Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Establishment Labs Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Raj Denhoy, Interim CFO for Establishment Labs. Thank you. You may begin.

Thank you, operator, and thank you, everyone for joining us. With me today is Juan José Chacón Quirós, 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 Establishment 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 principle risk factors and uncertainties that may affect our performance or cause actual results to differ materially from these statements, I encourage you to review our most recent quarterly reports on Form 10-Q and other SEC filings, which are available on our website at establishmentlabs.com. As a reminder, 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 9, 2021. 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 José. Juan José Chacón Quirós: Thank you, Raj, and good morning, everyone. I hope everyone is healthy and continues to remain safe. Revenue in the third quarter of 2021 totaled $29 million, a 28% increase over the third quarter of 2020.…

Thank you, Juan José. The significant momentum we have seen in our business carried into the third quarter. We saw strong sales growth again in what is normally a seasonally slower quarter and our operating expenses and cash are being managed effectively even as we invest in a number of new initiatives. Total revenue for the quarter was $29 million. Direct sales were approximately 41% 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 38% of global sales, Asia-Pacific and Middle East were 28%, and Latin America made up the balance. Brazil, which is our single largest market globally, accounted for approximately 13.4% of total quarterly sales. Our reported gross profit for the third quarter was $19.6 million, or 67.6% of revenue compared to $15.1 million or 66.6% of revenue for the same period in 2020. The change in gross margin was the result of regional mix returning to more normalized levels as well as increased production volumes. Our gross profit this quarter improved from 67.1% reported in the second quarter of 2021. Average selling prices in the third quarter were down slightly from the second quarter of this year. As you’ve seen the last several quarters, there will be fluctuations in gross margins. We continue to believe the best way to gauge our progress is on an aggregate basis over time. And we are comfortable with the gross margin in the mid-60% range over the near-term. SG&A expenses for the third quarter increased approximately $9.8 million to $24.8 million compared to $15 million in the third quarter of 2020. The increase in SG&A in the third quarter resulted from a normalization of business practices, following…

Thank you. At this time, we’ll be conducting a question-and-answer session. Our first question is from Josh Jennings with Cowen.

Good morning. Thanks for taking the questions. Exciting news that the FDA submission process is starting, I just want to have an initial follow-up on that update. And just thinking through the modules that you’re going to be submitting, does the FDA clearing the path for you to also include the clinical data module? And will you submit that before three year data and get a response from the FDA or have they given you any more confirmation that to your data could suffice for the submission for the aesthetics cohort? Juan José Chacón Quirós: Yes. Josh, thank you. I think, the first thing is, of course, we are super excited by the fact that the FDA approved our shell and that we have now submitted module one, which is basically chemistry, toxicology, and biocompatibility. Now the most important thing is that now that we start with the modular submission chronogram, then it is no longer about two-year versus three-year data, it is really by running through the modules. Module two is basically mechanical properties. Then it goes to module three with manufacturing and then the final one with clinical. So when we get to that module with clinical, we would submit with the data that we have at that time.

Understood. Thanks for those details. And then just wanted to ask a question about guidance. I think the midpoint suggest roughly $35 million in the fourth quarter or 30% revenue growth, which would be an acceleration. It seems like sequential acceleration, it seems like 4Q trends are improving in October and so far and in November on the terms of Motiva aesthetic volumes, any more details you can provide in terms of assumptions baked in there, improving trends more contribution from Flora or ergonomics to in recon procedures. Any other details would be helpful. Thanks. Thanks for taking the questions.

Hey, Josh. It’s Raj. Yes, I think you kind of outlined a lot of the things going on, right? I mean, clearly, we did raise guidance, which gives you some indication of the momentum in the business and how we’re feeling about things. As you noted, there are a lot of good things coming from us and on the market from us, and so we remain very confident in where we are heading into the last couple of months of the year here.

Thank you.

Our next question is from Chris Cooley with Stephens.

Good morning, and congratulations on the stellar quarter and the continued progress with the FDA filing. Appreciate you taking the questions here this morning. For me, if we could just start off a little bit, as you’re thinking about, raising the guidance now for the third consecutive time for this year. Clearly, you’re taking share, but we’re all also still seeing pockets of variability in end markets. So could you help us think a little bit more, I guess, kind of a follow on to Josh’s prior question, regionally, where you’re seeing strength and if this is more so driven by augmentation, more so than recon, I’m assuming at this point. But just how you’re seeing those markets are, what’s kind of, I should say, implicit in your guidance raise to the 46% to 51% here for the full year. And then I have a quick follow on. Thank you. Juan José Chacón Quirós: Yes. Thank you, Chris. I think, the increase in our guidance shows our commitment to continue to gain share in all markets across the world. And the fact that we feel strongly about how we are executing on that. We are seeing situations, in which you still have some places around the world, where the pandemic does create challenges. But I think when you look across the world, the situation is improving and it’s working on our favor in many different ways. The most important thing for us is to continue to gain market share across all markets, and we feel that we are doing that. Most of the revenue this year will continue to be aesthetics, although we are very happy to see the interest in the Flora tissue expander. Remember, that market develops based on the tender process, and that takes time to build on.

That’s helpful. And then maybe just for my quick follow-on here. The company is clearly expanding globally at a very rapid pace, and you have a number of initiatives with other clinical marketing or just women’s health and support going on across the globe. And so would you help us think a little bit about timing of expenditures and planned areas of investments that we should be contemplating as we look ahead into 2022? Obviously, you have the U.S. regulatory process and the same in China before commercialization, those launches thereafter, ongoing rollout of Motiva MIA. I’m just trying to think about where we should be contemplating incremental and planned investments in 2022 over 2021 that helped drive the sustainability of that growth that we’re seeing now over the longer term? Thank you. Juan José Chacón Quirós: Yes. I think that’s a key question because, of course, we plan to continue to invest to not only gain market share in the markets that we are in. We’re also expanding into the U.S. and China. So we’re going to start preparing for those launches. And then we have these market expansion initiatives like MIA and, of course, going into breast reconstruction. So all of those will require investments, but we are very confident that those investments will pay off with not only increased market share, but also with new patients coming into the category of minimally invasive.

Yes. Maybe, Chris, I could just add to that a little bit. I think if you look at the various factors, right, so the very strong top line growth, we continue to put up strong gross margins we have. Even as we continue to invest in the many opportunities in front of us, which you outlined, we do expect our cash use will continue to moderate over time. So it is – we are in a very nice dynamic, again, with that very strong top line growth, allowing us to support the business. And so again, we’re going to keep investing, but I think we’re going to be judicious, and we’re in a good spot.

Thank you.

Our next question is from Anthony Petrone with Jefferies.

Thanks. Congrats on another strong quarter here. I’m going to start maybe with Brazil, the numbers out of Brazil, obviously, largest market, were strong. And so maybe just a little bit more detail on where you sit in Brazil as a percent of total share in that market, just considering the late August suspension of J&J SILTEX brand in that market. And I’ll have a couple of follow-ups. Juan José Chacón Quirós: Yes. We’re very happy about our performance in Brazil this year. We continue to gain market share. Our view is that we have around 25% market share in Brazil. And some of that has come at the expense of Mentor. And most importantly, what we feel good about is that this year, we have gained about 400 new accounts, and we are continuing to invest in medical education. Remember, that’s a market that has been traditionally a highly textured market, and we are still the only brand offering a smooth implant. And in our case, with our proprietary surface technology, of course, this requires some level of adaptation for surgeons when they move from a highly textured implant toward SmoothSilk. But we are happy to see that all the investments that we have done in medical education are paying off and that surgeons and patients are seeing the difference with the Motiva Implants.

Just two quick follow-ups here. Maybe just a high level on where the discussion is amongst plastic surgeons now that we have an increasing level of publications Nature and SCHEER, just supporting smooth versus textured. So how are those discussions shifting between plastic surgeons and the sales force? That would be one. And just a quick one on the FDA. When we look at primary versus revision, will that be separated for the two individual clearances? And is there any update on the reconstruction cohort enrollment? Thanks again. Juan José Chacón Quirós: Okay. Thanks, Anthony, and I’ll try to answer all of that. So first, on how patients perceive the overwhelming data that is being put out. So we just published our 11-year post-market surveillance data. One of the most important things in that is that we have now independent data from several registries in Europe and in Australia. So that provides further confirmation, independent confirmation of the numbers that we have been seeing in our own registries. On top of that, what you see there is that there’s no statistically significant difference in capsular contracture rates between submuscular or subglandular replacements. And that is very important because that’s not something that you see with legacy implants. And it allows for surgeons to put the implants where it’s best for the patient without having to worry about capsular contracture. And that’s going to be fundamental when we come to the United States, because a lot of surgeons don’t choose the subglandular plain, because they’re afraid of capsular contracture. So this is actually very important for us that we can provide these new choices for surgeons and then get what is best for the patient. Then when we move to new publications like the one from Nature, of course, it just gives confidence to the medical community that everything that we’ve been saying over the years, it is further complemented by all of these publications. So we will continue to see more of those, both clinical and scientific, and that also is going to help with our FDA submissions because, of course, they do look at the science and they do look at the data, not only the data from the trial, but also real-world data. With regards to the data that will be presented in the final clinical module, of course, that’s going to include the primary and also the revision in the aesthetic cohorts. With regards to Recon cohorts, of course, during the pandemic, it is the indication that was delayed, because of all of these hospitals using space to treat COVID patients. We continue to make progress, and we are still committed to finishing that cohort before the end of the year.

Our next question is from Amit Hazan with Goldman Sachs.

This is Phil for Amit. Thanks for the question. I thought maybe if you could opine on the recent FDA announcement about the new safety labeling requirements for U.S. devices and how you might be positioned in a year or so when this decision comes up for your product? Juan José Chacón Quirós: Yes. On that, those recommendations date from a year ago, now they’ve moved on to enforcement. And remember, we’ve been talking about this for years. Patients need to have more information ahead of making an informed decision. And every time patients get educated, our given access to the information, we are bound to win, and that is very important to us. So we are in full compliance with the international rules. And when we come to the U.S., we will follow the rules that the FDA gives to us. But we are very happy to see that patient education is going to be a key factor because when that happens, we will be in front of that.

Just a quick follow-up there. Given the lack of correlation to ALCL from your device versus other devices, is it possible that you could have a differentiated label by the time you come to the U.S.? Juan José Chacón Quirós: I think it’s too early to tell, but definitely, the data on ALCL for Motiva Implants is impressive. Now we are at 1.8 million implants and more than 11 years in the market. And when you think about the median time for ALCL, it’s around eight years. So we’re way past that date. And if you look at publications like the Langer publication, what we have is a low inflammatory surface and ALCL is a chronic inflammatory condition. So definitely, that is the important part. And we will see when we get to that point, how our labeling will be.

Great. Thanks for that additional color. I was hoping for my second one, you could speak in a little bit more detail on the China timeline that you affirmed today, how discussions and what stage we’re at with the FDA and what we should expect kind of the next steps moving forward, both from a commercial and a clinical standpoint? Juan José Chacón Quirós: Yes. Look, we are committed to our Chinese market entry, and we are working on our commercial strategy. This is one of the largest and most dynamic opportunities in breast aesthetics. And we think of the Chinese market as a market where we can do very well. People often speak of Korea as being a benchmark to what happens in China. And as you know, we are the number one brand in South Korea and continue to perform very well there. So we are hoping for a regulatory clearance in the second half of 2022 for a controlled launch shortly after. We are making progress with our regulatory filings and expect those to take place on time.

Thank you.

Our next question is from Matt Taylor with UBS.

Hi, thanks for taking the question. I just wanted to follow-up on two key points and questions that have already been asked. So the first one was just on the U.S. timeline. So what I’m understanding from what you said is that you’re able to move forward with the submission of these modules. Does that mean that the gating factor for the clinical module is no longer a three-year follow-up, but more so your ability to submit the other modules in front of that? Juan José Chacón Quirós: Well, you can certainly look at it that way. But I think the way to approach it is you follow the different modules. And by the time you get to the final module, which is the clinical one, then we will have data at that timeframe, which will be the one that we submit. We are very confident of this strategy, and we are very happy to see that the FDA approved our Shell and that we then have moved on with the submission of module one.

Okay. And just following that up, are you able – have you had discussions with FDA about being able to use international data to support your submission? Juan José Chacón Quirós: So remember, in the FDA guidance, they talk about real world data. So definitely, we will use real world data to complement our dataset from the U.S. We are working not only with registry data. And in that sense, the independent registry data is very strong. You can find our post-market surveillance report online in our website and look at it. But furthermore, we also have now over 1.8 million implants out there. Definitely, by the time we submit to the FDA the clinical module, we will be including specific datasets from different areas around the world.

Okay. Okay. And then I did want to ask you a follow-up question on the recent FDA announcement about the safety requirements and the patient decision checklist. So there’s really two questions here. One is, do you think that those requirements could have any tamping down or negative effect on the market overall? And then the other side of that coin is, another questioner was asking you about a differentiated label. What is your understanding about how you would fall under this or not based on the data that you have? Juan José Chacón Quirós: Again, I think it’s too early to tell what our labeling will be. But definitely, we can make claims based on the data that we submit to the FDA and based on the approval that we get from the FDA. So if you look at our international data, it is pretty impressive. So we use that all the time in the international market to differentiate ourselves versus the other products. With regards to the decision checklist, we see it as a positive evolution for patients, because now they will be fully aware of the potential side effects of breast implants. But more importantly, they will have the information necessary to make that informed decision. And when they have that, we expect them to make a choice towards Motiva Implants.

Great, nice. Thank you for the color.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Juan José Chacón Quirós for closing remarks. Juan José Chacón Quirós: Thank you for joining us on today’s call. And we look forward to providing our next quarterly update in early 2022. And I wish everyone happy holidays and good health.

This concludes today’s conference. Establishment Labs, thank you for your participation. You may disconnect your lines at this time.