Sientra, Inc. (NASDAQ:SIEN) Q1 2023 Earnings Call Transcript May 11, 2023

Sientra, Inc. reports earnings inline with expectations. Reported EPS is $-1.06 EPS, expectations were $-1.06.

Operator: Good afternoon, everybody. And welcome to Sientra’s First Quarter 2023 Financial Results Conference Call. My name is Eric. At this time, all participants will be in a listen-only mode. After the Sientra executives provide their business updates, there will be a question-and-answer session. [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.

Oliver Bennett: 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 three consecutive quarters of record low free cash flow usage, translating into a $23.6 million year-over-year improvement over that same time period.

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 three 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.

Ron Menezes: Thank you, Oliver, and 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 have close to 270 new accounts in the first quarter of 2023 alone, indicating our long-term solid growth prospects. Two and a half years ago, the Sientra management team made a top priority to capitalize on the value of reconstruction and devise that 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 and 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 against 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 ADM to our portfolio has more than doubled Sientra’s 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 advance — and advancing our pathway to profitability. In April, at Aesthetic Society Annual Meeting in Miami, we released the interim six-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 Viality Symposium with over 50 plastic surgeons learned from three of our clinical sites about the benefits of Viality 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. Fat transfer, an exciting area of growth for Sientra, enabling patients to increase their cup size using their own fat with or without implant.

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 Sientra with the potential to open an additional total addressable market of nearly $2 billion as Viality demonstrates its utility in the face, botox and other areas of the body. Our customers have had a unique opportunity to experience the Viality system firsthand through our initial offering and 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, it 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’s product launches in 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.

Andy Schmidt: 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 three 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 a fiscal year carries seasonally high cash usage due to bonus payouts and materials payables due to seasonally high Q4 revenue and product shipment performance.

This is the third consecutive quarter of improved cash flow performance. During the past three quarters, we saw free cash flow burn decreased from $37.7 million to $14.1 million this year at 63% improvement year-over-year. Completing the P&L view, complementing our revenues of $22.6 million, our pro forma gross margin for Q1 2023 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 non-cash depreciation and amortization charge of $1.3 million. This is primarily due to the new inclusion of amortization of Viality, manufacturing knowhow and develop technology in cost of sales.

In prior periods, this non-cash 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 2023 was $22.7 million, which compares to $28.9 million in Q1 2022 a $6.2 million or 21% decrease. Total GAAP loss from continuing operations for Q1 2023 was $12.9 million, as compared to an $18 million loss for the previous year’s period. Switching to key balance sheet items. Cash ended 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 Viality 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.

Ron Menezes: 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 of markets, and we are not just looking to grow for growth sake. We’re taking a strategic approach to ensure long-term profitability. 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, doubling our revenue in the next three years. And with that, I’ll turn the call over to the Operator for Q&A. Operator?

Q&A Session

Operator: Thank you. [Operator Instructions] And our first question today will come from Alex Nowak with Craig-Hallum Capital Group. Please proceed with your question.

Operator: Our next question comes from Jon Block with Stifel. Please proceed with your question.

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

Operator: 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.