Evolus(EOLS) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited financial statements, management's discussion, market risk disclosures, and controls and procedures for the reporting period Item 1. Financial Statements (unaudited) This section presents the unaudited condensed financial statements, highlighting significant revenue growth, reduced liabilities, and a shift to positive stockholders' equity Condensed Balance Sheets The balance sheet shows significant financial improvement with total liabilities reduced and stockholders' equity turning positive Condensed Balance Sheet Highlights (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $107,796 | $102,562 | | Total assets | $215,220 | $209,068 | | Total current liabilities | $71,303 | $180,248 | | Total liabilities | $117,816 | $282,026 | | Total stockholders' equity (deficit) | $97,404 | $(72,958) | Condensed Statements of Operations and Comprehensive Loss Q3 2021 net revenues increased 51% but net loss widened, while nine-month revenues grew 81% and net loss narrowed due to a settlement payment Q3 Performance Comparison (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Total net revenues | $26,677 | $17,661 | | Loss from operations | $(19,122) | $(8,760) | | Net loss | $(19,433) | $(11,459) | | Net loss per share | $(0.35) | $(0.34) | Nine-Month Performance Comparison (in thousands, except per share data) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Total net revenues | $65,016 | $35,963 | | Settlement payment from Daewoong | $(25,500) | $0 | | Loss from operations | $(26,410) | $(45,042) | | Net loss | $(28,633) | $(52,319) | | Net loss per share | $(0.60) | $(1.55) | Condensed Statements of Stockholders' Equity (Deficit) Stockholders' equity transformed from a deficit to a positive balance due to significant equity issuances - Key equity changes in the first nine months of 2021 included the issuance of 6,762,652 shares for a litigation settlement, 3,136,869 shares for the conversion of a convertible note, and 10,350,000 shares from a follow-on offering[31] Condensed Statements of Cash Flows Net cash used in operations significantly reduced, while financing activities provided inflows, increasing cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(24,344) | $(55,605) | | Net cash provided by (used in) investing activities | $4,420 | $(7,507) | | Net cash provided by financing activities | $25,158 | $38,347 | - Significant non-cash activities included the conversion of a $39.8 million convertible note to equity and the issuance of $48.4 million in common stock to settle litigation[37] Notes to Condensed Financial Statements Notes detail the company's sole product, litigation settlements, debt extinguishments, and sufficient capital for the next 12 months - The company's sole product is Jeuveau® (prabotulinumtoxinA-xvfs), approved for treating glabellar lines[39] - In February 2021, the company settled litigation with Medytox and Allergan, agreeing to pay $35 million over two years, issue 6.76 million shares, and pay ongoing royalties on Jeuveau® sales[42][99][162] - In March 2021, partner Daewoong agreed to pay the company $25.5 million and reimburse certain royalty payments, offsetting some costs from the Medytox/Allergan settlement[42][100][168] - In 2021, the company extinguished its major debt obligations by repaying the $76.4 million Oxford Term Loan and converting the $40.8 million Daewoong Convertible Note into equity[41][131][134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Jeuveau® revenue growth, royalty impact on margins, improved liquidity, and sufficient capital for 12 months Results of Operations Q3 2021 net revenues grew 50.8% to $26.7 million, but adjusted gross margin declined due to new royalty expenses Q3 2021 vs Q3 2020 Revenue and Margin (in millions) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Revenues | $26.7 | $17.7 | | Adjusted Gross Profit Margin | 56.9% | 72.5% | Nine Months 2021 vs 2020 Revenue and Margin (in millions) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net Revenues | $65.0 | $36.0 | | Adjusted Gross Profit Margin | 57.4% | 69.4% | - The gross profit margin is expected to be materially negatively impacted through September 2022 due to royalty payments from the Medytox/Allergan settlement, partially offset by reimbursements from Daewoong[186][197] Liquidity and Capital Resources Liquidity strengthened to $107.8 million cash, driven by equity offerings and a settlement, enabling debt repayment and sufficient capital - As of September 30, 2021, the company had cash and cash equivalents of $107.8 million[221][244] - Major financing activities in 2021 included a follow-on offering (net proceeds ~$92.4M), ATM sales (net proceeds $10.9M), and the repayment of a $76.4M term loan[223][225][228] - The company has significant upcoming cash obligations, including a $20.0 million promissory note payment to Evolus Founders in November 2021 and a $15.0 million payment to Medytox/Allergan in Q1 2022[233][234][238] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable, indicating no material exposure to market risks requiring quantitative disclosure - The company states this item is 'Not applicable.'[255] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting in Q3 2021 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[257] - No material changes to internal control over financial reporting were identified during the quarter ended September 30, 2021[259] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section details ongoing legal proceedings, including a securities class action and derivative suits, which the company believes are without merit - The company is a defendant in a putative securities class action lawsuit filed in October 2020, alleging false and misleading statements related to the previous ITC Action[142] - Two shareholder derivative actions with similar allegations were filed in late 2020 and have been consolidated and stayed pending a decision on the motion to dismiss the class action suit[143] - The company believes the complaints are without merit and has not accrued any liability as it cannot reasonably estimate a range of loss at this time[144] Item 1A. Risk Factors This section outlines significant risks: sole product dependence, historical losses, competition, settlement impacts, manufacturing reliance, and litigation - The company is entirely dependent on the successful commercialization of its only product, Jeuveau®, and has a history of significant losses, making its future viability difficult to assess[266] - The settlement agreements with Medytox and Allergan require substantial payments and ongoing royalties, which will reduce profitability and could lead to litigation or loss of commercialization rights if terms are not met[272][273][274] - The company relies solely on Daewoong for the manufacturing of Jeuveau®, exposing it to production, supply chain, and regulatory compliance risks at Daewoong's single FDA-approved facility[321] - The company faces significant competition from larger companies with greater financial resources, established brands like BOTOX, and broader product portfolios[280] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period - The company reported 'None.' for this item[429] Item 3. Defaults Upon Senior Securities The company reported that this item is not applicable - The company reported 'Not applicable.' for this item[430] Item 4. Mine Safety Disclosures The company reported that this item is not applicable - The company reported 'Not applicable.' for this item[431] Item 5. Other Information The company reported no other material information required to be disclosed during the period - The company reported 'None.' for this item[432] Item 6. Exhibits This section lists the exhibits filed concurrently with the 10-Q report, including certifications and interactive data files - The filing includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to SEC rules and the Sarbanes-Oxley Act of 2002[435] - Interactive Data Files (Inline XBRL) are included as exhibits to the report[435]