____________________________________________________________________________
____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended December 28, 1996.
Commission file number 0-14742
CANDELA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2477008
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
530 Boston Post Road, Wayland, Massachusetts 01778
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (508) 358-7400
_______________________
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 X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at February 5, 1997
--------------- -------------------------------
Common Stock, $.01 par value 5,402,189
____________________________________________________________________________
____________________________________________________________________________
CANDELA CORPORATION
INDEX
Page(s)
-------
Part I. Financial Information:
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-11
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit 27.1 Financial Data Schedule 14
1
CANDELA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 28 June 29,
1996 1996
ASSETS (unaudited)
- ----------------------------------------------------------------------------
Current assets:
Cash and equivalents $ 3,148 $ 3,041
Accounts receivable 8,131 6,444
Notes receivable 835 1,956
Inventory 5,177 5,627
Other current assets 712 352
- ----------------------------------------------------------------------------
Total current assets 18,003 17,420
- ----------------------------------------------------------------------------
Property and equipment, net 1,866 1,183
Other assets 1,196 731
- ----------------------------------------------------------------------------
$21,065 $19,334
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 553 $ 708
Deferred income 1,780 1,943
Accounts payable 4,002 3,162
Accrued payroll and related expenses 721 748
Accrued warranty costs 1,071 897
Income taxes payable 797 350
Other accrued liabilities 597 1,004
- ----------------------------------------------------------------------------
Total current liabilities 9,521 8,812
- ----------------------------------------------------------------------------
Long-term debt 401 557
- ----------------------------------------------------------------------------
Stockholders' equity:
Common stock 53 53
Additional paid-in capital 17,154 17,069
Retained deficit (5,878) (7,123)
Accumulated translation adjustment (186) (34)
- ----------------------------------------------------------------------------
Total stockholders equity 11,143 9,965
- ----------------------------------------------------------------------------
$21,065 $19,334
============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
2
CANDELA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the three months ended: For the six months ended:
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
(unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------------
Revenue $ 9,406 $ 7,885 $17,045 $13,869
Cost of sales 4,750 4,262 8,635 7,852
- --------------------------------------------------------------------------------------------------------------
Gross profit 4,656 3,623 8,410 6,017
Operating expenses:
Research and development 555 373 1,127 747
Selling, general and administrative 3,031 2,526 5,537 4,549
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 3,586 2,899 6,664 5,296
- --------------------------------------------------------------------------------------------------------------
Income from operations 1,070 724 1,746 721
Other income (expense):
Interest income 16 21 31 49
Interest expense (15) (9) (31) (20)
Other (20) (25) 33 (144)
- --------------------------------------------------------------------------------------------------------------
Total other income (expense) (19) (13) 33 (115)
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 1,051 711 1,779 606
Provision for income taxes 315 250 534 250
- --------------------------------------------------------------------------------------------------------------
Net income $ 736 $ 461 $ 1,245 $ 356
==============================================================================================================
Net income per share $ 0.13 $ 0.08 $ 0.22 $ 0.06
==============================================================================================================
Weighted average number of common 5,658 5,503 5,669 5,503
and common equivalent shares
outstanding
==============================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
3
CANDELA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the six months ended:
Dec 28, Dec 30,
1996 1995
(unaudited)
- ---------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,245 $ 356
Adjustments to reconcile net income to net
cash provided by (used for) operating activities :
Depreciation and amortization 235 235
Change in assets and liabilities:
Accounts receivable (1,687) (1,134)
Notes receivable 1,121 801
Inventory 450 659
Other current assets (360) (6)
Other assets (465) 83
Accounts payable 840 218
Accrued payroll and related expenses (27) 18
Deferred income (163) 256
Accrued warranty costs 174 (151)
Income taxes payable 447 (257)
Other accrued liabilities (407) 71
- ---------------------------------------------------------------------------------------
Total adjustments 158 793
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 1,403 1,149
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of equipment 45 0
Payment for additions to property and equipment (889) (302)
- ---------------------------------------------------------------------------------------
Net cash used for investing activities (844) (302)
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments of capital lease obligations (51) 0
Payment of long-term debt (334) (330)
Proceeds from the issuance of common stock 85 12
- ---------------------------------------------------------------------------------------
Net cash used for financing activities (300) (318)
- ---------------------------------------------------------------------------------------
Accumulated translation adjustment (152) (477)
- ---------------------------------------------------------------------------------------
Net decrease in cash and equivalents 107 52
Cash and equivalents at beginning of period 3,041 2,565
- ---------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 3,148 $ 2,617
=======================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
4
CANDELA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements and notes do not include all of the
disclosures made in the Company's Annual Report on Form 10-K for fiscal 1996,
which should be read in conjunction with these statements. The financial
information included herein, with the exception of the consolidated balance
sheet at June 29, 1996, has not been audited. However, in the opinion of
Management, the statements include all adjustments necessary for a fair
presentation of the quarterly results. All adjustments made to these
financial statements were considered to be of a normal and recurring nature.
The results for the three and six month periods ended December 28, 1996 are
not necessarily indicative of the results to be expected for the full year.
All prior period historical consolidated financial data presented herein have
been restated to include the financial position, results of operations, and
cash flows of Spa Management, Inc. (renamed Candela Skin Care Center of
Boston, Inc.) acquired through a pooling of interests on June 27, 1996.
2. INVENTORY
Inventory consists of the following (in thousands):
December 28, 1996 June 29, 1996
------------------ --------------
(unaudited) (1)
Raw materials $2,992 $3,534
Work in process 931 531
Finished goods 1,254 1,562
------ ------
$5,177 $5,627
====== ======
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 28, 1996 June 29, 1996
------------------ --------------
(unaudited) (1)
Leasehold improvements $ 682 $ 361
Office furniture & equipment 1,113 724
Laser systems 483 543
Equipment 3,504 3,296
------ ------
Total $5,782 $4,924
Less accumulated depreciation
and amortization 3,916 3,741
------ ------
$1,866 $1,183
====== ======
(1) Derived from audited financial statements
5
CANDELA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and, if dilutive, common stock
equivalents outstanding. Common stock equivalents include shares issuable
upon the exercise of stock options or warrants, net of shares assumed to have
been purchased with the proceeds.
6
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Revenue for the three and six months ended December 28, 1996 was $9,406,000
and $17,045,000 respectively. For the three-month period ended December 28, 1996
revenue increased 19% versus the same period a year earlier. For the six-month
period ended December 28, 1996 revenue increased 23% versus the same period last
year. The increase for the six months year-to-date reflects the increased
shipments, over the same period in the prior year, of the Sclerolaser, the
Company's new leg vein device, the AlexLAZR, used for treatment of vascular and
pigmented lesions, and the MDL 3000 LaserTripter device which fragments urinary
and biliary stones.
Gross margins were 49% for both the three and six month periods ending
December 28, 1996. Gross margins were 46% and 43% for the three and six month
periods a year earlier. The current gross margin level reflects the shipment of
the new devices referred to above.
Research and development spending has increased to $555,000 and $1,127,000
for the three and six months ended December 28, 1996, respectively. These
amounts reflect increases of 49% and 51% for the same three and six month
periods the year before. Such increases are the result of the Company's R&D
efforts on a number of new projects that will enhance the laser product lines
and can be commercialized quickly and efficiently.
Selling, general and administrative spending for the three and six month
periods ending December 28, 1996 was $3,031,000 and $5,537,000, respectively.
For the three-month period ended December 28, 1996 spending increased 20% versus
the same period a year earlier. For the six-month period ended December 28, 1996
spending increased 22% versus the same six-month period a year earlier. The
increases in this area are principally the result of the Company's entry into
the skin care clinic market.
Net interest income and expense for the three-month and six-month period
ended December 28, 1996 is essentially unchanged. For the three-month period
ended December 30, 1996, other expenses in the amount of $20,000 were $25,000
for the same period one year earlier. For the six-month period ended December
28, 1996, other income was $33,000 and other expenses were $144,000 for the same
period one year earlier. This change is primarily the result of foreign currency
transactions.
Profit from operations was $1,070,000 and $1,746,000, respectively, for the
three and six months ended December 28, 1996. For the same periods one year
earlier profit from operations was $724,000 and $721,000, respectively.
The provision for income taxes results from a combination of activities of
both the domestic and foreign subsidiaries of the Company. Provision for income
taxes for the three and six months ended December 28, 1996 reflects the
utilization of a portion of the Company's domestic net operating loss
carryforwards and tax provided in Japan at a rate in excess of the U.S.
statutory tax rate, yielding an effective tax rate of 30%.
7
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and equivalents at December 28, 1996 increased to $3,148,000 from
$3,041,000 at June 29, 1996.
The Company is in the process of opening health spa/laser cosmetic skin care
centers in Boston, MA and Scottsdale, AZ. Equipment leasing will provide a
portion of the funds used by the Company for the initial investment costs and
on-going operating expenses of the laser treatment centers. In support of the
continued growth of these and other laser treatment centers, the Company may
acquire additional capital through similar equipment financing arrangements or
other means.
8
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CAUTIONARY STATEMENTS
In addition to the other information in this Quarterly Report on Form 10-Q,
the following cautionary statements should be considered carefully in
evaluating the Company and its business. Statements contained in this
Form 10-Q that are not historical facts (including, without limitation,
statements concerning anticipated operational and capital expense levels and
such expense levels relative to the Company's total revenues) and other
information provided by the Company and its employees from time to time may
contain certain "forward-looking" information, as that term is defined by (i)
the Private Securities Litigation Reform Act of 1995 (the "Act") and, (ii) in
releases made by the Securities and Exchange Commission (the "SEC"). The
factors identified in the cautionary statements below, among other factors,
could cause actual results to differ materially from those suggested in such
forward-looking statements. The cautionary statements below are being made
pursuant to the provisions of the Act and with the intention of obtaining the
benefits of the "safe harbor" provisions of the Act.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results may vary significantly from quarter to quarter, depending
upon factors such as the timing of product sales, the timing of expenditures in
anticipation of future product orders, the introduction and market acceptance
of new products, effectiveness in managing manufacturing processes, changes in
cost and availability of labor and product components, order cancellations, the
budgetary cycles of its customers, and the timing of regulatory approvals. The
Company's ability to accurately forecast future revenues and income for any
period is necessarily limited, and any forward-looking information provided
from time to time by the Company represents only management's then-best current
estimate of future results or trends, and actual results may differ materially
from those contained in the Company's estimates.
POTENTIAL VOLATILITY OF STOCK PRICE. There has been significant volatility
in the market price of securities of companies in the medical device industry.
Factors such as announcements of new products by the Company or its
competitors, quarterly fluctuations in the financial results of the Company or
its competitors, shortfalls in the Company's actual financial results compared
to results previously forecast by stock market analysts, conditions in the
medical device industry and the financial markets and the economy generally
could cause the market price of the Company's securities to fluctuate
substantially and may adversely affect the price of the Company's securities.
9
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A significant portion of the
Company's revenues are attributable to international operations and revenues
from international operations are likely to continue to be significant in
future periods. The Company's international business and financial performance
may be adversely affected by a number of factors, including without limitations
to fluctuations in exchange rates, tariffs and other trade barriers, adverse
tax regulation, and adverse political and economic conditions. Adverse effect
on the Company's international operations may have materially adverse effects
on the Company's overall financial condition and operating results.
NEW BUSINESS STRATEGIC DEVELOPMENT. While the Company continues to expand
and diversify its core cosmetic and surgical laser equipment business, the
Company has embarked on a new business strategy of opening combined spa and
laser cosmetic skin care centers. Combined spa/skin care facilities in Boston,
Massachusetts and Scottsdale, Arizona are being added to the Company's one
existing skin care treatment center in Framingham, Massachusetts. The surgical
skin care treatments performed in each location are administered by board-
certified physicians under contract with the Company's wholly-owned subsidiary,
Candela Skin Care Centers, Inc. While the target audience for the Company's
core laser equipment tends to be medical practice groups and other health care
providers, its target audience for its spa and skin care centers are
individuals who are typically reached through entirely different marketing
efforts. The cost structures, new client accretion methods and demand
associated with the Company's new facilities are largely untested, and the
Company could incur significant losses in connection with its spa and skin care
centers.
GOVERNMENTAL REGULATION. Medical devices are subject to United States Food
and Drug Administration ("FDA") approval before they can be utilized for
clinical studies or sold commercially. In addition, the Company's activities
in connection with its CSCC business may subject the Company to additional
regulation under state and federal laws. The process for obtaining the
necessary approvals and compliance with applicable regulations can be costly
and time consuming. Many foreign countries in which the Company markets or may
market its products have similar regulatory bodies and restrictions. There is
no assurance the Company will be able to obtain any such government approvals
or successfully comply with any such regulations in a timely and cost-effective
manner, if at all, and failure to do so may have an adverse effect on the
Company's financial condition and results of operations.
10
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RISKS ASSOCIATED WITH PRODUCT LIABILITY. The administration of medical and
cosmetic treatments using laser products is subject to various risks of
physical injury to the patient which may result in product liability or other
claims against the Company. The costs and resources involved in defending or
settling any such claims, or the payment of any award in connection therewith,
may adversely affect the Company's financial condition and operating results.
The Company maintains product liability insurance, but there is no assurance
that its policy will provide sufficient coverage for any claim or claims that
may arise, or that the Company will be able to maintain such insurance coverage
on favorable economic terms.
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The medical laser industry is
subject to rapid and substantial technological development and product
innovations. The Company, to be successful, must be responsive to new
developments in laser technology and applications of existing technology, and
the Company's financial condition and operating results may be adversely
affected by the failure of new or existing products to compete favorably in
response to such technological developments. In addition, the Company competes
against numerous other companies offering products similar to the Company's
and/or alternative products and technologies, some of which have greater
financial, marketing and technical resources than the Company. There can be no
assurance the Company will be able to compete successfully.
RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's success
will depend in large part on its ability to attract and retain highly-qualified
scientific, technical, managerial, sales and marketing, management and other
personnel. Competition for such personnel is intense and any decline in the
Company's ability to attract and retain such personnel may have adverse effects
on its financial condition and operating results.
11
CANDELA CORPORATION
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
On November 21, 1996, the Company held its Annual Shareholder meeting.
At the meeting, the Shareholders acted upon the following proposals:
(i) election of directors; and (ii) ratification of the firm of Coopers &
Lybrand, L.L.P. as independent auditors for the fiscal year ending June
28, 1997. All of the above matters were approved by the Shareholders.
Votes "For" represent affirmative votes and do not include abstentions
or broker non-votes. In cases where a signed proxy was submitted without
direction, the shares represented by the proxy were voted "For" each
proposal in the manner disclosed in the Proxy Statement and Proxy.
Voting Results were as follows:
Broker
Matter For Against Withheld Abstain Non-Votes
------ --- ------- -------- ------- ---------
I. Election of Directors:
----------------------
Gerard E. Puorro 4,993,273 21,940 N/A N/A -0-
Theodore G. Johnson 4,993,673 21,540 N/A N/A -0-
Kenneth D. Roberts 4,993,573 21,540 N/A N/A -0-
Douglas W. Scott 4,993,248 21,965 N/A N/A -0-
Richard J. Cleveland, MD 4,993,573 21,640 N/A N/A -0-
Robert E. Dornbush 4,993,348 21,865 N/A N/A -0-
I. Ratification of Independent Auditors:
-------------------------------------
4,994,538 10,570 N/A 10,105 -0-
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.1, Financial Data Schedule, page 14.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 28,
1996.
12
SIGNATURES
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.
CANDELA CORPORATION
Registrant
Date: February 11, 1997 /s/ Gerard E. Puorro
------------------ ------------------------------------
Gerard E. Puorro
(President , Chief Executive Officer)
Date: February 11, 1997 /s/ F. Paul Broyer
------------------ ------------------------------------
F. Paul Broyer
(Vice President, Treasurer and Chief Financial
Officer)
13