Establishment Labs Holdings Inc. Q1 2023 Earnings Call
Good afternoon, and welcome to establishment Labs' first quarter 2023 earnings call. At this time all participants are in a listen only mode. At the end of this call will open the line up for question and answer session.
Doctors will follow at that time as a reminder, today's call is being recorded I would now.
I'll turn the call over to Raj to Hawaii, Chief Financial Officer. Please go ahead Ross.
Thank you operator, and thank you everyone for joining US with me today is one is age of cone curious our chief Executive Officer. Following our prepared remarks, we'll take your questions.
Before we begin I would like to remind you that comments made by management. During this call will include forward looking statements within the meaning of federal Securities laws.
These include statements on established allows financial outlook and the company's plans and timing for product development and sales. These.
Forward looking statements are based on management's current expectations and involve risks and uncertainties for a discussion.
The principal risk factors and uncertainties that may affect our performance.
Cause actual results to differ materially from these statements I encourage you to review our most recent annual and quarterly reports on Form 10-K, and Form 10-Q as well as the other SEC filings, which are available on our website at establishment labs Dot com.
I'd also like to remind you that our comments will include certain non-GAAP financial measures with respect to our performance, including but not limited to sales results, which can be stated on a constant currency basis.
Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website.
Please also note that establish a labs received an investigational device exemption from the FDA for Motiva implants, and is undergoing a clinical trial to support regulatory approval in the United States.
We continually seek to expand the geographies in which our products are regulatory approved please check via local authorities for specific product availability.
The contents of this conference call contains time sensitive information accurate only as of the date of this live broadcast may eight 2023.
Except as required by law established labs undertakes no obligation to revise or otherwise update any statement to reflect events or circumstances. After the date of this call.
With that is my pleasure to turn the call over to our CEO Juan Jose.
Thank you Raj and good afternoon, everyone Rev.
Revenue in the first quarter of 2023 totaled $46 5 million, 21% increase over the first quarter of 2022 and a new quarterly records for our company.
Excluding the negative impact of foreign currency changes our growth in the first quarter would have been approximately 22, 9%.
Our revenue guidance for 2023 remains unchanged at $200 million to $210 million representing growth of 24% to 30% over 2022.
Raj will provide additional details on our first quarter performance and our outlook in a moment.
The last few weeks have seen a number of significant events at establishment labs.
March 29, we announced that we had 3 million motiva devices in market. This is an important event not only because of the scale. We have achieved market. Since we began commercialization over 12 years ago, but also because of the exceedingly positive outcomes. We have achieved with such a large number of device.
This just like we do every year, we recently released to the scientific community. Our post market surveillance report, which includes data from independent National registries, all consistently showing less than 1% device related competitions.
These excellent results were corroborated and expanded upon when the three year data from our Motiva U S. I D study was presented at the aesthetic meeting on April 20th Dr.
Dr. Caroline Glicksman the principal investigator of the study provided an update following the aesthetic cohort passing the three year endpoint in the trial.
What is particularly notable about the result is that the rates of the major device related complications of capsular contracture rupture did not change from year to two year three there.
There continued to be only two patients with capsular contracture.
And only one patient with a suspected rupture at three years, which was the exact same number at two years beyond the rates themselves being quite low and much lower than has ever been seen in a major trial like this the consistency of the results from year to year suite are very encouraging and starting to create.
A lot of positive buzz in our industry.
U S. Plastic surgeons are now asking the most important question when we'll motiva be available in the United States.
And while we can't give them a definitive answer we can tell them that our final module of our PMA was submitted to the F. D. A in the first quarter and the full PMA has now been accepted and is under review by the agency.
Of course with so many catalysts in the near future. How we are going to fund our growth is always an important question. We answered this to a large degree on April 27th when we completed a follow on share offering that raised gross proceeds of $94 million.
Our team did a wonderful job and just a one day well cost that was many times oversubscribed and that brought significant new investors in our shareholder base, especially in this market conducting an offering with such demand from high quality investor is a remarkable achievement.
On April 10th we announced the launch of mere Femto <unk> in Japan.
The idea for Mir or originated a decade ago. When we recognize that breast augmentation was not meeting the needs of women in Japan with the experience of near firm deck, we are providing a solution with Mia a plastic surgeon can shape, the breast and a 15 minute minimally invasive procedure without the need for general anesthesia. The result.
Is natural and discrete with a one to two cup proportionate result.
The procedure requires minimal downtime with women returning to most activities to same day bye.
By providing a solution that overcomes many of the obstacles of traditional breast augmentation. We are opening up a whole new group of women to breast aesthetics.
Our launch activities are centered on creating this new category in Japan with our partner clinics, we have created marketing materials localized puds Japanese market, including a Japanese language me F. M Tek website, social media and traditional media all directed at creating demand and then directing interested women to a clinic.
Partners.
The F M. Tek is being launched initially at two clinic changed in Japan, CCN lasting and aesthetic surgery clinic operates 10 premium clinics with near frantic now available at their main Tokyo clinic in <unk> and at their newest cleanup and Gainesville.
Joel Clinic is a high end medical aesthetics, Jean in Japan that will offer me a firm take initially and it's Tokyo and Osaka locations.
It is still early in the launch of meal and we are focused on demonstrating that this is a new category, bringing new women into breast aesthetics and that surgeons are seeing improved efficiency in our partner clinics are benefiting from higher economics.
These proof points will be important as we look to scale miass into the multibillion dollar opportunity that it has the potential to become.
We look forward to providing updates on our progress in Japan for the coming months.
We recently also announced our first European Clink partners for me here, we have partner clinics in Spain, Switzerland, and Sweden, and I'm pleased to report that we have signed our first partner in France Clinique to Sean's LLC is a prestigious center for medical and surgical aesthetics based in Paris with a chain of 12 clinics throughout.
France.
We continue to make good progress on finalizing European Union approval for the tools that are part of the minimally invasive system used for me F. M Tek.
In our aesthetic breast recon franchise, the rollout of our Motiva flora tissue expander continues to market feedback continues to be very positive with more and more surgeons, making it their expander of choice and post mastectomy breast reconstruction.
With continues to resonate with conditions globally is that Florida is a much improved offering with many new advances in what is unfortunately, a large and often neglected category in breast reconstruction.
In a recently published paper scientist at the medical University of Innsbruck in Austria, we're able to confirm in a comparative study that floor up provides much improved patient comfort and satisfaction in their breast reconstruction journeys.
As a global medical device company focused on womens health establishment labs has the opportunity and the responsibility to improve breast reconstruction flu.
Flora is only the first step in our aesthetic breast Recon initiative, where establishment labs will offer tools and techniques that allow women to receive reconstructive surgeries that achieved the aesthetic ideals to which they aspire.
On China, we are actively preparing for the launch of Motiva with our distribution partner over the last couple of months. We have conducted a significant amount of research in order to understand the opportunity in what is now the second largest market for breast devices globally.
The marketing China continues to recover with procedures in 2025 expected to exceed pre COVID-19 levels. There continues to be a very healthy luxury segment in China, where consumers are paying procedure prices similar to the upper end of market in places like the United States.
Sure.
Given the premium positioning of Motiva in other Asian markets, including South Korea, and Japan, and the strong awareness of our devices into Chinese market. We are very encouraged by what we are learning about this market and the opportunity.
We continue to make progress in the regulatory process and expect to launch Motiva in this market in the second half of 2023.
I'll now turn over the call to Raj.
Thank you Juan Jose.
Total revenue for the first quarter was $46 $5 million reported revenue growth in the first quarter was 21%.
Foreign currency changes reduced our first quarter revenue growth by approximately $750000.
Excluding the impact of currency revenue growth in the quarter would have been 22, 9%.
Direct sales were approximately 36% of global Motiva implant sales, while distributor sales made up the balance.
From a regional perspective, Motiva sales in Europe , Middle East and Africa were approximately 44% of the global total.
Asia Pacific, 31% and Latin American made up the balance.
Brazil, which is our single largest market globally accounted for approximately 13% of total quarterly motiva sales.
Our gross profit for the first quarter was $31 million or 64, 7% of revenue compared to $24 9 million or 64, 8% of revenue for the same period in 2022.
Our gross profit in the first quarter was negatively impacted by a higher overhead and labor cost.
Labor costs were higher in part from changes in foreign currency exchange rates between the U S dollar and the Costa Rican colon.
As we report in U S dollars, a significant revaluation of the clone resulted in higher costs in the period.
Average selling prices in the first quarter up from the fourth quarter of 2022.
We continue to see regular fluctuations in gross margin on mix and other factors. However, the trend in our gross margin is expected to be positive over time.
SG&A expenses for the first quarter increased approximately $4.8 million to $31.7 million compared to $26 $9 million in the first quarter of 2022.
The increase in SG&A in the first quarter resulted in part from our investments in new growth initiatives like Mia and preparations for a launch in the United States.
R&D expenses in the first quarter increased approximately $2 $9 million in the same quarter, a year ago to $6.5 million.
Higher personnel costs and increased activity related to our U S. Clinical trial contributed the higher spending this period.
Total operating expenses for the first quarter were $38 $2 million, an increase of approximately $7.7 million from the year ago period.
Net loss from operations for the first quarter was $11.9 million compared to a net loss of $5 $9 million in the same period in 2022.
Our cash position as of March 31 was $42.8 million compared to $66 $4 million at the end of 2022.
Cash used in the first quarter included approximately $3 $8 million of investments in our new manufacturing facility.
As well as the planned increase in inventory of $8 $5 million.
As we prepare for the growth we expect over the near future.
On April 27th we completed a 1.265 million share follow on offering with net proceeds to establish a lapse after fees and expenses of approximately $84 million.
With the cash on hand at the end of the first quarter. The proceeds of the offering as well as the two remaining tranches of our debt facility, which totaled $50 million and become available on achievement of sales and regulatory milestones, we have access to approximately $175 million.
We are reaffirming our revenue guidance, we provided for 2023 of $200 million to $210 million, representing annual growth of 24% to 30%.
We continue to expect gross margin of 2023 to be similar to 2022 operating expenses as a percent of revenue in 'twenty 'twenty. Three are also expected to be similar to 2022.
Operating spending over the near term is reflecting our investments in development and commercialization programs have we expect expenses as a percentage of revenue will trend down as we move into these new initiatives and begin to leverage our spending.
I will now turn the call back to Juan Jose.
Thank you Raj with the launch of me F M Tek in Japan, the presentation of the three year data from our U S study and the successful follow on offering the last few weeks have been very meaningful for our company, but we expect the coming months to be just as eventful we.
We look forward to providing updates on the commercial launch of <unk> in Japan and the expansion into Europe . We are also preparing for the launch of Motiva into China as.
As we entered the United States and China. It is a major step in our efforts to build a breast aesthetics and reconstruction industry based on technology solutions to improve women's health and wellbeing.
This has been more than a 12 year journey for us since we first went to market with much Eva and each year, we publish our post market surveillance report, which in effect details how we are doing.
This is the only document of its kind in our industry released every year as an exercise of transparency with our stakeholders.
<unk> is a clinical data that has been collected on the performance of our devices from several different countries.
The report includes our own product and warranty claims information as well as the registry data from different countries and independent clinical publications on Motiva.
They are all telling the same story name.
Namely that after over 12 years in the market with.
<unk> implants continued to have device related complications in the very low single digits in <unk>.
Many cases, well less than 1% and this is not a surprise for us.
It is downstream effect of science and technology.
As older papers about Motiva and published peer reviewed publications that test.
We look forward to making our products and solutions available to the largest markets in the world.
We continue to publish this report every year. It is available on our website at establishment labs Dot com and we encourage everyone to download it and review it.
We will also hold the opening ceremony for a new solar Yum campus on July 19th.
In human factoring capacity at <unk> more than doubles, the number of implants, we can produce per year.
How's us to provide over half the current world demand. This facility also brings us significant new capabilities in R&D media and surgeon training.
We are making progress every day towards our goal of building a strong women's health foundation to create vibrant and expanding markets for breast aesthetics, and reconstruction and to make a meaningful change in the lives of women around the world I will now turn the call over to the operator for your questions.
Thank you, we'll now be conducting a question and answer session, if you'd like to be placed into the question queue. Please press star one on your telephone keypad you May press star two if you'd like to remove your question from the Q1 moment. Please while we poll for questions.
Our first question is coming from Anthony patrol from Mizuho Group. Your line is now live.
Alright, Thanks, and congratulations here strong start to the year and then of course on the IV data.
A couple of weeks ago, I think I'm going to start on on Japan.
Maybe just qualitatively how the launch of <unk> in Japan is going and then maybe more specifically when we think about the station network of clinics. There was the initial launch in Tokyo, there, but theres also the gel clinics as well the medical aesthetic locations. When we think about those could.
<unk> of sites I think station has 10 sites not sure. Many how many Joe has in their network, but how many sites are represented in those two networks and how many of those are you in currently and then I'll have a couple of follow ups. Thanks.
Yeah. Thank you Anthony and you know what.
We're very pleased with our launch of <unk> in Japan.
But I do have to remind absolutely everyone of the importance to see this as the launch of a new category and not another product into traditional breast aesthetics.
If it was a traditional launch our main target would be to get as much market share as quickly as possible while preserving.
Our average selling prices.
The objective here is really to bring in consumers that are currently not interested in traditional breast augmentation and that's why you know it is so important to address you know deep potential obstacles that these women would see traditional breast augmentation.
If you look at all the marketing efforts that we are doing in partnership with Sei Sheehan and Joe clinic. They are focused on that so you know it hasn't been yet one month, but we are already pleased with the amount of traffic we are getting in the different digital assets that we are utilizing.
We are working right now with Tokyo, and expect to see expansion into Osaka and Furthermore, you know later in the next year to the other locations. These are genes of clinics. So they have a presence all over Japan, and we do expect to.
See me at expanding as well geographically throughout Japan.
The telephone and then the follow up would be just on the U S side and following the final clinical module submission.
Not necessarily on timing, but maybe as we look at the remainder of 2023. When you think about the buildup of the infrastructure on the U S side, how much of that you know.
Really is ongoing now potentially accelerates.
Head of a potential approval and then how much shorter bridges after a potential approval.
You know whenever that may come in over the next year or so thanks again and congratulations.
Yes, we have a very detailed carefully thought out plan for launch in the U S. It's going to be our most important launch ever for this company. We have now launched motiva in more than 85 countries. So we have a very clear blueprint of how we do things.
We've already been building up towards.
The launch and as we get closer and closer we're adding people to that team, we're making sure that we have what is necessary.
While you know we don't.
Bring in people too early that would you know.
Increase our potential spend unnecessarily. So that's kind of like the balance that we're trying to play with our U S launch strategy.
Very helpful I'll get back in queue. Thanks again.
Thank you. Your next question is coming from Joshua Jennings from TD calendar. Your line is now live.
Hi, good afternoon, thanks and.
So Anthony is congratulations on the strong start to the year.
Progress.
I was hoping to just first ask just two questions on me.
First.
Maybe getting a little bit of a head of mine itself works, but just thinking about the U S approval track for me. Once you have motiva approved it is a supplemental PMA pathway.
A reasonable pathway to think of that.
That could be opened for establishment.
For me approval.
Thanks, Josh.
So you know right now all of our efforts are geared towards getting approval for motiva round and ergonomics.
Ergonomics two is the next generation platform that makes me a possible.
And we do believe and our regulatory.
Experts have supplemented is that you know once we gain approval for motiva in the U S. We would be able potentially to use that approval to.
To build on that with an extension for the new.
Catalogues that are necessary for me yeah. So that's something that we need to explore more and definitely they will become more and more important as we get over with declaring approval process, but that's the important thing right now.
So thanks for that and then just second question.
Again, they have myself again here, but but just thinking about the approach the technique Dominion laser technique. It. Your team has developed I mean should investors be thinking of me as a potential platform technology in the aesthetics.
Thanks for taking my question.
So if you think about other surgical specialties moving into minimally invasive.
The creation of Mia is an experienced required not only.
The ergonomics two platform, but also a series of tools and techniques that go with it. So that you can have a true mainland invasive approach. So absolutely you can use these technologies to go into other.
Types of treatments in a in which minimally invasive would be required in order to get a similar experience at what you see with me also.
It's a little bit early to go into that but we absolutely do think that it is a platform.
Okay, great. Thanks, a lot.
Thank you. Your next question is coming from George colors from Stephens. Your line is now live.
Hey, guys. This is harrison on for George.
Trying to reiterate again, congrats on the strong quarter and thanks for thanks for taking the question.
So I wanted to start on flora and I was wondering if you can give us an update on where you are as you build out that international market and specifically what your expectations are in 2023 in terms of Florida contributing to growth and any additional geographic areas.
Is that Florida.
Laura sorry.
Enter into later this year.
Yes, Thank you and Florida is the first technology that we have exclusively devoted to in our aesthetic breast recon program. So it is very important to us and what we see is you know quarter to quarter more surgeons and more hospitals.
Taking on flora.
The buildout, though of breast reconstruction demand is slower because it requires different tenders that no may vary in timing from region and in countries. So it is a buildout that cannot happen as accelerated as a normal breast aesthetics launch.
Now we are though very pleased with the response that we get.
And also for the scientific backing that we are getting this paper that I referenced in my remarks earlier is particularly important because it compares a direct competitor from United States.
Endured tissue expander two hour flora tissue expander in the same patient soon as this is a true direct comparative.
Evidence and one in which most women we're pleased with our expander as being their choice. So as we move along and we will continue to do so I think this evidence will further improve the <unk>.
Importance of this technology and I will mention also the importance of Japan and now with flora because we received approval there at the end of last year and we continue to add hospitals in Japan. So I think that that's going to be further proof that in.
This type of sophisticated markets, we can do very well with that Laura.
Yeah. Thanks, it sounds great.
And then I wanted to wanted to ask one on me as well.
The launch in Japan, and across Europe progresses, I wanted to ask about the partnership model and what kind of investment is required from the company as well as the clinics and as well as this.
This partnership model should should we expect this to be used across the company more broadly going forward or is this specific to the to the launch of EMEA.
So as a company establishment labs has been you know moving closer and closer to consumer over the last decade.
<unk> is.
The first offering that is truly.
Conceptualized and designed for the type of experience that Mia is so when we look at this partnership model. It also is a different business proposition one in which you know we are partnering with selected clinics disclaim ex understand very well that they will have.
To invest alongside with us to be able to bring in these new consumers that are not looking for traditional breast augmentation. So it is a very different type of thing you may remember, we don't have any sales reps for.
For EMEA, we invest this money in creating demand. So we will continue working with this model in Europe . Once we are able to launch there and you know we are very happy with the type of interactions that we are doing.
With these parts in clinics.
We will see what happens in the future. If if this is a model that we want to move across the organization.
Yeah.
Great. Thanks for taking the questions.
Thank you next question today is coming from Neil Chatterji from B Riley Securities. Your line is now live.
Hey, guys. Good afternoon, thanks for taking our questions and congrats on the strong quarter.
Maybe just sticking with me.
Just curious you know more broadly how that that partner funnel is shaping up in other markets and then does that.
Lee you know what is that the French market look like you know with a new partner. There you know maybe in comparison to the Swiss market that had about believed.
Under a thousand women eligible for me in about 200000 that were interested.
Yeah. Thank you and you know we are as excited as everyone with Mir and the possibilities that it can have over time.
We are looking at a multibillion dollar opportunity.
At peak and our job is to basically develop that market and prepare for it with these partner clinics. So if you look at.
Europe right now we are looking at the first European partners in Sweden, Switzerland, Spain, and now also in France. So you know when you look at our clinics like nor desk in.
Scandinavia.
Lehman and which okay in Switzerland or plan S and.
Clinique Deshawn San Jose in the Spain, France, respectively. What we were looking at is like literally the best of the best in terms of the potential partners that you can use to go direct to consumer and compliant Li be able to get them to understand that this is a different type of offering.
You know when we look at the next few months I think again, it's about the qualitative part it's about being able to.
Get through that door, a new type of consumer.
With Clinique <unk> Z is a particularly interesting group they have 12 clinics throughout France, we are going to begin at their main location in Paris and nine additional hundred clinics throughout the country. So very excited about all these possibilities.
Alright, great.
Amy that switching that to China, just wanted to check in on how things are tracking with kind of the.
The regulatory process for <unk>, but theyre targeting that second half launch.
And just also I believe you're planning to leverage the distributor you have for South Korea, just curious you know.
If you could just elaborate on what they're seeing on the ground and from any market research in front of that launch.
Yes.
Yes, actually we've been doing more and more work in preparation for the launch in the second half and you know one of the important things is that you know.
Breast aesthetics is bouncing in China from <unk>.
The COVID-19.
Covid levels into something that looks more like what we were seeing before COVID-19 and you know it is expected by that by 2025, we will be back at 2019 levels now.
Other very important thing is that you do see patients continuing to request premium brands. So that plays, particularly well for us and we are working with our partner.
Human Wellness Corporation, one of the reasons, we chose them as a partner for China is that the Chinese consumer does look up to what is going on in South Korea. When it comes to the Statics now of course, you know our partner is putting together.
An entire team in the ground in China locals that understand the particularities of each region and can deal with those so as soon as we received the approval from the MPA, we will move on into the launch phase with our partners.
Great that's it for me thanks.
Thank you next question is coming from <unk> from <unk>. Your line is now live.
Sure. Thanks for taking the questions just wanted to follow up on Neil's question about China I heard you say you're expecting to launch in second half in the past you've said approval planned in the first half is that still true or are you able to reiterate that.
We are so close to to it that we think that it is time to focus on the launch.
It is in the hands of the N M. P. A but we have enough visibility to feel strongly that we are in the preparation last phase of the launch.
Okay, and then a question here, probably a follow up from what Anthony asked earlier about U S. Commercialization preparation here SG&A was particularly well controlled this quarter I wanted to ask what drove that and how to think about the trend for the rest of the year. Given you do have plans for the U S launch here, so how to think about the sales rep belden.
SG&A bounce from here for the rest of the year definitely heard the commentary on it being opex being similar to 2022 for the full year, but just trying to understand the cadence.
Yeah. Thanks for the question Maria I would say that the first quarter as we entered the year just given some of the uncertainty that we get a lot of other companies. We're seeing you know we took a very prudent approach to our spending and I think you saw that in the numbers as we've talked about though we do expect Opex as you noted to be similar this year to last year as a percentage of revenue and we continue to expect that.
So as we move through the year some of the investments in things like media will continue to pick up and it certainly the U S will start to come on.
So I really look at the first quarter is really us being kind of prudent as we started the year, but the spending is still on tap as the year unfolds.
Okay. Thank you.
Thank you next question is coming from Matt Taylor from Jefferies. Your line is now live.
Alright, Thank you for taking the question.
So I had a couple of guidance questions for you.
First thing I wanted to ask you to be clear about is can you talk about how much.
Revenue and if Theres any U S revenue.
In guidance this year.
So we haven't given specific numbers around that so China is in the guidance for this year and we continue to have a lot of confidence in that is one as I mentioned are moving into the preparation for launch into China.
I think you asked about the U S.
We have not included the U S and our guidance for this year. So so that is still something that.
We're leaving out for now just given the you know we're all waiting along with everybody else for the F. D. A.
The Fda's progress until we've just elected not to put it in at this point.
Gotcha.
And one follow up just on the guidance range for the year.
We'll need a 23% growth on kind of the second easiest comp. So I guess, what I'm getting at maybe you could talk about the big factors that would take you to the higher versus the lower end of the guidance. This year in your mind or are they more macro or more of the.
The micro things that youre discussing here with the product launches.
Yeah, I'd say it's.
Certainly the macro was always something that we're watching but I think the real swing factor is really the timing of of some of these initiatives right. So you know when China comes the pace of EMEA coming on you know these are things that we are.
Watching very closely and controlling a little bit in terms of the spending were devoting to them but.
But the range really does reflect I think that there's still a little bit of uncertainty in how these things are going to unfold. This year I think as we reiterated the guidance. This year, we're still very confident in the outlook.
Nothing has really changed in and how we're seeing things.
Alright, thanks for the commentary.
Thank you we've reached end of our question and answer session I would like to turn the floor back over for any further or closing comments.
Thank you for joining us on today's call. We look forward to providing our next quarterly update in August and we wish everyone continued good health and happiness.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.