UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 001-38593 Establishment Labs Holdings Inc. (Exact name of Registrant as specified in its charter) British Vi ...

Establishment Labs Holdings Inc. (NASDAQ:ESTA) Q2 2019 Earnings Conference Call August 13, 2019 8:30 AM ET Company Participants Jeremy Feffer - Investor Relations Juan José Chacón-Quirós - Chief Executive Officer Renee Gaeta - Chief Financial Officer Conference Call Participants Raj Denhoy - Jefferies Josh Jennings - Cowen Jacob Hughes - Wells Fargo Chris Cooley - Stephens Operator Good morning. Welcome to Establishment Labs Second Quarter 2019 Earnings Call. At this time, all participants will be on mute. ...

SG&A expenses include sales and marketing costs, payroll and related benefit costs, insurance expenses, shipping and handling costs, legal and professional fees and administrative overhead. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Debt Issuance Costs and Debt Discounts Costs incurred in connection with the issuance of new debt are capitalized. Capitalizable debt issuance costs paid to third parties and debt discounts, net of amortizatio ...

Establishment Labs Holdings Inc. (NASDAQ:ESTA) Q1 2019 Earnings Conference Call May 15, 2019 8:30 AM ET Company Participants Kaitlyn Rawlett - Investor Relations Juan José Chacón-Quirós - Chief Executive Officer Renee Gaeta - Chief Financial Officer Conference Call Participants Raj Denhoy - Jefferies & Company, Inc. Josh Jennings - Cowen and Company Operator Good morning. Welcome to Establishment Labs First Quarter 2019 Earnings Call. At this time, all participants will be on mute. At the end of this call, ...

Establishment Labs Holdings Inc. (NASDAQ:ESTA) Q4 2018 Earnings Conference Call March 20, 2019 4:30 PM ET Company Participants Kaitlyn Rawlett - IR Juan José Chacón-Quirós - CEO Renee Gaeta - CFO Conference Call Participants Raj Denhoy - Jefferies Josh Jennings - Cowen Operator Good afternoon. Welcome to Establishment Labs’ Fourth Quarter and Full Year 2018 Earnings Call. At this time, all participants will be on mute. At the end of this call, we will open the lines for a question-and-answer session and ins ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Establishment Labs is a medical technology company specializing in breast aesthetics and reconstruction, primarily through its Motiva Implants® platform [Overview](index=5&type=section&id=Overview) Establishment Labs focuses on breast aesthetics with Motiva Implants®, known for low adverse events, selling globally while pursuing U.S. FDA approval - The company's core business is its line of silicone gel-filled breast implants, branded as Motiva Implants®, sold in over 60 countries outside the United States[20](index=20&type=chunk) - An Investigational Device Exemption (IDE) from the FDA was approved in March 2018, and a clinical trial to support a Premarket Approval (PMA) submission in the U.S. began in April 2018, with enrollment targets for aesthetic cohorts met[20](index=20&type=chunk) Financial Performance (2017-2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | $61.2 million | $34.7 million | | Revenue Growth | 76.5% | - | | Net Loss | $21.1 million | $34.9 million | | Accumulated Deficit (as of Dec 31, 2018) | $89.0 million | - | [Our Market](index=6&type=section&id=Our%20Market) The global breast implant market was valued at approximately $1.15 billion in 2016, with breast augmentation being the leading aesthetic surgical procedure worldwide - The global breast implant market was estimated at **$1.15 billion** in 2016 and is expected to grow at a CAGR of approximately **8.5%** through 2021[23](index=23&type=chunk) Top 5 Markets for Breast Augmentation Procedures (2017) | Rank | Country | Total Procedures | Percentage of World-Wide Total | | :--- | :--- | :--- | :--- | | 1 | United States | 345,236 | 20.6% | | 2 | Brazil | 235,950 | 14.1% | | 3 | Mexico | 67,478 | 4.0% | | 4 | Italy | 54,045 | 3.2% | | 5 | Germany | 46,165 | 2.8% | [Traditional Breast Implants and Their Limitations](index=6&type=section&id=Traditional%20Breast%20Implants%20and%20Their%20Limitations) The breast implant market has seen limited innovation, with existing products from major competitors showing relatively high rates of adverse events Competitor Adverse Event Rates from PMA Clinical Trials (Primary Augmentation) | Adverse Event | Sientra (10-Year) | Allergan (10-Year) | Mentor (10-Year) | | :--- | :--- | :--- | :--- | | Ruptures | 8.5% | 9.3% | 24.2% | | Capsular Contracture | 12.9% | 18.9% | 12.1% | | Reoperations | 24.0% | 36.1% | 25.5% | [Our Competitive Strengths](index=7&type=section&id=Our%20Competitive%20Strengths) The company's competitive strengths include patient-centric innovative technologies, a comprehensive product suite, proprietary manufacturing, a global sales platform, and an experienced management team - Key strengths include patient-centric implant technologies, a suite of complementary products (Divina 3D, Puregraft), proprietary manufacturing in Costa Rica, a worldwide sales platform, and an experienced management team[29](index=29&type=chunk) [Our Growth Strategy](index=8&type=section&id=Our%20Growth%20Strategy) The company's growth strategy focuses on expanding revenue in existing markets, launching in new international markets, obtaining U.S. FDA approval, optimizing patient conversion, pursuing strategic acquisitions, and engaging key opinion leaders - Expand revenues in existing markets and launch in new markets like China, India, Taiwan, and Thailand[31](index=31&type=chunk) - Obtain FDA approval and commercialize Motiva Implants in the United States, with IDE clinical trial enrollment expected to be complete in Q2 2019[31](index=31&type=chunk) - Utilize MotivaImagine Centers and a multi-faceted marketing strategy to optimize patient conversion[31](index=31&type=chunk) - Seek strategic acquisitions and continue high-level engagement with key opinion leaders through educational platforms like MotivaEDGE[31](index=31&type=chunk) [Our Products and Technologies](index=9&type=section&id=Our%20Products%20and%20Technologies) The company's product portfolio centers on Motiva Implants® with proprietary technologies, complemented by Divina® 3D simulation and Puregraft® for fat grafting Key Product Offerings | Product | Description | Key Features | | :--- | :--- | :--- | | **Motiva Implants** | Soft silicone-gel filled breast implants | SilkSurface/SmoothSilk shell, ProgressiveGel, Ergonomix design, TrueMonobloc construction, QInside Safety Technology RFID, BluSeal barrier layer | | **Divina** | 3D simulation device and software | Pre-operative 3D planning to visualize results and optimize implant selection | | **Puregraft** | Autologous fat grafting system | Purifies adipose tissue for filling and contouring; used in MotivaHybrid procedures | [Our Clinical Data](index=14&type=section&id=Our%20Clinical%20Data) The company supports Motiva Implants' safety with 8-year post-market surveillance data showing low complication rates, an independent study, and an ongoing U.S. IDE clinical trial 8-Year Post-Market Surveillance Data (as of Dec 2018) | Metric | Rate | | :--- | :--- | | Number of Implants | >650,000 | | Rupture | < 0.1% | | Capsular Contracture | < 0.1% | | Reoperation for Adverse Events | < 0.1% | - An independent study by Sforza et al. on 5,813 consecutive cases of breast augmentation with Motiva Implants reported an overall complication and reoperation rate of **0.76%** over three years, with no cases of implant rupture for device failure or capsular contracture (Baker III/IV) in primary cases[56](index=56&type=chunk) - The company is conducting a prospective IDE clinical trial in the U.S. to support a PMA application, planning to enroll **800 patients** across **40 sites** in the U.S., Germany, Sweden, and the U.K. The first patient was enrolled in April 2018, and enrollment is anticipated to be complete in Q2 2019[59](index=59&type=chunk) [Sales and Marketing](index=16&type=section&id=Sales%20and%20Marketing) The company employs a dual sales strategy using exclusive distributors and a direct sales force, supported by multi-faceted marketing and a comprehensive product warranty - Sales are conducted through exclusive distributors in over 60 countries and a direct sales force in Brazil and several European countries[60](index=60&type=chunk) - The company offers the Motiva Always Confident Warranty, which includes lifetime replacement for rupture and 10-year replacement for severe (Baker Grade III or IV) capsular contracture[60](index=60&type=chunk) [Intellectual Property](index=16&type=section&id=Intellectual%20Property) The company protects its technology through a portfolio of patents, trade secrets, and trademarks, acknowledging the risk of litigation in the medical device industry Patent Portfolio (as of Dec 31, 2018) | Jurisdiction | Issued Patents | Pending Applications | | :--- | :--- | :--- | | United States | 5 | 19 | | Foreign | 2 | 38 | | PCT | - | 1 | - Owned and licensed patents are expected to expire between March 2026 and September 2034[61](index=61&type=chunk) [Research and Development](index=17&type=section&id=Research%20and%20Development) The company's R&D focuses on product improvement and new developments, with expenses increasing significantly in 2018 due to clinical studies and regulatory activities R&D Expense Trend | Year | R&D Expense | YoY Change | | :--- | :--- | :--- | | 2018 | $12.7 million | +84.8% | | 2017 | $6.9 million | - | - R&D efforts include work on a tissue expander for reconstruction and a next-generation implant for minimally invasive procedures, both submitted for CE Mark registration in 2018[64](index=64&type=chunk) [Manufacturing and Suppliers](index=17&type=section&id=Manufacturing%20and%20Suppliers) The company manufactures products in two ISO-13485-certified Costa Rica facilities with over 500,000 implants annual capacity, relying on a sole supplier for medical-grade silicone - The company operates two manufacturing facilities in Costa Rica with a total production capacity of over **500,000 implants** annually[66](index=66&type=chunk)[68](index=68&type=chunk) - Both facilities have received Medical Device Single Audit Program (MDSAP) certification, which is recognized by the FDA and other major regulatory bodies[68](index=68&type=chunk) - The company relies on Avantor (formerly NuSil Technology LLC) as a sole-source supplier for medical-grade silicone, with a supply agreement through 2021[70](index=70&type=chunk) [Competition](index=18&type=section&id=Competition) The silicone breast implant market is concentrated with major competitors like Allergan and Mentor, and the company faces competition from new technologies and established players with greater resources - Major competitors include Allergan plc, Mentor Worldwide LLC (Johnson & Johnson), and Sientra, Inc. in the U.S. market[71](index=71&type=chunk) - Primary competitive factors are safety and outcomes data, regulatory approvals, product technology, price, customer service, and key opinion leader support[73](index=73&type=chunk) [Government Regulation](index=19&type=section&id=Government%20Regulation) The company is subject to extensive U.S. and international government regulations, including lengthy FDA PMA processes for Class III medical devices and various anti-fraud and privacy laws - In the U.S., breast implants are regulated as Class III medical devices, requiring a Premarket Approval (PMA) from the FDA, a process that is costly and lengthy, typically requiring extensive clinical data[74](index=74&type=chunk) - The company is subject to numerous U.S. laws, including HIPAA for health information privacy, the federal Anti-Kickback Statute, the Stark Law for self-referrals, and the Physician Payment Sunshine Act for transparency in payments to healthcare professionals[76](index=76&type=chunk)[79](index=79&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - Internationally, the company must comply with varying regulations, such as the CE Mark requirements in the European Union and specific approvals from agencies like ANVISA in Brazil[86](index=86&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including commercial dependence on Motiva Implants, intense competition, regulatory hurdles, single-source supplier reliance, financial losses, and complex international and legal challenges [Risks Related to the Development and Commercialization of Our Products](index=23&type=section&id=Risks%20Related%20to%20the%20Development%20and%20Commercialization%20of%20Our%20Products) The company's financial success hinges on Motiva Implants' market acceptance, facing risks from uncertain FDA approval, clinical trial outcomes, intense competition, and reliance on distributors - The company expects to incur losses for the foreseeable future, and its profitability depends on the commercial success of Motiva Implants, which accounted for approximately **92% of revenue** in 2018[93](index=93&type=chunk) - Obtaining FDA approval for commercial sale in the United States is a costly, time-consuming, and uncertain process, requiring extensive clinical trials and post-approval studies[113](index=113&type=chunk)[114](index=114&type=chunk) - The company faces competition from major players like Sientra, Mentor (Johnson & Johnson), and Allergan, who have greater resources and established market presence[119](index=119&type=chunk) - A substantial proportion of sales are through exclusive distributors, and the company does not have direct control over their sales efforts or compliance with regulations[103](index=103&type=chunk) [Risks Related to the Operation of Our Business](index=30&type=section&id=Risks%20Related%20to%20the%20Operation%20of%20Our%20Business) Operational risks include manufacturing concentration in Costa Rica, reliance on single-source suppliers, challenges of international expansion, and compliance with evolving data privacy and cybersecurity regulations - All main manufacturing activities are conducted in two facilities in Costa Rica, making the company vulnerable to natural disasters or other disruptions at these locations[132](index=132&type=chunk) - The company relies on NuSil as the sole supplier of medical-grade silicone, creating a significant single-source supplier risk[131](index=131&type=chunk)[153](index=153&type=chunk) - Continued international expansion exposes the company to risks associated with currency fluctuations, political and economic instability, and varying regulatory requirements[138](index=138&type=chunk)[139](index=139&type=chunk) - The company must comply with evolving and stringent data protection laws such as HIPAA in the U.S. and GDPR in Europe, with non-compliance carrying steep penalties[142](index=142&type=chunk)[144](index=144&type=chunk) [Risks Related to Our Financial Condition and Capital Requirements](index=41&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) The company has a history of net operating losses and an accumulated deficit, requiring potential additional capital that could dilute shareholders or impose restrictive debt covenants - The company has a history of net operating losses, with an accumulated deficit of **$89.0 million** as of December 31, 2018, and expects to continue incurring losses for the foreseeable future[165](index=165&type=chunk)[167](index=167&type=chunk) - The company may need to raise additional funds to support operations. Failure to do so could force delays or reductions in development and commercialization efforts. Additional financing may cause dilution to existing shareholders or involve restrictive covenants[167](index=167&type=chunk)[168](index=168&type=chunk) [Risks Related to Our Business and Our Industry](index=42&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Our%20Industry) The company faces critical dependence on a sole silicone supplier and significant industry-wide negative publicity regarding breast implant safety, including links to BIA-ALCL, which could reduce demand - The company relies on NuSil as a single-source supplier for medical-grade long-term implantable silicone, the primary raw material for Motiva Implants. Any interruption in supply could severely impact the business[168](index=168&type=chunk)[169](index=169&type=chunk) - The breast implant industry is subject to negative publicity regarding safety concerns, which could reduce market acceptance of all silicone implants, regardless of brand[171](index=171&type=chunk)[172](index=172&type=chunk) - Reports linking competitors' textured implants to Breast Implant-Associated Anaplastic Large Cell Lymphoma (BIA-ALCL) could negatively impact demand for all breast implants, even though no cases have been reported with Motiva Implants[174](index=174&type=chunk)[175](index=175&type=chunk) [Risks Related to Intellectual Property](index=45&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's success depends on protecting its intellectual property, facing risks of costly patent litigation, patent invalidation, difficulty enforcing IP rights globally, and trade secret misappropriation - The medical device industry is characterized by frequent patent litigation, and the company could become subject to costly lawsuits that could prevent it from marketing its products[177](index=177&type=chunk)[178](index=178&type=chunk) - The company's ability to obtain and maintain broad patent protection is uncertain, and competitors may be able to circumvent its patents with non-infringing alternatives[181](index=181&type=chunk)[182](index=182&type=chunk) - The company relies on trade secrets and confidential information, which are at risk of disclosure or misappropriation, potentially harming its competitive position[185](index=185&type=chunk)[186](index=186&type=chunk) - Internal computer systems are vulnerable to security breaches and cyber-attacks, which could lead to the loss of sensitive data, disrupt operations, and result in liability[190](index=190&type=chunk) [Risks Related to Government Regulation](index=48&type=section&id=Risks%20Related%20to%20Government%20Regulation) Operating in a highly regulated environment, the company faces risks from expensive and uncertain FDA approval, ongoing regulatory obligations, healthcare reform impacts, and international scrutiny of implant biocompatibility - The regulatory approval process in the U.S. and other countries is expensive, time-consuming, and uncertain, and may prevent or delay the commercialization of products[191](index=191&type=chunk)[192](index=192&type=chunk) - Even if regulatory approval is received, the company will be subject to ongoing regulatory obligations and review, which can be costly and lead to penalties for non-compliance[194](index=194&type=chunk)[195](index=195&type=chunk) - Healthcare reform measures, such as the PPACA, and efforts to contain healthcare costs could adversely affect the company's ability to set prices and generate revenue[196](index=196&type=chunk)[198](index=198&type=chunk) - French regulatory authorities (ANSM) are evaluating the biocompatibility of textured breast implants, which could lead to marketing suspensions and influence other regulators, potentially impacting global demand[203](index=203&type=chunk)[204](index=204&type=chunk) [Risks Related to Ownership of Our Securities](index=52&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Securities) Ownership risks include volatile share price, concentrated ownership by a single affiliate, reduced disclosure as an "emerging growth company," identified material weakness in internal controls, and no anticipated dividends - The company's share price may be volatile, and a lack of research coverage by securities analysts could negatively impact the price and trading volume[206](index=206&type=chunk)[236](index=236&type=chunk) - CPH TU, LP, an entity affiliated with director Nicholas Lewin, beneficially owned **36.5%** of common shares as of December 31, 2018, giving it significant influence over shareholder matters[209](index=209&type=chunk) - The company is an "emerging growth company" and "smaller reporting company," allowing it to take advantage of reduced disclosure obligations, which may make its shares less attractive to some investors[211](index=211&type=chunk)[212](index=212&type=chunk) - A material weakness in internal control over financial reporting was identified as of December 31, 2018, related to an inadequate review over the manual consolidation process[218](index=218&type=chunk) [Risks Related to Being a British Virgin Islands Company](index=58&type=section&id=Risks%20Related%20to%20Being%20a%20British%20Virgin%20Islands%20Company) Incorporation in the British Virgin Islands presents unique risks due to fewer and less established shareholder protections, limited minority shareholder recourse, and difficulties enforcing U.S. judgments - Shareholder rights under British Virgin Islands (BVI) law differ from U.S. law and are not as clearly established, potentially offering fewer protections[243](index=243&type=chunk)[244](index=244&type=chunk) - BVI law provides limited protection for minority shareholders, who may have limited recourse if dissatisfied with the conduct of company affairs[245](index=245&type=chunk) - U.S. investors may have difficulty enforcing civil liabilities against the company or its directors, as BVI courts are unlikely to recognize or enforce certain judgments from U.S. courts based on U.S. securities laws[247](index=247&type=chunk)[249](index=249&type=chunk) [Unresolved Staff Comments](index=61&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[250](index=250&type=chunk) [Properties](index=61&type=section&id=Item%202.%20Properties) The company's principal executive offices and manufacturing facilities are in Costa Rica, with additional leased office and warehouse space in Europe and Brazil - Principal executive offices and manufacturing are in Alajuela, Costa Rica, with a new **27,000 sq. ft.** facility that began shipping product in March 2017[251](index=251&type=chunk) - The company intends to complete the purchase of its new manufacturing facility by the end of Q2 2019[251](index=251&type=chunk) - Additional office and warehouse space is leased in Wommelgem (Belgium), Sao Paulo (Brazil), Stockholm (Sweden), and Paris (France)[251](index=251&type=chunk) [Legal Proceedings](index=61&type=section&id=Item%203.%20Legal%20Proceedings) Establishment Labs filed a complaint against Keller Medical, Inc. and Allergan for breach of a distribution agreement, with ongoing litigation after unsuccessful mediation - The company filed a complaint against Keller Medical, Inc. and Allergan on August 30, 2018, for breach of a distribution agreement[252](index=252&type=chunk) - Keller filed a counterclaim for alleged non-payment of products, which the company believes lacks merit[252](index=252&type=chunk) - Mediation in December 2018 was unsuccessful, and litigation is ongoing[254](index=254&type=chunk) [Mine Safety Disclosures](index=62&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[255](index=255&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=62&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common shares began trading on Nasdaq in July 2018, with 98 shareholders of record, no cash dividends paid, and approximately $70.1 million net proceeds from its IPO - Common shares began trading on the Nasdaq Capital Market under the symbol "ESTA" on July 23, 2018[257](index=257&type=chunk) - As of March 19, 2019, there were **98 shareholders** of record[258](index=258&type=chunk) - The company has not paid cash dividends and does not plan to in the foreseeable future[263](index=263&type=chunk) - The IPO on July 23, 2018, raised net proceeds of approximately **$70.1 million**[266](index=266&type=chunk) [Selected Financial Data](index=63&type=section&id=Item%206.%20Selected%20Financial%20Data) As a "smaller reporting company," the company is not required to provide the information for this item - The company is not required to provide this information as it qualifies as a "smaller reporting company"[269](index=269&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, revenue grew 76.5% to $61.2 million, gross margin improved to 59.0%, and net loss decreased to $21.1 million, primarily due to a gain on derivative instruments and IPO proceeds improving liquidity [Overview](index=64&type=section&id=Overview) The medical technology firm saw 76.5% revenue growth to $61.2 million in 2018, with net losses decreasing to $21.1 million, and expects continued losses due to significant investments post-IPO Financial Highlights (2017 vs. 2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | $61.2 million | $34.7 million | | Net Loss | $21.1 million | $34.9 million | | Accumulated Deficit (as of Dec 31, 2018) | $89.0 million | - | - The company completed its IPO on July 23, 2018, receiving net proceeds of approximately **$70.1 million**[272](index=272&type=chunk) - The company anticipates continued net losses in the intermediate term due to expansion of its organization, investment in R&D, U.S. clinical trials, and other commercialization efforts[272](index=272&type=chunk) [Consolidated Results of Operations](index=66&type=section&id=Consolidated%20Results%20of%20Operations) Revenue increased 76.5% to $61.2 million in 2018, with gross margin improving to 59.0%, while operating expenses rose significantly, leading to a reduced net loss of $21.1 million due to a gain on derivative instruments Consolidated Results of Operations (in thousands) | Line Item | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | $61,208 | $34,681 | | Gross Profit | $36,118 | $17,702 | | **Gross Margin** | **59.0%** | **51.0%** | | Total Operating Expenses | $59,982 | $37,685 | | Loss from Operations | $(23,864) | $(19,983) | | Change in fair value of derivative instruments | $15,894 | $(2,428) | | **Net Loss** | **$(21,098)** | **$(34,897)** | - Revenue growth was driven by increased sales of Motiva Implants due to greater market penetration and expansion into direct markets like Brazil, Germany, and Spain[290](index=290&type=chunk) - SG&A expense increased by **$16.5 million (53.5%)** due to higher personnel costs, consulting fees, and sales commissions[293](index=293&type=chunk) - R&D expense increased by **$5.8 million (84.8%)** primarily due to costs related to the initiation of the PMA clinical study in the United States[294](index=294&type=chunk) [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) Cash increased significantly to $52.6 million by December 31, 2018, primarily from the $70.1 million IPO proceeds, and while current cash is sufficient for the next twelve months, additional capital may be needed for long-term plans Cash Position | Date | Cash Balance | | :--- | :--- | | Dec 31, 2018 | $52.6 million | | Dec 31, 2017 | $10.9 million | - In 2018, the company received **$70.1 million** in net proceeds from its IPO and **$16.9 million** from other issuances of ordinary shares and exercises[298](index=298&type=chunk) Cash Flow Summary (in thousands) | Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $(33,885) | $(31,970) | | Net cash used in investing activities | $(5,731) | $(845) | | Net cash provided by financing activities | $81,527 | $42,993 | [Indebtedness](index=69&type=section&id=Indebtedness) The company's primary debt is a $40.0 million outstanding principal under the Madryn Credit Agreement, maturing in June 2023, with related-party notes fully repaid post-IPO - Notes payable to related parties, totaling **$5.1 million** including interest, were fully repaid in August 2018 after the IPO[305](index=305&type=chunk)[307](index=307&type=chunk) - The company has a credit agreement with Madryn Health Partners with a total outstanding principal of **$40.0 million** as of December 31, 2018[308](index=308&type=chunk) - The Madryn debt matures on June 30, 2023, with interest at **3-month LIBOR + 11.0%**. The company was in compliance with all covenants as of December 31, 2018[308](index=308&type=chunk)[489](index=489&type=chunk) [Critical Accounting Policies, Significant Judgments and Use of Estimates](index=70&type=section&id=Critical%20Accounting%20Policies%2C%20Significant%20Judgments%20and%20Use%20of%20Estimates) The company's critical accounting policies involve significant management judgment in revenue recognition, inventory valuation, goodwill impairment testing, fair value measurement of derivatives, and share-based compensation estimates - Revenue is recognized at the time of shipment to distributors or, for consigned inventory, at the time the company is notified of implantation[313](index=313&type=chunk)[314](index=314&type=chunk) - Goodwill and intangible assets are tested for impairment annually, with no impairment recorded in 2017 or 2018[320](index=320&type=chunk)[321](index=321&type=chunk) - The company uses option pricing valuation models to determine the fair value of embedded derivatives in its debt instruments, recording changes in fair value in the statements of operations[324](index=324&type=chunk) - Share-based compensation expense is calculated using the Black-Scholes model, which requires management to make subjective assumptions about variables like volatility and expected term[332](index=332&type=chunk)[333](index=333&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=75&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a "smaller reporting company," the company is not required to provide the information for this item - The company is not required to provide this information as it qualifies as a "smaller reporting company"[338](index=338&type=chunk) [Financial Statements and Supplementary Data](index=75&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2018 and 2017, including the independent auditor's report, balance sheets, statements of operations, comprehensive loss, shareholders' equity, cash flows, and detailed notes [Report of Independent Registered Public Accounting Firm](index=83&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Marcum LLP issued an unqualified opinion on Establishment Labs Holdings Inc.'s consolidated financial statements for 2018 and 2017, affirming fair presentation in conformity with U.S. GAAP - Marcum LLP expressed an unqualified opinion on the consolidated financial statements for the years ended December 31, 2018 and 2017[365](index=365&type=chunk) [Consolidated Financial Statements](index=84&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of $116.6 million, a net loss of $21.1 million for 2018 (improved from 2017), and a $41.8 million increase in cash primarily from financing activities Consolidated Balance Sheet Highlights (As of Dec 31, 2018) | Account | Amount (in thousands) | | :--- | :--- | | **Assets** | | | Cash | $52,639 | | Total Current Assets | $99,435 | | Total Assets | $116,573 | | **Liabilities & Equity** | | | Total Current Liabilities | $16,447 | | Total Liabilities | $47,088 | | Total Shareholders' Equity | $69,485 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2018) | Account | Amount (in thousands) | | :--- | :--- | | Revenue | $61,208 | | Gross Profit | $36,118 | | Loss from Operations | $(23,864) | | Net Loss | $(21,098) | | Basic and Diluted Loss per Share | $(1.22) | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31, 2018) | Activity | Amount (in thousands) | | :--- | :--- | | Net cash used in operating activities | $(33,885) | | Net cash used in investing activities | $(5,731) | | Net cash provided by financing activities | $81,527 | | **Net increase in cash** | **$41,775** | [Notes to Consolidated Financial Statements](index=93&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, balance sheet breakdowns, fair value measurements, debt agreements, shareholder equity changes, business combinations, and related party transactions [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[339](index=339&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of December 31, 2018, due to a material weakness in the manual consolidation process, despite remediating a prior weakness - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018[340](index=340&type=chunk) - A material weakness was identified related to an inadequate review over the manual consolidation process, which resulted in audit adjustments[340](index=340&type=chunk) - Material weaknesses identified as of December 31, 2017, were determined to have been remediated as of December 31, 2018[343](index=343&type=chunk) [Other Information](index=76&type=section&id=Item%209B.%20Other%20Information) On March 18, 2019, the Compensation Committee granted a performance-based stock option to executive officer Eddie de Oliveira, contingent on achieving specific 2019 revenue metrics - On March 18, 2019, the Compensation Committee granted named executive officer Eddie de Oliveira a performance-based option to purchase **9,000 common shares** at an exercise price of **$27.46**[345](index=345&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=76&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the 2019 Proxy Statement[347](index=347&type=chunk) [Executive Compensation](index=76&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the 2019 Proxy Statement[348](index=348&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=76&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the 2019 Proxy Statement[348](index=348&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=76&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the 2019 Proxy Statement[349](index=349&type=chunk) [Principal Accountant Fees and Services](index=77&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the 2019 Proxy Statement[351](index=351&type=chunk) Part IV [Exhibits, Financial Statements and Schedule](index=77&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statements%20and%20Schedule) This section lists the financial statements and an index to all exhibits filed with the Annual Report on Form 10-K, including various material contracts - This section provides a list of the financial statements filed with the report, which are located starting on page F-1[353](index=353&type=chunk) - An index to exhibits is provided, listing material contracts such as the underwriting agreement, debt agreements with Madryn, equity plans, and key employment and supply agreements[355](index=355&type=chunk)[356](index=356&type=chunk)[358](index=358&type=chunk)