Establishment Labs(US:ESTA)2022-08-08 16:00Part I. Financial Information Item 1. Financial Statements - Unaudited The unaudited statements show revenue growth, a wider net loss from debt extinguishment, and major debt refinancing Condensed Consolidated Balance Sheets Total assets and liabilities increased significantly due to a new major debt facility and related investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $91,259 | $53,415 | | Total Current Assets | $156,428 | $113,271 | | Property and equipment, net | $35,359 | $18,658 | | Total Assets | $199,883 | $139,529 | | Liabilities & Equity | | | | Total Current Liabilities | $34,752 | $31,889 | | Note payable, Oaktree, net | $145,482 | $0 | | Note payable, Madryn, net | $0 | $51,906 | | Total Liabilities | $184,016 | $88,790 | | Total Shareholders' Equity | $15,867 | $50,739 | Condensed Consolidated Statements of Operations Revenue grew year-over-year, but a one-time loss on debt extinguishment drove a substantial increase in net loss Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $41,190 | $31,994 | $79,642 | $62,330 | | Gross Profit | $27,454 | $21,468 | $52,390 | $41,558 | | Loss from Operations | ($10,406) | ($4,634) | ($15,981) | ($6,730) | | Loss on extinguishment of debt | ($19,019) | $0 | ($19,019) | $0 | | Net Loss | ($37,106) | ($5,322) | ($43,039) | ($12,270) | | Basic and diluted net loss per share | ($1.52) | ($0.22) | ($1.77) | ($0.51) | Condensed Consolidated Statements of Cash Flows Financing activities provided significant cash from new debt, funding increased investing and operating cash outflows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($16,170) | ($7,368) | | Net cash used in investing activities | ($19,553) | ($2,465) | | Net cash provided by financing activities | $74,013 | $2,208 | | Net increase (decrease) in cash | $37,844 | ($7,717) | | Cash at end of period | $91,259 | $76,806 | - Financing activities were dominated by the new Oaktree debt agreement, which provided $143.6 million net of costs, and the full repayment of the Madryn debt agreement for $71.7 million40 - Investing activities significantly increased due to $17.0 million in capital expenditures for construction in progress, primarily for the new manufacturing facility in Costa Rica40198 Notes to the Condensed Consolidated Financial Statements Notes detail the debt refinancing with Oaktree, revenue by geography, and progress on U.S. clinical trials - The company is pursuing regulatory approval in the United States for its Motiva Implants and submitted the second module of its PMA application in May 202245 Revenue by Geographic Market (Six Months Ended June 30, in thousands) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Europe | $27,705 | $27,219 | | Latin America | $26,367 | $15,171 | | Asia-Pacific/Middle East | $25,030 | $19,225 | | Other | $540 | $715 | | Total | $79,642 | $62,330 | - On April 26, 2022, the company entered into a new credit agreement with Oaktree for up to $225 million and drew an initial $150 million, which was used to repay the $65 million Madryn debt112117162 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth, the impact of debt refinancing, and key strategic investments - Revenue for the six months ended June 30, 2022, increased by 27.8% to $79.6 million compared to the same period in 2021, driven by market share gains and pandemic recovery150183 - The company secured a new credit agreement with Oaktree for up to $225 million, drawing an initial $150 million to repay its previous $65 million Madryn debt and fund operations151162201 - Full enrollment of the U.S. IDE clinical trial for Motiva implants was completed, with an estimated total trial cost between $30.0 million and $40.0 million over ten years151159 - The company is expanding its manufacturing capacity in Costa Rica and exercised its option to purchase the land and building shell for approximately $12.6 million153 Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile remained materially unchanged during the reporting period - There were no material changes to the company's market risk profile during the quarter206 Controls and Procedures Disclosure controls were deemed ineffective due to a persistent material weakness in internal financial reporting controls - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022207 - A material weakness in internal control over financial reporting related to user access control deficiencies and lack of segregation of duties persists208 - The company is actively working on a remediation plan for the material weakness and expects to implement changes before the end of fiscal year 2022209 Part II. Other Information Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently involved in any material legal proceedings215 Risk Factors Key risks include pandemic impacts, FDA approval uncertainty, supplier reliance, and industry-specific safety concerns - The COVID-19 pandemic continues to pose a risk by causing deferral of elective procedures and disrupting supply chains217220 - Obtaining FDA approval for Motiva Implants in the U.S. is a primary goal but is a costly, time-consuming, and uncertain process224 - The company relies on NuSil as the sole supplier for its primary raw material, medical-grade silicone, creating significant supply chain risk264 - Negative publicity and regulatory actions concerning breast implant safety, particularly regarding BIA-ALCL, could adversely affect the business246249 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - There were no unregistered sales of equity securities317 Defaults Upon Senior Securities The company reports no defaults upon its senior securities - There were no defaults upon senior securities317 Other Information No other material information was required to be disclosed for the period - There is no other information to report317 Exhibits Filed exhibits include a key supplier agreement, equity award forms, and required officer certifications - Exhibits filed include the Master Supply Agreement with Nusil Technology LLC, various equity incentive plan agreements, and required CEO/CFO certifications316