Q1 2022 Evolus Inc Earnings Call
Greetings and welcome to the <unk> first quarter 2022 earnings call.
At this time all our participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host David Erickson, Vice President of Investor Relations.
Thank you operator, and welcome to everyone joining us on today's call with me today are David Motors that any president and Chief Executive Officer, and Lauren Silvernail, Chief Financial Officer, and Executive Vice President corporate development.
Our prepared remarks today will include forward looking statements within the meaning of United States Securities Laws and management May make additional forward looking statements in response to your questions are forward looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business strategy operations or financial performance.
A detailed discussion of the risks and uncertainties that the company faces is contained in its annual report on Form 10-K quarterly reports on Form 10-Q, and current reports on form 8-K actual results may differ materially from those expressed in or implied by the forward looking statements the company undertakes.
No obligation to update or review any estimate projection or forward looking statements.
Additionally, today's discussion will include non-GAAP financial measures, which should be considered in addition to and not as a substitute for or in isolation from our GAAP results.
A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC and on our Investor Relations website at <unk> Dot com.
Lastly, following the conclusion of today's call a replay will be available on our website at <unk> dot com and with that I'll turn the call over to David.
Thank you David we're pleased to share with you our results for the first quarter of 2022, which demonstrated continued robust growth increased market share and disciplined operating expense management.
First quarter sales grew to nearly $34 million, reflecting continued year over year share gains.
Our lead metrics achieved new all time highs, while the market continues to reflect a healthy growth rate.
The first quarter marked the first full year since our relaunch and we cannot be more pleased with the rapid uptake of <unk> across the U S.
From an expense standpoint, we continue to thoughtfully manage our overhead costs and are investing a greater share resources and brand building through our innovative co branded marketing program or CBF.
And <unk> today remains in a strong cash position funded to be on profitability.
Overall, we are off to a very good start and we continue to expect another year of strong growth in 2022.
Based on our performance in Q1, and our outlook for our strongest Fedex market. We are confident we can now achieve the upper end of our full year sales guidance range of $143 million to $150 million.
This equates to a year over year growth rate approaching 50%, which is well above the projected industry growth rate.
Now I'll get into some of the details.
Sales this quarter grew 177% compared to the first quarter of 2021.
Our sales of $34 million this quarter reflect year over year growth that is well above the estimated U S toxin market rate on.
On a sequential basis, our first quarter sales. This year were comparable to sales in the fourth quarter of 2021, and what is typically a sequentially lower quarter due to seasonality.
This strong growth supports our view of a robust aesthetics market that will continue to expand at a healthy pace.
Okay.
The key sales and marketing growth drivers, we measure our new accounts.
Branded media.
And consumer engagement through our <unk> rewards program.
All of these metrics reached all time highs this quarter.
Our evidence that momentum in our business continues to build.
Starting with new accounts, we continue to expand our customer base by adding more than 575, new accounts the highest quarterly increase in the past two years.
This brings our total account base since launch to more than 7500 purchasing customers with the reorder rate that continues to run above 70%.
Our millennial focus and unique co branded marketing program is driving more customers to purchase at higher volumes in order to receive Cvs benefit which increases our visibility in the market and helps grow their practices.
In turn we benefit alongside our customers by expanding the awareness of the Chabot Grant.
In the quarter, we ran a total of nearly 800 digital Billboard and streaming television marketing campaign that generated more than 400 million media impressions in the first quarter alone.
Streaming TV as the latest addition to our <unk> range of advertising option. These.
These customized streaming TV AD targeting younger demographic within a small radius of our customers' practice.
These ads pop consumers to take immediate action and book appointments for Chabot, using their smartphones and a QR code.
Following a successful pilot in Q4 for our largest customers the.
The majority of our top 200 customers are now on track to qualify for streaming TV.
Okay.
Increasingly our customers are reporting that a growing number of consumers are asking for <unk> by name.
This is evidenced of the brand awareness, our CBS advertising is creating and the power of our <unk> rewards loyalty program to retain and motivate consumers.
Participants in this program of which nearly 40% are millennials or younger received guardedly appointment reminders along with savings on each treatment.
By the end of the first quarter, our loyalty program had grown to more than 335000 members, who have redeemed approximately 475000 rewards.
During the quarter nearly 90000 consumers were rewarded and half of the patients treated with <unk> were returning patients, which marked a new all time high.
Turning to our European expansion, we are putting the finishing touches on our launch plans, which remain on track for the third quarter.
Initially the receivable will be offered to customers in the UK and Germany. The two largest markets before expanding next year two additional European countries as part of a phased rollout.
We continue to expect to receive it or contribute modestly to sales in 2020 to be an important contributor to growth as we expand our European footprint.
Additionally, this will form the foundation for a potential future portfolio of aesthetic products in this important and sizable market.
Before I turn it over to Loren I would like to provide a quick update on our phase two extra strength clinical study.
As we announced in March we enrolled the first of a total of 150 patients.
Enrollment across the five study sites is making good progress, which keeps us on track to complete the study and have interim results by the first half of next year.
Upon success. This study will add to the body of strong ship out clinical data, while giving us the flexibility to pursue a longer duration indication on label.
Being able to offer two strengths as you evolve original and extra strength and leveraging our ability to optimize pricing with our set of only strategy puts <unk> in a unique competitive position.
A recent study of Avalere customers found that while 86% would like to have extra strength as part of their product offering. They still believe the original strengths would be used most often.
In short having extra strength option would give injector has the ability to customize treatment plans for their patients which represents a potential additional revenue stream travelers.
With that I'll turn the call over to Lauren who you all know who will be retiring in a few weeks and is conducting her last quarterly conference call as <unk> CFO Lora.
Thank you David I'd like to express my gratitude to you and our stakeholders for your support over the past four years I've thoroughly enjoyed my time working with him.
At analyst.
Such a strong set of result, knowing this company is on solid financial footing and very well positioned for continued success.
As David mentioned earlier net revenues for the first quarter were $33 9 million up 177% from a year ago. When sales were impacted by the ITC proceeding Inc.
Included in sales. This quarter was 700000 of net service revenue related to sales in Canada year over year sales were driven primarily by higher volume and a slightly higher average selling price overall, the pricing environment for neurotoxin products in the U S remains quite healthy.
Our reported gross margin for the first quarter was 59% and reacted gross margin, which excludes the amortization of intangibles was 61% as a reminder, in mid September our settlement royalty obligations to Abbvie will and also at that time our settlement.
Royalty obligations commodity costs will decrease significantly to a mid single digit royalty on global net sales.
These changes are expected to dramatically lift our fourth quarter adjusted gross margin to the range of 68% to 71%. This fourth quarter step up will result in a blended full year adjusted gross margin of 58% to 61%.
Selling general and administrative expenses on a GAAP basis for the first quarter were $33 4 million comparable to our fourth quarter SG&A expenses of $33 3 million and evidence of our disciplined approach to expense management for the first quarter of this year SG&A expense on a GAAP basis incur.
<unk> $3 8 million of noncash stock based compensation.
Our reported GAAP operating expenses for the first quarter of 2022 were $49 4 million reduced from $52 7 million in the fourth quarter of 2021.
non-GAAP operating expenses for the first quarter of 2022, or 31.1 million consistent with $31 1 million in the prior quarter, we expect non-GAAP operating expenses to step up to the mid $30 million level in the second quarter as we invest in our European launch and continue.
<unk> growth of our U S business.
This keeps us on track with our full year non-GAAP operating expense guidance of $135 million to $140 million.
We are continuing to make solid progress towards profitability, our non-GAAP loss from operations in the first quarter of 2022 was $10 3 million improved from $12 2 million in the fourth quarter of 2021.
non-GAAP loss from operations exclude stock based compensation revaluation of the contingent royalty obligation and depreciation and amortization.
Achieving cash flow breakeven is an important goal for analysts and we continue to carefully manage cash during the first quarter cash used to operate the business with approximately $2 million. We ended the first quarter with $107 million in cash compared to $146 million at December 31, two.
<unk> thousand 21, the major changes from last quarter quarter included a combined $23 million of settlement and net royalty payments $12 million of inventory payments to support the growth of the business and interest payments of $2 million with the remaining $2 million of cash used to operate the business.
We continue to expect that our existing cash balance will fund our current operations through cash flow breakeven.
As a reminder, the $50 million tranche on our pharma con that facility is available and we can borrow it at anytime during 2022 with no additional restrictions or covenants. This second tranche provides us with financial flexibility as we explore opportunities to expand our product portfolio.
Included in the $23 million combined settlement and net royalties paid in the first quarter with our next to last settlement payment of $15 million. The final installment of $5 million is due to be paid in the first quarter of 2023, which will fully satisfy our total.
<unk> settlement obligations.
Before I turn back to David I'd like to summarize our 2022 guidance and other modeling information.
<unk> on our performance in Q1, and our outlook for our strongest statics market. We are confident we can now achieve the upper end of our full year sales guidance range of $143 million to $150 million. This assumes a minimal contribution from international markets, we continue to eat.
Spect, our full year adjusted gross margin to be between 58% and 61% with a fourth quarter step up to 68% to 71% concurrent with the decrease in settlement royalty rates.
We continue to expect full year non-GAAP operating expenses of between 135 and $140 million, which consists mainly of continued investments in the growth of Gol in the U S plus new CEVA large expenses in Europe quarter.
Quarterly interest expense is anticipated to be $2 million and we suggest to use approximately 56 million weighted average shares outstanding for the full year and with that David back to you.
Lauren.
Three years ago. This month, we launched <unk> in the U S.
Thanks to the hard work and commitment of our dedicated employees and the unwavering support of our customers.
<unk> is now the highest selling aesthetic product launched since 2019.
Back then we were the first neurotoxin to launch in more than a decade, and we remain the only neurotoxin to take advantage of an aesthetic only strategy.
This has enabled us to unlock the benefits of pricing flexibility and marketing innovation, resulting in true partnership with our customers.
<unk>, we are building a powerful and recognizable brand designed to drive the younger generation to enter the category and received a static treatments.
We intentionally created as your boat brand to appeal to the millennial consumer the growth driver of the aesthetic industry.
This has enabled us to increase our market share and we will continue to drive long term growth in our business. We look forward to sharing the results of our continued success in the coming quarters with that we're ready to take questions.
Okay.
Thank you ladies.
Ladies and gentlemen.
We will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the queue. You May press star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please pull for questions.
Our first question is from Annabel So Mimi.
With Stifel. Please proceed.
Hi, This is stacy calling for Annabel congrats on the great quarter and thanks for taking our question I'm talking about the market dynamics right. Now we are two years post pandemic pass any rebound and even botox is growing at a 31% year over year and this is in a seasonally light quarter past us.
Fedex finally reached that point with millennials, where the floodgates have opened and are you actually taking shares from anyone or just benefiting from the rising tide.
Secondly has.
The state of the capital markets, possibly accelerated some conversation that we're potentially looking for funding a program to do the public markets and has it changed your urgency to do anything it feels like Jabil has reached some really good strides.
Yeah.
Great. Thank you for the question Stacy.
He has been incredible to watch the growth of this market now two years post the pandemic.
As you saw in our first quarter, we grew 177% and I really don't want to focus so much on one quarter, because obviously, there's significant growth for us, but on the year, we're forecasting 50% growth and Youre right. Its a combination of a younger generation. That's entering this market at a very fast clip with fewer barriers to access and our brand.
And in the case of <unk> is positioned against that younger segment and Youre seeing the over indexing against that group and our <unk> rewards program I do believe that that's a strong contributor to our 50% roughly growth that we anticipate on the year against a market backdrop, that's going to grow roughly somewhere in the teens.
Two to up to 20% so that you get a sense for what we're seeing in the market relative to how we're doing as a product and keep in mind, it's reasonable to assume that in the sense that were just a year end to the relaunch of <unk> and we're seeing very strong uptake as we're adding a combination of new accounts and seeing faster growth within existing.
So Fortunately as you pointed out the market overall is very healthy and for US we're gaining not only from the market growth, but also from share within the category and then lastly, as it relates to your question around funding needs.
Clearly watching the markets that you are observing as well.
I know that it's a challenging market environment for companies to raise capital. We're fortunate that we raised capital in the fourth quarter of last year and we funded this company and built the company to profitability and beyond with the cash that you see on our balance sheet.
And of course that does not include the additional $50 million tranche, that's available to us through pharmacon through year end and so we felt.
Very good about the fact that our business is continuing to execute and you can see the growth.
Accelerating on the business overall and the strong trends that we spoke to earlier and the fact that we're funding the company now to launch into the second largest market in the world internationally, which is going to be a key growth driver for US next year and of course that includes funding. This phase III study and we expect to get a data readout early next year. So we feel very good about our.
Cash position and our ability to just focus on execution.
Thank you and again congrats on the great quarter.
Thank you.
Okay.
Our next question is from Marc Goodman with SBB Leerink. Please proceed.
David What's your sense of how the market was in the first quarter I mean botox was unusually large number do you think the revenues for the whole market was up.
Versus the fourth quarter, I mean, I know your numbers were.
Practically the same which is very unusual it's just because of the seasonality.
As far as market share do you think you gained share in and how you thought about that and then just broadly on your.
Programs and stuff can you talk about some of the interesting programs youre going to be kicking in this year there'll be new and exciting that can drive the business. Thanks.
Sure Yeah look on the market you generally see as you know Mark you've followed this market for many years the sequential decline double digits it could get as high as 20% depending on the year. So we do believe that this market was flattish we have third party reports that show mid single digit decline we saw.
A flattish business and of course, we look at the competitors reporting as well that being said, it's hard to focus in on a single quarter versus look it over multiple quarters, just the way that product flows in and out of out of customer. So I think we feel very good about the early.
Strong demand in the market for the toxin market and we expect that to persist and that explains why we felt confident to guide to the upper end of our range because we're seeing that strong demand in these practices and we're also seeing very favorable trends.
As we continue to expand our business within these customers.
Okay.
Marketing programs.
Yes, so as far as marketing programs.
You saw that the first quarter was a meaningful step up in terms of streaming TV being a new addition to our marketing program. Those TV spot have just started going live.
During the first quarter and will continue to enter the year. The number of accounts that we're seeing that are interested are very significant which creates a big opportunity for us in terms of a.
Continuing to produce these spots for the demand that we're receiving that gives you an indication of the level of interest we have overall and co branded media were the first company to offer this sort of partnership with customers and that's of course, because we are a cash pay only strategy that enables us to do that we expect that thats going to continue to.
Bill we're seeing that playing out just as we did in the back half of last year. It built up we expect it to continue to do the same this year.
Thanks, Steve.
Our next question is from Louise Chen with Cantor Fitzgerald. Please proceed.
Hi, This is the way all for Louise Congrats on all the progress this quarter and thank you for taking our questions here and Lauren. Thank you for all your contributions to the company and we will really Miss working with you. So first question I have for you to maybe give us some more perspective on how you how you see it.
Market share evolving over time, given we're sort of like Andrew Indeed endemic phase and then the second question is do you expect any healthy macro how wings like inflation and supply chain issues et cetera to impact your business for the remainder of 2022.
Thank you.
Sure.
Look on the market share side, we expect to continue to expand our share as evidenced by 50% growth rate on our business. So we anticipate this year relative to a market that we expect to grow roughly in the mid teens or slightly above it. So that that will continue to point towards share gains for us and we expect that to persist.
For some time as it relates to inflation.
Generally for US we have a fixed transfer price and our agreement with our partner so our cost of goods are fixed costs.
<unk> seen our Asps go up over time, so we feel good about pricing power within the category and we're not seeing meaningful changes to consumer pricing when they are going into these practices. In the end. This is an affordable entry point treatment first out of consumers. It's 300 to $500 on average in line with what they would spend.
To get their hair colors, and I think that the affordability factor relative to the quality of the outcomes. They're getting is what's made this the gateway treatment to entering this category and why this category has been so resilient and growing consistently for the last 20 years and so we felt very good about the fact that we're in.
The largest category in aesthetics with toxins and the most resilient category. That's been tested over time and has continued to grow despite macroeconomic challenges in the past and so I think overall, that's a favorable backdrop to continue to be gaining share.
Yeah.
Thank you.
Our next question is from.
Bill von <unk> with Mizuho. Please proceed.
Yeah, Hi, this is Shawn on for volatile just one question on the loyalty program.
Sorry, improving.
So how is the loyalty program progressing.
And specifically what are you learning from the program.
In terms of your customer base as it compares to the true maybe pushed throughout their <unk>. Thank you.
Great.
Sean Thanks for the question.
Our view is that loyalty program is really the key metric to view for the long term durability of this space.
We launched our loyalty program, just just about six quarters ago in the middle of.
The pandemic and in a short period of time.
We've enrolled nearly 400000 consumers into the program and.
And you can see that we have roughly almost half a million dollars total treatments in the program as well. So we feel very good about the uptake of both new patients as well as the patients that were enrolled coming back in with frequency for repeat treatments and for the first time. This quarter you can see here that repeat treatments hit and all.
Hi, and represented the majority of the total users and that is going to be a cliff that we'll watch very closely because it speaks to how satisfied consumers are when they get through all that they are satisfied and theyre coming back and they're coming back more often and we're following these patients out now of course, it's only been as we've talked about a half a dozen.
But as you can imagine over time. This is clipping up at a very fast pace and if you look at our investor deck, what you'll see is a meaningful clip up in terms of.
Our <unk> rewards program, both enrollment and redemption that started in the fourth quarter and it persisted into the first quarter and we think that's a very strong and favorable trends that speaks to what we're seeing in our underlying business and so we feel very good about that investment now and your last question around share that's not something we track.
The rewards program, what we're really focused on for reward is the idea of retention once they get treated and that's exactly what we're seeing in the market but of course, we're getting a combination of naive patients as we pointed out over 40% of our reward patients are millennials or younger as you can imagine the majority of those are not prior toxin users.
And then we're of course getting an existing patients that are getting treated with other narrow toxins that are trying to develop and sticking with us as well. So we feel really good about the balance of that composition.
As we continue to build our consumer loyalty program.
Our next question comes from Douglas Tsao with H C. Wainwright. Please proceed.
Hi, good afternoon, and congrats on the great results.
Just maybe is it.
Starting point I'm just curious.
David.
What.
Business development environment.
Environment is like.
Obviously as one person.
Our question was about sort of the capital markets funding, which is obviously challenging and health care. Just curious has that made it easier potentially to transact something or is it becoming more difficult because people feel that their valuations are depressed and so therefore, they're going to try to wait around to see some kind of recovery.
Sure Yeah.
Yeah.
Great question, Doug I think the markets are all being fairly fairly quickly here we've been.
Of course focus on corporate development for some time looking at assets that we think are our durable assets that could help build our business over time as we aspire to be a company with a portfolio of aesthetic products to meet the consumers' needs and Thats, both commercial stage assets as well as potential pipeline assets that.
Our differentiated what we're seeing of course is a market that's evolving a bit from where it was one or two years ago and frankly, we've evolved where now funded the profitability. We're proving that our commercial model is very different and we havent seen hilarity and focus thats driving a really high growth level for us and that's attractive.
As we talk to companies that are considering what they might do with their asset. So it's giving us the opportunity to have a look at different assets and it's giving us a chance to consider what would be the right next move.
We're going to continue to scrutinize any decision we make around corporate development, because it's always going to get weighed against our singularity and focus which appears to be driving a lot of value and we don't see that slowing down anytime soon that being said, we have a long term aspiration to build a portfolio in <unk>.
As we see opportunities we're in a position to to make decisions. If in fact, we see the right one in the market and so we'll continue to do that will give you an update as.
As we make progress on.
And then I think you noted this was one of the strongest quarters in terms of its adding new accounts I'm. Just curious is there any sort of theme in terms of the types of accounts that were added in the quarter and sort of what led them to sort of come around at this point. Thank you.
Yes, that's a great question, it's one that we spend a lot of time looking at the data of the type of customers, we're gaining and also how the overall business is performing one of the metrics is new accounts and it's hard to isolate any one variable I can tell you that the.
Positive.
Messaging in the market across the U S. Around jumbo is continuing to rise and it's driving for a few reasons number one.
From the podium thanks to Ruiz, great work and our medical affairs team the noise around the precision of your BOE is starting to reach an all time high and even those who haven't used the product are recognizing there's something unique about this brand and the publications have helped support that dynamic. The second is you would be pretty hard pressed in any major city.
Not to drive around and see a few of our billboards are get targeted by one of our TV spots or Alternatively turn on your computer and see a TV AD unit from Facebook or some other social media sites with one of your peers potentially thats using our jumbo product.
For those that aren't using our brand they know the partnership with other companies doesn't come with those benefits it doesn't because they're not able to as a company that has both reimbursed in cash pay and I think the combination of the product and the marketing story is very compelling in the face of practices that are looking to grow their business on the back of a younger generation.
Millennials, we built the company from the ground up to be appealing to that younger demographic and practices that are thinking about long term growth see us as a great partner that is committed to helping build practices with them and I think that story is just starting to come to life. It started in the back half of last year, but it's really gaining momentum now.
Okay, great. Thank you so much and congrats on the results.
Okay.
Thank you. This concludes the question and answer session.
I would like to turn the call back to management for any closing remarks.
Thank you operator if.
If you missed any portion of this call a replay will be posted to our website. Later today. Thanks to everyone for joining US. We appreciate your interest in <unk> and will be available if you have additional questions.
This concludes today's conference. Thank you for your participation you may now disconnect.
Okay.