ESTABLISHMENT LABS HOLDINGS INC

Previous wording

In February 2023, we submitted the final module of our clinical trial for Motiva Implants in the United States to the FDA. We received FDA approval to start our clinical trial in 2018. By August 2019, we had completed all surgeries in the aesthetic cohorts and implemented a bifurcated regulatory strategy for data submission. In April 2022, we released preliminary results for the primary augmentation cohort and, by June 2022, we completed enrollment and surgeries for the primary reconstruction cohort. By September 2022, we had completed the three-year follow-up for the aesthetic cohort.

Current wording

In September 2024, we received FDA approval to sell Motiva Implants in the United States.

Previous wording

Our revenue for the years ended December 31, 2023 and 2022 was $165.2 million and $161.7 million, respectively, an increase of $3.5 million, or 2.2%. Net losses were $78.5 million for the year ended December 31, 2023 as compared to $75.2 million for the year ended December 31, 2022. As of December 31, 2023, we had an accumulated deficit of $360.1 million.

Current wording

Our revenue for the years ended December 31, 2024 and 2023 was $166.0 million and $165.2 million, respectively, an increase of $0.8 million, or 0.5%. Net losses were $84.6 million for the year ended December 31, 2024 as compared to $78.5 million for the year ended December 31, 2023. As of December 31, 2024, we had an accumulated deficit of $444.7 million.

Previous wording

Our cash balance as of December 31, 2023 was $40.0 million.

Current wording

Our cash balance as of December 31, 2024 was $90.3 million.

Previous wording

In addition, in October 2023, we completed and announced the results of the two-year 100-patient clinical study for Mia Femtech, our patented technologies that can increase breast shape by 1 to 2 cups in a 15-minute procedure without the need for general anesthesia. The single-center, Institutional Review Board approved study began in December 2020 and involved participation of fifteen board-certified plastic surgeons from Costa Rica, Sweden, England, Brazil, Austria, Italy, Belgium, and the United States. We have launched Mia Femtech globally through partnerships with clinics in Japan, Spain, Switzerland, Sweden, Germany, France, Costa Rica, Turkey and the Middle East. In October 2023, we also launched, in select geographies, Zen - the newest generation of our passive RFID technology that is now non-ferromagnetic. Zen is available with Motiva Ergonomix2 Round implants in the Joy program.

Current wording

In October 2024, we completed and announced the results of the three-year 100-patient clinical study for Mia Femtech, our patented technology that can increase breast shape by 1 to 2 cups in a 15-minute procedure without the need for general anesthesia. The single-center, Institutional Review Board approved study began in December 2020 and involved the participation of fifteen board-certified plastic surgeons in multiple geographies. We currently offer Mia Femtech in multiple countries across the world with plastic surgeons fully certified to provide the Mia experience.

Previous wording

We are in the process of expanding our manufacturing facilities and corporate offices in the Coyol Free Zone, or CFZ, in Costa Rica. Construction of the cold shell structure of the Sulàyöm Innovation Campus was initially funded by the Coyol Free Zone in 2021 until we exercised our option to purchase the title of the land and cold shell building for approximately $12.6 million in 2022. In July 2023, we announced the grand opening of the first phase of the Sulàyöm Innovation Campus, which includes approximately 100,000 square feet of facility space intended to increase our manufacturing capacity by approximately 730,000 units per year. We estimate a total of $51.7 million in costs for this initial phase of our expansion project, of which the majority has been incurred to date. Additional phases of the project may be executed, at our option, to further expand manufacturing capacity at the new facility. We expect to commence manufacturing from the new facility in 2024. See Note 3“Balance Sheet Accounts” for additional information.

Current wording

In June 2024, we finalized the construction of our manufacturing and corporate offices in the Coyol Free Zone, or CFZ, in Costa Rica, which includes approximately 100,000 square feet of facility space intended to increase our manufacturing capacity by approximately 730,000 units per year. The facility has obtained necessary regulatory approvals to commence manufacturing. We incurred approximately $56.0 million in costs for this phase of the project over the time frame of 2020 to 2024. Additional phases of the project may be executed, at our option, to further expand manufacturing capacity at the new facility.

Previous wording

In November 2023, we received National Medical Products Administration, or NMPA, approval in China for Motiva Implants, 510(k) clearance from the FDA for the Motiva Flora SmoothSilk Tissue Expander in the United States, and CE mark approval under the European Medical Device Regulation for the Motiva Injector, the Motiva Inflatable Balloon and the Motiva Channel Dissector.

Current wording

In January 2024, we announced the commercial launch of Motiva Implants in China and the completion of the first procedure with the Motiva Flora SmoothSilk Tissue Expander in the United States. These events followed our receipt of National Medical Products Administration, or NMPA, approval in China for Motiva Implants and our 510(k) clearance from the FDA for the Motiva Flora SmoothSilk Tissue Expander in the United States, both in November 2023.

Previous wording

On January 9, 2024, we entered into a securities purchase agreement with select institutional accredited investors to sell, at price of $25.00 per share, 1,101,565 common shares and pre-funded warrants for purchase of 898,435 common shares. The pre-funded warrants may be exercisable immediately at a price of $0.001 per share. The aggregate gross proceeds from the offering, before deducting offering expenses, were approximately $50.0 million.

Current wording

In January 2024, we entered into a securities purchase agreement with select institutional accredited investors pursuant to which we agreed to sell to the investors in a private placement 1,101,565 common shares and pre-funded warrants to purchase up to 898,435 common shares. The pre-funded warrants are exercisable immediately, at a price of $0.001 per share, until exercised in full. Net proceeds to us from the offering, after deducting offering expenses, were approximately $49.7 million. See Note 8 “Shareholders’ Equity” for additional information.

Previous wording

We commenced sales of our Motiva Implants in October 2010 and these products have historically accounted for the majority of our revenues. Sales of our Motiva breast implants accounted for over 95% of our revenues for the year ended December 31, 2023, and we expect our revenues to continue to be driven primarily by sales of these products. We primarily derive revenue from sales of our Motiva Implants to two types of customers: (1) medical distributors and (2) direct sales to physicians, hospitals, and clinics.

Current wording

We commenced sales of our Motiva Implants in October 2010 and these products have historically accounted for the majority of our revenues. Sales of our Motiva breast implants accounted for over 96% of our revenues for the year ended December 31, 2024, and we expect our revenues to continue to be driven primarily by sales of these products. We primarily derive revenue from sales of our Motiva Implants to two types of customers: (1) medical distributors and (2) direct sales to physicians, hospitals, and clinics.

Previous wording

We expect our revenue to increase as we enter new markets, expand awareness of our products in existing markets, and grow our distributor network and direct sales force. We also expect our revenue to fluctuate from quarter to quarter due to a variety of factors, including seasonal fluctuations in demand for Motiva Implants. We are also affected by foreign currency fluctuations.

Current wording

We expect our revenue to fluctuate from quarter to quarter due to a variety of factors, including seasonal fluctuations in demand for Motiva Implants and foreign currency fluctuations.

Previous wording

Our implants are manufactured at our two facilities in Costa Rica. A third facility in Costa Rica is under construction and is currently expected to commence manufacturing in fiscal 2024. Cost of revenue is primarily the cost of silicone but also includes other raw materials, packaging, components, quality assurance, labor costs, as well as manufacturing and overhead expenses. Cost of revenue also includes depreciation expense for production equipment, and amortization of certain intangible assets.

Current wording

Our implants are manufactured at our facilities in Costa Rica. Construction of our third facility in Costa Rica was completed in June 2024. Subsequently, the smallest manufacturing facility ceased production in August 2024. Cost of revenue is primarily the cost of silicone but also includes other raw materials, packaging, components, quality assurance, labor costs, as well as manufacturing and overhead expenses. Cost of revenue also includes depreciation expense for production equipment and amortization of certain intangible assets.

Previous wording

We calculate gross margin as revenue less cost of revenue for a given period divided by revenue. Our gross margin may fluctuate from period to period depending, in part, on the efficiency and utilization of our manufacturing facilities, targeted pricing programs, and sales volume based on geography, customer and product type.

Current wording

We calculate gross margin as revenue less cost of revenue for a given period divided by revenue. Our gross margin may fluctuate from period to period depending, in part, on the efficiency and utilization of our manufacturing facilities, fluctuations of foreign currency exchange rates, targeted pricing programs and sales volume based on geography, customer and product type.

Previous wording

We expect our SG&A expenses to continue to increase in absolute dollars for the foreseeable future as our business grows and we continue to invest in our sales, marketing, medical education, training and general administration resources to build our corporate infrastructure. However, we expect our SG&A expenses to decrease as a percentage of our revenue over the long term, although our SG&A expenses may fluctuate from period to period due to the timing of expenses related to our sales and marketing campaigns.

Current wording

We expect our SG&A expenses to remain significant in absolute dollars as our business grows and we continue to invest in our sales, marketing, medical education, training and general administration resources to build our corporate infrastructure. However, we expect our SG&A expenses to decrease as a percentage of our revenue over the long term, although our SG&A expenses may fluctuate from period to period due to the timing of expenses related to our sales and marketing campaigns, as well as expansion into new markets and geographies.

Previous wording

We expect our R&D expenses to remain elevated for the foreseeable future as we continue to advance our products under development, as well as initiate and prepare for additional clinical studies. We received an approval of an IDE from the FDA in March 2018 to initiate a clinical trial and enrolled the first patient in April 2018. In August 2019, we completed all patient surgeries for the IDE aesthetic cohorts, which include primary augmentation and revision augmentation, and have now completed the three-year study subject follow-up for the aesthetic cohort. In June 2022, full enrollment of the IDE clinical trial was complete, and all surgeries in the primary reconstruction cohort were performed. As of September 30, 2022, we also completed the three-year study subject follow-up for the aesthetic cohort. In the fourth quarter of 2021, we initiated a modular PMA submission process with the FDA and submitted the first of four modules. The second, third and fourth modules were submitted to the FDA in May 2022, August 2022 and February 2023, respectively. The IDE clinical trial is expected to cost between $30.0 million and $40.0 million over ten years. As of December 31, 2023, around $30 million has been spent on the trial. We also have other products under development for which we may be required to conduct clinical trials in future periods in order to receive regulatory approval to market these products.

Current wording

We expect our R&D expenses to remain elevated for the foreseeable future as we continue to advance our products under development, as well as initiate and prepare for additional clinical studies. We received an approval of an IDE from the FDA in March 2018 to initiate a clinical trial and enrolled the first patient in April 2018. The IDE clinical trial is expected to cost between $30.0 million and $40.0 million over the duration of the clinical trial period of ten years. As of December 31, 2024, approximately $32.2 million has been spent on the trial to date. We also have other products under development for which we may be required to conduct clinical trials in future periods in order to receive regulatory approval to market these products.

Previous wording

Interest expense consists primarily of cash and non-cash interest related to outstanding debt and amortization of debt discounts. As of December 31, 2023, we had $192.6 million in outstanding principal under our term loan, including interest accrued into the principal balance. See Note 5 “Debt” for additional information.

Current wording

Interest expense consists primarily of cash and non-cash interest related to outstanding debt and amortization of debt discounts. As of December 31, 2024, we had $221.4 million in outstanding principal under our term loan, including interest accrued into the principal balance. See Note 6 “Debt” for additional information.

Previous wording

Other expense, net primarily consists of foreign currency gains/losses and interest income.

Current wording

Other expense, net primarily consists of foreign currency gains/losses and interest income. As of December 31, 2024, it also included $6.0 million of contract termination costs related to cancellation of certain contracts in the fourth quarter of fiscal 2024. See Note 2 “Summary of Significant Accounting Policies” for additional information.

Previous wording

Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. Due to our history of losses, with the exception of Belgium and JAMM Technologies, Inc., we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards, R&D tax credits and other book versus tax differences.

Current wording

Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. Due to its history of losses, Motiva USA LLC, our U.S. subsidiary, maintains a full valuation allowance for deferred tax assets including net operating loss carry-forwards, R&D tax credits, capitalized R&D and other book versus tax differences.

Previous wording

•Outlook: Demand for our products is dependent on the relative strength of the global and regional medical device markets, which are sensitive to general macroeconomic conditions. The current global macroeconomic environment remains complex, with elevated inflation and interest rates contributing to fear of potential recessionary conditions thus driving limitations on available discretionary spending in the markets we operate. These macroeconomic challenges, combined with geopolitical upheaval, have led to ongoing volatility within global markets. This negatively impacted demand for our products during the second half of 2023 and we expect for this to continue in 2024.

Current wording

•Outlook: Demand for our products is dependent on the relative strength of the global and regional medical device markets, which are sensitive to general macroeconomic conditions. The current global macroeconomic environment remains complex, with elevated inflation and interest rates driving reductions in discretionary spending in the markets we operate. While several regions are showing strong performance, the demand remains inconsistent, with Latin America, especially Brazil, underperforming. We expect significant demand for our products as we further develop the U.S. market. Despite our continued emphasis on managing operating costs, our commercial and operational efforts have intensified post-FDA approval of Motiva Implants. Therefore, we expect an uptick in overall operating expenses in fiscal 2025 relative to fiscal 2024.

Previous wording

SG&A expense increased $19.6 million, or 15.6%, to $145.6 million for the year ended December 31, 2023, compared to $126.0 million for the year ended December 31, 2022. The increase was primarily due to a $8.2 million increase in sales and marketing expenses, a $4.3 million increase in personnel and related costs due to increased headcount during the first three quarters of the year, a $3.0 million increase in freight associated with higher revenues, a $2.1 million increase in costs in facilities from our expanding operations, a $2.0 million increase in software implementation costs, a $0.9 million increase in consulting fees in part due to added costs for compliance with Section 404(b) of the Sarbanes-Oxley Act and a $0.3 million increase in depreciation and amortization costs, partially offset by a $1.8 million decrease in sales commissions. In the fourth quarter of 2023, we implemented measures targeting a decrease in operating expenses, including headcount reduction to lower global personnel costs.

Current wording

SG&A expense decreased $5.8 million, or 4.0%, to $139.8 million for the year ended December 31, 2024, compared to $145.6 million for the year ended December 31, 2023. The decrease was primarily due to a $6.2 million decrease in in consulting fees, a $4.1 million decrease in sales and marketing expenses and a $3.6 million decrease in freight costs, partially offset by a $2.1 million increase in depreciation and amortization costs, a $1.5 million increase in personnel and related costs, a $1.3 million increase in insurance expenses, and a $1.1 million increase in software implementation costs.

Previous wording

R&D expense increased $6.1 million, or 30.0%, to $26.4 million for the year ended December 31, 2023, compared to $20.3 million for the year ended December 31, 2022. The increase in R&D expense was primarily due to a $6.9 million increase in personnel cost, partially offset by a $0.6 million decrease in regulatory affairs costs and a $0.1 million decrease in expenditures related to our IDE clinical trial in the United States.

Current wording

R&D expense decreased $6.7 million, or 25.4%, to $19.7 million for the year ended December 31, 2024, compared to $26.4 million for the year ended December 31, 2023. The decrease in R&D expense was primarily due to a $6.0 million decrease in personnel cost and a $1.0 million decrease in expenditures related to our IDE clinical trial in the United States, partially offset by a $0.2 million increase in regulatory affairs costs.

Previous wording

Interest expense increased $3.6 million, or 30.5%, to $15.4 million for the year ended December 31, 2023, as compared to $11.8 million for the year ended December 31, 2022. The increase was primarily due to the new Credit Agreement entered into in April 2022 and the second tranche advanced pursuant to the Credit Agreement in December 2022.

Current wording

Interest expense increased $5.4 million, or 35.1%, to $20.8 million for the year ended December 31, 2024, as compared to $15.4 million for the year ended December 31, 2023. The increase was primarily due to an increase in debt principal.

Previous wording

Other income (expense), net, increased $4.0 million to a gain of $0.8 million for the year ended December 31, 2023, compared to a loss of $3.2 million for the year ended December 31, 2022. The increase was primarily due to the foreign currency fluctuations of the Brazilian real and the euro as compared to the U.S. dollar, resulting in a foreign currency transaction gain of $1.8 million, for the year ended December 31, 2023, compared to a loss of $3.0 million for the year ended December 31, 2022.

Current wording

Other income (expense), net, decreased $15.6 million to an expense of $13.8 million for the year ended December 31, 2024, compared to an income of $1.8 million for the year ended December 31, 2023. The decrease was primarily due to $6.0 million in contract termination costs incurred in the fourth quarter of fiscal 2024 and to the foreign currency fluctuations of the Brazilian real and the euro as compared to the U.S. dollar, resulting in a foreign currency transaction loss of $8.8 million, for the year ended December 31, 2024, compared to a gain of $1.8 million for the year ended December 31, 2023. Interest income amounted to $1.5 million or the year ended December 31, 2024, as compared to $1.0 million for the year ended December 31, 2023.

Previous wording

As of December 31, 2023, we had an accumulated deficit of $360.1 million. Since our inception, we have generated losses and expect to continue to generate losses in the near term. We have financed our operations through a combination of equity financings and debt financings, and from cash generated from operations, primarily from the collection of accounts receivable resulting from sales. Our historical cash outflows have primarily been associated with cash used for operating activities such as expansion of our sales and marketing and distributor infrastructure, investing in inventory, R&D activities, asset acquisitions, capital improvements, including our new manufacturing facility and other working capital needs. As of December 31, 2023 and 2022, we had cash of $40.0 million and $66.4 million, respectively.

Current wording

As of December 31, 2024, we had an accumulated deficit of $444.7 million. Since our inception, we have generated losses and expect to continue to generate losses in the near term. We have financed our operations through a combination of equity financings and debt financings, and from cash generated from operations, primarily from the collection of accounts receivable resulting from sales. Our historical cash outflows have primarily been associated with cash used for operating activities such as expansion of our sales and marketing and distributor infrastructure, investing in inventory, R&D activities, asset acquisitions, capital improvements, including our new manufacturing facility and other working capital needs. As of December 31, 2024 and 2023, we had cash of $90.3 million and $40.0 million, respectively.

Previous wording

▪the cost and timing of our regulatory activities, especially the IDE clinical trial, and the timing of regulatory approval for our Motiva Implants in the United States;

Current wording

•the cost and timing of our regulatory activities;

Previous wording

Net cash used in operating activities of $52.2 million for the year ended December 31, 2022 was primarily comprised of a net loss of $75.2 million, a $19.0 million loss on extinguishment of debt, $13.4 million of share-based compensation expense, $8.1 million of non-cash interest expense due to accretion of debt discounts and interest subsumed into the principal of the new Credit Agreement, $3.9 million of non-cash depreciation expense, $1.7 million of unrealized foreign currency loss, and a $1.6 million change in provision for inventory obsolescence, partially offset by a $1.9 million gain from write-off of liability and a $0.7 million change in fair value of derivatives, as well as changes in operating assets and liabilities of $21.5 million.

Current wording

Net cash used in operating activities of $58.5 million for the year ended December 31, 2024 was primarily comprised of a net loss of $84.6 million, changes in operating assets and liabilities of $15.5 million, a $2.2 million change in provision for deferred income taxes and $0.6 million of interest capitalized for construction in progress, partially offset by $14.4 million of share-based compensation expense, $6.8 million of non-cash depreciation and amortization expense, $6.4 million of non-cash interest expense due to accretion of debt discounts, $6.0 million of non-cash loss on contract termination, $5.3 million of unrealized foreign currency loss, a $1.8 million change in provision for inventory obsolescence, a $1.7 million change in allowance for doubtful accounts, $1.0 million of stock compensation in lieu of cash fees and $0.7 million of non-cash amortization expense of right-to-use assets.

Previous wording

Net cash used in investing activities of $34.8 million for the year ended December 31, 2022 primarily consisted of $29.9 million of cash paid for capital expenditures on construction in progress related to our new manufacturing facility in the Coyol Free Zone in Costa Rica, $2.9 million in purchases of property and equipment, $1.5 million of purchases of intangibles and $0.5 million of cash paid for past asset acquisition.

Current wording

Net cash used in investing activities of $15.6 million for the year ended December 31, 2024 primarily consisted of $7.0 million in purchases of intangibles, $6.1 million in purchases of property and equipment related to the new manufacturing facility and $2.4 million of cash paid for capital expenditures on construction in progress related to our new manufacturing facility in the Coyol Free Zone in Costa Rica

Previous wording

Net cash provided by financing activities of $100.3 million for the year ended December 31, 2022 primarily consisted of $168.1 million of borrowings under the new Credit Agreement, net of discount and issuance costs, and $3.9 million in proceeds received for stock option exercises, partially offset by $71.7 million used to repay borrowings under the Madryn Credit Agreement.

Current wording

Net cash provided by financing activities of $125.9 million for the year ended December 31, 2024 primarily consisted of $99.5 million of proceeds received for the issuance of common shares, net of underwriters’ discount and issuance costs, from our public offering in April 2023, $24.5 million of borrowings under the Tranche C Term Loan of the Credit Agreement and $2.5 million in proceeds received for stock option exercises, partially offset by $0.5 million paid to satisfy tax withholding obligations upon the vesting of restricted stock.

Previous wording

On April 26, 2022, or the Closing Date, we entered into the new Credit Agreement, pursuant to which the lenders agreed to make term loans to the Company in an aggregate principal amount of up to $225 million, which we collectively refer to as the Term Loans, with the first tranche of $150 million advanced on the Closing Date. Part of the first tranche was used to repay the outstanding principal and interest under the Madryn Credit Agreement in full, including the early repayment penalty of $6.5 million. In December 2022, $25 million was advanced under the second tranche. The Term Loans will mature on the 5-year anniversary of the Closing Date and accrue interest at a rate equal to 9% per annum. As of December 31, 2023, $192.6 million was outstanding under the Credit Agreement representing the initial principal of $150 million for the Tranche A Term Loan and $25 million for the Tranche B Term Loan and $17.6 million of interest accrued into the principal balance. In February 2024, we amended the Credit Agreement where funding milestones, commitment termination dates and interest rates for the two remaining available tranches were modified. See Note 5 and Note 15.

Current wording

On April 26, 2022, or the Closing Date, we entered into the new Credit Agreement, pursuant to which the lenders agreed to make term loans in an aggregate principal amount of up to $225 million, which we collectively refer to as the Term Loans, with the first tranche of $150 million advanced on the Closing Date. Part of the first tranche was used to repay the outstanding principal and interest under our previous credit agreement with Madryn Health Partners, LP in full, including the early repayment penalty of $6.5 million. In December 2022, $25 million was advanced under the second tranche. In October 2024, $25 million was advanced under the third tranche. The Term Loans will mature on the 5-year anniversary of the Closing Date and accrue interest at a rate equal to 9% per annum for the first two tranches and 10% for the third and fourth tranches. As of December 31, 2024, $221.4 million was outstanding under the Credit Agreement representing the initial principal of $150 million for the Tranche A Term Loan, $25 million for the Tranche B Term Loan, $25 million for the Tranche C Term Loan and $17.6 million of interest accrued into the principal balance. See Note 6 “Debt” for additional information.

Previous wording

The Company recognizes revenue related to sales of products to distributors or directly to customers in markets where it has regulatory approval, net of discounts and allowances. The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC,606, Revenue from Contracts with Customers. ASC 606 requires the Company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.

Current wording

Accounting Standards Codification, or ASC,606, Revenue from Contracts with Customers. ASC 606 requires the Company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.

Previous wording

The Company recognizes revenue related to the sales of products to distributors at the time of shipment of the product, which represents the point in time when the distributor has taken ownership and assumed the risk of loss and the required revenue recognition criteria are satisfied. The Company’s distributors are obligated to pay within specified terms regardless of when, or if, they sell the products. The Company’s contracts with distributors typically do not contain right of return or price protection and have no post-delivery obligations.

Current wording

We recognize revenue related to the sales of products to distributors at the time of shipment of the product, which represents the point in time when the distributor has taken ownership and assumed the risk of loss and the required revenue recognition criteria are satisfied. Our distributors are obligated to pay within specified terms regardless of when, or if, they sell the products. Our contracts with distributors typically do not contain right of return or price protection and have no post-delivery obligations.

Previous wording

The Company recognizes revenue when title to the product and risk of loss transfer to customers, provided there are no remaining performance obligations required of the Company or any written matters requiring customer acceptance. The Company allows for the return of product from direct customers in certain regions in limited instances within fifteen days after the original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized. Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and any notification of pending returns. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or subsequent period is recorded. As of December 31, 2023 an allowance of $0.3 million was recorded for product returns. As of December 31, 2022, the allowance for product returns was de minimis.

Current wording

We recognize revenue when title to the product and risk of loss transfer to customers, provided there are no remaining performance obligations required of us or any written matters requiring customer acceptance. We allow for the return of product from direct customers in certain regions in limited instances within fifteen days after the original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized. Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and any notification of pending returns. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or subsequent period is recorded. As of December 31, 2024 and 2023, an allowance of $0.4 million and $0.3 million was recorded for product returns, respectively. Taxes collected from customers for remittance to governmental authorities are excluded from net sales.

Previous wording

A portion of the Company’s revenue is generated from the sale of consigned inventory maintained at physician, hospital, and clinic locations. For these products, revenue is recognized at the time the Company is notified by the consignee that the product has been implanted, not when the consigned products are delivered to the consignee’s warehouse.

Current wording

A portion of the our revenue is generated from the sale of consigned inventory maintained at physician, hospital, and clinic locations. For these products, revenue is recognized at the time we are notified by the consignee that the product has been implanted, not when the consigned products are delivered to the consignee’s warehouse.

Previous wording

The Company has a limited warranty for the shelf life of breast implants, which is five years from the time of manufacture. Estimated warranty obligations are recorded at the time of sale. The Company also offers a warranty to patients in the event of rupture and a replacement program for capsular contracture events, provided certain registration requirements are met. Revenue for extended warranties is recognized ratably over the term of the agreement. To date, these warranty and program costs have been de minimis. The Company will continue to evaluate the warranty reserve policies for adequacy considering claims history.

Current wording

We have a limited warranty for the shelf life of breast implants, which is five years from the time of manufacture. Estimated warranty obligations are recorded at the time of sale. We also offer a warranty to patients in the event of rupture and a replacement program for capsular contracture events, provided certain registration requirements are met. Revenue for extended warranties is recognized ratably over the term of the agreement. To date, these warranty and program costs have been de minimis. We will continue to evaluate the warranty reserve policies for adequacy considering claims history.

Previous wording

Deferred revenue primarily consists of payments received in advance of meeting revenue recognition criteria. The Company has received payments from distributors to provide distribution exclusivity within a geographic area and recognizes deferred revenue on a ratable basis over the term of such contractual distribution relationship. Additionally, the Company has received payments from customers in direct markets prior to surgical implantation and recognizes deferred revenue at the time the Company is notified by the customer that the product has been implanted. For all arrangements, any revenue that has been deferred and is expected to be recognized beyond one year is classified as long-term deferred revenue and included in “Other liabilities, long-term” on the consolidated balance sheets.

Current wording

Deferred revenue primarily consists of payments received in advance of meeting revenue recognition criteria. We have received payments from distributors to provide distribution exclusivity within a geographic area and recognizes deferred revenue on a ratable basis over the term of such contractual distribution relationship. Additionally, we have received payments from customers in direct markets prior to surgical implantation and recognizes deferred revenue at the time we are notified by the customer that the product has been implanted. For all arrangements, any revenue that has been deferred and is expected to be recognized beyond one year is classified as long-term deferred revenue and included in “Other liabilities, long-term” on the consolidated balance sheets (see Note 3 “Balance Sheet Accounts”).

Previous wording

The Company estimates IDE clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

Current wording

We estimate IDE clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage clinical trials on its behalf. In accruing service fees, we estimate the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.

Previous wording

Accounts Receivable and Allowance for Doubtful Accounts

Current wording

Accounts Receivable and Allowance for Credit Losses

Previous wording

Accounts receivable is stated at invoice value less estimated allowances for returns and doubtful accounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from customers’ inability to make required payments. In evaluating the Company’s ability to collect outstanding receivable balances, the Company considers various factors including the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history, and the customer’s current financial condition. In cases where there are circumstances that may impair a specific customer’s ability to meet its financial obligations, an allowance is recorded against amounts due, which reduces the net recognized receivable to the amount reasonably believed to be collectible.

Current wording

Accounts receivable is stated at invoice value less estimated allowances for returns and credit losses. We continually monitor customer payments and maintains an allowance for estimated losses resulting from customers’ inability to make required payments. In evaluating our ability to collect outstanding receivable balances, we consider various factors including the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history, and the customer’s current financial condition. In cases where there are circumstances that may impair a specific customer’s ability to meet its financial obligations, an allowance is recorded against amounts due, which reduces the net recognized receivable to the amount reasonably believed to be collectible.

Previous wording

Inventory is stated at the lower of cost to purchase or manufacture the inventory or the net realizable value of such inventory. Cost is determined using the standard cost method which approximates actual costs using the first-in, first-out basis. The Company regularly reviews inventory quantities considering actual losses, projected future demand, and remaining shelf life to record a provision for excess and slow-moving inventory.

Current wording

Inventory is stated at the lower of cost to purchase or manufacture the inventory or the net realizable value of such inventory. Cost is determined using the standard cost method which approximates actual costs using the first-in, first-out basis. We regularly reviews inventory quantities considering actual losses, projected future demand, and remaining shelf life to record a provision for excess and slow-moving inventory. Provision for inventory obsolescence of$4.2 million and$3.9 million has been recorded as of December 31, 2024 and 2023, respectively.

Previous wording

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. There were no impairment charges, or changes in estimated useful lives recorded during the years ended December 31, 2023 and 2022.

Current wording

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. There were no impairment charges, or changes in estimated useful lives recorded during the years ended December 31, 2024 and 2023.

Previous wording

The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns. In estimating future tax consequences, expected future events, enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

Current wording

We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or income tax returns. In estimating future tax consequences, expected future events, enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

Previous wording

The Company operates in various tax jurisdictions and is subject to audit by various tax authorities.

Current wording

We operate in various tax jurisdictions and are subject to audit by various tax authorities.