Good morning and welcome to Establishment Labs' Second Quarter 2021 Earnings Call. At this time, all participants will be in a listen-only mode. At the end of this call, we will open the lines for a question 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 Denhoy, Head of Strategy and 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. Juan José Chacón Quirós: Thank you, Raj, and good morning, everyone. I hope everyone is health and continues to remain safe. I am pleased, once again, to be able to report a record quarter, with 2021 second quarter revenue totaling $32 million. Second quarter revenue increased 205% over the second quarter of 2020, and was up 5% sequentially from the first quarter of this year. Our continued strong sales results show that a singular focus on women's health, innovation based on science, and a track record of over 10 years of excellent clinical and aesthetic outcomes with Motiva Implants can drive significant share gains. It not by accident that we remain on track to achieve the dominant share position in our industry. And as our story continues to resonate with surgeons, and most importantly with women, we expect to continue to post strong results. With a strong momentum in our business, we are raising full-year guidance for 2021 to a range of $122 million to $126 million. This is an upward revision from the previous guidance of $118 million to $122 million we provided with our first quarter results. This updated outlook represents growth of 44% to 49% over 2020. This updated guidance captures our continued momentum, including strong underlying market demand and our capturing of share in geographies around the world.

Thank you, Juan José. The significant momentum in our business carried into the second quarter. We saw strong growth again in sales to a new record level, and our operating expenses and cash are being managed effectively. Total revenue for the quarter was $32 million. Direct sales were approximately 44% of this total, while distributor sales, which can fluctuate based on changes in inventory levels and the timing of reorders, made up the balance. From a regional perspective, sales in Europe comprised approximately 45% of global sales, Asia-Pacific and Middle East was 30%, and Latin America made up the balance. Brazil, which is our largest single market globally, accounted for 7.7% of total quarterly sales. Juan José Chacón Quirós: Thank you, Renee. The record revenue we generated in the second quarter and recent developments in our industry show again that ESTA is on the right path to be the leading company in breast aesthetics and reconstruction, and we are preparing for the next chapter in this growth story, fueled by our commitment to women's health. During the second quarter, we announced the groundbreaking on our new Sulayöm Innovation Center, in Costa Rica. This new facility will house expanded research and development labs, a new state of the art media center, and world-class surgeon education and training facilities. The facility will also more than double our manufacturing capacity to over 1.9 million implants a year, which is enough to satisfy more than half the current world market. I'm pleased to also announce that after his previously announced leave, Salvador Dada returned earlier this month into the position of Head of Special Projects, the first of which will be to oversee the construction and validation of the new facility. I want to close by again thanking our outgoing CFO, Renee Gaeta. Renee has been with us through our IPO, and through a time of significant expansion of our company. But more than that, she also is a good friend to me, and everyone at Establishment Labs. You will be missed, Renee. And we wish you well as you embark on the next chapter of your life. I will now turn the call over to the operator for your questions.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question today is from Matt Taylor of UBS Investment Bank. Please proceed with your question.

Hi, good morning, and thanks for taking the question. So, I wanted to just ask one on market dynamics. So you had nice quarter, you're in so many countries. I was wondering if you could just give us some more color on how things are doing in some of those different geographies. Maybe you could characterize some of the ones that are still seeing some pockets of disruption and how that could improve through the year. And then also would love some color on whether you think you're gaining share. Juan José Chacón Quirós: Yes, thank you, Matt, and good morning. So, we continue to see good recovery in Q2. And we do believe we are taking market share globally. We saw good growth taking place in Europe and Asia-Pacific. Latin America was down sequentially, but we're not surprised. Brazil usually has a very strong first quarter, and then second quarter is down usually from that. And there was some small impact from FX. But overall, we're super happy about this quarter. It shows that there's business. We understand what's going on globally with regards to the pandemic and some of the challenges that it poses. But we continue to perform well, and we're very happy with the way the team is doing all around the world.

Okay, great. And then you talked about some more pronounced seasonality. Maybe you could just talk about any color that you have on the cadence that we should expect for Q3 versus Q4, if that's going to be different than we would see normally? Juan José Chacón Quirós: Yes. We've always talked about aesthetics being a business in which you do have seasonality in the third quarter. And that is in normal conditions. For the past couple of years, between our rate of growth, the addition of new geographies, and the pandemic, it has been hard to compare. But normally you would see seasonality in Q3, and our guidance contemplates that scenario. 45%, approximately, of our business comes from Europe, and these doctors and their patients are going to take a vacation this year for sure. So, that's part of that. But that is normal in our business, so we don't see it as a negative. We see it as actually a reflection that things are getting to a more normalized condition in the European market. Furthermore, I think that we are -- you're seeing the effects of all the work that we've been doing over the last few years with regards to our science, our innovation. We're launching new products as we speak, into new lines like breast reconstruction, continuing to work with Mia. So, we're nothing but super excited about the second-half of this year.

Yes, fantastic. And then maybe just one last one on Mia, I think a lot of investors are excited about that. Could you just give us more detailed and updated thoughts about how that initial launch could progress? And when we should start to expect a ramp in the CE mark countries from that product? Juan José Chacón Quirós: Yes, of course. And we are continuing to prepare very carefully for this launch. We want to make sure, and we have said this in the past, that we do things correctly. This is an entirely new category within breast aesthetics. We have applied for the CE mark for the tools that are necessary for Motiva Mia, and that is the Motiva injector and the balloon that are necessary for that minimally invasive approach. So, we expect approval for that to take place before the end of the year so we can begin our educational activities in Europe. And after that, then in 2022, what you'll see us is working through a list of centers in which we think we will be able to show how we can attract new patients that would normally not go for these type of breast augmentation procedures. And that is the most interesting part about Mia. It's not only the fact that it's a price premium over normal breast augmentation, but the fact that you are brining new patients. So, our launch is going to be directed specifically at showing that we can get a different group of patients interested in breast aesthetics.

Great. Thanks a lot for the thoughts, and thanks for taking the questions. Juan José Chacón Quirós: Thank you.

The next question is from Josh Jennings of Cowen and Company. Please proceed with your question.

Hi, good morning. Thanks for taking the questions and congratulations on the first-half of the year, and the recovery. I was hoping, Juan José, to just get a sense of how impactful you think the recent Langer publication on biocompatibility of Motiva and the earlier Mia SCHEER report, how impactful they have been to your direct and distributor sales efforts and in terms of driving conversion of new surgeon customers, and how long do you think that the tail is from those two reports? And then my follow-up question -- second question would just be, I mean historically you have transitioned from some markets from distributors over to a direct sales effort. And are there any territories or should we be expecting more movement in the next 12 to 24 months? Thanks for taking the questions. Juan José Chacón Quirós: Thank you, Josh. Regarding the Langer paper, it is the strongest possible objective scientific evidence why are implants performed better. And we're very glad that this took place, and especially in a paper like Nature. And it does confirm once again everything that we've seen in the market with over 10 years, and now 1.6 million implants out there over the last few years. And to us, it is once again a confirmation. But there are skeptical surgeons out there. And we can't wait for the conditions of the pandemic to improve so that we can go and engage with them directly. Same thing with SCHEER, SCHEER just happened very recently. It has an impact because it is the first scientific committee worldwide that creates a direct causal relationship between textured breast implants and this manmade cancer called ALCL. So to us it is these two things will be part of our strategy to capture new market share. But it's too early. We think that over the next few years we're going to gain market share from all the things that we are doing, including this strongest of proof with the Langer paper, and definitely with the results of SCHEER committee. So, when you think about our growth, it comes from so many different places. Safety over time is one of those, and these two things definitely confirm that. But we are going to continue growing with the new initiatives, like minimally invasive and breast reconstruction. So at this time, we're not really looking at moving any markets from distributor to direct, nor do we think we need to do so.

Great, thanks for those updates.

The next question is from Chris Cooley of Stephens. Please proceed with your question.

Good morning and thank you for taking the questions. And congratulations on the record quarter, it's very impressive. Just two for me, if I may, first, Juan José, if you could speak to us a little bit about as you approach the European market with Flora or I should say, more specifically, the reconstructive market in Europe with Flora. What do you need to do tactically that's different versus the approach the company has taken on the aug side? I'm just curious to hear a little bit about the incremental investment that might be required; if there's additional data just to help us think a little bit about that ramp and what it entails? And then secondly, for my follow-up, I'm just curious if you could comment as well, just from a macro perspective. Clearly, we're seeing a rebound here in interest in breast aesthetics coming out of the COVID-19 pandemic. Surgeons are extremely busy right now. Curious how much of this do you think is a bit of a pent up demand when you look at the growth rates in the broader market right now relative to just a step function improvement in just the overall interest in the procedure. I'm just trying to kind of then tease out what you think is durable as we go into 2022, if you have a step up in the organic growth rates that we've seen historically or if you see some type of reversion in the second-half of next year? Thank you. Juan José Chacón Quirós: Thanks, Chris. And just to answer both of those questions, I'll start with Flora. We are so happy that we can finally become a key player in the category of breast reconstruction. And the reason we took so long to enter that category is because…

Thank you.

The next question is from Anthony Petrone of Jefferies. Please proceed with your question.

Thanks. And first, good luck, Renee, as you go into your new endeavors, and good luck to the team as you transition. My questions will be on -- first on China, and then pricing overall. So, JJ, I'm wondering if you could just recap the market opportunity around China. It was previously marked at $150 million to $200 million within the global market but at premium pricing. So, just want to get a recap of that calculus. And then as you look at implant pricing sort of globally, we now have the Nature report published, SCHEER was out there earlier this year. And there's been, obviously, a lot of data behind those two publications on the lymphoma incidents. And so, I'm wondering has that impacted at all the actual procedure pricing on the surgeon end, and by extension implant pricing? Juan José Chacón Quirós: Yes, thank you, Anthony. And for us, it's always been about showing that non-commodity product in a commodity market can make a difference. And we've been winning market share over the last few years by pricing our products according to the science and innovation that we bring to surgeons and patients. So, for us, ergonomics too, just to give you an example. It has that proprietary SmoothSilk surface, and at the same time improve chemical and mechanical properties, more ergonomics, more patient comfort, so many different things. So, when we think about the Langer papers, it's one of so many different components that reinforce our premium pricing. So, as we go into Mia, of course, we think that the value that we are creating should be priced accordingly. So, we will continue to do that. And when you look at China, China is a premium price country. It's not known to everybody, but it's about 100,000 procedures a year. And those 100,000 procedures are done with products that are not local to the Chinese market, and are priced at the highest ASPs worldwide for any of the manufacturers. So, we can't wait for us to gain approval in China so that we can get ahead and bring our products that are seen as luxury products already in China. Before the pandemic began, over 25% of the patients that we saw in South Korea were paying to be able to get Motiva Implants in that market. So, we certainly do see it as a good indication of what we would be doing in China. And just overall, our strategy is to create healthy growth. You see it with the gross margins that we continue to show. And I think those will improve over time as we bring new products, and we go into markets like the U.S. and China.

Thank you. Juan José Chacón Quirós: Thank you.

The next question is from Amit Hazan of Goldman Sachs. Please proceed with your question.

Thanks and good morning. This is Philip for Amit. But first want to emphasize Anthony's comments for Renee, congrats and good luck with everything going forward. I'm hoping, Juan José, that you can talk about the search process for replacing Renee, and maybe the points of emphasis or how, strategically, you're thinking differently than you did the last time you went through this process? Juan José Chacón Quirós: Yes, of course. And good morning, Phil, I think last time we did this it was pre IPO. We were getting set up, and there were so many things that had to be done. So, Renee did a phenomenal job in creating a very strong team that could take us from just being a private company in a region of the world, to actually becoming a global company with all the respect of compliance rules across the board. This time around, we have the opportunity to thinking about the future, the company that we will be in 2025. And I think the Board is trying to take this as a great opportunity to get the person that can align us with that view. And definitely, when we talk about the future, we talk very clearly; our aim is to become the dominant player in this industry. We're bringing new products that are creating new categories, like minimally invasive, transforming breast reconstruction into this aesthetic breast recon concept. And the way I see this is by having a CFO that is a strategic partner to that view. So, we'll take our time or making sure that we look at all the different opportunities. And when it's time, we'll let you guys know.

That's great. Thanks for all that. The second one, I appreciate the conservatism in forward numbers. But updated guidance does contemplate at least some slowing in the second-half from first-half, if you look against normalized kind of 2019 numbers. I know you called out vacations, probably more so in 3Q, but maybe comment on how COVID variants or vaccine rates may still be limiting procedure volumes, and what sort of contemplated in two-half guidance on the COVID front? Thanks very much. Juan José Chacón Quirós: Yes, no, I think that's a fair comment. We are seeing excellent momentum in our business. And when we think about the second-half of this year, we're always going to be conservative; we're always going to take into consideration the different scenarios. And just as we see the possibility of the variants making a mess in certain regions of the world, what we have seen in the last year-and-a-half is that because of the regional spread that we have in our revenue, then when the situation gets tougher in Latin America it tends to get better in Europe and in Asia, and the other way around. So, we're very, I would say, happy with the way the team has performed over the last year-and-a-half during the pandemic. And we think that it's going to get well over time as the vaccination campaigns improve the situation will improve. We saw it in Europe already in the first-half of this year, and we think that's going to be the case. But we're mindful of what's going on out there. And I think that's what the guidance says. And there is a scenario in which we do even better. So, I don't think we're trying to be too conservative, but at the same time we're mindful of the situation.

Great, thanks for all the comments, Juan José.

The next question is from Marie Thibault of BTIG. Please proceed with your question.

Thank you. Good morning, and thanks for taking the questions, and congrats on a great quarter. I did want to ask one on FDA. You've mentioned that the timeline are on track there. I'm just curious if you've had any further discussions with agency? I know there had been potential for thinking about a acceleration of endpoints. So, just wanted to hear what the latest was on those discussions? Juan José Chacón Quirós: Yes, thank you, Marie. And one of the most important things is that, just next month, all of our patients in our aesthetic cohort will have passed the two-year mark. So, that is a significant milestone for us. And just as a reminder to everyone, the FDA precedent for approval of silicon gel-filled breast implants is three years of clinical data. So, we continue to explore those options with our two years' data now that we're going to get to that milestone. So, I think with that data on hand we can have more meaningful conversations with the FDA about that.

Okay, that's great. We'll stay updated on that as well. And then, I guess, one last one for Renee. We're certainly sorry to see you go, Renee, and wishing you a lot of luck with your next role. I'll sneak one last question in here for you. I thought the cash burn this quarter was impressively low, very nice job with that. Wanted to hear what sort of got you there, and what we can expect for cash burn going forward? You certainly made a lot of progress on that metric.

Thank you, Marie, I appreciate it. And also the kind words from everyone else on the line. It's been lovely working with all of you. So, yes, cash burn, we're committed to it. And we're seeing the results, as you can see just from the first-half of the year. We will continue to invest in the business, so cash burn will go up from where we are at this quarter. But it's been really nice to see how we're managing the balance sheet, leveraging everything, and yet performing. That as we've mentioned about COVID and activities coming back into play, we will continue to see cash burn increase from here. But again, we stay committed to ensuring that overall cash burn for the year is down from pre-pandemic levels.

All right, very good. Thanks again. Juan José Chacón Quirós: Thank you for joining us on today's call. And we look forward to providing our next quarterly update in November. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.