EOLS - NASDAQ

Good afternoon, everyone, and thank you for standing by. Welcome to Evolus Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder, today's conference is being recorded and webcast live. I would now like to turn the conference over to Nareg Sagherian, Vice President and Head of Global Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator, and welcome to everyone joining us on today's call to review Evolus' third quarter 2024 financial results. Our third quarter 2024 press release is now on our website at evolus.com. 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. Today's call will include forward-looking statements. Actual results may differ materially due to the risks and uncertainties outlined in our earnings press release and SEC filings. These forward-looking statements are based on current assumptions, and we undertake no obligation to update them. Additionally, we will discuss certain non-GAAP financial measures. These measures should be considered in addition to and not as a substitute for our GAAP results. A reconciliation of GAAP to non-GAAP measures is included in today's earnings release. As a reminder, our earnings release and SEC filings are available on the SEC's website and on our investor relations website. Following the conclusion of today's call, a replay will be available on our website at investors.evolus.com. With that, I'll turn the call over to our CEO, David Moatazedi.

Thank you, Nareg. Good afternoon, everyone. Thank you for joining us on our third quarter 2024 earnings conference call. In our fifth year of commercialization, Evolus has evolved from a single product company to a multi-product portfolio with last week's approval of Estyme in Europe. This important milestone positions us as only one of five companies globally offering a portfolio of injectable aesthetic products. Our experience in Europe with Estyme will inform our U.S. introduction of Evolysse. Now turning to our results. Year-to-date, we have delivered market-leading growth, increasing revenue by 33% compared to 2023. For the third quarter, we achieved $61 million in net revenue, representing 22% growth over the prior year. And multiples above the growth of the market. Our consistent performance underscores the strength of our long-term strategy by successfully engaging consumers, driving repeat demand, and building lasting brand loyalty, which forms a scalable foundation for the upcoming launch of Evolysse. What truly differentiates Evolus is our dedication to building a performance beauty company. Our unique cash pay model strengthens our partnerships with customers and enhances their experience through co-branded media and an innovative digital platform. In the third quarter, we added over 600 purchasing accounts and maintained a strong reorder rate over 70%. As we announced last week, our Evolus Rewards Program recently achieved over one million consumers enrolled. Looking ahead to the fourth quarter, we are meaningfully expanding our loyalty offerings with the launch of Club Evolus, the first subscription-based consumer membership program from a manufacturer. In our one-year pilot test of 250 consumers, we demonstrated that consumers doubled their treatment frequency compared to the industry average. These results highlight the program's effectiveness in enhancing patient retention, increasing treatment frequency, and fostering deeper consumer loyalty. By offering transparent pricing and consistent consumer savings, we are increasing value-to-practices and reinforcing Jeuveau as part of her routine beauty regimen. We're thrilled to have launched Club Evolus earlier this month, and I'm incredibly proud of the collaboration between our creative and digital innovation teams. At Evolus, we pride ourselves on our commitment to innovation. The dermal filler market presents a significant opportunity to enter the second-largest category in aesthetics. Evolysse, our next-generation cold technology, is the first major innovation in hyaluronic acids in over a decade. With Evolysse form and smooth well into the FDA review process, we expect a U.S. launch by September 2025. Our customer-first approach and operational synergies between Jeuveau and Evolysse enables us to execute this launch efficiently while driving operating margin expansion. Now I'd like to turn the call over to Rui, to share more details on the approval for Estyme.

Thank you, David. We continue to make significant progress in expanding our product portfolio. And the European approval of Evolysse, branded as Estyme in Europe, provides a natural complement to our flagship product, Jeuveau. In a space where we've not seen innovation over a decade, this HA line introduces a new cold technology. Our partner, SYMATESE, designed a novel manufacturing process that allows these gels to be created at near-freezing temperatures. By taking the thermal energy out of the cross-linking step, we're better able to preserve the naturally long hyaluronic acid chains, the essential building blocks of these gels. The Estyme HA gel line was approved in Europe under the new and more stringent Medical Device Regulations. This portfolio includes four injectable HA gels across five indications. Our European offering now consists of Estyme Sculpt for Mid Face volume restoration, Form for Nasolabial folds, Smooth for both nasolabial folds and Perioral Fine lines, and Lips for lip volume restoration. This portfolio addresses a wide range of aesthetic needs. Sculpt offers unique tissue lifting capacity, positioning it well for the premium Mid Face restoration market. Lips, a very supple gel, conforms the natural movement and configuration of lips and withstands shearing stress over time. Perform and Sculpt are versatile workhorse gels designed with rheological properties that allow for a broad range of applications. With these four gels, we will launch an experience program in Europe partnering with leading aesthetic practitioners to gather real-world insights on each product. This will help us shape the commercial launch in Europe. In the U.S., our Evolysse line remains on track with Smooth and Form well into the FDA review process and anticipated approval and launch by September 25th -- by September 2025 or earlier. We plan to submit the Sculpt application next year targeting approval in 2026. Followed by Lips in 2027. Now I'll turn it over to Sandra for the financials.

Thank you, Rui. Our financial results this quarter are a testament to the underlying operating strength of our business. I would like to congratulate the Evolus team for delivering another quarter of above-market sales growth and efficient operating expense management. Turning to the results, global net revenues for the third quarter were $61.1 million, a 22% increase compared to the third quarter of 2023. As anticipated, revenue growth in the first half of the year will exceed the second half. This quarter, U.S. product revenues are approximately 95% of sales with a customer reorder rate of approximately 70%. Sales growth in the third quarter was primarily driven by higher volumes while our price remained strong. We expect international revenue contribution will continue to increase as international toxin growth outpaces the U.S. Our reported gross margin for the third quarter was 68.9%, and our adjusted gross margin, which excludes the amortization of intangibles, was 70.2% in line with our full year guidance. GAAP operating expenses for the third quarter were $76.6 million, compared to $74.6 million in the second quarter. Non-GAAP operating expenses for the third quarter were $49.6 million, compared to $46.7 million in the second quarter. Included in our third quarter operating expenses were modest increases related to our preparations for the 2025 launch of Evolysse. As expected, operating expenses in the second half of the year will exceed those in the first half. Reported selling general and administrative expenses for the third quarter were $52.5 million, compared to $50.2 million recorded in the second quarter. This quarter, SG&A expenses included $5.2 million of non-cash stock-based compensation, compared to $5.8 million in the second quarter. Non-GAAP operating loss in the third quarter was $6.7 million, compared to the Q2 non-GAAP operating income of $1.1 million. As a reminder, performance is impacted by seasonally lower revenue in Q3 as compared to Q2. We remain on track to be profitable in the fourth quarter of 2024 and for the full year 2025. Both non-GAAP operating expenses and non-GAAP operating income exclude stock-based compensation expense, reevaluation of the contingent royalty obligation, and depreciation and amortization. Turning to the balance sheet. With our consistent operating performance, we continue to be efficient in our use of cash. We ended the third quarter with $85 million in cash, compared to $93.7 million at June 30, 2024. We had a single-digit cash burn with our third quarter cash use of $8.7 million, representing continued progress towards cash generation. We expect that our existing liquidity will fully fund us to positive cash generation and the repayment of our $125 million debt facility in 2026 and 2027. We are targeting total net revenues of at least $700 million by 2028, driven by continued growth and share gains in our neurotoxin business in the U.S. and international markets, along with a growing contribution from our novel line of injectable hyaluronic acid gels that begins in 2025. This equates to a compounded annual growth rate of 28% since 2023 on a total addressable market of approximately $6 billion today, growing to approximately $10 billion by 2028. Additionally, by leveraging our highly synergistic existing infrastructure, we expect to expand operating margins and target at least 20% by 2028. With that context in mind, I'd like to summarize our 2024 guidance. We narrowed our total net revenue guidance range to between $260 million and $266 million, representing year-over-year growth of 29% to 32%, approximately 95% of which will come from sales in the U.S. and the balance from international markets. Adjusted gross profit margin in the range of 68% to 71%. Non-GAAP operating expenses between $185 million and $190 million. Positive non-GAAP operating income on a consolidated basis for the fourth quarter 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 launch of Evolysse. Now, let me turn the call back to the operator to begin Q&A.

[Operator Instructions] And our first question comes from Annabel Samimy, Stifel.

Hi, all. Thanks for taking my question. So, a few here. So, I want to just ask you on Evolysse and the future launch. Clearly, you're going to be leveraging your digital platform, but I'm getting questions on whether it's going to be leveraged in the same way as far as volume discounts and using the algorithms the way you did with the toxin to help practices plan out their economics on other products, or is it primarily focused on loyalty tiers, co-branding, et cetera, et cetera? And then on fillers, since it's not tied to medical use, do other competitors have, I guess, more flexibility to work with price in a more competitive environment? So, I guess, trying to understand a little bit about how you're using the platform and then dynamics of fillers.

Great. Thank you for the questions, Annabel. Let me start with the filler part, and then I'll talk about our digital platform. Fillers in the U.S. are all used for cosmetic purposes. So, as it relates to the difference in pricing, I think they have the latitude with filler products to adjust pricing as needed, unlike toxins, whereas they're linked to the therapeutic side with the existing toxins on the market. So, there's that difference. That being said, because we're a cash-to-pay portfolio, we have the halo of being able to utilize our co-branded media and services like that because our entire platform is cash-to-pay based. That's not the case with the other competitors in the states because they carry a product line that has a therapeutic link on the toxin side. They carry some of the challenges of being able to operate like a cash-to-pay business. So, pricing isn't directly impacted, but other services are. As it relates to our digital platform, look, we will be using the current digital platform to launch Evolysse. That includes everything from our Evolus app, where the majority of our transactions go through that program. It includes our Evolus rewards program, which you just heard eclipsed one million consumers. Consumers that earn on Evolysse will get benefits on our consumer loyalty as well. And, of course, that includes pricing. Now, as it relates to pricing, we're not in a position to go any deeper on how exactly we'll execute that. We, of course, view this product as a very competitive product against the market leaders, and we'll look at the overall value proposition in such a way that we believe gives us the ability to offer this to our customers as a differentiated product while we continue to drive uptake with both Evolysse and Jeuveau. And I think our digital platform will play a key role in doing that.

Okay. Got it. And if I could just follow up on one other question. I guess it's not common for you to narrow guidance. Is there any specific pressure you saw this quarter, which is typically light anyway, that would give you reservations already into 4Q?

Annabel, thanks so much for the question. Yes, it is actually typical for us to narrow guidance as we enter into the fourth quarter. Right? So, as we have only one quarter left in the year, we did the same last year at this time where we narrowed the range, given that there's less time in the year to deliver on the guidance. So, it's not any indication of any concern. We're very confident in the guidance we've given. We've typically narrowed it as we get into the last quarter.

Okay. Great. Thank you.

Our next question comes from Marc Goodman, Leerink Partners.

Hi, this is Madhu on the line for Marc. We were just wondering, could you give us a sense of what you're seeing for the overall talks in market in terms of trends and now that some of your competitors have reported as well? And then any anecdotes from the quarter in terms of how your marketing and promotion efforts are resonating would be great as well? Thanks.

Thanks. Great. Overall market trends, I think we're seeing what you would expect, meaning the third quarter, typically the lower season of the year. And you see that relative step down in terms of revenue across the board. I think we're really pleased that talks in market overall continues to be resilient. We do see a market that's growing, especially relative to some of the other procedures and aesthetics where we've seen further slowdown, so we feel good about it on that level. And our promotional activities are continuity of what we've been doing in the front half of the year. So there was nothing unique to the third quarter specifically to call out relative to the activity we had in the market or our competitive set. I think what you're seeing is a traditional seasonality. Now, of course, as we have this conversation, we're in the middle of what is typically the strongest quarter of the year. And so it's a very different picture as you enter the fourth quarter, because consumers are coming in to get treated during the holiday season. And we expect the fourth quarter, of course, to be the strongest quarter of the year, which you see that reflected in the guidance that we've provided to you. So I think we're seeing some of the typical trends you would expect to see at this time.

Thank you so much.

Our next question comes from Navann Ty, BNP Paribas.

Hi, thanks for taking my question. Can you discuss maybe the recent price and trends of Jeuveau as well as of market share? And if possible, can you provide your initial thoughts on market outlook for 2025 for U.S. toxins, please? Thank you.

Thanks, Navann, for the questions. As it relates to your first question on recent price and trends and market share, I think as we've noted since the launch of Jeuveau, we've been able to continue to opportunistically increase our price, and we continue to appreciate higher price in the market as we've seen higher adoption in the market, alongside continuing to increase share. We've increased our market share two points per year the last three years in a row. We exited the third quarter around 13% share, and we remain very stable at that share rate. As we delivered, outpaced the market growth in terms of our Q3 performance. So pricing trends for us remain very strong, as we noted in the call, and potentially even slightly up, as well as strong market share adoption on top of that. As far as 2025 and the market outlook on your second question, I think it's a bit early to call in terms of our own projections for 2025, obviously. The market itself for toxin remains really strong, right? We continue to see mid-single to high-single-digit growth on a healthy sort of consumer adoption of the procedure. We do expect that to continue.

Thank you.

Thank you. Our next question comes from Doug Tsao, H.C. Wainwright.

Hi, good afternoon. Thanks for taking questions. Just really quickly, in terms of the guidance we saw, you sort of took down the upper end of the range a little bit, and I'm just curious what led to that sort of incremental step of conservatism.

Yes, I think, Doug, as you know, we raised the guidance range last quarter in Q2, bringing up the floor by $5 million. We maintain high confidence in that decision to raise. So I don't think interpreting this change as any lack of confidence. It really was simply having better granularity and visibility with one quarter left to go, and enabling us to give the market a little more clarity on the tighter range.

Okay, that's helpful. And just, you know, broadly, you know, in terms of the near-term macro environment, I mean, it continues to sound good. Have you seen anything competitively, you know, over the last, you know, couple quarters that, you know, sort of is affecting sort of how you're thinking about the market?

Hi, Doug. This is David. We really haven't seen anything different competitively from what we've been seeing over the last several quarters. I think it's a continuity of the same trends that we've been seeing. And so we think the fourth quarter will be reflective of sort of the same dynamics as well, exiting the year, with the exception that we'll obviously see a new entrant, which we've talked about with Hugel. We expect that they're going to be entering the market in some fashion later this month, with a more broad launch expected early next year.

And I guess, David, you know, sort of along those lines, which is sort of what I was getting at. Have you seen other competitors sort of act in anticipation of Hugel coming to market or take any proactive steps? And are you taking any proactive steps in preparation of that? Thank you.

Sure. Well, look, we're always well prepared when a new competitor enters the market, making sure that we understand both the science and the clinical data, and that we're prepared to answer any questions that our customers have about Jeuveau or any competitive entrants. So we'll be well prepared as they enter the market. And unfortunately, I won't be in a position to give you more color on that. But I think you get a sense for our confidence in terms of the business performance based on the guidance range we've given. It puts us in this range of the business growing in between 29% and 32% on the full year in 2024. And I think it's important to recognize that's coming off of growing 36% in 2023. And when you think about a market that's growing anywhere from mid to high single digits, you're getting a sense for the relative over performance of the business overall in the U.S. And our confidence that that's going to continue to sustain because of our differentiated strategy and the quality of the product.

Okay, great. Thank you.

Thank you. And our last question comes from Balaji Prasad, Barclays.

Hi, this is Mikayla on for Balaji. Thanks for taking our questions. Just a quick one. How does Juvederm's [ph] decline cited by AbbVie in recent results influence your thoughts around your fillers launch heading into next year, if at all? Just really looking for any further color on filler market dynamics heading into next year. Thanks.

Sure. Look, we're closely watching the filler category and listening to the various reports from the existing filler manufacturers. And we're seeing exactly what you're seeing, which is a category that has seen a bit of softness, partially driven by a slowdown in spending from the consumer, and maybe partially impacted in the near term by some headwinds by GLPs. As that creates a pocketbook effect in the near term, although we do believe that's a tailwind for the category overall. That being said, look, it's a very large category. It's the second largest category in aesthetics. We estimate this year it's roughly a $1.8 billion market. So we expect to be entering a sizable space. And one that we do believe that has a growth profile over the next handful of years is just going through a period of time where maybe it's filling a bit more softness. So overall, we see a lot of opportunity here. And with the differentiation profile of Evolysse, given the number of advisory Board meetings and customer meetings we've had, I can tell you there's a lot of interest in a product of this type of profile. This cold HA manufacturing is very different. And it preserves the natural HA strands in a way that customers see is differentiated from other products that they're using. So we're looking forward to putting this product in their hands and letting them use the product.

Thanks so much.

And our question comes from Serge Belanger, Needham & Co.

Hi, everyone. This is John for Serge today. Thanks for taking our questions here. First, with the early launch of Estyme in Europe, I guess, now underway, can you provide any color on the extent of this early access program and whether we could expect any significant contributions prior to the broader launch in the back half of 2025?

Yes, as it relates to the launches of the fillers, right, I think we've signaled the bulk of the cost will come around the launch in the U.S., right, as we look to 2025. And that in the quarters in which we are launching the product, you know, we're likely to see more impact to our financials in those quarters. The early experience trials that we'll be running within Europe for Estyme are relatively modest in terms of investment. And they don't have any impact on our operating spend outlook for this year at this time.

Thanks.

Thank you for all your questions. At this time, I would like to turn the call back over to David Moatazedi, President and Chief Executive Officer, for closing comments.

Thank you. We're in the fifth year since we launched Jeuveau, and we continue to grow at multiples above the market. We remain well-positioned for long-term success with a scalable cash pay model and an innovative product portfolio. We are committed to delivering profitability in the fourth quarter of 2024 and full year 2025. We're on track to achieving at least $700 million in net revenue and at least 20% non-GAAP operating margin by 2028, enabled by our disciplined financial management and strategic investments. Our leadership and performance beauty is only strengthening, and we are unwavering in our commitment to delivering substantial lasting value to our shareholders.