SIENTRA, INC., 10-Q filed on 11/12/2021
Quarterly Report
v3.21.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2021
Nov. 05, 2021
Cover [Abstract]    
Entity Registrant Name SIENTRA, INC.  
Entity Central Index Key 0001551693  
Document Type 10-Q  
Document Period End Date Sep. 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   58,122,465
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q3  
Trading Symbol SIEN  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 001-36709  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-5551000  
Entity Address, Address Line One 420 South Fairview Avenue  
Entity Address, Address Line Two Suite 200  
Entity Address, City or Town Santa Barbara  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 93117  
City Area Code 805  
Local Phone Number 562-3500  
Document Quarterly Report true  
Document Transition Report false  
v3.21.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 66,127 $ 54,967
Accounts receivable, net of allowances of $1,833 and $1,047 at September 30, 2021 and December 31, 2020, respectively 26,453 19,771
Inventories, net 51,529 39,168
Prepaid expenses and other current assets 2,663 1,891
Current assets of discontinued operations 4 13,475
Total current assets 146,776 129,272
Property and equipment, net 14,886 12,301
Goodwill 9,202 9,202
Other intangible assets, net 8,471 9,387
Other assets 7,323 8,011
Non-current assets of discontinued operations   805
Total assets 186,658 168,978
Current liabilities:    
Current portion of long-term debt   4,670
Accounts payable 6,300 5,799
Accrued and other current liabilities 22,285 28,408
Customer deposits 30,286 17,905
Sales return liability 12,305 9,192
Current liabilities of discontinued operations 501 4,686
Total current liabilities 71,677 70,660
Long-term debt 61,483 60,500
Derivative liability   26,570
Deferred and contingent consideration 2,786 2,350
Warranty reserve and other long-term liabilities 9,950 9,455
Total liabilities 145,896 169,535
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 58,129,589 and 50,712,151 and outstanding 58,056,862 and 50,639,424 shares at September 30, 2021 and December 31, 2020, respectively 581 506
Additional paid-in capital 645,717 558,059
Treasury stock, at cost (72,727 shares at September 30, 2021 and December 31, 2020) (260) (260)
Accumulated deficit (605,276) (558,862)
Total stockholders’ equity (deficit) 40,762 (557)
Total liabilities and stockholders’ equity $ 186,658 $ 168,978
v3.21.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Accounts receivable, allowances (in dollars) $ 1,833 $ 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 58,129,589 50,712,151
Common stock, shares outstanding 58,056,862 50,639,424
Treasury stock, shares 72,727 72,727
v3.21.2
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Income Statement [Abstract]        
Net sales $ 19,620,000 $ 15,329,000 $ 58,035,000 $ 37,109,000
Cost of goods sold 9,030,000 7,105,000 26,027,000 15,887,000
Gross profit 10,590,000 8,224,000 32,008,000 21,222,000
Operating expenses:        
Sales and marketing 12,052,000 9,969,000 34,348,000 24,858,000
Research and development 2,367,000 1,778,000 6,962,000 6,142,000
General and administrative 7,865,000 6,445,000 23,321,000 21,183,000
Restructuring   (442,000)   389,000
Total operating expenses 22,284,000 17,750,000 64,631,000 52,572,000
Loss from operations (11,694,000) (9,526,000) (32,623,000) (31,350,000)
Other income (expense), net:        
Interest income 1,000 6,000 4,000 203,000
Interest expense (2,026,000) (2,055,000) (6,143,000) (7,284,000)
Change in fair value of derivative liability 35,550,000 10,090,000 (14,460,000) (8,420,000)
Other income (expense), net 6,672,000 (2,000) 6,575,000 34,000
Total other income (expense), net 40,197,000 8,039,000 (14,024,000) (15,467,000)
Income (loss) from continuing operations before income taxes 28,503,000 (1,487,000) (46,647,000) (46,817,000)
Income tax expense (benefit) 0 0 0 0
Income (loss) from continuing operations 28,503,000 (1,487,000) (46,647,000) (46,817,000)
Income (loss) from discontinued operations, net of income taxes (93,000) (4,334,000) 233,000 (21,893,000)
Net income (loss) $ 28,410,000 $ (5,821,000) $ (46,414,000) $ (68,710,000)
Basic earnings (loss) per share:        
Continuing operations $ 0.49 $ (0.03) $ (0.82) $ (0.93)
Discontinued operations 0.00 (0.09) 0.00 (0.44)
Basic earnings (loss) per share 0.49 (0.12) (0.82) (1.37)
Diluted earnings (loss) per share:        
Continuing operations (0.08) (0.03) (0.82) (0.93)
Discontinued operations 0.00 (0.09) 0.00 (0.44)
Diluted earnings (loss) per share $ (0.08) $ (0.12) $ (0.82) $ (1.37)
Weighted average outstanding common shares used for net income (loss) per share attributable to common stockholders:        
Basic 58,005,784 50,394,858 56,680,594 50,155,623
Diluted 72,639,930 50,394,858 56,680,594 50,155,623
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 (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        
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 (46,414)                    
Balance, end of year at Sep. 30, 2021 40,762     $ 581     $ (260) 645,717     (605,276)
Balance, end of year (in shares) at Sep. 30, 2021       58,129,589     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        
Stock-based compensation 2,326             2,326      
Employee stock purchase program (ESPP) 350     $ 1       349      
Employee stock purchase program (ESPP) (in shares)       103,152              
Vested restricted stock       $ 1       (1)      
Vested restricted stock (in shares)       148,098              
Shares withheld for tax obligations on vested RSUs (478)             (478)      
Shares withheld for tax obligations on vested RSUs, shares       (50,755)              
Reclassification of derivative liability to equity 41,030             41,030      
Net loss 28,410                   28,410
Balance, end of year at Sep. 30, 2021 $ 40,762     $ 581     $ (260) $ 645,717     $ (605,276)
Balance, end of year (in shares) at Sep. 30, 2021       58,129,589     72,727        
v3.21.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Cash flows from operating activities:    
Net loss $ (46,414) $ (68,710)
Income (loss) from discontinued operations, net of income taxes 233 (21,893)
Loss from continuing operations, net of income taxes (46,647) (46,817)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 3,149 2,386
Provision for doubtful accounts 875 258
Provision for warranties 684 362
Provision for inventory 638 1,435
Fair value adjustments to derivative liability 14,460 8,420
Fair value adjustments of other liabilities held at fair value 49 29
Amortization of debt discount and issuance costs 2,632 3,430
Gain on extinguishment of debt (6,652)  
Stock-based compensation expense 8,073 5,342
Payments of contingent consideration liability in excess of acquisition-date fair value (2,419)  
Other non-cash adjustments 584 198
Changes in operating assets and liabilities:    
Accounts receivable (7,558) (5,311)
Inventories (12,999) (6,569)
Prepaid expenses, other current assets and other assets (205) (166)
Accounts payable, accrueds, and other liabilities 1,279 (4,921)
Customer deposits 12,381 1,547
Sales return liability 3,113 1,930
Net cash flow from operating activities - continuing operations (28,563) (38,447)
Net cash flow from operating activities - discontinued operations (989) (14,292)
Net cash used in operating activities (29,552) (52,739)
Cash flows from investing activities:    
Purchase of property and equipment (4,882) (3,112)
Net cash flow from investing activities - continuing operations (4,882) (3,112)
Net cash flow from investing activities - discontinued operations 11,314 (80)
Net cash provided by (used in) investing activities 6,432 (3,192)
Cash flows from financing activities:    
Proceeds from issuance of common stock for employee stock-based plans 1,824 852
Net proceeds from issuance of common stock 39,226 264
Tax payments related to shares withheld for vested restricted stock units (RSUs) (2,420) (1,496)
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) (2,958)
Net cash provided by financing activities 34,280 31,806
Net increase (decrease) in cash, cash equivalents and restricted cash 11,160 (24,125)
Cash, cash equivalents and restricted cash at:    
Beginning of period 55,300 87,951
End of period 66,460 63,826
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets    
Cash and cash equivalents 66,127 63,483
Restricted cash included in other assets $ 333 $ 343
Restricted Cash, Noncurrent, Statement of Financial Position [Extensible Enumeration] Other assets Other assets
End of period $ 66,460 $ 63,826
Supplemental disclosure of cash flow information:    
Interest paid 3,133 3,781
Supplemental disclosure of non-cash investing and financing activities:    
Property and equipment in accounts payable and accrued liabilities 323 114
Equity component of the Convertible Note $ 41,030  
Paycheck Protection Program    
Cash flows from financing activities:    
Gross borrowings under the PPP Loan   $ 6,652
v3.21.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 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 nine months ended September 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

Refer to Note 2 for details on the sale of the miraDry business.

Debt financing – recent developments

Refer to Note 7 for a full description and updates to all of the Company’s long-term debt, revolving line of credit, convertible note, and Paycheck Protection Program (PPP) loan.

Equity financing – recent developments

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

underwriting discounts and commissions of approximately $2.5 million and offering expenses of approximately $0.3 million.

As of September 30, 2021, the Company had cash and cash equivalents of $66.1 million. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company believes that its cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months.

 

c.

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.

 

 

d.

Risks and Uncertainties

 

As an aesthetics company, surgical procedures involving the Company’s breast products are susceptible to local and national government restrictions, such as social distancing, vaccination requirements, “shelter in place” orders and business closures. The 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 nine months ended September 30, 2021. While many states have lifted certain restrictions on non-emergency procedures, the Company will likely continue to experience future harm to its revenues while existing or new restrictions remain in 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. 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.

 

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. 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.

 

 

e.

Reclassifications

 

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

v3.21.2
Discontinued Operations
9 Months Ended
Sep. 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. 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 cash proceeds of $11.3 million to the Company on the date of close. As of September 30, 2021, the Company has an escrow liability of $3.2 million in “Accrued and other current liabilities” on the condensed consolidated balance sheet to account for additional agreed upon post close changes in the net asset value and has recognized a loss on sale of $2.5 million. In October 2021, the Company finalized the transaction and paid $3.2 million to the Buyer in accordance with the agreed upon post close changes in the net asset value.

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

Under the TSA, the Company provides certain post-closing services to the Buyer related to the miraDry business for a period of 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 $0.1 million of TSA fees and cost reimbursements in operating expenses from continuing operations in the condensed consolidated statement of operations for the nine months ended September 30, 2021. As of September 30, 2021, the Company has received $0.3 million relating to the TSA services and has recorded a receivable of $0.1 million within other current assets in the condensed consolidated balance sheets. In connection with the accounts receivable support under the TSA, the Company received $2.3 million in customer payments and remitted $2.2 million to the Buyer during the period from June 10, 2021 through September 30, 2021. As of September 30, 2021, the Company has recorded a $0.1 million payable in accounts payable on the condensed consolidated balance sheets.

Additionally, the Company and the Buyer entered into a sublease agreement whereby the Buyer will sublease the miraDry office space in Santa Clara, CA. The sublease term is for an initial period of six months, with subsequent option periods for up to a total of twenty four months. During the three and nine months ended September 30, 2021, the Company recognized $0.2 million and $0.3 million, respectively, of sublease income in general and administrative expenses in the condensed consolidated statements of operations.

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets of discontinued operations:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

 

 

$

3,732

 

Inventories, net

 

 

 

 

 

9,480

 

Prepaid expenses and other current assets

 

 

4

 

 

 

263

 

Current assets of discontinued operations

 

 

4

 

 

 

13,475

 

Property and equipment, net

 

 

 

 

 

805

 

Total assets of discontinued operations

 

$

4

 

 

$

14,280

 

Liabilities of discontinued operations:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6

 

 

$

704

 

Accrued and other current liabilities

 

 

495

 

 

 

3,982

 

Total liabilities of discontinued operations

 

$

501

 

 

$

4,686

 

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

 

 

$

3,888

 

 

$

9,347

 

 

$

11,488

 

Cost of goods sold

 

 

 

 

 

1,286

 

 

 

4,805

 

 

 

4,846

 

Gross profit

 

 

 

 

 

2,602

 

 

 

4,542

 

 

 

6,642

 

Operating expenses

 

 

57

 

 

 

7,034

 

 

 

1,744

 

 

 

28,571

 

Income (loss) from operations of discontinued operations

 

 

(57

)

 

 

(4,432

)

 

 

2,798

 

 

 

(21,929

)

Other income (expense), net

 

 

 

 

 

98

 

 

 

(77

)

 

 

36

 

Income (loss) from discontinued operations before income taxes

 

 

(57

)

 

 

(4,334

)

 

 

2,721

 

 

 

(21,893

)

Loss on sale of discontinued operations before income taxes

 

 

(36

)

 

 

 

 

 

(2,488

)

 

 

 

Total income (loss) from discontinued operations before income taxes

 

 

(93

)

 

 

(4,334

)

 

 

233

 

 

 

(21,893

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(93

)

 

$

(4,334

)

 

$

233

 

 

$

(21,893

)

 

The 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
9 Months Ended
Sep. 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, which is based on the expected cost plus margin approach. Inputs into the expected cost plus margin approach include historical incidence rates, estimated replacement costs, estimated financial assistance payouts and an estimated margin.

The liability for unsatisfied performance obligations under the service warranty as of September 30, 2021 were as follows:

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

Balance as of December 31, 2020

 

$

1,945

 

Additions and adjustments

 

 

1,379

 

Revenue recognized

 

 

(411

)

Balance as of September 30, 2021

 

$

2,913

 

 

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

 

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

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Beginning balance

 

$

9,192

 

 

$

8,116

 

Addition to reserve for sales activity

 

 

115,374

 

 

 

84,119

 

Actual returns

 

 

(110,996

)

 

 

(82,110

)

Change in estimate of sales returns

 

 

(1,265

)

 

 

(46

)

Ending balance

 

$

12,305

 

 

$

10,079

 

 

 

v3.21.2
Fair Value of Financial Instruments
9 Months Ended
Sep. 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 September 30, 2021, the carrying value of the long-term debt was not materially different from the fair value. As of September 30, 2021, the carrying value and fair value of the convertible note were as follows (in thousands):

 

 

 

September 30, 2021

 

 

 

Carrying Value

 

 

Fair Value

 

Convertible note

 

$

46,657

 

 

$

42,330

 

 

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

5.

Balance Sheet Components

 

a.

Inventories

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Raw materials

 

$

2,669

 

 

$

3,788

 

Work in progress

 

 

4,325

 

 

 

10,710

 

Finished goods

 

 

40,278

 

 

 

21,254

 

Finished goods - right of return

 

 

4,257

 

 

 

3,416

 

 

 

$

51,529

 

 

$

39,168

 

 

 

b.

Property and Equipment

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Leasehold improvements

 

$

2,605

 

 

$

2,523

 

Manufacturing equipment and toolings

 

 

9,832

 

 

 

8,529

 

Computer equipment

 

 

1,637

 

 

 

2,522

 

Software

 

 

6,581

 

 

 

3,010

 

Furniture and fixtures

 

 

1,542

 

 

 

1,040

 

 

 

 

22,197

 

 

 

17,624

 

Less accumulated depreciation

 

 

(7,311

)

 

 

(5,323

)

 

 

$

14,886

 

 

$

12,301

 

 

Depreciation expense for the three months ended September 30, 2021 and 2020 was $0.7 million and $0.9 million, respectively. Depreciation expense for the nine months ended September 30, 2021 and 2020 was $2.2 million and $1.4 million, respectively.

 

 

c.

Goodwill and Other Intangible Assets, net

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

The carrying amount of goodwill as of September 30, 2021 and December 31, 2020 were as follows (in thousands):

 

 

 

Plastic Surgery

 

 

miraDry

 

 

Total

 

Balances as of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

23,480

 

 

 

7,629

 

 

 

31,109

 

Accumulated impairment losses

 

 

(14,278

)

 

 

(7,629

)

 

 

(21,907

)

Goodwill, net

 

$

9,202

 

 

$

 

 

$

9,202

 

Balances as of September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

23,480

 

 

 

7,629

 

 

 

31,109

 

Accumulated impairment losses

 

 

(14,278

)

 

 

(7,629

)

 

 

(21,907

)

Goodwill, net

 

$

9,202

 

 

$

 

 

$

9,202

 

 

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

 

 

 

Average

 

 

 

 

 

 

Amortization

 

 

September 30, 2021

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

10

 

 

$

4,940

 

 

$

(4,132

)

 

$

808

 

Trade names - finite life

 

 

12

 

 

 

800

 

 

 

(372

)

 

 

428

 

Non-compete agreement

 

 

2

 

 

 

80

 

 

 

(80

)

 

 

 

Regulatory approvals

 

 

1

 

 

 

670

 

 

 

(670

)

 

 

 

Acquired FDA non-gel product approval

 

 

11

 

 

 

1,713

 

 

 

(1,713

)

 

 

 

Manufacturing know-how

 

 

19

 

 

 

8,240

 

 

 

(1,455

)

 

 

6,785

 

Total definite-lived intangible assets

 

 

 

 

 

$

16,443

 

 

$

(8,422

)

 

$

8,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles with indefinite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names - indefinite life

 

 

 

 

450

 

 

 

 

 

 

450

 

Total indefinite-lived intangible assets

 

 

 

 

 

$

450

 

 

$

 

 

$

450

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

 

December 31, 2020

 

 

 

Period

 

 

Gross Carrying

 

 

Accumulated

 

 

Intangible

 

 

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Assets, net

 

Intangibles with definite lives