Q3 2023 Establishment Labs Holdings Inc Earnings Call
Good afternoon, welcome to establish establishment labs' third quarter 'twenty to 'twenty three earnings call.
At this time, all participants will be in a listen only mode. At the end of this call. We will open the line for questions and answer session and instructions will follow at that time.
As a reminder, today's call is being recorded I will now turn the call over.
She Raj again, Hoyt Chief Financial Officer, Sir Please go ahead.
Thank you operator, and thank you everyone for joining US with me today is one is H <unk>, 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 establish a labs 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 of the principal risk factors and uncertainties that may affect our performance more 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 other SEC filings, which are available on our website at establish a labs dot com.
Please also note that establish a labs received an investigational device exemption from the FTA for Motiva implants, and is undergoing clinical trials to support regulatory approval in the United States.
We continually seek to expand the geographies in which our products are regulatory approved.
Please check with your local authority for specific product availability the.
Got you to this conference call contains time sensitive information accurate only as of the date of this live broadcast November seven 2023.
Except as required by law establishment labs undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances. After the date of this call.
With that it's my pleasure to turn the call over to our CEO Juan Jose.
Thank you Raj and good afternoon, everyone revenue in the third quarter of 2023 totaled $38 $5 million in line with the third quarter of 2022.
Results this quarter reflected lower demand for breast procedures globally slower demand developed over the quarter in our direct markets and was also reflected in orders we received from our distributors and we expect this trend will persist in the fourth quarter as such we are lowering our full year guidance to approximately $165 million representing.
Growth of 2% over 2022 I.
I would note that while we still expect China approval by the end of this year, we have removed it from our guidance as we have less than two months remaining in this year. This is a meaningful portion of our reduction in guidance. However, even in this period, we continue to gain accounts around the world does slowdown seems fairly broad across the.
Statics and does not seem to be related to anything specific in the breast implant industry.
Anecdotal and international markets, both plastic surgeons and dermatologists report to us they have seen a noticeable slowdown indoor practices across all procedure types, both surgical and nonsurgical.
This is of course, not a first for the aesthetics industry and both president and our experience suggests that this will be transitory and relatively short lived.
That said, we are being very careful in this environment and we have taken steps to make sure our business is spending in relation to the current demand.
Among the steps we are taking are a reduction in global head count and the reduction in operating expenses. We are also prioritizing or main quote initiatives, United States, China and meal as well as cautiously managing our global inventory levels.
Even as we take these steps we expect growth to resume in 2024, which includes doubling our Tam to our entry into the United States and China. Our access to capital is a significant advantage here and we are positioning ourselves to take advantage as demand inevitably returns to our industry. There has been worldwide dislocation in the <unk>.
Palliative markets for breast implants, and this presents a sizeable opportunity.
It is also important to note that we continue to grow our market share our internal data shows that we continue to gain surgeon accounts in our markets and our competitive positioning is strengthening we are taking market share globally and this should continue through the remainder of 2023 and into 2024, we are raising the standard of what women.
Insurgents should expect from the technologies they choose and we are distancing ourselves from the remaining players in this industry, our pipeline of new products and new geographic markets will help fuel our momentum and we have a very solid foundation on which to build for 2024 and beyond Raj.
Raj will provide additional details on our third quarter performance and our outlook in a moment, but I would like to highlight that we expect to be EBITDA positive by the end of 'twenty 'twenty four and cash flow positive in 2025.
These are corporate goals that are reflected throughout our business planning and are of the utmost priority on October 15th we announced that the U S. FDA granted five 10-K clearance for day Motiva, Florida smooth silk tissue expander. This was a major milestone for the company as it is our first implantable approved for the United States.
Laura offers several proprietary and unique innovations, including establishment labs' patented smooth silk surface technology smooth silk was the subject of the landmark paper published in nature Biomedical engineering by M. I T scientists, Bob Langer in which the surface was shown to be the most biocompatible compared to other imply.
<unk> surfaces.
Florida also includes an RFID enabled non magnetic board and is labeled as MRI conditional by the FDA by being magnet free.
Laura avoids the interference that Magnus cause viewing M. R imaging and can improve the precision of radiation oncology treatment.
This is a distinct advantage to flora as all other commercially available breast tissue expanders include magnets.
And the Fda's letter on floor approval. The agency noted this is an innovative technology not available in other tissue expanders on the market.
Florida has been available outside the U S. Since 2021, and we are gaining traction with the device.
Been several notable independent publications, highlighting improve patient comfort with Florida compare to other devices and improved imaging and radiation treatment outcomes. Despite one in eight women developing breast cancer tissue Expanders have seen little innovation in decades, with Florida, we are providing surgeons and a woman who was.
These devices are a better option and we are extremely proud of being able to offer floor up to women in the United States, We began to introduce Florida to plastic surgeons in the United States at the annual meeting of the American Society of plastic surgeons in Austin at the end of October and the reception was highly encouraging leading plastic surgeons at some.
Of the top institutions in America have indicated that they will begin to adopt <unk> as their expander of choice.
In October we held our eighth World Symposium on ergonomic implants in Lisbon, Portugal.
Among the highlights was the presentation of two year results from the <unk> feasibility clinical study.
The mirror study is an IRB approved prospective study that enrolled the first 100 subjects between December 2020 in April 2021.
Preliminary two year Kaplan Meier analysis of key events. There were no reports of capsular contracture and no ruptures a sub study of 33 subjects, who underwent an MRI at 18 months also showed no ruptures there were no reports of bleeding and motto Ma or sirona requiring intervention in this study.
These are among the best results shown at two years for any breast implant technology and add further support that <unk> is an entirely new category within breast aesthetics with Mia a plastic surgeon can shape, the breath and a 15 minute minimally invasive procedure without the need for general anesthesia. The result is <unk>.
Crow and discrete with a 1% to two cup proportionate result.
Seizure requires minimal downtime with women returning to most activities. The same day 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 list of countries, where <unk> is available continues to grow we have partner sites in Spain, Switzerland, Sweden, Germany, France, Costa Rica in Japan, and we have partner with our distributors in Turkey, and the middle East to begin opening sites in those regions in 2024.
It is early in the launch of Neal, but we're seeing proof points that we are creating and capturing demand for this new category one.
One recent media consumer is jocasta by J D.
<unk> is a professional female boxer and just this past weekend. She defended her international Boxing Federation World Boxing organization, many flight weight titles by unanimous decision Joker.
Yoga has now defend their her world titles twice just months since for EMEA procedure.
She is not only an inspiration as a world class athlete, but is also a testament to how women can quickly return to their lives with meal without limitations or restrictions.
Already we have reports of women flying internationally from the United States to received a procedure abroad.
Some cases, they are paying in excess of $20000 for a premium experience. This is more than twice the cost of the average breast augmentation in the United States.
Stories like these demonstrate that not only is this a new category in breast aesthetics, but that man is going to be firmly in the luxury category and highly aspirational.
The momentum for me continues to build in both awareness and lead generation continue to grow this will eventually be converted into more procedures, taking place at our EMEA certified partner clinics.
The launch of a new platform like ergonomics, two which include the implants for join me here is an opportunity to price technology. According to consumers' willingness to pay.
Thus, we are glad to see the contribution towards total revenue of the jewelry program now exceed 10% of our total implant revenue with an average selling price of more than double our blended rounded and ergonomics pricing. We are beginning to see positive contribution to our gross margins from this platform.
As join me at scale, Asps and gross margins will improve in the international markets, the United States and China have the highest prices in the world would be significantly accretive to ASP and gross margins all of this together lays the foundation for a very strong company.
We are actively preparing for the launch of <unk> in China with our distribution partner as we wait for the letter of approval from the MTA for Motiva implants.
In the U S. The final module of our PMA was submitted to the FDA in the first quarter of 2023 and the full PMA remains under review by the agency.
As of activity in our interactions with the agency remains very positive. It is notable that while the recent approval of flora in the approval of Motiva are separate processes. The devices shared the same surface technology, similar RFID technology and our manufacturer under the same conditions at the same facility.
We recently hired Elizabeth and Sika Newman to lead our U S business. This brings over 30 years of experience launching and growing aesthetic brands. She is moving quickly to build out the commercial and operational teams and its finalizing plans for launch we look forward to sharing more with you about our progress over the coming months our confidence decrement.
<unk> implants will soon be available to women in the United States continues to grow.
I will now turn the call over to Raj.
Thank you Juan Jose.
Total revenue for the third quarter was $38 $5 million, which was growth of 0.8%.
From a regional perspective sales in Europe Middle East Africa were approximately 61% of the global total.
Asia Pacific was 6% and Latin America, 33% direct.
Direct sales were approximately 54% of implant sales, while distributors made up the balance, Brazil, which is our single largest market globally accounted for approximately 16% of total quarterly sales.
Our gross profit for the third quarter was $26 $1 million or 67, 7% of revenue compared to $26 million or 68, 1% of revenue for the same period in 2022.
Our gross profit third quarter was positively impacted by increased contribution of <unk> revenue.
This was partially offset by higher overhead and labor costs.
Costs were higher apart from changes in exchange rates between the U S dollar and the Costa Rica colon.
As we report in U S dollars revaluation of the Cologne over the last year resulted in higher costs in the period.
Average selling prices in the third quarter up from the second quarter of 2023 and year over year SG&A.
SG&A expenses for the third quarter increased approximately $8 7 million to $40 million compared to $31.3 million in the third quarter of 2022.
The increase in SG&A in the third quarter resulted in part from our investments in new growth initiatives like Mia and preparations for a launch in the U S.
R&D expenses for third quarter increased approximately $1.8 million in the same quarter, a year ago to $7 $1 million higher personnel costs and increased activities related to our U S approval processes contributed to the higher spending this period.
Total operating expenses for the third quarter were $47 1 million, an increase of approximately $10 $5 million from the year ago period.
Net loss from operations of third quarter was $29 $3 million compared to a net loss of $18 $6 million in the same period of 2022.
Our cash position as of September 30th was $52 $2 million compared to $66 $4 million at the end of 2022 or.
Our cash used in the third quarter included approximately $6 $6 million of investments in capex, including for our new manufacturing facility, which is now complete as well as a $13 $9 million increase in inventory.
As we prepare for the launches of Motiva in China, and the United States.
As a reminder, we have two remaining tranches on our debt facility, which totaled $50 million and which become available on the achievement of sales and regulatory milestones.
These along with the cash on hand at the end of the third quarter.
Artist with access to approximately $100 million of capital.
As long as I noted, we are lowering full year revenue guidance to approximately $165 million.
The updated guidance reflects lower demand globally, but also that removed China from our forecast.
We expect approval in China this quarter, but at this late point in the year, we are not forecasting any revenue contribution in 2023.
The reduction in guidance is approximately two thirds from the changes in demand and one third from China timing.
We continue to expect gross margin of 2023 to be approximately 100 basis points lower than 2022.
We are taking steps to control expenses and cashews. This includes a target of 20% reduction in global personnel cost focus reductions in operating expenses and management of inventory levels.
As a result, we expect cash used in the fourth quarter to be meaningfully lower than in the third quarter.
Our objectives introduce cashiers to less than $15 million in the fourth quarter and based upon the actions we have taken thus far we are confident we will meet this target.
With these actions, we expect to be EBITDA positive in 2024 and cash flow positive in 2025.
We believe we can achieve these targets with the cash we have on hand, and with the additional credit available to us.
Is a very important core objectives for establish a labs and will be reflected in our corporate planning as well as in our compensation structure for employees.
I will now turn the call back to Juan Jose.
Thank you Raj establishment labs is taking share and we expect to continue to do so the.
The clinical and scientific data supporting the use of our products is unprecedented and only grow stronger and you're seeing this effect many of our competitors.
With our entrance into the U S and China, we will double our addressable markets and we are poised to become the leading global company in breast aesthetics and reconstruction.
For the next few years, we will continue to transform and expand our markets by creating new categories with innovations like EMEA.
We are very excited about our future and expect strong growth for many years to come our 2026 target of $500 million in revenue remains a key long term corporate objective and everything I see suggests we will be successful.
I will now turn the call over to the operator for your questions.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star one we ask that you limit yourself to one question and one follow up.
Your first question comes from the line of Matt Taylor from Jefferies. Please go ahead.
Great. Thank you. This is Mike Sarcone on for Matt. Thanks for taking the question.
Just to start you mentioned you expect growth to resume in 2024.
Hoping you could comment on that and just talk about your visibility.
Your confidence there and if you could maybe parse out growth.
Expectations for existing market versus the growth that you'd be expecting for newer markets that you're entering into like China and the U S.
Yes of course first of all say that we are seeing the slowdown across the statics and in many markets globally and surgery is often the tip of the sphere is a procedure or more costly and require more of a commitment. However.
However, our experience and President does show that these trends are usually transitory and the demand for the procedures will tend to grow over time.
Now if you think about like this softness in all of those all of Us Fedex.
When you think about the precision of establishment labs.
In front of US we have.
Many growth opportunities that are real the approval in China. The approval in the U S. Both of those are Asps and gross margin accretive and we are thanks to both of them doubling our total addressable market.
We received already approval for flora in the United States, That's a $180 million market and Florida is unique in its technology and can truly transform this market in the United States and on top of that we have media, which continues to expand and we will see EMEA and more geographies.
Next year.
So beyond what we are seeing in terms of the softness there is older Greenfield that we see ahead of us in terms of these new opportunities.
There may be a time where like.
Softness starts to clear out and then we see growth in the traditional market, but I think between all of it we're poised to come back to a percentage of growth like we had seen in the past of 30% plus.
Got it that's helpful. Thank you and Raj I think you mentioned.
20% reduction in global personnel costs, reducing opex.
Opex.
Can you talk about how quickly.
Do you plan to implement that and then.
Good.
The ramp back look like when you do get approval in.
In China, and the U S and you might need to increase head count again.
Sure. So we've actually already undertaken a lot of these initiatives in the last couple of weeks so.
So we did yes, we did have a reduction in force last week.
So a lot of this is already happening.
I think as long as they noted in his remarks and what we are doing at this point is prioritizing the growth objectives in front of us so things like.
The United States, China. So we are making sure that we are committing our resources into those areas, which provide the best opportunities for growth.
And so you mentioned the U S. For instance in our prepared remarks, we also talked about how we have hired ahead of the U S business at this point and we're building out the teams there and so we really think about it as sort of a reduction in certain areas of the business.
That are a little slower right now and emphasizing areas, where we still have a lot of growth ahead of us.
As these markets recover which we expect they will our core markets. We will continue to add back there we expect as Juan Jose mentioned to get back on a nice growth trajectory in these markets. We're just trying to be judicious in this period, where things are slower.
Got it thank you very much.
Your next question comes from the line of Allen Gong from Jpmorgan. Please go ahead.
Hi, sorry.
A lot of worry that much about just the first question about the same time, but just one question on your EBITDA.
Targets with kind of the market a little bit softer than expected.
And.
Atlanta later use potentially being a challenged market as well next year. What are you really assuming or these new markets to get to those targets and then just as a quick follow up when I think about it.
Thank you.
Internationally, but how should we think about the pipeline.
Thank you.
So yes, I can take the first question I mean, when we look at the.
The outlook for 2024, we're preparing for a number of.
Potential outcomes, there right, where the markets don't recover for a period of time or relying upon the growth of the new initiatives, which Juan Jose mentioned.
In most scenarios with EMEA ramping with China coming online with Florida now approved.
We expect that growth will pick up next year, even based upon those three things that we already know about even if the export markets remain soft for a period of time. However, we are preparing our budgets and spending for the eventuality that things don't improve for a period of time and so we expect to be EBITDA positive.
In a market where.
Were these core markets remained soft for a period of time.
And then I think your second question, which was on <unk>. So I think one could you clarify the second question is very hard to hear you.
I think we might have lost Allen.
Sure.
Alan Your line is open.
Oh, sorry, Yes. My question is does.
EMEA is doing really well internationally, but just curious.
Once you get the Motiva approval in the U S. How quickly do you think you'll be bringing me at that the U S as well.
Yes, it's too early to give you a lot of precision on that because we first need to gain the approval of Motiva implants, and based on that approval Sika supplement.
Sure.
Implant that is necessary for EMEA procedure and then there's the additional tools. So as a result, what I can tell you that our regulatory experts believe that this is a supplement supplements usually used to take around 18 months. So of course, you know we're very committed to.
The first approval, which is the one of Motiva implants. So that we can then bring the rest of the pipeline of innovation that is already available in the international market.
Your next question comes from the line of Anthony Petrone from Mizuho Group. Please go ahead.
Thanks, and good afternoon, maybe I'll start with the global demand comments.
The establishment lab numbers are following some similar comments from Sandra player Thats no longer going to be in a marketplace in mode.
Previously as well talked about weakening demand and I guess, when we kind of pinpointed it.
Is it that the underlying demand because of that.
Has been impacted here because generally the consumer's tapped out in there.
Theyre not there is no indications of interest in the funnel or.
Or Conversely, you see the reports today credit card debt.
Over a trillion dollars and if you think of in the U S. Here folks like credit care are the rates on lending just to have they gotten too high and that's impacted demand. So is there still underlying demand for the procedures, but is it more funding issue.
Or is the demand simply gone away, while there's a prioritization of spend here and I'll have a couple of follow ups.
Yes, Thank you Anthony.
I will tell you that the slower demand developed over the quarter in our direct markets and eventually was reflected as well in the orders that we received from our distributors.
In the first half of the year around.
Around 60% of our orders came from distributors.
We normally do see a slowdown in procedures in late summer and then they tend to recover once the seasonality disappears and in September we see it picking it pick up again, well that did not happen this year.
When we hear from doctors is that many patients are basically delaying the procedures is not because of lack of interest I think there is a lot of.
Uncertainty, both macroeconomic and geopolitical and that is having an impact in all of our statics. However in the past we have seen this many times in which periods like this in the international markets for weather.
One type of prices or another they do come back and in our case I think what makes us even more confident is that for that growth we don't depend on the.
On the current market, we have new markets opening up we've recently had the approval of Florida here in the United States with $180 million market opening to us and we're going to see in the next few months.
The approval in China and that further after that the approval in the United States. So all of that is as potential growth for us and that's what makes us confident because not all companies have these type of milestones ahead of them.
No fair enough and then just follow ups, one on cash preservation and just how we should be thinking about of Motiva launch under a scenario, where we get FDA clearance. So first on cash Raj you mentioned that the burn rate would be limited to $15 million in <unk> just wanted to clarify.
<unk> that the cash burn is limited to $15 million. So is that kind of low level, we should be thinking about for the first half of 'twenty four and then when you think about putting funding toward a potential U S. Motiva launch here should we get FDA clearance is it more of a gradual launch now where youre not really going to go full.
Tilt or is that unchanged.
It would be a full market clearance next year. Thanks.
Yes to your question, Anthony I think that $15 million level in the fourth quarter again, you've seen the guidance reduction that we've given.
It's going to be a very slow top line growth quarter, and we're guiding to about $15 million of cash use as we move into next year and some of these opportunities China floor in the United States. The group continued growth of EMEA, we're looking at keeping our cash use at that level, if not lower going forward and so we did talk about getting to be EBITDA positive.
By the end of next year, and then ultimately getting to cash flow positive on the cash. We currently have access to and so the preservation of cash is going to continue.
A big focus of ours, but I would look at it more as sort of the.
The use of it in areas that provide us with the best growth and so you talk about the United States. The biggest opportunity in front of us and we will not under fund that opportunity, but we will look to find.
As in the other parts of the business that we can we can lever and devote the capital to do against the United States.
Thanks, I'll get back in queue.
Your next question comes from the line of Josh Jennings from TV Cowen. Please go ahead.
Hi, good afternoon. Thanks for taking the questions I was hoping to just ask about <unk>.
China approval timeline it sounds like the team is still optimistic.
It could be in hand by the end of this year any signals from China regulators or where process updates that you can share to.
That's driving that optimism or is it just the processes move forward you've done your job on your side.
The approval will come it's just a matter of time.
Yes. Thank you Josh I think that we have enough signals in front of us.
Do you understand that.
To work on the final labeling is.
Is done and usually by that time.
That youre going to get the letter from DNA NPA.
And I think this is going to happen before the end of the year at least that is our expectation. However, we now expect to begin recognizing revenue from that market in 2024.
As.
As such we are preparing for it we have been on calls with our team there on a weekly basis and we are preparing for a launch that should happen early next year, if everything goes according to plan.
Thanks for that and then just to follow up on the.
Wanted to ask a question about the process.
So Florida.
Approval, we now have smooth silk cleared in the United States.
Was the 500 10-K process independent of the PMA review process by the FDA.
Did the FDA have to.
Visit the manufacturing facilities prior to that for a five 10-K approval. Thanks for thanks for taking my questions.
Yes on that Josh.
It is not the same process. One is a 500 10-K that leads to a clearance and the other one is a PMA that leads to an approval. However, it is the same division that is looking at both and as such as part of the foundations for the clearance of the flora tissue expander. They had to include people that.
Have to do with the approval potential approval of the Motiva implants. So definitely we have cleared an important hurdle when it comes to one of the most important things in the approval process for the Motiva implants, which is surface biocompatibility.
Surface is an important driver of safety and as such by having the clearance of Florida, we have a lot of confidence that we will finish the process.
As we expect with the Motiva implants and no they did not.
Expect our manufacturing facilities for the flora tissue expander, but it is the same manufacturing facilities equivalent processes that are used for the manufacture of motiva implants.
Your next question comes from the line of Neil Chatterji from B Riley. Please go ahead.
Hey, guys. Good afternoon, thanks for taking our questions.
Just on the demand slowdown.
As far as.
I guess are you seeing any nuances I guess between just the general.
Static slowdown versus specifically the breast augmentation market and any indications that could come back faster for implants.
So like we said you tend to see it first in <unk>.
Surgical aesthetic.
Procedures, because they tend to be more expensive and they usually require more of a commitment.
So that's why I think we're seeing it first there.
When you look at the size of the impact I think it is very important to understand that in direct markets. We are seeing an impact that is not more than 10% for instance in Europe, but in distributor markets. We are seeing a lot bigger of an impact but that is related to the fact.
The distributors are very careful with their cash management. So if they think that they can get through.
Softer market by ordering less they will do so so the impact as a percentage in our total revenue is a lot stronger and.
Until we get to the U S.
The majority of our sales are going to go through the distributor channel. So far this year has been in the first half it was around 60%.
Now you saw that turnaround completely with close to 55% of our revenue coming from direct markets. So it kind of like amplifies the impact, but I think as we get.
Through the rest of this year and the situation starts to resolve with our distributors, what I think youre going to see is a resumption of ordering patterns because they are going to consume those inventories and they will need to come back.
Great Thanks for that color.
Maybe just switching gears to EMEA.
Just curious on any more.
More updates on the progress with the clinic partners, there and the DTC efforts.
How much is the two year initial feasibility study results kind of helping generate leads and uptake.
Yes, I think that's a really good point because the two year study, which has zero percent capsular contracture zero percent rupture.
Zero percent, leading all these things that people care.
Care about when they think about.
Innovative procedure like EMEA, well they tend to dissipate.
His term of questions and concerns, but I think what we see is two things the number of clinics that are interested in becoming partner clinics is increasing actually we're having almost a difficulty in onboarding and training fast enough. These clinics so that they can begin transferring the.
Awareness into leads.
Second part is what we are doing with the clinics that have been already on boarded and are speaking to consumers and what we began with our awareness campaign is now turning into many leads coming to these clinics and I think that is something that is very much appreciated in a period of softness is that these <unk>.
<unk> are seeing leads and many of these leads are women, who had not thought about.
Traditional breast augmentation. So I think EMEA is going to be a shining light in the middle of this period of softness.
Great. That's it for me I'll hop back in queue.
Your next question comes from the line of Joanne <unk> from Citibank. Please go ahead.
Thank you very much for taking the questions.
What time you experience this was when and how long did it take you to.
For lack of a better term dig out of it.
And my second question has to do with the FDA process.
Where are you with that has come in to inspect the facility.
Anything you can sort of give us granular granularly, yes, that's the right word.
Can help better understand.
That is thank you.
Yes. Thank you Joanne I think from an industry perspective.
Probably eight or nine was the deepest recession ever experience and procedures at least for the U S where you have the best figures fell for two years, but then recovered back pretty strongly.
Within a year after that they were back to pre recession levels.
In the international market actually we see it a lot more often we see you know.
Countries, like Brazil, Venezuela, Argentina, Mexico, who have periods in which they go through recessions or political instability and that period tends to last couple of quarters and then they tend to regime.
We've seen similar situations in Asia.
We're like.
Growth stopped for a bit in certain markets like.
Thailand or in southeast Asia, but they do tend to recover so that gives us the confidence to to tell you that although this may be transitory. We are also taking the steps necessary. So that if it was to last longer we are prepare for it so.
That is perhaps one of the most important things that we're trying to convey today is that.
Based on the past, we know they will come back.
We cannot predict the future. So we are getting prepared for it and when it comes to the approval process for the.
PMA of Motiva implants.
Remember, we went from a modular PMA too.
Full PMA, we have provided all the answers to all the questions.
Every module that the FDA gave us and we are now awaiting for the manufacturing inspection. So as soon as we have that inspection I think it will be a major milestone towards the approval, but once again I do think that it was quite important to receive the clearer.
Clearance of the.
Of the flora tissue expander, because it is a.
Good.
Equivalent in terms of many of the characteristics that are part of the breast implant as well.
Thank you.
Your next question comes from the line of Marie Thibault from <unk>.
Please go ahead.
Hey, Good afternoon. This is Sam on for Murray, Thanks for taking the questions maybe.
Maybe I can start on the floor approval that you guys. Just got here last month I am wondering if you guys can use that to essentially introduced motiva technology to customers that.
Maybe are newer to establishment labs.
I'm going to have similar properties like the smooth itself.
Surface technology.
As the regular Motiva implants.
Yes, I think thats very important to us because.
If you think for the last few years basically whatever interaction U S. Plastic surgeons had with Motiva came three international conferences that may have attended friend of friends of them in plastic surgery that have used the device and had told them about it but basically many.
The things that they heard was through the eyes of our competitors.
So it is very important to us that now we have the possibility to introduce establishment labs to talk about.
Our commitment to science and technology, we can talk about the surface technology, which is one of the most important things when it comes to biocompatibility and definitely about our RFID technology because it is equivalent to what we have also available in the in the final implant.
So all of this is going to give as many opportunities to begin talking about what this company is about which is women's health and the introduction of this concept into the U S market for breast aesthetics and reconstruction eventually.
Okay, very good and maybe I can use my follow up here for Raj.
I know, it's difficult right now to figure out how long this transitory environment could be but assuming the implied Q4 guidance $31 5 million.
Would that be an appropriate run rate to I guess you used for the core markets going forward in 2024, and then layering on top of that some of the new markets as you guys open them up.
It's not a bad starting point I mean this one is a noted we've.
We've seen a much bigger slowdown in our distributor markets than we've seen in our direct markets.
And so we don't expect that that's going to continue with that period of time, but as a conservative base to start from that is not bad.
But then you start to layer on top of it things like EMEA.
Floor in the United States is one as I mentioned, we're very close to the Chinese approval.
It should contribute next year.
We have a lot of good things that build on top of that and we do expect that the fourth quarter should really be the low watermark in terms of the demand we see for these products.
Got it thanks for taking the questions.
Your next question comes from the line of George Sellers from Stephens. Please go ahead.
Hey, good afternoon, and thanks for taking the question.
Maybe to start with floor apologize if I missed this but im just curious what that.
<unk> might look like what you are anticipating and including in your guidance in the fourth quarter and how we should think about maybe the <unk>.
Cadence of that in 2024, and then also I'm curious on the market in the U S. Do you need to have motiva approval for flora to see.
It's really take off the physicians typically use the same tissue expanders.
Implant that theyre going to use or how does that.
What does that market look like.
In the U S.
Yes of course, so first of all just as a reminder, the market for tissue Expanders and the U S is approximately $180 million and it has the highest average selling prices in the world.
We will start generating revenue from flora in the U S in 2024.
And with the technology.
<unk> that we have based on science.
The unique technology with no magnets, which really changes things for these centers because now they can.
They can do mris, they can potentially reduce the amount of radiation oncology it opens up new opportunities for them in many different ways. So it is an important change for <unk>.
These centers in the United States. So as we look forward. If you think about like what does <unk> do it creates this very nice interaction with tissue inside a patient that is recovering from breast cancer. So that tissue is going to define the type of capsule that you have and thereafter that.
Capsule can be the host for a implant that is already.
Approved for breast reconstruction in United States or eventually for our Motiva implants, but theres no reason to believe that surgeons, who understand this would not see it as a benefit that the initial capsule is created in such a healthy manner, but our flora tissue expander.
Okay. That's really helpful. And then maybe on the Motiva FTAA process you touched on the manufacturing inspection just curious what.
Steps are left after that manufacturing inspection.
Have you seen her but given any timeline on when you should expect that.
No we have not given any timeline because it is not in our hands.
But we continue to make progress week to week in terms of the question and answer process with the FDA like I said before we have provided answers to every single one of their questions now and that tells you that the process is coming along quite well.
They have not yet scheduled that inspection, but we have.
All questions of module, three which is manufacturing that have been answers. So we expect that to happen hopefully sooner than later.
Okay. That's really helpful. Thank you all again for the time.
That is all the time, we have for questions today I will now turn the call back over to Juan Jose Chacon Quiros for closing remarks.
Thank you for joining us on today's call, we will be attending the Jefferies, London Healthcare conference and to Stephen's Annual National Conference next week, we look forward to providing our next quarterly update in the new year and we wish everyone continued good health.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
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