Evolus, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; financial amounts below are in millions of U.S. dollars unless otherwise stated. Evolus is a performance beauty company whose current revenue is generated primarily from Jeuveau, its sole commercial product.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total net revenue | $50.0 | $33.9 | $141.1 | $105.0 |
| Gross profit | $33.9 | $19.7 | $96.6 | $60.2 |
| GAAP gross margin | 67.7% | 58.0% | 68.5% | 57.4% |
| Adjusted gross margin | 69.1% | 60.2% | 70.0% | 59.5% |
| Operating loss | $(13.4) | $(17.9) | $(40.6) | $(54.7) |
| Net loss | $(16.9) | $(20.3) | $(49.9) | $(61.2) |
| Net loss per share, basic and diluted | $(0.30) | $(0.36) | $(0.88) | $(1.09) |
Q3 product revenue was $49.3 million; Canadian service revenue was $0.7 million. Revenue growth primarily reflected higher sales volume. Selling, general and administrative expense was $43.3 million in Q3, up 24.4%, mainly due to personnel costs supporting commercial activity. Q3 product cost of sales, excluding intangible amortization, rose 14.1% to $15.4 million, slower than revenue growth. For the nine months, R&D expense was $4.2 million and included $4.4 million of in-process R&D expense for the Symatese agreement.
Cash flow and liquidity: Operating activities used $34.8 million in the first nine months, versus $76.1 million in 2022; investing activities used $1.3 million and financing provided $21.1 million, including a $25.0 million Pharmakon loan draw. Cash and cash equivalents were $38.7 million at September 30, down from $53.9 million at December 31, 2022. Working capital was $43.5 million. Management expects available resources, including a further $25.0 million Pharmakon installment due December 15, 2023, to fund operations for at least 12 months from the financial statements’ issuance; the company nevertheless expects continued operating losses and negative operating cash flows.
Debt and balance sheet: Pharmakon debt principal totaled $100.0 million; carrying value, net of discounts and issuance costs, was $95.1 million. Interest is variable at three-month SOFR, subject to a 1.0% floor, plus 8.5%; effective rates at September 30 were approximately 15.18% and 13.97% for the first and second tranches. Interest-only payments continue until March 2026, with principal payments thereafter and maturity six years after the first-tranche closing. Debt is secured by substantially all company assets; Evolus reported compliance with covenants. Total liabilities were $187.3 million, and stockholders’ deficit was $19.4 million. The balance sheet also included a $47.4 million contingent royalty obligation to Evolus founders.
Material changes and notable items
- Revenue increased 47.5% year over year in Q3 and 34.4% for the first nine months. Losses narrowed in both comparisons; nine-month operating cash use also decreased substantially.
- Gross margin improved year over year as the earlier, higher Medytox/Allergan settlement-period royalties ended in September 2022. A mid-single-digit Medytox royalty on Jeuveau net sales remains payable through September 16, 2032 and continues to weigh on margins.
- In May 2023, Evolus entered an exclusive U.S. license, supply and distribution agreement with Symatese for five Evolysse dermal filler candidates and recorded a $4.4 million upfront payment as in-process R&D. The agreement includes milestone payments, development cost sharing and minimum-purchase requirements.
- The company extended its Newport Beach headquarters lease to January 2030; the amendment added $4.6 million of right-of-use assets and lease liabilities.
- Evolus had not sold shares under its $50 million at-the-market program as of the filing.
Outlook, risks and contingencies
Management expects continued Jeuveau sales growth to depend on adding customers and increasing purchases in a competitive aesthetic market. The company expects to launch Evolysse Lift and Smooth in the first half of 2025, Sculpt in 2026, and Lips and Eye in 2027, subject to regulatory approvals. Symatese is responsible for obtaining U.S. FDA approval; the filing describes the candidates as requiring the applicable device approval process. These are expectations, not assured outcomes.
Management cited inflation and possible effects on discretionary consumer spending, rising interest rates and variable-rate debt, and uncertainty in financing markets. Key business dependencies include Jeuveau, sole-source manufacturer Daewoong, Symatese for Evolysse, market adoption, regulatory approvals, competition and the ability to access additional capital. If resources prove insufficient, Evolus may need to reduce spending or delay, scale back or suspend programs.
The filing describes ongoing securities class-action and shareholder derivative litigation, as well as a books-and-records demand. Management said outcomes were uncertain and it could not reasonably estimate a loss range. No liability was accrued for these matters. The final $5.0 million cash payment under the Medytox/Allergan settlement was made in Q1 2023; quarterly Medytox royalties continue. The filing states disclosure controls were effective at a reasonable assurance level and reports no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Jeuveau revenue growth, customer purchasing trends and gross-margin trajectory, including the continuing Medytox royalty burden.
- Cash burn and whether the December 2023 Pharmakon installment is received; assess runway against management’s 12-month estimate.
- Pharmakon variable-rate borrowing costs, repayment schedule, secured status and covenant compliance.
- FDA progress and timing for each Evolysse candidate, Symatese’s performance, milestone obligations and minimum-purchase terms.
- Developments in the unresolved securities and derivative litigation and any resulting financial exposure.