Q2 2022 Evolus Inc Earnings Call
Greetings and welcome to the upper left second quarter 2022 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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I will now turn the conference over to your host David Erickson, Vice President Investor Relations you may begin.
Thank you operator, and welcome to everyone joining us on today's call with me today are David noticed any president and Chief Executive Officer, and really Abelard, Chief Medical officer and head of R&D.
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 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, todays 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.
That I will turn the call over to David.
We are very pleased to share with you our results for the second quarter of 2022, which reflected above market growth increased market share and disciplined operating expense management.
Sales grew to a record $37 2 million and our lead sales and marketing metrics demonstrating growing brand awareness and continued strong adoption of <unk>.
During the quarter, we continued to carefully manage our overhead expenses.
The majority of incremental spending and activities to support sustained growth in the U S and establish our presence in Europe .
And we remain in a strong cash position find it to be on profitability.
We expect 2020 to be another strong year of growth travelers, even in an environment with greater macroeconomic headwinds.
Based on our year to date performance and our confidence in our resilience and fundamentally strong aesthetic neurotoxin market. We continue to believe we can 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%.
Now I'll get into some of the details.
In the second quarter, we grew total sales, 42% year over year and in aesthetics market that continues to demonstrate strong demand.
Our U S sales growth rate was at least double the estimated market growth rate.
New account growth during the quarter once again very strong and we added nearly 590, new customers, bringing our total account base to more than 8100 with the reorder rates that continues to run above 70%.
This expanding customer base creates a pipeline for future growth.
Because our experience shows that new customers typically start out with small orders and over time as they gain confidence with the product and our unique co branded marketing benefits, we see our market share expand steadily.
Supporting this observation is guy <unk> aesthetics data that provides analysis from point of sale across more than 800 practices.
This data shows that over the last 12 months.
<unk> has reached the number one or number two toxin share position within practices that have adopted our product.
And while our customer base has expanded rapidly to over 8100 accounts, we are still only selling for less than one third of the aesthetic neurotoxin customers in the U S.
This combined with a greatly underpenetrated toxin market leaves room for significant opportunity in the coming years.
We are continuing to see excitement for our co branded streaming television advertising.
Which is available to our largest customers.
Customers earn these ads by creating a large portion of their toxin business to jabil during.
During the second quarter, we completed production on a large bolus of these ads, which it recently began airing in.
In the second quarter, we ran a total of 750 digital Billboard and streaming television marketing campaign that generated more than 250 million media impressions.
These AD serves the dual purpose of promoting our customers' businesses, while continuing to build <unk> brand.
We have now completed eight consecutive quarters of advertising through our co branded media program and the cumulative effect of that advertising is driving brand awareness in fact, among the representative handle the aesthetics consumers aided awareness of <unk> has now reached number two in the market ahead of both Dysport and demand.
And this recognition as it occurred in just three short years since we first launched.
<unk> brand awareness is also continuing to drive patients into practices for treatment.
Membership in our <unk> rewards program of which the largest demographic is millennials and younger grew to nearly 390000 by the end of the quarter up from 335000 last quarter.
Through the first half of the year approximately 180000 rewards have been redeemed compared to 100000 for the first half of 2021.
This puts us on track to nearly double the number of redemptions over last year illustrating the power of this program to motivate consumers and their loyalty to <unk>.
Now, we know Theres a great deal of interest in how the current economic environment might affect the growth trajectory of the toxin market and the behavior of a set of consumers. So I'd like to take a moment to discuss some of the trends we are seeing.
As you know we stay very closely connected with our customers because we're not just selling them a product, but we're engaging in long term relationships designed to help them grow their practices and we have very good visibility into the engagement of consumers enrolled into our loyalty program.
In the second quarter, we did not observe signs of slowing as measured by purchasing patterns across our customer base or consumer engagement and our loyalty program.
Third party data that tracks overall procedural volumes suggested a slight slowdown in growth compared to the first quarter, but still trending in line with historical averages.
Since the end of the second quarter growth trends have remained strong and we have not seen any meaningful change in customer purchasing patterns.
Additionally, our customers are not reporting any material differences in patient volumes or spending habits. When it comes to neurotoxin products.
Okay.
We continue to believe the fundamentals of the toxin market are strong and then the low penetration rate, we see today will continue to increase overtime.
We're also encouraged by the overall resilience of the aesthetic neurotoxin market, which has demonstrated positive annual growth over 15 years.
Even during the last recessionary period of 2007 through 2009.
The only exception to this was in 2020 when practices were closed due to COVID-19.
Neurotoxins are one of the most affordable aesthetic procedures and are faced with the choice patients are more likely to stretch out the interval between treatments than to stop getting them altogether.
All of this gives us confidence that <unk> can grow at a faster pace than I talk to market and continue to gain share by leveraging our unique business model focused on the cash pay aesthetic market and.
And targeting the millennial consumer using our cost effective digital platform.
Building on our momentum several weeks ago, we launched the switch your talks and what level is flat forever, our largest promotional campaign to date.
The switch program is a strategic investment designed to sustain our growth and drive further market share gains in 2023 and beyond.
Switches designed to simply increase your boat usage by injectors and their patients.
Customers, who purchase a minimum amount pushed about by the end of the third quarter will receive 60 reward certificates in the amount of $160 per news you about consumer to be used over two consecutive treatments.
This reward represents a meaningful patient discount over competitors incentive program.
And we think it will be quite attractive to new consumers.
The rollout of this program has just begun and while early feedback has been quite positive. The results of switch will unfold over the next several quarters as customers sign up and customers come in for their two treatments.
Now turning to Europe , beginning this quarter, we will begin the launch of receiver initially to customers in Great Britain, and Germany, which are the two largest markets in that region and represent nearly 40% of the European market.
Our early efforts will focus on introducing our company and our product at level of Fedex meetings and initial sales are expect to be expected to be modest as we build our presence.
Longer term, we expect to receive that to be an important contributor to our growth as we expand to additional European countries as well as Australia in 2023, and now I will turn the call over to Marie Adelaar for a brief update.
Thank you David.
If you've followed <unk> for any length of time.
We're acutely focused on millennium consumers. They are digitally savvy, they consider aesthetic medicine to be part of everyday life and are willing to spend money to prevent aging.
While this demographic is future growth driver.
Static toxin market Interestingly Theres very little published on millennials in the medical literature.
In June Dermatological surgery, published a new post hoc analysis on our phase III trials, comparing millennial patients to non millennials and we believe this is the first paper on millennials and glabella lines.
This paper was based on pool data from our three studies totaling 737 patients.
It also included some important subjective metrics, such as global aesthetic improvement and subject satisfaction.
As you would expect the average age between the two groups was different 28 versus <unk> 58 by comparison, the baseline severity of glabella lines at maximum frown, where similar 72% severe and the millennials at 76% and the non millennials how's.
However, there was a difference in the number of patients with severe glabella lines at rest only 3% of millennials compared to 23% in the non millennials. It's this process of aging and permanent wrinkle formation at the millennials are trying to prevent or delay.
We already know that <unk> works well in non millennials and this came out clearly in the studies when we looked at efficacy and millennials as measured by one point or greater improvement on the glabella lines scale at maximum frown, we found that by day to 60% were already responders and <unk>.
And Lee by day, seven to $14 30, the responder rates were 100% at.
At the end of the study day 150 over 40% of millennials were responders.
A similar pattern emerge when we looked at global aesthetic improvement with 100% responder rates at day, 714, and 30 and at the end of the study 62% of subjects felt aesthetic rate that they were still improved are much improved.
Finally, looking at subject satisfaction by day to 62% of millennials, who are responders and day, 7% to 14% and 3100% were responders even at the end of the study to a 150 or five months subject satisfaction was still high at 79%.
The safety profile did not demonstrate any differences between the two groups and there were no serious adverse events related to the drug.
So in conclusion, we already knew that <unk> worked very well in non millennials and now we have data that shows <unk> works, even better and millennials our target demographic.
Lastly, just a quick update on the phase II extra strength study.
We recently announced the completion of enrollment patient follow up is ongoing and we remain on track to complete the trial by the first half of 2023, Patrick David.
Thanks, Ray as you've heard US say, we aspire to become a multi product aesthetic company and during the quarter. We took a step in that direction by investing in our future growth opportunity.
We have entered into an exclusive licensing agreement with a three D printing company with unique biomaterials capabilities for $2 million of investment.
This agreement gives us the global rights to develop their technology for aesthetic applications.
Analysts will fund and work closely with their team to conduct their research and we will be responsible for pre determined payout when certain development and commercial milestones are reached the combination of their technology and biomaterials capabilities and our R&D expertise could lead to novel product concepts that generate new market opportunities.
While this is still early stage, we are excited about its potential and we look forward to providing updates at appropriate intervals.
Before we move to the financials I'd like to provide an update on our CFO search.
Prior to <unk> departure, we hired a very experienced interim CFO to help oversee our strong internal finance and accounting team having.
Having the interim CFO onboard has enabled us to take our time to ensure we find the right person to fill the position.
Over the past several months, we've met with a number of very strong candidates and I expect we will be able to announce our new CFO in the very near future.
With that I'll hand, the call over to David Erickson to take you through the financial information.
Thank you David.
We're very pleased to deliver another very strong quarter and I'd like to call your attention to several noteworthy items, including a 42% increase in net revenues our growth rate a growth rate well in excess of the estimated toxin market growth rate, our gross margin profile that will improve dramatically within the next 60 days.
And this is the first quarter, where we ended in a net positive cash position I will provide more detail about each of these in the next few minutes.
Net revenues for the second quarter of this year were $37 2 million compared to $26 1 million a year ago, which was a growth rate of 42% looking at just the U S sales, which excludes zero point $7 million of international sales in the year ago period, our growth rate was 46%.
Year over year sales were driven primarily by higher volumes and a slightly higher average selling price.
Overall, the pricing environment for neurotoxin products in the U S remains strong.
Our reported gross margin for the second quarter was 55, 4% and our adjusted gross margin, which excludes the amortization of intangibles was 57, 4%.
In mid September our settlement royalty obligations to Abbvie will end at the same time, our settlement royalty obligations to many talks will decrease significantly to a mid single digit rate calculated on a global net sales. These changes are expected to dramatically lift our fourth quarter adjusted gross margin to the range of <unk> 68 to seven.
Andy 1% this fourth quarter step up will result in a blended full year adjusted gross margin of 58% to 61%.
Reported selling general and administrative expenses for the second quarter were $36 9 million compared to $33 4 million in the first quarter this incremental.
<unk> spending was in line with our expectations and due to increased personnel costs and increased commercial activities.
We are continuing to carefully manage expenses, which gives us the flexibility to direct incremental dollars towards business growth initiatives. This.
This quarter SG&A expense included 3 million of noncash stock based compensation.
Our GAAP operating expenses for the second quarter were $58 5 million compared to $49 4 million in the first quarter.
Operating expenses this quarter included a $2 million payment related to the licensing agreement. David described a few moments ago, which was expensed as in process research and development.
non-GAAP operating expenses for the second quarter were $35 4 million compared to $31.0 million in the prior quarter.
The sequential step up in the second quarter was expected and we remain on track with our full year non-GAAP operating expense guidance of 135 million to $140 million.
Our non-GAAP loss from operations in the second quarter was $14 1 million compared to $10 3 million reported in the first quarter.
As a reminder, both non-GAAP operating expenses and non-GAAP loss from operations exclude stock based compensation expense revaluation of the contingent royalty obligation depreciation and amortization and the 2 million IP R&D charge.
Turning to the balance sheet, we ended the second quarter with $84 $5 million in cash compared to $106 7 million at March 31, 2022 for a difference of $22 million.
The major pieces in that $22 million include $14 million of inventory payments to support the growth of the business a combined 6 million of net royalty payments $2 million for the licensing agreement and interest payments of approximately $2 million.
The balance was a net positive of $1 3 million as cash collected slightly exceeded cash used to operate the business.
This is the first quarter with net positive cash and keeps us on a path to achieving sustainable positive cash flow.
As a reminder, we have one final $5 million settlement payments due in the first quarter of 2023, which will satisfy our total settlement milestone obligations.
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 cod 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.
Before I turn the call back over to David I'd like to summarize our 2022 guidance all of which remains unchanged from last quarter.
Full year sales at the upper end of $143 million to $150 million. This is based on our year to date performance and our confidence in our resilience and fundamentally strong aesthetic neurotoxin market. This guidance also assumes a minimal contribution from international markets.
Full year, adjusted gross margin between 58% and 61% with a fourth quarter step up to 68% to 71% concurrent with a decrease in settlement royalty rates.
And full year non-GAAP operating expenses between $135 to $140 million. This is driven mainly by continued investments in the growth of <unk> in the U S plus the receiver launch expenses in Europe .
Other modeling assumptions include quarterly interest expense of $2 3 million and full year weighted average shares outstanding of approximately 50 $856 million.
Over to you Dave.
Thank you David and conclusion the investments we are making in 2022 to grow our company and build our brands are fueling above market growth, which puts us on track for another very strong and successful year.
We have earned the number one or number two share position in accounts that we support with our unique business model and increasing consumer brand awareness.
While we have rapidly grown our U S presence since we launched our product three years ago, we have an opportunity to expand our customer base much farther.
We are on the cusp of broadening our geographic footprint into two of the largest markets in Europe , followed by additional European countries and Australia in 2023.
On the product front, we are building a pipeline with our phase two extra strength study and an investment in a promising new technology.
Overall, we believe we have a tremendous amount of momentum and are positioned for continued growth and success.
We greatly appreciate the support of our customers employees and shareholders and we look forward to sharing our results in the quarters ahead with that we're ready to take questions.
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One moment, please while we pull for questions.
Our first question is from Louise Chen with Cantor. Please proceed with your question.
Hi, congratulations on all the strong execution this quarter and thank you for taking my questions here. So I had a few for you I wanted to ask you, what's the market opportunity or your latest thinking on that market opportunity for accidents direct P&L.
Well, there will be a pricing differential on and how much additional sales because it's at.
And then I wanted to ask you how you're preparing for the launch of new CEVA in Europe .
The market opportunity here and how do you expect the ramp to be I know you gave some color already but just curious if you could provide a little bit more details. There and then last question is any additional update on business development opportunities to expand your product portfolio could we see something else this year and how much capital do you have to deploy towards business development. Thank you.
Great well good morning, Louise Thanks for joining the call.
I'll take the first part of the extra strength I'll, let <unk> talk about what you can expect from a clinical profile standpoint.
Going forward, we had outlined on prior calls that falling research, we did with our customer base to better understand how they would perceive the role of an extra strength.
When they currently use the original strength as you go with a profile similar to what you've seen with the 40 unit dose whether you wanted to look at products under development of our products and market I think you'll find that the efficacy profile of the two are very similar so we tested against that profile and what we learned is one there is very high interest and an extra strength dose of <unk>.
As a matter of fact, 86% of customers that we.
Paul here.
We're interested in it when you dig a layer further and beyond interest and you ask them about utility of the product. What we learned is the large majority of their use will continue to be the original strike.
They see applications for extra strength, but that will be the minority of their use and by being in a position where we have both the original and the extra strength with our cash pay advantage and the flexibility that provides us we think that gives us a unique opportunity to capitalize on this market and its potential going forward I'll, let really provide a little bit more color.
On what to expect clinically sure from an expectations just kind of base that everyone, where everyone where things are right now if we look at competitive products that have longer duration.
Implications such as taxi, we see about Joe.
See somewhere between 23, and a half to 24 weeks duration.
That's looking at a one point glabella lines improvement.
When we look at our results with 20 units, we are ready to come in with 21 weeks duration as opposed to 40 units of taxi. It's also really important to consider that we did mostly severe patients and in the taxi was mostly moderate patients. So we did a tougher population so.
From a.
Outcomes perspective, we feel pretty confident that if we reached 24 weeks as a minimum that we're in a very good position, especially given what you have to share David that most would want to have access to a longer duration, but that the majority of the utility would actually be the original so we'd be in a position to have both.
Thanks, Rick and I think that all underlying key point, we made in the end we're talking about weeks of different not months a difference. If you look at the clinical data that's been published thus far of course, we'll learn a lot more as we get the products into market moves.
Moving onto Europe look out.
Im very excited about what we're building in Europe I've spent quite a bit of time, there really who is sitting next to me has done the same.
<unk>.
We found a partner in Germany that we have now trained on the product their salesforce carries a portfolio of other products in aesthetics and they are out there now.
Preemptively talking about new CEVA in Germany, which is the single largest market in Europe , and we've also hired up our own sales organization in the U K. So when you put those two markets together they represent nearly 40% of the European market. So it's an important.
Starting point for us as we built a couple of things that excite me about the first is where the first neurotoxin to enter that market. Just as we are in the U S in nearly a decade.
And Theres a lot of interest from the physician community, but the key differences. We now have three years of learnings from the U S that the team in Europe is captured by spending time here and with some of our successful sales representatives that were translating over there in Europe and we're starting to see early interest is very positive of course.
We said you should expect a modest ramp mainly thats, because we want to be thoughtful about one our burn and number two about the uptake of the product. So we do expect minimal revenue contribution in the back half of this year from Europe , but stepping back from it Europe is the second largest market the global market opportunity for <unk>.
Toxins is over $5 billion and.
And we expect that over time, we can build a meaningful presence in Europe with our neurotoxin. So we're excited about the ramp we'll update you as we get into market I will be spending some time in Europe as well as we get prepared for that ramp of the team's done a very nice job there of building up our capabilities in order to have a meaningful presence in those two.
Markets as we entered on the business development side.
We've got as you know we hired a head of corporate development that gentleman Christos amount of Lucas has been with the company now approaching two quarters and clearly he has a 100% dedicated to our corporate development function, which as we've outlined before we're very focused in terms of our goals from a corporate development standpoint.
We're interested in commercial stage assets that lineup and existing durable spaces in aesthetics and.
We are actively looking at assets that we feel could.
<unk> enabled under our Atlas platform and we're looking at pipeline assets that we believe could create meaningful value in this category. If we develop them over time, we think we have a unique R&D capability here at aesthetics under <unk> leadership and the team that <unk> developed a number of technologies on the device and drug side in aesthetics.
And with that those capabilities, we believe that some of those complex development programs could be unlocked in one of those is evidenced by the deal we just announced.
This quarter, which will take some time, it's early stage, but it presents a meaningful opportunity for us as we unlock the value. There. So we feel great about the progress we're making on the business development front, but I'll reiterate we're very pleased with our singularity and focus.
It's what's enabled us to drive the success, we've had thus far we don't feel that we're in a rush to do anything but we are capitalized.
With the $50 million tranche available to us in pharma com in order to put that to use in the event that there is an opportunity that presents so we will keep you updated as we make progress.
Thank you.
Our next question is from Annabel <unk> with Stifel. Please proceed with your question.
Hi, Thanks for taking my questions and congratulations on.
Continued momentum here.
So I just wanted to.
Can you dig into your growth strategy.
Strategies here I think at some point you are talking.
Talking about going deeper on rather than broader and no. We have seen from our own research and you sort of confirmed right now.
That you have.
Penetrated shared number one or number two and you've got some pretty.
Deeper penetration there so.
Now that the way that youre going to get the growth is just again start broadening the accounts that youre going to start reaching.
Can you talk about a little bit about those growth strategies.
How that program is.
I guess, allowing you to do that.
So that's the first question. The second question I had is on the consumer side.
You have a new I guess that consumer loyalty consumer program coupon program.
Is this going to change the cost.
The program to you or is that a similar type of.
I guess.
Patient or consumer assistance.
Program that you've offered before.
And then just a question I have is maybe more on the dynamics of where you're getting your most traction with accounts is it still.
Index that is sparse and is that what are you seeing much couponing, rather than dermatologists and plastic surgeons who knows.
Thank you.
Seeing as much impact.
Alright.
Some of them.
We've gotten.
That patients or consumers still are more.
Influenced by their recommendations rather than any couponing program. So maybe can provide a little bit of color there. Thanks.
Great. Thanks for the questions Annabel.
Found it interesting we.
We were looking at the <unk> data, which I showed earlier as part of my opening remarks, and then just in that window kind of as we are reviewing our data we had the opportunity to look at your research, which further validated that harsh the share that we have within existing accounts in Europe research at lease was about four times higher than our general market share in the <unk>.
<unk>, so a validated exactly what we're seeing as well.
With the one nuance being I think Youre research was focused on derm and plastic versus modified our business overindexes against the <unk> universe, so putting that aside I think it.
It was nice to see another set of data the validated what we commented on which is what we've always believed when <unk> gets into a practice. It is an incredibly high quality product.
And when they start utilizing the product or confidence level rises significantly and when you layer on the co branded media benefits what you start to see as this brand approaches the number one market share in a lot of these practices and it's grown significantly over the last 12 months and it is a combination of the precision profile being better understood through a lot of medical training that we've been providing.
Biding to practices as well as the co branded media benefits and so we're gaining greater confidence in our ability to expand share and to your point with that leads to is well how do we go wider awareness third of practices today that are using neurotoxins in how do we expand that footprint to continue to build against the remaining two.
<unk> that don't currently utilize our product and they've been using the competitive set there.
Theres a few prongs that answer so let me just start with the macro view and then work down to what we're doing within the quarter on a macro level, we have been engaging in a significant amount of medical education, when we do continuing medical education programs.
When recruiting several thousand injectors that includes many germs and plastics as well as noncore and we know that the noise level around <unk> is increasingly positive within the German plastic community. If you look back over the trend over the last.
Of quarters. So we believe we're on the right track in terms of increasing the level of interest in our brand we still a long way to go and the second is our sales force we've expanded slightly over the last several quarters in order to support the demand we have been receiving but also open up capacity.
<unk> for us to go wider and that team is also supplemented by an inside sales team that has also been expanded in order to support that effort of increasing our breadth and so we expect that to continue to deliver growth for us and you've seen that in the.
<unk> results around new accounts, where we clipped up near 600, new accounts, where historically if you look back we were generating about 400, new customers roughly a quarter. We've now clipped up two new high I expect that to continue to persist as the business continues to perform with our expanded footprint.
The last one within the quarter, we're very excited about the switcher Tox program. It serves multiple purposes. The first is it's designed to increase our market share within customers that are in early stages of using our products or accounts that are in some stage of considering working with Apple as we believe it creates a tipping point type of.
Perfect.
Can we say that is because one of the challenges we know with customers that bring <unk> into their practice. Initially is how do I initially position this with my existing users.
Much easier of course to introduce a new product to new consumers coming into practice.
The challenge for new customers is introducing it to their existing customer base and I think you see that reflected in your research. This switch. Your Tox program is designed to make it simple to switch patients that are using existing toxins over to you Bob.
It gives the account the crotch it gives them the confidence that if you switch your tox, you'll love that unless they can speak to their own experience using our product and it gives the consumer a financial incentive rather than earning 20 or $30 off of the loyalty program for their existing toxin. They can earn a $160 off the two consecutive treatment.
And we know the macroeconomic environment and the backup consumers mind and with the $160 off Thats, a meaningful savings and we're confident that once the consumers engaged with the brand they become a loyalists, we see that reflected in our consumer loyalty data. So it does two things it converts patients immediately.
Which will drive our market share as we go wider and deeper within customers, but it also creates a loyalty within that practice that the practice can build on to continue to expand their customer base. That's why we believe this is not just an investment for the third quarter, but beyond because it really does reap dividends, we've seen that reflected in our market share.
<unk> within existing accounts over the last 12 to 18 months. This is simply a program designed to accelerate that within accounts that are in earlier stages of consideration as you think about modeling. This from a gross margin standpoint, you should assume clearly the coupons come at a cost that's a gross margin cost, but those gross margins, we provided our full year guidance.
Its reflected within that guidance level, so won't impact how that program works, but it will be facilitated through the existing loyalty program. So for the practice. They really don't have to do anything more than purchase product and then the dollars that they receive for those $160 in savings. They go directly to the same consumer loyalty program that these pre.
Mrs are currently using.
In their offices, so it's very simple to execute for our field, it's turnkey for the consumer they get it immediately at the point of sale and we believe the simplicity of that in the frictionless approach that we've taken will facilitate a strong updated uptake of the program.
Great. Thanks, so much.
Our next question is from Marc Goodman with <unk>. Please proceed with your question.
Yeah. Good morning couple of questions first of all.
Can you give us a sense of.
How youre thinking about third quarter versus second quarter traditionally.
Usually it's a step down just for the market ended up itself on an absolute basis, but obviously the past couple of years.
<unk> been a little funky. So if you can talk about that a little bit.
The ball.
And business development are you considering to buy it.
As well I heard you mentioned devices.
Wasn't sure whether you were considering that in the past and then I guess the last question thinking about.
The growth of the market for the full year today versus how you were thinking about it three months ago.
Just thinking about next year any different than how you were thinking about it three months ago. Thanks.
Great. Thanks for the questions Mark on.
First on the seasonality question.
Yeah as you mentioned the prior two years, the third quarter seasonality that we've seen historically in this category just hasnt been present as consumers weren't traveling in the prior several years the third quarter was far more resilient than what we've seen in the past.
This quarter is a bit different and we know consumers are traveling do you see.
Airlines are at capacity in terms of their ability to support.
The influx of travel here in the third quarter and I suspect that the traditional seasonality that we've seen prior to COVID-19 as likely back in play.
That's what we're assuming that being said look where we're gaining market share in this category and so our business may not follow the traditional seasonality, but I suspect youll see that reflected in the numbers for the third quarter for a different aesthetic manufacturers and of course, we don't guide on this specific quarter, but you have a sense for what we expect to do on the.
Year, So clearly that means we expect the third and the fourth quarter to be meaningful quarters for us in terms of the growth trend that youll see on the corporate development side just.
Just to clarify it's not all devices plug in the wall like when you think about devices facial fillers or medical device.
And so.
To clarify we.
Haven't said.
Exactly what devices, we're looking at but we have not prioritized anything that plugged in the wall, but we do have the capability to develop drugs as well as class II or III devices. This teams developed those types of.
<unk> technologies in the past and so we have the latitude to do that over time, but we're going to continue to be selective against products that don't require a combination of capital and consumables at least in the near term.
Our corporate goals.
For 2023 at this point in time, we have not provided guidance.
Continuing obviously like you are to closely watch the market. We're really pleased with what we're seeing in terms of the resilience of the neurotoxin market as you know.
Operator in that space during the last recession and this category of toxins has been very resilient through macroeconomic headwinds and here. We have another catalyst, which is a millennial generation thats coming in at a faster rate than we had during the last recession.
And I do believe that that's going to create a tailwind even in that economic environment potentially that we could face coming forward. So we feel good about the prospects for 2023, but we'll give you an update as we get closer to the end of the year is how we think about next year.
Alright. Thanks.
Our next question is from Greg Fraser with true Securities. Please proceed with your question.
Hey, good morning folks thanks for taking the question.
I wanted to follow up on the comments on growing the customer base you have a target for the number of practices that you would eventually like to have as customers.
Do you anticipate having to expand the commercial team over time in a more material way than you've done in the past and help grow and service the customer base.
And then on the <unk>.
The recent publication of the post hoc analysis I'm curious, how you plan to leverage that publication that further drive <unk> adoption of on that.
Statement of the market. Thank.
Thank you.
Why don't I, let really take the first the second question and then I'll address the customer base off shore. So.
Yes.
We do plan to take advantage of the millennial papers. It really it was interesting if you try in Google search, we couldnt find a paper on millennials single dollar lines.
Can find one on forehead, but not on glabella lines. The nice thing about that paper is that because it's a phase III, it's very high quality and because its uncle abella lines and within the study it's completely on label. So we can actually leverage that paper of both with the Salesforce and with a very clinically savvy Medical Affairs group.
Greg Thanks for the question on our customer base.
Couple of comments there. The first is when we think about the customer we think about our three dimensions. One is of course, the traditional field based support the second is inside sales, which runs at a fraction of the cost of the field Force and then of course the last one is digital and how we can automate the way that we service customers.
You'll see that we've been adding modestly into our field base, obviously, that's a much higher cost to add a sales rep into an account and so we closely scrutinize that expense and we've been building capabilities that enable us to generate revenue from a digital standpoint that will continue to build and we believe that as this.
As we continue to expand our customer base, there's a long tail and aesthetics of call. It roughly 20000 customers and we believe the digital automation, we can be very efficient in supporting that customer group and building our business and then setting that digital footprint into inside sales to support them as they get larger and then modestly continue to increase the field base.
Over time, but we don't anticipate any significant increase in sales force, we like the model. We've built and we think we can accommodate our growth with this incremental approach to field basis.
Okay.
Thanks for the color.
Oh.
Our next question is from Serge Belanger with Needham <unk> Company. Please proceed with your question.
Hey, good morning.
Just a couple of questions from me.
David you highlighted.
Spending habits were resilient there had been no meaningful changes so far but curious if.
The staff shortages that we've seen another.
So we.
I had been pretty commonplace.
As expected operations and the aesthetics.
Offices, and whether that could add to the seasonality.
You should expect in the third quarter, and then secondly going back to the.
A follow up on the European launch.
I'm not sure if you've covered this but maybe you can talk about the pricing dynamics and whether there'll be any limitations too.
Adopting some of the co branding marketing tools.
For <unk> in the U S.
Great. Thanks Serge.
Starting out with spending habits.
And staff shortages, we experienced staff shortages in the first quarter and you saw these practices are a pretty creative about how they work around that I don't expect the third quarter to be two different that being said having spent some time recently in the field like these doctors are finally, taking vacation. So they are taking some time off so that traditional seasonality that I mentioned to mark.
I think is in play here for the third quarter, but nothing unique as it relates to COVID-19 that should be slowing down the market from what we see at this point in time as.
As far as European pricing dynamics.
Certainly Europe has a lower price point than the United States and I think thats reflected in the market value.
Procedural volume might be similar between the U S and Europe , yet the market value for toxins.
In Europe relative to the U S is about a quarter of the size. So as a result of those pricing dynamics clearly, there's a lower ASP.
And we've reflected that in terms of our investment and the market potential that comes from it but we feel that.
Those are challenges that we went into well aware off.
We feel that we can overcome those and build a meaningful business there, but over time of course the U S will continue to represent a large majority of our revenue, but Europe is going to be a contributor to our growth as we go forward.
Okay.
Lastly on our capabilities in Europe .
This is a drug as you know and advertising a drug is not allowed in Europe . So some of the co branding media that we have in the United States that will all translate to Europe , but a lot of the messaging around how the products use the precision dynamics the support on that level as well as some of our digital capabilities, we've been able to carryover.
To Europe that creates a lot of efficiency for that team.
Okay. Thank you.
Our next question is from Douglas Tsao with H C. Wainwright. Please proceed with your question.
Hi, good afternoon. Good morning, Thanks for taking the question congrats on the results.
David I think you mentioned that most of your accounts you've taken over the first or second position Im just curious how long does it typically take from when you bring in accounts online G, you're gaining that level of penetration.
Thanks, Doug for the questions. It's a great one what we're seeing is that the time to ramp is shortening.
It's shortening because the capabilities, we have and also the efficiency of our reps are gaining getting that account to gain comfort with the product. So.
I Couldnt give you a specific number of quarters on average, but we are seeing a faster ramp as a matter of fact, when I look at our lead indicators.
On our business, our leading indicators are performing stronger than revenue the revenues a trailing indicator to what we're seeing and that's what gives me confidence to say that we're seeing some of these metrics moving up into the right a bit faster than we're seeing revenue doing that and thats evidenced by the number of new accounts the repurchasing patterns the increasing.
Amount that existing accounts are purchasing all of those metrics and then finally, the lagging indicator within the leading indicator group as consumer loyalty.
The number of redemptions were seeing go through our consumer loyalty program. All of those are rising at a faster clip than what we're seeing with our revenue which to me is an indicator that there's greater interest of <unk> in the U S and more accounts are interested in coming in and number two when they get in they are growing at a faster clip and we're seeing that represented within our existing account.
Base.
Purchasing more than they were prior and then of course, you are seeing the influx of new customers, both injectors as well as consumers on both sides. So it's hard to isolate it to seabee and versus the field footprint and the digital I think it's all of it working in harmony together, that's starting to drive that growth and then you layer on a bit more scale that.
We've added into the back half of the year and we feel that gives us a really strong.
It gives us a really strong momentum in the back half to exit the year.
And maybe as a follow up David when we think about the growth that you've experienced in the first half of this year.
Much is coming from accounts that were added in 2022 or is that still something that you should look ahead too.
You should stand to benefit from in the second half this year.
Yes, so new accounts contribute very little to our growth within our core new accounts are really a longer term play and contribute to our growth over time. So I think you should think about that new account as part of what drives 20 later 'twenty two as well as 'twenty three revenue.
Okay, great. Thank you very much.
Yes.
Our next question is from you ear with Mizuho. Please proceed with your question.
Hey, guys. Thanks for taking my question just have one last few.
I think you guys mentioned.
The growth would you will just quarter was driven by higher price as well as volume just wondering if you can perhaps quantify it provided more color as to what percent.
Came from volume and from price as possible.
I guess my second question is.
I'm just wondering like what you are seeing in term millennials spending pattern that may be similar or different from the parent at <unk>.
Or does it give us cushion.
Two I guess.
Growth in that in that.
Beckman, if there's a recession.
Great. Thanks for the questions.
So first on the price price represents a small single digit part of the overall growth. The majority a large majority of this is volume.
But what's important about prices it shows.
The value part of our story that we've consistently been able to increase our ASP.
As we've entered the market and we've added more around the value part of the equation and youre seeing that consistently quarter on quarter, where price continues to play a role as it moves further upward.
As far as the consumer segmentation.
First point, we have not seen any difference among segments in terms of.
Their continued use of <unk>, we've segmented our consumer loyalty program, we don't see any impact within any of the consumer segment groups. We do know that the millennial segment.
Prioritizes experiences.
Over other activities.
We do believe that that segment will continue to be very resilient with a high discretionary spend and high income power.
With a low unemployment rate, we expect that that is going to be an important part of the long term growth as a matter of fact, when you look at our consumer loyalty program.
Almost half of patients now in our loyalty program.
In the second quarter, our millennials so our focus from the beginning has been to build a brand around this younger generation and Youre seeing those results reflected in the utilization of our product I do believe when we get into practices. They think of <unk> as the product for the next generation and that positioning is really taking a strong hold whether you look at it.
And utility to our.
Consumer loyalty program or you start to see it in our advertising and then the respective brand awareness that comes from that so we're really pleased with that segment and we believe that is not just a short term play it long term the millennials today represent about a third of consumers in this category over the next several years they will represent the majority and of course over time.
Are the single largest consumer segment in the U S. Today as it relates to their spending patterns. It's a very meaningful segment that provides a long term tailwind for us as we build our brand around that category.
Okay.
Thanks.
We have reached the end of the question and answer session and I will now turn the call over to management for closing remarks.
Thank you operator.
If you missed any portion of this call a replay will be posted to our website. Later today. Thank you for joining US. We appreciate your interest in Atlas and will be available if you have additional questions.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Thank you.
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