18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-36709
SIENTRA, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) |
| 20-5551000 (I.R.S. Employer Identification No.) |
420 South Fairview Avenue, Suite 200 Santa Barbara, California (Address of Principal Executive Offices) |
| 93117 (Zip Code) |
(805) 562-3500
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
| SIEN |
| The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
| Accelerated filer |
| |
Non-accelerated filer |
|
| Smaller reporting company | ☒ | |
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 2, 2020,5, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 50,454,122.58,122,465.
SIENTRA, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 20202021
TABLE OF CONTENTS
“Sientra”, “Sientra Platinum20”, “Sientra Full Circle”, “OPUS”“Sientra Smooth”, “Sientra Teardrop”, “Allox”, “Allox2”, “Anatomical Controlled”, “BIOCORNEUM”, “Curve”, “Dermaspan”, “Luxe”, “Softspan”, “Silishield”, “miraDry”, “Miramar Labs”, “miraDry and Design”, “miraDry Fresh”, “bioTip”, “The Sweat Stops Here”, “No Sweat No Stress”, “Sweat Less Live More”, “Drop Design”, “miraWave”, “miraSmooth”, “miraFresh”, “freshRewards”, “freshNet”, “freshEquity”, “freshConnect”, and “ML Stylized mark”“Silishield” are trademarks of our company. Our logo and our other trade names, trademarks and service marks appearing in this document are our property. Other trade names, trademarks and service marks appearing in this document are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in thethis document appear without the TM or the (R) symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the rights of the applicable licensor to these trademarks and trade names.
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIENTRA, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share and share amounts)
(Unaudited)
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 63,483 |
|
| $ | 87,608 |
|
| $ | 66,127 |
|
| $ | 54,967 |
|
Accounts receivable, net of allowances of $4,893 and $3,835 at September 30, 2020 and December 31, 2019, respectively |
|
| 23,637 |
|
|
| 27,548 |
| ||||||||
Accounts receivable, net of allowances of $1,833 and $1,047 at September 30, 2021 and December 31, 2020, respectively |
|
| 26,453 |
|
|
| 19,771 |
| ||||||||
Inventories, net |
|
| 48,467 |
|
|
| 39,612 |
|
|
| 51,529 |
|
|
| 39,168 |
|
Prepaid expenses and other current assets |
|
| 2,113 |
|
|
| 2,489 |
|
|
| 2,663 |
|
|
| 1,891 |
|
Current assets of discontinued operations |
|
| 4 |
|
|
| 13,475 |
| ||||||||
Total current assets |
|
| 137,700 |
|
|
| 157,257 |
|
|
| 146,776 |
|
|
| 129,272 |
|
Property and equipment, net |
|
| 12,742 |
|
|
| 12,314 |
|
|
| 14,886 |
|
|
| 12,301 |
|
Goodwill |
|
| 9,202 |
|
|
| 9,202 |
|
|
| 9,202 |
|
|
| 9,202 |
|
Other intangible assets, net |
|
| 9,719 |
|
|
| 17,390 |
|
|
| 8,471 |
|
|
| 9,387 |
|
Other assets |
|
| 8,441 |
|
|
| 8,241 |
|
|
| 7,323 |
|
|
| 8,011 |
|
Non-current assets of discontinued operations |
|
| — |
|
|
| 805 |
| ||||||||
Total assets |
| $ | 177,804 |
|
| $ | 204,404 |
|
| $ | 186,658 |
|
| $ | 168,978 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
| ||||||||
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 928 |
|
| $ | 6,508 |
|
| $ | - |
|
| $ | 4,670 |
|
Accounts payable |
|
| 4,071 |
|
|
| 9,352 |
|
|
| 6,300 |
|
|
| 5,799 |
|
Accrued and other current liabilities |
|
| 26,679 |
|
|
| 32,551 |
|
|
| 22,285 |
|
|
| 28,408 |
|
Customer deposits |
|
| 15,490 |
|
|
| 13,943 |
|
|
| 30,286 |
|
|
| 17,905 |
|
Sales return liability |
|
| 10,079 |
|
|
| 8,116 |
|
|
| 12,305 |
|
|
| 9,192 |
|
Current liabilities of discontinued operations |
|
| 501 |
|
|
| 4,686 |
| ||||||||
Total current liabilities |
|
| 57,247 |
|
|
| 70,470 |
|
|
| 71,677 |
|
|
| 70,660 |
|
Long-term debt |
|
| 63,330 |
|
|
| 38,248 |
|
|
| 61,483 |
|
|
| 60,500 |
|
Derivative liability |
|
| 24,520 |
|
|
| — |
|
|
| — |
|
|
| 26,570 |
|
Deferred and contingent consideration |
|
| 5,342 |
|
|
| 5,177 |
|
|
| 2,786 |
|
|
| 2,350 |
|
Warranty reserve and other long-term liabilities |
|
| 9,281 |
|
|
| 8,627 |
|
|
| 9,950 |
|
|
| 9,455 |
|
Total liabilities |
|
| 159,720 |
|
|
| 122,522 |
|
|
| 145,896 |
|
|
| 169,535 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
| ||||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
| ||||||||
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $0.01 par value – Authorized 10,000,000 shares; NaN issued or outstanding |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock, $0.01 par value — Authorized 200,000,000 shares; issued 50,507,635 and 49,612,907 and outstanding 50,434,908 and 49,540,180 shares at September 30, 2020 and December 31, 2019, respectively |
|
| 504 |
|
|
| 495 |
| ||||||||
Common stock, $0.01 par value — Authorized 200,000,000 shares; issued 58,129,589 and 50,712,151 and outstanding 58,056,862 and 50,639,424 shares at September 30, 2021 and December 31, 2020, respectively |
|
| 581 |
|
|
| 506 |
| ||||||||
Additional paid-in capital |
|
| 555,465 |
|
|
| 550,562 |
|
|
| 645,717 |
|
|
| 558,059 |
|
Treasury stock, at cost (72,727 shares at September 30, 2020 and December 31, 2019) |
|
| (260 | ) |
|
| (260 | ) | ||||||||
Treasury stock, at cost (72,727 shares at September 30, 2021 and December 31, 2020) |
|
| (260 | ) |
|
| (260 | ) | ||||||||
Accumulated deficit |
|
| (537,625 | ) |
|
| (468,915 | ) |
|
| (605,276 | ) |
|
| (558,862 | ) |
Total stockholders’ equity |
|
| 18,084 |
|
|
| 81,882 |
| ||||||||
Total stockholders’ equity (deficit) |
|
| 40,762 |
|
|
| (557 | ) | ||||||||
Total liabilities and stockholders’ equity |
| $ | 177,804 |
|
| $ | 204,404 |
|
| $ | 186,658 |
|
| $ | 168,978 |
|
See accompanying notes to condensed consolidated financial statements.
SIENTRA, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share and share amounts)
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net sales |
| $ | 19,217 |
|
| $ | 22,412 |
|
|
| 48,597 |
|
|
| 60,489 |
|
| $ | 19,620 |
|
| $ | 15,329 |
|
| $ | 58,035 |
|
| $ | 37,109 |
|
Cost of goods sold |
|
| 8,391 |
|
|
| 9,754 |
|
|
| 20,733 |
|
|
| 24,041 |
|
|
| 9,030 |
|
|
| 7,105 |
|
|
| 26,027 |
|
|
| 15,887 |
|
Gross profit |
|
| 10,826 |
|
|
| 12,658 |
|
|
| 27,864 |
|
|
| 36,448 |
|
|
| 10,590 |
|
|
| 8,224 |
|
|
| 32,008 |
|
|
| 21,222 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
| 12,872 |
|
|
| 18,668 |
|
|
| 37,614 |
|
|
| 60,987 |
|
|
| 12,052 |
|
|
| 9,969 |
|
|
| 34,348 |
|
|
| 24,858 |
|
Research and development |
|
| 2,060 |
|
|
| 3,201 |
|
|
| 7,747 |
|
|
| 9,526 |
|
|
| 2,367 |
|
|
| 1,778 |
|
|
| 6,962 |
|
|
| 6,142 |
|
General and administrative |
|
| 10,238 |
|
|
| 12,249 |
|
|
| 27,500 |
|
|
| 37,538 |
|
|
| 7,865 |
|
|
| 6,445 |
|
|
| 23,321 |
|
|
| 21,183 |
|
Restructuring |
|
| (386 | ) |
|
| — |
|
|
| 1,849 |
|
|
| — |
|
|
| — |
|
|
| (442 | ) |
|
| — |
|
|
| 389 |
|
Impairment |
|
| — |
|
|
| — |
|
|
| 6,432 |
|
|
| 12,674 |
| ||||||||||||||||
Total operating expenses |
|
| 24,784 |
|
|
| 34,118 |
|
|
| 81,142 |
|
|
| 120,725 |
|
|
| 22,284 |
|
|
| 17,750 |
|
|
| 64,631 |
|
|
| 52,572 |
|
Loss from operations |
|
| (13,958 | ) |
|
| (21,460 | ) |
|
| (53,278 | ) |
|
| (84,277 | ) |
|
| (11,694 | ) |
|
| (9,526 | ) |
|
| (32,623 | ) |
|
| (31,350 | ) |
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 5 |
|
|
| 510 |
|
|
| 203 |
|
|
| 1,083 |
|
|
| 1 |
|
|
| 6 |
|
|
| 4 |
|
|
| 203 |
|
Interest expense |
|
| (2,059 | ) |
|
| (1,344 | ) |
|
| (7,289 | ) |
|
| (3,276 | ) |
|
| (2,026 | ) |
|
| (2,055 | ) |
|
| (6,143 | ) |
|
| (7,284 | ) |
Change in fair value of derivative liability |
|
| 10,090 |
|
|
| — |
|
|
| (8,420 | ) |
|
| — |
|
|
| 35,550 |
|
|
| 10,090 |
|
|
| (14,460 | ) |
|
| (8,420 | ) |
Other income (expense), net |
|
| 101 |
|
|
| (139 | ) |
|
| 74 |
|
|
| (101 | ) |
|
| 6,672 |
|
|
| (2 | ) |
|
| 6,575 |
|
|
| 34 |
|
Total other income (expense), net |
|
| 8,137 |
|
|
| (973 | ) |
|
| (15,432 | ) |
|
| (2,294 | ) |
|
| 40,197 |
|
|
| 8,039 |
|
|
| (14,024 | ) |
|
| (15,467 | ) |
Loss before income taxes |
|
| (5,821 | ) |
|
| (22,433 | ) |
|
| (68,710 | ) |
|
| (86,571 | ) | ||||||||||||||||
Income tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net loss |
| $ | (5,821 | ) |
| $ | (22,433 | ) |
|
| (68,710 | ) |
|
| (86,571 | ) | ||||||||||||||||
Basic and diluted net loss per share attributable to common stockholders |
| $ | (0.12 | ) |
| $ | (0.45 | ) |
|
| (1.37 | ) |
|
| (2.30 | ) | ||||||||||||||||
Weighted average outstanding common shares used for net loss per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic and diluted |
|
| 50,394,858 |
|
|
| 49,401,094 |
|
|
| 50,155,623 |
|
|
| 37,671,215 |
| ||||||||||||||||
Income (loss) from continuing operations before income taxes |
|
| 28,503 |
|
|
| (1,487 | ) |
|
| (46,647 | ) |
|
| (46,817 | ) | ||||||||||||||||
Income tax expense (benefit) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Income (loss) from continuing operations |
|
| 28,503 |
|
|
| (1,487 | ) |
|
| (46,647 | ) |
|
| (46,817 | ) | ||||||||||||||||
Income (loss) from discontinued operations, net of income taxes |
|
| (93 | ) |
|
| (4,334 | ) |
|
| 233 |
|
|
| (21,893 | ) | ||||||||||||||||
Net income (loss) |
| $ | 28,410 |
|
| $ | (5,821 | ) |
| $ | (46,414 | ) |
| $ | (68,710 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Continuing operations |
| $ | 0.49 |
|
| $ | (0.03 | ) |
| $ | (0.82 | ) |
| $ | (0.93 | ) | ||||||||||||||||
Discontinued operations |
|
| (0.00 | ) |
|
| (0.09 | ) |
|
| 0.00 |
|
|
| (0.44 | ) | ||||||||||||||||
Basic earnings (loss) per share |
| $ | 0.49 |
|
| $ | (0.12 | ) |
| $ | (0.82 | ) |
| $ | (1.37 | ) | ||||||||||||||||
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Continuing operations |
| $ | (0.08 | ) |
| $ | (0.03 | ) |
| $ | (0.82 | ) |
| $ | (0.93 | ) | ||||||||||||||||
Discontinued operations |
|
| (0.00 | ) |
|
| (0.09 | ) |
|
| 0.00 |
|
|
| (0.44 | ) | ||||||||||||||||
Diluted earnings (loss) per share |
| $ | (0.08 | ) |
| $ | (0.12 | ) |
| $ | (0.82 | ) |
| $ | (1.37 | ) | ||||||||||||||||
Weighted average outstanding common shares used for net income (loss) per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 58,005,784 |
|
|
| 50,394,858 |
|
|
| 56,680,594 |
|
|
| 50,155,623 |
| ||||||||||||||||
Diluted |
|
| 72,639,930 |
|
|
| 50,394,858 |
|
|
| 56,680,594 |
|
|
| 50,155,623 |
|
See accompanying notes to condensed consolidated financial statements.
SIENTRA, INC.
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
(In thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||||||||||||||||||||||||||||||||||||||
|
| Preferred stock |
|
| Common stock |
|
| Treasury stock |
|
| paid-in |
|
| Accumulated |
|
| stockholders' |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| deficit |
|
| equity |
| |||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2018 |
|
| — |
|
| $ | — |
|
|
| 28,701,494 |
|
| $ | 286 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 428,949 |
|
| $ | (362,097 | ) |
| $ | 66,878 |
| ||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,772 |
|
|
| — |
|
|
| 3,772 |
| ||||||||||||||||||||||||||||||||||||
Stock option exercises |
|
|
|
|
|
|
|
|
|
| 45,453 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| — |
|
|
| 106 |
| ||||||||||||||||||||||||||||||||||||
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| 68,899 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 682 |
|
|
| — |
|
|
| 683 |
| ||||||||||||||||||||||||||||||||||||
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 671,245 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (212,714 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2,723 | ) |
|
| — |
|
|
| (2,725 | ) | ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,484 | ) |
|
| (26,484 | ) | ||||||||||||||||||||||||||||||||||||
Balances at March 31, 2019 |
|
| — |
|
|
| — |
|
|
| 29,274,377 |
|
| $ | 292 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 430,779 |
|
| $ | (388,581 | ) |
| $ | 42,230 |
| ||||||||||||||||||||||||||||||||||||
Proceeds from follow-on offering, net of costs |
|
| — |
|
|
| — |
|
|
| 20,000,000 |
|
|
| 200 |
|
|
| — |
|
|
| — |
|
|
| 107,534 |
|
|
| — |
|
|
| 107,734 |
| ||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,963 |
|
|
| — |
|
|
| 2,963 |
| ||||||||||||||||||||||||||||||||||||
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 88,454 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (12,565 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (100 | ) |
|
| — |
|
|
| (100 | ) | ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37,654 | ) |
|
| (37,654 | ) | ||||||||||||||||||||||||||||||||||||
Balances at June 30, 2019 |
|
| — |
|
| $ | — |
|
|
| 49,350,266 |
|
| $ | 493 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 541,175 |
|
| $ | (426,235 | ) |
| $ | 115,173 |
| ||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,115 |
|
|
| — |
|
|
| 3,115 |
| ||||||||||||||||||||||||||||||||||||
Stock option exercises |
|
| — |
|
|
| — |
|
|
| 3,271 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
| ||||||||||||||||||||||||||||||||||||
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| 106,725 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 533 |
|
|
| — |
|
|
| 534 |
| ||||||||||||||||||||||||||||||||||||
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 92,676 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (18,524 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (131 | ) |
|
| — |
|
|
| (131 | ) | ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,433 | ) |
|
| (22,433 | ) | ||||||||||||||||||||||||||||||||||||
Balances at September 30, 2019 |
|
| — |
|
| $ | — |
|
|
| 49,534,414 |
|
| $ | 495 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 544,700 |
|
| $ | (448,668 | ) |
| $ | 96,267 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| ||||||||||||||
|
| Preferred stock |
|
| Common stock |
|
| Treasury stock |
|
| paid-in |
|
| Accumulated |
|
| stockholders' |
|
| Preferred stock |
|
| Common stock |
|
| Treasury stock |
|
| paid-in |
|
| Accumulated |
|
| stockholders' |
| ||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| deficit |
|
| equity |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| deficit |
|
| equity |
| ||||||||||||||||||
Balances at December 31, 2019 |
|
| — |
|
| $ | — |
|
|
| 49,612,907 |
|
| $ | 495 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 550,562 |
|
| $ | (468,915 | ) |
| $ | 81,882 |
|
|
| — |
|
| $ | — |
|
|
| 49,612,907 |
|
| $ | 495 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 550,562 |
|
| $ | (468,915 | ) |
| $ | 81,882 |
|
Issuance of common stock through ATM |
|
| — |
|
|
| — |
|
|
| 37,000 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 263 |
|
|
| — |
|
|
| 264 |
|
|
| — |
|
|
| — |
|
|
| 37,000 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 263 |
|
|
| — |
|
|
| 264 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,000 |
|
|
| — |
|
|
| 2,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,000 |
|
|
| — |
|
|
| 2,000 |
|
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| 113,615 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 533 |
|
|
| — |
|
|
| 534 |
|
|
| — |
|
|
| — |
|
|
| 113,615 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 533 |
|
|
| — |
|
|
| 534 |
|
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 472,914 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 472,914 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (157,412 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1,199 | ) |
|
| — |
|
|
| (1,201 | ) |
|
| — |
|
|
| — |
|
|
| (157,412 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1,199 | ) |
|
| — |
|
|
| (1,201 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,612 | ) |
|
| (28,612 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,612 | ) |
|
| (28,612 | ) |
Balances at March 31, 2020 |
|
| — |
|
|
| — |
|
|
| 50,079,024 |
|
| $ | 500 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 552,154 |
|
| $ | (497,527 | ) |
| $ | 54,867 |
|
|
| — |
|
| $ | — |
|
|
| 50,079,024 |
|
| $ | 500 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 552,154 |
|
| $ | (497,527 | ) |
| $ | 54,867 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,718 |
|
|
| — |
|
|
| 1,718 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,718 |
|
|
| — |
|
|
| 1,718 |
|
Stock option exercises |
|
| — |
|
|
| — |
|
|
| 5,454 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 5,454 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 13 |
|
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| (1,012 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (1,012 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 363,795 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 363,795 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (91,529 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (226 | ) |
|
| — |
|
|
| (227 | ) |
|
| — |
|
|
| — |
|
|
| (91,529 | ) |
|
| (1 | ) | �� |
| — |
|
|
| — |
|
|
| (226 | ) |
|
| — |
|
|
| (227 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,277 | ) |
|
| (34,277 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,277 | ) |
|
| (34,277 | ) |
Balances at June 30, 2020 |
|
| — |
|
| $ | — |
|
|
| 50,355,732 |
|
| $ | 503 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 553,650 |
|
| $ | (531,804 | ) |
| $ | 22,089 |
|
|
| — |
|
| $ | — |
|
|
| 50,355,732 |
|
| $ | 503 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 553,650 |
|
| $ | (531,804 | ) |
| $ | 22,089 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,574 |
|
|
| — |
|
|
| 1,574 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,574 |
|
|
| — |
|
|
| 1,574 |
|
Stock option exercises |
|
| — |
|
|
| — |
|
|
| 727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| 91,125 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 306 |
|
|
| — |
|
|
| 307 |
|
|
| — |
|
|
| — |
|
|
| 91,125 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 306 |
|
|
| — |
|
|
| 307 |
|
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 85,255 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 85,255 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (25,204 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
|
| (68 | ) |
|
| — |
|
|
| — |
|
|
| (25,204 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
|
| (68 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,821 | ) |
|
| (5,821 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,821 | ) |
|
| (5,821 | ) |
Balances at September 30, 2020 |
|
| — |
|
| $ | — |
|
|
| 50,507,635 |
|
| $ | 504 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 555,465 |
|
| $ | (537,625 | ) |
| $ | 18,084 |
|
|
| — |
|
| $ | — |
|
|
| 50,507,635 |
|
| $ | 504 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 555,465 |
|
| $ | (537,625 | ) |
| $ | 18,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||||||||||||||||||||||||||||||||||||||
|
| Preferred stock |
|
| Common stock |
|
| Treasury stock |
|
| paid-in |
|
| Accumulated |
|
| stockholders' |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| deficit |
|
| equity |
| |||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 |
|
| — |
|
| $ | — |
|
|
| 50,712,151 |
|
| $ | 506 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 558,059 |
|
| $ | (558,862 | ) |
| $ | (557 | ) | ||||||||||||||||||||||||||||||||||||
Proceeds from follow-on offering, net of costs |
|
| — |
|
|
| — |
|
|
| 6,222,222 |
|
|
| 62 |
|
|
| — |
|
|
| — |
|
|
| 39,164 |
|
|
| — |
|
|
| 39,226 |
| ||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,163 |
|
|
| — |
|
|
| 3,163 |
| ||||||||||||||||||||||||||||||||||||
Stock option exercises |
|
| — |
|
|
| — |
|
|
| 12,727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| 51 |
| ||||||||||||||||||||||||||||||||||||
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| 95,919 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 322 |
|
|
| — |
|
|
| 323 |
| ||||||||||||||||||||||||||||||||||||
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 554,896 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 752 |
|
|
| — |
|
|
| 758 |
| ||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (82,830 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (1,214 | ) |
|
| — |
|
|
| (1,215 | ) | ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (54,690 | ) |
|
| (54,690 | ) | ||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 |
|
| — |
|
| $ | — |
|
|
| 57,515,085 |
|
| $ | 574 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 600,297 |
|
| $ | (613,552 | ) |
| $ | (12,941 | ) | ||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,584 |
|
|
| — |
|
|
| 2,584 |
| ||||||||||||||||||||||||||||||||||||
Stock option exercises |
|
| — |
|
|
| — |
|
|
| 23,636 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| 95 |
| ||||||||||||||||||||||||||||||||||||
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 471,759 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 242 |
|
|
| — |
|
|
| 247 |
| ||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (81,386 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (726 | ) |
|
| — |
|
|
| (727 | ) | ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,134 | ) |
|
| (20,134 | ) | ||||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 |
|
| — |
|
| $ | — |
|
|
| 57,929,094 |
|
| $ | 579 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 602,491 |
|
| $ | (633,686 | ) |
| $ | (30,876 | ) | ||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,326 |
|
|
| — |
|
|
| 2,326 |
| ||||||||||||||||||||||||||||||||||||
Employee stock purchase program (ESPP) |
|
| — |
|
|
| — |
|
|
| 103,152 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 349 |
|
|
| — |
|
|
| 350 |
| ||||||||||||||||||||||||||||||||||||
Vested restricted stock |
|
| — |
|
|
| — |
|
|
| 148,098 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations on vested RSUs |
|
| — |
|
|
| — |
|
|
| (50,755 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (478 | ) |
|
| — |
|
|
| (478 | ) | ||||||||||||||||||||||||||||||||||||
Reclassification of derivative liability to equity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 41,030 |
|
|
| — |
|
|
| 41,030 |
| ||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,410 |
|
|
| 28,410 |
| ||||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 |
|
| — |
|
| $ | — |
|
|
| 58,129,589 |
|
| $ | 581 |
|
|
| 72,727 |
|
| $ | (260 | ) |
| $ | 645,717 |
|
| $ | (605,276 | ) |
| $ | 40,762 |
|
See accompanying notes to condensed consolidated financial statements.
SIENTRA, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (68,710 | ) |
| $ | (86,571 | ) |
| $ | (46,414 | ) |
| $ | (68,710 | ) |
Income (loss) from discontinued operations, net of income taxes |
|
| 233 |
|
|
| (21,893 | ) | ||||||||
Loss from continuing operations, net of income taxes |
|
| (46,647 | ) |
|
| (46,817 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment |
|
| 6,432 |
|
|
| 12,674 |
| ||||||||
Depreciation and amortization |
|
| 2,996 |
|
|
| 2,538 |
|
|
| 3,149 |
|
|
| 2,386 |
|
Provision for doubtful accounts |
|
| 4,665 |
|
|
| 1,804 |
|
|
| 875 |
|
|
| 258 |
|
Provision for warranties |
|
| 711 |
|
|
| 843 |
|
|
| 684 |
|
|
| 362 |
|
Provision for inventory |
|
| 1,774 |
|
|
| 2,209 |
|
|
| 638 |
|
|
| 1,435 |
|
Fair value adjustments to derivative liability |
|
| 8,420 |
|
|
| — |
|
|
| 14,460 |
|
|
| 8,420 |
|
Fair value adjustments of other liabilities held at fair value |
|
| 29 |
|
|
| 480 |
|
|
| 49 |
|
|
| 29 |
|
Amortization of debt discount and issuance costs |
|
| 3,430 |
|
|
| 223 |
|
|
| 2,632 |
|
|
| 3,430 |
|
Gain on extinguishment of debt |
|
| (6,652 | ) |
|
| — |
| ||||||||
Stock-based compensation expense |
|
| 5,465 |
|
|
| 9,681 |
|
|
| 8,073 |
|
|
| 5,342 |
|
Payments of contingent consideration liability in excess of acquisition-date fair value |
|
| — |
|
|
| (1,968 | ) |
|
| (2,419 | ) |
|
| — |
|
Other non-cash adjustments |
|
| 198 |
|
|
| 181 |
|
|
| 584 |
|
|
| 198 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (720 | ) |
|
| (4,068 | ) |
|
| (7,558 | ) |
|
| (5,311 | ) |
Inventories |
|
| (10,801 | ) |
|
| (8,329 | ) |
|
| (12,999 | ) |
|
| (6,569 | ) |
Prepaid expenses, other current assets and other assets |
|
| 537 |
|
|
| 2,735 |
|
|
| (205 | ) |
|
| (166 | ) |
Accounts payable, accrueds, and other liabilities |
|
| (10,642 | ) |
|
| (8,790 | ) |
|
| 1,279 |
|
|
| (4,921 | ) |
Customer deposits |
|
| 1,547 |
|
|
| 1,750 |
|
|
| 12,381 |
|
|
| 1,547 |
|
Sales return liability |
|
| 1,930 |
|
|
| 1,515 |
|
|
| 3,113 |
|
|
| 1,930 |
|
Legal settlement payable |
|
| — |
|
|
| (410 | ) | ||||||||
Net cash flow from operating activities - continuing operations |
|
| (28,563 | ) |
|
| (38,447 | ) | ||||||||
Net cash flow from operating activities - discontinued operations |
|
| (989 | ) |
|
| (14,292 | ) | ||||||||
Net cash used in operating activities |
|
| (52,739 | ) |
|
| (73,503 | ) |
|
| (29,552 | ) |
|
| (52,739 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (3,192 | ) |
|
| (3,180 | ) |
|
| (4,882 | ) |
|
| (3,112 | ) |
Net cash used in investing activities |
|
| (3,192 | ) |
|
| (3,180 | ) | ||||||||
Net cash flow from investing activities - continuing operations |
|
| (4,882 | ) |
|
| (3,112 | ) | ||||||||
Net cash flow from investing activities - discontinued operations |
|
| 11,314 |
|
|
| (80 | ) | ||||||||
Net cash provided by (used in) investing activities |
|
| 6,432 |
|
|
| (3,192 | ) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from option exercises and employee stock purchase plan |
|
| 852 |
|
|
| 1,332 |
| ||||||||
Proceeds from issuance of common stock for employee stock-based plans |
|
| 1,824 |
|
|
| 852 |
| ||||||||
Net proceeds from issuance of common stock |
|
| 264 |
|
|
| 107,734 |
|
|
| 39,226 |
|
|
| 264 |
|
Tax payments related to shares withheld for vested restricted stock units (RSUs) |
|
| (1,496 | ) |
|
| (2,956 | ) |
|
| (2,420 | ) |
|
| (1,496 | ) |
Gross borrowings under the Term Loan |
|
| — |
|
|
| 5,000 |
|
|
| 1,000 |
|
|
| — |
|
Repayments under the Term Loan |
|
| (25,000 | ) |
|
| — |
|
|
| — |
|
|
| (25,000 | ) |
Gross borrowings under the PPP loan |
|
| 6,652 |
|
|
| — |
| ||||||||
Gross borrowings under the Revolving Loan |
|
| — |
|
|
| 15,788 |
| ||||||||
Gross borrowings under the PPP Loan |
|
| — |
|
|
| 6,652 |
| ||||||||
Repayment of the Revolving Loan |
|
| (6,508 | ) |
|
| (8,436 | ) |
|
| — |
|
|
| (6,508 | ) |
Net proceeds from issuance of the Convertible Note |
|
| 60,000 |
|
|
| — |
|
|
| — |
|
|
| 60,000 |
|
Payments of contingent consideration up to acquisition-date fair value |
|
| — |
|
|
| (5,766 | ) |
|
| (4,550 | ) |
|
| — |
|
Deferred financing costs |
|
| (2,958 | ) |
|
| (1,997 | ) |
|
| (800 | ) |
|
| (2,958 | ) |
Net cash provided by financing activities |
|
| 31,806 |
|
|
| 110,699 |
|
|
| 34,280 |
|
|
| 31,806 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| (24,125 | ) |
|
| 34,016 |
|
|
| 11,160 |
|
|
| (24,125 | ) |
Cash, cash equivalents and restricted cash at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
| 87,951 |
|
|
| 87,242 |
|
|
| 55,300 |
|
|
| 87,951 |
|
End of period |
| $ | 63,826 |
|
| $ | 121,258 |
|
| $ | 66,460 |
|
| $ | 63,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 63,483 |
|
| $ | 120,915 |
|
|
| 66,127 |
|
| $ | 63,483 |
|
Restricted cash included in other assets |
|
| 343 |
|
|
| 343 |
|
|
| 333 |
|
|
| 343 |
|
Total cash, cash equivalents and restricted cash |
| $ | 63,826 |
|
| $ | 121,258 |
|
| $ | 66,460 |
|
| $ | 63,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 3,781 |
|
| $ | 3,015 |
|
| $ | 3,133 |
|
| $ | 3,781 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment in accounts payable and accrued liabilities |
| $ | 114 |
|
| $ | 1,113 |
|
|
| 323 |
|
|
| 114 |
|
Equity component of the Convertible Note |
|
| 41,030 |
|
|
| — |
|
See accompanying notes to condensed consolidated financial statements.
SIENTRA, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. | Summary of Significant Accounting Policies |
| a. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements of Sientra, Inc. (“Sientra”, the “Company”, “we”, “our”, or “us”) in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial reporting. The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on March 16, 2020,11, 2021, or the Annual Report. The results for the three and nine months ended September 30, 20202021 are not necessarily indicative of results to be expected for the year ending December 31, 2020,2021, any other interim periods, or any future year or period.
As a result of the miraDry Sale discussed in Note 2, the miraDry business met the criteria to be reported as discontinued operations. Therefore, the Company is reporting the historical results of miraDry, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations for all periods presented herein through the date of the Sale. Unless otherwise noted, the accompanying notes to the unaudited condensed consolidated financial statements have all been revised to reflect continuing operations only. As discussed in Note 11, following the Sale the Company has one operating segment in continuing operations named Plastic Surgery, formerly known as Breast Products.
| b. | Liquidity |
Since the Company’s inception, it has incurred significant net operating losses and the Company anticipates that losses will continue in the near term. Although theThe Company expects its operating expenses will begin to decreaseremain consistent with the implementation of the organizational efficiency initiative announced on November 7, 2019,current period and other measures introduced as announced in the Company’s filing on Form 8-K on April 7, 2020, the Company will need to generate significant net sales to achieve profitability. To date, the Company has funded operations primarily with proceeds from the sales of preferred stock, borrowings under term loans and the convertible note, sales of products since 2012, and the proceeds from the sale of common stock in public offerings. To fund ongoing operating and capital needs, the Company may need to raise additional capital in the future through the sale of equity securities and incremental debt financing.
Sale of the miraDry business
Refer to Note 2 for details on the sale of the miraDry business.
Debt financing – recent developments
Refer to Note 7 for a full description and updates to all of the Company’s long-term debt, revolving line of credit, convertible note, and Paycheck Protection Program (PPP) loan.
Equity financing – recent developments
On February 8, 2021, the Company completed a follow-on public offering of 5,410,628 shares of common stock at $6.75 per share, as well as 811,594 additional shares of common stock pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds were approximately $39.2 million after deducting
underwriting discounts and commissions of approximately $2.5 million and offering expenses of approximately $0.3 million.
As of September 30, 2021, the Company had cash and cash equivalents of $66.1 million. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon many factors including liquidity and the ability to raise capital.
During the nine months ended September 30, 2020, the Company sold 37,000 shares of its common stock under the At-The-Market Equity Offering Sales Agreement with Stifel, Nicolaus & Company, Incorporated, or Stifel, as sales agent pursuant to which the Company may sell, from time to time, through Stifel, shares of common stock having an aggregate gross offering price of up to $50.0 million. The sales of common stock resulted in net proceeds after commissions of approximately $0.3 million.
On March 11, 2020, the Company entered into a facility agreement with Deerfield Partners, L.P., issuing $60.0 million in principal amount of 4.0% unsecured and subordinated convertible notes upon the terms and conditions set forth in the facility agreement. Further on May 11, 2020, the Company amended certain credit agreements with Midcap Financial Trust pursuant to which the Company repaid certain amounts of its existing indebtedness. See Note 10 – Debt for further discussion.
As of September 30, 2020, the Company had cash and cash equivalents of $63.5 million. The Company believes that its cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months.To fund ongoing operating and capital needs, the Company may need to raise additional capital in the future through the sale of equity securities and incremental debt financing.
| c. |
|
The preparation of the condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| Recent Accounting Pronouncements |
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendment modifies, removes, and adds certain disclosure requirements on fair value measurements. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption was permitted. The Company adopted the applicable amendments within ASU 2018-13 prospectively in the first quarter of 2020 and there was no material impact on its condensed consolidated financial statements from the adoption.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendment. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption was permitted. The Company adopted ASU 2018-15 prospectively in the first quarter of 2020 and there was no material impact on its condensed consolidated financial statements from the adoption.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendment eliminates certain accounting models and simplifies the accounting for convertible instruments and enhances disclosures for convertible instruments and earnings per share. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023 including interim periods within those fiscal years and early adoption is permitted. The Company is currently evaluating the impact that adoption of the standard will have on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)-Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendment provides optional expedients and exceptions for contract modifications that replace a reference rate affected by reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022, and entities may elect to apply by Topic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the impact the election of the optional expedient will have on the consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendment removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation, and calculating income taxes in interim periods. The amendment also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption iswas permitted. The Company is currently evaluatingadopted the applicable amendments within ASU 2019-12 in the first quarter of 2021 and there was no material impact that adoption of the standard will have on theits condensed consolidated financial statements.statements from the adoption.
|
| Risks and Uncertainties |
As an aesthetics company, surgical procedures involving the Company’s breast products are susceptible to local and national government restrictions, such as social distancing, vaccination requirements, “shelter in place” orders and business closures. The rapid, global spreadinability or limited ability to perform such non-emergency procedures significantly harmed the Company’s revenues since the second quarter of COVID-19 has resulted2020 and continued to harm the Company’s revenues during the nine months ended September 30, 2021. While many states have lifted certain restrictions on non-emergency procedures, the Company will likely continue to experience future harm to its revenues while existing or new restrictions remain in significant economic uncertainty, significant declines in business and consumer confidence and global demand inplace. It is not possible to accurately predict the non-essential healthcare industry (among others), a global economic slowdown, and could lead to a global recession. The Company is subject to risks and uncertainties as a resultlength or severity of the COVID-19 pandemic. The full extentpandemic or the timing for a broad and sustained ability to which the COVID-19 pandemic will directly or indirectly impactperform non-emergency procedures involving the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, and employee-related amounts, will depend on future developments that are highly uncertain.products. The Company continues to monitor and assess new information related to the COVID-19 pandemic, the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.
As an aesthetics company, surgical procedures involving the Company's products are susceptible to local and national government restrictions, such as social distancing, “shelter in place” orders and business closures, due to the economic and logistical impacts these measures have on consumer demand as well as the practitioners’ ability to administer such procedures. The inability or limited ability to perform such non-emergency procedures significantly harmed the Company’s revenues during the three months ended June 30, 2020 and continued to harm the Company’s revenues during the three months ended September 30, 2020. While some states have lifted certain restrictions on non-emergency procedures during the three months ended September 30, 2020, the Company will likely continue to experience future harm to its revenues while existing or new restrictions remain in place.
Further, the spread of COVID-19 has caused the Company to modify workforce practices, and the Company may take further actions determined to be in the best interests of the Company’s employees or as required by governments. In addition, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that this can lead to a local and/or global economic recession, which may result in further harm to the aesthetics market. Such economic disruption could adversely affect the Company’s
business. The continued spread of COVID-19, or another infectious disease, could also result in delays or disruptions in the Company’s supply chain or adversely affect the Company’s manufacturing facilities and personnel. Further, trade and/or national security protection policies may be adjusted as a result of the COVID-19 pandemic, such as actions by governments that limit, restrict or prevent the movement of certain goods into a country and/or region, and current U.S./China trade relations may be further exacerbated by the pandemic.
The estimates used for, but not limited to, determining the collectability of accounts receivable, fair value of long-lived assets and goodwill, and sales returns liability required could be impacted by the pandemic. While the full impact of COVID-19 is unknown at this time, the Company has made appropriate estimates based on the facts and circumstances available as of the reporting date. These estimates may change as new events occur and additional information is obtained.
|
| Reclassifications |
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
2. |
|
On November 7, 2019,June 10, 2021, the Company announcedcompleted the sale of its miraDry business (the “Sale”) to miraDry Acquisition Company, Inc., a Delaware corporation (“Buyer”), an organizational efficiency initiative, orentity affiliated with 1315 Capital II, LP, as a result of the Plan, designedCompany’s strategic decision to reduce spendingfocus investment on its core Plastic Surgery segment. The Sale was made pursuant to the terms and simplify operations. Underconditions of the Plan,Asset Purchase Agreement (the “Purchase Agreement”), dated May 11, 2021, among the Company is implementing numerous initiativesand certain of its subsidiaries, Buyer, and, solely for purposes of Section 8.14 of the Purchase Agreement, 1315 Capital II, LP. The aggregate purchase price was $10.0 million, which after certain adjustments for agreed upon changes in the estimated net asset value amount of purchased assets and assumed liabilities resulted in net cash proceeds of $11.3 million to reduce spending, including closing the Santa Clara offices of miraDry, Inc. and consolidating a number of business support services via a shared services organization at the Company’s Santa Barbara headquarters.
Under the Plan, the Company intends to reduce its workforce by terminating approximately 70 employees. Theon the date of close. As of September 30, 2021, the Company expects to incur total chargeshas an escrow liability of approximately $2.5$3.2 million in connection with one-time employee termination costs, retention costs and other benefits. In addition, the Company expects to incur estimated charges of approximately $0.5 million related to duplicate operating costs and other associated costs. In total, the Plan is estimated to cost approximately $3.0 million, excluding non-cash charges, with related cash payments expected to be substantially paid out with cash on hand by the end of 2020.
The following table details the amount of the liabilities related to the Plan included in "Accrued“Accrued and other current liabilities" inliabilities” on the condensed consolidated balance sheet to account for additional agreed upon post close changes in the net asset value and has recognized a loss on sale of $2.5 million. In October 2021, the Company finalized the transaction and paid $3.2 million to the Buyer in accordance with the agreed upon post close changes in the net asset value.
In accordance with the Purchase Agreement, assumed liabilities did not include product liabilities, environmental, and employee claims arising prior to the closing date. The Purchase Agreement also included customary representations and warranties, as well as certain covenants, including, among other things, that: (i) the Company will abide by certain non-solicitation, exclusivity, and non-competition covenants, and (ii) the Company would enter into a transition services agreement (“TSA”) to provide certain transition services related to the business.
Under the TSA, the Company provides certain post-closing services to the Buyer related to the miraDry business for a period of September 30, 2020 (amountsup to six months, including accounting, accounts receivable support, customer service, IT, regulatory, quality assurance, and clinical support. As consideration for these services, the Buyer will reimburse the Company for direct and certain indirect costs, as well as certain overhead or administrative expenses related to operating the business. The Company recognized $0.1 million of TSA fees and cost reimbursements in thousands):
|
| Severance costs |
|
| Other associated costs |
|
| Duplicate operating costs |
| |||
Balance at December 31, 2019 |
| $ | 894 |
|
| $ | — |
|
| $ | — |
|
Costs charged to expense |
|
| 1,467 |
|
|
| 208 |
|
|
| 174 |
|
Costs paid or otherwise settled |
|
| (1,995 | ) |
|
| (208 | ) |
|
| (174 | ) |
Balance at September 30, 2020 |
| $ | 366 |
|
| $ | — |
|
| $ | — |
|
The following table details the charges by reportable segment, recorded in "Restructuring" under operating expenses from continuing operations in the condensed consolidated statementsstatement of operations for the nine months ended September 30, 2020 (amounts2021. As of September 30, 2021, the Company has received $0.3 million relating to the TSA services and has recorded a receivable of $0.1 million within other current assets in the condensed consolidated balance sheets. In connection with the accounts receivable support under the TSA, the Company received $2.3 million in customer payments and remitted $2.2 million to the Buyer during the period from June 10, 2021 through September 30, 2021. As of September 30, 2021, the Company has recorded a $0.1 million payable in accounts payable on the condensed consolidated balance sheets.
Additionally, the Company and the Buyer entered into a sublease agreement whereby the Buyer will sublease the miraDry office space in Santa Clara, CA. The sublease term is for an initial period of six months, with subsequent option periods for up to a total of twenty four months. During the three and nine months ended September 30, 2021, the Company recognized $0.2 million and $0.3 million, respectively, of sublease income in general and administrative expenses in the condensed consolidated statements of operations.
The Sale met the discontinued operations criteria given that the business is a component and represented a strategic shift. The following table presents the aggregate carrying amounts of major classes of assets and liabilities of discontinued operations (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Assets of discontinued operations: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
| $ | — |
|
| $ | 3,732 |
|
Inventories, net |
|
| — |
|
|
| 9,480 |
|
Prepaid expenses and other current assets |
|
| 4 |
|
|
| 263 |
|
Current assets of discontinued operations |
|
| 4 |
|
|
| 13,475 |
|
Property and equipment, net |
|
| — |
|
|
| 805 |
|
Total assets of discontinued operations |
| $ | 4 |
|
| $ | 14,280 |
|
Liabilities of discontinued operations: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 6 |
|
| $ | 704 |
|
Accrued and other current liabilities |
|
| 495 |
|
|
| 3,982 |
|
Total liabilities of discontinued operations |
| $ | 501 |
|
| $ | 4,686 |
|
The results of operations for the miraDry business were included in income (loss) from discontinued operations on the accompanying condensed consolidated statements of operations. The following table provides information regarding the results of discontinued operations (in thousands):
|
| Year Ended |
|
| Nine Months Ended |
|
| Cumulative Restructuring |
| |||
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| Charges |
| |||
Breast Products |
| $ | 499 |
|
| $ | 389 |
|
| $ | 888 |
|
miraDry |
|
| 584 |
|
|
| 1,460 |
|
|
| 2,044 |
|
Total |
| $ | 1,083 |
|
| $ | 1,849 |
|
| $ | 2,932 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net sales |
| $ | — |
|
| $ | 3,888 |
|
| $ | 9,347 |
|
| $ | 11,488 |
|
Cost of goods sold |
|
| — |
|
|
| 1,286 |
|
|
| 4,805 |
|
|
| 4,846 |
|
Gross profit |
|
| — |
|
|
| 2,602 |
|
|
| 4,542 |
|
|
| 6,642 |
|
Operating expenses |
|
| 57 |
|
|
| 7,034 |
|
|
| 1,744 |
|
|
| 28,571 |
|
Income (loss) from operations of discontinued operations |
|
| (57 | ) |
|
| (4,432 | ) |
|
| 2,798 |
|
|
| (21,929 | ) |
Other income (expense), net |
|
| — |
|
|
| 98 |
|
|
| (77 | ) |
|
| 36 |
|
Income (loss) from discontinued operations before income taxes |
|
| (57 | ) |
|
| (4,334 | ) |
|
| 2,721 |
|
|
| (21,893 | ) |
Loss on sale of discontinued operations before income taxes |
|
| (36 | ) |
|
| — |
|
|
| (2,488 | ) |
|
| — |
|
Total income (loss) from discontinued operations before income taxes |
|
| (93 | ) |
|
| (4,334 | ) |
|
| 233 |
|
|
| (21,893 | ) |
Income tax expense (benefit) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Income (loss) from discontinued operations, net of income taxes |
| $ | (93 | ) |
| $ | (4,334 | ) |
| $ | 233 |
|
| $ | (21,893 | ) |
The Company anticipates incurring approximately $0.1 millionresults of additional restructuring costs during the remainder of 2020 attributable to the miraDry segment. Asbusiness, including the developmentresults of the Plan is completed, the Company will update its costs by reportable segmentoperations, cashflows, and related assets and liabilities are reported as needed.discontinued operations for all periods presented herein.
3.
| Revenue |
The Company generates revenue primarily through the sale and delivery of promised goods or services to customers and recognizes revenue whencustomers. Sales prices are documented in the executed sales contract, purchase order or order acknowledgement prior to the transfer of control to the customer. Typical payment terms are 30 days.
Revenue contracts may include multiple products or services, each of which is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.
considered a separate performance obligation. Performance obligations typically include the delivery of promised products, such as breast implants,
tissue expanders, BIOCORNEUM, miraDry Systems and bioTips,BIOCORNEUM, along with service-type warranties and deliverables under certain marketing programs.warranties. Other deliverables may beare sometimes promised but are ancillary and insignificant in the context of the contract as a whole. Revenue is allocated to each performance obligation based on its relative standalone selling price. The Company determines standalone selling prices based on observable prices for all performance obligations with the exception of the service-type warranty under the Platinum20 Limited Warranty Program, or Platinum20, which is based on the expected cost plus margin approach. Inputs into the expected cost plus margin approach include historical incidence rates, estimated replacement costs, estimated financial assistance payouts and an estimated margin.
The liability for unsatisfied performance obligations under the service warranty as of September 30, 2021 were as follows:
|
| Nine Months Ended September 30, |
| |
|
| 2021 |
| |
Balance as of December 31, 2020 |
| $ | 1,945 |
|
Additions and adjustments |
|
| 1,379 |
|
Revenue recognized |
|
| (411 | ) |
Balance as of September 30, 2021 |
| $ | 2,913 |
|
Revenue for service warranties are recognized ratably over the term of the agreements. Specifically for Platinum20, the performance obligation is satisfied at the time that the benefits are provided and are expected to be satisfied over the following 3 to 24 month period for financial assistance and 20 years for product replacement.
For delivery of promised products, control transfers and revenue is recognized upon shipment, unless the contractual arrangement requires transfer of control when products reach their destination, for which revenue is recognized once the product arrives at its destination. Revenue for service warranties are recognized ratably over the termA portion of the agreements,Company’s revenue is generated from the sale of consigned inventory of breast implants and tissue expanders maintained at doctor, hospital, and clinic locations. For these products, revenue relatedis recognized at the time the Company is notified by the customer that the product has been used, not when the consigned products are delivered to marketing program deliverables are recognized upon deliverythe customer’s location.
Sales Return Liability
With the exception of the marketing productCompany’s BIOCORNEUM scar management products, the Company allows for the return of products from customers within six months after the original sale, which is accounted for as variable consideration. A sales return liability is established based on estimated returns using relevant historical experience taking into consideration recent gross sales and notifications of pending returns, as adjusted for changes in recent industry events and trends. The estimated sales returns are recorded as a reduction of revenue and as a sales return liability in the same period revenue is recognized. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or performancesubsequent period would be recorded. The following table provides a rollforward of the service.sales return liability (in thousands):
The liability for unsatisfied performance obligations under the service warranty and deliverables under certain marketing programs as of September 30, 2020 were as follows:
|
| Nine Months Ended September 30, |
| |
|
| 2020 |
| |
Balance as of December 31, 2019 |
| $ | 2,089 |
|
Additions and adjustments |
|
| 2,077 |
|
Revenue recognized |
|
| (1,389 | ) |
Balance as of September 30, 2020 |
| $ | 2,777 |
|
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Beginning balance |
| $ | 9,192 |
|
| $ | 8,116 |
|
Addition to reserve for sales activity |
|
| 115,374 |
|
|
| 84,119 |
|
Actual returns |
|
| (110,996 | ) |
|
| (82,110 | ) |
Change in estimate of sales returns |
|
| (1,265 | ) |
|
| (46 | ) |
Ending balance |
| $ | 12,305 |
|
| $ | 10,079 |
|
4. | Fair Value of Financial Instruments |
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, customer deposits and sales return liability are reasonable estimates of their fair value because of the short maturity of these items. The fair value of the common stock warrant liability, contingent consideration, and the convertible feature related to the convertible note are discussed in Note 5. The fair value of the debt is based on the amount of future cash flows associated with the instrument discounted using the Company’s estimated market rate. As of September 30, 2020,2021, the carrying value of the long-term debt and convertible note was not materially different from the fair value. As of September 30, 2021, the carrying value and fair value of the convertible note were as follows (in thousands):
|
| September 30, 2021 |
| |||||
|
| Carrying Value |
|
| Fair Value |
| ||
Convertible note |
| $ | 46,657 |
|
| $ | 42,330 |
|
5. |
|
a. | Inventories |
Inventories, net consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Raw materials |
| $ | 2,669 |
|
| $ | 3,788 |
|
Work in progress |
|
| 4,325 |
|
|
| 10,710 |
|
Finished goods |
|
| 40,278 |
|
|
| 21,254 |
|
Finished goods - right of return |
|
| 4,257 |
|
|
| 3,416 |
|
|
| $ | 51,529 |
|
| $ | 39,168 |
|
b. | Property and Equipment |
Property and equipment, net consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Leasehold improvements |
| $ | 2,605 |
|
| $ | 2,523 |
|
Manufacturing equipment and toolings |
|
| 9,832 |
|
|
| 8,529 |
|
Computer equipment |
|
| 1,637 |
|
|
| 2,522 |
|
Software |
|
| 6,581 |
|
|
| 3,010 |
|
Furniture and fixtures |
|
| 1,542 |
|
|
| 1,040 |
|
|
|
| 22,197 |
|
|
| 17,624 |
|
Less accumulated depreciation |
|
| (7,311 | ) |
|
| (5,323 | ) |
|
| $ | 14,886 |
|
| $ | 12,301 |
|
Depreciation expense for the three months ended September 30, 2021 and 2020 was $0.7 million and $0.9 million, respectively. Depreciation expense for the nine months ended September 30, 2021 and 2020 was $2.2 million and $1.4 million, respectively.
c. | Goodwill and Other Intangible Assets, net |
Following the sale of the miraDry business, the Company has one reporting unit, Plastic Surgery, formerly known as Breast Products. The Company evaluates goodwill for impairment at least annually on October 1st and whenever circumstances suggest that goodwill may be impaired.
The carrying amount of goodwill as of September 30, 2021 and December 31, 2020 were as follows (in thousands):
|
| Plastic Surgery |
|
| miraDry |
|
| Total |
| |||
Balances as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 23,480 |
|
|
| 7,629 |
|
|
| 31,109 |
|
Accumulated impairment losses |
|
| (14,278 | ) |
|
| (7,629 | ) |
|
| (21,907 | ) |
Goodwill, net |
| $ | 9,202 |
|
| $ | — |
|
| $ | 9,202 |
|
Balances as of September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 23,480 |
|
|
| 7,629 |
|
|
| 31,109 |
|
Accumulated impairment losses |
|
| (14,278 | ) |
|
| (7,629 | ) |
|
| (21,907 | ) |
Goodwill, net |
| $ | 9,202 |
|
| $ | — |
|
| $ | 9,202 |
|
The components of the Company’s other intangible assets consist of the following (in thousands):
|
| Average |
|
|
|
| ||||||||||
|
| Amortization |
|
| September 30, 2021 |
| ||||||||||
|
| Period |
|
| Gross Carrying |
|
| Accumulated |
|
| Intangible |
| ||||
|
| (in years) |
|
| Amount |
|
| Amortization |
|
| Assets, net |
| ||||
Intangibles with definite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
| 10 |
|
| $ | 4,940 |
|
| $ | (4,132 | ) |
| $ | 808 |
|
Trade names - finite life |
|
| 12 |
|
|
| 800 |
|
|
| (372 | ) |
|
| 428 |
|
Non-compete agreement |
|
| 2 |
|
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
Regulatory approvals |
|
| 1 |
|
|
| 670 |
|
|
| (670 | ) |
|
| — |
|
Acquired FDA non-gel product approval |
|
| 11 |
|
|
| 1,713 |
|
|
| (1,713 | ) |
|
| — |
|
Manufacturing know-how |
|
| 19 |
|
|
| 8,240 |
|
|
| (1,455 | ) |
|
| 6,785 |
|
Total definite-lived intangible assets |
|
|
|
|
| $ | 16,443 |
|
| $ | (8,422 | ) |
| $ | 8,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles with indefinite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names - indefinite life |
| — |
|
|
| 450 |
|
|
| — |
|
|
| 450 |
| |
Total indefinite-lived intangible assets |
|
|
|
|
| $ | 450 |
|
| $ | — |
|
| $ | 450 |
|
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Amortization |
|
| December 31, 2020 |
| ||||||||||
|
| Period |
|
| Gross Carrying |
|
| Accumulated |
|
| Intangible |
| ||||
|
| (in years) |
|
| Amount |
|
| Amortization |
|
| Assets, net |
| ||||
Intangibles with definite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
| 10 |
|
| $ | 4,940 |
|
| $ | (3,856 | ) |
| $ | 1,084 |
|
Trade names - finite life |
|
| 12 |
|
|
| 800 |
|
|
| (322 | ) |
|
| 478 |
|
Non-compete agreement |
|
| 2 |
|
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
Regulatory approvals |
|
| 1 |
|
|
| 670 |
|
|
| (670 | ) |
|
| — |
|
Acquired FDA non-gel product approval |
|
| 11 |
|
|
| 1,713 |
|
|
| (1,713 | ) |
|
| — |
|
Manufacturing know-how |
|
| 19 |
|
|
| 8,240 |
|
|
| (865 | ) |
|
| 7,375 |
|
Total definite-lived intangible assets |
|
|
|
|
| $ | 16,443 |
|
| $ | (7,506 | ) |
| $ | 8,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles with indefinite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names - indefinite life |
| — |
|
|
| 450 |
|
|
| — |
|
|
| 450 |
| |
Total indefinite-lived intangible assets |
|
|
|
|
| $ | 450 |
|
| $ | — |
|
| $ | 450 |
|
Amortization expense for both the three months ended September 30, 2021 and 2020 were $0.3 million. Amortization expense for the nine months ended September 30, 2021 and 2020 was $0.9 million and $1.0 million, respectively. The following table summarizes the future estimated amortization expense relating to the Company's definite-lived intangible assets as of September 30, 2021 (in thousands):
|
| Amortization |
| |
Period |
| Expense |
| |
2021 |
| $ | 305 |
|
2022 |
|
| 1,163 |
|
2023 |
|
| 1,092 |
|
2024 |
|
| 948 |
|
2025 |
|
| 805 |
|
Thereafter |
|
| 3,708 |
|
|
| $ | 8,021 |
|
d. | Accrued and Other Current Liabilities |
Accrued and other current liabilities consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Payroll and related expenses |
| $ | 4,389 |
|
| $ | 3,003 |
|
Accrued severance |
|
| 452 |
|
|
| 2,900 |
|
Accrued commissions |
|
| 3,494 |
|
|
| 4,734 |
|
Accrued manufacturing |
|
| 252 |
|
|
| 225 |
|
Deferred and contingent consideration, current portion |
|
| 3,195 |
|
|
| 10,146 |
|
Audit, consulting and legal fees |
|
| — |
|
|
| 48 |
|
Accrued sales and marketing expenses |
|
| 96 |
|
|
| 300 |
|
Lease liabilities |
|
| 1,618 |
|
|
| 1,588 |
|
Other |
|
| 8,789 |
|
|
| 5,464 |
|
|
| $ | 22,285 |
|
| $ | 28,408 |
|
e. | Accrued warranties |
The following table provides a rollforward of the accrued assurance-type warranties (in thousands):
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Balance as of January 1 |
| $ | 1,934 |
|
| $ | 1,397 |
|
Warranty costs incurred during the period |
|
| (270 | ) |
|
| (83 | ) |
Changes in accrual related to warranties issued during the period |
|
| 673 |
|
|
| 367 |
|
Changes in accrual related to pre-existing warranties |
|
| 11 |
|
|
| (5 | ) |
Balance as of September 30 |
| $ | 2,348 |
|
| $ | 1,676 |
|
As of September 30, 2021 and 2020, both balances are included in “Warranty reserve and other long-term liabilities”.
f. | Liabilities measured at fair value |
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| • | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2 — Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| • | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
Common Stock Warrantsstock warrants
The Company’s common stock warrant liabilities are carried at fair value determined according to the fair value hierarchy described above. The Company has utilized an option pricing valuation model to determine the fair value of its outstanding common stock warrant liabilities. The inputs to the model include fair value of the common stock related to the warrant, exercise price of the warrant, expected term, expected volatility, risk-free interest rate and dividend yield. The warrants are valued using the fair value of common stock as of the measurement date. The Company estimates its expected stock volatility based on company-specific historical and implied volatility information of its stock. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends. As of September 30, 2020,several significant inputs are not observable, the overall fair value measurement of the warrants was immaterialis classified as a resultLevel 3. As of the decline in the Company’s stock price.current period ended September 30, 2021, all warrants have expired.
Contingent Considerationconsideration
The Company assessed the fair value of the contingent consideration for future royalty payments related to the acquisition of BIOCORNEUM and the contingent consideration for the future milestone payments related to the acquisition of miraDry using a Monte-Carlo simulation model. The contingent consideration related to the acquisition of BIOCORNEUM consist of royalty obligations based on future net sales for a defined term, beginning in 2024. The significant assumption utilized in the fair value measurement was the revenue discount rate, which was 20.0%21.0%. The contingent consideration for future milestone payments related to the acquisition of miraDry iswas based on the timing of achievement of target net sales, which is estimated based on an internal management forecast. The significant assumption utilized in the fair value measurement was the miraDry company discount rate, which was 11.2%. As these inputs are not observable, the overall fair value measurement of the contingent consideration is classified as Level 3. During the nine months endedAs of September 30, 2020,2021, the total change inremaining liability for the fair value ofmiraDry contingent consideration was $0.1 million and 0 settlements were recorded.approximately $31,000.
Convertible note conversion featureDerivative liability
ThePrior to the amendment, the Company assessesassessed on a quarterly basis the fair value of the derivative liability associated with the conversion feature related toin the convertible note due in 2025. The conversion feature was initially bifurcated and recorded as a derivative liability on the condensed consolidated balance sheetsheets with a corresponding discount at the date of issuance that is netted against the principal amount of the note. The Company utilizesutilized a binomial lattice method to determine the fair value of the conversion feature, which utilizesutilized inputs including the common stock price, volatility of common stock, the risk-free interest rate and the probability of conversion to common shares at the Base Conversion Rate in the event of a major transaction (e.g. a change in control). As the
probability of conversion is a significant unobservable input, the overall fair value measurement of the conversion feature iswas classified as Level 3. During the three months ended September 30, 2020, the change in the fair valueAs a result of the derivative liability was a decrease of $10.1 million. Duringamendment, the nine months ended September 30, 2020,conversion feature met the changecriteria for equity classification and has been reclassified to “Additional paid in capital” on the fair value of the derivative liability was an increase of $8.4 million. NaN settlements were recorded.condensed consolidated balance sheet.
The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 20202021 and December 31, 20192020 and indicate the level of the fair value hierarchy utilized to determine such fair value (in thousands):
|
| Fair Value Measurements as of |
|
| Fair Value Measurements as of |
| ||||||||||||||||||||||||||
|
| September 30, 2020 Using: |
|
| September 30, 2021 Using: |
| ||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for contingent consideration |
| $ | — |
|
|
| — |
|
|
| 6,959 |
|
|
| 6,959 |
|
| $ | — |
|
| $ | — |
|
| $ | 106 |
|
| $ | 106 |
|
Liability for convertible note conversion feature |
|
| — |
|
|
| — |
|
|
| 24,520 |
|
|
| 24,520 |
| ||||||||||||||||
|
| $ | — |
|
|
| — |
|
|
| 31,479 |
|
|
| 31,479 |
|
| $ | — |
|
| $ | — |
|
| $ | 106 |
|
| $ | 106 |
|
|
| Fair Value Measurements as of |
|
| Fair Value Measurements as of |
| ||||||||||||||||||||||||||
|
| December 31, 2019 Using: |
|
| December 31, 2020 Using: |
| ||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for common stock warrants |
| $ | — |
|
|
| — |
|
|
| 38 |
|
|
| 38 |
| ||||||||||||||||
Liability for contingent consideration |
|
| — |
|
|
| — |
|
|
| 6,891 |
|
|
| 6,891 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,026 |
|
| $ | 7,026 |
|
Liability for derivative |
|
| — |
|
|
| — |
|
|
| 26,570 |
|
|
| 26,570 |
| ||||||||||||||||
|
| $ | — |
|
|
| — |
|
|
| 6,929 |
|
|
| 6,929 |
|
| $ | — |
|
| $ | — |
|
| $ | 33,596 |
|
| $ | 33,596 |
|
The following table provides a rollforward of the aggregate fair values of the Company’s liabilities for which fair value is determined by Level 3 inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
| Contingent consideration liability |
|
| Derivative liability |
| ||
Balance, December 31, 2020 |
| $ | 7,026 |
|
| $ | 26,570 |
|
Change in fair value |
|
| 49 |
|
|
| 14,460 |
|
Settlements |
|
| (6,969 | ) |
|
| — |
|
Reclassification to equity |
|
| — |
|
|
| (41,030 | ) |
Balance, September 30, 2021 |
| $ | 106 |
|
| $ | — |
|
The liability for the current portion of contingent consideration is included in “accrued“Accrued and other current liabilities” and the long-term portion is included in “deferred“Deferred and contingent consideration” in the condensed consolidated balance sheet. The liability for the conversion feature related to the convertible note is included in “derivative liability” in the condensed consolidated balance sheet.sheets.
The Company recognizesrecognized changes in the fair value of the derivative liability in “change“Change in fair value of derivative liability” in the condensed consolidated statement of operations and changes in the contingent consideration are recognized in “general“General and administrative” expense in the condensed consolidated statement of operations.
6. |
|
The Company offers a product replacement and limited warranty program for the Company’s silicone gel breast implants, and a product warranty for the Company’s miraDry Systems and consumable bioTips. For silicone gel breast implant surgeries occurring prior to May 1, 2018, the Company provides lifetime replacement implants and up to $3,600 in financial assistance for revision surgeries, for covered rupture events that occur within ten years of the surgery date. The Company introduced its Platinum20 Limited Warranty Program in May 2018, covering OPUS silicone gel breast implants implanted in the United States or Puerto Rico on or after May 1, 2018. The Company considers the program to have an assurance warranty component and a service warranty component. The service warranty component is discussed in Note 3 above. The assurance component is primarily related to the lifetime no-charge contralateral replacement implants and up to $5,000 in financial assistance for revision surgeries, for covered rupture events that occur within twenty years of the surgery date. Under the miraDry warranty, the Company provides a standard product warranty for the miraDry System and bioTips, which the Company considers an assurance-type warranty.
The following table provides a rollforward of the accrued warranties (in thousands):
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Balance as of January 1 |
| $ | 1,562 |
|
| $ | 1,395 |
|
Warranty costs incurred during the period |
|
| (501 | ) |
|
| (492 | ) |
Changes in accrual related to warranties issued during the period |
|
| 717 |
|
|
| 820 |
|
Changes in accrual related to pre-existing warranties |
|
| (6 | ) |
|
| 23 |
|
Balance as of September 30 |
| $ | 1,772 |
|
| $ | 1,746 |
|
|
|
Basic net loss per share attributable to common stockholders is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding, to the extent they are dilutive. Potential common shares consist of shares issuable upon the exercise of stock options and warrants (using the treasury stock method). Dilutive net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||
Net loss (in thousands) |
| $ | (5,821 | ) |
| $ | (22,433 | ) |
| $ | (68,710 | ) |
| $ | (86,571 | ) |
Weighted average common shares outstanding, basic and diluted |
|
| 50,394,858 |
|
|
| 49,401,094 |
|
|
| 50,155,623 |
|
|
| 37,671,215 |
|
Net loss per share attributable to common stockholders |
| $ | (0.12 | ) |
| $ | (0.45 | ) |
| $ | (1.37 | ) |
| $ | (2.30 | ) |
The Company excluded the following potentially dilutive securities, outstanding as of September 30, 2020 and 2019, from the computation of diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2020 and 2019 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods.
|
| September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Stock options to purchase common stock |
|
| 1,571,375 |
|
|
| 2,036,027 |
|
Warrants for the purchase of common stock |
|
| 27,264 |
|
|
| 47,710 |
|
Equity contingent consideration |
|
| 607,442 |
|
|
| — |
|
Stock issuable upon conversion of convertible note |
|
| 19,733,352 |
|
|
| — |
|
|
|
| 21,939,433 |
|
|
| 2,083,737 |
|
The Company uses the if-converted method for calculating any potential dilutive effects of the convertible note. The Company did not adjust the net loss for the three and nine months ended September 30, 2020 to eliminate any interest expense or gain/loss for the derivative liability related to the note in the computation of diluted loss per share, as the effects would be anti-dilutive.
|
|
|
|
Inventories, net consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Raw materials |
| $ | 6,767 |
|
| $ | 8,095 |
|
Work in progress |
|
| 9,356 |
|
|
| 5,543 |
|
Finished goods |
|
| 28,809 |
|
|
| 23,893 |
|
Finished goods - right of return |
|
| 3,535 |
|
|
| 2,081 |
|
|
| $ | 48,467 |
|
| $ | 39,612 |
|
|
|
Property and equipment, net consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Leasehold improvements |
| $ | 2,857 |
|
| $ | 2,841 |
|
Manufacturing equipment and toolings |
|
| 9,037 |
|
|
| 8,175 |
|
Computer equipment |
|
| 2,375 |
|
|
| 1,250 |
|
Software |
|
| 3,056 |
|
|
| 2,602 |
|
Office equipment |
|
| 167 |
|
|
| 111 |
|
Furniture and fixtures |
|
| 1,192 |
|
|
| 1,144 |
|
|
|
| 18,684 |
|
|
| 16,123 |
|
Less accumulated depreciation |
|
| (5,942 | ) |
|
| (3,809 | ) |
|
| $ | 12,742 |
|
| $ | 12,314 |
|
Depreciation expense for the three months ended September 30, 2020 and 2019 was $1.0 million and $0.3 million, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was $1.8 million and $0.9 million, respectively.
|
|
The Company has determined that it has two reporting units, Breast Products and miraDry, and evaluates goodwill for impairment at least annually on October 1st and whenever circumstances suggest that goodwill may be impaired.
The changes in the carrying amount of goodwill during the nine months ended September 30, 2020 and the year ended December 31, 2019 were as follows (in thousands):
|
| Breast Products |
|
| miraDry |
|
| Total |
| |||
Balances as of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 23,480 |
|
|
| 7,629 |
|
|
| 31,109 |
|
Accumulated impairment losses |
|
| (14,278 | ) |
|
| (7,629 | ) |
|
| (21,907 | ) |
Goodwill, net |
| $ | 9,202 |
|
| $ | — |
|
| $ | 9,202 |
|
Balances as of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 23,480 |
|
|
| 7,629 |
|
|
| 31,109 |
|
Accumulated impairment losses |
|
| (14,278 | ) |
|
| (7,629 | ) |
|
| (21,907 | ) |
Goodwill, net |
| $ | 9,202 |
|
| $ | — |
|
| $ | 9,202 |
|
In the first quarter of 2020, the Company noted a decline in actual and forecasted earnings for the miraDry reporting unit due to the impacts and uncertainty surrounding the COVID-19 pandemic. As a result, the Company performed a test of recoverability by comparing the carrying value of the reporting unit to the future undiscounted cash flows the reporting unit is expected to generate. As the future undiscounted cash flows attributable to the asset group were less than the carrying value, the Company performed a quantitative analysis to compare the fair value of the intangible assets in the reporting unit to their carrying amount.
The Company’s fair value analysis of intangible assets utilizes methods under various income approaches. The Company values its customer relationships using an excess earnings method, which assumes the value of the asset is the discounted future cash flows derived from existing customersand requires the use of customer attrition rates and discount rates to determine the estimated fair value. The future revenues and free cash flow from existing customers are determined based upon actual results giving effect to management’s expected changes in operating results in future years. The attrition rate is based on average historical levels of customer attrition and the discount rate is based upon market participant assumptions using a defined peer group. Tradenames and developed technology are valued using a relief from royalty method, which assumes the value of the asset is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the asset and instead licensed the asset from another company. This method requires the use of royalty rates which are determined based on comparable third-party license agreements involving similar assets and discount rates similar to the above to determine the estimated fair value.
After performing the impairment analysis as of March 31, 2020, the Company determined that the carrying values of all of the intangible assets in the miraDry reporting unit exceeded their estimated fair values. Consequently, the Company recorded total non-cash impairment charges of $1.1 million for trade names, $1.4 million for developed technology, and $3.9 million for customer relationships within impairment in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2020. As of September 30, 2020, the remaining carrying value of the intangible assets are entirely associated with the Breast Products segment.
The components of the Company’s other intangible assets consist of the following (in thousands):
|
| Average |
|
|
|
| ||||||||||
|
| Amortization |
|
| September 30, 2020 |
| ||||||||||
|
| Period |
|
| Gross Carrying |
|
| Accumulated |
|
| Intangible |
| ||||
|
| (in years) |
|
| Amount |
|
| Amortization |
|
| Assets, net |
| ||||
Intangibles with definite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
| 10 |
|
| $ | 4,940 |
|
| $ | (3,727 | ) |
| $ | 1,213 |
|
Trade names - finite life |
|
| 12 |
|
|
| 800 |
|
|
| (306 | ) |
|
| 494 |
|
Non-compete agreement |
|
| 2 |
|
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
Regulatory approvals |
|
| 1 |
|
|
| 670 |
|
|
| (670 | ) |
|
| — |
|
Acquired FDA non-gel product approval |
|
| 11 |
|
|
| 1,713 |
|
|
| (1,713 | ) |
|
| — |
|
Manufacturing know-how |
|
| 19 |
|
|
| 8,240 |
|
|
| (678 | ) |
|
| 7,562 |
|
Total definite-lived intangible assets |
|
|
|
|
| $ | 16,443 |
|
| $ | (7,174 | ) |
| $ | 9,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles with indefinite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names - indefinite life |
| — |
|
|
| 450 |
|
|
| — |
|
|
| 450 |
| |
Total indefinite-lived intangible assets |
|
|
|
|
| $ | 450 |
|
| $ | — |
|
| $ | 450 |
|
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Amortization |
|
| December 31, 2019 |
| ||||||||||
|
| Period |
|
| Gross Carrying |
|
| Accumulated |
|
| Intangible |
| ||||
|
| (in years) |
|
| Amount |
|
| Amortization |
|
| Assets, net |
| ||||
Intangibles with definite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
| 11 |
|
| $ | 9,540 |
|
| $ | (3,846 | ) |
| $ | 5,694 |
|
Trade names - finite life |
|
| 14 |
|
|
| 2,000 |
|
|
| (292 | ) |
|
| 1,708 |
|
Developed technology |
|
| 13 |
|
|
| 1,500 |
|
|
| (84 | ) |
|
| 1,416 |
|
Non-compete agreement |
|
| 2 |
|
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
Regulatory approvals |
|
| 1 |
|
|
| 670 |
|
|
| (670 | ) |
|
| — |
|
Acquired FDA non-gel product approval |
|
| 11 |
|
|
| 1,713 |
|
|
| (1,713 | ) |
|
| — |
|
Manufacturing know-how |
|
| 19 |
|
|
| 8,240 |
|
|
| (118 | ) |
|
| 8,122 |
|
Total definite-lived intangible assets |
|
|
|
|
| $ | 23,743 |
|
| $ | (6,803 | ) |
| $ | 16,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles with indefinite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names - indefinite life |
| — |
|
|
| 450 |
|
|
| — |
|
|
| 450 |
| |
Total indefinite-lived intangible assets |
|
|
|
|
| $ | 450 |
|
| $ | — |
|
| $ | 450 |
|
Amortization expense for the three months ended September 30, 2020 and 2019 was $0.3 million and $0.5 million, respectively. Amortization expense for the nine months ended September 30, 2020 and 2019 was $1.2 million and $1.7 million, respectively. The following table summarizes the estimated amortization expense relating to the Company's definite-lived intangible assets as of September 30, 2020 (in thousands):
|
| Amortization |
| |
Period |
| Expense |
| |
2020 |
| $ | 332 |
|
2021 |
|
| 1,221 |
|
2022 |
|
| 1,163 |
|
2023 |
|
| 1,092 |
|
2024 |
|
| 948 |
|
Thereafter |
|
| 4,513 |
|
|
| $ | 9,269 |
|
|
|
Accrued and other current liabilities consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Payroll and related expenses |
| $ | 2,574 |
|
| $ | 6,789 |
|
Accrued severance |
|
| 980 |
|
|
| 894 |
|
Accrued commissions |
|
| 5,335 |
|
|
| 4,984 |
|
Accrued manufacturing |
|
| 835 |
|
|
| 2,616 |
|
Deferred and contingent consideration, current portion |
|
| 6,931 |
|
|
| 6,830 |
|
Audit, consulting and legal fees |
|
| 304 |
|
|
| 630 |
|
Accrued sales and marketing expenses |
|
| 861 |
|
|
| 1,109 |
|
Lease liabilities |
|
| 1,556 |
|
|
| 1,299 |
|
Other |
|
| 7,303 |
|
|
| 7,400 |
|
|
| $ | 26,679 |
|
| $ | 32,551 |
|
| Leases |
The Company leases certain office space, warehouses, distribution facilities and office equipment. The Company determines if an arrangement contains a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset.
Operating and finance lease right-of-use, or ROU, assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. The Company determines its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. The Company elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short-term leases. The Company’s lease agreements generally do not contain material residual value guarantees or material restrictive covenants.
The Company’s leases of office space, warehouses and distribution facilities are treated as operating leases and often contain lease and non-lease components. The Company has elected to account for these lease and non-lease components separately. Non-lease components for these assets are primarily comprised of common-area maintenance, utilities, and real estate taxes that are passed on from the lessor in proportion to the space leased by the Company, and are recognized in operating expenses in the period in which the obligation for those payments was incurred. Lease cost for these operating leases is recognized on a straight-line basis over the lease term in operating expenses.
The Company’s leases of office equipment are accounted for as finance leases as they meet one or more of the five finance lease classification criteria. Lease cost for these finance leases is comprised of amortization of the ROU asset and interest expense which are recognized in operating expenses and other income (expense), net.
Components of lease expense were as follows:
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||||
|
|
|
| September 30, |
|
| September 30, |
|
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
Lease Cost |
| Classification |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Classification |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Operating lease cost |
| Operating expenses |
| $ | 428 |
|
| $ | 389 |
|
| $ | 1,270 |
|
| $ | 1,155 |
|
| Operating expenses |
| $ | 405 |
|
| $ | 428 |
|
| $ | 1,239 |
|
| $ | 1,270 |
|
Operating lease cost |
| Inventory |
|
| 131 |
|
|
| 1,248 |
|
|
| 364 |
|
|
| 3,743 |
|
| Inventory |
|
| 154 |
|
|
| 131 |
|
|
| 377 |
|
|
| 364 |
|
Sublease income |
| Operating expenses |
|
| (233 | ) |
|
| — |
|
|
| (301 | ) |
|
| — |
| ||||||||||||||||||
Total operating lease cost |
|
|
| $ | 559 |
|
| $ | 1,637 |
|
| $ | 1,634 |
|
| $ | 4,898 |
|
|
|
| $ | 326 |
|
| $ | 559 |
|
| $ | 1,315 |
|
| $ | 1,634 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| Operating expenses |
|
| 10 |
|
|
| 10 |
|
|
| 31 |
|
|
| 30 |
|
| Operating expenses |
|
| 8 |
|
|
| 10 |
|
|
| 26 |
|
|
| 31 |
|
Amortization of right-of-use assets |
| Inventory |
|
| 12 |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
| Inventory |
|
| 12 |
|
|
| 12 |
|
|
| 35 |
|
|
| 24 |
|
Interest on lease liabilities |
| Other income (expense), net |
|
| 3 |
|
|
| 1 |
|
|
| 7 |
|
|
| 3 |
|
| Other income (expense), net |
|
| 2 |
|
|
| 3 |
|
|
| 6 |
|
|
| 7 |
|
Total finance lease cost |
|
|
| $ | 25 |
|
| $ | 11 |
|
| $ | 62 |
|
| $ | 33 |
|
|
|
| $ | 22 |
|
| $ | 25 |
|
| $ | 67 |
|
| $ | 62 |
|
Variable lease cost |
| Inventory |
|
| — |
|
|
| 3,291 |
|
|
| — |
|
|
| 7,886 |
| ||||||||||||||||||
Total lease cost |
|
|
| $ | 584 |
|
| $ | 4,939 |
|
| $ | 1,696 |
|
| $ | 12,817 |
|
|
|
| $ | 348 |
|
| $ | 584 |
|
| $ | 1,382 |
|
| $ | 1,696 |
|
As mentioned above in Note 2, as part of the sale of the miraDry business the Company entered into a sublease agreement whereby the Buyer will sublease the miraDry office space in Santa Clara, CA. The initial sublease term is for six months, with subsequent option periods for up to a total of twenty four months. During the initial term of six months, the Company expects cash receipts of approximately $0.5 million.
Short-term lease expense for the three and nine months ended September 30, 20202021 and 20192020 was not material.
Supplemental cash flow information related to operating and finance leases for the nine months ended September 30, 20202021 was as follows (in thousands):
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases |
| $ | 1,337 |
|
| $ | 4,605 |
|
| $ | 1,261 |
|
| $ | 1,337 |
|
Operating cash outflows from finance leases |
|
| 61 |
|
|
| 33 |
|
|
| 56 |
|
|
| 61 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | 1,242 |
|
| $ | 24,779 |
|
| $ | 572 |
|
| $ | 1,242 |
|
Finance leases |
|
| 157 |
|
|
| 117 |
|
|
| — |
|
|
| 157 |
|
Supplemental balance sheet information as of September 30, 2020, related to operating and finance leases was as follows (in thousands, except lease term and discount rate):
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
| $ | 7,581 |
|
| $ | 7,494 |
|
| $ | 6,524 |
|
| $ | 7,176 |
|
Finance lease right-of-use assets |
|
| 180 |
|
|
| 78 |
|
|
| 97 |
|
|
| 158 |
|
Total right-of use assets |
| $ | 7,761 |
|
| $ | 7,572 |
|
| $ | 6,621 |
|
| $ | 7,334 |
|
Accrued and other current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
| $ | 1,472 |
|
| $ | 1,259 |
|
| $ | 1,543 |
|
| $ | 1,504 |
|
Finance lease liabilities |
|
| 84 |
|
|
| 40 |
|
|
| 75 |
|
|
| 84 |
|
Warranty reserve and other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
| 6,358 |
|
|
| 6,434 |
|
|
| 5,315 |
|
|
| 5,946 |
|
Finance lease liabilities |
|
| 97 |
|
|
| 35 |
|
|
| 41 |
|
|
| 77 |
|
Total lease liabilities |
| $ | 8,011 |
|
| $ | 7,768 |
|
| $ | 6,974 |
|
| $ | 7,611 |
|
Weighted average remaining lease term (years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
| 5 |
|
|
| 5 |
|
|
| 4 |
|
|
| 5 |
|
Finance leases |
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
| 7.73 | % |
|
| 7.45 | % |
|
| 8.09 | % |
|
| 7.75 | % |
Finance leases |
|
| 6.18 | % |
|
| 4.06 | % |
|
| 6.48 | % |
|
| 6.15 | % |
As of September 30, 2020,2021, maturities of the Company’s operating and finance lease liabilities are as follows (in thousands):
Period |
| Operating leases |
|
| Finance leases |
|
| Total |
|
| Operating leases |
|
| Finance leases |
|
| Total |
| ||||||
Remainder of 2020 |
| $ | 527 |
|
| $ | 24 |
|
| $ | 551 |
| ||||||||||||
2021 |
|
| 2,095 |
|
|
| 89 |
|
|
| 2,184 |
| ||||||||||||
Remainder of 2021 |
| $ | 564 |
|
| $ | 27 |
|
| $ | 591 |
| ||||||||||||
2022 |
|
| 1,920 |
|
|
| 53 |
|
|
| 1,973 |
|
|
| 2,035 |
|
|
| 58 |
|
|
| 2,093 |
|
2023 |
|
| 1,968 |
|
|
| 29 |
|
|
| 1,997 |
|
|
| 2,085 |
|
|
| 33 |
|
|
| 2,118 |
|
2024 |
|
| 1,507 |
|
|
| 1 |
|
|
| 1,508 |
|
|
| 1,629 |
|
|
| 4 |
|
|
| 1,633 |
|
2025 and thereafter |
|
| 1,534 |
|
|
| — |
|
|
| 1,534 |
| ||||||||||||
2025 |
|
| 704 |
|
|
| — |
|
|
| 704 |
| ||||||||||||
2026 and thereafter |
|
| 1,221 |
|
|
| — |
|
|
| 1,221 |
| ||||||||||||
Total lease payments |
| $ | 9,551 |
|
| $ | 196 |
|
| $ | 9,747 |
|
| $ | 8,238 |
|
| $ | 122 |
|
| $ | 8,360 |
|
Less imputed interest |
|
| 1,721 |
|
|
| 15 |
|
|
| 1,736 |
|
|
| 1,380 |
|
|
| 6 |
|
|
| 1,386 |
|
Total operating lease liabilities |
| $ | 7,830 |
|
| $ | 181 |
|
| $ | 8,011 |
| ||||||||||||
Total lease liabilities |
| $ | 6,858 |
|
| $ | 116 |
|
| $ | 6,974 |
|
| Debt |
Term Loan and Revolving Loan
On July 25, 2017,February 5, 2021, the Company entered into a Term Loan Credit and Security Agreement and a Revolving Loan Credit and Security Agreement with MidCap Financial Trust (“MidCap”), which replaced the Company’s prior Silicon Valley Bank Loan Agreement. Both agreements were amended and restated on July 1, 2019 and further amended on November 7, 2019 (as so amended, the “Restated Term Loan Agreement” and the “Restated Revolving Credit Agreement” and, together, the “Credit Agreements”).
The Restated Term Loan Agreement provides for the following tranches: (i) a $35 million term loan facility drawn at signing, (ii) a $5 million term loan facility drawn at signing, (iii) at any time after September 30, 2020 to December 31, 2020, a $10.0 million term loan facility (subject to the satisfaction of certain conditions, including evidence that the Company’s net revenue for the past 12 months was greater than or equal to $100.0 million), and (iv) until December 31, 2020 and upon the consent of the agent and the lenders following a request from the Company, an additional $15.0 million term loan facility. The loan matures on July 1, 2024 and carries an interest rate of LIBOR plus 7.50%. The Company will make monthly payments of accrued interest from the funding date until July 31, 2021, to be followed by monthly installments of principal and interest through the maturity date. The Company may prepay some or all of the principal prior to its maturity date provided the Company pays MidCap a prepayment fee. The loan provides that the Company shall pay an exit fee equal to 5.0% of the aggregate amount of all term loans funded to the Company.
On May 11, 2020, the Company entered in to the Second Amendment to Amended and Restated Credit and Security Agreement (Term Loan), by and among the Company, certain of the Company’s subsidiaries, the lenders party thereto from time to time and MidCap Financial Trust, as administrative agent and collateral agent (“Agent”) (the “Term Amendment”“Restated Term Loan Agreement”). The Restated Term Amendment provides for, among other things,Loan Agreement amends and restates the prepayment byCompany’s existing Amended and Restated Credit and Security Agreement, dated as of July 1, 2019. Pursuant to the Company of $25.0 million of outstanding principal, $0.1 million of accrued interest, and $1.25 million in prepaid exit fees with the parties agreeing to waive the prepayment fee with respect to these amounts. TheRestated Term Amendment increases theLoan Agreement, tranche 3 commitment amountcommitments were reduced from $10.0$15 million to $15.0$1 million extendsand were advanced on the effective date of the Restated Term Loan Agreement and the remaining unfunded tranche 3 termination dateof $15 million was revised to 2 $5 million tranche commitments, with tranche 4 availability commencing on July 1, 2021 and tranche 5 availability commencing July 1, 2022. The parties agreed to extend the last day of the interest only period for all tranches from July 31, 2021 in the Existing Term Loan Agreement to December 31, 2020 to June 30, 2021, and amended certain conditions upon which2022 in the tranche 3 commitment can be withdrawn, including evidence that the Company’s Net Revenue for the past six months was greater than or equal to $30.0 million. In addition, theRestated Term Amendment amends certain financial requirements including reducing the Company’s minimum unrestricted cash amount from $20.0 million to $5.0 million and amendsLoan Agreement. The Restated Term Loan Agreement contains certain minimum net revenue requirements. Further,requirements based on the monthly minimumCompany’s 12-month trailing net revenue, as well as certain minimum unrestricted cash requirements were revisedthat increase upon the funding of the tranche 4 and tranche 5 loans. The exit fee was modified to be calculated on a trailing three-month basis.apply only to the amount of any tranche 4 and 5 loans advanced. Finally, in connection with the Restated Term Loan Agreement, the Company agreed to pay an amendment fee of $750,000.
As of September 30, 2020,2021, there was $15.0$16.0 million of outstanding principal and $0.8 million of exit fee payable related to the term loans reduced byand $1.2 million of unamortized debt issuance costs of $1.1 millionwhich are included in “Long-term debt” and $0.7 million included in “Current portion of long-term debt” on the condensed consolidated balance sheets.
The Restated Revolving Credit Agreement provides for, among other things, a revolving loan of up to $10.0 million. The amount of loans available to be drawn under the Revolving Credit Agreement is basedAlso on a borrowing base equal to 85% of the net collectible value of eligible accounts receivable plus 40% of eligible finished goods inventory, or the Borrowing Base, provided that availability from eligible finished goods inventory does not exceed 20% of the Borrowing Base. The revolving loan carries an interest rate of LIBOR plus 4.50%. The Company may make (subject to the applicable borrowing base at the time) and repay borrowings from time to time until the maturity of the facility on July 1, 2024.
On May 11, 2020, February 5, 2021, the Company entered ininto a Third Amendment to the Second Amendment to Amended and Restated Credit and Security Agreement (Revolving Loan), by and among the Company, certain of the Company’s subsidiaries, the lenders party thereto from time to time, and MidCap Financial Trust as agentthe Agent (the “Revolving Loan Amendment”). The Revolving Loan Amendment includes conforming changes to reflectmodified the changesnet revenue requirement in a manner consistent with the modification under the Restated Term Amendment.Loan Agreement. In addition, the Revolving Loan Amendment reducesmade other conforming changes to the borrowing base by the portion of the eligible inventory previously included in the calculation.Restated Term Loan Agreement.
As of September 30, 2020,2021, there were 0 borrowings outstanding under the Revolving Loan. As of September 30, 2020,2021, the unamortized debt issuance costs related to the revolving loan was approximately $0.1 million and was included in “Other assets” on the condensed consolidated balance sheets.
The amortization of debt issuance costs on the term loan and the revolving loan for the three months ended September 30, 2021 and 2020 and 2019 were $0.2$0.1 million and $0.1$0.2 million, respectively. The amortization of debt issuance costs on the term loan and revolving loan for the nine months ended September 30, 2021 and 2020 and 2019 was $0.7$0.4 million and $0.2$0.7 million, respectively, and was included in interest expense in the condensed consolidated statements of operations.
The Credit Agreements include customary affirmative and restrictive covenants and representations and warranties, including a financial covenant for minimum revenues, a financial covenant for minimum cash requirements, a covenant against the occurrence of a “change in control,” financial reporting obligations, and certain limitations on indebtedness, liens, investments, distributions, collateral, mergers or acquisitions, taxes, and deposit accounts. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to any outstanding principal balances, and MidCap may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Credit Agreements. The Company’s obligations under the Credit Agreements are secured by a security interest in substantially all of the Company’s assets.
Convertible Note
On March 11, 2020,September 28, 2021, the Company issued $60.0 million of unsecured and subordinated convertible notes with an interest rate of 4.00% (“Note”entered into a First Amendment (the “Amendment”) to Facility Agreement (the “Agreement”) with Deerfield Partners, L.P., as agent and lender (“Holder”Deerfield”) in order to fund ongoing operations.. The Note matures on March 11, 2025, subject to earlier conversion byAmendment provides for, among other things, the ability, at the sole option of the Holder at any time in whole or in part into common shares of the Company, for a period upDeerfield, to five years. Upon conversion by the Holder, the Company shall deliver,issue unregistered shares of the Company’s common stock at aupon the conversion rate of 14,634 per $1,000 principal amount of the Convertible Note (which represents an initial conversion rate price of $4.10), or(as defined in the Base Conversion Rate, in each case subject to customary anti-dilution adjustments.Agreement). In addition, to the typical anti-dilution adjustment, the Note alsoAmendment provides the Holder with additional consideration (“Make-Whole Provision”) beyond the settlement of the conversion obligation,that, in the event of a major transaction prior to maturity (e.g. a change in control). Upon conversion by the HolderMajor Transaction (as defined in the event of a major transaction, the Company shall deliver, either cash, Convertible Note), 0 additional
shares of the Company’s common stock shall be issued if the Share Price Result (as defined in the Convertible Note) is greater than $30.00 per share or a combination of cash and common stock at the Base Conversion rate plus the additional consideration from the Make-Whole Provision. The $60.0 million principal amount of the Note is not payable until the maturity date of March 11, 2025, unless converted to equity earlier. The Company will pay interest in cash on the Note at 4.00%less than $1.50 per annum, quarterly from July 1, 2020.share.
ThePrior to the amendment, the conversion features in the outstanding convertible debt instrument arewere accounted for as a free-standing embedded derivative bifurcated from the principal balance of the Note, as (1) the conversion features arewere not clearly and closely related to the debt instrument and arewere not considered to be indexed to the Company’s equity, (2) the conversion features standing alone meet the definition of a derivative, and (3) the Note is not remeasured at fair value each reporting period with changes in fair value recorded in the condensed consolidated statement of operations.
The initialAs a result of the amendment, the conversion feature no longer needed to be accounted for as a free-standing embedded derivative as it met the criteria for equity classification. As of the amendment date, the derivative liability was adjusted to a fair value of $16.1$41.0 million was recorded as a non-current liabilityand has been reclassified to “Additional paid in capital” on the condensed consolidated balance sheet and is remeasured to fair value at each balance sheet date with a resulting non-cash gain or loss related to the change in the fair value being charged to earnings (loss). sheet.
As of September 30, 2020, the fair value of the derivative liability was $24.5 million. A corresponding debt discount to the initial embedded derivative liability of $16.1 million and issuance costs of $1.5 million were recorded on the issuance date and is netted against the principal amount of the Note. As of September 30, 20202021, the unamortized debt discount and issuance costs were $16.3 million.$13.3 million and included in “Long-term debt” on the condensed consolidated balance sheet. The Company will amortize the debt discount and debt issuance costs to interest expense under the effective interest method over the term of the Note, at a resulting effective interest rate of approximately 12%. For the three and nine months ended September 30, 2021 and 2020, the amortization of the convertible debt discount and issuance costs were $0.8 million and $0.7 million, respectively. For the nine months ended September 30, 2021 and 2020, the amortization of the convertible debt discount and issuance costs were $2.2 million and $1.5 million, respectively, andrespectively. Both were included in interest expense in the condensed consolidated statements of operations.operations.
CARES Act
On April 20, 2020,July 30, 2021, the Company was granted a loan of $6.7 million under the Paycheck Protection Program of the CARES Act, or the PPP Loan, fromnotified by Silicon Valley Bank orthat they received payment in full from the Lender. TheSmall Business Administration for the amount of the Company's PPP Loan maturesand the Company's PPP Loan had been fully forgiven. For the quarter ended September 30, 2021, the Company recorded a gain on April 20, 2022, or the Maturity Date, and bears interest at a rate of 1.0% per annum. Under the termsextinguishment of the PPP Loan the Company will make no payments until the date which forgiveness of the PPP Loan is determined, which can be up to 10 months following the end of the covered period (which is defined as 24 weeks from the date of the loan)$6.7 million in “Other income (expense), or the Deferral Period. Commencing one month after the expiration of the Deferral Period, and continuing on the same day of each month until the Maturity Date, the Company will pay to Lender monthly payments of principal and interest, in an amount required to fully amortize the principal amount outstanding on the PPP Loan on the last day of the Deferral Period by the Maturity Date. As of September 30, 2020, $5.8 million is recorded in “Long-term debt” and $0.8 million is recorded in “Current portion of long-term debt” on the Company’s condensed consolidated balance sheets.
All or a portion of the PPP Loan may be forgiven upon submission of documentation of expenditures in accordance with certain specified requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date of loan approval. Not more than 40% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loan eligible to be forgiven will be reduced if the Company’s full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The Company will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above. The Company has elected to account for the PPP loan in accordance with ASC 470 – Debt, and any forgiveness of the loan will be treated as a gain on extinguishmentnet” within the condensed consolidated statement of operations.
Future Principal and Exit Fee Payments of Debt
The future schedule of principal and exit fee payments for all outstanding debt as of September 30, 20202021 was as follows (in thousands):
Fiscal Year |
|
|
|
|
|
|
|
|
Remainder of 2020 |
| $ | — |
| ||||
2021 |
|
| 5,409 |
| ||||
Remainder of 2021 |
| $ | — |
| ||||
2022 |
|
| 8,326 |
|
|
| — |
|
2023 |
|
| 5,000 |
|
|
| 10,105 |
|
2024 |
|
| 3,667 |
|
|
| 5,895 |
|
Thereafter |
|
| 60,000 |
| ||||
2025 |
|
| 60,000 |
| ||||
Total |
| $ | 82,402 |
|
| $ | 76,000 |
|
| Stockholders’ Equity |
| a. | Authorized Stock |
The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue 210,000,000 shares of common and preferred stock, consisting of 200,000,000 shares of common stock with $0.01 par value and 10,000,000 shares of preferred stock with $0.01 par value. As of September 30, 20202021 and December 31, 2019,2020, the Company had 0 preferred stock issued or outstanding.
| b. | Common Stock Warrants |
On January 17, 2013, the Company entered into a Loan and Security Agreement, or the Original Term Loan Agreement, with Oxford Finance, LLC, or Oxford. On June 30, 2014, the Company entered into an Amended and Restated Loan and Security Agreement, or the Amended Term Loan Agreement, with Oxford. In connection with the Original Term Loan Agreement and the Amended Term Loan Agreement, the Company issued to Oxford
(i) seven-year warrants in January 2013 to purchase shares of the Company’s common stock with a value equal to 3.0% of the tranche A, B and C term loans amounts, or the Original Warrants, and (ii) seven-year warrants in June 2014 to purchase shares of the Company’s common stock with a value equal to 2.5% of the tranche D term loan amount. The warrants have an exercise price per share of $14.671. The warrants within Tranche A expired on January 17, 2020, and the warrants within Tranche B expired on August 1, 2020.2020, the warrants within Tranche C expired on December 13, 2020, and the warrants within Tranche D expired on June 30, 2021. As of September 30, 2020,2021, there were 0 warrants to purchase an aggregate of 27,264 shares of common stock outstanding.
| c. | Stock Option Plans |
In April 2007, the Company adopted the 2007 Equity Incentive Plan, or the 2007 Plan. The 2007 Plan provides for the granting of stock options to employees, directors and consultants of the Company. Options granted under the 2007 Plan may either be incentive stock options or nonstatutory stock options. Incentive stock options, or ISOs, may be granted only to Company employees. Nonstatutory stock options, or NSOs, may be granted to all eligible recipients. A total of 1,690,448 shares of the Company’s common stock were initially reserved for issuance under the 2007 Plan.
The Company’s board of directors adopted the 2014 Equity Incentive Plan, or 2014 Plan, in July 2014, and the stockholders approved the 2014 Plan in October 2014. The 2014 Plan became effective upon completion of the IPO on November 3, 2014, at which time the Company ceased granting awards under the 2007 Plan. Under the 2014 Plan, the Company may issue ISOs, NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards, or collectively, stock awards, all of which may be granted to employees, including officers, non-employee directors and consultants of the Company and their affiliates. ISOs may be granted only to employees. A total of 1,027,500 shares of common stock were initially reserved for issuance under the 2014 Plan, subject to certain annual increases. As of September 30, 2020,2021, a total of 2,544,8161,860,554 shares of the Company’s common stock were available for issuance under the 2014 Plan.
Pursuant to a board-approved Inducement Plan, the Company may issue NSOs and restricted stock unit awards, or collectively, stock awards, all of which may only be granted to new employees of the Company and their affiliates in accordance with NASDAQ Stock Market Rule 5635(c)(4) as an inducement material to such individuals entering into employment with the Company. As of September 30, 2020,2021, inducement grants for 1,412,0831,904,425 shares of common stock have been awarded, and 923,342638,710 shares of common stock were available for future issuance under the Inducement Plan.
Options under the 2007 Plan and the 2014 Plan may be granted for periods of up to ten years as determined by the Company’s board of directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a more than 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. An NSO has no such exercise price limitations. NSOs under the Inducement Plan may be granted for periods of up to ten years as determined by the board of directors, provided, the exercise price will not be less than 100% of the estimated fair value of the shares on the date of grant. Options generally vest with 25% of the grant vesting on the first anniversary and the balance vesting monthly on a straight-lined basis over the requisite service period of three additional years for the award. Additionally, options have been granted to certain key executives that vest upon achievement of performance conditions based on performance targets as defined by the board of directors, which have included net sales targets and defined corporate objectives over the performance period with possible payout ranging from 0% to 100% of the target award. Compensation expense is recognized on a straight-lined basis over the vesting term of one year based upon the probable performance target that will be met. The vesting provisions of individual options may vary but provide for vesting of at least 25% per year.
The following summarizes all option activity under the 2007 Plan, 2014 Plan and Inducement Plan:
|
|
|
|
|
| Weighted |
|
| Weighted average |
|
|
|
|
|
| Weighted |
|
| Weighted average |
| ||||
|
|
|
|
|
| average |
|
| remaining |
|
|
|
|
|
| average |
|
| remaining |
| ||||
|
| Option |
|
| exercise |
|
| contractual |
|
| Option |
|
| exercise |
|
| contractual |
| ||||||
|
| Shares |
|
| price |
|
| term (year) |
|
| Shares |
|
| price |
|
| term (year) |
| ||||||
Balances at December 31, 2019 |
|
| 1,880,846 |
|
| $ | 7.42 |
|
|
| 5.48 |
| ||||||||||||
Balances at December 31, 2020 |
|
| 1,959,501 |
|
| $ | 4.79 |
|
|
| 5.92 |
| ||||||||||||
Exercised |
|
| (6,181 | ) |
|
| 2.48 |
|
|
|
|
|
|
| (36,363 | ) |
|
| 3.99 |
|
|
|
|
|
Forfeited |
|
| (313,347 | ) |
|
| 7.92 |
|
|
|
|
|
|
| (138,859 | ) |
|
| 5.15 |
|
|
|
|
|
Balances at September 30, 2020 |
|
| 1,561,318 |
|
| $ | 7.34 |
|
|
| 4.49 |
| ||||||||||||
Balances at September 30, 2021 |
|
| 1,784,279 |
|
| $ | 4.78 |
|
|
| 5.50 |
|
For stock-based awards the Company recognizes compensation expense based on the grant date fair value using the Black-Scholes option valuation model. Stock-based compensation expense related to stock options for the three and nine months ended September 30, 2021 were $0.1 million and $0.4 million, respectively. There was 0 stock-based compensation expense related to stock options for the three and nine months ended September 30, 2020. Stock-based compensation expense related to stock options was $0.1 million and $0.4 million for the three months ended September 30, 2019 and nine months ended September 30, 2019. As of September 30, 2020, there were also 02021, unrecognized compensation costs related to stock options.options was $1.7 million.
| d. | Restricted Stock Units |
The Company has issued restricted stock unit awards, or RSUs, under the 2014 Plan and the Inducement Plan. The RSUs issued to employees generally vest on a straight-line basis annually over a 3-year requisite service period. RSUs issued to non-employees generally vest either monthly or annually over the service term. In 2020, the Company implemented a sell-to-cover program for employees who elect to sell shares to cover any withholding taxes due upon vesting. For employees who do not elect to sell shares to cover withholding taxes, the Company nets shares upon vesting and pays the withholding taxes directly.
Activity related to RSUs is set forth below:
|
|
|
|
|
| Weighted average |
|
|
|
|
|
| Weighted average |
| ||
|
| Number |
|
| grant date |
|
| Number |
|
| grant date |
| ||||
|
| of shares |
|
| fair value |
|
| of shares |
|
| fair value |
| ||||
Balances at December 31, 2019 |
|
| 2,232,956 |
|
| $ | 11.99 |
| ||||||||
Balances at December 31, 2020 |
|
| 3,093,790 |
|
| $ | 6.97 |
| ||||||||
Granted |
|
| 934,965 |
|
|
| 5.63 |
|
|
| 1,597,983 |
|
|
| 7.38 |
|
Vested |
|
| (921,964 | ) |
|
| 10.45 |
|
|
| (1,174,753 | ) |
|
| 6.99 |
|
Forfeited |
|
| (701,907 | ) |
|
| 9.07 |
|
|
| (392,728 | ) |
|
| 6.98 |
|
Balances at September 30, 2020 |
|
| 1,544,050 |
|
| $ | 10.38 |
| ||||||||
Balances at September 30, 2021 |
|
| 3,124,292 |
|
| $ | 7.17 |
|
Stock-based compensation expense for RSUs for the three months ended September 30, 2021 and 2020 and 2019 was $1.5$2.1 million and $2.8$1.5 million, respectively. Stock-based compensation expense for RSUs for the nine months ended September 30, 2021 and 2020 and 2019 was $4.9$7.3 million and $8.9$4.9 million, respectively. As of September 30, 2020,2021, there was $7.1$11.1 million of total unrecognized compensation costs related to non-vested RSU awards. The cost is expected to be recognized over a weighted average period of approximately 1.432.05 years.
| e. | Employee Stock Purchase Plan |
The Company’s board of directors adopted the 2014 Employee Stock Purchase Plan, or ESPP, in July 2014, and the stockholders approved the ESPP in October 2014. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides for offering periods not to exceed 27 months, and each offering period will include purchase periods, which will be the approximately six-month period commencing with one exercise date and ending with the next exercise date. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the purchase date. A total of 255,500 shares of common stock were initially reserved for issuance under the ESPP, subject to certain annual increases.
During the nine months ended September 30, 2020,2021, employees purchased 203,728199,071 shares of common stock at a weighted average price of $4.11$3.38 per share. As of September 30, 2020,2021, the number of shares of common stock available for future issuance was 946,292.1,253,615.
The Company estimated the fair value of employee stock purchase rights using the Black-Scholes model. Stock-based compensation expense related to the ESPP was $0.1 million and $0.2 million for both the three months ended September 30, 20202021 and 2019, respectively.2020. Stock-based compensation expense related to the ESPP was $0.4 million and $0.5 million for both the nine months ended September 30, 20202021 and 2019, respectively.2020.
| f. | Significant Modifications |
During the nine months ended September 30, 2021 and 2020, there were 0 material modifications of equity awards. During
9. | Earnings (Loss) Per Share |
Basic earnings (loss) per share is calculated by dividing the income (loss) from continuing and discontinued operations by the weighted average outstanding common shares for basic EPS for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator for continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations used in computing basic earnings (loss) per share |
| $ | 28,503 |
|
| $ | (1,487 | ) |
| $ | (46,647 | ) |
| $ | (46,817 | ) |
Convertible note interest expense |
|
| 1,392 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Fair value adjustments to the derivative liability |
|
| (35,550 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Losses from continuing operations used in computing diluted loss per share |
| $ | (5,655 | ) |
| $ | (1,487 | ) |
| $ | (46,647 | ) |
| $ | (46,817 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes |
|
| (93 | ) |
|
| (4,334 | ) |
|
| 233 |
|
|
| (21,893 | ) |
Income (loss) from discontinued operations used in computing basic and diluted earnings (loss) per share |
| $ | (93 | ) |
| $ | (4,334 | ) |
| $ | 233 |
|
| $ | (21,893 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) used in computing basic earnings (loss) per share |
| $ | 28,410 |
|
| $ | (5,821 | ) |
| $ | (46,414 | ) |
| $ | (68,710 | ) |
Net loss used in computing diluted loss per share |
| $ | (5,748 | ) |
| $ | (5,821 | ) |
| $ | (46,414 | ) |
| $ | (68,710 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding common shares for basic earnings (loss) per share |
|
| 58,005,784 |
|
|
| 50,394,858 |
|
|
| 56,680,594 |
|
|
| 50,155,623 |
|
Dilutive effect of the convertible note |
|
| 14,634,146 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Weighted average outstanding common shares for diluted loss per share |
|
| 72,639,930 |
|
|
| 50,394,858 |
|
|
| 56,680,594 |
|
|
| 50,155,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | 0.49 |
|
| $ | (0.03 | ) |
| $ | (0.82 | ) |
| $ | (0.93 | ) |
Discontinued operations |
| $ | (0.00 | ) |
| $ | (0.09 | ) |
| $ | 0.00 |
|
| $ | (0.44 | ) |
Basic earnings (loss) per share |
| $ | 0.49 |
|
| $ | (0.12 | ) |
| $ | (0.82 | ) |
| $ | (1.37 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (0.08 | ) |
| $ | (0.03 | ) |
| $ | (0.82 | ) |
| $ | (0.93 | ) |
Discontinued operations |
| $ | (0.00 | ) |
| $ | (0.09 | ) |
| $ | 0.00 |
|
| $ | (0.44 | ) |
Diluted earnings (loss) per share |
| $ | (0.08 | ) |
| $ | (0.12 | ) |
| $ | (0.82 | ) |
| $ | (1.37 | ) |
The potentially dilutive impact from stock options and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The potentially dilutive impact from the Convertible Note is calculated under the if-converted method until the conversion date. After the conversion date, the converted shares are included in weighted-average common shares outstanding for basic EPS.
The Company excluded the following potentially dilutive securities, outstanding for the three and nine months ended September 30, 2019,2021 and 2020, from the Company recognized $0.6 million in incremental compensation cost resulting from entering into a consulting agreement with two former employees that resulted incomputation of diluted net loss per share attributable to common stockholders for the modification of their existing equity awards.three and nine months ended September 30, 2021 and 2020 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Stock issuable upon conversion of convertible note |
|
| — |
|
|
| 14,634,146 |
|
|
| 14,634,146 |
|
|
| 11,002,710 |
|
Stock options to purchase common stock |
|
| 1,582,901 |
|
|
| 34,308 |
|
|
| 1,629,493 |
|
|
| 862,278 |
|
Unvested RSUs |
|
| 2,322,816 |
|
|
| 1,445,486 |
|
|
| 2,049,832 |
|
|
| 1,531,084 |
|
|
|
| 3,905,717 |
|
|
| 16,113,940 |
|
|
| 18,313,471 |
|
|
| 13,396,072 |
|
| Income Taxes |
The Company operates in several tax jurisdictions and is subject to taxes in each jurisdiction in which it conducts business. To date, the Company has incurred cumulative net losses and maintains a full valuation allowance on its net deferred tax assets due to the uncertainty surrounding realization of such assets. The Company had 0 tax expense for both the three and nine months ended September 30, 20202021 and 2019.2020.
| Segment Information |
Reportable Segments
TheFollowing the sale of the miraDry business on June 10, 2021, the Company has 21 reportable segments:segment named Plastic Surgery, formally known as Breast Products and miraDry.Products. The Breast ProductsPlastic Surgery segment focuses on sales of silicone gel breast implants, tissue expanders and scar management products under the brands OPUS, Luxe, Curve,Sientra Round, Sientra Teardrop, AlloX2, Dermaspan, Softspan and BIOCORNEUM. The miraDry segment, acquired on July 25, 2017, focuses on sales of the miraDry System, consisting of a console and a handheld device which uses consumable single-use bioTips. These segments align with the Company’s principal target markets. miraDry has been included in the condensed consolidated results of operations as of the acquisition date and financial performance of the acquired business is reported in the miraDry segment. The Vesta Acquisition, completed on November 7, 2019, has been included in the condensed consolidated results of operations as of the acquisition date and financial performance of the acquired business is reported in the Breast Products segment.
The Company’s Chief Operating Decision Maker, or CODM, assesses the performance of each segment and allocates resources to those segments based on net sales and operating income (loss). Operating income (loss) by segment includes items that are directly attributable to each segment, including sales and marketing functions, as well as finance, information technology, human resources, legal and related corporate infrastructure costs, along with certain benefit-related expenses. There are 0 unallocated expenses for the two segments.
The following tables present the net sales, net operating loss and net assets by reportable segment for the periodsPlastic Surgery segment are presented (in thousands):in the condensed consolidated statement of operations and condensed consolidated balance sheets as continuing operations.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Breast Products |
| $ | 15,330 |
|
| $ | 12,626 |
|
| $ | 37,109 |
|
| $ | 33,570 |
|
miraDry |
|
| 3,887 |
|
|
| 9,786 |
|
|
| 11,488 |
|
|
| 26,919 |
|
Total net sales |
| $ | 19,217 |
|
| $ | 22,412 |
|
| $ | 48,597 |
|
| $ | 60,489 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Breast Products |
| $ | (9,304 | ) |
| $ | (12,319 | ) |
| $ | (30,683 | ) |
| $ | (38,555 | ) |
miraDry |
|
| (4,654 | ) |
|
| (9,141 | ) |
|
| (22,595 | ) |
|
| (45,722 | ) |
Total loss from operations |
| $ | (13,958 | ) |
| $ | (21,460 | ) |
| $ | (53,278 | ) |
| $ | (84,277 | ) |
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
Breast Products |
| $ | 156,538 |
|
| $ | 169,613 |
|
miraDry |
|
| 21,266 |
|
|
| 34,791 |
|
Total assets |
| $ | 177,804 |
|
| $ | 204,404 |
|
| Commitments and Contingencies |
The Company is subject to claims and assessment from time to time in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
Product Liability Litigation
On October 7, 2019, a lawsuit was filed in the Superior Court of the State of California against the Company and Silimed Industria de Implantes Ltda. (the Company’s former contract manufacturer). The lawsuit alleges that the Company’s textured breast implants caused certain of the plaintiffs to develop a condition known as breast implant associated anaplastic large cell lymphoma (“BIA-ALCL”), and that the Company is liable to the plaintiffs based on claims for strict liability (failure to warn), strict liability (defective manufacture), negligence and loss of consortium. On January 21, 2020, the Company filed a demurrer to the plaintiff’s complaint, which demurrer is still pending before the Court.Court granted in a tentative ruling dated March 9, 2021 with leave to replead. The Plaintiffs filed an amended complaint on April 6, 2021 and the Company filed a demurrer to that complaint on May 6, 2021. On October 25, 2021, the Court issued a ruling granting the Company’s demurrer in-part and denying it in-part, and gave plaintiffs twenty days to file an amendment complaint. The Company intends to vigorously defend itself in this lawsuit. Given the nature of this case, the Company is unable to estimate the reasonably possible loss or range of loss, if any, arising from this matter.
On September 23, 2020, a lawsuit was filed in the Eastern District of Tennessee against the Company. The lawsuit alleges that the Company’s textured breast implants caused certain of the plaintiffs to develop a condition known as breast implant associated anaplastic large cell lymphoma (“BIA-ALCL”), and that the Company is liable to the plaintiffs based on claims for negligence, strict liability (manufacturing defects), strict liability (failure to warn), breach of express and implied warranties, and punitive damages. No response has beenThe Company filed a motion to dismiss the complaint at presented.on December 7, 2020. Briefing on the motion is complete and oral argument is presently scheduled for January 2022. The Company intends to vigorously defend itself in this lawsuit. Given the nature of this case, the Company is unable to estimate the reasonably possible loss or range of loss, if any, arising from this matter.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 20192020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations are contained in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the Securities and Exchange Commission on March 16, 2020,11, 2021, or the Annual Report. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Sientra,” “the Company,” “we,” “us” and “our” refer to Sientra, Inc. and its consolidated subsidiaries.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a medical aesthetics company committed to making a difference in patients’ lives by enhancing their body image, growing their self‑esteemuniquely centered on becoming the leader of transformative treatments and restoring their confidence.technologies focused on progressing the art of plastic surgery. We were founded to provide greater choices to board‑certifiedboard-certified plastic surgeons and patients in need of medical aesthetics products. We have developed a broad portfolio of products with technologically differentiated characteristics, supported by independent laboratory testing and strong clinical trial outcomes. We sell our breast implants in the U.S. for augmentation procedures exclusively to board‑certifiedboard-certified and board‑admissibleboard-admissible plastic surgeons and tailor our customer service offerings to their specific needs, which we believe helps secure their loyalty and confidence. In 2020, we also began to sell our breast implants in Japan through a distributor partner. We sell our breast tissue expanders for reconstruction procedures predominantly to hospitals and surgery centers, and our BIOCORNEUM scar management products to plastic surgeons, dermatologists and other specialties.
On June 11, 2017,As discussed in Recent developments below, we entered into a Merger Agreement with miraDry (formerly Miramar Labs) pursuant to which we commenced a tender offer to purchase all ofcompleted the outstanding shares of miraDry’s common stock. Pursuant to the transaction, which closed on July 25, 2017 we added the miraDry System, the only FDA-cleared device to reduce underarm sweat, odor and hair of all colors to our aesthetics portfolio. Following our acquisition of miraDry in July 2017, we began selling the miraDry System, consisting of a console and a handheld device, and consumable single-use bioTips. As a resultsale of the miraDry acquisition,business on June 10, 2021, and as a result the miraDry business met the criteria to be reported as discontinued operations. Therefore, we determined thatare reporting the historical results of miraDry, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations for all periods presented herein through the date of the Sale. Unless otherwise noted, the unaudited condensed consolidated financial statements have all been revised to reflect continuing operations only. Following the Sale, we conduct our businesshave one operating segment in two operating segments:continuing operations named Plastic Surgery, formerly known as Breast Products and miraDry. The Breast ProductsProducts.
Our Plastic Surgery segment focuses on sales of our breast implants, tissue expanders and scar management products under the brands Sientra, AlloX2, Dermaspan, Softspan and BIOCORNEUM. The miraDry segment focuses on sales of the miraDry System, and bioTips.
products. We currently sell both our Breast Products and miraDry products in the U.S. through a direct sales organization, which as of September 30, 2020,2021, consisted of 6561 employees, including 548 sales representativesmanagers.
Recent developments
Sale of the miraDry Business
On June 10, 2021, we completed the sale of the miraDry business (the “Sale”) to miraDry Acquisition Company, Inc., a Delaware corporation (“Buyer”), an entity affiliated with 1315 Capital II, LP, as a result of our strategic decision to focus investment on the core Plastic Surgery segment, formerly known as Breast Products. The Sale was made pursuant to the terms and conditions of the Asset Purchase Agreement (the “Purchase Agreement”), dated May 11, sales managers. Additionally,2021, among us and certain of our subsidiaries, Buyer, and, solely for purposes of Section 8.14 of the Purchase Agreement, 1315 Capital II, LP. The aggregate purchase price was $10.0 million, which after certain adjustments for agreed upon changes in the estimated net asset value amount of purchased assets and assumed liabilities resulted in net cash proceeds to us of approximately $8.1 million. After finalization of post close adjustments, we also sell our miraDry System in several international markets where we leveragerecognized a combinationloss on sale of distributor relationships and direct sales efforts. As of$2.5 million for the nine months ended September 30, 2020, our international operations were supported by 3 sales representatives2021.
In accordance with the Purchase Agreement, assumed liabilities did not include product liabilities, environmental, and 2 sales managers,employee claims arising prior to the closing date. The Purchase Agreement also included customary representations and warranties, as well as certain covenants, including, among other things, that: (i) we will abide by certain non-solicitation, exclusivity, and non-competition covenants, and (ii) we would enter into a number of consultants supporting both direct sales efforts and distributor relationships.
Recent developmentstransition services agreement to provide certain transition services related to the Business.
COVID-19 Pandemic
The rapid, global spread of COVID-19 has resultedPrior to entering into the Purchase Agreement, in significant economic uncertainty, significant declinesApril 2020, in business and consumer confidence and global demand in the non-essential healthcare industry (among others), a global economic slowdown, and could lead to a global recession. We are subject to risks and uncertaintiespart as a result of the impact of COVID-19, pandemic. The full extentwe re-focused our miraDry business to whichdrive bioTip utilization to our existing installed base. On December 31, 2020, we eliminated our separate miraDry U.S. salesforce and transitioned miraDry sales responsibility into the Plastic Surgery Business Development team.
COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, and employee-related amounts, will depend on future developments that are highly uncertain. We continue to monitor and assess new information related to the COVID-19 pandemic, the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.Pandemic
As an aesthetics company, surgical procedures involving our breast and miraDry products are susceptible to local and national government restrictions, such as social distancing, vaccination requirements, “shelter in place” orders and business closures, due to the economic and logistical impacts these measures have on consumer demand as well as the practitioners’ ability to administer such procedures. The inability or limited ability to perform such non-emergency procedures significantly harmed our revenues duringsince the three months ended June 30,second quarter of 2020 and continued to harm our revenues during the threenine months ended September 30, 2020.2021. While somemany states have lifted certain restrictions on non-emergency procedures, during the three months ended September 30, 2020, we will likely continue to experience future harm to our revenues while existing or new restrictions remain in place. It is not possible to accurately predict the length or severity of the COVID-19 pandemic or the timing for a broad and sustained ability to perform non-emergency procedures involving the Company’s products. We continue to monitor and assess new information related to the COVID-19 pandemic, the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.
Further, the spread of COVID-19 has caused us to modify our workforce practices, and we may take further actions that we determine are in the best interests of our employees or as required by governments. In addition, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that this can lead to a local and/or global economic recession, which may result in further harm to the aesthetics market. Such economic disruption could adversely affect our business. The continued spread of COVID-19, or another infectious disease, could also result in delays or disruptions in our supply chain or adversely affect our manufacturing facilities and personnel. Further, trade and/or national security protection policies may be adjusted as a result of the COVID-19 pandemic, such as actions by governments that limit, restrict or prevent the movement of certain goods into a country and/or region, and current U.S./China trade relations may be further exacerbated by the pandemic.
The estimates used for, but not limited to, determining the collectability of accounts receivable, fair value of long-lived assets and goodwill, and sales returns liability required could be impacted by the pandemic. While the full impact of COVID-19 is unknown at this time, we have made appropriate estimates based on the facts and circumstances available as of the reporting date. These estimates may change as new events occur and additional information is obtained.
Change in miraDry business strategy
In April 2020, in part as a result of the impact of COVID-19, we re-focused our miraDry business to drive high margin, bioTip utilization to our existing installed base. We expect that the net sales we generate from our bioTips will represent high margin sales (on a gross margin basis) and account for a substantial amount of our net sales for the next several years, with high margin consumables comprising a sizable percentage of our miraDry segment’s net sales.
Restructuring
On November 7, 2019, we announced an organizational efficiency initiative, or the Plan, designed to reduce spending and simplify operations. Under the Plan, we are implementing numerous initiatives to reduce spending, including closing the Santa Clara offices of miraDry, Inc. and consolidating a number of business support services via a shared services organization at our Santa Barbara headquarters.
Under the Plan, we intend to reduce our workforce by terminating approximately 70 employees. As a result, we expect to incur total charges of approximately $2.5 million in connection with one-time employee termination costs,
retention costs and other benefits. In addition, we expect to incur estimated charges of approximately $0.5 million related to duplicate operating costs and other associated costs. In total, the Plan is estimated to cost approximately $3.0 million, excluding non-cash charges, with related cash payments expected to be substantially paid out with cash on hand by the end of 2020.
The following table details the amount of the liabilities related to the Plan included in "Accrued and other current liabilities" in the condensed consolidated balance sheet as of September 30, 2020 (amounts in thousands):
|
| Severance costs |
|
| Other associated costs |
|
| Duplicate operating costs |
| |||
Balance at December 31, 2019 |
| $ | 894 |
|
| $ | — |
|
| $ | — |
|
Costs charged to expense |
|
| 1,467 |
|
|
| 208 |
|
|
| 174 |
|
Costs paid or otherwise settled |
|
| (1,995 | ) |
|
| (208 | ) |
|
| (174 | ) |
Balance at September 30, 2020 |
| $ | 365 |
|
| $ | — |
|
| $ | — |
|
The following table details the charges by reportable segment, recorded in "Restructuring" under operating expenses in the condensed consolidated statements of operations for the nine months ended September 30, 2020 (amounts in thousands):
|
| Year Ended |
|
| Nine Months Ended |
|
| Cumulative Restructuring |
| |||
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| Charges |
| |||
Breast Products |
| $ | 499 |
|
| $ | 389 |
|
| $ | 888 |
|
miraDry |
|
| 584 |
|
|
| 1,460 |
|
|
| 2,044 |
|
Total |
| $ | 1,083 |
|
| $ | 1,849 |
|
| $ | 2,932 |
|
It is anticipated that we will incur approximately $0.1 million of additional restructuring costs during 2020 attributable to the miraDry segment. We expect to realize cost savings of approximately $10.0 million in 2020 and approximately $5.0 million in 2021. All of the 2020 cost savings are expected to be realized in operating expenses, and the 2021 cost savings are expected to be realized approximately 20% in operating expenses and 80% in cost of goods sold. Savings in operating expenses are expected to result from the reduction of headcount through a shared services organization. Savings in cost of goods sold are expected to result from the elimination of manufacturing roles at miraDry. As the development of the Plan is completed, we will update the costs and cost savings as needed.
Components of Operating Results
Net Sales
Our Breast Products segment net sales include sales of silicone gel breast implants, tissue expanders and BIOCORNEUM. We recognize revenue on breast implants and tissue expanders, net of sales discounts and estimated returns, as the customer has a standard six-month window to return purchased breast implants and tissue expanders. We defer the value of our service warranty revenue and deliverables under certain marketing programs and recognize it once all performance obligations have been met.
Our miraDry segment net sales include sales of the miraDry System and consumable bioTips along with service warranties and deliverables under certain marketing programs. We recognize revenue on miraDry Systems and bioTips on delivery to the customer. We defer the value of our service warranty and deliverables under certain marketing programs and recognize it over the term of the service warranty contract for service warranties and once all performance obligations have been met for deliverables under certain marketing programs.
We expect that, in the future, our net sales will fluctuate on a quarterly basis due to a variety of factors, including seasonality of breast augmentation procedures and the impact of the pandemic, and purchase of miraDry procedures.pandemic. We believe that aesthetic procedures are subject to seasonal fluctuation due to patients planning their procedures leading up to the summer season and in the period around the winter holiday season.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of raw material, labor, overhead, and variable manufacturing costs, reserve for product assurance warranties, royalty costs, excess and obsolete inventory reserves, and warehouse and other related costs.
With respect to our supplier contracts, all our products and raw materials are manufactured under contracts with fixed unit costs which can increase over time at specified amounts.
Under our Breast Products segment, weWe provide an assurance and service warranty on our silicone gel breast implants. Under our miraDry segment, we provide an assurance and service warranty on our miraDry Systems, and an assurance warranty on our handpieces and bioTips. The estimated warranty costs are recorded at the time of sale. Costs related to our service warranty are recorded when expense is incurred related to meeting our performance obligations. In addition, the inventory fair market value associated with purchase accounting adjustments and royalty costs related to the SSP and miraDry acquisitions are recorded at the time of sale.
We expect our overall gross margin, which is calculated as net sales less cost of goods sold for a given period divided by net sales, to fluctuate in future periods primarily as a result of quantity of units sold, manufacturing price increases, the changing mix of products sold with different gross margins, warranty costs, overhead costs and targeted pricing programs. Specific to the Breast Products segment, we expect our gross margin to decline as a result of increased unit cost of our gel implants following the Vesta Acquisition.
Sales and Marketing Expenses
Our sales and marketing expenses primarily consist of salaries, bonuses, benefits, incentive compensation, stock-based compensation, consumer marketing, and travel for our sales, marketing and customer support personnel. Our sales and marketing expenses also include expenses for trade shows, our no‑charge customer shipping program for the Breast Products segment and no-charge product evaluation units, for the Breast Products segment, as well as educational and promotional activities. We expect our sales and marketing expenses related to our Breast Products segment to fluctuate in future periods as a result of headcount and timing of our marketing programs, and we expect our sales and marketing expense related to our miraDry segment to decrease as a result of the organizational efficiency initiative and the change in the miraDry business strategy.programs.
Research and Development Expenses
Our research and development, or R&D, expenses primarily consist of clinical expenses, product development costs, regulatory expenses, consulting services, outside research activities, quality control and other costs associated with the development of our products and compliance with Good Clinical Practices, or cGCP, requirements. R&D expenses also include related personnel and consultant compensation and stock‑based compensation expense. We expense R&D costs as they are incurred. We expect our R&D expenses to vary as different development projects are initiated, including improvements to our existing products, expansions of our existing product lines, new product acquisitions and our clinical studies.
General and Administrative Expenses
Our general and administrative, or G&A, expenses primarily consist of salaries, bonuses, benefits, incentive compensation and stock-based compensation for our executive, financial, legal, business development and administrative functions. Other G&A expenses include contingent consideration fair market value adjustments, bad debt expense, outside legal counsel and litigation expenses, independent auditors and other outside consultants, corporate insurance, facilities and information technologies expenses.
We expect future G&A expenses to decrease as we implementremain consistent with the organizational efficiency initiative, butcurrent period, and we also expect to continue to incur G&A expenses in connection with operating as a public company.
Other Income (Expense), net
Other income (expense), net primarily consists of interest income, interest expense, changes in the fair value of the embedded derivative liability and common stock warrants, gain on extinguishment of the PPP Loan, and amortization of issuance costs associated with our Credit Agreements.
Income Taxes
Income tax expense consists of an estimate for income taxes based on the projected income tax expense for the period. We operate in several tax jurisdictions and are subject to taxes in each jurisdiction in which we conduct business. To date, we have incurred cumulative net losses and maintain a full valuation allowance on our net deferred tax assets due to the uncertainty surrounding realization of such assets.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity in Note 1 of the “Notes to Financial Statements” in our audited financial statements included in the Annual Report. There have been no material changes to our critical accounting policies and estimates from those disclosed in the Annual Report.
Recent Accounting Pronouncements
Please refer to Note 1 - Summary of Significant Accounting Policiesthe “Notes to Financial Statements” in the notes to the unaudited condensed consolidatedour audited financial statements included in thisthe Annual Report on Form 10-Q10-K for information on recent accounting pronouncements and the expected impact on our unaudited condensed consolidated financial statements.
Results of Operations
Comparison of the Three Months Ended September 30, 20202021 and 20192020
The following table sets forth our results of operations for the three months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
Statement of operations data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 19,217 |
|
| $ | 22,412 |
|
| $ | 19,620 |
|
| $ | 15,329 |
|
Cost of goods sold |
|
| 8,391 |
|
|
| 9,754 |
|
|
| 9,030 |
|
|
| 7,105 |
|
Gross profit |
|
| 10,826 |
|
|
| 12,658 |
|
|
| 10,590 |
|
|
| 8,224 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
| 12,872 |
|
|
| 18,668 |
|
|
| 12,052 |
|
|
| 9,969 |
|
Research and development |
|
| 2,060 |
|
|
| 3,201 |
|
|
| 2,367 |
|
|
| 1,778 |
|
General and administrative |
|
| 10,238 |
|
|
| 12,249 |
|
|
| 7,865 |
|
|
| 6,445 |
|
Restructuring |
|
| (386 | ) |
|
| — |
|
|
| — |
|
|
| (442 | ) |
Total operating expenses |
|
| 24,784 |
|
|
| 34,118 |
|
|
| 22,284 |
|
|
| 17,750 |
|
Loss from operations |
|
| (13,958 | ) |
|
| (21,460 | ) |
|
| (11,694 | ) |
|
| (9,526 | ) |
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 5 |
|
|
| 510 |
|
|
| 1 |
|
|
| 6 |
|
Interest expense |
|
| (2,059 | ) |
|
| (1,344 | ) |
|
| (2,026 | ) |
|
| (2,055 | ) |
Change in fair value of derivative liability |
|
| 10,090 |
|
|
| — |
|
|
| 35,550 |
|
|
| 10,090 |
|
Other income (expense), net |
|
| 101 |
|
|
| (139 | ) |
|
| 6,672 |
|
|
| (2 | ) |
Total other income (expense), net |
|
| 8,137 |
|
|
| (973 | ) |
|
| 40,197 |
|
|
| 8,039 |
|
Loss before income taxes |
|
| (5,821 | ) |
|
| (22,433 | ) | ||||||||
Income (loss) from continuing operations before income taxes |
|
| 28,503 |
|
|
| (1,487 | ) | ||||||||
Income tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
| $ | (5,821 | ) |
| $ | (22,433 | ) | ||||||||
Income (loss) from continuing operations |
|
| 28,503 |
|
|
| (1,487 | ) | ||||||||
Loss from discontinued operations, net of income taxes |
|
| (93 | ) |
|
| (4,334 | ) | ||||||||
Net income (loss) |
| $ | 28,410 |
|
| $ | (5,821 | ) |
Net Sales
Net sales decreased $3.2increased $4.3 million, or 14.3%28.0%, to $19.2$19.6 million for the three months ended September 30, 20202021 as compared to $22.4$15.3 million for the three months ended September 30, 2019. Net sales of our Breast Products segment2020. The increase was $15.3 million, an increase of $2.7 million for the three months ended September 30, 2020, as compared to $12.6 million for the three months ended September 30, 2019, primarily due to an increase in the volume of domestic and international sales of gel implants as well as an increase inand expanders. Additionally, the Company’s net sales volume of BioCorneum, partially offsetwere less impacted by a decrease in the sales volume of Allox2 and Dermaspan breast tissue expanders. Net sales of our miraDry segment was $3.9 million, a decrease of $5.9 million, as compared to $9.8 million for the three months ended September 30, 2019 resulting from an overall decrease in the volume of sales of miraDry systems and consumable bioTips due to the effects of the COVID-19 pandemic andin the changecurrent period in miraDry business strategy.comparison to the prior period.
As of September 30, 2021 and 2020, our U.S. sales organization included 54 sales representatives as compared to 86 sales representatives as of September 30, 2019. The decrease is primarily attributed to an overall decrease in sales headcount implemented under the organizational efficiency initiative and the change in miraDry business strategy.61 employees.
Cost of Goods Sold and Gross Margin
Cost of goods sold decreased $1.4increased $1.9 million, or 14.0%27.1%, to $8.4$9.0 million for the three months ended September 30, 20202021 as compared to $9.8$7.1 million for the three months ended September 30, 2019.2020. The decreaseincrease was primarily due to a decrease in sales in the miraDry segment, offset by an increase in the sales volume and unit costs of breast implants in the Breast Products segment.Company’s products.
The gross margins for the three months ended September 30, 2021 and 2020 were 54.0% and 2019 were 56.3% and 56.5%53.6%, respectively. The decreaseincrease was primarily due to increaseda decrease in the unit cost of gel implants and a decrease in the Breast Products segment following the Vesta Acquisition,inventory reserves, partially offset by a higher sales mix of miraDry consumables which carry a higher margin.an increase in period distribution and production costs.
Sales and Marketing Expenses
Sales and marketing expenses decreased $5.8increased $2.1 million, or 31.0%20.9%, to $12.9$12.1 million for the three months ended September 30, 20202021 as compared to $18.7$10.0 million for the three months ended September 30, 2019.2020. The decreaseincrease was primarily due to decreasesincreases in employee payroll and incentive compensation, relatedshipping expenses and a reduction in marketing events and initiatives associated with the organizational efficiency initiative, the change in the miraDry business strategyincreased volume of sales of products, and other cost saving measures implemented in response to COVID-19.increased marketing initiatives.
Research and Development Expenses
R&D expenses decreased $1.1increased $0.6 million, or 35.6%33.1%, to $2.1$2.4 million for the three months ended September 30, 20202021 as compared to $3.2$1.8 million for the three months ended September 30, 2019.2020. The decreaseincrease was primarily due to decreasesincreases in employee payroll, incentive, stock compensation, and incentive compensation relatedseverance expenses, associated with the organizational efficiency initiative, the change in the miraDry business strategy and other cost saving measures implemented in response to COVID-19, coupled with decreases in costs related to clinical and regulatory activities.product development expense.
General and Administrative Expenses
G&A expenses decreased $2.0increased $1.4 million, or 16.4%22.0%, to $10.2$7.9 million for the three months ended September 30, 20202021 as compared to $12.2$6.4 million for the three months ended September 30, 2019.2020. The decrease isincrease was primarily relateddue to decreasesincreases in employee payroll, incentive and incentivestock compensation related expenses, and consultinginsurance expense, expenses associated with the organizational efficiency initiative, the change in the miraDry business strategyimplementation of information technology systems, and other cost saving measures implemented in response to COVID-19. In addition, there werebad debt expense, partially offset by decreases in audit and legal expenses severance expenses, and fair value adjustments, offset by an increase in bad debt expense, insurance, and freight expense.sublease income.
Restructuring Expenses
There were no restructuring expenses for the three months ended September 30, 2021, as the organizational efficiency initiative was completed as of December 31, 2020. Restructuring expenses for the three months ended September 30, 2020 were ($0.4) million, resulting from a change in estimated severance costs to be incurred under the organizational efficiency initiative.
Other Income (Expense), net
Other income (expense), net for the three months ended September 30, 2020 changed $9.12021 increased $32.2 million as compared to the three months ended September 30, 20192020 primarily due to thea decrease in the fair value of the derivative liability offset by an increaseresulting from a decrease in interest expense and amortizationthe Company’s stock price during the period, coupled with a gain on extinguishment of debt issuance costs and debt discounts associated with our Credit Agreements and Convertible Note.the PPP Loan in the current period.
Income Tax Expense
For the three months ended September 30, 20202021 and 20192020 there was no income tax expense.
Loss from discontinued operations
Loss from discontinued operations for the three months ended September 30, 2021 decreased $4.2 million due to the sale of the miraDry business.
Comparison of the Nine Months Ended September 30, 20202021 and 20192020
The following table sets forth our results of operations for the nine months ended September 30, 20202021 and 2019:2020:
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
Statement of operations data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 48,597 |
|
| $ | 60,489 |
|
| $ | 58,035 |
|
| $ | 37,109 |
|
Cost of goods sold |
|
| 20,733 |
|
|
| 24,041 |
|
|
| 26,027 |
|
|
| 15,887 |
|
Gross profit |
|
| 27,864 |
|
|
| 36,448 |
|
|
| 32,008 |
|
|
| 21,222 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
| 37,614 |
|
|
| 60,987 |
|
|
| 34,348 |
|
|
| 24,858 |
|
Research and development |
|
| 7,747 |
|
|
| 9,526 |
|
|
| 6,962 |
|
|
| 6,142 |
|
General and administrative |
|
| 27,500 |
|
|
| 37,538 |
|
|
| 23,321 |
|
|
| 21,183 |
|
Restructuring |
|
| 1,849 |
|
|
| — |
|
|
| — |
|
|
| 389 |
|
Impairment |
|
| 6,432 |
|
|
| 12,674 |
| ||||||||
Total operating expenses |
|
| 81,142 |
|
|
| 120,725 |
|
|
| 64,631 |
|
|
| 52,572 |
|
Loss from operations |
|
| (53,278 | ) |
|
| (84,277 | ) |
|
| (32,623 | ) |
|
| (31,350 | ) |
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 203 |
|
|
| 1,083 |
|
|
| 4 |
|
|
| 203 |
|
Interest expense |
|
| (7,289 | ) |
|
| (3,276 | ) |
|
| (6,143 | ) |
|
| (7,284 | ) |
Change in fair value of derivative liability |
|
| (8,420 | ) |
|
| — |
|
|
| (14,460 | ) |
|
| (8,420 | ) |
Other income (expense), net |
|
| 74 |
|
|
| (101 | ) |
|
| 6,575 |
|
|
| 34 |
|
Total other income (expense), net |
|
| (15,432 | ) |
|
| (2,294 | ) |
|
| (14,024 | ) |
|
| (15,467 | ) |
Loss before income taxes |
|
| (68,710 | ) |
|
| (86,571 | ) | ||||||||
Loss from continuing operations before income taxes |
|
| (46,647 | ) |
|
| (46,817 | ) | ||||||||
Income tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Loss from continuing operations |
|
| (46,647 | ) |
|
| (46,817 | ) | ||||||||
Income (loss) from discontinued operations, net of income taxes |
|
| 233 |
|
|
| (21,893 | ) | ||||||||
Net loss |
| $ | (68,710 | ) |
| $ | (86,571 | ) |
| $ | (46,414 | ) |
| $ | (68,710 | ) |
Net Sales
Net sales decreased $11.9increased $20.9 million, or 19.7%56.4%, to $48.6$58.0 million for the nine months ended September 30, 20202021 as compared to $60.5$37.1 million for the nine months ended September 30, 2019. Net sales of our Breast Products segment2020. The increase was $37.1 million, an increase of $3.5 million for the nine months ended September 30, 2020, as comparedprimarily due to $33.6 million for the nine months ended September 30, 2019, driven primarily by an increase in the volume of domestic and international sales of gel implants. Net sales of our miraDry segment was $11.5 million, a decrease of $15.4 million, as comparedimplants in addition to $26.9 million for the nine months ended September 30, 2019 resulting from an overall decreaseincreases in the volume of sales of miraDry systemsBioCorneum and consumable bioTips due toexpanders. Additionally, the effects ofCompany’s net sales were less impacted by the COVID-19 pandemic andin the changecurrent period in miraDry business strategy.comparison to the prior period.
Cost of Goods Sold and Gross Margin
Cost of goods sold decreased $3.3increased $10.1 million, or 13.8%63.8%, to $20.7$26.0 million for the nine months ended September 30, 20202021 as compared to $24.0$15.9 million for the nine months ended September 30, 2019.2020. The decreaseincrease was primarily due to a decrease in sales in the miraDry segment, offset by an increase in the sales volume of the Company’s products, in addition to an increase in period distribution and unit costs of breast implants in the Breast Products segment.production costs.
The gross margins for the nine months ended September 30, 2021 and 2020 were 55.2% and 2019 were 57.3% and 60.3%57.2%, respectively. The decrease was primarily due to increasedan increase in period distribution and production costs, partially offset by decreases in inventory reserves and the cost per unit cost of gel implants in the Breast Products segment following the Vesta Acquisition.implants.
Sales and Marketing Expenses
Sales and marketing expenses decreased $23.4increased $9.5 million, or 38.3%38.2%, to $37.6$34.3 million for the nine months ended September 30, 20202021 as compared to $61.0$24.9 million for the nine months ended September 30, 2019.2020. The decreaseincrease was primarily due to decreasesincreases in employee payroll and incentive compensation, relatedshipping expenses and a reduction in consulting fees and marketing events and initiatives associated with the organizational efficiency initiative, the change in the miraDry business strategyincreased volume of sales of products, and other cost saving measures implemented in response to COVID-19.increased marketing initiatives.
Research and Development Expenses
R&D expenses decreased $1.8increased $0.8 million, or 18.7%13.4%, to $7.7$7.0 million for the nine months ended September 30, 20202021 as compared to $9.5$6.1 million for the nine months ended September 30, 2019.2020. The decreaseincrease was primarily due to decreasesincreases in employee payroll, incentive, stock compensation, and incentive compensation relatedseverance expenses, associated with the organizational efficiency initiative, the change in the miraDry business strategy and other cost saving measures implemented in response to COVID-19, coupled with decreases in costs related to clinical and regulatory activities.product development expense.
General and Administrative Expenses
G&A expenses decreased $10.0increased $2.1 million, or 26.7%10.1%, to $27.5$23.3 million for the nine months ended September 30, 20202021 as compared to $37.5$21.2 million for the nine months ended September 30, 2019.2020. The decrease isincrease was primarily relateddue to decreases inincreases employee payroll, incentive, and incentivestock compensation related expenses, and consulting and legalinsurance expense, expenses associated with the organizational efficiency initiative, the change in the miraDry business strategyimplementation of information technology systems, bad debt expense and other cost saving measures implemented in response to COVID-19. In addition, there werelegal expense, partially offset by decreases in intangibles amortization expense, fair value adjustments, offset byaudit expenses, severance expenses, and an increase in bad debt expense, insurance expense, and accounting fees.sublease income.
Restructuring Expenses
There were no restructuring expenses for the nine months ended September 30, 2021, as the organizational efficiency initiative was completed as of December 31, 2020. Restructuring expenses for the nine months ended September 30, 2020 were $1.8 million, consistingconsisted primarily of severance expenses of employees affected by the organizational efficiency initiative.
Impairment Expenses
Impairment expenses for the nine months ended September 30, 2020 were $6.4 million, due to full impairments of intangible assets in the miraDry reporting unit. Impairment expenses for the nine months ended September 30, 2019 were $12.7 million, due to a full impairment of goodwill and partial impairment of intangible assets in the miraDry reporting unit.
Other Income (Expense), net
Other income (expense), net for the nine months ended September 30, 2020 increased $13.12021 decreased $1.4 million as compared to the nine months ended September 30, 20192020 primarily due to the increase in the fair value of the derivative liability interest expenseresulting from an increase in the Company’s stock price during the period, and an increase in the amortization of debt issuance costs and debt discounts associated with our Credit Agreements and Convertible Note.convertible note, partially offset by a decrease in interest expense due to interest and fees associated with the amendment of our Credit Agreement incurred in the prior period which did not reoccur in the current period, coupled with a gain on extinguishment of the PPP Loan in the current period.
Income Tax Expense
For the nine months ended September 30, 20202021 and 20192020 there was no income tax expense.
Income (Loss) from discontinued operations
Income from discontinued operations for the nine months ended September 30, 2021 increased $22.1 million, due to the Company’s change in business strategy to focus on bioTips prior to the sale of the miraDry business, offset by the loss recognized on the sale of the miraDry business.
Liquidity and Capital Resources
Since our inception, we have incurred significant net operating losses and anticipate that our losses will continue in the near term. We expect our operating expenses will continue to grow asremain consistent and we expand our operations. We will need to generate significant net sales to achieve profitability. To date, we have funded our operations primarily with
proceeds from the sales of preferred stock, borrowings under our term loans and convertible note, sales of our products since 2012, and the proceeds from the sale of our common stock in public offerings.
Sale of the miraDry business
Refer to Note 2 to the condensed consolidated financial statements for details on the sale of the miraDry business.
Debt financing – recent developments
Refer to Note 7 to the condensed consolidated financial statements for a full description and updates to all of our long-term debt, revolving line of credit, convertible note, and PPP Loan.
Equity financing – recent developments
On February 8, 2021, we completed a follow-on public offering of 5,410,628 shares of common stock at $6.75 per share, as well as 811,594 additional shares of common stock pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds were approximately $39.2 million after deducting underwriting discounts and commissions of approximately $2.5 million and offering expenses of approximately $0.3 million.
As of September 30, 2020,2021, we had $63.5$66.1 million in cash and cash equivalents. Our historical cash outflows have primarily been associated with research and development activities and activities relating to commercialization and increases in working capital, including the expansion of our sales force and marketing programs.capital. In addition, we have used cash to fund the acquisitions of miraDry, BIOCORNEUM, ourVesta, and the tissue expander portfolio, and the Vesta Acquisition.portfolio.
In February 2018, we entered into an At-The-Market Equity Offering Sales Agreement with Stifel, Nicolaus & Company, Incorporated, or Stifel, as sales agent pursuant to which we may sell, from time to time, through Stifel shares of our common stock having an aggregate gross offering price of up to $50 million. As of September 30, 2020, the Company has sold 37,000 shares of its common stock pursuant to the sales agreement, resulting in net proceeds after commissions of approximately $0.3 million.
On July 1, 2019, we entered into certain credit agreements with Midcap Financial Trust pursuant to which we repaid our existing indebtedness under our existing credit agreements and the outstanding commitment fee was cancelled. Further on March 11, 2020, we entered into a facility agreement with Deerfield Partners, L.P., issuing $60.0 million in principal amount of 4.0% unsecured and subordinated convertible notes.See Note 10 – Debt to the condensed consolidated financial statements for a full description of our long-term debt, revolving line of credit, and convertible note.
In April 2020, we were granted a loan of $6.7 million under the Paycheck Protection Program of the CARES Act, or the PPP Loan, all or a portion of which may be forgiven dependent on our use of proceeds. The PPP Loan matures on April 20, 2022 and bears interest at a rate of 1.0% per annum. All or a portion of the PPP Loan may be forgiven upon submission of documentation of expenditures in accordance with certain specified requirements. See Note 10 – Debt to the condensed consolidated financial statements for a full description of the PPP Loan. We sought and obtained the PPP Loan due to the immediate and continued impact of the COVID-19 pandemic on our revenues and prospects. The PPP Loan has allowed us to satisfy our payroll obligations without a material reduction in pay for our employees or a material headcount reduction, other than the reductions in the previously announced organizational efficiency initiative.
Due to the continued uncertainty relating to the COVID-19 pandemic, our revenues may continue to be adversely impacted. If we are unable to achieve certain revenue targets, we may breach certain financial covenants set forth in our Credit Agreement with MidCap Financial Trust. If we breach these covenants, MidCap will have the right to accelerate repayment of the outstanding amounts. In addition, a breach of a financial covenant in the Credit Agreement would result in a cross default under our Note with Deerfield, which would allow Deerfield to accelerate repayment of the amounts owed, subject to certain restrictions. In the event that any of MidCap or Deerfield accelerates the repayment of our indebtedness, there can be no assurance that we will have sufficient cash on hand to satisfy such obligations and our business operations may be materially harmed.
To fund our ongoing operating and capital needs, we may need to raise additional equity or debt capital. We believe we have sufficient capital resources to continue as a going concern through the next twelve months.
Cash Flows
The following table shows a summary of our cash flows (used in) provided by operating, investing and financing activities from continuing operations, as well as from discontinued operations for the periods indicated:indicated (in thousands):
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net cash (used in) provided by: |
|
|
|
|
|
|
|
|
Operating activities |
| $ | (52,739 | ) |
| $ | (73,503 | ) |
Investing activities |
|
| (3,192 | ) |
|
| (3,180 | ) |
Financing activities |
|
| 31,806 |
|
|
| 110,699 |
|
Net change in cash, cash equivalents and restricted cash |
| $ | (24,125 | ) |
| $ | 34,016 |
|
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash (used in) provided by: |
|
|
|
|
|
|
|
|
Operating activities - continuing operations |
| $ | (28,563 | ) |
| $ | (38,447 | ) |
Investing activities - continuing operations |
|
| (4,882 | ) |
|
| (3,112 | ) |
Financing activities - continuing operations |
|
| 34,280 |
|
|
| 31,806 |
|
Net change in cash, cash equivalents and restricted cash from continuing operations |
|
| 835 |
|
|
| (9,753 | ) |
Net cash provided by (used in) discontinued operations |
|
| 10,325 |
|
|
| (14,372 | ) |
Net change in cash, cash equivalents and restricted cash |
| $ | 11,160 |
|
| $ | (24,125 | ) |
Cash used inflow from operating activities of continuing operations
Net cash used in operating activities was $52.7$28.6 million during the nine months ended September 30, 20202021 as compared to $73.5$38.4 million during the nine months ended September 30, 2019.2020. The decrease in cash used in operating activities between the nine months ended September 30, 20202021 and 20192020 was primarily associated with a lower net loss of $68.7 million forincreases in the nine months ended September 30, 2020 as compared to $86.6 million for the nine months ended September 30, 2019, an increase in fair value adjustments toof the derivative liability and the provision for doubtful accounts, and decreasesstock based compensation, coupled with increases in accounts receivableworking capital, offset by a lower impairment, stock-based compensation expense,gain on extinguishment of the PPP Loan and inventory, and decreases in customer deposits, accounts payable, accrued and other liabilities, and prepaid expenses, other current assets and other assets.payments related to the miraDry contingent consideration.
Cash used inflow from investing activities of continuing operations
Net cash used in investing activities was $3.2$4.9 million during the nine months ended September 30, 2020 and 2019. The slight increase in cash2021 as compared to $3.1 million used in investing activities betweenduring the nine months ended September 30, 2020 and 20192020. The increase in cash used was due to an increase in property and equipment purchases.capitalized costs associated with the implementation of information technology systems.
Cash provided byflow from financing activities of continuing operations
Net cash provided by financing activities was $34.3 million during the nine months ended September 30, 2021 as compared to $31.8 million during the nine months ended September 30, 2020 as compared2020. The increase in cash provided by financing activities was due to $110.7an increase in proceeds from issuance of common stock, increase in borrowings under the Term Loan, and a decrease in payments under the Term Loan, Revolving Loan, and deferred financing costs, offset by borrowings under the Convertible Note and PPP Loan in the prior period which did not reoccur in the current period, and payments related to the miraDry contingent consideration.
Cash flow from discontinued operations
Net cash provided by discontinued operations was $10.3 million during the nine months ended September 30, 2019.2021 as compared to $14.4 million used during the nine months ended September 30, 2020. The change in cash flows was primarily driven by a decrease in cash used from operating activities as a result of the change in miraDry business strategy, in addition to an increase in cash provided by financinginvesting activities was primarily the result of a decrease inresulting from the proceeds from issuance of common stock, repayments of the term loan, and decrease in borrowings under the revolving loan, offset by an increase in proceeds from issuancesale of the convertible note and the PPP loan.miraDry business.
Our liquidity position and capital requirements are subject to a number of factors. For example, our cash inflow and outflow may be impacted by the following:
| • | the ability of our implant manufacturing facility in Franklin, Wisconsin, to meet capacity to meet customer requirements and maintain unit costs that will drive gross margin; |
| • | the ability of our third-party tissue expander manufacturing facility operated by SiMatrix to meet capacity to meet customer requirements; |
| • | net sales generated by our |
| • | the scope and duration of the COVID-19 pandemic and its effect on our operations; |
| • | costs associated with expanding our sales force and marketing programs; |
| • | cost associated with developing and commercializing our proposed products or technologies; |
| • | expenses we incur in connection with potential litigation or governmental investigations; |
| • | cost of obtaining and maintaining regulatory clearance or approval for our current or future products; |
| • | cost of ongoing compliance with regulatory requirements, including compliance with Sarbanes-Oxley; |
| • | anticipated or unanticipated capital expenditures; and |
| • | unanticipated G&A expenses. |
Our primary short-term capital needs, which are subject to change, include expenditures related to:
| • | support of our sales and marketing efforts related to our current and future products; |
| • | new product acquisition and development efforts; |
| • | facilities expansion needs; and |
| • | investment in inventory required to meet customer demands. |
Although we believe the foregoing items reflect our most likely uses of cash in the short-term, we cannot predict with certainty all of our particular short-term cash uses or the timing or amount of cash used. If cash generated from operations is insufficient to satisfy our working capital and capital expenditure requirements, we may be required to sell additional equity or debt securities or obtain credit facilities. Additional capital, if needed, may not be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. For a discussion of other factors that may impact our future liquidity and capital funding requirements, see “Risk Factors — Risks Related to Our Financial Results” in our Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2020,2021, we had $63.5$66.1 million in cash and cash equivalents. We generally hold our cash in checking accounts and interest-bearing money market accounts. Our exposure to market risk related to interest rate sensitivity is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents. We have established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 20202021, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2020 as a result of the material weakness described in our Annual Report on Form 10-K and below.
The control environment was ineffective in holding individuals accountable for the operation of their internal control responsibilities. This control failure prevented the effective operation of controls over goodwill and intangible asset impairment, including the underlying financial data, calculations and assumptions supporting the forecasted financial information utilized to measure the fair value of the reporting unit, intangible assets, and the associated impairment charges. This deficiency did not result in an adjustment but still represented a material weakness in our internal control over financial reporting as of December 31, 2019 because there is a reasonable possibility that material misstatements to our consolidated financial statements would not be prevented or detected on a timely basis.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Remediation
As disclosed in our Annual Report, we have identified and begun to implement several actions designed to remediate the material weakness. Our remediation process includes, but is not limited to communicating expectations over performance of controls, monitoring for compliance with those expectations, and holding individuals accountable for their roles related to internal control over financial reporting.date.
Changes in Internal Control over Financial Reporting
Except as discussed above,During the quarter ended September 30, 2021, the Company implemented a new enterprise resource planning system which has a material impact on the Company’s internal control over financial reporting. In connection with the implementation, the Company made changes to its internal controls over financial reporting to accommodate modifications to business processes.
Other than the change disclosed, there have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings and regulatory proceedings arising out of our operations. We establish reserves for specific liabilities in connection with legal actions that we deem to be probable and estimable. The ability to predict the ultimate outcome of such matters involves judgments, estimates, and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. Information regarding certain legal proceedings is provided in this Quarterly Report in Note 1412 of the condensed consolidated financial statements.
ItemITEM 1A. RISK FACTORS
Except as set forth below, thereThere have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, which are incorporated herein by reference.
The COVID-19 pandemic has adversely affected, and continues to adversely affect, our business, our operations and our financial results. Future pandemics, epidemics or outbreaks of an infectious disease may similarly affect our business, our operations and our financial results.
The rapid, global spread of COVID-19 has resulted in significant economic uncertainty, significant declines in business and consumer confidence and global demand in the non-essential healthcare industry (among others), a global economic slowdown, and could lead to a global recession. The COVID-19 pandemic has drastically impacted healthcare systems in the United States and globally and resulted in travel restrictions which impact medical tourism and our sales professionals’ ability to travel. In addition, hospitals have limited access for non-patients, including our sales professionals, which could negatively impact our access to physicians. As an aesthetics company, a significant percentage of our products are utilized in elective surgeries or procedures, which may be deferred or avoided altogether due to the COVID-19 outbreak, materially impacting our financial results. Future pandemics or other outbreaks of infectious disease may result in a similar period of business disruption, including reduced sales as patients might cancel or defer elective procedures or otherwise avoid medical facilities, resulting in reduced patient volumes and operating revenues. Governmental agencies and hospital administrators may also instruct hospitals to postpone some elective procedures in preparation for COVID-19-related hospitalizations. Further, the spread of COVID-19 has caused us to modify our workforce practices, and we may take further actions that we determine are in the best interests of our employees or as required by governments. The continued spread of COVID-19, or another infectious disease, could also result in delays or disruptions in our supply chain or adversely affect our manufacturing facilities and personnel. Further, trade and/or national security protection policies may be adjusted as a result of the COVID-19 pandemic, such as actions by governments that limit, restrict or prevent the movement of certain goods into a country and/or region, and current U.S./China trade relations may be further exacerbated by the pandemic. The COVID-19 outbreak has materially impacted our operations and financial results and continues to be fluid and uncertain, making it difficult to forecast the final impact it could have on our future operations or financial results.
Our debt obligations could impair our financial condition and limit our operating flexibility.
Our indebtedness under our credit agreements with MidCap Financial Trust, or the Credit Agreements, our Convertible Note with Deerfield and our other financial obligations could:
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Our financial covenants in the Credit Agreements require us to achieve certain levels of net revenue calculated on a rolling monthly basis. Due to the continued uncertainty relating to the COVID-19 pandemic, our revenues may continue to be adversely impacted. If we are unable to achieve certain revenue targets, we may breach certain financial covenants set forth in our Credit Agreements. If we breach these covenants, MidCap will have the right to accelerate repayment of the outstanding amounts. In addition, a breach of a financial covenant in the Credit Agreement would result in a cross default under our Convertible Note with Deerfield, which would allow Deerfield to accelerate repayment of the amounts owed, subject to certain restrictions. In the event that any of MidCap or Deerfield accelerates the repayment of our indebtedness, there can be no assurance that we will have sufficient cash on hand to satisfy such obligations and our business operations may be materially harmed.
Furthermore, there is no guarantee that we will be able to pay the principal and interest under the Credit Agreements or the Convertible Note or that future working capital, borrowings or equity financing will be available to repay or refinance any amounts outstanding under the Credit Agreements or Convertible Note. Our obligations under the Credit Agreements are secured by a perfected security interest in all of our tangible and intangible assets (including our intellectual property assets), except for certain customary excluded property and all of our and our subsidiaries capital stock, with certain limited exceptions. In addition, we may enter into debt agreements in the future that may contain similar or more burdensome terms and covenants, including financial covenants.
We may not successfully integrate newly acquired businesses into our business operations or realize the benefits of partnerships with other companies, acquisitions of complementary products or technologies or other strategic alternatives.
We have completed a series of business and product acquisitions including our acquisition of our manufacturing operations from Vesta, our acquisition of miraDry, our product acquisitions, including BIOCORNEUM and our tissue expanders portfolio. As a result of these acquisitions, we have undergone substantial changes to our business and product offerings in a short period of time. In addition, in the future, we may consider other opportunities to partner with or acquire other businesses, products or technologies that may enhance our product platform or technology, expand the breadth of our markets or customer base or advance our business strategies.
Integrating the business practice and operations of a new business with that of our own is a complex, costly and time-consuming process, which requires significant management attention and resources. The integration process may disrupt our existing operations and, if implemented ineffectively, would preclude realization of the full benefits expected by us. Our failure to meet the challenges involved in successfully integrating our acquisitions in order to realize the anticipated benefits may cause an interruption of, or a loss of momentum in, our operating activities and could adversely affect our results of operations. For example, we recently determined to refocus our miraDry reporting unit to driving sales of consumable bioTips to our existing installed base. There can be no assurances that we will achieve significant sales of the miraDry system under this refocused plan or, if we do, that we will be able to do so in a profitable manner. Potential difficulties, costs and delays we may encounter as part of the integration process may include:
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Any one or all of these factors may increase operating costs or lower anticipated financial performance. Many of these factors are also outside of our control. In addition, even if new business operations are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings or sales or growth opportunities that we expect or within the anticipated time frame. Additional unanticipated costs may be incurred in the integration of the businesses. All of these factors could decrease or delay the expected accretive effect of the transaction, and negatively impact the price of our common stock. The failure to integrate the business operations of miraDry or any acquired business successfully would have a material adverse effect on our business, financial condition and results of operations. As noted above, we determined to refocus efforts on driving sales of bioTips to our existing installed base. There can be no assurance that this shift in focus will allow us to realize the expected benefits from this acquisition.
If we are unable to drive sales of our bioTips to our existing installed base of miraDry systems, our business and future prospects will be harmed.
In April 2020, we determined to focus on driving high margin, bioTip utilization to our existing installed base combined with a controlled placement of consoles. We expect that the net sales we generate from our bioTips will represent high margin sales (on a gross margin basis) and account for a substantial amount of our net sales for the next several years, with high margin consumables comprising a sizable percentage of our miraDry segment’s net sales. Accordingly, our success depends on the acceptance among physicians and patients of the miraDry procedure as a preferred treatment for being sweat-bothered. Although we have received FDA clearance to market the miraDry procedure for the treatment of primary axillary hyperhidrosis, odor and permanent hair reduction in the United States and are approved or are otherwise free to market the miraDry procedure for the treatment of primary ancillary hyperhidrosis in adults in over 40 international markets, the degree of market acceptance of the miraDry procedure by physicians and patients is unproven. We believe that market acceptance of the miraDry procedure will depend on many factors, including:
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In addition, the COVID-19 pandemic has limited our ability to educate physicians and drive market acceptance of the procedure. We cannot guarantee that the miraDry procedure will achieve broad market acceptance among physicians and patients. We expect to derive a substantial portion of sales from the sale of our consumable bioTip products, which represent higher margin products within our product portfolio. As a result, any failure of this product to achieve meaningful market acceptance will harm our business, sales, profitability and future prospects.
If changes in the economy and consumer spending reduce consumer demand for our products, our sales and profitability would suffer.
We are subject to the risks arising from adverse changes in general economic and market conditions, pandemics or political actions including new or increased trade protection policies such as tariffs, particularly in China, where certain components of our miraDry products are manufactured. Certain elective procedures, such as breast augmentation and the miraDry procedure, are typically not covered by insurance. Adverse changes in the economy or a “trade war” may cause consumers to reassess their spending choices and reduce the demand for these surgeries and other procedures and could have an adverse effect on consumer spending. This shift could have an adverse effect on our net sales and profitability. Furthermore, consumer preferences and trends may shift due to a variety of factors, including changes in demographic and social trends, public health initiatives and product innovations, which may reduce consumer demand for our products. For example, as a result of the COVID-19 outbreak in China, our bioTip manufacturer in China was required to close for a week. In addition, as the outbreak spread through the United States and globally, we have experienced a significant reduction in demand as non-emergency medical procedures are deferred. There can be no assurances that once healthcare systems resume normal activity that these deferred procedures will be rescheduled. The outbreak has adversely affected our financial condition and results of operations and will likely continue to adversely impact our operations until heathcare systems resume normal activity. At this point, the duration and extent of such impact is uncertain.
If we are unsuccessful in executing our cost plan, our business and results of operations may be adversely affected.
In November 2019, we announced an organizational efficiency initiative (the “Plan”) designed to reduce spending and simplify operations to better align our cost structure to our long-term margin targets. Under the Plan, we will implement numerous initiatives to reduce spending, including closing the Santa Clara offices of miraDry, Inc. (“miraDry”), and consolidating a number of business support services via a shared services organization at our Santa Barbara headquarters. Under the Plan, we also intend to reduce our workforce in a series of targeted reductions, which we expect to be completed by the end of 2020. We cannot provide assurance that our Plan will be successful, that anticipated cost savings will be realized, that our operations, business and financial results will improve and/or that these efforts will not disrupt our operations (beyond what is intended).
In April 2020, we implemented additional workforce reductions as cost savings measures. Our ability to achieve the anticipated cost savings and other benefits within the expected time frames is subject to many estimates and assumptions, which are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. Further, we may experience delays in the timing of these efforts and/or higher than expected or unanticipated costs in implementing them. Moreover, changes in the size, alignment or organization of our workforce could adversely affect employee morale and retention, relations with customers and business partners, our ability to develop and deliver products and services as anticipated and/or impair our ability to realize our current or future business and financial objectives. If we do not succeed in these efforts, if these efforts are more costly or time-consuming than expected, if our estimates and assumptions are not correct, if we experience delays or if other unforeseen events occur, our business and results of operations may be adversely affected.
Any disruption at our facilities could adversely affect our business and operating results.
Our principal offices are located in Santa Barbara, California. Substantially all of our operations are conducted at this location, including customer service, development and management and administrative functions. Substantially all of our inventory of Breast Products is held at a second location in Santa Barbara, California, and, with the Vesta Acquisition, we manufacture our breast implants at a third location in Wisconsin. Despite our efforts to safeguard our facilities, including acquiring insurance, adopting health and safety protocols and utilizing off-site storage of computer data, vandalism, terrorism, public health crisis (such as the recent COVID-19 outbreak) or a natural or other disaster, such as an earthquake, tornado, fire or flood, could damage or destroy our inventory of finished goods, cause substantial delays in our operations, result in the loss of key information and cause us to incur additional expenses. Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our facilities may have a material adverse effect on our business, financial condition and operating results.
We accepted a loan under the CARES Act pursuant to the Paycheck Protection Program, or the PPP, which loan may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan. In addition, we may be subject to audit in connection with the loan and should we request that the loan be forgiven, the United States Small Business Administration, or SBA, will conduct a full audit in connection with the loan. If there is any adverse finding from the audit or if we are subject to any other investigation or challenge in connection with the loan, we could be required to return the full amount of the PPP loan plus interest, which could reduce our liquidity, and could be subject to significant fines, damages and penalties and our business could otherwise be adversely affected, whether or not there is an adverse finding. Such events could have a material adverse effect on our business, financial condition and results of operations.
In April 2020, we were granted a loan of $6.7 million under the PPP of the CARES Act, or the PPP Loan, all or a portion of which may be forgiven dependent on our use of proceeds. The PPP Loan matures on April 20, 2022 and bears interest at a rate of 1.0% per annum. All or a portion of the PPP Loan may be forgiven by the SBA upon submission of documentation of expenditures in accordance with the SBA’s requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date of loan approval. Not more than 40% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loan eligible to be forgiven will be reduced if our full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. Furthermore, on April 28, 2020, the Secretary of the U.S. Department of the Treasury stated that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan.
The PPP Loan application required us to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan and that our receipt of the PPP Loan is consistent with the broad objectives of the PPP of the CARES Act, the certification described above does not contain any objective criteria and is subject to interpretation. In addition, the SBA has stated that it is unlikely that a public company with
substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good faith belief that we satisfied all eligibility requirements for the PPP Loan, we are found to have been ineligible to receive the PPP Loan or in violation of any of the laws or governmental regulations that apply to us in connection with the PPP Loan, including the False Claims Act, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan. In the event that we seek forgiveness of all or a portion of the PPP Loan, we will also be required to make certain certifications which will be subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be inaccurate, including under the False Claims Act. In addition, our receipt of the PPP Loan may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could harm our business, results of operations and financial condition.
ItemITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed or furnished as part of this report:
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS |
| Instance Document - the instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed herewith. |
+ | Management contract of compensatory plan. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SIENTRA, INC. | |
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November | By: | /s/ |
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November | By: | /s/ |
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| Chief Financial Officer and Treasurer |
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