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Sientra (NASDAQ:SIEN)
Q2 2019 Earnings Call
Aug 08, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to the Sientra second-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Neil Bhalodkar. You may begin, sir.

Neil Bhalodkar -- Investor Relations

Thanks, operator. In our remarks today, we will include statements that are considered forward-looking within the meaning of the United States Securities Law. 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 will file with the SEC. 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 statements. Today on our call, we have Jeff Nugent, Sientra's chairman and CEO; Paul Little, CFO, senior vice president, and treasurer; and Charlie Huiner, COO and senior vice president of corporate development and strategy.

I'll now turn the call over to Jeff.

Jeff Nugent -- Chairman and Chief Executive Officer

Thanks, Neil. Good afternoon, and thank you for joining this afternoon's call. As discussed in our earnings release, Sientra's second-quarter results were very strong with consolidated sales growth of 17% year on year. Our entire team is extremely proud of these record results and I want to highlight three of those key achievements in particular.

First, Sientra's OPUS breast implants and tissue expanders continue to take share with breast products sales growth 19% year on year at a time when the overall market is flat. Second, miraDry achieved record sales of $9.3 million in the second quarter. Our brand awareness and market activation strategies are gaining momentum with strong performance globally, particularly in the United States. Third, we completed an equity financing in June that provide Sientra the capital to strategically invest and drive growth across our total portfolio.

Based on our current plan, we do not expect that we will need to raise any additional equity prior to reaching cash flow breakeven in late 2021. With that as backdrop, I'll review our second-quarter results in further detail before turning the call over to Paul. We achieved record quarterly net sales of $20.5 million for the company in the second quarter, which equates to year-on-year growth of 17% and sequential growth of 16%. This quarterly performance was driven by record sales for miraDry in addition to strong results for our breast products segment and represents solid progress toward achieving our 2019 objectives.

I'd like to emphasize that while total breast products sales in 2019 second quarter grew 19% year on year to $11.2 million, the core breast implant and tissue expander sales, excluding Bicorneum, was even stronger growing at 26% year on year. Our plastic surgery consultants demonstrated strong execution against their targets. And I'm confident that we are well-positioned to continue this momentum in the quarters ahead. In an overall breast market that we estimate it was flat to modestly down in the first half of '19, Sientra's breast implants and tissue expander sales have grown 26% year to date.

Clear evidence of market share gains from our targeted new customer conversion programs, as well as deeper penetration on our existing accounts. In the second quarter, our sales force generated sales from over 100 new breast implant accounts that had not placed an order with Sientra in 2018. This brings our year-to-date total of new implant customers to over 200, which represents a 25% increase in active accounts relative to our 2018 base and solid progress toward regaining share with the over 2,000 plastic surgeon accounts that Sientra sold to at its peak in 2015. The new customer account wins demonstrate that the clinically supported superior safety profile and industry-leading warranty of OPUS implants are resonating with our board's certified plastic surgeons, as well as their patients.

Our breast implant supply from Vesta continues to build and we expect a steady ramp throughout the back half of 2019. And our improved supply position has allowed us to roll out these new customer conversion programs, which we will continue throughout the balance of 2019 and beyond, and supports my enthusiasm for the share recapture opportunity going forward. Particularly in light of the market conditions that increasingly favor Sientra's points of difference. We also want to advanced our position in the $300 million U.S.

breast reconstruction market. The strong growth in our tissue expander portfolio is driven by deeper penetration within existing accounts, as well as new hospital contract wins. As discussed on last quarter's call, we received FDA approval for extra high profile, or XP, breast implants in mid-April, adding over 50 new smooth and textured implant options. This approval filled an important gap in our reconstruction portfolio.

We introduced our extra high-profile implants to plastic surgeons at the American Society of Aesthetic Plastic Surgeons Meeting in May and we're excited to begin sales of these products early in the third quarter. We expect demand for these new implants combined with continued recognition of the continued advantages of Allox2 to drive further penetration of hospital reconstruction accounts in the back half of 2019. Our miraDry segment delivered a record quarter, achieving net sales of $9.3 million, equating to year-on-year growth of 15% and 20% sequentially. Sales were well balanced across geographies, as well as the mix between capital and consumables with particular progress that we had expect to see in the U.S.

market. miraDry's strong results reflect the scaling effect of the marketing initiatives we launched earlier in the year as part of our No Sweat global campaign. We continue to place cost effective targeted digital ads across highly trafficked and focused digital platforms, including Instagram, Facebook, Google and the others to continue to build interest in miraDry. Our miraDry website has seen significant increases in high quality traffic, which we define as website traffic that took to the next step of finding a doctor on our website.

This is driving increased quality leads and referrals across our installed base. We continue to have a large number of accounts, as we've discussed previously, that have indicated that over 75% of their miraDry consultations result in a patient opting for treatment. Further, as we've discussed also previously, patient satisfaction of those who have been treated with miraDry is nearly 90% according to RealSelf, which is among the highest across the entire aesthetics category. This progress is driving physician testimonials and practice success stories that our capital reps are leveraging in their calling efforts.

We're seeing evidence that over time as physicians cross-sell other treatments to the aesthetic neophythes at miraDry, that miraDry is beginning to bring to their practices. The lifetime value opportunity of this group of patients will make practices potential investment in miraDry even more compelling. In conclusion, I believe the miraDry team is executing on all the right strategies to grow the miraDry install base and capitalize what is clearly a large highly underpenetrated sweat and odor market. Compared to other approved sweat treatment products, we know that miraDry continues to be the only treatment that provides a life-changing permanent solution for consumers bothered by sweat that also eliminates odor.

The business is well-positioned to be a significant growth driver for Sientra and I'm confident that the momentum we saw in the second quarter will continue in the back half of 2019 and into 2020. Finally, we're pleased to have completed a $115 million equity offering in early June. The net proceeds from this offering provides Sientra the capital to strategically invest in the compelling growth opportunities we have in both our breast and miraDry businesses. With that, I'll hand the call over to Paul, who will discuss Sientra's second-quarter financial results in greater detail.

Paul?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Thank you, 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, fair value adjustments, stock-based compensation and impairments.

Specifically, we are removing non-cash items and/or non-recurring items for this non-GAAP measure. Again, please refer to our supplemental financial information, earnings release and 10-Q tables on GAAP and non-GAAP, and a full reconciliation of adjusted EBITDA to its GAAP counterpart. Consolidated total net sales for 2Q '19 was $20.5 million, an increase of 17%, compared to total net sales of $17.6 million for the same period in 2018. Gross profit for the quarter was $12.7 million or 61.9% of sales, compared to a profit of $10.9 million or 62.1% of sales for the same period in 2018.

Changes in consolidated gross margin were driven by the overall mix between breast products and miraDry, as well as the geographic and capital versus consumable mix within miraDry. Operating expenses for the second-quarter 2019 were $52.8 million, compared to $27.8 million of expenses for the same period in 2018. Excluding our $15.8 million non-cash impairment of certain goodwill and intangibles related to miraDry, operating expenses were $37 million, an increase of $9.2 million, primarily driven by an increased investment in miraDry sales and marketing following the positive results we are seeing in the return on that investment. The non-cash impairment does not impact the company's ongoing business or financial performance.

And we remain confident in miraDry's 2019 sales guidance, as well as the segment's long-term growth outlook. Adjusted EBITDA for 2Q '19 was a loss of $20.4 million, compared to a loss of $11.8 million in the year-ago period. Net cash and cash equivalents as of June 30, 2019, was $146 million, compared to $62 million as of March 31, 2019. The increase in cash reflects the $108 million in net proceeds Sientra received from the equity offering completed in early June.

We believe that the recently completed equity and debt financing provides Sientra with the capital needed to strategically invest and drive growth across our portfolio. Based on our current plan, we do not expect the need to raise any additional equity prior to reaching cash flow breakeven, which we estimate will be in the fourth-quarter 2021. As noted in this afternoon's press release, we are reiterating our 2019 sales outlook. For 2019 we continue to expect total net sales in the range of $79 million to $83 million, which represents growth of 16% to 22%, compared to sales of $68 million in 2018.

For breast products, we expect segment net sales of $44 million to $46 million, driven by continued share recapture of our OPUS gel implants and strong growth for our tissue expander portfolio. For miraDry, we expect segment net sales of $35 million to $37 million, driven by solid growth internationally and acceleration of U.S. capital equipment sales as our investments in brand awareness and market activation continue to gain traction. I will now turn the call back over to Jeff for his closing remarks.

Jeff Nugent -- Chairman and Chief Executive Officer

Thanks, Paul. In closing, I want to repeat the three significant accomplishments in the second quarter. First, we had solid revenue growth in both segments, driven by strong share gains in the breast products segment, and increased global utilization and system placements for miraDry, particularly highlighted by the strength we saw in the United States, as well as the strengthening of our balance sheet, which Paul just mentioned. I remain confident in our long-term outlook as a fully scalable diversified global aesthetic company.

For the balance of 2019, we're focused intently on executing on the significant opportunities ahead for all segments within Sientra. With the capital raise behind us, we're well-positioned to drive growth across the portfolio and deliver on our commitments to physicians, patients, and our shareholders. I want to thank our very talented team for their hard work, dedication and the results that they accomplished. I'd like to now turn the call over for question and answer.

Questions & Answers:


Operator

[Operator instructions] And our first question comes from Jon Block from Stifel. Your line is now open.

Jon Block -- Stifel Financial Corp. -- Analyst

Great. Thanks, guys. Good afternoon. I'll start with miraDry.

You now have the technology for roughly a couple of years. And so what studies or information have you guys been able to put together for the physicians to highlight that lifetime value per patient. You're bringing in a different type of patient, a younger patient, do you have the compelling data that you need to really highlight that to your physician subset?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Jon, we have talked about this before, and we're starting to get some very direct qualitative information that the theory that this is bringing in new patients to their practices are resulting in increased revenue, increased procedures. I'm convinced that this is working, but it is still relatively early days and that we put in a system to better monitor it, but we're getting recognition. And one of the best ways that we've been able to measure it is through the testimonials and the additional references that our existing placements are providing our new placements. So it's not the quantitative results and data that I'd like to have, but there is increasingly strong evidence.

Jon Block -- Stifel Financial Corp. -- Analyst

I'm going to actually ask a follow-up on miraDry and then I'll ask one on breast health. I'd just love to hear as many specific examples as you guys can give. Kirk's been running that business now for approximately six months. Maybe if you can talk about the approach with the predecessor, what may have not worked out that well, some of the pivots that you guys have made with your initiatives and highlight what's really starting to resonate in the field? And then I'll ask my shorter breast health one.

Jeff Nugent -- Chairman and Chief Executive Officer

That's an easy question to answer, Jon, because there is a significant change in the leadership approach that is identifying the issues that were, for example, holding back the U.S. performance that we've discussed before. And with Kirk and his leadership team, he is inserted himself fully in redefining roles, responsibilities and accountability for both the ASMs, the systems sales group, as well as the PDMs. So there are number of things that I can count on.

But one is just an increased level of accountability against specific objectives. I think another significant part of this is how we go about forecasting a business that's creating a new category, which I think we'd all agree, is very difficult to forecast. So previously we were relying on quarterly forecasts. And as is the case in most capital equipment sales, there is a quarter-end rush to be able to meet a full quarter's revenue with as much as of -- on an average, over a third of the business for the quarter coming in the last couple of weeks of that quarter.

One of the things that Kirk is done with our involvement here in Sientra in Santa Barbara is focusing on monthly targets and holding people accountable month by month, so that we're avoiding the uncertainty that comes at the end of each quarter, those are two great examples. I think the other one here is that Kirk is so -- he has proven his ability on the international front in a number of businesses, and he's had to switch the strategies and his approach to leading his team to the U.S. group. So what he's really done is apply those experiences to the U.S.

group, while we put a highly talented, again, Zeltiq experienced individual, who is now leading our international group, and I'm very impressed with what I'm seeing from him as well.

Jon Block -- Stifel Financial Corp. -- Analyst

And the last one I'll pivot to the breast side. And Jeff, either for you or Charlie. Even with some of the struggles with your competitors within breast, the Wall Street focus seems to be on what it means for your implant business. But it would seem to open up also a significant opportunity in expanders as well.

And so maybe if you can spend some time talking to that and what you're doing in the field to capitalize on what I would call certainly the additional opportunity with Allox2?

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Well, I think there are a couple of things here. We're all aware of the changes that are going on within the entire breast implant, both augmentation and reconstruction categories most recently affected by the events at Allergan. And that I think the combination of the superior products that we have within the tissue expander portfolio in combination with the credibility that we've demonstrated with some of our KOLs has resulted in our ability to penetrate significant number of hospital accounts that we weren't previously able to. The majority of reconstruction business is really accomplished within the hospital, which is a different approach.

It's a different market, it's a different buying cycle. And as we've discussed before, we've been fortunate to bring in some very talented, very experienced aggressive individuals who are leading that charge. And the focus within the company recognizes that there's significant opportunity not just for tissue expanders, but also for the implants associated with it. So you'll see in the financial results that tissue expanders, as a single element, grew by over 50% year on year and contributed to the overall breast implant business, as we indicated, of 26%.

So while we registered a 19% total breast products increase, and I'm trying to keep it simple. But when you exclude the Bicorneum product line, breast products alone grew by 26%, of which the tissue expander part, reconstruction, grew by over 50%. So we're very pleased with the progress that we're making in there.

Jon Block -- Stifel Financial Corp. -- Analyst

Helpful metrics. Thanks, guys.

Operator

And our next question comes from Richard Newitter from SVB Leerink. Your line is now open.

Richard Newitter -- SVB Leerink -- Analyst

Hi. Thanks for taking the questions. I've got two on your two segments as well. Starting with the breast products.

You reiterated your guidance and I think the last time you provided that guidance, you had some assumptions about the market moving from flat to recovering or being slightly improved in the back half. That was before we had some of the new information around dynamics related to the textured implant recall from Allergan, and also Allergan getting acquired. I would love to hear your thoughts on how that changes your perception of things going on in the marketplace. And what you're hearing at the ground level with respect to the potential for a rebound or what's embedded in your guidance.

Is there still a recovery embedded in your reiterated guidance for the underlying market?

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Let me take the first answer to that, Rich. And I appreciate the question. It's a good one. There are so many factors affecting this category as you know, with the media coverage, with the earlier FDA attention being potentially paid for it, etc., that it's very difficult to predict what the overall category was expected to do.

And even now, we are looking at the best data that we can get hold of. And we're finding that the category is essentially flat to marginally down that our current assumptions really rely on a more conservative approach, which since we can't accurately predict what the category is going to do for the balance of the year that we expect it to remain essentially flat. But our assumptions are based on continuing to take market share. And as you indicated relative to Allergan, in particular, there are opportunities there that we are in a position to take advantage of.

And that's both from a reconstruction and augmentation standpoint, it's still a highly uncertain market overall to be able to predict accurately. But the bottom line is, we're confident that we're going to be able to continue to take share. And our back half assumptions are more aggressive than we have shown in the first half. Paul?

Richard Newitter -- SVB Leerink -- Analyst

And then turning to miraDry. I was wondering if you could give us a sense what the split was between U.S., OUS, and capital and consumables? And then how we should think about the trends with respect to seasonality between 3Q and 4Q to get to the full-year numbers. Does 3Q stepped down a little bit? And then how we should also think of the mixes relative to the break down, if you can provide them as we move through the year?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

I think they do. So I know my SO in the second quarter, it was a 50-50 split between U.S. and rest of world. And actually it was 50-50 split between Sientra consumables and the consoles.

All of last year, we were more at a 60% ex U.S. So the U.S. really stepped up this quarter. We don't give typically -- we're not going to give a quarterly estimate on that, but you can assume roughly that that mix would fall through the next two quarters on this business, both 50-50 U.S.

and international, and maybe a little heavier in the consoles in the back half, more like 60% consoles, 40% [Inaudible]. It's kind of more reflective of the business, it could be as high as 70%, but you could model in that 60% would be fair.

Richard Newitter -- SVB Leerink -- Analyst

And then just how should we be thinking about the gross margin in the back half with all of the mixed dynamics, and would be helpful.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

I've been consistently saying, I think no more than 65% for the back half of the year, 62% to 65% is the range I've been using. But again, even this quarter shows it. It's a function of mix. ASPs are holding out in both businesses.

The consoles, the tips and even the breast implants, what it is it's going to be just a mix issue on Breasts. So the Breast could do high-60s, miraDry itself will be really be a function of what it does between the regions, U.S. and rest of the world. But we're going to get closer to the 65% in the back half.

Depending on the modeling of what miraDry does in the back half -- 62% to 65% is the range I'm going to give you, I don't want to be more specific than that.

Richard Newitter -- SVB Leerink -- Analyst

OK. Thank you.

Operator

And our next question comes from Margaret Kaczor from William Blair. Your line is now open.

Margaret Kaczor -- William Blair and Company -- Analyst

Good afternoon, folks. Thanks for taking the questions. First one for me is on the Breast side. Just try to go into a little bit of detail of the new accounts that you had referenced at the front end of the call.

So first, you guys had a sense of stickiness from these accounts. Your share in these accounts and your ability to keep gaining share. And the genesis of the question is, as you gain repeat orders arguably within some of these newer accounts, that should drive rep productivity higher. So any metrics you can give on that and what's being assumed in guidance through year end?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Yes. I mean, in terms of the rep productivity, you look at the consensus, you can use those numbers, and we have 46 PSCs and get into it. The rep productivity is going to increase because we're not adding any new PSCs this year. As we expand in the hospital base and we get a higher mix of recon, which is a higher price tissue expanders, the rep productivity will increase accordingly on that business.

So our rep productivity is expected to increase for the foreseeable future because we can get more from these reps given that we have more to sell to the accounts and the hospital accounts, both we're seeing a nice follow-on implant sales to these hospitals. So I won't give the specifics. But the growth that we're seeing an implants is following along with the recon -- the tissue expander sales. I think the other question was -- what the first question was, Margaret?

Margaret Kaczor -- William Blair and Company -- Analyst

The stickiness that you're seeing within the new accounts and ability to grow in terms of penetration of those accounts?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

We haven't shown any inability to actually take into account the stickiness we are watching. We watched the reorder rate. We're making sure that we get back in there and that they're just -- there are more than one order. We're not seeing any reason why we are not continue to add our accounts.

Our growth this year, a big piece of it is on new account acquisition. New account acquisitions, it's driving deeper into the existing accounts and it's also being more productive. As we have more productive reps, we also have six more PSCs year over year. So the stickiness, obviously, it's a little early, but we're not seeing anything telling us that those 200 are dropping off.

Our reps are out there -- I must say, as we've got the product to supply, they're out there going after new accounts. There's been a great deal of their time right now, harvesting the accounts that we have not talked to in quite a while, it's again just a reiteration. Eight hundred accounts is all we sold to on implants in 2018. So picking up 200 more, it's a significant number as we get back to that original 2,000 accounts that we sold at our peak back in 2015.

Jeff Nugent -- Chairman and Chief Executive Officer

But keep in mind also, Margaret, that the supply as it continues to ramp, we'll have a natural sort of gating effect on how much productivity and efficiency each rep can have. So while your question is spot on, obviously, there is still some artificial dampening just because we can only build and grow into supply as it continues to ramp. But it's a great question and one that we're going to continue to monitor and expect to continue to improve as our supply continues to improve.

Margaret Kaczor -- William Blair and Company -- Analyst

And just as a follow-up to that before my miraDry question, but the new accounts that you guys are going after, are they primarily old Sientra customers or have you been able to steal from the long time Allergan and J&J users as well?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Primarily, right now, we are going after our customers that we know the best. So we are reengaging with those that we had engaged with prior to 2018. So I'd say there some in there that are brand new. But the low-hanging fruit was the reengage with our customers and to make sure we touch all the prior customers as soon as we can.

Margaret Kaczor -- William Blair and Company -- Analyst

And then just briefly on miraDry, obviously, a nice pick up this quarter. So part of the question is as you look at the consumables number sell-in versus sell-through is that largely as expected and similar to the revenue growth number that we're seeing any comments on utilization? It would be helpful as well. Or your ability to gain new reps given some of the competitor turnover from potential M&A transactions or just flat out weakness from some of the other aesthetic peers.

Jeff Nugent -- Chairman and Chief Executive Officer

Well, the last point first, Margaret. I think that we are seeing -- I don't think, we are seeing increased interest in the miraDry proposition that there is a definite CoolSculpting, Zeltiq factor that lost on these people. So they see the success that Zeltiq has had, they see the analogy with miraDry and there is a real level of excitement out there. And primarily, we've been talking more about the domestic side of things.

And as we've seen in the results for this quarter, the U.S. business is showing some very strong results. So, yes, there is additional interest in joining the team. And as part of what our leadership team is paying attention to that they are increasing expectations, clarity of objectives and accountability.

And we're ensuring that we've got the most productive people representing us both from an ASM and PDM, the hunter and the farmer side of the business. And we've shown that there is a real synergy between those two and we're always in a position to improve. It's a long-winded answer, but I think there is a definite opportunity to continue to bring in the best people we can. And as far as -- and repeat your other question.

I want to make sure that I'm answering it directly.

Margaret Kaczor -- William Blair and Company -- Analyst

So the question was the durability of the U.S. growth that you guys are seeing, the sell-in versus sell-through of the tips and utilization.

Jeff Nugent -- Chairman and Chief Executive Officer

Well, the utilization is really a function of the tips. And what Paul indicated was that tips were equally strong, both domestically and internationally, which translates to a nice increase in utilization. And that together with the combination of the new installations that we accomplished with the support that we're giving them both from a marketing standpoint, as well as the PDM practice consulting fees, we're showing an increased number of satisfied buyers. So utilization is a continuing objective that we want to bring to the level that is really the primary driver of individual practice success.

So I can share more specifics with you later, but right now, we're pleased with what we're seeing on the utilization side.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

And specifically on dollar without giving into the first half of this year. This is a record year for tips in this business, so we are seeing a nice growth. So without knowing what our machine does, the tip sales are nice lagging indicator that we're having some strong revenue growth on the tips which is a reflection of utilization.

Jeff Nugent -- Chairman and Chief Executive Officer

And Margaret, just one other piece to add to that. I believe we've mentioned this before, but we're in the process of installing a new technology upgrade to our units that will allow us very granular monitoring of individual capital equipment productivity and utilization, which is going to answer your question much more definitively. And that is actually starting this month and is expected to roll out through both U.S., as well as key markets internationally. So that's one of the things that we're going to pay increased attention to.

Margaret Kaczor -- William Blair and Company -- Analyst

Great. Thanks.

Jeff Nugent -- Chairman and Chief Executive Officer

Thanks, again, Margaret.

Operator

And our next question comes from Alex Nowak from Craig-Hallum Capital. Your line is now open.

Alex Nowak -- Craig-Hallum Capital Group LP -- Analyst

Great. Good afternoon, everyone. Jeff, can you provide some more details around the plan to launch the implants into the international market. Perhaps some timing, which geographies you're initially targeting here? And then what sort of sales force or distribution strategy are you going to rely on?

Jeff Nugent -- Chairman and Chief Executive Officer

The basic answer to that is, as I'm sure we've discussed before, we certainly have a global intent and a strategy to accomplish it. And one of the things that we are very aware of is that putting too broad of an approach to international can quickly become a Pyrrhic victory. There are certain markets that are very attractive. We have initiated approval efforts and planned distribution, etc., in four to five of those key markets right now that the rate-limiting factor is still the regulatory approval process and that we expect to see results beginning in 2020, but the -- some of the more significant opportunities are in Europe which is subject to a significant redefinition in granting the CE Mark, as I'm sure you're aware.

So we are focusing on those markets where there is clearly a demonstrated interest in our superior product claims, but also have a cost efficient distribution capability and that we are investing accordingly. But what I'm trying to get across is that we're taking an intelligent focused approach to be able to go into those more attractive markets as the priority. So bottom line, we will start to see that in 2020. But we're still hamstrung by regulatory approval processes.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

And let me reiterate. So well in the miraDry side, they are international. So whatever we do, and when we do, it will 100% leverage the infrastructure built out by miraDry. We're not building a separate go-to-market strategy necessary in these markets.

So we're going to be cost effective, how do we go into these markets as we have the people there to lead us today.

Jeff Nugent -- Chairman and Chief Executive Officer

Those plans are currently being worked on and it's a great example of the synergies between the two companies.

Alex Nowak -- Craig-Hallum Capital Group LP -- Analyst

And then Paul, a little bit of a follow-up to this and a little bit of follow-up to something you said earlier. But can you explain a little bit about what sort of leverage should we see in the model here over the next 12 to 24 months. Do you need to make any more investments in the business or are all the operating expenses here are pretty much in the model at this point?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

In terms of investments, the fix, I would say the people side of it is effectively done. Now we'll leverage nicely as we see -- I'll give you the idea of the PSCs. The PSCs grow. Next year, the PSCs by default are going to become more productive, not just drops through.

The only real variable vessel we have left in this business is the amount of degree we need to, or not need to, is invest in the miraDry campaign to drive awareness. Everything else in this company is basically online. I can't give you exactly and say how to calculate that but -- the only barrier we're going to have is consumer and again we have a decent amount this year, we try to leverage that. We're going to manage it as we see the impact of the ROI on the campaign for miraDry and decide how much we continue to invest in that business going forward.

That's the only variable number.

Alex Nowak -- Craig-Hallum Capital Group LP -- Analyst

And then just real quick, last question from me. On miraDry, it seems to be doing pretty well. Why are you taking the impairment charge this quarter?

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

I'll answer that question.

Jeff Nugent -- Chairman and Chief Executive Officer

I'll let Paul answer that. I'd like to but I think you'll do a better job.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

This is an accounting exercise. Just because of the lower earnings we pulled together on our more recent forecast, which is consistent with our guidance, this triggered a look in the valuation of the intangibles. So running this analysis, we came up with an impairment. I can't use market multiples, I can't do EBITDA or revenue multiples, it's simply the accounting exercise just kind of cash flow to come up with the valuation.

That analysis resulted in the impairment. It's a non-cash item. It has no impact on how we view this business either short term or long term. And from that, I'll leave at that.

Alex Nowak -- Craig-Hallum Capital Group LP -- Analyst

OK. Understood. Thank you.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Great. Thanks.

Operator

And our next question comes from Chris Cooley from Stephens. Your line is now open.

Chris Cooley -- Stephens Inc. -- Analyst

Good afternoon, and thanks for taking the questions. Maybe just two quick ones from me at this point. I wanted to just follow up on that last question a little bit, Paul. When you look at the segments or what drove that I understand the accounting exercise description, but was that a function of the international business more so than the domestic business in causing that trigger? I'm just curious if you could give us a little bit more clarity on that.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Again, so we're clear, the segment there are specific goodwill and intangibles related to both businesses. So this is strictly miraDry. It's strictly a miraDry exercise on their earnings forecast going on in perpetuity. It's only that, I guess, that is consolidated already.

Chris Cooley -- Stephens Inc. -- Analyst

Understood. But I guess what I was asking again was, was it the international component of the miraDry business or I'm just trying to parse it a little bit.

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

No. It's just consolidated -- miraDry is all -- we don't look at the components. We look at it in total. You might think, as you can see, we are investing quite a bit in this business to commercialize the product.

So we knew more now than we did two years ago. So nothing has inconsistent with the guidance I've been giving or paint in the business. But our -- because the analysis has to take into consideration the most recent losses that we've had to date and even through today, and then we forecast that out even with a nice growth in that business projected, it's an updated forecast hence it triggers a review, hence it triggered an impairment calculation reserve. Most companies you're not expecting we spent $20 million for this business all in, one times revenue.

So on the surface, it does look a little odd to have an impairment charge on an asset that's growing nicely that we're investing in that we paid almost nothing for. I'm not going to disagree with you on that.

Chris Cooley -- Stephens Inc. -- Analyst

I apologize if you've already addressed this previously in the call juggling a few here this afternoon. But just when you're thinking about moving outside of the U.S. now, very encouraging and certainly I agree with that in terms of the market opportunity and the timing. Should we interpret from that now in terms of the production curve you have with Vesta that that's now exceeding or at least on line with expectations and you can supply that full product cohort or how then should we think about production? I understand that the gating factor right now, but I think if I heard you correctly, is just the regulatory front.

But I just want to make sure I'm clear on that from a capacity standpoint.

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Chris, so we are definitely anticipating a phased approach with our international market development for our breast products, which is synced up with our ongoing supply ramp. So our focus continues to be on ramping and having our partner produce sufficient supply to continue our growth trajectory and market share efforts in the US. As Jeff mentioned, we are taking a very targeted focused approach to international development starting in 2020. You're aware that Canada is sort of furthest along in registration.

We talked about that being potentially a first half of 2020 approval or registration in Canada. We expect at that point we will have sufficient supply to launch Canada in the context of that registration, and then all other international markets will follow logically from that making sure that we are able to fulfill demand in those market that we choose to go into on a phased basis.

Chris Cooley -- Stephens Inc. -- Analyst

Understood. Appreciate it. Congrats on a great quarter.

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Thanks. Great. Thank you.

Operator

Thank you. And our last question comes from Jacob Hughes from Wells Fargo Securities. Your line is now open.

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Hello?

Jacob Hughes -- Wells Fargo Securities -- Analyst

Hey.

Operator

Jacob, if your line is on mute, please

Jacob Hughes -- Wells Fargo Securities -- Analyst

Hi. I'm sorry.

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

That's all right.

Jacob Hughes -- Wells Fargo Securities -- Analyst

So if I just look at the back half of the year for breast products that if you just look at the high end of your range that implies close to 30% growth. Does that imply any improvement in the underlying environment or is that all share gains and is there an expectation of the 50% growth that you've seen in the tissue expander portfolio that will continue.

Jeff Nugent -- Chairman and Chief Executive Officer

We expect both to affect the back half. And actually the momentum with which we exited the second quarter and we're still seeing in July. The results in July have been very encouraging as well. And I think you pointed to the two primary drivers of that.

And it's both continued significant improvement increases and tissue expanders, while we've already indicated that the new account acquisition program is working with some additional initiatives from a marketing standpoint that we're in the process of putting in place right now. So we realized that the back half is expected to ramp at a significantly higher rate, but we're confident that the plans in place are going to be able to deliver that.

Jacob Hughes -- Wells Fargo Securities -- Analyst

OK. Thank you.

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Thanks.

Jeff Nugent -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Neil Bhalodkar -- Investor Relations

Jeff Nugent -- Chairman and Chief Executive Officer

Paul Little -- Chief Financial Officer, Senior Vice President and Treasurer

Jon Block -- Stifel Financial Corp. -- Analyst

Charles Huiner -- Chief Operating Officer and Senior Vice President of Corporate Development and Strategy

Richard Newitter -- SVB Leerink -- Analyst

Margaret Kaczor -- William Blair and Company -- Analyst

Alex Nowak -- Craig-Hallum Capital Group LP -- Analyst

Chris Cooley -- Stephens Inc. -- Analyst

Jacob Hughes -- Wells Fargo Securities -- Analyst

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