Evolus Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 31, 2024

There are 9 speakers on the call.

Operator

Good afternoon, everyone, and thank you for standing by. Welcome to Evolus Second Quarter 2024 Earnings Conference Call. As a reminder, today's conference is being recorded and webcast live. All participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the conference over to your host, Niraj Skakarian, Vice President and Head of Global Investor Relations and Corporate Communications. Please go ahead.

Speaker 1

Thank you, operator, and welcome to everyone joining us on today's call to review Evolus' Q2 2024 financial results. Our Q2 2024 press release is now on our website at evolus.com. With me today are David Moatazedi, President and Chief Executive Officer and Sandra Beaver, Chief Financial Officer. Louis Avelar, Chief Medical Officer and Head of R&D is also with us for the Q and A portion of the call. Before we begin our discussion, I'd like to note that during our call, our prepared remarks will include forward looking statements within the meaning of the United States securities laws and management may make additional forward looking statements in response to your questions.

Speaker 1

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. Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this call, and the company undertakes no obligation to update or review any estimates, projections or forward looking statements except as required by law. These forward looking statements are based on estimates and assumptions that although believed to be reasonable are inherently uncertain and subject to a number of risks and uncertainties. A detailed discussion of the risks and uncertainties that the company faces is contained in its annual report on Form 10 ks, quarterly reports on Form 10 Qs and current reports on Form 8 ks. Additionally, today's discussion will include non GAAP financial measures, which should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

Speaker 1

A reconciliation of GAAP to non GAAP results may be found in our earnings release, which was furnished with our Form 8 ks 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 the call over to our CEO, David Moatazedi.

Speaker 2

Thank you, Nirag. Good afternoon, everyone. Thank you for joining us on our Q2 2024 earnings conference call. This is a very exciting time for Evolus as we've now completed the first half of twenty twenty four and have demonstrated continued market share gains with Jeuveau. This year is focused on our flagship product, while we prepare to expand our portfolio.

Speaker 2

We are incredibly pleased with the continued momentum in our business, which is clearly reflected in our 2nd quarter results announced earlier today. In the 2nd quarter, we achieved an important milestone, profitability. And Jeuveau's market share increased to 13%. We accomplished this with a single product, while investing in the launch of our filler line. Our focus is delivering exceptional results and our unique structure and value proposition are operating at a high level.

Speaker 2

Our reported revenue of $66,900,000 in the 2nd quarter represents 36% growth over the prior year. The combination of the continued strength of our execution and the momentum we have built during the first half of the year give us the confidence to raise our full year 2024 net revenue guidance to between $260,000,000 $270,000,000 This updated guidance equates to 34% growth at the top end and is several degrees of magnitude above the estimated growth rate for our category. Importantly, this is a brand that continues to grow at over 30% in its 5th year on the market, signaling the quality of the Jeuveau brand and the strength of our unique business model. We continue to build loyalty and trust with our customers. We have a unique position as the only dedicated cash pay aesthetic toxin company and a differentiated approach to building a performance beauty brand.

Speaker 2

We remain focused on the younger generation and helping practices grow. Our differentiation is evident in the continued growth in new purchasing accounts, increasing by 770 in the quarter. This brings our total number of customers purchasing since launch to approximately 14,000, which is approaching 50% penetration of the market. Our Evolus consumer loyalty program is also thriving and on track to surpass 1,000,000 consumers in the program by year end. The underlying strength of our business and our strategic focus are just part of the story.

Speaker 2

Internally, we preparing

Speaker 3

for a

Speaker 2

transformative year in 2025. This preparation starts with the commercialization of our novel dermal filler line. In June, we submitted our pre market approval application to the FDA for EVALYSE Lift and EVALYSE Smooth. In Europe, regulatory approvals for the esteemed dermal filler products are anticipated later this year. And we remain on track for U.

Speaker 2

S. And international launch in 2025. Our commercialization plans are well underway and we will share more details at our Investor Day in September. Internationally, we continue to make significant progress with Nuceva. We continue to expand our international business with a focus on deeper penetration in the UK, Germany and Italy, while broadening our global footprint commercially launching in Spain and Australia.

Speaker 2

With these recent launches, we are now operating in all the major markets needed to deliver our 20 28 guidance. The toxin market remains strong and we are well positioned to benefit from the growing shift toward Develis and the Jeuveau brand. Jeuveau's brand recognition, clinical performance and high satisfaction profile are well positioned for new consumers entering the category. This positioning will allow us to continue capturing demand while we actively prepare to integrate our novel dermal filler line EVILIES. These efforts collectively keep us on pace to our long term revenue target of at least $700,000,000 by 2028.

Speaker 2

Our differentiated go to market strategy continues to set us apart and I look forward to sharing more updates as we progress. Now I'll turn it over to Sandra, who will cover the financials.

Speaker 4

Thank you, David. I would like to congratulate the Evolus team on another quarter of above market sales growth and prudent management of our operating expenses that enabled us to achieve profitability 2 quarters earlier than anticipated. These above market Q2 results represent a meaningful step towards achieving our guidance in 2024, delivering full year profitability for 2025 and positive cash generation. Turning to the results. Global net revenues for the Q2 were $66,900,000 up 36% compared to net revenue in the Q2 of 2023.

Speaker 4

Sales in the U. S. Comprised more than 95 percent of revenues this quarter. International revenue contribution will continue to increase as international toxin growth will outpace the U. S.

Speaker 4

In the U. S, where our price remains strong, our customer reorder rate was approximately 70% and our sales were driven primarily by higher volumes. Our reported our adjusted gross margin, which excludes the amortization of intangibles, was 71.5% and above the top end of our full year guidance. Our GAAP operating expenses for the 2nd quarter were $74,600,000 compared to $68,300,000 in the 1st quarter. Non GAAP operating expenses for the 2nd quarter were $46,700,000 compared to $42,100,000 in the prior quarter.

Speaker 4

Reported selling, general and administrative expenses for the 2nd quarter were $50,200,000 compared to $45,100,000 recorded in the 1st quarter. This quarter SG and A expenses included $5,800,000 of non cash stock based compensation compared to $5,100,000 in the first quarter. Operating expenses saw a modest increase this quarter, a trend we expect to continue as we prepare for the 2025 filler launch. For the first time and 2 quarters ahead of our expectations, we achieved profitability in the 2nd quarter. Our non GAAP income from operations in the 2nd quarter was 1,100,000 sequential improvement in non GAAP income from operations as compared to our Q1 non GAAP operating loss of 900,000 dollars and represents meaningful continued progress on our path towards profitability for the full year 2025 and positive cash generation.

Speaker 4

As a reminder, Q3 is seasonally lower revenue as compared to Q2. Considering this expected seasonal revenue decrease, it is likely we will not be profitable in the Q3. Both non GAAP operating expenses and non GAAP operating income excludes stock based compensation expense, revaluation of the contingent royalty obligation and depreciation and amortization. Turning to the balance sheet. With our consistent operating performance, we continue to be efficient with our use of cash.

Speaker 4

We had a low single digit cash burn with our 2nd quarter cash use of $3,300,000 We ended the 2nd quarter with 93 point $7,000,000 in cash compared to $97,000,000 at March 31, 2024. The cash balance includes $4,200,000 of remaining net proceeds from the $50,000,000 underwritten offering of common stock in March 2024. Net cash used for operating activities was $6,500,000 which improved $6,800,000 as compared to Q2 2023. We expect that our existing liquidity will fully fund us to positive cash generation and the repayment of our $125,000,000 debt facility in 20262027. We continue to target total net revenues of at least $700,000,000 by 2028, driven by continued growth

Speaker 3

and share

Speaker 4

gains in our neurotoxin business in

Speaker 3

the U.

Speaker 4

S. And international markets, along with a growing contribution from our novel line of fillers that begins in 2025. This equates to a compounded annual growth rate of 28% since 2023 on a total addressable market of approximately $6,000,000,000 today, growing to approximately $10,000,000,000 by 2028. With that context in mind, I'd like to summarize our guidance. Based on our strong year to date performance, we have raised our total net revenues to between $260,000,000 $270,000,000 over 95% of which will come from the sales in the U.

Speaker 4

S. And the balance from international markets. Our quarterly revenue assumes typical industry seasonality. In addition, it is worth noting that we expect first half growth rates to exceed second half growth rates, primarily driven by the 2023 compare period. And adjusted gross profit margin in the range of 68% to 71%.

Speaker 4

Non GAAP operating expense guidance is between $185,000,000 190,000,000 Driven by the increase in our revenue guidance range, we expect to be at the top end of our operating expense guidance range. We expect to achieve positive non GAAP operating income on a consolidated basis for the Q4 of 2024 and the full year 2025. It is worth noting that within the year 2025, profitability may not be sustained every quarter due to the filler launch. Finally, the company projects its total net revenue can reach at least $700,000,000 by 2028. Now let me turn the call back to the operator to begin Q and A.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from Jack Patavano with Stifel. Please proceed with your question.

Speaker 3

Hi, this is Jack on for Annabel. Thanks for taking our questions. So how are you seeing the state of play in the filler field? Because I know that this has been a little thorn in the side for aesthetics companies recently. AbbVie specifically did see some recovery there, but it wasn't quite as much as anticipated.

Speaker 3

So did you have a pulse on that market yet? And what state of affairs will you be seeing as you approach launch?

Speaker 2

Great. Thanks for the question. What we're seeing, as you know, it's always hard to parse out procedural growth. As you look at different companies reporting, you have companies that are newer into their launch and companies that are more mature. Overall, we're seeing a filler market on the full year that is growing.

Speaker 2

Clearly, there's some share shifts happening within the category, but also a market that is growing at a lower rate relative to the historical trends that we've seen. So we do see sort of a low to mid single digit growth rate on the filler market in the U. S. This year. And we do anticipate that filler market wrapping around on this depressed growth rate and benefiting from the boon of the patients coming in for GLPs, achieving their optimal weight and looking at on a filler.

Speaker 2

We have multiple data points that confirm that the market should benefit from the GLP trends and we should start to see that in the coming quarters. So we feel very good about the market we're entering. Keep in mind, the filler market is a $1,800,000,000 category. We expect it will grow in this mid to high single digits over the 5 year horizon through 2028, where we've given our guidance outlook. And it's a favorable market in the sense that there's really 3 families of fillers that command roughly 80% to 90% of the U.

Speaker 2

S. Market. And the EVILIES line is clearly differentiated in the way that it's manufactured in the clinical data that we've shared relative to one of the market leading pillars. And of course, putting it into our cash pay platform, we think there'll be a tremendous amount of value. We shared it with our advisors in a number of advisory board meetings and in research, and they're very excited to see a product come in with the profile of the product, I believe, that we're going to be bringing.

Speaker 2

So we'll look forward to sharing more color on that at our upcoming Investor Day.

Speaker 3

Great. And then just one more, if I may. On the toxin side, are there any additional competitor programs that you're seeing out there, whether it be loyalty programs or promotional programs that you expect to have to adapt to? Or in other words, do you sense the need for any shift in your marketing strategies as the field starts to get a little bit more crowded?

Speaker 2

Yes. We continue to maintain our marketing strategy, which is really at a strategic level. It's our cash pay advantage that's enabled us to create a different experience for these practices. And we've leaned more heavily into that, whether you think about our consumer loyalty program or the way we engage with practices in co branded media, in the sense that both of them, the co branded media and the rewards are growing at a very healthy clip and they remain our areas of focus. We stayed really disciplined and a lot of credit to the team for continuing to build our scale and presence in the market.

Speaker 2

I do believe that's why you're continuing to see a business down its 5th year growing at 36%, which is effectively the growth rate we had on the full year last year. It's because of that continued operating discipline that we've had as a company. As it relates to promotions in the market, look, these markets, there's a lot of promotions each quarter. Every manufacturer has their own set that they introduced into the category. But as you point out, nothing that changes the way that we've approached Jeuveau and how we bring it to the market.

Speaker 3

Great. Thanks so much and congrats on the quarter. Thank

Operator

you. Our next question comes from Mark Goodman with Leerink Partners. Please proceed with your question.

Speaker 4

Hi. This is Madhu on the line for Mark. Just piggybacking off of that, could you talk a little bit more about your fillers and the differentiation from other products on the market and sort of how you're thinking about talking about those filler lines once they're launching and comparing them

Speaker 5

to what's already out there? Thanks.

Speaker 2

Sure. Hi, Madhu. I'll briefly touch on it. I think there's a a section in our investor deck that highlights the scientific differentiation and you can expect a lot more color from Rui at our upcoming Investor Day. But clearly, this product is the first one manufactured under freezing cold temperatures.

Speaker 2

Every other hyaluronic acid is heated in the manufacturing process and that preserves the natural strand. And clearly, the word natural is a significant term in the world of aesthetics. And the manufacturers of this technology have developed one of the leading hyaluronic acids currently available on the market. So there's a lot of credibility in the technology and the science behind it. And then of course, the clinical data that we've shared from our trials now supports the science that we saw in the data.

Speaker 2

So I think we have a clear story in terms of the product and the data, still the early innings what you're seeing is, as you know, multiple products under clinical development in different areas of the phase where this line was designed, specifically for each area and we'll be sharing more clinical data as we get closer to commercialization.

Speaker 5

Thank you.

Operator

Our next question comes from Navane Thi with BNP. Please proceed with your question.

Speaker 5

Hi. Thanks for taking my questions. First, can you discuss the appointment of Cooper, current CEO, to the Board and what he will bring to Evolus? And also if you have any timing updates on Pujell's, Letibo and Galdera QM1114, please? Thank you.

Speaker 2

Great. Thanks, Manav, for the question. I'll start with the addition of Al White. We did a search and we were very selective about who we brought on to the Board. And I'd tell you, Al White clearly stood out for a number of reasons.

Speaker 2

One is, obviously, his background with a tremendous track record of success, having moved built the Cooper company, which now of course cover a number of therapeutic areas and he moved his way into the CEO role, which he's been in for about as long as I have now, but he's played a significant role in building that company. And that was important to us as we look at geographic expansion, profitability, building out our portfolio, a lot of the same elements that Al has faced as Cooper has grown. And so having his experience around the table is invaluable for us as a company entering this next stage of our growth. And so it's I've really enjoyed the time I've spent with Al. I know he's very excited about the story.

Speaker 2

He knows the aesthetic market well. And he's also excited to see what we've been able to do and help contribute to our future growth story. And then we actually had him on a board call earlier this week for the first time. So it's been great to have Al. On the competitive front, as you saw, Usibo received approval earlier this year.

Speaker 2

They most recently announced a partner in the U. S. And they plan to commercialize sometime here in the back half of the year. At this point, as you know, we're competing with Lativo in Europe and we're aware of the product and the dimensions of that brand as it enters the market. We'll be prepared as well when they enter the U.

Speaker 2

S. And I'll just remind you that as we've had entrants that have entered since we launched, the market continues to grow at a very healthy clip. Our growth wasn't impacted by the latest entrant. If anything, we accelerated a bit. I think the focus on toxins only increases with new entrant.

Speaker 2

And our value proposition is clearly defined in this space. And so, the entrants whether that's, placebo or galderma, which I believe they did receive the CRL for the liquid, but they do plan to refile sometime next year,

Speaker 6

which could put them

Speaker 2

on the market towards the end of next year or the following, it's not clear. I think it ultimately leads to continued focus on this category and growth, which is significant in the end. It was nice to see this quarter all the significant players in the space reported positive growth despite an increasing competitive environment. And I think that just speaks to the backdrop that we have very low consumer penetration in this market and there's a lot of growth ahead of us. And as the new player comes in, they can carve out an opportunity for themselves just as we've done successfully in this younger generation of consumers.

Speaker 5

Thank you. That's very helpful. And can I add one, do you have a recent breakdown of facial injectables used by age range? Is the share of millennials and Gen Z users, is it increasing? Thank you.

Speaker 2

Yes. So the question is around millennials and younger and what percentage of our patient base that represents. I can't answer for the category at this time. But in terms of when we look at our consumer loyalty program, and it's a sizable base, as you know, approaching 1,000,000 consumers, We have over 50% or the majority, our millennial patients are younger. So we're really pleased with that younger demographic.

Speaker 2

It's been our focus and it's worked. We do believe we over index relative to the overall market. And it continues to be the growth driver for this capitalize on that shift towards the younger movement.

Speaker 5

Thank you.

Operator

Our next question comes from Yu Ihir with Mizuho Securities. Please proceed with your question.

Speaker 7

Hi. This is Charles on for Oi. I just had one question about kind of the fillers. So in the U. S, I believe you said that the lift filler would be kind

Speaker 8

of the workforce. And I guess I

Speaker 7

was just kind of curious how ex U. S. Those fillers would be like would they lift or also be the workhorse or would the lips filler kind of take over ex U. S? So just trying to get a better sense of those dynamics.

Speaker 7

Thank you.

Speaker 2

That's a great question, Charles. The dynamics with filler use in the U. S. And abroad are actually quite similar. There's obviously more choices in Europe than there are here in the U.

Speaker 2

S. But in the end, we do believe that the Lyft product that we'll introduce here in the United States will be the workhorse in the line regardless of which market you're in. But clearly, areas like the cheeks are an area of high use as are the lifts. But keep in mind, when you're going into areas like the lifts, the volumes are lower than they are when they're treating areas like the nasolabial folds and highest in areas like the cheeks, even though maybe the percentage of patients getting it in the cheeks are the lowest. So I think we'll give you a lot more color around the market during our Investor Day.

Speaker 2

We received a lot of questions around the growth of the category going forward, the impact of GLPs as well as the utility of the different products and what we've learned from them in the real world. You can expect to get a lot more color around that in September.

Speaker 7

Great. Thank you and congrats on the quarter.

Operator

Our next question comes from Serge Belanger with Needham and Company. Please proceed with your question.

Speaker 6

Hi, good afternoon. Thanks for taking my questions. I guess the first one for David. Both of the large aesthetic bellwethers reported last week and both kind of reported some softness in the U. S.

Speaker 6

Market across both fillers and toxins, especially in terms of procedure volumes. Just curious if you've what you have noticed over the Q2 regarding the growth of those volumes? And then secondly, can you just remind us of the PMA process for the fillers? So both of them have now been filed. Is this a 12 month process?

Speaker 6

And should we expect radio silent until approval here or there'll be some updates along the way before the second half twenty twenty five when you expect approval launch? Thanks.

Speaker 2

Great. I'll ask Ruri to take the second question in just a moment and I'll take your first one. What's interesting is the messaging across the board on toxins is that it's a very resilient category. We're seeing healthy growth. I think you heard that from all the bigger players in space and we've seen the same thing.

Speaker 2

And even though we continue to hear there's sort of this backdrop of is there softness in the market that continues to persist. We've heard it now for almost 2 years. The reality of it is having spent a lot of time in markets, these practices are growing. The groups that have multiple facilities that we're planning to expand are continuing with their expansion plan. And we're seeing healthy growth all around as far as toxins.

Speaker 2

They're very affordable, the $300 to $500 procedures and this movement with this younger generation is clearly a meaningful catalyst for this market. I think fillers have not had as much as the same level of consistency as toxins and we're hearing that fairly consistency, but it continues to remain a healthy business. It is growing, we believe, in terms of procedural volume year to date, and we expect the market to wrap around on what have been depressed growth rates relative to historical and potentially start to benefit from the GLP use as we turn the corner into next year. So our timing for the launch, we're excited about. We think we'll be launching into a healthy market environment and one that's going to continue to benefit from a backdrop of more consumers going into weight loss treatment.

Speaker 2

And when they achieve that optimal weight, that opens the door for the filler. I'll turn it over to Rui to talk a little bit about the FDA and the timeline.

Speaker 8

Sure. Thank you. Your question about PDUFA and devices versus drugs is a great one. When you're dealing with a drug, we all hear about that PDUFA timeline. And what happens is industry pays a user fee and then the FDA gets back to you and they give you a specific PDUFA date and you hear about a year timeline.

Speaker 8

PMA is different. There is no PDUFA date that's giving. And they basically follow what's called the MDUFA. And that's Medical Device User Fee Modernization Act. And the way that works is they have a 180 day clock.

Speaker 8

And what happens during that process is they work, then they stop the clock, ask you questions, and you respond and it's a back and forth process, very different from the drug. So as such, it can take a while for it to get done. It's not uncommon for it to be a year or longer. And that's why we've conservatively said that in the back half of 2025, we'd expect approval because we take into consideration that this is a new technology. These are new facilities and usually they're audits and visits.

Speaker 8

And then your other part of your questions, you're absolutely right. We as a rule of thumb, we will announce when we filed and then we will announce when we get the approval.

Speaker 3

Thank you. Thank you

Speaker 2

for all your questions.

Operator

At this time, I'd like to turn the call back over to David Moatazedi, President and Chief Executive Officer, for closing comments.

Speaker 2

Thank you. It's an incredibly exciting time at Evolus and I want to take a moment to acknowledge the exceptional execution by our team this quarter. Their dedication and hard work has been instrumental in achieving these milestones. Evolus' continued above market performance in the 2nd quarter marked by record revenue and achieving profitability ahead of expectations showcase the unique difference we bring to the market as an innovator in the industry. Our flagship product Jeuveau continues to drive strong demand and our strategic initiatives have successfully expanded our customer base.

Speaker 2

The results from this quarter show our ability to consistently build and maintain momentum. As we evolve from a single product to a multi product company, we expect to expand our leadership position in this category. With the U. S. And EU filings well into the approval process, we are actively preparing for 2025 launch of the new filler product.

Speaker 2

These near term milestones will enable Evolus to continue to outpace the market. Looking ahead, we remain on track to achieve profitability in the Q4 of 2024 and are confident in our strategy to continue to gain market share. Our commitment to financial performance, operating expense discipline and capital efficient investments will drive us to sustain profitability while achieving our long term goal of at least $700,000,000 in revenue by 20 28. We are dedicated to building a sustainable leading performance beauty company and are grateful for the continued support and confidence of our customers and shareholders. Thank you for joining us today and for your ongoing commitment to Evolus.

Speaker 2

We're looking forward to seeing you on September 12 at our Investor Day in New York City.

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Key Takeaways

  • In Q2, Evolus achieved profitability with non-GAAP operating income of $1.1 M, two quarters ahead of plan, and expects to be profitable again in Q4 2024.
  • Net revenues reached $66.9 M, up 36% year-over-year, leading Evolus to raise its full-year 2024 guidance to $260–$270 M, significantly above category growth.
  • Jeuveau’s market share grew to 13%, with 770 new purchasing accounts added (now ~14,000 total, ~50% market penetration), while the consumer loyalty program is set to surpass 1 million members by year-end.
  • Evolus submitted its PMA application for the EVALYSE dermal filler line in June, anticipates EU approvals later in 2024, and plans a U.S. and international launch in 2025, with commercialization details to be unveiled at its September Investor Day.
  • International expansion continued with launches in Spain and Australia and deeper penetration in the UK, Germany, and Italy, underpinning Evolus’s goal of at least $700 M in revenue by 2028 (CAGR 28%).
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Earnings Conference Call
Evolus Q2 2024
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