||||
Other income (expense), net | 222 | 539 | (84 | ) | 1,067 | |||||||||||||||||||||||||||
Income (loss) before income taxes | 1,805 | 1,583 | 5,324 | (1,304 | ) | |||||||||||||||||||||||||||
Income tax provision | 346 | 410 | 1,452 | 697 | ||||||||||||||||||||||||||||
Net income (loss) | $ | 1,459 | $ | 1,173 | $ | 3,872 | $ | (2,001 | ) | |||||||||||||||||||||||
Net income (loss) per share: | ||||||||||||||||||||||||||||||||
Other income, net |
|
| 26 |
|
|
| 40 |
|
|
| 124 |
|
|
| 61 |
| ||||||||||||||||
Total other income (expense), net |
|
| (186 | ) |
|
| 222 |
|
|
| 539 |
|
|
| (84 | ) | ||||||||||||||||
Income before income taxes |
|
| 3,148 |
|
|
| 1,805 |
|
|
| 10,049 |
|
|
| 5,324 |
| ||||||||||||||||
Provision for income taxes |
|
| 760 |
|
|
| 346 |
|
|
| 2,380 |
|
|
| 1,452 |
| ||||||||||||||||
Net income |
| $ | 2,388 |
|
| $ | 1,459 |
|
| $ | 7,669 |
|
| $ | 3,872 |
| ||||||||||||||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | $ | 0.03 | $ | 0.03 | $ | 0.09 | $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.17 |
|
| $ | 0.09 |
| |||||||
Diluted | $ | 0.03 | $ | 0.03 | $ | 0.09 | $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.16 |
|
| $ | 0.09 |
| |||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | 43,054 | 41,110 | 42,065 | 40,939 |
|
| 44,563 |
|
|
| 43,054 |
|
|
| 44,426 |
|
|
| 42,065 |
| ||||||||||||
Diluted | 46,025 | 42,104 | 44,618 | 40,939 |
|
| 46,857 |
|
|
| 46,025 |
|
|
| 46,848 |
|
|
| 44,618 |
|
See accompanying notes to the condensed consolidated financial statements.
2
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Net income (loss) | $ | 1,459 | $ | 1,173 | $ | 3,872 | $ | (2,001 | ) | |||||||
Other comprehensive income (loss) | ||||||||||||||||
Defined benefit plans: | ||||||||||||||||
Net change in plan assets | (21 | ) | (17 | ) | (51 | ) | (54 | ) | ||||||||
Reclassification into other income (expense), net | 25 | 18 | 76 | 55 | ||||||||||||
Foreign currency translation gains (losses) | (321 | ) | (46 | ) | (114 | ) | 360 | |||||||||
Tax effect | 105 | 13 | 38 | (99 | ) | |||||||||||
Other comprehensive income (loss), net of tax | (212 | ) | (32 | ) | (51 | ) | 262 | |||||||||
Comprehensive income (loss) | $ | 1,247 | $ | 1,141 | $ | 3,821 | $ | (1,739 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Net income |
| $ | 2,388 |
|
| $ | 1,459 |
|
| $ | 7,669 |
|
| $ | 3,872 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in plan assets |
|
| (1,037 | ) |
|
| (21 | ) |
|
| (1,677 | ) |
|
| (51 | ) |
Reclassification into other income, net |
|
| 26 |
|
|
| 25 |
|
|
| 80 |
|
|
| 76 |
|
Foreign currency translation gain (loss) |
|
| (22 | ) |
|
| (321 | ) |
|
| 317 |
|
|
| (114 | ) |
Tax effect |
|
| 115 |
|
|
| 105 |
|
|
| 80 |
|
|
| 38 |
|
Other comprehensive loss, net of tax |
|
| (918 | ) |
|
| (212 | ) |
|
| (1,200 | ) |
|
| (51 | ) |
Comprehensive income |
| $ | 1,470 |
|
| $ | 1,247 |
|
| $ | 6,469 |
|
| $ | 3,821 |
|
See accompanying notes to the condensed consolidated financial statements.
3
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 June 28, 2019 |
|
| 44,534 |
|
| $ | 445 |
|
| $ | 296,063 |
|
| $ | (1,602 | ) |
| $ | (150,571 | ) |
| $ | 144,335 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,388 |
|
|
| 2,388 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (918 | ) |
|
| — |
|
|
| (918 | ) |
Common stock issued upon exercise of options |
|
| 64 |
|
|
| 1 |
|
|
| 718 |
|
|
| — |
|
|
| — |
|
|
| 719 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,816 |
|
|
| — |
|
|
| — |
|
|
| 2,816 |
|
Vested restricted stock |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance, at September 27, 2019 |
|
| 44,606 |
|
| $ | 446 |
|
| $ | 299,597 |
|
| $ | (2,520 | ) |
| $ | (148,183 | ) |
| $ | 149,340 |
|
Balance, at June 29, 2018 |
|
| 41,877 |
|
| $ | 419 |
|
| $ | 210,488 |
|
| $ | (989 | ) |
| $ | (158,835 | ) |
| $ | 51,083 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,459 |
|
|
| 1,459 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (212 | ) |
|
| — |
|
|
| (212 | ) |
Proceeds from public stock offering |
|
| 2,000 |
|
|
| 20 |
|
|
| 72,130 |
|
|
| — |
|
|
| — |
|
|
| 72,150 |
|
Common stock issued upon exercise of options |
|
| 219 |
|
|
| 2 |
|
|
| 2,173 |
|
|
| — |
|
|
| — |
|
|
| 2,175 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,209 |
|
|
| — |
|
|
| — |
|
|
| 2,209 |
|
Vested restricted stock |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance, at September 28, 2018 |
|
| 44,104 |
|
| $ | 441 |
|
| $ | 287,000 |
|
| $ | (1,201 | ) |
| $ | (157,376 | ) |
| $ | 128,864 |
|
See accompanying notes to the condensed consolidated financial statements.
4
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(In thousands)
(Unaudited)
|
| Nine Months Ended |
| |||||||||||||||||||||
|
| Common Stock Shares |
|
| Common Stock Par Value |
|
| Additional Paid-In Capital |
|
| Accumulated Other Compre- hensive Income (Loss) |
|
| Accumulated Deficit |
|
| Total |
| ||||||
Balance, at December 28, 2018 |
|
| 44,195 |
|
| $ | 442 |
|
| $ | 289,584 |
|
| $ | (1,320 | ) |
| $ | (156,280 | ) |
| $ | 132,426 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,669 |
|
|
| 7,669 |
|
Adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 113 |
|
|
| 113 |
|
Adoption of ASU 2018-07 |
|
| — |
|
|
| — |
|
|
| (315 | ) |
|
| — |
|
|
| 315 |
|
|
| — |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,200 | ) |
|
| — |
|
|
| (1,200 | ) |
Common stock issued upon exercise of options |
|
| 190 |
|
|
| 2 |
|
|
| 1,827 |
|
|
| — |
|
|
| — |
|
|
| 1,829 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 8,501 |
|
|
| — |
|
|
| — |
|
|
| 8,501 |
|
Unvested restricted stock |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vested restricted stock |
|
| 210 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Balance, at September 27, 2019 |
|
| 44,606 |
|
| $ | 446 |
|
| $ | 299,597 |
|
| $ | (2,520 | ) |
| $ | (148,183 | ) |
| $ | 149,340 |
|
Balance, at December 29, 2017 |
|
| 41,383 |
|
| $ | 414 |
|
| $ | 204,920 |
|
| $ | (1,150 | ) |
| $ | (161,248 | ) |
| $ | 42,936 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,872 |
|
|
| 3,872 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (51 | ) |
Proceeds from public offering of stock |
|
| 2,000 |
|
|
| 20 |
|
|
| 72,130 |
|
|
| — |
|
|
| — |
|
|
| 72,150 |
|
Common stock issued upon exercise of options |
|
| 525 |
|
|
| 5 |
|
|
| 4,575 |
|
|
| — |
|
|
| — |
|
|
| 4,580 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 5,375 |
|
|
| — |
|
|
| — |
|
|
| 5,375 |
|
Unvested restricted stock |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vested restricted stock |
|
| 185 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Balance, at September 28, 2018 |
|
| 44,104 |
|
| $ | 441 |
|
| $ | 287,000 |
|
| $ | (1,201 | ) |
| $ | (157,376 | ) |
| $ | 128,864 |
|
See accompanying notes to the condensed consolidated financial statements.
5
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended |
| Nine Months Ended |
| |||||||||||||
September 28, 2018 | September 29, 2017 |
| September 27, 2019 |
|
| September 28, 2018 |
| |||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net income (loss) | $ | 3,872 | $ | (2,001 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Net income |
| $ | 7,669 |
|
| $ | 3,872 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation of property, plant, and equipment | 1,792 | 2,344 |
|
| 2,853 |
|
|
| 1,792 |
| ||||||
Amortization of intangibles | 26 | 166 |
|
| 26 |
|
|
| 26 |
| ||||||
Deferred income taxes | 363 | 164 |
|
| 526 |
|
|
| 363 |
| ||||||
Change in net pension liability | 233 | 95 |
|
| 264 |
|
|
| 233 |
| ||||||
Loss on disposal of property and equipment | 8 | 22 |
|
| 14 |
|
|
| 8 |
| ||||||
Stock-based compensation expense | 4,926 | 2,185 |
|
| 7,778 |
|
|
| 4,926 |
| ||||||
Provision for sales returns and bad debts | 892 | 186 |
|
| 309 |
|
|
| 892 |
| ||||||
Inventory provision | 1,181 | 1,267 |
|
| 1,222 |
|
|
| 1,181 |
| ||||||
Changes in working capital: |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable | (3,989 | ) | 41 |
|
| (4,260 | ) |
|
| (3,989 | ) | |||||
Inventories | (3,625 | ) | 725 |
|
| (179 | ) |
|
| (3,625 | ) | |||||
Prepayments, deposits, and other current assets | (1,021 | ) | (764 | ) |
|
| (230 | ) |
|
| (1,021 | ) | ||||
Accounts payable | 2,121 | (2,751 | ) |
|
| 546 |
|
|
| 2,121 |
| |||||
Other current liabilities | 3,643 | 62 |
|
| (536 | ) |
|
| 3,643 |
| ||||||
Net cash provided by operating activities | 10,422 | 1,741 |
|
| 16,002 |
|
|
| 10,422 |
| ||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
| ||||||||
Acquisition of property and equipment | (1,721 | ) | (969 | ) |
|
| (7,169 | ) |
|
| (1,721 | ) | ||||
Acquisition of patents and licenses |
|
| (30 | ) |
|
| — |
| ||||||||
Net cash used in investing activities | (1,721 | ) | (969 | ) |
|
| (7,199 | ) |
|
| (1,721 | ) | ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
| ||||||||
Proceeds from public offering of stock | 72,150 | — |
|
| — |
|
|
| 72,150 |
| ||||||
Repayment of capital lease obligations | (1,396 | ) | (984 | ) | ||||||||||||
Repayment of finance lease obligations |
|
| (998 | ) |
|
| (1,396 | ) | ||||||||
Repayment on line of credit | (251 | ) | — |
|
| (1,512 | ) |
|
| (251 | ) | |||||
Repurchase of employee common stock for taxes withheld | — | (234 | ) | |||||||||||||
Proceeds from vested restricted stock and exercise of stock options | 4,582 | 2,276 | ||||||||||||||
Net cash provided by financing activities | 75,085 | 1,058 | ||||||||||||||
Proceeds from the exercise of stock options |
|
| 1,829 |
|
|
| 4,580 |
| ||||||||
Proceeds from vested restricted stock |
|
| 2 |
|
|
| 2 |
| ||||||||
Net cash provided by (used in) financing activities |
|
| (679 | ) |
|
| 75,085 |
| ||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (111 | ) | 305 |
|
| 204 |
|
|
| (111 | ) | |||||
Increase in cash, cash equivalents and restricted cash | 83,675 | 2,135 |
|
| 8,328 |
|
|
| 83,675 |
| ||||||
Cash, cash equivalents and restricted cash, at beginning of the period | 18,641 | 14,118 |
|
| 103,999 |
|
|
| 18,641 |
| ||||||
Cash, cash equivalents and restricted cash, at end of the period | $ | 102,316 | $ | 16,253 |
| $ | 112,327 |
|
| $ | 102,316 |
| ||||
Supplemental disclosure of non-cash operating activities | ||||||||||||||||
Insurance receivable | — | $ | 7,000 | |||||||||||||
Settlement liability | — | $ | 7,000 |
See accompanying notes to the condensed consolidated financial statements.
6
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 December 29, 201728, 2018 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 December 29, 2017.
28, 2018.
The Condensed Consolidated Financial Statements for the three and nine months ended September 28, 201827, 2019 and September 29, 2017,28, 2018, 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 and nine months ended September 28, 201827, 2019 and September 29, 2017,28, 2018, 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 condensedCondensed 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):
September 28, 2018 | December 29, 2017 | September 29, 2017 | ||||||||||
Cash and cash equivalents | $ | 102,195 | $ | 18,520 | $ | 16,133 | ||||||
Restricted cash included in other long-term assets | 121 | 121 | 120 | |||||||||
Total cash, cash equivalents and restricted cash as shown in the Consolidated Statements of Cash Flows | $ | 102,316 | $ | 18,641 | $ | 16,253 |
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| September 28, 2018 |
| |||
Cash and cash equivalents |
| $ | 112,327 |
|
| $ | 103,877 |
|
| $ | 102,195 |
|
Restricted cash(1) |
|
| — |
|
|
| 122 |
|
|
| 121 |
|
Total cash, cash equivalents and restricted cash |
| $ | 112,327 |
|
| $ | 103,999 |
|
| $ | 102,316 |
|
(1) | Included in other assets on the Condensed Consolidated Balance Sheets. |
The Company hashad restricted cash of approximately $121,000 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.
Allowance for Doubtful Accounts
RevenueThe allowance for doubtful accounts decreased during the nine months ended September 27, 2019 due to specific past due receivables that were previously reserved and subsequently collected.
Lease Accounting
On December 30, 201729, 2018 (beginning of FY 2018)fiscal year 2019), the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers2016-02, “Leases (Topic 606)842)” and its subsequent amendments:amendments affecting the Company: (i) ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”; (ii) ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (iii) ASU No. 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; (iv) ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”; and (v) ASU No. 2016-20, “Revenue from Contracts with Customers (Topic 606): Technical Corrections and2018-10, “Codification Improvements to Topic 606”,842, Leases,” and (ii) ASU 2018-11, “Leases (Topic 842): Targeted improvements,” using the modified retrospective method, and determined that there was no cumulative effect adjustment on the Consolidated Financial Statements. The Company determined that themethod. Upon adoption of ASU 2016-02, the new standard did not materially impactCompany recognized a cumulative adjustment of $113,000 which decreased the revenue recognition on its Consolidated Financial Statements.accumulated deficit and recognized right-of-use (“ROU”) assets and lease liabilities for operating leases, whereby the Company’s accounting finance leases remained substantially unchanged.
7
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
RevenueLease Accounting (Continued)
The Company recognizes revenue when its contractual performance obligations with customers are satisfied. The Company’s performance obligations are generally limited to single sales orders with product shipping to the customer within a month of receipt of the sales order. Substantially all of the Company’s revenues are recognized at a point-in-time when control of its products transfers to the customer, which is typically upon shipment (as discussed below). The Company presents sales taxROU assets and similar taxes it collects from its customers on a net basis (excluded from revenues).
The Company sells certain injector parts to an unrelated customer and supplier (collectively referred to as “supplier”) whereby these injector part sales are either made as a final sale to the supplier or, are sold to be combined with an acrylic IOL by the supplier into finished goods inventory (a preloaded acrylic IOL). These finished goods are then sold back to the Company at an agreed upon, contractual price. The Company makes a profit margin on either type of sale with the supplier and each type of sale is made under separate purchase and sales orders between the two parties resulting in cash settlement for the orders sold or repurchased. For parts that are sold as a final sale, the Company recognizes a sale and those sales are classified as other product sales in total net sales. For the injector parts that are sold to be combined with an acrylic IOL into finished goods, the Company records the transaction at its carrying value deferring any profit margin as contra-inventory, until the finished goods inventory is sold to an end-customer (not the supplier) at which point the Company recognizes revenues.
For all sales, the Company is considered the principal in the transaction as the Company is the party providing specified goods it has control over prior to when control is transferred to the customer. Cost of sales includes cost of production, freight and distribution, and inventory provisions, net of any purchase discounts. Shipping and handling activities that occur after the customer obtains control of the goods are recognized as fulfillment costs.
The Company generally permits returns of product if the product is returned within the time allowed by its return policies and records an allowance for estimated returns at the time revenue is recognized. The Company’s allowance for estimated returns considers historical trends and experience, the impact of new product launches, the entry of a competitor, availability of timely and pertinent information and the various terms and arrangements offered, including sales with extended credit terms. For estimated returns, sales are reported net of estimated returns and cost of sales are reported net of estimated returns that can be resold. On the Condensed Consolidated Balance Sheets, the balances associated for estimated sales returns are as follows:
September 28, 2018 | December 29, 2017 | |||||||
Estimated returns - inventory(1) | $ | 678 | $ | 534 | ||||
Allowance for sales returns | 2,802 | 2,546 |
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment history and credit worthiness, as determined by the Company’s review of its customers’ current credit information. The Company continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts.
The Company disaggregates its revenue into the following categories: non-consignment sales, consignment sales and royalty income.
Non-consignment Sales
The Company recognizes revenue from non-consignment product sales at a point-in-time when control has been transferred, which is typically at shipping point, except for certain customers and for the STAAR Japan subsidiary, which is typically recognized when the customer receives the product. The Company does not have significant deferred revenues as of September 28, 2018 or September 29, 2017, as delivery to the customer is generally made within the same or the next day of shipment.
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
Revenue (Continued)
The Company also enters into certain strategic cooperation agreements with customers in which, as consideration for certain commitments made by the customer, including minimum purchase commitments, the Company agrees, among other things, to pay for marketing, educational training and general support of the Company’s products. The provisions in these arrangements allow for these payments to be made directly to the customer or payments can be made directly to a third party for distinct marketing, educational training and general support services provided to or on behalf of the customer by the third party. For payments the Company makes to another party, or reimburses the customer for distinct marketing and support services, the Company recognizes these payments as sales and marketing expense as incurred. These strategic cooperation agreements are generally for periods of 12 months or more with quarterly minimum purchase commitments. The Company recognizes sales and marketing expenses in the period in which it expects the customer will achieve its minimum purchase commitment, generally quarterly, and any unpaid amounts are recorded in Other Current Liabilities in “Other” on the Condensed Consolidated Statements of Operations, see Note 6. Reimbursements made directly to the customer for general marketing incentives are treated as a reduction in revenues. The Company’s performance obligations generally occur in the same quarter as the shipment of product.
Since the payments for distinct or non-distinct services occur within the quarter corresponding with the purchases made by the customer and the shipments made by the Company to that customer, there is no remaining performance obligation by the Company to the customer. Accordingly, there are no deferred revenues associated with these types of arrangements as of September 28, 2018 or September 29, 2017.
Consignment Sales
The Company’s products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers, and distributors. IOLs and ICLs may be offered to surgeons and hospitals on a consignment basis. The Company maintains title and risk of loss on consigned inventory and recognizes revenue for consignment inventory at a point-in-time when the Company is notified that the lenses have been implanted, thus completing the performance obligation.
Royalty Income
From time to time, the Company licenses its patents to third parties in connection with the manufacture of product. One type of licensing contract requires that the licensee pay the Company a quarterly royalty based on a percentage of the licensee’s quarterly sales. The Company recognizes the revenue at a point-in-time, typically quarterly based on various factors including information from the licensee, historical performance and contract minimums; royalty income was as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Royalty income(1) | $ | 159 | $ | 141 | $ | 465 | $ | 400 | ||||||||
Another type of licensing contract requires that the licensee pay the Company a lump sum royalty once certain milestones are achieved, such as upon the first commercial sale of a product incorporating a licensed patent or technology (performance obligation occurs over a period of time); no such income was recognized for the three and nine months ended September 28, 2018 or September 29, 2017, respectively.
See Note 9 for additional information on disaggregation of revenues, geographic sales information and product sales.
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
Revenue (Continued)
The following table summarizes the impact of adopting Topic 606 on the Company’s Condensed Consolidated Balance Sheets for September 28, 2018 (in 000’s) (see also Note 14):
As Reported | Adjustments | Balances without the adoption of 606 | ||||||||||
Accounts receivable trade, net | $ | 23,732 | $ | (2,802 | ) | $ | 20,930 | |||||
Total current assets | 147,297 | (2,802 | ) | 144,495 | ||||||||
Total assets | 162,988 | (2,802 | ) | 160,186 | ||||||||
Allowance for sales returns | 2,802 | (2,802 | ) | — | ||||||||
Total current liabilities | 27,540 | (2,802 | ) | 24,738 | ||||||||
Total liabilities | 34,124 | (2,802 | ) | 31,322 | ||||||||
Total liabilities and stockholders’ equity | 162,988 | (2,802 | ) | 160,186 |
Recently Adopted Accounting Pronouncements
On December 30, 2017 (beginning of FY 2018), the Company adopted ASU 2017-09 “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting,” which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The adoption of ASU 2017-09 did not have a material impact on the Condensed Consolidated Financial Statements.
On December 30, 2017 (beginning of FY 2018), the Company adopted ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The standard requires that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of operating profit. The adoption of ASU 2017-09 did not have a material impact on the Condensed Consolidated Financial Statements, see Note 7 for additional information.
On December 30, 2017 (beginning of FY 2018), the Company adopted ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory, using the modified retrospective method, and determined that there was no cumulative effect adjustment on the Consolidated Financial Statements. The adoption of ASU 2016-16 did not have a material impact on the Condensed Consolidated Financial Statements.
On December 30, 2017 (beginning of FY 2018), the Company adopted ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The adoption of ASU 2016-15 did not have a material impact on the Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize assets andlease liabilities for leases with lease terms greater than twelve months in the statement of financial position.Condensed Consolidated Balance Sheets. Leases will beare classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.Condensed Consolidated Statement of Income.
A contract contains a lease if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. An asset is either explicitly identified or implicitly identified and must be physically distinct. In addition, the Company must have both the right to obtain substantially all of the economic benefits from use of the identified asset and has the right to direct the use of the identified asset.
Certain leases may have non-lease components such as common area maintenance expense for building leases and maintenance expenses for automobile leases. In general, the Company separates common area maintenance expense component from the value of the ROU asset and lease liability when evaluating rental properties under ASU 2016-02, also requires improved disclosures to help users of financial statements better understandwhereas, the amount, timingCompany includes the maintenance and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted.
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
Recent Accounting Pronouncements Not Yet Adopted (Continued)
In July 2018,service components in the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which narrows aspectsvalue of the guidance issued inROU asset and lease liability while evaluating automobile leases under ASU 2016-02.
When determining whether a lease is a finance lease or an operating lease, ASU 2016-02 including those regarding residualdoes not specifically define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially all of the fair value guarantees,of the underlying asset.” For lease classification determination, the Company continues to use (i) greater to or equal to 75% to determine whether the lease term is a major part of the remaining economic life of the underlying asset and (ii) greater to or equal to 90% to determine whether the present value of the sum of lease payments is substantially all of the fair value of the underlying asset.
The Company uses either the rate implicit in the lease lessee reassessment ofor its incremental borrowing rate as the discount rate in lease accounting.
When adopting ASU 2016-02, the Company did not reassess any expired or existing contracts, reassess the lease classification lessor reassessment of lease termfor any expired or existing leases and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect ofreassess initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions.
Also, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted improvements,” which provide an additional and optional transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).
exiting leases. The Company is nearing the completion of its assessment and is performing a final review of its evaluation of the new standard. The Company elected to use the practical expedients of not assessing expired contracts, using current lease classification and not assessing any initial direct costs. The Company has also elected not to capitalize leases that have terms of twelve months or less.
The Company reviews ROU assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company measures recoverability of these assets by comparing the carrying value of such assets to the estimated undiscounted future cash flows the assets are expected to generate. When the estimated undiscounted future cash flows are less than 12 months. The Company will initially applytheir carrying amount, an impairment loss is recognized equal to the new standard ondifference between the assets’ fair value and their carrying value.
Vendor Concentration
As of September 27, 2019, there was one vendor which accounted for 13% of the Company’s consolidated accounts payable. As of December 28, 2018, there were no vendors which accounted for over 10% of the Company’s consolidated accounts payable.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
On December 29, 2018 (beginning of Fiscal Yearfiscal year 2019) and recognize a cumulative-effect adjustment to, the opening balance of retained earnings. The Company does not believe the adoption of the new standard will result in a material adjustment to beginning retained earnings. The Company is still evaluating the effects on its financial statement disclosures.
In February 2018, the FASB issuedadopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” provides an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. This is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. EarlyThe adoption is permitted. The Company will adopt this standard as of ASU 2018‑02 did not have material impact on the Condensed Consolidated Financial Statements.
On December 29, 2018 (beginning of Fiscal Yearfiscal year 2019) and is currently evaluating, the impact on ASU 2018-02 will have on its Condensed Consolidated Financial Statements.
In June 2018, the FASB issuedCompany adopted ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” aligns the accounting for share-based payments to nonemployees similar to employees. This is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. EarlyUpon the adoption is permitted. The Company will adopt this standard as of December 29, 2018 (beginning of Fiscal Year 2019) and is currently evaluating the impact on ASU 2018-07, will have on its Condensed Consolidated Financial Statements.the Company recognized a cumulative adjustment of $315,000 which decreased the accumulated deficit.
8
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued)
In August 2018, the FASB issued 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. This is effective for fiscal years ending after December 15, 2019. Early adoption is permitted. The Company will adopt this standard as of January 4, 2020 (beginning of Fiscal Yearfiscal year 2020) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.
In August 2018, the FASB issued 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. This is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021 (beginning of Fiscal Yearfiscal 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):
September 28, 2018 | December 29, 2017 |
| September 27, 2019 |
|
| December 28, 2018 |
| |||||||||
Raw materials and purchased parts | $ | 2,586 | $ | 2,506 |
| $ | 1,374 |
|
| $ | 2,678 |
| ||||
Work in process | 2,755 | 1,996 |
|
| 724 |
|
|
| 2,195 |
| ||||||
Finished goods | 12,247 | 11,533 |
|
| 15,596 |
|
|
| 13,214 |
| ||||||
17,588 | 16,035 | |||||||||||||||
Total inventories, gross |
|
| 17,694 |
|
|
| 18,087 |
| ||||||||
Less inventory reserves | 1,408 | 2,361 |
|
| 1,254 |
|
|
| 1,383 |
| ||||||
Total | $ | 16,180 | $ | 13,674 | ||||||||||||
Total inventories, net |
| $ | 16,440 |
|
| $ | 16,704 |
|
Note 3 — Prepayments, Deposits, and Other Current Assets
Prepayments, deposits, and other current assets consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
| ||
Prepayments and deposits |
| $ | 2,630 |
|
| $ | 1,707 |
|
Prepaid insurance |
|
| 585 |
|
|
| 1,271 |
|
Consumption tax receivable |
|
| 549 |
|
|
| 912 |
|
Value added tax (VAT) receivable |
|
| 587 |
|
|
| 565 |
|
Income tax receivable |
|
| 523 |
|
|
| 285 |
|
Other(1) |
|
| 532 |
|
|
| 305 |
|
Total prepayments, deposits and other current assets |
| $ | 5,406 |
|
| $ | 5,045 |
|
September 28, 2018 | December 29, 2017 | |||||||
Prepayments and deposits | $ | 2,039 | $ | 1,435 | ||||
Prepaid insurance | 529 | 943 | ||||||
Consumption tax receivable | 764 | 541 | ||||||
Value added tax (VAT) receivable | 1,198 | 910 | ||||||
Other current assets(1) | 660 | 378 | ||||||
Total | $ | 5,190 | $ | 4,207 |
(1) |
|
9
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 4 — Property, Plant and Equipment
Property, plant and equipment, net consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
| ||
Machinery and equipment |
| $ | 17,027 |
|
| $ | 16,905 |
|
Computer equipment and software |
|
| 6,074 |
|
|
| 5,992 |
|
Furniture and fixtures |
|
| 4,157 |
|
|
| 3,868 |
|
Leasehold improvements |
|
| 10,118 |
|
|
| 10,045 |
|
Construction in process |
|
| 5,952 |
|
|
| 2,095 |
|
Total property, plant and equipment, gross |
|
| 43,328 |
|
|
| 38,905 |
|
Less accumulated depreciation |
|
| 28,482 |
|
|
| 27,454 |
|
Total property, plant and equipment, net |
| $ | 14,846 |
|
| $ | 11,451 |
|
Construction in process includes the cost of design plans and build out of facilities and the cost of equipment, as well as the direct costs incurred in the testing and validation of machinery and equipment and facilities before they are ready for productive use. Upon placement in service, costs are reclassified into the appropriate asset category and depreciation commences.
September 28, 2018 | December 29, 2017 | |||||||
Machinery and equipment | $ | 18,607 | $ | 16,562 | ||||
Furniture and fixtures | 9,853 | 9,201 | ||||||
Leasehold improvements | 9,883 | 9,631 | ||||||
38,343 | 35,394 | |||||||
Less accumulated depreciation | 26,881 | 25,618 | ||||||
Total | $ | 11,462 | $ | 9,776 |
Note 5 –Intangible Assets
Intangible assets, net consisted of the following (in thousands):
September 28, 2018 | December 29, 2017 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||
Long-lived amortized intangible assets: | ||||||||||||||||||||||||
Patents and licenses | $ | 9,240 | $ | (8,996 | ) | $ | 244 | $ | 9,244 | $ | (8,973 | ) | $ | 271 | ||||||||||
Customer relationships | 1,381 | (1,381 | ) | — | 1,392 | (1,392 | ) | — | ||||||||||||||||
Developed technology | 878 | (878 | ) | — | 885 | (885 | ) | — | ||||||||||||||||
Total | $ | 11,499 | $ | (11,255 | ) | $ | 244 | $ | 11,521 | $ | (11,250 | ) | $ | 271 |
|
| September 27, 2019 |
|
| December 28, 2018 |
| ||||||||||||||||||
Long-lived amortized intangible assets |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Patents and licenses |
| $ | 9,301 |
|
| $ | (9,049 | ) |
| $ | 252 |
|
| $ | 9,257 |
|
| $ | (9,014 | ) |
| $ | 243 |
|
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 6 – Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
September 28, 2018 | December 29, 2017 |
| September 27, 2019 |
|
| December 28, 2018 |
| |||||||||
Accrued salaries and wages | $ | 3,792 | $ | 2,407 |
| $ | 4,209 |
|
| $ | 3,172 |
| ||||
Accrued insurance | 33 | 565 |
|
| 43 |
|
|
| 1,061 |
| ||||||
Accrued consumption tax | 820 | 446 |
|
| 771 |
|
|
| 995 |
| ||||||
Accrued income taxes | 1,121 | 210 | ||||||||||||||
Accrued bonuses | 3,408 | 2,026 |
|
| 2,354 |
|
|
| 5,113 |
| ||||||
Other(1)) | 1,761 | 1,685 | ||||||||||||||
Total | $ | 10,935 | $ | 7,339 | ||||||||||||
Income taxes payable |
|
| 2,464 |
|
|
| 1,105 |
| ||||||||
Marketing obligations |
|
| 747 |
|
|
| 361 |
| ||||||||
Other(1) |
|
| 2,277 |
|
|
| 1,624 |
| ||||||||
Total other current liabilities |
| $ | 12,865 |
|
| $ | 13,431 |
|
(1) | No individual item in “Other” exceeds 5% of the other current liabilities. |
10
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 7 – Lines of Credit
Since 1998, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.06% as of September 27, 2019) plus a 0.50% spread, and may be renewed quarterly (the current line expires on November 21, 2019). The credit facility is not collateralized. The Company had 252,500,000 Yen and 417,500,000 Yen outstanding on the line of credit as of September 27, 2019 and December 28, 2018, respectively (approximately $2,340,000 and $3,780,000 based on the foreign exchange rates on September 27, 2019 and December 28, 2018, respectively), which approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be increased to 14% per annum. There was 247,500,000 Yen and 82,500,000 Yen available for borrowing as of September 27, 2019 and December 28, 2018, respectively (approximately $2,293,000 and $747,000 based on the foreign exchange rate on September 27, 2019 and December 28, 2018, respectively). At maturity on November 21, 2019, the Company expects to renew this line of credit for an additional three months, with similar terms.
In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $1,000,000 at the rate of exchange on September 27, 2019 and December 28, 2018), to be used for working capital purposes. Accrued interest and 0.25% commissions on average outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain conditions such as providing the Bank with audited financial statements annually and notice of significant events or conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as defined. There were 0 borrowings outstanding as of September 27, 2019 and December 28, 2018.
The Company is in compliance with covenants of its credit facilities and lines of credit as of September 27, 2019.
During the nine months ended September 27, 2019, the Company converted the lease line of credit schedule 011 with Farnam Street Financial, Inc. into a finance lease liability of approximately $500,000.
Note 8 – Leases
Finance Leases
The Company entered into finance leases primarily related to purchases of equipment used for manufacturing or computer-related equipment. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases consisted of the following (dollars in thousands):
|
| September 27, 2019 |
| |
Machinery and equipment |
| $ | 1,885 |
|
Computer equipment and software |
|
| 923 |
|
Furniture and fixtures |
|
| 102 |
|
Leasehold improvements |
|
| 27 |
|
Finance lease right-of-use assets, gross |
|
| 2,937 |
|
Less accumulated depreciation |
|
| 931 |
|
Finance lease right-of-use assets, net |
| $ | 2,006 |
|
|
|
|
|
|
Total finance lease liability |
| $ | 1,223 |
|
Weighted-average remaining lease term (in years) |
|
| 1.4 |
|
Weighted-average discount rate |
|
| 6.27 | % |
11
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases (Continued)
Finance Leases (Continued)
Supplemental cash flow information related to finance leases consisted of the following (dollars in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||
|
| September 27, 2019 |
| September 27, 2019 |
| ||
Amortization of finance lease right-of-use asset |
| $ | 141 |
| $ | 447 |
|
Interest on finance lease liabilities |
|
| 17 |
|
| 58 |
|
Cash paid for amounts included in the measurement of finance lease liabilities: |
|
|
|
|
|
|
|
Operating cash flows |
|
| 17 |
|
| 58 |
|
Financing cash flows |
|
| 317 |
|
| 998 |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
| — |
|
| 679 |
|
Operating Leases
The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse facilities), automobiles and copiers. These operating leases are two to five years in length with options to extend. The Company did not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. Supplemental balance sheet information related to operating leases consisted of the following (dollars in thousands):
| September 27, 2019 |
| |
Machinery and equipment | $ | 813 |
|
Computer equipment and software |
| 462 |
|
Real property |
| 10,634 |
|
Operating lease right-of-use assets, gross |
| 11,909 |
|
Less accumulated depreciation |
| 5,232 |
|
Operating lease right-of-use assets, net | $ | 6,677 |
|
|
|
|
|
Total operating lease liability | $ | 6,792 |
|
Weighted-average remaining lease term (in years) |
| 2.4 |
|
Weighted-average discount rate |
| 1.79 | % |
Supplemental cash flow information related to operating leases was as follows (dollars in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 27, 2019 |
|
| September 27, 2019 |
| ||
Operating lease cost |
| $ | 726 |
|
| $ | 2,020 |
|
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows |
|
| 739 |
|
|
| 2,031 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
| 140 |
|
|
| 2,797 |
|
12
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases (Continued)
Future Minimum Lease Commitments
Estimated future minimum lease payments under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of September 27, 2019 and December 28, 2018 are as follows (in thousands):
As of September 27, 2019 12 Months Ended |
| Operating Leases |
|
| Finance Leases |
| ||
September 2020 |
| $ | 2,920 |
|
| $ | 790 |
|
September 2021 |
|
| 1,833 |
|
|
| 426 |
|
September 2022 |
|
| 1,082 |
|
|
| 45 |
|
September 2023 |
|
| 867 |
|
|
| 8 |
|
September 2024 |
|
| 319 |
|
|
| 4 |
|
Thereafter |
|
| — |
|
|
| — |
|
Total minimum lease payments, including interest |
| $ | 7,021 |
|
| $ | 1,273 |
|
Less amounts representing interest |
|
| 229 |
|
|
| 50 |
|
Total minimum lease payments |
| $ | 6,792 |
|
| $ | 1,223 |
|
As of December 28, 2018 12 Months Ended |
| Operating Leases |
|
| Finance Leases |
| ||
December 2019 |
| $ | 2,606 |
|
| $ | 1,153 |
|
December 2020 |
|
| 2,202 |
|
|
| 332 |
|
December 2021 |
|
| 980 |
|
|
| 143 |
|
December 2022 |
|
| 507 |
|
|
| 4 |
|
December 2023 |
|
| 202 |
|
|
| — |
|
Thereafter |
|
| 12 |
|
|
| — |
|
Total minimum lease payments, including interest |
|
| 6,509 |
|
|
| 1,632 |
|
Less amounts representing interest |
|
| — |
|
|
| 75 |
|
Total minimum lease payments |
| $ | 6,509 |
|
| $ | 1,557 |
|
13
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 9 — Income Taxes
The Company recorded an income tax provision as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Provision for income taxes |
| $ | 760 |
|
| $ | 346 |
|
| $ | 2,380 |
|
| $ | 1,452 |
|
The income tax provision is primarily due to pre-tax income generated in certain foreign jurisdictions. The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions. There are no unrecognized tax benefits related to uncertain tax positions taken by the Company.
All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provides withholding and U.S. taxes on all unremitted foreign earnings.
The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50 percent of GILTI, however this deduction is limited to the Company’s U.S. taxable income. The Company has elected to account for GILTI as a current period expense when incurred.
For the nine months ended September 27, 2019, the Company included GILTI of $12,084,000 in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company was not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited to the Company’s U.S. taxable income.
As of September 27, 2019, the Company established a full valuation allowance in the U.S. for all periods presented due to the significant uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, with the exception of the refundable alternative minimum tax credit of $273,000. Management will continue to monitor and evaluate all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax-planning strategies, and results of recent operations.
In projecting future taxable income, the Company begins with historical results and incorporates assumptions including overall current and projected business and industry conditions, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence, the Company considers, among other financial information, three years of cumulative operating results. Valuation allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more likely than not that some portion or all the deferred tax asset may not be realized. As the Company experiences continued growth and profits the need for a valuation allowance will be evaluated each reporting period by Management to determine whether it is more likely than not that the Company’s deferred tax assets will be realizable in a later period. Any such changes in the assessment of a full or partial valuation allowance could have a material impact on earnings.
14
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 710 – Defined Benefit Pension Plans
The Company has defined benefit plans covering employees of its Switzerland and Japan operations. The following table summarizes the components of net periodic pension cost recorded for the Company’s defined benefit pension plans (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Service cost(1) |
| $ | 240 |
|
| $ | 137 |
|
| $ | 720 |
|
| $ | 414 |
|
Interest cost(2) |
|
| 20 |
|
|
| 15 |
|
|
| 60 |
|
|
| 44 |
|
Expected return on plan assets(2) |
|
| (36 | ) |
|
| (28 | ) |
|
| (103 | ) |
|
| (82 | ) |
Net amortization of transitional obligation(2),(3) |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 8 |
|
Prior service credit(2),(3) |
|
| (6 | ) |
|
| (6 | ) |
|
| (17 | ) |
|
| (17 | ) |
Actuarial loss recognized in current period(2),(3) |
|
| 32 |
|
|
| 28 |
|
|
| 97 |
|
|
| 85 |
|
Net periodic pension cost |
| $ | 250 |
|
| $ | 149 |
|
| $ | 757 |
|
| $ | 452 |
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Service cost(1) | $ | 137 | $ | 128 | $ | 414 | $ | 386 | ||||||||
Interest cost(2) | 15 | 14 | 44 | 42 | ||||||||||||
Expected return on plan assets(2) | (28 | ) | (24 | ) | (82 | ) | (71 | ) | ||||||||
Net amortization of transitional obligation(2),(3) | 3 | 3 | 8 | 9 | ||||||||||||
Prior service credit(2),(3) | (6 | ) | (2 | ) | (17 | ) | (6 | ) | ||||||||
Actuarial loss recognized in current period(2),(3) | 28 | 17 | 85 | 52 | ||||||||||||
Net periodic pension cost | $ | 149 | $ | 136 | $ | 452 | $ | 412 |
(1) | Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of |
(2) | Recognized in other income (expense), net |
(3) | Amounts reclassified from accumulated other comprehensive |
The Company currently is not required to and does not make contributions to its Japan pension plan. The Company’s contributions to its Swiss pension plan are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Employer contribution | $ | 80 | $ | 66 | $ | 225 | $ | 197 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Employer contribution |
| $ | 141 |
|
| $ | 80 |
|
| $ | 404 |
|
| $ | 225 |
|
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 11 — Basic and Diluted Net Income (Loss) Per ShareStockholders’ Equity
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 1,459 | $ | 1,173 | $ | 3,872 | $ | (2,001 | ) | |||||||
Denominator: | ||||||||||||||||
Weighted average common shares: | ||||||||||||||||
Common shares outstanding | 43,065 | 41,131 | 42,076 | 40,960 | ||||||||||||
Less: Unrestricted stock | (11 | ) | (21 | ) | (11 | ) | (21 | ) | ||||||||
Denominator for basic calculation | 43,054 | 41,110 | 42,065 | 40,939 | ||||||||||||
Weighted average effects of potentially dilutive common stock: | ||||||||||||||||
Stock options | 2,686 | 837 | 2,245 | — | ||||||||||||
Unvested restricted stock | 4 | — | 12 | — | ||||||||||||
Restricted stock units | 281 | 157 | 296 | — | ||||||||||||
Warrants | — | — | — | — | ||||||||||||
Denominator for diluted calculation | 46,025 | 42,104 | 44,618 | 40,939 | ||||||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.03 | $ | 0.09 | $ | (0.05 | ) | |||||||
Diluted | $ | 0.03 | $ | 0.03 | $ | 0.09 | $ | (0.05 | ) |
Because the Company had a net loss for the nine months ended September 29, 2017, the number of diluted shares is equal to the number of basic shares. Outstanding options and warrants to purchase common stock, restricted stock and restricted stock units would have had an anti-dilutive effect on diluted per share amounts.
The following table sets forth (in thousands) the weighted average number of options and warrants to purchase shares of common stock, restricted stock, and restricted stock units with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Options | 389 | 1,545 | 278 | 2,497 | ||||||||||||
Restricted stock and restricted stock units | — | — | 1 | 159 | ||||||||||||
Total | 389 | 1,545 | 279 | 2,656 |
Note 9 — Disaggregation of Revenues, Geographic Sales and Product Sales
In the following tables, revenues are disaggregated by category, sales by geographic market and sales by product data. The following breaks down revenues into the following categories (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Non-consignment sales | $ | 27,503 | $ | 19,590 | $ | 79,345 | $ | 53,432 | ||||||||
Consignment sales | 4,267 | 3,883 | 13,423 | 12,327 | ||||||||||||
Total net sales | 31,770 | 23,473 | 92,768 | 65,759 | ||||||||||||
Royalty income(1) | 159 | 141 | 465 | 400 | ||||||||||||
Total revenues | $ | 31,929 | $ | 23,614 | $ | 93,233 | $ | 66,159 |
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 9 — Disaggregation of Revenues, Geographic Sales and Product Sales (Continued)
The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China and Japan, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers is set forth below (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
China | $ | 13,349 | $ | 7,397 | $ | 35,224 | $ | 18,069 | ||||||||
Japan | 6,006 | 4,633 | 17,781 | 12,849 | ||||||||||||
Other(1) | 12,415 | 11,443 | 39,763 | 34,841 | ||||||||||||
Total revenues | $ | 31,770 | $ | 23,473 | $ | 92,768 | $ | 65,759 |
In addition, domestic and foreign sales are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Domestic | $ | 1,676 | $ | 1,896 | $ | 5,327 | $ | 5,946 | ||||||||
Foreign | 30,094 | 21,577 | 87,441 | 59,813 | ||||||||||||
Total revenues | $ | 31,770 | $ | 23,473 | $ | 92,768 | $ | 65,759 |
100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company operates as one operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line is as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
ICLs | $ | 26,418 | $ | 18,110 | $ | 74,868 | $ | 49,698 | ||||||||
Other product sales | ||||||||||||||||
IOLs | 3,824 | 3,892 | 12,068 | 12,875 | ||||||||||||
Other surgical products | 1,528 | 1,471 | 5,832 | 3,186 | ||||||||||||
Total other product sales | 5,352 | 5,363 | 17,900 | 16,061 | ||||||||||||
Total net sales | $ | 31,770 | $ | 23,473 | $ | 92,768 | $ | 65,759 |
One customer, our distributor in China, accounted for 42% and 38% of net sales for the three and nine months ended September 28, 2018, respectively, and the same customer accounted for 32% and 27% of net sales for the three and nine months ended September 29, 2017, respectively. As of September 28, 2018 and December 29, 2017, respectively, one customer, our distributor in China, accounted for 36% and 24% of consolidated trade receivables.
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 10 — Stock-Based Compensation
The cost that has been charged against income for stock-based compensation is set forth below (in thousands):
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 |
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| |||||||||||||||||
Employee stock options | $ | 1,197 | $ | 443 | $ | 2,713 | $ | 1,204 |
| $ | 2,178 |
|
| $ | 1,197 |
|
| $ | 5,770 |
|
| $ | 2,713 |
| ||||||||
Restricted stock | 82 | 50 | 192 | 136 |
|
| 77 |
|
|
| 82 |
|
|
| 236 |
|
|
| 192 |
| ||||||||||||
Restricted stock units | 501 | 314 | 1,593 | 845 |
|
| 246 |
|
|
| 501 |
|
|
| 1,661 |
|
|
| 1,593 |
| ||||||||||||
Nonemployee stock options | 247 | — | 428 | — |
|
| 57 |
|
|
| 247 |
|
|
| 111 |
|
|
| 428 |
| ||||||||||||
Total | $ | 2,027 | $ | 807 | $ | 4,926 | $ | 2,185 | ||||||||||||||||||||||||
Total stock-based compensation expense |
| $ | 2,558 |
|
| $ | 2,027 |
|
| $ | 7,778 |
|
| $ | 4,926 |
|
The Company recorded stock-based compensation costs in the following categories on the accompanying Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 |
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| |||||||||||||||||
Cost of sales | $ | 4 | $ | 2 | $ | 11 | $ | 6 |
| $ | 7 |
|
| $ | 4 |
|
| $ | 43 |
|
| $ | 11 |
| ||||||||
General and administrative | 701 | 377 | 1,875 | 1,035 |
|
| 1,082 |
|
|
| 701 |
|
|
| 2,878 |
|
|
| 1,875 |
| ||||||||||||
Marketing and selling | 471 | 214 | 1,297 | 558 |
|
| 692 |
|
|
| 471 |
|
|
| 2,553 |
|
|
| 1,297 |
| ||||||||||||
Research and development | 851 | 214 | 1,743 | 586 |
|
| 777 |
|
|
| 851 |
|
|
| 2,304 |
|
|
| 1,743 |
| ||||||||||||
Total stock-based compensation expense | 2,027 | 807 | 4,926 | 2,185 | ||||||||||||||||||||||||||||
Total stock-based compensation expense, net |
|
| 2,558 |
|
|
| 2,027 |
|
|
| 7,778 |
|
|
| 4,926 |
| ||||||||||||||||
Amounts capitalized as part of inventory | 182 | 107 | 449 | 269 |
|
| 258 |
|
|
| 182 |
|
|
| 723 |
|
|
| 449 |
| ||||||||||||
Total stock-based compensation | $ | 2,209 | $ | 914 | $ | 5,375 | $ | 2,454 | ||||||||||||||||||||||||
Total stock-based compensation expense, gross |
| $ | 2,816 |
|
| $ | 2,209 |
|
| $ | 8,501 |
|
| $ | 5,375 |
|
Stock Option Plan15
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OurNote 11 — Stockholders’ Equity (Continued)
Incentive Plan
The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, and restricted stock units (“RSUs”), and performance contingent stock units.. Options under the planPlan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by ourthe Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting under certain circumstances in the event ofif there is a change in control and pre-established financial metrics are met (as defined in the Plan). RestrictedGrants of restricted stock grantsoutstanding under the Plan generally vest over a period betweenperiods of one to three years. Grants of RSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. As of September 28, 2018,27, 2019, there were 2,488,2371,629,976 shares available for grantsgrant under the Plan.
Plan
Assumptions
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellationsand represents the period of time that options granted are expected to be outstanding. The Company has calculated an 11%8%estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 | |||||||||||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Expected volatility | 53 | % | 57 | % | 53 | % | 57 | % | ||||||||
Risk-free interest rate | 2.84 | % | 1.83 | % | 2.71 | % | 1.95 | % | ||||||||
Expected term (in years) | 5.72 | 5.67 | 5.72 | 5.67 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Expected volatility |
|
| 53 | % |
|
| 53 | % |
|
| 53 | % |
|
| 53 | % |
Risk-free interest rate |
|
| 1.55 | % |
|
| 2.84 | % |
|
| 2.40 | % |
|
| 2.71 | % |
Expected term (in years) |
|
| 5.67 |
|
|
| 5.72 |
|
|
| 5.67 |
|
|
| 5.72 |
|
Stock Options
A summary of stock option activity under the Plan for the nine months ended September 27, 2019 is presented below:
|
| Stock Options (in 000’s) |
|
| Minimum Exercise Price |
|
| Maximum Exercise Price |
| |||
Outstanding at December 28, 2018 |
|
| 3,920 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 818 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (190 | ) |
|
|
|
|
|
|
|
|
Forfeited or expired |
|
| (23 | ) |
|
|
|
|
|
|
|
|
Outstanding at September 27, 2019 |
|
| 4,525 |
|
| $ | 3.50 |
|
| $ | 43.84 |
|
Exercisable at September 27, 2019 |
|
| 3,104 |
|
|
|
|
|
|
|
|
|
16
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 11 — Stockholders’ Equity (Continued)
Note 10 — Stock-Based Compensation (Continued)
A summary of option activity under the Plan for the quarter ended September 28, 2018 is presented below:
As of September 28, 2018, exercise prices of outstanding stock options ranged between $0.95Restricted Stock and $39.90 per share.
Restricted Stock Units
A summary of restricted stock and RSU activity under the Plan for the quarternine months ended September 28, 201827, 2019 is presented below:
Restricted Shares (000’s) | Restricted Units (000’s) | |||||||
Outstanding at December 29, 2017 | 21 | 488 | ||||||
Granted | 11 | 49 | ||||||
Vested | (21 | ) | (185 | ) | ||||
Forfeited or expired | — | (8 | ) | |||||
Outstanding at September 28, 2018 | 11 | 344 |
Note 11 — Income Taxes
The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions.
The Company recorded an income tax provision of $346,000 and $1,452,000 for the three and nine months ended September 28, 2018, respectively, and $410,000 and $697,000 for the three and nine months ended September 29, 2017, respectively, primarily due to pre-tax income generated in certain foreign jurisdictions. There are no unrecognized tax benefits related to uncertain tax positions taken by the Company.
For the fiscal year-ended December 29, 2017 and prior years, the Company provided foreign withholding and U.S. income taxes on all unremitted foreign earnings, as the earnings from the Company’s foreign subsidiaries were not considered to be permanently reinvested. Effective for the current year, the Company no longer provides U.S. income taxes on foreign earnings (see discussion below). Although foreign earnings are no longer subject to U.S. taxation, the Company continues to provide withholding taxes related to such unremitted earnings.
U.S. Federal Income Tax Reform
On December 22, 2017, the United States enacted major tax reform legislation. Most of the changes from the new law are effective for years beginning after December 31, 2017 with the noted exemption of the deemed repatriation of offshore earnings. Public Law No. 115-97, commonly referred to as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”) put into effect a number of changes impacting operations outside the United States including, but not limited to, the imposition of a one-time tax “deemed repatriation” on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S taxation of multinational corporations from a worldwide system of taxation to a territorial system. As such, the 2017 Tax Act provides an exemption against U.S. federal taxation on foreign earnings generated after December 31, 2017 and repatriated back to the U.S.
|
| Restricted Stock (in 000’s) |
|
| Restricted Stock Units (in 000’s) |
| ||
Unvested at December 28, 2018 |
|
| 11 |
|
|
| 322 |
|
Granted |
|
| 11 |
|
|
| 19 |
|
Vested |
|
| (11 | ) |
|
| (210 | ) |
Forfeited or expired |
|
| — |
|
|
| (6 | ) |
Unvested at September 27, 2019 |
|
| 11 |
|
|
| 125 |
|
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 12 - Commitments and Contingencies
Lines of Credit
Since 1998, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.06% as of September 28, 2018) plus a 0.50% spread, and may be renewed quarterly (the current line expires on November 21, 2018). The credit facility is not collateralized. The Company had 472,500,000 Yen and 500,000,000 Yen outstanding on the line of credit as of September 28, 2018 and December 29, 2017, respectively (approximately $4,162,000 and $4,438,000 based on the foreign exchange rates on September 28, 2018 and December 29, 2017, respectively), which approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be increased to 14% per annum. As of September 28, 2018 there was 27,500,000 Yen (approximately $242,000) available for borrowing and as of December 29, 2017 there were no available borrowings under the line. At maturity on November 21, 2018, the Company expects to renew this line of credit for an additional three months, with similar terms.
In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $1,000,000 at the rate of exchange on September 28, 2018 and December 29, 2017), to be used for working capital purposes. Accrued interest and 0.25% commissions on average outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain conditions such as providing the Bank with audited financial statements annually and notice of significant events or conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as defined. There were no borrowings outstanding as of September 28, 2018 and December 29, 2017.
Covenant Compliance
The Company is in compliance with the covenants of its credit facilities as of the date of this filing.
Lease Line of Credit (Capital Leases)
On March 8, 2018, the Company entered into lease schedule 011 with Farnam Street Financial, Inc. (“Farnam”). The line of credit provides for borrowings of up to $500,000 at a lease rate factor of 3.94% per $1 for hardware equipment and 4.75% per $1 for non-hardware equipment. Interim rent is paid until the full amount of the line is used at which time the lease commences. As of September 28, 2018, approximately $392,000 of the line was available for borrowing.
On March 8, 2018, the Company entered into lease schedule 010R with Farnam. Under 010R, equipment with a cost of $1,560,000 was financed over a period of 24 months at a lease rate factor of 3.94% per $1 for hardware equipment and 4.75% per $1 for non-hardware equipment. At the end of the lease the Company can opt to continue to rent the equipment, return the equipment, or exercise a fair market value purchase option. As of September 28, 2018, approximately $1,044,000 was outstanding on this capital lease.
On January 31, 2017, the Company entered into lease schedule 009R with Farnam. Under 009R, equipment with a cost of $1,957,000 was financed over a period of 24 months at a lease rate factor of 3.94% per $1 for hardware equipment and 4.75% per $1 for non-hardware equipment. At the end of the lease the Company can opt to continue to rent the equipment, return the equipment, or exercise a fair market value purchase option. As of September 28, 2018 and December 29, 2017, approximately $330,000 and $1,067,000, respectively, was outstanding on this capital lease.
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 12 - Commitments and Contingencies (Continued)
Litigation and Claims
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.
Employment Agreements
The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She 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.
17
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 13 – Stockholders’ Equity— Basic and Diluted Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands except per share amounts):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 2,388 |
|
| $ | 1,459 |
|
| $ | 7,669 |
|
| $ | 3,872 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
| 44,573 |
|
|
| 43,065 |
|
|
| 44,436 |
|
|
| 42,076 |
|
Less: Unvested restricted stock |
|
| (10 | ) |
|
| (11 | ) |
|
| (10 | ) |
|
| (11 | ) |
Denominator for basic calculation |
|
| 44,563 |
|
|
| 43,054 |
|
|
| 44,426 |
|
|
| 42,065 |
|
Weighted average effects of potentially diluted common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| 2,194 |
|
|
| 2,686 |
|
|
| 2,260 |
|
|
| 2,245 |
|
Unvested restricted stock |
|
| 2 |
|
|
| 4 |
|
|
| 6 |
|
|
| 12 |
|
Restricted stock units |
|
| 98 |
|
|
| 281 |
|
|
| 156 |
|
|
| 296 |
|
Denominator for diluted calculation |
|
| 46,857 |
|
|
| 46,025 |
|
|
| 46,848 |
|
|
| 44,618 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.17 |
|
| $ | 0.09 |
|
Diluted |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.16 |
|
| $ | 0.09 |
|
On August 10, 2018,
The following table sets forth (in thousands) the Company closed an offeringweighted average number of its common stock. As part of this transaction, the Company issued 1,999,850options to purchase shares of its common stock, at arestricted stock, and restricted stock units with either exercise prices or unrecognized compensation cost per share greater than the average market price of $36.309 per share. Net proceeds, after deducting expenses, received from this offering were $72,150,000. The Company intends to use the net proceeds of this offering to fund operations, which may include advancing and broadening commercialization of its ICL family of products, funding pipeline research and development activities and clinical trials, funding incremental investments in automation and precision manufacturing, and capital expenditures, such as information systems, and for general corporate purposes, including working capital. The Company has not yet determined the amounts on anyshare of the areas listed above orCompany’s common stock, which were not included in the timingcalculation of these expenditures. The Company investsdiluted per share amounts because the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.effects would be anti-dilutive.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Stock options |
|
| 1,836 |
|
|
| 389 |
|
|
| 1,446 |
|
|
| 278 |
|
Restricted stock and restricted stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Total |
|
| 1,836 |
|
|
| 389 |
|
|
| 1,446 |
|
|
| 279 |
|
Note 14 — ReclassificationsDisaggregation of Sales, Geographic Sales and Product Sales
In the following tables, sales are disaggregated by category, sales by geographic market and sales by product data. The following breaks down sales into the following categories (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Non-consignment sales |
| $ | 34,696 |
|
| $ | 27,503 |
|
| $ | 98,518 |
|
| $ | 79,345 |
|
Consignment sales |
|
| 4,359 |
|
|
| 4,267 |
|
|
| 12,784 |
|
|
| 13,423 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
18
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In accordance with ASU 2014-09,Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales (Continued)
The Company markets and sells its products in order to disclose contract assetsover 75 countries and contract liabilities,conducts its manufacturing in the United States. Other than China and Japan, the Company reclassifieddoes not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the estimated amountCompany’s net sales to unaffiliated customers is set forth below (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
China |
| $ | 18,361 |
|
| $ | 13,349 |
|
| $ | 49,526 |
|
| $ | 35,224 |
|
Japan |
|
| 7,345 |
|
|
| 6,006 |
|
|
| 19,139 |
|
|
| 17,781 |
|
Other(1) |
|
| 13,349 |
|
|
| 12,415 |
|
|
| 42,637 |
|
|
| 39,763 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
(1) | No other location individually exceeds 10% of the total sales. |
In addition, domestic and foreign sales are as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Domestic |
| $ | 1,783 |
|
| $ | 1,676 |
|
| $ | 5,849 |
|
| $ | 5,327 |
|
Foreign |
|
| 37,272 |
|
|
| 30,094 |
|
|
| 105,453 |
|
|
| 87,441 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
100% of inventory expected to be returnedthe Company’s sales are generated from the allowance for sales returns to inventories, net onophthalmic surgical product segment and the Condensed Consolidated Balance Sheets. In addition,chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company reclassifiedoperates as 1 operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the allowance forCompany’s net sales returns from accounts receivable, net to a separateby product line item in current liabilities on the Condensed Consolidated Balance Sheets, see Note 1.is as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
ICLs |
| $ | 33,815 |
|
| $ | 26,418 |
|
| $ | 96,033 |
|
| $ | 74,868 |
|
Other product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IOLs |
|
| 4,093 |
|
|
| 3,824 |
|
|
| 11,984 |
|
|
| 12,068 |
|
Other surgical products |
|
| 1,147 |
|
|
| 1,528 |
|
|
| 3,285 |
|
|
| 5,832 |
|
Total other product sales |
|
| 5,240 |
|
|
| 5,352 |
|
|
| 15,269 |
|
|
| 17,900 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
Certain compensation related expenses were reclassified from General
One customer, the Company’s distributor in China, accounted for 47% and Administrative to Marketing44% of net sales for the three and Sellingnine months ended September 27, 2019, respectively, and Researchthe same customer accounted for 42% and Development line items on the Condensed Consolidated Statements38% of Operationsnet sales for the three and nine months ended September 29, 201728, 2018, respectively. As of September 27, 2019 and December 28, 2018, respectively, one customer, the Company’s distributor in China, accounted for 40% and 37% of consolidated trade receivables.
Note 15 — Reclassifications
Computer equipment and software was reclassified into a separate line item from furniture and fixtures in Note 4 for the fiscal year ended 2018 to conform with 2018the 2019 presentation.
The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “should,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements about any of the following: any projections of or guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, capital expense or any other financial items; the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved products (including the EVO family of lenses in the U.S. and the EDOF ICL for presbyopia internationally); commercialization of new or improved products; future economic conditions or size of market opportunities; and expected costs of quality systems or operations; statements of belief, including as to achieving 20182019 business plans; expected regulatory activities and approvals, product launches, and any statements of assumptions underlying any of the foregoing.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and we can give no assurance that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described in in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on February 28, 2018.21, 2019. We undertake no obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or to reflect actual outcomes.
The following discussion should be read in conjunction with the unauditedaudited consolidated financial statements of STAAR, including the related notes, provided in this report.
Overview
STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or “ICLs.” The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens (IOL) to restore the patient’s vision. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing glasseseyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our IOL lenses used in surgery that treats cataracts based on quality and value.
Recent Developments
We achieved a 35% increase in net totalrecord sales for our third quarter and a 46% increase in ICL salesall-time record cash generation in the third quarterquarter. We believe the results through the first three quarters of 2018 as compared2019 put us on track to achieve the third quartergrowth targets of 2017.20% annual top line revenue growth, 30% ICL unit growth, positive cash flow, and higher GAAP net income than 2018, as we disclosed earlier this year for fiscal 2019. Subsequent to the end of 56%the quarter we received a letter from FDA dated October 25, 2019 approving our supplement seeking approval for the third quarterclinical trial for our EVO family of 2018 arose in part from EVO Visian ICL unit growth of 100% in China, 95% growth in Japan, 27% growth in India and 20% growth in Germany. Sales of “Other” products, representing approximately 17% of overall saleslenses in the third quarter of 2018, were essentially flat from the third quarter of 2017 at $5.4 million in sales.
We believe our sales momentum can continue for the remainder of the year. Therefore,U.S. The letter included a few additional study design recommendations which we believe our full year fiscal 2018 sales growth percentage target should exceed 30% over 2017 based on current market conditions.
Furthermore, we continueare working to believe gross margins will increase as compared to 2017.We expect operating expensesinclude in the fourth quarter of 2018 will exceed that of the fourth quarter of 2017 as we continuestudy protocol. We are responding to invest in the business.
FDA within a week or so. We continue to expect profitability improvement as compared to 2017qualify study sites and expect our timelines will not be impacted as we work to achieve positive GAAP net income forclose out the full year of 2018. We continue to expect to increase cash from operations for the full year.
On September 13, 2018, we announced that the FDA granted approval of our PMA Supplement for the Visian Toric ICL for the correction of myopia with astigmatism. Our staged rollout of that product is in process. Our European multi-site EVO with EDOF presbyopia clinical trial remains ongoing. While the clinical trial continues, we cannot predict when, or if, we will succeed in meeting our end-points.
study design including FDA’s recommendations.
Critical Accounting Policies
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited Condensed Consolidated Financial Statements provided in this report, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.
An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. On December 30, 201729, 2018 (beginning of fiscal year 2018)2019), the Company adopted Accounting Standards Update 2014-09, “Revenue from Contract with Customers2016-02, “Leases (Topic 606)842)”and its subsequent amendments. The Company determined thatamendments, the adoptionimpact of this new accounting standard did not materially impact revenue recognition, see Noteare discussed in Notes 1 and 8 of the Condensed Consolidated Financial Statements. Other than the adoption of Topic 606,842, management believes that there have been no significant changes during the nine months ended September 28, 201827, 2019 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 29, 2017.
28, 2018.
Results of Operations
The following table shows the percentage of our total sales represented by the specificcertain items listed reflected in our condensed consolidated statementsCondensed Consolidated Statements of operationsIncome for the periods indicated, and the percentage by which these items increased or decreased over the prior period.indicated.
Percentage of Net Sales for Three Months | Percentage of Net Sales for Nine Months |
| Percentage of Net Sales for Three Months |
|
| Percentage of Net Sales for Six Months |
| |||||||||||||||||||||||||
September 28, 2018 | September 29, 2017 | September 28, 2018 | September 29, 2017 |
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| |||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % | ||||||||
Cost of sales | 24.9 | 28.2 | 26.1 | 28.7 |
|
| 25.6 | % |
|
| 24.9 | % |
|
| 25.3 | % |
|
| 26.1 | % | ||||||||||||
Gross profit | 75.1 | 71.8 | 73.9 | 71.3 |
|
| 74.4 | % |
|
| 75.1 | % |
|
| 74.7 | % |
|
| 73.9 | % | ||||||||||||
General and administrative | 19.2 | 20.1 | 19.5 | 21.9 |
|
| 18.2 | % |
|
| 19.2 | % |
|
| 19.3 | % |
|
| 19.5 | % | ||||||||||||
Marketing and selling | 33.4 | 27.7 | 31.0 | 31.1 |
|
| 31.9 | % |
|
| 33.4 | % |
|
| 30.8 | % |
|
| 31.0 | % | ||||||||||||
Research and development | 17.5 | 19.6 | 17.6 | 21.9 |
|
| 15.8 | % |
|
| 17.5 | % |
|
| 16.1 | % |
|
| 17.6 | % | ||||||||||||
Total selling, general and administrative expenses | 70.1 | 67.4 | 68.1 | 74.9 | ||||||||||||||||||||||||||||
Operating income (loss) | 5.0 | 4.4 | 5.8 | (3.6 | ) | |||||||||||||||||||||||||||
Other income (expense), net | 0.7 | 2.3 | (0.1 | ) | 1.7 | |||||||||||||||||||||||||||
Income (loss) before provision for income taxes | 5.7 | 6.7 | 5.7 | (1.9 | ) | |||||||||||||||||||||||||||
Total selling, general and administrative |
|
| 65.9 | % |
|
| 70.1 | % |
|
| 66.2 | % |
|
| 68.1 | % | ||||||||||||||||
Operating income |
|
| 8.5 | % |
|
| 5.0 | % |
|
| 8.5 | % |
|
| 5.8 | % | ||||||||||||||||
Total other income (expense), net |
|
| (0.5 | )% |
|
| 0.7 | % |
|
| 0.5 | % |
|
| (0.1 | )% | ||||||||||||||||
Income before income taxes |
|
| 8.0 | % |
|
| 5.7 | % |
|
| 9.0 | % |
|
| 5.7 | % | ||||||||||||||||
Provision for income taxes | 1.1 | 1.7 | 1.6 | 1.1 |
|
| 1.9 | % |
|
| 1.1 | % |
|
| 2.1 | % |
|
| 1.6 | % | ||||||||||||
Net income (loss) | 4.6 | % | 5.0 | % | 4.1 | % | (3.0 | )% | ||||||||||||||||||||||||
Net income |
|
| 6.1 | % |
|
| 4.6 | % |
|
| 6.9 | % |
|
| 4.1 | % |
Net Sales
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
| ||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
| ||||||
ICLs |
| $ | 33,815 |
|
| $ | 26,418 |
|
|
| 28.0 | % |
| $ | 96,033 |
|
| $ | 74,868 |
|
|
| 28.3 | % |
Other product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IOLs |
|
| 4,093 |
|
|
| 3,824 |
|
|
| 7.0 | % |
|
| 11,984 |
|
|
| 12,068 |
|
|
| (0.7 | )% |
Other surgical products |
|
| 1,147 |
|
|
| 1,528 |
|
|
| (24.9 | )% |
|
| 3,285 |
|
|
| 5,832 |
|
|
| (43.7 | )% |
Total other product sales |
|
| 5,240 |
|
|
| 5,352 |
|
|
| (2.1 | )% |
|
| 15,269 |
|
|
| 17,900 |
|
|
| (14.7 | )% |
Net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
|
| 22.9 | % |
| $ | 111,302 |
|
| $ | 92,768 |
|
|
| 20.0 | % |
Net Sales
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
ICL | $ | 26,418 | $ | 18,110 | 45.9 | % | $ | 74,868 | $ | 49,698 | 50.6 | % | ||||||||||||
Other product sales: | ||||||||||||||||||||||||
IOL | 3,824 | 3,892 | (1.7 | ) | 12,068 | 12,875 | (6.3 | ) | ||||||||||||||||
Other | 1,528 | 1,471 | 3.9 | 5,832 | 3,186 | 83.1 | ||||||||||||||||||
Total other product sales | 5,352 | 5,363 | (0.2 | ) | 17,900 | 16,061 | 11.5 | |||||||||||||||||
Net sales | 31,770 | 23,473 | 35.3 | % | 92,768 | 65,759 | 41.1 | % |
Net sales for the three months ended September 28, 201827, 2019 were $31.8$39.1 million, an increase of 35%23% from $23.5$31.8 million reported during the same period of 2017. 2018. The increase in net sales was due to an increase in ICL sales of $7.4 million.
Net sales for the nine months ended September 28, 201827, 2019 were $92.8$111.3 million, an increase of 41%20% from $65.8$92.8 million reported during the same period of 2017.2018. The increase in net sales was due to an increase in ICL sales of $21.2 million, partially offset by a decrease in other product sales of $2.6 million. Foreign currency, primarily the euro, negatively impacted net sales by approximately $1.3 million for the nine months ended September 27, 2019.
Total ICL sales for the three months ended September 28, 201827, 2019 were $33.8 million, a 28% increase from $26.4 million an increase of 46% from $18.1 million reporting duringreported for the same period of 2017,2018, with unit growth of 56%up 35%. The sales increase was driven by the APAC region, which grew 68%37% with unit growth of 79%43%, primarily due to sales growth in China up 38%, Japan up 90%, China up 83%63%, Korea up 16%33% and other APAC distributors up 19%, partially offset by decreased sales in India up 20%of 14%. The Europe, region grew 18% with unit growth of 17% primarily due to increased sales in Germany, Spain and Distributor Operations. In addition, the Middle East, Africa and Latin America region grew 6%5% with unit growth up 8%, due to sales growth in Spain up 12%, Distributor Operations up 7% and Germany up 5%, partially offset by decreased sales in Latin America of 9%. The North America region grew 19%, with unit growth of 4%. Within North America, Canada2%, primarily due to sales increased 11%.growth of 24% in the U.S., as a result of sales of Toric ICL in 2019 (none in 2018), partially offset by decreased sales in Canada. ICL sales represented 86.6% and 83.2% and 77.2% of our total sales for the three months ended September 27, 2019 and September 28, 2018, and September 29, 2017, respectively.
Total ICL sales for the nine months ended September 28, 201827, 2019 were $96.0 million, a 28% increase from $74.9 million an increase of 51% from $49.7 million reported duringfor the same period of 2017,2018, with unit growth of 55%up 36%. The sales increase was driven by the APAC region, which grew 76%41% with unit growth of 81%47%, primarily due to sales growth in Japan up 58%, China up 98%41%, Japan up 90%, and Korea up 28%41%, other APAC distributors up 23% and India up 9%. The Europe, Middle East, Africa and Latin America region grew 24%increased 1% with unit growth of 13%up 6%, due primarily due to increasedsales growth in UK up 30%, Germany up 6% and Spain up 3%, partially offset by decreased sales in Germany, Distributor Operations and Spain. ASPs in Europe were favorably impacted by the strength of the Euro compared to the U.S. dollar. In addition, the Middle East and Latin America of 8%. The North America region grew 20%17%, with unit growth of 11%. Within North America, Canada2%, primarily due to sales increased 23%.growth of 25% in the U.S., as a result of sales of Toric ICL in 2019 (none in 2018), partially offset by decreased sales in Canada. ICL sales represented 86.3% and 80.7% and 75.6% of our total sales for the nine months ended September 27, 2019 and September 28, 2018, and September 29, 2017, respectively.
Other product sales, including IOLs were $5.2 million for the three months ended September 27, 2019, a decrease of 2% from $5.4 million reported for the same period of 2018. Other product sales, including IOLs were $15.3 million for the nine months ended September 27, 2019, a decrease of 15% from $17.9 million reported for the same period of 2018. The decrease for both periods is primarily due to the decrease in preloaded injector part sales to a third-party manufacturer for product they sell to their customers, and for the three months ended September 28, 2018 and September 29, 2017, were $5.4 million.27, 2019, partially offset by an increase in IOL sales. Other product sales including IOLs,represented 13.4% and 16.8% of our total sales for the three months ended September 27, 2019 and September 28, 2018, respectively and represented 13.7% and 19.3% of our total sales for the nine months ended September 27, 2019 and September 28, 2018 were $17.9 million, compared to $16.1 million reported during the same period of 2017. The increase in other product sales for the nine months is due to an increase in injector part sales, partially offset by a decrease in IOL sales., respectively.
Gross Profit
Gross Profit
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
Gross Profit | $ | 23,860 | $ | 16,849 | 41.6 | % | $ | 68,518 | $ | 46,900 | 46.1 | % | ||||||||||||
Gross Profit Margin | 75.1 | % | 71.8 | % | 73.9 | % | 71.3 | % |
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
| ||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
| ||||||
Gross profit |
| $ | 29,051 |
|
| $ | 23,860 |
|
|
| 21.8 | % |
| $ | 83,130 |
|
| $ | 68,518 |
|
|
| 21.3 | % |
Gross margin |
|
| 74.4 | % |
|
| 75.1 | % |
|
|
|
|
|
| 74.7 | % |
|
| 73.9 | % |
|
|
|
|
Gross profit for the three months ended September 28, 201827, 2019 was $29.1 million, a 21.8% increase compared to the $23.9 million or 75.1% of sales, an increase of 42% from $16.8 million, or 71.8% of sales, reported duringfor the same period of 2017. 2018. Gross profit margin decreased to 74.4% of revenue for the three months ended September 27, 2019 compared to 75.1% of revenue for the three months ended September 28, 2018, due to period expenses incurred in the construction of new manufacturing facilities intended to satisfy growing demand for existing products and products currently under review by regulatory agencies. The gross margin impact of lower average selling prices was more than offset by the favorable impact of improved product mix.
Gross profit for the nine months ended September 28, 2018 27, 2019 was $83.1 million, a 21.3% increase compared to the $68.5 million or 73.9% of sales, an increase of 46% from $46.9 million, or 71.3% of sales, reported duringfor the same period of 2017. The improvement in gross2018. Gross profit margin increased to 74.7% of revenue for both periods resulted primarily from lower unit costs as a resultthe nine months ended September 27, 2019 compared to 73.9% of significantlyrevenue for the nine months ended September 28, 2018, due to increased production volumessales of ICLs and decreased sales of injector parts resulting in better overhead absorption, favorable product and country mix, and due to lower freight and inventory provisions, partially offset by the effect of lower average selling prices.prices and period expenses incurred in the construction of new manufacturing facilities, as discussed above.
General and Administrative Expense
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
| ||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
| ||||||
General and administrative expense |
| $ | 7,098 |
|
| $ | 6,087 |
|
|
| 16.6 | % |
| $ | 21,443 |
|
| $ | 18,054 |
|
|
| 18.8 | % |
Percentage of sales |
|
| 18.2 | % |
|
| 19.2 | % |
|
|
|
|
|
| 19.3 | % |
|
| 19.5 | % |
|
|
|
|
General and Administrative
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
General and Administrative | $ | 6,087 | $ | 4,716 | 29.1 | % | $ | 18,054 | $ | 14,380 | 25.5 | % | ||||||||||||
Percentage of Sales | 19.2 | % | 20.1 | % | 19.5 | % | 21.9 | % |
General and administrative expenses for the three months ended September 28, 2018 was $6.127, 2019 were $7.1 million, an increase of 29% from $4.716.6% when compared with $6.1 million reported for the same period of 2017.2018. General and administrative expenses for the nine months ended September 28, 2018 was $18.127, 2019 were $21.4 million, an increase of 26% from $14.418.8% when compared with $18.1 million reported for the same period of 2017.2018. The increase in general and administrative expenses for both periods was due to an increase in headcount and salary-related expenses including stock-based compensation, and increased facility costs legal fees, travel, and investments in enhanced cybersecurity systems.professional fees.
Marketing and Selling Expense
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
Marketing and Selling | $ | 10,620 | $ | 6,495 | 63.5 | % | $ | 28,733 | $ | 20,473 | 40.3 | % | ||||||||||||
Percentage of Sales | 33.4 | % | 27.7 | % | 31.0 | % | 31.1 | % |
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
| ||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
| ||||||
Marketing and selling expense |
| $ | 12,463 |
|
| $ | 10,620 |
|
|
| 17.4 | % |
| $ | 34,288 |
|
| $ | 28,733 |
|
|
| 19.3 | % |
Percentage of sales |
|
| 31.9 | % |
|
| 33.4 | % |
|
|
|
|
|
| 30.8 | % |
|
| 31.0 | % |
|
|
|
|
Marketing and selling expenses for the three months ended September 28, 2018 was $10.627, 2019 were $12.5 million, an increase of 64% from $6.517.4% when compared with $10.6 million reported for the same period of 2017.2018. Marketing and selling expenses for the nine months ended September 29, 2018 was $28.727, 2019 were $34.3 million, an increase of 40% from $20.519.3% when compared with $28.7 million reported for the same period of 2017.2018. The increase in marketing and selling expenses for both periods was due toour continued investments in digital, consumer,strategic and strategicconsumer marketing, and commercial infrastructurefor the nine months ended September 27, 2019, also includes increases in headcount and due to a calendar shift in ESCRS from the prior year’s fourth quarter to the third quarter of 2018.salary-related expenses including stock-based compensation, and travel expenses.
Research and Development Expense
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
Research and Development | $ | 5,570 | $ | 4,594 | 21.2 | % | $ | 16,323 | $ | 14,418 | 13.2 | % | ||||||||||||
Percentage of Sales | 17.5 | % | 19.6 | % | 17.6 | % | 21.9 | % |
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| Three Months Ended |
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| Percentage Change |
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| Nine Months Ended |
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| Percentage Change |
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| September 27, 2019 |
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| September 28, 2018 |
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| 2019 vs. 2018 |
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| September 27, 2019 |
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| September 28, 2018 |
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| 2019 vs. 2018 |
| ||||||
Research and development expense |
| $ | 6,156 |
|
| $ | 5,570 |
|
|
| 10.5 | % |
| $ | 17,889 |
|
| $ | 16,323 |
|
|
| 9.6 | % |
Percentage of sales |
|
| 15.8 | % |
|
| 17.5 | % |
|
|
|
|
|
| 16.1 | % |
|
| 17.6 | % |
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|
|
|
Research and development expenses for the three months ended September 28, 2018 was $5.627, 2019 were $6.2 million, an increase of 21% from $4.610.5% compared to $5.6 million reported for the for same period of 2017.2018. Research and development expenses for the nine months ended September 29, 2018 was $16.327, 2019 were $17.9 million, an increase of 13% from $14.49.6% compared to $16.3 million reported for the for same period of 2017.2018. The increase for both periodsthe three months ended September 27, 2019 was primarily due to an increase in clinical expenses associated with ourrelated to clinical trial activities. The increase for the next generation ICL with an EDOF optic, an increasenine months ended September 27, 2019 was mainly due to increases in medical affairsheadcount and salary-related expenses including stock-based compensation, and for the three-month period, increased regulatory costs.expenses related to clinical trial activities.
Other Income (Expense), Net
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| Three Months Ended |
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| Percentage Change |
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| Nine Months Ended |
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| Percentage Change |
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| September 27, 2019 |
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| September 28, 2018 |
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| 2019 vs. 2018 |
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| September 27, 2019 |
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| September 28, 2018 |
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| 2019 vs. 2018 |
| ||||||
Other income (expense), net |
| $ | (186 | ) |
| $ | 222 |
|
|
| —* |
|
| $ | 539 |
|
| $ | (84 | ) |
|
| —* |
|
Percentage of sales |
|
| -0.5 | % |
|
| 0.7 | % |
|
|
|
|
|
| 0.5 | % |
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| -0.1 | % |
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|
|
Research and development expense consists primarily of compensation and related costs for personnel responsible for the research and development of new and existing products and the regulatory and clinical activities required to acquire and maintain product approvals globally. These costs are expensed as incurred.
* |
Other Income, Net
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
Other Income (Expense), Net | $ | 222 | $ | 539 | (58.8 | )% | $ | (84 | ) | $ | 1,067 | — | * | |||||||||||
Percentage of Sales | 0.7 | % | 2.3 | % | (0.1 | )% | 1.7 | % |
________________
Denotes change is greater than+100%. |
Other income,expense, net for the three months ended September 28, 201827, 2019 was $0.2 million a decrease from $0.5compared to other income of $0.2 million reported for the same period of 2017.2018. The decrease in other expense, net was a result of lowermainly due to the increase in foreign exchange gainslosses (primarily the euro). , offset by an increase in interest income earned on cash and cash equivalents. Other expense,income, net for the nine months ended September 28, 201827, 2019 was $0.5 million, an increase from other expense, net of $0.1 million compared to other income, net of $1.1 million reported for the same period of 2017. This change2018. The increase in other income, net was a result ofdue to an increase in interest income earned on cash and cash equivalents, offset by an increase in foreign exchange losses during(primarily the nine months ended September 28, 2018 compared to foreign exchange gains during the same period of 2017, due primarily to fluctuations in the euro rates.euro).
Income Taxes
Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | |||||||||||||||||||||
September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | September 28, 2018 | September 29, 2017 | 2018 vs. 2017 | |||||||||||||||||||
Income tax provision | $ | 346 | $ | 410 | (15.6 | )% | $ | 1,452 | $ | 697 | — | * | ||||||||||||
Percentage of Sales | 1.1 | % | 1.7 | % | 1.6 | % | 1.1 | % |
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| Three Months Ended |
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| Percentage Change |
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| Nine Months Ended |
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| Percentage Change |
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|
| September 27, 2019 |
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| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
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Income tax provision |
| $ | 760 |
|
| $ | 346 |
|
|
| —* |
|
| $ | 2,380 |
|
| $ | 1,452 |
|
|
| 63.9 | % |
________________
* | Denotes change is greater than+100%. |
The provision for income taxes is determined using an estimated annual effective tax rate. We recorded income taxes of $0.8 million and $2.4 million for the three and nine months ended September 27, 2019, respectively and $0.3 million and $1.5 million for the three and nine months ended September 28, 2018, respectively and $0.4 million and $0.7 million for the three and nine months ended September 29, 2017.respectively. The income tax provision was due primarily to pre-tax income generated in certain foreign jurisdictions. We have no unrecognized tax benefits pertaining to any uncertain tax positions as of any period presented.
For the three and nine months ended September 27, 2019, we included Global Intangible Low Tax Income (“GILTI”) of $4.4 million and $12.1 million, respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards. We were not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited to the Company’s U.S. taxable income.
Due to our history of losses in the U.S., we have maintained a full valuation allowance to offset the value of our U.S. net deferred tax assets on our balance sheet as of September 27, 2019, with the exception of the remaining refundable alternative minimum tax credit of $0.3 million. However, global profit is now includable in U.S. income under GILTI and as a result we have reported income in the U.S. in fiscal year 2018. As our global profitability improves, including our ability to meet or exceed forecasts, we will continue to reassess at each reporting period the need for a full or partial valuation allowance on our U.S. net deferred tax assets. We determine the need for a valuation allowance based upon all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax planning strategies, and results of recent operations. If it is more likely than not that the deferred tax asset is realizable, we would record an income tax benefit for all or a portion of the valuation allowance in the period in which such determination is made. Any such changes in the assessment of a full or partial valuation allowance could have a material impact on earnings. The valuation allowance was approximately $39.8 million as of September 27, 2019.
Liquidity and Capital Resources
We believe our current cash balances coupled with cash flows from operating activities is expected to be adequate to cover our operational and business needs through at least the next 12 months. Our financial condition at September 27, 2019 and December 28, 2018 included the following (in millions):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| 2019 vs. 2018 |
| |||
Cash and cash equivalents |
| $ | 112.3 |
|
| $ | 103.9 |
|
| $ | 8.4 |
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Current assets |
| $ | 165.0 |
|
| $ | 151.6 |
|
| $ | 13.4 |
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Current liabilities |
|
| 30.0 |
|
|
| 27.7 |
|
|
| 2.3 |
|
Working capital |
| $ | 135.0 |
|
| $ | 123.9 |
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| $ | 11.1 |
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On August 10, 2018, we closed an offering of our common stock. As part of this transaction, we issued 1,999,850 shares of common stock at a price of $36.309 per share. Net proceeds, after deducting expenses, received from this offering were $72,150,000. We intend to use the net proceeds of this offering to fund operations, which may include advancing and broadening commercialization of its ICL family of products, funding pipeline research and development activities and clinical trials, funding incremental investments in automation and precision manufacturing, and capital expenditures, such as information systems, and for general corporate purposes, including working capital. We have not yet determined the amounts on any of the areas listed above or the timing of these expenditures.
We invest the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
As of Additionally, at September 28, 2018, we had cash, cash equivalents and restricted cash of $102.3 million. Additionally,27, 2019, we have a line of credit with a Japanese lender, in the amount of $4.4$4.6 million, with $0.2$2.3 million of availability and a line of credit with a Swiss lender, in the amount of $1.0 million, which is fully available for borrowing. Cash provided by operations and financing activities is expected to be adequate to cover our operational and business needs through at least the next 12 months.
Net cash provided by operating activities was $16.0 million and $10.4 million for the nine months ended September 27, 2019 and September 28, 2018, and $1.7 million for the nine months ended September 29, 2017. The netrespectively. Net cash provided by operating activities for the nine months ended September 28, 2018, resulted from net income27, 2019, consisted of $3.9 million and $9.4$13.0 million in non-cash items and $7.7 million in net income, offset by a $2.9$4.7 million decrease in net working capital.working-capital changes. The increase in net cash provided by operating activities during the nine months ended September 28, 201827, 2019 was due to recognition ofan increase in net income of $3.9$3.8 million and an increase of $3.6 million in non-cash items offset by a decrease in net working capital of $1.8 million.
Net cash used in investing activities was $7.2 million and $1.7 million for the nine months ended September 27, 2019 and September 28, 2018, respectively, and relate primarily to the acquisition of property, plant, and equipment. The increase
in investment in property, plant and equipment during 2019, relative to 2018, is primarily due to investments in manufacturing facilities intended to satisfy growing demand for our products.
Net cash used in financing activities was $0.7 million for the nine months ended September 27, 2019 and net cash provided by financing activities was $75.1 million for the nine months ended September 28, 2018 compared to a net loss of $2.0 million2018. Net cash used in financing activities for the nine months ended September 29, 2017 and an increase27, 2019 consisted of $3.0$1.5 million in non-cash items.
Net cash used in investing activities was $1.7 millionrepayment on the Japan line of credit and $1.0 million forrepayment of finance lease obligations, offset by $1.8 million of proceeds from the exercise of stock options. During the nine months ended September 28, 2018, and September 29, 2017, respectively, due to the acquisitionwe closed an offering of property, plant and equipment.
Net cash provided by financing activities was $75.1 million and $1.1 million for the nine months ended September 28, 2018 and September 29, 2017, respectively. Net cash provided by financing activities during the first nine months of 2018 resulted primarily from the proceeds from the equity offering, as discussed above. In addition, the increase is due to vested restrictedour common stock and exercises of stock options, partially offset by the repayment of capital lease obligations and repayment on the line of credit.received $72.2 million.
Credit Facilities and Commitments
Lines of Credit and Lease Line of Credit (Capital Leases)
Leases
See Note 12Notes 7 and 8 of the accompanying Condensed Consolidated Financial Statements.
Covenant Compliance
The Company is in compliance with the covenants of its credit facilities as of September 28, 2018.27, 2019.
Employment Agreements
The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She 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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as that term is defined in the rules of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
During the nine months ended September 28, 2018,27, 2019, there have been no material changes in the Company’s qualitative and quantitative market risk since the disclosure in the Company’s Annual Report on Form 10-K for the year ended December 29, 2017.28, 2018.
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company. Based on that evaluation, our CEO and CFO concluded, as of the end of the period covered by this quarterly report on Form 10-Q, that our disclosure controls and procedures were effective. For purposes of this statement, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and the CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud or material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 28, 201827, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business.These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While we do not believe that any of the claims known is likely to have a material adverse effect on our financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.
Our short and long-term success is subject to many factors that are beyond our control. Investors and prospective investors should consider carefully information contained in this report and the risks and uncertainties described in “Part I—Item 1A—Risk Factors” of the Company’s Form 10-K for the fiscal year ended December 29, 2017.28, 2018. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.
Not Applicable.
Not Applicable.
None.
ITEM 6. | EXHIBITS |
3.1 | |
3.2 | |
4.1 | Form of Certificate for Common Stock, par value $0.01 per share.(3) |
†4.2 | |
31.1 | |
31.2 | |
32.1 | |
101 | Financial statements from the quarterly report on Form 10-Q of STAAR Surgical Company for the quarter ended September |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2019, has been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101. |
(1) | Incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, |
(2) | Incorporated by reference to Appendix 3 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018. |
(3) | Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form |
(4) | Incorporated by reference to Appendix 1 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018. |
* | Filed herewith. |
** | Furnished herewith. |
† | Management contract or compensatory plan. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STAAR SURGICAL COMPANY | |||||
Dated: | October | By: | /s/ DEBORAH J. ANDREWS | ||
Deborah J. Andrews | |||||
Chief Financial Officer | |||||
(on behalf of the Registrant and as its principal financial officer) |
28