Q3 2022 Sientra Inc Earnings Call
Okay.
[music].
Thank you for joining today's call. Please standby, we will delay and begin shortly we appreciate your patience. Once again, we thank you for joining please standby we will begin momentarily.
[music].
Welcome to the Suntrust Earnings Conference call. My name is Hilda and I will be your operator for today.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press the robot on you touched on the phone.
As a reminder, this conference is being recorded.
I will now turn the call over to Mr. Oliver Bennett, Mr. Bennett you may begin.
Good afternoon, and welcome to the <unk> third quarter 2022 earnings conference call on our call today, we have Rami <unk>.
President and Chief Executive Officer, Andy Schmidt.
Chief Financial Officer Lisa.
<unk> senior Vice President of sales and marketing and Dr. Denise Stiles Senior Vice President R&D and regulatory.
We are excited that you could join us today.
Yet another record breaking quarter and provide a vision of why do you believe that truck is tradition to continue market, beating growth into 2023 and beyond.
As reported earlier today.
Q3 revenues of $22 six.
It is not only a record quarter, representing 15% year over year growth, but also of course on at the highest quarterly revenue performance for the company.
We are extremely proud of this achievement as it comes not only from the seasonally lowest quarter of the year, but also at a time when our competitors have reported declines in the United States breast aesthetic differences.
But only due to report record revenues for the third quarter of 2022, but we also reported a record low free cash outflow of $3 6 billion for the quarter.
Andrew will detail later in our call. Our continued focus on bottom line discipline is paying results without compromising topline revenue growth.
I have to remind everyone. Our remarks today, we will be including forward looking statements. Both in our prepared remarks and responses to any questions you may ask.
These forward looking statements are based on management's current assumptions and expectations of future events and trends.
Our 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 projection or forward looking statements.
For more detailed discussion of the company's risks and uncertainties I would refer you to our SEC filings, including our Form 10-K and Form 10-Q available on the company's website.
I would now like to ask Ron to provide you with some comments on the quarter and where he sees the company heading into 2022 or beyond.
Okay.
Oliver sets the stage perfectly even the slowest quarter in spite of microeconomic headwinds.
Reporting one of the best quarters ever.
These results validate our strategy demonstrates the strong demand for <unk> industry, leading products are backed by a licensed safety profile.
These are programs.
Our strategy is focused on driving top and bottom line.
See ample market opportunity in bulk augmentation and a re.
Construction.
And augmentation.
<unk> outperformed the market.
The average of our top tier surgeons.
Interest revenue hurdle.
By 7% this quarter versus Q3 2021.
In addition, we added 130 new accounts during the same timeframe.
Now looking at the construction.
We have seen accelerated market penetration now.
Top tier hospital accounts.
Goodbye above 10%.
This quarter compared to third quarter 2021.
We also added 160, new accounts this past quarter.
Sure Jim.
We continue to see the bulk of this past quarter since the fourth quarter.
We're now preparing to launch our novel enhanced viability fat transfer product in January .
You'll hear more from how we're getting ready to launch this product from Lisa and from disease.
You answered benefits from a deep infrastructure in U S market, which would have worked on for almost a decade.
This positions us well to grow our current business.
Produce new lines of products without excessive funding requirements.
Our vascular to take a few minutes to highlight how we continue to grow and take market share away from our competitors.
Mutation and reconstruction.
We continue to grow the CN store brand.
Increased our penetration in both augmentation and reconstruction.
When we have considerable upside in both segments.
We also measure market dynamics to involve our strategies based on macro economic and other conditions.
The reconstruction segment remained strong and stable.
This has enabled us to continue the strategy set in place earlier this year the.
Augmentation category.
Moving to be resilient over time and we.
Recently validated that by serving a group of potential patients.
Learning that demand remains strong.
With 90% of them planning to continue forward with surgery in the next 12 months.
We also know that we can outperform the market Viking.
By continuing to expand our footprint of attack.
We have strong anecdotal evidence that affirms we are disrupting the traditional decision making process among both patients and surgeons.
We continue to grow our global presence she will buy our safety profile and the strength of our portfolio.
We received approval for our breast implants in Saudi Arabia.
And we also received approval from health, Canada for our newest implant the low profile.
From the beginning.
<unk> has been selective in bringing innovative technology with meaningful advantages.
Backed by long term proven safety data.
Which is crucial for patients.
And regulatory bodies.
The interest long term solid clinical data.
As well as differentiated portfolio.
Has kept us in a position of strength.
Increasing our market share as well as expediting global approvals.
Our entire team is driven by a sheer dedication should make the surgical journey better for women in all of our patients.
And believes that providing products with an unrivaled safety profile and putting them in the best hands, which is that of the board certified plastic surgeon, we are truly doing something unique in our space.
I'm very confident that we will continue the high growth trend, while realizing efficiencies.
So we recognizing the commercial team's success.
Linked to the overarching corporate goals of both growth and profitability.
Dr <unk> style.
Last year, how we are preparing to commercialize our game changing gas transfer technology.
Which will be unveiled next month.
<unk> Science Conference in New York City.
With the launch of our novel that transfer system, we will become a much more diversified company.
The lineup of products for breast surgery and other body areas.
Enabling us to be the leader in total body transformation.
This will expand our Tam by at least 25% and offered surgeons unique benefits to address unmet needs in the state and obtain safe natural predictable and reliable outcome.
I am very happy to share the Bcf, we've made significant progress that transfer clinical study.
We don't break 10 sites actively enrolling patients.
Ah patients reached the six month follow up Marc searches are impressed with it if somebody high retention with.
With our enhanced liability that transfer.
We have also been performing cases in other areas beyond the grid.
Surgeons using our system April got transfer and even for treating brain.
Our early experience with validated the ctrip to acquire origin, we strategically invest over time to improve system functionality.
The clinical data so value category.
We are confident that this product will be well received in the market.
Now I'll turn it over to Andy to discuss the financial outlook.
Highlighting the initial successes this quarter.
Our record revenue.
Of $22 6 million.
Strong performance from all sectors reconstruction augmentation and international.
Another key financial highlight was our non-GAAP EBITDA.
Free cash flow performance.
non-GAAP EBIT for Q3, 2002 was $8 $6 million rock our lowest this year.
More impressive was our free cash flow performance.
Our Q3, 'twenty two free cash flow of $3 6 million.
That is a record low cash burden the company.
Diving in Florida.
The current periods by $2 6 million compared to $19 6 million in Q2 'twenty one.
Increase of 15%.
Year to date <unk> growth of $65 five.
Compares to $58 million for 2021 increase of 13%.
The gross margin for Q3, 2002 was 56, 6%, which compares favorably to 54% for the same period last year.
The key driver for gross margin product and channel.
Q3, 22 gross margins benefited from it.
Sure.
Reconstruction business.
Which was balanced, but lower margin augmentation and international sectors.
Total GAAP operating expenses for Q3, 2002 was $25 3 billion, which compares to $22 3 million in Q3.
non-GAAP.
Operating expenses for Q3 2006 was 21 seven.
Compared to $19 2 million for Q3 'twenty.
The increase includes the investment in sales and marketing and R&D initiatives to support the imminent launch.
Transfer products.
Our current period.
Operating expenses of 27.
Continues our favorable expense trend this year.
Comparing that to $42 3 million in Q2, 'twenty two and.
And $24 eight in Q1 'twenty two.
Our current non-GAAP expense run rate at $8 million annualized is a low 90, 94 non-GAAP operating expense guidance.
Looking forward to 2003, we expect to see continued improvement.
non-GAAP operating expense performance as we realize efficiencies leverage our infrastructure.
Year to date 22 GAAP positive.
<unk>.
$64 6 million.
Year to date 22, non-GAAP operating expenses $68 eight.
I'm curious to 54.
For 'twenty, one and again partially.
The current year and bust, but.
Yeah.
GAAP loss from continuing operations for Q3 dollars 20 to $14 nine.
As compared to a profit of 25.
Previous year period.
The previous year period include Barco metric and adjustments, including the fair value of derivative liability adjustment a positive 35 6 million.
We're trying to keep balance sheet.
Our big news of the events that occurred.
Our September 32022 tribute here and there.
As documented in our 10.
Q subsequent events section.
In October we took several initiatives to shore up our balance sheet.
As previously disclosed we entered into a new debt facility with Deerfield that achieved several important goals.
One extending the maturity date corporate debt to 2026 and beyond.
Sure.
Our overall interest expense.
Lowering our total debt 70 treatment.
We also completed a secondary equity offering which resulted in approximately $14 million of additional cash.
We believe this.
Provide us with sufficient balance sheet strength and flexibility.
Executing under groups, including the commercial launch.
The technology early next year.
Q3 has been at Disney.
Good quarter.
Our record Q3 financial results.
The imminent launch.
Transfer product.
And our store our balance sheet, our inflection point.
Maybe it's for a great Q4 2002.
Homestar into 2023.
This point I'll turn the call back to John .
Thank you we will now begin the question and answer session if.
If you have a question. Please press star one on your Touchtone phone.
If you wish to be removed from the queue. Please press zero too.
If you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press <unk> one on your Touchtone phone.
And we have a question from Alex Nowak. Please go ahead.
Great. Good afternoon, everyone I was hoping to start actually on the financials. There just to your last point Andy around this year and then slingshot in the next year I. Just wanted to confirm are you reiterating the guidance that was given a couple of weeks back of $90 million to $95 million for the full year 2022, and then just how are you thinking about growth in the next year.
Obviously, you've got more focus on the recon side, you've got the fat grafting solutions launching how are you thinking about next year.
Sure. So thanks for the question.
Yes, we're not changing our guidance that we had previously were confident in that guidance.
We're also in terms of our expense guidance, we are we.
We had $90 million to $93 million were coming in at the lower end of that guidance range.
From continued.
Very good cost performance to this year, we expect good continued cost performance into Q4 and certainly into 2023, we're looking at lower annual numbers, we don't have guidance out yet but were very bullish in terms of our ability to.
Continue with the efficiencies that we reached so far.
In terms of market and whatnot and what we expect to see in 2023.
Obviously financially from my perspective.
<unk> is going to be a very big contributor.
It makes his prepared remarks.
She had mentioned that we're going to have to reveal the essentially now a number of weeks. So it's right on top of this very exciting time for us and we expect to be shipping in Q1, So that's going to be a big plus and then in terms of other market activities had better experts here on the phone to answer those questions, but from a modeling perspective.
Recon is going to continue to build we keep adding accounts and that's account that's like a waterfall, we keep adding adding in those accounts keep building, they're multiple year contracts.
Yes.
Okay. That's extremely helpful and then.
Maybe a multipart here just.
What is your take on the FDA AD com around tissue Expanders, just what's the thought process coming out of that meeting for what it means for the existing tissue expander out there, but also the pipeline Allo X two pro and then second is the clinical trial expected to readout for the fat grafting solutions Readouts at this.
Conference next month or does that come out sometime next year.
Yes, Thanks, Alex I'll have Dennis.
To answer those questions she had some regulatory things Denise.
Yes, Thank you, Ron and Hi, Alex with regards to the tissue Expanders.
After the panel now it's a period of public consultation FDA still has to make a decision then give that ruling regards class two or class three classification. We at this moment do not foresee any impacts on products currently marketed.
And even if a class III calcification that you selected.
Current products on the market would have the opportunity to submit a PMA, which of course, we will be ready to do and with regards to Troy. It's still under active review with the FDA and we continue to have active conversations with them through their review process and again no ruling has been made from the FDA.
With regards to the.
Scott transfer clinical study during the Bts conference in December we will have some other investigators from our study give their perspective, we expect to release first results. When we launched the product early next year.
That's great I appreciate the update thank you.
Thank you. Our next question comes from Kyle Rose. Please go ahead.
Hi, This is Kate on for Kyle just a couple of questions.
On a D.
That technology can you just elaborate more on the conversations you mentioned last quarter that you had with <unk> about the product.
Yeah.
We are already approaching some of the GPO with that.
As a part of the bidding process of bundling process with discussions some of them already it's too early to tell about timeline of when it'll be attitude or GPS.
Got it and then.
Just on <unk>, you mentioned on the Q2 call that it was down about 7% in the quarter did that we just kind of continue into the Q3 I know you noted kind of a drop in activity in your middle of the road accounts last quarter.
Well Youre kind of Andy counts were continually strong are you kind of seen the similar dynamics.
Q3 and into Q4.
So let me just give a little bit of color on the augmentation market and then how we're performing against that.
So in terms of the augmentation market there has been a slowdown but we have shown that we consistently outgrow the market and it's really a function as those are superior product profile and our innovative programs and so the Q3 odd revenue first signature grew double double digits in fact, 16% versus.
Last year, which is significantly better than the market.
Which is still below traditional levels, but no matter what the market does we have and we continue to grow.
And what we've seen is over the last three years about a tripling in our market share. We know that this is a durable market ebbs and flows but being an important part of our business we.
We do measure account performance and our top group of perform group.
A group of doctors, which Ron mentioned earlier.
Can you be busy and performed at a very high level.
Got it and then just just a quick one any market.
Market share data you could share in terms of auger recon that'd be great.
Yes, so our market share is still performing very well.
We would anticipate looking at progress through Q3 and through the end of the year is augmentation to continue growing.
Ending the year in the mid teens with reconstruction in the high teens.
Awesome. Thanks, so much.
Thank you. Our next question comes from Anthony Vendetti. Please go ahead.
Hi, This is Jeremy on the line for Anthony Thanks for taking my question just firstly on the just overall accounts I know you added about 290. This quarter does what does that bring your total number of accounts to between Oregon and recon.
Yes, we're a little over 3000 now.
Store counts.
About 60% August 40% in <unk>.
So thats a little you said a little over 3000.
Yes, that's correct.
So just I mean, I know I think that was the same approximately the same amount you had at the end of last quarter. So just so can we assume that what do you do you have any statistics on the attrition rate in those accounts that are leaving maybe some a little more information why do you think they are leaving.
We.
Southern Cal sleeve.
<unk> don't order for a quarter. So we're looking at what has been ordered this past quarter. Some accounts because of the obviously the impact of the.
Market are less but the great thing is by adding new accounts, we can minimize that impact if someone has a.
Slow quarter on account of the slow quarter. The good thing is we don't have many accounts, leaving us for a competitor than they may have less orders because of the market and Thats why we will continue to add new accounts and continued to expand share with existing accounts.
Okay understood. So you said, they're not leaving to they're not going to go to competitors, leaving because macroeconomic factors I understood. That's helpful. And then just to jump to the I know you mentioned about the the Stat study.
There's going to be 200 patients do you have how many of those have been enrolled so far and when can we expect.
Enrolment to be finished.
Then he is going to jump in on this one.
With regards to enrollment to the fat transfer studies. So we are on track to all of our projections. We are making significant progress we have over 10 sites and we will have best six month data to share when we when we launch.
So right now the study is on track it depends by size, but its momentum.
Sorry, what was that I missed that.
Note that enrollment is actually we expect that seems to be ending up at year.
Okay and then just last question maybe you could also then I know you didn't know you have a soft launched by the end of this year for the <unk> system and then full commercial launch in 'twenty three and then maybe any more information you can share what that looks like to you.
Yeah, I'll take that one so.
Our fat transfer product is very unique.
The team had mentioned it's novel.
It gives us the opportunity to leverage deficiencies in the market and differentiate our approach from typical fat grafting.
So one of the things that you need to is working on and that we've identified is the opportunity to go after long term retention consistent results.
And what we're planning is a soft launch the first weekend in December in New York City.
With a group of Surgeons and then a full commercial launch in January to our sales force.
To be sold in early Q1 directly to our customers.
So we're planning a disciplined approach it approach to launch building momentum and adoption with this approach among both our core customer base and with new customers.
So we're very excited about it the early feedback from clinical users has been very positive.
So we're getting all of the pieces together to launching just a few weeks.
Okay. It sounds great and then just last quick Oh, sorry, yeah.
So just a quick.
This leaves us comment that the expectation among the plastic surgeons based on what they've heard from their peers, who are part of the study it's really really high.
That's great. Just then just a quick follow up is there any plans to maybe bundles.
The breast implants with the fat grafting technology for pay for.
Customers are that.
I haven't been really thought about that yes, absolutely and there are a number of benefits with this technology underneath the Sandra umbrella and now just one of them that it gives us the opportunity to expand the total product portfolio that we do have plans in place to do that right out of the gate.
Obviously, there is a high level of strategic fit within our organization subject matter expertise in the breast area.
You know the opportunity to continue growing within our existing customer base or new customers. So kind of the adjacencies are numerous but to answer your question directly yes.
Yes, we do have plans to.
Approach it from a total portfolio standpoint.
Okay. Thank you so much of hop back in again.
Okay.
Thank you. Our next question comes from Jonathan Block. Please go ahead.
Thanks, guys good afternoon.
Maybe just the first question.
I'll try to go down the pad transfer road certainly very excited about their product, let me be more specific there.
Our year, one revenue contribution that we should be thinking about and what about the gross margin profile of that product as it ramps throughout 2023.
Yes sure.
Because we've kind of commented before.
We expect to start the year with <unk>.
Grafting fat transfer representing it.
At least 5% of revenue and exited the year at 10% revenue.
The way I like to look at it is.
We expect it to have the type of attach rate that a tissue expander dose our tissue expander as up to 25% of revenue the fat transfer you're looking at the same customer base right. We've already got the embedded customers. It can perform the same way, it's going to be how fast we ramp other great news.
Having a reveal here and the number of weeks.
Already manufacturing. So we're good to go on that we don't have any material questions or issues.
And since we're manufacturing ourselves we're in complete control of cost goods sold that's going to be north of 70%.
Margin product.
And so that's going to be very additive in terms of both revenue and gross margin for next year.
Okay, Great very helpful. Thanks, and then maybe you mentioned the gross margins, let me follow up on that.
Didn't hear anything one time, and maybe I missed it but I think the Gms were 56 and change in the quarter and sort of a step back from that more normalized.
60, and change and what age it seemed like gross margins are really going to be a key determinant.
And eventually turning the corner on cash flow right you can only get so thin on opex. So can you help us with gross margins why the step back in <unk> through 'twenty, two and maybe more importantly, how that trajectory looks like going forward. Thanks for your time guys.
Sure So again.
We like to use right now the way we're wired about 60% is a good benchmark and it's going to change quarter to quarter in our current quarter. We had actually some very good performance out of international International is more of a distributor model, which is fantastic on cash and contribution margin, but it's a little bit different gross margin profile. So.
That's one factor that came into play other factor that came into play as we have some fantastic loyalty programs that are very targeted very pulse programs that come into play in Q3, possibly part of Q4 ended your type.
What that does is it allows us to actually gain this market share that we're pretty darn proud of but also what it does is it does not touch are our basic pricing.
We feel our base pricing is protected we don't see price compression, but we do choose to use again very targeted marketing programs that are loyalty based.
On which period we're in.
Thank you.
And we have a question from Margaret Kaiser.
Please go ahead.
Hey, everyone. This is Matthew bouley on for Margaret today. Thanks for taking our question I wanted to first start maybe on reconstruction for the quarter you guys talked about the growth that you're seeing and your top tier accounts. So maybe if you could just parse out the overall growth Youre seeing just as you continue to gain share in that business.
Good to see acceleration thanks.
Oh, Hi, it's Lisa.
The recon market is up.
Double digit year over year.
It's a very stable market, where we've been able to make inroads due to our strong product advantages that are really designed to help the women's journey and make it easier. So for US. We did also grow double digits, we continue to see that trend moving forward as well as market share gains we.
We've seen over the past two years about a doubling in our market share we anticipate that moving forward and as I mentioned earlier ending into high teens at the end of 'twenty, two and then moving into the Twenty's in 2023.
Got it. Thanks, so much and then maybe if I could just ask one for you Andy on operating expense.
Expectations, just as we think about as you guys are gearing up for a limited launch in Q4, the fat grafting technology and then as we enter in 2023 and what we should kind of expect there. Thank you.
Sure. So again, it's been a great trend this year in terms of getting our op expense to where we want it it's based on efficiencies not cutting into muscle by any means.
We are 21.6 dollars 21, 7% that we saw this quarter is probably the low part will be a little higher than that in Q4, just because of the launch in terms of the <unk> launch.
And then as we go into 'twenty. Three however, we have a lot of different efficiencies that are going to come into play to where we expect that to continue to drop.
When we do give out guidance, we will give out cash based op expense expectations.
Here in the future.
It's going to be a number that's less than what we see today.
Trending at the low end of our guidance right now, but our run rate actually is at $88 million or lower per year.
A little bit of.
Pre heater, we're going to come in lower than that next year. So we're working on what that number is going to be but we really do expect to see some great leverage in 2023 with rising revenues lower costs and very good cash performance.
Great. Thank you all.
Thank you and at this moment, we have no other questions I would like to turn the call back to our presenters for any final remarks.
Thank you operator, thanks, everyone for joining us the call look forward to a great finish to 2022 and a great start with the launch of a new technology and next year, thanks, everyone and have a good day.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
Okay.
Sure.
Yeah.
Yes.
[music].