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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024.
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 Virgin Islands
98-1436377
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.
Building B15 and 25
Coyol Free Zone
Alajuela
Costa Rica
Not applicable
Address of Principal Executive Offices
Zip Code
+506 2434 2400
Registrant’s Telephone Number, Including Area Code
Not applicable
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common Shares, No Par ValueESTA
The NASDAQ Capital Market
The number of the registrant’s common shares outstanding as of August 6, 2024 was 27,943,534.


TABLE OF CONTENTS
  Page
 
 
 
 
Item 1A.
Risk Factors

i

EXPLANATORY NOTE
In this report, unless the context indicates otherwise, the terms “Establishment Labs,” “Company,” “we”, “us” and “our” refer to Establishment Labs Holdings Inc., a British Virgin Islands entity, and its consolidated subsidiaries.
We own, or have rights to, trademarks and trade names that we use in connection with the operation of our business, including Establishment Labs and our logo as well as other brands such as Motiva Implants, SilkSurface/SmoothSilk, VelvetSurface, ProgressiveGel, TrueMonobloc, BluSeal, Divina, Ergonomix, Ergomonix2, Ergonomix2 Diamond, Mia Femtech and MotivaImagine, among others. Other trademarks and trade names appearing in this report are the property of their respective owners. Solely for your convenience, some of the trademarks and trade names referred to in this report are listed without the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks and trade names.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended or the Exchange Act. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this report. Any statements that refer to projections of our future financial or operating performance, our liquidity, anticipated trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results, are forward-looking statements.
We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this report, or that we may make orally or in writing from time to time, are expressions of our beliefs and expectations based on currently available information at the time such statements are made. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Although we believe that our assumptions are reasonable, they are not guarantees of future performance. As a result, our actual future results may differ from our expectations, and those differences may be material.
Factors that could cause or contribute to these differences include, among others, those risks and uncertainties discussed below under “Summary Risk Factors” and under “Part II, Item 1A. Risk Factors,” as such risk factors may be amended, updated or superseded from time to time by our subsequent filings with the Securities and Exchange Commission. The risks and uncertainties included herein are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
We are not undertaking any obligation to update any forward-looking statements. Accordingly, investors should use caution in relying on past forward-looking statements, which speak only as of the date they are made.

1


SUMMARY RISK FACTORS
The following is a summary of certain key risk factors for investors in our securities. You should read this summary together with the more detailed description of risks and uncertainties discussed below under Item 1A. “Risk Factors” before investing in the Company.
•Unfavorable global economic conditions, including slower growth or recession, inflation or decreases in consumer spending power or confidence, have in the past, and could in the future, adversely affect our business, financial condition or results of operations.
•We expect to incur losses for the foreseeable future, and our ability to achieve and maintain profitability depends on the commercial success of our Motiva Implants.
•If our available cash resources and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing.
•The clinical trial process is lengthy and expensive with uncertain outcomes, and often requires the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. In addition, safety issues or other challenges may arise during the conduct of a trial. Delays or failures in our clinical trials will prevent us from commercializing any modified or new products and will adversely affect our business, operating results and prospects.
•If the FDA or any similar foreign regulatory authority does not approve our products or requires additional clinical trials or preclinical data before approval, or if approval of our products includes additional restrictions on the label, or requires a characterization of our products, including the description of the product surface (e.g. smooth, texture, other) that differs from ours and/or other regulatory authorities, our business, financial condition, results of operations and growth prospects could be materially adversely affected.
•We have a limited operating history in the United States and may face difficulties encountered by companies early in their commercialization in competitive and rapidly evolving markets.
•Pandemics, epidemics, or other public health crises may adversely affect our business and financial results in the future, as was the case with the COVID-19 pandemic in recent years.
•In certain markets, we engage or anticipate engaging in direct sales efforts. We may fail to maintain and develop our direct sales force, and our revenues and financial outcomes could suffer as a result. Furthermore, our direct sales personnel may not effectively sell our products.
•If we are unable to educate clinicians on the safe, effective and appropriate use of our products and designed surgeries, we may experience unsatisfactory patient outcomes, negative publicity and increased claims of product liability and may be unable to achieve our expected growth.
•Our success depends, in part, on our ability to continue to enhance our existing products and services and develop or commercialize new products and services that respond to customer needs and preferences, which we expect will require us to incur significant expenses.
•Our business depends on maintaining our brand and ongoing customer demand for our products and services, and a significant reduction in sentiment or demand could affect our results of operations.
•If we fail to compete effectively against our competitors, many of whom have greater resources than we have, our revenues and results of operations may be negatively affected.
•Any disruption at our existing facilities could adversely affect our business and operating results.
•The medical technology industry is complex and intensely regulated at the federal, state, and local levels and government authorities may determine that we have failed to comply with applicable laws or regulations.
•We rely on a single-source, third-party supplier for medical-grade long-term implantable silicone, which is the primary raw material used in our Motiva Implants. As has occurred in the past, if this supplier were to
2

increase prices for this raw material over time or experience interruptions in its ability to supply us with this raw material, our business, financial condition and results of operations could be adversely affected.
•We have significant exposure to the economic and political situations in emerging market countries, and developments in these countries could materially impact our financial results, or our business more generally.
•Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our liquidity and financial performance.
•Our results of operations have been in the past, and could be in the future, adversely affected by fluctuations in currency rates.
•Negative publicity concerning our products or our competitors’ products, including due to product defects, recalls and any resulting litigation, could harm our reputation and reduce demand for silicone breast implants, either of which could adversely impact our financial results and/or share price.
•News coverage in recent years has called into question the long-term safety of breast implants and reports of breast implant-associated anaplastic large cell lymphoma linked to our competitors’ products which have led to regulatory actions regarding macrotextured devices in several countries and the worldwide recall of one of our competitor’s macrotextured implants and tissue expanders. These events and reports of other forms of cancer, including squamous cell carcinoma and various lymphomas, from breast implant products may lead to a reduction in the demand for silicone breast implants and could adversely affect our business.
•The medical device industry is characterized by patent litigation and we could become subject to litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages or prevent us from marketing our existing or future products.
3
ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
June 30,
2024		December 31,
2023
(Unaudited)
Assets
Current assets:
Cash$54,600 $40,035 
Accounts receivable, net of allowance for credit losses of $2,019 and $1,841
59,982 46,918 
Inventory, net64,213 79,471 
Prepaid expenses and other current assets7,337 8,477 
Total current assets186,132 174,901 
Long-term assets:
Property and equipment, net of accumulated depreciation79,546 77,205 
Goodwill465 465 
Intangible assets, net of accumulated amortization10,041 7,987 
Right-of-use operating lease assets, net3,717 3,381 
Other non-current assets5,187 4,702 
Total assets$285,088 $268,641 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$28,420 $41,624 
Accrued liabilities11,812 13,690 
Other liabilities, short-term1,660 1,836 
Total current liabilities41,892 57,150 
Long-term liabilities:
Note payable, net of debt discount and issuance costs193,732 188,739 
Operating lease liabilities, non-current2,989 2,712 
Other liabilities, long-term1,456 1,645 
Total liabilities240,069 250,246 
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common shares — zero par value, unlimited amount authorized; 28,349,936 and 26,495,250 shares issued at June 30, 2024 and December 31, 2023, respectively; 27,941,866 and 26,087,180 shares outstanding at June 30, 2024 and December 31, 2023, respectively
368,232 315,634 
Additional paid-in-capital70,004 63,748 
Treasury shares, at cost, 408,070 shares held at June 30, 2024 and December 31, 2023
(2,854)(2,854)
Accumulated deficit(393,479)(360,096)
Accumulated other comprehensive income3,116 1,963 
Total shareholders’ equity
45,019 18,395 
Total liabilities and shareholders’ equity
$285,088 $268,641 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Revenue$44,117 $48,561 $81,284 $95,085 
Cost of revenue15,181 18,300 27,968 34,745 
Gross profit28,936 30,261 53,316 60,340 
Operating expenses:
Sales, general and administrative32,792 37,027 61,733 68,733 
Research and development5,488 6,947 9,761 13,480 
Total operating expenses38,280 43,974 71,494 82,213 
Loss from operations(9,344)(13,713)(18,178)(21,873)
Interest income556 170 1,044 245 
Interest expense(5,186)(3,620)(9,567)(7,376)
Other income (expense), net(2,779)1,343 (5,816)2,072 
Loss before income taxes(16,753)(15,820)(32,517)(26,932)
Provision for income taxes(428)(925)(866)(1,755)
Net loss$(17,181)$(16,745)$(33,383)$(28,687)
Basic and diluted net loss per share$(0.62)$(0.65)$(1.21)$(1.14)
Weighted average outstanding shares used for basic and diluted net loss per share27,905,614 25,615,444 27,679,832 25,144,375 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Net loss$(17,181)$(16,745)$(33,383)$(28,687)
Other comprehensive income (loss):
Foreign currency translation gain (loss)1,032 (503)1,153 (905)
Other comprehensive income (loss)1,032 (503)1,153 (905)
Comprehensive loss$(16,149)$(17,248)$(32,230)$(29,592)
The accompanying notes are an integral part of these condensed consolidated financial statements.

6
ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands, except share data)
(Unaudited)

Common SharesTreasury SharesAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated Other Comprehensive Income (Loss)Total
SharesAmountSharesAmount
Balance at January 1, 202426,495,250 $315,634 (408,070)$(2,854)$63,748 $(360,096)$1,963 $18,395 
Issuance of common shares, net of underwriters’ discount and issuance costs1,101,565 49,736 — — — — — 49,736 
Issuance of common shares in lieu of cash compensation2,158 110 — — — — — 110 
Stock option exercises53,400 1,426 — — — — — 1,426 
Warrant exercises223,019 223 — — (223)— — — 
Share-based compensation11,979 12 — — 3,432 — — 3,444 
Shares withheld to cover income tax obligation upon vesting of restricted stock(2,622)(3)— — (116)— — (119)
Foreign currency translation gain
— — — — — — 121 121 
Net loss— — — — — (16,202)— (16,202)
Balance at March 31, 202427,884,749 367,138 (408,070)(2,854)66,841 (376,298)2,084 56,911 
Issuance of common stock in lieu of cash compensation2,418 110 — — — — — 110 
Warrant exercises376,972 377 — — (377)— — — 
Stock option exercises56,778 577 — — — — — 577 
Share-based compensation32,624 33 — — 3,725 — — 3,758 
Shares withheld to cover income tax obligation upon vesting of restricted stock(3,605)(3)— — (185)— — (188)
Foreign currency translation gain
— — — — — — 1,032 1,032 
Net loss— — — — — (17,181)— (17,181)
Balance at June 30, 202428,349,936 $368,232 (408,070)$(2,854)$70,004 $(393,479)$3,116 $45,019 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7
ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands, except share data)
(Unaudited)

Common SharesTreasury SharesAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated Other Comprehensive Income (Loss)Total
SharesAmountSharesAmount
Balance at January 1, 202324,815,908 $223,637 (408,070)$(2,854)$49,911 $(281,594)$2,715 $(8,185)
Stock option exercises52,148 1,271 — — — — — 1,271 
Share-based compensation2,648 3 — — 3,321 — — 3,324 
Shares withheld to cover income tax obligation upon vesting of restricted shares(941)(1)— — (61)— — (62)
Foreign currency translation loss— — — — — — (402)(402)
Net loss— — — — — (11,942)— (11,942)
Balance at March 31, 202324,869,763 224,910 (408,070)(2,854)53,171 (293,536)2,313 (15,996)
Issuance of common stock, net of underwriters’ discount and issuance costs1,265,000 84,538 — — — — — 84,538 
Issuance of common stock in lieu of cash compensation509 35 — — — — — 35 
Stock option exercises13,293 210 — — — — — 210 
Share-based compensation36,517 36 — — 3,580 — — 3,616 
Shares withheld to cover income tax obligation upon vesting of restricted stock(4,049)(4)— — (278)— — (282)
Foreign currency translation loss— — — — — — (503)(503)
Net loss— — — — — (16,745)— (16,745)
Balance at June 30, 202326,181,033 $309,725 (408,070)$(2,854)$56,473 $(310,281)$1,810 $54,873 
The accompanying notes are an integral part of these condensed consolidated financial statements.

8
ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Six Months Ended June 30,
20242023
Cash flows from operating activities:
Net loss$(33,383)$(28,687)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,690 1,883 
Provision for credit losses
353 425 
Provision for inventory obsolescence518 654 
Share-based compensation 7,202 6,940 
Loss from disposal of property and equipment41 347 
Unrealized foreign currency (gain)/ loss, net4,431 (3,760)
Amortization of right-to-use asset306 359 
Change in reserve for PP&E impairment— (341)
Stock compensation in lieu of cash fees220 — 
Interest capitalized for construction in progress(555)(1,922)
Non-cash interest expense and amortization of debt discount4,993 6,509 
Changes in operating assets and liabilities:
Accounts receivable(14,223)(14,979)
Inventory12,360 (19,078)
Prepaid expenses and other current assets1,849 (205)
Other assets(514)(259)
Accounts payable(11,001)3,675 
Accrued liabilities(4)(159)
Operating lease liabilities(294)(337)
Other liabilities(295)81 
Net cash used in operating activities(25,306)(48,854)
Cash flows from investing activities:
Purchases of property and equipment(4,110)(3,549)
Cost incurred for intangible assets(4,751)(126)
Capital expenditures on construction in progress(2,166)(9,652)
Net cash used in investing activities(11,027)(13,327)
Cash flows from financing activities:
Issuance of common stock, net of underwriters’ discount and issuance costs49,736 84,538 
Proceeds from stock option exercises2,003 1,481 
Tax payments related to shares withheld upon vesting of restricted stock(307)(344)
Net cash provided by financing activities51,432 85,675 
Effect of exchange rate changes on cash and cash equivalents(534)333 
Net increase in cash and cash equivalents
14,565 23,827 
Cash and cash equivalents at beginning of period40,035 66,355 
Cash and cash equivalents at end of period$54,600 $90,182 
The accompanying notes are an integral part of these condensed consolidated financial statements.

9
ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Six Months Ended June 30,
20242023
Supplemental disclosures:
Cash paid for interest$1,492 $2,782 
Cash paid for income taxes$746 $998 
Supplemental disclosures of non-cash investing and financing activities:
Unpaid balance for property and equipment$1,196 $1,609 
Unpaid balance for intangible assets$1,107 $— 
The accompanying notes are an integral part of these condensed consolidated financial statements.

10
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.    Formation and Business of the Company
Establishment Labs Holdings Inc., with its wholly owned subsidiaries, or the Company, is a global company that manufactures and markets innovative medical devices for aesthetic and reconstructive plastic surgery. The Company was established in the British Virgin Islands on October 9, 2013, at which time Establishment Labs, S.A., the Costa Rican manufacturing company, was reincorporated as a wholly-owned subsidiary. As of June 30, 2024, the Company also has wholly-owned subsidiaries in the United States (JAMM Technologies, Inc. and Motiva USA LLC), Brazil (Establishment Labs Produtos para Saude Ltda), Belgium (European Distribution Center Motiva BV), France (Motiva Implants France SAS), Sweden (Motiva Nordica AB), Switzerland (JEN-Vault AG), the United Kingdom (Motiva Implants UK Limited), Italy (Motiva Italy S.R.L), Spain (Motiva Implants Spain, S.L.), Austria (Motiva Austria GmbH), Germany (Motiva Germany GmbH) and Argentina (Motiva Argentina S.R.L). Substantially all of the Company’s revenues are derived from the sale of silicone gel-filled breast implants, branded as Motiva Implants.
The main manufacturing activities are conducted at two manufacturing facilities in Costa Rica. The Company completed construction of its third facility in Costa Rica. In 2010, the Company began operating under the Costa Rica free zone regime (Régimen de Zona Franca), which provides for reduced income tax and other tax obligations pursuant to an agreement with the Costa Rican authorities.
The Company’s products are approved for sale in Europe, the Middle East, Latin America, and Asia, and the Company’s Motiva Flora SmoothSilk Tissue Expander is also approved for sale in the United States. The Company sells its products internationally through a combination of distributors and direct sales to customers.
The Company is pursuing regulatory approval to commercialize its implants in the United States. The Company received approval for an investigational device exemption, or IDE, from the U.S. Food and Drug Administration, or FDA, in March 2018 to initiate a clinical trial in the United States for its Motiva Implants. In August 2019, the Company completed all patient surgeries for the IDE aesthetic cohorts, which include primary augmentation and revision. In 2021, the Company initiated a modular pre-market approval, or PMA, submission process with the FDA and submitted the first of four modules. In June 2022, full enrollment of the IDE clinical trial was complete, and all surgeries in the primary reconstruction cohort were performed. In August 2022, the third module was submitted to the FDA. By June 30, 2022, the Company completed the three-year study subject follow-up for the aesthetic cohort. The final fourth module was submitted to the FDA in February 2023. The Company presented three-year patient follow-up data for the primary augmentation cohort of the IDE clinical trial at The Aesthetic Meeting in April 2023. In May 2024, the Company released preliminary results of the four-year patient follow-up data for the primary augmentation cohort of its IDE clinical trial. The FDA completed the inspection of the Company’s manufacturing facility in Costa Rica at the end of July 2024. After completion, the FDA issued a Form 483 Notice with three observations, each unrelated to one another. The Company subsequently responded in writing to the FDA about the observations, indicating that it has fully remediated all three of them.
In October 2023, the FDA granted 510(k) clearance for the Motiva Flora SmoothSilk Tissue Expander. In January 2024, the Company announced completion of the first commercial procedure of the Motiva Flora SmoothSilk Tissue Expander in the United States and the commercial launch of Motiva Implants in China.
2.    Summary of Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2024 as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Company’s audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended 2023, 2022 and 2021 presented in the Company’s Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 4, 2024. Below are those policies with current period updates.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the applicable rules and regulations of the Securities and Exchange Commission, or SEC, for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.
11
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the years ended December 31, 2023, 2022 and 2021 presented in the Company’s Form 10-K filed with the SEC on March 4, 2024.
The condensed consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiaries as of June 30, 2024 as follows:
SubsidiaryIncorporation/Acquisition Date
Establishment Labs, S.A. (Costa Rica)January 18, 2004
Motiva USA, LLC (USA)February 20, 2014
JAMM Technologies, Inc. (USA)October 27, 2015
Establishment Labs Produtos par Saude Ltda (Brazil)January 4, 2016
European Distribution Center Motiva BV (Belgium)March 4, 2016
Motiva Implants France SAS (France)September 12, 2016
JEN-Vault AG (Switzerland)November 22, 2016
Motiva Nordica AB (Sweden)November 2, 2017
Motiva Implants UK Limited (the United Kingdom)July 31, 2018
Motiva Italy S.R.L (Italy)July 31, 2018
Motiva Implants Spain, S.L. (Spain)January 3, 2019
Motiva Austria GmbH (Austria)January 14, 2019
Motiva Germany GmbH (Germany)August 1, 2019
Motiva Argentina S.R.L (Argentina)February 7, 2020
All intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Condensed Consolidated Financial Information
The accompanying interim condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023, and the related interim information contained within the notes to the condensed consolidated financial statements, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP and on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary to state fairly the Company’s financial position as of June 30, 2024, and the results of its operations and cash flows for the six months ended June 30, 2024 and 2023. Such adjustments are of a normal and recurring nature. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full fiscal year 2024, or for any future period.
Segments
The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure. The Company and its Chief Executive Officer evaluate performance based primarily on revenue in the geographic regions in which the Company operates.
Geographic Concentrations
The Company derives substantially all its revenues from sales to customers in Europe, the Middle East, Latin
12
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
America, and Asia, and other than the Motiva Flora SmoothSilk Tissue Expander, has not yet received approval to sell its products in the United States.
For the six months ended June 30, 2024 and 2023, Brazil accounted for 8.2% and 13.5%, respectively, of consolidated revenue and no other individual country exceeded 10% of consolidated revenue, on a ship-to destination basis.
The majority of the Company’s consolidated total assets, including cash and tangible assets, is held in the United States. The Company’s long-lived assets, which primarily consist of property and equipment and intangible assets located in Costa Rica, represented 83% and 80% of the total long-lived assets as of June 30, 2024 and December 31, 2023, respectively.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant accounting estimates and management judgments reflected in the condensed consolidated financial statements include items such as accounts receivable valuation and allowances, inventory valuation and allowances, valuation of acquired intangible assets, and valuation of deferred income tax assets, including tax valuation allowances. Estimates are based on historical experience, where applicable, and other assumptions believed to be reasonable by management. Actual results may differ from those estimates under different assumptions or conditions.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and accounts receivable. The majority of the Company’s cash is held at two financial institutions in the United States. Balances in the Company’s cash accounts exceed the Federal Deposit Insurance Corporation, or FDIC, limit of $250,000. The Company has not experienced any losses to its deposits of cash.
Substantially all of the Company’s revenue has been derived from sales of its products in international markets, principally Europe, the Middle East, Latin America, and Asia. In the international markets in which the Company operates, the Company uses a combination of distributors and direct sales to customers. The Company performs ongoing credit evaluations of its distributors and customers, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary.
Substantially all of the Company’s revenues were derived from the sale of Motiva Implants. During the six months ended June 30, 2024 and 2023, no customer accounted for more than 10% of the Company’s revenue. One customer accounted for approximately 10.6% of the Company’s trade accounts receivable balance as of June 30, 2024. Two customers accounted for approximately 12.7% and 11.6% of the Company’s trade accounts receivable balance as of December 31, 2023.
The Company relies on Avantor, Inc. (formerly NuSil Technology, LLC), or Avantor, as the sole supplier of medical-grade silicone used in Motiva Implants. During the six months ended June 30, 2024 and 2023, the Company had purchases of $4.9 million, or 26.4% of total purchases, and $26.8 million, or 56.2% of total purchases, respectively, from Avantor. As of June 30, 2024 and December 31, 2023, the Company had an outstanding balance owed to this vendor of $0.9 million and $5.3 million, respectively.
The Company’s financial condition and future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, unfavorable economic conditions, uncertainty of regulatory approval of the Company’s current and potential future products, uncertainty of market acceptance of the Company’s products, competition from substitute products and larger companies, securing and protecting proprietary technology, access to capital, strategic relationships and dependence on key individuals and sole source suppliers.
Products developed by the Company require clearance from the FDA or other international regulatory agencies prior to commercial sales. There can be no assurance that the products will receive the necessary clearances. If the Company is denied clearance, clearance is delayed, or the Company is unable to maintain its existing
13
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
clearances, these developments could have a material adverse impact on the Company.
Cash and Cash Equivalents
The Company’s cash consists of cash maintained in checking and interest-bearing accounts. The majority of the Company’s cash is held at two financial institutions in the United States, with balances in excess of FDIC insurance limits. The Company accounts for financial instruments with original maturities of three months or less at the date of purchase as cash equivalents. The Company held $1.5 million and $2.8 million in cash equivalents as of June 30, 2024 and December 31, 2023, respectively.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable balance is stated at invoice value less estimated allowances for returns and credit losses. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from customers’ inability to make required payments. In evaluating the Company’s ability to collect outstanding receivable balances, the Company considers various factors including the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history, and the customer’s current financial condition. In cases where there are circumstances that may impair a specific customer’s ability to meet its financial obligations, an allowance is recorded against amounts due, which reduces the net recognized receivable to the amount reasonably believed to be collectible.
Inventory and Cost of Revenue
Inventory is stated at the lower of cost to purchase or manufacture the inventory or the net realizable value of such inventory. Cost is determined using the standard cost method which approximates actual costs using the first-in, first-out basis. The Company regularly reviews inventory quantities, actual losses, projected future demand, and remaining shelf life to record a provision for obsolete and/or damaged inventory. Provision for inventory obsolescence of $3.5 million and $3.9 million has been recorded as of June 30, 2024 and December 31, 2023, respectively.
The Company recognizes the cost of inventory transferred to the customer in cost of revenue when revenue is recognized.
Leases
The Company determines if an arrangement is, or contains, a lease at the inception date of the contract. The Company has elected an expedient to account for each separate lease component and its associated non-lease components as a single lease component for the majority of its asset classes.
The lease term may include periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise a renewal option, or reasonably certain it will not exercise an early termination option. The Company recognizes lease liabilities and right-of-use, or ROU, assets upon commencement for all material leases with a term greater than 12 months. The Company has elected an expedient not to recognize leases with a lease term of 12 months or less on the balance sheet. These short-term leases are expensed on a straight-line basis over the lease term.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and are included in selling, general and administrative, or SG&A, expenses. For the three months ended June 30, 2024 and 2023, shipping and handling costs were $1.4 million and $3.6 million, respectively. For the six months ended June 30, 2024 and 2023, shipping and handling costs were $3.1 million and $6.4 million, respectively.
Revenue Recognition
The Company recognizes revenue related to sales of products to distributors or directly to customers in markets where it has regulatory approval, net of discounts and allowances. The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, Revenue from Contracts with Customers (Topic 606). ASC 606 requires the Company to recognize revenue to depict the transfer of goods or services to a
14
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.
The Company recognizes revenue related to the sales of products to distributors at the time of shipment of the product, which represents the point in time when the distributor has taken ownership and assumed the risk of loss, and the required revenue recognition criteria are satisfied. The Company’s distributors are obligated to pay within specified terms regardless of when, or if, they sell the products. The Company’s contracts with distributors typically do not contain right of return or price protection and have no post-delivery obligations.
The Company recognizes revenue when title to the product and risk of loss transfer to customers, provided there are no remaining performance obligations required of the Company or any written matters requiring customer acceptance. The Company allows for the return of products from direct customers in certain regions in limited instances within fifteen days after the original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized. Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and any notification of pending returns. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or subsequent period is recorded. An allowance of $1.6 million and $0.3 million was recorded for product returns as of June 30, 2024 and December 31, 2023, respectively. Taxes collected from customers for remittance to governmental authorities are excluded from net sales.
A portion of the Company’s revenue is generated from the sale of consigned inventory maintained at physician, hospital, or clinic locations. For these products, revenue is recognized at the time the Company is notified by the consignee that the product has been implanted, not when the consigned products are delivered to the consignee’s warehouse.
Revenue was generated in these primary geographic markets:
Three Months Ended June 30,
Six Months Ended June 30,
20242023
2024
2023
(in thousands)
EMEA (Europe / Middle East / Africa)$20,956 $20,186 $41,558 $40,171 
Latin America8,893 16,318 17,491 27,938 
Asia-Pacific14,143 11,525 22,048 25,546 
Other125 532 187 1,430 
Total revenue$44,117 $48,561 $81,284 $95,085 
The Company has a limited warranty for the shelf life of breast implants, which is five years from the time of manufacture. Estimated warranty obligations are recorded at the time of sale. The Company also offers a warranty to patients in the event of rupture and a replacement program for capsular contracture events, provided certain registration requirements are met. Revenue for extended warranties is recognized ratably over the term of the agreement. To date, these warranty and program costs have been de minimis. The Company will continue to evaluate the warranty reserve policies for adequacy considering claims history.
Deferred revenue primarily consists of payments received in advance of meeting revenue recognition criteria. The Company has received payments from distributors to provide distribution exclusivity within a geographic area and recognizes revenue on a ratable basis over the term of such contractual distribution relationship. Additionally, the Company has received payments from customers in direct markets prior to surgical implantation and recognizes deferred revenue at the time the Company is notified by the customer that the product has been implanted. For all arrangements, any revenue that has been deferred and is expected to be recognized beyond one year is classified as long-term deferred revenue and included in “Other liabilities, long-term” on the condensed consolidated balance sheets (see Note 3).
15
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Research and Development
Costs related to research and development, or R&D, activities are expensed as incurred. R&D costs primarily include personnel costs, materials, clinical expenses, regulatory expenses, product development, consulting services, and outside research activities, all of which are directly related to research and development activities.
The Company estimates IDE clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.
Selling, General and Administrative Expenses
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.
The Company depreciates owned buildings on a straight-line basis over 50 years of useful life. Depreciation of property and equipment is computed using the straight-line method over the assets’ estimated useful lives of five to ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the remaining lease term after factoring expected renewal periods. Upon retirement or disposal of assets, the costs and related accumulated depreciation are eliminated from the accounts and any gain or loss is recognized in operations. Maintenance and repairs are expensed as incurred. Substantially all of the Company’s manufacturing operations and related property and equipment are located in Costa Rica.
Goodwill and Intangible Assets
The Company records the excess of the acquisition purchase price over the net fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company tests goodwill for impairment annually during the fourth quarter of each year and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In connection with the annual impairment test for goodwill, the Company elected the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount, then the impairment test is performed.
Consistent with the Company's assessment that it has only one reporting segment, the Company has determined that it has only one reporting unit and tests goodwill for impairment at the entity level using the two-step process required by ASC 350. In the first step, the Company compares the carrying amount of the reporting unit to the fair value of the enterprise. If the fair value of the enterprise exceeds the carrying value, goodwill is not considered impaired and no further testing is required. If the carrying value of the enterprise exceeds the fair value, goodwill is potentially impaired, and the second step of the impairment test must be performed. In the second step, the Company compares the implied fair value of the goodwill, as defined by ASC 350, to its carrying amount to determine the impairment loss, if any.
The Company capitalizes certain costs related to intangible assets, such as patents, trademarks and software development costs. The Company follows the provisions of ASC 350-40, Internal Use Software for determining whether computer software is internal-use software and on accounting for the costs of computer software originally developed or obtained for internal use. The Company expenses all costs incurred during the preliminary project stage of software development and capitalizes the costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the software are capitalized if it is determined that these upgrades or enhancements add additional functionality to the software. Costs incurred to improve and support products after they become available are charged to expense as incurred.
The Company records purchased intangible assets at their respective estimated fair values at the date of acquisition. Purchased finite-lived intangible assets are being amortized using the straight-line method over their
16
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
remaining estimated useful lives, which range from two to fifteen years. The Company evaluates the remaining useful lives of intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining estimated amortization period. The Company tests indefinite-lived intangible assets for impairment on at least an annual basis and whenever circumstances suggest the assets may be impaired. If indicators of impairment are present, the Company evaluates the carrying value of the intangible assets in relation to estimates of future undiscounted cash flows. The Company also evaluates the remaining useful life of an indefinite-lived intangible asset to determine whether events and circumstances continue to support an indefinite useful life.
During the year ended December 31, 2023, there was no impairment of goodwill or intangible assets based on the qualitative assessments performed by the Company. As of June 30, 2024, no triggering events have occurred which would indicate that the acquired intangible asset values may not be recoverable.
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. There were no impairment charges, or changes in estimated useful lives recorded during the year ended December 31, 2023. As of June 30, 2024, no triggering events have occurred which would indicate that the acquired long-lived asset values may not be recoverable.
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 amortization, are recorded as a reduction to the long-term debt balance on the condensed consolidated balance sheets. Amortization expense on capitalized debt issuance costs and debt discounts related to loans are calculated using the effective interest method over the term of the loan commitment and is recorded as interest expense in the condensed consolidated statements of operations.
Income Taxes
The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s condensed consolidated financial statements or income tax returns. In estimating future tax consequences, expected future events, enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company operates in various tax jurisdictions and is subject to audits by various tax authorities.
The Company records uncertain tax positions based on a two-step process whereby (1) a determination is made as to whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold the Company recognizes the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions.
There were no material uncertain tax positions in fiscal year 2023 or for the six months ended June 30, 2024.
Foreign Currency
The financial statements of the Company’s foreign subsidiaries whose functional currencies are the local currencies are translated into U.S. dollars for consolidation as follows: assets and liabilities at the exchange rate as of the balance sheet date, stockholders’ equity at the historical rates of exchange, and income and expense amounts at the average exchange rate for the period. Translation adjustments resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income” as equity in the condensed consolidated balance sheet. Transactions denominated in currencies other than the applicable functional currency
17
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
are converted to the functional currency at the exchange rate on the transaction date. At period end, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses resulting from foreign currency transactions are included within “Other income (expense), net” in the condensed consolidated statements of operations. For the three months ended June 30, 2024, foreign currency transaction loss amounted to $2.8 million as compared to a foreign currency transaction gain of $1.5 million for the three months ended June 30, 2023. For the six months ended June 30, 2024, foreign currency transaction loss amounted to $5.8 million as compared to a foreign currency transaction gain of $2.4 million for the six months ended June 30, 2023.
Comprehensive Loss
The Company’s comprehensive loss consists of net loss and foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries.
Share-Based Compensation
The Company measures and recognizes compensation expense for all share-based awards in accordance with the provisions of ASC 718, Stock Compensation. Share-based awards granted include stock options, restricted stock units, or RSUs, and restricted stock awards, or RSAs. Share-based compensation expense for stock options and RSAs or RSUs granted to employees is measured at the grant date based on the fair value of the awards and is recognized as an expense ratably on a straight-line basis over the requisite service period. The fair value of options to purchase shares is estimated on the grant date using the Black-Scholes option valuation model.
The calculation of share-based compensation expense requires the Company to make assumptions and judgments about the variables used in the Black-Scholes model, including the expected term, expected volatility of the underlying common shares, risk-free interest rate and dividends.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing the net income (loss) attributable to shareholders by the weighted-average number of shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, any shares issuable upon exercise of warrants, stock options and non-vested RSUs or RSAs outstanding under the Company’s equity plan are potentially dilutive securities. Diluted net loss per share is the same as basic net loss per share for periods where the Company reported a net loss because including the dilutive securities would be anti-dilutive.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These reclassifications had no material impact on the Company’s financial position as of June 30, 2024 or results of operations for the three and six months ended June 30, 2024.
Recent Accounting Standards
Periodically, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.
The following recent accounting pronouncements issued by the FASB could have a material effect on the Company’s financial statements:
Recently Issued Accounting Standards
In November 2023, the FASB issued Accounting Standards Update, or ASU, No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, especially significant segment expenses, and provides new disclosure
18
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
requirements for entities with a single reportable segment. The new guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the potential impact of the updated requirements, but based on current understanding, does not expect a material impact on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures, which enhances the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on the financial statement disclosures.
3.     Balance Sheet Accounts
Inventory, Net
June 30,
2024		December 31,
2023
(in thousands)
Raw materials$33,879 $40,663 
Work in process1,973 1,727 
Finished goods28,361 37,081 
Total inventory, net
$64,213 $79,471 
As of June 30, 2024 and December 31, 2023, $10.4 million and $7.1 million of inventory was on consignment, respectively.
Prepaid Expenses and Other Current Assets
June 30,
2024		December 31,
2023
(in thousands)
Prepaid insurance$1,151 $2,747 
Prepaid services1,125 420 
Prepaid taxes351 1,073 
Prepaid assets559 394 
Prepaid raw materials and accessories395 468 
Prepaid U.S. clinical trial costs112 176 
Prepaid warranty and distribution rights266 275 
Prepaid software908 506 
Other
2,470 2,418 
Total prepaid expenses
$7,337 $8,477 
19
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Property and Equipment, Net
June 30,
2024		December 31,
2023
(in thousands)
Machinery and equipment$22,717 $20,510 
Building improvements16,759 10,626 
Furniture and fixtures14,407 9,224 
Building37,227 16,109 
Leasehold improvements2,546 2,600 
Land3,694 3,694 
Vehicles176 176 
Construction in process— 30,593 
Total97,526 93,532 
Less: Accumulated depreciation and amortization(17,980)(16,327)
Total property and equipment, net
$79,546 $77,205 
For each of the three months ended June 30, 2024 and 2023, depreciation and amortization expense related to property and equipment was $0.9 million and $0.6 million, respectively. For the six months ended June 30, 2024 and 2023, depreciation and amortization expense related to property and equipment was $1.8 million and $1.2 million, respectively.
In August 2021, the Company entered into a contract with the Zona Franca Coyol, S.A., or ZFC, to begin construction of a new manufacturing facility in the Coyol Free Zone in Costa Rica. The costs for improvement of the land and construction of a cold shell building were being paid for by ZFC while the Company paid for internal improvements and customization. In 2022, the Company exercised its option to purchase the title to the land and cold shell building for approximately $12.6 million. The construction for this third facility was completed in June 2024. The Company also has the option to buy an adjacent lot of land for approximately $2.8 million and engage ZFC to construct an additional manufacturing facility.
20
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Accrued Liabilities
June 30,
2024		December 31,
2023
(in thousands)
Performance bonus$3,231 $4,451 
Payroll and related expenses5,278 5,223 
Operating lease liabilities - current842 773 
Commissions388 344 
Professional and legal services1,475 1,269 
Taxes157 109 
Warranty reserve134 119 
Other307 1,402 
Total accrued liabilities$11,812 $13,690 
Other Liabilities, Short-Term
June 30,
2024		December 31,
2023
(in thousands)
Deferred revenue$1,660 $1,836 
Other Liabilities, Long-Term
June 30,
2024		December 31,
2023
(in thousands)
Deferred revenue$1,302 $1,498 
Other154 147 
Total other liabilities, long-term
$1,456 $1,645 
4.     Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Purchased intangibles include certain patents and license rights, 510(k) authorization by the FDA to sell a medical device and other intangible assets.
The Company’s goodwill and most intangibles at June 30, 2024 are the result of previous asset and business acquisitions. Finite-lived intangibles are amortized over their estimated useful lives based on expected future benefit.
In addition to the intangibles acquired, the Company capitalized certain patent and license rights as identified intangibles based on patent and license rights agreements entered into over the past several years. Additionally, the Company capitalized certain software development costs.
21
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
There were no changes in the carrying amount of goodwill during the six months ended June 30, 2024:
Balance as of January 1, 2024
AdditionsAccumulated Impairment Losses
Balance as of June 30, 2024
(in thousands)
Goodwill$465 $— $— $465 
The carrying amounts of these intangible assets other than goodwill as of June 30, 2024 were as follows:
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountEstimated Useful Lives
(in thousands)(in years)
Patents and license rights$2,033 $(1,463)$570 
7-12
Customer relationships2,033 (1,996)37 
4-10
510(k) authorization567 (326)241 15
Developed technology62 (62)— 10
Capitalized software development costs11,776 (3,394)8,382 
2-5
Other183 (43)140 
2-5
Capitalized software development costs not yet amortized
230 — 230 
Patents and license rights not yet amortized
441 — 441 
Total intangibles other than goodwill
$17,325 $(7,284)$10,041 
The carrying amounts of intangible assets other than goodwill as of December 31, 2023 were as follows:
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountEstimated Useful Lives
(in thousands)(in years)
Patents and license rights$2,007 $(1,414)$593 
7-12
Customer relationships2,033 (1,987)46 
4-10
510(k) authorization567 (307)260 15
Developed technology62 (62)— 10
Capitalized software development costs5,293 (2,653)2,640 
2-5
Other183 (41)142 
2-5
Capitalized software development costs not yet amortized
3,865 — 3,865 
Patents and license rights not yet amortized
441 — 441 
Total intangibles other than goodwill
$14,451 $(6,464)$7,987 
For each of the three months ended June 30, 2024 and 2023, amortization expense related to intangible assets was $0.5 million and $0.3 million, respectively. The amortization expense associated with intangible assets was $0.8 million and $0.6 million for each of the six months ended June 30, 2024 and 2023, respectively. Non-product related amortization is recorded in SG&A while product related amortization is recorded in cost of revenue.
22
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of June 30, 2024, the amortization expense related to identifiable intangible assets, with definite useful lives, in future periods is expected to be as follows:
Year Ending December 31,(in thousands)
2024 (remaining)
$1,198 
2025
2,326 
20261,863 
20271,631 
20281,487 
Thereafter865 
Total expected future amortization expense
$9,370 
The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the year ended December 31, 2023, there was no impairment of goodwill or intangible assets based on the qualitative assessments performed by the Company. As of June 30, 2024, no triggering events have occurred which would indicate that the acquired intangible asset values may not be recoverable.
5.    Debt
Oaktree Debt
On April 26, 2022, or the Closing Date, the Company entered into a Credit Agreement and Guaranty, or the Credit Agreement, together with certain of its subsidiaries party thereto as guarantors, the lenders from time to time party thereto, or the Lenders, and Oaktree Fund Administration, LLC, as administrative agent for the Lenders, or the Administrative Agent, pursuant to which the Lenders agreed to make term loans to the Company in an aggregate principal amount of up to $225 million, or collectively, the Term Loans.
On February 21, 2024, the Company entered into a Second Amendment to the Credit Agreement, or the Amendment, which amends terms applicable to the two remaining available tranches, Tranche C Term Loans and Tranche D Term Loans. The terms of the Tranche A Term Loans and Tranche B Term Loans were not modified.
Pursuant to the terms of the Credit Agreement, as amended, the Term Loans will be advanced in four tranches:
•The first tranche, or the Tranche A Term Loan, was advanced in the amount of $150 million on the Closing Date. A portion of the first tranche was used to repay the outstanding principal and interest under the Company’s credit agreement with Madryn Health Partners, LP, as administrative agent, and a syndicate of lenders in full, including the early repayment penalty of $6.5 million.
•The second tranche, or the Tranche B Term Loan, of $25 million was advanced in December 2022 at the Company’s election upon satisfaction of specified gross sales thresholds and subject to the other terms and conditions of the Credit Agreement.
•The third tranche, or the Tranche C Term Loan, of $25 million will be advanced at the Company’s election prior to December 31, 2024, subject to the Administrative Agent having received evidence that FDA approval of Motiva Implants for augmentation use in the United States has been issued (or the Tranche A Milestone) and subject to the other terms and conditions of the Credit Agreement and the Amendment.
•The fourth tranche, or the Tranche D Term Loan, of $25 million will be advanced at the Company’s election prior to June 30, 2025, subject to the Administrative Agent having received both (a) evidence that a specified gross sales threshold has been met, and (b) the Tranche C Term Loan having been funded, and subject to the other terms and conditions of the Credit Agreement. The Amendment reduced the applicable gross sales threshold from trailing twelve-month gross sales of $225 million to $195 million.
23
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Term Loans will mature on the 5-year anniversary of the Closing Date, or the Maturity Date. The Term Loans accrue interest at a rate equal to 9% per annum for Tranche A and Tranche B, 10% per annum for Tranche C and Tranche D, or, at any time following the Tranche C Funding Milestone and the Administrative Agent’s receipt of evidence that a gross sale threshold of $225 million in trailing twelve month gross sales have been met, 8.25% per annum for Tranche A and Tranche B. Accrued interest is due and payable in cash on the last business day of March, June, September, and December of each year; provided, however, that prior to the second anniversary of the Closing Date, the Company may pay an amount of interest on the outstanding Tranche A Term Loans and Tranche B Term Loans corresponding to 600 basis points of the interest rate in kind, or PIK, on each applicable payment date, subject to prior written notice delivered to the Administrative Agent, which has been delivered. Each of the Term Loans will be subject to the original issue discount of 2% of the principal amount thereof upon the drawing of each applicable tranche. Upon any payment or prepayment in full or in part of the Term Loans, whether voluntary or involuntary, the Company is required to pay an exit fee equal to 3% of the principal amount of the Term Loan paid, or the Exit Fee.
The Company may elect to prepay all or any portion of the amounts owed prior to the Maturity Date, provided that the Company provides notice to the Administrative Agent, the amount is not less than $5 million, and the amount is accompanied by all accrued and unpaid interest thereon through the date of prepayment, plus the applicable yield protection premium and the applicable Exit Fee. Prepayments of the Tranche A Term Loans or Tranche B Term Loans prior to the second anniversary of the Closing Date or prepayments of the Tranche C Term Loans or Tranche D Term Loans prior to the one-year anniversary of the applicable funding date will be accompanied by a yield protection premium equal to the sum of all interest that would have accrued through such second anniversary plus 4% of the principal amount so prepaid. Prepayments of the Term Loans after the second anniversary of the Closing Date in the case of Tranche A Term Loans and Tranche B Term Loans or the one year anniversary of the applicable funding date in the case of the Tranche C Term Loans and the Tranche D Term Loans but before, in each case, the third anniversary of the Closing Date, will be accompanied by a yield protection premium equal to 4% of the principal amount so prepaid if made prior to the third anniversary of the Closing Date, 2% if made on or after the 3rd anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date, and 0% if made on or after the 4th anniversary of the Closing Date. If the Term Loans are accelerated following the occurrence of an event of default, the Company shall immediately pay to Lenders the sum of all obligations for principal, accrued interest, the applicable yield maintenance premium and the applicable Exit Fee. Under the Amendment, Tranche D Term Loans were modified to provide for a make whole plus 4% for any prepayments of the Tranche C Term Loans and Tranche D Term Loans during the one year period after their advance. The existing prepayment premium schedule was otherwise preserved.
Pursuant to the Credit Agreement, the obligations of the Company are guaranteed by its subsidiaries that are party thereto as guarantors. On the Closing Date, the Company and such subsidiaries entered into a U.S. Security Agreement in favor of the Administrative Agent on behalf of Lenders, or the U.S. Security Agreement. Pursuant to the U.S. Security Agreement, the Company and its subsidiaries party thereto granted the Administrative Agent a security interest in substantially all of its personal property, rights and assets to secure the payment of all amounts owed to Lenders under the Credit Agreement.
The Credit Agreement contains customary affirmative and restrictive covenants and representations and warranties. The Company and its subsidiaries are bound by certain affirmative covenants setting forth actions that are required during the term of the Credit Agreement, including, without limitation, certain information delivery requirements, obligations to maintain certain insurance, and certain notice requirements. Additionally, the Company and its subsidiaries are bound by certain restrictive covenants setting forth actions that are not permitted to be taken during the term of the Credit Agreement without prior written consent, including, without limitation, incurring certain additional indebtedness, consummating certain mergers, acquisitions or other business combination transactions, or incurring any non- permitted lien or other encumbrance on the assets of the Company or any of its subsidiaries. The Credit Agreement also contains other customary provisions, such as confidentiality obligations and indemnification rights for the benefit of Lenders. The Credit Agreement contains financial covenants requiring (a) the Company to maintain minimum liquidity of at least $20 million from and after the Closing Date or $25 million from and after the funding of the Tranche B Term Loans, and (b) for each fiscal quarter until gross sales of the Company and its subsidiaries for any 12-consecutive month period are no less than $200 million, minimum gross sales of the Company and its subsidiaries for each consecutive 12-month
24
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
period ending on the last day of each fiscal quarter in excess of 50% of specified target gross sales for such period. The Credit Agreement provides for a customary equity cure right in the event the Company fails to comply with the minimum gross sales covenant.
The effective interest rate under the Credit Agreement is 10.4%, and the weighted average interest rate is 9.0%. The Company elected to pay interest in kind on up to two-thirds of cash interest payments prior to the second anniversary of the Closing Date, resulting in a minimum initial cash interest rate of 3.00%. In connection with the Credit Agreement, the Company incurred $5.2 million and $4.2 million in interest expense during the three months ended June 30, 2024 and 2023, respectively, and $10.1 million and $8.3 million in interest expense during the six months ended June 30, 2024 and 2023, respectively. No principal payments are due on the Term Loans until the final maturity date on April 26, 2027.
As of June 30, 2024, $196.4 million was outstanding under the Credit Agreement representing the initial principal of $150 million for the Tranche A Term Loan, $25 million for the Tranche B Term Loan and $21.4 million of interest accrued into the principal balance.
The Company recorded Oaktree debt on the condensed consolidated balance sheets as follows:
June 30,
2024		December 31,
2023
(in thousands)
Principal$196,400 $192,566 
Net unamortized debt discount and issuance costs(2,668)(3,827)
Net carrying value of Oaktree debt$193,732 $188,739 
As of June 30, 2024, the Company was in compliance with all financial debt covenants.
6.     Leases
The Company recognizes lease liabilities and ROU assets upon commencement for all material leases with a term greater than 12 months. The Company has elected an expedient not to recognize leases with a lease term of 12 months or less on the balance sheet. These short-term leases are expensed on a straight-line basis over the lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. Lease liabilities are accreted each period and reduced for payments. The ROU asset also includes other adjustments, such as for the effects of escalating rents, rent abatement or initial lease costs. The lease term may include periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise a renewal option, or reasonably certain it will not exercise an early termination option. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement. The Company’s finance leases are not material.
The Company has operating leases for facilities and office spaces. Operating lease assets and the related lease liabilities are included within the ROU operating lease assets on the condensed consolidated balance sheets. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. The Company has operating leases for certain facilities, and office spaces to be used in its operations, with remaining lease terms ranging from monthly to 6 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for additional years. These optional
25
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
periods have not been considered in the determination of the ROU or lease liabilities associated with these leases as management did not consider it reasonably certain it would exercise the options.
During the six months ended June 30, 2024, the Company earned income from subleasing a warehouse facility for the remaining life of an existing master lease. The sublease agreement did not release the Company from its obligations under the master lease, and no modifications were made to the lease agreement. Income from the sublease is recognized on a straight-line basis over the term of the agreement.
The Company’s lease and sublease agreements do not contain any termination options, material residual value guarantees, material bargain purchase options or material restrictive covenants. The Company does not have any lease transactions with related parties.
Total lease cost includes the following components:
Six Months Ended June 30,
20242023
(in thousands)
Operating lease expense cost$627 $550 
Sublease income
(156)— 
Total lease cost, net of sublease income$471 $550 
June 30,
2024		December 31,
2023
Supplemental balance sheet information
(in thousands)
Operating lease right-of-use assets$3,717 $3,381 
Operating lease liabilities - short-term$842 $773 
Operating lease liabilities - long-term2,989 2,712 
Total operating lease liabilities$3,831 $3,485 
Weighted-average remaining lease term (years)
Operating leases4.34.6
Weighted-average discount rate (%)
Operating leases10.1 %9.3 %
26
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Six Months Ended June 30,
20242023
Cash paid for amounts included in the measurement of lease liabilities(in thousands)
Operating cash outflows from operating lease expenses
$606 $538 
Operating cash inflows from subleases
(159)— 
Operating cash outflows from operating leases, net of sublease income$447 $538 
ROU assets obtained in exchange for new lease liabilities
Operating leases$734 $478 
Maturities of lease liabilities as of June 30, 2024 were as follows:
Years Ending December 31,
Operating Leases
(in thousands)
2024 (remaining)
$576 
2025
1,111 
20261,029 
2027919 
2028775 
Thereafter368 
Total future minimum lease payments4,778 
Less: Amount of lease payments representing interest(947)
Present value of future minimum lease payments$3,831 
The undiscounted future cash receipts from the Company’s sublease as of June 30, 2024 were as follows:
Years Ending December 31,
Sublease
(in thousands)
2024 (remaining)
$161 
2025
332 
2026343 
2027355 
2028368 
Thereafter315 
Total undiscounted future sublease cash receipts
$1,874 
7.    Shareholders’ Equity
Under the Company’s Amended and Restated Memorandum of Association and Articles of Association, or Articles, in effect as of June 30, 2024 and December 31, 2023, the Company has authorized an unlimited number of common shares with no par value.
27
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of June 30, 2024 and December 31, 2023, 28,349,936 and 26,495,250 common shares, respectively, were issued and 27,941,866 and 26,087,180 common shares, respectively, were outstanding.
During the six months ended June 30, 2024, the Company granted stock options and RSUs to employees and contractors (see Note 9).
On January 9, 2024, the Company entered into a securities purchase agreement with select institutional accredited investors to sell 1,101,565 common shares at a price of $25.00 per share and pre-funded warrants to purchase 898,435 common shares at a price of $24.999 per share. The pre-funded warrants may be exercised immediately at a price of $0.001 per share until exercised in full. Net proceeds to the Company from the offering, after deducting offering expenses, were approximately $49.7 million.
On April 27, 2023, the Company issued 1,100,000 common shares in an underwritten public offering, at a price to the public of $71.50 per share. The underwriters purchased the shares from the Company at a price of $67.21 per share and exercised the option to purchase an additional 165,000 common shares, at the public offering price per share. Net proceeds to the Company after deducting underwriting discounts and offering expenses were approximately $84.6 million.
The Company had reserved common shares for future issuances as follows:
June 30,
2024
December 31, 2023
Warrants to purchase common shares298,435 — 
Options to purchase common shares1,428,909 1,487,387 
Remaining shares available under the 2018 Equity Incentive Plan2,911,337 2,953,884 
Shares issuable on vesting of grants of RSUs287,024 196,177 
Remaining shares available under the 2018 ESPP1,222,000 1,035,000 
Total common shares reserved for future issuances
6,147,705 5,672,448 
8.    Warrants
In January 2024, the Company issued pre-funded warrants for the purchase of 898,435 common shares to select institutional accredited investors at a fixed exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and until exercised in full.
During the three and six months ended June 30, 2024, warrants to purchase 376,978 and 600,000 shares were net exercised to obtain 376,972 and 599,991 shares, respectively. As of June 30, 2024, warrants to purchase 298,435 common shares were outstanding and exercisable, as set forth in the table below. As of December 31, 2023, no warrants were outstanding and exercisable.
Warrant HolderIssue DateSharesExercise PriceExpiration Date
RTW Master Fund, Ltd.1/9/2024164,367$0.001 *
RTW Innovation Master Fund, Ltd.1/9/2024134,068$0.001 *
* The warrants are exercisable immediately and until exercised in full.
9.     Share-Based Compensation
In 2015, the Board of Directors approved and adopted the 2015 Equity Incentive Plan, or 2015 Plan. Pursuant to the 2015 Plan, the Company granted RSAs and stock options to members of the Board of Directors, employees and consultants.
28
ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In 2018, the Board of Directors terminated the 2015 Plan and approved the 2018 Equity Incentive Plan, or the 2018 Plan, with an initial reserve of 1,500,000 common shares. Under the 2018 Plan, the Company may grant stock options, equity appreciation rights, RSUs and RSAs. If an award granted under the 2018 Plan expires, terminates, is unexercised, or is forfeited, or if any shares are surrendered in connection with an incentive award, the shares subject to such award and the surrendered shares become available for further awards under the 2018 Plan.
Pursuant to the “evergreen” provision contained in the 2018 Plan, the number of common shares reserved for issuance under the 2018 Plan automatically increases on first day of each fiscal year, commencing on January 1, 2019, in an amount equal to the least of (1) 750,000 shares, (2) 4% of the total number of the Company’s common shares outstanding on the last day of the preceding fiscal year, or (3) a number of common shares as may be determined by the Company’s Board of Directors prior to any such increase date. On each of January 1, 2019 through 2024 the number of common shares authorized for issuance increased automatically by