Q3 2024 Evolus Inc Earnings Call
Thank you very much.
Speaker Change: Good afternoon, everyone, and thank you for standing by. Welcome to Avelar's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, today's conference is being recorded and webcast live.
Speaker Change: I would now like to turn the conference over to Nareg Sagherian, Vice President and Head of Global Investor Relations and Corporate Communications. Please go ahead.
Nareg Sagherian: Thank you, operator. And welcome to everyone joining us on today's call to review Avalos' third quarter 2024 financial results. Our third quarter 2024 press release is now on our website at avalos.com.
With me today are David Moatazedi, President and Chief Executive Officer, Rui Avelar, Chief Medical Officer and Head of R&D, and Sandra Beaver, Chief Financial Officer.
Today's call will include four looking statements.
Nareg Sagherian: Actual results may differ materially due to the risks and uncertainties outlined in our earnings press release and SEC filings.
Nareg Sagherian: These forward-looking statements are based on current assumptions, and we undertake no obligation to update them.
Additionally, we will discuss certain non-GAAP financial measures.
These measures should be considered in addition to and not as a substitute for our GAP results.
A reconciliation of gap to non-gap measures is included in today's earnings release.
Nareg Sagherian: As a reminder, our earnings release and SEC filings are available on the SEC's website and on our Investor Relations website.
Nareg Sagherian: Following the conclusion of today's call, a replay will be available on our website at investors.avelas.com.
With that, I'll turn the call over to our CEO, David Moatazedi.
David Moatazedi: Thank you, Nareg. Good afternoon, everyone. Thank you for joining us on our third quarter 2024 earnings conference call.
Nareg Sagherian: In our fifth year of commercialization, Avelis has evolved from a single product company to a multi-product portfolio with last week's approval of Esteem in Europe.
Nareg Sagherian: This important milestone positions us as only one of five companies globally offering a portfolio of injectable aesthetic products.
Our experience in Europe with this team will inform our U.S. introduction of Avelis.
Nareg Sagherian: Now turning to our results.
Year-to-date, we have delivered market-leading growth, increasing revenue by 33% compared to 2023.
Nareg Sagherian: For the third quarter, we achieved $61 million in net revenue, representing 22% growth over the prior year, and multiples above the growth of the market.
Nareg Sagherian: Our consistent performance underscores the strength of our long-term strategy by successfully engaging consumers, driving repeat demand, and building lasting brand loyalty, which forms a scalable foundation for the upcoming launch of Avelis.
Nareg Sagherian: What truly differentiates Avelis is our dedication to building a performance beauty company. Our unique cash pay model strengthens our partnerships with customers and enhances their experience through co-branded media and an innovative digital platform.
In the third quarter, we added over 600 purchasing accounts and maintained a strong reorder rate over 70 percent.
Nareg Sagherian: As we announced last week, our Avelis Rewards Program recently achieved over 1 million consumers enrolled.
Nareg Sagherian: Looking ahead to the fourth quarter, we are meaningfully expanding our loyalty offerings with the launch of Club Avalos, the first subscription-based consumer membership program from a manufacturer.
Nareg Sagherian: In our one-year pilot test of 250 consumers, we demonstrated that consumers doubled their treatment frequency compared to the industry average.
Nareg Sagherian: These results highlight the program's effectiveness in enhancing patient retention, increasing treatment frequency, and fostering deeper consumer loyalty.
Nareg Sagherian: by offering transparent pricing and consistent consumer savings.
Nareg Sagherian: We are increasing value to practices and reinforcing Jeuveau as part of her routine beauty regimen.
Nareg Sagherian: We're thrilled to have launched Club Avelis earlier this month and I'm incredibly proud of the collaboration between our creative and digital innovation teams.
Nareg Sagherian: At Avelis, we pride ourselves on our commitment to innovation.
Nareg Sagherian: The dermal filler market presents a significant opportunity to enter the second largest category in aesthetics.
Nareg Sagherian: Evalise, our next generation coal technology, is the first major innovation in hyaluronic acids in over a decade.
Nareg Sagherian: With Aveli's form and smooth, well-intended FDA review process, we expect a U.S. launch by September 2025.
Nareg Sagherian: Our customer-first approach and operational synergies between Gervaux and Avelis enables us to execute this launch efficiently while driving operating margin expansion.
Speaker Change: Now I'd like to turn the call over to Rui to share more details on the approval of this team. Thank you, David.
Rui: We continue to make significant progress in expanding our product portfolio.
Nareg Sagherian: And the European approval of Evelisse, branded as Esteem in Europe, provides a natural complement to our flagship product, Chubot.
Nareg Sagherian: In a space where we've not seen innovation over a decade, this HA line introduces a new cold technology. Our partner, Cimetase, designed a novel manufacturing process that allows these gels to be created at near freezing temperatures.
Nareg Sagherian: By taking the thermal energy out of the cross-linking step, we are better able to preserve the naturally long hydronic acid chains, the essential building blocks of these gels.
Nareg Sagherian: The Esteem HHL line was approved in Europe under the new and more stringent medical device regulations.
Nareg Sagherian: This portfolio includes four injectable HHLs across five indications.
Nareg Sagherian: Our European offering now consists of Esteem Sculpt for mid-face volume restoration, Form for nasolabial folds, Smooth for both nasolabial folds and perioral fine lines, and Lifts for
Nareg Sagherian: for lip balm restoration.
Nareg Sagherian: This portfolio addresses a wide range of aesthetic needs.
Nareg Sagherian: Sculpt offers unique tissue lifting capacity, positioning it well for the premium midface restoration market. Lips, a very supple gel, conforms the natural movement and configuration of lips and withstands shearing stress over time.
Nareg Sagherian: Perform and Sculpt
Nareg Sagherian: are versatile work.
Nareg Sagherian: and Horace Jellis, designed with rheological properties that allow for a broad range of applications.
Nareg Sagherian: With these four gels,
Nareg Sagherian: We will launch an experience program in Europe, partnering with leading aesthetic practitioners
Nareg Sagherian: to gather real-world insights on each product. This will help us shape the commercial launch in Europe.
Nareg Sagherian: In the U.S., our Evalise line remains on track, with smooth and form well into the FDA review process and anticipated approval and launch by September 25th, by September 2025, or earlier.
Nareg Sagherian: We plan to submit the SCULPT application next year targeting approval in 2026, followed by LIPS in 2027. Now I'll turn it over to Sandra for the financials.
Sandra Beaver: Turning to the results.
Sandra Beaver: Global net revenues for the third quarter were $61.1 million, a 22% increase compared to the third quarter of 2023. As anticipated, revenue growth in the first half of the year will exceed the second half.
Sandra Beaver: This quarter, U.S. product revenues are approximately 95 percent of sales, with a customer reorder rate of approximately 70 percent.
Sandra Beaver: Sales growth in the third quarter was primarily driven by higher volumes, while our price remained strong.
Sandra Beaver: We expect international revenue contribution will continue to increase as international toxin growth outpaces the U.S.
Sandra Beaver: Thank you. Thank you. Thank you.
Speaker Change: Our reported gross margin for the third quarter was 68.9%, and our adjusted gross margin, which excludes the amortization of intangibles, was 70.2%, in line with our full year guidance.
Speaker Change: GAAP operating expenses for the third quarter were $76.6 million compared to $74.6 million in the second quarter.
Sandra Beaver: Non-GAAP operating expenses for the third quarter were $49.6 million compared to $46.7 million in the second quarter.
Sandra Beaver: Included in our third quarter operating expenses were modest increases related to our preparations for the 2025 launch of EVELY.
Sandra Beaver: As expected, operating expenses in the second half of the year will exceed those in the first half.
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: Reported selling general and administrative expenses for the third quarter were $52.5 million compared to $50.2 million recorded in the second quarter. This quarter, SG&A expenses included $5.2 million of non-cash stock-based compensation compared to $5.8 million in the second quarter.
Sandra Beaver: Non-GAAP operating loss in the third quarter was $6.7 million compared to the Q2 non-GAAP operating income of $1.1 million.
Sandra Beaver: As a reminder, performance is impacted by seasonally lower revenue in Q3 as compared to Q2. We remain on track to be profitable in the fourth quarter of 2024 and for the full year 2025.
Sandra Beaver: Both non-GAAP operating expenses and non-GAAP operating income exclude stock-based compensation expense, revaluation of the contingent royalty obligation, and depreciation and amortization.
Sandra Beaver: Turning to the balance sheet.
Sandra Beaver: With our consistent operating performance, we continue to be efficient in our use of cash. We ended the third quarter with $85 million in cash compared to $93.7 million at June 30, 2024.
Sandra Beaver: We had a single-digit cash burn with our third quarter cash use of $8.7 million, representing continued progress towards cash generation.
Sandra Beaver: We expect that our existing liquidity will fully fund us to positive cash generation and the repayment of our $125 million debt facility in 2026 and 2027.
Sandra Beaver: We are targeting total net revenues of at least $700 million by 2028, driven by continued growth and share gains in our neurotoxin business in the U.S. and international markets, along with a growing contribution from our novel line of injectable hyaluronic acid gels that begins in 2025.
Sandra Beaver: This equates to a compounded annual growth rate of 28% since 2023 on a total addressable market of approximately $6 billion today, growing to approximately $10 billion by 2028.
Sandra Beaver: Additionally, by leveraging our highly synergistic existing infrastructure, we expect to expand operating margins and target at least 20% by 2028.
Sandra Beaver: With that context in mind, I'd like to summarize our 2024 guidance.
Sandra Beaver: We narrowed our total net revenue guidance range to between $260 million and $266 million, representing year-over-year growth of 29% to 32%.
Sandra Beaver: approximately 95% of which will come from sales in the U.S. and the balance from international markets.
Sandra Beaver: Non-GAAP operating expenses between $185 million and $190 million.
Sandra Beaver: Positive non-gap operating income on a consolidated basis for the fourth quarter of 2024 and the full year 2025.
Sandra Beaver: It is worth noting that within the year 2025, profitability may not be sustained every quarter due to the launch of Avelis.
Sandra Beaver: Now, let me turn the call back to the operator to begin Q&A.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Sandra Beaver: You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions.
Sandra Beaver: And our first question comes from Annabel Samimy, CFO.
Annabel Samimy: Hi, all. Thanks for taking my question. So a few here. So I want to
Sandra Beaver: I just want to ask you on Evelisse and the future launch, clearly you're going to be leveraging your digital platform, but I'm getting questions on whether it's going to be leveraged in the same way as far as volume discounts and using the algorithms the way you did with the toxin to help practices plan out their economics on other products, or is it primarily
Sandra Beaver: focus on loyalty tiers, co-branding, et cetera, et cetera. And then on fillers, since it's not tied to medical use, do you have, do other...
Sandra Beaver: Competitors have, I guess, more flexibility to work with price in a more competitive environment. So, I guess, trying to understand a little bit about how you're using the platform and then dynamics of fillers.
Speaker Change: Thank you for the questions, Annabel. Let me start with Phil and then I'll talk about our digital platform.
Sandra Beaver: Fillers in the U.S. are all used for cosmetic purposes, so as it relates to the difference in pricing, they have the latitude with filler products.
Sandra Beaver: to adjust pricing as needed, unlike toxins, where, as you know, they're linked.
Sandra Beaver: to the therapeutic side with the existing toxins on the market, so there's that difference. That being said, because we're a cash pay portfolio, we have the halo of being able to utilize our co-branded media and services like that because our entire platform is cash pay based.
Sandra Beaver: That's not the case.
Sandra Beaver: with the other competitors in the space because they carry a product line that has a therapeutic link on the toxin side.
Sandra Beaver: They carry some of the
Speaker Change: and the challenges of being able to operate like a cash-free business. So pricing isn't directly impacted but other services are. As it relates to our digital platform, we will be using the current digital platform.
Sandra Beaver: to launch Avelis. That includes everything from our Avelis app, where the majority of our transactions go through that program. It includes our Avelis rewards program, which you just heard eclipsed one million consumers.
Sandra Beaver: consumers that earn on Evaliste will get benefits on our consumer loyalty as well. And of course, that includes pricing. Now as it relates to pricing...
Sandra Beaver: We're not in a position to go any deeper on how exactly we'll execute that. We, of course, view this product as a very competitive product against the market leaders, and we'll look at the overall value proposition in such a way that we believe gives us the ability to offer this to our customers.
Sandra Beaver: as a differentiated product, while we continue to drive uptake with both Avelis and Chabot, and I think our digital platform will play a key role in doing that.
Speaker Change: Okay, got it. And if I could just follow up on one other question. I guess it's not common for you to narrow guidance. Is there any specific pressure you saw this quarter, which is typically light anyway, that would give you reservations already into 4Q?
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Annabel, thanks so much for the question. Yeah, it is actually typical for us to narrow guidance as we enter into the fourth quarter, right? So, as we have only one quarter left in the year, we did the same last year at this time where we narrowed the range given that there's less time in the year to deliver on the guidance. So, it's not any indication of any concern. We're very confident in the guidance we've given. We've just typically narrowed it as we get into the last quarter. Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Mark Goodman, Lee Rink Partners.
Speaker Change: Hi, this is Madhu on the line for Mark. We were just wondering, could you give us a sense of what you're seeing for the overall toxin market in terms of trends and now that some of your competitors have reported as well? And then any anecdotes from the quarter in terms of how your marketing and promotion efforts are resonating would be great as well. Thanks.
Speaker Change: Go to Beadaholique.com for all of your beading supplies needs!
Speaker Change: Great.
Speaker Change: Overall market trends, I think we're seeing
Speaker Change: what you would expect, meaning the third quarter, typically the...
Speaker Change: the lower season of the year, and you see that relative step down.
Speaker Change: in terms of revenue across the board. I think we're really pleased with the stocks and market overall.
Speaker Change: continues to be resilient. We do see a market that's growing.
Speaker Change: especially relative to some of the other procedures and aesthetics where we've seen further slowdown. So we feel good about it on that level. And our promotional activities are continuity of what we've been doing in the front half of the year. So there was nothing unique.
Speaker Change: to the third quarter, specifically to call out relative to
Speaker Change: and they're going to be talking about the activity we had in the market or our competitive set. I think what you're seeing is a traditional seasonality. Now, of course, as we have this conversation, we're in the middle of what is typically the strongest quarter of the year, and so it's a very different picture as you enter the fourth quarter because consumers are coming in to get treated during the holiday season, and we expect the fourth quarter, of course, to be the strongest quarter of the year, which you see that reflected in the guidance that we provided to you. So I think we're seeing some of the typical trends you would expect to see at this time.
Speaker Change: Thank you for watching!
Speaker Change: Thank you so much.
Speaker Change: Thank you. Our next question comes from Naben Thai, BNP Paribas.
Speaker Change: For more information, visit www.FEMA.gov
Naben Thai: Hi, thanks for taking my question. Can you discuss maybe the recent pricing trends of Jovo as well as market share? And if possible, can you provide your initial thoughts on market outlook for 2025 for U.S. toxins, please? Thank you.
Speaker Change: Thanks Yvonne for the questions. As it relates to your first question on recent price and trends and market share, I think as we've noted since the launch of Juba, we've been able to continue to opportunistically increase our price and we continue to appreciate higher price in the market as we've seen higher adoption in the market alongside continuing to increase share. Right, we've increased our market share two points.
Speaker Change: for the last 3 years in a row. We exited the 3rd quarter around 13% share and we remain very stable at that share rate.
Speaker Change: As we delivered, outpaced the market growth in terms of our Q3 performance. So pricing trends for us remain very strong, as we noted in the call, and potentially even slightly up, as well as strong market share adoption on top of that.
Speaker Change: As far as 2025 and the market outlook on your second question, I think it's a bit early to call in terms of our own projections for 2025, obviously. The market itself for toxin remains really strong, right? We continue to see, call it mid-single to high single-digit growth on a healthy sort of consumer adoption of the procedure. We do expect that to continue.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Douglas H.C. Wainwright.
Speaker Change: Thank you.
Douglas: Hi, good afternoon. Thanks for taking questions. Just really quickly, in terms of the guidance we saw, you know, you sort of took down the upper end of the range a little bit, and I'm just curious what led to that sort of incremental step of conservatism.
Speaker Change: and Nareg Sagherian. Thank you. Thank you.
Speaker Change: Yeah, I think, Doug, as you know, we raised the guidance range last quarter in Q2, bringing up the floor by $5 million. We maintain high confidence in that decision to raise, so I don't think interpreting this change as any lack of confidence, it really was simply having better granularity and visibility with one quarter left to go, and enabling us to give the market a little more clarity on the titer range.
Speaker Change: Broadly, in terms of the near-term macro environment, it continues to sound good. Have you seen anything competitively over the last couple quarters that is affecting how you're thinking about the market?
Speaker Change: Hi Doug, this is David. We really haven't seen anything different competitively from what we've been seeing over the last
David: several quarters. I think it's a continuity of the same trend that we've been seeing. And so we think the fourth quarter will be reflective of sort of the same dynamics as well, exiting the year, with the exception that we'll obviously see a new entrant, which we've talked about with UGEL. We expect that they're going to be entering the market in some fashion later this month, with a more broad launch expected.
Speaker Change: early next year.
Speaker Change: And I guess, David, you know, sort of along those lines, which is sort of what I was getting at, have you seen other competitors
Speaker Change: sort of act in anticipation of Dujel coming to Marseilles, or take any proactive steps.
Speaker Change: And are you taking any proactive steps in preparation of that? Thank you.
Speaker Change: Sure, well look, we're always well prepared when a new competitor enters the market, making sure that we understand both the science and the clinical data and that we're prepared.
Speaker Change: to answer any questions that our customers have about Jubeau or any competitive entrants. So we'll be well prepared as they enter the market. Unfortunately, I won't be in a position to give you more color on that, but I think you get a sense for...
Speaker Change: our confidence in terms of the business performance.
Speaker Change: based on the guidance range we've given it puts us in this range of
Speaker Change: that business growing in between 29% and 32% on the full year in 2024. And I think it's important to recognize that's coming off of growing 36% in 2023. And when you think about a market that's growing anywhere from mid to high single digits.
Speaker Change: You're getting a sense for the relative overperformance of the business overall in the U.S. and our confidence that that's going to continue to sustain because of our differentiated strategy and the quality of the product.
Speaker Change: Thank you for watching!
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you. And our last question comes from Balaji Prasad Barclays.
Mikayla: Hi, this is Mikayla on for Bellagio. Thanks for taking our questions. Just a quick one. How does Juvederm's decline cited by AbbVie in recent results influence your thoughts around your fillers launch heading into next year, if at all? I'm just really looking for any further color on filler market dynamics heading into next year. Thanks.
Speaker Change: So we're closely watching the filler category and and listening to the various reports from from the existing filler manufacturers and We're seeing exactly what you're seeing which is a category that Has seen a bit of softness partially driven by a slowdown in spending from the consumer And maybe partially impacted in the near term by some headwinds by GLPs as that creates a pocketbook effect
Speaker Change: in the near term, although we do believe that's a tailwind for the category overall. That being said, look, it's a very large category. It's the second largest category in aesthetics. We estimate this year it's roughly a $1.8 billion market. So, we expect to be entering a sizable space. And one that we do believe that has a growth profile over the next handful of years is just going through a period of time where maybe it's filling a bit more softness. So, overall, we see a lot of opportunity here. And with the differentiation profile of Eveliz,
Speaker Change: Thank you. Thank you.
Speaker Change: Given the number of advisory board meetings and customer meetings we've had, I can tell you there's a lot of interest.
Speaker Change: in a product of this type of profile. This cold HA manufacturing is very different and it preserves the natural HA strands in a way that customers see is differentiated from other products that they're using. So we're looking forward to putting this product in their hands and letting them use the product.
Speaker Change: and Rui Avelar. Thank you. Thank you.
Speaker Change: Thanks so much.
Speaker Change: And our question comes from Serge Bellinger, Needham & Co.
Speaker Change: Hi everyone, this is John on Perserge today. Thanks for taking our questions here.
Speaker Change: First, with the early launch of STEAM in Europe, I guess, now underway, can you provide any color on the extent of this early access program and whether we can expect any significant contributions prior to the broader launch in the back half of 2025?
Speaker Change: Yeah, as it relates to the launches of the fillers, right, I think we've signaled the bulk of the cost will come around the launch in the U.S., right, as we look to 2025, and that in the quarters in which we are launching the product, you know, we're likely to see more impact to our financials in those quarters.
Speaker Change: The early experience trials that we'll be running within Europe for a theme are relatively modest in terms of investment and they don't have any impact on our operating spend outlook for this year at this time.
Speaker Change: Great, thanks.
Speaker Change: And I'm Nareg Sagherian. Thank you. Thank you.
Speaker Change: All right, thank you for all your questions. At this time, I would like to turn the call back over to David Moatazedi, President and Chief Executive Officer, for closing comments.
Speaker Change: Thank you.
David Moatazedi: We're in the fifth year since we launched the boat, and we continue to grow at multiples above the market.
Speaker Change: We remain well-positioned for long-term success with a scalable cash pay model and an innovative product portfolio. We are committed to delivering profitability in the fourth quarter of 2024 and full year 2025.
Speaker Change: We're on track to achieving at least $700 million in net revenue and at least 20% non-GAAP operating margin by 2028, enabled by our disciplined financial management and strategic investments.
Speaker Change: Our leadership and performance beauty is only strengthening, and we are unwavering in our commitment to delivering substantial, lasting value to our shareholders.
Speaker Change: Thank you for watching!
Speaker Change: Thank you. This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Speaker Change: Do you really want to kill me? Do you want to eat me? How about meow?
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