Q3 2019 Earnings Call

So the CNG third quarter 2009, 2019 earnings conference call.

At this time, all participants are in listen only mode.

The speakers presentation, there would be a question and answer session.

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Now I'd like to hand, the conference over to your speaker for today Nielsen Luca you may begin.

Operator.

Remarks today. We will include statements that are considered forward looking within the meaning of United States Securities Law.

<unk> management May make additional forward looking statements in response to your question.

Looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business strategy operations or financial performance a detailed discussion on the risks and uncertainties that the company places is contained in its previously filed annual report on Form 10-K quarterly report on.

Thank you that the company will file with the FCC shortly.

Actual results may differ materially from those expressed or implied by forward looking statements. The company undertakes no obligation to update or review any estimate projection or forward looking statement.

Today I don't recall, we have Jeff Enogen, She enters chairman and Chief Executive Officer, and Paul Little Chief Financial Officer, Senior Vice President Treasurer, I'll now turn the call over to Jeff.

Thanks Neil.

Good afternoon, and thank you for joining this afternoons call.

I'd like to start to call by highlighting the key topics before discussing each in greater detail.

First as highlighted in our earnings release, she entry has very strong third quarter across both of our business segments.

We achieved record net sales of $22.4 million, which equates to a 33% year over year increase.

We're also pleased to raised or our 2019 shells outlook.

I mean, 82.5 and $83.5 million, which Paul will discuss later on this call.

Second.

Listen to these solid quarterly results were excited to announce the acquisition of the Opus breast implants manufacturing operation in Franklin, Wisconsin.

Vertical integration is a critical next step in advancing she untrue strategic objectives and the in sourcing of her breast implants supply chain provides numerous strategic operational and financial advantages, which we will also discuss in further detail on the call.

Finally.

We also announced an organizational efficiency initiative designed to simplify operations and reduce spending.

Ensuring that resources are prioritized on physician and patient patient facing activities.

I'm confident that these strategic actions and our business momentum.

In addition, she untrue for continued long term profitable growth and success.

With that backdrop I'll review, our third quarter results in more detail.

Our entire team is extremely proud and she enters third quarter results.

The company achieved record quarterly net sales of $22.4 million, which equates to year on year growth of 33%.

The quarterly performance was driven by strong growth in our fresh product segment had another record quarter Premier dry.

Total breast product sales grew 47%.

47% you're on your third COVID-19 to 12.6 million.

Our plastic surgery consultants continue to demonstrate strong execution against their targets and market share capture objectives.

I'm confident that we're well positioned to continue to capitalize on this momentum as the quarters ahead.

Core breast implant and tissue expander sales have grown 35% year to date in an overall breast market that we estimate to be flat.

That's clear evidence of our continued market share gains from our targeted new customer conversion programs as well as deeper penetration of existing accounts.

The success of our customer conversion programs in both physician practices and hospitals supports my continued to sushi ASM for the sheer recapture opportunity going forward.

Particularly in light of market conditions did increasingly favour she enters point of difference.

Our military segment delivered another record quarter, achieving net sales of $9.8 billion equating to a year on year growth of 18%.

Sales were well balanced across geographies as well as that mix between capital and consumables with a record quarter in U.S. system placements and continued growth in bio chip utilization.

Mirror drive strong results reflect the scaling effect of the marketing initiatives. We launched earlier this year as part of our no sweat global campaign.

We continue to place cost effective targeted.

Digital ads across highly trafficked and focused digital platforms, including Instagram, Facebook, Google and others and to build awareness plus interest in mirrored right.

Our marketing initiatives resulted in a larger higher quality capital sales funnel and increased utilization across the installed base.

The mirror dried team is demonstrating the attractiveness and sustainability of this razor razorblade business model.

Turning to the breast implant Operation Act acquisition.

I'm pleased to provide details behind today's announcement that we've completed the acquisition of the dedicated class three FDA approved silicone breast implants manufacturing operation and frankly, Wisconsin for Lubrizol life Science.

The strategic importance of this transaction cannot be overstated.

Vertical integration of our breast implant business is a critical step in she enters overall business model evolution.

And create significant value for both plastic surgeons and shareholders.

Having control of our product development and manufacturing is imperative for class three breast implant company given the complex competitive dynamics product margin requirements and product development advantages to maintain the height of safety and quality standards of any of our competitors.

Acquiring this established operation offers a turnkey transaction.

At an intelligent way to achieve our goal with the best mix of risk reward investment in speed.

With this acquisition she enters now position to leverage the global physician relationships already in place through our establish mirror dry installed base.

The Franklin Operation is down 19 months into commercial manufacturing and continues to steadily ramp its production capabilities.

We're pleased with positive state as manufacturing that we're now ticking over.

Our experience you enter operations team brings decades of extensive experience that will continue to improve cost inefficiencies with additional focus and targeted investments.

A vertically integrated supply chain will also provide numerous strategic operational and financial benefits that include first this transaction allows for direct control of our opus breast implant manufacturing and product development efforts, allowing strategic oversight to optimize the manufacturing process.

It is and invest where appropriate.

Frankly will be as she entered dedicated class three facility with no shared resources are competing priorities.

Second and related to the previous point a key benefit of this transaction is the speed to market with improved in innovative product offerings that address unmet market needs.

The acquisition complements our ongoing innovation efforts in our R&D lab, and Carpentaria, California and aims to reduce time from concept feasibility to new product introductions seamlessly integrating development and manufacturing.

Third this transaction allows you know true to realize the economic benefits of scale as production ramps.

We're convinced Theres, an opportunity to expand gross margin from in sourcing manufacturing.

Paul will provide for further details on this gross margin recapture opportunity in his remarks.

Finally, the transaction enables our addressable international market opportunities.

Driving from the submission of our Canadian registration in the third quarter of 18, we've strategically evaluated additional U.S. Marcus considering a number of factors related to growth.

Additive dynamics profitability regulatory environments and time to market.

We're being deliberate and thoughtful and which markets we pursue with a focus on unit economics and return on investment.

And we expect the margin and pricing advantages afforded by this transaction overtime to increase the number of international markets. This year centric and profitably enter into and drive incremental revenue.

I want to conclude my prepared remarks by commenting just briefly.

On our conviction is successfully executing this acquisition.

Is critical.

Through close coordination with our Lubrizol loves science counterparts, a well organized due diligence review.

Structuring of a well vetted integration and transition services plan.

I'm confident in our ability to execute the smooth integration of the breast implant manufacturing operation.

We also recently this year higher Jeff Jones, as Vice President of operations lead manufacturing and all supply chain functions within see untrue.

Jeff's in industry veteran with over 30 years of manufacturing and quality experience joined most recently from Urbans Corporation and previously held senior positions at both Boston scientific entry and Jay.

Jeff will be directly responsible for overseeing plant operations in Franklin and we'll manage the currency entered dedicated team of managers Supervisors engineers and operators many of whom has been involved with this business since day one.

In sum I'm confident that we have taken the appropriate measures to maintain the supply and quality levels currently in place to meet our commercial objectives as we execute on a well organized integration plan.

With that I look forward to sharing updates from Centrus, new breast implant manufacturing operation in the coming quarters as we realize the expected benefits is critical and necessary strategic additions to our business.

I'll now turn the call over to Paul to discuss the organizational efficiency initiatives provide further details on them and manufacturing acquisition, our cash position.

Our updated 2019 outlook.

Before turning the call over to questions and answers fall.

Thanks, Jeff.

Today, We also announced an organizational efficiency initiative designed to simplify operations and reduce spending.

Ensuring that resources are prioritized on physician and patient testing activities.

Under the plan central implement numerous initiatives to optimize and streamlined spending including closing marriage Rice, Santa Clara facility outsourcing near dry Park Assembly and consolidating a number of business support functions shared service organization at the company's Santa Barbara headquarters.

The shared service organizations will streamline mirror dries quality clinical regulatory customer service engineering functions.

We are confident that this plant will result in a simpler and more cost efficient operation, while creating significant value to be clear sensor will continue to strategically invest commercial initiatives to maintain a strong topline momentum in both our brass products in their joint business.

As an organization, we will be even better positioned to deliver our commitments to patients physicians employees and shareholders.

We appreciate the contributions of all the employees affected by this action and thank them for their dedicated service. The company has notified affected employees has taken steps to ensure a smooth transition to those employees in the organization.

We expect that initial phase of this plan will be completed during the next 10 months.

With all efficiency initiatives to be intimate implemented and finalize by year end 2020 .

CFTR estimates at the plant will reduce annual pre tax operating expenses by approximately $10 million in 2020 and $15 million in 2021 as savings initiatives are fully realized.

The company expects to record total pre tax charges related to the cost savings initially initiative of approximately 3.7 to 4.5 million.

These charges are expected to be recorded over the next 10 months.

Turning to the breast implant manufacturer acquisition I would like to provide some details on the purchase price and the gross margin opportunity as noted in this afternoon's press.

Really see interest paying 20 million in cash and up to 600000 shares of center for the acquisition depending on changes.

Depending on central stock, reaching certain price milestones.

The 20 moving of cash consideration.

14 million is payable in cash at closing.

With another 3 million due in each of 20 to 21 and your 2023.

Exchange for this cash and stock consideration, we are receiving approximately 9 million a tangible assets which include manufacturing equipment.

During improvements in process inventory.

Materials and supplies. We are also acquiring intellectual property rights processes and know how necessary for central to manufacture its opus breast implants.

In the near term, we expect that approximately 200, a 300 basis points explained in our gross profit margin as we assume control of the manufacturing operation, which is still less than two years into its ramp up in optimization.

We believe that the progress made to date and the combination of central singular focus and internal expertise will accelerate efficiency yields in volumes.

As you opened volumes continue to increase we expect gross implant gross margins to return to current levels and improve thereafter.

And three key were 19, our consolidated gross margin was 56.5%.

Excluding at 800000 dollar write off related related to old settlement round implants are consolidated gross margins would have been 60% in the quarter.

The balance of the change year over year was driven by a higher level a mix of mere dry console sales in quarter, three compared to the same quarter year ago.

Turning to cash net cash and cash equivalents as of September Thirtyth 2019 was 121 million.

Compared to 146 million as of June Thirtyth 2019.

As expected our third quarter Sientra made a $7 million earn out payment to Miramar labs contingent right volume Miramar labs contingent value rights holders based on a mere drive segment, achieving certain sales milestones.

With over 120 million of cash on the balance sheet.

In a detailed plans to reduce cash burn.

The answer has a capital needed to strategically invest and drive strong growth across our portfolio.

As noted in this afternoon's press release, we're raising our 2019 net sales outlook. We expect total net sales in a range of 82.5 million to 83.5 million, which represents growth of 21% to 23% compared to sales of 68 million in 2018.

Ill now turn the call back over to Jeff for concluding remarks before we begin to Q1 a portion of the call.

Yes.

Thanks, Paul.

I just want to emphasize the overall progress to see entered team has achieved during the third quarter.

Our sales growth continues to pace at the high end of the aesthetics category overall growth of 33% year on year is driven by strong performance across both of our business units that's significant.

We've completed the acquisition of our class three opus breast implant manufacturing operation and Franklin, Wisconsin from Lubrizol Life Science. This acquisition provides yatra with a strategic advantages of a vertically integrated business model, including direct manufacturing control of our high quality breast implants.

Speed to market on our innovation pipeline and improved margins is yields continued to ramp.

And finally, we've announced the implementation of a carefully develop shared services strategy that will support our two commercial business units in the most efficient manner possible.

I want to particularly express my thanks to our completely dedicated team throughout she entre and I'll now turn the call back over to the operator for QNX.

Thank you, ladies and gentlemen, as a reminder to ask the question you would need to press Star then one when your telephone.

Withdraw your question, what's the penalty.

Again, it's still want to ask the question.

Please standby, while we've compiled the key all night culinary Boston.

Our first question comes from the line of Jon Block with Stifel. Your line is open.

Thanks, guys, good afternoon, and really solid quarter and very.

Interesting and announcement this afternoon, so I'm going to jump right a little bit I guess, the first one pour Jeff reps up 2.5 million roughly Q over Q with Opex down a similar amount from what each level. So big change from what had been going on in the organization. That's even before the reward that you announced this.

Afternoon. So maybe you can just talk about the better cash management that we saw in the quarter getting the better return to the Opex dollar.

That continues going forward, but I've got one or two follow ups.

Hi, John Thanks, I think balls that have better positioned answer that well I think we have said before that the businesses are starting to leverage on and as you know we've added law the headcount last year.

Revenues ramp up if you are seeing where youre seeing is a natural leverage in the business that we've been discussing that we'll continue to improve as we go forward.

Okay fair enough and just maybe I'll try this one over two years of breast market flat you called out you guys are taking what looks like a lot of share with 35% implant and tissue, it's better growth.

Difficult question, just we're not too far removed from the panel and.

And bias et cetera, but what are your expectations for market growth going forward from here or just even more broadly are you seeing some of their headwinds that had been pretty pronounced around April or may are those starting to fall a little bit here in the us.

Yes, so great question John .

What we're seeing is essentially a flat market as we indicated.

And our our projections going forward continue to paint a picture for flat demand.

With a combination of both augmentation and reconstruction.

What are the things that were most proud of is the progress we're making the recon space.

With the superior we've had a superior portfolio on both sides, but were particularly seeing some of very encouraging growth on the reconstruction too so.

Maybe that's a long winded answer, but we expect the market to state essentially flat and those to continue to take significant market share based on the combination of factors that are part of those yatra difference.

Got it one last one if I can quickly thrown in there so.

Paul previously with the agreement you didn't get the benefit call it up but the scale like all of your breast implant volumes now you will get it theres some near term disruption, you're bringing on some employees et cetera, but when we look out a couple of years as the volumes continue to ramp what does a call. It a breast implant gross margin looks like for you guys that.

That point in time, and how accretive would it be versus where you might have been over the past couple of quarters. Thanks guys.

Yes. Good question. So we've been consistently saying that without right mix of products and manufacturing. We are focused as go to a 70% margin on the breast implants gone and we saw that same line of sight and this overtime will make that you more plausible as we get in there the volumes increase.

And we you know we've pursued efficiencies that we know the plant will be again, we're in a second barely a second year all of a startup.

And this facility as we as we gain experience to be the volume throughput that 70% is what our goal is.

Thank you guys.

Thanks, John Thank you.

Next question comes from the line of Richard the Winter with STB Leerink. Your line is open.

Hi, Thanks for taking my questions congrats on the quarter.

Wanted to start off.

I wanted to start off on on guidance. So.

A big beat in the third quarter.

And Youre taking up.

The guy.

By less than the beat and.

Implies a slight deceleration in the fourth quarter Im just curious if that's just conservatism.

Anything specific you'd call out with direct with respect to the momentum pick up these on third quarter that doesnt continue into fourth quarter.

Any color there would be appreciated.

Yes, good question, Chris Thanks.

Providing guidance for the first time back in May and that's where that is after several years of no guidance the new midpoint of our revised guidance at the high end of our original guidance I'll say that the quarter three clock is easier than the fourth quarter comp. If you look at year over year numbers. If you look at the if you normalize as by looking at a two year stack.

You'll see that that quarter three growth rate in the applied for Q4 growth rate are the same.

So we're we're very happy with where we are to date, we love the growth in both these businesses so the year over year guidance.

Very happy with.

Okay. That's a that's.

That's helpful on Mira dry candy can you provide any color on the strength.

Regionally.

What a balanced across U.S. so U.S.

Fair to say that that you saw sequential pickup in and in capital in both.

And how is the consumable pull a growth rate trending.

That's fair if you look at this quarter, we did about 45% was in the U.S. than it was 55% international it was a very strong console on a quarter.

Record for the North for North America, and our whole goal. This year was actually our strategy was to get the placements out there as well in addition to driving awareness we wanted to drive the console. So between capital consumables. It was about a 30 545 split 55% being constant for the quarter.

It was a very strong quarter causes.

I'll just say the risks, but we're also very pleased to see the pickup in the domestic business here.

As you've been following us that's an area with significant upside opportunity, we're starting to see some very positive response on that front. So we're very pleased with the progress the teams making.

Great and just one last one on the on the cash burn that looks like if you back out the 7 million.

Payments miramar or the milestone payment and.

You would have been at about 18 million.

Cash burn for the quarter would just below both the first quarter and the second quarter and then I just want to make sure you still feel comfortable excluding all the.

Payments related to the in sourcing.

And the into manufacturing announcement do you still feel comfortable that you would have been on track to kinda achieved a cash burn of.

35 to 37 million in the back half, which would have been a big reduction from the first half.

Yes.

Excellent. Thank you. Thank you rich.

Thank you.

Next question comes from the line of.

With Canaccord your line is open.

Thank you very much I apologize in advance them in an airport.

I guess I just wanted to see.

Maybe kind of talk a little bit about the breast.

Recon side of that business I mean, where are you now with respect to getting some of the.

Follow on implant revenues in it but I just think about that alone that what does that opportunity represent if you were to get more convoyed sales just purely from capturing the implant where you weren't previously capturing them and then also maybe talk about what you're seeing in the market I mean, you're taking 30 youre growing 35%.

Competitions flat or losing share what's the competitive response in the market what the counter selling that you're seeing kind of how is that adjusted your view of the go forward dynamics here.

Well the last part first we're not seeing any real significant effective response to the gains that were seeing it's a combination of the aggressive sales efforts from our PSC game, but also the fundamental differences and the superiority we haven't our products both.

From a augmentation.

As well as our reconstruction portfolio. So we're seeing some Joe some very successful results from both our existing accounts and the new account acquisition program. So we put in place as far as your first question is concerned on the follow through with the new accounts on reconstruction, which are so.

Actually a new accounts were adding new reconstruction accounts, primarily hospitals.

At a very very.

Very positive clip so there's a lag.

Between the sale of the tissue expanders that our fundamental part of reconstruction and the follow through and I use the razor razorblade analogy on that side too.

That once we get into these new top tier hospital accounts because of the quality of our tissue expanders.

We see some significant upside with a follow through on it plus.

I hope that answers your question settle.

It absolutely does and then just one follow up question on just the breast implant business.

You talked about.

Taking competitive accounts I guess, maybe could you help us understand how that dynamic works, if I am plastic surgeon and I decided to start using sientra products thats, how much of that that account or you capturing day, one or is there is a trailing and what we're really seen at the early days and then you'll get higher utilization on an ongoing basis or just how much of that opera.

Acuity just from the new accounts that you're opening up is because it's still on the comp.

Yeah. It's.

It's very intuitive it's logical that.

You don't go into a new account and all of sudden take over 100% of the share of his practice.

We are.

We're seeing some significant commitments up front, but theres still relatively small parts of their overall practice. So we're earning that business starting from a relatively low level and we're we're very pleased with the fact that we're growing.

In those new accounts as well as we are in the existing accounts. So I can't give you the specific numbers at this point, but we've looked at them in some detail and I'm very encouraged by what I'm, saying.

Great. Thank you for taking the question.

Thank you.

Thank you.

Our next question comes from the line of Chris Cooley with Stephen.

Your line is open.

Good evening and thanks for taking the questions and congratulations on a really strong growth quarter, but equally as impressive the leverage it drove their nicely done there Paul.

Just thinking just too.

Just just two quick ones from that from the.

I just want to make sure on I guess, both from a topline perspective first.

In the prior quarter, you were kind enough to give us a number of accounts that were new to see intra.

Just kind of curious if you could maybe either give that same statistic in or kind of help us better understand as you see this very strong market share growth through the United States is that going deeper in those accounts or help us are you finding out even broader and then I just have one follow up on the margins actually logic. Great question. Thank you I mean I'll.

But again as I've been giving where year to date were 275, new accounts that did not by last year. I think were 200 last quarter, we're very happy with the growth without that that's exceeding our internal expectations and obviously if the.

Breast implant business is growing 47% for the quarter obviously.

We should be very happy with that in terms of Pos, but we don't give it we're also.

The number of a hostile as we've been out at all year. In addition to the plastic surgery cost be accounts, it's up dramatically as well so to 75 nine months into the year well ahead of what we want them.

So sounds great and then I apologize struggling to calls you may have addressed this earlier.

You mentioned I think in your prepared remarks, Paul that you expected to breast product gross margin to decline two to 300 basis points here initially as you roll in the best to facility.

But I wasn't clear on when you expected to anniversary that and start to see that contribute from a margin perspective, and as an offshoot to that I think I also heard you say this would be a dedicated.

Intra facility and it was my understanding that that plant was also manufacturing some products for another breast implant player. So can I make the assumption that that relationship would not be extended thank you.

Let me take that one so in terms of the acquisition. So weve lease the space that is dedicated to see after today. So it's over 24000 square feet. That's dedicated to US is our space in our lines are people.

So and we acquired the assets there that are associated with that so it's a dedicated space within the facility with our employees. So now it is singularly focused so that's that's what we acquire today that helped that question.

Yes. Thank you okay in terms of the margins are the two to 300 in fact I sit down the consolidated consolidated basis.

And the reason I I'd be current what that is as you know this is a startup manufacturing facility less than two years and its ramp up.

And the optimization is still in process.

We've made tremendous progress to date Lubrizol has and then we're going to take this over and continue to that focus.

The yields and volumes increase we will expect the margins to come back in line in the near term and actually improve thereafter. So think of this has an acquisition facility 18 months in a startup.

Yes, just to just to clarify that one last time I'll get back in queue that consolidated basis is on the breast products or on the total corporate average total corporate total corporate company. Okay. Thank you sorry. Thank you.

Congratulations thank you very much thanks Scott.

Q.

Our next question comes from the line of Alex Nowak with Craig Hallum. Your line is open.

Great. Good afternoon, everyone keep detail, how the Allergan textured recall benefited the textured products in the quarter and you are the sales rep seeing from from this this disruption with algo are they seeing any sort of cross selling opportunities out there to hopefully transition those customers over to your smooth then plants as well.

The answer is yes.

What we're seeing is a.

It's a reaction among the plastic surgeons.

To take a different approach to.

Their supplier of in place, there's no question and I'm not trying to criticize anybody.

But there's been some credibility.

That has been lost by L. again with that whole LCL safety issue.

So what we are seeing is a more of an openness to the she entered product line, particularly with the.

The the established studies that indicates a superior safety profile that we have so there are several ways to address this but the bottom line is that go the inherent advantages that we have in our portfolio are a part of the part of the process of getting this market share.

Okay understood got it and you talked a bit about this when going through the manufacturing acquisition discussion, but just remind us when do you plan to launch implants outside the U.S.. That's still 2020 story and just in addition to Canada. How many other markets are you initially looking at.

Well, we're not prepared to give guidance on other international markets at this point, but the point is that we've already initiated several regulatory filings.

And that we're approaching this in a very thoughtful way.

That the objective of global leadership.

It's no longer.

The attractive objective, what we're looking at our those individual markets, where it is a profitable.

Venture.

For us to it's for us to launch the advantages of our existing products in the markets, where we know that they will be accepted so I don't want to makes us a long story or long winded answer, but we're just being more selective in terms of them. Those markets are we're planning on launching and and.

Taking control of this manufacturing operation is going to be able to speed that up so we'll share more the details with you as we get into 2020.

Okay got it just lastly, just confirm and there's no changes to sales functions here as part of the streamline and streamlining and just kind of to that question, you're not assuming any sort of sales rep disruption over the next couple of quarters.

I can't emphasize that enough that we have specifically.

Cordoned off the two commercial.

Groups, the mirror trade group and the fresh products group.

Because the organization changes that we're making a really designed to be able to.

Increased the support that we're giving them.

So that I'm I'm very.

Focused on making sure that our frontline organization.

Not affected by entities organization changes.

Okay. Good to hear thank you congrats on a good results here.

Thank you. Thank you.

Our next question comes from the line of Macquarie capital or with William Blair. Your line is open.

Hey, good afternoon, guys. Thanks for taking the questions.

Paul.

Well try them going on between calls, but I'd like to focus on the mirror try business a bit.

I had a pretty good U.S. quarter. It sounds like so can you walk us through some of the operational metrics within that business and the results this quarter.

Including tenure the reps.

The structure of the sales reps in the business consumables versus capital.

And then just the profile the accounts that are purchasing mehrotra systems as a plastic surgeons chains money spas et cetera.

Oh, well is probably we have Kurt gun house in here with us Who's our general manager and Kirk knows more the specific details than anyone else in the ROE. So I'm going to ask him to answer your question because it's a very important one.

Kurt would you like to address Margaret.

Thank you Jeff.

The.

You asked market in Q3.

Let's just let's start with the the Salesforce the tenured reps that we have is now closer to two years, we are doing special training to each month to create a.

Sales team that that knows how to speak to the doctor and use the mere dry story to to get the systems sold.

The second thing is that you mentioned is that the the mix right. Now is we wanted to put more.

Razors into field. So we wanted to get more systems into field. So that as we continue to build our mirror dry story with the digital advertising that we're doing we will create more utilization and so the whole emphasis of Q3 was to get those systems in place so the mix.

Why is closer to.

60, 550 in the U.S. market, 55% within the systems and 45% was in utilization.

The.

Third piece that I think is is really important is there is a momentum within the mirror dry offer and that is because we are differentiate ourselves versus other devices that are in the field.

We are finding that 76% of the people who do this procedure are under the age of 40 and that 88% of those people are actually new to the aesthetic market and so this is creating a whole new picture for our plastic surgeons are met spike in our dermatologists to see that this is a way to enter into a.

New consumer group, which will be the largest consumer group.

Spending group starting in 2020, the millennials so right now we see as our plastic surgeons are the first person that are buying the system. The second is our midsized and then the third is our dermatologist.

Okay. That's a that's very helpful.

So maybe let's take this a step further you guys are focused on the systems right now that creates the razors then you can be a little bit more efficient it sounds like a in terms of bringing patient said and making sure that theres. Good utilization of the system that can you give us a sense at all in terms of a timing or if you're going to layer the San overtime.

And yeah, when we start to see maybe some of the pay off of these investments.

Well I can answer that Margaret because it's a clearly a tsunami.

I already within the mirror dry strategy that because of the obvious advantages of the margin associated with the tips.

That's a priority.

In effect now.

That we're putting plans in place to drive even more aggressively in 2020.

So part of this is we realized the importance of demonstrating the sustainability.

The profitability of the mirror drive business and the primary way, we're going to be able to do that is increased the ratio of as Kirk said.

The blades first the razors. So that's a critical part of what we're doing we're starting to see some some real traction on that front. It's a strategic shift that we know we have to make work and we're encouraged.

I'm very encouraged by what I'm, saying.

Okay and then last question as you know that that's a lot of revenue upside scenario and kind of strategic and scenario, but as you look at both the gross margin profile, which I think you referenced was skewed towards box as much or lower gross margin.

But how do you look at maybe improving gross margin for both the boxes individually as well as for the business over what timeframe would that happen and can you give us a sense of how operating margin starts to move higher our operating profit dollars start to move higher within this business.

Since it seems like it's a pretty key part of see entre as you move towards cash flow breakeven positivity. Thanks.

Hey, Mark as Paul in terms of any other tests, we're at 90%, although it so I wouldnt expect a lot more movement on the console as part of our restructuring our initiatives improvement initiatives, we've announced we plan to improve margins on the call unsold beginning in 2021 as we as we've talked a cost was on that side of it and again we mentioned.

Breast side or line of sight as has been a will continue to be 70% on the brought side.

Overall the business in addition to the efficiency.

Organizational efficiencies, we announced today, you're starting to see if you will continue to see just the natural leverage of the business as we no longer need out in the infrastructure to run this business. It has naturally leveraging it will continue to leverage there was no way with turbocharge by what we announced today with the organizational efficiency announcement.

Great. Thank you guys.

Thank you Mark thanks.

Thank you.

Sean any further questions at this time, ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect everyone have a wonderful day.

Good thanks.

I have a great day.