Establishment Labs Holdings Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 1, 2023. The filing reports annual results, not a separate set of Q4 financial statements. The company develops and sells medical devices, principally Motiva silicone breast implants, in markets outside the United States.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $161.7 million | $126.7 million |
| Gross profit / margin | $106.6 million / 65.9% | $85.4 million / 67.4% |
| Operating expenses | $146.3 million | $110.5 million |
| Operating loss | $39.7 million | $25.1 million |
| Net loss | $75.2 million | $41.1 million |
| Net loss per share | $3.08 | $1.72 |
| Cash and cash equivalents | $66.4 million | $53.4 million |
| Operating cash flow | $(52.2) million | $(27.5) million |
| Capital expenditures on construction in progress | $29.9 million | $2.9 million |
Revenue grew 27.6%, driven by share gains, demand recovery, and direct-sales expansion, particularly in Latin America and Asia-Pacific/Middle East. Regional revenue was $48.7 million in Europe, $52.4 million in Latin America, and $59.6 million in Asia-Pacific/Middle East. Management said Q4 revenue was a record, but the filing text does not provide a clear Q4 revenue value.
Gross margin fell 1.5 percentage points, attributed to geographic mix, foreign exchange, and a 0.7% gross-profit impact from Puregraft inventory obsolescence. SG&A rose 36.6% to $126.0 million, reflecting higher headcount, marketing, consulting, freight, and commissions. R&D increased 10.7% to $20.3 million.
At year-end, total assets were $211.1 million, total liabilities $219.2 million, and shareholders’ equity was negative $8.2 million. Working capital was approximately $110.9 million ($149.9 million of current assets less $39.0 million of current liabilities). The accumulated deficit was $281.6 million.
Oaktree term-loan principal outstanding was $181.3 million, with a net balance-sheet carrying value of $175.5 million after discounts and issuance costs. The loans bear 9% annual interest (potentially 8.25% after specified milestones), mature in April 2027, and have no scheduled principal payments before maturity. The agreement includes minimum-liquidity and gross-sales covenants; the company reported compliance at year-end. Management said available cash and expected operating cash flows should cover liquidity needs for at least 12 months, while noting it may need additional capital. The filing’s contractual-obligations schedule lists $196.4 million of principal due in 2027 and $61.3 million of projected interest.
Material changes and developments
- The company replaced its Madryn debt with an Oaktree credit facility in 2022. Repayment of Madryn, including a $6.5 million early repayment penalty, resulted in a $19.0 million extinguishment loss.
- Cash from financing was $100.3 million, largely reflecting Oaktree borrowings net of repayment of Madryn debt. Cash increased by $12.9 million during the year.
- Construction spending advanced the Costa Rica manufacturing and office expansion. The first phase is estimated at $45.6 million and is expected to add approximately 730,000 units of annual capacity. The company purchased the land and cold-shell building in 2022.
- Motiva Implants and the Motiva Flora tissue expander received Japanese approval and reimbursement for post-mastectomy reconstruction. The company submitted the fourth and final module of its U.S. PMA application in February 2023; FDA approval had not been obtained as of the filing.
- Brazil represented 16.6% of 2022 revenue, up from 11.6% in 2021. No other country exceeded 10% of revenue.
Outlook, risks, and unusual items
- Management expects continued losses in the near term and did not expect profitability in 2023. It anticipates ongoing investment in sales, manufacturing, R&D, U.S. clinical/regulatory work, and public-company costs. No specific revenue or earnings guidance is provided.
- Management expected macroeconomic conditions, particularly in Europe, to affect 2023 results; it did not expect COVID-19 to have a material future impact, while acknowledging uncertainty.
- Russia’s invasion of Ukraine negatively affected revenue from the region, and the company expected that impact to continue while the conflict persisted.
- Key risks include FDA approval and clinical-study uncertainty, dependence on elective-procedure demand, competition, foreign-exchange exposure, and reliance on Avantor as the sole supplier of medical-grade silicone. The company does not hedge foreign currency exposure.
- Breast-implant safety concerns and related negative publicity could reduce category demand. The company disclosed no reported BIA-ALCL or SCC cases in patients with Motiva Implants in its cited surveillance data, but noted that its post-market data are patient- or practitioner-reported and are not equivalent to FDA PMA study follow-up.
- The company reported a material weakness in internal control over financial reporting related to user-access controls and segregation of duties. Management and the auditor concluded controls were ineffective at year-end; the auditor issued an adverse opinion on internal controls. Management expected remediation during 2023. The auditor’s opinion on the financial statements was unqualified.
- There were no material legal proceedings disclosed. The company reported related-party product sales of $1.2 million to a distributor owned by the CEO’s family member.
Important facts for investors to verify
- Progress and outcome of the FDA’s review of the PMA, including any additional data, labeling, or post-approval requirements.
- Cash burn, covenant headroom, access to the remaining Oaktree tranches, and the cost and completion schedule of the manufacturing expansion.
- Whether revenue growth can offset rising operating expenses and restore gross margin, especially amid currency and regional-mix changes.
- Supply continuity and pricing under the Avantor agreement, and any inventory obsolescence or production-capacity constraints.
- Progress in remediating the material weakness and establishing effective financial-reporting controls.
- Clinical and safety claims in context: distinguish company post-market surveillance from controlled studies and assess broader breast-implant safety developments.