Sientra Inc (SIEN) 2023 Q1 法說會逐字稿

Good afternoon, everybody, and welcome to Sientra's First Quarter 2023 Financial Results Conference Call. My name is Eric. (Operator Instructions) As a reminder, today's conference call is being recorded. (Operator Instructions) I'd now like to turn the conference over to your host, Oliver Bennett, Sientra's Chief Legal Compliance and Corporate Development Officer. Mr. Bennett, you may begin.

Thank you, and good afternoon. We are pleased you could join us on today's call to discuss Sientra's first quarter 2023 financial results. On our call today, we have Ron Menezes, Sientra's President and Chief Executive Officer; and Andy Schmidt, Sientra's Chief Financial Officer. As we reported earlier today, Sientra has continued its unbroken record of 11 consecutive quarters of record year-over-year growth. Importantly, we have achieved this revenue growth while also reducing our expenses and increasing our leverage through continued operational efficiencies and synergistic product additions.

We have now had 3 consecutive quarters of record low free cash flow usage, translating into a $23.6 million year-over-year improvement over that same time period. We have seen similar improvements in our non-GAAP EBITDA performance, which has improved by nearly 30% year-over-year or $7.8 million in the past 3 quarters. As Ron and Andy will describe during the call, our continued market share and revenue growth, combined with our disciplined cost management gives us confidence that we will reach cash flow breakeven run rate by the end of this year.

Before I turn the call over to Ron and Andy, I must remind everyone that in our remarks today, we will include forward-looking statements in our prepared remarks and in response to any questions you may ask. These forward-looking statements are based on management's current assumptions and expectations of future events and trends. Our 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 statement. For a 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 exemplary first quarter results.

Thank you, Oliver. Hello, everyone. Our continued success results from our ability to adapt to the ever-changing market and are focused on pursuing healthy, sustainable growth. We'll continue to prioritize operating efficiencies and creating leverage, providing a clear path to profitability. Our all-inclusive plastic surgery platform has enabled us to streamline resources towards Sientra's high-growth, high-margin business. We had close to 270 new accounts in the first quarter of 2023 alone, indicating our long-term solid growth prospects.

2.5 years ago, the Sientra management team made a top priority to capitalize on the value of reconstruction and devise plan to achieve this goal. Sientra already had an impressive portfolio of products, including AlloX2, Dermaspan and a fifth generation implant with a decade's worth of unparalleled clinical data, but we lacked soft tissue support and fat transfer products. After adding Viality, SimpliDerm, Sientra now has the most compelling reconstruction platform in the industry. Achieving this was not an easy task. It requires significant time and resources to develop this portfolio, penetrate the hospital environment, build relationships with surgeons and establish a strong brand presence.

This has not only allowed us to accelerate our gains to the hospital channel but also create a moat for Sientra, making it difficult for new competitors to enter the market and compete. Our focus on reconstruction shows that we are not driving growth at any cost, but we are promoting profitable growth, creating clear line of sight to cash flow breakeven run rate by the end of 2023. Reconstruction cases represent a higher revenue opportunity per procedure given the price points and use of multiple products. The commercial launch of our fat transfer product Viality, combined with the addition of the SimpliDerm to our portfolio has more than doubled Sientra total addressable market in the U.S.

Those products are highly synergistic, allowing us to utilize our existing sales and distribution infrastructure without significant incremental investments. Our platform will continue to attract additional products and strategic partnerships with other companies going forward. By adding these complementary products, we expect to accelerate our market share gains and overall growth while increasing operating leverage and advancing our pathway to profitability.

In April, at aesthetic Society Annual Meeting in Miami, we released the interim 6-year data of our post-approval study. Our clinical data continues to show impressive results with over 5,000 patients and more than 10,000 implants across more than 130 sites demonstrate our implants efficacy in diverse patient populations and surgical sites rather than handpicked procedures for the best outcomes. During the meeting, we also hosted a biology symposium with over 50 plastic surgeons learned from 3 of our clinical sites about the benefits of valid and how it is impacting their patients' outcomes.

Viality, our innovative fat transfer solution addresses every facet of our customer needs. The system offers natural, predictable and safe outcomes, and we're pleased to have received such a positive reception from customers. That transfer is an exciting area of growth for Sientra, enabling patients to increase their cup size using their own fat with or with solving plants. Moreover, our solution also provides additional body contouring benefits.

Preliminary results presented at the Aesthetic Society Meeting of one of the ongoing studies of Viality have observed a remarkable 88% retention rate in the face. This represents an exciting opportunity for Santa with the potential to open an additional total addressable market of nearly $2 billion as Viality demonstrates its utility in the face, boobs and other areas of the body. Our customers have had a unique opportunity to experience the Viality system firsthand through our initial offering and we have received overwhelmingly positive feedback. We are thrilled with the results from our initial early experience launch.

We're confident Viality will continue to be a driving force behind our growth in the coming years, thanks to exceptional performance and the satisfaction has delivered to our customers. As we look ahead and a reminder of the year, we're excited to share our plans for the pace of Sientra product launches and aesthetics market. This quarter, we'll continue to roll out Viality to most reconstruction and augmentation plastic surgeons, where we have already seen a very positive response.

Later this quarter, we expect to launch SimpliDerm in the hospital market. Our focus on reconstruction and aesthetics has been a driving force behind our success this quarter. As we expand our portfolio of products and strategic partnerships, we remain committed to delivering the highest quality solutions to our customers. We're proud we have accomplished so far, and we're excited about the opportunities that lie ahead. We believe that Sientra plastic surgery platform has the momentum to drive positive change in the market. I'll now turn the call over to Andy to discuss the financials.

Thank you, Ron. Our Q1 2023 financial results showcased our continued trend of strong revenue performance, disciplined expense management and exemplary free cash flow results. All 3 elements create our path to cash flow positive performance. Our key Q1 2023 financial highlights include: record Q1 revenue of $22.6 million as compared with $21.4 million for the prior year period, an increase of approximately 5.4%. Non-GAAP operating expense of $18.9 million as compared to $25.1 million for the prior year period, a 25% reduction.

Non-GAAP EBITDA and of a $5.9 million loss as compared to $11.8 million loss for the prior year period, a 50% improvement. Free cash flow of a $6.9 million cash burn as compared to an $18.1 million cash burn for the prior year period, a 62% improvement, considering our trends in 2023 view. Our core product revenues continue to build with market share gains across both augmentation and reconstruction with a key focus on new hospital wins. Our current period revenue does not reflect the launch and expected revenue contributions from SimpliDerm and a small contribution from Viality as the product launch late in the quarter. Both products will be significant contributors in the second half of 2023.

Our non-GAAP EBITDA for Q1 2023 is the best we have seen post divestiture of the miraDry business and reiterates our focus on being a profitable pure-play in a plastic surgery space. This was accomplished despite this being historically our lightest seasonal revenue quarter. Our free cash flow performance is also a spotlight. Our first quarter of the fiscal year carries seasonally high cash usage due to bonus payouts and materials payables due to seasonally high Q4 revenue and product shipment performance. This is the third consecutive quarter of improved cash flow performance.

During the past 3 quarters, we saw free cash flow burn decreased from $37.7 million to $14.1 million this year, a 63% improvement year-over-year. Completing the P&L view. Complementing our revenues of $22.6 million, our pro forma gross margin for Q1 23 was 60%, which compares to 62.2% for the same period last year. Year-over-year variance is due primarily to expensing prototype expenses related to the Viality launch. GAAP gross margin of 53.9% were negatively affected by a noncash depreciation and amortization charge of $1.3 million. This is primarily due to the new inclusion of amortization of Viality, manufacturing know-how and develop technology in cost of sales. In prior periods, this noncash expense was charged to G&A expense.

The accounting change is due to the launch and subsequent shipping of the product. Total GAAP operating expense for Q1 '23 was $22.7 million, which compares to $28.9 million in Q1 '22 a $6.2 million or 21% decrease. Total GAAP loss from continuing operations for Q1 '23 was $12.9 million as compared to an $18 million loss for the previous year's period. Switching to key balance sheet items. Cash ending on March 31, 2023, was $19.4 million. Given our free cash flow performance and growing revenues, we feel that we have sufficient cash to drive the business to free cash flow positive performance exiting fiscal year 2023. Entering 2023, we continue to focus on working capital efficiencies.

We see consistent strong performance in our inventory management with ending inventories at March 31, 2023, of $40.6 million, down from year-end December 31, 2022, of $42.7 million. This performance includes building biology inventories. Accounts receivable also is performing well. At March 31, 2023, our AR balance was $35.5 million, down from $36.9 million at year-end 2022. In all, we've seen a fantastic start to 2023 in all facets of our financial model and look forward to continuing our trend of improving financial performance. At this time, I'll turn the call back to Ron for a few concluding remarks.

Thank you, Andy. At Sientra, we're not just satisfied with success. With 11 consecutive quarters of record-breaking revenue, we're proving our commitment to delivering excellence, time and time again. But we're not stopping there. Our mission is to be the for form of innovation and to provide the best possible products and services to our valued customers. Looking ahead, we have big plans for 2023 and beyond.

We'll keep growing and expanding our reach in both the reconstruction and augmentation markets. And we are not just looking to grow for growth's sake. We're taking a strategic approach to ensure long-term profitability. By invest in the areas with the most potential for future growth, we are transforming Sientra into a company that offers a diverse portfolio of innovative products and services. And with addition of SimpliDerm, we're even better positioned to achieve our goal in doubling our revenue in the next 3 years. And with that, I'll turn the call over to the operator for Q&A. Operator?

(Operator Instructions) And our first question today will come from Alex Nowak with Craig-Hallum Capital Group.

All right. We had a couple of calls this afternoon. You might have already covered this, but the label for SimpliDerm, could you just expand on how to ultimately sell a tissue mesh into the expander business. Just given that it's -- the -- these measures aren't on label for breast reconstruction. Would you ever pursue a label for breast reconstruction? Or maybe talk through how you're ultimately going to implement SimpliDerm into the portfolio.

Thanks, Alex. We have Denise Dajles, our Chief Technical Officer with us. So Denise?

Yes. Thank you, Alex. Subs reinforcement is used in all reconstruction procedures, including breast reconstruction for autologous type of procedures and reconstructions as well. For example, when you're replacing the terms in a pre-sector on reconstruction is highly used and it can only we use. There are other off-label uses that physicians might decide to undertake. However, we would not promote them as we are promoting the ADM for exon label applications of soft tissue reimbursement.

Okay. Understood. And then maybe just kind of speak to how demand is trending? Specifically on the augmentation side, it was also reconstructive in Q1, but I guess I'm more interested in actually April and May. There's been some interesting market commentary around the aesthetics demand and how that's been trending. Just what can you provide us around the macro side.

The macro environment is also impacting the cosmetic side. Alex, something you've probably seen similar to other areas as well across toxins and across fillers, et cetera. You see that impact. We see similar -- in the first couple of months of the year where the market is kind of mirroring what happened last year as well. For us, the big dominant player was, obviously, what happened in reconstruction. We saw dramatic growth in the first quarter for reconstruction. We don't have the data on the market for both areas, but we've seen a very robust data.

And the bottom line of the augmentation is we'll continue to take share. You saw that we brought on board almost 150 new accounts. That's even a faster pace so we're bringing recon accounts. We'll continue to create share. We don't have the share data yet. But as we position for the future, we'll be very confident that with our current pace of new accounts that would be well positioned when this market comes back. I think all waiting to see when that happens, but that's the beautiful thing about having a diversified type of products that we have now and leaning more on the reconstruction while we're seeing this market doing well and we keep adding new products in reconstruction.

Okay. And then just last question. Maybe just give us your view on the competition environment out there right now. You said you're going to keep taking share. But when you speak to clinicians out there specifically after recent data coming out, 3-year data coming out from establishments, like what are you hearing out there? Is there both kind of on that data set? Or just your latest view on the competitive landscape.

Yes, we're very excited about our data. We just -- and I'll let Denise talk about a day a little more detail because it's a comprehensive data, it's not a PIK data, which is primary AG, includes all 3 kinds of patients. And from the competitors that we have now, Allergan, they meant to our great competitors. They are trying to protect their business, and we'll continue to gain share as we just discussed. Denise?

Yes. So at the aesthetic society meeting, we released the 6-year data set from our post-approval study, which has been submitted for publication and hopefully, we'll be pretty soon, where we have over 5,000 patients at over 100 sites and we have primary augmentation patients, revision augmentation, primary reconstruction and revision reconstruction and we see outstanding data points when you add all the different cohorts with all the different types of complications with case contractor rates very low. You're talking about 3% for all cohorts and only 18 ruptured infants in over 10,000 implants implanted. So we feel very confident that our customers continue to appreciate and value. These outstanding clinical data that includes a traditionally the worst cohorts, which are the reconstruction cohorts, but even including those, our data and our numbers keep being at the top.

Our next question comes from Jon Block with Stifel.

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

That is correct. We expect 5% to 10% depends how quickly we get in reconstruction. We're getting -- we're very, very excited because we're getting now close -- starting to invest close to 400 hospitals that will have biology available. Keep in mind, that's available enough. They'll obviously be up to our representatives, getting those hospitals and finding the users, et cetera. So just first, we'll start really a high kind of pace in the hospital environment.

Okay. That's helpful. And then is there any update on the bundling, the bundled packages for Viality? I know that you had said that you were working with GPOs and trying to set up contracts. Is there any progress or time line on that front?

It has happened as we are talking right now. So we are now going to GPOs in the hospitals and IDNs and part of that discussion includes Viality, and we're starting to include SimpliDerm as well. But really the critical part is Viality and obviously AlloX2, Dermaspan and our implants as well. So Viality is part of it, not just in the hospital, but also with the cosmetic surgeons as well.

Okay. Great. And then just if I could sneak in one last one here. On AlloX2 Pro, where does that currently sit? Could we see an approval in the near future? Is there anything specific holding that up at this point?

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

Our next question comes from Anthony Vendetti with Maxim Group.

I just wanted to follow up on Viality. You said you began the commercial launch this quarter. Was it -- did you say at the end of the quarter?

Yes, Anthony, we just did at what early seating, early experience programs where you give some Viality some users in a kind of an entry level to try it out with some critical high users and the feedback, as I stated in my opening remarks, is overwhelmingly positive, and they are already buying more of those individuals that started with the last 2 weeks of March. So we're really starting now the firm launch and the majority of the revenue coming now is for an augmentation. But keep in mind, we expect that to flip by the end of the year, we're probably 70% -- 60% to 70% coming from reconstruction since 70% to 80% of patients that go through reconstruction uses, they use this.

Sure, sure. So the -- even though you began the commercial launch, you were seeing it. So there wasn't -- for this quarter, your revenue number of $22.6 million was almost entirely ex Viality, right?

Yes. It was immaterial, the amount of...

That's my thoughts. Okay. And then do you see a cross-selling opportunity per se? Or there's probably not going to be many people -- many physicians or patients using Viality that are not also using Sientra products? Or do you think it's possible that they'll use Viality even if they're using other products? How does that -- how does the sales force think about that? Or how do you think about that strategically?

Well, I'm going to use our own analog, Anthony. If you look at market share that we shared at the beginning of the year with the fourth quarter, for the longest time, our AlloX2 tissue expander had a much higher share of their implants because of the clinical benefits AlloX2 has over existing tissue expanders. And for the first time, the fourth quarter of 2022, the share got closer and closer. For example, they used to be a separation of about 3 to 4 share points. In the fourth quarter, we finished at 21.2% for our tissue expander in the marketplace, and the implants are 19.6%. So now they're within a share point apart. And we expect the same thing with Viola.

We are opening your doors right now for valid or current customers that are not our customers. And as we enter the door with Viality, and there's a huge positive buzz and excitement in Miami, our booth was busy, as everyone came over to ask questions about the Viality. Several speakers that had nothing to do with us that we're talking about different products brought up Viality, the importance of fact we're opting importance of using a product have a high fat retention rates. And so we do expect to utilize Viality just like we use tissue expanders to open the door, get in the office or the hospital and start the processes are bringing with the implants and then obviously tissue expanders as well.

Okay. No, that sounds good. And then just on the macro environment. We've been hearing from some aesthetic practices, but maybe you're not seeing the same impact. But I'm just curious, are you seeing any slowdown or you're practicing any slowdown in the augmentation side of the business? Or do you think that continues to be inflation/recession resistant?

No. I think you have to divide it into several areas. If you look at primary augmentation, there's definitely no slowdown. It happened last year and probably happened as well. We saw the first couple of months of this year. But revisions where patients are coming back for a different size or a smaller size of implants continue to be solid. And then the beautiful thing about having Viality opens new doors for us. Some of the data that we saw in the first 6 months was patients that are using Viality for different uses that are beyond just using around a smaller breast implant. So we're getting, becoming a diversified company within the cosmetic side, and we also start seeing the patient -- the surgeons are using for face.

And then obviously, the reconstruction is very, very solid. And a lot of the data and a lot of the results we see in the first quarter was really the great performance in reconstruction. So having that diversification even within one specialty is a huge benefit for us. And as I stated before, it has really created a bot. Now we're having our team walking in with multiple products, bundling those products with the hospitals with IDNs and also with GPOs and be able to get one-stop shopping. Now one-stop shopping as a company, which makes it really hard for a new competitor to come in with just 1 or 2 products.

That concludes today's question-and-answer session, and the conference has now concluded. Thank you, everybody, for attending today's presentation. You may now disconnect your lines.