SIENTRA, INC., 10-Q filed on 5/11/2021
Quarterly Report
v3.21.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2021
May 03, 2021
Cover [Abstract]    
Entity Registrant Name SIENTRA, INC.  
Entity Central Index Key 0001551693  
Document Type 10-Q  
Document Period End Date Mar. 31, 2021  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   57,520,682
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Trading Symbol SIEN  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 001-36709  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-5551000  
Entity Address, Address Line One 420 South Fairview Avenue  
Entity Address, Address Line Two Suite 200  
Entity Address, City or Town Santa Barbara  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 93117  
City Area Code 805  
Local Phone Number 562-3500  
Document Quarterly Report true  
Document Transition Report false  
v3.21.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 80,372 $ 54,967
Accounts receivable, net of allowances of $3,658 and $4,464 at March 31, 2021 and December 31, 2020, respectively 25,438 23,503
Inventories, net 50,556 48,648
Prepaid expenses and other current assets 2,803 2,154
Total current assets 159,169 129,272
Property and equipment, net 13,388 13,106
Goodwill 9,202 9,202
Other intangible assets, net 9,081 9,387
Other assets 7,573 8,011
Total assets 198,413 168,978
Current liabilities:    
Current portion of long-term debt 5,820 4,670
Accounts payable 3,845 6,504
Accrued and other current liabilities 26,935 32,389
Customer deposits 21,956 17,905
Sales return liability 11,020 9,192
Total current liabilities 69,576 70,660
Long-term debt 60,540 60,500
Derivative liability 69,310 26,570
Deferred and contingent consideration 2,467 2,350
Warranty reserve and other long-term liabilities 9,461 9,455
Total liabilities 211,354 169,535
Commitments and contingencies (Note 11)
Stockholders’ equity (deficit):    
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 57,515,085 and 50,712,151 and outstanding 57,442,358 and 50,639,424 shares at March 31, 2021 and December 31, 2020, respectively 574 506
Additional paid-in capital 600,297 558,059
Treasury stock, at cost (72,727 shares at March 31, 2021 and December 31, 2020) (260) (260)
Accumulated deficit (613,552) (558,862)
Total stockholders’ equity (deficit) (12,941) (557)
Total liabilities and stockholders’ equity $ 198,413 $ 168,978
v3.21.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Accounts receivable, allowances (in dollars) $ 3,658 $ 4,464
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 57,515,085 50,712,151
Common stock, shares outstanding 57,442,358 50,639,424
Treasury stock, shares 72,727 72,727
v3.21.1
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Income Statement [Abstract]    
Net sales $ 23,236,000 $ 16,932,000
Cost of goods sold 10,935,000 6,792,000
Gross profit 12,301,000 10,140,000
Operating expenses:    
Sales and marketing 12,375,000 16,763,000
Research and development 2,392,000 2,908,000
General and administrative 7,354,000 9,304,000
Restructuring   1,739,000
Impairment   6,432,000
Total operating expenses 22,121,000 37,146,000
Loss from operations (9,820,000) (27,006,000)
Other income (expense), net:    
Interest income 2,000 180,000
Interest expense (2,004,000) (1,623,000)
Change in fair value of derivative liability (42,740,000) (130,000)
Other income (expense), net (128,000) (33,000)
Total other income (expense), net (44,870,000) (1,606,000)
Loss before income taxes (54,690,000) (28,612,000)
Income tax 0 0
Net loss $ (54,690,000) $ (28,612,000)
Basic and diluted net loss per share attributable to common stockholders $ (1.01) $ (0.57)
Weighted average outstanding common shares used for net loss per share attributable to common stockholders:    
Basic and diluted 54,321,146 49,916,412
v3.21.1
Condensed Consolidated Statement of Stockholders' Equity (Deficit) - USD ($)
$ in Thousands
Total
Follow-on Offering
ATM
Common stock
Common stock
Follow-on Offering
Common stock
ATM
Treasury stock
Additional paid-in capital
Additional paid-in capital
Follow-on Offering
Additional paid-in capital
ATM
Accumulated deficit
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) 534     $ 1       533      
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        
Balance, beginning of year at Dec. 31, 2020 (557)     $ 506     $ (260) 558,059     (558,862)
Balance, beginning of year (in shares) at Dec. 31, 2020       50,712,151     72,727        
Issuance of/proceeds from common stock   $ 39,226     $ 62       $ 39,164    
Issuance of/proceeds from common stock (in shares)         6,222,222            
Stock-based compensation 3,163             3,163      
Stock option exercises 51             51      
Stock option exercises (in shares)       12,727              
Employee stock purchase program (ESPP) 323     $ 1       322      
Employee stock purchase program (ESPP) (in shares)       95,919              
Vested restricted stock 758     $ 6       752      
Vested restricted stock (in shares)       554,896              
Shares withheld for tax obligations on vested RSUs (1,215)     $ (1)       (1,214)      
Shares withheld for tax obligations on vested RSUs, shares       (82,830)              
Net loss (54,690)                   (54,690)
Balance, end of year at Mar. 31, 2021 $ (12,941)     $ 574     $ (260) $ 600,297     $ (613,552)
Balance, end of year (in shares) at Mar. 31, 2021       57,515,085     72,727        
v3.21.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Cash flows from operating activities:    
Net loss $ (54,690) $ (28,612)
Adjustments to reconcile net loss to net cash used in operating activities    
Impairment   6,432
Depreciation and amortization 1,384 1,228
Provision for doubtful accounts (386) 357
Provision for warranties 332 236
Provision for inventory 26 1,081
Fair value adjustments to derivative liability 42,740 130
Fair value adjustments of other liabilities held at fair value 17 (39)
Amortization of debt discount and issuance costs 848 290
Stock-based compensation expense 3,163 2,133
Other non-cash adjustments 213 107
Changes in operating assets and liabilities:    
Accounts receivable (1,544) 1,766
Inventories (1,933) (3,720)
Prepaid expenses, other current assets and other assets (268) (587)
Accounts payable, accrueds, and other liabilities (8,443) (9,867)
Customer deposits 4,051 1,284
Sales return liability 1,823 592
Net cash used in operating activities (12,667) (27,189)
Cash flows from investing activities:    
Purchase of property and equipment (1,321) (1,206)
Net cash used in investing activities (1,321) (1,206)
Cash flows from financing activities:    
Proceeds from issuance of common stock for employee stock-based plans 1,132 534
Net proceeds from issuance of common stock 39,226 264
Tax payments related to shares withheld for vested restricted stock units (RSUs) (1,215) (1,201)
Gross borrowings under the Term Loan 1,000  
Repayment of the Revolving Loan   (6,508)
Net proceeds from issuance of the Convertible Note   60,000
Deferred financing costs (750) (240)
Net cash provided by financing activities 39,393 52,849
Net increase in cash, cash equivalents and restricted cash 25,405 24,454
Cash, cash equivalents and restricted cash at:    
Beginning of period 55,310 87,951
End of period 80,715 112,405
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets    
Cash and cash equivalents 80,372 112,062
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 $ 80,715 $ 112,405
Supplemental disclosure of cash flow information:    
Interest paid 1,058 1,067
Supplemental disclosure of non-cash investing and financing activities:    
Property and equipment in accounts payable and accrued liabilities 400 222
Deferred follow-on offering costs in accounts payable and accrued liabilities 122  
Deferred financing costs in accounts payable and accrued liabilities $ 50 $ 1,275
v3.21.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2021
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, 2020 filed with the SEC on March 11, 2021, or the Annual Report. The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, 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 decrease following the completion of the organizational efficiency initiative in 2020 and the sale of the miraDry business but will need to generate significant net sales to achieve profitability. To date, the Company has funded operations primarily with proceeds from the sales of preferred stock, borrowings under term loans and the convertible note, sales of products since 2012, and the proceeds from the sale of common stock in public offerings. To fund ongoing operating and capital needs, the Company may need to raise additional capital in the future through the sale of equity securities and incremental debt financing.

Debt financing – recent developments

On February 5, 2021, the Company entered into a Second Amended and Restated Credit and Security Agreement (Term Loan), by and among the Company, certain of the Company’s wholly-owned subsidiaries (together with Sientra, the “Borrowers”), the lenders party thereto from time to time and MidCap Financial Trust, as administrative agent and collateral agent (“Agent”) (the “Restated Term Loan Agreement”). The Restated Term Loan Agreement amends and restates the Company’s existing Amended and Restated Credit and Security Agreement (Term Loan), dated as of July 1, 2019.

Also on February 5, 2021, the Company entered in to a Third Amendment to Amended and Restated Credit and Security Agreement (Revolving Loan), by and among the Borrowers, the lenders party thereto from time to time, and the Agent (the “Revolving Loan Amendment”). The Revolving Loan Amendment modified the Net Revenue (as defined therein) requirement in a manner consistent with the modification under the Restated Term Loan Agreement. In addition, the Revolving Loan Amendment made other conforming changes to the Restated Term Loan Agreement.

See Note 6 to the condensed consolidated financial statements for a full description of all of the Company’s long-term debt, revolving line of credit, convertible note, and PPP loan.

Equity financing – recent developments

On February 8, 2021, the Company completed a follow-on public offering of 5,410,628 shares of common stock at $6.75 per share, as well as 811,594 additional shares of common stock pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds were approximately $39.2 million after deducting underwriting discounts and commissions of approximately $2.5 million and offering expenses of approximately $0.3 million.

As of March 31, 2021, the Company had cash and cash equivalents of $80.4 million. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company believes that its cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months.

 

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 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 was permitted. The Company adopted the applicable amendments within ASU 2019-12 in the first quarter of 2021 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.

 

 

 

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 breast and miraDry 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 since the second quarter of 2020 and continued to harm the Company’s revenues during the three months ended March 31, 2021. While some states have lifted certain restrictions on non-emergency procedures, the Company will likely continue to experience future harm to its revenues while existing or new restrictions remain in place. It is not possible to accurately predict the length or severity of the COVID-19 pandemic or the timing for a broad and sustained ability to perform non-emergency procedures involving the Company’s products.

 

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.

v3.21.1
Revenue
3 Months Ended
Mar. 31, 2021
Revenue From Contract With Customer [Abstract]  
Revenue

2.

Revenue

The Company generates revenue primarily through the sale and delivery of promised goods or services to customers. Sales prices are documented in the executed sales contract, purchase order or order acknowledgement prior to the transfer of control to the customer. Typical payment terms are 30 days 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.

Revenue contracts may include multiple products or services, each of which is considered a separate performance obligation. Performance obligations typically include the delivery of promised products, such as breast implants, tissue expanders, BIOCORNEUM, miraDry Systems and bioTips, along with service-type warranties. Other

deliverables are sometimes promised but are ancillary and insignificant in the context of the contract as a whole. Revenue is allocated to each performance obligation based on its relative standalone selling price. The Company determines standalone selling prices based on observable prices for all performance obligations with the exception of the service-type warranty under the Platinum20 Limited Warranty Program, or Platinum20.

The liability for unsatisfied performance obligations under the service warranty as of March 31, 2021 were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

Balance as of December 31, 2020

 

$

2,618

 

Additions and adjustments

 

 

427

 

Revenue recognized

 

 

(373

)

Balance as of March 31, 2021

 

$

2,672

 

 

Revenue for service warranties are recognized ratably over the term of the agreements. Specifically for Platinum20, the performance obligation is satisfied at the time that the benefits are provided and are expected to be satisfied over the following 3 to 24 month period for financial assistance and 20 years for product replacement.

 

For delivery of promised products, control transfers and revenue is recognized upon shipment, unless the contractual arrangement requires transfer of control when products reach their destination, for which revenue is recognized once the product arrives at its destination. 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.

Sales Return Liability

 

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. A sales return liability is established based on estimated returns using relevant historical experience taking into consideration recent gross sales and notifications of pending returns, as adjusted for changes in recent industry events and trends. The estimated sales returns are recorded as a reduction of revenue and as a sales return liability in the same period revenue is recognized. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or subsequent period would be recorded. The following table provides a rollforward of the sales return liability (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Beginning balance

 

$

9,192

 

 

$

8,116

 

Addition to reserve for sales activity

 

 

36,386

 

 

 

28,538

 

Actual returns

 

 

(33,700

)

 

 

(28,074

)

Change in estimate of sales returns

 

 

(858

)

 

 

127

 

Ending balance

 

$

11,020

 

 

$

8,707

 

 

 

v3.21.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2021
Financial Instruments Owned At Fair Value [Abstract]  
Fair Value of Financial Instruments

3.

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 4. The fair value of the debt is based on the amount of future cash flows associated with the instrument discounted using the Company’s market rate. As of March 31, 2021, the carrying value of the long-term debt was not materially different from the fair value. As of March 31, 2021, the carrying value and fair value of the convertible note were as follows (in thousands):

 

 

 

March 31, 2021

 

 

 

Carrying Value

 

 

Fair Value

 

Convertible note

 

$

45,131

 

 

$

39,080

 

 

v3.21.1
Balance Sheet Components
3 Months Ended
Mar. 31, 2021
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

4.

Balance Sheet Components

 

a.

Inventories

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Raw materials

 

$

5,985

 

 

$

7,138

 

Work in progress

 

 

8,454

 

 

 

12,303

 

Finished goods

 

 

32,184

 

 

 

25,791

 

Finished goods - right of return

 

 

3,933

 

 

 

3,416

 

 

 

$

50,556

 

 

$

48,648

 

 

 

b.

Property and Equipment

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Leasehold improvements

 

$

2,909

 

 

$

2,857

 

Manufacturing equipment and toolings

 

 

9,598

 

 

 

9,289

 

Computer equipment

 

 

3,013

 

 

 

2,776

 

Software

 

 

4,206

 

 

 

3,546

 

Office equipment

 

 

167

 

 

 

167

 

Furniture and fixtures

 

 

1,243

 

 

 

1,193

 

 

 

 

21,136

 

 

 

19,828

 

Less accumulated depreciation

 

 

(7,748

)

 

 

(6,722

)

 

 

$

13,388

 

 

$

13,106

 

 

Depreciation expense for the three months ended March 31, 2021 and 2020 was $1.1 million and $0.7 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 three months ended March 31, 2021 and the year ended December 31, 2020 were as follows (in thousands):

 

 

 

Breast Products

 

 

miraDry

 

 

Total

 

Balances as of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

23,480

 

 

 

7,629

 

 

 

31,109

 

Accumulated impairment losses

 

 

(14,278

)

 

 

(7,629

)

 

 

(21,907

)

Goodwill, net

 

$

9,202

 

 

$

 

 

$

9,202

 

Balances as of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

23,480

 

 

 

7,629

 

 

 

31,109

 

Accumulated impairment losses

 

 

(14,278

)

 

 

(7,629

)

 

 

(21,907

)

Goodwill, net

 

$

9,202

 

 

$

 

 

$

9,202

 

 

As of March 31, 2021, the Breast Products 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, 2021

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

10

 

 

$

4,940

 

 

$

(3,948

)

 

$

992

 

Trade names - finite life

 

 

12

 

 

 

800

 

 

 

(339

)

 

 

461

 

Non-compete agreement

 

 

2

 

 

 

80

 

 

 

(80

)

 

 

 

Regulatory approvals

 

 

1

 

 

 

670

 

 

 

(670

)

 

 

 

Acquired FDA non-gel product approval

 

 

11

 

 

 

1,713

 

 

 

(1,713

)

 

 

 

Manufacturing know-how

 

 

19

 

 

 

8,240

 

 

 

(1,062

)

 

 

7,178

 

Total definite-lived intangible assets

 

 

 

 

 

$

16,443

 

 

$

(7,812

)

 

$

8,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles with indefinite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names - indefinite life

 

 

 

 

450

 

 

 

 

 

 

450

 

Total indefinite-lived intangible assets

 

 

 

 

 

$

450

 

 

$

 

 

$

450

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

 

December 31, 2020

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

10

 

 

$

4,940

 

 

$

(3,856

)

 

$

1,084

 

Trade names - finite life

 

 

12

 

 

 

800

 

 

 

(322

)

 

 

478

 

Non-compete agreement

 

 

2

 

 

 

80

 

 

 

(80

)

 

 

 

Regulatory approvals

 

 

1

 

 

 

670

 

 

 

(670

)

 

 

 

Acquired FDA non-gel product approval

 

 

11

 

 

 

1,713

 

 

 

(1,713

)

 

 

 

Manufacturing know-how

 

 

19

 

 

 

8,240

 

 

 

(865

)

 

 

7,375

 

Total definite-lived intangible assets

 

 

 

 

 

$

16,443

 

 

$

(7,506

)

 

$

8,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles with indefinite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names - indefinite life

 

 

 

 

450

 

 

 

 

 

 

450

 

Total indefinite-lived intangible assets

 

 

 

 

 

$

450

 

 

$

 

 

$

450

 

 

 

Amortization expense for the three months ended March 31, 2021 and 2020 was $0.3 million and $0.6 million, respectively. The following table summarizes the estimated amortization expense relating to the Company's definite-lived intangible assets as of March 31, 2021 (in thousands):

 

 

 

Amortization

 

Period

 

Expense

 

2021

 

$

916

 

2022

 

 

1,163

 

2023

 

 

1,092

 

2024

 

 

948

 

2025

 

 

805

 

Thereafter

 

 

3,707

 

 

 

$

8,631

 

 

 

d.

Accrued and Other Current Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Payroll and related expenses

 

$

3,445

 

 

$

3,524

 

Accrued severance

 

 

389

 

 

 

2,900

 

Accrued commissions

 

 

3,924

 

 

 

5,561

 

Accrued manufacturing

 

 

278

 

 

 

225

 

Deferred and contingent consideration, current portion

 

 

10,163

 

 

 

10,146

 

Audit, consulting and legal fees

 

 

81

 

 

 

48

 

Accrued sales and marketing expenses

 

 

519

 

 

 

445

 

Lease liabilities

 

 

1,565

 

 

 

1,588

 

Other

 

 

6,571

 

 

 

7,952

 

 

 

$

26,935

 

 

$

32,389

 

 

 

e.

Accrued warranties

The following table provides a rollforward of the accrued assurance-type warranties (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Balance as of January 1

 

$

2,001

 

 

$

1,562

 

Warranty costs incurred during the period

 

 

(175

)

 

 

(185

)

Changes in accrual related to warranties issued during the period

 

 

326

 

 

 

242

 

Changes in accrual related to pre-existing warranties

 

 

6

 

 

 

(6

)

Balance as of March 31

 

$

2,158

 

 

$

1,613

 

 

As of March 31, 2021, $2.1 million is included in “Warranty reserve and other long-term liabilities”, and $0.1 million is included in “Accrued and other current liabilities”. As of  March 31, 2020, $1.5 million is included in “Warranty reserve and other long-term liabilities”, and $0.1 million is included in “Accrued and other current liabilities”.

 

 

f.

Liabilities measured at fair value

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

Common stock 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 several significant inputs are not observable, the overall fair value measurement of the warrants is classified as Level 3.

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 21.0%. 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.

Derivative liability

The Company assesses on a quarterly basis the fair value of the derivative liability associated with the conversion feature in the convertible note due in 2025. The conversion feature was bifurcated and recorded as a derivative liability on the condensed consolidated balance sheets 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.

The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 and indicate the level of the fair value hierarchy utilized to determine such fair value (in thousands):

 

 

 

Fair Value Measurements as of

 

 

 

March 31, 2021 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

$

 

 

$

 

 

$

 

Liability for contingent consideration

 

 

 

 

 

 

 

 

7,044

 

 

 

7,044

 

Liability for derivative

 

 

 

 

 

 

 

 

69,310

 

 

 

69,310

 

 

 

$

 

 

$

 

 

$

76,354

 

 

$

76,354

 

 

 

 

Fair Value Measurements as of

 

 

 

December 31, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

$

 

 

$

 

 

$

 

Liability for contingent consideration

 

 

 

 

 

 

 

 

7,026

 

 

 

7,026

 

Liability for derivative

 

 

 

 

 

 

 

 

26,570

 

 

 

26,570

 

 

 

$

 

 

$

 

 

$

33,596

 

 

$

33,596

 

 

The following table provides a rollforward of the aggregate fair values of the Company’s liabilities for which fair value is determined by Level 3 inputs (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

 

Derivative liability

 

Balance, December 31, 2020

 

$

7,026

 

 

$

26,570

 

Change in fair value

 

 

18

 

 

 

42,740

 

Balance, March 31, 2021

 

$

7,044

 

 

$

69,310

 

 

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 sheets. The liability for the conversion feature related to the convertible note is included in “Derivative liability” in the condensed consolidated balance sheets.

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.

v3.21.1
Leases
3 Months Ended
Mar. 31, 2021
Leases [Abstract]  
Leases

5.

Leases

 

Components of lease expense were as follows:

 

 

 

 

 

Three Months Ended March 31,

 

Lease Cost

 

Classification

 

2021

 

 

2020

 

Operating lease cost

 

Operating expenses

 

$

428

 

 

$

413

 

Operating lease cost

 

Inventory