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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 March 31, 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 May 8, 2024 was 27,514,756.



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.
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.
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.
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 has 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
March 31,
2024
December 31,
2023
(Unaudited)
Assets
Current assets:
Cash$72,980 $40,035 
Accounts receivable, net of allowance for credit losses of $2,014 and $1,841
50,838 46,918 
Inventory, net72,489 79,471 
Prepaid expenses and other current assets7,388 8,477 
Total current assets203,695 174,901 
Long-term assets:
Property and equipment, net of accumulated depreciation79,244 77,205 
Goodwill465 465 
Intangible assets, net of accumulated amortization9,515 7,987 
Right-of-use operating lease assets, net3,908 3,381 
Other non-current assets5,011 4,702 
Total assets$301,838 $268,641 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$31,070 $41,624 
Accrued liabilities15,207 13,690 
Other liabilities, short-term1,739 1,836 
Total current liabilities48,016 57,150 
Long-term liabilities:
Note payable, net of debt discount and issuance costs192,186 188,739 
Operating lease liabilities, non-current3,180 2,712 
Other liabilities, long-term1,545 1,645 
Total liabilities244,927 250,246 
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common shares — zero par value, unlimited amount authorized; 27,884,749 and 26,495,250 shares issued at March 31, 2024 and December 31, 2023, respectively; 27,476,679 and 26,087,180 shares outstanding at March 31, 2024 and December 31, 2023, respectively
367,138 315,634 
Additional paid-in-capital66,841 63,748 
Treasury shares, at cost, 408,070 shares held at March 31, 2024 and December 31, 2023
(2,854)(2,854)
Accumulated deficit(376,298)(360,096)
Accumulated other comprehensive income2,084 1,963 
Total shareholders’ equity
56,911 18,395 
Total liabilities and shareholders’ equity
$301,838 $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 March 31,
20242023
Revenue$37,167 $46,524 
Cost of revenue12,787 16,445 
Gross profit24,380 30,079 
Operating expenses:
Sales, general and administrative28,941 31,706 
Research and development4,273 6,533 
Total operating expenses33,214 38,239 
Loss from operations(8,834)(8,160)
Interest income488 75 
Interest expense(4,381)(3,756)
Other income (expense), net(3,037)729 
Loss before income taxes(15,764)(11,112)
Provision for income taxes(438)(830)
Net loss$(16,202)$(11,942)
Basic and diluted net loss per share$(0.58)$(0.48)
Weighted average outstanding shares used for basic and diluted net loss per share27,788,120 24,678,113 
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 March 31,
20242023
Net loss$(16,202)$(11,942)
Other comprehensive income (loss):
Foreign currency translation gain (loss)121 (402)
Other comprehensive income (loss)121 (402)
Comprehensive loss$(16,081)$(12,344)
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 
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)
The accompanying notes are an integral part of these condensed consolidated financial statements.

7

ESTABLISHMENT LABS HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net loss$(16,202)$(11,942)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,268 936 
Provision for credit losses
275 282 
Provision for inventory obsolescence562 (387)
Share-based compensation 3,444 3,324 
Loss from disposal of property and equipment6 288 
Unrealized foreign currency (gain)/ loss, net2,039 (1,709)
Amortization of right-to-use asset145 177 
Change in reserve for PP&E impairment (341)
Stock compensation in lieu of cash fees110  
Interest capitalized for construction in progress(537)(797)
Non-cash interest expense and amortization of debt discount3,447 3,187 
Changes in operating assets and liabilities:
Accounts receivable(4,608)(5,356)
Inventory5,001 (8,494)
Prepaid expenses and other current assets1,790 (246)
Other assets(323)(137)
Accounts payable(10,097)(1,482)
Accrued liabilities2,846 2,236 
Operating lease liabilities(142)(175)
Other liabilities(176)22 
Net cash used in operating activities(11,152)(20,614)
Cash flows from investing activities:
Purchases of property and equipment(3,312)(432)
Cost incurred for intangible assets(1,879)(49)
Capital expenditures on construction in progress(1,435)(3,797)
Net cash used in investing activities(6,626)(4,278)
Cash flows from financing activities:
Issuance of common stock, net of underwriters’ discount and issuance costs49,736  
Repayments on finance leases (26)
Proceeds from stock option exercises1,426 1,271 
Tax payments related to shares withheld upon vesting of restricted stock(119)(62)
Net cash provided by financing activities51,043 1,183 
Effect of exchange rate changes on cash and cash equivalents(320)201 
Net increase (decrease) in cash and cash equivalents32,945 (23,508)
Cash and cash equivalents at beginning of period40,035 66,355 
Cash and cash equivalents at end of period$72,980 $42,847 
Supplemental disclosures:
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)
Three Months Ended March 31,
20242023
Cash paid for interest$1,466 $1,360 
Cash paid for income taxes$676 $218 
Supplemental disclosures of non-cash investing and financing activities:
Unpaid balance for property and equipment$1,309 $1,514 
Unpaid balance for intangible assets$2,936 $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.

9

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 March 31, 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 is in the process of finishing the construction for a 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 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.
Subsequent to quarter end, in April 2024, the Company announced that the FDA has scheduled the PMA preapproval inspection of the Company’s manufacturing facility in Costa Rica for Motiva Implants. The inspection by the FDA is scheduled to take place during the second quarter of 2024. 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.
2.    Summary of Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 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,
10

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
they do not include all of the information and notes required by GAAP for complete financial statements.
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 March 31, 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 March 31, 2024 and for the three months ended March 31, 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 March 31, 2024, and the results of its operations and cash flows for the three months ended March 31, 2024 and 2023. Such adjustments are of a normal and recurring nature. The results for the three months ended March 31, 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.
11

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Geographic Concentrations
The Company derives substantially all its revenues from sales to customers in Europe, the Middle East, Latin 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 three months ended March 31, 2024 and 2023, Brazil accounted for 10.5% and 12.8%, 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 84% and 80% of the total long-lived assets as of March 31, 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 three months ended March 31, 2024, no customer accounted for more than 10% of the Company’s revenue. During the three months ended March 31, 2023, one customer accounted for more than 10% of the Company’s revenue. Two customers accounted for 12.5% and 10.7% of the Company’s trade accounts receivable balance as of March 31, 2024. Two customers accounted for 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 three months ended March 31, 2024 and 2023, the Company had purchases of $4.9 million, or 54.0% of total purchases, and $13.2 million, or 55.1% of total purchases, respectively, from Avantor. As of March 31, 2024 and December 31, 2023, the Company had an outstanding balance owed to this vendor of $4.1 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.
12

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Products developed by the Company require clearances 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 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 $2.4 million and $2.8 million in cash equivalents as of March 31, 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 $4.3 million and $3.9 million has been recorded as of March 31, 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 March 31, 2024 and 2023, shipping and handling costs were $1.7 million and $2.8 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
13

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 product 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 $0.1 million and $0.3 million was recorded for product returns as of March 31, 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 March 31,
20242023
(in thousands)
EMEA (Europe / Middle East / Africa)$20,602 $19,985 
Latin America7,905 11,620 
Asia-Pacific8,598 14,021 
Other62 898 
Total revenue$37,167 $46,524 
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).
14

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
15

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 March 31, 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 March 31, 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 three months ended March 31, 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
16

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 March 31, 2024, foreign currency transaction loss amounted to $3.0 million as compared to a foreign currency transaction gain of $0.9 million for the three months ended March 31, 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 March 31, 2024 or results of operations for the three months ended March 31, 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.
17

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 requirements for entities with a single reportable segment. The new guidance is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025. 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
March 31,
2024
December 31,
2023
(in thousands)
Raw materials$39,080 $40,663 
Work in process1,578 1,727 
Finished goods31,831 37,081 
Total inventory, net
$72,489 $79,471 
18

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of March 31, 2024 and December 31, 2023, $8.3 million and $7.1 million of inventory was on consignment, respectively.
Prepaid Expenses and Other Current Assets
March 31,
2024
December 31,
2023
(in thousands)
Prepaid insurance$431 $2,747 
Prepaid services1,882 420 
Prepaid taxes792 1,073 
Prepaid assets352 394 
Prepaid raw materials and accessories254 468 
Prepaid U.S. clinical trial costs137 176 
Prepaid warranty and distribution rights249 275 
Prepaid software594 506 
Other
2,697 2,418 
Total prepaid expenses
$7,388 $8,477 
Property and Equipment, Net
March 31,
2024
December 31,
2023
(in thousands)
Machinery and equipment$20,040 $20,510 
Building improvements10,137 10,626 
Furniture and fixtures13,782 9,224 
Building16,109 16,109 
Leasehold improvements2,580 2,600 
Land3,694 3,694 
Vehicles176 176 
Construction in process29,951 30,593 
Total96,469 93,532 
Less: Accumulated depreciation and amortization(17,225)(16,327)
Total property and equipment, net
$79,244 $77,205 
For the three months ended March 31, 2024 and 2023, depreciation and amortization expense related to property and equipment was $0.9 million and $0.6 million, respectively.
In August 2021, the Company entered into a contract with the Zona Franca Coyol, S.A., or CFZ, to begin construction of a new manufacturing facility in Costa Rica. The costs for improvement of the land and construction of a cold shell building were being paid for by CFZ 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 Company has the option to buy an adjacent lot of land for approximately
19

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
$2.8 million and engage CFZ to construct an additional manufacturing facility. In July 2023, the Company announced the grand opening of the first phase of the Sulàyöm Innovation Campus.
Accrued Liabilities
Accrued liabilities consisted of the following:
March 31,
2024
December 31,
2023
(in thousands)
Performance bonus$5,543 $4,451 
Payroll and related expenses5,319 5,223 
Operating lease liabilities - current837 773 
Commissions434 344 
Professional and legal services1,828 1,269 
Taxes380 109 
Warranty reserve130 119 
Other736 1,402 
Total accrued liabilities$15,207 $13,690 
Other Liabilities, Short-Term
Other liabilities, short-term consisted of the following:
March 31,
2024
December 31,
2023
(in thousands)
Deferred revenue$1,739 $1,836 
Other Liabilities, Long-Term
Other liabilities, long-term consisted of the following:
March 31,
2024
December 31,
2023
(in thousands)
Deferred revenue$1,394 $1,498 
Other151 147 
Total other liabilities, long-term
$1,545 $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.
20

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s goodwill and most intangibles at March 31, 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.
There were no changes in the carrying amount of goodwill during the three months ended March 31, 2024:
Balance as of January 1, 2024
AdditionsAccumulated Impairment Losses
Balance as of March 31, 2024
(in thousands)
Goodwill$465 $ $ $465 
The carrying amounts of these intangible assets other than goodwill as of March 31, 2024 were as follows:
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountEstimated Useful Lives
(in thousands)(in years)
Patents and license rights$2,007 $(1,438)$569 
7-12
Customer relationships2,033 (1,992)41 
4-10
510(k) authorization567 (317)250 15
Developed technology62 (62) 10
Capitalized software development costs5,293 (2,919)2,374 
2-5
Other183 (42)141 
2-5
Capitalized software development costs not yet amortized
5,698 — 5,698 
Patents and license rights not yet amortized
441 — 441 
Total intangibles other than goodwill
$16,284 $(6,770)$9,515 
21

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 
The amortization expense associated with intangible assets was $0.3 million for each of the three months ended March 31, 2024 and 2023. Non-product related amortization is recorded in SG&A while product related amortization is recorded in cost of revenue.
As of March 31, 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)
$848 
2025
1,024 
2026561 
2027329 
2028185 
Thereafter427 
Total expected future amortization expense
$3,374 
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 March 31, 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.
22

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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
23

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 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%. During the three months ended March 31, 2024 and 2023, the Company incurred $4.3 million and $4.1 million in interest expense, respectively, in connection with the Credit Agreement. No principal payments are due on the Term Loans until the final maturity date on April 26, 2027.
As of March 31, 2024, $195.5 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 $20.5 million of interest accrued into the principal balance.
The Company recorded Oaktree debt on the condensed consolidated balance sheets as follows:
March 31,
2024
December 31,
2023
(in thousands)
Principal$195,455 $192,566 
Net unamortized debt discount and issuance costs(3,269)(3,827)
Net carrying value of Oaktree debt$192,186 $188,739 
As of March 31, 2024, the Company was in compliance with all financial debt covenants.
24

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 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 three months ended March 31, 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:
Three Months Ended March 31,
20242023
(in thousands)
Operating lease expense cost$313 $277 
Sublease income
(78) 
Total lease cost, net of sublease income
$235 $277 
25

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2024
December 31,
2023
Supplemental balance sheet information
(in thousands)
Operating lease right-of-use assets$3,908 $3,381 
Operating lease liabilities - short-term837 773 
Operating lease liabilities - long-term3,180 2,712 
Total operating lease liabilities$4,017 $3,485 
Weighted-average remaining lease term (years)
Operating leases4.54.6
Weighted-average discount rate (%)
Operating leases10.1 %9.3 %
Three Months Ended March 31,
20242023
Cash paid for amounts included in the measurement of lease liabilities(in thousands)
Operating cash outflows from operating lease expenses
$306 $268 
Operating cash inflows from subleases
(80) 
Operating cash outflows from operating leases, net of sublease income$226 $268 
ROU assets obtained in exchange for new lease liabilities
Operating leases$734 $478 
Maturities of lease liabilities as of March 31, 2024 were as follows:
Years Ending December 31,
Operating Leases
(in thousands)
2024 (remaining)
$877 
2025
1,101 
20261,026 
2027920 
2028775 
Thereafter369 
Total future minimum lease payments5,068 
Less: Amount of lease payments representing interest(1,051)
Present value of future minimum lease payments$4,017 
26

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The undiscounted future cash receipts from the Company’s sublease as of March 31, 2024 were as follows:
Years Ending December 31,
Sublease
(in thousands)
2024 (remaining)
$241 
2025
332 
2026343 
2027355 
2028368 
Thereafter315 
Total undiscounted future sublease cash receipts
$1,954 
7.    Shareholders’ Equity
Under the Company’s Amended and Restated Memorandum of Association and Articles of Association, or Articles, in effect as of March 31, 2024 and December 31, 2023, the Company has authorized an unlimited number of common shares with no par value.
As of March 31, 2024 and December 31, 2023, 27,884,749 and 26,495,250 common shares, respectively, were issued and 27,476,679 and 26,087,180 common shares, respectively, were outstanding.
During the three months ended March 31, 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 us 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 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:
March 31,
2024
December 31, 2023
Warrants to purchase common shares675,413  
Options to purchase common shares1,517,183 1,487,387 
Remaining shares available under the 2018 Equity Incentive Plan2,165,718 2,953,884 
Shares issuable on vesting of grants of RSUs312,426 196,177 
Remaining shares available under the 2018 ESPP1,222,000 1,035,000 
Total5,892,740 5,672,448 
8.    Warrants
In January 2024, the Company issued pre-funded warrants for the purchase of 898,435 common shares to select
27

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 months ended March 31, 2024, warrants to purchase 223,022 shares were net exercised to obtain 223,019 shares. As of March 31, 2024, warrants to purchase 675,413 common shares were outstanding and exercisable. As of December 31, 2023, no warrants were outstanding and exercisable.
Warrant HolderIssue DateSharesExercise PriceExpiration Date
Blackwell Partners LLC1/9/2024296,978$0.001 *
Pinehurst Partners, L.P.1/9/202480,000$0.001 *
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.
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 750,000 shares in accordance with the evergreen provision, increasing the maximum number of common shares reserved under the 2018 Plan to 6,000,000.
During the periods presented, the Company recorded the following share-based compensation expense for stock options and RSUs:
Three Months Ended March 31,
20242023
(in thousands)
Sales, general and administrative $2,908$2,748
Research and development536576
Total stock compensation expense
$3,444$3,324
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ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock Options
 Number of Options OutstandingWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (in thousands)
Balances at December 31, 2023
1,487,387 $47.47 6.27$4,308 
Granted (weighted-average fair value $32.58 per share)
144,463 46.47 
Exercised(53,400)26.70 
Forfeited/canceled(61,267)67.18 
Balances at March 31, 2024
1,517,183 $47.31 6.38$19,981 
As of March 31, 2024, 975,179 options were vested and exercisable with a weighted-average exercise price of $41.52 per share and a total aggregate intrinsic value of $17.6 million.
During the three months ended March 31, 2024, 53,400 options were exercised at a weighted-average price of $26.70 per share. The intrinsic value of the options exercised during the three months ended March 31, 2024 and 2023 was $1.1 million and $2.5 million, respectively. Upon the exercise of stock options, the Company issued new shares from its authorized shares.
At March 31, 2024, unrecognized compensation expense was $14.5 million related to stock options granted to employees and members of the Board of Directors and $0.9 million related to stock options granted to consultants. The weighted-average period over which such compensation expense will be recognized is 2.3 years.
Stock Options Granted to Employees
Share-based compensation expense for employees is based on the grant date fair value. The Company recognizes compensation expense for all share-based awards ratably on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of four years. During the three months ended March 31, 2024 and 2023, the Company recognized $1.8 million and $2.1 million, respectively, of share-based compensation expense for stock options granted to employees.
The Company uses the Black-Scholes option valuation model to value options granted to employees and consultants, which requires the use of highly subjective assumptions to determine the fair value of share-based awards. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment. If factors change and different assumptions are used, the Company’s share-based compensation expense could be materially different in the future. The assumptions and estimates that the Company uses in the Black-Scholes model are as follows:
Fair Value of Common Shares. The closing price of the Company’s publicly-traded common shares on the date of grant is used as the fair value of the shares. The Board of Directors intended all options granted to be exercisable at a price per share not less than the estimated per share fair value of the shares underlying those options on the date of grant.
Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the term of the options for each option group on the measurement date.
Term. For employee stock options, the expected term represents the period that the Company’s share-based awards are expected to be outstanding. Because of the limitations on the sale or transfer of the Company’s shares during the period the Company was a privately held company, the Company does not believe its historical exercise pattern is indicative of the pattern it experiences as a publicly traded company. The Company consequently uses the Staff Accounting Bulletin 110, or SAB 110, simplified
29

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
method to calculate the expected term of employee stock options, which is the average of the contractual term and vesting period. The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company. For consultant stock options, the term used is equal to the remaining contractual term on the measurement date.
Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it does not have sufficient trading history for its shares. Industry peers consist of several public companies in the medical device industry with comparable characteristics, including revenue growth, operating model and working capital requirements. The Company intends to continue to consistently apply this process using the same or a similar peer group of public companies until a sufficient amount of historical information regarding the volatility of its own shares becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common share prices are publicly available would be utilized in the calculation. The volatility is calculated based on the term on the measurement date.
Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. The Company has no expectation that it will declare dividends on its common shares, and therefore has used an expected dividend yield of zero.
The fair value of stock options granted to employees was estimated using the following assumptions:
Three Months Ended March 31,
20242023
Volatility
71% - 75%
62%
Risk-free interest rate
4.1% - 4.8%
4.1% - 4.3%
Term (in years)6.256.25
Dividend yield
Stock Options Granted to Non-Employees
Share-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned using an accelerated attribution method. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. For the three months ended March 31, 2024 and 2023, the Company recognized expense of $0.1 million and $0.4 million, respectively, for stock options granted to consultants.
The fair value of stock options granted to consultants was estimated using the following assumptions during the following periods presented:
Three Months Ended March 31,
20242023
Volatility
65% - 68%
60%
Risk-free interest rate
4.1% - 4.5%
4.0%
Term (in years)1010
Dividend yield
30

ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Restricted Stock
Each vested RSU entitles the holder to be issued one common share. These awards vest according to a vesting schedule determined by the Compensation Committee of the Company’s Board of Directors, generally over a one to four year period.
The following table represents RSU activity for fiscal 2024:
 Restricted Stock Units Weighted-
Average
Grant Date
Fair Value
Outstanding unvested at December 31, 2023
196,177 $56.89 
Granted140,770 47.29 
Vested(11,979)69.42 
Forfeited/canceled(12,542)62.24 
Outstanding unvested at March 31, 2024
312,426 $51.87 
The fair value of RSUs is the grant date market value of common shares. The Company recognizes share-based compensation expense related to RSUs using a straight-line method over the vesting term of the awards. The share-based compensation expense for RSUs that vested during the three months ended March 31, 2024 and 2023, was $1.5 million and $0.8 million, respectively, which was calculated based on the market value of the Company’s common shares on the applicable grant date.
As of March 31, 2024, the Company had unrecognized share-based compensation cost of approximately $14.9 million associated with unvested awards of RSUs. This cost is expected to be recognized over a weighted-average period of approximately 2.7 years.
10 .    Net Loss Per Share
The following table summarizes the computation of basic and diluted net loss per share for the periods presented:
Three Months Ended March 31,
20242023
(in thousands, except share and per share data)
Numerator:
Net loss$(16,202)$(11,942)
Denominator:
Weighted average common shares used for basic and diluted earnings per share27,788,120 24,678,113 
Net loss per share:
Basic and diluted
$(0.58)$(0.48)
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares and dilutive share equivalents outstanding for the period, determined using the treasury-share method and the as-if converted method, for convertible securities, if inclusion of these is dilutive.
If the Company reports a net loss, diluted net loss per share is the same as basic net loss per share for those periods because including the dilutive securities would be anti-dilutive.
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ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following potentially dilutive securities outstanding at the end of the periods presented have been excluded from the computation of diluted shares:
Three Months Ended March 31,
20242023
Options to purchase common shares1,517,183 1,634,983 
Shares issuable on vesting of grants of RSUs312,426 202,680 
Total potentially dilutive shares outstanding
1,829,609 1,837,663 
11.    Related Party Transactions
During the three months ended March 31, 2024 and 2023, the Company recorded revenue of $0.2 million and $0.5 million, respectively, for product sales to Herramientas Medicas, S.A., a distribution company owned by a family member of the Chief Executive Officer of the Company. Accounts receivable owed to the Company from this distribution company amounted to approximately $0.4 million and $0.6 million as of March 31, 2024 and December 31, 2023, respectively.
In 2016, the Company also entered into a separate agreement with Dr. Chacón Quirós, the brother of the Company’s Chief Executive Officer Juan José Chacón Quirós, to maintain his clinic in Costa Rica as a MotivaImagine Excellence Center and to host and train physicians in the use of the Company’s products in relevant procedures, among other services, in exchange for cash reimbursement of up to $4,500 per day that such services are rendered. In August 2022, the Company entered into a new agreement with Dr. Chacón Quirós, replacing the original agreement, to continue the training services in exchange for cash reimbursement of his hourly rate of $531 when such services are rendered. In December 2020, Dr. Chacón Quirós was granted options to purchase 22,068 common shares vesting over four years in equal annual installments, provided that he continues to provide these services at such times. During the three months ended March 31, 2024 and 2023, the Company paid Dr. Chacón Quirós approximately $30,000 and $60,000, respectively, for services rendered.
On December 12, 2022, the Company granted to Nicholas Lewin, a member of the board of directors, a stock option award for 7,829 options with a grant date fair value of $0.4 million as a compensation for consulting services he performs for the Company in addition to his services as a non-employee director. In addition, on May 28, 2023, the Company awarded Mr. Lewin a performance-based grant for 27,756 restricted stock units with a grant date fair value of $1.8 million as compensation for consulting services he performed for the Company.
On April 1, 2022, the Company entered into a consulting agreement with Lisa Gersh, who served on the Company’s board of directors until March 31, 2022. Pursuant to the consulting agreement, Ms. Gersh will perform consulting services as requested by the Company, with the expectation that she will advise the board of directors on elements of corporate leadership and governance. During the three months ended March 31, 2024 and 2023, the Company paid Ms. Gersh a consulting fee of $43,750. In addition, her outstanding equity awards granted during her term as a member of the board of directors continued to vest in accordance with their terms. The consulting agreement terminated on March 31, 2024.
12.     Employee Benefits
Short-term employee benefits, including vacation (paid absences) and year-end bonuses (also known as 13th month salary), are current liabilities included in accrued liabilities on the consolidated balance sheets and are calculated at the non-discounted amount that the Company expects to pay as a result of uncharged employee salaries or retentions.
Regarding employee termination benefits, Costa Rica labor laws establish the payment of benefits in case of death, retirement or termination without cause. This compensation is calculated according to time served in the Company and the corresponding salary in the last six months of employment and is equal to between 19.5 and 22 days’ salary for each year served, up to a maximum of 8 years.
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ESTABLISHMENT LABS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Company policy recognizes termination benefits as expenses of the period during which the termination occurs, when the legal obligation is assumed due to the aforementioned events.
As of March 31, 2024, the Company has 41 employees in Brazil and 4 employees in Argentina who are represented by a labor union.
13.     Commitments and Contingencies
Contingencies
Periodically, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. As of March 31, 2024 and 2023, and as of December 31, 2023, contingent liabilities were not material, individually or in aggregate, to the Company's financial condition, results of operations or cash flows. However, any monetary liability or financial impact to the Company from these contingent liabilities could differ materially from the Company's expectations.
Indemnification
The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future that have not yet been made.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements” above.
Overview
Our line of silicone gel-filled breast implants, branded as Motiva Implants, is the centerpiece of our medical technology platform and, to date, are registered to be sold in 86 countries, including, most recently, in China. Our post-market surveillance data (which was not generated in connection with a United States Food and Drug Administration, or FDA, pre-market approval, or PMA, study collected at defined follow-ups but was patient or practitioner reported) and published third-party registries and data indicate that Motiva Implants have low rates of adverse events (including rupture, capsular contracture, and safety related reoperations) that we believe compare favorably with those of our competitors. We believe the proprietary technologies that differentiate our Motiva Implants enable improved safety and aesthetic outcomes and drive our revenue growth. We have developed other complementary products and services, which are aimed at further enhancing patient outcomes.
We have devoted a majority of our resources since inception to developing our Motiva Implants, which we began selling in October 2010. We have incurred net losses in each year since inception, and we have financed our operations primarily through equity financings and debt financings. We are currently seeking FDA approval to sell Motiva Implants in the United States. We obtained an investigational device exemption, or IDE, from the FDA in March 2018 to conduct a clinical trial for the Motiva Implants and, in February 2023, we submitted the last of the four required modules to the FDA. In October 2023, the FDA granted 510(k) clearance for the Motiva Flora SmoothSilk Tissue Expander. In April 2024, the FDA scheduled a preapproval inspection of our manufacturing facility in Costa Rica for Motiva Implants, scheduled to occur in the second quarter of 2024.
In April 2023, we presented three-year patient follow-up data for the primary augmentation cohort of the IDE clinical trial at The Aesthetic Meeting. The preliminary results for the primary augmentation cohort's four-year patient follow-up data, which we released in May 2024, indicated that our rates of capsular contracture and rupture have remained unchanged for the past two years. At year four, there are still only two patients with capsular contracture, which equates to one in 200 women, and only one patient with a suspected rupture.
Financial Highlights
Our revenue for the three months ended March 31, 2024 and 2023 was $37.2 million and $46.5 million, respectively, a decrease of $9.3 million, or 20.0%. Net losses were $16.2 million for the three months ended March 31, 2024 as compared to $11.9 million for the three months ended March 31, 2023. As of March 31, 2024 we had an accumulated deficit of $376.3 million.
Our cash balance as of March 31, 2024 was $73.0 million.
Recent Developments
Regulatory and Operational Updates
In April 2024, we announced that the FDA has scheduled the PMA preapproval inspection of our manufacturing facility for Motiva Implants. The inspection by the FDA is scheduled to take place during the second quarter of 2024.
In January 2024, we announced the commercial launch of Motiva Implants in China and the completion of the first procedure with the Motiva Flora SmoothSilk Tissue Expander in the United States. These events follow our receipt of National Medical Products Administration, or NMPA, approval in China for Motiva Implants and our 510(k) clearance from the FDA for the Motiva Flora SmoothSilk Tissue Expander in the United States in November 2023.
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We are in the process of expanding our manufacturing facilities and corporate offices in the Coyol Free Zone, or CFZ, in Costa Rica, which includes approximately 100,000 square feet of facility space intended to increase our manufacturing capacity by approximately 730,000 units per year. We estimate a total of $55.5 million in costs for this initial phase of our expansion project, of which the majority has been incurred to date. Additional phases of the project may be executed, at our option, to further expand manufacturing capacity at the new facility. We expect to commence manufacturing from the new facility in the second half of 2024. See Note 3 “Balance Sheet Accounts” for additional information.
In addition, in October 2023, we completed and announced the results of the two-year 100-patient clinical study for Mia Femtech, our patented technologies that can increase breast shape by 1 to 2 cups in a 15-minute procedure without the need for general anesthesia. The single-center, Institutional Review Board approved study began in December 2020 and involved participation of fifteen board-certified plastic surgeons from Costa Rica, Sweden, England, Brazil, Austria, Italy, Belgium, and the United States. We have launched Mia Femtech globally through partnerships with clinics in Japan, Spain, Switzerland, Sweden, Germany, France, Costa Rica, Turkey and the Middle East. In October 2023, we also launched, in select geographies, Zen - the newest generation of our passive RFID technology that is now non-ferromagnetic. Zen is available with Motiva Ergonomix2 Round implants in the Joy program.
Financing Activities
In January 2024, we entered into a securities purchase agreement with select institutional accredited investors to sell 1,101,565 common shares and pre-funded warrants to purchase 898,435 common shares. The pre-funded warrants are exercisable immediately, at a price of $0.001 per share, until exercised in full. Net proceeds to us form the offering, after deducting offering expenses, were approximately $49.7 million. See Note 7 “Shareholders’ Equity” for additional information.
In February 2024, we amended our credit agreement, or the Credit Agreement, with Oaktree Fund Administration, LLC, as administrative agent, which provides for term loans to the Company in an aggregate principal amount of up to $225 million. The amendment modified the access conditions, commitment termination dates and interest rates for the two remaining available tranches, Tranche C Term Loans and Tranche D Term Loans. See Note 5 “Debt” for additional information.
Components of Results of Operations
Revenue
We commenced sales of our Motiva Implants in October 2010, which have historically accounted for the majority of our revenues. Sales of our Motiva Implants accounted for over 96% of our revenues for the three months ended March 31, 2024, and we expect our revenues to continue to be driven primarily by sales of these products. We primarily derive revenue from sales of our Motiva Implants to two types of customers: (1) medical distributors and (2) direct sales to physicians, hospitals, and clinics.
We recognize revenue related to the sales of products at the time of shipment, except for a portion of our direct sales revenue that is generated from the sale of consigned inventory maintained at physician, hospital, and clinic locations. For consignment sales, revenue is recognized at the time we are notified by the consignee that the product has been implanted. Our contracts with distributors do not typically contain right of return or price protection and have no post-delivery obligations.
We expect our revenue to increase as we enter new markets, expand awareness of our products in existing markets, and grow our distributor network and direct sales force. We also expect our revenue to fluctuate from quarter to quarter due to a variety of factors, including seasonal fluctuations in demand for Motiva Implants. We are also affected by foreign currency fluctuations.
Cost of Revenue and Gross Margin
Our implants are manufactured at our two facilities in Costa Rica. A third facility in Costa Rica is under construction and is currently expected to commence manufacturing in the second half of fiscal 2024. Cost of revenue is primarily the cost of silicone but also includes other raw materials, packaging, components, quality
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assurance, labor costs, as well as manufacturing and overhead expenses. Cost of revenue also includes depreciation expense for production equipment, and amortization of certain intangible assets.
We calculate gross margin as revenue less cost of revenue for a given period divided by revenue. Our gross margin may fluctuate from period to period depending, in part, on the efficiency and utilization of our manufacturing facilities, targeted pricing programs, and sales volume based on geography, customer and product type.
Operating Expenses
Sales, General and Administrative
Sales, general and administrative, or SG&A, expenses primarily consist of compensation, including salary, share-based compensation and employee benefits for our sales and marketing personnel, and for administrative personnel that support our general operations such as information technology, executive management, financial accounting, customer service, and human resources personnel. SG&A expenses also include costs attributable to freight, marketing, sales support, travel, legal services, financial audit fees, insurance costs, and consulting services.
We expect our SG&A expenses to remain significant in absolute dollars as our business grows and we continue to invest in our sales, marketing, medical education, training and general administration resources to build our corporate infrastructure. However, we expect our SG&A expenses to decrease as a percentage of our revenue over the long term, although our SG&A expenses may fluctuate from period to period due to the timing of expenses related to our sales and marketing campaigns.
Research and Development
Our research and development, or R&D, activities primarily consist of engineering and research programs associated with our products under development, as well as R&D activities associated with our clinical development activities. Our R&D expenses primarily consist of compensation, including salary, share-based compensation and employee benefits for our R&D and clinical personnel. We also incur significant expenses for supplies, development prototypes, design and testing, clinical study costs and product regulatory and consulting expenses.
We expect our R&D expenses to remain elevated for the foreseeable future as we continue to advance our products under development, as well as initiate and prepare for additional clinical studies. We received an approval of an IDE from the FDA in March 2018 to initiate a clinical trial and enrolled the first patient in April 2018. In August 2019, we completed all patient surgeries for the IDE aesthetic cohorts, which include primary augmentation and revision augmentation, and have now completed the three-year study subject follow-up for the aesthetic cohort. In June 2022, full enrollment of the IDE clinical trial was complete, and all surgeries in the primary reconstruction cohort were performed. As of September 30, 2022, we also completed the three-year study subject follow-up for the aesthetic cohort. In the fourth quarter of 2021, we initiated a modular PMA submission process with the FDA and submitted the first of four modules. The second, third and fourth modules were submitted to the FDA in May 2022, August 2022 and February 2023, respectively. In May 2024, we released preliminary results of the four-year patient follow-up data for the primary augmentation cohort our IDE clinical trial. The IDE clinical trial is expected to cost between $30.0 million and $40.0 million over ten years. As of March 31, 2024, approximately $31 million has been spent on the trial to date. We also have other products under development for which we may be required to conduct clinical trials in future periods in order to receive regulatory approval to market these products.
Interest Expense
Interest expense consists primarily of cash and non-cash interest related to outstanding debt and amortization of debt discounts. As of March 31, 2024, we had $195.5 million in outstanding principal under our term loan, including interest accrued into the principal balance. See Note 5 “Debt” for additional information.
Other Income (Expense), Net
Other income (expense), net primarily consists of foreign currency gains/losses and interest income.
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Income Tax Expense
Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. Due to our history of losses, with the exception of Belgium and JAMM Technologies, Inc., we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards, R&D tax credits, capitalized R&D and other book versus tax differences.
Business Update Regarding Macroeconomic Conditions
Financial Results: The second half of fiscal year 2023 showed a slowing in revenue growth as a result of an overall slowdown in demand for aesthetic procedures, primarily general uncertainty about macroeconomic conditions and seasonality. However, in 2024 to date, our markets are stabilizing, and we are seeing improving demand. During the first quarter of fiscal 2024, all of our global regions showed sequential improvement in both our direct and distributor markets, and we expect to see continued improvement in demand throughout 2024.
Outlook: Demand for our products is dependent on the relative strength of the global and regional medical device markets, which are sensitive to general macroeconomic conditions. The current global macroeconomic environment remains complex, with elevated inflation and interest rates contributing to fear of potential recessionary conditions thus driving limitations on available discretionary spending in the markets we operate. These macroeconomic challenges, combined with geopolitical upheaval, have led to ongoing volatility within global markets. This negatively impacted demand for our products during the first quarter of 2024 and we expect this to continue in fiscal 2024.
In response to the decrease in demand at the end of fiscal 2023, we implemented measures such as downsizing our global workforce, reducing operational expenditures, and effectively managing inventory levels. Our focus will be on investing in our primary growth initiatives, which include the launch of our products in the U.S., the development of the Chinese market and promoting our product, Mia Femtech.
For additional information on the various risks and other uncertain macroeconomic conditions on our business, financial condition and results of operations, please see Part II. Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.
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Consolidated Results of Operations
The following table sets forth our results of operations for the periods presented, in dollars:
Three Months Ended March 31,
20242023
(unaudited) (in thousands)
Revenue$37,167 $46,524 
Cost of revenue12,787 16,445