Establishment Labs Holdings Inc. (ESTA) Q2 2020 Earnings Report, Transcript and Summary

Good afternoon. Welcome to Establishment Labs' Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now turn the call over to David Erickson, Vice President, Investor Relations. Please go ahead.

Thank you, operator. And thank you, everyone, for joining us. With me today are Juan José Chacón-Quirós, our Chief Executive Officer; and Renee Gaeta, our Chief Financial Officer. Following their 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 Establishment Labs' financial outlook and the company’s plans and timing for product development and sales. These forward-looking statements involve material risks and uncertainties, and the company’s actual results may differ materially. For a discussion of risk factors, I encourage you to review our quarterly report on Form 10-Q that we plan to file with the SEC tomorrow and will be available on our website at establishmentlabs.com. The content of this conference call contains time-sensitive information accurate only as of the date of this live broadcast, August 6, 2020. 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’s my pleasure to turn the call over to our CEO, Juan Jose. Juan José Chacón-Quirós: Thank you, David, and good afternoon, everyone. I hope everyone is healthy and continues to remain safe. I would especially like to acknowledge the employees of Establishment Labs and our business partners worldwide, and thank them for their hard work and dedication to our company during these difficult times. The COVID-19 pandemic has impacted businesses around the world and ours is no exception. As I stated on our last earnings call, this past quarter would be our most challenging of the year. And it certainly proved to be that. For the second quarter, our revenues were $10.5 million, well below the $21.7 million reported in the same period a year ago. Despite this tough quarter, I am pleased to report that our business is recovering with the strength and resilience that we had hoped for and that we are issuing revenue guidance for the third quarter, which we believe will be between $18 million and $21 million. Equally important as revenue and guidance, is the condition of our business as we recover from the effects of COVID-19. I’m happy to say that our company is in strong shape with key regulatory approvals underway, and we believe that we are on a trajectory to achieve pre-pandemic growth. We have taken this time to address budgets and headcount in a very meaningful way, and the result is that we are doing more with less and have created efficiencies that should benefit us for many years to come. During the second quarter, we used just $6.1 million to fund operations, giving us a cash position at June 30 of $86.4 million. This puts us in strong financial shape and gives us continued flexibility to manage our business going forward. With sales in over 80 countries, we benefit from our geographic diversity. However, the effects of a global event, such as this one, means we are also subject to 80 different paths and speeds toward normalcy. Generally speaking, countries that faced COVID earliest and those who took aggressive steps to control the spread came back more quickly, although some geographies have had to temporarily pause their full reopening. Encouragingly, we saw improvement throughout the quarter, and increasingly in July as countries began to reopen. Shelter-in-place restrictions were lifted, and elective procedures resumed in various regions around the world. As we reported last quarter, our March sales were measurably impacted by COVID-19, as countries began to curtail non-essential activities, including elective medical procedures. In April, most countries were shut down completely, with only a handful of countries like Sweden, Germany and Austria continuing to perform surgeries at levels well below normal. South Korea was one of the first markets to restart, but because a portion of their business derives from medical tourism, they have not yet returned to pre-pandemic levels. Elsewhere in Asia, Thailand and Vietnam were each locked down for approximately one month. And while elective procedures were banned in public hospitals, they were still being performed in private settings. In May, activity increased as additional countries reopened at a measured pace, while they simultaneously adopted safety measures and new protocols to keep their patients and medical professionals safe. France and Denmark started doing procedures again, and in Switzerland business came back quite strong as surgeons were determined to make up for postponed procedures. As we moved into June, more countries continued to reopen and resume operations. Most regions of Australia were open for business. Almost all of Western Europe came back online, and surgeons in some countries such as Spain reported strong volumes. By comparison, procedures in the UK throughout the quarter were greatly limited, due to a reallocation of private clinic resources by the NHS. And the majority of countries in Latin America were locked down for most, if not all, of the entire second quarter. Because Brazil is our single-largest market, I wanted to provide some perspective about business conditions there. No doubt you’ve seen some of the headlines and images depicting a very serious situation in that country, and our hearts go out to its citizens as they continue combat COVID-19. Brazil is a very large country with many states, and each one is handling this pandemic independently. While the country was essentially closed during the quarter and elective surgeries prohibited, some procedures were still being performed. Some of the larger metropolitan areas have now reopened. And while their procedures are currently running at about half the normal rate, surgeons there tell us that they are reserving space for expected resurgence of procedures once restrictions are fully lifted. We remain optimistic that Brazil has seen the worst of the pandemic and that business there is on a solid path to recovery. As we manage our way through what we hope is the worst of this crisis, we are very focused on getting our business back to previous performance levels. We believe prospects for both near-term and longer-term growth are compelling. Plastic surgeons all over the world are reporting strong interest in aesthetic procedures from new patients, and many are working evenings and weekends to meet this new demand. Some surgeons have decided to work over holidays or take shorter summer vacations in order to make up for business lost during the lockdowns. Because of this, some surgeons are reporting that their current surgery volumes are running above year ago levels. We’re also continuing to see surgeons adopt online tools to conduct patient consultations. Overall, I would characterize plastic surgeons level of optimism and outlook for their business as quite positive. From an anecdotal patient perspective, we’ve heard about instances where women who are either unable or unwilling to travel this summer are redirecting the money that they would have spent on vacation to pay for plastic surgery procedures, including breast enhancement. And with social distancing recommendations and work-from-home arrangements, some women may find this time as an ideal opportunity to recover from a procedure in the comfort of their own homes. As we manage our business and estimate future sales, we view direct market sales as one of the best indicators of real-time trends. And during the second quarter, we saw a steady increase of direct sales each month. In June, direct market sales in Europe were above the revenues recorded for either January or February, and equivalent to the same month last year. This gives us confidence that business conditions are returning to pre-COVID levels and that their patients are rescheduling their procedures. Overall, we ended the second quarter encouraged that so many procedures had started to return. The monthly progression during the second quarter, combined with what we see so far in the third quarter has given us sufficient confidence to provide third quarter sales guidance. If we achieve that target, it would be nearly double the sales we reported for the second quarter. As we look beyond Q3, if current trends continue, we expect we can return to pre-pandemic sales growth rates. The long-term fundamentals of our business remain strong, and our expectations of where the business is heading have not changed. Establishment Labs has the most comprehensive portfolio of bioengineered smooth implants worldwide, backed by a robust body of scientific evidence demonstrating the unique safety profile of Motiva implants. Our innovation and commitment to women’s health resonate very strongly with plastic surgeons and their patients, which is why we have been able to gain market share over the years and why we believe we can continue to do so even during these times. Establishment Labs has been investing heavily in digital initiatives to forge stronger and more cost-effective connections with our plastic surgeons, customers and their patients. We are investing a considerable amount of effort to help plastic surgeons improve their practices, adapt to the current environment, learn about innovations in their field and link them with patients. Initial online consultations between patients and surgeons are quickly replacing face-to-face consultations, and we are offering tools and resources to help facilitate the educational process. Likewise, our MotivaEdge online training programs and seminars have attracted many new surgeons who are using this time to further educate themselves and increase their knowledge of the latest innovations in breast implant technology. During the second quarter, we conducted nearly 40 webinars on a variety of topics with many attracting several hundred registrants across our geographies. We are also using digital tools and increasing our social media presence on multiple platforms to help educate patients and strengthen Motiva brand awareness on the women who are making a long-term decision to invest in themselves. With customized digital tools, we can help women who are interested in breast aesthetic procedures become more educated about the unique attributes of our product portfolio. In some geographies, we can connect them with plastic surgeons using a surgeon facility locator. Web searches and social media activity pertaining to breast augmentation research have continued to be strong during these times. With our Motiva interactive platform, we are now able to support a patient’s journey as she conducts research, help answer her questions and provide educational information customized toward specific areas of interest. All of this helps us generate more informed sales leads in a cost-effective manner. Now for an update on our product pipeline, this month marks the halfway point in the two-year endpoint of the protocol for the aesthetic cohorts in our Motiva implant U.S. IDE clinical trial. We are looking forward to this time next year when we will begin collecting that data for submission to the FDA. Trial sites have adopted virtual consultation protocols and patient follow-ups are continuing as part of the monitoring phase of the trial. We are very eager to introduce our Motiva line of bioengineered smooth surface implants to the largest breast implant market in the world. As we reported last quarter, COVID-19 has impacted the pace of enrollment in the reconstruction cohorts of our U.S. trial. Nonetheless, we have continued to activate new trial sites. And during the quarter, we successfully completed enrollment in the revision reconstruction sub cohort. The other large market opportunity for our Motiva product is China. We are making progress with our regulatory submission and recently passed the latest round of testing. The regulatory backlog caused by COVID-19 did impact our time line, and we now expect to receive approval during the first half of 2022. We remain committed to our Chinese market entry as it represents one of the largest and most dynamic opportunities in the world for breast aesthetics. Turning to Motiva Mia, our minimally invasive breast augmentation procedure, clinical cases have resumed recently in Asia. Patient outcomes have been promising, and the surgical technique is continuing to be fine-tuned. We have submitted an application to initiate a patient series in Thailand with oversight from an IRB, which we expect to begin next month. We believe there is a large number of women who could be interested in a less invasive augmentation procedure that would provide the safety profile similar to our current Motiva implants. The introduction of an innovative technology like Mia has the potential to grow the total addressable market for breast aesthetics and contribute meaningfully for our long-term growth strategy. During the second quarter, we received a CE mark for our Motiva Flora tissue expander, which extends our presence into the breast reconstruction market. With its proprietary integrated RFID port and proprietary SmoothSilk bioengineered surface, FLORA represents the most advanced breast reconstruction technology available to oncologists, plastic surgeons and their patients. Early patient experience has just begun, and our premarketing activities are underway in preparation for a broad commercial launch in Europe early next year. In the U.S., after careful consideration, we decided to withdraw our 510(k) application for Flora and focus our efforts on advancing the application for our next-generation tissue expander, with features that we believe will offer a better match with the latest reconstruction techniques being used by U.S. surgeons. Our goal is to submit the 510(k) in 2021. Overall, we are excited to be able to enhance the standard of care with our differentiated and patented technologies, and we look forward to being able to address an estimated $225 million global breast reconstruction market. We continue to make progress with the regulatory approval for our Motiva Ergonomix2 platform, and we are now expecting a CE mark in Europe later this year. Establishment Labs launched the concept of an ergonomic implant back in 2015, and it has now become our best-selling and most premium offering in many markets, including Europe and Asia Pacific. We are looking forward to promoting the new features of this platform, including enhanced mechanical properties, advanced chemistry and improved ergonomics. Just today, we announced our agreement to transition from a distributor model to a direct sales force in Italy. This is consistent with similar actions we have made over the years to build closer relationships with plastic surgeons and fully control the sales and marketing process in key markets. We believe this region is showing solid improvement from the effects of COVID, and we have a high degree of confidence in its continued recovery. As the fifth largest breast augmentation market globally, it is a large and important geography that will be improved by implementing a direct sales model. In conclusion, while we continue to invest in our future by developing and bringing to market innovative technologies, advancing digital initiatives and expanding our business excellence program across the organization, we are also aggressively controlling operational expenses and reducing our cash burn. Renee will provide greater detail about this in a few moments. But in Q2, we successfully lowered operating expenses by 27% compared to Q1, and we’ll continue to exercise spending discipline throughout 2020. These actions are making Establishment Labs an even stronger company that will come out of this pandemic well-positioned for continued growth and success. With that, I’d like to turn the call over to Renee to discuss the financials in detail. Renee?

Thank you, Juan Jose. Although our sales were impacted by COVID-19 this quarter, we maintained control of our overhead expenses and believe we remain in a very solid financial position overall. You can find additional details about our second quarter financials in our earnings press release and our Form 10-Q, which we plan to file tomorrow. Total revenue for the quarter was $10.5 million, with direct sales comprising nearly 2/3 of this amount. Distributor sales, which can fluctuate based on changes in inventory levels and the timing of reorders, made up the balance. The year-over-year decline was the greatest in distributor sales. And while every region was affected by lockdowns, Latin America was the most impacted. In our direct markets, Latin America was again the region hit most hard. As mentioned earlier, the second quarter saw a steady increase in direct sales each month. This was most pronounced in Europe, where revenue in June was above revenue recorded for both January and February. Our performance in July gives us further confidence about our Q3 2020 guidance we are providing and the strength of our recovery. From a regional perspective, sales in Europe comprised 60% of the global sales, Asia Pacific Middle East was approximately 27% and Latin America made up the balance. Brazil, historically, our largest single market, accounted for 8.6% of sales this quarter compared to 14.5% of sales in the year ago period. This quarter, Germany was our strongest individual country, accounting for 14% of sales. Our reported gross profit for the second quarter was $7.2 million or 69.1% of revenues compared to $13 million or 60% of revenues for the same period in 2019. The year-over-year increase was due to the benefit of geographic mix, greater operating efficiencies and enhanced manufacturing and planning capabilities. As a result of our operating efficiencies and to reflect current forecasts, at the end of the quarter we adjusted inventory production levels resulting in the elimination of approximately 70 manufacturing positions. Total operating expenses for the second quarter were $16.8 million, a decrease of $5.6 million or 25% compared to $22.4 million for the same period a year ago. SG&A expense this quarter declined $4 million to $14.4 million as compared to $18.4 million for the second quarter of 2019. Over half of this decrease resulted from our actions to control expenses and our commitment to preserve cash. And a portion of these savings will continue throughout the rest of the year. Specifically, we decreased the number of in-person marketing events, lowered compensation expense through headcount reductions and reduced or eliminated other discretionary expenses. And as sales were lower, so too were sales commissions. Our R&D expenses for the second quarter decreased $1.6 million from the same quarter last year to $2.4 million. While we continue to invest in research and development to strengthen our product portfolio and drive future growth, we have narrowed the scope of our efforts. In addition, a portion of the decline was due to the timing of clinical trial expenses and a COVID-19 related reduction in U.S. IDE cost. Net loss from operations for the second quarter was $9.6 million compared to a net loss of $9.4 million in the year ago period. During the second quarter, we used $6.1 million to fund operations, compared to $6.8 million in the first quarter of 2020 and $7.1 million in the second quarter of 2019. From a balance sheet standpoint, our cash position remains strong with $86.4 million as of June 30 compared to $93.6 million on March 31. As part of our transition to a direct sales force in Italy, we have purchased our Italian distributor’s customer relationships with plastic surgeons and inventory. The total cash consideration for this asset purchase was approximately $1.1 million. Importantly, with the termination of our distribution relationship, the remaining accounts receivable balances have been collected. The net impact of these transactions on our financials was minimal. In conclusion, I’d like to provide some additional perspective to help you think about the second half of the year. Overall, we are continuing to closely monitor the COVID impact on our business. As described last quarter, we have already taken decisive actions to align our expenses with the current operating trends. These actions are specific, targeted and designed to drive greater efficiencies while still adequately investing in our product pipeline and strengthening our digital initiatives. If necessary, we have the ability to make further adjustments as conditions warrant. Taking all of this into consideration, we expect operating expenses for Q3 to be sequentially higher, just as they have been in the third quarter historically. However, they are projected to be below the Q1 level. Overall, we remain on track to reduce our planned 2020 expenses by 20%. As you heard from Juan Jose describe, our business is on an upswing, and we believe our company is well-positioned to address the changing market dynamics presented by this global pandemic. Nevertheless, we remain diligent to monitor our expenses as we continue the path forward towards cash flow breakeven and profitability. I now turn the call back over to Juan Jose for some concluding remarks. Juan José Chacón-Quirós: Thanks, Renee. Before we open it up for questions, I want to express my gratitude to our plastic surgeon customers and business partners for their ongoing commitment to Establishment Labs and our vision to transform this industry and improve women’s health. As we continue to adjust our strategies in this fast-changing environment, we are committed to emerging stronger by gaining market share, bringing to market the latest technologies, maintaining strong expense control, driving system-wide efficiencies and strengthening our reputation with plastic surgeons and their patients. I’m confident that we are in a solid financial position, that we have a strong and adaptable team and that our best days are still ahead. With that, I will turn the call over to the operator for the Q&A.

[Operator Instructions] Our first question comes from Raj Denhoy from Jefferies. Your line is now open.

I’d like to start with well, first of all, I hope everyone is doing okay. But I also wanted to start with the revenue guidance for the next quarter. [indiscernible] it’s double from what you did here in the second quarter at $21 million. So I guess I’m curious your level of confidence in that outlook. And in particular, given the vagaries of COVID and kind of the ebbs and flows of that, it sounds like Europe is doing well for you. But how much conservatism have you baked into that outlook we have for the third quarter here? Juan José Chacón-Quirós: Yes. Thank you, Raj. I think that’s a really fair question. The monthly progression that we have seen during Q2 combined with what we have seen so far in Q3, has given us enough confidence to be able to estimate that guidance that we gave today of $18 million to $21 million. What we see is a resurgence in many markets, especially in Europe and Asia Pacific, of not only delayed procedures, but also new consultations taking place. What we see as well is that many women who normally at this time of the year would have traveled abroad for their vacation are deciding to stay at home, and are finding it very convenient to go under this procedure. So we think that it’s actually a good time to be able to do this, and we feel very confident on the guidance that we have given today.

That’s fair. Maybe just one follow-up, you mentioned the U.S. trials. You’re halfway through and you’ll be collecting data about a year from now. You know, there still is, I guess, some debate on whether two years of data is going to be sufficient to receive FDA approval. But it does sound like you’re going to be submitting [indiscernible] your data. So does that represent any sort of updated thoughts on what it’s going to take to get approval here in the United States? Juan José Chacón-Quirós: No. Actually it does not. What we are seeing is that our trial endpoint is 24 months. And we will reach that in August of 2021. And at that time, we will begin to collect the data for submission to the FDA. Of course, we are very satisfied with the progress that are making in the aesthetic cohorts, and also that we were able to close one of the reconstruction sub cohorts with enrollment. So the decision of two versus three is not a decision that is based on current situation. I think there will be time for a conversation with the FDA about the power of the data, the results and don’t forget that that three-year guidance for data is still there.

And our next question comes from Josh Jennings from Cowen. Your line is now open.

It’s great to hear about these recovery trends. Maybe the first question is for Renee. You called out 2/3 of second quarter sales were from the direct salesforce. Can you remind us of what that ratio typically is? And were there any nuances in the quarter just on the distributor side? Clearly, we imagine that they were not stocking inventory. And then what does your guidance suggest for distributor sales in third quarter and that sequential change?

Yes, sure, Josh. Thanks for the question, and I hope all is well on your side. Yes, certainly direct sales are normally around that 50% mark. So we definitely saw a higher percentage this quarter as a result of us being in all of those direct markets, and certainly Europe was the pronounced region for those direct sales. As we think about Q3 and Q4, certainly the distributor sales, those orders are coming through. And so that will be a higher percentage of sales expected going forward. Because that’s just how the orders come through, and obviously those orders are usually larger bulk orders, instead of the direct markets where we see smaller orders on a per-surgery volume that indicates sort of real-time trends.

Great, thanks for that. And then I had a follow-up, Juan Jose, on just Ergonomix2, you had some comments in your prepared remarks. But it may be underappreciated. I just wanted to sort out any help you can give us for the outlook of what it can do in 2021 in terms of supporting strong growth. It’s a premium implant price. Any sense or can you give us what type of premium Ergonomix2 will hold? And then also just on the reconstruction side, I think at the symposium last year over in Italy, we heard some surgeons talk about just the benefits of Ergonomix aesthetically and on the safety side in recon procedures, and pairing Ergonomix2 with Flora may be a big driver in terms of your ability to penetrate that recon market internationally next year. But maybe you can share some thoughts there. Juan José Chacón-Quirós: Thank you, Josh, great to hear from you. So we are super excited about Ergonomix2 because Egonomix, the original concept has been such a hit in so many different places around the world. That concept of an implant that is comfortable, that feels soft like real breast tissue, has really made an entry into the entire aesthetic market. And we are happy to see as well that it is starting to be used in very good ways in the reconstruction market. Just recently an article was published on PRS, Plastic Reconstructive Surgery Journal, by one of the most prestigious groups in Europe for breast reconstruction. And they were talking about the differences that they can get in the final results with an ergonomic implant. This paper was completely independent and done by the hospital in Ghent, in Belgium. So what’s different about Ergonomix2? It has much more enhanced mechanical properties. It has a more advanced chemistry, and that yields improved ergonomics. So definitely that’s going to command a higher price point. But we believe that these features are going to do the same that Ergonomix did a few years ago. When we launched Ergonomix in 2015, and we did so at a differentiated price point, most people because of the commodity aspect of the business at the time, thought that we were crazy to ask for that premium. These days it seems that most people are okay with it, because patients are asking for it. So this would be an implant that will require a lot of push in social media, digital channels, so that women understand the benefits that they can get with this implant. So definitely we think that this is going to be a major revenue driver definitely in the countries where we have been so successful with Ergonomix. But the speed at which we achieve that is a different thing. But definitely I can tell you both for aesthetics, reconstruction and for so many of the reasons why people love our current Ergonomix implants, we feel very confident about Ergonomix2. As we get closer to the product launch which will most likely happen first in Europe, given the progress that we are having with our regulatory timelines, we will update you on what type of premium are we talking about, what type of rollout are we going to do. It’s still a little bit too early to talk about that. But we are definitely excited about it, Josh.

Excellent, and just to follow up, just on the recon side with Ergonomix2, is that a channel that – or can Ergonomix help drive implant penetration on the recon side? Juan José Chacón-Quirós: Well, we think that now that we have the Flora tissue expander that is the only tissue expander that is MRI-compatible out there, and with the proprietary SmoothSilk surface, that with Ergonomix implants, whether the traditional Ergonomix or the second generation, is going to be a great choice for surgeons who are trying to help patients in breast reconstruction.

[Operator Instructions] And our next question comes from Amit Hazan from Goldman Sachs. Your line is now open.

I wanted to start by asking a question about kind of the top line prospects that you outline versus some of the expense guidance you outlined. And in particular, it kind of strikes me you’re encouragingly seeing some good trends here and maybe getting back to pre-COVID levels is back in our visibility here. But at the same time, you’re making some pretty significant expense cuts, obviously some very difficult ones, I’m sure, with the headcount cuts in particular. And so I’m wondering if that suggests that you’re going to operate more cost-efficiently when you get back to that normal top line, or are you anticipating a rebound in expenses, specifically like headcount that are now kind of being implemented here more recently?

Yes. Thanks, Amit. I hope all is well with you. Certainly we take headcount reductions very seriously and protecting all of our employees. So we want to make sure that we’re making the right decisions, not only for today, but the future. And I think that when you think about what’s happened in the last four to five months with the pandemic, has really allowed us to really definitely think about how to run the business more efficiently. I think it’s one of the positive notes that have come out of this pandemic and looking at companies, how they run their business. And we have done the exact same thing. Thinking about not only travel and where we’re spending that stuff, but also headcount. Do we have the right size and the right dynamic to be able to make sure that we continue to support our product pipeline, all of the future growth, be more streamlined on systems, et cetera. And so headcount is a consideration in there, and we certainly don’t want to make decisions that aren’t in line with again, not only the decisions for today, but for the future. So we would expect that we’ve rightsized our headcount accordingly for what we expect for now and into the future. You know, we commented a little bit about changes in headcount with – specific to manufacturing, where we made a decision at the end of the quarter to change the manufacturing levels there. And obviously that is something where if in future quarters we needed to continue to ramp up production, we can certainly add those headcounts back in, as necessary, but again just for production.

Yes, that’s great color. And then kind of near term, as we think about the 3Q guide to be maybe just a second half of the year generally, I would love to hear your thoughts on both the UK in terms of just any insights you might have as to when the NHS restrictions could be mitigated or what you’re seeing there. And then back to Brazil, just how much of our rebound is implied in the third quarter? The same kind of question, if you’re assuming restrictions there are going to be further lifted in the near term, or are you taking a more conservative approach on that country? Juan José Chacón-Quirós: Yes, thank you. With regards to the UK, the latest news is that some of the centers that were taken over in a way by NHS for COVID patients have started to give time for different aesthetic surgeons to be able to do their procedures. But this is just starting. It’s going to take some time to get to any level of normalcy in the aesthetic market in the UK, although we think that there’s quite a backlog of patients in that market. When it comes to Brazil, like we said during our prepared remarks, the situation overall is not improving. However, plastic surgeons and aesthetic surgery centers have found a way to get patients into the operating room, do it safely. These people are advertising how safe their consultation is, how safe their procedure can be. And as a result, we see many patients in metro areas being able to do these. However, we are careful about what we can see in Q3 in Brazil. I think all of Latin America would be in the same trend that a recovery is taking place. But it’s going to be a slow one in Latin America, and definitely for Brazil.

And our next question comes from Marie Thibault from BTIG. Your line is now open.

Thanks for taking the questions and I hope you’re doing well. I appreciate all the detailed commentary on the various regions. I wanted to ask one on Italy, in particular, how that major market is recovering from COVID, and whether there are any near-term dynamics we should be taking into account as you transition to a direct selling approach there. Juan José Chacón-Quirós: Thank you Marie, and great to hear from you. The situation in Italy has improved a lot. Remember that was kind of like the first country in Europe that got hit heavily by COVID. Some regions of Italy, especially the more industrialized north, was one of the worst areas in all of Europe. However, since they’ve reopened, it’s become very busy for plastic surgeons there. We had worked a timeline to without COVID do the Italy integration of the business earlier this year. But when these thing happen, we decided that we would do at some other time. And I think the fact that we’re doing this now tells you how confident we are of the recovery in Italy. So definitely we think that the conditions in Italy, just like in Germany, Scandinavia, France and Spain have much improved. There’s still some areas of Europe where there’s a lot of progress to be made, like the UK or Russia. But so far, we think that the core countries of continental Europe are really back online.

That’s great. Great to hear. I guess my follow-up, could you remind us what’s changing with the Flora tissue expanders, the next-gen version that you’re readying for U.S. submission in 2021? Juan José Chacón-Quirós: Yes, absolutely. There’s a trend called prepectoral breast reconstruction in the U.S., and it has become the most important trend, I would say, in breast reconstruction. And the tab configuration of the tissue expander is very important there. So that is a change that we think is important to include. And there is also a self-calibrating RFID finder that we think given the complexities of hospital settings in the U.S., would help nurses and other personnel be able to do the expansion phase of the breast reconstruction with more ease. Remember, we have gotten the CE Mark for our Flora tissue expander and also are getting approvals in other geographies. So this is purely a strategic move.

And this is all the time we have for questions today. I would now like to turn the call back over to Juan José Chacón-Quirós for closing remarks. Juan José Chacón-Quirós: Thank you for joining us on today’s call. We look forward to providing our next quarterly update in November. Have a very good rest of the day, and please stay healthy.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.