Establishment Labs Holdings Inc. — FY2021 Form 10-K
Business context and reporting period. The company develops and sells medical devices for aesthetic and reconstructive plastic surgery, primarily Motiva silicone breast implants. This annual report covers the fiscal year ended December 31, 2021; the company’s products were sold in more than 80 countries outside the United States, and Motiva Implants generated approximately 98% of revenue.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $126.7 million | $84.7 million |
| Gross profit / gross margin | $85.4 million / 67.4% | $52.5 million / 62.0% |
| Operating expenses | $110.5 million | $80.4 million |
| Operating loss | $25.1 million | $27.9 million |
| Net loss | $41.1 million | $38.1 million |
| Net loss per share, basic and diluted | $1.72 | $1.63 |
| Cash and cash equivalents at year-end | $53.4 million | $84.5 million |
| Cash used in operating activities | $27.5 million | $12.5 million |
At December 31, 2021, total assets were $139.5 million, current assets $113.3 million, current liabilities $31.9 million, total liabilities $88.8 million, and shareholders’ equity $50.7 million. The company reported an accumulated deficit of $206.4 million.
Madryn term debt had $65.0 million principal outstanding, with no principal payments due until maturity on September 30, 2025. The loan bears interest at three-month LIBOR plus 8%; the company reported a 10.6% weighted-average rate at year-end and an 18.4% effective rate. The debt is secured by substantially all assets, includes financial covenants and restricts additional borrowing. The company said it was in compliance with covenants.
Changes versus the prior comparable period
- Revenue increased 49.6%, reflecting market-share gains, recovery in global markets after COVID-related elective-surgery disruption, and expanded direct sales efforts.
- Gross margin rose 5.4 percentage points, attributed to geographic mix, manufacturing efficiencies and improved planning.
- SG&A rose 38.4% to $92.2 million, primarily from higher personnel, sales and marketing, consulting, and freight costs. R&D rose 32.8% to $18.3 million, largely due to increased headcount.
- Despite the higher revenue and improved operating loss, net loss widened by $3.0 million. Other expense included a $5.6 million foreign-currency transaction loss, mostly unrealized, compared with $1.7 million in FY2020.
- Operating cash use increased to $27.5 million. Cash fell by $31.1 million during the year; FY2020 cash had benefited from a $63.9 million net follow-on offering.
Outlook, commentary and risks
- Management expected continued losses in the near term and stated it did not expect profitability in 2022. It said cash and expected operating cash flows should meet liquidity needs for at least 12 months, while cautioning that assumptions could prove incorrect and additional capital may be needed.
- The company continued its FDA IDE trial and began a modular PMA submission in Q4 2021, filing the first of four expected modules. It planned to complete enrollment of 800 patients across 40 sites in FY2022; FDA approval and U.S. commercialization remain uncertain.
- The planned Costa Rica campus was estimated at $35.3 million initially, with potential additional equipment investment. The company had options to purchase the land and cold-shell building for approximately $12.6 million and an adjacent lot for approximately $2.8 million.
- COVID-19 continued to create uncertainty around elective procedures, clinical-trial enrollment, staffing and supply chains, although management said it did not expect a material impact on future results at the time of filing.
- Key risks include dependence on Motiva implants and a single-source medical-grade silicone supplier, competition, regulatory approvals, product-liability exposure, foreign-exchange movements, and reliance on distributors. The NuSil supply agreement was extended through March 31, 2022 while a new agreement was being finalized; the filing also lists a January 1, 2022 amendment.
- The company disclosed a material weakness in user-access controls over financially relevant systems, with related segregation-of-duties deficiencies. Management and the auditor concluded internal control over financial reporting was ineffective at year-end; the auditor issued an adverse opinion on those controls. A separate 2020 consolidation weakness was reported remediated. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Progress, enrollment and clinical results for the U.S. IDE trial, FDA PMA review, and any resulting approval conditions or timelines.
- Renewal terms and continuity of the NuSil silicone supply agreement, including pricing and supply protections.
- Cash burn, revenue growth, gross-margin durability, and funding requirements for clinical programs and campus expansion.
- Debt covenant headroom, interest costs and repayment/refinancing plans ahead of the 2025 maturity.
- Remediation and independent testing of the user-access control material weakness, and any subsequent changes in disclosure controls.
- Exposure to currency losses, COVID-related demand volatility, product-safety developments and potential liabilities.