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spk05: Greetings and welcome to the EvoList third quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, David Erickson. Thank you. You may begin.
spk02: Thank you, Operator, and welcome to everyone joining us on today's call. With me today are David Modizetti, President and Chief Executive Officer, and Sandra Beaver, Chief Financial Officer. Our prepared remarks today will include forward-looking statements within the meaning of United States securities laws, and management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business, strategy, operations, or financial performance. A detailed discussion of the risks and uncertainties that the company faces is contained in its annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate, projection, or forward-looking statement. 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 8K filed today with the SEC, and on our investor relations website at evelis.com. Lastly, following the conclusion of today's call, a replay will be available on our website at evelis.com. And with that, I'll turn the call over to David. Thank you, David.
spk03: We are very pleased to share with you our results for the third quarter. But before we get into the detail, I'd like to highlight four key takeaways. First, we are reiterating the top end of revenue guidance for the year, coming off of a very strong quarter of growth, where we believe our unit market share is now approaching 10%. Second, our reduction in operating losses was driven by the significant drop in royalty rates and disciplined operating expense management, clearing the path to profitability with our current cash on hand. Third, we launched in Great Britain this past quarter, and our European expansion is well underway. And lastly, we are uniquely positioned to attract commercial and development stage assets as we build out our product portfolio. Now let's get into the results of the quarter. As reported, revenue this quarter grew at an above-market 27% rate over last year. And when taking into account the above-normal incremental deferred revenue that resulted from the success of our Switch Your Talks campaign, year-over-year growth was much stronger. Demand for GVO remains strong this quarter, even with anticipated seasonality and the return of summer travel. And this positive momentum is continuing into the fourth quarter. We continue to expect 2022 to be another year of strong growth for Avalis and remain confident in the resilience of the aesthetic neurotoxin market. For this reason, we are reiterating the top end of our full year 2022 sales guidance range of $143 to $150 million. This equates to a year-over-year growth rate approaching 50%, which is roughly triple the projected toxin market growth rate. Perhaps the most significant highlight of the third quarter was a highly successful launch of our Switch Your Talks promotional campaign, which helped generate the largest number of new purchasing accounts since our initial product launch period and drove a record 100,000 consumer redemptions in our loyalty program. We expect Switch Your Talks to result in as many as 70,000 new Jevo patients, which could represent additional market share. The switch program began in September, and patients will continue to redeem their initial $80 switch savings by the December 31st deadline. This will drive continued momentum into the fourth quarter, which gives us confidence in a strong finish to the year. The success of the Switch Your Tox program required that we defer a higher-than-normal amount of revenue to account for the rewards that customers earned. As reported, sales for the third quarter grew 27% over last year to $33.9 million. If you consider the additional revenue we deferred, our year-over-year growth rate would have been even stronger than our reported rate. This performance clearly demonstrates that we are continuing to gain market share. Aided by Switch, in the third quarter, we added nearly 650 new accounts, the highest number of new accounts since our initial product launch period. This brings our total account base to more than 8,800 purchasing customers with a reorder rate that remains steady at above 70%. Our Eveless Rewards program grew by almost 50,000 in the quarter to nearly 450,000 members, which puts us on track to exceed a half a million total members by year end. Reward redemptions among new and existing members were evenly split. which demonstrates strong loyalty to Jouveau and illustrates the power of this program to motivate consumers. One of the things that continues to set Eblis apart is our co-branded marketing, and we are continuing to use this program to strengthen partnerships with our customers while building the Jouveau brand. Through a combination of mediums, including billboard, digital, and streaming television, customers can tailor their advertising program to maximize awareness of their practices and generate patient interest in Juveau. As we continue to expand this offering, we not only benefit from economies of scale, but we also improve the effectiveness of the program. Looking at the overall market, during the third quarter, Many of our customers reported lower procedural volumes in the summer as patients took vacations, but saw toxin appointments begin to ramp back up towards the end of the quarter as people returned. This suggests that we are beginning to see the return of the historical seasonal trends that are typical in the aesthetics industry. Against an uncertain economic backdrop, we are continuing to closely monitor the degree to which our customers might be impacted by changes in consumer behavior and continue to see favorable demand for neurotoxins despite softening trends for other aesthetic procedures. Although aesthetic toxin procedures are discretionary, we are reassured by two things. First, Neurotoxins remain one of the most affordable aesthetic procedures, and historical data shows that even during challenging economic times, toxin use continues to grow. Second, the toxin market is significantly under-penetrated, and the key growth driver of the future is the millennial demographic, which is an audience approaching the 40s and one that Evelis is specifically targeting with our Jevaux brand and extensive digital capabilities. Today, Evelis is in an enviable position with strong performance and a clear pathway to profitability. In the seven short quarters since our relaunch, we have grown to nearly 10% of the U.S. aesthetic toxin market and started building our footprint in Europe. We believe this has uniquely positioned us to attract both commercial and development stage assets that can expand our aesthetic footprint beyond neurotoxins. Now turning to our international business. Last month, we announced the launch of Nuceva in Europe, beginning in Great Britain, and the team is off to a great start. Interest among clinicians is strong. We are the newest company to enter in nearly a decade and believe customers are ready to embrace our unique approach to the aesthetic market. Most recently, we had a major presence at the CCR meeting in London, which is the UK's flagship event for medical aesthetics. Over the course of the two-day event, we engaged with a large number of potential customers and conducted several scientific symposia and presentations. Expanding into Europe is a significant milestone for Evelis, and we look forward to broadening our overall geographic presence even further. Before I turn the call over to Sandra, I'd like to provide a brief update on our Phase II Extra Strength Study. As previously reported, the last patient was enrolled at the end of the second quarter, and patient follow-up is ongoing at our study site. Based on our progress, we now plan to present an interim data analysis in early 2023. An abstract has been accepted for a podium presentation at MCAS in Paris, one of the largest aesthetic meetings in the world, which will take place at the end of January. We look forward to demonstrating the longevity of our extra-strength dose within the next 90 days. With that, I'll hand it over to our CFO, Sandra Beaver, who, as you know, joined Evelis about 10 weeks ago. With her strong operational experience, Sandra has been able to hit the ground running and quickly learn our business. She's already become an integral part of the team, and we're thrilled to have her on board. Sandra?
spk08: Thank you, David. As I reflect on my decision to join the company and my experience since then, my enthusiasm for Evelis has continued to grow. Whether it's our unique cash pay business model, our digital solutions and co-branded marketing, the quality of Jevo and ability to capture meaningful market share, or the experience and capacity of this management team, my belief in what Evelis is building, both in the U.S. and abroad, is reaffirmed each day. And with our strong cash position and disciplined operating expense management, I am confident we are on track to achieving profitability and feel fortunate to have joined at such an exciting time on our growth journey. And finally, I'll just add that I look forward to getting to know our analysts and shareholders in the days and weeks ahead. Now, turning to the numbers. Global net revenues for the third quarter this year were $33.9 million, compared to $26.7 million a year ago, which was a growth rate of 27% and driven almost entirely by higher volumes. Included in sales this year was $0.7 million of sales to Canada, which are reflected as service revenues on the P&L. Sales into Great Britain, which are included in product revenue, were minimal this quarter. Overall, the pricing environment for neurotoxic products in the U.S. remains strong, and the average selling price of Juveau is consistent with Q2 and above 2021. As David mentioned earlier, we believe our reported sales for the third quarter understate the true strength of our business, and I'd like to provide some additional detail. In the third quarter, we deferred an incremental $3.5 million of revenue compared to Q2, primarily related to the highly successful Switch Your Talks program. Including this deferral, our sequential growth rate would have been nearly flat in what is typically a sequential down quarter due to seasonality. You will recall that the Switch program required customers to purchase at least 30 vials of Jouveau in the third quarter. In exchange, customers received 60 consumer reward certificates worth $80 off two consecutive treatments for a total of $160. This reward, which our customers gave to new GIVO patients, represents a meaningful savings, and we are confident that after two treatments, consumers will see and feel the benefits of GIVO and make the switch. As outlined in the gross-to-net revenue adjustments note in our public filings, Obligations related to our consumer loyalty programs are initially recorded as deferred revenue. Evidence of this increased deferral is reflected in the $3.5 million quarter-over-quarter change in accrued revenue contract liabilities, part of accrued expenses on our balance sheet. We expect the majority of this extraordinary amount of deferred revenue to be recognized in our Q4 results in alignment with the December 31st expiration date for the redemption of the first switcher tox treatment. Finally, it's worth noting that customers will need to purchase additional product to treat the new consumers who will be redeeming their rewards. All of this supports our view of a strong finish to 2022, as reflected in the reaffirmation of the top end of our full-year sales guidance. Moving down the P&L. As reported, growth margin for the third quarter was 58%, and our adjusted growth margin, which excludes the amortization of intangibles, was 60.2%. Beginning in mid-September, we had a material decrease in our settlement royalty obligations, with the conclusion of our royalty to AbbVie and our royalty to MediTox decreasing to a mid-single-digit rate calculated on global net sales. These changes will dramatically lift our fourth quarter adjusted gross margin to the range of 68% to 71% and result in a blended full-year adjusted gross margin of 58% to 61%. Reported selling general and administrative expenses for the third quarter were $34.8 million compared to $36.9 million in the second quarter. This reduction in spending of $2.1 million, related primarily to marketing and distribution expenses, demonstrates our ability to manage our operating cost structure. This quarter, SG&A expenses included $3 million of non-cash stock-based compensation. Our GAAP operating expenses for the third quarter were $51.8 million compared to $58.5 million in the second quarter. Non-GAAP operating expenses for the third quarter reduced to $33.7 million from $35.4 million in the prior quarter. For the full year, we now expect our non-GAAP operating expense to come in at the lower half of our previous guidance range of $135 to $140 million. Our non-GAAP loss from operations in the third quarter was $13.3 million compared to $14.1 million reported in the second quarter. As a reminder, both non-GAAP operating expenses and non-GAAP loss from operations exclude product cost of sale, IPR&D expense, stock-based compensation expense, revaluation of the contingent royalty obligation, and depreciation and amortization. Turning to the balance sheet. We ended the third quarter with 65.6 million in cash compared to 84.5 million at June 30, 2022, for a difference of 19 million. The major pieces in that 19 million include 14 million of inventory payments to support growth of the business, a combined 8 million of net royalty payments, and interest payments of approximately 2 million. In the third quarter, net cash used for operating activities was 17.1 million, which was 3.8 million less than the amount used in the second quarter, and a continuation of the favorable trend we've seen this year, keeping us on the path to achieving sustainable positive cash flow. As a reminder, we have one final $5 million settlement payment due in the first quarter of 2023, which will satisfy our settlement milestone obligation. And we continue to expect that our existing cash balance will fund our current operations through cash flow breakeven. Before I turn it back over to David, I would like to summarize our 2022 guidance. Full year sales at the top end of $143 to $150 million, which includes a minimal contribution from international markets. These assumptions are based on anticipated success of the Switch Your Tox program and reflect our confidence in the resilient aesthetic neurotoxin market. Full year adjusted gross margin between 58% and 61% and a fourth quarter rate of 68% to 71% to reflect a decrease in settlement royalty rates. And full year non-GAAP operating expenses in the lower half of our $135 to $140 million range. Other modeling assumptions include quarterly interest expense of $2.6 million and full-year weighted average shares outstanding of approximately $56 million. Over to you, David.
spk03: Thank you, Sandra. As 2022 comes to a close, I want to acknowledge the great effort of our Evelis employees who are on track for a strong finish to an outstanding year. We are now seven quarters into the relaunch of GVO, and I'm proud to say that we remain the fastest-growing neurotoxin in the U.S. today and are on track to achieving nearly 50% growth this year. Our focus on the cash-free market has enabled us to create a differentiated experience for our customers and, in turn, their consumers, resulting in GVO earning the number one or number two share position within our purchasing account. As we look forward to 2023, we continue to forecast a growth rate of at least double the market driven by our expanding share in existing customers and continued penetration of the remaining 20,000 accounts in the U.S. that have not yet tried to vote. We will also expand our footprint beyond Great Britain into new European markets and expect to receive approval in Australia. Lastly, we expect the preliminary results from our extra strength phase two study to bring clarity to the market around the relationship between dose and longevity, which could uniquely position Evelis with two dosage strengths. With that, we're ready to take questions.
spk05: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Mark Goodman with SVB Securities. Please proceed with your question.
spk01: David, you spoke a lot about Juve. We got a lot of information on why it did what it did in the quarter, but can you talk about the broader market in the quarter? Obviously, everybody listens to what AbbVie has to say and saw their numbers, and it just seemed a little weaker than what would have been expected. I think there's a little bit of a concern that there's a slowdown going on in the broader market. Talk about that a little bit, how you're thinking about what was the sales for the broad market in the third quarter, growth or whatever. How are you expecting the year to play out, and how are you thinking about 2023? Are we going to have a market that slows into the low to mid-single digits, or how are you expecting this to play out? Thanks.
spk03: Great. Thanks for the question, Mark. A couple comments on the quarter. The first is clearly seasonality took effect this year, and we're wrapping around on a prior year where consumers weren't traveling. And so I think you're seeing that effect resulting in some dampening in terms of the procedural growth rate versus prior year, and I think that was something that others have commented on as well. As it relates to the market slowing, as we mentioned in the opening comments, we've been looking very closely at our business. Evelis Reward, Redemptions, and as you saw in our report, the third quarter hit an all-time high in terms of Evelis Rewards participation. We haven't seen the slowing. We have heard, of course, that consumers are feeling a bit of the pinch in the pocketbook and maybe trading down, which is, you know, historically, Mark, you covered this category during the prior recession. Toxins are the most resilient because consumers are will trade down to a neurotoxin in the $300 to $500 price range and trade off other procedures. So we may be seeing that. But, of course, given the majority of our growth this year has come from market share gains versus actual market growth, it's tough for us to get a sense for how that's playing out in the market. But we remain very confident and continue to see very strong trends on our business. That being said, of course, we're hearing about the pinch, whether it's in the grocery store, at the gas pump, and we expect that, of course, in some level to impact the aesthetic market. Fortunately, we continue to benefit from the combination of share gain, as well as a market that we do believe is continuing to grow. It may not be at the same cliff as it was prior, but continues to grow at a healthy rate. And as we look forward, I think our best analog is to look back and look Historically, this market has grown at a high single, low double-digit growth rate. It has the potential to continue to accelerate given the favorable macro trends towards the younger generation that have an interest in entering an aesthetic market. And, of course, this market has always rebounded even when it goes through a period of slower growth. And so for those reasons, we're really optimistic about 2023. And I think we've given some level of guidance in that we expect next year that our business will grow at more than two times the market average, so that gives you a sense for our confidence and our ability to continue to expand our presence in the U.S.
spk05: Thanks. Our next question comes from a Louise Chen with Cantor Fitzgerald. Please proceed with your question.
spk04: Hi, good afternoon. This is Carvion for Louise from Cantor. Congrats on a strong execution this quarter. I think you're putting in questions. First, can you remind us of the market opportunity for the extra strength? And if successful, how will it impact the sales of the regular strength, if at all? Our second question is, on a launch in Europe, can you provide a little bit more color on the uptick of RAMP in 2023? Thank you. Great.
spk03: Let me start with the extra strength. Clearly, there's a lot of interest in the market around the role of dosing as it relates to longevity in the market. In the research that we've done with existing Ebolus customers, 86% of customers have said they're very interested in understanding the role of an extra strength product. When you dig a layer deeper beyond just the interest level and understand where the utility of the product might be, it still represents a minority of the use, meaning as we think further out over time, the continued dominance in use in this market is going to be the regular strength of the product. And so we continue to believe it's important to understand the relationship between dose and longevity. And as I mentioned in my earlier comments, we'll get a chance to share some of those results later. early in the year next year when we reveal that data in January at the MCAS meeting. Moving on to the uptake ramp in Europe, this year we said it was an investment year. We invested high single-digit millions, and we expected a nominal contribution from international. Clearly, international contribution next year will continue to rise, not just from the investment we've made in the UK, but also as we expand into other markets. As you know, UK is the single largest market in Europe, followed by Germany, and we expect to be in both of those markets next year. We'll provide more color in the new year around our expansion beyond those two key markets. So we'll provide some more color as we enter the new year, but we feel very good about Europe being a contributor to growth next year and, of course, over time presents a significant opportunity for us as Europe is the second largest market in the world after the U.S., for neurotoxin.
spk04: Great. Thank you so much, and congrats on the progress.
spk05: Our next question comes from Annabelle Semai with Stiefel. Please proceed with your question.
spk07: Hi. Thanks for taking my question. I had a couple here. So just to go back to your other response when it comes to the higher dose or the extra strength dose, when you say Yes, there's a lot of interest in the high dose, but when you dig a little deeper, it's still a minority who might use it. How do you tease that out, and what pushback do you get when you ask, I guess, a little bit more of a detailed question? So I guess I want to understand that, because most of the surveys we do show a high level of interest and a higher dose, therefore a longer duration. So that's the first question. Maybe you can help us understand the mechanics of the switch to toxin deferred revenues. So they buy 30 units during the quarter. They get 60 reward coupons. Is there a timeline as to when those consumers need to use that? And so just if you can help us with the confidence level you have in recognizing the 3.5 in deferred revenues. Thanks. Thanks.
spk03: Okay, great. Let me start with the extra strength data. So what we did in our survey was we asked existing customers what their interest level was in an extra strength neurotoxin that provides greater longevity. And as I mentioned earlier, 86% expressed a lot of interest in understanding how that works. As the next layer you dig in, which is you want to understand, well, how often would you use this higher dose, and what areas of the face would you use the higher dose? That's where the complexity enters. The reality is if you pick areas that are outside of the approved label, which is the glabella area, you go into areas like the forehead, today in the U.S., toxins are underdosed relative to the label in the forehead. And so the idea of increasing dose in an area that's known for for adverse events becomes challenging for customers to think through how they could potentially do that, meaning the trade-off of longevity versus the look they receive or potentially the adverse event profile that may result from it. So I think it's fair to say there's a big learning curve But what's important is we're uniquely positioned. We have a 20-unit dose, which is a flagship use of a 900 kilodalt molecule, which is what's enabled us as a fourth entrant in the market now to command a 10% share of this category, which is meaningful given we've only been on the market less than two years. since we settled, but then adding on to that with an extra strength dose with a company that's uniquely positioned to capitalize on the pricing dynamics of this category, we think gives us an opportunity to potentially explore both options of the original as well as the extra strength dose. But ultimately, I think it's fair to say anytime you're introducing a new language to a category, like an extra strength or doubling the dose, there's going to be a learning curve associated with that, and there's a lot that we don't know today, and we'll have to learn that over time. On the second question, as it relates to the EBLIS Rewards Program, the timeline for consumers to redeem their rewards ends December 31st. If a consumer hasn't redeemed their initial $80 reward, then those coupons will expire, meaning we don't carry any further liability if the initial coupon hasn't been redeemed. We'll have a great sense for the number of consumers that switched. as a result of the switch your tax program by the time we come around to the end of the year, which is what gave us the confidence to make the comment that the majority of that revenue deferral will be realized in the fourth quarter.
spk07: Okay, great. Thank you.
spk05: Our next question comes from the line of Douglas Tao with HG Wainwright. Please proceed with your question.
spk06: Good afternoon, and thanks for taking the questions. And I guess, David, just to your point, you know, consumers are perhaps feeling the pinch. Have you thought about ways to sort of provide some relief or to sort of incentivize patients to continue to move ahead with aesthetic procedures? I know you obviously don't want to sort of disrupt your pricing strategy as it affects your core customers. So are there sort of consumer-oriented, you know, if we do see sort of a little bit longer period with inflationary pressures.
spk03: Doug, thanks for the question. And I know you know this category well because you covered it during the last recession. And consumer behaviors do change at a time when they feel the pocketbook pinch. And you see that reflected in product choices on all consumer goods. And certainly aesthetic products are no different than other consumer retail items. As a matter of fact, we think we're very well positioned in the event that the market were to slow down. Our product, of course, improves the profitability profile of the number one procedure for practices in aesthetics, which makes us an attractive option to consider. As we pointed out, we're only in about a third of accounts across the U.S. today and have plenty of opportunity to open new accounts and engage with customers today. The second is because we're a cash-pay business, we're able to engage with customers in a way that's unique. When we enter practices and we offer co-branded media, whether that's digital, television, or billboards, that replaces some of their own marketing spend. And during a time where they're feeling the pinch on the bottom line, Our investment in marketing and media is a way for us to help fuel their growth while they pull back on that spend, and we've heard that consistently from some of our top customers that see the benefits of that. Of course, their competitors that are down the street see the benefits of our advertising as well, and that's helped fuel the growth you've seen in the new accounts. The Eveless Rewards Program was designed specifically for us to be able to address some of the price elements related to what the consumer is paying out of pocket. The Switch Your Talks Program was deliberate. It was an opportunity for us to make an investment at a time where we felt that we could gain not only market share in the category, but help offset some of the cost to consumers. As you know, right around the time we launched this, in the middle of the year, we said the summer season was going to be unique. for this market this year because of the wraparound effects. And we think we made the investment at the right time. We're seeing it reflected in the unit share gains, and we believe those share gains will continue into next year. And we're going to continue to deploy the types of consumer reward benefits to keep these patients coming back more often with a preference towards Javeau. We've seen some early signs that we can move the needle. And because of our digital platform, we can provide customized rewards to consumers, depending on where they are in their treatment and how far out it's been since their last one. we feel we're well-suited and positioned overall to continue to capitalize on the market, whether it continues to be at healthy growth, which we do believe it is a healthy market, or ultimately if the market does slow down a bit, we think that we have some very favorable positioning in this category to benefit from that.
spk06: And maybe just as a quick follow-up, I mean, David, have you seen sort of an increase in any accounts that might be sort of now thinking about just given your economic profile and what you offer them, an interest in you sort of who maybe in the past has said, you know, not sure, happy with the toxins that I'm having now, but sort of reconsidering that in light of macro conditions. Thank you.
spk03: Yeah, I think you look at the third quarter, here we are in the third year since we originally launched this product, and we're hitting an all-time high in terms of new accounts purchasing since that initial launch phase. So I think we are seeing that. The programs that we're deploying are helping bring that to light, and we do believe that that's a sustainable trend in the sense that the market continues to see us as a favorable option to other neurotoxins that are have continued to raise price and put pressure on the profitability of the procedure, and we deliver a very high-quality outcome with a 900-kilodalton molecule that they're very used to using. That is the gold standard in this category, and these doctors know how to inject the 900-kilodalton toxin, and that makes that transition for an account as well as a consumer much easier because they understand how these products perform.
spk06: Great. Thank you.
spk05: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. There are no questions at this time. I'd like to turn the call back over to management for closing comments.
spk02: Thank you, Operator. If you missed any portion of this call, a replay will be posted to our website later today. Thanks to everyone for joining us. We appreciate your interest in Evelis, and we'll be available if you have additional questions.
spk05: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
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