Greetings and welcome to the Evolus Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Erickson, Vice President Investor Relations. Please go ahead, sir.

Thank you, operator and welcome to everyone joining us on today's call. With me today are David Moatazedi, President and Chief Executive Officer and Lauren Silvernail, Chief Financial Officer and Executive Vice President, Corporate Development. Our prepared remarks today will include forward-looking statements within the meaning of the 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. The 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, our 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 an isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC, and on our Investor Relations website evolus.com. Lastly, following the conclusion of today's call, a replay will be available on our website at evolus.com. And with that, I'll turn the call over to David.

Good afternoon. And thank you, David. We are very pleased to share with you our results for the second quarter of 2021. This quarter is notable for several reasons. Not only is it our first full quarter of results following the successful resolution of our legal matters, but more importantly, it is a quarter that clearly demonstrates both the resilience of Evolus as a company and a strong underlying demand for Jeuveau. Thanks to the unwavering support of our customers and the dedication of our employees, we reported $26.1 million of net revenue in the second quarter and delivered on our goal of achieving a $100 million annualized run rate. We remain very encouraged by the strong recovery of the U.S. aesthetics market and the increasing demand for toxin products among existing and new patients. This quarter, our primary focus was on re-engaging our existing account base following the settlement. We were pleased to see the majority of customers who purchased in the fourth quarter of 2020 have since reordered. This validates their commitment to Jeuveau and was a key driver of our strong second-quarter revenue. Additionally, we added over 300 new accounts, bringing our total account base to more than 6,000 purchasing customers. We also observed continued strength behind our Evolus rewards program, which has seen a 66% increase in registrations compared to year-end 2020 and now stands at more than 200,000 consumers. In the second quarter, we maintained a prominent presence in both digital advertising and billboards. These marketing initiatives are designed to elevate the visibility of our brand and our customers while maximizing the efficiency of our investments. Our co-branded advertising is first in class, and another example of how we are working with our customers to build a toxin category together. We are continuing to innovate around the advertising model to broaden our offering using localized targeted spending across a range of advertising vehicles that focus on the injector. For example, we will be piloting streaming television spots in local markets with key customers during the third quarter. Overall, our strong second-quarter results reinforce our belief that our differentiated approach of partnering with customers through advanced technology targeting a younger demographic will fuel our strong momentum going forward. While the ongoing pandemic adds an element of uncertainty, our confidence remains high that procedural volumes will continue to grow in the back half of 2021, which positions us to achieve record sales in the second half of the year. As we continue to build our company, we are adding key senior talent. We recently welcomed two leaders to the team. David Erickson, who has extensive healthcare industry and Investor Relations experience, came on board to lead our Investor Relations function. We also added Dan Stewart as Head of our International Business. Dan has considerable industry experience, having held sales leadership roles in several medical aesthetics companies, and his first task is to spearhead our global expansion into Europe. We look forward to the many contributions both individuals will make as we execute our growth strategy. Speaking of Europe, we continue to make progress preparing for our launch there, which remains on track for early 2022. Europe represents a $470 million market opportunity, and we believe our digital capabilities offer a unique advantage to build a strong presence in what is the second-largest global market for aesthetic neurotoxins. The launch of Nuceiva, which is the brand name of our products internationally, opened in 31 new countries and significantly increases our global footprint. We expect to be the fourth entrant to the European market just as we were in the U.S., and we look forward to applying key learnings from our U.S. launch to help drive the rapid uptake of Nuceiva. We will provide further updates as we get closer to our launch. Before I turn it over to Lauren, as you saw in the June press release, we were proud to announce the publication of a peer-reviewed article highlighting the efficacy and safety of Jeuveau in patients with skin of color. As the article noted, clinical data involving non-Caucasian patients is quite limited. Yet this demographic comprises a significant percentage of the population today and a growing segment seeking neurotoxin treatments. Articles such as this add to the body of strong clinical data that helps support injector and patient confidence in Jeuveau. Now, I'll turn the call over to Lauren for some additional financial information.

Thank you, David. And good afternoon, everyone. I'm extremely pleased with how much the team at Evolus has accomplished in the first half of this year. We successfully restructured our balance sheet, eliminating $117 million in senior and convertible debt. We raised $92.4 million from a public stock offering and $25.5 million from a partner settlement payment. We also tightly and mindfully managed our operating expenses, which has enabled us to increase investments in customer programs. These initiatives have resulted in a more efficient organization focused on driving revenue growth and a strong cash balance of $131.7 million at June 30, 2021. We believe this will fund our operations for at least the next 12 months. As David mentioned, we reported strong net revenues of $26.1 million for the second quarter, up more than 200% from a year ago when our sales were impacted by COVID. Included in that amount was $0.7 million of net service revenue related to international sales. As you model for the back half of 2021, there are two things to keep in mind. First, due to the purchasing patterns of our Canadian partner, net service revenues are not recorded every quarter, and at this time, we don't anticipate recording any service revenue for the balance of 2021. Secondly, please keep in mind that while Q4 is the seasonally strongest revenue quarter, Q3 is typically the lowest. Overall, the pricing environment for neurotoxin products in the U.S. is quite stable. In fact, we are seeing some competitors raise prices. While the majority of our growth this quarter was driven by higher volumes, net revenue was also aided by a higher net average selling price following the sunsetting of 2020 COVID promotional pricing. Now moving down to P&L, our reported gross margin in the second quarter was 53.9%. Our adjusted gross margin in the second quarter, excluding the amortization of intangibles, was 56.7% and consistent with the first quarter of this year. Based on our year-to-date performance, we are increasing and tightening our full year 2021 adjusted gross margin target to a range of 54% to 57%. The full year adjusted gross margin includes settlement royalties and excludes a one-time payment from our partner starting in September 2022. I'll remind you that the royalty on net sales drops significantly to a mid-single-digit rate. As a result, beginning in the fourth quarter of 2022, we expect our gross margins will exceed 70%. Selling, general, and administrative expenses on a GAAP basis for the second quarter of 2021 were $26.4 million, up from $17.6 million during the second quarter of 2020, which was an unusually low level due to COVID. While we are carefully managing operating expenses overall, we continue to make investments to drive U.S. revenue growth, support our planned market expansion into Europe, and further strengthen our internal capabilities. For the second quarter of 2021, SG&A expenses on a GAAP basis included $2.8 million of non-cash stock-based compensation expense. Following COVID and the settlement of the ITC and related litigation, we continue to improve our profitability. Specifically, our non-GAAP loss from operations improved by 25% to $9.3 million in the second quarter of 2021, compared to $12.4 million in the second quarter of last year, driven largely by higher sales this quarter and a $3 million COVID-related restructuring charge in the second quarter of 2020. For your models, I also want to remind you of some previously disclosed cash obligations coming up later this year. These include a $15 million settlement payment in the third quarter, and a $20 million payment to the Evolus founders in the fourth quarter. Also, in the third quarter of this year, we begin paying quarterly settlement royalties. For the second quarter, our weighted average shares outstanding were 51.2 million. And for modeling purposes, we suggest using approximately 49.6 million shares for the full year 2021. And with that, I'll turn the call back over to David.

Thank you, Lauren. In closing, I'd like to make a few comments about the quarter, what it means for the rest of the year, and the long-term prospects for Evolus. On the quarter, we set a new revenue baseline from which we plan to grow. We now have the wind at our back as we look forward to robust growth ahead. Evolus has emerged very strongly from the events in our path, and we are focused on becoming a global leader in the aesthetics industry. For the company, we intend to execute with excellence around Jeuveau in the U.S., and the launch of Nuceiva in Europe next year. We have made significant progress this year in transforming our balance sheet and leaning more heavily into our digital platform to drive efficiency and impactful customer engagement. As we look beyond 2021, we are committed to expanding our presence beyond neurotoxins and have prioritized business development to transform the long-term prospects for Evolus. Lastly, I would like to thank the growing ranks of Evolus customers who have committed a greater portion of their patient base to Jeuveau and recognize the value we bring to their practices. Our commitment to you remains firm. To our shareholders, thank you for your confidence and support as we continue to grow our company. To the Evolus team, a special thank you. It's clear to me that we have the best team in the business. Look at what we've weathered and what you all have delivered. With that, we're ready to take questions.

Thank you. At this time, we will be conducting a question-and-answer session. Your first question comes from the line of Annabel Samimy with Stifel. Please proceed with your question.

Hi, everyone, and congratulations on a solid quarter. So, a few from me here. Last week, we saw a huge beat for the anesthetics both on the filler and the neuromodulator side. That's obviously pointing to demand rebound and market expansion. Maybe you can sort of provide some color on how you're participating in this market expansion and rebound? Are you seeing new patients or primarily switches? Are you seeing same-store sales from the accounts you've built loyalty around? Are you in the right target demographic that you've been seeking, specifically the millennial? So, I guess what I want to know is what kind of stickiness are you finding in your product? Do you find a lot of switching between the products and loyalty programs? And so that was long-winded, I apologize for that. But the second question I have is, maybe you can share some of the metrics regarding specifically your co-marketing campaign, if it's bringing the patient in, directly tied to the ads, billboards, etc.? And what kind of usage have you had of the consumer loyalty programs? Sorry, too long-winded questions. I apologize.

Annabel, this is David. Thank you for the questions. I think all three questions are interrelated. What you're getting at are broadly the market questions and what we're seeing there, and what role we're playing in shaping that market both around the injector, the customer, as well as the consumer and what that might mean going forward. Just starting out with the market, we were pleased to see the market leader reported last Friday, and they posted very strong growth, as you saw over 100% growth. And of course, we've announced now over 200% growth, which is very healthy to see a mature product that's been in the category for 20 years growing at that clip. Now, we all recognize it's on a depressed baseline year on year. That being said, there is strong momentum in the market, and we do believe that we're playing a significant role in contributing to that. There are two things that I would point out in the quarter that I think are meaningful to focus on. The first is the record revenue that we drove, which came off of the same customer base, largely that we had in 2020. Very little of it came from new accounts, which shows that number one, accounts are growing faster, but we're also seeing that as a result of our co-branding initiative, customers are willing to commit a larger portion of their business to Jeuveau. That gives us greater confidence as we invest further in the back half of the year. In addition to that, our consumer loyalty program continues to perform very well. As you know, we finished last year with just over 100,000 consumers in the loyalty program. Now we're reporting that the front half of the year has eclipsed 200,000 consumers in the program. We feel very good about the momentum we are on, and the demand for our product amongst the injector universe is high. But also, consumer demand is moving along very strongly. That's all happening in a backdrop where today, we're up in over 6000 accounts. There are over 30,000 customers or greater in this aesthetic universe. And as we now approach the back half of the year, we believe the wind is at our back, as we're going to continue to expand on the opportunity within our existing customer sets, while we also go wider. We think with the market continuing to grow at a fast clip, as we focus on the millennial segment, which we believe will be the fastest growing segment as a category, the combination of those activities give us a lot of tailwinds to continue building.

Great. Are you seeing repeat usage of the consumer loyalty program? I know you've got 200,000 in there, but are you seeing repeat usage of the $40 discount every quarter that they have, up to like $160 or something?

Yeah, Annabel, we are. We're seeing very good return on visits for these patients that were treated in the back half of last year. We haven't reported out on those metrics as we want to get more quarters under our belts before we report out on some of those return metrics. But we're seeing what you would expect to see out of a consumer loyalty program, which is patients that are in them tend to come back more often. We just want to have a few more quarters of experience under our belts before we start sharing some of that detail.

Got it. One last question if I may. As far as the customer side, are you still over-indexing to the millennial population relative to the market?

Yes, we believe we are. We are now tracking our consumer loyalty program as the lead indicator of the demographic mix. What we're seeing is nearly 40% of consumers in our loyalty program are from the millennial generation or younger. We think that's a very strong trend, clearly over indexing against the broader market. Thank you.

Your next question comes from the line of Marc Goodman with SVB Leerink. Please proceed with your question.

Hey everyone, thanks for taking my question. So, this is Rudy on the line for Mark. Congrats on the quarter. I have one question. You mentioned that the procedure volumes will continue to increase in the second half of the year. Can you provide more color on the second quarter-on-quarter, given the worsening pandemic conditions?

Hi Rudy, I would love to give you a lot more color around the quarter-on-quarter views. Unfortunately, given we had a tough quarter in the first quarter and now we're entering the second, it's hard for me to have a great gauge on it. We do look at third-party reports. Clearly, I think when you dollarize what we reported now and the other public company has reported to date, you get a sense for the market itself that it certainly has grown sequentially over the first quarter. The second quarter is likely an all-time high. I think all those things point to very high growth in the second quarter. We believe that trend will carry into the back half of the year; some reports that we've seen continue to believe that the procedural volumes will be strong. Of course, we're all watching the pandemic as it evolves. But we feel confident that if there's any customer group or any segment that could weather through it, it would be the medical aesthetics group of customers. They have the proper protocols in place around their practice to continue to treat patients. Barring any broader shutdown, we believe this market will continue to be resilient in the back half of the year.

Got it, that makes a lot of sense. Regarding the market share, are we still in mid to high single digits?

Yeah, look, it's hard to predict exact shares. I think you've got a sense now for where we are. You're probably thinking about it the right way.

Your next question comes from the line of Louise Chen with Cantor Fitzgerald. Please proceed with your question.

Hi, good afternoon. This is Carvey in for Louise. Congratulations on the quarter. Thank you for taking my questions. First question, how do you think about the OpEx for the rest of the year? Is the second quarter OpEx a good run rate for the rest of the year? And also, what do you think additional penetration could come from for toxins to treat aesthetic indications? Lastly, more on your product portfolio. Are there any plans to add new products by the end of this year and potentially maybe next year 2022? Thank you so much.

Great. Thank you for the questions, Carvey. Let me turn it over to Lauren to address the operating expense question you have, and I'll take the other.

Hi Carvey, nice to catch up with you. Thanks for asking. On our non-GAAP operating expenses, when you look at that, we were right in the ballpark. If you take out the product costs that we include in those under GAAP, we were around $24 million this quarter. What we plan to do is to continue to invest in the growth of the business on a very measured basis. We will continue to move it up a little bit throughout the quarters this year, but not raising it dramatically. Let me turn it back to David.

Great. On the second question around penetration, it's a great question because that really is the predictor of the long-term growth prospects for this market. We believe this market is highly under-penetrated. It's a single-digit percentage of consumers that are interested in getting neurotoxin in the U.S. today that are actually in the offices. The continued focus around that millennial segment, in particular, is critical to driving this penetration into double digits. Millennials are the largest consumer demographic in the U.S., and they're also the fastest growing regarding neurotoxin treatments. They are more likely to seek treatment; the barriers for them to access and willingness to spend on beauty procedures is much greater than the prior generations that have existed. So, we feel very good about the long-term prospects or the macro trends, if you will, around the consumer willingness to seek neurotoxin treatment. That's why we positioned both the company and the product where we did. It's not an idea for the next 12 months or 24 months. It's a long-term investment strategy. You're seeing that reflected in our co-branded approach, where we partner the injector directly with this youthful brand. We put that advertising unit within a radius of the practice, so that we can eliminate the steps required for that consumer to seek treatment. We believe that number one, we are in the early innings of advertising around the consumer. We believe building a consumer brand that millennials gravitate to is key to our future success. We're committed to investing in building that. Lastly, around new products, I'll start by saying we really like our singularity of focus. We have a single product with a technology platform that powers it, focused against this millennial segment. We are just now showing the potential. We've been on the market two years. We are just starting to establish our value proposition and it continues to build within the market. That being said, clearly, we have aspirations to build a company beyond a single product. We view Jeuveau as our flagship brand. Any asset we add in the future needs to add value to that flagship product. We are actively exploring that side, and when we have more to share, we'll certainly provide that detail for you. Thank you for the question.

Your next question comes from the line of Douglas Tsao with H.C. Wainwright. Please proceed with your question.

Hi. Good afternoon. Thanks for taking the questions. Just curious, obviously, there was interruption because of the ITC issue. I think you highlighted you're up to 6000 accounts. Are you seeing orders from the entire account base? Are you fully back, or is that going to be a driver over time, as it just takes time to sort of rebuild those relationships and get them ordering? I mean, this issue isn't just linked to the ITC but also COVID. Thanks.

Hi Doug, as you can imagine, once we settled the ITC case, we put a magnifying glass on our customer base that was ordering in 2020. That was the focus for the entire commercial organization, both in the back half of the first quarter and the entire second quarter. I am very pleased with the progress the team has made. To their credit, this team is resilient and focused. The value proposition we have is incredibly valuable. Because despite everything this company has gone through, the majority of employees stayed with the company through these challenges. The majority of customers have since reordered, which is the only reason we delivered a record quarter in revenue. We feel very good about the space; it's very sticky. The customer base has dealt with everything we just went through and remained committed to us. I can tell you there's an intimacy with these customers; while we may be a new company to the space, we have built deep relationships. The same applies to our employee base. We feel like we have built something significant in our foundation. However, we all feel there is much more to do as we broaden our outreach, and introduce this value proposition to the rest of the market. So, overall, Doug, I think we feel great about what we've done so far. To your point, we haven't gone wider yet, and the front half of this year has been focused on getting back to the customers we had last year. The back half will allow us to shift and expand our focus.

Just as a quick follow-up. Is there a type of practice that you are going to be focused on sort of going forward as that sort of key expansion driver?

We have a deployment across the country, and our sales reps are focused on the different specialties, as well as those outside of the specialties that perform aesthetic procedures. In our stage, we're an opportunistic company. We service those customers who are interested in expanding their business, especially around that younger demographic. More often than not, billboards or digital ads that go up around the country increase the interest level around those practices partnering with us. We believed that this would be a building effect, and over time, it would begin to snowball, and we believe we are in the early innings of that process.

Your next question comes from line of Greg Fraser with Truist Securities. Please proceed with your question.

Hey, guys, thanks for taking the questions. Firstly, for large Boston users who have not yet adopted Jeuveau, what have you heard as the reasons why?

Well, look, as one earlier question suggested, assume we are mid to high single digits; I think you're seeing how 9 out of 10 customers in the U.S. likely are not using Jeuveau versus those that are or at least 9 out of 10 patients aren't getting Jeuveau. There are various reasons that vary by customer. In the end, these are some of the same issues we faced and the customers that are now users. There's nothing unique there. It's a matter of taking our value proposition and spending time with customers for them to understand it. There's a natural adoption curve with any product and category; you'll have your early adopters and then continue to build from there. We've demonstrated we're far beyond early adopters, and are likely entering the later stages of early majority. From there, we'll continue expanding our presence. As we build a consumer brand, consumers are asking for it as we create interest around that millennial segment. In pockets where we have a greater presence, peers are using our products at a much larger level. For example, last weekend, I attended a plastic surgery meeting in California. Two of the leaders of that meeting were the co-presidents, and both have billboards in their respective markets, using Jeuveau predominantly as their toxin of choice. When they stand at the podium and share that information, the audience listens. There's always a spillover effect. I'd love to give you one simple answer, but the reality is we have a lot of work to do. We like our starting point; this revenue is a good place to be today, not where we want to be over time. But we believe we have the right recipe. Now, it's just a question of investing and executing behind it, and we look forward to providing updates as we do.

Got it. That's very helpful. Given the strength in the U.S. market and the tailwind from pent-up demand, with Jeuveau still being in the early stages of growth, could Q3 sales be up quarter over quarter? I know you mentioned seasonality in the market where Q3 tends to be the lowest revenue quarter. Just hoping you can comment further on how you're thinking about the third quarter?

Sure. Yeah, Greg, we really try to look a little further out than any single quarter. As we build a business, we do believe that Q3 is the lowest seasonal period of the year for toxins, and Q4 happens to be the highest. As you aggregate those two, we felt confident that when we think about penetration in the market, we're gaining. This product in terms of procedural volume relative to other brands will gain share in the back half of the year. The challenging part is anticipating next quarter's procedural volume, which is what you're asking. Generally, procedural volume has been down 10% to 15%, as high as 20% seasonally when you look at the third quarter over the second quarter. At this point, we aren't guiding on that. We have provided color that we feel very confident the back half of the year will be strong. We’ll continue building on those trends, and we’re encouraged by what we’re seeing in terms of the strength of the business.

Your final question comes from Vamil Divan with Mizuho Securities. Please proceed with your question.

Hey, guys, this is Oii for Vamil. Congrats on the quarter and thanks for taking my question. So, some quick ones. Previously, you guys indicated that I think within two years or so, you could be the number two player in the market. And understandably, there’s been a reset. With this reset, I'm wondering what your thinking is now in terms of where you could be in a couple of years?

Sure. You're right, in the sense that certainly the second quarter was a reset. We think about it as the baseline by which we build from. At the same time, we believe we have an incredibly resilient product, one that this management team joined because we believe it has the potential to be a high-quality product that can command a significant market portion over time. We're committed to building that. That being said, it's been a quarter and a half since we settled all outstanding issues; we’ve been on the market for two years, and this is our first full quarter on the market without any outstanding issues present. We feel very good about where we stand. As we think long-term, we believe the potential is intact, just as we originally believed it would be regarding guiding towards any of those long-term prospects. I think that’s something I’ll reserve until we get a few more quarters under our belt.

Okay, thanks. Also, you indicated that a majority of revenues from this quarter were from reorders of your customer base. Would you be able to share any insights on inventory days or anything to that effect, just trying to get a better sense of how many of those customers could reorder in the coming quarter?

Sure. Look, we don't have a clear indicator of inventory on hand; I'm not aware of any manufacturer that does. Unfortunately, that’s not something we have visibility to. That being said, we have a disciplined pricing program where each of our tiers unlocks certain value. That value is built on price, just like other customers based on volume. What we do is also built on our co-branded advertising dollars. We actually advertise more around the customer who buys more, which we believe is critical to pulling through product more quickly. That's above and beyond our consumer loyalty program, which is very rich in terms of the offering to the consumer. It’s $40 off per treatment, which we understand to be meaningfully above the market leader related to the savings to that consumer. The combination of those programs is designed to drive consistency in buying patterns over time with these customers. We are focused on driving higher frequency over time and not creating any sort of shelf stocking or bulk selling with this product. You will see that as we execute over multiple quarters, but that's how we've designed it.

Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.