SIENTRA, INC., 10-Q filed on 8/10/2021
Quarterly Report
v3.21.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2021
Aug. 02, 2021
Cover [Abstract]    
Entity Registrant Name SIENTRA, INC.  
Entity Central Index Key 0001551693  
Document Type 10-Q  
Document Period End Date Jun. 30, 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   57,997,006
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q2  
Trading Symbol SIEN  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 001-36709  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-5551000  
Entity Address, Address Line One 420 South Fairview Avenue  
Entity Address, Address Line Two Suite 200  
Entity Address, City or Town Santa Barbara  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 93117  
City Area Code 805  
Local Phone Number 562-3500  
Document Quarterly Report true  
Document Transition Report false  
v3.21.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 82,417 $ 54,967
Accounts receivable, net of allowances of $1,591 and $1,047 at June 30, 2021 and December 31, 2020, respectively 21,319 19,771
Inventories, net 45,306 39,168
Prepaid expenses and other current assets 2,492 1,891
Current assets of discontinued operations 4 13,475
Total current assets 151,538 129,272
Property and equipment, net 13,846 12,301
Goodwill 9,202 9,202
Other intangible assets, net 8,776 9,387
Other assets 7,170 8,011
Non-current assets of discontinued operations   805
Total assets 190,532 168,978
Current liabilities:    
Current portion of long-term debt 6,652 4,670
Accounts payable 6,369 5,799
Accrued and other current liabilities 19,621 28,408
Customer deposits 27,737 17,905
Sales return liability 10,572 9,192
Current liabilities of discontinued operations 1,134 4,686
Total current liabilities 72,085 70,660
Long-term debt 60,577 60,500
Derivative liability 76,580 26,570
Deferred and contingent consideration 2,662 2,350
Warranty reserve and other long-term liabilities 9,504 9,455
Total liabilities 221,408 169,535
Commitments and contingencies (Note 12)
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 57,929,094 and 50,712,151 and outstanding 57,856,367 and 50,639,424 shares at June 30, 2021 and December 31, 2020, respectively 579 506
Additional paid-in capital 602,491 558,059
Treasury stock, at cost (72,727 shares at June 30, 2021 and December 31, 2020) (260) (260)
Accumulated deficit (633,686) (558,862)
Total stockholders’ equity (deficit) (30,876) (557)
Total liabilities and stockholders’ equity (deficit) $ 190,532 $ 168,978
v3.21.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Accounts receivable, allowances (in dollars) $ 1,591 $ 1,047
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 57,929,094 50,712,151
Common stock, shares outstanding 57,856,367 50,639,424
Treasury stock, shares 72,727 72,727
v3.21.2
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Income Statement [Abstract]        
Net sales $ 20,103,000 $ 9,309,000 $ 38,415,000 $ 21,780,000
Cost of goods sold 8,838,000 4,047,000 16,997,000 8,782,000
Gross profit 11,265,000 5,262,000 21,418,000 12,998,000
Operating expenses:        
Sales and marketing 10,477,000 5,443,000 22,296,000 14,889,000
Research and development 2,400,000 2,113,000 4,595,000 4,364,000
General and administrative 7,545,000 6,941,000 15,456,000 14,738,000
Restructuring   3,000   831,000
Total operating expenses 20,422,000 14,500,000 42,347,000 34,822,000
Loss from operations (9,157,000) (9,238,000) (20,929,000) (21,824,000)
Other income (expense), net:        
Interest income 1,000 17,000 3,000 197,000
Interest expense (2,113,000) (3,606,000) (4,117,000) (5,229,000)
Change in fair value of derivative liability (7,270,000) (18,380,000) (50,010,000) (18,510,000)
Other income (expense), net   (1,000) (97,000) 36,000
Total other income (expense), net (9,382,000) (21,970,000) (54,221,000) (23,506,000)
Loss from continuing operations before income taxes (18,539,000) (31,208,000) (75,150,000) (45,330,000)
Income tax expense (benefit) 0 0 0 0
Loss from continuing operations (18,539,000) (31,208,000) (75,150,000) (45,330,000)
Income (loss) from discontinued operations, net of income taxes (1,595,000) (3,069,000) 326,000 (17,559,000)
Net loss $ (20,134,000) $ (34,277,000) $ (74,824,000) $ (62,889,000)
Basic and diluted net loss per share attributable to common stockholders        
Continuing operations $ (0.32) $ (0.62) $ (1.34) $ (0.91)
Discontinued operations (0.03) (0.06) 0.01 (0.35)
Basic and diluted net loss per share $ (0.35) $ (0.68) $ (1.34) $ (1.26)
Weighted average outstanding common shares used for net loss per share attributable to common stockholders:        
Basic and diluted 57,647,883 50,145,538 56,003,274 50,031,105
v3.21.2
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, 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 (62,889)                    
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        
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        
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        
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        
Net loss (74,824)                    
Balance, end of year at Jun. 30, 2021 (30,876)     $ 579     $ (260) 602,491     (633,686)
Balance, end of year (in shares) at Jun. 30, 2021       57,929,094     72,727        
Balance, beginning of year at Mar. 31, 2021 (12,941)     $ 574     $ (260) 600,297     (613,552)
Balance, beginning of year (in shares) at Mar. 31, 2021       57,515,085     72,727        
Stock-based compensation 2,584             2,584      
Stock option exercises 95     $ 1       94      
Stock option exercises (in shares)       23,636              
Vested restricted stock 247     $ 5       242      
Vested restricted stock (in shares)       471,759              
Shares withheld for tax obligations on vested RSUs (727)     $ (1)       (726)      
Shares withheld for tax obligations on vested RSUs, shares       (81,386)              
Net loss (20,134)                   (20,134)
Balance, end of year at Jun. 30, 2021 $ (30,876)     $ 579     $ (260) $ 602,491     $ (633,686)
Balance, end of year (in shares) at Jun. 30, 2021       57,929,094     72,727        
v3.21.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Cash flows from operating activities:    
Net loss $ (74,824) $ (62,889)
Income (loss) from discontinued operations, net of income taxes 326 (17,559)
Loss from continuing operations, net of income taxes (75,150) (45,330)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 2,110 1,194
Provision for doubtful accounts 618 336
Provision for warranties 444 201
Provision for inventory 427 1,047
Fair value adjustments to derivative liability 50,010 18,510
Fair value adjustments of other liabilities held at fair value 49 (22)
Amortization of debt discount and issuance costs 1,722 2,559
Stock-based compensation expense 5,747 3,768
Payments of contingent consideration liability in excess of acquisition-date fair value (2,416)  
Other non-cash adjustments 459 85
Changes in operating assets and liabilities:    
Accounts receivable (2,167) (261)
Inventories (6,565) (4,473)
Prepaid expenses, other current assets and other assets 126 (606)
Accounts payable, accrueds, and other liabilities (1,465) (9,981)
Customer deposits 9,832 2,056
Sales return liability 1,380 (597)
Net cash flow from operating activities - continuing operations (14,839) (31,514)
Net cash flow from operating activities - discontinued operations (263) (15,085)
Net cash used in operating activities (15,102) (46,599)
Cash flows from investing activities:    
Purchase of property and equipment (3,170) (2,115)
Net cash flow from investing activities - continuing operations (3,170) (2,115)
Net cash flow from investing activities - discontinued operations 11,314 (80)
Net cash provided by (used in) investing activities 8,144 (2,195)
Cash flows from financing activities:    
Proceeds from issuance of common stock for employee stock-based plans 1,474 529
Net proceeds from issuance of common stock 39,226 264
Tax payments related to shares withheld for vested restricted stock units (RSUs) (1,942) (1,428)
Gross borrowings under the Term Loan 1,000  
Repayments under the Term Loan   (25,000)
Repayment of the Revolving Loan   (6,508)
Net proceeds from issuance of the Convertible Note   60,000
Payments of contingent consideration up to acquisition-date fair value (4,550)  
Deferred financing costs (800) (1,524)
Net cash provided by financing activities 34,408 32,985
Net increase (decrease) in cash, cash equivalents and restricted cash 27,450 (15,809)
Cash, cash equivalents and restricted cash at:    
Beginning of period 55,300 87,951
End of period 82,750 72,142
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets    
Cash and cash equivalents 82,417 71,799
Restricted cash included in other assets $ 333 $ 343
Restricted Cash Noncurrent Asset Statement Of Financial Position Extensible List us-gaap:OtherNoncurrentAssetsMember us-gaap:OtherNoncurrentAssetsMember
End of period $ 82,750 $ 72,142
Supplemental disclosure of cash flow information:    
Interest paid 2,082 2,742
Supplemental disclosure of non-cash investing and financing activities:    
Property and equipment in accounts payable and accrued liabilities $ 265 236
Deferred financing costs in accounts payable and accrued liabilities   1,487
Paycheck Protection Program    
Cash flows from financing activities:    
Gross borrowings under the PPP loan   $ 6,652
v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 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 and six months ended June 30, 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.

As a result of the miraDry Sale discussed in Note 2, the miraDry business met the criteria to be reported as discontinued operations. Therefore, the Company is reporting the historical results of miraDry, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations for all periods presented herein through the date of the Sale. Unless otherwise noted, the accompanying notes to the unaudited condensed consolidated financial statements have all been revised to reflect continuing operations only. As discussed in Note 11, following the Sale the Company has one operating segment in continuing operations named Plastic Surgery, formerly known as Breast Products.

 

b.

Liquidity

Since the Company’s inception, it has incurred significant net operating losses and the Company anticipates that losses will continue in the near term. The Company expects its operating expenses will remain consistent with the current period and will need to generate significant net sales to achieve profitability. To date, the Company has funded operations primarily with proceeds from the sales of preferred stock, borrowings under term loans and the convertible note, sales of products since 2012, and the proceeds from the sale of common stock in public offerings. To fund ongoing operating and capital needs, the Company may need to raise additional capital in the future through the sale of equity securities and incremental debt financing.

Sale of the miraDry business

As mentioned above and discussed in Note 2, on May 11, 2021, the Company entered into a Purchase Agreement, pursuant to which the Company sold the miraDry business. On June 10, 2021, the Company received $11.3 million in cash.

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 into 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 7 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 Paycheck Protection Program (PPP) loan.

Equity financing – recent developments

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

As of June 30, 2021, the Company had cash and cash equivalents of $82.4 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

 

Since December 2019, the 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 cumulative effect of these disruptions have had, and may continue to have, an adverse impact on the Company’s business and its results of operations. The COVID-19 pandemic continues to evolve and 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 and unpredictable, including efficacy and adoption of vaccines, future resurgences of the virus and its variants, the speed at which government restrictions are lifted, hospitals and healthcare systems patient capacity, and the willingness and ability of patients to seek medical procedures due to safety concerns or financial hardship. 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 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 six months ended June 30, 2021. While many states have lifted certain restrictions on non-emergency procedures, the Company will likely continue to experience future harm to its revenues while existing or new restrictions remain in 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.

v3.21.2
Discontinued Operations
6 Months Ended
Jun. 30, 2021
Discontinued Operations And Disposal Groups [Abstract]  
Discontinued Operations

2.

Discontinued Operations

On June 10, 2021, the Company completed the sale of its miraDry business (the “Sale”) to miraDry Acquisition Company, Inc., a Delaware corporation (“Buyer”), an entity affiliated with 1315 Capital II, LP, as a result of the Company’s strategic decision to focus investment on its core Plastic Surgery segment, formerly known as Breast Products. The Sale was made pursuant to the terms and conditions of the Asset Purchase Agreement (the “Purchase Agreement”), dated May 11, 2021, among the Company and certain of its subsidiaries, Buyer, and, solely for purposes of Section 8.14 of the Purchase Agreement, 1315 Capital II, LP. The aggregate purchase price was $10.0 million, which after certain adjustments for agreed upon changes in the estimated net asset value amount of purchased assets and assumed liabilities resulted in net upfront cash proceeds to the Company of approximately $11.3 million. In connection with the Sale, the Company recognized a loss on sale of $2.5 million for the three and six months ended June 30, 2021.

Subject to the terms and conditions of the Purchase Agreement, additional post close adjustments to the purchase price may be required based on the final net asset value of purchased assets and assumed liabilities as of the date of close, which is expected to be finalized within 120 days after the transaction close date. As such, a change in the loss associated with the Sale could occur in a future period, including upon such finalization of the purchase price with the Buyer.

In accordance with the Purchase Agreement, assumed liabilities did not include product liabilities, environmental, and employee claims arising prior to the closing date. The Purchase Agreement also included customary representations and warranties, as well as certain covenants, including, among other things, that: (i) the Company will abide by certain non-solicitation, exclusivity, and non-competition covenants, and (ii) the Company would enter into a transition services agreement (“TSA”) to provide certain transition services related to the business.

Under the TSA, the Company will provide certain post-closing services to the Buyer related to the miraDry business for a period of up to six months, including accounting, accounts receivable support, customer service, IT, regulatory, quality assurance, and clinical support. As consideration for these services, the Buyer will reimburse the Company for direct and certain indirect costs, as well as certain overhead or administrative expenses related to operating the business. The Company recognized $0.2 million of TSA fees and cost reimbursements in operating expenses from continuing operations in the condensed consolidated statement of operations for the three months ended June 30, 2021. As of June 30, 2021, the Company has not received any payments relating to the TSA services and has recorded a receivable of $0.2 million within other current assets in the condensed consolidated balance sheets. In connection with the accounts receivable support under the TSA, the Company received $1.8 million in customer payments during the period from June 10, 2021 through June 30, 2021, and has recorded a $1.8 million payable in accounts payable on the condensed consolidated balance sheets.

Additionally, the Company and the Buyer entered into a sublease agreement whereby the Buyer will sublease the miraDry office space in Santa Clara, CA. The sublease term is for an initial period of six months, with a first option period of an additional six months and a subsequent option period of twelve months. During the three months ended June 30, 2021, the Company recognized $0.1 million of sublease income in general and administrative expenses in the condensed consolidated statements of operations.

The Sale met the discontinued operations criteria given that the business is a component and represented a strategic shift. The following table presents the aggregate carrying amounts of major classes of assets and liabilities of discontinued operations (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets of discontinued operations:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

 

 

$

3,732

 

Inventories, net

 

 

 

 

 

9,480

 

Prepaid expenses and other current assets

 

 

4

 

 

 

263

 

Current assets of discontinued operations

 

 

4

 

 

 

13,475

 

Property and equipment, net

 

 

 

 

 

805

 

Total assets of discontinued operations

 

$

4

 

 

$

14,280

 

Liabilities of discontinued operations:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6

 

 

$

704

 

Accrued and other current liabilities

 

 

1,128

 

 

 

3,982

 

Total liabilities of discontinued operations

 

$

1,134

 

 

$

4,686

 

 

The results of operations for the miraDry business were included in income (loss) from discontinued operations on the accompanying condensed consolidated statements of operations. The following table provides information regarding the results of discontinued operations (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

4,423

 

 

$

3,139

 

 

$

9,347

 

 

$

7,600

 

Cost of goods sold

 

 

2,030

 

 

 

1,503

 

 

 

4,805

 

 

 

3,560

 

Gross profit

 

 

2,393

 

 

 

1,636

 

 

 

4,542

 

 

 

4,040

 

Operating expenses

 

 

1,491

 

 

 

4,711

 

 

 

1,687

 

 

 

21,535

 

Income (loss) from operations of discontinued operations

 

 

902

 

 

 

(3,075

)

 

 

2,855

 

 

 

(17,495

)

Other income (expense), net

 

 

(45

)

 

 

6

 

 

 

(77

)

 

 

(64

)

Income (loss) from discontinued operations before income taxes

 

 

857

 

 

 

(3,069

)

 

 

2,778

 

 

 

(17,559

)

Loss on sale of discontinued operations before income taxes

 

 

(2,452

)

 

 

 

 

 

(2,452

)

 

 

 

Total income from discontinued operations before income taxes

 

 

(1,595

)

 

 

(3,069

)

 

 

326

 

 

 

(17,559

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of income taxes

 

$

(1,595

)

 

$

(3,069

)

 

$

326

 

 

$

(17,559

)

 

The results of the miraDry business, including the results of operations, cashflows, and related assets and liabilities are reported as discontinued operations for all periods presented herein.

v3.21.2
Revenue
6 Months Ended
Jun. 30, 2021
Revenue From Contract With Customer [Abstract]  
Revenue

3.

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.

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, and BIOCORNEUM, 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 June 30, 2021 were as follows:

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

Balance as of December 31, 2020

 

$

1,945

 

Additions and adjustments

 

 

890

 

Revenue recognized

 

 

(275

)

Balance as of June 30, 2021

 

$

2,560

 

 

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

Sales Return Liability

 

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):

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Beginning balance

 

$

9,192

 

 

$

8,116

 

Addition to reserve for sales activity

 

 

77,464

 

 

 

49,911

 

Actual returns

 

 

(74,905

)

 

 

(50,450

)

Change in estimate of sales returns

 

 

(1,179

)

 

 

(59

)

Ending balance

 

$

10,572

 

 

$

7,518

 

 

 

v3.21.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2021
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 the debt is based on the amount of future cash flows associated with the instrument discounted using the Company’s market rate. As of June 30, 2021, the carrying value of the long-term debt was not materially different from the fair value. As of June 30, 2021, the carrying value and fair value of the convertible note were as follows (in thousands):

 

 

 

June 30, 2021

 

 

 

Carrying Value

 

 

Fair Value

 

Convertible note

 

$

45,879

 

 

$

42,030

 

 

v3.21.2
Balance Sheet Components
6 Months Ended
Jun. 30, 2021
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

5.

Balance Sheet Components

 

a.

Inventories

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Raw materials

 

$

2,105

 

 

$

3,788

 

Work in progress

 

 

6,881

 

 

 

10,710

 

Finished goods

 

 

32,620

 

 

 

21,254

 

Finished goods - right of return

 

 

3,700

 

 

 

3,416

 

 

 

$

45,306

 

 

$

39,168

 

 

 

b.

Property and Equipment

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Leasehold improvements

 

$

2,574

 

 

$

2,523

 

Manufacturing equipment and toolings

 

 

9,032

 

 

 

8,362

 

Computer equipment

 

 

3,914

 

 

 

2,522

 

Software

 

 

3,692

 

 

 

3,010

 

Office equipment

 

 

167

 

 

 

167

 

Furniture and fixtures

 

 

1,184

 

 

 

1,040

 

 

 

 

20,563

 

 

 

17,624

 

Less accumulated depreciation

 

 

(6,717

)

 

 

(5,323

)

 

 

$

13,846

 

 

$

12,301

 

 

Depreciation expense for the three months ended June 30, 2021 and 2020 was $0.8 million and $0.4 million, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was $1.5 million and $0.5 million, respectively.

 

 

 

c.

Goodwill and Other Intangible Assets, net

Following the sale of the miraDry business, the Company has one reporting unit, Plastic Surgery, formerly known as Breast Products. The Company evaluates goodwill for impairment at least annually on October 1st and whenever circumstances suggest that goodwill may be impaired.

The carrying amount of goodwill during the six months ended June 30, 2021 and the year ended December 31, 2020 were as follows (in thousands):

 

 

 

Plastic Surgery

 

Balances as of December 31, 2020

 

 

 

 

Goodwill

 

 

23,480

 

Accumulated impairment losses

 

 

(14,278

)

Goodwill, net

 

$

9,202

 

Balances as of June 30, 2021

 

 

 

 

Goodwill

 

 

23,480

 

Accumulated impairment losses

 

 

(14,278

)

Goodwill, net

 

$

9,202

 

 

As of June 30, 2021, the Plastic Surgery reporting unit had a negative carrying value.

 

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

 

 

 

Average

 

 

 

 

 

 

Amortization

 

 

June 30, 2021

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

10

 

 

$

4,940

 

 

$

(4,040

)

 

$

900

 

Trade names - finite life

 

 

12

 

 

 

800

 

 

 

(356

)

 

 

444

 

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

 

 

 

(1,258

)

 

 

6,982

 

Total definite-lived intangible assets

 

 

 

 

 

$

16,443

 

 

$

(8,117

)

 

$

8,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles with indefinite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names - indefinite life

 

 

 

 

450

 

 

 

 

 

 

450

 

Total indefinite-lived intangible assets

 

 

 

 

 

$

450

 

 

$

 

 

$

450

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

 

December 31, 2020

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

10

 

 

$

4,940

 

 

$

(3,856

)

 

$

1,084

 

Trade names - finite life

 

 

12

 

 

 

800

 

 

 

(322

)

 

 

478

 

Non-compete agreement

 

 

2

 

 

 

80

 

 

 

(80

)

 

 

 

Regulatory approvals

 

 

1

 

 

 

670

 

 

 

(670

)

 

 

 

Acquired FDA non-gel product approval

 

 

11

 

 

 

1,713

 

 

 

(1,713

)

 

 

 

Manufacturing know-how

 

 

19

 

 

 

8,240

 

 

 

(865

)

 

 

7,375

 

Total definite-lived intangible assets

 

 

 

 

 

$

16,443

 

 

$

(7,506

)

 

$

8,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles with indefinite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names - indefinite life

 

 

 

 

450

 

 

 

 

 

 

450

 

Total indefinite-lived intangible assets

 

 

 

 

 

$

450

 

 

$

 

 

$

450

 

 

Amortization expense for both the three months ended June 30, 2021 and 2020 were $0.3 million. Amortization expense for the six months ended June 30, 2021 and 2020 was $0.6 million and $0.7 million, respectively. The following table summarizes the estimated amortization expense relating to the Company's definite-lived intangible assets as of June 30, 2021 (in thousands):

 

 

 

Amortization

 

Period

 

Expense

 

2021

 

$

610

 

2022

 

 

1,163

 

2023

 

 

1,092

 

2024

 

 

948

 

2025

 

 

805

 

Thereafter

 

 

3,708

 

 

 

$

8,326

 

 

 

d.

Accrued and Other Current Liabilities

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020