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Edited Transcript of SIEN earnings conference call or presentation 9-May-18 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 Sientra Inc Earnings Call

Santa Barbara May 12, 2018 (Thomson StreetEvents) -- Edited Transcript of Sientra Inc earnings conference call or presentation Wednesday, May 9, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Huiner

Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy

* Jeffrey M. Nugent

Sientra, Inc. - Chairman & CEO

* Patrick F. Williams

Sientra, Inc. - Senior VP, CFO & Treasurer

* Tram Bui

The Ruth Group, Inc. - VP

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Conference Call Participants

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* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* Brooks Gregory O'Neil

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Jaime Lynn Morgan

Leerink Partners LLC, Research Division - Associate

* John David Godin

Lake Street Capital Markets, LLC, Research Division - Research Analyst

* Jonathan David Block

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst

* Kyle William Rose

Canaccord Genuity Limited, Research Division - Senior Analyst

* Malgorzata Maria Kaczor

William Blair & Company L.L.C., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Sientra's First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Tram Bui of the Ruth Group, you may begin.

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Tram Bui, The Ruth Group, Inc. - VP [2]

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Thanks, operator. In our remarks today, we will include statements that are considered forward-looking statements within the meaning of United States securities laws. in addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business, strategy, operations or financial performance.

A detailed discussion of the risks and uncertainties that the company faces is contained in its the quarterly report on Form 10-Q that the company will file with the SEC shortly. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate, projection or forward-looking statement.

With that said, I'll hand the call over to Jeff Nugent, Chairman and Chief Executive Officer of Sientra.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [3]

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Thanks, Tram, and good afternoon, everyone. Joining me today is the key leadership team at Sientra: Patrick Williams, Chief Financial Officer, Senior Vice President and Treasurer; and Charlie Huiner, our Chief Operating Officer and Senior Vice President of Corporate Development and Strategy.

As our recent press release highlights, Sientra's first quarter accomplishments are very strong. Our entire team is extremely proud of all that has been achieved and reflects the confidence that we have had for some time. And just to highlight those achievements, I want to emphasize those 4 in particular.

First, our first quarter net sales are the highest in the company's history. Second, we have received full FDA approval, at long last, to begin commercializing new products from our state-of-the-art manufacturing facility in Franklin, Wisconsin. Third, we have just launched Sientra's OPUS branded Breast Products at the recent ASAPS Conference for plastic surgery, one of the largest plastic surgery conference in the country, as well as the miraDry fresh enhanced protocol, which has been a significant addition to the receptivity of that product.

And last, just last week, we completed a follow-on offering of common stock for net proceeds of approximately $108 million, resulting in the strongest balance sheet also in the company's history.

All of these position us to achieve our objective of becoming a leading global partner to aesthetic physicians.

Before discussing our record first quarter results, I'd like to take some time to briefly comment on the recent FDA approval of our PMA Supplement for our U.S. manufacturing facility, which represents an absolutely critical milestone for Sientra to reenter a significant growth phase as the new Sientra.

As I've repeatedly emphasized and as many of us have, it was always a question of obtaining full FDA approval being a when and not if. So the day has come that we were correct, that we have in fact received that FDA full approval. And reaching this critical milestone bears out our conviction. The FDA approval has allowed us to initiate the commercialization of our OPUS-branded silicone breast implant line manufactured in our dedicated Wisconsin operation and culminates over 2 years of successful collaboration between Sientra, our Vesta partner, and the FDA. We are now better positioned to regain and grow share in the U.S. breast implant market for both augmentation and reconstruction in the immediate term.

While our relaunch will remain somewhat tempered until we reach full-scale manufacturing capacity, which is not unusual in ramping up a new manufacturing plant. Our decision to manufacture finished goods prior to approval, based on the confidence we had in the quality of our products has allowed us to begin meeting customer demand immediately. We will continue our precision controlled selling strategy through the first half of 2018 and as the new dedicated facility scales its manufacturing to full supply capabilities, which we anticipate will build through the second half of the year, we remain confident in Vesta's ability to ramp production to satisfy our growing demand and fuel sequential quarterly breast implant sales growth as we scale to full relaunch.

At this point, our best-in-class sales force will begin selling beyond the 600 board certified plastic surgeons that we have been supplying product to on a limited basis since we put together a precision controlled launch program, beginning in March 2016.

I'm also extremely confident of our team's ability to regain market share in the breast implant market for 2 primary reasons: First and foremost, a recently published breakthrough 10-year clinical study highlighted the safety profile of our implants, which shows that we have the lowest rupture rate versus our competitor. Second, our best-in-class sales force of approximately 40 plastic surgery consultants, or what we call PSCs, nearly all of whom have stayed with us during these past 2 years as a good representation of their commitment and confidence in Sientra. As a testament, they had maintained strong relationships with their plastic surgeon customers based on the trust and materially superior service levels.

The resolve to provide best-in-class service to our plastic surgeon partners is stronger than ever before, as is our focus on providing best-in-class products, safety and protection for our patients that undergo both aesthetic or reconstructive breast surgery. We are confident that each of these factors will play a significant role in launching us into a market share taking position in the coming quarters.

We also feel that a number of these features will help to generate demand at the patient level as well.

Our premium silicone implants are designed with the patient in mind and come in a variety of shapes, textures, sizes, all backed by the most compelling safety data in the market. In fact, in a comparative analysis of clinical data from all the U.S. manufacturers, an FDA approved 10-year study by -- published by Plastic and Reconstructive Surgery, Sientra was shown to have the lowest rupture rates by a significant level when compared to our competitive set. And the Sientra 207 highly cohesive breast implants reported high satisfaction with both surgeons and patients, with 92% of plastic surgeons and 94% of patients reporting satisfaction with their overall experience and surgical results.

In addition, our new Platinum20 warranty program just launched last week at the Annual Aesthetic Plastic Surgeon Meeting, demonstrates Sientra's confidence and conviction in the safety and performance of our OPUS-branded breast implants.

The OPUS line represents our commitment to be better by design, to drive thoughtful innovation and to provide safe, best-in-class products that improve patient outcomes and changes lives. That's what we stand for. Conceived to stand behind the robust and unrivaled safety and clinical data, the Sientra Platinum20 warranty provides superior benefits compared to any other warranty program in the industry.

Together, Sientra OPUS-branded products and our Platinum20 program clearly demonstrate our commitment to the breast implant category and to our plastic surgeon partners.

We also believe our new warranty program will be the most meaningful for potential patients as they choose what implant is best for them. All of these points of differentiation give us increased conviction that we are well positioned to regain market share in this category.

Turning to our miraDry segment. We continue to make substantial progress in executing our miraDry strategy to drive growth in a large and underserved market for the permanent reduction of underarm sweat, odor and hair of all colors, something no other technology is capable of doing.

Since our last update, when we provided highlights on our survey of over 2,000 people to better characterize the market opportunity for miraDry, we've initiated a comprehensive digital marketing strategy to generate leads to enable our miraDry customers at the practice level to address the needs of the 15 million people in the United States, which our survey data would characterize as being interested in the miraDry treatment.

Supported by our primary research finding, we are executing a three-pronged digital direct-to-consumer campaign designed to drive demand to our miraDry professional customers by leveraging targeting -- targeted ads on networking contact platforms such as Facebook and realself.com, search marketing via Google AdWords and limited and targeted digital and streaming sponsorships such as Alive & Well.

While we're in the pilot phase of rolling out this campaign, we have already reached over 400,000 consumers across 6 major aesthetic markets that have generated 5,000 visits to this early stage miraDry website and over 600 direct patient leads.

Together, we believe this campaign will effectively capitalize on the underlying demand for the treatment and demographic trends that increasingly point to millennials as one of, if not the, most significant customer cohorts in the aesthetic space.

As a reminder, according to our survey, we found that 76% of consumers concerned with sweat are under the age of 40, a group that is both digitally savvy and social media focused.

We recently partnered with the International Hyperhidrosis Society, to leverage the contact information of a substantial number of potential customers in order to further drive demand from the ground up.

These initiatives, combined with our clinical validation that demonstrates sustained efficacy and customer satisfaction of approximately 90% overall through 12 months, and our new miraDry fresh protocol to optimize the clinical and patient experience and reduce overall procedure time to under 1 hour. This will help expand our global sales force to drive system demand in the near term and consistent high margin consumable utilization in the medium to longer terms.

MiraDry remains a novel and compelling treatment, but execution always begins with people. And since we acquired miraDry in July of 2017, not quite a year, we have now put in place a core leadership team with experienced executing similar playbook across different lifestyle aesthetics categories. This has proven to be a major advantage.

Led by this proven team, we maintain our conviction that the miraDry business will be a strong revenue growth driver for the company, moving through 2018 and beyond as we augment our sales team, execute on these marketing initiatives to drive demand from the bottom up.

In all, we clearly demonstrated in the first quarter our ability to grow each segment of our business and came away from the plastic surgery convention and the American Academy of Dermatology with extremely positive and encouraging feedback from both of our key customer cohorts.

To further drive our growth prospects, we've been reallocating resources back to research and development on both businesses. Starting with the completion of the miraDry protocol enhancements to enable truly innovative organic opportunities. We are also continuing to explore opportunities to grow our total addressable market beyond our current offerings with a particular focus on the $500 million international market for breast implants, following our receipt of our ISO certification, which we announced in March.

As we've stated in the past, we believe that we will be able to leverage the existing miraDry international business base and sales channel as we look to commercialize Breast Products internationally in the future.

In addition to our planned expanded international presence, we also continue to see a potential longer-term opportunity in the $300 million regenerative product market, which is directly adjacent to our breast reconstruction business and would further diversify our product offerings while leveraging our existing commercial infrastructure.

With that said, we remain steadfastly committed to our core Sientra breast implant aesthetics business and the U.S. relaunch of breast implant products this year.

I'll now turn the call over to Patrick Williams for a detailed review of our first quarter 2018 financial results.

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [4]

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Thanks, Jeff. As a reminder, with the exception of adjusted EBITDA, all of our financial metrics are reported on a U.S. GAAP basis. Additionally, we will continue referencing an adjusted EBITDA margin, which we define as earnings before interest, tax depreciation, amortization and stock-based compensation. Specifically, we're removing noncash items for this non-GAAP measure. Again, please refer to our supplemental financial information, earnings release and 10-Q for tables on GAAP and non-GAAP, pro forma net sales and a full reconciliation of adjusted EBITDA to its GAAP counterpart.

Before I go over our first quarter 2018 financial results, I wanted to open up with some comments on our cash position. Net cash and cash equivalents, as of March 31, 2018, were $16.1 million compared to $26.6 million at the end of fourth quarter 2017. These balances do not include total net proceeds of approximately $108 million from the company's recently completed follow-on common stock offering nor do the figures include $10 million of cash received as a result of the FDA approval milestone achievement with our existing term loan credit facility that was funded in April.

Our balance sheet is the strongest it has ever been, and provides us with the necessary capital to invest and grow both the Breast Products and miraDry segments of our business. We are eager to begin deploying this capital over the next few years as we drive toward cash flow breakeven.

As I review our first quarter 2018 results, I will provide additional color on where we expect each financial line item to trend for the balance of 2018.

Consolidated total net sales for Q1 '18 were $14.7 million on a GAAP basis, an increase of 96% compared to total net sales of $7.5 million under GAAP for the same period in 2017. Total net sales increased 30% on a pro forma basis year-over-year compared to pro forma total net sales of $11.3 million in the first quarter 2017.

Within our Breast Products segment, net sales totaled $8.5 million for the quarter, a 14% increase compared to $7.5 million for Q1 '17, driven primarily by continued strong performance of both our AlloX2 and Dermaspan breast tissue expanders and record sales of our BIOCORNEUM Scar Management Product.

For the balance of 2018, we anticipate quarterly sequential growth in our Breast Products segment, driven by implant manufacturing capacity ramp up and continued market traction of our expanders.

Our miraDry business segment achieved net sales of $6.1 million in Q1 '18, representing a 112% increase versus Q4 '17 of $2.9 million, and on a pro forma basis, a 61% increase compared to Q1 '17 of $3.8 million.

We are very pleased with miraDry's overall performance in both North America and international in the first quarter.

Notably, our newly hired and very experienced international team exceeded expectations on system placements, but achieved lower consumable sales due to higher inventory levels within the distributor channel. Although we can see fluctuations in any given quarter, we continue to expect a slightly higher mix of U.S. sales versus international sales and higher system sales versus consumables for the balance of 2018.

Gross profit for the first quarter was $8.6 million or 58% of sales compared to gross profit of $5.2 million or 69% of sales for the same period in 2017. This percent decrease is primarily due to the inclusion of miraDry, which currently carries a lower margin than our Breast Products segment.

Breast Products gross margin for the Q1 '18 were in line with our expectations at approximately 70%.

On the miraDry segment, the higher percent mix of international and capital sales in the current quarter further impacted our overall gross margin. We do expect to see a larger step up in gross margin percent for the second quarter followed by moderate increases as we move into Q3 and Q4 of 2018.

As a reminder, our strategy in the near term is focused on system placements as we expand both our U.S. and international footprint. Still, our overall consolidated gross margin percent is highly dependent on the overall mix of Breast Products versus miraDry, as well as the components within miraDry.

Operating expenses for Q1 '18 were $27.5 million, an increase of $10.9 million or 66% compared to $16.6 million of expense for the same period in 2017. Operating expenses in Q1 '18 were driven higher primarily by the inclusion of miraDry and a significant investment we made in its global sales and marketing teams.

This investment included higher stock-based compensation as we issue new equity to miraDry employees as part of the acquisition as well as a significant equity refresh for employees on the Breast Products side of the business. The higher stock-based compensation expense will continue for the balance of the year, due to this renewed investment in our employees and is contemplated across all operating expense categories.

Moving forward, we would expect research and development expense to slightly increase by quarter as we ramp up product pipeline investments in both segments of the business.

On the G&A front, we expect the current expense levels to continue as it is important that we invest in our infrastructure to ensure it scales with our planned robust revenue growth, including international expansion within miraDry, now part of our business.

In terms of sales and marketing expense, we expect these expenses to moderate slightly down in Q2 due to the timing of our normally scheduled sales events in the first quarter across a much larger sales force and from there remain steady.

As a result of our managing our entire order to cash cycle, our cash balance in the quarter decreased by only $11 million. We expect to see a higher cash burn in Q2 as we rightsize our working capital, including reducing our accounts payables and building up inventory for our relaunch. We expect to see cash burn to moderate down slightly in Q3 and then again in Q4 as our revenue increases.

Net loss for Q1 '18 was $19.4 million or $0.99 per share on a GAAP basis compared to a loss of $11.4 million or $0.61 per share for the same period in 2017.

Adjusted EBITDA for the quarter was a loss of $15.4 million compared to a loss of $9.3 million in Q1 '17. The year-over-year increase can be mainly attributed to the inclusion of miraDry.

I'll conclude by noting that consistent with our previous comments, at this time, we will not be providing any financial guidance until we have fully reentered the breast implant market at scale and have sufficient time to forecast near-term growth across both Breast Products and miraDry segments.

And with that, I'll turn the call back over to Jeff for closing remarks.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [5]

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Thanks, Patrick. Since October 2015, the entire Sientra team has been determined to overcome each successive challenge stemming from our former manufacturer. We have now closed the final chapter of our supply chain transition and positioned the company with a diversified portfolio of differentiated products to capitalize on the significant growth opportunities for each of our 2 core businesses.

Our performance in the first quarter validated our move to become a more diversified global aesthetic company and again was the highest revenue quarter yet in Sientra's history. We consider that definite traction.

Throughout the quarter, we continued to successfully manage our breast implant inventory levels and position customer expectations while also continuing the positive momentum with our tissue expander products and driving record sales of our BIOCORNEUM Scar Management Product. It has been established that it is the #1 recommended -- professionally recommended scar management product in the country.

We also demonstrated real traction on our miraDry strategy by rounding out our leadership team, successfully enhancing our protocol, optimizing our global commercial infrastructure and launching our digital direct-to-consumer campaign, all while growing sales substantially in both the U.S. and international markets.

Overall, we are now well positioned to continue executing on our commercial aesthetics strategy. The new Sientra is in a better position today to capture and drive market share growth and shareholder value than ever before.

Following our successful follow-on equity offering, which generated net proceeds of approximately $108 million, we are also now well capitalized to execute on our strategic growth initiatives. It also demonstrated that our strategy, business model and the tenacity and experience of our team resonated extremely well with a long list of investors. For that, we appreciate their confidence.

I also want to thank everyone within Sientra for their incredibly hard work and dedication to deliver on our promise to reenter the breast implant market stronger and more diversified than ever.

I'm extremely excited to continue to build on our momentum across each of our business segments as we move into 2018 and beyond, relaunch our entire breast implant line at full scale, while realizing the potential of miraDry, as well as deliver meaningful, incremental value to our customers, patients and shareholders.

With that, I'd like to now turn the call over for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Jon Block from Stifel.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [2]

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Maybe 2 or 3 for me. But Jeff or Charlie, maybe you can elaborate a bit on how your breast PCSs are going to spend their time over the next couple of quarters? Previously, they had to be hyper-focused on the current 600 board-certifieds that were receiving product. That's got more flexibility going forward. So maybe if you can talk about, are the 600 still going to be the 2018 focus, and then new docs in '19? If you can flesh it out a bit, that would be great?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [3]

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Let me put it this way, Jon. It's an excellent question. And that the focus going through 2018 is a combination of expanding the share of market -- share of use within those 600 practices that we are -- have been focusing on. So over the past 2 years frankly, we have lost part of the share, now it's time to get it back. And it's not a binary decision. Because in addition to gaining more share from that top tier, we also are initiating penetration in that second tier because there are a number of extremely loyal surgeons who are very anxious to get back into our supply chain. So I hope that answers your question, because it's not one or the other. It's an intelligent mix of being able to start moving the second tier, which is actually beginning to happen right away. But we're going to expand that as our manufacturing facility ramps up and more products are available.

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Charles Huiner, Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy [4]

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Jon, if I could add...

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John David Godin, Lake Street Capital Markets, LLC, Research Division - Research Analyst [5]

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Sure.

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Charles Huiner, Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy [6]

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If I could add -- this is Charlie. And to add to Jeff's point, one of the real benefits of our diversification, adding expanders and BIOCORNEUM to the bag of our sales reps since, call it, 2 years ago when we had really only breast implants as our primary detail, is that it has allowed us to continue conversations with the second and third tier, call it, of our plastic surgeon prospects and continue to have conversations with them and to build relationships with them even when we didn't have breast implant supply to satisfy their needs on the breast implant side. And I can tell you, we hear literally almost every day situations where we have sales reps out calling on reps who are so-called mentor or so-called Allergan doctors for breast implants. And we're able to sell them BIOCORNEUM or we're able to sell them tissue expanders and get them interested in those products. And it's really been a seeding strategy for us now to begin to, once we do have resupply of breast implants, already have a relationship. So I think just to add to Jeff's point, we have really been using the diversified portfolio to continue to have our reps detail other products in our portfolio and get those surgeon accounts ready for the breast implants upon resupply and as we scale up our supply.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [7]

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Got it. That's very helpful color. And maybe a second, you went out and the capital raise was arguably a little bit more successful, you were able to upsize. And just curious, does that allow you to accelerate any of these plans? You've got a really large TAM, Jeff, that you've alluded to numerous times as the international breast opportunity, there is also, maybe hitting the gas with marketing specific to miraDry, to get at that very large opportunity. So does it help accelerate any of those plans over the next 12 to 24 months?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [8]

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It definitely does, Jon. And in addition, there's a key piece that I'd like to stress. And that is expanding our commitment to innovation. There is no secret that in the last 2.5-plus years, we have been so focused on maintaining this precision-controlled launch, that we really haven't had the resources necessary to continue the innovation that we were known for earlier. And on both sides of the business and I'd like to be able to explain this in greater detail, but to keep it simple now, we have an extremely talented and experienced, highly regarded innovation team at miraDry and that we have freed up one of the world's leading experts in breast implant development in our Sientra facility and are fine tuning our pipeline priorities. So I can tell you that, that's a key part of our growth. There is organic growth, there is M&A growth. And we're focused on making our existing business grow primarily through organic efforts and that takes innovation.

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Operator [9]

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Our next question is from Kyle Rose from Canaccord Genuity.

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Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [10]

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So I just wanted maybe talk about the miraDry business. I mean, obviously, it came in well above what we were expecting. And I guess, just from a high-level, I mean, was the pace of the quarter-over-quarter growth, you have Q4, Q1, you're kind of in line with what you were expecting, did anything surprise you as far as how quick the business, your turn back around in the Q1? And then, just overall, I understand that you're going to place more capital units. The expectation is to expand the capital footprint. But then how should we think about the utilization over, I guess, the back half of this year and then moving towards 2019?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [11]

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Patrick, you want to handle that?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [12]

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Sure. Yes, It's Patrick, Kyle. So it really comes down to the large investment we made on the commercial -- the global commercial team for miraDry. And that's the benefit primarily you're seeing in the Q1 results, right? We expanded -- we probably almost 3x size the sales force since we've taken it over in July of 2017. When you combine that with the things that have been brought over from the leadership team that was at ZELTIQ and CoolSculpting, essentially that playbook, along with a new, fresh protocol, all of that, all that stuff together helps drive what you saw in Q1. Certainly, we hope to build some momentum in Q1, into Q2, 3 and 4. And to what you're seeing before, is that there is a huge opportunity here. And so as we've been going through and looking at how we want to place capital equipment, that has always been the main focus for us in the short term. We saw some overperformance in capital as I mentioned in our prepared comments on the international side, that resulted a little bit in the downward pressure on the gross margin. That's just purely a mix issue. And as we said over time, to get to your point on utilization, the capital of today is the consumable of tomorrow. We are now kicking off some of these digital brand awareness campaigns, much like we did before at CoolSculpting and ZELTIQ, where we saw very good traction on that. I think the good news here is that we're doing it much sooner because we have a much better understanding and it is a similar playbook. So we'll hold off on giving any sort of discrete utilization metrics, but we definitely believe we're in the very early innings here. Building brand awareness among patients is key and the market data certainly say that, that's the case.

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Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [13]

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Okay, great. And then, I wanted to just go back to kind of dovetail off one of Jon's questions and just -- I understand it's still early, a month since the approval. But when we think about the tier 1 physicians that, maybe the 600 physicians you've maintained relationships with over the precision-controlled sales process. And now you're going to start looking at tier 2, maybe just frame out how big that tier 2 physician or account network looks like? I mean, is it another 600 accounts? I think, do you back up to the 14,000 accounts that you worked with historically? How we think about that next level of account growth?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [14]

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Well, the second tier is approximately 1,400 plastic surgeons. And that -- as I probably implied, our focus is going to be primarily on tier1. And as I said, to increase the share of practice, but that, this is going to spread over most -- very transparently. It's going to take us well into 2019, to be able to bring a substantial number of those tier 2 physicians back up to full capacity. So the underlying principle here is -- and I've started up a number of manufacturing facilities in the past. And there's no such thing as 0 to 60x. It takes time to be able to ramp up. And that we are putting a significant amount of effort and resources into being able to do that. And as we gain additional supply, we'll expand our efforts in that second tier. Does that answer your question?

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Operator [15]

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Our next question is from Margaret Kaczor from William Blair.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [16]

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First one from me is just a follow-up on your commentary on the front-end, Jeff, where you had talked about maybe selling outside of traditional board-certified plastic surgeons for the Breast Products. And so first, what drove you to make that decision? Second, how do you manage the sales to both of those 2 categories, the board-certified and outside of that? Does this mean anything for volume or price as you move beyond just the traditional channel?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [17]

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Well, it's, that's a great question. And we have recommitted and our -- I can't imagine, ever changing, the commitment that we have in the breast surgery and surgical products to board-certified or board eligible plastic surgeons. That is a very large stake in the ground. What presents us with a challenge in terms of how to balance that with the expanded market that we now have, primarily in dermatology with miraDry, as well as BIOCORNEUM and as well as other products. So we're currently intentionally keeping these 2 business segments relatively autonomous and beginning to take advantage of some of the synergies. But as far as the target markets are concerned, we're not going to change. And what's really interesting here is that there is a significant number of plastic surgeons, including many of our own, who have expressed interest and who have already bought miraDry. And that does not contradict our commitment to board-certified-only surgeons.

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [18]

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So Margaret, it's Patrick. I just want to -- I think, just to be very clear what Jeff said at the end there, we are only -- we did not change our original thesis of selling only to board-certified plastic surgeons on our Breast Products, the implants. So I know there was a word in there that said something about eligible, that's how we referred to them as well, that is not going into a non-board certified plastic. So once again, Sientra remains committed to only selling implants to board-certified plastic surgeons.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [19]

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And expanders.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [20]

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Okay, got it. And then, as we look at your breast sales force, or the original Sientra sales force, however you want to term that. How are you structuring your quotas as you guys look to relaunch? Is it pure revenue? Is it regained accounts, growth in existing accounts? Any kind of additional clarity would be helpful there, along with where you expect to see kind of, I don't know, implants per rep, per quarter? What kind of metrics should we be looking at there?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [21]

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Yes, so it's Patrick again. So we're still doing as Jeff highlighted, because of the continued what I would call precision-controlled selling strategy, as our manufacturing ramps up, we're still really just hitting a number of revenue for them. As we move beyond and supply starts clearing up then you'll see the more traditional year-over-year growth metrics in terms of quotas that you'll start putting out there. But for now, we're really just in that same old mode of precision-controlled selling as we move through '18. We'll give more color on this as we get into '19 and better understand it.

On the other products like in AlloX2, which is our expander line, in Dermaspan, of course, in bioCorneum. Those are more on a growth of year-over-year, sequential growth as we move forward. But it's still a little bit of a hybrid model for now on the quota. And as we get more clarity and supply, we'll be in a much better position to get more to the historical way people would think of it.

In terms of metrics. We think about in terms of productivity per rep. They're probably hitting about $1 million right now across all of our product lines on the Breast Products. And a good rep should be getting closer to $1.5 million and so. And that's something we'll be measuring internally and obviously trying to better understand how we get more productivity out of the products we have.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [22]

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Got it. And I'm going to sneak one more in, if I can. On miraDry side, when we were at ASAPS, it sounded like there might be some back order -- there's so much demand, and frankly, it sounded like there's maybe some back order. Can you verify or not for us there? And then if you talk about, some of the cross-selling opportunities a couple of quarters ago. Have you guys moved forward with those or is that still an opportunity going forward?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [23]

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So I think on the cross-selling side, it's really -- it has not been a high priority for us. It will become more of a priority as we move through the rest of the year. We want to make sure that there's a very positive handoff between the 2 sales forces as we get more comfort with the fresh protocol and more commercial experience. And then of course, as the Breast Product reps out there and starting to reengage all these customers that they haven't spoken to in some time, are meeting all their needs. So we're not in a rush for that at this point, but it's definitely something we're focused on.

In terms of the back orders. A smart gentleman by the name of Keith Sullivan once said that back order's great thing when it drives demand out there. And I'll just say that we had a strong quarter in Q1. And we're happy to meet any demand that comes out of us from Q2 to Q3 and Q4 and so forth. Next question?

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Operator [24]

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Our next question is from Richard Newitter from Leerink Partners.

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Jaime Lynn Morgan, Leerink Partners LLC, Research Division - Associate [25]

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This is Jaime in for Rich. Just a couple of quick questions. I guess, I'll start with miraDry sales force, just some housekeeping. Could you guys confirm where you ended the quarter? I think, on the last earnings call you had said, you were at about 22 capital reps and 15 consumables. Does that still stand? And kind of where do see that ramp progressing from a hiring perspective throughout the rest of the year?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [26]

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Yes, those are still good numbers, Jaime. It's Patrick again. We'd used 22 and 15. You're always going to have a little bit of open territories here and there. We've hired a lot of people quickly. And so as we've always said, there might be a little bit of higher turnover at the beginning. So I would say, if you look at an entire quarter, we're not running at a full 22 for all 90 days in the quarter. But that is a good number to use for now, for the balance of certainly Q2, Q3 and Q4.

Will we add more capital reps as we move into '19? It's still a TBD. If we place enough systems, especially in some of these large metros, you can see us starting to break out some of those cities so that the sales reps have more face time and less drive time. And then, the consumable reps, our PDMs, it's a little easier to forecast or model those, because that's really a byproduct of the number of accounts they're servicing. And we like to keep them right around 30 to 35 accounts per rep. So we're good for this year, but going into '19, those are the things you can expect.

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Jaime Lynn Morgan, Leerink Partners LLC, Research Division - Associate [27]

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Okay, great. And then, I know you had said that, of course, the capital placements was a little bit stronger this quarter on the international business. And historically, you've kind of said, it's a 60-40 split between U.S./ o U.S. Is it fair to assume that that's more of a 40%, 60%, U.S. to OUS this quarter? And then reverting back to that 60-40 for the remainder of the year?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [28]

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It wasn't quite that much of a swing, but we definitely saw little bit on the capital side on international. As I said in my prepared comments, the other part of it though was that we had less consumables on the international side. So as we brought on the new team, really candidly in late January, and they started getting out into the field, they did see, especially with the distributors, that there was quite a bit of consumable inventory. And so they're working through that right now. And so I still feel good about the overall numbers we gave you, in terms of that 60% capital, 40% consumable. On the a same thing, U.S. versus international. To your point, it was a little bit less than 60% on the total U.S. contribution this quarter. But -- so directionally, down from that 60%. But we would expect it, if we look at the full year, we should probably get back up to those original numbers.

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Jaime Lynn Morgan, Leerink Partners LLC, Research Division - Associate [29]

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Okay, great. And then if I could just squeeze in 1 last question here, with respect to the offering that you guys did and the cash position that you guys now are going to have going forward, where do you guys plan to most aggressively invest in a business with these proceeds?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [30]

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Well, I think the basic priority is to be able to execute on the growth plans that we've been developing over the last 1.5 year plus that we have significant opportunities and as we've begun to share with you on both sides of the business. And that they require different investments, but we're trying to keep balance between the 2 segments. But there's no question that we are going to invest where the return is the greatest. So I guess, that is the fundamental criteria that we want to use. And that is -- has given us essentially everything we need to be able to deliver on the promise that we've been talking about with Sientra over these past several quarters. It seems this is all we've been talking about, when we're going to get FDA approval? When we're going to be able to start showing traction on miraDry? And that we're looking at this first quarter as a very strong start to what we're going to be able to do and progress from.

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Operator [31]

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Our next question is from Anthony Vendetti from Maxim Group.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [32]

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Just to follow up on the cash. Since you raised maybe a little more than you were expecting, is your burn rate, Patrick, going to be around the same that you have been at? Or now that you have more cash, are you going to try to accelerate some of those the programs that you have right now?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [33]

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Yes, I think we're pretty good the way I see it. We're going to see a little bit more cash burn, as we said in my prepared comments as we go into Q2. But I think on average, as we've been telling people, that $12 million to $13 million a quarter is not unreasonable. That's sort of an average burn, I would call it, for the entire 2018. We're obviously lighter in Q1. And I expect to catch up little bit in Q2, and then it'll moderate down from that, so. We're probably exiting around a $10 million burn in Q4. The reality is, it really is situational, we're just getting back, right, with -- on both the Breast Products side, and we have 1 quarter down under our belts for miraDry. So we have the dry powder now, that if we want to be opportunistic, and we see a reason to do it, we will absolutely do that. But all that's going to do is get us to a higher revenue number quicker, which means more cash generation quicker, right. So people will have to have faith in this management team that we've done it before, and that we will be good stewards of how we invest that money. But we certainly brought the cash on to invest and grow the business.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [34]

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Okay, and then, on the miraDry business. Have you finished rolling out all the new miraDry fresh protocol to all the machines? Or is that still in work progress? If so, where are you at in that process?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [35]

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As of 2 weeks ago, when I asked Keith Sullivan where we're at? He said that we're at about 90% in the U.S. rolled out. So I will stick with that number for now, because I haven't spoken to him in the last 2 weeks, but it actually moved a lot quicker than I thought it would across those installed. We had 400-plus systems installed in the U.S. The team did a very nice job of rolling that out very quickly. So kudos to our sales force out there and kudos to the R&D team as well as the manufacturing team that got everything put together at miraDry to get this out quickly.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [36]

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And is, I know Keith is the interim General Manager or temporary General Manager. Is there a search for a permanent General Manager for the miraDry business at this point? Or everything is just where it is now, and that's sort of status quo?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [37]

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No, this is Jeff. And that we have been conducting a very aggressive search. And we understand that the criteria and qualifications of someone who can drive this business at the level of growth that we expect, is -- there are very few who are going to be able to, frankly, accomplish the kind of results that Keith has. So I would expect that over the next several months, we will come to a final decision. And as soon as we do, we'll share with you all.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [38]

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Okay, great. And then, just on the sales, so you have above -- I know you had, on the miraDry, you have, domestically you have the numbers you gave us. Internationally, have about 15, is that right? Or is that still correct?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [39]

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Yes.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [40]

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Okay. And then, on the breast implant side, are you still at around 40 salespeople?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [41]

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That's approximately correct. And that part of this is, as we increase the supply and implement the demand, marketing programs that we already have in place that we will selectively add additional PSCs in the highest opportunity territories.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [42]

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And Jeff, I mean, I'm sure the sales force is pretty excited about having the approval and getting back out there, to go beyond the 600 and readdress the 1,400 or so. What's been the early sort of feedback you've been hearing in terms of being able to reengage customers that you had to cut back, due to the limited supply?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [43]

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I'll start. Two-part answer. The first one is, virtually -- in fact, everyone in the company is beyond excited, relieved and confident that with this final FDA approval, that we're going to be able to make the plans that we've been working on for the past 2 years, happen as quickly as possible. The sales force itself, I have to be careful, the language I use, in answering that. But these people are so pumped up, this is what they've been waiting for, for virtually 2 years, to be able to get the FDA approval as well as the materials. And now, most recently, the financial resources to be able to let them drive this business at a level that exceeds our highest point back in 2015. And I don't want to go into too much detail. But as you know, back in 2015, we approached a 15% market share and a corresponding share price that we believe is conservative, relative to our current expectations. But it's all based on the confidence and the reinforcement that they are the best-in-class in terms of partners with their plastic surgeon customers.

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Charles Huiner, Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy [44]

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Anthony, this is Charlie, just to follow up, because I think you also asked about the sort of beginning level of acceptance and excitement from customers, given our announcement on the FDA and relaunch. And I think, I guess, we couldn't have timed it any better. Yes, it was maybe delayed 3 or 4 months from what we were hoping, in terms of the FDA approval. But in terms of the actual timing of FDA approval coming right before the ASAPS meeting, we could not have timed that any better. We were able to launch into ASAPS with both the news of the FDA approval, as well as launching our Platinum20 best-in-class warranty, as well as being able to discuss the benefits of our 10-year relative clinical data. And when you come into a show like ASAPS, with a triple threat like that, and you have an opportunity right then to give feedback immediately from the surgeons. We certainly had a very lively booth presence at ASAPS, in addition to of course, hosting dinners, educational dinners at ASAPS. And there were a lot of really good discussions had, and certainly, having been here 4 years ago, and seeing the kind of buzz that Sientra generated back 4 years ago, when we were at that, call it, 15% market share level on the cosmetic side, it felt very similar in terms of the buzz and the excitement in our booth and at our dinners, discussions between, not only on the management level, but at the rep level. Certainly and again, it's early here, but certainly, starting to hear surgeons saying, hey, guys I'm so pleased you're back, can't wait to start to give you all of my business again. And I again, I don't want overstate it, but certainly, those discussions are happening, and now again, handoff to our field, to continue to nurture those relationships that they've been nurturing over these last 2 years. So that we can phase this out from a supply standpoint, which is really the strategy that we talked about.

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Operator [45]

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(Operator Instructions) And our next question is from Brooks O'Neil from Lake Street Capital.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [46]

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I have a couple of questions. First I was hoping you might tell us a little bit about what you're seeing from the competitive response on both sides of the business, competitive environment I guess, is maybe a better way to think about it. So we have a sense for what's happening in the marketplace?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [47]

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Brooks, let me try to summarize that. We pay very close attention to our competitors. And that -- and I will not criticize anyone, but we view them as having elements of vulnerability, that we are prepared to take advantage of and take share, that there have been some recent developments at Allergan. I'm sure you're aware this week, that are still playing out. But we have a strategy and a number of tactics that we believe are going aid us in that objective and Mentor continues to be Mentor. And I'd rather not get into any further description of what that means.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [48]

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Any comments on the miraDry side?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [49]

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Well, I would say -- yes, I'd love to. I know that Patrick is panting, wishing he could talk about it. But miraDry is a substantial, unique alternative to other solutions for excess sweating and odor. And that's primarily Botox. And as you know, there are a number of pharmaceuticals under development, under Dermira and (inaudible). And that we don't underestimate those, but at the end of the day, logic tells me that consumers are prone to seek a solution where they are one and done, as opposed to having repeat treatments over a lifetime. And one of the things that stands out to us is that a year's treatment of Botox, roughly 3 applications, is approximately the same amount of investment as it would take to have the miraDry procedure, where you never have to worry about it again. So I'm not saying that we are -- we're not paying attention to them. We are. But the fundamental advantage of a one and done treatment has gotten significant reinforcement that many, many sufferers would much prefer a one and done and be done with it.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [50]

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Great. That's very helpful. I assume, because of the success of the common stock offering that you've suspended or terminated the ATM. But could you tell us the status of that, just so we know?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [51]

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Patrick, do you want to answer that?

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Patrick F. Williams, Sientra, Inc. - Senior VP, CFO & Treasurer [52]

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Yes, we're not using the ATM, and no foreseeable need to using the ATM. We have enough money to get us free cash flow breakeven, like we said.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [53]

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Okay. And then thirdly, I'm curious if you could just talk a little bit, obviously there were 3 changes, possibly minor to the breast implant manufacturing process that I think ultimately caused some delay in the approval? Just curious, what those changes were. Are they consumer facing? Are they cost reduction? Help us to understand sort of what was going on there, so that we can kind of think about the future?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [54]

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I can answer that. And that the very minor changes that were made were put in place as a, frankly, an improvement in safety. And as that may have been enough of a rationale. It also brought the process and the ingredients up to category standards. And that frankly, Brooks, the FDA had a little trouble understanding that, period. That's all it was.

Any further questions?

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Operator [55]

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At this time, I am showing no further questions. I would like to turn the call back over to Jeff Nugent, CEO, for closing remarks.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [56]

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Thank you very much, operator. I'll just be very brief, and I want to emphasize again the number of major accomplishments during this quarter. And for those of you who have been following us, I want to thank you for your continued interest in Sientra and the belief in the potential to grow this, and to create the shareholder value that we have -- we have spent a great deal of time identifying. And that we look forward to sharing the growth that we already have planned and our progress on meeting those objectives. So again, thank you very much for your attention to Sientra.

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Operator [57]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.