Good afternoon. Welcome to Establishment Labs’ Fourth 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 a question-and-answer session. 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, Chief Financial Officer. Please go ahead.

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 discussion of the principal 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 annual and quarterly reports on Form 10-K and Form10-Q, as well as other SEC filings which are available on our website at establishmentlabs.com. I’d also like to remind you that our comments may include certain non-GAAP financial measures with respect to our performance, including but not limited to sales results which can be stated on a constant currency basis or the company’s earnings, which can be stated as adjusted EBITDA. Reconciliations to comparable GAAP financial measures for non-GAAP measures, if available, may be found in today’s press release which is available on our website. Please also note that Establishment Labs receive 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, February 28, 2024. Except as required by law,…

Thank you, Juan José. Total revenue for the fourth quarter was $31.6 million, a decline of 28% from the year ago period. Currency had a positive impact of approximately 2% in the fourth quarter. Direct sales in fourth quarter were approximately 49% of implant sales, while distributors made up the balance. From a regional perspective, sales in Europe, Middle East, and Africa were approximately 53% of the global total, Asia Pacific 19%, and Latin America 27%. Brazil, which is our largest market globally, accounted for approximately 10% of total quarterly sales. A gross profit for the fourth quarter was $20.6 million, or 65.2% of revenue, compared to $28.2 million or 64.3% in revenue for this same period in 2022. A gross profit in the fourth quarter was negatively impacted by an obsolescence charge, without which gross margins would have been approximately 66%. A gross margin was also impacted by higher overhead and labor costs. Costs were higher in part from changes in foreign exchange rates between the U.S. dollar and the Costa Rican colón. As we report in U.S. dollars, the strengthening of the colón over the last year resulted in higher reported costs. Average selling prices in fourth quarter were up from the third quarter of 2023 and year-over-year. SG&A expenses for the fourth quarter increased approximately $2 million to $36.9 million, compared to $34.99 million in the fourth quarter of 2022. The increase in SG&A in fourth quarter resulted in part from our investment in new growth initiatives like Mia and preparations for our launch in U.S. These were offset by the significant cost reduction initiatives we undertook in quarter. SG&A declined $3.1 million sequentially from the third quarter. R&D expenses for the fourth quarter declined approximately $700,000 from the same quarter year ago to $5.8 million and…

Thank you. [Operator Instructions] Our first question is from Allen Gong with JPMorgan. Please proceed.

Thanks for the question. I had a quick one to start off on China. The approval came a little bit later than expected, but you were previously expecting a contribution in the low-teens in fourth quarter. Now, some of that’s stalking not all underlying quarterly demand, but how should we think about your assumptions for China contribution this year in light of the fact that you’re not assuming any contribution from the U.S.?

Yeah. Thanks, Allen. I think when we lowered the guidance coming out of the third quarter for 2023, we talked about China being roughly $10 million of the reduction in 2023. As we think about the contribution in 2024, that’s a good place to start, right? We don’t expect that it’s all going to come in the first quarter. It should be spread out over the first 2 or 3 quarters of a year, but I think as a starting point for what China will contribute for us this year, I think that’s a great place to start. Juan José Chacón Quirós: Yeah, additionally, I think it’s important to recognize that what we are doing now is holding educational events in Tier 1 and Tier 2 cities and our shipments in the first half of this year will [mirror stalking] [ph] taking place in those cities across China. And in the second half the year, you should think more about some of the reordering starting to take place as demand for these procedures increase.

Got it. And then a question kind of on broader market dynamics. When we think about the assumptions underpinning your guidance, in early January, you talked about how markets haven’t necessarily recovered, but that previous weakness looks to have stabilized. What assumption do you have for the underlying market to get to your range? Should we thing that the bottom half of the range assumes minimal improvement and the top half assumes more improvement, just help us level set your expectations there? Thank you. Juan José Chacón Quirós: Yeah, I think the way we think about it is, I think you’re right. I mean, we are seeing the market stabilizing. We’re seeing recovery in these markets. Things are not fully back to normal. I think as we look out over the course of the year, and even some of the feedback we’re already getting from the market, is that things are picking up, things are improving. And so do expect to see that stabilization to take hold over the year. In terms of the range, the top to the bottom, I mean, for us this year, I think, as you described it right, if we see a stronger recovery, a quicker recovery, it’ll probably push us towards the upper end. I think take a little bit longer, perhaps with the lower end. So we’re starting this year, I think, from a kind of a conservative starting point and, again, we are seeing things improve out there, but it’s going to take some time.

Our next question is from Joanne Wuensch with Citi. Please proceed.

Good evening, and thank you for taking the question. One is that a mechanical, I’m curious what you think your CapEx spend will be this year with the majority of your new facility behind you? And then my second question is a little bit more interesting, I hope, which is, if you’re seeing stabilization in demand, is it pocketed? Is it in certain regions? How do we think about stabilization transitioning towards higher demand and our growth? Thank you. Juan José Chacón Quirós: Yeah. Thank you for that. I think what takes us to these comments around markets recovering and us seeing some of these civilizations taking place. We see this happening at different speed in different regions. For instance, Brazil, I think it’s still not in the right place, but we see Asia picking up again. We also seen our direct markets in Europe demand picking up as well. So I think it’s not going to happen all at once, but we’re not the only company seeing the recovery in aesthetics, and that includes, of course, breast aesthetics and reconstruction.

Yeah, on your question on CapEx, we did see stronger or heavier CapEx over the last couple of years as we were completing the new facility in Costa Rica, which you’ve been to. As we look out in 2024, there still is some work to be done on that facility. As we’ve noted, we are investing in the United States and so, I think, CapEx for us will still be something in order of about $20 million. That’s captured in guidance we have given of the overall cash used being less than $48 million this year.

Thank you.

Our next question is from Anthony Petrone with Mizuho Group. Please proceed. Anthony, your line is live. Please check if you’re muted. Okay, we will move on. Our next question is from Josh Jennings with TD Cowen. Please proceed.

Hi. Good afternoon. Thanks for taking the questions. I was hoping to just get some comments, Juan José, on your views on the state of the U.S. breast implant market, you guys haven’t launched yet, but future competitor announced or filed for bankruptcy and it seems like an opportune time for [Establishment Labs] [ph] to launch Motiva in the coming months, but maybe just the state of affairs there. And does this change your strategy on the U.S. Flora launch? I think Sientra had a relatively strong recon franchise. Juan José Chacón Quirós: Yeah. Thanks, Josh. So in U.S. market, what you see is about 95% of procedures take place with round smooth implants that have very little difference between them. And with nothing to separate the offerings in the market, the basis of competition is not on the merits of the technology. So it’s not surprising in that situation the smallest of companies was not able to survive. But, I think that probably the slowdown in aesthetics overall probably exacerbated the demise of that company. But, overall, I think that just like any other slowdown that we have seen in the past, eventually it goes back. In 2008-2009, it was about around 10% of procedures affected for 2 years, but eventually, it came back, and it came back higher. I think the U.S. market is starting to pick up again from what we hear from different indicators. And yeah, of course, as we look into the expansion of Flora, this provides for an opportunity for us to be able to bring our fully differentiated tissue expander to U.S. Centers of Excellence.

Great. Thanks. And then just I know you haven’t detailed in this little bit premature to detail of the U.S. commercial launch strategy, but just in terms of the initial spend, the investments that have already been made versus the investment that are required as you move closer to launch and then execute the launch, and just considering the updated status of your balance sheet, anything you can share just on terms of investments made versus investments to be made in the coming months in front of the launch? Thanks a lot.

Yeah, sure. We have been investing in the U.S., I think, as we’ve been building the infrastructure here to be a commercial organization, if you think about finance, logistics, the things you need to be commercial, so that spending has been taking place, and we’re actually leveraging that now as they’ve launched Flora in the United States and are starting to see traction with that product. When we get closer to the approval of the implants in the United States, we will start to see a pick-up in spending relative to commercial activity. But given the higher ASPs in the U.S., the higher margin here, the ability we have to leverage the spending we’ve already done as well as the infrastructure we had outside the United States, a period of time which we’re loss-making in the U.S. should be relatively short. And, I think, as we noted in the prepared remarks, he amendment to the Oaktree facility also gives us additional capital should we need it to fully fund the U.S. launch strategy. So we are feeling pretty good about where we are in terms of getting ready for being commercial with their entire portfolio in the U.S.

Right. Thanks, Raj.

Our next question is from George Sellers with Stephens Incorporated. Please proceed.

Good afternoon, and thanks for taking the question. Two-parter here on Flora. Just curious, first of all, what your guidance assumes, if any, for Flora contribution in 2024? And then, could you also just speak to the commercial process for flora and breast reconstruction in the hospital as compared to commercialization in the breast augmentation market? Juan José Chacón Quirós: Yeah. Thanks, George. When you launch products, especially products that have such differentiation, a lot of your focus at the beginning is on the qualitative parts. Still, you heard our numbers. We have 15 centers that are working through the VAC [ph] process. That process is you know takes time, but you’re already seeing us getting into these hospitals in the first half of this year and we’ll continue adding to that. But it’s early on to be able to give you precision on what we expect for Flora. Now, overall, it is $180 million market and we are selling our tissue expander that our premium. So we do expect this to eventually be an important contributor over the next few years to our growth and definitely it has the highest ASPs in the world and highest gross margins for any market for tissue expanders.

Okay. That’s really helpful. And then maybe shifting to Mia, could you give some additional color on what Mia contributed in the quarter and then also your expectations. I believe you’ve said there’s another 30 or so potential clinics that you may add to the Mia clinics, but just curious your expectation for that progression in 2024 as well. Juan José Chacón Quirós: Look, just like everyone we are super excited with Mia, particularly, because we see the amazing results and the differentiated experience. The fact that these women are just going back to their daily lives minus the exercise the same day is just an amazing thing to see. And that’s why we’re so confident on the growth of Mia. But just like I said before, when you’re launching these type of products, you focus first on a qualitative. What we did today though is give you a lot of color on number of centers. So just with the list we provided, it seems that we should be in about 70 centers this year, at least. So, the network of Mia certified centers is increasing and what we are seeing is in the first group of clinics that launched in second half of last year we were seeing increasing demand every month. And, as we get through the capillarity in these cities with more centers getting there, then we’re going to see more demand. So, eventually, I think what we will try to do is, on top of all the information we gave today on the number of centers, is also give you an idea in the future of how that ramps up in terms of the numbers of procedures, but still a little bit early to go ahead in that and do that.

Okay. Thank you all for the time.

Our next question is from Marie Thibault with BTIG. Please proceed.

Hey, good afternoon, everyone. This is Sam Eiber on for Marie. Thanks for taking the questions. Maybe I can start, Raj, on just an operating expense question, and maybe your thoughts for 2024, if any of these cuts that you made in the back half of last year, is there anything left to be recognized in Q1, or is that all behind us at this point?

Yeah, so I think there will be some additional spending in first quarter relative to the fourth quarter in terms of cash used, again, around severance cost and we do have heavier costs usually in the beginning of the year. And I think it’s also important to note that we’re continuing to look for efficiencies across the business, right, so in terms of getting to the stable position we are not there yet and we will continue to looked again at ways to make our business more efficient. We did take a lot of cost out of the base, so if you look at operating expenses last year versus this year they will be down something around $25 million or $30 million from where we were in 2023. So I don’t know if that answers your question, but in terms of cash used we could see a little bit of a tick up in the first quarter again on some of the severance costs and the restructuring costs we’ve undertaken. But then over the course of year, the overall expense base is going to be significantly lower than where it was last year.

Yeah. No, that’s super helpful. Thanks for that. Maybe I can ask just my follow-up here. I know we’re getting close to maybe when we’d expect you guys to have maybe 4-year data from the pivotal trial. I know considering a lot of the back and forth with the FDA right now, I don’t know if that’s something you’re looking to present or is that something maybe we should hold off on maybe saying you guys present until you get approval? Juan José Chacón Quirós: So it is important to remember that the FDA per guidance document on breast implant requires 3-year data which we have provided. However, as a women’s health company we’re always been super transparent with data. We were the first company ever to provide data pre-approval on the trial, and we will continue to do so. So, yes, the idea is to provide the full year data to the market after the FDA has received that data for our periodic interactions. And, yes, and I think this data will show as – it has shown in the past, that we have an amazing technology with superior safety results.

Great. Thanks for taking the questions.

[Operator Instructions] Our next question is from Anthony Petrone with Mizuho Group. Please proceed.

Thanks. Apologies, just having between calls here. So maybe first just on the geographic sort of split for the aesthetics market. Are there any regions where you’re starting to see green shoots, where perhaps distributors are seeing more activity on the ground and are re-upping on inventory stocking? So that would be question one, just geographically how the market is playing out? And then maybe any thoughts on where the underlying aesthetic market in the United States just ahead of a potential launch on Motiva into the second half? And then, I’ll have one follow-up for Raj, on the middle of the P&L. Juan José Chacón Quirós: Yeah, so if you want to think about it by regions, I think that probably Latin America and, most importantly, Brazil have not recovered as quickly as other markets. Like in Asia, we’re starting to see – that’s a full distributive region for us, by the way, but we are starting see some of activity coming back. And we are also seeing that across Europe and especially in our direct markets where we see that in real time. So we expect this to continue taking place at different speeds in these regions, but when we think about guidance for this year, I think what you should think of is conditions improving throughout this year. And the U.S. was actually hit quite strongly by this global slowdown in aesthetics, but from different indicators, we know the situation is improving. By the time we go to market, I think that we’ll be in a good position to take over demand, and the fact that if we might go the market with one less competitor, of course, adds up to the opportunity.

No, absolutely. And, Raj, just on the expense outlook, when you think about the Motiva trial eventually rolling off, I mean, what is the cost burden on trial itself? And then when you think of reinvesting those dollars, is that happening now ahead of a launch or will it happen post-FDA clearance? Thanks.

Yeah, it’s a fair question. We are still incurring costs relative to that trial as we’re moving through the FDA process. We were getting close to the approval, but there’s still costs associated with it. Once the improvement happens, we don’t stop our clinical activity in the United States. We have products coming after that. Mia is an important one that’ll come to the United States, and the Ergonomics 2 platform. So there will still continue to be costs associated our regulatory activity in The United State. But I think in general, as we noted earlier, we’ve taken quite a bit of cost out of our base here in 2024. And so, again, we’re operating on a much more efficient basis and it does give us some flexibility as you move through the year to take advantage of some of these opportunities, if we can. So I wouldn’t expect that that event of the U.S. approval is really going to step down our spending here too dramatically.

Helpful. Thank you.

That is all the time that we have for questions today. I will now turn the call back over to Juan José for closing remarks. Juan José Chacón Quirós: Thank you for joining us in today’s call. We look forward to providing our next quarterly update in May, and we wish everyone continued good health and happiness.

Thank you. This will conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.