Establishment Labs(ESTA) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q2 2024 totaled $44.1 million, an 18.7% sequential increase from Q1 2024 [4] - Year-over-year revenue declined by 9.3%, or 8.5% excluding foreign exchange impact [15] - Gross profit for Q2 2024 was $28.9 million, representing a gross margin of 65.6%, up from 62.3% in Q2 2023 [16] - Adjusted EBITDA loss was $4.3 million, similar to Q1 2024 but less than half of the $9.3 million loss in Q2 2023 [7][18] - Net loss from operations was $9.3 million, compared to $13.7 million in Q2 2023 [17] - Cash used in Q2 2024 was $18.4 million, with a cash position of $54.6 million as of June 30, 2024 [18][19] Business Line Performance - Motiva Implants: The company is nearing FDA approval, with manufacturing preparations underway for the US launch [7][29] - Flora Tissue Expanders: Gaining traction in the US, with VAC processes completed at several premier cancer centers [11] - Mia Femtech: Now available in 22 cities globally, with 63 certified plastic surgeons and 41 clinics in active negotiations [13][31] - China: On track to achieve $10 million in revenue for 2024, with ongoing medical education and marketing efforts [13][48] Regional Performance - EMEA: Contributed 48% of global revenue, with several markets fully recovered from last year's slowdown [6][16] - Asia-Pacific: Represented 32% of global revenue, showing improved demand as distributors reordered inventory [16][55] - Latin America: Contributed 20% of global revenue, with Brazil remaining weak and no significant recovery expected this year [6][16] - North America: Less than 1% of global revenue, but significant growth expected post-FDA approval [16][22] Strategic Direction and Industry Competition - The company is preparing for the US launch of Motiva Implants, which is expected to be a game-changer in the breast implant market [8][10] - The US market offers higher ASPs (3x to 4x higher than other markets), which will significantly boost profitability [22] - FDA approval is seen as a catalyst for global sales, as many surgeons outside the US rely on FDA clearance as a gold standard [22][36] - The company is focused on expanding its presence in China, aiming for market leadership in the coming years [13][49] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in achieving FDA approval soon, with no significant impact expected from the recent FDA inspection observations [5][25] - The company expects revenue growth to accelerate significantly in 2025, driven by the US launch and expansion in other markets [20][22] - Positive adjusted EBITDA and cash flow are expected soon after the US launch, with profitability targeted by fiscal year 2026 [21] Other Important Information - The company has two remaining tranches of $50 million in debt, accessible upon FDA approval and achieving $195 million in trailing 12-month sales [19] - Inventory days improved to more normalized levels, and days payable decreased in Q2 2024 [18] - Accounts receivable increased due to higher sales through distributors, but DSOs remained flat compared to Q1 2024 [18] Q&A Session Summary Question: Guidance and US Revenue Inclusion [24] - The company reiterated its 2024 revenue guidance of $174 million to $184 million, reflecting confidence in US approval and stable performance in other regions, despite weakness in Brazil [24] Question: FDA 483 Observations and Approval Timeline [25][26] - The FDA inspection resulted in three minor, non-systemic observations, which the company has already addressed, with no expected impact on the approval timeline [25][26] Question: US Launch Preparation and Sales Team [28][29] - The company has built an all-star team for the US launch, with back-office functions ready and initial batches of Motiva Implants already manufactured [29] Question: Mia Femtech Growth and Clinic Dynamics [30][31] - Mia Femtech is expanding rapidly, with 47% of Q2 patients being new to breast augmentation, indicating market expansion [31] Question: US Surgeon Awareness and Adoption [33][34] - Awareness of Motiva Implants among US plastic surgeons is growing, with strong interest driven by the product's safety profile and innovation [33][34] Question: International Adoption Post-FDA Approval [35][36] - FDA approval is expected to drive adoption in CE Mark countries, where many surgeons await FDA clearance before using new products [35][36] Question: Gross Margin Trajectory [38][39] - Gross margins improved in Q2 2024 due to higher ASPs, with further improvements expected as the US launch and other initiatives contribute to profitability [38][39] Question: Mia Licensing Fees and Revenue Growth [41][42] - Licensing fees for Mia Femtech are expected to grow as more clinics are onboarded, with significant revenue potential as clinics reach their case targets [41][42] Question: Accounts Receivable Increase [44][45] - The increase in accounts receivable was due to higher sales through distributors, particularly in Asia-Pacific, with no unusual factors [44][45] Question: China Market Growth [48][49] - The company remains on track for $10 million in revenue in China for 2024, with aspirations for market leadership in the coming years [48][49] Question: Q3 Seasonality and Distributor Reordering [52][53][54][55] - Q3 revenue is expected to decline by 10% sequentially, with a strong recovery anticipated in Q4, driven by US approval and distributor reordering [52][53][54][55] Question: Distributor Inventory Levels [55][56] - Distributors in Asia-Pacific are reordering at a healthy pace, indicating market recovery, while Latin America remains challenging due to political and economic factors [55][56]