The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q and the audited financial statements and notes thereto as of
and for the year ended
Forward-Looking Statements
The information in this discussion contains forward-looking statements and
information within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, which are subject to the "safe harbor" created by those
sections. These forward-looking statements include, but are not limited to,
statements concerning our strategy, future operations, future financial
position, future revenues, projected costs, prospects and plans and objectives
of management, and the impact of global economic conditions and public health
crises and epidemics, such as the COVID-19 pandemic, on our business and
industry. The words "anticipates," "believes," "estimates," "expects,"
"intends," "may," "plans," "projects," "will," "would" and similar expressions
are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. We may not actually
achieve the plans, intentions or expectations disclosed in our forward-looking
statements and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements that we
make. These forward-looking statements involve risks and uncertainties that
could cause our actual results to differ materially from those in the
forward-looking statements, including, without limitation, the risks set forth
in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q, the
risks set forth in Part I, Item 1A, in the Annual Report, and in our other
filings with the
Overview
We are a medical aesthetics company uniquely focused on becoming the leader of
transformative treatments and technologies focused on progressing the art of
plastic surgery. We were founded to provide greater choices to board-certified
plastic surgeons and patients in need of medical aesthetics products. We have
developed a broad portfolio of products with technologically differentiated
characteristics, supported by independent laboratory testing and strong clinical
trial outcomes. We sell our breast implants in the
We completed the sale of the miraDry business on
Our Plastic Surgery segment focuses on sales of our breast implants, tissue
expanders and scar management products. We currently sell our products in the
Recent developments
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Saudi Arabia Approval
On
Health Canada Approval
On
COVID-19 Pandemic
As an aesthetics company, surgical procedures involving our breast products are
susceptible to local and national government restrictions, such as social
distancing, vaccination requirements, "shelter in place" orders and business
closures, due to the economic and logistical impacts these measures have on
consumer demand as well as the practitioners' ability to administer such
procedures. Hospitals across the
Further, the spread of COVID-19 has caused us to modify our workforce practices, and we may take further actions that we determine are in the best interests of our employees or as required by governments. The continued spread of COVID-19, or another infectious disease, and other geopolitical conditions, could also result in delays or disruptions in our supply chain (for example, sourcing of medical-grade silicone) or adversely affect our manufacturing facilities and personnel.
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 and duration of COVID-19 is unknown at this time, we have 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.
Components of Operating Results
Our net sales include sales of silicone gel breast implants, tissue expanders, BIOCORNEUM, and sizers. We recognize revenue on breast implants and tissue expanders, net of sales discounts and estimated returns, as the customer has a standard six-month window to return purchased breast implants and tissue expanders. We defer the value of our service warranty revenue and recognize it once all performance obligations have been met.
We expect that, in the future, our net sales will fluctuate on a quarterly basis due to a variety of factors, including seasonality of breast augmentation procedures and the impact of the pandemic. We believe that aesthetic procedures are subject to seasonal fluctuation due to patients planning their procedures leading up to the summer season and in the period around the winter holiday season.
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Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of raw material, labor, overhead, and variable manufacturing costs, reserve for returns, reserve for product assurance warranties, royalty costs, excess and obsolete inventory reserves, and warehouse and other related costs.
With respect to our supplier contracts, all our products and raw materials are manufactured under contracts with fixed unit costs which can increase over time at specified amounts.
We provide an assurance and service warranty on our silicone gel breast implants. The estimated warranty costs are recorded at the time of sale. Costs related to our service warranty are recorded when expense is incurred related to meeting our performance obligations.
We expect our overall gross margin, which is calculated as net sales less cost of goods sold for a given period divided by net sales, to fluctuate in future periods primarily as a result of quantity of units sold, manufacturing price increases, the changing mix of products sold with different gross margins, warranty costs, overhead costs and targeted pricing programs.
Sales and Marketing Expenses
Our sales and marketing expenses primarily consist of salaries, bonuses, benefits, incentive compensation, stock-based compensation, consumer marketing, and travel for our sales, marketing and customer support personnel. Our sales and marketing expenses also include expenses for trade shows, our nocharge customer shipping program and no-charge product evaluation units, and severance expenses, as well as educational and promotional activities. We expect our sales and marketing expenses to fluctuate in future periods as a result of headcount and timing of our marketing programs.
Research and Development Expenses
Our research and development, or R&D, expenses primarily consist of clinical expenses, product development costs, regulatory expenses, consulting services, outside research activities, quality control and other costs associated with the development of our products and compliance with Good Clinical Practices, or cGCP, requirements. R&D expenses also include related personnel and consultant compensation, stockbased compensation expense and amortization expense related to developed technology. We expense R&D costs as they are incurred. We expect our R&D expenses to vary as different development projects are initiated, including improvements to our existing products, expansions of our existing product lines, new product acquisitions and our clinical studies.
General and Administrative Expenses
Our general and administrative, or G&A, expenses primarily consist of salaries, bonuses, benefits, incentive compensation and stock-based compensation for our executive, financial, legal, and administrative functions. Other G&A expenses include estimated legal settlement expenses, deferred consideration adjustments, bad debt expense, outside legal counsel and litigation expenses, independent auditors and other outside consultants, corporate insurance, facilities and information technologies expenses, and severance expenses. We expect future G&A expenses to remain consistent with the current period.
Interest Income
Interest income primarily consists of interest earned on our cash and cash equivalents and marketable securities.
Interest Expense
Interest expense primarily consists of interest expense and amortization of issuance costs associated with our Credit Agreements.
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Change in Fair Value of Derivative Liability
Change in fair value of derivative reflects the non-cash change in the fair value of derivatives.
Income Taxes
Income tax expense consists of an estimate for income taxes based on the projected income tax expense for the period. We operate in several tax jurisdictions and are subject to taxes in each jurisdiction in which we conduct business. To date, we have incurred cumulative net losses and maintain a full valuation allowance on our net deferred tax assets due to the uncertainty surrounding realization of such assets.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity in Note 1 of the "Notes to Financial Statements" in our audited financial statements included in the Annual Report. There have been no material changes to our critical accounting policies and estimates from those disclosed in the Annual Report.
Recent Accounting Pronouncements
Please refer to Note 1 of the "Notes to Financial Statements" in our audited financial statements included in the Annual Report on Form 10-K for information on recent accounting pronouncements and the expected impact on our unaudited condensed consolidated financial statements.
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