Q2 2023 Sientra Inc Earnings Call
Good afternoon, and welcome to the CN trusts second quarter 'twenty two 'twenty three financial results Conference call. My name is Keith at this time, all participants are in listen only mode.
Has the central exactly does provide their business updates there will be a question and answer session. As a reminder, today's conference call is being recorded.
I now want to turn the conference over to your House, Oliver Bad Sanchez, Chief legal compliance and corporate development Officer, Mr. Brian He may be yes.
Welcome and thank you for joining us on today's call.
Second quarter 2023 financial result.
On our call today, we have Ron manifest, Kansas, President and Chief Executive Officer.
Denise thyroid cancer, Chief Technical Officer, Andy Schmidt.
As Chief Financial Officer.
We are pleased to have reported earlier today another quarter of record results for revenue EBITDA and free cash flow performance, we achieved our 12 consecutive quarter year over year revenue growth with revenues of $23 1 million, representing seven 5% growth over the prior period.
Significantly we achieved these results while also obtaining a 63% year over year improvement in non-GAAP EBITA at 95% improvement in free cash usage of under $700000 this quarter as.
That's one and Andy will describe these results give us confidence of meeting our goal of positive free cash flow performance by Q4 of this year.
Before I turn the call over to Ron I must remind everyone that we will include forward looking statements in our prepared remarks and in response to any questions you might ask.
These forward looking statements are based on management's current assumptions and expectations of future events, who tracks.
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 to be filed later this month available on the company's website.
With that I'll ask our president and Chief Executive Officer, Ron to comment on our second quarter results.
Thank you all of her Sandra has reached a critical inflection point that supports the strategic direction of becoming a profitable and diversified surgical aesthetics company.
As we reported earlier today, we recorded the lowest ever free cash flow usage in the history of the company.
Would this be a breakeven performance combined with our continued market growth and disciplined financial management. We're confident we will achieve positive free cash flow in the fourth quarter of 2023.
Entering the second half of 'twenty to 'twenty, three with fully built out leadership team and a new product suite of high value products.
Isn't the best fundamental position in our company's history.
Importantly for investors, we are committed to rewarding their patients here.
At the midpoint of the year I'm confident that the answer is a tipping point with market leading top line revenue at a scale, where it can be leveraged to generate highly attractive sustainable operating profit growth.
We're just last year <unk> reported an average of $10 billion free cash flow usage each quarter.
As explained at that time some of this was tied to the necessary investments in <unk> infrastructure and operations to support our path to profitability.
Today's results are the product, but those investments combined with a disciplined financial management don't haven't still as we have consistently reduced the free cash flow usage over the past several quarters and then the most recent quarter, we reduce it again covenant under $700000, representing a 95% year over year improvement.
Our strong financial performance has not come at the expense of girls.
We have reported another record quarterly revenue result, representing a 12 consecutive quarter of year over year growth.
What is exciting about this result is that the growth was fueled by our core business implants and expanders. It does not yet reflect the acceleration of growth, we expect to see in the coming quarters on the new products, we're introducing to the market.
We are single minded in our drive for long term profitable growth.
<unk> success is driven by three areas to differentiate in the market.
Our comprehensive product platform to serve the needs of board certified plastic surgeons.
Our transformative products backed by robust clinical data.
Clear strategy for growth and disciplined financial management steering us to profitability.
Let me elaborate see interest of surgical aesthetics company with a platform of high value products focus on board certified plastic surgeons.
We're positioning ourselves as a preferred partner for plastic surgeons.
Platform of products and services to meet their needs in both augmentation and reconstruction.
We know that the plastic surgeons by your partners, who can meet their needs and Sandra has demonstrated its agility and capacity to evolve alongside them.
This is Sean evolution of the past several years from a single product company to one that has expanded rapidly into reconstruction with interesting leading expanders.
Grafting and other technologies to assist plastic surgeons in this complex area of care.
Our focus here, where construction shows that we are not driving growth at any cost, but we are driving profitable growth, creating your line of sight to positive free cash flow performance, but next quarter.
I'm extremely proud of our accomplishment this quarter and obtaining FDA clearance of our Alex to probe tissue expander, the first and only FDA cleared tissue expander that is MRI compatible.
We expect that this product would be a game changer in the standard of care for reconstruction patients as Denise will explain a little bit later in the call.
This class, which is the first new tissue expander cleared by the FDA. Many years demonstrates the answer's, a commitment to innovation and bringing transformative products to the market.
While other companies May talk about getting products to the F. D. A C interests on the select companies proven track record of doing so.
Have you had three new products cleared or approved by the FDA in the past 15 months.
We have also introduced two new products to the market.
Virality and simply darn they have additional new products launches planned for 2024.
This level of innovation set us apart from the competition with dealer growth and profitability going forward.
One example of that growth would be our fat grafting product vitality.
Well begin their early commercial launch of this product in the past quarter.
While we're continuing to work through the contracting process with getting this product into hospitals, we're encouraged by what we're seeing in the early stages of the launch.
Hospitals that have placed their first order support pilot at the beginning of the quarter ever read your reorder products.
We expect to see an acceleration of orders in the coming quarters as more hospitals began ordering and reordering.
In addition to this innovation we have also expanded to three new international markets in the last 12 months.
We're seeing solid growth into new markets as we take share away from the existing companies in those countries.
Physician interest in our products continue to grow internationally as demonstrated by the recent scientific presentation on century plants held to that I called blast conference in Dubai.
Defense to Guinness World Records, one for the most attended plastic surgery less than ever and another for the most nationalities present at a plastic surgery conference.
Looking forward to the balance of 2023 it is important to remember the augmentation and reconstruction to different segments and plastic surgery with their unique market dynamics.
Documentation segment cyclical and more sensitive to changes in consumer buying behavior.
As a result, we're seeing softness in argumentation segment. This year, but is this typical cyclical market.
Spect us an upswing and augmentation of the future of our market research continues to indicate the interest in breast augmentation remained strong.
The reconstruction market, although the hands is less sensitive to market fluctuations.
Construction cases also represent a higher revenue opportunity per procedure, given the price points and use of multiple products.
A reminder, the recent launches by letting simple derm Sandra has more than doubled its total addressable market for more than $600 million to close to $3 billion.
Our focus in both the reconstruction and augmentation has been the foundation of our growth.
Continue to add New York counts just this quarter had a close to 240 new accounts.
During the past three years, we have doubled our market share in our core business of implants and Expanders.
Moving forward, we aim to enhance our penetration with existing accounts as they are more productive and drive most of our growth.
Well look forward to the balance of the year or revising our full year revenue guidance to 98 million to $112 million from the previous announced over 104 million to $109 million.
The new guidance is an increase of 8% to 13% over 22 full year revenue.
This revision reflects our expectation that we'll see continued softness in argumentation segment.
While we expect this softness to be offset by continued double digit reconstruction growth. We're also seeing the cadence of adoption of our biology simply darn products, followed the normal hospital contracting process.
Achieving steady adoption in the hospital can take up to six months from getting the product a contract before we started to see meaningful revenue contributions.
Given the number of accounts that are adding both products that are in our contracts. We believe that this will set us up for strong acceleration as we head into 'twenty 'twenty four and beyond.
Although we continue to leverage our infrastructure and generate operating efficiencies.
We're revising our non-GAAP operating expense guidance to 75 million to $78 million a decrease of $16 five at the midpoint versus 2022.
On a GAAP basis, our guidance is 84 minutes to $87 million, a decrease of 23% versus last year at the midpoint.
This reflects our confidence the central can be cash flow positive by the end of this year.
I'll now turn the call over to Denise Stiles, our Chief Technology officer to share more about our product and clinical data.
Thank you Ron.
Ron has already spoken to you about how our platform is designed to serve the need of augmentation and reconstruction patient plastic surgeon.
And so we continue to expand their portfolio transformative innovation continues to be top of mind.
We continue to add product and solution to support total body transformation and we are excited about the groundbreaking product and clinical research we have.
One example of that innovation is our outlook no problem he shouldn't battered.
The first and only FDA cleared.
Our MRI compatible tissue expander.
This is a significant advancement in the standard of care for reconstruction patient because he'd helps remove the limitation for women undergoing he shook standard base reconstruction, who cannot personally have MRI.
And MRI may be needed for these patients the desk or recurrence of the cancer a method that would be construction in the first place or to screen for other underlying conditions and injury, because the magnetic infusion of tissue expanders theaters unpaid or am I right.
Before Alex Brown.
Women, we're left with a choice, we're going MRI screening, where having an additional surgery to remove the tissue expander.
Why isn't the market next year, the interested Alex to probe will provide a new option, but not only does not interfere with MRI, but also have neglected well interference with radiotherapy and allow for faster feeling which we believe will be groundbreaking for women and plastic surgeon.
We are committed to transparency and accountability in our product development, which is evident in the clinical research data we shared we.
We have significant depth in our research and we believe that we provide more relevant and transparent data in our presentation and publication than anyone in the market.
I will remind you that our breast implants were evaluated over a 10 year clinical trial with Unparallel AP clinical result.
Our implants have been clinically shown to have one of the lowest rates of capsular contracture, and the lowest rupture and re operation rate in the industry.
Our ongoing post approval study nearing its 10th year continues to provide data that reinforces our safety profile with real world evidence.
As we shared on the aesthetic Society annual meeting in Miami in April of this year. Our post approval study excuse data continues to show impressive people.
This study, which has over 5000 patients I know, but 10000 implants across more than 137.
Demonstrates our important efficacy you know why.
Right rage patients and surgical site.
Rather than have to be patient and procedures for the best outcome.
This is part of our commitment to accountability and Netease also white interim provides industry, leading weren't that far surpasses any more product in the market.
Importantly, we are not in the data that we presented that provide the data for all complication because oracle.
We believe that these openness and transparency the presentation of clinical data is critical and provide more meaningful information for physicians and patients.
Great and selected self reported post market surveillance data or incomplete presentation of clinical data that excludes cohort and Amit presentation umbrella one complication.
Our new products are also supported by deep Andhra Bank research. We continue our ongoing 13th site long term volume retention clinical study with Miami.
As we have previously stated the luminary results from this study shows that vitality.
I mean, 80% volume retention at both the three month and six month time point post breast augmentation and reconstruction.
These preliminary data makes biology, the first and only system to have clinically demonstrated such high retention result.
We expect to provide more data from this study in the early fourth quarter.
Again, it is our goal to seamlessly bridge the gap between innovation and safety.
We know these procedures are life changing for patients and they trust our products to help them with self confidence and self respect I'd say.
Transform and rebuild their body completing their journey and helping them feel feminine and good about that.
That is a responsibility we take very seriously as we bring product to market that we believe will transform the industry.
And now I will turn the call over to Andy Schmidt, our Chief financial officer to discuss the financial.
Thanks Denise.
As Ron mentioned earlier, our Q2 'twenty twenty-three financial results showcased our continued trend of strong revenue performance.
Disciplined expense management, and exemplary EBITDA and free cash flow results.
All of these elements support our path to cash flow positive performance, which we expect to achieve by Q4 of this year.
Our key Q2, 2023 financial highlights include record Q2 revenue of $23 1 million as compared with $21 5 million for the prior year period, an increase of 7.5%.
non-GAAP operating expense of $17 5 million as compared to $22 3 million for the prior year period at 22% reduction.
non-GAAP EBITDA of $3 $4 million loss as compared to a $9 $2 million loss for the prior year period.
63% improvement.
Free cash flow usage was $693000 as compared to free cash flow usage of $13 2 million for the prior year period.
At $12 $5 million or 95% improvement.
Our core product revenues continue to build with market share gains across both augmentation and reconstruction with a key focus on new hospital wins.
Our current period revenue does not reflect the launch and expected revenue contributions from simply derm.
And the only includes a small contribution from biology as we began our early launch programs in Q2.
Our free cash flow performance is a spotlight is our operating expense discipline combined with efficient working capital management.
Buying for a near free cash flow breakeven performance this quarter.
Is the fourth consecutive quarter of improved cash flow performance.
During the past four quarters, we saw a free cash flow usage decrease from $55 million to $14 $8 million from a year over year perspective.
71% improvement.
This trend is the result of the hard work, we have been communicating to the street over the past year and we expect this trend to continue over the next several quarters.
Completing the P&L view, our pro forma gross margin of Q2 2023 plus.
61%.
Which compares to 61% for the same period last year.
Current year's performance includes by all of these launch costs, which will decrease over the second half of the year.
GAAP gross margin of 55% was negatively affected by a noncash depreciation and amortization charge of $1 5 million.
This charge is primarily due to the inclusion of amortization of viability manufacturing knowhow and develop technology and cost of sales.
Prior to product launch this noncash expense was charged to G&A expense.
This cost is fixed in nature, hence will not impact GAAP margins as significantly in future periods as vitality sales continue to increase.
Total GAAP operating expense for Q2, 2023 was $19 7 million compared to $28 7 million in Q2 2022 nine.
$9 million or <unk> 31 per cent decrease.
Total GAAP loss from continuing operations.
For Q2, 2023 was $9 5 million as compared to $18 $2 million loss for the prior year period.
48% year over year improvement.
Switching to key balance sheet items cash at June 30, 'twenty twenty-three was $18 6 million a decrease of only <unk> 8 million from the previous quarter.
Given our improving 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 'twenty to 'twenty three.
We continue to focus on working capital efficiencies you see consistent strong performance in our inventory management with ending inventories at June 32023 of $39 4 million.
Down from year end December 31, 2020 to $42 7 million.
This performance includes building vitality inventory.
Accounts receivable also was performing well.
June 32023, our AR balance was $31 8 million down from $36 9 million at year end 2022.
And all we've seen a strong first half of 'twenty to 'twenty three in all facets of our financial model and look forward to continuing our trend of improving financial performance.
At this time I will turn the call back to Ron.
Andy our progress would not have been possible without a clear strategy for long term sustainable profitable growth.
As I said in my earlier remarks, we have reached an inflection point in our business model.
We have remained singularly focused on providing the safest and most innovative solutions for the best aesthetic outcomes.
Sandra will seek to empower patients doing every step in their journey.
Put their needs and reduce the potential for risk and guide them in making informed decisions about their health.
We have invested in the areas with the most potential for future growth and profitability and it has helped us transform Sandra into a company that offers a diverse portfolio of transformative products and services.
And now with that I'll turn the call over to the operator for Q&A.
Operator, yes. Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to Australia. A question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
And the first question comes from Anthony Vendetti with Maxim Group.
Hi, Good evening. Thank you for taking the question. This is actually Jeremy on for Anthony I. Just first wanted to start with the macro environment, you said that softness you've seen softness in the augmentation market do you think that's due to higher interest rates or maybe just customers have a fear of a pending recession. So they are just hesitant to invest.
Invest now in some type of in that type of surgery.
Yeah. This is Ron I don't know if I would speculate what the reasons were but one of the great things about where are we at now as a company is augmentation. Obviously, it's important yeah. It was 47% of our business and of course, this past quarter, but assume sometime in late next year.
In 2025 would be a smaller part because at the end of the day as it will become a diversified company and we started entering new tamps are closer to $3 billion Tam from $650 million that will change now what do we see in the augmentation market even though.
There is a softness there there is still a much higher interest by prospective patients. We did our market research in March of this year.
In the same market research, we did last in 2022 had about 13% of patients think about getting breast odd within seven to 18 months and now it's 53%. So there is a high interest oh still getting breast augmentation much higher than last year, but I think between the second quarter and in the air.
All of the different travels or whatever everyone's thinking.
The measure there is a softness then argumentation, but theres still a very high interest.
Want to get into surgery done in the next seven to 18 months.
Okay understood. So it seems to me it seems like it's a cyclical it more cyclical and then it should rebound.
He rebound when the market rebounds, the macro environments. Okay, and then just actually switching to the buyout in assembly. There I mean, all your centers that you're in the middle of this theres a six month long hospital contract process what percentage of the.
The hospitals and what does that represent of the accounts that you. Currently have are you are you in the middle of this process.
We're just introducing we actually just introduce a biology beginning of the quarter and simply don't win the process of reaching out to some accounts trying to contracting.
We're encourage what's happening at the beginning as I stated earlier, we actually have seen the hospitals they came aboard.
First in March April they already reorder at a same rate are they ordering tissue expanders and implants now we're going through that process of getting more accounts is happening weekly for simply derm are we introducing the product to hospitals with products to G. P. O. So we're seeing some good very good feedback on that discussion.
As well.
Very excited about some of the networks that are experiencing and trying.
Biology, and we've seen as well an.
An example is a well known and our hospital there.
It has a very high interest in simpler terms. So we were in the introduction part or very early stages for since the derm and the same thing for awhile, but very excited about what's happened to the biology of the hospitals that came on board.
Okay, great. It sounds really great I think there's going to be it's going to really be a nice contributor to revenue and then just the last question from from US you sorry, excuse me, yes the.
What Oh, sorry, Yeah, I don't know if you could.
The Oh, sorry, I lost the question here.
Oh, sorry, Yeah, I'll I'll hop back in the queue, if I pull up the question and then I'll I'll jump back in thank.
Thank you.
Thank you and then I suppose it comes from Jon Block with Stifel.
Hey, its Jordan Bernstein on for John I guess my first question is on new account growth.
You reported 240 in the quarter, where would you expect further new account growth to come from is that biology, and some of the newer products opening new doors for the business and then if you could just break that down to 240 between AGH and reconstruction for us. Thanks.
Yeah. So there's about 75 to almost 80% of our revenue comes from existing accounts. Those accounts are really drive our business, obviously, the new accounts as future revenue coming in.
And right now all of the 240 125 or augmentation and 115 people from reconstruction, so still much higher for augmentation, which we find to be exciting for the future as we've discussed before the market is.
It's cyclical.
The great thing is we continue to gain share I don't have the data for the second quarter, but the data that we already share in first quarter, which seemed to grow share in both augmentation and reconstruction.
Great. Thank you and then I guess my follow up would just beyond the demand environment in general I am hearing from some of your aesthetic peers a bit more hesitancy on the purchasing side that said now that we are in to August would you say there are some seasonal summer demand that you're experiencing the augmentation side.
How would you anticipate the second half of the year progressing cadence wise.
<unk> <unk> with the fourth quarter being the strongest of the year, if I have that correct. Thanks.
Remember keep in mind, it was really becoming a surgical aesthetic company focused on the hospital environment as well there is no cyclically impact there will continue to grow extremely well on the reconstruction side and as we roll new products in the hospital environment, we will be entering new.
New markets that we're not even discussing right now so we're really excited about the future of the company the timing of the launch of our two products that I. Just said that we are introducing and who is the acceleration of new accounts that hospitals are adopting both val that eats into the derm and then beginning of next year, we have almost two pro there'll be introduced into the market.
Great game changer, and we already have requests by hospitals don't want the product and we tried to tell him we're setting up manufacturing and everything in the next five months. So that's going to be our big focus as well now on the augmentation side, you'll see more of a cyclical easily in the summer is a little softer and argumentation and then the <unk>.
Except again in late fall and definitely in the fourth quarter from our mutation the critical thing is.
The interest by the patients still very very high and has not change independent of what's happening in the car and a macroeconomic area.
Great and then and then last last question for me just on vitality. The fat grafting system. It seems like the contracting processes are ongoing with the hospitals, but would you still think that the that the revenue stream would account for 5% to 10% of revenues exiting 'twenty three but how would you characterize that.
And moving forward.
That's the last thing I think yeah, we still think it would be in that range are exited.
Q4 this year.
Great. Thanks for the color.
Okay.
Thank you and the next question comes from Alex Nowak with Craig Hallum Group.
Hey, great good afternoon, everyone I'm.
You know Ron or any do you expect to remain cash flow positive. After Q4. So in Q1 2024 or do you think you were asking for the cash flow positivity.
Positivity might jump around a little bit as you're rolling out the new products.
Sure This is Andy.
Yes, we're modeling it.
It's going to be variable depending on the launches. However, it's not unusual for us to see a seasonal Q1.
Our cash flow usage is higher than the other quarters that has lot to do with pain Oh.
Pain, our key vendors.
Do with manufacturing coming off of a very very strong Q4 in our seasonally best quarter has to do with just basic corporate structure are paying commissions paying your bonuses and so on so that's the one piece of it.
Again, we're not concerned at all about our cash balance going into Q1 and into Q2, but that's the only quarter, where we see seasonality in cash the other quarters are pretty predictable.
That's helpful and when you think about how the bundling strategy is working so far this early in the biology launch.
Is it basically a hospital or a physician to it.
Placing and using biology fat grafting, one to one with its yatra and plan for it maybe.
One to two like how to think about how often the layout is being used with another theatrical products.
Yeah, it's too early on that and we do have a strategy that we're not going to get into details for obvious reasons.
But we do have a strategy we have a plan and we have discussions with hospitals about getting all products. There is obviously an advantage for the hospital as I've stated before most hospitals prefer to deal with one vendor and now we have the ability to walk into the hospital can offer almost everything that surgeon needs and every construction.
Obviously your plants tissue Expanders and ADM and also a fat grafting, but we are seeing some wins already some of those hospitals based on this our multiple product strategy.
Yes, let me kind of add to the modeling side of that is.
As Ron said, we've got the complete suite now the ADM, the expand or the implant and the fat grafting. When you look at that and if you look at how procedures are done in a single procedure utilizing our full suite.
It can be as high as $19000 of revenue for C. Intra for one patient that compares to an augmentation patients that basically it might be five or $600 again getting back at that suite at hospitals suite.
The gross margin dollars.
Eight times greater or one patient then basically one augmentation patients. So it's a tremendous multiplier on this model.
So it certainly makes sense and then I would.
The FDA came in and gave.
Gave you the approval on Alex to pro Theres, obviously to talk about them stepping up and you are putting that at the PMA potentially product line. So I guess what is what is the background why did FDA step away.
Hey, Rob.
Hi, Alex this is Sidney.
Absolutely we're very excited.
Yeah.
Well.
If I'm not I'm confident in the strength of our product.
The strong data we have around it and then we thought it was really really a regulatory strategy to work with them and halfway to turn around.
Right now, we're getting ready and focused on launching we know that overall, there's some data that shows that MPA, taking over 160 days for five 10-K clearance says I'm overjoyed.
For PMA approval. So we are very excited that now we have the opportunity with these leann move on launch that's brought up and introduce it vendors that uhm.
Uhm meet the market and a lot of excitement around it.
The other interesting thing is if they ever decided PMA route which at the moment. There are no active conversation all products that are already available on the market will have an expedited path for PMA approval, that's what they have publicly.
Got it Okay very helpful. And then just lastly, just to satisfy competition in the market those who are already in the market those who want to come to the market for implants, just what's the latest take on the market out there.
Oh, sorry, I moved over to actually I'll, let I'll address as well.
At the current market environment in U S. You have a two competitors that's due on the majority of the market. So we're very very excited about the future as well in both Oregon Recon.
We have growth opportunities and reconstruction and I announced in the first quarter. There were about 23% share in recon. So we've got a long ways to go to be a leading company. There and then we're in the mid teens on the auto side no augmentation.
They're great competitors, they are still very much focusing on their key products.
And then from a new entry right now I don't expect anyone anytime soon but I'll, let you make any comments on that.
Yeah, just just a follow up Ron Cameron, obviously would be existing competitors. You know that we were seeing aggressive responses in the market. So it's a credit to our products and our sales force that we're continuing to gain market share and then as to the F. D. A.
We're obviously not privy to those conversations, but it's nice that alluded to this recent data from D. P. I G.
On average two two and a half years actually almost almost closer to three years.
For the FDA to approve a PMA.
Suggests that any new entrant.
That's a significant path to getting approval in the market place.
Alright, I appreciate the update thank you.
Thank you.
Im showing no further questions at this time and we have no closing remarks that concludes our session. Thank you for participating in today's meeting.
Thank you.