Q3 2019 Earnings Call
And welcome to be Q3, 2019, actually earning conference call.
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I would now want to turn the conference over to your host Mr. Ashwin <unk>. Please go ahead.
Thank you operator and welcome everyone participating on today's call. This call is also being broadcast live over the Internet. Nevertheless, dot com and a replay of the call will be available on the company's website for 30 days.
On today's call our David Letterman study, President and Chief Executive Officer, Lauren Silvernail, Chief Financial Financial Officer, and eat VP corporate development might Jaafar, Chief marketing officer, and reliable, our chief Medical officer and head of R&D.
Our remarks today. We will include statements that are considered forward looking statements within the meaning of United States Security laws. In addition management may make additional forward looking statements in response to your question.
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 paces is contained in its annual report on Form 10-K quarterly reports on file.
Thank you and current reports on form 8-K.
Actual results may differ materially from those expressed or implied by the forward looking statements.
The company undertakes no obligation to update or where do you any estimate projection or forward looking statements. Additional discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or an isolation from our GAAP results.
A reconciliation of GAAP to non-GAAP results, maybe found in our earnings release, which was furnished with our form 8-K filed today with the FCC and they also be found on our Investor Relations website that investors that Evolent dotcom and now let me hand, the call over to David.
Good morning, and welcome to the third quarter earnings call I'm pleased to share the results from what has been a robust watch UBS your Boeing the U.S.
I'll start by saying we are operating in one of the fastest growing areas of health care medical aesthetic is unique its cash pay market values high touch customer engagement and premium products that deliver consistent patient outcome.
Within the space Neurotoxins are the largest segment with consistent high growth over the past two decades with the introduction of your boat. We now have the first neurotoxin in the U.S. within a static only focus which we believe gives us a strategic advantage.
The consumer opportunity a significant and underdeveloped about one in 10 consumers consider going neurotoxin are in the office today and the penetration rate is on the right with millennials over indexing in their interest to get treated.
This is a favorable backdrop to building a set of company.
I'm pleased to share the impact we've made in our first full quarter on the market as you know the third quarter was focused on or is your vote experience treatment program or Jack we believed yet to be the single largest experienced program to hit the U.S. is that its market.
Due to strong execution by our commercial team, we enrolled over 5000 accounts in jet and shipped on average more than 10 vials per account.
The result of this effort was the placement of over 50000 Bothers you bought in the market through the month of August .
Considering the volume of trop product in the market. We were pleased with the rapid conversion to order placement.
We finished the third quarter with 13.2 million of net revenue up from 2.3 million into second quarter.
Since launch we have established for broad base of over 2000 accounts ordering Giovanni.
During the third quarter Reorders represented an increasing portion of our revenue mix with a steady increase of new accounts persisting month over month.
As we look back on a quarter. We're pleased with the launch result jet accounts drove greater than 90% of our revenue and catapulted. Your vote entered the number three U.S. unit share position for Q3.
This is based on the Guy points September U.S. neurotoxin industry tracker.
I'm pleased with the strong execution across the company and resulting uptake of she will.
Ultimately, we believe what differentiates tablets is our focus around the experience for providers and consumers.
Now I'd like to pass the call to Mike for more context around how we have designed to adults experience and our results to date.
Thank you David.
Since the last six years old we've been injected a renewed energy into the largest category medical aesthetics. We believe our approach is positively impacting the market.
Launch, we set a purpose to make sure books experience delightful and achievable that purpose drives our design orientation and influences every interaction we have with each and every customer and consumer.
Brand building has a journey.
For us that journey starts with a promise to eliminate friction and introduce transparency to this market.
Our early track record shows how we are delivering on that promise.
We entered the U.S. market would have to have phase three study against Botox cosmetic.
Since then we've received great in market feedback with the clinical performance of your though.
Just survey results out of 120 days post treatment were presented at the American Society of Dermatologic surgery, Austin on it and say yes.
76% of patients indicated that there are likely to continue would your vote and 82% of patients indicated there are likely to recommend is your vote to a friend out 420 days.
Two important metrics, giving us confidence behind the clinical performance and stickiness of your though.
Now beyond the clinical performance, we believe our highly specialized fill fourth coupled with a differentiated marketing strategy will drive new patient and convert existing patients.
I would just data and over 29000 patient survey showed.
74% of patients were previously treated wouldn't neurotoxin, suggesting an ability to convert existing patients on seizure, though.
26%, we're not used to neurotoxin.
Indicating your vote has broad appeal to consumers.
Lastly, we set a goal to modernize the customer engagement with our proprietary level. This practice app.
Today, we not only leverage technology for operational efficiency, but more importantly, enhance the customers experience.
Over 70% of orders are processed through the out.
With a 98% satisfaction rating.
The combination of a highly specialized salesforce and our technology platform is proving to be an effective and competitive model.
Now shifting gears to the consumer.
We're pleased with the results from our brand building activity, starting with hashtag new talks.
The vitality of this hashtag was designed to accelerate brand awareness and truncate the consideration process again, eliminating a friction point.
We are well on our way to building a recognized brand.
Sure well has been featured in May and major beauty book, including a lower vote.
Beauty amongst many others.
We generate over 330 million media impressions to date and averaging over 70000 monthly visits to our website.
More importantly, since launch we've added nearly 100000 consumers care CRM database.
We know brand building is a journey and we're committed to buildings are both into a differentiated experience.
We're off to a strong start and excited to share our future plans in the coming quarters.
Now, let me pass the call over to Lorne to comment on our financial performance.
Thank you, Mike and good morning, everyone I'd like to highlight the financial progress we've made over the past two quarters on may 15th of this year, we launched novo in the U.S. during the third quarter, our first full quarter on the market Jumbo net revenue was 13.2 million more than a fivefold increase over.
Q2, 2019, as David and Mike discussed earlier, we're very pleased with the quality of revenue generated to date from more than 2000 accounts largely driven by their positive experiences during Jed.
The distribution of this growing number of account includes the full spectrum of U.S., a static neurotoxin customers demonstrating the broad appeal of jumbo across customer type and consumer age group.
Moving down the piano in the third quarter gross margin increased 72% compared to 71% in Q2 of here.
non-GAAP operating expenses for Q3 were 29.1 billion 3.8 million lower than the second quarter of 2019, non-GAAP operating expenses, excluding 5.5 million in noncash items, such as stock based compensation royalty revaluation expense.
Depreciation and amortization as detailed in our press release.
Net loss for Q3 was 27 million compared with 37.6 for Q2.
An improvement of $10.6 million, which was mostly driven by increased your vote sales in Q3.
At the end of the third quarter, we had approximately 74 million in cash cash equivalents and short term investments compared to 100 million at June 32019. This change in cash is primarily driven by the U.S. launch at your FFO, including $6.5 million used to purchase.
Inventory during the quarter. These cash outlays were offset by 9.6 million of cash receipts or collections in Q3 from just though.
Sales net of consumer coupons and customer remain our existing cash and investments are expected to fund our operations for at least the next 12 months. In addition, we have $25 million available to us from our Oxford credit facility upon achievement of certain milestones.
Overall, I am pleased by the significant financial and operational achievements by the analysts organization this year.
I'd like to say Evals team for their strong contribution and dedication sales are growing cash collections, our strong our investments in the launch of jumbo are paying off and in particular, our technology platform is enhancing our operational efficiency by speeding up and simplifying water to cash crop.
In short we're off to a very strong start as a newly commercial company and with that I'll turn the call back to David.
Thank you Lorne a few comments before we close the call and open up for QNX.
In addition to a successful quarter and launch as your vote in the United States. We've achieved several milestones on the international fraud first in the third quarter, our partner clarity on successfully readied the market for the commercial introduction of new Ciba, which we jointly announced in October .
In addition, our R&D organization delivered our last major market approval with the approval for this Eva in European Union.
This approval opens access to 31 countries across Europe with a label that includes duration out to 139 days.
We look forward to commercial launch in 2020.
In closing I'd like to think the thousands of customers, who partnered with us to introduce your vote and create a new experience for their patients I would also like to thank each and every employee for the outsized impact they've had since our launch.
As a result of our strong Q3 performance, we have greater confidence in our goal of achieving the number two unit share position within 24 months from launch with that I'll turn the call over for couponing operator.
Ladies and gentlemen, if you have a question at this time, Please press star and the number one on your Touchtone telephone. If your question has been answered or if you wish to remove yourself from the Q. Please press the pound key.
Your first question comes from the line up Louise Chen with Cantor.
Hi, congratulations on a great quarter and thanks for taking my questions.
My first question is for David David What excites you. The most about your third quarter results.
And then how do you extrapolate that when you think about fourth quarter and 2020, a second question I have was third COVID-19, a good base to grow off Bob when we try to forecast fourth COVID-19, and 2020 and then the last question I have is how close are you to that number two unit share any metrics you could give.
I would be helpful. There. Thank you.
Great. Good morning, ladies thanks, Thanks for the question I'll start with a performance in Q3 and.
Just broadly speaking look the launch is off to fast start even if you look back to Q2, we enrolled in jet at a faster paced than we expected and we closed the jet program early got into 5000 accounts, we had a gold getting into 3000, a in the third quarter as you know jet ran through the month of August and so despite the.
Correct that the field was focused on both efforts jet as well as pull through in the quarter. We saw the a significant amount of our customer base beginning to place orders. So overall, we feel very good about the base that we delivered in Q3 in the health of that customer group its diverse its broad it's representative of that mix that we.
All coming out of jet separately.
I continue to be pleased by the operational rigor that we have across the organization you heard a bit from learn about the financials and how we are a very careful with our spend we track ROI on every activity that we deploy our gross margins are healthy and there's great efficiency in the business model that we structured that we believe as we get to greater.
Scale, you'll start to realize the value that that platform can create for US and then lastly across the organization. There is a heavy focus around execution, we want to demonstrate that through performance quarter on quarter, but whether you look across the R&D group, where we've achieved all major milestones around the world today.
Our approval the execution around the launch with the Salesforce that formed just about six months prior across the board we have a heavy emphasis on that execution, which we believe we'll continue to yield value overtime.
As it relates to how close are we the number to look.
We outlined this is as a two year endeavor and we're now just finishing our first full quarter, we want to make sure that we don't get too far ahead of ourselves we feel good that we're on a on a trajectory to get to that number two position, but we still feel that two year timeframe is the right time to be thinking about this law.
Okay.
Thank you.
Your next question comes from the line of Greg Fraser with Suntrust.
Thank you weren't focused Greg Fraser Gregg Gilbert I'm not sure if I missed this but what is do you, though its estimated volume share now.
Hi, Greg we haven't disclosed the specific volume share. It obviously will fluctuate month over month or so we've said that we're in the number three position in the category. So you should assume that's less than a 10% Sharon and north of about 5% and we bounce around in that range here for the last several months.
Got it Okay do you get a sense of how physicians are setting the price for GE, though relative to what they charge for botox.
Yeah. So as you know, we launched jumbo at a slight premium in pricing to the to the market leader and we have seen that the products has been priced at parity to the consumer relative to other products of course, you will see specials and different pockets when they first bring on the product, but largely what we're hearing from doctors around the country's it'll be price prepared.
Got it Okay, and then you mentioned.
Feedback, but the sales force is getting in the feedback has been great interpret anything negative that you've heard at all.
Yeah. So look we are we feel great about the way the products launched out in the market right.
The overall.
He hasn't around the product to jet and the pull through in ordering has been very strong.
And we like what we see out there with with what customers are telling us what their experience of the product. So we haven't if you're asking every change course in how we're operating at the answer is no but of course, it's a competitive environment. So we're always observing what types of activities, we could deploy in the market art competitive set has a broader.
Net of programs out there we're conscious consistently asked about our loyalty program.
Of course will introduce that next year as we build out our capabilities. Those are some of the questions. We come in they get in the field, but I'm going to look over to Mike do you. Mike If you want to add some additional color around what we're seeing lot of positive energy around the product as expected going into other products data set that we haven't personally I've been part of many product losses to be gifted the data set that we.
Got out of our Chief Medical Officer, really with a head to head trial against market leader was a blessing for our Salesforce and how about published and they say the time of launch was was really a southern our cap so that the confidence going into the product was high base off of clinical performance and when we step back looking at this now were nearly five month.
[noise] out and we're looking at a scale we have over 50000 patients on the product we have about 46000 patients surveyed 39, Oh, sorry, 29000 patients actually completed the survey.
So 120, and now 150 days and the performance of the product was as expected as you would expect for the 900 killed off and product. So we're really pleased with what we're hearing.
Great. That's very helpful. Then her last question is just on SGN ate spend came down a bit from the launch quarter.
How should we generally think that she noticed that going forward. Thank you.
You bet Lauren Silvernail. Good morning, I think as you look at our send over the last two quarters. It will vary as we have different marketing programs and.
So as you look out to fourth quarter, what we've spent in second and third gives you a pretty good range of what we're looking at.
Great. Thanks.
Your next question comes from the line of Annabel Samimy with Stifel.
Hi, guys. Thanks for taking my question congratulations on a really strong quarter.
So just wanted to get maybe a little bit more granular you have about 2000 over 2000 accounts border I guess.
About 40% conversion.
Can you give us a sense.
How many of the cats still have to make it through all the three stages.
I know it.
In August but is there any promotional material still on the channel and you.
Big steps have been conversion essentially what's going to drive conversion if they haven't already.
Converted in there through the program.
Thing.
Driving.
To drive that ish.
Sure Great question and about I'll make a couple of comments on on the performance of of Jeff that we've seen thus far and then I'm going to ask Mike as well to provide his first off we we were thrilled to see several thousand accounts already ordering in the quarter. As you can imagine if you were enrolled in jet sometime in the second quarter when we launch.
From mid May through the end of June you had obviously more time to third quarter to work through that product and if you were enrolled in the July August timeframe, and so I'd say, it's it's a tale of two quarters. When you think about yet we're not going to provide any more granularity around what that pull through looks like but I would just say that we feel very good about the pull.
Through levels that we're seeing the engagement, we're seeing from accounts and then of course, we don't expect a 100% of them to convert over from accounts enrolled in jet to purchasing but the one read through that I will say is when you think about the 2000 accounts that have placed an order of this isn't just maybe just their initial order, but it's not the first time that they receive product.
First order that they're placing for revenue product is a vote of confidence in how the product performed through jet given the jet had two to three shipments before they placed their first revenue order. So.
As you think about that base, we do believe it sticky.
Moving forward into the fourth quarter and one that will continue to build from I'll turn over Mike for additional color on Jeff Hi, Annabel, It's Mike. Thanks, Thanks for the question.
You step back and look at the purpose of jet jet was designed to get us at scale rather quickly in a short period amount of time, we've got to 5000 accounts. We expect that three so very pleased with that initial uptake to take a product on in this category is not taken lightly.
As consideration around pricing introduction loyalty programming and so on so forth and some customers are early adopters as you would expect with any traditional kind of customer adoption curve and some customers are late adopters as you know we rent jet into August which means that that laagered in that group and that cohort of customers that came in in August this price per week.
Making their way through the inventory that they received in the early adopters, obviously drove a good portion of our revenue, but if you want to step back and just look at the broader market, we are reaching high value customers and a few again go back to the customer adoption curve about 15% of customers in that curve would be considered early adopters and about 34.
Our percent of the customers are considered the early majority were well our way well on our went into the early majority our focus now is to get into the into the Lake majority on the broader customer set so things are looking really good from a from an adoption standpoint.
Okay, great and if I can follow through with a couple of more so you're.
How much do you think your contributing to market growth 25%.
26%, rather now of new patient seems like it.
Continuing to be above market average for new.
For new new patients coming in.
Would you from that can you extrapolate into.
Overall market could be.
And then separately on a little bit off.
Question, but maybe you can help us.
Give us some statistics around how much of the coupon is being used as it being used as being affected by by accounts, the sort of generate promotional materials and.
Sort of drive their own businesses like do you have any sense of how the coupons are being it.
Thanks.
Yeah on on market growth like you were constantly trying to triangulate, where we think is occurring in the market I can tell you that theres theres two things. We see of course, you mentioned the jet survey, where we're seeing a quarter the patients being new to neurotoxin. In addition to that we spend a lot of time in the field Mike referenced asked.
Yes meeting I've I've been several major markets just over the last several weeks with customers and I can tell you that the noise level around this category is at an all time high on the customer engagement. In this space is also high as a result of our introduction and the competitive activity that we're seeing deployed in the market.
These collectively give us a lot of confidence that the market growth has accelerated of course, we don't have visibility to what our competitors have done within the quarter as it relates to revenue, but we do feel very good about the fact that our contribution to new patients in this space is playing a key role and that's when you look at all the marketing collateral and Michael.
I'll talk a little bit about just the actual performance metrics on the consumer side, it's hard to believe that it hasn't accelerated meaningfully, but it's hard to put a number on that.
In terms of.
The coupons and just a broader consumer activity.
We're really pleased with what's going on we've been out the entire management team all the way down to.
The Salesforce has been actively engaged with every customer there events happening almost daily across the country with thousands and thousands of customers. So we get a really good pulse of what's happening with our collateral and be excitement of what we're bringing in in terms of changing the language and the dynamic in the space is truly fueling growth within the practices in terms of the coupons in your question.
On the coupon, it's really a mixed bag you have some customers that don't like to ever discount the product and they perceive a coupon as a discount and they don't want to train their consumers as such and they won't part taken traditional loyalty programs are couponing, that's very traditional for that for their practices. There are some customers that use it as a crutch. They don't know how to sell and obviously the entire industries goal is to.
Help customers convert patients and understand how to sell in the space and they'll use couponing for the for poor conversion purposes, and then there are those that bundle it with broader deals they like to have minimum they like to put it in with their own.
Kind of flavor of the month and whatever at that they're running whatever promotion in the running on them up and they like to tailor. It then day, we provided a very simple executable program through our technology platform you simply text I've list, but worth 75, now and that unlocks a 75 dollar gift card to be used on your shovel treatment that frictionless.
That kind of execution is really helping the adoption of the program and as usual.
Great. Thanks, a lot.
Your next question comes from the line of Donald Ellis from JMP Securities.
Good morning.
Thank you and congrats on the quarter.
My question is.
There's about a third quarter versus the fourth quarter night. The question was asked before but I really understand the answer.
Was there any kind of load in the third quarter asked in other ways or any reason not to expect reported total revenue in the fourth quarter to be above the 13.2 million he reported in the third quarter.
And then my second question is when would you when should we expect a Canada and Europe to contribute meaningfully to revenue.
Sometime in 2020 or later thanks.
Sure John I'll take the first part I'll ask learned that some additional color on performance and then as well as the international question that you had around Canada and Europe .
So look as you know done we're not guiding it's too early in the launch to do so.
We do have a lot of confidence in the base of account that placed an order in the third quarter and we feel that base is a sustainable one moving forward I use that as you read in the press release, we talked a bit about the continued increase the steady increase of new accounts, placing orders that we observed throughout the third quarter.
In addition, we talked about the increase in reorder rates that we observed as the quarter progressed those reorder rates represented an increasing amount of our overall revenue mix.
Both are very strong metrics that we believe put us in a position of strength going into the fourth quarter I don't want to comment on any of the fourth quarter activities or guide in any way, there, but I'm going to turn over to warrant to provide more color you bat.
Good morning, with regard to the fourth quarter you know it is the strongest quarter in the business in the neurotoxin business every year and so that trend will certainly play for us.
We are growing very rapidly and we do expect fourth quarter to be higher than third.
The drags on that will be of course, the jet inventory, that's still a little bit in the channel and so while we anticipate growing in the fourth quarter I think it's important to think through those pluses and minuses as you look at revenue for fourth quarter, but definitely higher than third is our bought at this point a your other question was on international.
With regard to international Canada, just launched this month so.
So we're in the very early days of at positive we look at the amount of money, we make selling in the us versus internationally. There's just no comparison. So it will be a long time before international is a big mover on RPM now that said it still all very positive for us and does contribute to the bottom line.
And then Europe is expected to launch in 2020, we'll have more timing on that as we work through all the strategies and potential partnership opportunities.
Great. Thank you.
Your next question comes from the line up Sakhalin, So with H.C. Wainwright.
Hi, good morning, Thanks for taking the questions just.
In terms of the launch obviously, we've seen 2000 accounts order there were 5000 accounts that participated in chat. So it's safe to assume that that the 3000 that haven't ordered or presumably for the most part still working through their jet. So do you have in a sense of whether that will take place or they'll sort of walk through that shut in.
Been Troy during the fourth quarter.
Yeah. So.
I think you're thinking about it and all the right ways right. So we clearly engaged for broad set of customers. We didnt. We don't expect once we complete the fourth quarter that we're gonna be sitting here at 100% conversion from jet to ordering.
The pace by which accounts are going to go through at their engagement levels going to vary a Mike did a nice job of just in any category. We you launch you're going to have an adoption curve and the question is how fast we moving through that curve.
The first.
Order on the market, where you had a combination of jet activity and pull through you're seeing that we move clearly passed the early.
Into the early majority very quickly and that gives us a lot of confidence that the fourth quarter will continue to see a strong rate of these accounts moving from jet to ordering we're watching it that number obviously closely that's a focus for the salesforce for the management team.
Internally and we feel good about the metrics that we're seeing I don't want to guide in terms of where we think thats going to close out by yearend.
Okay Fair enough and then just in terms of de accounts that are ordering do you know what percent are participating.
Or those orders are coming from accounts that are participating in the new talks now program.
Yeah I could jump in on this on Vegas is I would like to far or our new talks now program as you know.
Is it is one that scale across the country, we advertise the new talks now program to anyone and everyone on social media, which means whether you're in jet or you're not in jet a consumer has access to that program and can go in and pull product off the shelf by way of that program, obviously wed 90% of.
Revenue coming from accounts parts as being Ajay to assume that there is high level participation of the new talks now program associated to that and that's just a linear relationship for the program is accessible anyone across the country.
Okay, great. Thank you so much.
Thanks, Doug.
Your next question comes from the line of Cemetery Candela with Wells Fargo Securities.
Hey, good morning.
So is there anything that has surprised you on the launch as you've heard US far also is the abbvie allergan deal, causing any sort of disruption in the marketplace.
I would say is possibly helping the uptake of too so.
Sure I'll comment here and then all the floor and Mike you want to add any color.
As it relates to surprises like we've been consistently pleasantly surprised about the launch.
In fairness six months ago. If you mentioned the names you go.
In the us market the awareness of our company or the product was very low today. This is a brand that's recognized in the market doctors in the space or in some form of consideration whether they see it as a further out ideal or or that started using this product is as their go to talks and in the market. We did not expect this.
Question in such a short window of time I think it speaks to two things number one there hasn't been in new competitors in the space and nearly a decade and we didnt take the traditional go to market approach that you've seen with the second and third player everything from the hash tag New talks branding elements to the way that we hired a salesforce with 80.
Percent acetic experience and the way that we operate it to small company.
And the management team spends a great deal Mount with these customers Theres personal relationships, there's a lot of listening and there's the ability for us adapt around the customer's needs and I can tell you that that in itself matters a lot their voice.
It is one that they want to be hurt and we certainly give them the platform to help shape. This company.
They are accounts that had been in a static space for many years and they've seen the consolidation that comes over time in that space with consolidation. Your voice is certainly not the same as it was when it was a small company it's that exposed prior and so we think we bring some of that renewed energy back to this market by operating in a way that is very customer centric and for.
Finally, the these small practice owners and we understand the space. So collectively I guess, we feel good about where we are we certainly don't want to get ahead of ourselves we take it one day at a time in fairness were not six months yet into our launch.
But but we feel like we're on the right path.
I think from a financial standpoint, I've been very pleased with the financial progress of the business.
In terms of our ability to turn orders into cash it quicker than we had originally planned.
That will that we'll certainly continue to grow and change over time as David very early days secondly, the return on our investments in social digital and media, which had been very low on a dollar amount.
Have yielded more than 300 million impressions to date says if I reality that Mike talked about I think those from my perspective for the two biggest pleasant surprises and probably surprises too stronger word, but just plus and things that occurred.
Thank you and then on the Abbvie Allergan deal are you seeing any sort of disruption.
Yeah, I really have nothing to comment on as it relates that transaction I think you know that both the number one player in the number two player been going through a transaction. This year, we've been focused on our launch we we clearly have our work cut out for us regardless of the of the market environment.
But I'm sure you get some more color as they report out on on their earnings.
Alright, thank you.
At this time I am showing no further questions in the queue at this time, ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.