Good afternoon. Welcome to Establishment Labs' Fourth Quarter 2020 Earnings Call. At this time, all participants will be in listen-only mode. At the end of this call, we will open the line for a question and answer session, and instructions will follow at that time. As a reminder, this call is being recorded. I would now turn the call over to Raj Denhoy, Head of Strategy and Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us. With me today are Juan José Chacón Quirós, our Chief Executive Officer; and Renee Gaeta, our Chief Financial Officer. Following their prepared remarks, we will take your questions.

Thank you, Raj, and good morning, everyone. I hope everyone is healthy and continues to remain safe. Our fourth quarter revenue of $27 million represents a new record for our company. Fourth quarter revenue increased 11% from the fourth quarter of 2019 and was up sequentially 18% from the third quarter. Our strong results and recovery we saw over the course of 2020 are the latest evidence that we are moving beyond the pandemic and that the foundations of our growth story are very much intact. Our singular focus on women’s health and the superior aesthetic and safety profile of our implants continues to resonate in the marketplace. We continue to grow our total global market share. In October of last year, we shared the ten-year post-market surveillance data of our Motiva Implants with now over 1.4 million implants worldwide, we continue to report a less than 1% complication rate in the key safety measures of capsular contracture and implant rupture. These results are at least an order of magnitude better than anything seen from the legacy competitor products in the international markets. As impressive as this data is, it speaks to something beyond just competitive advantage. It should change how women perceive the safety of breast augmentation procedures. At Establishment Labs, we believe that this is not just possible but lightly we believe that our data and aesthetic outcomes are quite literally game-changing and as perceptions change and as new possibilities become available, the total addressable market could grow substantially.

Thank you, Juan José. Establishment Labs closed 2020 with significant momentum, not only did we see strong sequential growth in sales this quarter to a new record level, we controlled operating expenses and managed our cash position effectively. I’d like to thank the team for helping to keep Establishment Labs in a very solid financial position. You can find additional details about our fourth quarter financials in our earnings press release and our Form 10-K, which we’ve planned to file tomorrow. Total revenue for the quarter was $27 million. Direct sales were approximately 49% of this total, while distributor sales, which can fluctuate based on changes in inventory levels and the timing of reorders accounted for the balance.

Thank you, Renee. We are off to a very good start this year. The record revenue we generated in the fourth quarter and our progress over 2020 show again that Establishment Labs is on the right path and that it is within our grasp to be the leading company in breast aesthetics and reconstruction. There is no other company in our industry innovating like we are or with our commitment to women’s health, the field is wide open for us. But we are not satisfied with just taking share within the current breast implant market by transforming the patient journey breast aesthetics and reconstruction, we can expand the markets for our products. Motiva Mia has real potential to change the perception and accessibility of breast aesthetics, which could make our addressable markets much larger. The launch of Flora this year will begin a concerted push by us into the breast reconstruction market. Then we see opportunities to significantly improve outcomes for the millions of women diagnosed with breast cancer around the world. The next 18 months will be exciting, but so will the next ten years. We recently appointed Raj Denhoy as Head of Strategy and Investor Relations. Many of you know him from his twenty years as a medical device analyst, most recently as the covering analyst at Jefferies. We are excited to have him join the team. I also want to thank the entire Establishment Labs team for their dedication to our mission of improving women’s health. The last year has not been an easy one, but the team continues to perform at a very high level and I could not be more proud. With that, we will turn the call now over to questions.

Our first question comes from Anthony Petrone with Jefferies. Your line is open.

Thank you and good morning, everyone. Congratulations to Raj on your new role and congratulations to the team on a very strong year. I hope everyone is doing well and staying healthy. I would begin, Juan José, with a couple of questions. You mentioned physician training virtually in 2020; certainly, a lot of companies shifted from physical meetings to virtual training, but it sounds like the number of surgeons onboarded last year notably increased. So, maybe just a little bit of detail on how many surgeons were trained virtually last year and what is the historical conversion rate from training to active Motiva users that you’ve seen, perhaps pre-pandemic, and how that’s trended during the pandemic? And I’ll have a couple of follow-ups.

Yes, of course, Anthony, and thank you. What’s very important for us was to prove that we could shift our medical education platform, Motiva Edge, from just in-person to online that quickly. That resulted in over 18,000 attendees for the year in our medical education platform online, of which thousands of those were new contacts for us. Of course, it’s difficult during the pandemic to follow up in person with many of them, but we are looking forward to the situation improving so that we can begin doing business with many of them. As the year evolves, I think you are going to see us doing more in-person events than now. But I guess what we have been able to prove is that online medical education can also be a very powerful tool for training and for attracting surgeons that don’t yet know our story of innovation and improved safety and aesthetic outcomes. So, I am very glad to see the development with what I would call this hybrid type of medical education, and I think it’s going to help very much when we move into new concepts like Mia and breast reconstruction.

One follow-up to JJ and a quick one for Renee on guidance. One would be just a quick update on U.S. studies. Obviously, a lot of studies in 2020 were delayed due to COVID. So maybe you could just update us on timing there and how should we think about a Motiva and Mia launch in the U.S.? Would those come simultaneously just considering the unveiling in February? And the quick one for Renee on guidance would be how much is baked in for Flora? And is there any way to estimate what you’ve baked in for backlog recapture? Thanks.

So, perhaps, we can begin with the FDA. We were very happy that we finished the enrollment in the aesthetic cohorts back in August of 2019. So, you know, the clock is ticking with that group, which represents 80% of the U.S. market. We’ve been progressing with the follow-up, most of that happening through virtual consultation that was preapproved with the FDA. So, we are looking forward to the two-year mark for all of those patients. We believe we are well on track with the aesthetic indication. As we have mentioned before, with breast reconstruction, there were a lot of challenges during the pandemic, so that cohort is delayed. But we continue to make progress, and we hope to give you some news in the near future.

Yes. Thanks, Anthony. Regarding 2021 guidance, this is our initial view. We are certainly balancing the strength that we’ve been seeing with the continued uncertainty within the pandemic, where we are balancing the timing of those product launches that we’ve talked about coming this summer, but also some of the deferrals we are capturing because not all patients can get in due to restrictions in certain countries. So, we are seeing continued momentum, and the outlook on our business remains very good, and we are definitely continuing to capture global market share.

Thank you. Congratulations, Renee.

Our next question comes from Josh Jennings with Cowen. Your line is open.

Hi. Good morning. Thanks for taking the questions. And I echo Anthony’s congratulations on a strong end of 2020, and it sounds like momentum has continued in the first quarter here. I have two quick questions. This year report, I think there was a SCHEER Committee meeting in Europe earlier this month or at the beginning of the month. Any takeaways that you’ve heard from that preliminary session on the safety of textured implants? And are there any other regulatory decisions on textured implants that could hit in 2021 in other geographies outside of Europe?

Yes. Thanks, Josh. Just to remind everyone, the SCHEER Committee is a committee from the European Commission that focuses on safety across the European Union. They began looking at the safety of breast implants last year. They issued a report during Q4 that clearly associates textured breast implants with breast implant-associated ALCL. So, definitely, this is something that we have been discussing for many years at Establishment Labs. One of the reasons for our success is our proprietary Smoothsilk Surface that allows for less inflammation and less capsular contracture. To date, we have had no cases reported of ALCL. When we think about what can happen in the future, definitely across the globe, regulators are looking at the safety of textured devices, and we expect to see a report from SCHEER later this year. It’s hard to know with the pandemic exactly when that we will be able to finalize that. But definitely, our expectation is that it will happen this year, and they will provide their final recommendations. We are seeing other regulatory agencies acting across the world at different speeds. But one thing is clear: Texture breast implants are not the future of this industry, and we are happy to be part of the future with our proprietary technologies.

Great. Thanks for that. My follow-up is just speaking about the future launch of Motiva in the United States. What can Establishment do today and in the coming months and quarters? Are you in front of the U.S. launch in terms of creating Motiva awareness within the plastic surgeon community? I mean, clearly, the FDA dataset will be a big deal for sentiment towards Motiva. But what other channels or strategies is Establishment considering to create buzz and awareness of Motiva ahead of the approval and the launch? Thanks for taking the questions.

Yes, of course. We have to be very mindful of not doing pre-marketing activities. The FDA is against those. However, our job is to continue putting out empirical view journals, the evidence on the science behind our technologies, but also, there have been more independent and sponsored peer-reviewed studies that have been coming out. We will continue that trend and see more in the future. I think there is growing global awareness that there are new technologies from Establishment Labs that positively impact patient outcomes. Hence, I believe the plastic surgery community in the U.S. is aware that something is happening, and as we receive clearance from the FDA, we will be very happy to engage with them and encourage them to use our products quickly.

Thank you. Just a follow-up. Any incremental thoughts on a potential Flora launch in front of the Motiva approval in the United States? Thanks again.

Yes. For our tissue expander Flora, which is the only MRI-compatible tissue expander with an integrated valve, we expect to submit a revised 510(k) in the first half of this year, and we will update you on the progress when we receive approval. This gives us the option of launching that tissue expander ahead of the breast implant approval. But it's too early to tell you what will happen exactly. We will definitely update you on various milestones leading to that.

Our next question comes from Chris Cooley with Stephens. Your line is open.

Thank you. Good morning and appreciate Juan for taking the questions, and I also echo everyone else’s prior sentiment to the phenomenal performance in an extremely challenging year. If I could go back and revisit your commentary around the reconstruction marketplace, clearly, there are better clinical outcomes. But I am curious how you achieve a more augmentation or aesthetic outcome for those patients? And I guess, I am trying to go further afield here. Do you envision Motiva Mia being used in these cases? Or do you also see some type of a BDM being brought onboard at some point in time – especially for the extremely radiated tissues where a traditional implant doesn’t work as well?

Yes. Thank you, Chris. The rates of access for women in breast reconstruction globally are quite low. In some markets, they can be in single digits, and part of it is due to awareness of good options and outcomes in breast reconstruction. Our plan is to transform breast reconstruction over the next decade by using technology and advanced techniques to achieve what we call aesthetic breast reconstruction, which brings outcomes closer to those of aesthetic patients. There was a publication last year in the PRS Open Journal regarding the use of Motiva Ergonomix implants in a hybrid breast reconstruction. If you look at that article and the outcomes, it’s hard to think that those are not aesthetically pleasing outcomes. That’s exactly what we are aiming for. We are looking to take some of these initial results with our products and make them standards used by surgeons worldwide. Marketing these superior outcomes, we believe more women will be willing to undergo reconstruction procedures. But we are not only focused on that; we are also looking at early detection so we can assist these women ahead of time before it becomes complicated to achieve a good outcome. Of course, Flora is our first technology uniquely suited for breast reconstruction. As we expand our technologies, we will bring more products to market, and our goal is to transform breast reconstruction just like we are planning to do with breast aesthetics.

Thank you. I appreciate all the additional insight there. And then, maybe just for my follow-up, Renee, if I may. Considering the year, I appreciate it’s early on, and there are several moving parts here, but there seems to be significant needs for investment this year, not only from a working capital perspective but also just in traditional sales and marketing expenses. Could you help us think a bit about the first half versus the second half? Just any granularity you can provide regarding the anticipated ramp up in spending from the company’s perspective in anticipation of these exciting new launches coming this summer? Thank you so much.

Yes. It’s a great question. We are factoring in all of the exciting programs we have going on here. We are considering how this looks regarding rolling out the new advanced technology that we will bring to the space but also balancing where we are with our internal operations and what we are still seeing amidst the pandemic. So, I wouldn’t necessarily say first half and second half. I am not going to provide a quarter-by-quarter breakdown, but we will increase spending, and we expect this increase as we roll out some of those additional programs over the summer. We are extremely excited about how we have emerged from the pandemic, the strengths we are seeing, and how our products resonate with patients and plastic surgeons. Looking forward through the rest of the year, we want to ensure that we are investing strategically to execute those new milestones.

Thank you.

Our next question comes from Matt Taylor with UBS. Your line is open.

Hi. Thank you for taking the question. I wanted to start by asking about the continued momentum that you mentioned in Q1. I was hoping you could be a bit more specific. You mentioned some countries where you're still having trouble with access. I know you're in over 80 countries; I don't expect you to go through all of them, but could you give us some flavor on where things are improving versus still slow and how you view the balance of your initial guidance?

Yes. Certainly. You are right; we are in over 80 countries, and the top segment of those drives a substantial chunk of our revenue, so we need to be mindful of what’s happening in Europe. We’ve seen some great responses there, and hopefully, the vaccine rollout continues to accelerate. If you also look towards countries like Brazil, which for us is often the leading country, they are seeing an increase in case volumes right now after coming out of their summer season, where some regional governments have recommended deferrals on non-essential surgical procedures. We are weighing in all of those factors and monitoring the situation daily or weekly to see what unfolds. As countries open up and vaccines roll out, that's a positive development for us. But we are still in that interim period where we are trying to provide patients with our implants and procedures wherever we can. However, in some instances, restrictions remain in our larger countries as well.

Okay. Great. One of the developments that could be highly positive for you is Allergan’s exit from several OUS markets. I was hoping you could provide some commentary on how quickly you might be able to capitalize on that or just frame that opportunity for us?

Yes. Thanks, Matt. I think this action is, in some ways, a logical response to the innovation gap that has opened up in the market. We need to keep in mind that this really began over three years ago when there was a global recall of Allergan’s textured products. At that time, the international market was primarily textured, and Allergan held a significant portion with their textured devices. So, the shift away from Allergan has been ongoing for over three years. Many of those users naturally transitioned to other textured devices. That’s why we are so adamant about our medical education regarding the evolution from textured devices to smooth devices. If it’s going to be a smooth device, we advocate for our advanced bio-engineered smooth device like ours. However, we need to be aware that we are taking market share from the rest of the competitors, including Allergan. Additionally, in many markets, we are moving into a leadership position. So, I believe in markets without Allergan, our leadership position could be even stronger. Therefore, this is one of the most important takeaways for us strategically. We are confident in our ability to continue taking market share organically and, in addition, to expand to new geographies like China and the U.S., where we still face Allergan as a competitor.

Okay, great. That’s a good perspective. That dovetails into my last follow-up here. You have intermittently provided insights on market shares in certain geographies, with relatively high numbers. Could you update us on a few of those and where your shares are today? How do you foresee your shares could gravitate higher over time based on your differentiation?

Yes. We plan to provide a comprehensive update on international markets and our market share positions within them. However, I can share that in countries where we launched recently, such as Thailand and Taiwan, we went from zero to being on par with market leaders in those markets. This demonstrates how quickly we can capture market share. We now have a strong blueprint for breaking into markets and utilizing medical education and patient education to rapidly drive market adoption. I believe that Establishment Labs is well on its way to achieving a market leadership position within the international market.

Okay. Great. Thanks, JJ.

Thank you.

Our next question comes from Amit Hazan with Goldman Sachs. Your line is open.

Hi all. This is Phil on for Amit. Thanks for taking the questions as always. I wanted to circle back on the Mia event that happened earlier this year and ask if you all can sort of detail the steps and the timeline that are ahead to performing commercial procedures in Europe. Obviously, just one of the three elements is approved today, and there are still clinical steps ahead.

Yes, of course. Just a reminder, our minimally invasive augmentation concept includes no general anesthesia, fast procedures, quick discharge of the patient, and short recovery times. In the series we performed in Costa Rica, we also proved a quick learning curve for surgeons, which is fundamental to that timeline. We were also pleased to see the CE Mark for the Ergonomix2 Diamond Breast Implant, which is part of the Motiva Mia system. We are now awaiting approval of the tools that come with the Motiva Mia system, including the balloon used to create space for a very small incision and also the Motiva injector for safely delivering that Diamond Implant through that very small incision. For us, obtaining approval for another group of patients in the Costa Rica series is quite important. We are progressing towards enrolling a hundred patients, with procedures happening week to week. Once we get the approval from the European Notified Body in the second half of this year, we will begin pre-market activities, which will allow us to potentially launch early in 2022. We are very excited about these prospects, and our market research indicates that a significant portion of opportunities lies in Europe. We believe this demonstrates that what started as an adaptation of our technology for Asian patients has now shown to be an appealing option for women who are assessing their breast shape or size.

Okay. Thanks so much. There was a specific comment in Raj’s announcement of joining the team about helping to create value as you expand into new areas of aesthetics. Maybe this question is for you, Juan José, or for Raj as well. I am interested in the implications of that and how you see Raj’s role in the company.

Yes, of course. We are very fortunate to have Raj join the team. As we consider the future of the company, it's essential to understand what we bring to aesthetics. Our unique angle emphasizes women’s health, and we will continue to pursue that end. We always say that we are starting with breast aesthetics and reconstruction, but as opportunities arise, we will be mindful of what aligns with that perspective on women’s health. There are many intriguing technologies out there, and we will continue to explore our rich internal pipeline. Ultimately, we will do what is best for the company and our shareholders.

Thanks, Juan José.

Our next question comes from Marie Thibault with BTIG. Your line is open.

Great. Thank you for taking the questions this morning, and I will add my congratulations to the list here for a very strong quarter and congrats to Raj, as well. I wanted to start with the new Ergo 2 implant; I expect that launch this summer in Europe. Could you give us a sense of the pricing premium you are hoping to attach to that product? How do you anticipate adoption with existing Motiva users will unfold? Is this something you expect to replace their current Ergonomix use, or how do you see that being rolled out?

Yes. Thanks, Marie. Back in 2015, when we launched the first generation of the Ergonomix device, it came with a premium of about 50% higher than a round smooth silk device. Most people thought that doctors would not pay for that premium. The critical factor for us was that we educated patients on the benefits of the Ergonomix device before they visited a plastic surgeon, which reduced their price sensitivity, as they recognized the value in the Ergonomix device: comfort, softness, and tissue-friendly qualities. Therefore, we found them willing to upgrade and pay for that premium. A similar trend may occur with Ergonomix2. However, this doesn't happen overnight. Surgeons must try the device, and patients need to feedback their experiences. Our early experience shows extremely positive patient feedback, so we expect a similar adoption process where patients encourage surgeons to upgrade to the Ergonomix2 device. Hopefully, a year or two from now, we will report that it has become our primary offering and we certainly expect that.

It’s great to hear. You mentioned the Mia symposium had over 100 plastic surgeons tuned in; was there any surprising feedback from that group? Anything that took you by surprise?

Yes, the volume of surgeons who contacted our sales representatives asking how quickly they can have it available was likely the most crucial takeaway from that part. Plastic surgeons have been contemplating this for decades; can we execute a minimally invasive augmentation safely and quickly? Can we generate a reproducible technique? We’ve been able to create that concept with Mia. We have now expanded the IOB Series to a hundred patients. We hope to continue to demonstrate what we saw with the initial 30 patients, and we are also considering the longer-term outcomes for patients from Japan. Altogether, this creates an excellent atmosphere for a potential product launch in early 2022.

Understood. Last one from me: you provided some nice numbers regarding direct sales versus distributors. It sounds like it was almost half-and-half this quarter. Do you anticipate any lumpiness from distributors this year, or is there a cadence we should consider? Additionally, any changes to your outlook regarding your market strategies? I know in the past you've made various countries direct relationships, so should we continue to expect that in 2021?

Yes. The results from 2020 and even the last quarter, particularly in the back half, have been quite consistent with our expectations. That 50-50 split on direct versus distributor is likely what we’ll see fluctuating from quarter to quarter. That’s the prediction, and until we see geographical expansion into China and the U.S., that’s our forecast moving forward.

All right. Very helpful. Thank you again.

And your next question is a follow-up from Anthony Petrone with Jefferies. Your line is open.

Thanks. Just a quick one on the Mia pathways clinically, I am just wondering if you consider DID secured for the original U.S. study. Is that the same protocol we should be expecting? I think the original U.S. study is 750 patients. So I am just wondering if that’s sort of the size and makeup between revisions in augmentation; should we expect a similar study approach, or will it be a PMA supplement to that original data? Thanks.

Yes. Thanks, Anthony. Just a reminder that currently, Motiva Mia is for aesthetic indications only. Regarding the U.S. potential approval pathway, our initial thoughts are of a PMA supplement approach. However, it’s still early for direct conversations with the FDA, but when the time comes, we would like to confirm that plan with them as appropriate for Mia. There are many solid reasons, including what we have done in other high-vigilance countries with Mia, and that could serve as good precedent for FDA discussions.

Thank you.

That is all the time we have for questions today. I will now turn the call back over to Juan José for closing remarks.

Thank you for joining us on today's call. We look forward to providing our next quarterly update in May. We wish you a very good day and continued good health. Thank you.

Ladies and gentlemen, this does conclude the program. You may now disconnect.