Part I. Financial Information Financial Statements The company's unaudited statements for H1 2021 show significant revenue growth and a reduced net loss compared to H1 2020, alongside a slight decrease in total assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $128,181 | $132,299 | | Total Assets | $152,120 | $156,388 | | Total Current Liabilities | $27,270 | $25,900 | | Total Liabilities | $83,291 | $81,427 | | Total Shareholders' Equity | $68,829 | $74,961 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $31,994 | $10,474 | $62,330 | $34,955 | | Gross Profit | $21,468 | $7,234 | $41,558 | $22,712 | | Loss from Operations | ($4,634) | ($9,603) | ($6,730) | ($17,308) | | Net Loss | ($5,322) | ($10,472) | ($12,270) | ($28,225) | | Net Loss Per Share | ($0.22) | ($0.45) | ($0.51) | ($1.23) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,368) | ($12,897) | | Net cash used in investing activities | ($2,465) | ($2,282) | | Net cash provided by financing activities | $2,208 | $64,042 | | Net (decrease)/increase in cash | ($7,717) | $48,727 | | Cash at end of period | $76,806 | $86,382 | Notes to Financial Statements The notes detail the company's reliance on Motiva Implants for revenue, its pursuit of U.S. regulatory approval, and significant supplier concentration with NuSil Technology - The company's main business is manufacturing and marketing medical devices for plastic surgery, with substantially all revenue derived from its Motiva Implants35 - The company relies on NuSil Technology, LLC as the sole supplier for medical-grade silicone, with purchases from NuSil accounting for 58.6% of total purchases in the first six months of 202145 - The company has a $65.0 million term loan with Madryn Health Partners, maturing in September 2025, containing embedded derivative liabilities valued at $0.95 million as of June 30, 2021101108 - Share-based compensation expense for the six months ended June 30, 2021, was $4.3 million, up from $3.2 million in the prior-year period126 Management's Discussion and Analysis (MD&A) Management attributes a 78.3% year-over-year revenue growth to economic recovery from COVID-19, with a strong cash position deemed sufficient for the next 12 months Quarterly Results of Operations (Q2 2021 vs Q2 2020) Q2 2021 revenue surged 205.5% to $32.0 million versus Q2 2020, driven by the recovery of elective surgeries, while operating expenses also increased significantly Q2 Financial Performance Comparison (in thousands) | Metric | Q2 2021 | Q2 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $31,994 | $10,474 | +205.5% | | Gross Profit | $21,468 | $7,234 | +196.8% | | Gross Margin | 67.1% | 69.1% | -2.0 p.p. | | SG&A Expense | $21,753 | $14,438 | +50.7% | | R&D Expense | $4,349 | $2,399 | +81.3% | - The substantial revenue increase was primarily due to the global economic recovery from the COVID-19 pandemic, which had suppressed elective surgical procedures in the prior-year period171 Half-Year Results of Operations (H1 2021 vs H1 2020) For H1 2021, revenue grew 78.3% to $62.3 million, and gross margin improved to 66.7% due to favorable geographic mix and manufacturing efficiencies H1 Financial Performance Comparison (in thousands) | Metric | H1 2021 | H1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $62,330 | $34,955 | +78.3% | | Gross Profit | $41,558 | $22,712 | +83.0% | | Gross Margin | 66.7% | 65.0% | +1.7 p.p. | | SG&A Expense | $39,891 | $33,422 | +19.4% | | R&D Expense | $8,397 | $6,598 | +27.3% | - The increase in gross margin was primarily due to the benefit of geographic mix, greater operating efficiencies, and enhanced manufacturing planning capabilities184 Liquidity and Capital Resources The company held $76.8 million in cash as of June 30, 2021, which management believes is sufficient to fund operations for at least the next 12 months - As of June 30, 2021, the company had cash of $76.8 million and an accumulated deficit of $177.5 million194 - In February 2020, the company completed a public follow-on offering, receiving net proceeds of $63.9 million194 - Management believes that available cash and cash from operations will be sufficient to satisfy liquidity requirements for at least the next 12 months194 Market Risk Disclosures The company's primary market risks relate to foreign currency exchange rates, particularly the euro and Brazilian real, and it does not currently use hedging instruments - The company is exposed to foreign currency exchange risk, particularly from fluctuations in the euro and Brazilian real against the U.S. dollar210 - A foreign currency transaction loss of $0.6 million was recorded for the six months ended June 30, 2021210 - The company does not currently engage in any foreign currency hedging activities210 Controls and Procedures Management concluded that disclosure controls were not effective as of June 30, 2021, due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of June 30, 2021214 - A material weakness in internal control over financial reporting exists due to a lack of adequate review over the manual consolidation process215 - A remediation plan is underway, which includes improved policies and procedures and the continued implementation of SAP with the help of a third-party consulting firm216 Part II. Other Information Legal Proceedings The company reports it is not a party to any material legal proceedings - The company is not a party to any material legal proceedings221 Risk Factors The company faces significant risks from the COVID-19 pandemic, potential failure to obtain U.S. FDA approval, and reliance on a single-source supplier for silicone Risks Related to COVID-19 The COVID-19 pandemic has adversely affected the business by causing deferrals of elective procedures and disrupting clinical trial operations - The COVID-19 pandemic has led to the deferral of elective procedures, disruptions to workforce effectiveness, and temporary closures of facilities, all of which have adversely impacted the business226 - The pandemic has adversely impacted the company's IDE clinical trial operations in the United States, including the ability to recruit and retain patients and site staff229 Risks Related to Development and Commercialization The company's success depends on the commercial success of Motiva Implants, facing risks from the uncertain FDA approval process and intense competition - Failure to obtain FDA approval for Motiva Implants in the U.S. would prevent marketing in a key jurisdiction and harm business prospects236252 - The company faces significant competition from large, multi-national companies with greater resources, such as Sientra, Mentor (Johnson & Johnson), and Allergan (AbbVie)258 - All main manufacturing activities are conducted in two facilities in Costa Rica, making the business vulnerable to any disruption at these locations261 Risks Related to Business Operations Operational risks include a critical reliance on a single-source supplier for silicone and challenges in managing anticipated international growth - The company relies on NuSil Technology, LLC as the sole supplier of medical-grade silicone for its Motiva Implants, where an interruption could halt production291316 - The company expects to significantly increase the size of its organization, which may create difficulties in managing growth and strain administrative and operational infrastructure293 - The company's business is exposed to risks associated with international expansion, including regulatory, political, and economic instability in emerging markets280303 Risks Related to Government Regulation The company operates in a highly regulated industry with extensive, costly, and uncertain approval processes, alongside ongoing compliance obligations and potential penalties - The research, manufacturing, and sale of medical devices are subject to extensive and rigorous regulation by the FDA and other authorities, which is expensive and uncertain341 - Even if regulatory approval is received, the company will be subject to ongoing regulatory obligations, including potential post-marketing studies, which can be costly and may result in penalties or product withdrawal343 - The new Medical Device Regulation (MDR) in the European Union will change the regulatory framework, creating risks and uncertainties in the CE Marking process and data transparency345 Risks Related to Ownership of Securities Ownership risks include share price volatility, an unremediated material weakness in internal controls, and significant ownership concentration among insiders - The company's share price may be volatile, and a lack of active trading or analyst coverage could negatively impact the price352355 - An unremediated material weakness in internal control over financial reporting exists, which could adversely affect the ability to report financial results accurately and timely355 - As of June 30, 2021, executive officers, directors, and major shareholders collectively held approximately 51.0% of common shares, giving them significant influence over company matters360 Recent Sales of Unregistered Securities and Use of Proceeds The company reported no recent sales of unregistered securities during the period - None reported389 Exhibits and Financial Statement Schedules This section lists exhibits filed with the report, including officer certifications and Inline XBRL data files - Lists exhibits filed with the report, including officer certifications and XBRL data389391
Establishment Labs(ESTA) - 2021 Q2 - Quarterly Report