Q2 2019 Earnings Call
Let's see I Trust second quarter 2019 earnings conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session instructions will follow at that time.
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I would now like to turn the conference over to your host Neill Volcker you may begin sir.
Thanks, operator.
In our remarks today. We will include statements that are considered forward looking within the meaning of the United States Securities Laws. In addition management may make additional forward looking statements in response to your questions.
Forward looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business strategy operations or financial performance, a detailed discussion of the risks and uncertainties that the company faces is contained in its previously filed annual report on Form 10-K , and quarterly report on Form 10-Q , the company will file with the SEC.
Actual results may differ materially from those expressed in.
Implied by the forward looking statements. The company undertakes no obligation to update or review any estimate projection or forward looking statements.
Today on our call, we have Jeff Nugent, Centrus, Chairman and CEO Paul Little.
Oh, senior Vice President and Treasurer, and Charlie Huiner.
COO and senior Vice President of corporate development and strategy I'll now turn the call over to Joe.
Thanks Neil.
Good afternoon, and thank you for joining this afternoons call.
As discussed in our earnings release, she interest second quarter results were very strong.
With consolidated sales growth of 17% year on year.
Our entire team is extremely proud of these record results I want to highlight three of those key achievements in particular.
First she introduced opus breast implants in tissue Expanders continue to take share.
With breast products sales growth, 19% year on year at a time when the overall market is flat.
Second.
MYR dry achieved record sales of 9.3 million in the second quarter.
Our brand awareness and market activation strategies are gaining momentum.
With strong performance globally, particularly in the United States.
Third we completed an equity financing in June that provide she intro the capital to strategically invest and drive growth across our total portfolio.
Based on our current plan, we do not expect could we will need to raise any additional equity prior to reaching cash flow breakeven in late 2021.
With that as backdrop.
I'll review, our second quarter results in further detail before turning the call over to Paul.
We achieved record quarterly net sales of 20.5 million for the company in the second quarter.
Which equates to year on year growth of 17%.
And sequential growth of 16%.
This quarterly performance was driven by record sales for Miro dry.
In addition to strong results for our breast products segment.
And represents solid progress toward achieving our 2019 objectives.
I'd like to emphasize that while total breast products sales in 2019 second quarter.
Grew 19% year on year to 11.2 million.
The core breast implant and tissue expander sales, excluding biocorneum was even stronger.
Growing up 26% year on year.
Our plastic surgery consultants demonstrated strong execution against their targets and I'm confident that we are well positioned to continue this momentum in the quarters ahead.
In an overall breast market did we estimate was flat to modestly down in the first half was 19.
She introduced breast implants in tissue expander sales have grown 26% year to date.
Clear evidence of market share gains from our targeted new customer conversion programs as well as deeper penetration on our existing accounts.
In the second quarter, our sales force generated sales of over from over 100, new breast implant accounts that had not placed an order with central in 2018.
This brings our year to date total of new implant customers to over 200.
Which represents a 25% increase in active accounts relative to or 2018 base and solid progress toward regaining share with you over 2000 plastic surgeon accounts. This year interest sold to hit its peak in 2015.
The new customer account wins demonstrates a clinically supported superior safety profile.
And industry, leading warranty of Opus implants are resonating with our board certified plastic surgeons as well as their patients.
Our breast implants supply from Vista continues to build and we expect a steady ramp throughout the back half of 2019.
And our improved supply position has allowed us to roll out these new customer conversion programs.
Which we will continue throughout the balance of 2019 and beyond.
And supports my enthusiasm for the share recapture opportunity going forward.
Particularly in light of the market conditions that increasingly favor she introduced points of difference.
We also want to advance our position in the $300 million.
You asked breast reconstruction market.
The strong growth in our tissue expander portfolio is driven by deeper penetration within existing accounts as well as new hospital contract wins.
As discussed on last quarter's call.
We received FDA approval for extra high profile or X P breast implants.
In mid April , adding over 50, new smooth and texture do plan options.
This approval filled an important gap in our reconstruction portfolio.
We introduced our extra high profile implants for plastic surgeons at the American Society of acetic plastic surgeons meeting in May.
And we were excited to begin sales of these products early in the third quarter.
We expect demand for these new implants combined with continued recognition.
The continued advantages of Elagolix to to drive further penetration of hospital reconstruction accounts in the back half of 2019.
Our mirror dry segment delivered a record quarter.
Achieving net sales of 9.3 million equating to year on your year on year growth of 15%.
And 20% sequentially.
Sales were well balanced across geographies as well as the mix between capital and consumables with particular progress that we are good we had expected to see in the us market.
Your drove strong results reflect the scaling effect of the marketing initiatives, we launched earlier in the year as part of our no sweat global campaign.
We continue to place cost effective targeted digital ads across highly traffic and focus digital platforms, including Instagram Facebook, Google and the others do continue to build interest in mirror dry.
Our merger I website has seen significant increases in high quality traffic, which we define as website traffic that took to the next step of finding a doctor on our website.
This is driving increased quality leads and referrals across our installed base.
We continue to have a large number of accounts as weve discussed previously they've indicated that over 75% of their mirror dry consultations, resulting in a patient opting for treatment.
Further as we've discussed also previously patient satisfaction of those who have been treated with me are dr. is nearly 90%. According to real cells, which is among the highest across the entire statics category.
This progress is driving physician testimonials and practice success stories that are capital reps are leveraging in their calling efforts.
We're seeing evidence that overtime as physicians cross sell other treatments to the aesthetic neophytes.
Merge right did midrise beginning.
To bring to their practices.
The lifetime value opportunity of this group of patients will make practices potential investments investment in mirror drive even more compelling.
In conclusion I believe the mirror dry team is executing on all the right strategies to grow the mirror dry installed base and capitalize was clearly a large highly underpenetrated sweat and odor market.
Compared to other approved sweat treatment products, we know that mirror dry continues to be the only treatment.
It provides a life changing permanent solution for consumers bothered by sweat that also eliminates odor.
The business is well positioned to be a significant growth driver for Sandra and I'm confident that the momentum we saw in the second quarter will continue in the back half of 2019 and into 2020.
Finally, we're pleased to have completed of $115 million equity offering in early June .
The net proceeds from this offering provides yatra the capital to strategically invest in the compelling growth opportunities we have in both our breast and Mira dry businesses.
With that I'll hand, the call over to Paul who will discuss the interest second quarter financial results in greater detail Paul.
Thank you Jeff.
As a reminder.
With the exception of adjusted EBITDA, all of our financial metrics.
Our reported on a us GAAP basis. Additionally, we will continue referencing an adjusted EBITDA margin, which we define as earnings before interest tax depreciation amortization fair value adjustments stock based compensation and impairment specifically, we are removing non cash items.
And or nonrecurring items for this non-GAAP measure.
Again, please refer to our supplemental financial information.
Earnings release, and 10-Q tables on GAAP and non-GAAP and a full reconciliation of adjusted EBITDA to us GAAP counterpart.
Consolidated total net sales for Two Q1 9 was $20.5 million, an increase of 17% compared to total net sales.
17.6 million for the same period in 2018.
Gross profit for the quarter.
Was 12.7 million or 61.9% of sales compared to profit.
A 10.9 million or 62.1% of sales for the same period in 2018.
Changes in consolidated gross margin driven by the overall mix between breast products and marriage right.
As well as the geographic and capital versus consumable mix within marriage right.
Operating expenses for the second quarter, 2019 were $52.8 million compared to 27.8 million of expenses for the same period in 2018.
Excluding a 15.8 million noncash impairment of certain goodwill and intangibles related to Mira dry.
Operating expenses were $37 million, an increase of 9.2 million.
Primarily driven by an increase investments in marriage, right sales and marketing.
Following the positive results, we are seeing in the return on that investment.
The non cash impairment does not impact the company's ongoing business or financial performance.
And we remain confident in our dry 2019 sales guidance as well as the segments long term growth outlook.
Adjusted EBITDA for Two Q1 9 was a loss of 20.4 million.
Compared to a loss of $11.8 million in the year ago period.
Net cash and cash equivalents as of June Thirtyth, 2019 was $146 million compared to 62 million as of March 30, Onest 2019.
The increase in cash reflects the 108 million in net proceeds.
Seattle received from the equity offering completed in early June .
We believe that the recently completed equity and debt financing provides financial with the capital needed to strategically invest and drive growth across our portfolio.
Based on our current plan, we do not expect the need to raise any additional equity prior to reaching cash flow breakeven, which we estimate will be in the fourth quarter 2021.
As noted in this afternoon's press release, we are reiterating our 2019 sales outlook.
For 2019, we continue to expect total net sales in the range of 79 million $23 million, which represents growth of 16% to 22% compared to sales of 68 million in 2018.
For breast products, we expect segment net sales of 44 to 46 million.
Driven by continued share recapture our opus Joe implants.
And strong growth for our tissue expander portfolio.
Premier dry we expect segment net sales of 35% to 37 million.
Driven by solid growth internationally and acceleration of our use of capital equipment sales as our investments and brand awareness and market activation continue to gain traction.
I will now turn the call back over to Jeff for his closing remarks.
Thanks, Paul.
In closing I want to repeat the three significant accomplishments in the second quarter.
First we had solid revenue growth in both segments driven by strong share gains in the breast products segment and increased global utilization and system placements premier dry, particularly highlighted by the strength we saw in the United States.
As well as the strengthening of our balance sheet, which Paul just mentioned.
I remain confident in our long term outlook as a fully scalable diversified global listed company.
For the balance of 2019, we're focused intently on executing on the significant opportunities ahead for all segments within Sientra.
With a capital raise behind US, we are well positioned to drive growth across the portfolio and deliver on our commitments to physicians patients and our shareholders.
I want to thank our very talented team for their hard work dedication and the results that to accomplish.
I'd like to now turn the call over for question and answer.
Yeah.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone.
If your question has been answered or you wish or make yourself from the queue. Please press the pound key to prevent any background noise to be actually meet your line. Whats. Your question has been stated as a reminder that is star then one to ask a question and our first question comes from Jon Block from Stifel. Your line is now open.
Great. Thanks, guys good afternoon.
I'll start with an air of dry.
You've now had the technology for roughly a couple of years so.
What's studies or information that you guys been able to put together for the physicians to highlight that lifetime value per patient right, you're bringing a different type of patient a younger patient do you have the compelling data that you need to really highlight that to your precisions upset.
John we have talked about this before and we're starting to get some very.
Very direct.
Qualitative information that.
Good.
The theory that says this is bringing in.
New patients to their practices are resulting in increased revenue increased procedures.
I am convinced that this is working but it is still relatively early days.
And that.
We put in a system to better monitor it.
But we are getting recognition.
And what are the best ways that we've been able to measure it is through the.
Testimonials and the additional references that are existing.
Placements are providing our our new placements.
So it's not the quantitative results and data that I'd like to have.
Theres increasingly strong evidence.
Okay character.
Okay Fair enough I would actually has a follow up on me or dry and the last one on breast health I would just love to hear as many specific examples as you guys can give encouragement in that business now for approximately six months, maybe if you can talk about the approach with the predecessor, what may have not worked out that well some of the headwinds that you guys have made with your initiatives and highlight what's really starting to resonate in the field and then I'll ask my shorter breast health. Thanks.
That's an easy.
Question and answer John because there's a significant.
Change in the.
The leadership approach.
That is.
Identifying and identifying the issues that were for example, holding back.
The U.S. performance that Joe.
As we've discussed before.
And with.
Kirk and his leadership team.
These two thirds himself.
Fully.
And redefining roles responsibilities and accountability.
For both the assumes the systems sales group as well as the PD UBS.
So there's a.
There are number of things that I can count on it but one is just an increased level of accountability against specific objectives.
I think.
Another significant part of this is how we go about forecasting.
A business, that's creating a new category.
Which I think we'd all agree is very difficult to forecast.
So previously we were relying on quarterly forecasts.
And as is the case in most capital equipment sales.
There is a quarter end.
Rush.
To be able to meet a full quarter's revenue.
With as much as.
On an average over a third of the business for the quarter coming in the last couple of weeks of that quarter, one of the things that Kirk is done.
So with with our involvement here in Seattle in Santa Barbara.
Is focusing on monthly targets and holding people accountable month by month.
So that we're avoiding the uncertainty that comes at the end of each quarter. Those are two great. Examples I think the other one here is that.
Kirk is so.
Has proven his.
Ability on the international front.
In a number of businesses.
And he said to switch to.
The.
Strategies and his approach to leading his team to the U.S. group.
So what has really done is apply those.
Yes, those experiences to the U.S. group, while we've put a highly talented again zeltiq experienced individual.
Who is now leading our international group.
And I'm very impressed with what I'm seeing from him as well.
Perfect.
That's helpful John and the last one ill pivots, the breast side and Jeff either for you or Charlie.
Yes, I think with some of the struggles with your competitors within Brasil.
The Wall Street focus seems to be a what it means.
For your implant business, but it would seem to open up also a significant opportunity in expanders as well and so maybe if you can spend some time talking today and what you're doing in the field to capitalize on what.
What I would call sort of the additional opportunity with Alex too thanks, guys.
Well I think there are a couple of things here and we're all aware of the.
The changes that are going on within the.
The entire breast implants, both augmentation and reconstruction categories.
Most recently affected by the events.
Al again.
And that I think the combination of the superior products that we have within the tissue expander portfolio.
In combination with the.
The credibility.
That we've demonstrated with some of our key wells.
Has resulted in our ability to penetrate.
A significant number of hospital accounts that we weren't previously able to.
The majority of reconstruction business is really accomplish within the hospital.
Which is a different approach, it's a different market, it's a different buying cycle.
And as we've discussed before we've been fortunate to bring in some very talented.
Very experienced.
Aggressive assertive.
Individuals who are leading that charge and the focus within the company recognizes that.
The significant opportunity not just for tissue expanders, but also for the implants associated with it.
So you will see in the financial results the tissue Expanders.
As a single element grew by over 50% year on year.
And contributed to the overall.
Breast implant business as we indicated of 26%.
So while we we registered a 19% total breast products increase and I'm trying to keep it simple.
But when you exclude the Ics.
The biocorneum.
Product line.
Breast products alone.
Grew by 26%.
Of which the tissue expander part reconstruction grew by over 50%. So we're very pleased with the progress that we're making in there.
Okay helpful metrics. Thanks, guys. Thanks, Thank you.
Thanks, John .
Thank you and our next question comes from Richard Newitter from SCB Leerink. Your line is now open.
Hi, Thanks for taking the questions I've got two on your two segments as well starting with the breast products.
When you read it yeah, you reiterated your guidance and I think the last time you reiterate you provided that guidance you had.
I had some assumptions about the market.
Moving from flat to recovering are being slightly improved in the back half.
That was before we had some of the new information around dynamics related to the textured implant recall from how again and also al again.
Getting acquired I would love to hear your thoughts on on.
How has that changed your perception of things going on in the marketplace and what Youre hearing at the ground level with respect to the potential for a rebound or what's embedded in your guidance is there still a recovery embedded in your in your reiterated guidance for the underlying market. Thanks.
Yes, let me take a.
Let me take the first.
Yes, sure to that merchandise I appreciate the question, it's a good one.
That.
There there's so many factors affecting this category as you know.
With the the media coverage with the earlier.
The FDA attention being paid Orton et cetera.
That is very difficult to predict what the overall category.
It was pretty was expected to do.
And even now we're looking at the best data that we can get older.
And we're finding that the categories essentially flat to marginally.
Down.
That our current assumptions really rely on.
A more conservative approach, which says we cant accurately predict what the category is going to do.
For the balance of the year.
Should we expect it to remain essentially flat.
But our assumptions are based on continuing to take market share.
And as you indicated relative to al again in particular, there are opportunities there that.
We are in a position to take advantage of.
And thats, both from a reconstruction and augmentation standpoint.
It is.
Still is a highly uncertain.
Market overall to be able to predict accurately but the bottom line is we're confident that we're going to be able to continue to take share and our back half assumptions are.
Or more aggressive than we have shown in the first half.
Okay. That's helpful and then turning to mirror dry.
I was wondering if you could give us a sense what the split was between U.S., So U.S. and capital and consumables and then.
How we should think about the trends.
With respect to seasonality between to meet you and for Q.
To get to the full year number to Threeq, you stepped down a little bit.
And then how we should also think of the mix is relative to the break down if you can provide them as we move to the ER. We typically do so I don't mind rich. So in the second quarter was a 50 50 split between us the north and sorry, what's the rest of world.
Actually was a 50 50 split between the tips of the consumables and the console.
Oh all of last year, we are more at a 60% tax ex U.S. So the U.S. really stepped up this quarter.
We don't give typically have a quarterly estimate on that but you can assume roughly that mix will fall through the next two quarters on this business. Both 50 50, you asked in international and maybe a little heavier in the console in the back half more like 60% cost was 40%.
It's kind of always talk to the business can be as high 70, but you could model would not 60% would be fair.
Great and then just how should we be thinking about the gross margin in the back half with all of the mix dynamics.
Now I'd be helpful. Thanks.
Ivan consistently saying realistically I think no more than 65% for the for the back half of the year six two to 65 as a range I've been using but again, even this quarter shows it it's a it's a function of mix.
Asps are holding out in both businesses.
The console as the tips and even the breast implants. What it is it's going to be just a mix issue on Brasil Brusca do high Sixtys Mira dry itself will really be a function of what it does between the regions you us and the rest of the world but.
You know, we're going to get closer to 65% in the back half yes.
Depending on the modeling of what Mira dry doesn't the backup. It is 62 to 65 as arrangement I gave you I don't want to be more specific than that.
Okay. Thank you.
Thank you and our next question comes from Mark Greg.
From William Blair. Your line is now open.
Hi, good afternoon folks thanks for taking the questions.
First.
First one for me is on the breast side, but just.
Try to go into a little bit of detail of the new account that no account. So you had referenced at the front end of the call.
So first do you guys have a sense of stickiness from these accounts.
Your share in these accounts and your ability to keep gaining share and the Genesis of the question is as you gain repeat orders arguably within some of these newer accounts that should drive rep productivity higher.
So any any metrics you can give on that what's being assumed in guidance for year end.
Yeah, I mean in terms of the Rep productivity is.
You look at that and the consensus you can use those numbers and we have 46 Pcs and get into it.
The rep productivity is going to increase as we're not adding any new PSC this year.
As we expanded the hospital base and we get a higher mix of recon, which has a higher price tissue expanders. The rep productivity will increase accordingly on that business. So our rep productivity is expected to increase for the foreseeable future because we could get more from these reps given that we have more to sell to the office to the accounts and the hospital accounts. Both we're seeing a nice follow on on implant sales to these hospitals, so I won't get the Pacific, but the the growth that we're seeing in implants.
As following along with the recon.
The tissue expander sales.
I think the other question was.
With the first question about Margaret.
The stickiness that you're saying what are the new accounts and ability to.
Grow in terms of penetration of those come.
We haven't had shown any ability to actually it.
Tucked into account for the ticket is we are watching we watch the reorder rate, we're making sure that we get back in there and that they're just they're in a more than one order.
We're not seeing any reason why we're going to have to continue to add or accounts. Our growth. This year, a big piece of it is on new account acquisitions, new account acquisitions.
It's driving deeper into the existing accounts.
And it's also being more productive is we have more productive reps. We also six more PSC as year over year. So the stickiness I would say, it's a little early but we're not seeing any anything telling us that those 200 are dropping off.
In our reps are out there.
I have to say as we've got the product to supply them are out there going after new accounts into account there has been a great deal of their time right now harvesting. The accounts that we have not talked to in quite a while is again just a reiteration eight or accounts is all we sold two on implants in 2018, so picking up 200 more a significant number as we get back to that original 2000 accounts that we sold to hit our peak back in 2015, but keep in mind also Margaret that that the supply as it continues to ramp will have a natural sort of gating effect on how much productivity and efficiency. Each rep can second half. So why your question is spot on obviously theres still some artificial dampening just because we can only build and grow into supply the continued to ramp but it's a great question and one that we're going to continue to monitor and expect to continue to improve as our supply continue to improve.
Okay, and just as a follow up to that.
For my marriage right question, but the new account. So you guys are going after are there are they primarily old CMT customers or have you been able to steal from the longtime elegant jayson.
Primarily right now we are going after our customers that we know the best So we are re engaging with those that we engage with prior to 2018 say there aren't some in there that are brand new but the low hanging fruit with the re engage with our customers and to make sure. We touch all the prior customers as soon as we can.
Okay.
Yes, that's helpful. And then just briefly on marriage right, obviously nice pick up this quarter and so part of the question is as you look at the consumables number that sell in versus sell through is that largely as expected and similar to the revenue growth number that we're saying that any comments on utilization.
There would be helpful as well.
Or your ability to gain new reps given some of the competitive turnover from potential M&A transactions or just flat out weakness in some of the other side. Thanks.
Well the last 0.1st Margaret I think that.
We are seeing I don't think we are seeing.
Increased interest.
In the rear drive proposition.
There is a definite coolsculpting Celtic.
Factor.
That is not lost on these people so they see the success that Celtic has had.
The CZ analogy with mere dry.
And there's a real level of excitement out there.
And primarily we've been talking more about the domestic side of things.
And as we've seen in the results for this quarter.
The U.S. business is showing some very strong results. So yes, theres additional interest in joining the team and as part of what our leadership team is paying attention to.
They are increasing expectations clarity of objectives and accountability.
And we're ensuring that we've got the most productive people representing us.
Both from an awesome and Pdm, the Hunter and the farmer side of the business.
And we've shown that Theres, a real synergy between those two.
And were always in a position to improve so long winded answer but.
I think there is a definite.
Opportunity to continue to bring into the best people weekend.
And as far as.
Repeat your other question I want to make sure that I'm answering directly.
So the question was the durability of the U.S. growth that you guys are saying the sell in versus just the sell through of the tips.
Utilization well utilization is really a function of the tips and wood.
Paul indicated.
Was that.
Hips were.
Equally strong both domestically and internationally, which translates to a nice increase in utilization.
And that that together with the.
Combination of the two new installations that we accomplished.
With the support that we are giving them both from a marketing standpoint, as well as the pdm.
Practice consulting fees.
We're showing.
An increased number of satisfied to buyers.
So the utilization.
It is a continuing objective.
Did we want to.
Bring to the level that is really the primary driver of individual practice success. So I can share more specifics with you later, but right now.
We're pleased with what we're seeing on the utilization side and specifically on dollar tomorrow without getting into in the first half of this year.
This is a record.
A record year for tips in this business, but we are seeing nice growth so without knowing whenever machine does the tip sales are nice lagging indicator that we're having some strong revenue growth on on the tips.
Which is a reflection of utilization.
Margaret just one other piece to add to that.
I believe we've mentioned this before.
But we're in the process of installing a new technology.
The upgrade.
Tour units that will allow us very granular monitoring.
Individual.
Capital equipment productivity and utilization.
Which is going to answer your question much more definitively.
And that is actually starting this month.
And as expected rollout through.
Both us.
As well as key markets internationally. So that's one of the things that we're going to pay increased attention to.
Great. Thanks, guys.
Thank you Mark.
Thank you and our next question comes from Alex Nowak from Craig Hallum Capital. Your line is now open.
Great Good afternoon, everyone.
Jeff.
Hi, Jeff can you provide some more details around the plan to launch the implants into the international markets, perhaps some timing, which geographies you are initially targeting here and then what sort of sales force or distribution strategy are you going to rely on.
The basic answer to that is.
Im sure Weve discussed before.
We certainly have.
A global.
Intent.
And a strategy to accomplish.
And one of the things that we're very aware of is that.
Putting.
Two broad.
The approach to international can quickly become a pyrrhic victory.
There are certain markets that are very attractive.
We have initiated approval efforts and planned distribution.
Cetera.
And.
Four to five of those key markets right now.
Good.
The rate limiting factor is still the regulatory approval process.
And that we expect to see results beginning in 2020.
But the.
Some of the more significant opportunities.
Our in Europe .
Which is subject to a significant degree definition.
In granting the CE Mark as I'm sure you're aware.
So we're focusing on those markets where there is.
Clearly a demonstrated interest in our superior.
Product claims but also.
I have a.
Cost efficient.
Distribution capability.
And that we are investing accordingly, but I'm trying to get across is that we're taking in intelligent focused approach.
To be able to go into those.
More attractive markets as the priority.
So bottom line.
We will start to see that in 2020.
But were still.
Hamstrung by regulatory approval processes, and let me just.
Right. So on their Mira dry side. They are international so whatever we do and when we do it it will 100% leverage the infrastructure built out by mere dry.
We're not building a separate go to market strategy necessary in these markets. It will we're going to be cost effective how are we going to these markets because we have the people there to lead us today.
Okay. Okay got it was pleasure currently being worked on and it's a great example of the synergies between the two companies.
Okay. That's good to hear and then Paul that's a little bit of a follow up to this in a little bit of up to something you said earlier, but can you explain a little bit about how are you.
What sort of leverage should we see in the model here over the next 12 to 24 months you know do you need to make any more investments in the business or are all the operating expenses you are pretty much in the model at this point.
In terms of investments other the fix I would say the people side of it.
Is effectively done with that we will leverage nicely as we see I'll give you that you know the PSC.
The PSC is grow.
Next year.
The PSC by default are going to become more productive not just drops through the only real variable vessel. We have left in this business is the amount of degree we need to or not need to invest in the mirror dry campaign to drive awareness everything else. In this company is is in.
Basically on line is that mix yes.
I can't give you exactly how to calculate that but hold.
The only better we're going to have as consumer and again, we have a decent amount. This year, we try to leverage that we're going to manage it as we see the impact of the ROI.
On the campaign Premier dry decide how much we continue to invest in that business going forward.
That's the only variable number.
Okay got it that makes sense and then just real quick last question for me on mere dry you know it seems to be doing pretty well why are you taking the impairment charge this quarter.
I'll answer that question I'll, let Paul answer that because this is a I'd like to but I think you'll do better job isn't an accounting exercise.
We.
Just because of the lower earnings that we've pulled together on our more recent forecasts, which is consistent with our guidance.
This triggered a look in the valuation of the of the.
The intangibles.
So Ryan this analysis, we came up with an impairment I can't use market multiples I cant EBITDA revenue multiples is simply an accounting exercise I'm, just kind of cash flow to come up with the valuation.
That analysis resulted in the impairment.
It's a noncash item.
It has no impact on how we view this business either short term or long term.
I'm in for Matt I'll, just I'll leave it at that.
Okay understood. Thank you.
Great. Thanks.
Thank you and our next question comes from Chris Cooley from Stephens. Your line is now open.
Good afternoon, Thanks for taking the questions maybe just two quick ones for me at this point.
So wanted to just follow up on that last question a little bit Paul.
Well that when you look at the segments or what drove that I understand the accounting exercise.
Description, but was that a function of the international business.
More so than the domestic business.
In closing that trigger just curious if you could give us a little bit more color isn't it again. So we're clear the segment that was there a specific goodwill and intangibles related to both businesses right. So this is strictly marriage riots strictly a mirror dry exercise on there.
Earnings forecast going out in perpetuity.
It's only that I guess one consolidated.
Oh.
Understood, but I guess, what I was what I was asking again was was it the international component of the mirror drive business or.
I'm just trying to parse out just any ability in maritime.
That's all we don't look at on the components of looking in total I think as you can see we you know we are investing quite a bit in this business to commercialize a product. So reflect we knew more now than we did over two years ago. So nothing has been inconsistent with the guys have been giving our opinion of the business.
But are they get the analysis has to take into consideration the most recent.
Losses that Weve had to date, even through today, and we forecast that out even with a.
Nice growth in that business projected.
It's an updated forecast hands it triggers a review hasnt triggered a impairment calculation reserve.
Understood understood I mean, obviously I clicked and then most companies you know you're not expecting we spent $20 million business all in one times revenue.
So.
This.
On the surface. It does look a little odd to have an impairment charge on an asset that is growing nicely that we're investing in that we paid almost nothing for I'm not going to disagree with you on that.
Okay, well I appreciate the additional color and I apologize if you've already addressed this previously in the call juggling a few here this afternoon, but.
Just when you're thinking about moving outside of the U.S. now very encouraging and certainly agree we saw it in terms of the market opportunity the timing.
Should we interpret from that now in terms of the production curve you have with Vesta.
That that's now exceeding or at least on line with expectations and you can supply that full product cohort or how then should we think about.
Production I understand that the gating factor right now I think if I heard you correctly.
It's just the regulatory front, but I just want to make sure I am clear on that from a capacity standpoint. Thanks, so much.
Yes, Chris So so we are definitely anticipating a phased approach.
With our international market development for our brass products, which is synced up with our with our ongoing supply ramp right. So.
Our focus continues to be on wrapping and having our partner produce sufficient supply to continue our growth trajectory and market share efforts in the us.
As Jeff mentioned, we are taking a very targeted focused approach to international development starting in 2020, you're aware that Canada is.
It's sort of furthest along in registration, we talked about that being potentially a first half of 2020.
Approval or registration in Canada, we expect at that point, we will have sufficient supply to launch Canada in the context of that registration and then all other international markets will follow logically from that making sure that we are able to fulfill demand in those markets that we choose to go into you want to face basis.
Understood appreciate it congrats and good quarter.
Great. Thank you.
Thank you and our last question comes from Jacob Hughes from Wells Fargo Securities. Your line is now open.
Hello.
Jacob if your line on mute please.
Hi, I'm sorry.
That's right.
So if I just look at you know the back half of the year for bras products that if you just look at the high end of your range that implies.
Close to 30% growth.
Does that imply any improvement in underlying environment or is that all share gains and.
Yes. It is that is there an expectation of the 50% growth that you've seen in the tissue expander portfolio that that will continue.
Yes, we do expect the.
We expect the.
Both.
Uh huh.
Back half and actually the momentum with which we exited the second quarter.
And we're still seeing in July the results in a July have been very encouraging as well.
And I think you.
Why did the two primary drivers of that.
It's both continued significant improvement increases and tissue expanders.
Well you know we've already indicated that the new account acquisition program.
He is working with some additional initiatives.
From a marketing standpoint that are in the process of putting in place right. Now so we realize that the back half is you expected to ramp at a significantly higher rate, but we're confident that the plans in place are going to be able to deliver that.
Okay. Thank you.
Thanks, Thank you.
Thank you and this does conclude today's question and answer session, ladies and gentlemen, Thank you for your participation in today's conference. This does <unk>.
LWD today's program you may all disconnect everyone have a great day.