Q1 2023 Sientra Inc Earnings Call

Speaker 1: The.

Speaker 1: That very.

Speaker 1: Thank you for watching.

Speaker 2: Good afternoon, everybody, and welcome to Cientra's first quarter 2023 Financial Results Conference call. My name is Eric. At this time, all participants will be in a listen-only mode.

Speaker 2: After the CENTRA executives provide their business updates, there will be a question and answer session.

Speaker 2: To ask a question, you may press star then one on your telephone keypad. To withdraw your question, you may press star then two. As a reminder, today's conference call is being recorded.

Speaker 2: Should you need assistance, please signal conference specialist by pressing the star, followed by zero on your telephone keypad.

Speaker 2: I'd now like to turn the conference over to your host, Oliver Bennett, Sandra's Chief Legal Compliance and Corporate Development Officer. Mr. Bennett, you may begin.

Speaker 3: Thank you and good afternoon. We are pleased you could join us on today's call to discuss CENTRUS first quarter 2023 financial results. On our call today we have Ron Venezzez, CENTRUS President and Chief Executive Officer and Andy Schmidt, CENTRUS Chief Financial Officer. Thank you.

Speaker 3: As we reported earlier today, Fientra has continued its unbroken record of 11 consecutive quarters of record year-over-year growth. Importantly, we have achieved this revenue growth while also reducing our expenses and increasing our leverage through continued operational efficiency and synergistic product additions.

Speaker 3: We have now had three consecutive quarters of record low free cash flow usage, translating into a $23.6 million year-over-year improvement over that same time period.

Speaker 3: We have seen similar improvements in our non-GAP EBITDA performance, which has improved by nearly 30% year-over-year or 7.8 million in the past three quarters.

Speaker 3: As Ron and Andy will describe during the call, our continued market share and revenue growth, combined with our disciplined cost management, gives us confidence that we will reach cash flow break even run rate by the end of this year.

Speaker 3: Before I turn the call over to Ron and Andy, I must remind everyone that in our remarks today we will include forward-looking statements in our prepared remarks and in response to any questions you may ask.

Speaker 3: These forward-looking statements are based on management's current assumptions and expectations of future events and trends.

Speaker 3: Our actual results may differ materially from those expressed in or implied by the forward booking statements. The company undertakes no obligation to update or review any estimate projection of forward booking statement. From our detailed discussion of the company's risks and uncertainties, I would refer you to our FEC filings, including our form 10K.

Speaker 3: and formed 10Q to be filed later this month, available on the company's website. But that, I'll ask our president and chief executive officer Ron to comment on our exemplary first quarter results.

Speaker 3: to be filed later this month, available on the company's website. But that, I'll ask our president and chief executive officer Ron to comment on our exemplary first quarter results. Thank you, Oliver, and hello everyone.

Speaker 3: Our continued success results from our ability to adapt to the ever-changing market and our focus on pursuing healthy, sustainable growth.

Speaker 2: We continue to prioritize operating efficiencies.

Speaker 3: and creating leverage, providing a clear path to profitability.

Speaker 3: Our all-inclusive plastic surgery platform has enabled us to streamline resources toward Santa's high growth, high margin business.

Speaker 3: We had to close the 270 new accounts in the first quarter of 2023 alone, indicating our long-term solid growth prospects.

Speaker 3: Two and a half years ago, the Sientra Magiman team made a top priority to capitalize on the the value of reconstruction and device a plan to achieve this goal.

Speaker 3: Scentro already had an impressive portfolio of products.

Speaker 3: including Olox2, Thermospan, and a fifth generation implant with a decades worth of unparalleled clinical data, but we lacked soft tissue support and fat transfer products. After adding viality simply Durham, Sandra now had the most compelling reconstruction platform in the industry.

Speaker 3: Achieving this was not an easy task. It required significant time and resources to develop the sport volume.

Speaker 3: penetrate the hospital environment, deal with relationships and surgeons, establish a strong brand presence.

Speaker 3: This has not only allowed us to accelerate our gains in the hospital, channel but also create a mode for Sandra making it difficult for new competitors to enter the market and compete.

Speaker 3: Our focus on reconstruction shows that we are not driving growth at any cost.

Speaker 3: but we are promoting profitable growth, creating clear line of sight to cash flow, break even, run rate by the end of 2023.

Speaker 3: Reconstruction cases represent a higher revenue opportunity per procedure given the price points and use of multiple products. The commercial launch of our FAT transfer product viality, combined with the addition of the simply-derm ADM to our portfolio, has more than double-centress total addressable market in the U.S.

Speaker 3: Those products are highly synergistic, allowing notes to utilize their existing sales and distribution infrastructure without significant incremental investments.

Speaker 3: Our platform will continue to attract additional products and strategic partnerships with other companies going forward.

Speaker 3: By adding these complementary products, we expect to accelerate our market share gains in overall growth while increasing operating leverage and advance in advancing our pathway to profitability. In April , at the Static Society, Aino-Media Miami, we released the interim six-year data of our post-approval study.

Speaker 3: Our clinical data continues to show impressive results with over 5,000 patients and more than 10,000 implants across more than 130 sites. Demonstrate our implants efficacy in the first patient's populations and surgical sites rather than hand-picked procedures for the best outcomes.

Speaker 3: During the meeting, we also hosted a biology symposium with over 50 plastic surgeons learned from three of our clinical sites about the benefits of biology and how it is impacting their patient's outcomes. Biology, our innovative fat transfer solution, addresses every facet of our customer needs.

Speaker 3: The system offers natural, predictable, and safe outcomes, and we are pleased to have received such a positive reception from customers. Fat transfer is an exciting area of growth for Cientra, enabling patients to increase their cup size using their own fat, with or without implants. Model over.

Speaker 3: Our solution also provides additional body contouring benefits. Relinary results presented at the Stetics Society's meeting of one of the ongoing studies of biology have observed a remarkable 88% retention rate in the face. This represents an exciting opportunity for a center.

Speaker 3: with the potential to open an additional total addressable market for nearly $2 billion as Violet demonstrates its utility in the face.

Speaker 3: to open an additional total addressable market for nearly $2 billion as biologist demonstrates its utility in a face, dot-ox and other areas of the body.

Speaker 3: Our customers have had a unique opportunity to experience the Violetist system firsthand through initial offering and we have received overwhelming positive feedback. We are thrilled with the results from our initial early experience launch.

Speaker 3: The squatter will continue to roll out the viability to most reconstruction and augmentation plastic surgeons, where we have already seen a very positive response. Later this squatter, we expect to launch simply a dome in the hospital market. Our focus on reconstruction and aesthetics has been a driving force behind our success this quarter. As we expand our portfolio products and strategic partnerships, we remain committed to delivering the highest quality solutions to our customers.

Speaker 3: We're proud we have accomplished so far, and we're excited about opportunities to lie ahead. We believe that the Antroplasmic Surgery platform has the momentum to drive positive change in the market. I'll now turn the call over to Andy to discuss the financials.

Speaker 3: Thank you, Ron. Our Q1 2023 financial results showcase our continued trend of strong revenue performance, disciplined expense management, and exemplary pre-cash flow results. All three elements create our path to cash flow positive performance.

Speaker 4: Our key Q1 2020 tree financial highlights include.

Speaker 4: Record Q1 revenue of 22.6 million is compared with 21.4 million for the prior year period in increase of approximately 5.4%. Non-GAP operating expense of 18.9 million is compared to 25.1 million for the prior year period at 25% reduction. Non-GAP IEPDA.

Speaker 4: a 5.9 million loss as compared to 11.8 million dollar loss for the prior year period, a 50% improvement.

Speaker 4: Free cash flow of a $6.9 million cash firm is compared to an $18.1 million cash firm for the prior year period, a 62% improvement.

Speaker 4: Considering our trends in 2023 view, our core product revenues continue to build with market share gains across both augmentation and reconstruction, with a key focus on new hospital widths.

Speaker 4: Our current period revenue does not reflect the launch and expected revenue contributions from SimpleDerm and a small contribution from Viality is the product launch late in the quarter.

Speaker 4: Both products will be significant contributors in the second half of 2023.

Speaker 4: Our non-GAP EBITDA for Q1 2023 is the best we have seen post-avisiture for the mirrored drive business and reiterates our focus on being a profitable pure play in a plastic surgery space.

Speaker 4: This was accomplished, despite this being historically our lightest seasonal revenue quarter.

Speaker 4: Our free cash flow performance is also a spotlight. Our first quarter of a fiscal year carries seasonally high cash usage due to bonus payouts and materials payables due to seasonally high Q4 revenue and product shipment performance.

Speaker 4: This is the third consecutive quarter of improved cash flow performance.

Speaker 4: During the past three quarters, we saw free cash flow burn decrease from $37.7 million to $14.1 million this year, a 63% improvement year-over-year.

Speaker 4: quarters, we saw free cash flow burn decrease from $37.7 million to $14.1 million this year at 63% improvement year-over-year. Here's what OnSite stuff sounds like.

Speaker 4: Complementing our revenues of $22.6 million, our pro forma gross margin for Q1 2023 was 60%.

Speaker 4: which compares to 62.2% for the same period last year.

Speaker 4: Year over year variance is due primarily to expensing prototype expenses related to the viability launch. Gap gross margin of 53.9% were negatively affected by a non-cash depreciation and amortization charge of $1.3 million.

Speaker 4: This is primarily due to the new inclusion of amortization of viality, manufacturing know-how and developed technology in cost of sales.

Speaker 4: In prior periods, this non-cash expense was charged to DNA expense.

Speaker 4: The accounting change is due to the launch and subsequent shipping of the product.

Speaker 4: Total Gap Operating Expense for Q123 was 22.7 million, which compares to 28.9 million in Q122, a 6.2 million or 21 percent decrease.

Speaker 4: Total gap loss from continuing operations for Q123 was $12.9 million as compared to an $18 million loss for the previous year's period.

Speaker 4: The KAB loss from continuing operations for Q123 was $12.9 million as compared to an $18 million loss for the previous year's period. Switching the key balance sheet items.

Speaker 4: Cash ending on March 31, 2023 was 19.4 million. Given our free cash flow performance and growing revenues, we feel that we have sufficient cash to drive the business to free cash flow positive performance exiting fiscal year 2023.

Speaker 4: December 31, 2022 of 42.7 million. This performance includes building viality inventories. A Council receivable also is performing well. At March 31, 2023, our AR balance was 35.5 million down from 36.9 million at year end 2022. In all, we've seen a fantastic start to 2023 and all facets of our financial model and look forward to continuing our trend of improving financial performance. At this time, I'll turn the call back around for a few concluding remarks.

Speaker 3: Thank you, Andy. At Cientra, we're not just satisfied with success. With 11 consecutive quarters of record-breaking revenue, we're proving our commitment to delivering excellence time and time again.

Speaker 3: But we're not stopping there. Our mission is to be the forefront of innovation and to provide the best possible products and services to our valued customers. Looking ahead, we have big plans for 2023 and beyond.

Speaker 3: We'll keep growing and expanding our reach to involve the reconstruction and augmentation of markets.

Speaker 3: will keep growing and expanding our reach in both the reconstruction and augmentation markets. And we're not just looking to grow for growth sake.

Speaker 3: We're taking strategic approach to ensure long-term profitability.

Speaker 3: And with addition of SimplyDerm, we're even better positioned to achieve our goal, doubling our revenue in the next three years. And with that, I'll turn the call over to the operator for Q&A. Operator. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.

Speaker 2: If at any time your question has been answered and you wish to answer your question, please press star then two. We will pause for one moment to assemble our roster.

Speaker 3: All right, great, good afternoon everyone. We had a couple calls this afternoon. So you might have already covered this, but the label for Simplit Durham, did you just expand on how to ultimately sell a tissue mesh into the expanded business? Just given that it's, these messages aren't unlabeled for breast reconstruction. Would you ever pursue a label for breast reconstruction or maybe talk through how you're ultimately gonna implement Simplit Durham into the portfolio? We have Denise Dials, our Chief Technical Officer with us, so Denise.

Now thank you, Alex. Structeager reinforcement is used in all reconstruction procedures, including breast reconstruction for a tall of those types of procedures and reconstruction as well. For example, when you're replacing the dermis in a prefectural reconstruction, it's highly used and it's an all-labeled use.

There are other on-label uses that physicians might decide to undertake. However, we would not promote them as we are promoting the ADM for its on-label applications of soft tissue reinforcements. Okay, understood. And then maybe just kind of speak to how demand is.

training, specifically the augmentation side, it's also reconstructed. In Q1, but I guess I'm more interested in actually April and May. There's been some interesting marker commentary around the aesthetics demand and how that's been trending. Just what can you provide us around the macro side?

and across failures, et cetera. If you see that impact, we seem similar. The first couple months of the year or the market is kind of mirroring what happened last year as well. For us, the big dominant player was obviously what happened to reconstruction. We saw dramatic growth in the first quarter for reconstruction. In 2009, though, it was even News 3 of California when the economy slowed and gained competitors.

We don't have the data on the market for both areas, but we've seen a very robust data. And the bottom line of the augmentation is we'll continue to take share. We saw that we brought on board almost 150 New York counts.

That's even a faster pace to bring in recon accounts. We'll continue to increase share. We don't have the share data yet. But as we position for the future, we'll be very confident that with our current pace of new accounts that will be well positioned when this market comes back. I think we're all waiting to see what that happens.

But that's the beautiful thing about having a diversified type of product that we have now and leading more into reconstruction.

while we seeing this market didn't well, and all we could add in your products and reconstruction. Okay, and then just last question, maybe just give us your view on the competition environment out there right now. You said you're going to keep taking a share, but when you speak to clinicians out there, specifically after recent data coming out, for your data coming out from establishment labs, you'll ask

comprehensive data. It's not a pick data just primary on includes all three kinds of patients. And from the competitors that we have now, Allergan, the mentor of great competitors, they are trying to protect their business and we'll continue to gain share as we just discussed. Didn't you? Yeah, so on the aesthetic society, meaning we released.

The six year data sets from our post-approval study, which it has been submitted for publication, and hopefully will be in print soon. Where we have over 5,000 patients at over 100 sites. And we have primary augmentation patients, revision augmentation, primary reconstruction, revision reconstruction, and we see outstanding data points. When you add all the different cohorts with all the different types of complicates.

traditionally the worst cohorts, which are the reconstruction cohorts, but even including those are data and our numbers. Keep being...

which are the reconstruction codes, but even including those our data and our numbers keep being at the top.

Excellent. I appreciate the update. Thank you. Thank you. Our next question comes from John Block with Stainful. Please proceed with your question.

Hi guys, this is Joe Federico on for John . I wanted to start with fat grafting. I know you had previously mentioned that you expected that to be roughly 5 to 10% of revenue exiting 23. Are we still thinking that that's the right range?

That is correct. We expect 5 to 10 percent depends how quickly we get in reconstruction. We're getting, we're very, very excited because we're getting now close starting to the first close to 400 hospitals that will have biology available. Keep in mind that's available now. Now obviously the up to our representatives getting those hospitals.

and finding the users, et cetera. So just first, we'll start a really high kind of pace in the hospital environment.

cosmetic surgeons as well. OK, great. And then just if I could sneak in one last one here on Aloex2 Pro, where does that currently sit? Could we see an approval in the near future? Is there anything specific holding that up at this point?

Yeah, hi. This is Denise. So, conversations are still ongoing with the FDA. We are still in the process of back and forth with questions and answers, but we're still very positive that we will have news from them very soon.

Hi, this is Denise. So conversations are still ongoing with the FDA. We are still in the process of back and forth with questions and answers, but we're still very positive that we will have news from them very soon. OK, great. Thank you.

Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.

Thanks. I just wanted to follow up on Viality. You said you began the commercial launch this quarter. Did you say at the end of the quarter?

Anthony, we just did what early seating, early experience programs, we give some viability, some users in a kind of entry level to try it out with some critical high users and the feedback of the stated in my opening remarks is overwhelmingly positive and they are ready to buy more those individuals that started with last two weeks of March.

So we're really starting now the full launch and the majority of the revenue coming out is from augmentation. But keep in mind, we expect that to flip by the end of the year, where probably 70%, 60 to 70% will be coming from reconstruction, since 70 to 80% of patients that go through reconstruction use biografting.

So we're really starting now the full launch and the majority of other rent you come in now is for an augmentation. But keep in mind we expect that the flood end of the year, we're probably 70%, 60%, 70% becoming from reconstruction. Since 70% to 80% of patients that go through reconstruction uses, they use bi-grafting. Sure, sure. So this.

even though you began the commercial launch, you were seeding it, so there wasn't, for this quarter, your revenue number of 22.6 was almost entirely X, viality, right? Yeah, it was immaterial, the amount of viality. That's what I thought, that's what I thought, okay. And then, I mean, do you see a cross-selling opportunity?

think about that strategically.

Well, I'm going to use our own analog, Anthony. To look at market share that we shared at the beginning of the year with the fourth quarter, for the longest time, our AloX2 tissue expander had a much higher share of their implants because of the clinical benefits AloX2 has over existing tissue expanders.

And for the first time the fourth quarter of 2022, the share got closer and closer. For example, there used to be a separation of about three to four share points. In the fourth quarter, we finished at 21.2 for a tissue expander in the marketplace. And the second quarter, we finished at 21.2 for a tissue expander in the marketplace.

implants are 19.6. So now they're within a share point apart. And we expect the same thing with viality. We are opening your doors right now for viality of current customers, they're not our customer. And as we enter the door with viality and there's a huge positive

The buzz and excitement in Miami, our booth was busy as everyone came over to ask questions about the viability. Several speakers had nothing to do with us there. We're talking about different products brought up viability. The importance of fact-rofting, the importance of using a product has high fat retention rate.

You know, we've been hearing from some aesthetic practices, but maybe you're not seeing the same impact, but I'm just curious. Are you seeing any slowdown or your practices, any slowdown in the augmentation side of the business, or do you think that continues to be?

inflation slash recession resistant? No, I think you have to divide it into several areas. If you look at primary augmentation, there's definitely not a slow down. It happened last year and it probably happened as well. We saw the first couple of months of this year. But revisions where patients are coming back for a different size or a smaller size of implants continue to be solid.

And the beautiful thing about having a valid and out open new doors for us. Some of the data that we saw in the first six months was patients are using a valid for different uses or beyond just using around a smaller, a breast implant. So we're getting becoming a diversified company within the cosmetic side.

And we also start seeing patients that surgeons are already using for face. And then obviously reconstruction is very, very solid. And a lot of the data and a lot of the results we see in the first quarter was really the great performance in reconstruction. So having that diversification even within one specialty is a huge benefit for us.

And as I stated before, it has really created a vote. Now we're having our team walking in with multiple products, running those products with the hospitals, with the IDNs, and also with GPO's, and be able to get one stop shopping. Now one stop shopping is our company, which makes it really hard for a new competitor to come in who just wanted to products.

Okay, yeah, that's very helpful. Thanks very much. I'll hop back in the queue. That concludes today's question-and-answer session, and the conference has now concluded.

Thank you, everybody, for attending today's presentation. You may now disconnect your lines.

everybody for attending today's presentation. You may now disconnect your lines.