Q4 2022 Sientra Inc Earnings Call
Good day and welcome to the <unk> incorporated fourth quarter and full year 2022 earnings conference call. All participants will be in a listen only mode. So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to your host Mr. Oliver Bennett, He interest General Counsel and Chief compliance Officer. Mr. Bennett you may begin.
Thank you good afternoon.
Please that you could join us on today's call to discuss <unk> fourth quarter and full year 2022 financial results and business update well.
On our call today, we have Ron I mean, that's yes.
I didn't <unk> Chief Executive Officer.
Andy Schmidt Chief.
Chief Financial Officer.
I was just interested in your vice president of marketing and Dr. Denise Stiles Gantries Senior Vice President of research and development regulatory and quality.
As reported earlier today, we have achieved another record quarter and you have to see I try.
Q4 revenue of $25 1 million is the highest quarterly revenue in the history of the company I represent almost 100% growth in our breast products business about pre pandemic high of $12 8 million in Q4 2019.
While we see continued strength in our core implant and expander portfolio. We have also taken steps to accelerate our growth with the commercial launch about biology.
Our system and our recently announced partnership with as the other biologics.
As Mark will provide more detail on these new products dramatically increase our total addressable market to over $1 billion in the United States alone, while also enhancing our pathway to profitability.
Of course, I must remind everyone that in our remarks today. We will include forward looking statements 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.
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.
With that I'll turn the call over to our President and Chief Executive Officer, Ron to comment on our continued exemplary growth this past quarter and provide a look ahead at 2023 and beyond.
Two and a half years ago in the middle of the pandemic I stopped until my role of CEO Sandra.
At that time, the management team and I redefine the interest corporate mission.
We set the goal to create an all inclusive platform they'll deliver innovative solutions to plastic surgeons within the broader community.
Today I'm pleased to report that not only we are well on our way to meeting that goal, but also that this year it will be a transformational year for <unk>.
Our management team has made a concerted effort to invest on our infrastructure.
Our goal was to create a platform to enable new products to full through our organization.
Creating leverage and paving the path to profitability.
We're now seeing the results of those efforts come to fruition.
First a comment.
Commercial shipping or wildly bad transfer system on March 1st.
Second as we announced last week, we have entered into a partnership with US G O biologics.
They're simple dorm sell alert dermal matrix product to our portfolio.
The addition of those products dramatically increases our total addressable market.
With the ATM market alone estimated to be around $500 million.
Both products are highly synergistic.
Allowing us to use our existing sales and distribution teams with no significant capital investments.
We believe the addition, both highly complementary products will not only accelerate our market share gains and overall growth.
But also enhance our pathway to profitability by creating leverage an existing organization.
22 ended strong for Samsung with those ear and operational results.
First shipments of biology.
Simple Dermot joining our portfolio.
I am pleased to report state.
Back to make our path to profitability and positive free cash flow a reality by year end 2023.
We will continue to follow successful corporate strategy this year.
Which emphasizes the fault.
One streamlining resources in time towards high growth high margin business.
Two focusing every key on increasing operating efficiency.
The critical steps, we took in 'twenty two sets the pathway to put 23 to be a transformational year for CN.
I'll now turn the call over to Lee cirrhosis, our SVP of marketing.
For the past two years we.
We have still continued momentum that has resulted in 10 consecutive quarters of record high sales growth with the entry of leading the charge.
Think we can safely now say that's the intra is the fastest growing brand in the U S breast market.
The augmentation market.
I did state it cyclical.
Time has proven itself to be resilient.
Last year, we saw a post pandemic correction augmentation, but the intra held steady.
It is a tribute to the strength of our team products and loyalty of our customers. That's the intra grew market share in the U S augmentation market.
And exited the year at an all time high at 17%.
Seven point gain over prior year.
The reconstruction market in the U S remained strong with 4% growth over prior quarter and the answer has crossed the chasm so to speak.
Leaving the teens and growing to a broader market exiting the year with 20% share overall at six point increase over prior year.
In Q4, we grew 10 times faster than the U S market.
And it is our expectation that the coming years will continue in a similar way.
For the remainder of 'twenty three we will continue to leverage our expertise and our industry, leading sales infrastructure to launch new products, that's creating a more complete and integrated portfolio.
The announcements made in just the first few months of twenty-three demonstrate our dedication and progress toward achieving this goal.
Our commercial team's dedication to patient outcome.
And exceeding expectation with our plastic surgery partners is.
What powers these gains in market share.
In just the fourth quarter, our commercial team added 275, new accounts.
Our commitment to peer to peer training and education speaks for itself.
In 2022, we hosted events with nearly 400 customers.
<unk> in a 50% average increase in attendee fail.
We expect to reach at least as many customers if not more true these events in 'twenty three.
As Ron previously mentioned March 1st.
The lunch and first U S commercial shipment of vitality are novel Fat transfer product.
The launch of our reality is a pivotal milestone in our corporate history.
With the expected uptake of the product by surgeon and the resulting growth in vitality fail. The intra is poised to become a diversified aesthetics company.
Our initial commercial shipments of ILD and enthusiastic feedback from attendees at our educational theories demonstrate this strong interest in the product from our customers.
Our customers' confidence in the success of this product is reinforced by the latest data Denise will share.
Which addresses the number one pain point surgeons have experienced with existing back grafting technology, which is retention.
Like the other products in the theater portfolio vitality brings proven clinical advantages.
Backed by data and rigorous testing.
Doctor Denise styles.
SVP of R&D.
Regulatory and quality.
We will now speak about the latest data on biology, and we'll provide more information about simple it or.
We are very excited about the reception from our customers that vitality has already received biology offers an extraordinary and bathroom that approach to bad transfer also known as fat grafting.
These include using up to back them to wash with filtration and are concentrating that you think that's so perhaps urban pole to improve the long term survival of fat.
That's providing better predictability and long term result.
The feedback we are receiving is that users really like the consistency of the pet the ease of use of the system and the patient results.
Well, we started with a breath focus we are already working towards expanding into other area. We're biologists enhanced by our ability fat transfer will also bring improved outcome.
The reality has the potential to transform how facial rejuvenation on the many patient treatment up radiation burns scarring and body contouring or address.
Due to its broad indication we are already hearing about great outcome in this area.
Ultimately, we expect vitality to meet an unmet market need for God transfer retention and allow our customers to offer their patients natural result, with predictable outcome.
March was a very busy month part biology. In addition to our first commercial shipments to customers. We also announce the preliminary results of our ongoing multi center long term volume retention clinical study.
These preliminary results show over 80% volume retention at both the three and six month time point with a high consistency between patients.
These preliminary data maybe by Allergan, the first and only system to have clinically demonstrated such high levels of retention.
The data also strongly supports the benefits of enhanced liability pet traffic, which is only available with by Alley.
That is taking place at more than nine different clinical trial site and includes a variety of patient types, including breast augmentation explanation mass to pick these and breast reconstruction we.
We anticipate that the result of our ongoing study we will establish a new standard of evidence is that transfer.
I N C. A D C N trapped from all the other fat grafting products on the market.
Finally, a few words about our newest addition to the portfolio simply Derm just announced last week.
Simply there is a natural allografts option that supports the angiogenic problem.
It has demonstrated to have superior performance characteristics and other leading human.
Dermal matrices.
Use of our various soft tissue reconstructive procedures.
While closely matching the humana medium to Durbin.
These characteristics include reader, tisha strength, and so to retention lower inflammatory and fibrotic responses and better playability.
In a blinded tests performed with a group of plastic surgeons simply diamond was the preferred ATM based on liability on strike.
By adding simply them to our portfolio of products and travel will offer additional options to surgeons and patients with a clinical and science backup the entre is known for.
I'll now turn it over to our CFO , Andy <unk> to discuss the financial outlook.
Thank you Denise.
As Ron Lisa Denise I'll mentioned, we are very encouraged by the marketplace reception for vitality and simply germs.
And I'm excited to share our record revenue results of $25 1 million in the fourth quarter of 2022.
Another key financial highlight was our non-GAAP EBITDA and free cash flow performance.
Our non-GAAP EBITDA for Q4, 'twenty two what does the $6 9 million dollar loss or lowest this year and continuation of a positive trend.
Our second half 2022 performance was loss of $15 5 million as compared to a loss of $17 4 million for 2021 of $1 9 million dollar improvement.
More impressive however was our free cash flow performance referenced earlier by Roger are Q4, 'twenty two free cash flow of a $3.8 million use of cash marks two consecutive quarters of sub $4 million free cash flow burn for the company.
Our second half 2022 performance was the free cash flow burn of $7 4 million as.
As compared to a free cash burn of $21 5 million for 2020, one of $14 million improvement.
Diving into our revenue numbers, the current period, $25 1 million compared to $22 7 million in Q4, 'twenty, one an increase of 11%.
Total year 2022 revenue of $90 5 million compares to $80 7 million for 2021, an increase of 12%.
The pro forma gross margin for Q4, 22 was 60%, which compares favorably to 54, 4% for the same period last year.
A key driver for gross margins as product and channel mix.
GAAP gross margins were negatively affected by yearend balance sheet adjustments.
Most notable.
$5 7 million inventory reserve, primarily related to our legacy textured implant inventory.
And a $6 1 million adjustment to our warranty liability due to revised projections.
Total GAAP operating expense for Q4, 22 was $27 7 million, which compares to $26 1 million in Q4 'twenty one.
non-GAAP or cash based operating expense for Q4, 22 was $22 8 million compared to $22 2 million for Q4 'twenty one.
Our current period non-GAAP operating expense of $22 8 million continues a favorable expense trend. This year comparing to 21 7 million in Q3 of 'twenty two.
$22 3 million in Q2 of 22, and $24 8 million in Q1 of 'twenty two.
Our favorable second half of your expense performance resulted in a total year non-GAAP expense of 91 6 million at the lower end of our 90 to 94 million non-GAAP operating expense guidance.
Total year 2020 to GAAP operating expense of $110 6 million compares to $97 million in 2021.
Total here 22, non-GAAP operating expense of $91 6 million compares to $76 3 million for 2021 and is again, primarily attributed to current year investments in commercial activities to support new product launches.
Total GAAP loss from continuing operations for Q4, 'twenty two it was $22 3 million as compared to $15 9 million for the previous year period.
Switching to key balance sheet items.
As part of our year end adjustments to estimates we have made two significant adjustments.
First we have taken a $5 7 million dollar reserves against their finished goods inventory.
Merrily legacy textured implant stock, which was 2019 and prior and manufactured product.
We feel that the textured implant product will have limited market ability in the future.
The adjustment reduces our inventory asset and is a noncash charge to current period cost of sales.
Secondly, we have made a $6 1 million adjustment to our warranty liability.
The adjustment increases their warranty liability and there's also a noncash charge to current period cost of sales.
[laughter] cash ending on December 31, 2022.
It was $26 1 million.
We feel that we have sufficient cash to drive the business to a free cash flow positive performance.
In fiscal year 'twenty to 'twenty three.
Over the past few weeks there has been great concern about the stability of certain things.
And to know that she believes firmly in a diversified strategy regarding banking facilities.
As we were at the end of our first quarter of 2023, Oh sure that are current revenue estimate for Q1, 'twenty two 'twenty three to be between 22 and $23 million.
Or a growth of three 8% versus prior year.
At this time I'll turn the call back to Ron to provide our 'twenty to 'twenty three guidance and a few concluding remarks.
Yeah.
Thank you Andy now to provide our 2023 full year guidance.
The company is forecasting revenues of 104 to 109 billion or year over year increase of 15% to 20%.
Management team and I expect continued success and the growth of our static business.
The launch of biology, and the launch of simple derm, which is expected in the second quarter. This year will be amongst the key drivers of revenue growth.
In terms of full year expense guidance, we're forecasting non-GAAP operating expense to be between 78, and 82 million down from $91 6 million in 2022.
Again, thank you for joining us today.
In closing we believe the center is well positioned for continued growth and profitability.
Well now open the line for Q&A operator.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your touch.
So if you're using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Yeah.
Okay.
And the first question will come from Alex Nowak with Craig Hallum Capital Group.
Got it.
Okay, great. Good afternoon, I was hoping to get a little bit more of a breakdown the revenue growth.
8% for the full year based on the commentary there for Q1, it does seem like you're baking in a.
More of a second half higher growth is that coming more from the vitality and then necessitates arm product versus them.
Think about all that.
Hi, Sir thanks for taking the call with us today.
Yeah sure when we look at our guidance going forward.
You have these great product launches that are going to be back in back half loaded.
But just in general we're having again this continued success in recon.
Our core business is still going to be let's call it 85% of the of the guidance number.
Basically again, our agility plan, whether it's recon are off.
Tissue Expanders.
As always we have our Bayou corne him a great product and our international work, we're doing that's still only be 5% to 10%.
The revenue guidance and then biology as we've said before we expect it to be 5% to 10% of our total revenue exiting the year.
And do you have anything in there for simple there.
Yeah.
Right now we're looking at that as a great upside will be we expect to be launching.
Holly here.
Talk a little bit more about what it means to launch that type of product, but we think it's a tremendous upside for us.
Yeah Alex.
We're looking at it you know we have to have licenses in place to distribute the product throughout the country.
And then as we've left by Aloe eat lunch.
Important to take it.
Probably the launch at the right way, so we're making sure we put all the processes and everything in place. So we see it more as a back ended the year as we get more visibility into how that is going well, we expect to update guidance later on this year to account for that product.
Okay that makes sense and then as you think about priority is launching into the market. I mean, how is that attachment rate going with the recon side of the business, but I guess also augurs well, but I know, it's more of a brief time sort of sales product there.
What was the attachment going.
Go into a hospital trying to expand or the implant and now the biology out there.
Yeah, well, let me answer that and I'll pass it over to Lisa <unk>.
Now the majority of sales are coming from augmentation, because we're still in the process of setting up contracts working with the details. It takes four to six months to get back moving.
But the idea is to get into a month bundling process.
Bidding for the hospitals Lisa.
Sure. So a couple of things on this at this point, we're focusing on selling in our early experience program, where some of the top surgeons in the industry and many that are needed and trying to have access to vitality and are paving the road for success as we speak.
And broader next year or later this year.
As Rod mentioned the reconstruction segments.
We're training them right now in terms of revenue and trial expectation.
But do you expect that to pick up here within the next several months and exiting Q2.
Okay and then just final question just around cash burning passenger usage.
In a year with free cash flow positive right on the.
The path to get there.
Is this all just don't leave.
Early ramping revenue keeping gross margin flat and maybe keeping operating expenses flat as well or do you expect gross margin to kind of creep up here throughout the year in Opex. It continues insurance lower or just how you're thinking about that.
Sure. So we did.
Opex guidance, which is significantly lower than our current year.
It's not uncommon for us we were under $80 million and Opex non-GAAP Opex in 2021, while growing 47%. We did a lot of work as you're aware in 2021 in terms of investment moving our distribution center from California.
The new ERP system, our order to cash process is much more efficient than it once was so we have naturally.
The efficiencies that we're modeling out to show us running.
<unk> 20 billion or less quarterly expense. So we demonstrated through 2022.
We kept dropping our opex.
<unk> expense quarter to quarter to quarter.
So that's where we're at basically exiting at a run rate that we expect the guidance to hit.
Okay I appreciate the update thank you.
The next question will come from Jon Block with Stifel. Please go ahead.
Thanks, guys good afternoon.
I appreciate you taking the questions Ron or Andy maybe the first one might actually build on that last question, which is it's an exciting year for you guys you've got momentum in the breast business and you've got some new products as well, but then you're also taking down the opex from roughly $92 million, the non-GAAP to roughly $80 million at the midpoint.
And even below the run rate. So maybe one if you could talk to.
Your confidence in your ability to do that and maybe more importantly, doing that while still being able to fully capitalize on these new product launches and gained significant momentum with those new product launches throughout the year, maybe that's a function of that if you can give us a little bit of a better feel for where those cuts are going to fall if they're going to be more in the G&A.
Relative to say no.
Yeah, John I'll start and then Andy give the specifics, but we did take a hard look at the last six months of 2022 and the whole organization.
What areas on the efficiencies make sense to be smarter, where we spend the money. We also had to make some tough decisions beginning of the year. This year and ensure that we have enough support for comfort across the organization.
We have to make some tough decisions from total personnel to ensure we have the pathway to a free cash flow at the end of the year, but for our ability to drive that number I just sure. Yes, we're very very confident where we're very analytical and systematic and understanding where we have support and commercial what do we have supported.
Sales and where we maybe have areas, who could be more efficient and headquarters and in different areas of the company. So I'm very comfortable with our current structure, we are well positioned to support the launch of biology and also the addition of a simple job is the same customer they're promoting right now tissue expanders.
Same customer to talk about implants, and biology works for both sides of the cosmetic side and the construction side.
So let me just give you a few easy examples as Ron said, it's really corporate wide, where we're seeing the cost efficiencies.
Sales and marketing and the easiest way to look at is our shipping expense now that we have the D. C has been broken fantastic.
Very efficient and shipping for the middle of that.
Country, we've taken out already $5 million in shipping expense that hits in sales and marketing line.
So again supply change working much better and so we have now much more competitive shipping rates.
So that's one example that way in R&D.
We put in significant investments this year to get the biology, I'll watch kicked up that's not a recurring expense so that gets behind us.
Likewise a good example is we started this year, we had a great opportunity to go after accounts receivable balance actually free up some cash we were very successful, but we actually front loaded the year with multiple million dollars worth of effort to actually get that we're wanting to go. So those are nonrecurring efforts that'd be going into 'twenty three.
That does not affect sales it does not affect our ability to deliver products.
Got it that was great color. Thanks for that guys and maybe just a follow up question.
22% to 23 million for Q, you know clearly you've got good visibility consider where we're sitting in the quarter, but maybe if you can give a little bit more detail.
Construct of that number you mentioned theres Burns from the banking perspective, there's also just a lot of the concerns with the consumer in general So how is the consumer holding off maybe what are you seeing in the augmentation market into one for you as much color you can provide and how that compares to recon.
Yeah, I'll, let Lisa address that but from a split it's kind of an even split between out recon and Aqua go ahead Lisa.
Sure. So a couple of things in the market. Obviously the last few years have been fairly unusual, but we continue to monitor the trends and have access to data.
So we're seeing potential signs of improvement, particularly on the augmentation side in that segment in breast augmentation in the U S. It's always been durable where the underlying demand is there and eventually does materialize, which.
We've been able to validate more recently and reaching out to a group of considering patients.
Just to get sense meant and what we found is that there are working.
Working theory, compared with last year by 45% higher which gives us some confidence that that market could correct.
Or at least somewhat correct. So we're not completely relying on market trends that you see our numbers relative to category performance and we continue to implement strategies to grow our business.
And we're taking a somewhat conservative approach in terms of augmentation three shifts more to reconstruction and in the recon market that market had been very strong.
Last year for the full year was up 10% at the category level based on hospital purchases.
And there was some pent up demand.
But this is overtime also been a very stable market and then again on the interest that we've been able to make inroads.
Bran doing all of the things that we've been doing in Q4 alone. We grew 10 times faster than the market. So between the two again, we're going into the year all of this has been.
Integrated into what our guidance is for both for both segments of the business.
Got it and maybe I'll try to slip in one last one quickly.
It's been very explicit revenue and Opex guidance is the fourth quarter gross margin was a good snap back I think you'd mentioned certainly in the past that that transfer product was accretive to gross margin for Symphony <unk> is that the same case as well and then as a result should we expect gms.
To work their way higher throughout the year as the contribution from the new products also improves throughout 2020, thanks guys.
Sure. So let me start with <unk>.
Obviously, we just launched and we will be.
Very accretive gross margin, but in Q4.
We have to get up to full capacity and obviously, we're moving from prototyping to nothing but production. So we'll see those efficiencies in Q4.
Until such time, it really won't create a downward pressure on margins because the volumes are low when you launch.
In terms of simple.
This is really an exciting partnership for us it's a uniquely efficient project for both companies.
Case in point, where you were.
Worked out a great deal with Alistair Hallam here working out a cash friendly project for both sides on our side, we are working with the inventory just in time. So we're not carrying the inventory load. So that's very friendly for us on the cash perspective, and we're working on other mechanisms.
In terms of order to cash to get the cash working for their site to switch a fantastic partnership.
It is a distribution agreement for us so it'll be similar to our international work, we do to wear.
Technically it will probably be lower than 40% gross margin, we don't have the pricing nailed down yet however that drops all the way down to contribution margin just as Ron said, we're selling to the same customer and the same.
Same procedures etcetera in hospitals, so we're not adding additional staff additional cost we can really start leveraging our sales team. So we think it's very exciting from a cash perspective, and a contribution margin perspective.
Thank you for your time guys I appreciate it.
The next question will come from Vendetti with Maxim Group. Please go ahead.
Thanks.
Just on the launch.
What have you been seeing in terms of reception so far a first impression.
But sales rep, staying about cross selling opportunities.
Yeah.
Oh, we'll start with Lisa talked about the commercial side and then Denise can talk about her experience.
Talking to some of the early users from a clinical.
France Liza sure.
Early feedback has been very positive.
What we're hearing is that the buy early technology is truly a game changer in the space and will be the gold standard in.
And does that transfer market.
We also know based on our input and our research that 70% of the market has been satisfied with options that have been on the market and the main reason for that is black.
Tension and predictability and that's where I'll turn it over and it needs to talk a little bit about that.
So that so our high retention. So we're hitting on that number one pain point and we're also hearing others talk about ease of use and other thing for surgeons and our sales force are collectively very excited about the Indiana.
And a lot of that has to do with the selling process and I'll start with the kids.
Get the teams back in.
The way that our key opinion leaders aren't helping reinforce those benefits.
Yeah Anthony.
Turning to took a theater that beats product, what's the typically sign or bad wrapping in plastic surgery, and we gathered feedback from many potential from and use rates on what's important for them and what we're seeing right. Now is that that is being translated into early users really appreciating that technology on the outcome of that.
That they have some of the early users that were seeing I, even knew they were not camera customers on our implants are our banderas, but because the technology. So appealing because the early results are so impactful or not.
First of its kind clinical study like the one we are running with multi tender variability in the patient and seeing exactly what the early data and the preclinical data that that origin hot but telling US you get predictable and consistent we felt with very high quality.
I think it is getting a lot of momentum we've had to launch webinars with several hundred customers logging in to learn about this technology.
Fortunate to be present in many cases, the last couple of weeks and the consistent feedback has been very positive.
We're also seeing expanded use in other areas beyond the breadth there.
Recently at the North Eastern Society of plastic surgeons.
A presentation on the use of biology based off the Muni basin Fat grafting Euro. We're also seeing youth in the body in the bought out the B L.
Car treatments radiation Burns at the study that we're running so we're starting to see how the expanded use will bring additional benefits beyond the brake switches.
Being focused on for the early launch.
Okay, Great and then just maybe.
Just a follow up and then I'll back in the queue on the margin.
This is.
A higher margin than your breast products at this point right.
It will be in Q4, as I said right now or you don't.
Kind of our entry level volume production.
And what we're gonna do chase.
On the technical side the other prototyping work, we're doing the early work.
We're going to push that through the P&L and that park. It on the balance sheet. So we will take any of the early experience type production learnings.
Just push it through first.
First part of the year here Q4.
It would be like a tissue expander plus to wear a 70 point plus gross margin product.
Okay, great. Thanks, very much I appreciate I'll hop back in the queue.
This concludes our question and answer session I would like to spend the conference back over the management for any closing remarks. Please go ahead.
Well I just want to say thank you everyone that we had this is like I said before a pivotal year for us the answer would have the ability this year to lever our platform central platform with our new products and with the same customers have been calling the last 10 years. So thank you again for joining us and look forward for a great 2023.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yes.
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Yeah.
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Right.
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