Establishment Labs Holdings Inc. (NASDAQ:ESTA) Q1 2024 Earnings Call Transcript

Establishment Labs Holdings Inc. (NASDAQ:ESTA) Q1 2024 Earnings Call Transcript May 9, 2024

Establishment Labs Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. Welcome to Establishment Labs First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, today’s call is being recorded. I will now turn the call over to Raj Denhoy, Chief Financial Officer. Please go ahead.

Raj Denhoy: Thank you, operator and thank you everyone for joining us. With me today is Juan Jose Chacon Quiros, our Chief Executive Officer. Following our prepared remarks, we’ll take your questions. Before we begin, I would like to remind you that comments made by management during this call will include forward-looking statements within the meaning of federal securities laws. These include statements on Establishment Labs’ financial outlook and the company’s plans and timing for product development and sales. These forward-looking statements are based on management’s current expectations and involve risks and uncertainties. For a discussion of the principal risk factors and uncertainties that may affect our performance or cause actual results to differ materially from these statements, I encourage to review our most recent annual and quarterly reports on Form 10-K and Form 10-Q as well as other SEC filings, which are available on our website at establishmentlabs.com.

I’d also like to remind you that our comments may include certain non-GAAP financial measures with respect to our performance, including, but not limited to, sales results, which can be stated on a constant currency basis or profitability of the company’s business, which can be stated as EBITDA or adjusted EBITDA. Reconciliations to comparable GAAP financial measures for non-GAAP measures, if available, may be found in today’s press release, which is available on our website. Please also note that Establishment Labs receive an investigational device exemption from the FDA for Motiva Implants and is undergoing a clinical trial to support regulatory approval in the United States. We continually seek to expand the geographies in which our products are regulatory approved.

Please check with your local authority for product availability. The content of this conference call contains time-sensitive information accurate only as of the date of this live broadcast, May 8, 2024. Except as required by law Establishment Labs undertakes no obligation to revise or otherwise update any statement to reflect events or circumstances after the day of this call. With that, it is my pleasure to turn the call over to our CEO, Juan Jose.

Juan Jose Chacon Quiros: Thank you, Raj, and good afternoon, everyone. Revenue in the first quarter of 2024 totaled $37.2 million. Our markets continue to stabilize, and we are seeing improving demand. All of our global regions showed sequential improvement in the first quarter. We saw this in both our direct and distributor markets, and we expect to see continued improvement throughout 2024. Our first quarter also showed the tangible results of the cost reduction and efficiency improvement activities we undertook in the second half of last year. Adjusted EBITDA improved to a loss of less than $4 million. This was a notable improvement from the loss of $17 million last quarter. We are off to a busy start in 2024. Over the past several months, we launched Motiva implants in China in our Flora tissue expander in the United States.

We are also making significant progress to our approval of Motiva implants in the United States. This number of clinics offering me around the world is growing, and the feedback on this transformative breast technology continues to surpass even our own expectations. We are well positioned for multiyear growth while steadily improving our margin structure in achieving the necessary scale to reach cash flow profitability in 2025. Raj will provide more on our financial results and outlook in a moment. But first, I want to highlight several recent events. Last week, we announced two important developments on our path to U.S. approval. The 4-year data from our Motiva U.S. IDE study was presented at the Aesthetic Meeting on May 2 by Dr. Caroline Glicksman, the Medical Director is a principal investigator of the study.

As Dr. Glicksman highlighted, it is particularly notable that our rates of Baker Grade 3 and 4 capsular contracture and rupture have not changed for the past 2 years. At year 4, there continues to be only 2 patients with capsular contracture and only 1 patient with a suspected rupture, which were the exact same numbers at 2 years and at 3 years. These low complication rates are a confirmation of a new standard for breast implants, and we expect plastic surgeons will adopt our products given their technological superiority and performance. While these are not comparative studies, it is worth noting that at 4 years, the FDA data from the two largest competitors in the U.S. showed that between 1 in 7 and 1 in 12 women developed a Baker Grade 3 or 4 capsular contracture.

In the Motiva study, it was 1 in 200 women. We also announced last week that Jeff Ehrhardt will lead our North American business. Jeff most recently ran the plastic and reconstruction division of Allergan Aesthetics and was responsible for the Breast Products portfolio. Jeff is a strong commercial leader with over 25 years of experience in this industry. I cannot imagine anyone better suited to introduce Motiva to the U.S. market. Jeff is already building an experienced team with a successful track record in this industry, including Anne Pugh, who will head our U.S. sales team and Ben Newcott, who is Director of Surgeon Engagement and Business Development, will lead our outreach to the plastic surgeon community. This is truly an all-star team.

At the Annual Meeting of The Aesthetic Society in Vancouver this past weekend, Establishment Labs and Motiva were the talk of the conference. Plastic surgeons are overwhelmingly enthusiastic about our new hires and the launch of Motiva in the United States might be the most anticipated launch of an aesthetic product in decades. Surgeons and investors alike want to know when Motiva will be available in the United States. And while the second quarter inspection of our facilities is a critical point in the process, we will continue not to predict an exact time line for both competitor and regulatory reasons. That said, the conversations with the FDA are highly constructive, and we have high confidence that we will be on market in 2024. While we wait for the approval of Motiva Flora, our unique tissue expander continues to gain traction in the U.S. market.

Flora has many important and novel features, including our patented SmoothSilk surface technology as well as an RFID-enabled nonmagnetic port and is labeled as MR conditional by the FDA. This is a distinct advantage to Flora as all other commercially available breast tissue expanders include magnets. We had many surgeons come by our booth in Vancouver to learn about the advantages of Flora in reconstruction, and we expect adoption of this technology will continue throughout the course of 2024. We have completed the VAC process at a number of the premier cancer centers in the United States and more are pending. As the benefits of this device in breast reconstruction are being demonstrated and shared in the clinical community, the number of hospitals providing Flora to patients will grow in the U.S. Mia Femtech is creating an entirely new minimally invasive category within breast aesthetics in the list of cities across the world where Mia is available continues to grow.

In Q1, we added Mia centers in two new geographies, Middle East and Latin America. We now have centers certified to provide the Mia experience in Riyadh, Jeddah, Dubai, Abu Dhabi, Beirut and our hometown of San Jose. In total, we have 55 clinics signed up for Mia Femtech partnership, of which 33 are operating in 22 new clinics in the process of being onboarded for medical education and practice development. In addition, we have 37 clinics under negotiation. Mia consumers are sharing their experiences on social media, highlighting the convenience and aesthetic outcomes of the breath harmonization journey, confirming our conviction that word of mouth will ultimately be the biggest growth driver for Mia Femtech. It is still early in the launch of Mia, but we are seeing proof points that we are creating and capturing new consumer demand in this new category in breast aesthetics.

In China, the reception of our recent launch has been strong. Chinese plastic surgeons and consumers have a strong appreciation for Motiva as the latest in innovation, science and technology and there is a willingness to pay a premium for such offerings in this market. Our exclusive distribution partner is pursuing an aggressive strategy of medical education and marketing events in Tier 1 and Tier 2 cities across China. The early results give us confidence that our market position in China over the next few years will match what we have seen in surrounding markets in Asia, where we are market leaders. I will now turn over the call to Raj.

Raj Denhoy: Thank you, Juan Jose. Total revenue for the first quarter was $37.2 million, a decline of 20% from the year ago period. Direct sales in the first quarter were approximately 39% of implant sales, while distributors made up the balance. From a regional perspective, sales in Europe, Middle East and Africa were approximately 55% of the global total, Asia Pacific, 21%; and Latin America, 23%; Brazil, which is our largest market globally, accounted for approximately 11% of total quarterly sales. Our gross profit for the first quarter was $24.4 million or 65.6% of revenue, compared to $30.1 million or 64.7% of revenue for the same period in 2023. Our gross profit in the first quarter reflected an increase in average selling prices year-over-year, offset somewhat by higher overhead and labor costs.

Changes in foreign exchange rates between the U.S. dollar and the Costa Rican colón also continued to be a headwind. As we report in U.S. dollars, the continued strengthening of the colón has resulted in higher operating costs. SG&A expenses for the first quarter declined approximately $2.8 million to $28.9 million compared to $31.7 million in the first quarter of 2023. SG&A expenses also declined approximately $8 million from the $36.9 million reported in the fourth quarter. R&D expenses for the first quarter declined approximately $2.2 million from the same quarter a year ago to $4.3 million and were down $1.5 million sequentially. Total operating expenses for the first quarter were $33.2 million, a decrease of approximately $5 million in the year ago period and declined approximately $9.5 million from the fourth quarter due primarily to cost reduction initiatives.

The decrease in operating expenses in the first quarter was primarily the result of the cost reduction initiatives we undertook in the second half of 2023 and into 2024 as well as the timing of certain planned expenses this year. Net loss from operations for the first quarter was $8.8 million, compared to a net loss of $8.2 million in the same period in 2023 and $22.1 million in the fourth quarter. Adjusted EBITDA was a loss of $3.7 million in the quarter. This compared to a loss of $17.3 million in the fourth quarter and a loss of $4 million in the year ago period. Our cash position on March 31 was $73 million, compared to $40 million at the end of 2023. Excluding the proceeds from our January $50 million private placement, underlying cash used in the first quarter was $16.8 million.

As a reminder, we have two remaining tranches on our debt facility, which totaled $50 million. We can access the first $25 million on U.S. FDA approval of Motiva implants and the second with the additional milestone of achieving $195 million in trailing 12-month sales. For 2024, our revenue guidance continues to exclude the contribution of Motiva implants in the United States. Our guidance remains at $174 million to $184 million, representing growth of 5% to 11%. We expect currency to have a minimal impact on our sales results this year. We continue to expect gross margins in 2024 to be approximately 100 basis points higher than 2023 to a range of 65.5% to 66%. The pacing of operating expenses this year is going to be fluid given the timing of approval of Motiva implants in the U.S. Our increasing confidence in approval this year has led us to begin making some key hires and to begin limited activities to prepare for the launch.

As such, we expect operating expenses will increase modestly from first quarter levels. We remain focused on managing operating expenses and cash use. And excluding investments in the U.S., we’re targeting positive adjusted EBITDA by the end of 2024 and positive cash flow by the end of 2025. The timing of U.S. commercialization will effect when we achieve these targets. However, the additional capital, which becomes available to us will more than fully support our current launch plans. Also given the strong ASPs in the United States, our North America business achieved profitability very quickly. We are very focused on ensuring that the cash we currently have on hand and which is accessible to us under our credit facility or properly fund our business profitability without the need for additional capital.

I will now turn the call back to Juan Jose.

Juan Jose Chacon Quiros: Thank you, Raj. 2024 is off to a very good start. We are seeing steady recovery in our markets and our differentiated technologies continue to support our progress globally. The work we did at the end of last year in restructuring and refocusing organization is allowing us to invest in growth, while we progress towards profitability. Our goals of being adjusted EBITDA positive by the end of the year and cash flow positive next year, excluding investments in the U.S. remain firmly intact and are a key focus for us as an organization and management team. Early this year, we entered China, the second largest market for our technologies globally. Flora is pushing us deeper into breast reconstruction while establishing a new standard of care.

Our most recent family of implants ergonomics, too, supporting exciting new program offerings like JOY and of course, Mia Femtech, which is creating an entirely new category in breast aesthetics and which will lead to real market expansion over time. The rest of the year will be even more exciting. The pending launch of Motiva in the United States is a culmination of years of work at Establishment Labs, and we cannot wait to introduce our story to women and surgeons in the largest market in the world. As a company focused on women’s health, we are building on a solid foundation and have a clear path to further establish ourselves as the leader globally in breast aesthetics and reconstruction. I will now turn the call over to the operator for your questions.

Operator: [Operator Instructions] Our first question is from Harrison Parsons with Stephens Inc. Please proceed.

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Q&A Session

Harrison Parsons: Great. Hi. This is Harrison on for George. Good afternoon and thanks for taking our questions. I wanted to start with your underlying assumptions and your reiterated guidance. I know you, in the press release spoke to market demand stabilizing. I just wanted to dig in on kind of what you are assuming from a macro perspective in that guidance?

Raj Denhoy: Sure. Hi, Harrison. As you saw in this quarter, we saw a nice sequential improvement over where we were in the fourth quarter. And as we move into the second quarter, we expect to see a similar level of improvement in demand. Generally, we’re seeing distributor orders come back. The direct markets are doing a bit better. And so generally, things are stabilizing. And so as we progress through the year, we expect that trend is going to continue. Yes. So overall, we feel pretty good about where we are and how things are shaping up and things are definitely getting better out there.

Harrison Parsons: Great. Yes. And then I know you just touched on it, but I wanted to dig in a little bit on the – what you are hearing from your international distributors? Where do you think their inventory levels sit today? I know, obviously, that’s out of your control, but what are your expectations for those inventory levels going throughout the year and is that going to be a headwind or a tailwind for the remainder? Thanks for the questions.

Juan Jose Chacon Quiros: Yes. What we hear from our distribution partners around the world is that demand is improving and that’s very much in all regions of the world. I think Latin America is probably a lagger there. We don’t expect demand there to come back as quickly as in the other regions. And as a result, of course, they are running through their inventories and that’s why they are ordering again. If you saw like the pattern of distribution demand this quarter, it was back to what we consider more normalized levels at around the 60-40 percentage.

Harrison Parsons: Great. That sounds good. Thanks for taking the questions.

Operator: Our next question is from Allen Gong with JPMorgan. Please proceed.

Allen Gong: Thanks. So I just kind of want to dive deeper into direct markets, right. You talked about how it seems like trends are getting better. So, when we think about the fact that you reiterated the guidance off of a quarter that at least relative to Street expectations looks a little bit better. How should we think about the kind of assumptions that get you to the bottom or higher end of that range?

Raj Denhoy: Yes. I think, Allen, we’re only really through one quarter in the year, right. And as we commented to the last question, things are feeling better, right? You can see it in the trends, the sequential improvement this quarter. What we’re talking about a similar sequential improvement into the second quarter. So in terms of the range, at this point in the year, we feel it’s so early to be adjusting that. But overall, we are feeling pretty good about where we are and really trending towards the upper end of that range this year.

Allen Gong: Got it. And then I guess just in anticipation of a U.S. launch later this year, can you talk to kind of the underlying health of the U.S. market? I know we’re still kind of waiting for the societies to put out the volume data from 2023, but we saw that it really was bouncing around quite a bit during and in the wake of the pandemic. So can you just talk to the underlying health of the U.S. and how that positions you for a launch in the back half of the year? Thank you.

Juan Jose Chacon Quiros: Yes. Thanks, Allen. So we were just at the American Society of Aesthetic Plastic Surgery meeting in Vancouver. And we had the opportunity to talk about this with many plastic surgeons from all over the U.S. And I think they did see a significant dip down in the level of procedures last year. And what they have said is that they see an improvement taking place. It is, of course, not close to the like hype that they saw during the second part of the pandemic, where they really saw above normal demand nearly all over the United States, but it is starting to normalize according to what we heard from them over last week.

Operator: Our next question is from Marie Thibault with BTIG. Please proceed.

Marie Thibault: Hi, thanks so much for taking the questions and congrats on a very nice start to the year. I wanted to ask here with the U.S. approval expected this year, hoping we can get a little bit more detail on how you’re thinking about the sales force build-out with Jeff in place, I would love to hear a little bit about the go-to-market strategy. I know we will have to wait to see some of the bigger spending and investment. But I would really love to just hear about a potential range for how many sales reps and that selling strategy that you are going to be targeting?

Juan Jose Chacon Quiros: Yes, Marie. Well, we have been investing in the U.S. for quite some time. We have been building the necessary foundation for the commercial organization, especially the back office commercial ops. And we are also leveraging a lot of the infrastructure we have built in areas like HR, legal, finance and regulatory from our global team. So that’s been part of what we’ve done already and we consider already why we’re invoicing and shipping Flora tissue expanders to the U.S. Now with having Jeff on board, I think it signals our conviction that we need to get preparated for the U.S. launch. And not only did we add Jeff, we also add Anne Pugh, who will head our U.S. sales team and Ben Newcott, who is basically Director of Surgeon Engagement and Business Development.

Their combined experience in the U.S. market is, I would say, second to none. And with that, what we are building is the strong foundation for launch readiness. We are going to be very mindful of how we grow our sales force. But I think we’re getting to the point where like that foundation, that commercial foundation is already there. And we’ve added a couple of sales reps already for the tissue expander, and we continue to add more in the next few months as we feel that we are getting closer and closer to the launch. For competitive reasons, I’m not going to share too much of the details, but definitely, we are at a point where we are going to start building up that sales force.

Marie Thibault: Okay. That’s great to hear. Thanks for that detail. And then I wanted to ask my next question here on China. Any ability to offer more details on the amount of revenue recognized in China this quarter or how we should think about that over the year? Is it going sort of according to expectations and where can you eventually see market share going to in China? Thanks for taking the questions.

Raj Denhoy: Yes. I can start with that, and JJ can talk a little about the market share. We – I think as we’ve talked about China, right, as we move through 2023, what we had expected in ‘23, we pushed into 2024. I can tell you that we are tracking to that. China is developing as we expected. We are seeing demand. It is building. And so I can tell you that we are on track in terms of our plans in China. In terms of eventual market share and the size of that market, JJ, if you want to maybe take that?

Juan Jose Chacon Quiros: Yes, of course. So, it’s super early on. It’s just been a few months since we launched in China, where at this point basically hitting Tier 1 and Tier 2 cities with our events, medical education. So it’s early. But we have a very good experience in the blueprint that we have used in other countries in Asia, in surrounding countries where you have a strong Chinese population like Singapore, Taiwan, Hong Kong. And what we see is that they quickly realize that this is a superior technology. There is a willingness to pay. So we do expect our market share in the next few years to match some of the same leadership that we’ve seen in the surrounding countries where we have between 40% and 70% market share.

In China, right now, one of our competitors has 70% or more market share. So we have a very clear plan on how to go about that. And definitely, as we build on this initial launch activities, I think we will be able to talk with more detail about how we are doing there.

Operator: Our next question is from Anthony Petrone with Mizuho Securities. Please proceed.

Anthony Petrone: Thank you and good afternoon everyone. So maybe one, just on the process of the FDA inspection and how long that actually takes and what the range of turnaround time is? So just trying to get an idea of timing and how the actual process plays out. And then on China specifically, a follow-up question there would be just on the stimulus package that was announced in March. There are some other healthcare consumer-related companies that do see this as a potential catalyst into the second half of the year. So do you think China stimulus could actually lead to upside as we get into the second half? Thanks again.

Juan Jose Chacon Quiros: Yes. Well, thank you, Anthony. On the first one, last time we were able to speak openly about it. What we talked about is that the FDA had given us a date for Q2. I can tell you now that the approval inspection of our manufacturing facility in Costa Rica is scheduled to take place in less than 30 days. And our team is super well prepared and looking forward for it. In parallel, we have been making good progress with labeling and post-market approval studies, and these are the last significant steps before the FDA approval. So we are getting very final stages on this, and we want us to be very mindful of not disrupting that process. And on China, in the stimulus package, yes, we’re very well aware of it, and we think it’s a good development.

It will take time to get through, so that it can really impact consumer demand. But we do see it as a positive. Remember, the lowest of the Chinese market in breast aesthetics happening actually in 2022. And since then, it’s been bouncing back. Our expectation was that it was going to be back to 2019 levels by 2025. But maybe that stimulus package will be able to get us there faster.

Anthony Petrone: Thank you, again.

Operator: Our next question is from Matt Taylor with Jefferies. Please proceed.

Matt Taylor: Great. Thanks for taking the question. Maybe I’ll ask one on the Mia commentary that you gave. I mean it’s encouraging to see that you’re signing up all these centers. I was wondering if you could talk about how material the revenue contribution is going to be this year? And then maybe you could frame the centers that you are adding for Mia Femtech in terms of your overall centers? What percentage is that today and what do you think will be at maturity?

Juan Jose Chacon Quiros: Yes, I think with that one, Matt, at this point, what I’d tell you is that what we are trying to do at the qualitative level, which is create the network of clinics. And within those clinics, start bringing in all of our marketing assets, the practice of element, all the things that we provide so that you can have the new category really coming to light in there. I can see that some clinics who started in Europe, for instance, in September, October of last year, have started to get to the numbers where we would like to see them in terms of number of procedures per month. We still have work to do to see those numbers in every single one of the centers. But that’s part of the entire process of building a new category.

So we are not in a rush. However, I think that having signed up 55 clinics already, 33 who are active right now of those, of course, the ones that are – that have started in the fall of last year are the ones, of course, that are getting more cases at this point. In addition, we have 37 new clinics under negotiation. We have this aspirational goal of getting to 100 clinics by the end of this year. And I think after that, what our expectations are is that in every Tier 1 city there will be a few of these clinics. In every Tier 2 city, there will be a couple of those. And in some cities, you’ll see one. And when you start putting those numbers in and you start getting to the levels at which we see the initial clinics, I think we get an understanding of how quickly this can ramp up.

But in 2024, it is mostly qualitative, but you will start seeing more revenue coming out of Mia. We are very dedicated to the qualitative part. It is not time yet to break out Mia revenue. But I think when it becomes material we will be the first ones willing to do that.

Matt Taylor: Maybe just one follow-up on China, it seems like everything is going well there. I just wanted to confirm more specifically, you talked about just the $10 million in stocking revenue kind of spread out through the first half of the year, and that was it for the guidance. Is that still your assumption? And are you seeing any reordering yet?

Raj Denhoy: It’s still early as one, as I mentioned, I mean, we’ve been there just a couple of months now. We launched in January. So it is tracking as we expected to the numbers you described. We will see how the reordering starts to build in the back half of the year, but so far, things are tracking.

Matt Taylor: Okay, alright. Thank you. Thanks, Raj.

Operator: Our next question is from Joanne Wuensch with Citibank. Please proceed.

Joanne Wuensch: Hi, thank you for taking the question and very nice quarter. I appreciate the commentary on the guidance that it is early in the year, but you did exceed consensus. And I’m curious how you think about the next couple of quarters? I just want to make sure that the second, third and fourth quarters are sort of set up appropriately.

Raj Denhoy: Yes. I think, Joanne, as we mentioned, you look at the sequential increase in the first quarter over last quarter about $6 million. I think a similar sequential increase into the second quarter is the right way to think about it. The back half of the year, again, we’ll see likely a small sequential increase in the third. It tends to be the weakest of the quarters for us as the year unfolds, but you have the dynamic of the recovery in the markets. And so we’ll see growth into the third quarter as well. So generally, it gets back to the commentary made about this recovery that we’re seeing in the markets, the distributor orders improving. So I think that’s probably a good way to think about it over the balance of the year.

Joanne Wuensch: And then is there anything that you could share regarding your go-to-market strategy in the United States? I’m thinking your pricing number of salespeople you would need or anything else that you’re comfortable sharing at this stage of the process? Thank you.

Juan Jose Chacon Quiros: Yes. Unfortunately, Joanne, it’s for competitive reasons, this is exactly the type of things that we cannot give out. We have a very clear understanding of how we want to price in the United States. We are coming in with two products, the Motiva SmoothSilk Round and the Motiva SmoothSilk Ergonomix. Those are some of our best-selling products in the international market and have been so for many years. And we will make the necessary investments to make sure that we provide the accounts as we move into different quarters after the launch, the necessary service that they deserve. So at this point, that’s all I can tell you.

Joanne Wuensch: I appreciate that. Thank you.

Operator: Our final question is from Josh Jennings with TD Cowen. Please proceed.

Josh Jennings: Hi, good afternoon. Thanks a lot. I was hoping to follow-up on Mia first. And just in the past, Juan Jose, your team has talked about our Mia partner clinics becoming million dollar revenue generators for Establishment Labs. I mean it sounds like these early launch trends are positive. But to get to that $1 million per account, you had some relatively conservative assumptions. I just wanted to sanity check, make sure that that’s – your team is still optimistic that, that revenue run rate per partner clinic is still in play potentially?

Juan Jose Chacon Quiros: Yes. Thank you, Josh. In the direct market, a Mia clinic that is doing an average for a year, 24 cases per month will eventually lead to approximately $1 million that is recognized by Establishment Labs. We think that number is achievable. Like I said, a couple of the clinics that began last fall are starting to trend to those numbers. So that’s what gives us a conviction that those numbers can be achieved. And our job now is to expand the network of clinics to cities, for instance, across our direct markets in Europe. Some of the distributor markets have already kicked in. You can see in the social media handle of Mia Femtech, a lot of the work that has been done, for instance, to launch in several cities across the Middle East.

So, all of that tells you that we are building something special. And when you think about the current market for breast aesthetics, the market is growing at low single digits at best. And what Mia brings is this new shiny object. And what we see is that those numbers are not something that we see as unachievable. And what we would like to see is that clinics in the first or second year, depending on them being Tier 1 or Tier 2 city clinics can get there.

Josh Jennings: Great. And I appreciate some of the color on the U.S. Flora launch, I was hoping to just check in on the state of affairs of the recon franchise internationally, both on the tissue expander side and on the implant side. Any updates you can provide just on traction there in Europe and other regions? Thanks for taking the questions.