SIENTRA, INC., 10-Q filed on 11/9/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 02, 2020
Cover [Abstract]    
Entity Registrant Name SIENTRA, INC.  
Entity Central Index Key 0001551693  
Document Type 10-Q  
Document Period End Date Sep. 30, 2020  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   50,454,122
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Trading Symbol SIEN  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 001-36709  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-5551000  
Entity Address, Address Line One 420 South Fairview Avenue  
Entity Address, Address Line Two Suite 200  
Entity Address, City or Town Santa Barbara  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 93117  
City Area Code 805  
Local Phone Number 562-3500  
Document Quarterly Report true  
Document Transition Report false  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 63,483 $ 87,608
Accounts receivable, net of allowances of $4,893 and $3,835 at September 30, 2020 and December 31, 2019, respectively 23,637 27,548
Inventories, net 48,467 39,612
Prepaid expenses and other current assets 2,113 2,489
Total current assets 137,700 157,257
Property and equipment, net 12,742 12,314
Goodwill 9,202 9,202
Other intangible assets, net 9,719 17,390
Other assets 8,441 8,241
Total assets 177,804 204,404
Current liabilities:    
Current portion of long-term debt 928 6,508
Accounts payable 4,071 9,352
Accrued and other current liabilities 26,679 32,551
Customer deposits 15,490 13,943
Sales return liability 10,079 8,116
Total current liabilities 57,247 70,470
Long-term debt 63,330 38,248
Derivative liability 24,520  
Deferred and contingent consideration 5,342 5,177
Warranty reserve and other long-term liabilities 9,281 8,627
Total liabilities 159,720 122,522
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 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
Additional paid-in capital 555,465 550,562
Treasury stock, at cost (72,727 shares at September 30, 2020 and December 31, 2019) (260) (260)
Accumulated deficit (537,625) (468,915)
Total stockholders’ equity 18,084 81,882
Total liabilities and stockholders’ equity $ 177,804 $ 204,404
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Accounts receivable, allowances (in dollars) $ 4,893 $ 3,835
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 50,507,635 49,612,907
Common stock, shares outstanding 50,434,908 49,540,180
Treasury stock, shares 72,727 72,727
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Net sales $ 19,217,000 $ 22,412,000 $ 48,597,000 $ 60,489,000
Cost of goods sold 8,391,000 9,754,000 20,733,000 24,041,000
Gross profit 10,826,000 12,658,000 27,864,000 36,448,000
Operating expenses:        
Sales and marketing 12,872,000 18,668,000 37,614,000 60,987,000
Research and development 2,060,000 3,201,000 7,747,000 9,526,000
General and administrative 10,238,000 12,249,000 27,500,000 37,538,000
Restructuring (386,000)   1,849,000  
Impairment     6,432,000 12,674,000
Total operating expenses 24,784,000 34,118,000 81,142,000 120,725,000
Loss from operations (13,958,000) (21,460,000) (53,278,000) (84,277,000)
Other income (expense), net:        
Interest income 5,000 510,000 203,000 1,083,000
Interest expense (2,059,000) (1,344,000) (7,289,000) (3,276,000)
Change in fair value of derivative liability 10,090,000   (8,420,000)  
Other income (expense), net 101,000 (139,000) 74,000 (101,000)
Total other income (expense), net 8,137,000 (973,000) (15,432,000) (2,294,000)
Loss before income taxes (5,821,000) (22,433,000) (68,710,000) (86,571,000)
Income tax 0 0 0 0
Net loss $ (5,821,000) $ (22,433,000) $ (68,710,000) $ (86,571,000)
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
v3.20.2
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, 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    
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    
Net loss (86,571)        
Balance, end of year at Sep. 30, 2019 96,267 $ 495 $ (260) 544,700 (448,668)
Balance, end of year (in shares) at Sep. 30, 2019   49,534,414 72,727    
Balance, beginning of year at Mar. 31, 2019 42,230 $ 292 $ (260) 430,779 (388,581)
Balance, beginning of year (in shares) at Mar. 31, 2019   29,274,377 72,727    
Issuance of/proceeds from common stock 107,734 $ 200   107,534  
Issuance of/proceeds from common stock (in shares)   20,000,000      
Stock-based compensation 2,963     2,963  
Vested restricted stock   $ 1   (1)  
Vested restricted stock (in shares)   88,454      
Shares withheld for tax obligations on vested RSUs (100)     (100)  
Shares withheld for tax obligations on vested RSUs, shares   (12,565)      
Net loss (37,654)       (37,654)
Balance, end of year at Jun. 30, 2019 115,173 $ 493 $ (260) 541,175 (426,235)
Balance, end of year (in shares) at Jun. 30, 2019   49,350,266 72,727    
Stock-based compensation 3,115     3,115  
Stock option exercises 9     9  
Stock option exercises (in shares)   3,271      
Employee stock purchase program (ESPP) 534 $ 1   533  
Employee stock purchase program (ESPP) (in shares)   106,725      
Vested restricted stock   $ 1   (1)  
Vested restricted stock (in shares)   92,676      
Shares withheld for tax obligations on vested RSUs (131)     (131)  
Shares withheld for tax obligations on vested RSUs, shares   (18,524)      
Net loss (22,433)       (22,433)
Balance, end of year at Sep. 30, 2019 96,267 $ 495 $ (260) 544,700 (448,668)
Balance, end of year (in shares) at Sep. 30, 2019   49,534,414 72,727    
Balance, beginning of year at Dec. 31, 2019 81,882 $ 495 $ (260) 550,562 (468,915)
Balance, beginning of year (in shares) at Dec. 31, 2019   49,612,907 72,727    
Issuance of/proceeds from common stock 264 $ 1   263  
Issuance of/proceeds from common stock (in shares)   37,000      
Stock-based compensation 2,000     2,000  
Employee stock purchase program (ESPP) (in shares)   113,615      
Vested restricted stock   $ 5   (5)  
Vested restricted stock (in shares)   472,914      
Shares withheld for tax obligations on vested RSUs (1,201) $ (2)   (1,199)  
Shares withheld for tax obligations on vested RSUs, shares   (157,412)      
Net loss (28,612)       (28,612)
Balance, end of year at Mar. 31, 2020 54,867 $ 500 $ (260) 552,154 (497,527)
Balance, end of year (in shares) at Mar. 31, 2020   50,079,024 72,727    
Employee stock purchase program (ESPP) 534 $ 1   533  
Balance, beginning of year at Dec. 31, 2019 81,882 $ 495 $ (260) 550,562 (468,915)
Balance, beginning of year (in shares) at Dec. 31, 2019   49,612,907 72,727    
Net loss (68,710)        
Balance, end of year at Sep. 30, 2020 18,084 $ 504 $ (260) 555,465 (537,625)
Balance, end of year (in shares) at Sep. 30, 2020   50,507,635 72,727    
Balance, beginning of year at Mar. 31, 2020 54,867 $ 500 $ (260) 552,154 (497,527)
Balance, beginning of year (in shares) at Mar. 31, 2020   50,079,024 72,727    
Stock-based compensation 1,718     1,718  
Stock option exercises 13     13  
Stock option exercises (in shares)   5,454      
Employee stock purchase program (ESPP) (5)     (5)  
Employee stock purchase program (ESPP) (in shares)   (1,012)      
Vested restricted stock   $ 4   (4)  
Vested restricted stock (in shares)   363,795      
Shares withheld for tax obligations on vested RSUs (227) $ (1)   (226)  
Shares withheld for tax obligations on vested RSUs, shares   (91,529)      
Net loss (34,277)       (34,277)
Balance, end of year at Jun. 30, 2020 22,089 $ 503 $ (260) 553,650 (531,804)
Balance, end of year (in shares) at Jun. 30, 2020   50,355,732 72,727    
Stock-based compensation 1,574     1,574  
Stock option exercises 3     3  
Stock option exercises (in shares)   727      
Employee stock purchase program (ESPP) 307 $ 1   306  
Employee stock purchase program (ESPP) (in shares)   91,125      
Vested restricted stock   $ 1   (1)  
Vested restricted stock (in shares)   85,255      
Shares withheld for tax obligations on vested RSUs (68) $ (1)   (67)  
Shares withheld for tax obligations on vested RSUs, shares   (25,204)      
Net loss (5,821)       (5,821)
Balance, end of year at Sep. 30, 2020 $ 18,084 $ 504 $ (260) $ 555,465 $ (537,625)
Balance, end of year (in shares) at Sep. 30, 2020   50,507,635 72,727    
v3.20.2
Condensed Consolidated Statements of Cash Flows
$ in Thousands
9 Months Ended
Sep. 30, 2020
USD ($)
Sep. 30, 2019
USD ($)
Cash flows from operating activities:    
Net loss $ (68,710) $ (86,571)
Adjustments to reconcile net loss to net cash used in operating activities    
Impairment 6,432 12,674
Depreciation and amortization 2,996 2,538
Provision for doubtful accounts 4,665 1,804
Provision for warranties 711 843
Provision for inventory 1,774 2,209
Fair value adjustments to derivative liability 8,420  
Fair value adjustments of other liabilities held at fair value 29 480
Amortization of debt discount and issuance costs 3,430 223
Stock-based compensation expense 5,465 9,681
Payments of contingent consideration liability in excess of acquisition-date fair value   (1,968)
Other non-cash adjustments 198 181
Changes in operating assets and liabilities:    
Accounts receivable (720) (4,068)
Inventories (10,801) (8,329)
Prepaid expenses, other current assets and other assets 537 2,735
Accounts payable, accrueds, and other liabilities (10,642) (8,790)
Customer deposits 1,547 1,750
Sales return liability 1,930 1,515
Legal settlement payable   (410)
Net cash used in operating activities (52,739) (73,503)
Cash flows from investing activities:    
Purchase of property and equipment (3,192) (3,180)
Net cash used in investing activities (3,192) (3,180)
Cash flows from financing activities:    
Proceeds from option exercises and employee stock purchase plan 852 1,332
Net proceeds from issuance of common stock 264 107,734
Tax payments related to shares withheld for vested restricted stock units (RSUs) (1,496) (2,956)
Repayments under the Term Loan (25,000)  
Repayment of the Revolving Loan (6,508) (8,436)
Net proceeds from issuance of the Convertible Note 60,000  
Payments of contingent consideration up to acquisition-date fair value   (5,766)
Deferred financing costs (2,958) (1,997)
Net cash provided by financing activities 31,806 110,699
Net increase (decrease) in cash, cash equivalents and restricted cash (24,125) 34,016
Cash, cash equivalents and restricted cash at:    
Beginning of period 87,951 87,242
End of period 63,826 121,258
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets    
Cash and cash equivalents 63,483 120,915
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 $ 63,826 $ 121,258
Supplemental disclosure of cash flow information:    
Interest paid 3,781 3,015
Supplemental disclosure of non-cash investing and financing activities:    
Property and equipment in accounts payable and accrued liabilities 114 1,113
Term Loan    
Cash flows from financing activities:    
Gross borrowings   5,000
Revolving Loan    
Cash flows from financing activities:    
Gross borrowings   $ 15,788
Paycheck Protection Program    
Cash flows from financing activities:    
Gross borrowings $ 6,652  
v3.20.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

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, 2019 filed with the SEC on March 16, 2020, or the Annual Report. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, 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. Although the Company expects its operating expenses will begin to decrease with the implementation of the organizational efficiency initiative announced on November 7, 2019, 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. 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.

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.

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 is permitted. The Company is currently evaluating the impact that adoption of the standard will have on the consolidated financial statements.

 

 

e.

Risks and Uncertainties

 

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 Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact 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. 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.

 

 

f.

Reclassifications

 

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

v3.20.2
Restructuring
9 Months Ended
Sep. 30, 2020
Restructuring And Related Activities [Abstract]  
Restructuring

2.

Restructuring

 

On November 7, 2019, the Company announced an organizational efficiency initiative, or the Plan, designed to reduce spending and simplify operations. Under the Plan, the Company is 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 the Company’s Santa Barbara headquarters.

 

Under the Plan, the Company intends to reduce its workforce by terminating approximately 70 employees. The Company expects to incur total charges of approximately $2.5 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 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

 

$

366

 

 

$

 

 

$

 

 

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

 

 

The Company anticipates incurring approximately $0.1 million of additional restructuring costs during the remainder of 2020 attributable to the miraDry segment. As the development of the Plan is completed, the Company will update its costs by reportable segment as needed.

v3.20.2
Revenue
9 Months Ended
Sep. 30, 2020
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 may be promised but are ancillary and insignificant in the context of the contract as a whole. 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 term of the agreements, and revenue related to marketing program deliverables are recognized upon delivery of the marketing product or performance of the service.

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

 

 

v3.20.2
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2020
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, contingent consideration, and the convertible feature related to the convertible note are discussed in Note 5. The fair value of 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, the carrying value of the long-term debt and convertible note was not materially different from the fair value.

v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
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.

Common Stock 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, the fair value of the warrants was immaterial as a result of the decline in the Company’s stock price.

Contingent Consideration

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%. The contingent consideration for future milestone payments related to the acquisition of miraDry is 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 ended September 30, 2020, the total change in the fair value of contingent consideration was $0.1 million and no settlements were recorded.

Convertible note conversion feature

The Company assesses on a quarterly basis the fair value of the conversion feature related to the convertible note due in 2025. The conversion feature was bifurcated and recorded as a derivative liability on the condensed consolidated balance sheet with a corresponding discount at the date of issuance that is netted against the principal amount of the note. The Company utilizes a binomial lattice method to determine the fair value of the conversion feature, which utilizes 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 is classified as Level 3. During the three months ended September 30, 2020, the change in the fair value of the derivative liability was a decrease of $10.1 million. During the nine months ended September 30, 2020, the change in the fair value of the derivative liability was an increase of $8.4 million. No settlements were recorded.

The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 and indicate the level of the fair value hierarchy utilized to determine such fair value (in thousands):

 

 

 

Fair Value Measurements as of

 

 

 

September 30, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for contingent consideration

 

$

 

 

 

 

 

 

6,959

 

 

 

6,959

 

Liability for convertible note conversion feature

 

 

 

 

 

 

 

 

24,520

 

 

 

24,520

 

 

 

$

 

 

 

 

 

 

31,479

 

 

 

31,479

 

 

 

 

Fair Value Measurements as of

 

 

 

December 31, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

 

 

38

 

 

 

38

 

Liability for contingent consideration

 

 

 

 

 

 

 

 

6,891

 

 

 

6,891

 

 

 

$

 

 

 

 

 

 

6,929

 

 

 

6,929

 

 

The liability for the current portion of contingent consideration is included in “accrued and other current liabilities” and the long-term portion is included in “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.

The Company recognizes changes in the fair value of the derivative liability in “change in fair value of derivative liability” in the condensed consolidated statement of operations and changes in the contingent consideration are recognized in “general and administrative” expense in the condensed consolidated statement of operations.

 

v3.20.2
Product Warranties
9 Months Ended
Sep. 30, 2020
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 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

 

 

 

v3.20.2
Net Loss Per Share
9 Months Ended
Sep. 30, 2020
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 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.

v3.20.2
Balance Sheet Components
9 Months Ended
Sep. 30, 2020
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

8.

Balance Sheet Components

 

a.

Inventories

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

 

 

 

b.

Property and Equipment

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.

 

 

c.

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 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 customers and 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

 

 

$