Q3 2020 Sientra Inc Earnings Call
Standing by and welcome to the theatrical Eattwenty four any earnings conference call.
John All participants that you know that she only know after the speaker's presentation. There will be a question and answer session to ask a question Jordan section you will need to press star one on your telephone keypad. Please be advised subsidies conference is being recorded if you require any further assistance. Please press star zero.
I would now watching how the conference over to your speaker today Mr. Ali.
Thank you. Please go ahead.
Thank you operator, good afternoon, and welcome to the Sientra said quarter to 2020 earnings Conference call.
I would like to remind everyone that in our remarks today. We will include statements that are considered forward looking statements within the meaning of United States security laws.
In addition management may make additional forward looking statements in response to your questions.
Well were 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 of the risks and uncertainties that the company faces is contained in its previously filed annual and quarterly reports on form 10-K and 10-Q.
Quarterly report on form 10-Q, the company filed this afternoon.
Actual results may differ materially from those expressed in or implied by the forward looking statements.
The company undertakes no obligation to update or review any estimate projections or forward looking statements.
I would also like to note that she entered using its investor relations website to publish important information about the company, including new information that may be deemed material for investors financial and other information about Scantron is routinely posted and is accessible on the company's investor Relations website at Www Dot <unk> Dot com.
Today on our call, we have Jeff Nugent, Centrus, Chairman and Chief Executive Officer hold.
Holden Gentris, Chief Financial Officer, Senior Vice President and Treasurer cut.
Oh goodness senior.
Senior Vice President of worldwide sales and Ron benefits, Centrus incoming president and Chief Executive Officer.
I'll now turn the call over to Jeff Jeff.
Thanks Ali and thank you all for joining us today.
She entry recorded exceptional results in the third quarter with net sales of 19.2 million.
This represented 54% sequential growth versus the prior quarter.
Most importantly, despite the challenges in the marketplace, our core breast products segment grew by 21% year over year to record the highest ever rest products net sales in the company's history.
On the breast products segment front.
Total breast products next sales and Q3 was $15.3 million, which is the highest quarterly breast products sales in our history as I said.
And this represents a 21% year over year growth.
And demonstrates the continued trends that we've been experiencing despite coated in an overall down is that its market.
Growth was driven in part by our first Joe implant shipments to the medical you and I are distributor in Japan.
Presenting another milestone for the company.
Excluding sales to Japan, U.S. growth for the breast products segment was 16% year over year.
Our exceptional third quarter performance was predominantly driven by the U.S. gel implants and increased market share again due to our strong value proposition and sales talent with.
With gel implant net sales up 33% year over year.
Exceeding our pre coated Q1 2020 growth of 30%.
The feedback we've received from our customers indicates that patient demand is exceeding expectations given market conditions and based on their experience. The actual recovery is hovering around approximately 75% of the pre covert like.
We believe the augmentation market is benefiting from pent up demand from Q2.
With patient interest remaining strong throughout the quarter.
In Q3, our expander sales were down 20% year over year and up 8% sequentially.
Expander performance was in line with expectations due to colder.
We believe the reconstruction market trailed behind augmentation in the quarter due to certain restrictions still in effect in the hospital environment.
Due to cold.
Diagnostic testing such as M arrives and mammograms have been reduced and certainly reconstruction procedures have also been delayed due to carpet.
Once this backlog clears, we expect the reconstruction market to come back very strong and build throughout Q4 and into 2021.
The value of our strategic decision to focus on our core breast products business was validated by our momentum exiting the third quarter.
We believe we are now in a position of strength as we continue to take share from our competitors.
Our share gains have been driven by the durability of demand for our opus brand breast implants and tissue Expanders.
And by our sales teams ability to partner with customers through our proprietary drives the recovery initiatives and to continue building momentum for Q2.
In the third quarter alone our plastic surgery consultants safely supported the needs of our customers in the field as a result.
Able to add approximately 100 new accounts.
We continue to see deeper penetration into our existing accounts supporting our belief that our market share gain is both increasing and sustainable.
As a reminder, we received PMDA approval in Japan, and August becoming one of only two breast implant brands to receive approval through the rigorous pdm a process a testament to the strong safety profile of our product lines.
We're excited to announce our under six of October.
First patient was implanted with an open plan in Japan and that as of today, we already see a procedure pipelines continue to build.
As marketing and promotional activities ramp up in Japan, we expect demand for she untrue.
Implants in particular and our share gains to accelerate.
Consistent with our objective to solidify she untrue as the leading provider of premium.
Differentiated breast products and services, we've continued to focus our resources and investments.
The breast segment.
We're confident that focusing and reallocating resources to that segment.
Allow us to most efficiently prioritize investments to best leverage that competitive advantage.
Specifically, we will start our <unk> direct resources and investments on enhancing and expanding our port folio, a premium breast products, while prioritizing high NPAC services toward.
Specifically the needs of physicians and their patients.
As we discussed in our Q2 earnings call. This includes a five 10-K for Joe size or is that we expect to have approved by the fourth quarter of this year.
A P M a supplement for larger sizes and a five 10-K for our next generation tissue Expanders.
We believe these enhancements are an example of our innovation pipeline and will add significantly to our portfolio and further support our expansion in our market position.
Turning to mirror dry.
<unk> third quarter, net sales of $3.9 million, which equates to a 60% year over year decline.
Reduction we saw in the mirror drive business was in line with expectations due to the coated effect as well as our intentional focus on higher margin bio tip sales and a de prioritization of your dry console sales.
During the third quarter, approximately 60% of mirror dry revenue came from outside of North America.
The Asia, representing approximately 30% of total revenue.
Biotic revenue represented 77% of revenue during the quarter and the remainder comprised of councils and service revenue.
Well, we've reduced our overall spending.
We continue to strategically invest in key sweat bothered markets that are less restricted by Cub foods, such as China, Taiwan, and Korea to drive utilization and bio type sales.
We're seeing a strong recovery following covered and an increase in utilization in all the trackable APEC markets compared to Q3 2019.
Even though market conditions have been more challenging in the us and Europe coming out of luck downs, our strategy shift with streamlined spending drove a modest increase in same account utilization in both the U.S. in Europe in Q3 year on year.
As we progress through the fourth quarter and look ahead into 2021, we.
We expect the breast products segments sales momentum to continue to build.
Our mirror Dri strategy unprofitable biotech sales is beginning to pay off.
With a corresponding decline in company cash burn.
Paul will provide further details.
We believe our investment strategy focused on our breast products franchise provides a line of sight to continued 30% plus annual growth for this business segment for the next several years with that I'll now turn it over to Paul Paul.
Thanks, Jeff.
As you heard in Jeff's remarks, we're very pleased with the sales momentum we are seeing with our brass products segment the.
The reduction we saw the mirror dry business was in line with expectations.
Given our refocus the business our recurring high margin biotech revenue.
And the impact of Corbett.
In the third quarter fiscal 2020 central achieved consolidated net sales of 19.2 million, a 40% year over year decline, which decrease was caused by a mere dry business segment.
Relative to our Q3 20 quarter spend cash burn from operating activities was 6.1 million.
This was the lowest operating burn in any quarter over the past 14 quarters. The steps we took in response to the cobot pandemic and in conjunction with our previously announced organizational efficiency initiatives is clearly paying off importantly. This is this puts us on a strong path to cash flow breakeven without impacting topline growth.
Net sales for the breast products segment totaled 15.3 million in the third quarter, a 21% increase compared to 12.6 million for the same period in 2019.
For the third quarter net sales Ramiro dry were 3.9 million or 60% decline year over year as the segment was impacted by our strategic decision to shift focus away from console sales as the business was impacted more significantly by coal, but relative to breast products.
Gross profit for the third quarter was 10.8 million or 56.3% of sales compared to gross profit of 12.7 million or 56.5% of sales for the same period in late 2018.
Excluding non cash impairment charges and restructuring charges operating expenses for the third quarter, 2020, or $25.2 million compared to $34.1 million for the same period in 2019.
This represents an 8.9 million or 26% reduction in operating costs year over year expenses in the current quarter were impacted by bad debt provisions associated with the mere dry business.
Similar to the second quarter, we were able to successfully reduced operating expenses, while ensuring that our revenue generating operations were not impacted and we continue to invest in critical brush and breast initiatives in line with our go forward business and cash preservation strategies.
Net loss for the third quarter, 2020 was 5.8 million or a net loss of 12 cents per share compared to a net loss of $22.4 million or net loss of 45 cents per share for the same period in 2019 net loss for the third quarter of 2020 includes a 10.1 million non cash gain in fair.
About your derivative liability related to the convertible debt, we announced in quarter one of this year.
On a non-GAAP basis, the company reported an adjusted EBITDA loss of $11.4 million for the third quarter compared to an adjusted EBITDA loss of 17.3 million.
For the third quarter 2019.
Turning to our balance sheet, we ended the quarter with 53.5 million of cash and cash equivalents compared to 71.8 million at the end of June Thirtyth 2020.
Given our performance to date and our visibility into the fourth quarter. We are reinstating guidance for 2020 and expect total net sales in the range of 63 million to $66 million compared to sales of 83.7 million in 2019.
The company is lowering its 2020 annual operating expense forecast to approximately 104 million to 106 million, excluding impairment and restructuring charges compared to 140 million in 2019.
I will now turn the call back over to Jeff for his concluding remarks, Jeff.
Thanks, Paul.
I'd like to address the second announcement that we made today is my retirement.
At a time of important transformation foresee entre with a firm foundation in place strong momentum behind us and an increased focus on our core breast products.
<unk> directors and I have decided that this is the ideal time to pass the leadership role to run as the new CEO to lead see entre into new chapter of continuous high growth.
Over the past few years, we've built an exceptional foundation to expand and solidify our position as the premier provider premier provider of differentiated breast products and services, which I'm extremely proud and thankful for the entire she and her team.
As demonstrated by our third quarter performance and breast or future continues to be very bright and our aspirations are strong.
To lead see enter into this new chapter of growth range that perfect leader to take the company forward.
As described in our press release Renesas season, driven commercial leader with deep statics category expertise and a strong record of driving results. He.
He brings broad and deep expertise, leading sales marketing and operations teams.
He was most recently the president and general manager for Elmer all in the United States for Dermatology, where he led exceptional growth and profitability improvements over the past three years.
In addition to his earlier responsibility he held vice president roles for both sales and marketing with an alligator as an integral part of his deep understanding of the aesthetics category.
Prior to this Ron held key leadership positions at Abbott Stellus formal Pfizer and Eli Lilly.
Finally, I want to once again, thank all of our employees customers and stakeholders all around the world for your support.
I'd like to reemphasize, our confidence in sierras ability to move into 2021 from a position of strength.
We believe that our premium portfolio will allow the company to build on its accelerating market position and further our ability to adapt and overcome as we always have.
Well I will remain it's yet to go through the end of the year in an advisory role I have full confidence in ron's ability to lead see entre into this next growth phase with that I'll turn the call over to Ron for a brief introduction before we move into Q and Ron Thanks, Jeff for the kind words and good afternoon to all of you.
This is definitely an exciting time to join Tetra on the heels of the best quarter ever for our breast business.
I am ready to dive in to help the company to keep the current momentum going.
I do look forward to work with Seattle leadership team to continue to prove one our market position to enhance a partnership of plastic surgeons and three established ultra as the leading provider of premium breast products and services and again. Thank you, Jeff good leadership and for the kind words.
Thanks, Ryan with that let's open the line to questions and answers operator.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound sales.
Once again to ask a question. Please press star and then one now.
And our first question comes from Margaret Taser from William Blair. Your line is open.
Hi, good afternoon, everyone. Thanks for taking the question.
Hey, my the first one.
For me on the third quarter, obviously things are going very very strongly that you guys came out with full year guidance with an implied fourth quarter that may be simple hook conservative versus that strong third quarter. So.
Yeah, maybe can you give us more clarity around where breast ameritrust should end up for the fourth quarter and.
If you're seeing anything so far in the quarter that would make you feel more conservative about.
About results.
Thanks, Margaret I'll take that.
So I think you know in the script, we spoke about the strength we saw in quarter three primarily around augmentation. There was pent up demand and we saw that strength continued through quarter three and into quarter four we're not seeing a slowdown.
But I would just you know our hesitation would be on the recon market right. We've not seen that come back like AWG has so were just our forecast is reflective of some.
You know just what we're seeing in the business Rick on recon, but in no way does that imply that the strength of August not maintained.
Dr that we saw in the quarter three it really picked up in July coming up in June and it was very consistent for the entire quarter.
Okay.
That's helpful and then.
We look at 2021, Paul the estimates are pretty broad.
I know, there's a lot of uncertainty on your you guys aren't providing guidance for 21, but maybe talk to how comfortable you are with these estimates and if.
If you will or won't do that now I guess, what puts you on a 30% growth for breast meat you referenced an opening remarks over the next few years. So should we look at 2020 as a baseline for that 30% growth for breast.
Or should it be higher just given kind of lower reconnaissance.
Yes, they get it all depends on when the market comes back we expect the Mark both markets. Both all going to be kind of come back next year I think everybody in the space is trying to figure out will that come back completely and 21 or what take up you will take 24 months.
We're confident growth rates, what you know we project over 30% we.
We will the market will grow next year in our per our assumptions, we will participate in that growth and will continue to add share at the same time. So at this point I'm not going to talk to the numbers next year other than to say as I believe from market growth to continue to market gains we're going to we're going to participate in both segments of that growth next year.
Nothing showing us right now that that's not going to occur next year.
We're excited with what we saw this quarter looks like we saw in the first quarter of this year and.
Yes again.
It was a great. It's a great quarter for the company given everything I think the industry has been facing.
Yes.
No. That's that's helpful. And then just the last one for Ron Congrats on the new spot I look forward to working with you.
You know as we look out and as you look out what's your familiarity with the Entre how close are you with business. Prior and then as you look out over your strategy over the next two to three years. So what are the immediate changes you want to make if any or is it just more about kind of pushing the continued strategy to Jonathan Ross. The team have already started to play out. Thanks.
Yes, Margaret Thanks.
First of all.
Very excited to be on board et cetera. If you look at my experience has been mostly.
First let's get Medicare perspective, direct sales to physicians.
When I was at Allergan. So obviously breast is a new adventure for me and my goal in the short term is continued this current strategy that Jeff and Paul has set for the company and office sales. The Die then you're going to hear more beginning of the year. Our next time would be done at the beginning of 2021. So.
All right. Thanks, a lot guys.
Congrats thank you Margaret Thank you.
Thank you.
Next question comes from Jon Block from Stifel. Your line is open.
Thanks, guys good afternoon.
Nice quarter.
I think look we identified some some gains in share in our checks, but it really looks like the curve is steeper.
We you know I'm guessing others anticipated, Joe and Jeff or Paul can you just talk to the rate of market share gains and if you feel like there are more pronounced.
In one area versus the other and obviously I'm alluding to just augmentation versus that a recon and then sort of as a follow up to that same line of questioning pulled off the market in both its just harder to come by.
Yes acquisition of our game, but any idea what you think the breast market may have grown overall in the third quarter year over year, and then I've just got a follow up.
John The first part of the question is certainly the augmentation.
Partial segment is whats, leading this growth right now and as Paul indicated.
There is a delayed recovery on the ICSC recon reconstruction side, so that's clearly a.
An exciting development that we're we're frankly enjoy.
Enjoying right now and it gets back to the advantages we have good I think the underlying message here is that reconstruction is coming back. We know that these are procedures that have been delayed for very real reasons, and we expect that to begin to pick up in the fourth quarter, but I think we're going to see the fee.
The Fuller extent of that beginning in 2021.
I think I'll add a few more elements we look.
Three things, we're trying to gain market share on this business one is adding new accounts, which is pretty easy to measure and we also look for calcitriol lose any.
We also look at it.
The accounts and Kirks team has also not just trying to drive same store sales one account might have three doctors, maybe we have one doctor last year. This year too as we look at same store accounts and calm theres looks more to us they can be very large accounts, we look at the growth and those we also look at the growth on Expanders with implants of the hospitals, obviously want to we want implants the faulty expanders.
We look at all three to gauge how we're doing and from that I'm not going at all at this point breakout.
New customer growth versus existing customer growth, but its healthy on both fronts and we're getting on both sides just to be honest with you I see on the hospital as you know the contract in quarter two.
That's that's a longer process to get into what we have the hunting license last quarter and we're going after it.
I'd say implant so even on the reconstruction that okay. This quarter.
You are seeing more.
Back to implant procedures or states you procedures are occurring we're staged ones were not so it was very interesting we across the board.
Every state was off on implants, the ones that were down were very minor and it was like Wisconsin, Arizona, where you might have at a research the cobot even their decline was very mild we're very immaterial across the board. All states were looking good we had a great a new customers that we agreed on existing customers if that helps.
It does and maybe just to clarify the Jeff just to be clear maybe I didn't ask the question right. You guys were very clear on which market was performing better I guess my question was more specific to share and where I'm going with that is obviously you have a lower amount of sharing a recall on versus off so one would think that the curve.
Would be steeper in recon, especially with some of the recent contract wins and investments at the hospitals, but it seems like what you're saying is at least for the time being the share gains again that the market, but the share gains you're actually steeper at all versus recall is that correct.
That is correct.
And the other part of that is too John that we have discussed before is that when you talk about reconstruction, it's not just the tissue expander piece of that but as the tissue expander and the corresponding implants. It goes along with it and we've been making steady progress on expanding that expander entre.
Enter the reconstruction sites with additional implant sales, so thats really the way looking at us okay.
Second quick question I'll point can you just talk about sort of the you know the gross margins and expense structure I guess twofold. There gross margins how do we think about it with the favorable mix shift with the focus on the tips going into 2021, and then on the Opex side, you know good expense management and you lowered the target for the year do we sort of extrapolate that fourth quarter.
The run rate out into 2021 on Opex. Thanks, guys.
Couple so margin here as we always give me a combination of.
Mira dry in the breast business and even within a breast business it'll be a combination of expanders augmentation of reconstruction. So I think last quarter I said the range would be about 56 to 60 for the year and Thats why Im just sticking with the follow.
Following year again, our margin will tick up over the coming years quite dramatically once we.
We talked about the efficiencies our manufacturing facility as we get better at that process, our margins will improve but what you saw this quarter, maybe slightly better next quarter, but pretty much in line with our expectations.
Okay. Thanks, guys.
Thank you John Thanks.
Thank you. Our next question comes from Kyle Rose from Canaccord. Your line is open.
Hi, this is ian onto Kyle Thanks for taking the question.
You talked about Japan, a bit with the first patient in early October I was hoping to get a bit more detail there.
How is the first not in that country gone are you seeing the numbers you expected and then how big can Japan being 2021. Thank you.
Yes, that's right aware. Thanks for the question we are using a distributor there. So there were selling to the product and they are running as sales and marketing of that.
Initial order this quarter was initial stocking order, although the demand we're seeing there.
On the business, there's a lot of the stuff has been named Dr. patient if theres where are the only one of other only one of two approved.
Russ products in the country. So the feedback we're getting from our distributor is the demand and interest are very high in this market. They are anticipating a new entrants in the market as the hybrid heavily texture shape market of which there really are no choices right now.
Well tough competitors actually being on the market. So we're just hearing is that a man enthusiasm are high and that has us as it builds over the coming months, it's probably a $15 million market. All then I've said is about 7000 reconstructive surgery is 3000 augmentation procedures there its the market is predominantly not.
Breast implants, they're bought injections.
Hey, Jason Fat injection, so but in terms of that market, where we think we think we're going take a meaningful share of that over the coming years with our partner.
Perfect.
And then I know, it's early days for the HPG contract last quarter. I think you estimate you had less than 5% share in those accounts.
Not meaningfully tick up at all here I know, it's I know, it's still early innings, but.
But there was there any low hanging fruit with a certain number of those hospitals wanting to use your products that typically needing to wait until that contract to sign.
Yes. Thank you, let's let Kirk do that yes.
Lets says Kirk who is on the line to answer that Curt can you address that please.
The HPG contract.
Stably.
Last quarter. It takes about three to four months before you start to really break in and get a champion doctor get everything aligned signatures daunted by each of the different.
Owners of that so for example, they have an Hs a group that's.
Thats about 100 networks Hospital network of 100, we just signed some paper work with them. So that we can get further into there.
Into their specific hospitals, there's trinity, which as 30 to 40 locations. It's a network in of itself and so we just established a relationship with them is dying to get it documentation. So the first initial signature with to get into HP HPG, but now you have to break into their individual units and some of them.
Of the networks are rather large and some are rather small we ever been able to do this quarter been able to get to their top 10 networks, which now allows us to really go hunt individually with each of the different offices. What does that mean is right now we have gained.
No.
Sure.
Market share I think it's gone up from 5%, it's around 889 per se, but what is allowed us to do it now we believe with Q1 and Q2, we're in a really good spot to see growth because now we are developing those relationships and we'll see those orders come in both Florida, Expanders as well as our implants over the next six.
Yes.
Perfect. Thank you.
Thank you.
Thank you and our next question comes from Chris Cooley from Stephens. Your line is open.
Hey, Chris and thanks for taking the collectible, let's take your questions and first and foremost Jeff Congratulations on all your achievements here and stuff.
Rushes into their retirement, we look forward to listen to you as well Ron.
I guess for me.
We could maybe just kind of come back to the U.S. market a little bit again.
I appreciate that all gets driving the growth right now relative to.
Recon for you could you maybe just talk to us a little bit about.
Maybe variance as you saw by practices, which types of practices or.
Really rebounding the fastest and helping you gain share here in the U.S. studies.
Incremental practices coming on board I think you mentioned you added 100 that are higher volume or is it existing high volume customers going deeper just would like little bit additional color there and similarly, where do you think the U.S. market exits account.
The calendar year, I mean, you mentioned, 75% coming out of a pretty cool that levels exiting the threeq you.
What kind of the baseline should we think about it as like a jumping off point going into calendar 2021, I've got a quick follow up thank you.
Chris I'm going to let Kirk address that also.
We are very close to.
Very deep level in the account structure, but Kirk can you add some context to that please.
So we have aligned our structured that we have.
Tier one tier two tier three tier four and it basically is that it's a percent of business and what we own. So tier one is our highest producing accounts.
In that particular area were up 15, 20% it's just.
Really our loyal.
Use it year after year after year and now that we've got a manufacturing plant that we own and we can build.
Build our own products, we're able to get and fulfill their needs immediately where it starts to get really interesting is in their tier four and that is that number or how we develop that is anybody who's done business with us for the last year less than $10000 and there's about 407 accounts that live in that.
Category. This is one that we are positioning our sales force to go deeper into and so we use the drive recovery initiatives that we established in Q2 to allow our sales force to go in and really build a stronger.
Relationship with the doctors and their staff and gain more market share and so we're seeing some tremendous growth coming from that category and then you added the big category as well as the new accounts. So the 100 new accounts that were adding these are these are not just small accounts. These are very large accounts that are moving 80% of their business to us.
And yet there is some of these large accounts that are maybe moving 10% of the business and we've got to prove ourselves to get more so those are where our growth engines are coming from.
I appreciate that color.
Your question. Thank you.
Your other question.
Just if I could squeeze one quick one in here on the on a follow up just was curious.
[music].
Paul you did a great job there from an Opex management standpoint.
And I just want to make sure I understood. It correctly, you think that.
Prior guidance in terms of where where do you go there for the full year holds but it sounds like with little bit more lift in the breast business you could see a little bit better margin. Just just curious if you think there's opportunity there for additional savings or do you need to basically take some of that additional margin lift it looks.
Like we'd be getting here is we're exiting the year and invest that back just to support the growth just want to make sure I'm thinking like a question to answer.
Yeah.
Well, that's a good operating costs and margin. So I did give some flavor on we lowered our.
Forecast for expenses is a good thing so we lowered that 90% of the cost reductions to date have been either mirror dryer gionee. So these are sustainable.
Reduction.
Actually if you look in quarter, 300% of the reduction has against Mira dry and Gionee, which means we actually invest a little more into breast already. So we have we have already shifted spend to breast. This year, even when you see these all of these lower costs baseline in terms of margins I was saying 56 to 60 for the remainder of the year.
As we get into next year and thereafter.
The acquisition of vastly which is the best thing that this company has done to give us.
Yes, it will control our destiny is that our margins will move up as we improve the efficiencies that facility as we improve the throughput of that facility. So that margin as more of a 12 to 24 months.
Game Thats been consistent what I've been saying now twice since we purchased at last November.
Thank you.
Thank you.
Thank you.
Our next question comes from Richard Newitter from as the Leerink. Your line is open.
Hi, Thanks for taking the questions I wanted to just go back to the guidance I think someone earlier on in the Q had had mentioned that it looked a touch conservative.
And I want to reconcile just what the messaging is for fourth quarter here.
Sounds like you're saying augmentation momentum.
No signs of that slowing so I guess and and that the recon business isn't getting worse and should only improve as we move forward is what your expectation is what would be the reason for retracement, if you're gaining share is there something.
As a baseline assumption in the underlying market that you're assuming to be conservative that have pulled back or or just help me understand why it looks like.
It might be taking a step back it seems like the underlying drivers or should be getting better continuing from third quarter.
Thanks, Tom Good question first as you know I'm not.
Japan stock Youre in quarter, three so you've got to back that element out for one second as were confident up to give guidance on the total business.
We're not seeing a slowdown augmentation, but.
But we are.
Biomet of Cole head, where there's still a lot of unknowns out there.
Hospital groups still have to open up to have not if you look our top three markets, California, Texas, New York, They were down on Expanders and there might have been implant growth ever for augmentation for recon, but it wasn't the same level of the augmentation channel. So I would just sales were confident to give guidance, but nothing is does not imply that we're not in any way.
Confident of our numbers for the rest of the year I think it's just in this environment right now where we are we want to be.
I want to be reasonable.
Alright, so Paul if I'm hearing you.
Correct.
You picked up any any trends thus far it's October to.
It suggests a reverse reversal here, it's just there's no change to us yes.
There was no change in October versus the trend lines before no okay, great. So.
It's consistent.
Great one follow up I just.
You had mentioned cash flow breakeven.
And that you feel good about this I'm just curious what's the timeline out there for when that might be achieved and do you think this cash burn level or or basically better from here at home about to get there. Thanks.
So we're going to get quarter to quarter change I mean, it was very low this quarter.
Coming off quarter too.
We expect this business to be cash flow breakeven by the second half of 2022.
Thank you.
Thank you. Thank you.
Our next question comes from Anthony Vendetti from Maxim Group. Your line is open.
Thank you.
Welcome aboard Ron and thanks, Thanks for all your hard work, Jeff appreciate everything.
Thank you.
Just a follow up so so.
Some in the breadth.
Implants business has continued.
Almost half.
For the fourth quarter here.
Just want to confirm that and.
Infection rates keep rising in the number of Keith keep rising.
I have a plan in place.
Okay.
No.
Account for that.
The submission.
Go back to.
Moving to our or what.
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Infection rates pick up here.
Yeah, I heard that was breaking up a little bit I mean, we have we plan for multiple scenarios on this case, how the business is going to continue to grow. We also continues in place in case it were to change, but right now we have no plans our reps have been in the field since may really April we have no change in that Weve remote when you need to Virtu, we when you when you have to.
Otherwise.
Our plans have multiple contingencies based on what the market's doing and weekend very flexible and how we can.
If you're talking about spend how we can ebb and flow spend depending on we've seen the man, but again were.
Our reps already adjusting to a virtual market they kick in the hospitals it doesn't stop them. They can still get on that through first of all they can't do consultation they'll do a virtual so really is they've already adapted to this environment and our I would say our cost structure. The way we've been working at the rest of this year, we have contingencies in place if we have to adjust for them or.
If we have to even increase the spend if we wanted to but I thought you were breaking up a bit I couldn't hear everything at the end I apologize.
Okay No that's all.
Ill.
Paul Paul that answered most of the questions just.
So in terms of your sales reps.
Are you are you all set with where you are whereas business picking up are you starting to add a few more sales reps as we move into the end of the year.
We have a very.
Experienced successful team on the commercial side and we are constantly looking at opportunities.
To bring in additional.
Experienced people to continue to drive this growth that we've been seeing and.
While we are not in a position to give guidance beyond the quarter.
We have confidence and we have very significant objectives that we're trying to achieve long winded way of answer. Your question of course, we are looking at selective additions as we go forward.
Always watch recent frequency and we'll invest what we need to and Kirk is.
It does mean that group sales at the beginning of this year is about a whole different perspectives that business. So.
Yes.
We will invest the breast business as we see fit but it will be any.
Marginal ROI, where it makes sense as well correct. So it's it's very predictable what we do when we are when it we had a territory.
Okay and then just one question on the Americas business I know.
77% of the revenues this quarter for the buyer.
Just as you.
As you move through the rest of this year and into next year.
You're going to be.
An emphasis on getting back to the capital equipment.
I know.
Is there going to be an emphasis on tried to restart.
Selling to new customers in that business or not at this time.
You know at this point.
The decision we made to focus on the bile tips given the market on capital equipment concentrating on a higher margin bile tips in a in a I guess cost effective manner is our strategy right now we'll watch it we think thats the best way to still create value for this franchise and to still drive the 1600, I guess and drive success the 1600 placements.
We have out there so right now this is our strategy.
Okay, Great I'll hop back into queue. Thanks.
Exactly thank you.
Thank you.
And our next question comes from Alex Nowak from Craig Hallum Capital. Your line is open.
Great. Good afternoon, everyone jumping between a few calls here for first of all Jeff I. Appreciate all the effort here last five years Rod very nice to meet you do.
Do you think getting the benefit in the quarter came from backlogs of orders are prestigious getting pushed from Q2 to Q3 here or do you think the volume in the quarter was pretty representative of the underlying demand in the market.
Well ill, let Kirk add to that but I think overall there is no question that there was there was an effect of pent up demand.
Good.
Certainly at the beginning of the second quarter.
Certainly trailed off that interest level, but we see it picking up significantly and I think part of it that we don't often talk about is the effectiveness of the plastic surgeon community.
They are extremely.
Effective and.
Talented business leaders in their own practices. So it's a combination and it's a true partnership, but Curt would you like to add something to that.
So I do think the initiatives we started in Q2, which drives the recovery has played a key part in answering.
Answering your answer is both we're seeing it in both.
The other thing that.
We're starting to see it you off that we treat we brought in in Q1 are starting to really use more debt.
Starting to get more and more of their surgeries.
800 that we just started in Q.
In Q3, we believe that those will also start to show itself in Q4. So there is a multiple sets of momentum that that's starting to really show itself. When we when we see that new accounts coming in and that the dry the recovery initiatives that were launching in a lot of our existing practices that we have relationships it.
Now that's really helpful and I guess that kind of ties into my second question is CNG has been getting a really good foothold on these plastic surgeons with breast implants, but clearly you've done a good job with attack on product like the Alex two and generated some good incremental sales. There. So this actually might be a better bigger picture question for profit are you thinking about adding.
Telecom products here to breast implants, such as cellular matrix or a void filler sort of solution or anything else that might make sense to add to the bag.
Yes, and I think we're we've mentioned a couple of our of.
The results of our.
Innovation program and that.
These have been in the works for some time and what are the things that you have to consider.
Typically in these categories is the regulatory process that's involved in getting those cleared but yes, we are looking at.
Jason sees to.
To add to the portfolio beyond the existing products. So we.
We have a couple that were we did include in the script that we're very confident about but theres more that we're always looking at.
Okay. That's great. Thank you.
Thank you. Thank you.
Thank you and I'm showing no further questions from our phone line I would like to turn the conference back over to Jeff made him for any closing remarks.
Thank you very much operator.
I can only say that.
This past five plus years has been one of the most challenging and rewarding in my career.
And I can't say enough for all the support and.
The.
Commitment and real experience from the team currency Entre and there's no question that we have.
Come a long way in being able to adapt and overcome whatever challenge we faced so.
With that I am very confident that the company is in very good hands with the run coming in and I expect this momentum to continue.
But with that we appreciate all your support and we're going to continue to be as transparent with you as we possibly can be so thank you all very much have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.
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