Evolus(EOLS) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited financial information, including statements and notes, for the reporting period Item 1. Financial Statements (unaudited) This section presents unaudited condensed financial statements for June 30, 2021, detailing financial position, performance, and cash flows, with notes on key events and settlements Condensed Balance Sheets The balance sheet as of June 30, 2021, shows significant financial improvement, shifting from a stockholders' deficit to positive equity Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $239,863 | $209,068 | | Cash and cash equivalents | $131,737 | $102,562 | | Total Liabilities | $133,725 | $282,026 | | Accrued litigation settlement | $35,000 | $83,421 | | Term loan, net | $0 | $74,384 | | Total Stockholders' Equity (Deficit) | $106,138 | ($72,958) | Condensed Statements of Operations and Comprehensive Loss Revenues more than tripled in Q2 2021, significantly narrowing the net loss for the quarter and first six months, aided by strong growth and a settlement payment Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $26,098 | $7,806 | $38,339 | $18,302 | | Loss from operations | ($15,302) | ($18,887) | ($7,288) | ($36,282) | | Net loss | ($15,601) | ($21,125) | ($9,200) | ($40,860) | | Net loss per share | ($0.31) | ($0.63) | ($0.21) | ($1.21) | - For the six months ended June 30, 2021, operating expenses included a $25.5 million settlement payment received from Daewoong, which was recorded as a reduction to cost of sales[26] Condensed Statements of Stockholders' Equity Stockholders' equity shifted from a $73.0 million deficit to $106.1 million positive equity by June 30, 2021, driven by capital raising - Key equity changes in the first six months of 2021 include the issuance of common stock for a litigation settlement ($48.4 million), conversion of a convertible note ($39.8 million), and net proceeds from a follow-on offering ($92.2 million)[29] Condensed Statements of Cash Flows The company generated positive operating cash flow in H1 2021, a reversal from 2020, with substantial financing inflows increasing cash by $29.2 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $7,781 | ($41,892) | | Net cash provided by (used in) investing activities | $4,399 | ($36,808) | | Net cash provided by (used in) financing activities | $16,995 | ($1,420) | | Change in cash and cash equivalents | $29,175 | ($80,120) | - Major non-cash financing activities in H1 2021 included the conversion of a $39.8 million convertible note to equity and the issuance of $48.4 million in common stock for a litigation settlement[34] Notes to Condensed Financial Statements Notes detail business, liquidity, and accounting policies, highlighting litigation settlements and major financing events like a $92.4 million follow-on offering and debt repayment - In February 2021, the company settled litigation with Medytox and Allergan, agreeing to pay $35 million over two years, issue 6.76 million shares of common stock, and pay ongoing royalties on Jeuveau® sales[39][91] - In March 2021, the company reached an agreement with Daewoong, which included a $25.5 million payment to Evolus and reimbursement for a portion of the royalties payable to Medytox and Allergan[39][94] - In April 2021, the company raised approximately $92.4 million in net proceeds from a follow-on public offering, and in January 2021, it paid $76.4 million to extinguish its term loan with Oxford Finance[40][38] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Jeuveau® commercialization, ITC litigation settlement, and COVID-19 impacts, highlighting revenue growth, narrowed net loss, and key liquidity events Results of Operations Q2 2021 revenues increased 234.6% year-over-year, with gross margin decreasing due to new royalty payments, and net loss narrowing to ($15.6 million) Comparison of Results for the Three Months Ended June 30 (in millions) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total net revenues | $26.1 | $7.8 | +234.6% | | Product cost of sales | $11.3 | $1.9 | +494.7% | | Selling, general and administrative | $26.5 | $17.6 | +50.6% | | Net loss | ($15.6) | ($21.1) | -26.1% | - Adjusted gross profit margin decreased to 56.7% for Q2 2021 from 75.0% in Q2 2020, with management anticipating negative impacts through September 2022 due to royalty payments from the Medytox/Allergan settlement[199][205] Liquidity and Capital Resources As of June 30, 2021, the company held $131.7 million in cash, with liquidity strengthened by a $92.4 million offering and a $25.5 million Daewoong payment, enabling future operations - In April 2021, a follow-on public offering generated net proceeds of approximately $92.4 million[233] - In January 2021, the company paid $76.4 million to fully discharge its loan obligations with Oxford Finance[238] - In March 2021, a $40.8 million convertible note held by Daewoong was converted into 3,136,869 shares of common stock[242] - Management believes current capital resources are sufficient to fund operations through at least the next twelve months from the report's issuance date[248] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that quantitative and qualitative disclosures about market risk are not applicable for this reporting period - The company has determined that quantitative and qualitative disclosures about market risk are not applicable[265] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - Based on an evaluation as of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[267] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[269] PART II - OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, and details on equity sales and exhibits Item 1. Legal Proceedings This section refers to Note 9 for details on legal proceedings, including settled Medytox/Allergan litigation and ongoing securities class action lawsuits - The report directs readers to Note 9, "Commitments and Contingencies," for details on legal proceedings[272] - Key legal matters include the settled Medytox/Allergan litigation and ITC Action, and ongoing securities class action and shareholder derivative lawsuits, which the company believes are without merit and intends to defend against vigorously[137][142][144] Item 1A. Risk Factors This section outlines significant business risks, including dependence on Jeuveau®, history of losses, financing needs, settlement compliance, competition, and reliance on its sole supplier - The company depends entirely on the successful commercialization of its only product, Jeuveau®, and has a limited operating history with significant losses[276][277] - Failure to comply with the terms of the settlement agreements with Medytox and Allergan could lead to litigation or loss of the ability to commercialize Jeuveau®[281][282] - The business relies solely on Daewoong for the manufacture of Jeuveau®, and any production issues, termination of the agreement, or failure to meet minimum purchase targets could materially harm the business[332][335] - The company faces significant competition from larger, more established companies like AbbVie (formerly Allergan), which have greater financial resources, broader product portfolios, and established customer relationships[291] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - The company reported no unregistered sales of equity securities during the reporting period[440] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the reporting period - The company reported no defaults upon senior securities[441] Item 4. Mine Safety Disclosures The company reported that mine safety disclosures are not applicable for this reporting period - The company reported that mine safety disclosures are not applicable[442] Item 5. Other Information The company reported no other information required to be disclosed under this item for the period - The company reported no other information required to be disclosed under this item[444] Item 6. Exhibits This section lists exhibits filed with the 10-Q report, including CEO and CFO certifications and Inline XBRL documents for financial reporting - The exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act, and Inline XBRL data files[448]