Sientra, Inc.
Q1 2020 Earnings Call Transcript

Published: 12 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Sientra First Quarter 2020 Earnings Conference Call. [Operator Instructions].I would now like to hand the conference over to your speaker for today, Oliver Bennett. You may begin, sir.

[Oliver Bennett:]

Thank you, Operator. Good afternoon, and welcome to the Sientra First Quarter 2020 Earnings Conference Call. I would like to remind everyone that 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 previously filed annual report on Form 10-K and quarterly report on Form 10-Q that the company filed this afternoon. 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.I would also like to note that Sientra uses its Investor Relations website to publish important information about the company, including information that may be deemed material to investors. Financial and other information about Sientra is routinely posted and is accessible on the company's Investor Relations website at www.sientra.com.Today on our call, we have Jeff Nugent, Sientra's Chairman and Chief Executive Officer; Paul Little, Sientra's Chief Financial Officer, Senior Vice President and Treasurer; and Kirk Gunhus, Senior Vice President of Worldwide Sales.I will now turn the call over to Jeff. Jeff?

[Jeffrey Nugent:]

Good afternoon. Thanks, Oli, and thank you for joining us today. We want to welcome you to our first truly virtual earnings call. On the call today, we'll review our first quarter results and provide context on the impact of the COVID-19 pandemic to our business. We'll also discuss our strategy and confidence on moving ahead, including the steps that we are taking to strengthen the focus on our core Breast Products segment, while we are helping our customers to drive recovery on an individual practice level. Finally, we'll outline measures we are taking to preserve cash and financial flexibility through these uncertain times and to maintain the levels of operation necessary to position ourselves for the long term.Before I discuss these issues, I'd like to say that, first and foremost, like many of us today, our hearts are with those impacted by the COVID pandemic. We continue to prioritize the health and safety of our teams, our partners and patients and have taken steps to ensure that risks to our essential workers and customers are mitigated. We are constantly monitoring the evolving situation and evaluating the impact on our business, and we will remain nimble in our strategic responses and our ability to quickly adapt to these changing conditions that has already provided increased credibility and competitive advantages as our markets begin to open.With that said, I'll shift to a discussion on our first quarter results. In the first quarter, Sientra recorded net sales of $16.9 million, a 4% decrease year-on-year.Turning first to our Breast Products segment. Sientra recorded strong first quarter net sales of $12.5 million, which equates to a 28% year-over-year growth. Growth was driven by exceptional performance on our core breast implant and reconstruction-related tissue expander segment, which excluding bioCorneum, grew at 32% year-on-year. This demonstrates our continued strong market share gains, particularly during the same period when our largest competitor announced U.S. revenue declines of over 30%.Our tissue expander segment experienced another record quarter on growth. Sientra's Q1 breast product performance is a clear evidence of the continued positive traction and market share gains we are seeing with our best-in-class Breast Products portfolio. Still, despite the relatively strong quarterly performance, we began to see a reduction in breast product shipments in the second half of March as a result of the COVID-19 and moratoriums on elective procedures. This trend has continued and will impact second quarter revenue. Paul will provide more details on these impacts in his remarks later in the call.Despite this slowdown, we were pleased with the consistent demand we were seeing before the COVID-19 pandemic began to impact the overall category. That said, Sientra remains open for business -- totally open for business. Our manufacturing facilities in Wisconsin and Montana remain operational. We continue to receive orders and supply product to our customers, and we are taking measures to ensure that we are prepared to meet increasing customer demand as markets begin to reopen and normalize. We've also implemented a field support strategy, which leverages the flexible nature of our commercial infrastructure, our virtual capabilities and our ability to adapt to changing market conditions to assist our customers to accelerate their individual practice recovery.To this end, we've taken the following steps

[Paul Little:]

Thanks, Jeff. I'll comment on our first quarter 2020 results before speaking to our strategic response to COVID-19 and the financial implications of our initiatives. As Jeff mentioned, in the first quarter 2020, Sientra achieved net sales of $16.9 million, which equates to a 4% year-over-year decline.Net sales for the Breast Products segment totaled $12.5 million in the first quarter of 2020, a 28% increase compared to $9.8 million for the same period in 2019. For first quarter 2020, net sales for miraDry were $4.5 million, or a 43% decline year-over-year.Gross profit for the first quarter was $10.1 million or 60% of sales compared to gross profit of $11.1 million or 63% of sales for the same period in 2019. Operating expenses for the first quarter of 2020 were $37.1 million compared to $36.9 million for the same period in 2019. Excluding a $6.4 million noncash impairment of certain intangibles related to miraDry and restructuring charges totaling $1.7 million, operating expenses in the current quarter decreased $8 million compared to the same period in 2019.Net loss for the quarter of 2020 was $28.6 million or a negative $0.57 per share loss compared to a net loss of $26.5 million or $0.91 per share loss for the same period in 2019. On a non-GAAP basis, the company reported an adjusted EBITDA loss of $15.5 million for the first quarter compared to an adjusted EBITDA loss of $21.1 million for the first quarter of 2019.Turning to cash, net cash and cash equivalents. As of March 31, 2020, it was $112 million, compared to $88 million as of December 31, 2019.To maintain our financial health, we are taking the following actions

[Jeffrey Nugent:]

Thanks, Paul. Let me close today by emphasizing what is really unique about Sientra and why we remain confident in our ability to emerge in a position of strength. This is an extremely nimble company, that has shown our ability to adapt to significant challenges. The one we're facing now is certainly the most challenging. We have quickly taken the immediate steps to build on our core advantages by taking the lead and filling an important real-time need among our plastic surgeon customers and by concentrating our efforts on helping them to rebuild their practices more quickly, which is opening more doors with new customers and earning increased loyalty from existing ones.Sientra is clearly positioned to continue on this path at a time when the speed of adapting to new conditions is critical. There are plenty of historic examples that prove that organizations who respond quickly with meaningful points of difference succeed and win.I want to thank all of our employees, customers and shareholders for their support, their patience, and I wish you all well in the challenging times ahead. With that, let's open up the line for Q&A. Operator?

[Operator:]

[Operator Instructions]. The first question comes from the line of Malgorzata Kaczor with William Blair.

[Malgorzata Kaczor:]

First of all, thanks for the comments on April and May. Those were very helpful. Maybe we can go back a little bit further as well on that. Paul, you may have some context just given your time at Allergan. But as we look at some of the old market models that we have going back to 2004, it seems like even in kind of the '08 downturn, maybe you saw a couple of quarters of weakness, down 30% or so, and then it seemed to kind of rebound again. And your comments on April and May, on a year-over-year basis, they're probably a little bit more just because these offices are closed, but do you expect something similar, I guess, as what we saw in '08 and '09? And if you can kind of compare and contrast the 2 timings, that would be helpful.

[Paul Little:]

Yes, let me take that. So yes, Margaret, if you're referring -- great question. If you're referring to like the last recession, if you look at ASPS data, for instance, procedures were down 11% for the first year, and actually fell off another 7% the year after. I think what's different this time is that it was so abrupt on the plastic surgery market. So you get all the surveys wet get as well. Plastics were saying, the procedure volume was down 80% in April. So we didn't see that necessarily in our business, but we also have a really strong recon market. But I think, right now, it's too early to tell if it's going to follow that pattern or it's going to be more abrupt in the immediate year and then come back and bounce back immediately next year. It's a different time frame this time that's going to work.I do believe what's going to change, though, I think it's going to be a channel -- channel impact would be differently. I think it was very broad back in the last recession. Invasive plastic surgery procedures like implants were the first in they might have been the last out.A lot of the growth to date in the last 8 years has been in the noncore markets. I think the fact that we sell the plastics, we're probably best geared to recover, there's going to be -- when the recovery occurs, they are the most diverse practices or financially, the strongest. They will probably -- they were probably impacted -- they'll be impacted this quarter, but they're going to be the best to able to turn this thing around, I think, versus maybe like noncore Medicspot channel. So that's what we're waiting for to see. We'll have to see how the offices start opening up over the next month or two. We did a survey, 30% of our accounts, we're seeing doctors in April, one of our initial surveys. And Jeff, you may have some more notes to add to this.

[Jeffrey Nugent:]

Yes. And I think part of this, too, is that I think we've all seen the surveys that indicate that at least 35% of the states have met the criteria from CDC and the White House, and that number is expected to grow to 40% within the next 2 weeks. So we believe that there's similarities and there's differences here, Margaret. I do -- I'm encouraged by what I'm seeing in working closely with our core plastic surgeon group, with some of the innovative programs that we've put in place that are geared at jumping in to give them the information that they need because they're not clear on what to do. And I think Sientra has stepped ahead with some of our exclusive sponsorship of some of the aesthetics society programs, plus a number of other things that we'd be happy to share with you.

[Malgorzata Kaczor:]

Okay. Great. And just kind of a similar question from a miraDry perspective. I think breast tends to be a little bit more resilient. Patients take some time to go through these decisions and make that decision and usually try to stick with it. If you look at miraDry, it sounds like your installed base still grew this come -- this past quarter. Should we expect that installed base to continue to grow from here? Is it going to be maybe a trough and then coming back up? And maybe a similar question on utilization, if you're seeing folks reschedule those procedures?

[Jeffrey Nugent:]

Well, the second point first, and we're encouraged by the increases in utilization, which is part of the basis for the strategic shift that we've previously announced that we're putting into practice. And when you look at it, the fundamentals remain intact on the entire miraDry business model. But we're making adjustments to it to obviously focus on balancing the potential for growth while increasing our ability to reach cash flow positive in 2021. That is helping us focus on providing the investment necessary to grow our core business model with fresh products.But the -- a lot of the fundamentals that we've talked about for many quarters are still attractive to us. So I don't know if that's answering your question directly, but we continue to be encouraged.

[Malgorzata Kaczor:]

Okay. And just to tag on one more, and this will be my last one. But I think, Jeff, you had referenced the striving for cash flow breakeven or positivity in 2021. Does this change? Did COVID-19 change that path at all at this point?

[Jeffrey Nugent:]

It really doesn't, Margaret. And in fact, as to what's behind our creating the initiative, that is, we found in dealing with a number of plastic surgeons, there are 2 choices that each surgeon can choose. One is to ride the recovery whenever that happens. And the alternative is to be more assertive, be more proactive in driving the recovery for their individual practice. So that's the fundamental core of our increased aggressiveness in driving this recovery. And you'll -- if you can take 5, 10 minutes to look at that, drive the recovery.com website, I think you'll see the details behind it. We've put a lot of work into it.

[Operator:]

Our next question comes from the line of Jon Block with Stifel.

[Jonathan Block:]

The first, just on the Breast division, which was certainly very strong. I think up 32% ex bioCorneum. So arguably that was an inflection point in market share. So any color on that inflection point. And then anything on the growth of 1Q '20 breast between the recon division versus that of augmentation? And then I just got a follow-up.

[Jeffrey Nugent:]

Jon, I'll start by just repeating the fact that we have a consistent momentum on the Breast Products side, that is -- has been led by the increased superiority of our reconstruction portfolio. However, we're finding balanced growth between the 2 different components. That there's really nothing new here other than the increased attention prior to COVID-19 hitting, we saw the strong growth continue. We had some effect in the latter part of March. But given that, it's just another validation of our go-to-market strategy working. And as I'm sometimes reluctant to point out, it's an indication that when our largest U.S. competitor is down by over 30% year-on-year, we're up over 30% year-on-year. I think that generates a conclusion. We continue to be confident in that.

[Jonathan Block:]

Okay. Let me try to ask the question maybe a different way, sorry. So to your last point, again, I think this -- you have been taking share, that's been clear. But this quarter, it seems like there was a step-up in the rate of share gains. So clearly, we're dealing with the COVID-19 world unfortunately now and likely for several months, at least, who knows. But Jeff, let me ask it a different way. Upon the resumption of any sort of normalcy, whatever that may mean in the marketplace, are you as confident at the rate of share gains that we just saw that, that's sustainable going forward? I'm sorry, and then I've got a follow-up.

[Jeffrey Nugent:]

No, Jon, it's a great question. And that really borders on guidance in terms of how we can predict continued share gains. There's so many -- there's so much uncertainty in this. I can't be precise other than knowing that we are increasing the advantages that we have, particularly with some of these recent initiatives that we've started. I fully expect that, that diversions of market share to continue.

[Jonathan Block:]

Okay, that's very helpful. And then Paul, the second one, I think is more for you. Just the OpEx results and the OpEx guidance was really very impressive. And I just want to be clear, the miraDry capital reps, I guess, from the company's perspective, that move is permanent. Maybe that strategic move was accelerated by COVID-19, but the focus on the consumables will remain in the U.S. post COVID, is that correct?

[Paul Little:]

Yes, Jon, I think it's a good question. I think the best way to think of it is, the change was made to move to the bioTip, so we already got focused on it this year. But because of COVID-19, that's -- the sales force in the U.S., for example, that's what we have. We have -- now we're going to have 11 business consultants, we won't have our capital reps. Now these business consultants will sell capital equipment when the opportunity arises. But our focus this year is on the high-margin bioTip business without any independent or any separate capital equipment reps. So that's the 28 we mentioned with a combination of U.S. and ex U.S. employees dealing just within sales for miraDry.

[Operator:]

Our next question comes from the line of Richard Newitter with SVB Leerink.

[Jaime Morgan:]

This is Jaime on for Rich. I just wanted to go back to some of the commentary. Obviously, you mentioned you're thinking that the April trend for breast products are down about 60% year-over-year. Could you give us a sense of what that is? I don't know, maybe I missed it, but for the miraDry business, what you're seeing from a percentage of procedures being down year-over-year? And then just based on kind of the past recession, kind of going back to what Margaret was asking first, where have you seen the two different types of procedures from both the breast implant perspective and something more in the miraDry segment, following the priority spectrum with respect to how the procedures actually get recovered?

[Paul Little:]

Jeff, do you want me to take this one?

[Jeffrey Nugent:]

Yes. I'm trying to understand the question, but if you do, Paul, go ahead.

[Paul Little:]

Okay, first of all, I'd say we didn't -- we gave more clarity on the breast business as we see day-to-day. And so when you say, really, what do we see in April, we saw a lot of reconstruction. So kind of going back to Jon's question, what do we see in the first quarter growth? Pretty much 50-50 recon or the both growing at the same rate, over 30% for implants and expanders, a record quarter for expanders. So ample we could see that the markets were completely shut down, and we were getting some nice shipments every day and a lot of it was in reconstruction. You can see it going to the hospitals and [Technical Difficulty] so we can give some visibility.Because the miraDry business and the capital nature of it, it's still very back quarter-loaded, our visibility right now is our distributors. And so what we can say is that 30% of our revenue for miraDry has historically been Asia Pacific, and Asia Pacific is also first back on line, we're comfortable that we're getting orders in for the APAC business. I have not given a dollar clarity on what that may or may not be.U.S., we said it's going to be fairly quiet because the business consultants mostly were on furlough prior to recently. Now they're being -- coming back out and they're reengaging with our accounts. So the miraDry business is a little bit more hard to predict. It's -- we actually definitely have revenue, and we have some significant revenue going to our APAC markets. If you remember, Japan is our largest market outside of North America. There was investment of $6 million last year. And so that business is back and running and again, China, Taiwan as well.So I would say I think quarter two is APAC, but we're just not calling it to you guys until we see more of what's happening. But again, this is not a 0 quarter, the business is running, and we're happy with what we're seeing to date in this business.

[Jaime Morgan:]

Here, let me try and ask it. I just wanted to follow up. So basically, all I was asking was, you guys mentioned the 60% decline for the breast procedures in April. That was the trend you saw. So I was just curious what the same sort of trend in year-over-year decline was for the U.S. miraDry business from a procedure perspective, the consumables, if you have some color?

[Paul Little:]

I don't have much color on that. The U.S. is fairly quiet in April. We saw about 20% of our accounts that were still doing procedures, those that were connected to our fresh connect protocol. But aside from that right now, which is where we have orders in-house for European and Asia Pacific distributors, I'm not right now giving a percentage of what that is.

[Operator:]

Our next question comes from the line of Chris Cooley with Stephens.

[Christopher Cooley:]

Congrats on the aggressive cost cutting there as well as the strong growth. I guess just two for me. I don't want to belabor the growth aspect a little bit, but I do want to come back to the breast business because you put up a very strong growth there. If we look at last year alone, I think about that business, you saw roughly 22% growth in essentially a flat market. Once again, we've put up very strong growth in a flat to declining market. And where I want to go with this is ex COVID-19 or when you get to the other side, previously, you all had talked about being a single-digit grower there. And so maybe I'll phrase the question a little bit differently, but should we take those expectations higher? And if so, is it a function of growth in the recon component? Or is it growth in both aug and recon over time? Again, this is ex COVID-19. Just trying to think about kind of a normalized operating environment. And I've got one follow-up.

[Paul Little:]

Yes, I'll take this. Yes, last year, our implants and expanders grew about 32% actually year-over-year, excluding the bioCorneum business. So it was incredibly strong growth last year. In this current quarter, again, we had a 32% implant and expander growth as well. So in terms -- other than tracking your single-digit growth, I've always said this business pre-COVID-19 is a 20%-plus business, with the ability on the breast business, even in a flat market, to take significant share from our competitors. And with competitors down 34% in the first quarter, us up 32% in the U.S., we're very confident that our strategy of taking share is sound, and we believe that it will continue in the current environment. So we've always said in the past that -- last year, we thought we end '19 with maybe a high single-digit market share. Our goal is not to be a #3 player in this market, and we see a pathway to continuing both on aug and recon. The recon strategy with the Allox2 PRO and the Dermaspan and the contract sales force in place and our best-in-class implant business, we are seeing a pathway to share. And we're continuing that model. When the market goes down or up, we're going to take share and we will outgrow the market because of that share gain. And it's consistent now. This will be our third year running. I don't know if that helps, Chris.

[Christopher Cooley:]

Yes, that's helpful. I appreciate it. And then just as a follow-up for me on the miraDry business, I applaud the move to focus on the bioTips. Could you just maybe speak to what this now looks like structurally when we think about the operating profit contribution from that business going forward? Not so much just from the product mix shift here in the short run, but more so, again, once we're on the other side of this COVID-19 pandemic, and you've materially reduced the sales and marketing infrastructure there. Help us just think about what the profitability of that business looks like now versus, say, exiting calendar 2019?

[Paul Little:]

That's a great question. Thanks, Chris. So I would say, if you want to model the rest of the year, we're thinking from a -- for the remaining 3 quarters, in the tip console mix, it's really going to be about 90% tips and 10% consoles, just to give you an idea what we're talking about. And in terms of the U.S. and ex U.S., we believe it's going to be 40% U.S. and 60% ex U.S. for the remainder of the year. With that said, with this new focus on the tips, we are driving this toward a profitable or breakeven business in 2021 under the scenario. And we're going to focus a lot of the efforts on the breast business, continue to drive value on the miraDry business bioTip utilization, but by fall by the structure we're doing, it will turn to, let's call it, a breakeven in 2021 onto how we're modeling our thought process.

[Christopher Cooley:]

Super. And if I could just sneak one quick clarification in. You stated, for this year, 2020, you're looking for a bogey of about $105 million to $110 million in OpEx. Just want to clarify, that's excluding the impairment and the restructuring charges, correct?

[Paul Little:]

That is correct. That was excluding both of those, Chris.

[Operator:]

Our next question comes from the line of Alex Nowak with Craig-Hallum.

[Alexander Nowak:]

Jeff, perhaps around Paul saying miraDry APAC's proxy and the Breast Products business, is there any reason that the APAC commentary and the relatively quick recovery there won't be a good reflection of the U.S. augmentation breast business? And if the APAC does hold, is it fair to say we could get back to a normal breast volume number in, say, a September-October time frame?

[Jeffrey Nugent:]

It is certainly within the range of the scenarios that we've looked at. I think it's prudent to not be overly optimistic because nobody knows the shape of this curve that everybody is talking about. And there are going to be a lot of factors that affect it. I don't want to concentrate on the category metrics per se because we believe that there's going to be a fairly broad range among those that are driving their practice to recovery faster than others. So we're looking at our core customer base, which we believe will outpace the average. So you put all those factors into account, and while the Asia Pacific leading indicator is encouraging, but you don't have to spend too much time in front of CNN to understand how they're struggling with how to predict this. But we're getting significant optimism from not only the individual plastic surgeons, but the leading societies, the aesthetic society, ASPS, et cetera. So it's a -- it's not a tight range of worst case to best case, so I'm not trying to prevaricate here. But I do think it's a -- we're making sound assumptions and preparing our resources to be able to take advantage of it as it occurs. I hope that answers it.

[Paul Little:]

I may just add to that, I think that's great, Jeff. And we talk about these different channels. But if you look at breast aesthetics, you look at the invasive procedure. But our procedures, they're not a poster, right? Women's journey isn't overnight, it lasts. So as we're looking at this, these are postponed, they're not canceled. Whether some will be canceled, we'll see. But they're postponed. At the same time, as you saw before, a lot of the city started shutting down, there was a rush to get these procedures done. So aug is different. It's not that wholesome buy that you might get from a noninvasive procedure.And then second, if you look at our portfolio, half is recon and half is augmentation. We believe the reconstruction market is a lot more resilient. If you go back to the ASPS data back in the last recession, recon grew. Now it can be most of reasons. One is people are still going to get it done because that did not change, it got delayed. Doctors that might have been doing aug maybe switched to recon. So we believe that given our portfolio was 50-50, that does protect us quite a bit in that side of the market. And in addition, I would stick with, I think plastic surgeons are going to come out of this may be different than others. They've got their financial ability and the mix of portfolio. I think they're the right channel to be in if you're having disruptions in the marketplace, at least in on our opinion.

[Alexander Nowak:]

All right, that's very helpful. And then just a follow-up to another question. You're placing about 60 to 80 miraDry consoles each quarter. Obviously, some of that's OUS and U.S. and that's just prior to COVID. But with the new sales strategy and once we recover from COVID, how long will it take to ramp the tip utilization to make up from the lower console revenue? And then with the bigger focus on the utilization now, where do you stand on new product development to go on to the miraDry console?

[Jeffrey Nugent:]

I think the best way to put that is that we're constantly looking for ways to improve the basic functionality of the equipment. But the -- what we found is that there is a consistent reliability and improvement in terms of procedure time, et cetera, which is our primary focus.And again, going back to what Paul had indicated, what's driving this is that we're certainly focusing on a strategy that is going to balance our ability to continue to grow while achieving cash flow positive in 2021. And there are a lot of pieces behind that, but that's the fundamental objective, and we think we're making the right calls to be able to achieve that.

[Operator:]

[Operator Instructions]. Our next question comes from the line of Anthony Vendetti with Maxim Group.

[Anthony Vendetti:]

Most of my questions have been asked. But maybe, Paul, if you could talk a little bit about the breast margin profile of miraDry going forward. Obviously, you focus more on consumables as that's higher margin. But as we move into next year, let's say, 2021, what does that profile look like a little bit?

[Paul Little:]

So you broke up a little bit, Anthony. What you're saying is, is the profile going to change in 2021 on how -- what our revenue mix looks like versus 2020?

[Anthony Vendetti:]

Right, for miraDry, particularly.

[Paul Little:]

No, I'd say, at least at this point -- at this point right now, our focus is going to be on bioTips, working and making our existing customer base successful and putting our efforts there. And that's where the focus of the team is going to be there as well. And so that won't change dramatically next year, unless we decide to change it. But that's our focus right now. We're going to -- we're managing that business differently. We're managing it from a tip utilization almost only. And so the placements will occur, but they'll occur only on -- when the right criteria met by an account. We know that it can immediately turn around and drive utilization. But otherwise, this is going to be, primarily, a tip utilization business this year or next.

[Anthony Vendetti:]

And next, okay. And just to remind everyone, the gross margin on the tip is approximately what?

[Paul Little:]

90% on the tips and about 50% on the console. Ex U.S., you've got about 35%, 40% discount because of the distributor markets on the tips. So a tip -- a box of tip is 12 in a box -- 12 in a case and $400 a tip. So it's a nice margin business to focus on.

[Operator:]

Our next question comes from the line of Kyle Rose from Canaccord.

[Kyle Rose:]

So just one for me. And I wanted to talk a little bit about the recon business. Maybe you can help us understand where you are at from a utilization perspective, with respect to implants and expanders that are being used in tandem? And I guess, just what we're trying to parse out is how much of the opportunity within recon is still like low-hanging fruit or just simply capturing the implant share of that business? And what needs to change to get to closer to 100%.

[Jeffrey Nugent:]

Let me answer that, Paul. Because we don't want to disclose the specific mix between the two. But the strategy is to use the superiority of our tissue expanders to get into these hospital chains based on the overwhelming superiority of those expanders. The best way to put it is that we have significant opportunity to balance the implant with tissue expander. So in addition to drawing in new accounts, primarily hospitals, there is that upside in addition to -- and I don't want to quantify it right now, but there is a very significant opportunity to match implants with the expanders. It's -- at some point, we'll be able to share that with you, but right now, I can't. But it's a big opportunity.

[Paul Little:]

I would add that I think we're less than 15% penetrated in the hospital market at this point, given the accounts around the contracts we're in. So, let's say, there's about 8,000 hospitals out there, about 40%, 45% of which do reconstructive surgery, we think we're in about 15% of those. So we think the penetration is far to go.

[Operator:]

I'm not showing any further questions. I will now turn the call over to Jeff Nugent for closing remarks.

[Jeffrey Nugent:]

Good. I want to thank you all for your continued interest and support of Sientra. These are extraordinary times that we are all very well aware of and that I hope that we have added to the reason to believe what is different about Sientra. I have never been more confident in terms of the advantages that we have right now under these extraordinary circumstances. We're continuing to gain significant market share. We've adapted very quickly, faster than any of our competitors to be able to provide real value-added services to our plastic surgery customers that is being -- that's being replayed to us with increased support and commercial results. So in any event, I want to share with you the additional initiatives. And like I said, if you have an opportunity to just try out the drivetherecovery.com website, I think you'll see a better delineation of what some of those initiatives are.So again, I thank you all and look forward to talking to you soon. Stay healthy and, that's the priority right now. Thanks, guys.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.