Evolus, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Evolus is a performance beauty company whose revenue currently depends on Jeuveau, its sole commercial product, a botulinum toxin approved for glabellar lines. Amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $41.7 | $33.9 | +23.0% |
| Product cost of sales, excluding intangible amortization | $12.1 | $13.2 | −8.3% |
| GAAP gross profit margin | 69.1% | 58.9% | +10.2 percentage points |
| Adjusted gross profit margin (non-GAAP) | 70.9% | 61.0% | +9.9 percentage points |
| Operating loss | $(12.0) | $(15.4) | Loss narrowed |
| Net loss | $(14.8) | $(17.5) | Loss narrowed |
| Net loss per share, basic and diluted | $(0.26) | $(0.31) | — |
| Cash used in operating activities | $(20.6) | $(38.2) | Use decreased |
Product revenue was $41.0 million and Canadian service revenue was $0.7 million. Management attributed revenue growth primarily to higher sales volume and a slightly higher average selling price. Gross margin improved mainly because the earlier, higher settlement royalties ended in September 2022; Medytox royalties at a mid-single-digit rate on net sales continue through September 2032.
SG&A rose 12% to $37.4 million, primarily due to personnel costs related to commercial expansion. R&D increased to $1.4 million from $0.5 million, mainly reflecting the higher-strength Jeuveau Phase II trial. Interest expense increased to $2.8 million from $2.0 million, primarily due to Pharmakon loan interest and higher rates.
Financial position and liquidity
At March 31, 2023, cash and cash equivalents were $31.5 million, compared with $53.9 million at December 31, 2022. Working capital was $43.4 million; total assets were $160.2 million, total liabilities $153.3 million, and stockholders’ equity $6.9 million. Accumulated deficit was $512.1 million.
Inventory increased to $23.4 million from $18.9 million. Operating cash use included the final $5.0 million Medytox/Allergan settlement payment; operating cash use in Q1 2022 included a $15.0 million settlement payment. Investing cash use was $0.5 million and financing cash use was $1.3 million, including founder royalty payments.
Term-loan principal outstanding was $75.0 million, with a $72.0 million carrying value net of discounts and issuance costs. The loan was secured by substantially all company assets; its effective interest rate was approximately 14.77% at quarter-end. The loan had no minimum cash, revenue, or earnings covenant, and Evolus reported compliance with its covenants. A further $50.0 million tranche had not been drawn as of March 31. The reported debt fair value was $78.2 million.
Management stated that available capital resources were expected to fund operations for at least the next 12 months, while also noting recurring losses and negative operating cash flows were expected to continue. The company had an accumulated deficit and said additional capital might be needed for longer-term requirements. Its $50.0 million ATM program had not generated sales because the registration statement remained under SEC review.
Changes, outlook, and notable items
- Jeuveau launched in Germany and Austria in February 2023; Australia approval was received in January 2023. The company had previously launched in Great Britain in September 2022 and Canada through a distribution partner.
- Interim Phase II results for a higher-strength Jeuveau dose showed a similar safety profile to controls and a median duration of at least 26 weeks. The trial was expected to complete in the first half of 2023, with final results expected in the second half. These are forward-looking expectations, not reported outcomes.
- After quarter-end, on May 9, 2023, Evolus signed an exclusive U.S. license, supply, and distribution agreement with Symatese for five dermal filler candidates, collectively called Evolysse. Subject to FDA approval, management expected Lift and Smooth launches in the first half of 2025, Sculpt in 2026, and Lips and Eye in 2027. The agreement includes up to €16.2 million in milestone payments, cost-sharing for certain clinical programs, and minimum-purchase requirements. Symatese is responsible for pursuing U.S. regulatory approval.
- Also after quarter-end, a May 9 amendment to the Pharmakon facility provided for the $50.0 million second tranche in two scheduled installments, $25.0 million on May 31, 2023 and $25.0 million on December 15, 2023, subject to the loan terms. It also permitted a separate $15.0 million working-capital line secured by portions of working capital and changed the loan benchmark from LIBOR to SOFR.
- No specific full-year revenue or earnings guidance was provided. Management cited planned Jeuveau commercial expansion, future international launches, and development and preparation for Evolysse as expected spending needs. It warned that inflation, higher interest rates, economic uncertainty, and reduced consumer discretionary spending could affect costs, demand, liquidity, and access to financing.
- Material business risks include dependence on Jeuveau as the only commercial product; reliance on Daewoong as its sole manufacturer; competition and adoption risk in a self-pay aesthetics market; Medytox settlement obligations; and dependence on Symatese and FDA approval for Evolysse. The filing also describes ongoing securities class-action and derivative litigation; management could not reasonably estimate a loss range.
Key facts for investors to verify
- Whether Jeuveau revenue growth and improved gross margins continue as customer demand, pricing, promotions, and international expansion develop.
- Cash burn, cash balance, access to the Pharmakon tranches and any additional credit, and whether financing will be needed beyond the stated 12-month outlook.
- Whether Evolus meets debt-facility conditions and how the SOFR-based rate affects interest expense and liquidity.
- Progress, regulatory responsibility, milestones, costs, and launch timing for the Evolysse candidates under the Symatese agreement.
- Effects of continuing Medytox royalties through 2032 and founder royalties through 2029 on product economics and cash requirements.
- Developments in the securities class action and derivative litigation, and any material changes to the company’s supply, regulatory, or competitive position.