10-Q: Establishment Labs Reports Strong Q3 Revenue Growth, US Market Drives Margin Gains

Establishment Labs Holdings Inc. reported a 33.8% increase in Q3 revenue, driven by strong U.S. market penetration and improved gross margins, despite an increase in nine-month operating losses.

Summary

• Revenue for the three months ended September 30, 2025, increased by 33.8% to $53.8 million, compared to $40.2 million in the prior year.
• Gross margin improved to 70.1% for the three months ended September 30, 2025, up from 63.9% in the prior year, primarily due to higher selling prices in the United States.
• Net loss for the three months ended September 30, 2025, decreased to $11.1 million, compared to $16.7 million in the prior year.
• For the nine months ended September 30, 2025, revenue increased by 20.6% to $146.5 million, compared to $121.5 million in the prior year.
• Gross margin for the nine months ended September 30, 2025, increased to 68.8%, up from 65.0% in the prior year.
• Net loss for the nine months ended September 30, 2025, was $48.4 million, a slight reduction from $50.1 million in the prior year.
• North America (United States) revenue significantly increased to $28.2 million for the nine months ended September 30, 2025, following FDA approval of Motiva Implants in September 2024.
• EMEA revenue increased by 5.6% to $64.5 million, and Latin America revenue increased by 4.4% to $28.3 million for the nine months ended September 30, 2025.
• Asia-Pacific revenue decreased by 22.5% to $25.4 million for the nine months ended September 30, 2025, primarily due to a China distributor selling through inventory and lower consumer demand.
• Cash and cash equivalents stood at $70.6 million as of September 30, 2025, down from $90.3 million at December 31, 2024.
• The accumulated deficit increased to $493.1 million as of September 30, 2025.
• Net cash used in operating activities increased to $50.7 million for the nine months ended September 30, 2025, from $37.8 million in the prior year period.
• The company drew $5.0 million under an Inventory Funding Agreement in June 2025 and an additional $5.0 million in September 2025, with the June 2025 amount's due date extended to May 15, 2026.
• A Tranche D Term Loan of $25 million was advanced in September 2025 under the Credit Agreement, increasing the total outstanding debt to $246.4 million.

Sentiment

Score: 7

Explanation: The company demonstrates strong revenue growth and significant gross margin improvement, particularly driven by successful U.S. market entry. While net losses persist and cash burn from operations increased, the quarterly net loss has narrowed, and strategic product launches and positive clinical data provide a positive outlook. The extensive list of risks is typical for a medical device company in a regulated environment, and the company has addressed a material weakness in internal controls. The need for future capital raises is acknowledged but planned for.

Positives

• Strong revenue growth of 33.8% in Q3 2025 and 20.6% for the nine months ended September 30, 2025.
• Significant improvement in gross margin to 70.1% in Q3 2025 and 68.8% for the nine months, driven by higher selling prices in the U.S. market.
• Reduced net loss in Q3 2025 to $11.1 million, compared to $16.7 million in Q3 2024.
• Successful commercialization of Motiva Implants in the United States, securing over 1,300 accounts and generating $28.3 million in sales for the nine months ended September 30, 2025.
• Positive 3-year clinical study results for Mia Femtech, showing low complication rates (1% reoperation rate) and high patient/surgeon satisfaction.
• Launch of Preserv, a new minimally invasive breast tissue-preserving technology, in Brazil with further international expansion planned.
• Completion of a new manufacturing facility in Costa Rica in June 2024, increasing manufacturing capacity by approximately 730,000 units per year.
• Remediation of the material weakness in internal control over financial reporting as of December 31, 2024.

Negatives

• Increased net loss for the nine months ended September 30, 2025, to $48.4 million, compared to $31.3 million loss from operations in the prior year.
• Increased cash used in operating activities to $50.7 million for the nine months ended September 30, 2025, indicating higher cash burn.
• Significant decrease in cash and cash equivalents to $70.6 million from $90.3 million at the end of the previous fiscal year.
• Accumulated deficit increased to $493.1 million, indicating continued unprofitability since inception.
• Asia-Pacific revenue decreased by 22.5% for the nine months ended September 30, 2025, primarily due to a China distributor selling through inventory and lower consumer demand.
• The company continues to incur significant research and development and general and administrative expenses, and does not expect to be profitable in 2025.
• Reliance on a single-source supplier (Avantor) for medical-grade silicone, posing risks of price increases or supply interruptions.

Risks

• Unfavorable global economic and political conditions, including slower growth, recession, inflation, decreased consumer spending, or trade wars, could adversely affect business.
• Incurred losses to date, and ability to achieve and maintain profitability depends on the commercial success of Motiva Implants.
• Insufficient available cash resources and anticipated cash flow from operations may necessitate selling equity or convertible debt securities, or seeking other debt financing.
• Limited operating history in the United States may lead to difficulties in competitive and rapidly evolving markets.
• Business depends on maintaining brand and ongoing customer demand; a significant reduction in sentiment or demand could affect results.
• Failure to compete effectively against competitors, many of whom have greater resources, could negatively affect revenues and results.
• Any disruption at existing manufacturing facilities in Costa Rica could adversely affect business and operating results.
• Failure to maintain and develop direct sales force in certain markets (e.g., Brazil, US, Europe) could negatively impact revenues and financial outcomes.
• Inability to educate clinicians on the safe, effective, and appropriate use of products could lead to unsatisfactory patient outcomes, negative publicity, and increased product liability claims.
• Success depends on enhancing existing products and developing new ones, which requires significant expenses and may not always result in regulatory approval or market acceptance.
• Delays or failure to obtain necessary regulatory clearances or approvals would adversely affect business growth.
• Compliance with ongoing regulatory obligations and continued regulatory review may result in significant additional expense and penalties for non-compliance.
• The medical technology industry is complex and intensely regulated; government authorities may determine non-compliance with applicable laws.
• Reliance on a single-source, third-party supplier for medical-grade long-term implantable silicone (Avantor) poses risks of price increases or supply interruptions.
• Significant exposure to economic and political situations in emerging market countries could materially impact financial results.
• Pandemics, epidemics, or other public health crises may adversely affect business and financial results in the future.
• Adverse developments affecting the financial services industry (e.g., bank failures, liquidity concerns) could adversely affect liquidity and financial performance.
• Fluctuations in currency rates could adversely affect results of operations.
• Negative publicity concerning products or competitors' products, including due to product defects, recalls, litigation, or long-term safety impacts (e.g., BIA-ALCL, SCC), could harm reputation and reduce demand for silicone breast implants.
• The medical device industry is characterized by patent litigation, and the company could become subject to costly litigation to protect or enforce intellectual property rights.
• Changes in funding or disruptions at the FDA and other government agencies could prevent normal business functions, negatively impacting the business.
• Future distribution or commercialization agreements may place product development outside control or be on unfavorable terms.
• Inability to accurately forecast customer demand and manufacture sufficient quantities of product, or manage inventory effectively, could have a material adverse effect.
• Difficulties in managing growth due to increasing organization size, particularly in manufacturing and sales/marketing, could disrupt operations or increase net losses.
• Substantial warranty or product liability claims or other litigation could adversely affect business.
• Counterfeit products could compete with genuine products and expose the company to risks associated with adverse events and product liability.
• Loss of members of the executive management team or other key employees could adversely affect the business.
• Risks associated with integrating past or future acquisitions, including significant costs, penalties, or diversion of management time.
• Operations involve hazardous materials, and compliance with environmental laws can be expensive and expose the company to liability.
• Reliance on third parties to conduct certain components of clinical studies may lead to unsatisfactory performance or delays.
• Information systems, or those used by third parties, may fail, be impacted by cybersecurity incidents, or suffer other forms of attack or damage.
• Failure to adequately protect personal information in compliance with evolving legal requirements (e.g., HIPAA, CCPA, GDPR) could harm the business.
• The regulatory approval process is expensive, time-consuming, and uncertain; delays or failure to obtain necessary clearances/approvals would adversely affect business.
• Modifications to marketed products may require new regulatory clearances or approvals, or necessitate ceasing marketing or recalling products.
• Ongoing regulatory obligations and continued regulatory review post-approval may result in significant additional expense and penalties for non-compliance.
• Products may cause or contribute to adverse medical events or be subject to failures/malfunctions requiring FDA reporting, with potential sanctions for non-compliance.
• Healthcare reform measures could hinder or prevent planned products' commercial success.
• Tax authorities may disagree with tax positions, resulting in unanticipated costs, taxes, or non-realization of expected benefits.
• Discontinuation of preferential tax treatments (e.g., Costa Rica tax holiday) or other unfavorable changes in tax law could result in additional compliance obligations and costs.
• Ability to use net operating losses to offset future taxable income may be subject to limitations (e.g., Section 382/383).
• U.S. holders of common shares may suffer adverse tax consequences if the company is characterized as a passive foreign investment company (PFIC) or a controlled foreign corporation.
• Share price may be volatile, and purchasers of securities could incur substantial losses.
• While a material weakness in internal control over financial reporting was remediated, future material weaknesses could be identified, affecting financial reporting accuracy.
• Rights of shareholders under British Virgin Islands law differ from U.S. law, potentially offering fewer protections.
• British Virgin Islands companies may have limited ability to initiate shareholder derivative actions.
• Difficulty enforcing civil liabilities against the company, directors, or senior management in U.S. courts due to British Virgin Islands law.
• Limited protection for minority shareholders under British Virgin Islands law.
• Provisions in memorandum and articles of association and British Virgin Islands law could make an acquisition more difficult and prevent attempts to replace current management.

Future Outlook

The company anticipates overall operating expenses to increase in 2025 compared to 2024 due to expanded commercial and operational activities following FDA approval of Motiva Implants, though management remains focused on expense management. The global macroeconomic environment is expected to remain complex, with potential impacts from trade tensions, inflation, and reduced discretionary spending. The company believes its available cash and cash from operations will be sufficient to meet liquidity requirements for at least the next 12 months, but acknowledges the potential need for additional capital to support its business plan and growth initiatives.

Management Comments

• Management is dedicated to establishing Motiva as the leading implant in China, mirroring its success in other Asian markets, despite current lower consumer demand.
• We continue to see strong demand from the plastic surgeon community and positive feedback in the United States.
• We expect our overall operating expenses to increase as compared to 2024, although we remain focused on managing operating expenses.

Industry Context

The medical device and aesthetic markets are sensitive to macroeconomic conditions, with current global complexities like inflation and high interest rates potentially reducing discretionary spending on elective procedures like breast augmentation. Despite these headwinds, Establishment Labs is demonstrating strong growth in key markets, particularly the U.S. following FDA approval, and is expanding its product portfolio with innovations like Mia Femtech and Preserv. The industry continues to face scrutiny regarding breast implant safety (BIA-ALCL, SCC), which the company addresses by emphasizing its smooth-surface implants and lack of reported cases.

Comparison to Industry Standards

• The 3-year results of the Mia Femtech study showed a very low rate of complications (1% reoperation rate, no capsular contracture Baker Grade III/IV, implant rupture, or BIA-ALCL), which the company believes compares favorably with competitors' products.
• The company's post-market surveillance data for Motiva Implants indicates low rates of adverse events (rupture, capsular contracture, safety-related reoperations) that are believed to compare favorably with those of competitors like Sientra, Mentor (Johnson & Johnson), and Allergan (AbbVie Inc.).
• Motiva Implants achieve higher selling prices in the United States compared to other geographies, positively impacting gross margins, suggesting a strong competitive position in the premium segment of the U.S. market.
• The company's reliance on a single-source supplier for medical-grade silicone is a common industry risk, but the supplier (Avantor) also supplies major competitors, indicating a shared supply chain dependency.
• The company's focus on direct sales in key markets like Brazil, the United States, and several European countries contrasts with a historical reliance on distributors, aligning with strategies of larger, more established medical device companies seeking greater market control and margin capture.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not a party to any material legal proceeding required to be disclosed under Item 103 of Regulation S-K.

Related Party Transactions

• Product sales of $1.1 million for the nine months ended September 30, 2025, to Herramientas Medicas, S.A., a distribution company owned by a family member of the former CEO, Juan José Chacón-Quirós.
• Accounts receivable owed from Herramientas Medicas, S.A. amounted to approximately $0.6 million as of September 30, 2025.
• Payments of approximately $78,000 for the nine months ended September 30, 2025, to Dr. Chacón-Quirós (brother of the former CEO) for training services.
• Separation agreements entered into on August 3 and August 4, 2025, with former CEO Juan José Chacón-Quirós, formally terminating his employment effective April 30, 2025.
• A consulting agreement with Juan José Chacón-Quirós, effective June 1, 2025, for advisory and advocacy services, with a one-year term automatically renewing through May 31, 2028, for $750,000 per year in cash and an annual equity award with a target value of $750,000.

Stakeholder Impact

• **Shareholders:** Experience dilution from past and potential future equity raises, and face risks related to share price volatility, limited minority shareholder protections under British Virgin Islands law, and anti-takeover provisions. However, they benefit from strong revenue growth, improved gross margins, and successful market expansion.
• **Employees:** The company expects to increase its workforce, particularly in manufacturing and sales/marketing, which could create new opportunities but also strain administrative infrastructure. Management changes, including a new CEO, could impact internal dynamics and strategic direction.
• **Customers (Physicians/Patients):** Benefit from new product launches (Preserv) and positive clinical data (Mia Femtech). The successful U.S. market entry provides more product options. Risks include potential product liability claims, negative publicity regarding breast implant safety, and the need for adequate clinician education.
• **Suppliers:** The company's reliance on a single-source supplier for medical-grade silicone (Avantor) creates dependency and potential risks related to price increases or supply interruptions for this critical raw material.
• **Creditors:** The company has significant outstanding debt ($246.4 million) under the Oaktree Credit Agreement and short-term notes. While in compliance with covenants, continued losses and increased cash burn from operations indicate ongoing reliance on financing, which could affect credit risk over the long term.

Next Steps

• Continue to assess future impacts of the 'One Big Beautiful Bill Act' (OBBBA) on consolidated financial statements.
• Continue to evaluate warranty reserve policies for adequacy considering claims history.
• Continue to advance products under development and initiate/prepare for additional clinical studies.
• Monitor clinical trial patients for the IDE clinical trial for up to ten years as part of FDA approval conditions.
• Create a patient registry or large post-approval study (PAS) and implement training programs for physicians as required by the FDA.
• Continue commercial launches of Preserv in other countries throughout 2025.
• Management, in collaboration with its distribution partner, is dedicated to establishing Motiva as the leading implant in China.
• Continue to implement and improve managerial, operational, and financial systems, expand facilities, and recruit/train additional qualified personnel to manage anticipated future growth.
• Evaluate the potential effect of ASU 2024-03, Disaggregation of Income Statement Expenses, on financial statement disclosures.
• Evaluate the potential effect of ASU No. 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures, on financial statement disclosures.

Key Dates

Recommendation

Establishment Labs demonstrates strong top-line growth and significant gross margin expansion, largely driven by its successful entry into the lucrative U.S. market. The positive clinical data for Mia Femtech and the launch of Preserv indicate a robust product pipeline and innovation. However, the company continues to incur substantial net losses and has seen an increase in cash used in operating activities, leading to a notable decrease in cash reserves. While management has a plan for future capital needs, the ongoing reliance on financing and the extensive list of industry-specific and macroeconomic risks warrant caution. The stock has potential for appreciation given market penetration and product innovation, but the path to sustained profitability and positive operating cash flow remains a key challenge. Therefore, a 'hold' recommendation is appropriate, suggesting investors monitor the company's ability to convert revenue growth into profitability and manage its cash burn effectively.

Keywords

Breast Implants, Motiva Implants, Aesthetic Surgery, Medical Devices, FDA Approval, Mia Femtech, Preserv, Silicone Implants, Plastic Surgery, Financial Results, Quarterly Report, SEC Filing, ESTA, Biotechnology, Healthcare