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

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LCAV > SEC Filings for LCAV > Form 10-K on 12-Mar-2014All Recent SEC Filings

Show all filings for LCA VISION INC

Form 10-K for LCA VISION INC


12-Mar-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion provides an understanding of our financial results and condition by focusing on changes in certain key measures from year to year. We have organized Management's Discussion and Analysis in the following sections:

? Overview

? Summary of 2013 Results

? Results of Operations

? Liquidity and Capital Resources

? Critical Accounting Estimates

You should read the following discussion and analysis in conjunction with ""Item
6. Selected Financial Data'' above and with the financial statements and related notes included in "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could contribute to such differences include, but are not limited to, those discussed in "Item 1A. Risk Factors."

On February 13, 2014, we entered into a merger agreement with PhotoMedex pursuant to which a wholly owned subsidiary of PhotoMedex will merge with and into us, resulting in us becoming a wholly owned subsidiary of PhotoMedex. See Note 12 to our Consolidated Financial Statements contained within Item 8, "Financial Statements and Supplementary Data" for more information.

Overview

We derive substantially all of our revenues from the delivery of vision correction procedures performed in our U.S. vision centers. Our revenues and operating results, therefore, depend on the number of procedures performed and are impacted by a number of factors, including the following:

? General economic conditions, consumer confidence and discretionary spending levels,

? Our ability to attract patients through our arrangements with managed care companies, direct-to-consumer advertising, word-of-mouth referrals and our partner network relationships,

? The availability of patient financing,

? Our ability to manage equipment and operating costs,

? The impact of competitors and discounting practices in our industry, and

? Limits instituted on consumers' flexible spending accounts under the Affordable Care Act.

Other factors that impact our revenues include:

? Deferred revenue from the sale, prior to June 15, 2007, of separately priced acuity programs, and

? Our mix of procedures among the different types of laser technology.

Because our revenues are primarily a function of the number of laser vision correction procedures performed and the pricing for these services, and many of our costs are fixed, our vision centers have a relatively high degree of operating leverage. As a result, changes in our level of procedure volume can have a significant impact on our level of financial performance. The following table details the number of total procedures performed at our vision centers during the last three fiscal years. Total procedure volume includes laser vision correction, intraocular and implantable collamer lens procedures.

                          2013         2012         2011
First Quarter             16,272       20,987       18,857
Second Quarter            12,994       14,415       14,081
Third Quarter             11,932       11,510       12,444
Fourth Quarter            12,033       11,613       14,205
Total Year Procedures     53,231       58,525       59,587

Our 2013 procedure volume was negatively impacted by the Affordable Care Act which limited the maximum annual contribution to flexible spending accounts to $2,500, which went into effect at the beginning of the year. Additionally, continued cautious consumer spending has negatively impacted the industry. We expect these trends to continue in 2014.


We opened five satellite LasikPlus® vision centers during 2013 in Edison, NJ, Liberty, MO, Nashville, TN, Fairlawn, OH and Warren, MI to leverage our marketing spending in those markets, as well as three full-service vision centers owned and operated by independent ophthalmologists who license our trademarks. The satellite centers will perform pre-operative and post-operative exams and care, providing added convenience for patients who live considerable distances from our full-service LasikPlus® vision centers in those markets. We have also established and continue to work on expanding a partner network of eye care professionals that share patients who have laser vision correction and other refractive surgeries.

Operating Costs and Expenses

Our operating costs and expenses include:

? Medical professional and license fees, including fees for the ophthalmologists performing laser vision correction and other services, and per procedure license fees paid to certain equipment suppliers of our excimer and femtosecond lasers,

? Direct costs of services, including staff compensation and benefits, facility costs of operating laser vision correction centers, equipment lease and maintenance costs, medical malpractice insurance costs, surgical supplies, financing charges for third-party patient financing, and other costs related to revenues,

? General and administrative costs, including corporate headquarters and patient communication center staff expense and other overhead costs,

? Marketing and advertising costs, and

? Depreciation of equipment and leasehold improvements.

Summary of 2013 Results

Key financial highlights for the year ended December 31, 2013 include (all comparisons are with 2012):

? Revenues were $92.2 million compared with $101.5 million; adjusted revenues were $91.3 million compared with $99.0 million.

? Procedure volume was 53,231 compared with 58,525.

? Medical professional and license fees decreased by $3.6 million to $20.1 million from $23.7 million. The decrease resulted from lower procedure volume coupled with the impact of renegotiated license fees and lower enhancement costs.

? Vision center direct costs decreased by $5.2 million to $39.1 million from $44.3 million. The decrease was a result of lower variable costs associated with procedure volume combined with other cost savings. These savings included primarily lower financing fees from renegotiated rates and a shift in portfolio mix, reductions in employee-related costs and lower insurance costs from favorable claims experience.

? General and administrative expense decreased by $1.7 million to $11.7 million from $13.4 million, due primarily to reductions in employee-related costs and rent from the relocation of our patient communication center as a result of restructuring initiatives implemented in early 2013, and reductions in travel and telecommunications expenses.

? Marketing expense decreased by $1.5 million to $21.6 million from $23.1 million. Marketing cost per eye was $406 compared with $394.

? Depreciation expense decreased by $2.6 million to $2.1 million from $4.7 million, primarily due to lower capital expenditures in recent years.

? Restructuring charges of $214,000 resulted primarily from the relocation of our patient communication center during the first quarter of 2013.

? Operating loss was $2.4 million, a $6.9 million improvement from an operating loss of $9.3 million; adjusted operating loss was $3.2 million, an $8.4 million improvement from an adjusted operating loss of $11.6 million.

? Net loss was $1.4 million, or $0.07 per share, a $7.1 million improvement from a net loss of $8.5 million, or $0.45 per share.

? Cash and investments were $28.7 million as of December 31, 2013, compared with $34.5 million as of December 31, 2012. Cash used in operations included approximately $1.2 million of investment in expansion efforts related to the company's refractive lens and cataract business, $1.8 million of restructuring payments related to previously announced actions, and additional working capital changes of $4.1 million primarily related to reductions in accounts payable and accrued liabilities related to timing of payments, and increased accounts receivable for self-financed patients, offset by positive earnings from the core LASIK business.


We have provided both adjusted revenues and operating losses as a means of measuring performance that adjusts for the non-cash impact of accounting for separately priced extended warranties. We believe that the adjusted information better reflects operating performance and therefore is more meaningful to investors. We provide below a reconciliation of revenues and operating losses reported in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") (dollars in thousands).

                                              Twelve Months Ended December 31,
                                             2013             2012          2011
Revenues
Reported U.S. GAAP                        $    92,185       $ 101,493     $ 102,983
Adjustments
Amortization of prior deferred revenue           (870 )        (2,516 )      (4,376 )
Adjusted revenues                         $    91,315       $  98,977     $  98,607

Operating Loss
Reported U.S. GAAP                        $    (2,383 )     $  (9,311 )   $  (6,538 )
Adjustments
Impact of prior deferred revenue                 (870 )        (2,516 )      (4,376 )
Amortization of prior professional fees            87             252           438
Adjusted operating loss                   $    (3,166 )     $ (11,575 )   $ (10,476 )

Results of Operations

Revenues

In 2013, revenues decreased by $9.3 million, or 9.2%, to $92.2 million, from $101.5 million in 2012, compared to a decrease of $1.5 million, or 1.4% in 2012 compared with 2011. In 2013, adjusted revenues were $91.3 million compared with $99.0 million in 2012 and $98.6 million in 2011. Procedure volume decreased by approximately 9% in 2013 to 53,231, compared to 58,525 in 2012. The components of the revenue change include the following (dollars in thousands):

                                                  2013            2012            2011
(Decrease) increase in revenues from
same-store procedure change                    $    (8,953 )   $    (1,757 )   $    11,557
Decrease in revenue from closed vision
centers                                                  -               -          (6,822 )
Impact from increase in average selling
prices, before revenue deferral                      1,291           2,127             198
Change in deferred revenues                         (1,646 )        (1,860 )        (1,775 )
(Decrease) increase in revenues                $    (9,308 )   $    (1,490 )   $     3,158

Our adjusted revenue per procedure, which excludes the impact of deferred revenue from the sale of separately priced acuity programs, increased to $1,715 in 2013 from $1,691 in 2012 and $1,655 in 2011.

Industry procedure volume in 2013 decreased by approximately 5% compared to both 2012 and 2011. Industry sources indicate that economic uncertainty and other macroeconomic factors, including new federal regulations that limit the maximum allowable flexible spending account contribution, continue to impact negatively the entire laser vision correction industry. During 2013 we continued to experience challenges with our direct-to-consumer marketing model as we attempt to optimize our media buys and identify messages that would compete more effectively with local ophthalmologists who control about 60% of the LASIK market. Despite these challenges, we again experienced strong operational metrics from efforts to improve patient interactions and organizational effectiveness. Operational metrics in 2013, including preoperative appointment show rate, conversion rate and treatment show rate, remained consistent compared to 2012, which represented improvements over 2011.

Amortization of prior deferred revenues for 2013, 2012 and 2011 were $870,000, $2.5 million and $4.4 million, respectively.


Operating Costs

Our operating costs correlate in part with revenues and procedure volumes due to the fact that some of our costs are variable and some are fixed. The following table shows the change in components of operating expenses between 2013, 2012 and 2011 in dollars and as a percentage of revenues for each period (dollars in thousands):

                                                                           Decrease/                                Decrease/
                                2013                     2012             (Increase)              2011             (Increase)
Medical professional
and license fees        $ 20,091        21.8 %   $ 23,715        23.4 %   $     3,624     $ 24,628        23.9 %   $       913
Direct costs of
services                  39,092        42.4 %     44,348        43.7 %         5,256       43,048        41.8 %        (1,300 )
General and
administrative
expenses                  11,684        12.7 %     13,442        13.2 %         1,758       13,942        13.5 %           500
Marketing and
advertising               21,635        23.5 %     23,055        22.7 %         1,420       22,678        22.0 %          (377 )
Depreciation               2,050         2.2 %      4,736         4.7 %         2,686        5,703         5.5 %           967
Impairment and
restructuring charges        214         0.2 %      1,747         1.7 %         1,533          140         0.1 %        (1,607 )

Medical professional and license fees

Due to lower procedure volume, medical professional and license fees in 2013 decreased $3.6 million, or 15.3%, from 2012. The decrease in expense, and the expense as a percentage of revenue, is also due to favorable procedure fee negotiations with our excimer laser vendors which decreased license fees by $1.5 million, and had a favorable impact on our enhancement costs of $295,000. Enhancement costs were also lower due to favorable trends in our enhancement rates. The amortization of the deferred medical professional fees associated with the sale of separately priced extended acuity programs also impacted medical professional and license fees. We amortized $87,000 of deferred medical professional fees attributable to prior years in 2013 compared to $252,000 in 2012.

Medical professional and license fees in 2012 decreased $913,000, or 3.7%, from 2011. License fees decreased $941,000 as a result of decreased enhancement costs, partially offset by lower volume rebates in 2012 and increased costs from our cataract and refractive lens services business. The amortization of the deferred medical professional fees associated with the sale of separately priced extended acuity programs also impacted medical professional and license fees. We amortized deferred medical professional fees attributable to prior years of $252,000 in 2012 compared to $438,000 in 2011.

Direct costs of services

Direct costs of services in 2013 decreased $5.3 million, or 11.9%, from 2012. The decrease reflected lower variable costs as a result of lower procedure volume in combination with lower costs as a result of previously executed restructuring initiatives and other cost savings. Lower costs included a reduction in financing costs of $1.2 million due to lower procedure volume, renegotiation of rates for third-party financing plans including a special rate in the first four months of 2013, and a shift in our portfolio mix to shorter term plans which cost us less; employee costs of $1.4 million, comprised of stock compensation and other employee costs; insurance costs of $684,000 related to favorable actuarial valuation changes resulting from updated claims experience; bad debt expense of $498,000; rent costs of $384,000 due to vision center closures and lease renegotiations; state and local taxes of $376,000; contracted and professional services of $214,000; and travel costs of $191,000.

Direct costs of services in 2012 increased by $1.3 million, or 3.0%, from 2011. The increase was due primarily to salaries, benefits, and stock compensation expense of $1.7 million related to filling open and new positions, including our business expansion roles as well as merit increases in 2012. Additional increases included insurance costs of $292,000 due to actuarial adjustments based on our historical claim activity and bad debt expense of $168,000 as a result of changes in financing plan mix. Partially offsetting the increases was a decrease in rent expense of $337,000 from recent favorable negotiations of leases and state and local taxes of $247,000 due to unfavorable audit assessments in 2011.

General and administrative

General and administrative expenses decreased $1.8 million, or 13.1% from 2012, due primarily to reductions in employee costs of $1.2 million comprised of lower stock compensation and other employee costs in connection with previously executed restructuring initiatives, rent savings of $172,000 from the relocation of our patient communication center, as well as reduced travel expenses and telecommunication expenses. General and administrative expenses decreased 0.5% to 12.7% of revenues.

General and administrative expenses in 2012 decreased $500,000, or 3.6% from 2011. The decrease was due primarily to reductions in professional services costs from additional spending for growth initiatives in 2011, partially offset by $404,000 in increased sales tax costs resulting from a favorable state sales tax audit settlement in 2011. General and administrative expenses decreased 0.3% to 13.2% of revenues.

Marketing and advertising expenses

Marketing and advertising expenses in 2013 decreased $1.4 million, or 6.2%, from 2012. These expenses constituted 23.5% of revenues during 2013, up from 22.7% in 2012. Marketing cost per eye increased to $406 for 2013 from $394 in 2012. Adjusted marketing cost per eye, which excludes the impact of cataract and refractive lens services marketing spend of $406,000, increased to $402 per eye in 2013 compared with $387 in 2012. Marketing and advertising expenses in 2012 increased $377,000, or 1.7%, from 2011. These expenses constituted 23.5% of revenues during 2012, up from 22.0% in 2011. Marketing cost per eye increased to $394 for 2012 from $381 in 2011.


Depreciation expense

Depreciation expense in 2013 decreased by $2.7 million, or 56.7%, compared to 2012. Depreciation expense in 2012 decreased by $967,000, or 17.0%, compared to 2011. The decline in depreciation expense continues to reflect a lower depreciable asset base as a result of reduced capital expenditures since 2008 and the disposal of certain equipment and leasehold improvements from closed vision centers.

Impairment and restructuring charges

No impairment charges were incurred during 2013. The 2012 impairment resulted from our decision to close one under-performing vision center in December 2012, convert another center into a satellite vision center and consolidate our patient communication center into our primary corporate headquarters building during January 2013. The 2011 impairment charge reduced the carrying value of certain assets held for use in a laser vision correction center.

Restructuring charges in 2013 of $214,000 resulted primarily from the relocation of our patient communication center to our corporate headquarters as part of our restructuring plan announced in late 2012. Restructuring charges in 2012 of $1.1 million resulted from our decision to close one under-performing vision center, convert one to a satellite vision center and to reduce our workforce in our continued efforts to reduce costs and increase operational efficiencies. Restructuring charges in 2011 of $36,000 were comprised primarily of adjustments to previous estimates for contract termination costs for previously closed vision centers and additional severance costs.

Gain on sale of assets

We sold lasers and other assets held for sale for a gain of approximately $198,000 in 2013 compared with a gain of $239,000 in 2012 and $618,000 in 2011. We currently do not have any assets held for sale.

Non-operating income and expenses

We recorded net investment income of $890,000 in 2013 compared with $656,000 in 2012. The increase was due primarily to lower interest expense reflecting our decision to repay third party debt in June 2012 prior to its maturity.

We recorded net investment income of $656,000 in 2012 compared with $470,000 in 2011. The increase was due primarily to increases in patient financing interest income of $199,000 on higher average accounts receivable and a reduction in interest expense of $138,000 due to the payoff of all outstanding debt in 2012, in advance of the original maturity date. Partially offsetting these increases is a loss on sale of investment securities related to the disposal of our auction rate securities during 2012.

Income taxes

Our effective income tax rate was (8.3%) during 2013 compared to (1.6%) during 2012 and 2.1% during 2011. Our effective tax rate was impacted significantly by a valuation allowance against all of our net deferred tax assets during these years. We maintain a full valuation allowance on our net deferred tax assets due to increased uncertainty with respect to our ability to realize the net deferred tax assets in future periods. The impact of the valuation allowance on our effective tax rate was 35.6%, 38.5% and 36.2%, respectively. Our provision for income taxes in 2013 and 2012 included a benefit of lapsed statutes related to uncertain tax positions and the interest previously recorded on these positions. The benefit was partially offset by interest on uncertain tax positions and state taxes in one jurisdiction. Our provision for income taxes in 2011 included interest on uncertain tax positions and state taxes in one jurisdiction.

Liquidity and Capital Resources



The following table summarizes our cash flows from operating, investing and
financing activities, as reflected in the Consolidated Statements of Cash Flows
(in thousands).



                                                       Year ended December 31,
                                                2013             2012             2011
Cash (used in) provided by:
Operating activities                        $     (4,288 )   $     (5,088 )   $     (3,501 )
Investing activities                                 360           22,372            6,353
Financing activities                                (722 )         (4,304 )         (3,544 )
Net effect of exchange rate changes on
cash and cash equivalents                           (314 )            105              (90 )
Net increase (decrease) in cash and cash
equivalents                                 $     (4,964 )   $     13,085     $       (782 )


Cash flows used in operating activities were $4.3 million in 2013 compared to $5.1 million in 2012 and $3.5 million in 2011. Cash used in operations included approximately $1.2 million of investment in expansion efforts related to the company's refractive lens and cataract business, $1.8 million of restructuring payments related to previously executed actions, and additional working capital changes of $4.1 million primarily related to reductions in accounts payable related to timing of payments, increased accounts receivable for self-financed patients and reductions in accruals, offset by positive earnings from the core LASIK business. Our cash flow from operations depends primarily on procedure volume.

Cost control and cash conservation efforts have continued to provide significant savings in discretionary areas. We continue to manage closely working capital with particular focus on ensuring timely collection of outstanding patient receivables and management of our trade payable obligations. Working capital at December 31, 2013 amounted to $20.4 million compared to $21.1 million at the end of 2012 (excluding debt obligations due within one year). Liquid assets (cash and cash equivalents, short-term investments, and accounts receivable) amounted to 219.7% of current liabilities at December 31, 2013, compared to 188.8% at December 31, 2012. At December 31, 2013 and 2012, $4.4 million and $4.7 million, respectively, of cash and cash equivalents were held in accounts based in Canada and could be subject to additional tax upon repatriation to the U.S.

The average number of procedures company-wide necessary to reach breakeven cash flow from the core LASIK business, after capital expenditures and debt service, is approximately 54,000 per year compared to 58,000 per year at December 31, 2012. This cash flow estimate does not include restructuring payments, debt service or start-up losses and capital expenditures for the refractive lens and cataract business. The number of procedures that we will perform in 2014 or thereafter is uncertain.

We continue to offer our own sponsored patient financing. As of December 31, 2013, we held $4.2 million in patient receivables, net of allowance for doubtful accounts, which was an increase of $343,000, or 8.9%, from December 31, 2012. In 2013, the amount of revenue internally financed remained consistent with the same period in 2012 at approximately 6% of gross revenues. We continually monitor the allowance for doubtful accounts and adjust our lending criteria or require greater down payments if our experience indicates it is necessary. However, our ability to collect patient accounts depends, in part, on overall economic conditions. Bad debt expense was less than 1% of revenue in 2013 and 2012.

In April 2013, we agreed to purchase for $2.3 million our excimer lasers previously leased from one of our vendors, subject to financing terms of 36 months at an interest rate of 3.5%. Our outstanding debt balance was $1.9 million at December 31, 2013. The loan agreement contains no financial covenants and is secured by the lasers purchased.

During 2013, we purchased $2.0 million in certificates of deposit and received proceeds from the sale of investment securities of $2.8 million. As of December 31, 2013, the majority of our cash and investment portfolio is comprised of cash and cash equivalents due to the low investment yields in the current market.

We opened three new licensed or franchised full-service vision centers, and five new satellite vision centers in 2013. We did not open any new full-service vision centers in 2012. Capital expenditures in 2013 were $700,000, which excludes the purchase of $2.3 million in previously leased excimer lasers as the purchase was financed through the vendor and had no initial cash outlay. Capital expenditures in 2012 were $1.2 million. The following is a list of the full-service and satellite vision centers that we opened and closed, indicated in parenthesis, in the last two fiscal years:

      2013              2012
Edison, NJ         Annapolis, MD
Tacoma, WA         Naperville, IL
Liberty, MO        Tempe, AZ
Franklin, TN       Woodstock, GA
Nashville, TN      (Annapolis, MD)
Fairlawn, OH       (Chandler, AZ)
Northville, MI     (Seattle, WA)
Warren, MI
(Woodbridge, NJ)


The following table aggregates our obligations and commitments to make future payments under existing contracts at December 31, 2013 (dollars in thousands).

. . .
  Add LCAV to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LCAV - All Recent SEC Filings
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.