David Moatazedi - President, Chief Executive Officer Lauren Silvernail - Chief Financial Officer, Executive Vice President, Corporate Development Rui Avelar - Chief Medical Officer, Head of Research and Development David Erickson - Vice President of Investor Relations

Greetings! Welcome to the Evolus Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note that this conference is being recorded. I would now turn the conference over to your host, David Erickson, Vice President of Investor Relations. You may begin.

Thank you, operator, and welcome to everyone joining us on today's call. With me today are David Moatazedi, President and Chief Executive Officer; Lauren Silvernail, Chief Financial Officer and Executive Vice President, Corporate Development; and Rui Avelar, Chief Medical Officer and Head of Research and 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 the 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 at www.evolus.com. Lastly, following the conclusion of today's call, a replay will be available on our www.website at evolus.com. And with that, I'll turn the call over to David.

Thank you, David, and good morning. We are very pleased to share with you our results for the third quarter of 2021,which reflects increasing sales momentum, strong oversight of fixed operating expenses and disciplined cash management. For the quarter we delivered record revenue of $26.7 million, which represents 58% growth over comparable U.S. sales in the third quarter of 2020. Most impressive is our quarter-over-quarter growth of 5% reflecting continued market share gains during what is typically a seasonally down quarter. Overall the U.S. aesthetic market conditions remain quite favorable and demand for toxin products among new and existing patients continues to be strong. Through October 2021 we continue to see strong growth in our Evolus Consumer Rewards Program, where registration currently stands at more than 240,000 consumers, a doubling since the end of last year. Our business continues to over index to millennial and younger patients, which now represents nearly 40% of our user base in the loyalty program, markedly higher than the overall categories where millennials and younger represent less than 30% of toxin use. The millennial segment is the future growth driver for the aesthetic market, as this consumer group is the largest generation today with over 70 million consumers in the U.S. alone. This underpenetrated demographic is comprised of savvy consumers who are beauty conscious with fewer barriers to seeking treatment than prior generations. Additionally, these consumers are active on social media, which plays directly to our marketing and digital capabilities. During the third quarter we added more than 500 new Evolus customers, bringing our total cap base to more than 6,500. While also efficiently servicing these accounts through a combination of field and in-home sales professional, while continuing to direct product reorders through our digital platform where the majority of our orders continue to be…

Thank you, David. I'm pleased to announce that we've initiated an extra strength to Jeuveau program starting with a Phase II study. As background, all companies with an FDA approved neurotoxin have conducted studies to look at the effect of increasing dose or duration and it's now fairly well accepted that indeed increasing the dose of a given neurotoxin does increase its duration of effect. It also changes the products performance profiled in other ways, and this study will help us understand that additional dimension. Since our commercial launch of Jeuveau, we learned a great deal about how our products perform clinically in the real world. The feedback from clinicians is that Jeuveau is very precise. One of the main safety concerns regarding clinical studies with toxins is around the potential for local and distant spread of the drug, and we believe that the precise nature of Jeuveau makes it well suited for Glabellar line indication at a higher dose. As a company, we've never been shy about taking our competitors. In our initial entry into the market, we conducted the largest head-to-head Phase III trial in aesthetics against the market leader. This enabled everyone to easily compare Jeuveau to Botox across various metrics at every data point from the start of the study to the end at 150 days. These results were presented at several medical meetings and publish in peer reviewed journal. We're very excited about our Extra Strength program and we are well on our way having already started the study initiation work. We have an open IND in place and expect to enroll our first patient in the first quarter of 2022. This program is designed to give us the flexibility to pursue a longer duration indication on label. In the Phase II Glabellar line study there will be three arms, with the currently approved 20 units of Botox cosmetic, 20 units of Jeuveau and 40 units of Extra Strength Jeuveau. The study will be a prospective, double blind, randomized active controlled design, and will follow patients up to one year. We’ll provide additional details about this study in the first quarter. Back to you David.

Thank you, Rui. As much as we are exciting about this Phase II program, we believe the current 20 unit dosage of Jeuveau will remain the flagship use of our product in the future. The overall subject satisfaction from the original study using the 20 unit dose was over 90%. While this satisfaction rate is very high we believe the Extra Strength of Jeuveau increases options for those consumers who may desire a different performance profile and longer duration. We look forward to providing updates on our progress in future quarters. Before we get into the financials, I want to provide a brief update of our expansion into Europe next year. We are continuing to finalize our launch plans and the introduction of Nuceiva remains on track for early next year. Our initial entry will focus on several of the larger, more attractive markets, including the U.K., Germany and France. In these markets we will build on our customer experience and learnings from our U.S. launch. As we gain traction in these initial markets, we plan to open additional markets utilizing a combination of direct and distributor sales model. As a reminder, the European toxin market represents a $470 million opportunity. We're excited to enter this market where we will be the newest company to enter in more than a decade. With that, I'll turn the call over to Lauren for some additional financial information.

Thank you, David, and good morning everyone. I would like to start by echoing David’s comments and say how pleased I am with how well this team executed in the third quarter. As he mentioned, we reported quarterly net revenues of $26.7 million, up 58% compared to U.S. net revenue in the third quarter of 2020, and up 5% on a sequential quarter-over-quarter basis, despite a negative market growth rate. You may recall that the third quarter is typically the lowest quarter in the aesthetic toxin industry due to seasonality. Compared to the third quarter of last year, the majority of our sales growth in the third quarter of this year was driven by higher volumes. Overall, the pricing environment for neurotoxin products in the U.S. remains quite stable with two competitors, including the market leader raising price in Q3 by 3%. Moving down the P&L, our reported gross margin in the third quarter was 54.2%. Our adjusted gross margin in the third quarter excluding the amortization of intangibles was 56.9% and comparable with both the first and second quarters of this year. We continue to expect our full year 2021 adjusted gross margin, which includes settlement royalties and excludes one time payments to be in the range of 54% to 57%. As a reminder, beginning in mid-September next year, the royalty repay on net sales dropped to a mid-single digit rate. As a result, beginning in the fourth quarter of 2022, we expect our adjusted U.S. gross margin to exceed 70%. Selling, general and administrative expenses on a GAAP basis for the third quarter of 2021 were $31.7 million, up from $21.9 million during the third quarter of 2020. The majority of this increase was driven by co-branded marketing such as billboards, digital media and content creation to build…

Thank you, Lauren. Before we moved to Q&A, I'd like to formally welcome Jessica Novak to the Evolus Leadership Team. Jessica’s recently come aboard as Senior Vice President, Human Resources and brings extensive experience in organizational development, talent development and HR Strategy across many different industries. We look forward to her leadership as we continue to execute on our growth plans. In closing, our strong performance this quarter on the heels of a great second quarter, positions us for a record finish to 2021. More importantly, these results reinforce that we have the right strategy and are continuing to execute against it. We believe our differentiated business model centered on the fast growing millennial market and in true partnership with our customers will enable us to continue to outpace the market growth rate, and based on the solid financial footing, we believe we are positioned for further growth and value creation as we continue to increase our market share in the U.S., expand our global footprint into Europe and further differentiate our competitive position with our Extra Strength clinical development program. With that, we're ready to take questions.

Thank you. [Operator Instructions]. Our first question comes from the line of Louise Chen with Cantor. You may proceed with your question.

Hi! Congratulations on the sales this quarter and thanks for taking my questions here. I had a few question for you. On the Extra Strength Jeuveau, what kind of R&D spend are you anticipating for that, and when will that fall into place? And then what is the incremental revenue opportunity you expect from this extra strength. And then I have a bigger picture question for you is, what is the penetration of aesthetic toxins today globally and in the U.S., where do you think that that could go over time. Thank you.

Good morning, Louise. How are you? Thanks. With regard to the cost of the Extra Strength study, that would be approximately $2 million during 2022. With regard to additional sales, I think it's a little bit early to predict that as we are in Phase II at this point.

Great! And then to the second part of your question, Louise, we operate in a highly underpenetrated fast growing market. The consumer penetration rate we estimate in the U.S. is approximately 6% and when you look at that younger demographic of millennials, they have far fewer barriers to entering this market than the prior demographics had in the past. And so we believe that's part of what's fueling the faster growth in this market, in addition of course to the zoom boom that we are all seeing accelerating the interest in aesthetics.

Thank you.

Our next question comes from the line of Annabel Samimy with Stifel. You may proceed with your question.

Hi! Thanks for taking my question. I had a few actually. I guess the first is, the growth of the overall market. Can you talk a little bit more about the dynamics? It doesn't seem like there was a tremendous amount of seasonality this quarter as we've seen from Botox, almost being flat quarter-over-quarter. So I just wanted to sort of understand some of the competitive dynamics and how you feel you're advancing as far as market share. Second one, to see if you can give us a little bit more granular detail about the impact of the co-branding and some of the metrics that you might be able to share as far as directing patients, Jeuveau patients to those practices and the benefits there. And then finally on the long acting toxin, rather the Extra Strength toxin, I guess to understand it a little bit better, are you feeling comfortable doubling the dose of this toxin, specifically because there is such precision in this, and you don't have a concern about spread, because I guess the idea of just doubling the dose, you know could generate different effects on the face as opposed to just longer durations. So I just want to understand how you're feeling comfortable with that? Thanks.

Great! Annabel, thanks for the questions. I’ll take the first two rounds, the market and then co-branded media metrics and then turn it over to Rui to answer your question around the Extra Strength program that we have. In terms of overall market, clearly this has been a very strong market. This year we saw the market leader reported late last week and reported as you pointed out, just a small decline of minus 3 points. Our business sequentially grew 5 points, so I think there is about an 8 point spread there that we feel very good about, and that if you look at our revenues in the second quarter, you saw that we got our feedback under us. The majority of that revenue came from accounts from the back half of last year, placing an initial order and so I give a lot of credit to the team for their focus in Q2 of reengaging customer. And now in Q3, you see that we've added another dimension, because not only are we continuing to work with existing customers, but we're expanding our footprint by adding 500 new accounts. And I think you're starting to see the share accelerate in terms of our share gains and we believe this is the early innings of us in the relaunch phase of Jeuveau and we feel like we're on a strong trajectory. But overall, you're right, this market is, has a very healthy growth profile and as we've always said, we could do well in this category and continue to build our brand. You may see the same from others in this space. As far as co-branded and media, we continue to track all metrics. We reported several of them, you’ll see them posted on our Investor Relations site, full updated…

Sure. Thank you Annabel for the question. And I think you actually summarized it really nicely. That’s basically it. When you double the dose, increasing a product can be an issue when we think about spread, both local and distant. Just as a piece of trivia, if you look at the August 2014 release from the FDA, when they printed and gave the guidance on toxins studies in the phase, there's a whole page on concerns about adverse events and they list 50 potential adverse events. So given the fact that or perception and the feedback from the doctors that our product seems to be very precise, it just seems to fall very well to study, yet in a higher duration or a higher dose type of scenario. The thing that we really do want to understand is not just the safety profile, but also there's a performance trade-off. So we know that from feedback, clinicians and consumers or patients like the feel of Jeuveau when they are treated with it. They say it feels less heavy and there's a lot of descriptive language of why they like it. What we want to understand is when you use a higher dose, what does that performance feel like and do they like that feel, that trade-off of giving away potentially that's kind of natural light feel to potentially some different performance attributes. So this study allows us to be able to understand clinically how patients feel, and if they prefer this versus the other. Again, I think David summarized it nicely. The 20 units that we have right now, we know it works really well. And the feedback that we get both for patients and care wells is that they like this product. We also know that there are some doctors who are experimenting with higher doses, so we wanted to do this in a more controlled fashion and it just makes sense to do it in a Phase II capacity.

Thank you.

Our next question comes from the line of Marc Goodman with SVB Leerink. You may proceed with your question.

Yes, good morning. Just to continue on with the overall market, David can you just talk a little bit about how Galderma, Merck – I mean what's going on here behind the scenes? Who's gaining share? Who are you taking share from? It seems like the market like you said, obviously the growth rate was big year-over-year, but quarter-to-quarter was probably flattish. We are assuming fourth quarter will be up a little bit. So how are you assuming we end the year for total sales in this market in the U.S., and maybe you can give us a sense for how October's gotten off to a start in the fourth quarter? Thanks.

Great! Thanks Marc. First, as it relates to the other toxins, you know it's tough to speak for those, because those are private companies, we don’t have great visibility to their performance. But it's fair to say that since the COVID recovery in the back half of last year, this market has been on an accelerating growth trend and you see that the typical seasonality in the third quarter, that you would see where generally you’d see a potentially double digit decline sequentially. You didn't see that from the market leader and that's a sign of the resilience of this market, which continues to be strong and we're very optimistic about that trend carrying forward into the close of the year. And we're also very cost optimistic about our prospects, because not only do we benefit from the overall market growth, we believe that a combination of our co-branded media and our effort to go wider is enabling us to deliver faster growth than the market overall procedure. So I think Marc you're hearing for months, we feel really good about our business. I think what we say internally is we feel like we found the right recipe in terms of how we get out and promote our brand and the effort that the team has behind it and in many ways we feel the winds in our back and we just need to execute at this point and continue to deliver some strong quarters here.

Can you talk about October at all?

Yeah, I think as I was saying before, I think the same trends have carried through that we've been observing, which is very strong demand. We recently held a customer meeting where we had nearly 100 customers present at an offsite and I can tell you that as I walked around that meeting, it was consistent that the dialogue was around either adding additional injectors to absorb the additional demand coming into practices or practices were looking to expand and add new facilities for 2022, and that was a consistent theme across the board that the demand is picking up for these accounts and looking at ways to absorb it. I think those are very, you know obviously great problems to have in this market right now and that's probably one of the biggest challenges that we see when we're advertising in the co-branded media that these consumers want to get in. This is a 15 minute quick in-office procedure. It's not a typical medical procedure where they are willing to wait months to get into practice. They want to get in within a matter of a couple days and so clearly building up the ability to absorb the demand is going to be an important part of how this market evolves over time. But I do believe that we're on the right path that you've got this market at a stronger pace here growth than we've ever had it. We estimate this market this year will annualize at about a $1.8 billion revenue range and we may even update that guidance as we come out of Q4 based on the strong run rates we’re seeing.

Thanks.

Our next question comes from the line of Vamil Divan with Mizuho Securities. You may proceed with your question.

Great! Thanks so much for taking my questions. Apology that I missed some of this; just been juggling a few different company announcements. So one, on your Extra Strength program here, can you just talk a little about what your sort of target profile would be for that, and initially the doctors are gone used to Jeuveau and maybe it’s because of the precision. Some at least to us have mentioned that they don't last quite as long as Botox. Are you trying to get this certainly more in line with their Botox, you know the performance your seeing from Botox or is it maybe more trying to get in longer duration, you know that maybe closer to what you know we've had this reporting with doctors. So just a little bit more understanding there would be helpful. And then the other part was more around the millennial demographic, because that what you guys are focusing on. Can you maybe just give us a sense of the share of your sales that are coming from the millennial or any since of sort of market share split in the millennial population versus the non-millennial population? Thank you.

Great! Great questions, Vamil. Why don’t I start with the millennium and I'm going to make one quick comment and turn it over to Rui on the Extra Strength program that we have. For millennials one thing we track is the percent of millenials that are in our consumer loyalty program and we did report that 40% of consumers in our Evolus loyalty program are millennial age or younger, and that compares to less than 30% for the overall toxin market. So we feel very good about our advertising and our branding positioning well against that millennial segment and we hear that consistently when we're out in the field with customers, that the millennial consumers respond very well to our advertising, they respond well to the brand positioning and we're seeing that of course being pulled through now in co-branded media where over 800 campaigns that we individualized around the country and nearly 400 million media impressions, clearly that's also starting to build the brand awareness for you as you go. We think all of these collectively as you know Vamil, over time really have a building effect and that's how other major brand in this aesthetic category were created. It wasn’t overnight, it was over time and I think we're on the right track to building a new brand in this space that's targeted against this younger demographic and that's really what makes us unique as the newest player in the toxin category. Moving over to your questions around the Extra Strength, maybe I’ll just start with a couple of comments around the key learnings that we’ve had over the last couple of years in the market. The first is there is a segment of injectors in the U.S. that are playing with those. They have been for a…

Sure. And I think David summed it up pretty nicely, but just to hit your question straight on, and particularly the first point, it has been very well established now how Jeuveau compares to Botox in terms of duration. The largest head-to-head study bears that out very nice. It was 540 patients and if you look at the responder rates over time, you can see that we end up with higher responders on a relative basis. When you do the actual duration calculation, pretty similar. Actually Jeuveau is about a week longer than Botox in duration if you look at the CSR’s most material and that's been pretty consistent. There have been other Phase III studies, there was another Glabellar Line study before ours, that was before it become Jeuveau during our diligence and that pattern seemed pretty consistent, that Jeuveau either lasts as long if not a little bit longer in those Phase III studies. In terms of the product profile that we're looking for, it's very – it's like David said, we're looking to have a look at a product that may have a longer duration and we're trying to understand that trade-off between duration and how it feels clinically for the patient. The other thing that's quite confusing in the market place right now is ultimately the definition of duration. We've seen a lot of companies take liberties in terms of how they are defining duration, so we're looking to see how that plays out too and this study helps us understand those attributes.

Okay, thank you so much.

Our next question comes from the line of Douglas Tsao with H.C. Wainwright. You may proceed with your question.

Hi! Good morning. Just a couple of questions for me. So first, I’m just curious, the percentage of your overall revenue is now coming from accounts that are participating in the co-branded marketing program, and I have a follow-up.

It's a great question. Yeah, I'll answer and I’ll let you guys to talk. We’re not disclosing the details around CDM for competitive purposes. Obviously it’s a large part of our business. We did say that there's over 500 customers that participated in co-branded media and it's growing at a fast rate, and you know that we have a little over 6,000 customers now that have purchased Jeuveau in the U.S. We have some context around the penetration of the program, but in terms of revenue we’re not disclosing that just yet. Next question?

Okay, and then just in terms of just understand and in terms of the Extra Strength program, so is the focus to run the Phase II, see what you learn and then proceed to do a study that you might submit to the FDA for a label change?

Yes, so right now we're just like you said, we’re – we want to see what 40 units looks like, we want to understand the duration profile, which we expect to be longer. This is – you know we've all seen that when we double the does that we get longer duration, but more importantly, we want to understand how patients feel about it? What it feels like clinically when you have it. We know 20 units, we know patients are happy with 20 units and we know the clinicians are very happy with 20 units and we've seen like I said, there are KOLs, there are physicians who are experimenting and playing the higher doses. So we wanted to do it in a more controlled fashion. And then sorry, you made one more point at the end there.

Well, I was just curious if you were intending to then run a Phase III study for a label change?

That's right. So that's the flexibility in the program. We can understand if it makes sense to continue forward, so we have the flexibility to decide if we want to continue the program and take it all the way through to the label, and this data will be submitted to the FDA as a Phase II study.

And then just really just how many patients are going to participate in this study?

This, right now we're looking at about 120 patients in 3 arms.

Okay.

Our final question comes from the line of Greg Fraser with Truist Securities. You may proceed with your question.

Good morning folks. Thanks for taking the question. Have you seen any changes in behavior by the market leader in terms of customer programs or initiatives to protect share that might create headwinds for Jeuveau and the other players? And my second question is on SG&A, which was up more than I expected. It sounds like the growth was driven in part by the CPM program. Should we look at that 3Q level as a new run rate from which you'll grow? Thank you.

Yeah, I’ll start with the first question just round the competitive activity and then turn it over to Lauren to address our spend rate. Look, the market leader continues to deliver revenue at all-time highs. I think in the second quarter you saw all-time high revenue for them and then in the third quarter for that season also an all-time high. So you're seeing very strong trends overall. You saw them also raise price in the summer, both Allergan, as well as Galderma raise price 3%. So you're seeing all the signs of a very healthy market and of course us over indexing in terms of our performance relative to the overall market rates, which look, you'd expect that given the profile product we have and where we're investing in co-branded media to drive greater acceleration of our business. I’ll turn it over to Lauren to speak to the spend associated with it.

Great! Good morning, Greg. Yes, we did spend more in the third quarter, investing very close to the customer and really in the CDM programs that we've been talking about, and the majority of the increase in SG&A is driven by that CDM spend, and I think your other part of that question was will that continue? We do believe it will continue into Q4.

Great, thank you. [End of Q&A]:

At this time we have reached the end of the question-and-answer session. Now I’ll turn the call back over to Mr. Erickson for any closing comments.

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 Evolus and will be available if you have any additional questions.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day!