Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
STAA > SEC Filings for STAA > Form 10-Q on 3-May-2013All Recent SEC Filings

Show all filings for STAAR SURGICAL CO | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for STAAR SURGICAL CO


3-May-2013

Quarterly Report


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

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. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and STAAR can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the control of STAAR. These factors include, without limitation, those described in our Annual Report on Form 10-K for the fiscal year ended December 28, 2012. STAAR undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

The following discussion should be read in conjunction with STAAR's interim condensed financial statements and the related notes provided under "Item 1- Financial Statements" above.

Overview

STAAR Surgical Company ("we," "us," the "Company," and "STAAR") designs, develops, manufactures and sells implantable lenses for the eye and injector devices used to deliver these lenses into the eye through a small incision. We are the world's leading manufacturer of intraocular lenses used in corrective or "refractive" surgery, and we also make lenses for use in surgery to treat cataracts. All of 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" and market them under the Visian® brand name. The field of refractive surgery includes both lens-based procedures, using products like the Visian ICL®, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia and astigmatism. Astigmatism is a condition that causes blurred vision when an irregular shape of the cornea prevents light from focusing properly on the retina. 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 Surgical Company, Visian®, Collamer®, STAARVISC®, Elastimide®, nanoFLEX® nanoPOINT®, CentraFLOW™, AquaPORT™, Epiphany® and AquaFlow® are trademarks or registered trademarks of STAAR in the U.S. and other countries.

Collamer® is the brand name for STAAR's proprietary collagen copolymer lens material.

Products

A detailed description of STAAR's business appears in our Annual Report on Form 10-K for the fiscal year ended December 28, 2012, along with a glossary explaining many of the specialized terms used in describing our products and our business. We recommend that readers unfamiliar with STAAR refer to that description.

ICLs - Implantable Collamer Lenses for RefractiveSurgery. Sales of refractive lenses make up over half of our total sales. Made from our proprietary biocompatible Collamer material, highlights STAAR's family of Visian ICL products are as follows:

· The Visian ICL treats refractive disorders such as myopia (near-sightedness) and hyperopia (far-sightedness). STAAR began selling the Visian ICL outside the U.S. in 1996 and inside the U.S. in 2006.

· The Visian Toric ICL®, or TICL®, treats myopic and hyperopic patients with astigmatism. STAAR has been selling the Visian TICL outside the U.S. since 2002. STAAR remains in dialogue with the FDA regarding its PMA Supplement submission seeking approval to sell the TICL in the U.S. This matter is further discussed below under, "Status of Regulatory Submission."

· STAAR currently sells globally several versions of the Visian ICL and Visian TICL globally; the original V4, the V4b, which expands the population of eligible patients to individuals in the lower diopter range (from -3.0 to
+3.0), and the V4c, which includes the proprietary CentraFLOW technology (a port in the center of the myopic ICL and TICL) that eliminates the need for a peripheral iridectomy or irodotomy procedure prior to implanting the ICL.

· STAAR's goal is to position the Visian ICL and TICL products throughout the world as primary choices for refractive surgery.

IOLs - Intraocular Lenses for Cataract Surgery. Our range of foldable IOLs for patients undergoing cataract surgery includes the following:

· Aspheric IOLs, available in single-piece and three-piece designs made from (i) Collamer, STAAR's proprietary biocompatible collagen copolymer lens material and (ii) from silicone. Aspheric IOLs are designed to improve the patient's quality of vision when compared to earlier spherical IOL designs. The three piece aspheric silicone lens is available in the U.S. and is sold preloaded in certain markets outside of the U.S. The Collamer three piece lens is only marketed and sold in the U.S.

· The nanoFLEX IOL, a single-piece Collamer aspheric IOL that can be implanted through a micro-incision with a single-use disposable nanoPOINT injector system is available in the U.Sand territories that accept the CE Mark.

· The Preloaded Injector, a three-piece silicone or acrylic IOL preloaded into a single-use disposable injector is currently available outside the U.S. The acrylic IOL Preloaded Injector uses an acrylic lens sourced from another manufacturer. The KS-SP, a single-piece preloaded acrylic IOL that can be implanted through a micro-incision with a single-use disposable injector system is available in Japan and on a limited basis in Europe. The third party supplier of acrylic lenses is unable to meet STAAR's demand for the new KS IOL products, thus the company experienced approximately $900,000 in backorders from its European customers. We are seeking alternative suppliers but cannot predict whether our efforts will prove successful.

· STAAR Toric IOL is a single piece silicone toric IOL, used in cataract surgery to treat preexisting astigmatism and is currently only marketed in the U.S. A Collamer version of our toric IOL -nanoFLEX Toric has CE mark approval.

Because most cataract patients are elderly, government agencies or government sponsored entities generally pay the cost of IOLs in our major markets, including the U.S. As a result, cataract procedure volumes will likely remain relatively stable even under adverse conditions in the general economy. However, changes in reimbursement policy under these agencies and entities can reduce our selling prices or reduce the volume of cataract procedures.

Other Surgical Products. We also sell other instruments, devices, and equipment used in cataract or refractive surgery, which we either manufacture or have manufactured for us. However, we have been deemphasizing these products since 2009 because of their lower overall gross profit margins.

Operations

STAAR operates its global administrative headquarters and a manufacturing facility in Monrovia, California, and also maintains manufacturing facilities in Nidau, Switzerland, Chiba Prefecture, Japan, and Aliso Viejo, California.

STAAR is implementing a project to consolidate its manufacturing into a single site at its Monrovia, California location by the end of 2013, which we expect to yield significant savings in cost of goods, lower our global administrative and regulatory costs and reduce income taxes. During the first quarter of 2013, all non-sterile silicone IOLs for Japan were manufactured in the U.S. The Company shipped the first Visian ICLs manufactured in the U.S. during the first quarter of 2013 to approved markets outside the U.S. This project, which is subject to significant risks, is further described under Note 12, "Manufacturing Consolidation Project and Tax Strategy."

Strategy and Key Operational Metrics

STAAR's strategy is to be valued as a leading global provider of innovative intraocular lens system technologies. STAAR employs a commercialization strategy that focuses on achieving sustainable profitable growth.

STAAR's key operational metrics for 2013 are guided by two principal strategic goals: to achieve and maintain profitability and to lay the groundwork for further growth. In pursuit of these goals, STAAR has aligned its business initiatives during 2013 along four key operational metrics it uses to gauge its success during the year. Those metrics are as follows:

· Increase total revenue by 8% to 10%.

- As discussed below in "Results of Operations," our total revenue increased by 16% in the first quarter of 2013.

· Increase gross profit margins by 250 basis points for the full year.

- As discussed below in "Results of Operations," our gross profit increased by 90 basis points in the first quarter of 2013 compared to full year 2012.and 250 basis points improvement when compared to fourth quarter of 2012.

· Achieve profitability in each quarter of 2013.

- As discussed below in "Results of Operations," we achieved net income of $0.5 million in the first quarter of 2013.

· Manage the manufacturing consolidation with no material disruption to customer supply requirements or quality.

- The Company's consolidation efforts are proceeding according to plans and the Company expects this to continue during the remainder of 2013.

Other Highlights

In the first quarter of 2013, ICLs grew in ten of our eleven targeted markets by 25%, with particular strength in Europe and the Middle East. The effect of foreign currency exchange, particularly the strength of the Japanese Yen compared to the U.S. Dollar, reduced total sales by $750,000 during the first quarter of 2013. We expect this trend to continue during the second quarter of 2013. We also reported a $1,034,000 charge for stock-based compensation. Seventy thousand warrants issued on March 21, 2007 to Broadwood Partners, L.P., expired on March 21, 2013, and were unexercised.

With the transition to a direct sales model in Spain, sales grew in Spain by 156%. As part of our early transition to a direct distribution model in Spain, we made $422,000 in payments to our former distributor. These payments ended in the first quarter of 2013 and will not impact expenses during the remainder of 2013. Backorders of our preloaded acrylic IOLs in Europe were $900,000 due to demand for our KS-SP and KS-X products and the supply constraints we continue to experience from a third party supplier. This backorder position is expected to continue to limit IOL sales for the entire year and we are evaluating potential options to meet this demand. STAAR continues its manufacturing consolidation efforts in the first quarter of 2013 in preparation of transferring Swiss and Japanese manufacturing activities to our Monrovia facility. Last year, as part of our manufacturing consolidation plan, we expanded into approximately 26,000 square feet of space contiguous to our Monrovia headquarters. In the first quarter of 2013, we incurred $550,000 in costs and we expect to spend an additional $264,000 during the remainder of 2013 to complete the build-out of this leased real property. Also, the Company launched the nanoFlex Toric IOL for Europe. In compliance with the Affordable Care Act, in the first quarter of 2013, the Company recorded $59,000 in Medical Device Excise Tax expense. On April 11, 2013, an FDA inspector performed an inspection of our Aliso Viejo, California facility. There were no findings issued on a Form 483 and the inspector indicated that we would receive a 'no action indicated' report.

Status of Regulatory Submissions. Regarding our PMA Supplement submission to the FDA seeking approval for the TICL, by a letter dated April 30, 2012 the FDA rejected our most recent proposed approach to respond to the FDA's concerns regarding timing of follow-up visits for certain patients in the study cohort at certain sites. On November 15, 2012, STAAR submitted to the FDA (1) clinical data showing no statistical difference in the clinical outcomes with or without the patient data that was obtained outside the study windows, (2) engineering data regarding the lens design, and (3) a validation report for the Toric ICL power calculation software. STAAR remains in dialogue with the agency regarding our PMA Supplement, and has responded to a series of questions from the FDA in the first quarter of 2013. STAAR cannot predict when, or if, the FDA will grant approval of the TICL for use in the United States.

On October 9, 2012, STAAR submitted to the FDA a 180 day PMA Supplement regarding the V4c version of the Visian ICL. On February 12, 2013, in response to a request by the FDA, we submitted a Pre-Submission for the PMA Supplement. The FDA expects to respond to our proposal by the end of May 2013 due to an administrative oversight at the FDA. We'll continue to seek approval for our key products in our target markets.

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, 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. Management believes that there have been no significant changes during the three months ended March 29, 2013 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 28, 2012.

Results of Operations

The following table shows the percentage of our total sales represented by the specific items listed in our statements of operations for the periods indicated, and the percentage by which these items increased or decreased over the prior period.

                                                                                                Percentage Change
                                               Percentage of Net Sales for Three Months         for Three Months
                                                 March 29,                   March 30,                2013
                                                   2013                        2012                 vs. 2012
Net sales                                                 100.0 %                     100.0 %                16.1 %
Cost of sales                                              29.7                        29.7                  16.1
Gross profit                                               70.3                        70.3                  16.1

General and administrative                                 22.0                        24.8                   2.5
Marketing and selling                                      29.4                        30.1                  13.4
Research and development                                    7.6                        10.0                 (11.6 )
Medical device tax                                          0.3                           -                     - *
Other general and administrative expenses                   5.0                         3.6                  62.3
                                                           64.3                        68.5                   8.9
Operating  income                                           6.0                         1.8                     - *
Other income (expense), net                                (1.7 )                       1.2                     - *
Income before provision for income taxes                    4.3                         3.0                  69.2
Provision for income taxes                                  1.7                         1.5                  35.3
Net income                                                  2.6 %                       1.5 %                   - *

* Denotes change is greater than +100%.

Net Sales



                     Three Months Ended               Percentage Change for Three Months
                                                                     2013
             March 29, 2013      March 30, 2012                    vs. 2012
Net sales   $         18,001     $        15,509                                     16.1 %

ICL                   10,631               8,605                                     23.5
IOL                    6,347               6,358                                     (0.2 )
Other                  1,023                 546                                     87.4

Net sales for the three months ended March 29, 2013 were $18.0 million, an increase of 16.1% compared with $15.5 million reported during the same period of 2012. Changes in currency had a $0.7 million unfavorable impact on net sales for the first quarter of 2013.

Total ICL sales for the three months ended March 29, 2013 were $10.6 million, an increase of 23.5% compared with $8.6 million reported during the same period of 2012. The increase in ICL sales is due to increased sales in the Company's three geographic regions, Europe, Middle East, Africa and Latin America (EMEA), Asia Pacific (APAC) and North America. Sales in EMEA grew 59%, led by Spain which grew 156% and the Middle East, which grew 94%. Sales in APAC and North America each grew 11%, led by growth in the U.S. +11%, India +22%, Japan +14%, China and Korea (each +7%). ICL volume increased 18% and average selling prices (ASPs) increased 5%. The mix of ICL (59%) versus TICL (41%) was unchanged from the same prior year period. ICL sales represented 59.1% and 55.5% of the sales, respectively, for the three months ended March 29, 2013 and March 30, 2012.

Total IOL sales for the three months ended March 29, 2013 were $6.3 million, a decrease of 0.2% compared with $6.4 million reported during the same period of 2012. Although sales of our Preloaded acrylic IOL grew 84%, this growth was offset by decreased sales of Preloaded Silicone and Collamer IOLs. IOL sales were negatively impacted due to approximately $900,000 in backorders from the Company's acrylic IOL supplier and the negative effect of foreign currency exchange which totaled $646,000. IOL sales represented 35.3% and 41.0% of total net sales respectively, for the three months ended March 29, 2013 and March 30, 2012.

Other product sales for the three months ended March 29, 2013 were $1.0 million, an increase of 87.4% compared with the $0.5 million reported during the same period of 2012. This increase was due to increased sales of acrylic preloaded injectors parts to the Company's acrylic lens supplier to support the buildup of acrylic preloaded product supply.

Gross Profit

                                                                                     Percentage Change
                                                     Three Months Ended               for Three Months
                                                                                            2013
                                             March 29, 2013      March 30, 2012           vs. 2013
Gross Profit                                $         12,654     $        10,902                   16.1 %
Gross Profit Margin                                     70.3 %              70.3 %

Gross profit for the first quarter was $12.7 million, or 70.3% of revenue, compared with $10.9 million, or 70.3% of revenue, in the prior year period. Gross margin expansion was limited primarily by a large increase in very low margin IOL injector systems sales to a third party supplier for the buildup of their acrylic preloaded product supply, which appears in Other Product sales category. The increase in sales of injector parts negatively impacted margins by approximately 170 basis points.

General and Administrative

                                                                                         Percentage
                                                                                         Change for
                                                      Three Months Ended                Three Months
                                                                                            2013
                                             March 29, 2013        March 30, 2012         vs. 2012
General and Administrative                  $          3,958      $          3,860                2.5 %
Percentage of Sales                                     22.0 %                24.8 %

General and administrative expenses for the quarter were $4.0 million, an increase of 2.5% when compared with $3.9 million reported last year. The increase is due primarily to an increase in stock based compensation expense. General and administrative expenses were favorably impacted by foreign currency exchange by approximately $70,000.

Marketing and Selling

                                                                                       Percentage Change
                                                      Three Months Ended                for Three Months
                                                                                              2013
                                             March 29, 2013        March 30, 2012           vs. 2012
Marketing and Selling                       $          5,286      $          4,663                   13.4 %
Percentage of Sales                                     29.4 %                30.1 %

Marketing and selling expenses for the quarter were $5.3 million, an increase of 13.4% when compared with $4.7 million reported last year. The increase is due primarily to increased expense associated with direct distribution transition in Spain and increased headcount globally. Transitional expenses in Spain, which totaled $442,000 for the quarter, ended at the beginning of March 2013. Marketing and selling expenses were favorably impacted by foreign currency exchange by approximately $197,000.

Research and Development

                                                                                       Percentage Change
                                                      Three Months Ended               for Three Months
                                                                                             2013
                                             March 29, 2013        March 30, 2012          vs. 2012
Research and Development                    $          1,366      $          1,546                 (11.6 )%
Percentage of Sales                                      7.6 %                10.0 %

Research and development expense for the quarter were $1.4 million, a decrease of 11.6% when compared with $1.5 million reported last year. The decrease was primarily due to transfer of activities from Japan to the US which resulted in improved efficiencies. Research and development expenses were favorably impacted by foreign currency exchange by approximately $27,000.

Other General and Administrative Expenses

                                                                                        Percentage Change
                                                      Three Months Ended                 for Three Months
                                                                                               2013
                                             March 29, 2013         March 30, 2012           vs. 2012
Other General and Administrative Expenses   $            0.9       $            0.6                   62.3
Percentage of Sales                                      5.0 %                  3.6 %

Other general and administrative expenses for the quarter were $0.9 million, compared with $0.6 million reported last year. The increase is due to costs associated with the wind up of manufacturing operations in Japan which should significantly decrease in the remaining months of the year, particularly in the second half. The Company expects to incur a total of approximately $2.5 million in manufacturing consolidation expenses in 2013. Other general and administrative expenses were favorably impacted by foreign currency exchange by approximately $57,000.

Other Income, (Expense) Net

                                                                                            Percentage
                                                                                         Change for Three
                                                       Three Months Ended                     Months
                                                                                               2012
                                             March 29, 2013         March 30, 2012           vs. 2011
Other Income (Expense), Net                 $           (0.3 )     $             0.2                    - *

* Denotes change is greater than +100%.

Other expense, for the quarter was $0.3 million compared to other income of $0.2 million in the first quarter of 2012. The year over year change in other income (expense), net for both periods is due to foreign currency exchange loss recorded in first quarter of 2013 compared to foreign currency exchange gain reported last year, and a decrease in other income resulting from the release of escrow funds in 2012 related to the sale of our former German distributor.

Liquidity and Capital Resources

STAAR's liquidity requirements arise from the funding of our working capital needs, primarily inventory and accounts receivable. Our primary sources for working capital and capital expenditures are cash flows from operating activities, proceeds from the exercise of stock options, and borrowings under our credit facilities. Our liquidity also depends, in part, on customers paying within credit terms, and any extended delays in payments or changes in credit terms given to major customers may have an impact on STAAR's cash flow. In addition, any abnormal product returns or pricing adjustments may also affect our short-term funding.

STAAR believes its current cash balances, coupled with cash flow from operating activities will be sufficient to meet its working capital requirements for the foreseeable future, including the estimated $6 million cost associated with the manufacturing consolidation plan previously discussed by us and further described in Note 11, "Manufacturing Consolidation Project and Tax Strategy." If the need for financing arises, STAAR cannot assure that it will be available on acceptable terms, if at all. STAAR's Japanese and Swiss subsidiaries have bank lines of credit in place for working capital purpose, but STAAR does not maintain such a credit line in the U.S.

. . .

  Add STAA to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for STAA - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.