Sientra Inc (SIEN) 2022 Q2 法說會逐字稿

Welcome to the Sientra's Earnings Conference Call. My name is Hilda, and I will be your operator for today. (Operator Instructions)

I would now like to turn the call over to Sientra's General Counsel, Chief Compliance Officer, Oliver Bennett.

Thanks, operator. Good afternoon, and welcome to the Sientra's second quarter 2022 earnings conference call.

I would like to remind everyone that in our remarks today, we will include statements that are considered forward-looking statements within the meaning of United States security 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.

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 estimates, projections or forward-looking statements. A detailed discussion of the risks and uncertainties that the company faces is contained in its previously filed annual report on Form 10-K, its previously file quarterly report on Form 10-Q and its quarterly report on Form 10-Q for the second quarter that ended June 30, 2022 to be filed with the SEC and available on the company's website and at sec.gov.

I would also like to note that Sientra uses its Investor Relations website to publish important information about the company, including information that may be deemed material to Investors. Financial and other information about Sientra is routinely posted and it's accessible on the company's Investor Relations website at www.sientra.com. Today, on our call, we have Ron Menezes, Sientra's President and Chief Executive Officer; and Andy Schmidt, Sientra's Chief Financial Officer.

I will now turn the call over to Ron.

Thanks, Oliver, and hello everyone. Our eighth consecutive quarter of growth was fueled by record high reconstruction performance, continued strong commercial execution and new product launches. This result was a validation of our strategy to focus on the reconstruction market with long-term contracts, higher margins and price stability. Despite the headwinds that the medical device sector saw in Q2 '21, '22, we're able to achieve several key milestones this quarter.

Net revenue of $21.5 million, a 7% increase over second quarter '21. Sales on our reconstruction channel grew over 23% year-over-year, far outpacing the overall market growth and we had also 140 new hospital accounts. We'll continue to see high reorder rates in our top volume accounts, a rate higher than 80%, which gives us high confidence in driving performance in the second half of 2022, while also growing augmentation market share despite a challenging market, reaching a record high market share of 13% in the first half of the year.

We're able to accelerate the pace of adding new augmentation accounts in Q2 '22, adding close to 160 new accounts. Combined with our reconstruction gains, this led the addition of close to 300 new accounts in the quarter, which is a record for Sientra. We executed our new product launch strategy that we'll discuss at the R&D Day back in spring. In the second quarter, we launched our new 6-tab Dermaspan tissue expander, which gives Sientra additional products to bundle with hospital decision makers.

We also received FDA approval for our Low Plus Profile Breast Implant, making Sientra the first and only U.S. manufacturer to provides 80 and 110 CC gel implants. The approval provides surgeons and patients with more choices to fit their aesthetic needs. The pandemic caused quite a boom in the plastic surgery market with augmentation being no exception, seeing record high procedural volume in 2021. In the second quarter of 2022, the market has returned to 2020 levels.

The Sientra team though has done an excellent job navigating through this environment. As a matter of fact, second quarter '22 revenues were approximately 92% higher than Q2 2019 prior to the pandemic. With our advanced technology, industry-leading safety profile and innovative partnership programs with our plastic surgery customers, we have been able to dramatically outperform the market and continue to grow our market share.

One of the factors behind our success is being our ability to partner with plastic surgeons who have helped drive patients with their practice through initiatives such as Sientra Academy, which has been proven to grow annual revenue by 50% within accounts that attend the program. We also doubled our consumer brand awareness over the past 2 years, growing at the highest rate in the category and putting us in the #2 position amongst all brands.

In reconstruction, we have seen acceleration of orders by high-volume hospital accounts and the addition of new hospitals. The acceleration [boost-on] in the second quarter was the result of the investments we made back in the second half of 2021. And revenue per account grew by 10% when compared to the first quarter of 2022. We also added close to 140 new hospital accounts this quarter, which positions us well for strong second half and beyond reconstruction.

The launch of Dermaspan 6-tab tissue expander, the continued clinical advantages of Allox2 tissue expander are the foundation for our strong reconstruction performance. In addition, our sales team have done a great job focusing on spending more time within our reconstruction accounts to build through the great access that our products have in every major GPO in the U.S.

We're also seeing growing interest in fat grafting, a new plastic surgery market, validating the decision to acquire our novel fat grafting technology at the end of last year. In our recent market research we conducted with 100 plastic surgeons, over 70% of them expressed dissatisfaction with the current systems on the market. Most of them are looking for a system with the clinical advantages that our fat grafting technology provides. Importantly, over 80% of those that participated in market research survey indicated that they intend to try our innovative technology.

We expect the launch of our novel fat transfer technology next year should expand our TAM by at least 25%. We'll offer surgeons unique benefits to obtain safe, natural, predictable and reliable outcomes. We are extremely excited about Sientra's near and long-term future as we build the foundation for the upcoming years.

I will now turn the call over to Andy for financial information.

Thanks, Ron. Reviewing our Q2 '22 financial results. Sientra posted revenues of $21.5 million as compared to $20.1 million in Q2 of '21, an increase of 7%. Of note, we continue to see very strong performance from our reconstruction sector, which represented approximately 54% of current period revenue. Year-to-date, '22 revenue of $42.9 million compares to $38.4 million for '21, an increase of 11.7%.

Gross margin for Q2 '22 was 59.2%, which is a strong performance as compared to 56% for the same period last year. The key driver for gross margins is product and channel mix. Q2 '22 gross margins benefited from the continued expansion of our reconstruction business and the realization of our distribution center efficiencies now that we have completed our distribution center move integration. Our Q2 '22 period included a write-off of expired legacy Dermaspan product. Without the write-off, which is a non-cash event, gross margins would have been 61% for the current period. Finally, throughout '21 and '22, we experienced price stability across our entire product line.

Switching to operating expense. Total GAAP operating expense for Q2 '22 was $28.7 million as compared to $20.4 million in Q2 of '21. Our Q2 '22 GAAP operating expense included approximately $2.9 million of non-recurring severance and legal expenses and $3.5 million of other non-cash expenses. Taking these items into account, total non-GAAP operating expense for Q2 '22 was $22.3 million as compared to $17 million in Q2 of '21. The increase is primarily investment in sales and marketing initiatives to support our future new product launches, which includes our fat grafting product.

In addition, G&A expense increased due to the prior year completion of our ERP implementation, which now shifts information system expenses from the balance sheet to the income statement in 2022. Our current period non-GAAP operating expense of $22.3 million is significantly lower than our Q1 of '22, non-GAAP expense of $24.8 million and puts us within our non-GAAP yearly operating expense guidance of $90 million to $94 million. We expect to see continued improvement in non-GAAP operating expense performance going forward as we realize efficiencies and begin leveraging our infrastructure.

Year-to-date 2022 GAAP operating expense of $57.6 million compares to $42.3 million in 2021. Year-to-date '22 non-GAAP operating expense of $47.1 million compares to $35 million for 2021, and again, is attributed to current year investment in commercial activities to support new product launches and the shift in accounting treatment of our information systems expense.

Total GAAP loss from continuing operations for Q2 '22 was $18.2 million as compared to an $18.5 million loss for the previous year period. Adjusted EBITDA for Q2 '22 was a $9.2 million loss as compared to a $5.1 million loss for Q2 of '21, again, attributed to our investment in our sales and marketing initiatives. As revenues continue to increase, we expect to see improvements in our adjusted EBITDA as we realize operating efficiencies. 2022 year-to-date adjusted EBITDA was a $20.7 million loss as compared to a 2021 year-to-date loss of $12.4 million.

Switching to key balance sheet items. From an operational perspective, we continue to see improvements in our operating cash flow. Q2 '22 cash used in continuing operations of $13 million compares to $17.9 million used in Q1 of 2022. The $5 million or 27% sequential quarter improvement is largely attributed to improvements in our working capital accounts. Notably, decreases in accounts receivable of $3 million, reduction in inventories of $1.4 million and an increase in customer deposits of $2.9 million.

We expect to see a continued improvement in our working capital accounts driven by focused efforts to decrease accounts receivable days outstanding and by optimizing our inventory months on hand. Cash at the end of Q2 '22 was $25 million and total debt before any adjustments for discounts and issuance costs was approximately $83.4 million.

Turning to guidance. Macro headwinds have worsened through 2022 and continues to have a broad impact on overall consumer spending as recession concerns grow. The aesthetics market has seen some impact in the first half of the year. It's difficult to say how long these trends will persist at this time. We continue to gain share in our respective markets and have done a good job navigating in a difficult economic environment. But given these headwinds, we are taking a more cautious stance. We are adjusting our full year revenue guidance to a range of $90 million to $95 million, down from prior guidance of $93 million to $97 million. The new guidance reflects growth of 11% to 18% as compared to sales of $80.7 million in 2021.

That concludes my prepared remarks. At this time, I'll turn the call back to the operator for Q&A.

(Operator Instructions) We have a question from Alex Nowak from Craig-Hallum.

Ron, when we met in San Diego at the end of April and also we spoke on the Q1 earnings call in May, I think macro wasn't a factor, really wasn't even considered a concern at the time. It was also thought that the pandemic soon would continue in Aug. So I'm just curious when in the quarter did this thought process change? When did it ultimately the macro concerns that we see every day in the headlines, when does that start to impact sales? Was it real late in the quarter? Just help me out there.

It was in the beginning of the quarter. We started seeing some things in probably late April and really softening. The first quarter this year was lower than the first quarter last year. We didn't see anything crazy. Then acceleration or softening on augmentation late April through May and June and really slowed down at that time, and I mean, really major slowdown. Now keep in mind, Alex, a lot of the A accounts and B accounts that we have are still very busy. What we're seeing is the middle of the road accounts have really dropped in volume and the overall market then is back to 2020 levels from the market perspective.

And then the other big priority for the company is improvement to profitability. If I go back and look at 2021 OpEx compared to this year, it looks like this year, OpEx has spent almost $20 million or 30% growth. Now I know there's a couple one-time items in there and some add backs, but now sales is coming closer to a 10% to 15% growth range. So maybe help us bridge to the profitability which I think is the key (inaudible) that you are looking for?

Andy?

Yes, let me jump in on that one. So let's think in terms of the model in terms of how we're put together. One of the key elements, obviously, we've got revenue, but then we have gross margin. Gross margins are now looking at low-60% in terms of our mix versus 55% last year. Going forward, we expect to see continued strong performance in the low-60s as we get into 2023 with the launch of fat grafting, We expect fat grafting, especially performing in the recon space to perform at 70% plus gross margins, similar to our tissue expander, BIOC, et cetera. That's going to be a big plus. So we're going to expect to see upward pressure on gross margins into '23, moving from low-60s to mid-60s.

A key is operating expense. As we've discussed previously, we went through quite a bit of expansion in terms of 2021, a lot of infrastructure work, the distribution center move, ERP upgrade and so on, where we had higher expenses exiting '21 than earlier '21 and had commented that the first half of 2022, we'd have quite a bit of one-time expense and so on. As for my prepared remarks, we dropped our cash-based operating expense from $25 million to $22 million in one quarter. That $22 million annualized obviously is $88 million, which is below our non-GAAP operating guidance of $90 million to $94 million. We expect to go into 2023 at $80 million or less, possibly $86 million next year as we move past these one-time not repeatable expenses and start optimizing our sales force.

As we said before, we have the right commercial team in place to handle what we want to do in 2023. We don't expect to see ads. So we expect to see some very good performance next year. And as we said before, our magic number to get to cash flow neutral, cash flow breakeven plus is $135 million revenues. And how are we going to get there? It's not just going to be our current product offering. It's going to be the launch in the fat grafting in Q1 of 2023. And we will continue to add new products, as we've talked to in terms of product launches this year and other products we can bring in, similar to a bioCorneum product that's performing between $5 million and $10 million in terms of annual revenue at 70% gross margins, which is actually a distribution product. So we feel we have a pretty strong path to that $135 million, but that's the magic number to get us to cash flow breakeven.

And then maybe speak to how to get to the new revenue guidance. I know Q2 is typically the best seasonality quarter out there, 3 comes in at the lowest, Q4 somewhere in the middle. So maybe speak to the cadence over the next 2 quarters here where you're thinking, especially given the macro backdrop?

Yes, I'll share the market, Alex. The market is really weird in the second quarter. But right now, the market looks, at least from the first month, the market, looks flattish versus second quarter. And usually, I think you all know, the third quarter is always the lowest market. So the market dropped in the second quarter. It stays flat. It looks like at least from the month of July for the market.

The market is acting very, very different. The great thing is, and I tried to mention that in my prepared remarks, that we have had extremely high reorder rates from our current customers. Our current customers drive breakdown (inaudible) driving over 95% of our revenue and they are re-ordering over 80% for both recon and augmentation right now. Now what's happening, those in the Cs and Ds are really ordering less. They dropped their volume because they have less demand for the augmentation, not the recon.

If you actually look at recon, looking just compared to the first quarter this year, it's actually up 10%. So they were 10% higher volume just one quarter and then the augmentation is down 7%. So we're seeing that within our current structure. We have not lost customers, and you heard me say we added more customers. It's just augmentation side is slow. So that's why this quarter, our split between aug and recon was 54% to 46%, recon was 54%.

Our next question comes from Brandon Vazquez from William Blair.

I wanted to first focus on some of your macro commentary and try to get a little bit more detail there to understand what's going on. Can you just talk about where you're kind of seeing a slowdown? And more specifically, is it patients that are kind of pushing back and they are not comfortable with the cost of the procedure anymore sort of in the funnel or are the patients just not even coming in the funnel anymore? Just trying to understand kind of where the headwind is coming from, from a macro perspective to understand maybe when some of that can get resolved?

The patients are coming in to patients sending calls, they're just not executing. So if you look before the pandemic, before 2020, it used to take 40 to 44 months for a patient to go from thinking about breast augmentation to actually getting surgery. Last year, it went to 20 months. And now we're seeing this is going backwards to thinking patients to call the office, meets with the doctors, thinks about it. And I think the patient like a lot of -- those who are thinking, what's going to happen in the next 6 to 8 months from a possible recession, and that's what it is. They're really delaying -- putting down the decision on that.

Now I want to be very clear, our A and B accounts that drive quite a bit of our volume, they did not go down. They are going a bit flat versus first quarter and flat versus Q4. It's just the one that the surgeons have known the road, again, it's augmentation. Reconstruction, a very different story. Acceleration of the market, acceleration of more surgeries, patients really coming back and a lot of -- 100% offices are open for reconstruction.

And then in terms of the new accounts, you guys obviously are making great traction there, which is encouraging. Can you just remind us what -- how long do you usually take one of these new accounts to open? Trying to get a better sense of what kind of contributions you can expect. Maybe it's a little difficult in this macro environment, but what would you usually expect and you opened almost 300 new accounts here or over 300 new accounts, when do you think they can start to ramp and really meaningfully contribute to the top-line growth?

Yes, Brandon, it is -- let's break the 2 apart. 140 new reconstruction accounts. And as I said before, it takes about 4 to 6 months. So whatever -- all the accounts we added, the 140 recon accounts that we added in the second quarter, well probably Q4 when we'll start seeing really the revenue coming in. All the accounts we saw in second quarter were really from the latter part of 2021. It takes 4 to 6 months. That's why in acceleration adding new accounts is critical. For augmentation, the cosmetic side of the business, we had 116 accounts. That was the best quarter ever, think about that. It's a challenging market. We added 116 new accounts. We're actually accelerating our share. We're teetering 14 share by the end of -- exited the last quarter -- I'm sorry, the last month of the quarter. So we accelerated share growth. What we don't have is the [winter] back this year, which we had last year. So we continue to add new accounts.

Now there's been a drop on the volume, the amount of the first order from those accounts because they're reflecting what's happening in the marketplace. In the meantime, the reconstruction side, the new accounts are coming in 24% higher than old accounts, from the new accounts in 2021. And the new accounts for augmentation are lower. So we're doing exactly what we need to do is new accounts, same-store sales are down because of the market. In the meantime, the only way to combat that is add new accounts, and that's what our commercial team is doing extremely well in the last 3 or 4 months.

Our next question comes from Jon Block from Stifel.

Maybe the first one, I know this has been asked maybe a couple of times, but I just want to circle back so I'm clear. I think there were sort of a bunch of yellow lights or flashing signs on the augmentation market throughout the quarter, the second quarter, I know from [Allchecks]. But lowering of the guidance, is that all attributable to augmentation or did recon maybe get a little choppy with some of the COVID surges we saw towards the latter part of the quarter, June, et cetera? So I'm not expecting an exact dollar number, but maybe if you could just talk about the slightly lower guidance in the context of what's attributable to aug or aug and recon?

Jon, it is really all blaming the aug. Recon is accelerating, recon the market. The first quarter, we don't have the second quarter data yet, but we have -- we'll get IQVIA data coming up in the next few weeks, but we've seen acceleration. As we speak today, a couple of major networks came onboard with Sientra. It's happening daily. And it's not just hospital, one or 2 hospitals, a network of hospitals are coming onboard with Sientra.

So -- and that is not the case in reconstruction. Market is healthy. We're more than double plus our performance in reconstruction. It is augmentation. I don't think in any forecast -- I think you've heard me say in the last 6 months, I see the market automation going back to normal growth, 1% to 3% single-digit growth versus last year. We did not think we'll go backwards to 2020.

Now keep in mind, 2020 was not a horrible year. There was about a month and a half of 2020 when much is going on because of March and April pandemic. But it snapped back going crazy in Q3 and Q4. In Q3 of 2020, the market went crazy, so it did in Q4. We're right back on that year-to-date versus 2020. So augmentation really that drove us to assess our guidance for the next 4, 5 months. We need to know where the market is going to go. The market is going to go back. We outperformed by far the market. The market is negative 3% plus -- 30% plus. Our revenue for aug was negative low-single-digit numbers. So we've completely outperformed the market.

And obviously, if you follow our 2 main competitors, they had major negative numbers in the U.S. our revenue numbers in the U.S. for second quarter. So in the meantime, we had a positive 7%, not exactly the #1, and that's due to augmentation. But reconstruction is going to do well. And as you heard from Andy, it's really going to help drive our margins, drive cash generation here in the next 5, 6 months, get us ready for the launch of our novel fat grafting technology that we have extremely high expectations. We've seen some beautiful things and great data already on sort of clinical data. And we're ready to manufacture. I was in Wisconsin yesterday, we're ready to go, starting manufacturing within the next 60 days, and we'll be ready to roll it out in the beginning of 2023.

And actually, Ron, your answers touched on a couple of areas where I wanted to go. So I'm going to ask a 2-parter with the next question. Clearly, you took share in all year-over-year, you just gave some stats there, markets down 30%, you guys down low-single-digits. The share sequentially seemed up, but maybe flattening out a little bit. I would love your long-term thoughts on where you can go augmentation share-wise? Again, I think you said 13% in 1H. Where can that go longer term?

And then Andy, you gave some really helpful statistics on the GMs for fat grafting, I think you said accretive to corporate maybe around 70%. Maybe just help us bring that down the P&L? In other words, you're going to be leveraging the sales force. So just the contribution margin from fat grafting even out of the gate in 2023 should still be pretty darn healthy when we think about leveraging the current infrastructure. Maybe if you could just [bless] if I'm thinking about that correctly?

Jon, I will go first and pass it over to Andy. Right now, on the first month -- this last month of this quarter, we got close to 14% share for augmentation. We have not seen the data yet, like I said, for recon to coming up in the next few weeks. We expect to finish the year at least mid-teens in aug with a little above mid-teens and higher than that in reconstruction because of the acceleration we're seeing with our new hospitals being added as we speak. So that's kind of the goal at the end of the year above mid-teens in aug and well above mid-teens in reconstruction.

Sure. Just adding to the question here. You have it exactly right. When we look at products like fat grafting, these are the type of products that we're going to put in the basket. The gross margin, 70% plus, as Ron said, we're getting ready to go. We are working to final assembly in Franklin, Wisconsin. We've built that site for capacity where we have capacity to grow our implant business well into 2025, but also take on a product such as this, the work final assembly on site in Wisconsin. So that's not any net increase in expense from the perspective of facilities or CapEx really in terms of incremental labor to do so, much less expensive to actually work that through out of Wisconsin than the third-party. That's still going to -- it's going to net north of 70% gross margins.

Now as you lever into operating expense, the exact same sales team will be putting this in their basket in terms of calling on the same recon accounts. So we're not adding heads from a sales perspective. In terms of regulatory, et cetera, this is already FDA-cleared. So the work we're doing this year in 2022 in terms of additional studies is to support our commercial site, to support additional papers, to support our marketing efforts. So we will really lever what we see in gross margins in 2023 is going to drop down the contribution margin. So that's going to be a big adder for us. And you should expect the same from other products that we actually bring into our wheelhouse.

(Operator Instructions) The next question comes from Chris Cooley from Stephens.

Maybe just a 2 part P&L question for Andy first and then a bigger picture question for Ron. Andy, I'd appreciate it if you called out the early completion of the distribution center integration in the first quarter and that we were going to see the lift here in the 2Q and ex the issues they're a little bit north of 61% in the quarter, which is a step up sequentially obviously versus the 1Q. But I was hoping you could, one, help us take a look at that and parse out mix versus the improved cost structure? Really just trying to get at kind of that baseline of the cost structure as we go into the second half and hopefully start to see some volume pick-up.

And then very similarly, to the middle of the P&L, looking at it now, it looks like you have about $2-ish million left in the non-recurring, $8.5 million to $9 million that you were targeting for the year. Should we just think about that ratably over the back half or is that more skewed to one of the quarters? And then I've got a bigger picture question thereafter.

So let me start with the gross margins. Where we sit today, we feel very good in terms of our distribution center costs. We started in Santa Barbara back with about 6% expense effect on cost of goods sold, call it, 6% tax rate. We saw that increase somewhat as we work through integration in the back half of 2021. And into Q1 of 2022, we really started seeing the pick-up. So where we sit today right now, we've taken 2 to 3 points on a gross margin just on distribution center from worst case of second half of 2021. And we're sitting where we expect to be right now in terms of efficiencies. We have now pushed them through.

When we look at 61%, that's representative of our current mix of 54% reconstruction, 46% aug. Depending on how that mix goes forward, we'll determine where 61% goes. We're at 61%, 62% or 61% down to 60% if aug resurges again. But as we go into 2023, the addition of fat grafting and so on is going to be upward pressure again to take it to the next level, let's say, low-60s to mid-60s. That's that part.

And second part of the question, remind me again.

Just the non-recurring expenses to the middle of the P&L through OpEx. I think you had targeted about $8 million to $9 million for the year. It looks like you've got about $2 million, if I'm doing the math right, left approximately. I just was curious if that's one quarter or that's ratably through the back half of the year?

The $2 million remaining will be, I would say, evenly mixed in the next 2 quarters. And that you're going to see on our P&L in terms of our commercial and study work we're doing on fat grafting. So that's really going to hit that $2 million Q3 and into Q4 arguably, ratably, and we won't pro forma those out, we'll consider those part of the activity of launching the product. But we're down to just that part. We've flushed through the balance of outstanding items.

And then maybe if I can just squeeze one other quick one in here. Ron, you talked about -- and Andy, you both were talking about the fat graft offering obviously helping kind of reposition the company and provide an incremental growth driver as you look ahead into '23 and beyond. Clearly, those procedures are accretive to margin. Just curious though if we are seeing an economic slowdown slowing down the augmentation market right now? Your thoughts on a premium type procedure on a price point in terms of just consumer receptivity to that type of an offering as we come into next year. I guess, maybe a little bit less suddenly, are you comfortable that that will really be a driver next year and enable you to hit your cash flow targets as you think about accelerating the growth and the margin profile?

Chris, if you look at it, where is the biggest use of fat grafting right now is reconstruction. 60% to 80% of surgeons that do reconstruction use fat grafting. And there is one product, which is the leading product, and there's a less than 30% satisfaction with that product. So we'll be able to penetrate that market. We're ready in the hospitals as our team are ready promoting and we're going to go straight -- the first place we're going to go is a hospital account that already have access. We're already in negotiations with GPOs about our fat grafting system.

The second part is augmentation. 1/3 of surgeons that do breast augmentation use fat grafting. And a lot of times they use fat grafting, they're now only using 30% and [now half] of the current systems. Again, we'll be able to go in and out of accounts and talk about fat grafting. The other part sort of happening throughout next year, it's still growing very, very fast, is to use fat grafting in the bodies. And obviously, it's taking fat from parts of your body you don't want and using in the parts of the body you want. For example, buttocks enhancement, that's still a very fast-growing area.

The other part is using as a facial filler. If you look at the ASPS data, more and more surgeons growing extremely rapid, the use of fat grafting as a facial filler. Now that's a humongous market for us to get in some time next year, but that will be the third or fourth market we'll be getting in because that will give us time to get more clinical data to support our product. Not just support, the product already has a broad indication to use anywhere in the body in fat grafting. It's just to be able to talk to those surgeons and discuss here's the data, here's the clinical data.

So the area they're going to enter first, reconstruction, is growing fast. And the area they're going to go last are areas that you may have the concern. But remember, the price point right now is lower in a breast augmentation. They're not talking about paying $9,000 is whenever a surgeon charges the patient. And then within reconstruction, it's reimbursed. So that's kind of where we're seeing in the next 2 years for our fat grafting technology.

(Operator Instructions) The next question comes from Mr. Kyle Bauser from Lake Street Capital Markets.

Maybe I'll just ask both my questions upfront, juggling a couple of calls here. But given the evolving product portfolio Best in Class Warranty, et cetera. I mean, have you seen increased pricing pressure, heightened competitive dynamics from your peers out there? And then secondly, what's the latest headcount for sales reps? And how do you anticipate this evolving over the next, I guess, couple of years as you continue to launching products and expand your reach within the plastic surgery suite?

Kyle, our average ASP has gone up for both augmentation and reconstruction. We've done a lot of great innovative programs to accelerate the addition of new accounts. As I said before, we had 160 new aug accounts. That's the best ever quarter for our team adding new accounts. We actually have even higher expectations for the team in the next 6 months. So we see within our own data, our ASP is going up for both aug and recon.

We also heard one of our competitors has increased pricing. So the prices are not going down, they're going up. One of our competitors increased pricing double-digit. And that is creating a lot of upset customers going from zero increase in the last 2 or 3 years to double-digit increase and actually has opened incredible doors for us to walk in and have a conversation with those customers and we have flipped several accounts because of those conversations. So that's where we're actually. No price downwards, prices are going up for us without an official price increase and our competitors are really taking a huge price increase which actually is a benefit for us right now.

And then Kyle your question about sales team. As Andy stated, next year with fat grafting, that's where we upgraded and expanded our sales and marketing team this year. And that was in preparation not just for the launch of our Low Plus Profile Breast, one more tissue expander, Dermaspan 6-tab. This is really also getting ready for next year. We did an analysis, what do we need in the next 24 months. So you have the relationships, you have people in place, fat grafting launches are ready to go.

So I see us being flat to slightly down in regards to overall budget for commercial. And it depends on kind of how many products we'll add in the next 2 years. But from what we have right now, the launch of fat grafting next year, the launch of Allox2 PRO. Remember, we are waiting FDA approval for Allox2 PRO. That would be also most likely end of this year, beginning of next year. And that will be the same sales team, really no changes in that group for 2023. So looking at 56 sales representatives and 7 reconstruction managers, plus 7 sales managers.

And at this moment, we have reached the end of the question and answer session. Do you have any closing remarks?

I just want to say thank you for everyone. I appreciate it. We have an incredible opportunity for Sientra for the next 6 to 12 months from leveraging our higher margin, higher opportunity reconstruction. So we'll launch those products next year and 2 clinical products that will really take Sientra in a different area from expanding use within the OR with the fat grafting and obviously with Allox2 PRO really improving patient care and patient outcomes next year. So thank you everyone. Appreciate it. Have a good afternoon.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.