Evolus, Inc. (NASDAQ:EOLS) Q3 2023 Earnings Call Transcript

Evolus, Inc. (NASDAQ:EOLS) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Good afternoon, and welcome to the Evolus Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Mr. Ned Mitchell from Investor Relations. Ned?

Ned Mitchell: Thank you, operator, and welcome to everyone joining us on today’s call. With me today are David Moatazedi, President and Chief Executive Officer; Rui Avelar, Chief Medical Officer and Head of R&D; and Sandra Beaver, Chief Financial Officer. Our prepared remarks today will include forward-looking statements within the meaning of United States securities laws and management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management’s current assumptions and expectations of future events and trends, which may affect the company’s business, strategy, operations or financial performance. A detailed discussion of the risks and uncertainties that the company faces is contained in its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate, projection or forward-looking statements. Additionally, today’s discussion will include non-GAAP financial measures, which be considered in addition to that not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and on our Investor Relations website at evolus.com. Following the conclusion of today’s call, a replay will be available on our website at evolus.com. With that, I’ll turn over to David.

David Moatazedi: Thank you, Ned. We are very pleased to see the increasing momentum of our business driven by strong execution, which has translated into record quarterly revenue and record low cash burn. — in what is historically the seasonally lowest for the injectible category. Our focus has been consistent and intentional. We’re building a beauty brand for the younger generation, which represents the fastest-growing segment of the neurotoxin market. This differentiated approach to market to go has resulted in the highest quarterly revenue in the company’s history. Our reported revenue of $50 million reflect 48% growth year-over-year and represents a sequential increase over the second quarter. We’ve also maintained a strong focus on operating expenses and I’m pleased to report that our operating cash burn was at an all-time low of $0.9 million this quarter, putting us on the path to profitability with our existing liquidity.

Our success in the quarter demonstrates the strength of our brand-building efforts and the resilient neurotoxin market, which remains healthy as consumers continue to prioritize their spend on beauty. Toxins are a great value for consumers due to the consistency in outcomes and affordability of the treatment. We believe Jeuveau is well positioned as a beauty brand in this market, and we’ll continue to capture this increasing demand. The success of our consumer-centric strategy was demonstrated during the quarter in the number of total consumer loyalty redemptions, which eclipsed 1.2 million since the program was introduced in 2020. In the quarter, we reached an all-time high of 149,000 redemptions, demonstrating sustained and strong brand loyalty.

On the market penetration side, we added more than 650 new accounts in the quarter. bringing our total purchasing customer count to nearly 11,600. As a reminder, with over 30,000 aesthetic customers in the United States, we continue to have a significant opportunity to further expand our market penetration over the coming years. In our international operations, Nuceiva is now commercial in 4 major countries. I’m proud of the progress we’ve made with the small and nimble team. This week, we celebrated 1 year since Nuceiva was first launched in Great Britain. Earlier this year, we launched in Germany and Austria, and most recently, we launched in Italy, which is off to a very strong start. Europe represents an estimated high single-digit millions in sales in 2023 and is key to our overall long-term growth strategy.

The combination of continued strength in execution and increasing momentum gives us the confidence to raise again our full year 2023 revenue guidance to between $194 million and $198 million. This updated guidance equates to over 30% growth for the fiscal year, and it is magnitudes greater than the estimated category growth rate. Looking beyond 2023, we remain highly confident in our 2020 saleshold of $700 million, which is driven by the strong market opportunity of Jeuveau in the United States, the international expansion of Nuceiva and the introduction of the Evolysse line of fillers in the U.S. beginning in 2025. Evolus continues to differentiate itself and outpace the growth of our competitors, leading with a strong beauty brand, a unique strategy targeting millennial and a cash pay business model that rewards customer loyalty.

Our platform for growth continues to scale with Jeuveau and Nuceiva experiencing tremendous growth as evidenced by our third quarter results. Moving to our R&D efforts. I would like to provide an update on several of our pipeline assets. Today, we will provide an update on the first 2 expected injectable products within the Evolysse line of fillers. We will also review the final Phase II extra-strength results. Starting with Evolysse. We have continued to make progress over the past quarter and are pleased to provide an update on our filing for the first 2 heavy-lift fillers, which we expect to be completed by summer 2024. This keeps us on track to launch Evolysse in the U.S. in 2025. On Monday, we announced the results from the Phase II clinical studies evaluating the extra-strength for unit dose for extended duration of Jeuveau.

He only neurotoxin dedicated exclusively to aesthetics. The final data presented this past weekend in Chicago at the American Society of Dermatologic Surgery demonstrated 26 weeks or 6 months of performance with the extra-strength dose of 40 units. The final Phase II outcomes were consistent with interim finding and reinforced that longer-lasting effects, particularly up to 26 weeks, can be achieved with the extra-strength 40-unit formulation of Jeuveau. I would now like to turn the call over to Rui Avelar, who will walk us through the filings.

Rui Avelar: Thank you. As David mentioned, I’d like to share with you the top line results of the Jeuveau study that were presented this past Friday at the ASDS in Chicago. Slide 2. The study looks at safety and duration of the effect when the Jeuveau dose was doubled and hyper-concentrated. The primary objective of the study was to see how long it took a patient after single treatment to return back to their baseline glabellar wrinkles at maximum frown as assessed by the investigator. This is a metric that’s been used by others and has the advantage of being independent of the scale when looking across studies. Slide 3. The study was carried out at the 5 clinical sites. Slide 4. The design was double-blind, randomized with 2 active controls, 20 units of Jeuveau and 20 units of BOTOX on label.

The duration of the trial was 1 year or when the patient returned back to their baseline. As with all registration trials, patients have to be rated as either moderate or severe on the 4-point glabellar line scale to be eligible for the study. Slide 5. The patient demographics were typical for this type of study, primarily women in their late 40s. Slide 6. When looking at the baseline glabellar severity, it is notable that most of the subjects were rated as severe, both by the investigator and the patients themselves. Slide 7. With regards to safety, there were 35 adverse events in total, and these occurred in 26 patients. All adverse events include events that are both related and unrelated to the study drug, whereas drug-related adverse events refer to events caused by the drug.

There is no difference between the 3 groups. Below the table, the actual drug-related events have been itemized, with headaches being the most common, and there was 1 case of eyelid ptosis in the 40-unit Jeuveau line. Slide 8. In terms of adverse event severity, 88.9% were rated as mild, with no difference between the groups. And importantly, there was no serious adverse events. Slide 9. the primary objective of the study was to look at how long the type of patient to return back to their baseline, Here’s type of ergotamine severity as assessed by the investigator. The 40 unit Jeuveau extra-strength Kaplan-Meier plot shows 26 weeks or 6 months to return to their baseline. And the controls lasted to 21 weeks, consistent with the previous times.

The hazard ratios and p values also provided and demonstrated statistical superiority for the 40-year arm compared to the 20-unit control arms. Slide 10. A 1-point improvement on the glabellar line scale, which is, by definition, a clinically meaningful response demonstrated the same duration results. Slide 11. As an alternative way to assess treatment effect is to use the global aesthetic improvement scale in pen assessment, the duration was 26.3 weeks or 6 months, again, Jeuveau extra-strength was statistically superior to both controls. 12. Here, we’re looking at responder rates over time. To be a responder, one has to have none or mild glabellar lines. at the graph, one can see the percentage of responders over time and that in the 40-unit arm, there’s always more responders, and it lasted longer compared to controls.

There were no in-office visits between day 2 and day 30 to decrease the burden on patient business and for dropouts. And to since a monthly business, this contributed to a high steady completion rate of 94.7%. Slide 13. We use the responder definition of non-mile glabellar lines. It’s important to understand the implications. Having no glabellar lines or mild ones is clinically meaningful measures sense and realize these patients do not require repeat treatment. However, when using this as a responder definition, it’s important to understand the baseline severity between the groups since it can impact the results. If a group presents mostly severe before treatment, that the any need of 1 point improvement become responder. In contrast, a group that has mostly severe — sorry, if a group consists of moderates before the treatment, they only need a 1-point improvement.

In contrast, if the group mostly severs would need a 2-point improvement to become responsive. Slide 14. We’re frequently asked how 40 units of Jeuveau compares to 40 units of DAXI. While a direct comparison requires a head-to-head study, here’s an attempt to overlay the data from their respective clinical trials and even the same maintenance. In this combined graph, we have 40 industry gold none-or-mild results as assessed by both the investigator subject compared to the 40unit DAISYCORA-1 results as they appear in their FDA-approved label. Note that due to the baseline characteristics in each study, most of the ACIP patients only required a 1-point improvement to become a responder. In contrast, most of the Jeuveau required a 2-point improvement.

The results also seen us suggest that Jeuveau longer over time. Slide 15 Comparing the Jeuveau 40 units to the Daxi results from SAKURA 2 as published in their FDA label, again, demonstrates a similar pattern even though most of the devotions required a 2-point improvement. The most stringent measure of efficacy is the 2-point composite score, which is why the FDA mandates it at the primary endpoint in all toxic digital studies. Using this as a responder definition, success is defined as achievement of grade of none or mild and a 2-grade improvement from the baseline and both the investigator and the subjects agreeing this happened independently and concurrently. This 2 composite endpoint represents the highest bar and the FDA also suggests it should be used to look at duration, post.

Benias graph we compare the 2. composite scores for about 40 units to those of tax units from SAKURA 1 and SAKURA 2 as published in their FDA labor. The Java responder rates are higher at all measured time points and the overlap group also suggests that duration is longer for Jeuveau. Slide 18 a summary. Jeuveau demonstrated 26 weeks of duration for 6 months over multiple metrics, and there seem to be no difference in at compared to active controls, with 88.9% of over expense being greater than mild and no serious drug-related adverse events. With that, I’ll turn it back to you, David.

David Moatazedi: Thanks, Rui. This data set conclusively puts to rest the relative contribution of dose to duration. Going into the Phase II study, we were expecting to see 24 weeks of longevity with Jeuveau, in line with other 40-unit doses of toxin. And these final results exceeded our expectations with most time points achieving 26 weeks. This is a successful outcome that gives Evolus the ability to offer treatment options for customers and their patients using the same original strength Jeuveau simply by changing how the product is reconstituted. On the filler side, we remain excited about the differentiation of the Adelie portfolio and its potential to become one of the leading HA fillers in the U.S. Our cash pad-focused platform was designed for scale, and there are tremendous synergies we can achieve by leveraging our seasoned sales force and our rapidly growing customer loyalty program to launch its innovative new technology alongside our flagship Jeuveau.

We continue to believe the combination of a highly competitive filler line and our growing customer base provides a unique opportunity to build a durable brand that adds tremendous value to Elite and our shareholders. Now I’ll turn it over to Sandra, who will cover the financials.

Sandra Beaver: Thank you, David. Our strong growth this quarter demonstrates our success and execution of our long-term strategy to become a top brand in the growing performance beauty market. I’d like to congratulate the Evolus team for a record quarter of above-market overall performance, including record highs of sales and our key metrics and for continued focus on diligent operating expense and cash management. Global net revenues for the third quarter were $50 million, up 48% compared to net revenue in the third quarter of 2022. We with U.S. sales comprising more than 95% of the total revenue, driven primarily by higher volumes. We continue to experience strong pricing in the U.S. with our average selling price in 2023 and modestly increasing compared to the same period last year, while our customer reorder rate remains above 70%.

Our reported gross margin for the third quarter was 67.7% and our adjusted gross margin, which excludes the amortization of intangibles, was 69.1% and in line with our guidance of 68% to 71%. Operating expenses declined sequentially in Q3 as compared to Q2. Our GAAP operating expenses for the third quarter were $63.4 million compared to $64.5 million in the second quarter. Non-GAAP operating expenses for the third quarter were $40.3 million compared to $42.7 million in the prior quarter. As a reminder, non-GAAP operating expenses exclude product cost of sales. Reported selling, general and administrative expenses for the third quarter were $43.3 million compared to $41.2 million recorded in the second quarter, with the increase mainly attributable to higher commercial costs.

This quarter, SG&A expenses include $4.3 million of noncash stock-based compensation compared to $4 million in the second quarter. Our non-GAAP loss from operations in the third quarter was $5.7 million compared to $8 million reported in the second quarter. Non-GAAP operating losses declined $2.2 million as compared to Q2 and and $7.5 million as compared to Q3 2022, which represents a 57% year-over-year improvement, continuing our trend towards profitability. Consistent with our initial 2023 guidance, we continue to expect to achieve non-GAAP operating profitability in the fourth quarter, excluding our investments related to bali. Both non-GAAP operating expenses and non-GAAP loss from operations excludes stock-based compensation expense, revaluation of the contingent royalty obligation and depreciation and amortization.

Turning to the balance sheet. We ended the third quarter with $38.7 million in cash compared to $41.7 million at June 30, 2023. During the quarter, we had a record low in quarterly cash use of $3 million. In the quarter, net cash used for operating activities was $0.9 million. Net cash used in the third quarter of 2023 continued its sequential quarterly decline throughout 2023, and further demonstrating our continued progress towards cash flow breakeven. Before we turn to Q&A, I would like to summarize our 2023 guidance. Based on our strong year-to-date performance and confidence in the resilient toxin market, we now expect total net revenues for the full year of $194 million to $198 million. This equates to over 30% growth for the fiscal year.

And adjusted gross margin in the range of 68% to 71%, unchanged from our guidance. Full year 2023 non-GAAP operating expenses between $153 million and $158 million, also unchanged from prior guidance. Other modeling assumptions for 2023 include quarterly interest expense of $3.5 million and full year weighted average shares outstanding of approximately $57 million. Looking beyond 2023, we continue to target total revenue of $700 million in 2028, driven by continued growth and share gains in our neurotoxin franchise in the U.S. and international markets, along with the growing contribution from our Evolysse line of fillers that begins in 2025. This equates to a compounded annual growth rate of 29% on a total addressable market that is 70% greater with the addition of a filler product line.

Now let me turn the call back to the operator to begin Q&A.

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Q&A Session

Operator: [Operator Instructions]. And our first question comes from the line of Louise Chen with Cantor.

Louise Chen: Congratulations on a very strong quarter in execution. So first question I wanted to ask you is — what is you confident that this rate of growth that you’re seeing is sustainable? And is there any seasonality to the fourth quarter? And then the second question is the next steps on how you’re thinking about your Jeuveau 40 units and how important this is to your product portfolio?

David Moatazedi: Okay. Louise, thanks for the questions. Starting with the fourth quarter. The fourth quarter is generally the the strongest quarter of the year in terms of procedural demand. And as you see with the guidance range we provided, we expect the fourth quarter to be another all-time high in terms of revenue. And so we do believe that the growth rates that we’ve demonstrated year-to-date will continue to hold and our guidance range reflects that with over 30% growth year-on-year for the quarter. On the second question around the Jeuveau 40 units dose the next steps. I’m going to ask Rui to kick that.

Rui Avelar: Main objective, of course, will be to publish that. And as we ask for truck providers, what we should invest the 1 thing that’s coming out loud and clear is, given that there is not a longer duration label out there, people are basically say, do not proceed to Phase III, there is no need. So the main emphasis will be on publishing the Phase II studies. And then we’ll continue to watch how the doubling the dose market evolves and then decide what we do next.

Operator: Our next question comes from the line of Annabel Samimy with Stifel.

Annabel Samimy: Congratulations from me on a good quarter. So just big picture, I guess, for the last few years, appears the market has been still relatively underpenetrated. And I guess, BOTOX was always the product as the market leader who is setting the growth rate. But obviously, with your growth rate and now with another competitor coming in, it does seem that you are — they are having an impact from new products. So how do you see — how are these dynamics actually really shifting in the marketplace? And are you still riding a wave of growing market — or are you actually growing that share now? And what may that share be? So that’s my first question.

David Moatazedi: Great. Annabel, thanks for the question. Look, the market remained highly underpenetrated. And I think as you saw in the third quarter, the market leader posted solid growth. And you saw that we also showed very strong performance as well. We do believe some of the dynamics at play here first starting with our focus with Jeuveau as a duty brand. That is how this younger generation of consumers perceive this procedure, and we position ourselves well there. We held a number of advisory board meetings over the last quarter and what we consistently care back even from nonusers to that are interested in bringing on our product into their practice is that they view us as a product for the younger generation. And that younger generation is the fastest-growing segment of the market.

And we believe that gives us really sustainable growth from a consumer standpoint into the future. Now in addition to that, in the market, you see that we’re in just over 11,000 accounts in the market has over 30,000 customers. So we benefit from having continued market penetration opportunities of opening up new customers as well. And then of course, both of these 2 ideas do go hand in hand. As we continue to drive more younger consumers into the practice, it opens more new accounts for us that have an interest in partnering with us. And our cash pay positioning gives us the ability to really capitalize on that opportunity in a way that positions us as a beauty brand that helps grow this segment of a practice. And so I think it’s hard to isolate any one variable.

But I think, collectively, the positioning is driving that continued growth. And we’re seeing that reflected each quarter where you’ve seen our growth continue to persist and accelerate. We’ve been the fastest-growing neurotoxin on the market now for 2 consecutive years, and this year continues to be very strong as well. And we do think that it’s all reflected in our positioning and cash pay strategy.