Evolus, Inc. (NASDAQ:EOLS) Q1 2024 Earnings Call Transcript May 7, 2024

Evolus, Inc. misses on earnings expectations. Reported EPS is $-0.22295 EPS, expectations were $-0.07. EOLS isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon everyone and thank you for standing by. Welcome to Evolus' First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded and webcast live. All participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. 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 Evolus' first quarter 2024 financial results. Our first quarter 2024 press release is now on our website at evolus.com. With me today are David Moatazedi, President and Chief Executive Officer; and Sandra Beaver, Chief Financial Officer. Rui Avelar, Chief Medical Officer and Head, R&D is also with us for the Q&A portion of the call. Before we begin our discussion, I'd like to note that during our call, our prepared remarks will include forward-looking statements within the meaning of United States Securities laws and management's 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.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call, and the company undertakes no obligation to update or review any estimate, projection, or forward-looking statements, except as required by law. These forward-looking statements are based on estimates and assumptions that, although believed to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. 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 Form10-Q, and current reports on Form 8-K. 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 evolus.com. Following the conclusion of today's call, a replay will be available on our website at evolus.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 first quarter 2024 earnings conference call. Following a record year in 2023, which represented our third year as the fastest-growing neurotoxin in the U.S., we are very pleased to report the continued adoption of Jeuveau with another quarter of above-market performance and strong revenue growth. Our reported revenue of $59.3 million in the first quarter represents 42% growth over the prior year, highlighting our continued strength in execution and increasing momentum from 2023 toward achieving our 2024 net revenue guidance of between $255 million and $265 million. We continue to maintain a focus on operating expense discipline with operating expense growth at less than half the rate of revenue, putting us on a clear pathway to profitability in the fourth quarter of this year.

Our differentiated approach to building a performance-seated [ph] company is gaining increased acceptance. These results underscore the continued growth of our brand and importantly, the loyalty of our customers and consumers who are increasingly choosing to partner with Evolus. I'm pleased to share with you the metrics that delivered the results in the quarter. In the U.S., we added over 700 new purchasing accounts, bringing our total number of customers purchasing since launch to over 13,000, which represents approximately 40% penetration of the roughly 30,000 customers in the U.S. that inject cosmetic neurotoxin. The standout metric this quarter was the number of consumers who are treated in our Evolus Consumer Loyalty program, which achieved an all-time high number of redemptions with approximately 180,000 consumers who received treatment.

Importantly, 60% of those were repeat treatments and the remainder were new to Jeuveau. Our Loyalty program continues to gain momentum in the market with every consumer earning $40 off their Jeuveau treatment, which is a meaningful savings over Loyalty programs in the toxin space. On the international side, we continue to expand our international footprint with a focus on deeper penetration in the U.K., Germany, and Italy, while actively preparing to launch in Australia and Spain later this year. And lastly, on the R&D side, we've made significant progress with the development of our novel dermal filler line and remain on track for U.S. and international launch in 2025. Within the next 90 days, we plan to file our first two fillers with the FDA and will present the top line results of this pivotal trial on Friday, May 17th, at the [Indiscernible] meeting in Nashville.

I'm proud of the team at Evolus. They're highly driven, focused, and believe in our mission of building a performance beauty company. It is their commitment that gives Evolus an outsized presence in the market. Our success in the quarter is largely driven by our continued market penetration on a strong underlying market, which remains healthy as consumers continue to prioritize their spending on the toxin procedure. Jeuveau's brand recognition, clinical performance and high satisfaction profile is well-positioned for new consumers entering the category. This positioning will allow us to continue capturing demand from the younger generation, while we actively prepare to integrate our novel dermal filler line Evolysse when it becomes commercially available starting in 2025.

Looking beyond 2024, we remain confident in our commitment to drive long-term value for our shareholders by achieving our total net revenue goal of at least $700 million by 2028. This confidence is driven by the strong market opportunity of Jeuveau in the U.S., the international expansion of Nuceiva and the commercialization of the Evolysse line of fillers beginning in 2025. Now, I'll turn it over to Sandra, who will cover the financials.

Sandra Beaver: Thank you, David. I would like to congratulate the Evolus team for another quarter of above-market sales growth and operating expense discipline. These top market Q1 results represent a meaningful step towards achieving our top line guidance and delivering profitability for Q4 2024. Turning to the results. Global net revenues for the first quarter were $59.3 million, up 42% compared to net revenue in the first quarter of 2023. Sales in the U.S. comprised more than 95% of revenues this quarter. International revenue contribution will continue to increase as international toxin growth will outpace the U.S. In the U.S., where the pricing environment remains strong, our customer reorder rate remains at approximately 70%, and our sales were driven primarily by higher volumes.

Our reported gross margin for the first quarter was 68.3%, and our adjusted gross margin, which excludes the amortization of intangibles, was 69.5% and in line with our full year guidance. Our GAAP operating expenses for the first quarter were $68.3 million compared to $69.6 million in the fourth quarter. Non-GAAP operating expenses for the first quarter were $42.1 million compared to $45.5 million in the prior quarter. Reported selling, general, and administrative expenses for the first quarter were $45.1 million compared to $43.1 million recorded in the fourth quarter. This quarter, SG&A expenses included $5.1 million of noncash stock-based compensation compared to $4.4 million in the fourth quarter. Operating expenses remain in line with our Q4 spending levels.

We anticipate modest operating expense increases throughout the year as we begin to prepare for the filler launch in 2025. Our non-GAAP loss from operations in the first quarter was $0.9 million compared to $3.7 million reported in the fourth quarter. This $2.8 million sequential improvement in the non-GAAP loss from operations represents a meaningful continued progress on our path towards profitability in the fourth quarter of 2024. Both non-GAAP operating expenses and non-GAAP loss from operations excludes stock-based compensation expense, revaluation of the contingent royalty obligation, and depreciation and amortization. Turning to the balance sheet. We ended the first quarter with $97 million in cash compared to $62.8 million at December 31st, 2023.

The cash balance includes $47 million of net proceeds from the underwritten offering in March. Net cash used for operating activities was $10.6 million, which improved $10 million as compared to Q1 2023. It's important to note that the first quarter is seasonally the highest operating cash use quarter due to the timing of annual bonus payments. This reduction in year-over-year operating cash use represents continued progress towards cash flow breakeven. We continue to expect our existing liquidity will fully fund us to profitability for the fourth quarter of 2024, full year 2025, and beyond, including the repayment of our $125 million debt facility in 2026 and 2027. We continue to have confidence in the performance of Jeuveau as evidenced by our strong first quarter results and are on track to deliver $255 million to $265 million in revenues, as we announced earlier this year.

We continue to target total revenues of at least $700 million by 2028, driven by continued growth in share gains in our neurotoxin business in the U.S. and international markets, along with the growing contribution from our novel line of fillers that begin in 2025. This equates to a compounded annual growth rate of 28% on a total addressable market of approximately $6 billion today, growing to approximately $10 billion by 2028. With that context in mind, I'd like to summarize our guidance. Total net revenues of between $255 million and $265 million, over 95% of which will come from sales in the U.S. and the balance from international markets. Our quarterly revenue assumes typical industry seasonality. In addition, it is worth noting that we expect first half growth rates to exceed second half growth rate, primarily driven by the 2023 compare period and adjusted gross margin in the range of 68% to 71%.

Non-GAAP operating expense guidance is between $185 million and $190 million. We expect to achieve positive non-GAAP operating income on a consolidated basis for the fourth quarter of 2024 and the full year 2025. It is also worth noting that within the year 2025, profitability may not be sustained every quarter due to the filler launch. Finally, the company projected total net revenue can reach at least $700 million by 2028. Now, let me turn the call back to the operator to begin Q&A.

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