Evolus, Inc. (NASDAQ:EOLS) Q4 2023 Earnings Call Transcript
Evolus, Inc. (NASDAQ:EOLS) Q4 2023 Earnings Call Transcript March 7, 2024
Evolus, Inc. 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' Fourth Quarter and Full Year 2023 Earnings Conference Call. As a reminder, today's conference is being recorded and webcast live. [Operator Instructions] 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' fourth quarter and full year 2023 financial results. Our fourth quarter and full year 2023 press release is now on our website at evolus.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. 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 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. We are very pleased to report on another record quarter and 2023 full year results while consistently focusing on delivering on our long-term strategy of leading the performance beauty market. Our focus is consistent and purposeful. We are building a beauty brand primarily targeting millennials who represent the fastest-growing segment of the neurotoxin market and are known to influence adjacent generation. Our differentiated approach has resulted in Jeuveau becoming the fastest-growing toxin in the United States aesthetic market for the third consecutive year. During the year, we achieved several major milestones, including the strong execution in the U.S. with our neurotoxin, the global expansion of our neurotoxin into Europe and the addition of our novel dermal filler line.
As a result, we increased our total addressable market by 78%. We now view our addressable market to be approximately $6 billion and comprised of three distinct segments, including two segments where we currently have little to no penetration. The first segment is the U.S. neurotoxin market of $2.6 billion value, which is projected to grow at high single to low double-digit growth rates for the upcoming five years. We are celebrating our fifth year of Jeuveau being on the market in May, and are proud to have achieved double-digit market share despite new competitive entrance. The second segment we plan to enter in 2025 is the U.S. filler market, which we estimate is a $1.6 billion market growing at a similar rate to toxins with a clear overlap in our current customer base.
And the last segment is the international market, which represents $1.8 billion, having doubled with the addition of the dermal filler product line, and we expect to have a presence in countries representing more than 90% of the total addressable market by 2028. In addition to our market expansion, we executed on the R&D front with our Phase 2 extra-strength Jeuveau study, which proved 26 weeks of duration providing our growing consumer base the option of a longer-duration formulation. In the U.S., we added nearly 3,000 new accounts to end the year with more than 12,000 total purchasing accounts. And we exited 2023 with 750,000 consumers in our Evolus Rewards Loyalty Program, which grew by 55% over the prior year. And importantly, consumers receiving repeat treatments represented 60% of the total redemptions in 2023, up from 50% in the prior year.
These milestones reinforce the global demand for our consumer brand, the high quality of our products and the competitive moat we built as the first company focused on cash-based aesthetics. Continued gains throughout 2023 position us to provide 2024 revenue guidance of $255 million to $265 million, representing a 31% growth at the top end and is from our announcement in January. This top line performance, coupled with strong disciplined focus on operating expenses, is why today we announced our revised outlook on profitability, which now assumes we achieved profitability in the fourth quarter this year and for the full year in 2025. Further, these milestones are indicative of the progress we are making toward reaching our long-range guidance of at least $700 million in revenue by 2028, a compound annual growth rate of 28%.
Now I'll get into a high-level view of the financials, which are unchanged from the preliminary results reported on January 16. In 2023, we achieved a record global revenue of $61 million for the fourth quarter and $202 million for the full year, representing 40% and 36% growth over the prior year, respectively. The full year results surpassed the top end of our guidance of $198 million due to our growing consumer demand and continued market share gains. Our fourth quarter revenue increase of 40% over the prior year quarter and 22% sequentially were both multiples above the estimated industry growth rate. And importantly, our back half growth accelerated meaningfully above the first half, driving continued market share gains with Jeuveau and resulted in our market share, achieving 12% in the fourth quarter.
Looking to our International business. We continue to expand our global footprint with the success of Nuceiva and announced our licensing agreement with SYMATESE in December to exclusively distribute dermal fillers under the brand name Estyme in Europe. This is a significant agreement for Evolus, doubling our total addressable international market to $1.8 billion. Now I'd like to turn the call over to Rui to discuss the dermal filler line and review the accompanying slides posted to our Investor Relations website.
Rui Avelar: Thank you, David, and good afternoon, everyone. As David mentioned, I'd like to share with you an update on the Evolysse/Estyme filler product line. Estyme is the name we use in Europe, and to make it simple, I'll refer to the line as Evolysse on the call. Going to Slide 2. The Evolysse HA filler manufacturing process uses a unique coal technology, which helps preserve the natural HA molecule structure, the building block of HA gels. Then each one of the HA products undergoes a specific manufacturing process, creating an optimized gel product for the target indication. Last month, the largest aesthetic meeting in the world IMCAS took place in Paris, and we'd like to share with you some of the clinical data shown there.
Slide three. The data for Lift from the European Nasolabial full trial was presented and as a reminder, in the U.S., the two lead products are smooth and lift with an expected PMA filing with the FDA this summer. The study was double-blind, randomized, multi-center, enrolled 45 patients, a split-based design and used Restylane-L as the active control compared to Lift. The average volume injected and the baseline severity of the nasolabial fold scores were similar in both groups. The primary endpoint was non-inferiority comparing the improvement in the NLF severity scores at 4 weeks between the two products. The difference was minus 0.16 in favor of Evolysse Lift and the upper bound of the 95% confidence interval was 0.03, successfully passing the primary endpoint.
Of note, the confidence intervals cross 0, demonstrating equivalence between the two products. The graph on the right illustrates the change in the NLF severity grade from baseline out to nine months. Note that despite similar volumes injected at the initial treatment, Evolysse Lift seems to have more pronounced effect at all time points, numerically and reach a statistical superiority at three and six months. Slide four, the graph on the left illustrates the percent of responders with at least a 1-point improvement over time using the NLF scale as assessed by the investigator. At nine months, the patient responder rate was 31% for Restylane-L and 46.7% for Evolysse Lift. The global aesthetic improvement scale on the right assesses the actual aesthetic outcome after treatment.
The investigator scores are high throughout the study, but more importantly, the patient's own assessment of their respective aesthetic outcome was also high right to the end of the study with Restylane-L at 77.8% and Evolysse Lift at 82.2%. Slide five. SMOOTH is a softer product than Lift and can also be used in nasolabial folds, providing a second option in the area. In Europe, SMOOTH was also studied for the treatment of fine lines around the mouth or Perioral lines. This was an open-label, 61-patient study using a validated scale and measured the severity grade improvement of the fine lines over time. Fine lines are difficult to treat since the product needs to be placed superficially and only small volumes can be used. Here, we can see the results all the way out to one year with only half a milliliter of SMOOTH injected.
Slide six. The scope product is halfway through its clinical trials in the U.S. In Europe, a 60-patient no control study followed the 3D volumetric correction of patients for 1.5 years. A little over 1 ml was injected into each sheet then using a special system, the 3D volume of the treat was measured. We see here an initial correction than a stable correction from 6 to 18 months at the end of the study. Slide seven. Lift of our particular interest to Evolysse as this is a popular lead indication for millennials. In Europe, 72 patients were enrolled in a single-arm study and their lip fullness was assessed using a validated score, a scale over the course of one year. Although not a head-to-head study, to provide some context, we've included the study results from the Emervel lip study, a product known as Restylane Kysse here in the U.S. It's interesting to note that the volume of product used in the two studies is different.
One ml of Evolysse Lift was used at initial treatment and no touch-ups were allowed. In the Restylane study, 1 ml was also used at the time of the initial treatment, but a touch-up was allowed increasing the average amount of product received by each patient by 30% for 1.3 ml. Looking at the results over time, despite requiring less product, Evolysse Lift seems to provide more of a correction and lasts twice as long. Slide eight. The global aesthetic improvement scores were high throughout the duration of the trial for both the investigator and the patients. At the 1-year mark, 88% of the patients rate themselves are still having an effect. Slide nine. In summary, we now have the rights to the Evolysse/Estyme filler line throughout Europe and the U.K. We expect to receive European approval for Smooth, Lift, Sculpt and lips in the second half of this year under the new MDR approval process.
Of note, Lift is already approved in Europe under the past MDD process. In the U.S., we remain on track. The first two products, Smooth and lift, the last patient just completed the trial this week. We plan to present the top line results for this U.S. pivotal study this summer and submit the PMA to the FDA with an anticipated approval in 2025. Sculpt is halfway through its pivotal trial, and we expect approval in 2026 followed Lips and Eyes in 2027. Moving from Evolysse, as Evolus continues to lead our portfolio with its precision profile, and we recently completed our Phase 2 Jeuveau duration “extra-strength” study, demonstrating extended duration of 26 weeks and expect the results to be published in a peer-reviewed journal this year.
With that, I'll turn it back to you, David.
David Moatazedi: Thank you, Rui. I could not be more proud of what our R&D team has accomplished in the short period of time, particularly the head-to-head study with our Lift filler compared to Restylane, which demonstrated statistical superiority at multiple time points. As Rui stated, we have now completed the last patient visit for both Lift and smooth fillers in the U.S., with plans to file with the FDA this summer. As a reminder, the Lift product will be positioned as the most versatile and highest-volume filler in the product line. In Europe, we're expecting all four filler products to be CE Mark approved by end of the year. This puts us on track for the global launch of our filler line in 2025. We remain excited about the differentiation of Evolysse and its potential to become one of the leading HA fillers in the U.S. These products were designed to be the next-generation fillers by the scientists that develop the market-leading Restylane products.
Our cash pay focused platform was designed for scale, and there are tremendous synergies we can achieve by leveraging our seasoned sales force and our rapidly growing customer loyalty program to launch this innovative new filler technology alongside our flagship Jeuveau in the U.S. and Nuceiva in Europe. It's also worth noting this was a highly capital-efficient transaction for Evolus. Now I'll turn it over to Sandra, who will cover the financials.
Sandra Beaver: Thanks, David. I would like to begin by congratulating the Evolus team for the outstanding fourth quarter and strong finish to 2023. Before we review the results, I would like to highlight two significant achievements for the fourth quarter. First, excluding share issuance of the European filler agreement, we achieved profitability, defined as positive non-GAAP operating income. And second, we delivered positive cash from operations. These are significant milestones towards achieving our updated guidance of profitability in the fourth quarter of 2024 and for the full year 2025. These achievements would not be possible without the efforts of the entire Evolus team, and I would like to sincerely thank them for their hard work and dedication.
Now turning to our results. Consistent with what was reported in our January announcement, global revenue for the fourth quarter was $61 million, up 40% compared to revenue in the fourth quarter of 2022, with U.S. sales comprising more than 90% of the total revenue and driven primarily by higher volumes. For the full year, we reported global revenue of $202.1 million, a 36% increase over full year revenue in 2022 and above the top end of our guidance of $198 million. We continue to experience strong pricing in the U.S. with our average selling price in 2023, remaining stable compared with the same period last year, while our customer reorder rate remains at approximately 70%. Our reported gross margin for the fourth quarter was 57.2%, and our adjusted gross margin, which excludes the amortization of intangibles, was 68.4%.
For the full year, reported gross margin was 68.1% and adjusted gross margin was 69.5%. Adjusted gross margin, which excludes the amortization of intangibles, is aligned with company guidance of 68% to 71%. Our GAAP operating expenses for the fourth quarter of 2023 were $70 million compared to $63.5 million in the third quarter 2023. Non-GAAP operating expenses for the fourth quarter were $45.5 million compared to $40.3 million in the third quarter. Our fourth quarter GAAP and non-GAAP operating expenses included $4.4 million of IP R&D expense related to the share issuance for the European filler license agreement. Operating expenses were $251.3 million in 2023 compared to $213.9 million in 2022. Non-GAAP operating expenses were $163.9 million in 2023 compared to $137.7 million for 2022 and in alignment with the company guidance range of $160 million to $165 million.
Non-GAAP operating expenses exclude product cost of sales, stock-based compensation expense, revaluation of the contingent royalty obligation and depreciation and amortization. Reported selling, general and administrative expenses for the fourth quarter were $43 million compared to $43.3 million recorded in the third quarter. This quarter, SG&A expenses included $4.1 million of noncash stock-based compensation compared to $4.3 million in the third quarter. SG&A expenses were $155 million in the full year 2023 as compared to $141.8 million in 2022. Our non-GAAP loss from operations in the fourth quarter was $3.7 million compared to $5.7 million reported in the third quarter. With this $2 million sequential improvement in the fourth quarter, Evolus delivered our lowest non-GAAP operating loss since inception.
Excluding share issuance for the European filler license recorded as IPR&D expense, the fourth quarter non-GAAP operating income was a positive $0.7 million, representing continued progress to sustain profitability. Non-GAAP loss from operations for the full year excludes stock-based compensation expense, revaluation of the contingent royalty obligation and depreciation and amortization. Turning to the balance sheet. We ended the year with $62.8 million cash compared to $38.7 million at September 30, 2023. In the fourth quarter, we had a record low quarterly cash use of $0.9 million, excluding the $25 million tranche drawn under the Pharmacon line of credit and generated cash from operating activities of $0.8 million. Net cash used in the fourth quarter of 2023 continued its sequential quarterly decrease throughout 2023, further demonstrating our continued progress towards cash flow breakeven.
Given the capital-efficient nature of our filler agreements, we continue to expect our liquidity to fully fund us the profitability and beyond. Before we turn to Q&A, I would like to summarize our 2024 guidance. Total revenue for the full year of $255 million to $265 million, this equates to 26% to 31% growth for the full year. Adjusted gross margins in the range of 68% to 71%. Full year 2024 non-GAAP operating expenses between $185 million and $190 million. Profitability, defined as positive non-GAAP operating in the fourth quarter of 2024 and for the full year 2025. As a point of note, due to onetime filler launch expenses within 2025, profitability may not be achieved every quarter. Other modeling assumptions for 2024 include quarterly interest expense of $4.4 million and full year weighted average shares outstanding of approximately 57 million.
Looking beyond 2024, we continue to target total revenue of at least $700 million in 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 line of fillers that begins in 2025. This equates to a compounded annual operate of 28% on a total addressable market of approximately $6 billion today, growing to approximately $10 billion in 2028. Now let me turn the call back to the operator to begin Q&A.
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