Establishment Labs Holdings Inc
NASDAQ:ESTA
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Establishment Labs Holdings Inc
Earnings Call Analysis
Q3-2023 Analysis
Establishment Labs Holdings Inc
Amidst a challenging global landscape, the company has exhibited resilience, reporting a modest revenue increase and striving for profitability. In their latest earnings call, they shared a total revenue growth of 0.8% year-over-year, reaching $38.5 million for the third quarter. Contributing to these were varied regional performances, with Europe, the Middle East, and Africa generating the bulk of sales (61%), followed by Latin America (33%), while Asia Pacific trailed at 6%. Brazil stood out as their premier market, accounting for 16% of total sales.
In response to global economic pressures, the company is rigorously managing its finances. Gross profit marginally increased but was offset by rising overheads, labor costs, and currency fluctuations. They are confronting a net loss from operations, which widened to $29.3 million compared to $18.6 million the previous year. To conserve resources, they're tactically reducing global personnel costs by 20%, streamlining operating expenses, and closely monitoring inventory levels, with the ambition of drastically cutting their cash use to under $15 million for the upcoming quarter. This disciplined fiscal approach is fundamental to their goal of becoming EBITDA positive in 2024 and achieving cash flow positivity in 2025.
The company is navigating a broad slowdown in the aesthetics market, a trend they predict will be temporary. Despite current headwinds suggesting a temporary pull-back in elective procedures, they anticipate a strong rebound and the resumption of vigorous growth, potentially over 30%, propelled by new market entries and product innovations. This optimism is partially based on the anticipation of strategic product launches in China and the United States, which are expected to enrich their addressable market and enhance both their Average Selling Price (ASP) and gross margins.
The company's strategic efforts are highlighted by their recent operational streamlining and a downsizing already underway. They're setting the stage for future expansion into two of the world's largest markets, China and the U.S., anticipated to double their addressable market and drive substantial growth. With revolutionary products like MIA and the potential to make profound impacts in new geographies, they are positioning themselves to capitalize on an amplification of their market presence next year and beyond.
Lower global demand and delayed approval in China necessitated an updated revenue guidance to approximately $165 million. Nevertheless, the leadership expresses confidence, supported by the $100 million capital available through cash reserves and a credit facility, which should fortify the company's ability to power through any transitory market softness while pivoting towards key objectives: profitability and growth sustainability.
In conclusion, despite facing some short-term challenges, the company is forging ahead with strategic initiatives and cost-control measures to set themselves on a trajectory for long-term success. The anticipation of significant regulatory approvals and product launches, combined with a vigilant cost management program, alludes to a future where they not only overcome current obstacles but emerge as a principal player in the global aesthetics market.
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Good afternoon. Welcome to Establishment Labs Third Quarter, 2023 Earnings Call. At this time, all participants will be in a listen-only mode. At the end of this call, we will open the line for questions and answer session and instructions will follow at that time. 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.
Thank you, operator, and thank you, everyone, for joining us. With me today is Juan 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 Established 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 you 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.Please also note that established the labs received 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 a local authority for specific product availability.The cost of this conference call contains time-sensitive information accurate only as of the date of this live broadcast, November 7, 2023. Except as required by law, establishment Labs undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. With that, it is my pleasure to turn the call over to our CEO, Juan Jose.
Thank you, Raj, and good afternoon, everyone. Revenue in the third quarter of 2023 totaled $38.5 million, in line with the third quarter of 2022. Our results this quarter reflected lower demand for breast procedures globally. The slower demand developed over the quarter in our direct markets and was also reflected in orders we received from our distributors, and we expect this trend will persist in the fourth quarter.As such, we are lowering our full year guidance to approximately $165 million, representing annual growth of 2% over 2022. I would note that while we still expect China approval by the end of this year, we have removed it from our guidance as we have less than 2 months remaining in this year. This is a meaningful portion of our reduction in guidance.However, even in this period, we continue to gain accounts around the world. This slowdown seems fairly broad across aesthetics and does not seem to be related to anything specific in the breast implant industry. While anecdotal, in international markets, both plastic surgeons and dermatologists report to us, they have seen a noticeable slowdown in their practices across all procedure types, both surgical and nonsurgical. This is, of course, not a first for the aesthetics industry, and both President and our experience suggests that this will be transitory and relatively short-lived.That said, we are being very careful in this environment, and we have taken steps to make sure our business is spending in relation to the current demand. Among the steps we are taking are a reduction in global headcount and a reduction in operating expenses. We are also prioritizing our main growth initiatives, United States, China and EMEA as well as cautiously managing our global inventory levels.Even as we take these steps, we expect growth to resume in 2024, which includes doubling our TAM through our entry into the United States and China. Our access to capital is a significant advantage here, and we are positioning ourselves to take advantage as demand inevitably returns to our industry. There has been worldwide dislocation in the competitive markets for breast implants, and this presents a sizable opportunity. It is also important to note that we continue to grow our market share.Our internal data shows that we continue to gain surgeon accounts in our markets and our competitive positioning is strengthening. We are taking market share globally, and this should continue through the remainder of 2023 and into 2024. We are raising the standard of what women and surgeons should expect from the technologies they choose, and we are discussing ourselves from the remaining players in this industry.Our pipeline of new products and new geographic markets will help fuel our momentum, and we have a very solid foundation on which to build for 2024 and beyond. Raj will provide additional details on our third quarter performance and our outlook in a moment, but I would like to highlight that we expect to be EBITDA positive by the end of 2024 and cash flow positive in 2025.These are corporate goals that are reflected throughout our business planning and are of the utmost priority. On October 15, we announced that the U.S. FDA granted 510(k) clearance for the Motiva Flora SmoothSilk tissue expander. This was a major milestone for the company as it is our first implantable approved for the United States.Flora offers several proprietary and unique innovations, including Establishment Labs patented SmoothSilk surface technology. SmoothSilk was the subject of the landmark paper published in nature by a medical engineering by MIT Scientists, Bob Langer, in which the surface was shown to be the most biocompatible compared to other implantable services.Flora also includes an RFID-enabled nonmagnetic port and is labeled as MR conditional by the FDA by being magnet free, Flora avoids the interference that magnets caused during MR imaging and can improve the precision of abbreviation oncology treatment. This is a distinct advantage to Flora as all other commercially available breast tissue expanders include magnets.In the FDA's letter on Fluor approval, the agency noted. This is an innovative technology not available in other tissue expanders on the market. Flora has been available outside the U.S. since 2021, and we are gaining traction with the device. There have been several notable independent publications highlighting improved patient comfort with Flora compared to other devices and improved imaging and radiation treatment outcomes. Despite 1 in 8 women developing breast cancer, tissue expanders have seen little innovation in decades. With Flora, we are providing surgeons and to women who receive these devices at better option, and we are extremely proud of being able to offer Flora to women in the United States.We began to introduce Flora to plastic surgeons in the United States at the annual meeting of the American Society of Plastic Surgeons in Austin at the end of October, and the reception was highly encouraging. Leading plastic surgeons at some of the top institutions in America have indicated that they will begin to adopt Flora as their Expander of choice.In October, we held our eighth World Symposium on Ergonomic Implants in Lisbon, Portugal. Among the highlights was the presentation of 2-year results from the MIA feasibility clinical study. The MIA study is an IRB-approved prospective study that enrolled the first 100 subjects between December 2020 in April 2021. The preliminary 2-year Kaplan Mayor analysis of key events, there were no reports of capture contracture and no ruptures.A sub study of 33 subjects who underwent an MRI at 18 months also showed no ruptures. There were no reports of bleeding, hematoma or seroma requiring intervention in the study. These are among the best results shown at 2 years for any breast implant technology and add further support that Mia Femtech is an entirely new category within breast aesthetics. With Mia, a plastic surgeon can shape the breast in a 15-minute minimally invasive procedure without the need for general anesthesia.The result is natural and discrete with a 1 to 2 cup proportionate result. The procedure requires minimal downtime with women returning to most activities the same day by providing a solution that overcomes many of the obstacles of traditional breast augmentation, we are opening up a whole new group of women to breast aesthetics.Our list of countries where MEAs available continues to grow. We have partner sites in Spain, Switzerland, Sweden, Germany, France, Costa Rica and Japan, and we have partnered with our distributors in Turkey and the Middle East to begin opening sites in those regions in 2024. It is early in the launch of MIA, but we are seeing proof points that we are creating and capturing demand for this new category.One recent MIA consumer is Jokastavayea. Joka is a professional female boxer, and just this past weekend, she defended her international Boxing Federation, World Boxing organization, mini flight way titles by unanimous decision. Joka has now defended her world titles twice just months since her MIA procedure. She is not only an inspiration as a world-class athlete but is also a testament to how women can quickly return to their lives with MIA without limitation or restrictions.Already, we have reports of women flying internationally from the United States to receive the procedure abroad. In some cases, they are paying in excess of $20,000 for a premium experience. This is more than twice the cost of the average breast augmentation in the United States. Stories like these demonstrate that not only is this a new category in breast aesthetics, but that MIA is going to be firmly in the luxury category and highly aspirational.The momentum for MIA continues to build and both awareness and lead generation continue to grow. This will eventually be converted into more procedures taking place at our MIA certified partner clinics. The launch of a new platform like ergonomics 2, which include the implants for JOY and MIA, is an opportunity to price technology according to consumers' willingness to pay. Thus, we are glad to see the contribution to our total revenue of the JOY program now exceed 10% of our total infant revenue with an average selling price of more than double our blended rounded ergonomics pricing.We are beginning to see positive contribution to our gross margins from this platform. As JOY and MIA scale, ASP and gross margins will improve in the international markets. The United States and China have the highest prices in the world would be significantly accretive to ASP and gross margins. All of this together lays the foundation for a very strong company. We are actively preparing for the launch of Motiva in China with our distribution partner as we wait for the letter of approval from the NMPA for Motiva implants. In the U.S., the final module of our PMA was submitted to the FDA in the first quarter of 2023, and the full PMA remains under review by the agency.The pace of activity and our interactions with the agency remains very positive. It is notable that while the recent approval of Flora and the approval of Motiva are separate processes, the devices share the same surface technology, similar RFID technology and are manufactured under the same conditions at the same facility. We recently hired Elizabeth Pension to lead our U.S. business. This brings over 30 years of experience launching and growing aesthetic brands. She's moving quickly to build out the commercial and operational teams and is finalizing plans for launch. We look forward to sharing more with you about our progress over the coming months. Our confidence that Motiva implants will soon be available to women in the United States continues to grow. I will now turn the call over to Raj.
Thank you, Juan Jose. Total revenue for the third quarter was $38.5 million, which was growth of 0.8%. From a regional perspective, sales in Europe, Middle East and Africa were approximately 61% of the global total, Asia Pacific was 6%; and Latin America, 33%. Direct sales were approximately 54% of implant sales, while distributors made up the balance. Brazil, which is our single largest market globally, accounted for approximately 16% of total quarterly sales. Our gross profit for the third quarter was $26.1 million or 67.7% of revenue compared to $26 million or 68.1% of revenue for the same period in 2022.Our gross profit in the third quarter was positively impacted by increased contribution of MIA revenue. This was partially offset by higher overhead and labor costs. Costs were higher in part from changes in exchange rates between the U.S. dollar and the Costa Rica Clone. As we report in U.S. dollars, the revaluation of the clone over the last year resulted in higher costs in the period. Average selling prices in the third quarter up from the second quarter of 2023 and year-over-year. SG&A expenses for the third quarter increased approximately $8.7 million to $40 million compared to $31.3 million in the third quarter of 2022. The increase in SG&A in the third quarter resulted in part from our investments in new growth initiatives like EMEA and preparations for our launch in the U.S.R&D expenses for the third quarter increased approximately $1.8 million in the same quarter a year ago to $7.1 million. Higher personnel costs and increased activities related to our U.S. approval processes contributed to the higher spending in this period. Total operating expenses for the third quarter were $47.1 million, an increase of approximately $10.5 million from the year ago period.Net loss from operations for the third quarter was $29.3 million compared to a net loss of $18.6 million in the same period of 2022. Our cash position as of September 30 was $52.2 million compared to $66.4 million at the end of 2022. Our cash used in the third quarter included approximately $6.6 million of investments in CapEx, including for our new manufacturing facility, which is now complete as well as a $13.9 million increase in inventory as we prepare for the launches of Motiva in China and the United States.As a reminder, we have 2 remaining tranches in our debt facility, which totaled $50 million and which become available on the achievement of sales and regulatory milestones. These, along with the cash on hand at the end of the third quarter, provided us with access to approximately $100 million in capital. As Juan Jose noted, we are lowering full year revenue guidance to approximately $165 million. The updated guidance reflects lower demand globally, but also that removed China from our forecast. We expect approval in China this quarter, but at this late point in the year, we are not forecasting any revenue contribution in 2023. The reduction in guidance is approximately 2/3 from the changes in demand and 1/3 from China timing.We continue to expect gross margin in 2023 to be approximately 100 basis points lower than 2022. We are taking steps to control expenses and cash use. This includes a target of 20% reduction in global personnel costs, focused reductions in operating expenses and management of inventory levels. As a result, we expect cash used in the fourth quarter to be meaningfully lower than in the third quarter. Our objective is to reduce cash used to less than $15 million in the fourth quarter. And based upon the actions we have taken thus far, we are confident we will meet this target. With these actions, we expect to be EBITDA positive in 2024 and cash flow positive in 2025. We believe we can achieve these targets with the cash we have on hand and with additional credit available to us. These are very important core objectives for Establishment Labs and will be reflected in our corporate planning as well as in our compensation structure for employees. I will now turn the call back to Juan Jose.
Thank you, Raj. Establishment Labs is taking share, and we expect to continue to do so. The clinical and scientific data supporting the use of our products is unprecedented and only grow stronger, and you are seeing this effect many of our competitors. With our entries into the U.S. and China, we will double our addressable market, and we are poised to become the leading global company in breast aesthetics and reconstruction.For the next few years, we will continue to transform and expand our markets by creating new categories with innovations like MIA. We are very excited about our future and expect strong growth for many years to come. Our 2026 target of $500 million in revenue remains a key long-term corporate objective and everything I see suggests we will be successful. I will now turn the call over to the operator for your questions.
'[Operator instructions]'. We ask that you limit yourselves to one question and one follow-up. Your first question comes from the line of Matt Taylor from Jefferies.
Great. Thank you. This is Mike Sarcone on for Matt. Just to start, you mentioned you expect growth to resume in 2024. I was hoping you could comment on that, just talk about your visibility and your confidence there. And if you could maybe parse out growth expectations for existing markets versus the growth that you'd be expecting for newer markets that you're entering into, like China and the U.S.?
Yes, of course. First, I'll say that we are seeing the slowdown across aesthetics and in many markets globally, and surgery is often the tip of the spear as the procedure are more costly and require more of a commitment. However, our experience and president does show that these trends are usually transitory and the demand for the procedures will tend to grow over time. Now if you think about like this softness in all of aesthetics, and you think about the position of Establishment Labs in front of us, we have many growth opportunities that are real, the approval in China the approval in the U.S., both of those are ASP and gross margin accretive, and we are -- thanks to both of them, doubling our total addressable market. We received already the approval for Flora in the United States. That's a $180 million market and Flora is unique in its technology and can truly transform this market in the United States. And on top of that, we have MIA, which continues to expand, and we will see MIA in more geographies next year.So beyond what we are seeing in terms of the softness, there is old the greenfield that we see ahead of us in terms of these new opportunities. There may be a time where like the softness starts to clear out and then we see growth in the traditional market. But I think between all of it, we're poised to come back to a percentage of growth like we had seen in the past of 30% plus.
Got it. That's helpful. And Raj, I think you mentioned a 20% reduction in global personnel costs, reducing certain OpEx. Can you talk about how quickly you plan to implement that? And then what would the ramp back look like when you do get approval in China and the U.S. and you might need to increase headcount again?
Sure. So we've actually already undertaken a lot of these initiatives in the last couple of weeks. So we did have a reduction in force last week. So a lot of this is already happening. I think as Juan Jose noted in his remarks, what we are doing at this point is prioritizing the growth objectives in front of us. So things like MIA, the United States, China. So we are making sure that we are committing our resources into those areas which provide the best opportunities for growth. And so you mentioned the U.S., for instance, in our prepared remarks, we also talked about how we have hired ahead of the U.S. business at this point, and we're building out the teams there. And so we really think about it as sort of a reduction in certain areas of the business that are a little slower right now and emphasizing areas where we still have a lot of growth ahead of us. As these markets recover, which we expect they will, our core markets, we will continue to add back there. We expect, as Juan Jose mentioned, to get back on a nice growth trajectory in these markets, we're just trying to be judicious in this period where things are slower.
Your next question comes from the line of Allen Gong from JPMorgan.
Just one question on your EBITDA and low targets, right, with kind of the market a little bit softer than expected and China coming a little bit later in U.S. potentially being a challenged market as well next year. What are you really assuming for these new markets to get to those targets? And then just as a quick follow-up, when I think about the guidance nationally but as I think about the pipeline for the U.S.?
So yes, I would like to take the first question. I mean when we look at the outlook for 2024, we're preparing for a number of potential outcomes of that, right, where the markets don't recover for a period of time, we're relying upon the growth of the new initiatives, which Juan Jose mentioned. In most scenarios with MIA ramping with China coming online with Flora now approved, we expect that growth will pick up next year, even based just upon those 3 things that we already know about even if the core markets remain soft for a period of time.However, we are preparing our budgets and spending for the eventuality that things don't improve for a period of time. And so we expect to be EBITDA positive even in a market where these core markets remain soft for a period of time. And then I think your second question, which was on MIA. So I think Juan Jose –
Yes. Could you clarify the second question? It's very hard to hear you.
My question is just it's great to your MIA doing really well internationally. But just curious, once you get the Motiva approval in the U.S., how quickly do you think you'll be bringing MIA to the U.S. as well?
Yes. It's too early to give you a lot of precision on that because we first need to gain the approval of Motiva implants. And based on that approval seek a supplement for the implant that is necessary for the MIA procedure, and then there's the additional tools. So as a result, what I can tell you is that our regulatory experts believe that this is a supplement, supplement usually used to take around 18 months. So of course, we're very committed to the first approval, which is the one of Motiva implants so that we can then bring the rest of the pipeline of innovation that is already available in the international market.
Your next question comes from the line of Anthony Petrone from Mizuho Group.
Maybe I'll start with the global demand comments and the establishment lab numbers are following some similar comments from Sientra player that's no longer going to be in the marketplace in mode previously as well, talked about weakening demand and I guess when we kind of pinpointed, is it that the underlying demand because has been impacted here because generally, the consumers tapped out, and there's no indications of interest in the funnel or conversely, you see the reports today, credit card debt hit over $1 trillion? And if you think of in the U.S. here, folks like Credit Care are the rates on lending just have they gotten too high and that's impacted demand. So is there still underlying demand for the procedures, but is it more funding issue? Or has the demand simply gone away while there's a prioritization of spend here? And I'll have a couple of follow-ups.
Yes. Thank you, Anthony. And what I'll tell you is that this lower demand developed over the quarter in our direct markets and eventually was reflected as well in the orders that we received from our distributors in the first half of the year, around 60% of our orders came from distributors. So we normally do see a slowdown in procedures in late summer, and then they tend to recover once the seasonality disappears. And in September, we see it pick up again. Well, that did not happen this year.What we hear from doctors is that many patients are basically delaying the procedures is not because of lack of interest. I think there is a lot of uncertainty, both macroeconomic and geopolitical and it is having an impact in all of aesthetics. However, in the past, we have seen this many times in which periods like this in the international markets for whether one type of crisis or another, they do come back. And in our case, I think what makes us even more confident is that for that growth, we don't depend on the current market. We have new markets opening up. We've recently had the approval of Flora here in the United States with $180 million market opening to us. And we're going to see in the next few months, the approval in China and that further after that, the approval in the United States. So all of that is potential growth for us. And that's what makes us confident because not all companies have these types of milestones ahead of them.
And then just a follow-up, one on cash preservation and just how we should be thinking about a Motiva launch under a scenario where we get FDA clearance. So first on cash, Raj, you mentioned that the burn rate would be limited to $15 million in 4Q. Just want to clarify that, that the cash burn is limited to $15 million,so is that kind of the level we should be thinking about for the first half of '24? And then when you think about putting funding toward a potential U.S. Motiva launch here, should we get FDA clearance? Is it more of a gradual launch now where you're not really going to go full tilt or is that unchanged where it would be a full market clearance next year?
Yes, to your question, Andy, I think that $15 million level in the fourth quarter, again, you've seen the guidance reduction that we've given, right? It's going to be a very slow top line growth quarter, and we're guiding to about $15 million of cash as we move into next year and some of these opportunities, China, floor in the United States, the continued growth of MIA, we're looking at keeping our cash use at that level, if not lower going forward. And so we did talk about getting to be EBITDA positive by the end of next year and then ultimately getting to cash flow positive on the cash we currently have access to. And so the preservation of cash is going to continue to be a big focus of ours. But I would look at it more as sort of the use of it in areas that provide us with the best growth. And so we talk about the United States, the biggest opportunity in front of us, and we will not underfund that opportunity, but we'll look to find areas in the other parts of the business that we can lever and devote the capital to, again, to the United States.
Your next question comes from the line of Josh Jennings from TD Cowen.
I was hoping to just ask about China approval time line. It sounds like the team is still optimistic that Pro could be in hand by the end of this year. Any signals from China regulators or process updates that you can share to that's driving that optimism? Or is it just that the process has moved forward? You've done your job on your side and the approval will come. It's just a matter of time.
Yes. Thank you, Josh. I think that we have enough signals in front of us to understand that work on the final labeling is done. And usually, by that time, you know that you're going to get the letter from the NMPA. And I think this is going to happen before the end of the year, at least that is our expectation. However, we now expect to begin recognizing revenue from that market in 2024. And as such, we are preparing for it. We have been on calls with our team there on a weekly basis, and we are preparing for a launch that should happen early next year if everything goes according to plan.
And then just a follow-up on the -- I wanted to ask a question about the process of the Flora 510(k) approval. You now have a smooth so clear in the United States. Was the 510(k)-process independent of the PMA review process by the FDA and did the FDA have to visit the manufacturing facilities prior to that 4 or 510(k) approval.
Yes, on that, Josh, it is not the same process. One is a 510(k) that leads to a clearance and the other one is a PMA that leads to an approval. However, it is the same division that is looking at both. And as such, as part of the conversations for the clearance of the Flora tissue expander, they had to include people that have to do with the approval, potential approval of the Motiva implants. So definitely, we have cleared an important hurdle when it comes to one of the most important things in the approval process for the Motiva implant, which is surface biocompatibility.The surface is an important driver of safety. And as such, by having the clearance of Flora, we have a lot of confidence that we will finish the process as we expect with the Motiva implants. And no, they did not inspect our manufacturing facilities for the Flora tissue expander. But it is the same manufacturing facilities, equivalent processes that are used for the manufacture of Motiva implants.
Your next question comes from the line of Neil Chatterji from B. Riley.
Just on the demand slowdown, I mean, as far as -- I guess are you seeing any new access, I guess, between just the general aesthetic slowdown versus specifically the breast augmentation market and any indications that could come back faster for implants?
So like we said, you tend to see it first in surgical aesthetic procedures because they tend to be more expensive, and they usually require more of a commitment. So that's why I think we're seeing it first there. When you look at the size of the impact, I think it is very important to understand that in direct markets, we are seeing an impact that is not more than 10%, for instance, in Europe. But in distributor markets, we are seeing a lot bigger of an impact, but that is related to the fact that distributors are very careful with their cash management.So if they think that they can get through a softer market by ordering less, they will do so. So the impact as a percentage in our total revenue is a lot stronger. And until we get to the U.S., the majority of our sales are going to go through the distributor channel. So far this year, it's been like in the first half, it was around 60%. And now you saw that turn around completely with close to 35% of our revenue coming from direct markets. So it kind of like amplifies the impact. But I think as we get through the rest of this year and the situation starts to resolve with our distributors, what I think you're going to see is a resumption of ordering patterns because they are going to consume those inventories, and they will need to come back.
Great. Maybe just switching gears just to MIA. Just curious on any more updates on just the progress for the clinic partners there and the DTC efforts, how much is the 2-year initial MIA feasibility study results kind of helping generate leads and uptake?
Yes, I think that's a really good point because the 2-year study, which has 0% capsule contracture, 0% rupture, 0% leading, all these things that people care about when they think about an innovative procedure like MIA, well, they tend to dissipate as terms of questions and concerns. But I think what we see is 2 things: the number of clinics that are interested in becoming partner clinics is increasing. Actually, we're having almost a difficulty in onboarding and training fast enough these clinics so that they can begin transferring the awareness into leads.The second part is what we are doing with the clinics that have been already onboarded and are speaking to consumers. And what we began with our awareness campaign is now turning into many leads coming to these clinics. And I think that is something that is very much appreciated in the period of softness is that these clinics are seeing leads in many of these leads are women who had not thought about a traditional breast augmentation. So I think MIA is going to be a shining light in the middle of this period of softness.
Your next question comes from the line of Joanne Wuensch from Citibank.
The last time you experienced this was when and how long did it take you to for lack of a better term, dig out of it? And my second question has to do with the FDA process. Where are you with that? Have they come in to inspect the facility? Anything you can sort of give us granularly, I guess that's the right word, to help better understand where that is.
Yes. Thank you, Joanne. I think from an industry perspective, probably '08, '09 was the deepest recession ever experience and procedures, at least for the U.S., where you have the best figures fell for 2 years, but then recovered back pretty strongly. And within a year after that, they were back to 2 recession levels.In the international market, actually, we see it a lot more often. We see countries like Brazil, Venezuela, Argentina, Mexico, who have periods in which they go through recessions or political instability and that period tends to last a couple of quarters, and then they tend to resume. We've seen similar situations in Asia, where like growth stopped for a bit in certain markets like Thailand or in Southeast Asia, but they do tend to recover. So that gives us the confidence to tell you that although this may be transitory, we are also taking the steps necessary so that if it was to last longer, we are prepared for it.So that is perhaps one of the most important things that we are trying to convey today is that based on the past, we know they will come back. We cannot predict the future, so we are getting prepared for it. And when it comes to the approval process for the PMA of Motiva Implants, remember, we went from a modular PMA to full PMA. We have provided all the answers to all the questions for every module that the FDA gave us, and we are now awaiting for the manufacturing inspection. So as soon as we have that inspection, I think it will be a major milestone towards the approval. But once again, I do think that it was quite important to receive the clearance of the Flora Tissue Expander because it is a good equivalent in terms of many of the characteristics that are part of the breast implant as well.
Your next question comes from the line of Marie Thibault from BTIG.
This is Sam on for Marie. Maybe I can start on the Flora approval that you guys just got here last month. I'm wondering if you guys can use that to essentially introduce the Motiva technology to customers that maybe are newer to Establishment Labs, considering it has similar properties like the smooth cell surface technology as the regular Motiva implant?
Yes, I think that's very important to us because if you think for the last few years, basically, whatever interaction U.S. plastic surgeons had with Motiva came through international conferences that may have attended friends of them in plastic surgery that have used the device and had told them about it. But basically, many of the things that they heard was through the eyes of our competitors. So it is very important to us that now we have the possibility to introduce Establishment Labs to talk about our commitment to science and technology.We can talk about the surface technology, which is one of the most important things when it comes to biocompatibility and definitely about our RFID technology because it is equivalent to what we have also available in the final implant. So all of this is going to give us many opportunities to begin talking about what this company is about, which is women's health and the introduction of this concept into the U.S. market for breast aesthetics and reconstruction eventually.
Okay. Very good. And maybe I can use my follow-up here for Raj. I know it's difficult right now to figure out how long this transitory environment could be. But assuming the implied Q4 guidance, $31.5 million, would that be an appropriate run rate to, I guess, use for the core markets going forward in 2024 and then layering on top of that some of the new markets as you guys open them up?
It's not a bad starting point. I mean as one as I noted, we've seen a much bigger slowdown in our distributor markets than we've seen in our direct markets. And so we don't expect that, that's going to continue with that period of time. But as a conservative base to start from, that's not bad. But then you start to layer on top of it, things like MIA, Flora in the United States.As Juan a mentioned, we're very close to the Chinese approval that should contribute next year. So we have a lot of good things that build on top of that. And we do expect that the fourth quarter should really be the low watermark in terms of the demand we see for these products.
Your next question comes from the line of George Sellers from Stephens.
Maybe to start with Flora, I apologize if I missed this, but I'm just curious what that commercialization might look like, what you're anticipating and including in your guidance in the fourth quarter and how we should think about maybe the cadence of that in 2024? And then also, I'm curious on the market in the U.S. Do you need to have Motiva approval for Flora to see -- to really take off that physicians typically use the same Tissue Expander is the implant that they're going to use? Or what does that market look like in the U.S?
Yes, of course. So first of all, just as a reminder, the market for tissue expanders in the U.S. is approximately $180 million, and it has the highest average selling prices in the world. we will start generating revenue from Flora in the U.S. in 2024. And with the technology that we have, based on science, the unique technology with no magnets, which really changes things for these centers because now they can do MRIs, they can potentially reduce the amount of radiation oncology. It opens up new opportunities for them in many different ways. So it is an important change for these centers in the United States. So as we look forward, if you think about like what does Flora do, it creates this very nice interaction with tissue inside a patient that is recovering from breast cancer. So that tissue is going to define the type of capsule that you have. And thereafter, that capsule can be the host for an implant that is already approved for breast reconstruction in the United States or eventually for our Motiva implants. But there's no reason to believe that surgeons who understand this would not see it as a benefit that the initial capsule is created in such a healthy manner but our Flora Tissue Expander.
Okay. That's really helpful. And then maybe on the Motiva FDA process. You touched on the manufacturing inspection. Just curious what steps are left after that manufacturing inspection? And have you seen or been given any time line on when you should expect that?
No. We have not given any time line because it is not in our hands. But we continue to make progress week to week in terms of the question-and-answer process with the FDA. Like I said before, we have provided answers to every single one of their questions now. And that tells you that the process is coming along quite well. They have not yet scheduled that inspection, but we have all questions of Module 3, which is manufacturing that have been answered. So we expect that to happen hopefully sooner than later.
That is all the time we have for questions today. I will now turn the call back over to Juan Jose Chacon Quiros for closing remarks.
Thank you for joining us on today's call. We will be attending the Jefferies London Healthcare Conference and the Stephens Annual Nashville Conference next week. We look forward to providing our next quarterly update in the new year, and we wish everyone continued good health.
This concludes today's conference call. Thank you for your participation, and you may now disconnect.