SIENTRA, INC., 10-Q filed on 5/8/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 01, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name Sientra, Inc.  
Entity Central Index Key 0001551693  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Common Stock, Shares Outstanding   29,215,704
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Trading Symbol SIEN  
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 61,955 $ 86,899
Accounts receivable, net of allowances of $2,684 and $2,428 at March 31, 2019 and December 31, 2018, respectively 24,767 22,527
Inventories, net 27,242 24,085
Prepaid expenses and other current assets 3,411 2,612
Total current assets 117,375 136,123
Property and equipment, net 3,146 2,536
Goodwill 12,507 12,507
Other intangible assets, net 15,915 16,495
Other assets 22,682 698
Total assets 171,625 168,359
Current liabilities:    
Current portion of long-term debt 12,998 6,866
Accounts payable 15,109 13,184
Accrued and other current liabilities 30,416 27,697
Legal settlement payable   410
Customer deposits 10,892 9,936
Sales return liability 8,016 6,048
Total current liabilities 77,431 64,141
Long-term debt 24,416 27,883
Deferred and contingent consideration 6,531 6,481
Warranty reserve and other long-term liabilities 21,017 2,976
Total liabilities 129,395 101,481
Commitments and contingencies (Note 14)
Stockholders’ equity:    
Preferred stock, $0.01 par value – Authorized 10,000,000 shares; none issued or outstanding
Common stock, $0.01 par value — Authorized 200,000,000 shares; issued 29,274,377 and 28,701,494 and outstanding 29,201,650 and 28,628,767 shares at March 31, 2019 and December 31, 2018 respectively 292 286
Additional paid-in capital 430,779 428,949
Treasury stock, at cost (72,727 shares at March 31, 2019 and December 31, 2018) (260) (260)
Accumulated deficit (388,581) (362,097)
Total stockholders’ equity 42,230 66,878
Total liabilities and stockholders’ equity $ 171,625 $ 168,359
v3.19.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Accounts receivable, allowances (in dollars) $ 2,684 $ 2,428
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 29,274,377 28,701,494
Common stock, shares outstanding 29,201,650 28,628,767
Treasury stock, shares 72,727 72,727
v3.19.1
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Net sales $ 17,552,000 $ 14,676,000
Cost of goods sold 6,474,000 6,097,000
Gross profit 11,078,000 8,579,000
Operating expenses:    
Sales and marketing 20,401,000 15,256,000
Research and development 3,054,000 2,751,000
General and administrative 13,474,000 9,499,000
Total operating expenses 36,929,000 27,506,000
Loss from operations (25,851,000) (18,927,000)
Other income (expense), net:    
Interest income 304,000 40,000
Interest expense (952,000) (655,000)
Other income (expense), net 15,000 119,000
Total other income (expense), net (633,000) (496,000)
Loss before income taxes (26,484,000) (19,423,000)
Income tax (benefit) expense 0 0
Net loss $ (26,484,000) $ (19,423,000)
Basic and diluted net loss per share attributable to common stockholders $ (0.91) $ (0.99)
Weighted average outstanding common shares used for net loss per share attributable to common stockholders:    
Basic and diluted 29,099,382 19,613,417
v3.19.1
Condensed Consolidated Statement of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock
Treasury stock
Additional paid-in capital
Accumulated deficit
Balance, beginning of year at Dec. 31, 2017 $ 27,623 $ 194 $ (260) $ 307,159 $ (279,470)
Balance, beginning of year (in shares) at Dec. 31, 2017   19,474,702 72,727    
Stock-based compensation 2,548     2,548  
Employee stock purchase program (ESPP) 391 $ 1   390  
Employee stock purchase program (ESPP) (in shares)   62,491      
Vested restricted stock   $ 3   (3)  
Vested restricted stock (in shares)   271,936      
Shares withheld for tax obligations on vested RSUs (1,296) $ (1)   (1,295)  
Shares withheld for tax obligations on vested RSUs, shares   (92,760)      
Net loss (19,423)       (19,423)
Balance, end of year at Mar. 31, 2018 9,843 $ 197 $ (260) 308,799 (298,893)
Balance, end of year (in shares) at Mar. 31, 2018   19,716,369 72,727    
Balance, beginning of year at Dec. 31, 2018 66,878 $ 286 $ (260) 428,949 (362,097)
Balance, beginning of year (in shares) at Dec. 31, 2018   28,701,494 72,727    
Stock-based compensation 3,772     3,772  
Stock option exercises 106     106  
Stock option exercises (in shares)   45,453      
Employee stock purchase program (ESPP) 683 $ 1   682  
Employee stock purchase program (ESPP) (in shares)   68,899      
Vested restricted stock   $ 7   (7)  
Vested restricted stock (in shares)   671,245      
Shares withheld for tax obligations on vested RSUs (2,725) $ (2)   (2,723)  
Shares withheld for tax obligations on vested RSUs, shares   (212,714)      
Net loss (26,484)       (26,484)
Balance, end of year at Mar. 31, 2019 $ 42,230 $ 292 $ (260) $ 430,779 $ (388,581)
Balance, end of year (in shares) at Mar. 31, 2019   29,274,377 72,727    
v3.19.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (26,484) $ (19,423)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 831 880
Provision for doubtful accounts 342 233
Provision for warranties 273 183
Provision for inventory 289 199
Amortization of acquired inventory step-up   59
Change in fair value of warrants (87) (121)
Change in fair value of contingent consideration 185 621
Change in deferred revenue 384 (99)
Amortization of debt discount and issuance costs 56 51
Stock-based compensation expense 3,700 2,548
Payments of contingent consideration liability in excess of acquisition-date fair value (630)  
Changes in assets and liabilities, net of effects from acquisitions:    
Accounts receivable (2,583) (5,735)
Inventories (3,373) (1,191)
Prepaid expenses, other current assets and other assets 396 (1,009)
Insurance recovery receivable   (10)
Accounts payable 1,853 4,684
Accrued and other liabilities (2,312) 948
Legal settlement payable (410)  
Customer deposits 956 8
Sales return liability 1,968 4,400
Net cash used in operating activities (24,646) (12,774)
Cash flows from investing activities:    
Purchase of property and equipment (610) (142)
Net cash used in investing activities (610) (142)
Cash flows from financing activities:    
Proceeds from exercise of stock options 106  
Proceeds from issuance of common stock under ESPP 683 391
Tax payments related to shares withheld for vested restricted stock units (RSUs) (2,725) (1,296)
Gross borrowings under the Revolving Loan 4,183 9,033
Repayment of the Revolving Loan (1,565) (5,735)
Payments of contingent consideration up to acquisition-date fair value (370)  
Deferred financing costs   (6)
Net cash provided by financing activities 312 2,387
Net decrease in cash, cash equivalents and restricted cash (24,944) (10,529)
Cash, cash equivalents and restricted cash at:    
Beginning of period 87,242 26,931
End of period 62,298 16,402
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets    
Cash and cash equivalents 61,955 16,059
Restricted cash included in other assets $ 343 $ 343
Restricted Cash Noncurrent Asset Statement Of Financial Position Extensible List us-gaap:OtherNoncurrentAssetsMember us-gaap:OtherNoncurrentAssetsMember
End of period $ 62,298 $ 16,402
Supplemental disclosure of cash flow information:    
Interest paid 903 586
Supplemental disclosure of non-cash investing and financing activities:    
Property and equipment in accounts payable and accrued liabilities $ 273 $ 1,530
v3.19.1
Formation and Business of the Company
3 Months Ended
Mar. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Formation and Business of the Company

1.

Formation and Business of the Company

 

a.

Formation

Sientra, Inc. (“Sientra”, the “Company,” “we,” “our” or “us”), was incorporated in the State of Delaware on August 29, 2003 under the name Juliet Medical, Inc. and subsequently changed its name to Sientra, Inc. in April 2007. The Company acquired substantially all the assets of Silimed, Inc. on April 4, 2007. The purpose of the acquisition was to acquire the rights to the silicone breast implant clinical trials, related product specifications and pre-market approval, or PMA, assets. Following this acquisition, the Company focused on completing the clinical trials to gain FDA approval to offer its silicone gel breast implants in the United States.

In March 2012, the Company announced it had received approval from the FDA for its portfolio of silicone gel breast implants, and in the second quarter of 2012 the Company began commercialization efforts to sell its products in the United States. The Company, based in Santa Barbara, California, is a medical aesthetics company that focuses on serving board-certified plastic surgeons and offers a portfolio of silicone shaped and round breast implants, scar management, tissue expanders, and body contouring products.

In November 2014, the Company completed an initial public offering, or IPO, and its common stock is listed on the Nasdaq Stock Exchange under the symbol “SIEN.”

 

 

b.

Regulatory Review of Vesta Manufacturing

The Company has engaged Vesta Intermediate Funding, Inc., or Vesta, a Lubrizol Lifesciences company, for the manufacture and supply of the Company’s breast implants. On March 14, 2017, the Company announced it had submitted a site-change pre-market approval, or PMA, supplement to the FDA for the manufacture of the Company’s PMA-approved breast implants at the Vesta manufacturing facility. On January 30, 2018, the Company announced the FDA has granted approval of the site-change supplement for the Company’s contract manufacturer, Vesta, to manufacture its silicone gel breast implants.  In support of the move to the Vesta manufacturing facility, the Company also implemented new manufacturing process improvements which, in consultation with the FDA, required three (3) additional PMA submissions.  In addition to approving the manufacturing site-change PMA supplement, the FDA approved the Company’s three (3) process enhancement submissions on January 10, 2018, January 19, 2018 and April 17, 2018.

 

c.

Follow-On Offering

 

On May 7, 2018, the Company completed an underwritten follow-on public offering of 7,407,408 shares of its common stock at $13.50 per share, as well as 1,111,111 additional shares of its common stock pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds to the Company were approximately $107.6 million after deducting underwriting discounts and commissions of $6.9 million and offering expenses of approximately $0.5 million.

 

v3.19.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.

Summary of Significant Accounting Policies

 

a.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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, 2018 filed with the SEC on March 14, 2019, or the Annual Report. The results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

 

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.  The Company expects its operating expenses will continue to grow as they expand operations.  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, sales of products since 2012, and the proceeds from the sale of common stock in public offerings.

 

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.  As of March 31, 2019, the Company had cash and cash equivalents of $62.0 million. Since inception, the Company has incurred recurring losses from operations and cash outflows from operating activities. The continuation of the Company as a going concern is dependent upon many factors including liquidity and the ability to raise capital. The Company received FDA approval of their PMA supplement on April 17, 2018 and was then able to access a $10.0 million term loan pursuant to an amendment to the credit agreement with MidCap Financial Trust, or MidCap. In addition, in February 2018, the Company entered into an 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 our common stock having an aggregate gross offering price of up to $50.0 million. As of March 31, 2019, the Company has not sold any common stock pursuant to the sales agreement. Further, on May 7, 2018, the Company completed a public offering of its common stock, raising approximately $107.6 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses.  

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.

Use of Estimates

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.

 

d.

Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue when the Company transfers control of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. See Note 3 - Revenue for further discussion.

There have been no other changes to the accounting policies during the three months ended March 31, 2019, as compared to the significant accounting policies described in the “Notes to Financial Statements” in the Annual Report other than the adoption of Topic 842, as discussed in “Recent Accounting Pronouncements” and Note 9.

 

e.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

 

In February 2016, the FASB issued Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842). This ASU requires a company to recognize lease assets and liabilities arising from operating leases in the statement of financial position. This ASU does not significantly change the previous lease guidance for how a lessee should recognize the recognition, measurement, and presentation of expenses and cash flows arising from a lease. Additionally, the criteria for classifying a finance lease versus an operating lease are substantially the same as the previous guidance. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption was permitted. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, amending certain aspects of the new leasing standard. The amendment allowed an additional optional transition method whereby an entity records a cumulative effect adjustment to opening retained earnings in the year of adoption without restating prior periods. The Company adopted Topic 842 on January 1, 2019 electing the package of practical expedients permitted under the transition guidance, which allowed the Company to carry forward the historical lease classification, the assessment on whether a contract is or contains a lease, and the initial direct costs for any leases that exist prior to adoption of the new standard. The Company has not restated prior periods under the optional transition method. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $22.7 million, lease liabilities of approximately $22.9 million and no cumulative-effect adjustment on retained earnings on its Condensed Consolidated Balance Sheets. Refer to Note 9 - Leases for further details.

 

In February 2018, the FASB issued ASU 2018-02, Income Taxes (Topic 740), which allows for an entity to elect to reclassify the income tax effects on items within accumulated other comprehensive income resulting from U.S. Tax Cuts and Jobs Act to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including interim periods within those years. The Company adopted ASC 2018-02 and elected to not reclassify the income tax effects under ASU 2018-02, as it does not have a material impact on the condensed consolidated financial statements.

 

 

f.

Reclassifications

 

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue From Contract With Customer [Abstract]  
Revenue

3.

Revenue

Revenue Recognition

The Company generates revenue primarily through the sale and delivery of promised goods or services to customers and recognizes revenue when control 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. Performance obligations typically include the delivery of promised products, such as breast implants, tissue expanders, BIOCORNEUM, miraDry Systems and bioTips, along with service-type warranties and deliverables under certain marketing programs. Other deliverables are sometimes promised, but are ancillary and insignificant in the context of the contract as a whole. Sales prices are documented in the executed sales contract, purchase order or order acknowledgement prior to the transfer of control to the customer. Customers may enter into a separate extended service agreement to purchase an extended warranty for miraDry products from the Company whereby the payment is due at the inception of the agreement. Typical payment terms are 30 days for Breast Products and direct sales of consumable miraDry products, and tend to be longer for capital sales of miraDry Systems and sales to miraDry distributors, but do not extend beyond one year. 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 extended service agreements are recognized ratably over the term of the agreements.

For Breast Products, with the exception of the Company’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. Reserves are established for anticipated sales returns based on the expected amount calculated with historical experience, recent gross sales and any notification of pending returns. The estimated sales return is 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 subsequent period would be recorded. The Company has established an allowance for sales returns of $8.0 million and $6.0 million as of March 31, 2019 and December 31, 2018 respectively, recorded as “sales return liability” on the condensed consolidated balance sheets.

The following table provides a rollforward of the sales return liability (in thousands):

 

 

 

Sales return liability

 

Balance as of December 31, 2018

 

$

6,048

 

Addition to reserve for sales activity

 

 

22,617

 

Actual returns

 

 

(21,040

)

Change in estimate of sales returns

 

 

391

 

Balance as of March 31, 2019

 

$

8,016

 

 

For Breast Products, a portion of the Company’s revenue is generated from the sale of consigned inventory of breast implants maintained at doctor, hospital, and clinic locations. For these products, revenue is recognized at the time the Company is notified by the customer that the product has been implanted, not when the consigned products are delivered to the customer’s location.

For miraDry, in addition to domestic and international direct sales, the Company leverages a distributor network for selling the miraDry System internationally. The Company recognizes revenue when control of the goods or services is transferred to the distributors. Standard terms in both direct sales agreements (domestic and international), and international distributor agreements do not allow for trial periods, right of return, refunds, payment contingent on obtaining financing or other terms that could impact the customer’s payment obligation.

Arrangements with Multiple Performance Obligations

The Company has determined that the delivery of each unit of product in the Company’s revenue contracts with customers is a separate performance obligation. The Company’s revenue contracts may include multiple products or services, each of which is considered a separate performance obligation. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices or using an expected cost plus margin approach when an observable price is not available. The Company invoices customers once products are shipped or delivered to customers depending on the negotiated shipping terms.

The Company introduced its Platinum20 Limited Warranty Program, or Platinum20, in May 2018 on all OPUS breast implants implanted in the United States or Puerto Rico on or after May 1, 2018.  Platinum20 provides for financial assistance for revision surgeries and no-charge contralateral replacement implants upon the occurrence of certain qualifying events. The Company considers Platinum20 to have an assurance warranty component and a service warranty component. The assurance component is recorded as a warranty liability at the time of sale (as discussed in Note 6). The Company considers the service warranty component as an additional performance obligation and defers revenue at the time of sale based on the relative estimated selling price, by estimating a standalone selling price using the expected cost plus margin approach for the performance obligation. 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 March 31, 2019 and December 31, 2018 was $0.6 million and $0.4 million respectively. The short-term obligation related to the service warranty as of both March 31, 2019 and December 31, 2018 was $0.2 million and is included in “accrued and other current liabilities” on the condensed consolidated balance sheets. The long-term obligation related to the service warranty as of both March 31, 2019 and December 31, 2018 was $0.3 million, and is included in “warranty reserve and other long-term liabilities” on the condensed consolidated balance sheets. The performance obligation is satisfied at the time that Platinum20 benefits are provided and are expected to be satisfied over the following 6 to 24 month period for financial assistance and 20 years for product replacement. Revenue recognized for the service warranty performance obligations for the three months ended March 31, 2019 was immaterial.

Practical Expedients and Policy Election

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

The Company does not adjust accounts receivable for the effects of any significant financing components as customer payment terms are shorter than one year.

The Company has elected to account for shipping and handling activities performed after a customer obtains control of the products as activities to fulfill the promise to transfer the products to the customer. Shipping and handling activities are largely provided to customers free of charge for the Breast Products segment. The associated costs were $0.4 million and $0.2 million for the three months ended March 31, 2019 and 2018 respectively. These costs are viewed as part of the Company’s sales and marketing programs and are recorded as a component of sales and marketing expense in the condensed consolidated statement of operations as an accounting policy election. For the miraDry segment, shipping and handling charges are typically billed to customers and recorded as revenue. The shipping and handling costs incurred are recorded as a component of cost of goods sold in the condensed consolidated statement of operations. The associated costs were $0.1 million for both the three months ended March 31, 2019 and 2018.

v3.19.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2019
Financial Instruments Owned At Fair Value [Abstract]  
Fair Value of Financial Instruments

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 and contingent consideration 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 March 31, 2019, the carrying value of the long-term debt was not materially different from the fair value.

v3.19.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

5.

Fair Value Measurements

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.

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 historically has been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. 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 several significant inputs are not observable, the overall fair value measurement of the warrants is classified as Level 3.

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. Significant assumptions used in the measurement include future net sales for a defined term and the risk-adjusted discount rate associated with the business. As the inputs are not observable, the overall fair value measurement of the contingent consideration is classified as Level 3.

The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 and indicate the level of the fair value hierarchy utilized to determine such fair value (in thousands):

 

 

 

Fair Value Measurements as of

 

 

 

March 31, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

 

 

26

 

 

 

26

 

Liability for contingent consideration

 

 

 

 

 

 

 

 

13,032

 

 

 

13,032

 

 

 

$

 

 

 

 

 

 

13,058

 

 

 

13,058

 

 

 

 

Fair Value Measurements as of

 

 

 

December 31, 2018 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

 

 

113

 

 

 

113

 

Liability for contingent consideration

 

 

 

 

 

 

 

 

13,847

 

 

 

13,847

 

 

 

$

 

 

 

 

 

 

13,960

 

 

 

13,960

 

 

The liability for common stock warrants and the current portion of contingent consideration is included in “accrued and other current liabilities” and the long-term liabilities for the contingent consideration are included in “deferred and contingent consideration” in the condensed consolidated balance sheet. The following table provides a rollforward of the aggregate fair values of the Company’s common stock warrants and contingent consideration for which fair value is determined by Level 3 inputs (in thousands):  

 

Warrant Liability

 

 

 

 

Balance, December 31, 2018

 

$

113

 

Change in fair value of warrant liability

 

 

(87

)

Balance, March 31, 2019

 

$

26

 

Contingent Consideration Liability

 

 

 

 

Balance, December 31, 2018

 

$

13,847

 

Payments of contingent consideration

 

 

(1,000

)

Change in fair value of contingent consideration

 

 

185

 

Balance, March 31, 2019

 

$

13,032

 

 

The Company recognizes changes in the fair value of the warrants in “other income (expense), net” in the condensed consolidated statement of operations and changes in contingent consideration are recognized in “general and administrative” expense in the condensed consolidated statement of operations.

v3.19.1
Product Warranties
3 Months Ended
Mar. 31, 2019
Product Warranties Disclosures [Abstract]  
Product Warranties

 

6.

Product Warranties

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 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):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Beginning balance as of January 1

 

$

1,395

 

 

$

1,642

 

Warranty costs incurred during the period

 

 

(139

)

 

 

(104

)

Changes in accrual related to warranties issued during the period

 

 

244

 

 

 

50

 

Changes in accrual related to pre-existing warranties

 

 

29

 

 

 

133

 

Balance as of March 31

 

$

1,529

 

 

$

1,721

 

 

 

v3.19.1
Net Loss Per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net Loss Per Share

7.

Net Loss Per Share

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 March 31,

 

 

 

2019

 

 

2018

 

Net loss (in thousands)

 

$

(26,484

)

 

$

(19,423

)

Weighted average common shares outstanding, basic and diluted

 

 

29,099,382

 

 

 

19,613,417

 

Net loss per share attributable to common stockholders

 

$

(0.91

)

 

$

(0.99

)

 

The Company excluded the following potentially dilutive securities, outstanding as of March 31, 2019 and 2018, from the computation of diluted net loss per share attributable to common stockholders for the three months ended March 31, 2019 and 2018 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods.

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Stock options to purchase common stock

 

 

1,469,792

 

 

 

1,600,826

 

Warrants for the purchase of common stock

 

 

47,710

 

 

 

47,710

 

 

 

 

1,517,502

 

 

 

1,648,536

 

v3.19.1
Balance Sheet Components
3 Months Ended
Mar. 31, 2019
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

8.

Balance Sheet Components

 

a.

Allowance for Doubtful Accounts

 

The Company has established an allowance for doubtful accounts of $2.7 million and $2.4 million as of March 31, 2019 and December 31, 2018, respectively, recorded net against accounts receivable in the balance sheet.

 

b.

Inventories

Inventories, net consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Raw materials

 

$

2,680

 

 

$

2,147

 

Work in progress

 

 

2,690

 

 

 

2,110

 

Finished goods

 

 

19,850

 

 

 

18,335

 

Finished goods - right of return

 

 

2,022

 

 

 

1,493

 

 

 

$

27,242

 

 

$

24,085

 

 

 

c.

Property and Equipment

Property and equipment, net consist of the following (in thousands): 

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Leasehold improvements

 

$

402

 

 

$

402

 

Manufacturing equipment and toolings

 

 

2,463

 

 

 

1,928

 

Computer equipment

 

 

748

 

 

 

682

 

Software

 

 

1,213

 

 

 

1,039

 

Office equipment

 

 

117

 

 

 

156

 

Furniture and fixtures

 

 

934

 

 

 

826

 

 

 

 

5,877

 

 

 

5,033

 

Less accumulated depreciation

 

 

(2,731

)

 

 

(2,497

)

 

 

$

3,146

 

 

$

2,536

 

 

Depreciation expense for both the three months ended March 31, 2019 and 2018 was $0.3 million.

 

Under the terms of the manufacturing agreement with Vesta, upon the commencement of Contract Year One (as defined in the agreement) which occurred following FDA-approval of all submissions related to the site-change PMA supplement for the Vesta manufacturing facility, Vesta was obligated to purchase the manufacturing equipment and tooling that Sientra had originally purchased for the manufacture of Sientra’s breast implant inventory at Vesta’s manufacturing facility. Vesta repurchased the equipment with a net book value of $2.7 million in the third quarter of 2018 through a reduction in the Company’s accounts payable balance owed to Vesta.

 

d.

Goodwill and Other Intangible Assets, net

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 three months ended March 31, 2019 were as follows (in thousands):

 

 

 

Breast Products

 

 

miraDry

 

 

Total

 

Balances as of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

19,156

 

 

$

7,629

 

 

$

26,785

 

Accumulated impairment losses

 

 

(14,278

)

 

 

 

 

 

(14,278

)

Goodwill, net

 

$

4,878

 

 

$

7,629

 

 

$

12,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

19,156

 

 

$

7,629

 

 

$

26,785

 

Accumulated impairment losses

 

 

(14,278

)

 

 

 

 

 

(14,278

)

Goodwill, net

 

$

4,878

 

 

$

7,629

 

 

$

12,507

 

 

As of March 31, 2019 and December 31, 2018 the miraDry reporting unit had a negative carrying value.

 

The components of the Company’s other intangible assets consist of the following (in thousands):

 

 

 

Average

 

 

 

 

 

 

Amortization

 

 

March 31, 2019

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

11

 

 

$

11,240

 

 

$

(3,878

)

 

$

7,362

 

Trade names - finite life

 

 

14

 

 

 

5,800

 

 

 

(638

)

 

 

5,162

 

Developed technology

 

 

15

 

 

 

3,000

 

 

 

(407

)

 

 

2,593

 

Distributor relationships

 

 

9

 

 

 

500

 

 

 

(152

)

 

 

348

 

Non-compete agreement

 

 

2

 

 

 

80

 

 

 

(80

)

 

 

 

Regulatory approvals

 

 

1

 

 

 

670

 

 

 

(670

)

 

 

 

Acquired FDA non-gel product approval

 

 

11

 

 

 

1,713

 

 

 

(1,713

)

 

 

 

Total definite-lived intangible assets

 

 

 

 

 

$

23,003

 

 

$

(7,538

)

 

$

15,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles with indefinite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names - indefinite life

 

 

 

 

450

 

 

 

 

 

 

450

 

Total indefinite-lived intangible assets

 

 

 

 

 

$

450

 

 

$

 

 

$

450

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

 

December 31, 2018

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

11

 

 

$

11,240

 

 

$

(3,486

)

 

$

7,754

 

Trade names - finite life

 

 

14

 

 

 

5,800

 

 

 

(541

)

 

 

5,259

 

Developed technology

 

 

15

 

 

 

3,000

 

 

 

(338

)

 

 

2,662

 

Distributor relationships

 

 

9

 

 

 

500

 

 

 

(130

)

 

 

370

 

Non-compete agreement

 

 

2

 

 

 

80

 

 

 

(80

)

 

 

 

Regulatory approvals

 

 

1

 

 

 

670

 

 

 

(670

)

 

 

 

Acquired FDA non-gel product approval

 

 

11

 

 

 

1,713

 

 

 

(1,713

)

 

 

 

Total definite-lived intangible assets

 

 

 

 

 

$

23,003

 

 

$

(6,958

)

 

$

16,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 2019 and 2018 was $0.6 million. The following table summarizes the estimated amortization expense relating to the Company's definite-lived intangible assets as of March 31, 2019 (in thousands):

 

 

 

Amortization

 

Period

 

Expense

 

Remainder of 2019

 

$

1,741

 

2020

 

 

2,209

 

2021

 

 

1,996

 

2022

 

 

1,762

 

2023

 

 

1,545

 

Thereafter

 

 

6,212

 

 

 

$

15,465

 

 

 

e.

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Payroll and related expenses

 

$

4,561

 

 

$

6,466

 

Accrued commissions

 

 

4,175

 

 

 

5,321

 

Accrued equipment

 

 

427

 

 

 

18

 

Deferred and contingent consideration, current portion

 

 

6,780

 

 

 

7,645

 

Audit, consulting and legal fees

 

 

2,267

 

 

 

703

 

Accrued sales and marketing expenses

 

 

2,157

 

 

 

1,374

 

Operating lease liabilities

 

 

4,707

 

 

 

 

Finance lease liabilities

 

 

42

 

 

 

 

Other

 

 

5,300

 

 

 

6,170

 

 

 

$

30,416

 

 

$

27,697

 

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases

9.

Leases

 

The Company leases certain office space, warehouses, distribution facilities and office equipment. The Company also has embedded leases of manufacturing facilities and equipment associated with the Company’s manufacturing contracts. 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 embedded leases of manufacturing facilities and equipment 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 as a single lease component. There may be variability in future lease payments as the amount of the non-lease components is based on the costs of manufacturing and is dependent on the amount and types of units produced. The Company reduces the operating lease liability when the inventory is purchased.

 

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 March 31,

 

Lease Cost

 

Classification

 

2019

 

Operating lease cost

 

Operating expenses

 

$

380

 

Operating lease cost

 

Inventory

 

 

1,248

 

Total operating lease cost

 

 

 

 

 

$

1,628

 

Finance lease cost

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

Operating expenses

 

 

9

 

Interest on lease liabilities

 

Other income (expense), net

 

 

1

 

Total finance lease cost

 

 

 

 

 

$

10

 

Variable lease cost

 

Inventory

 

 

2,373

 

Total lease cost

 

 

 

 

 

$

4,011

 

 

Short-term lease expense for the three months ended March 31, 2019 was not material.

 

Supplemental cash flow information related to operating and finance leases for the three months ended March 31, 2019 was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash outflows from operating leases

 

$

1,462

 

Operating cash outflows from finance leases

 

 

9

 

Right-of-use assets obtained in exchange for new lease obligations:

 

 

 

 

Operating leases

 

$

23,046

 

Finance leases

 

 

119

 

 

Supplemental balance sheet information, as of March 31, 2019, related to operating and finance leases was as follows (in thousands, except lease term and discount rate):

 

 

 

March 31,

 

 

 

2019

 

Reported as:

 

 

 

 

Other assets

 

 

 

 

Operating lease right-of-use assets

 

$

21,885

 

Finance lease right-of-use assets

 

 

111

 

Total right-of use assets

 

$

21,996

 

Accrued and other current liabilities