Establishment Labs Holdings Inc.

good afternoon welcome to establish establishment labs third quarter 2023 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 To Raj Denhoi, Chief Financial Officer, please go ahead.

Thank you, Operator, and thank you, everyone, for joining us. With me today is Juan Jose Chacon Quiroz, 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 Lab's 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 discussion of the principal risk factors and uncertainties that may affect your performance or 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 EstablishmentLabs.com. Please also note that Establishment 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 with your local authority for specific product availability. The content of this conference call contains time-sensitive information, accurate only as of the date of this live broadcast, November 7th, 2023. Except as required by law, establishment labs undertakes no obligation to revise or otherwise update any statement to reflect events or circumstances after the date of this call. With that, it is 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. Our results this quarter reflected lower demand for breast procedures globally. This lower 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 annual growth of 2% over 2022. 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. This slowdown seems fairly broad across aesthetics and does not seem to be related to anything specific in the breast implant industry. While anecdotal, in international markets, both plastic surgeons and dermatologists report to us they have seen a noticeable slowdown in their practices across all procedure types, both surgical and non-surgical. 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 headcount and a reduction in operating expenses. We are also prioritizing our main growth initiatives, the United States, China, and MIA, 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 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 competitive markets for breast implants, and this presents a sizable 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 and surgeons 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 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 2024 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 US FDA granted 510K clearance for the Motiva Flora smooth silk tissue expander. This was a major milestone for the company, as it is our first implantable approved for the United States. Flora 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 MIT scientist Bob Langer, in which the surface was shown to be the most biocompatible compared to other implantable surfaces. FLORA also includes an RFID-enabled non-magnetic port and is labeled as MR conditional by the FDA. By being magnet-free, FLORA avoids the interference that magnets cause during MR imaging, treatment. This is a distinct advantage to FLORA as all other commercially available breast tissue expanders include magnets. In the FDA's letter on FLORA approval, the agency noted, this is an innovative technology not available in other tissue expanders on the market. FLORA has been available outside the U.S. since 2021. We are gaining traction with the device. There have been several notable independent publications highlighting improved patient comfort with Flora compared 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 Flora, we are providing surgeons and the women who receive these devices a better option, and we are extremely proud of being able to offer Flora to women in the United States. We began to introduce Flora 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 Flora as their expander of choice. In October, we held our eighth world symposium on ergonomic implants in Lisbon, Portugal. Among the highlights was a presentation of two-year results from the MEA feasibility clinical study. The MEA study is an IRB-approved prospective study that enrolled the first 100 subjects between December 2020 and April 2021. In the 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, hematoma, or seroma requiring intervention in the study. These are among the best results shown at two years for any breast implant technology and add further support that Mia Femtech is an entirely new category within breast aesthetics. With Mia, a plastic surgeon can shape the breast in a 15-minute minimally invasive procedure without the need for general anesthesia. The result is natural and discreet with a one to two cup proportionate result. The procedure 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 MIA is available continues to grow. We have partner sites in Spain, Switzerland, Sweden, Germany, France, Costa Rica, and Japan, and we have partnered 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 MIA, but we are seeing proof points that we are creating and capturing demand for this new category. One recent MIA consumer is Jocasta Baggi, Joka is a professional female boxer, and just this past weekend, she defended her International Boxing Federation and World Boxing Organization mini-flightweight titles by unanimous decision. Joka has now defended her world titles twice just months since her Mia procedure. She's not only an inspiration as a world-class athlete, but is also a testament to how women can quickly return to their lives with Mia without limitation or restrictions. Already, we have reports of women flying internationally from the United States to receive the procedure abroad. In some cases, they are paying in excess of $20,000 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 Mia is going to be firmly in the luxury category and highly aspirational. The momentum for Mia continues to build, and both awareness and lead generation continue to grow. This will eventually be converted into more procedures taking place at our Mia-certified partner clinics. The launch of a new platform like Ergonomics 2, which include the implants for Joy and Mia, is an opportunity to price technology according to consumers' willingness to pay. Thus, we are glad to see the contribution to our total revenue of the Joy program now exceed 10% of our total implant revenue with an average selling price of more than double our blended rounded ergonomics pricing. We are beginning to see positive contributions to our gross margins from this platform. As join me at scale, ASP and gross margins will improve in the international markets. The United States and China have the highest prices in the world and 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 Motiva in China with our distribution partner as we wait for the letter of approval from the NMPA for Motiva implants. In the US, 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. The pace of activity and our interactions with the agency remains very positive. It is notable that while the recent approval of Flora and the approval of Motiva are separate processes, the devices share the same surface technology, similar RFID technology, and are manufactured under the same conditions at the same facility. We recently hired Elizabeth Pensica Newman to lead our U.S. business. Liz brings over 30 years of experience launching and growing aesthetic brands. She's moving quickly to build out the commercial and operational teams and is finalizing plans for launch. We look forward to sharing more with you about our progress over the coming months. Our confidence that Motiva implants will soon be available to women in the United States continues to grow. I will now turn the call over to Raj.