Evolus, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Quarter 1 2021 Evolus conference call. At this time, all participants are in the listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your touch-turned phone. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Ms. Carol Ruth of the Ruth Group Ma'am, please go ahead.

Thank you, Operator, and welcome to everyone participating on today's call. This call is also being broadcast live over the internet at everlist.com, and a replay of the call will be available on the company's website for 30 days. With me on the call today are David Modizetti, President and Chief Executive Officer, Lauren Silvanale, Chief Financial Officer, and Executive Vice President, Corporate Development, and Rui Avalar, Chief Medical Officer and Head of Research and Development. In our remarks today, we will include statements that are considered forward-looking statements within the meaning of the United States security clause. In addition, 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 application to update or review any estimate, projection, or forward-looking statement. Additionally, the discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. The reconciliation of GAAP to non-GAAP results may be found in our earnings release. which was furnished with our Form 8K filed today with the SEC, and may also be found on our investor relations website at investors.evalus.com. Now let me hand the call over to David. David?

Good afternoon, and thank you, Carol. The first quarter of 2021 was a defining quarter for Evalus. We made significant strides in bringing clarity around our future for our shareholders, customers, and employees. The quarter was defined by three major events that set the stage for the continued success of Javeau in the United States. The first event was a resolution of both the ICC case and all outstanding future litigation. Second, we recapitalized the company by eliminating senior and convertible debt and future milestones. We also completed an equity offering and received a settlement payment from our partner. These activities transformed our balance sheet resulting in a pro forma cash position of $140 million on March 31st. Third, thanks to the strong showing of support from our customers, our business has quickly bounced back since settlement in mid-February. To provide additional color in our business, in the first quarter of 2021, we generated $12.2 million of net revenues, with most of the sales occurring after settlement in mid-February. We grew purchasing accounts to 5,800 from 5,600 at year end, and our cumulative reorder rates grew to 73%. We are pleased to see the trends from the first quarter persist into the second, where we see increasing reorder rates, and on average, these accounts are repurchasing at higher volumes. Overall, we are pleased to have all outstanding legal issues resolved and the company well-capitalized for the future. The second quarter marks the first quarter since launch in which we are free from all legacy challenges, and for the first time, our customers can now partner with us for the long term and realize the full potential of our unique value proposition. We have proven that an aesthetic company positioned against a younger demographic with a focus on technology creates a unique differentiation. The combination of these elements has resulted in increasing trends across our business. In Q2, we believe GVO will achieve its highest sales quarter ever and reach an annualized net revenue run rate of $100 million. Lastly, this month we are celebrating the two-year anniversary since the launch of GVO. The success we are seeing with GVO is directly related to the quality of this product and the extensive data generated over several years. And now I would like to turn it over to Rui Avalar to give you a quick update. Rui? RUI AVALAR Thank you, David, and good afternoon.

Jovo has been on the market now for two years, and we believe that over a million treatments have been completed. We have the benefit of having conducted three large Phase III clinical studies, including a head-to-head study against the market leader to support the approval of the product. Today, we announced the publication of two Phase II repeat dose open-label one-year studies that were part of the Transparency Global Clinical Program. The data from these studies were used to support the safety and efficacy . We wanted to share some interesting observations that we think will be helpful for our injectors and patients, as well as investors. When treating patients with a biological drug, the regulatory bodies, such as the FDA, want to see what happens to duration of effect with each repeat treatment, since shortening of this interval can be a signal of building resistance against the drug or antibody formation. In both studies, the time interval between treatments did not shorten. Instead, within treatment cohorts, the time interval actually trended longer after each successive treatment. Another interesting observation was the rate of adverse events after repeated treatments. It was noted that the rates of all adverse events and drug-related adverse events both decreased with each successive treatment. We believe that these safety observations will continue to build injector and patient confidence in our product. Now, let me turn it over to Lauren for a financial update.

Thank you, Rui, and good afternoon, everyone. Earlier this year, we embarked on a strategy to recapitalize the company. We started the transformation of our balance sheet by eliminating $127 million of senior and convertible debt and future milestones. Next, we received a $25 million payment from our partner, Daewoon, and successfully completed a $92 million equity offering. The end result is on March 31, 2021, our pro forma cash position was $140 million, which is expected to fund Evelis for at least the next 12 months. As David mentioned, we posted strong net revenues for the first quarter of 2021 of $12.2 million up 16% over the first quarter of 2020, despite the headwinds from the ITC bond. We recorded most of our Q1 2021 revenue in the second half of the quarter as we continued to sell under a bond until mid-February. Moving down the P&L, our first quarter 2021 adjusted gross margin percentage was 60%, excluding the $25.5 million settlement payments. We continue to expect our gross margin percentage for fiscal year 2021 to be in the range of 50 to 55%, including the royalties owed under the ITC settlement agreement. Consistent with commentary provided on prior calls, our gross margin will depend on sales levels, promotional activity, and other factors. Our first quarter 2021 non-GAAP operating expenses were $24.8 million reduced 26% from $33.4 million in the first quarter of 2020. Expenses were lower in 2021 due to operating with a leaner organization during COVID-19 and reduced spending on programs delayed in the first quarter prior to settling the ITC litigation. We do expect our non-GAAP operating expenses may vary quarterly depending on promotional activity and other factors. The first quarter of 2021 was profitable on a net income basis due to the $25.5 million settlement payment received from our partner. Please note this was a one-time payment impacting only the first quarter of 2021. As a result of the settlement agreements and equity offering, as of May 7, 2021, we had 54.1 million shares of common stock outstanding, To help with your models, our basic weighted average shares outstanding for the first quarter of 2021 were 37.1 million, and our fully diluted weighted average shares outstanding for the first quarter of 2021 were 41.1 million. With that, I'll turn the call back over to David.

Thank you, Lauren. Last week, we brought together our selling team for our first live meeting since COVID-19 shutdown. and the energy across the sales force was palpable. The field is seeing firsthand the value of our aesthetic-only focus, investment in one-on-one marketing with their practices, and our digital focus on millennials. Out of our total purchasing accounts, we now have more than 500 high-volume neurotoxin accounts earning our co-branded media investment, and in less than a year have enrolled 160,000 patients into our consumer loyalty program. In partnership with our customers, we are committed to building a brand millennials ask for by name. In closing, I would like to take a moment to thank our Evelus customers who have fueled our rapid bounce back. Our commitment to them has never been stronger. We invest in their growth, we improve their profit margins, and we do this with a brand built from the ground up to appeal to the millennial segment. Lastly, I would like to extend my thanks to all Evelus employees who know that customer centricity powers this company. and we would not be off to such a strong restart without their unwavering commitment. With that, I'll turn the call over for Q&A. Operator?

As a reminder, ladies and gentlemen, to ask a question, you will need to press star 1 on your phone's keypad. Again, that's star 1 on your phone's keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mark Goodman from SVB Learning. Your line is now open.

Hey, David. Can you give us a flavor for what's going on in the broader market? Previously, you had talked about $1.5 billion is how you were thinking about the market for this year. Is that still a number you're thinking about? Is it trending higher or lower? Are the competitors getting back out there doing the same thing as you are? Just trying to understand what's happening behind the scenes. Thanks.

Sure. Thanks for the question, Mark. As we enter now here the second quarter, it's been very impressive to see this market rebound back as quickly as it has. As you heard, the fourth quarter, was likely the strongest quarter the neurotoxin markets ever had, and we saw that continue into the first quarter of 2021, whereas you look at the market leader as an example, their revenue continues to hit all-time highs, where in the first quarter you would typically see a dip in revenue relative to the seasonal high period of the fourth. You didn't see that this year, and I think that speaks to the strength of this market As you pointed out, we estimate 2022 market value will be $1.5 billion, and we estimate that the 2021 neurotoxin market will be roughly $1.3 billion. We'll continue to watch those trends as we see the year progress, but we feel very good about the market having not only rebounded, but that the overall market values will achieve all-time highs this year, which is certainly playing a role in the overall category growth this year.

And then, Lauren, should we expect SG&A to trend up as the year progresses?

Thanks for the question. I think if you look at the fourth quarter of last year, Mark, and I think we talked about this on the year-end call, it's a range that we're really comfortable with, and that was in the middle 20s and a little bit higher. Thanks.

On a non-GAAP OpEx basis, to be clear.

Your next question comes from the line of Annabel Sumimi from Stifel. Your line is now open.

Hi, Al. Thanks for taking my question. Congratulations on a strong quarter. Getting a little bit granular here, can you tell us whether the 12.2 was some sort of restocking, you know, given that I think maybe people were running off their inventories with the uncertainty. So how much of it was restocking versus just on-demand ordering? And secondly, I guess, you know, now that you're somewhat more free and clear to make some investments with the capital that you have, what are some of the programs you intend to sort of, you know, lean into this year? And how should we think about, I guess, competitors, what they're doing, and maybe some more of the FinTech, you know, investment going on. I know that not just revents, but others are starting to look for some other platforms in the use of social media. So maybe you can talk to us about that a little bit. And then finally, it's great that Devin was able to give you that 25 million settlement payment. I was wondering if there's any other further assistance they're providing on a quarterly basis with regard to the royalty that you might have to pay to or that you do have to pay that Abby many talks. Thanks.

Excuse me, this is the operator. I apologize, but there will be a slight delay in today's conference call. Please hold in the conference room shortly. Thank you for your patience.

Hello, this is the Evelis team rejoining the call.

Thank you, Mab. You are now back at the main conference. Please proceed.

Do I have to repeat my question?

Yes, we dropped off the call, Annabelle. We had a disconnect on this side. Do you mind repeating your question? I'm sorry.

Okay, sure. All three of them. Great. So I guess the first one was of the 12.2, how much of that was restocking by the practices given that they probably drew down some of their inventories towards the end of the year under the ITC cloud versus on-demand ordering? The second was if you could provide us with any idea of some investment programs that you're going to have, you know, going into the year now that you have available capital and are kind of free and clear of any other legal overhangs. And then finally, I know that Dai Woon had paid a good portion of the settlement fees given their indemnification. Is there any further assistance? that we should expect with regard to the royalty payment that you have to make to add the in MediTox. Thanks.

Sure. Thanks, Annabelle. I'll take the first two. This is David, and I'll turn it over to Lauren to address the day one settlement fees portion. Starting out with the revenue in the first quarter, The $12.2 million in revenue was a sharp bounce back for us in terms of our customer base beginning to place orders once the settlement took place. We continued to watch the reorder patterns and the existing account purchasing rates relative to the fourth quarter, and that's what gave us the confidence in the overall performance of the business going into the second quarter, which is that there's more than just an initial restock that's happening within our customer base. What's actually occurring here is that as customers now have clarity around the future of our company, the customers are making larger commitments in terms of the order sizes that they're placing and the number of times that they're ordering with us. And so that's why we were confident in our second quarter run rate achieving that 100 million level of based on the fact that we're continuing to see the order rates persist beyond the initial March orders well into the second quarter. Separately, as far as the programs are concerned, the Avalux program is our physician loyalty program. What makes it unique is that as customers purchase Morgevo, they receive an investment from Avalux into marketing for their practice. And as we've now entered the second quarter, as more accounts buy larger quantities, they earn a greater investment from Avalos. At the highest level, accounts are earning up to $24,000 a year in a marketing investment directly from us. And that's taking place in the form of digital co-branded media on social media or in search. It's also happening out of home where we're putting up billboards around the country as well as other forms of out of home advertising. As I mentioned in my final comments, we have over 500 accounts now that are benefiting from this co-branded investment. And we have the luxury now of seeing the early results from that advertising around those practices. And as you know, we measure every aspect of that advertising. If it's a billboard and it has a 1-800 number, we're measuring the number of calls that are placed to that practice. And if it's a digital co-branded ad unit on social media, we're measuring the number of consumer clicks. And we're reporting these metrics directly back to these practices. The early results are very encouraging. We're seeing that the younger demographic is engaging more. with our advertising units, and they're engaging with these practices. And the early results are what gave the field that level of optimism at our national sales meeting earlier this month that gives them the confidence that we are in the very beginnings of a very strong run rate with these customers. But ultimately, this is a program that's sustainable and designed for long-term growth. We're the only company in the neurotoxin space that's not only doing one-to-one marketing, but doing this advertising at scale as accounts give us more of their business. And we're seeing some very good early results. But keep in mind, this is now the second full quarter where we've had the full value proposition from the customer, and it's just starting now to really take material traction. So we're really pleased with the progress we're making. I'll turn it over to Lauren to talk about the settlement fees.

Annabelle, on the settlement, that's right. Daewoon paid us $25.5 million. which we booked in the first quarter as actually contra cogs, if you see that when you look at the P&L. They've provided us great support. Going forward on the royalty basis, what we're reporting to you is our gross margin guidance of 50 to 55. That's inclusive of paying Meditox and AbbVie and netting out what Daewoon reimburses us. You'll note in the first quarter, we ran very favorable to our annual 50% to 55% guidance. Business is doing very well, and marketing programs are very successful right now.

Great. Thank you so much.

Thank you. And your next question comes from the line of Louis Chen from Cantor. Your line is now open.

Hi. Congratulations on all the progress this quarter, and thanks for taking my questions. So I had a few here. First question I had was, do you have any plans to expand your sales force or marketing efforts given the pickup in sales that you're seeing that are coming for the remainder of the year? Second question is, how do you see sales unfolding beyond second quarter 21? And then last one is just on product expansion. Where are you with that? Would you expect us to potentially see a new product added to your portfolio by the end of this year? Thank you.

Great. Thank you, Louise. I'll take the first two and I'll hand over the last question there to Lauren. As far as our plans to expand, I'll start with the sales force. We have made investments throughout the organization since the settlement took place where we filled various gaps. And in the sales force, we have expanded by a handful of sales reps as well as our inside sales team. We've also made investments in medical affairs that we believe will continue to drive our long-term growth. And as we said on prior calls, we'll continue to make selective investments in pockets where we see the market is underserved or the opportunity supports it. On the marketing side, the Evolux program is our long-term investment proposition. As accounts purchase more, you should expect to see our investment in marketing will go up commensurate with our revenue. And as these accounts move up to higher tiers, so will our investment into those accounts. And we know from the early results we're getting that as we invest more, these accounts will grow faster as a result of it as well. And so we feel that we have the right program that is scalable as we continue to drive both share penetration, which is really where we've been focused since settlement and will be in the second quarter, and then going wider in terms of continuing to add new accounts as we did last year. As you know, last year we added nearly 2,000 new customers to Evalus, and in the front part of this year you should expect that growth of new accounts to slow a bit as we focus on our existing customer base and then regain the same momentum we had exiting the year last year as we focus on expanding to new customers in the back half. And that really sets the stage for how we think about the back half of the year. The second quarter with $100 million run rate annualized serves as a strong baseline, and we believe the foundation by which revenue will continue to build. Now, that being said, keep in mind there's seasonality in this market. The neurotoxin market, the third quarter is the slowest quarter of the year. And so when you factor for that seasonality, you should expect our business to continue to gain momentum but, of course, on a lower procedural volume in the market during the third quarter. And in the fourth quarter, of course, we expect procedural volume will be at an all-time high as we exit the year, and you'll see sales reflect that as we continue into the back half of the year. And so with that, I'll turn it over to Lauren.

Great. Louise, thanks for the question on new product expansions. So if you think about it, we have, today, JVO approved in the United States and NUSIVA approved in Canada and 31 countries across greater Europe. So our expansion plans there, of course, are to get the launch early next year in Europe. Additionally, on NUSIVA, we're planning to file in additional countries, among them Australia. So part of the pipeline growth plan is there. Your question also leads to a business development question, and the way we're looking at that today is we're very singularly focused on the United States and getting ready, and Canada, and getting ready for that European launch next year. When it comes to business development, there probably isn't a deal in the space over the last couple years that we haven't seen. The deal flow has been very, very strong. We believe in the quality of our assets, very high quality in terms of data, the branding, the positioning of it. And so as we look at other assets, we're very particular about it. So we are continuing to screen and look, but I would expect something from us would probably be next year, not this year. Thank you.

Thank you very much.

Thank you. And again, to ask a question, please press star 1 on your phone's keypad. Your next question comes from the line of Greg Fraser from Truist Securities. Your line is now open.

Thank you. It's Greg Fraser on for Greg Gilbert. For patients who have gotten Juvo, can you give us a sense for the mix between those who were toxin naive and those who switched from another toxin? And for the folks that have switched from a different toxin, what would you say tend to be the key drivers?

Sure. Greg, thanks for the question. We have been tracking our user demographics very closely through our consumer loyalty program, which, as I mentioned earlier, we have over 160,000 consumers now in that program, and the results are very encouraging. The first is we continue to have a very strong presence of millennial users within our loyalty programs. To date, a little over a third of consumers are millennial that are in that Eveless Consumer Loyalty Program. And of those millennials, half of them are naive to the category, which gives us a lot of confidence in our ability to continue to drive these new patients into the office. Now, putting that aside, what's interesting as we get into the second quarter, what we're tracking very closely is as our media investment dollars increase, are rising because of accounts purchasing at higher volumes to gain our advertising dollars. We expect that we'll continue to drive more new patients into these offices. We're hearing it firsthand from the accounts that are benefiting from our advertising dollars, and we're tracking those results as well in terms of consumer interest in the product. And so we'll continue to keep you up to date on those numbers, but early results are very promising.

Got it. Thank you.

Thank you. And your next question comes from the line of Douglas Chao from HCW. Your line is now open.

Hi. Good afternoon. Thanks for taking the questions. Just, you know, obviously, the bulk of the selling, you know, took place, I presume, or after the settlement. I mean, so when we look at that 12.2, I mean, is it fair to think of that you would have sort of sold double what you sold if you had had sort of a more normal quarter or the settlement that happened, say, on December 31st instead?

Yes. The large majority of sales in the first quarter occurred after the settlement, which was more specific on February the 19th, so the latter part of the quarter. And as we stated earlier, what we –

uh were surprised with was that that momentum continued and has continued well into the second quarter uh with our customer order rate right and it really allows us to get to doug this is lauren how are you allows us to get a million run rate uh on uh annualized revenue annualized net revenues during the second quarter really shuts us up nicely for that okay yeah i i i was just trying to understand i mean and

You know, I think Annabel asked about sort of restocking, you know, that may or may not have taken place, but it sounds like this was really just a resumption of demand and there wasn't, you know, sort of people filling, you know, sort of trying to build up inventory. It sounds like this was coming, going out the door from you and into patients.

That's exactly right. You know, Doug, as you know, We launched Jebeau in May of 2019, and the ramp that we had in the back half of 2019 exiting with just above $19 million in revenue was a very strong ramp. It was one of the top five launches in aesthetics as we had messaged it at the time. We believe what you're seeing now as we enter the second quarter is the resumption of a trend that we left behind last obviously, of course, due to COVID in the front half of last year and somewhat impacted by the ITC in the back half last year. And we're now starting to see the momentum regaining where we left off from the launch.

And just one final question. I mean, when you think about the different customer segments, you've obviously historically focused on the millennials. Are you hearing anything about where the market sounds to be really strong right now? Any particular customer segments that are really driving the market right now?

As you said, the overall market is very strong. There isn't a customer segment that you could look at that you would say is not rebounding very strongly. And we're starting to see it's not just related to toxins. It's all aesthetic procedures. You could argue it's bigger than aesthetics. It's all beauty products are seeing a zoom boom is sort of the industry speak that's that I hear consistently, and we're hearing it from practices. But what's also important here is, Doug, as you know, following COVID, there was a rebound of patients just coming back in to get treated. Once we got past that initial rebound, this growth has persisted, and we're continuing to see it. And what's happening is it's getting fueled by this millennial segment. It will be the largest segment in aesthetics, we believe, over the next two to three years. And this consumer demographic is more ready and willing to take action than any of the prior demographics in aesthetics as we've measured them. And so we do believe that this tailwind is driven by this demographic entering this market at a faster rate than we've ever seen.

Great. Thank you so much.

Thank you. And we are now down to our last question for today. Bamil Ziban from Mizuho Securities. Your line is now open.

Great. Thanks for taking the question. So maybe a couple just to build a little bit on what you've already discussed. But one, could you give us a sense of what you think your share is of the market? We've obviously heard from the other public companies, but just kind of overall, maybe for the month of March or exiting March, and then Previously, you sort of made comments before COVID, before the ITC issues about being number two market share. Is that still something you think maybe within the next year or something that you can achieve? Maybe you can just sort of kind of update us on your thinking there. And then just on the commercial situation, if you can just sort of compare where things are now in terms of in-person versus virtual interactions with providers relative to where you were maybe, say, pre-pandemic, like a year ago or so. and where things are now and kind of how that trends. You see that evolving over the next few months or quarters here? Thanks.

Great. Thank you, Vommel. Let me just – I'll start with Cher. As pointed out earlier, because of the bond period, our revenue was significantly impacted in the front half of the year, which is why – front half of the quarter, which is why a large majority of the revenue came into the back half. And Our share was equally impacted during the first quarter as a result of that. So I don't have a great barometer for share at this point to give you. Of course, we can provide some more colors we have in the past around the share range we believe we're trading at. But based on our assumption that the second quarter will be operating at a $100 million run rate, we expect that our share will trade back into the mid to high single digits as we had exited prior to the ITC, and we'll continue to build from there. That being said, as we think about the long term, last year was clearly a setback between COVID and the ITC, and we're very pleased now in less than 90 days of having settled the case that our business has come back on as strongly as it has. We're going to continue to invest into these trends, which we believe are are very durable trends, and they're built on a long-term partnership with these practices, given the growth that we're driving in partnership with them. And we'll give you an update in terms of how we see those long-term trends playing out as we get into the future quarters. And I'm sorry, there was a third question in there, Lauren?

Yeah, I think that Bob will help us here. I think the last question was how much our practice is back up operating versus being virtual. Is that right?

Yeah, I guess the practices or at least your interactions with the practices, how much is virtual, how much is in-person, and do you expect a lot more in-person going forward, or do you think you're already sort of at some sort of steady state for the next few months or quarter or two at least?

Yeah, we're seeing business back to normal. Of course, we're following all the proper COVID protocols within our sales force, but we do have open access into these accounts. It would be on – exception that an office is not comfortable with the sales rep in there and supporting them some of the programs that we have do require that one-on-one time with these practices and since they're open they prefer to do that in person over the phone that being said as you know we have a digital platform that powers this company and Since COVID, we've seen the majority of the transactions for Jevo coming directly through our Evalus app, and that is what's enabled us to continue to drive our revenue and to do that on a lower expense base than what we had pre-COVID. As a matter of fact, we've redirected some of the incremental expense we put back into the company directly into marketing expenses around the customer to drive their growth. And so on one hand, the practices are open and they're open to seeing our reps. On the other hand, we have a very efficient model that doesn't require us to physically be in the office on a regular basis to take orders. So when we do make the sales calls, we spend more time focusing on how we grow their practice than we do on physically taking orders because our digital platform is the one that's doing that.

Okay. All right. Thanks so much.

Thank you, and no further questions at this time. That concludes today's conference call. You may now disconnect. Hello. Thank you. Thank you. Thank you. Thank you. you Good afternoon, ladies and gentlemen, and welcome to the Quarter One 2021 Evolus conference call. At this time, all participants are in the listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your touch-turned phone. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Ms. Carol Ruth of the Ruth Group Ma'am, please go ahead.

Thank you, Operator, and welcome to everyone participating on today's call. This call is also being broadcast live over the internet at everlist.com, and a replay of the call will be available on the company's website for 30 days. With me on the call today are David Motivetti, President and Chief Executive Officer, Lauren Silvernail, Chief Financial Officer, and Executive Vice President, Corporate Development, and Rui Avalar, Chief Medical Officer and Head of Research and Development. In our remarks today, we will include statements that are considered forward-looking statements within the meaning of the United States security clause. In addition, 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 following looking statements. The company undertakes no application to update or review any estimate, projection, or forward-looking statement. Additionally, the discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. The reconciliation of GAAP to non-GAAP results may be found in our earnings release. which was furnished with our Form 8K filed today with the SEC, and may also be found on our investor relations website at investors.evalus.com. Now let me hand the call over to David. David?

Good afternoon, and thank you, Carol. The first quarter of 2021 was a defining quarter for Evalus. We made significant strides in bringing clarity around our future for our shareholders, customers, and employees. The quarter was defined by three major events that set the stage for the continued success of Javeau in the United States. The first event was a resolution of both the ICC case and all outstanding future litigation. Second, we recapitalized the company by eliminating senior and convertible debt and future milestones. We also completed an equity offering and received a settlement payment from our partner. These activities transformed our balance sheet resulting in a pro forma cash position of $140 million on March 31st. Third, thanks to the strong showing of support from our customers, our business has quickly bounced back since settlement in mid-February. To provide additional color in our business, in the first quarter of 2021, we generated $12.2 million of net revenues, with most of the sales occurring after settlement in mid-February. We grew purchasing accounts to 5,800 from 5,600 at year end. And our cumulative reorder rates grew to 73%. We are pleased to see the trends from the first quarter persist into the second, where we see increasing reorder rates and on average, these accounts are repurchasing at higher volume. Overall, we are pleased to have all outstanding litigation legal issues resolved and the company well capitalized for the future. The second quarter marks the first quarter since launch in which we are free from all legacy challenges, and for the first time, our customers can now partner with us for the long term and realize the full potential of our unique value proposition. We have proven that an aesthetic company positioned against a younger demographic with a focus on technology creates a unique differentiation. The combination of these elements has resulted in increasing trends across our business. In Q2, we believe GVO will achieve its highest sales quarter ever and reach an annualized net revenue run rate of $100 million. Lastly, this month we are celebrating the two-year anniversary since the launch of GVO. The success we are seeing with GVO is directly related to the quality of this product and the extensive data generated over several years. And now I would like to turn it over to Rui Avalar to give you a quick update. Rui? Thank you, David, and good afternoon.

Jovo has been on the market now for two years, and we believe that over a million treatments have been completed. We have the benefit of having conducted three large Phase III clinical studies, including a head-to-head study against the market leader to support the approval of the product. Today, we announced the publication of two Phase II repeat dose, open-label, one-year studies that were part of the Transparency Global Clinical Program. The data from these studies were used to support the safety and efficacy of Juvo. We wanted to share some interesting observations that we think will be helpful for our injectors and patients, as well as investors. When treating patients with a biological drug, the regulatory bodies, such as the FDA, want to see what happens to duration of effect with each repeat treatment, since shortening of this interval can be a signal of building resistance against the drug or antibody formation. In both studies, the time interval between treatments did not shorten. Instead, within treatment cohorts, the time interval actually trended longer after each successive treatment. Another interesting observation was the rate of adverse events after repeated treatments. It was noted that the rates of all adverse events and drug-related adverse events both decreased with each successive treatment. We believe that these safety observations will continue to build injector and patient confidence in our product. Now, let me turn it over to Lauren for a financial update.

Thank you, Rui, and good afternoon, everyone. Earlier this year, we embarked on a strategy to recapitalize the company. We started the transformation of our balance sheet by eliminating $127 million of senior and convertible debt and future milestones. Next, we received a $25 million payment from our partner, Daewoon, and successfully completed a $92 million equity offering. The end result is on March 31, 2021, our pro forma cash position was $140 million, which is expected to fund Evelis for at least the next 12 months. As David mentioned, we posted strong net revenues for the first quarter of 2021 of $12.2 million up 16% over the first quarter of 2020, despite the headwinds from the ITC bond. We recorded most of our Q1 2021 revenue in the second half of the quarter as we continued to sell under a bond until mid-February. Moving down the P&L, our first quarter 2021 adjusted gross margin percentage was 60%, excluding the $25.5 million settlement payments. We continue to expect our gross margin percentage for fiscal year 2021 to be in the range of 50 to 55%, including the royalties owed under the ITC settlement agreement. Consistent with commentary provided on prior calls, our gross margin will depend on sales levels, promotional activity, and other factors. Our first quarter 2021 non-GAAP operating expenses were $24.8 million reduced 26% from $33.4 million in the first quarter of 2020. Expenses were lower in 2021 due to operating with a leaner organization during COVID-19 and reduced spending on programs delayed in the first quarter prior to settling the ITC litigation. We do expect our non-GAAP operating expenses may vary quarterly depending on promotional activity and other factors. The first quarter of 2021 was profitable on a net income basis due to the $25.5 million settlement payment received from our partner. Please note this was a one-time payment impacting only the first quarter of 2021. As a result of the settlement agreements and equity offering, as of May 7, 2021, we had 54.1 million shares of common stock outstanding, To help with your models, our basic weighted average shares outstanding for the first quarter of 2021 were 37.1 million, and our fully diluted weighted average shares outstanding for the first quarter of 2021 were 41.1 million. With that, I'll turn the call back over to David.

Thank you, Lauren. Last week, we brought together our selling team for our first live meeting since COVID-19 shutdown. and the energy across the sales force was palpable. The field is seeing firsthand the value of our aesthetic-only focus, investment in one-on-one marketing with their practices, and our digital focus on millennials. Out of our total purchasing accounts, we now have more than 500 high-volume neurotoxin accounts earning our co-branded media investment, and in less than a year have enrolled 160,000 patients into our consumer loyalty program. In partnership with our customers, we are committed to building a brand millennials ask for by name. In closing, I would like to take a moment to thank our Evelis customers who have fueled our rapid bounce back. Our commitment to them has never been stronger. We invest in their growth, we improve their profit margins, and we do this with a brand built from the ground up to appeal to the millennial segment. Lastly, I would like to extend my thanks to all Evelis employees who know that customer centricity powers this company. We would not be off to such a strong restart without their unwavering commitment. With that, I'll turn the call over for Q&A. Operator?

As a reminder, ladies and gentlemen, to ask a question, you will need to press star 1 on your phone's keypad. Again, that's star 1 on your phone's keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mark Goodman from SVB Learning. Your line is now open.

Hey, David. Can you give us a flavor for what's going on in the broader market? Previously, you had talked about $1.5 billion is how you were thinking about the market for this year. Is that still a number you're thinking about? Is it trending higher or lower?

um are the competitors kind of getting back out there doing the same thing as you are just just trying to understand like just what's happening you know behind the scenes thanks sure thanks for the question mark uh as as uh as we enter now here the second quarter uh it's been very impressive to see this market rebound back as quickly as it has uh as you heard uh the fourth quarter was likely the strongest quarter the neurotoxin markets ever had, and we saw that continue into the first quarter of 2021, whereas you look at the market leader as an example, their revenue continues to hit all-time highs, where in the first quarter you would typically see a dip in revenue relative to the seasonal high period of the fourth. You didn't see that this year, and I think that speaks to the strength of this market As you pointed out, we estimate 2022 market value will be $1.5 billion, and we estimate that the 2021 neurotoxin market will be roughly $1.3 billion. We'll continue to watch those trends as we see the year progress, but we feel very good about the market having not only rebounded, but that the overall market values will achieve all-time highs this year, which is certainly playing a role in the overall category growth this year.

And then, Lauren, should we expect SG&A to trend up as the year progresses?

Thanks for the question. I think if you look at the fourth quarter of last year, Mark, and I think we talked about this on the year-end call, it's a range that we're really comfortable with, and that was in the middle 20s and a little bit higher. Thanks.

On a non-GAAP OpEx basis, to be clear.

Your next question comes from the line of Annabelle Sumimi from Stifel. Your line is now open.

Hi, Al. Thanks for taking my question. Congratulations on a strong quarter. Getting a little bit granular here, can you tell us whether the 12.2 was some sort of restocking, you know, given that I think maybe people were running off their inventories with the uncertainty. So how much of it was restocking versus just on demand ordering? And secondly, I guess, you know, now that you're somewhat more free and clear to make some investments with the capital that you have, what are some of the programs you intend to sort of, you know, lean into this year? And how should we think about, I guess, competitors, what they're doing, and maybe some more of the FinTech, you know, investment going on. I know that not just Revance, but others are starting to look for some other platforms in the use of social media. So maybe you can talk to us about that a little bit. And then finally, it's great that Devin was able to give you that 25 million settlement payment. I was wondering if there's any other further assistance they're providing on a quarterly basis with regard to the royalty that you might have to pay to or that you do have to pay that at the many talks. Thanks.

Excuse me, this is the operator. I apologize, but there will be a slight delay in today's conference call. Please hold and the conference will resume shortly. Thank you for your patience.

Hello, this is the Evelis team rejoining the call.

Thank you, ma'am. You are now back at the main conference. Please proceed.

Do I have to repeat my question?

Yes. We dropped off the call, Annabelle. We had a disconnect on this side. Do you mind repeating your question? I'm sorry.

Okay. Sure. All three of them. Great. So I guess the first one was of the 12.2, how much of that was restocking by the practices given that they probably drew down some of their inventories towards the end of the year under the ITC cloud versus on-demand ordering? The second was if you could provide us with any ideas, some investment programs that you're going to have, you know, going into the year now that you have available capital and are kind of free and clear of any other legal overhangs. And then finally, I know that Dai Woon had paid a good portion of the settlement fees given their indemnification. Is there any further assistance that we should expect with regard to the royalty payment that you have to make to add the in MediTox. Thanks.

Sure. Thanks, Annabelle. I'll take the first two. This is David, and I'll turn it over to Lauren to address the day one settlement fee portion. Starting out with the revenue in the first quarter, the $12.2 million in revenue was a sharp bounce back for us in terms of our customer base.