Q1 2021 Evolus Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the of course I want 2000 channel. One is all of this conference call.
At this time all participants are in the listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on your touched on zone.
A reminder, today's conference is being recorded I would now like to introduce your host for today's conference Ms. Carol Ruth of the Ruth Group Ma'am. Please go ahead.
Thank you operator, and welcome to everyone participating on today's call.
Call is also being broadcast live over the Internet and Evelyn Dotcom and the replay of the call will be available on the company's website at the 30 days with me on the call today are David Butters Daddy, President and Chief Executive Officer, Lauren Silvernail, Chief Financial Officer, and Executive Vice President.
The corporate development and brewery Avalon, Chief Medical Officer, and head of research and development.
Our remarks today evil include statements that are considered forward looking statements within the meaning of the United States Securities Laws. In addition 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 of Ben.
And trends, which may affect the company's business strategy operations or financial performance.
A detailed discussion of the risks and uncertainties of the company faces is contained in it at the 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 of.
Additionally, the 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 in isolation from our GAAP results. The reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was born furnished with our form 8-K filed today with the S. E C and may also be found on our investor.
She was website at investors that evolution Dot Com now, let me hand, the call over to David David.
Yeah.
Good afternoon, and thank you Carol.
The first quarter of 2021 was the defining quarter for Avalon we.
We made significant strides in bringing clarity around our future for our shareholders customers and employees.
The quarter was defined by three major events that set the stage for the continued success of <unk> in the United States.
The first of that was the resolution of both the ITC case, and all outstanding future litigation.
Second we recapitalize the company by eliminating senior and convertible debt and future milestones.
We also completed an equity offering and received the settlement payment from our partner.
These activities transformed our balance sheet, resulting in a pro forma cash position of $140 million on March 31.
Third thanks to the strong showing of support from our customers. Our business has quickly bounce back and settlement of mid February.
To provide additional color on our business in the first quarter of 2021, we generated $12 2 million of net revenues with most of the sales occurring after settlement in mid February.
We grew up purchasing accounts to 5800 from 5600 at year end and our cumulative reorder rate grew to 73%.
We are pleased to see the trend from the first quarter persist into the second where we see increasing reorder rates and on average these accounts of repurchasing at higher volume.
Overall, we are pleased to have all outstanding litigation legal issues resolved and the company well capitalized for the future.
The second quarter marks the first quarter since launch and which we are free from all legacy challenges and for the first time, our customers can now partner with us for the long term and realize the full potential of our unique value proposition.
We have proven that in aesthetic company positioned against the younger demographic with a focus on technology creates a unique differentiation.
The combination of these elements has resulted in increasing trend across our business.
In Q2, we believe the Volvo achieved its highest sales quarter ever and reach an annualized net revenue run rate of $100 million.
Lastly, this month, we are celebrating the two year anniversary since the launch of your vote.
The success, we are seeing was about the directly related to the quality of this product and the extensive data generated over several years and now I would like to turn it over to really avalanche to give you a quick update really thank you David and good afternoon.
<unk> always been on the market now for for two years, and we believe that over a million treatments would be completed.
We have the benefit of having conducted three large phase III clinical studies, including the head to head study against the market leader to support the approval of the product.
Today, we announced the publication of two phase II repeat dose open label one year studies that were part of the transparency global clinical program.
The data from these studies were used to support the safety and efficacy of your vote.
We wanted to share some interesting observations that we think will be helpful for injectors and patients as well as investors.
When treating patients with the biological drug the regulatory bodies, such as the FDA want to see what happens to duration of effect with each repeat treatment since shortening of this interval can be a signal of building resistance against the drug antibody formation.
In both studies the time interval between treatments did not shortened instead.
Within treatment cohorts, the time interval actually trended the longer after each successive treatment.
Another interesting observation was the rate of adverse events after repeat of treatments. It was noted that the rates of all adverse events.
The other related adverse events, both decreased with each successive treatment.
We believe that these safety observations will continue to build injector and patient confidence in our product.
Now, let me turn on over to Lauren for a financial update.
Thank you.
Good afternoon, everyone.
Earlier this year, we embarked on the strategy to recapitalize. The company. We started the transformation of our balance sheet by eliminating $127 million of senior and convertible debt and future milestones next we received the $25 million payment from our partner day, one and successfully completed.
$92 million equity offering.
The end result is on March 31, 2021 of our pro forma cash position was $140 million, which is expected to fund for at least the next 12 months.
As David mentioned, we posted strong net revenues for the first quarter of 2021 of $12 2 million up 16% over the first quarter of 2020, despite the headwinds from the ITC box.
We recorded most of our Q1 2021 revenue in the second half of the quarter as we continued to sell under of bonds until mid February.
Moving down the P&L, our first quarter 2021 adjusted gross margin percentage was 60%.
Excluding the $25 5 million settlement payment.
We continue to expect our gross margin percentage for fiscal year 2021 to be in the range of 50% to 55%, including the royalties owed under the ITC settlement agreements.
Consistent with commentary provided on prior calls our gross margin will depend on sales levels promotional activity and other factors.
Our first quarter 2021, non-GAAP operating expenses were $24 8 million reduced 26% from $33 4 million in the first quarter of 2020.
Expenses were lower in 2021 do the operating with a leaner organization during COVID-19, and reduced spending on programs delayed in the first quarter prior to settling the ITC litigation.
We do expect our non-GAAP operating expenses may vary quarterly depending on promotional activity and other factors. The first quarter of 2021 was profitable on the net income basis due to the $25 $5 million settlement payments received from our partner.
This was the one time payments impacting only the first quarter of 2021.
As a result of the settlement agreement and equity offering as of May 7th of 'twenty 'twenty. One we had $54 1 million shares of common stock outstanding to help with your models. Our basic weighted average shares outstanding for the first quarter of 2021 were $37 1 million and <unk>.
Our fully diluted weighted average shares outstanding for the first quarter of 2021 were $41 $1 million with that I'll turn the call back over to David.
Thank you Lauren.
Last week, we brought together our selling team for our first wide meeting since COVID-19, shutdowns and the energy across the sales force was palpable.
The other is seeing firsthand the value of our static only focus investment in one on one marketing with their practices and our digital focus on millennials.
Out of our total purchasing accounts, we now have more than 500 high volume neurotoxin accounts, earning our co branded media investment and in less than a year have enrolled 160000 patients into our consumer loyalty program in.
In partnership with our customers we are committed to building our brand millennials ask for by name.
In closing I would like to take a moment to thank all of those customers were fueled a rapid bounce back our commitment to them has never been stronger.
We invest in their growth improve their profit margins and we do this where the brand built from the ground up to appeal to the millennial segment.
Lastly, I'd like to extend my thanks to all of that all of employees, who know the customer Centricity powers. This company and we would not be off to such a strong restart without the unwavering commitment.
With that I'll turn the call over for Q&A operator.
As a reminder, ladies and gentlemen to ask the question you will need to press star one on your toes keypad again, that's the star one on your phone's keypad Middle class with just the woman to compile the Q&A roster.
Your first question comes from the line of Marc Goodman from S V. In the rank your line is now open.
Hey, David.
Can you give us a flavor for what's going on in the broader market. Previously you had talked about 1 billion five.
It's how you were thinking about the market for this year is that still a number youre thinking about is it trending higher or lower.
What are the competitors kind of getting back out there doing the same thing as you are just just trying to understand like what's happening behind the scenes.
Sure. Thanks for the question Mark.
It's oh.
As we enter now here of the second quarter, it's been very impressive to see this market rebound back as quickly as it has as you heard the fourth quarter was likely the strongest quarter. The neuro tox of markets ever had and we saw that continue into the first quarter of 2021, whereas you look at the market.
As an example, their revenue continues to hit all time highs, whereas in the first quarter, you would typically see a debt and revenue relative to the seasonal high period of the fourth you didn't see that this year and I think that speaks to the strength of this market.
As you pointed out we estimate 2022 market value will be $1 5 billion and we estimate that the 2021 neurotoxin market will be roughly $1 3 billion of we'll continue to watch those trends.
We see the year progress, but we feel very good debt. This about the market, having not only rebounded but that the overall market values will achieve all time high this year, which is certainly playing a role in the overall category growth this year.
Yeah.
And then Lauren should we expect SG&A to trend up as the year progresses.
Thanks for the question I think if you look at the fourth quarter of last year, Mark and I think we talked about this on the year end call. It. It's a range that we're really comfortable with and that was in the middle of Twenty's and a little bit higher.
On a non.
Non-GAAP opex basis to be clear.
Okay.
Okay.
Your next question comes from the line of Annabel, assuming the <unk> from Stifel. Your line is now open.
Hi, all thanks for taking my question and congratulations on a strong quarter.
Getting a little bit granular here.
Tell us whether the 12 point to was.
Some sort of restocking.
I think maybe people were running off their inventories.
With the uncertainty so how much of it was restocking versus just on demand ordering.
And secondly, I guess you.
Now that you're.
Somewhat more free and clear to make some investments with the capital that you have on.
What are some of the programs.
Do you intend to sort of lean.
Lean into this year and how should we think about I.
Yes.
Letters of what Theyre doing and maybe from more.
Of the two.
On tech.
The investment going on I know that it's not just for events that others are starting to look for some sort of other.
That form of some of the use of social media for maybe you can talk to us about that a little bit and then.
Finally, it's great that that one was able to give you that 25 million in the settlement payment I was wondering if there's any other further assistance, they're providing on a.
The quarterly basis with regard to the royalties that you might have to pay two arms that you do have to pay the abbvie ameritox. Thanks.
Excuse me. This is the operator, I apologize, but there'll be a slight delay in today's conference call. Please hold and the conference.
Shortly thank you for your patience.
Hello. This is the evolution team rejoining the call.
Thank you Matti I know of backup the main conference. Please proceed.
Do I have to repeat of my questions. Yes, we are we dropped off the call Annabel we had a disconnect on the side do you mind repeating your question I'm sorry.
Okay sure all three of them great. So I guess the the first one was of the 12.
12.2, how much of that was restocking by the practices given the the probably true down some of.
Your inventories towards the end of the year under the ITC cloud.
Versus on demand ordering the.
The second was if you could provide us with any idea of from investment programs that you're going to have.
You know going into the year now that you have.
I have available capital and our kind of free and clear of any other.
Legal overhang and then finally I know the.
That doesn't get paid a good portion of the settlement fees.
They're in the indemnification is there any further assistance that we should.
I expect with regard to the.
The royalty payment that you have to make to Abbvie in Medifast, Inc.
Sure. Thanks, Annabel I'll take the first two this is David and I'll turn it over to Lauren to address the day won't government seems portion.
Starting out with the revenue in the in the first quarter the.
The $12 2 million of revenue was the sharp bounce back for us in terms of our customer base beginning the place orders once the settlement took place.
We continue to watch the reorder patterns and the.
Existing accounts purchasing rates relative to the fourth quarter and so thats the gave us the confidence in the overall performance of the business going into the second quarter, which is that there is more than just an initial restock that's happening within our customer base, what's actually occurring here is that as customers now have clarity.
On the future of our company the <unk>.
Customers are making larger commitments in terms of the order sizes that they're placing and the number of times debt, they're ordering with us and so that's why we were confident in our second quarter run rate of achieving that $100 million.
Level based on the fact that we're continuing to see the order rates persist beyond the initial March orders well into the second quarter.
Separately as far as the programs are concerned the.
<unk> program is our physician loyalty program what makes it unique is that.
The customers purchase mortgage of all.
They received an investment from Apple of into marketing for their practice.
And as we've now entered the second quarter as more accounts by larger quantities. They earn a greater investment from Apple is at the highest level of accounts are earning up to $24000 a year in the marketing investment directly from us and that's taking place in the form of.
Digital co branded media on social media or on search. It's also happening out of home, where we're putting up billboards around the country as well as other forms of out of home advertising as I mentioned in my final comments, we have over 500 accounts now that are benefiting from this co brand.
The investment and we have the luxury now seeing the early results from that advertising around those practices and antibody as you know we measure every aspect of that advertising if it's a billboard and it has the one 800 number we're measuring the number of calls that our place to that practice and if it's a.
<unk> co branded AD unit on social media, we are measuring the number of consumer clicks and we're reporting these metrics directly back to these practices.
The early results are very encouraging we're seeing that the younger demographic is engaging with our advertising units and they're engaging with these practices and the early results are what gave the field that level of optimism at our national sales meeting earlier. This month that gives them the confidence that we.
We are in the very beginnings of of a very strong run rate with these customers, but ultimately this is a program that's sustainable and designed for long term growth. We're the only company in the neurotoxin space that not only doing one to one marketing, but doing this advertising at scale as the accounts give us more of their busy.
And we're seeing some very good early results, but keep in mind. This is now the second full quarter, where we've had the full value proposition of part of the customer and it's just starting now to really take the material traction. So really pleased with the progress, we're making I'll turn it over to Lauren to talk about the settlement fees.
Annabel on the settlement that's right the wound paid us $25 5 million, which we booked in the first quarter as actually a contra Cogs if you see that.
When you look at the P&L.
Provided us great support going forward on the royalty basis, what we're reporting to you as our gross margin guidance of 50 to 55, that's inclusive of paying <unk> and Abbvie and netting out what day will reimburse us on.
You'll note in the first quarter, we ran a very favorable to our annual 50% to 55% guidance business is doing very well on marketing programs are very successful right now.
Great. Thank you so much.
Thank you and your next question comes from the line of movies Chen from Cantor. Your line is now open.
Hi, congratulations on all of the progress this quarter and thanks for taking my questions. So I had a few here first question I had was do you have any plans to expand your sales force or marketing efforts given the pick up in sales that youre seeing that are coming for the remainder of the year. Second question is how do you see sales unfolding beyond second quarter 'twenty one.
And then last one is just on product expansion you know where are you with that would you expect us to potentially see of new product added to our portfolio by the end of this year. Thank you.
Yeah.
Great. Thank you Louise I'll take the first two and I'll hand over the last question there to Lauren.
As far as our plans to expand.
I'll start with the sales force, we have made investments throughout the organization since the settlement took place where we filled various gaps and then the sales force we have expanded.
By a handful of sales reps as well as our inside sales team. We've also made investments in medical affairs that we believe will continue to drive our long term growth and as we said on prior calls we will continue to make selective investments in pockets, where we see.
The market is underserved or the opportunity supports it on the marketing side. The epilepsy program is our long term investment proposition as accounts purchased more you should expect to see our investment in marketing will go up commensurate with our revenue and as these accounts move up to a higher tier.
So will our investment into those accounts and we know from the early results, we're getting that as we invest more of these accounts will grow faster as a result of it as well and so we feel that we have the right program that is scalable as we continue to drive both share penetration, which is really where we've been.
The focused since the settlement and will be in the second quarter, and then going wider in terms of continuing to add new accounts as we did last year as you know last year, we added nearly 2000 new customers.
To Atlas and in the front part of this year, you should expect that growth of new accounts to slow a bit as we focus on our existing customer base and then regained the same momentum we had exiting the year last year as we focus on expanding to new customers in the back half and that really set the stage for how we think of.
The back half of the year, the second quarter with the $100 million run rate annualized serves as the strong baseline and we believe the foundation by which revenue will continue to build now that being said keep in mind. There is seasonality in this market the neurotoxin market. The third quarter is the slowest quarter.
The year and so when you factor for that seasonality you should expect our business to continue to gain momentum but of course on a lower of procedural volume in the market during the third quarter and then the fourth quarter of course, we expect procedural volume will be at an all time high as we exit the year and Youll see sales reflect that as we continue.
Are you into the back half of the year and so with that I'll turn it over to Lauren great. Thanks for the question on new product expansion. So if you think about it we have today <unk> approved in the United States and New CEVA approved in Canada, and 31 countries across greater Europe.
So our expansion plans there of course are to get the launch ERM.
Early next year in Europe. Additionally, on the fever, we're planning to file in additional countries of among them. The Australia. So that's the part of the pipeline growth plan is there.
Your question also leads to a business development question and the way. We're looking at that today is we're very singularly focused on the United States, and getting ready and Canada and getting ready for that European launch next year.
When it comes the business development, there probably isn't a deal on the space over the last couple of years that we haven't seen the deal flow has been very very strong we believe in the quality of our assets very high quality in terms of data the brand.
The positioning of it and so as we look at other assets. We're very particular about it. So we are continuing the screen and look but I would expect something from us with probably the next year not this year.
Thank you very much.
Thank you and again to ask the question. Please press star one on your Phone's Keypad. Your next question comes from the line of Greg Fraser from Jewish Securities. Your line is now open.
Thank you, it's Greg Fraser on for Gregg Gilbert from.
For patients who have gotten <unk> could you give us a sense for the mix between those two were toxin naive and those who switch from another toxin and for the folks that have switched from a different toxin what would you say it tends to be the key drivers.
Sure. Thanks for the question.
We have been tracking our user demographics very closely through our consumer loyalty program, which as I mentioned earlier.
Earlier, we have over a 160000 consumers now on that program and the results are very encouraging. The first is we continue to have a very strong presence of millennial users within our loyalty program.
To date, a little over a third of consumers are millennials that are in that.
Tablets consumer loyalty program and all of those millennials half of them are naive to the category, which gives us a lot of confidence in our ability to continue to drive the these new patients into the office now putting that aside what's interesting as we get into the second quarter of what we're tracking very.
<unk> is as our media investment dollars are rising because of accounts purchasing of higher volumes to gain our advertising dollars. We expect that will continue to drive more new patients into these offices were hearing it firsthand from the accounts that are benefiting from our advertising dollars and we're tracking those results.
As well in terms of consumer interest in the product and so we'll continue to keep you up to date on those numbers, but early results are very promising.
Okay.
Got it thank you.
Thank you and your next question comes from the line of Douglas Chao from H C. W. Your line is now open.
Hi, good afternoon, thanks for taking the questions just.
Obviously.
The bulk of the selling.
Contribute took place.
Presume or after the after the settlement I mean, so when we look at that 12 point too.
Is it fair to think of that you would of sort of sold double what you sold if you would had sort of the more normal quarter.
Or the settlement that happened on December 31st and said.
Yes the.
The large majority of sales in the first quarter occurred after the settlement, which was more specific on February the 19th so the.
The latter part of of the quarter.
As we stated earlier what we.
We're surprised with was debt. That's the momentum continues and has continued well into the second quarter with our customer order rates right.
It really allows us to get to Doug. This is Lauren how are Ya allows us good.
And run rates.
On the annualized revenue annualized net revenue during the second quarter.
It sets us up nicely for that.
Okay. Yeah, I was just trying to understand the mean and you know I think I mean.
The animal asked about sort of restocking the.
That may or may not have taken place, but it sounds like this was really just the resumption of demand and there wasn't.
You know sort of people feeling gelling.
Sort of trying to buildup of inventory it sounds like this.
Kind of.
Going out the door from you.
And the patient.
That's exactly right.
Doug as you know we launched the Chabot in May of 2019, and the ramp that we had in the back half of 2019 exiting with just above $19 million of revenue was the very strong ramp. It was one of the top five launches in aesthetics as we had the message that at the time, we believe what you.
We are seeing now as we entered the second quarter.
Is the resumption of the trend that we left behind.
Obviously of course due to COVID-19 in the front half of last year and somewhat impacted by the ITC in the back half last year and we're now starting to see the momentum regaining where we left off from the launch.
And just one final question I mean, when you think about the different customer segments. You've obviously, the historically focused on the millennials are you hearing anything about where the strength in the market sounds to be.
Really strong right now.
Any particular customer segments that are really driving the market right now.
As you said the overall market is very strong there isn't a customer segment that you could look at that you would say is not rebounding very strongly.
And we're starting to see it's not just related to the toxins. It's all of aesthetic procedures. You could argue it's bigger than aesthetics of all beauty products are seeing zoom boom is sort of the industry speak debt that I hear consistently and we're hearing it from practices, but what's also important here is Doug as you know following COVID-19.
There was a rebound of new patient of patients just coming back in to get treated once we got past that initial rebound. This growth has persisted and we're continuing to see it and what's happening is it's getting fueled by this millennial segment.
Is the.
It will be the largest segment of aesthetics, we believe over the next two to three years and this consumer demographic is more ready and willing to take actions in any of the prior demographics in aesthetics as we've measured them and so we do believe that this tailwind is driven by this demographic entering this market at a faster rate.
Than we've ever seen.
Yeah.
Great. Thank you so much.
Thank you and the I know downs all of our last question for today, but the bank from Mizuho Securities. Your line is now open.
Great. Thanks for.
Taking the question so maybe a couple of things to build a hell of lot of it on what you've already discussed.
One could you give us a sense of what you think your share is of the market. We've obviously heard from the other public companies, but just kind of overall for the month of March or exiting March and then previously you sort of made comments before COVID-19 before the ITC issued about the number of tissue market share.
That is still something youre seeing maybe within the next year or something.
Just maybe if you can you sort of kind of.
The update us.
So on your thinking there and then just on the commercial situation.
Can you sort of compare where things are now in terms of in person versus virtual interactions with providers relative to where you were maybe per year pre pandemic.
So and where things are now and kind of how that trends.
All of the over the next few months or quarters here. Thanks.
Great. Thank you <unk>, let me just I'll start with share is.
Pointed out earlier because of the bond period, our revenue was significantly impacted in the front of half of the year, which is why I put in the half of the quarter, which is why a large majority of the revenue came into the back half of our share was equally impacted during the first quarter as a result of that so I don't have a.
Great Barometer for share at this point to give you of course, we can provide some more color as we have in the past around the share range. We believe we are trading at but based on.
Our assumption that the second quarter will be operating at a $100 million run rate, we expect that our share will trade back into the <unk>.
Mid to high single digits as we had exited prior to the ITC and we will continue to build from there.
That being said as we think about the long term.
Last year was clearly a setback between COVID-19 and the ITC and we're very pleased now on less than 90 days of having settled the case that our business has come back on as strongly as it has we're going to continue to invest into these trends, which we believe are very durable trends and they are built on the long term partnership with these practices.
Given the growth that we're driving in partnership with them and we will give you an update in terms of how we see those long term trends playing out as we get into the future quarters.
And I'm sorry, there was a third question in there Lauren.
It will help US here I think the last question was how much of our practices backup operating versus being virtual.
Is that right.
Yes, I guess the hearts of practices are turning the jewelry interactions on the practice of how much of virtual how much of the in person and then do you expect a lot more person going forward or do you think you already sort of some sort of steady state for the next few months or quarter or two at least.
Yes, we're seeing business back to normal of course, we're following all of the proper COVID-19 protocols within our sales force.
We are we do have open access into these accounts it would be on.
The exception debt.
It's an office is not comfortable with the sales rep in there and supporting them. Some of the programs that we have do require that one on one.
With these practices and since they're open they prefer to do that in person over the phone that being said as you know we have a digital platform that powers. This company and since COVID-19. We've seen the majority of the transactions for jumbo coming directly through our <unk> App and that is what's enabled us.
The continued to drive our revenue and to do that on a lower expense base than what we had pre COVID-19 matter of fact, we've re directed some of the incremental expense, we put back into the company directly into the marketing expenses around the customer to drive their growth and so on one hand, the practices are open and the openness.
Our reps on the other hand, we are of very efficient model that doesn't require us to physically be in the office on a regular basis to take orders. So when we do make the sales calls we spend more time focusing on how we grow their practice than we do on physically taking orders because of our digital platform is the one that's doing that.
Yes.
Okay, alright, thanks, so much.
Thank you and no further questions at this time that concludes today's conference call you may now disconnect.
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