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Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-08 · 135 added, 167 removed, 160 unchanged (65% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains management’s discussion and analysis of our financial condition and consolidated results of operations and should be read together with the historical consolidated financial statements and the notes thereto included in Item 8 “Consolidated Financial Statements and Supplementary Data” and included elsewhere in this Annual Report on Form 10-K.

The following discussion contains management’s discussion and analysis of our financial condition and consolidated results of operations and should be read together with the consolidated financial statements and the notes thereto included in Item 8 “Consolidated Financial Statements and Supplementary Data” and included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the Item 1A “Risk Factors” section of this Annual Report on Form 10-K.

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You should carefully read “Special Note Regarding Forward-Looking Statements” and Item 1A “Risk Factors.”

We are a performance beauty company with a customer-centric approach to delivering breakthrough products in the self-pay aesthetic market.

In February 2019, we received the approval of our first product Jeuveau ® (prabotulinumtoxinA-xvfs) from the U.S.

Food and Drug Administration, or FDA.

In May 2019, we commercially launched Jeuveau ® in the United States.

We are a global performance beauty company with a customer-centric approach to delivering breakthrough products in the cash-pay aesthetic market.

Our first product, Jeuveau ® (prabotulinumtoxinA-xvfs), is currently sold in the United States, Canada and certain European countries.

We have commercial launch plans in additional countries where we have regulatory approval that we expect to implement in the next few years.

We are also actively pursuing regulatory approval of Evolysse™, a line of hyaluronic acid dermal fillers, and anticipate obtaining regulatory approval of the Evolysse™ line of products in Europe in the second half of 2024 and in the United States beginning in 2025.

Regulatory approval has already been received for the Evolysse™ nasolabial fold product in Europe.

Jeuveau ® is a proprietary 900 kDa purified botulinum toxin type A formulation indicated for the temporary improvement in the appearance of moderate to severe glabellar lines, also known as “frown lines,” in adults.

Our primary market is the self-pay aesthetic market, which includes medical products purchased by physicians and other customers that are then sold to consumers or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance.

We believe we offer customers and consumers a compelling value proposition with Jeuveau ® .

Currently, onabotulinumtoxinA (BOTOX) is the neurotoxin market leader, and prior to the approval of Jeuveau ® , was the only known 900 kDa botulinum toxin type A complex approved in the United States.

We believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kDa neurotoxin complex and are accustomed to injecting this formulation.

In August 2018, we received approval from Health Canada for the temporary improvement in the appearance of moderate to severe glabellar lines in adult patients under 65 years of age.

We began marketing Jeuveau ® in Canada in October 2019 through our distribution partner Clarion Medical Technologies, Inc., or Clarion.

In September 2019, we also received approval from the European Commission, to market the product in all 27 European Union, or EU, member states plus the United Kingdom, Iceland, Norway and Liechtenstein.

In January 2021, we received a positive decision from the European Commission to add the 50 unit product to the approval obtained in September 2019.

We launched Jeuveau ® in Great Britain in September 2022, in Germany and Austria in February 2023, and we are finalizing plans for entering additional countries in Europe as part of a phase rollout.

In January 2023, we received approval from the Australian Therapeutics Good Administration, or TGA, for regulatory approval of our neurotoxin in Australia.

Evolysse™, a line of dermal fillers, is a first-generation cold technology hyaluronic acid line for products including mid face, nasolabial folds, lips and eyes.

Our primary market is the cash-pay aesthetic market, which consists of medical products that consumers pay for directly out of pocket.

Our customers are aesthetic practitioners who are properly licensed to deliver our products.

By avoiding the regulatory burdens that accompany reimbursed products and pursuing an aesthetic-only non-reimbursed product strategy, we create flexibility to deliver a unique value proposition to our customers.

We utilize this flexibility to drive customer adoption through programs such as our consumer loyalty program, co-branded marketing programs, promotional events and pricing strategies.

Recent Developments

Symatese Agreements

On May 9, 2023, we entered into a License, Supply and Distribution Agreement, or the Symatese U.S.

Agreement, with Symatese S.A.S (“Symatese”), pursuant to which Symatese granted to us an exclusive right to commercialize and distribute five dermal filler product candidates which we collectively refer to as Evolysse™, including the products we refer to as:

(iii) Sculpt;

and (v) Eye in the United States for aesthetic and dermatological uses.

We also have the right of first negotiation to obtain a license from Symatese for any new products developed using the same technology as the Evolysse™ line of dermal fillers.

Evolysse™ Lift, Smooth, and Sculpt are currently in advanced stages of clinical trials pursuant to an investigational device exemption, or IDE, from the U.S.

Food and Drug Administration, or FDA.

We have agreed to a cost-sharing arrangement with Symatese to gain FDA approval of the Evolysse™ Lips and Eye products.

Subject to FDA approval, we expect Evolysse™ Lift and Smooth to commercially launch in the first half of 2025, Evolysse™ Sculpt to launch in 2026 and Evolysse™ Lips and Eye to launch in 2027.

On December 20, 2023, we entered into a License, Supply and Distribution Agreement, or the Symatese Europe Agreement, pursuant to which Symatese granted to us an exclusive right to commercialize and distribute four dermal filler product candidates, which are referred to as:

(iii) Sculpt and (iv) Lips in 50 countries in Europe for use in the aesthetics and dermatological fields.

Regulatory approval has been received for the Evolysse™ nasolabial fold product in Europe and the remaining three products are anticipated to be approved in late 2024.

We will be licensing our neurotoxin, Jeuveau ® , to Symatese for distribution in France, marking the fifth European market that we have now entered.

In addition, we will sub-license its distribution rights for the Evolysse™ fillers line to a Symatese subsidiary for distribution in France.

“Extra-Strength” Clinical Trial

In November 2021, we announced the initiation of a Phase II clinical trial designed to investigate a higher strength dose of Jeuveau ® in the frown lines.

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This program provides us with the opportunity to offer the first multi-strength neurotoxin, giving customers and consumers increased treatment options.

In January 2023, we announced positive interim results from the Phase II clinical trial.

The interim data showed that the “extra-strength” formulation of Jeuveau ® appeared to be generally safe and well-tolerated and demonstrated a median duration of at least 26 weeks based on the time for patients to return to baseline after treatment.

The trial is expected to be completed in the first half of 2023, and final results will be presented in the second half of 2023.

In June 2023, we announced the successful completion of the Phase II clinical trial and in November 2023, we presented the final results of the “extra-strength” clinical trial.

The clinical trial data showed that the “extra-strength” formulation of Jeuveau ® had a similar safety profile to the controls and demonstrated a median duration of at least 26 weeks based on the time for patients to return to baseline after treatment.

The Pharmakon Term Loans

On December 14, 2021, we entered into a loan agreement with BPCR Limited Partnership, BioPharma Credit Investments V (Master) LP, and Biopharma Credit PLC (collectively, “Pharmakon”).

Pursuant to the terms of the agreement, Pharmakon agreed to make term loans to us in two tranches (“Pharmakon Term Loans”).

The first tranche of $75.0 million was funded on December 29, 2021.

On December 5, 2022, we entered into a Second Amendment to the loan agreement to extend our option to draw down the second tranche of $50.0 million until December 31, 2023.

In exchange for the extension, we paid an amendment fee of $0.5 million to Pharmakon.

On May 9, 2023, we entered into a Third Amendment to the loan agreement, which provides for the advancement of the second tranche of $50.0 million in two installments:

(i) $25.0 million advanced on May 31, 2023 and (ii) $25.0 million advanced on December 15, 2023.

The Pharmakon Term Loans matures on the six-year anniversary of the closing date of the first tranche.

See “—Liquidity and Capital Resources—The Pharmakon Term Loans” for further information.

Impact of Settlement Agreements

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We have completed all obligations to Allergan and the majority of our obligations to Medytox under the Medytox/Allergan Settlement Agreements.

These completed obligations consisted of (i) cash payments of $35.0 million in multiple payments to Allergan and Medytox, of which we paid each of the first payment of $15.0 million in the third quarter of 2021, the second payment of $15.0 million in the first quarter of 2022, and the final payment of $5.0 million in the first quarter of 2023, (ii) payment to Allergan and Medytox of certain royalties on the sale of Jeuveau ® , based on a certain dollar amount per vial sold

of Licensed Products by or on our behalf in the United States, from December 16, 2020 through September 16, 2022, (iii) payment to Medytox, from December 16, 2020 to September 16, 2022, of a low-double digit royalty on net sales of Jeuveau ® sold by us or on our behalf in territories we have licensed outside the United States, and (iv) the issuance of 6,762,652 shares of our common stock to Medytox.

The completed obligations consisted of (i) cash payments of $35.0 million , of which we paid the first payment of $15.0 million in the third quarter of 2021, the second payment of $15.0 million in the first quarter of 2022, and the final payment of $5.0 million in the first quarter of 2023, (ii) payment to Allergan and Medytox of certain royalties on the sale of Jeuveau ® , based on a certain dollar amount per vial sold of Licensed Products by or on our behalf in the United States, from December 16, 2020 through September 16, 2022, (iii) payment to Medytox, from December 16, 2020 to September 16, 2022, of a low-double digit royalty on net sales of Jeuveau ® sold by us or on our behalf in territories we have licensed outside the United States, and (iv) the issuance of 6,762,652 shares of our common stock to Medytox.

Going forward, our remaining obligation will be to pay Medytox a mid-single digit royalty percentage on net sales of Jeuveau ® in the United States and all territories we have licensed outside the United States through September 16, 2032.

In addition, in March 2021, we entered into a Confidential Settlement and Release Agreement and certain related agreements with Daewoong Pharmaceutical Co.

(“Daewoong”), which we refer to as the Daewoong Settlement Agreement, under which Daewoong paid us $25.5 million in April 2021, cancelled all remaining milestone payments up to $10.5 million in aggregate under the Daewoong Settlement Agreement and reimbursed us certain amounts (calculated on a dollar amount per vials sold basis in the United States) for sales of certain products with respect to which we are required to pay Medytox and Allergan royalties pursuant to the U.S.

Settlement Agreement.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional details on the litigation settlement agreements.

As a result of the royalty payments that we are required to pay under the Medytox Settlement Agreements, our cost of sales and gross profit margin have been negatively impacted and will continue to be negatively impacted to a marginal extent from September 2022 to September 2032.

The Pharmakon Term Loans

On December 14, 2021, we entered into a loan agreement with BPCR Limited Partnership, BioPharma Credit Investments V (Master) LP, and Biopharma Credit PLC (collectively, “Pharmakon”).

Pursuant to the terms of the agreement, Pharmakon agreed to make term loans to us in two tranches (“Pharmakon Term Loans”).

The first tranche of $75.0 million was funded on December 29, 2021.

On December 5, 2022, we entered into a Second Amendment to the loan agreement to extend our option to draw down the second tranche of $50.0 million until December 31, 2023.

In exchange for the extension, we paid an amendment fee of $0.5 million to Pharmakon.

The second tranche of $50.0 million may be drawn at our election no later than December 31, 2023, subject to the terms and conditions of the Pharmakon Term Loans.

As of March 8, 2023, we have not drawn the second tranche.

The Pharmakon Term Loans will mature on the six-year anniversary of the closing date of the first tranche.

See “—Liquidity and Capital Resources—The Pharmakon Term Loans” for further information.

Contingent Royalties and Notes Payable to Evolus Founders

As a result of the royalty payments that we are required to pay under the Medytox Settlement Agreements, our cost of sales and gross profit margin have been negatively impacted and will continue to be negatively impacted to a lesser extent from September 2022 to September 2032.

Contingent Royalties to Evolus Founders

We are obligated to make quarterly future payments to the founders of Evolus, which we refer to as the Evolus Founders, of a low single digit percentage of net sales of Jeuveau ® .

These obligations terminate at the end of the second quarter of 2029.

These obligations will terminate at the end of the second quarter of 2029.

The fair value of the obligations are valued quarterly and are referred to in our consolidated financial statements as the contingent royalty obligation.

In November 2021, we also paid $20.0 million to satisfy in full a promissory note that matured in November 2021.

Market Trends and Uncertainties

The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including the COVID-19 pandemic, increases in inflation rates, rising interest rates, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, and uncertainty about economic stability.

We anticipate that the fiscal 2023 will continue to reflect a dynamic macroeconomic environment.

We expect elevated levels of cost inflation to continue, potentially impacting consumer discretionary spending for aesthetic medical procedures.

The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including uncertainty regarding the stability of certain financial institutions, increases in inflation rates, rising interest rates, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, and uncertainty about economic stability.

We expect elevated levels of cost inflation to continue, potentially impacting consumer

discretionary spending for aesthetic medical procedures.

Markets experiencing uncertainty could have substantial high rates of inflation.

We cannot reasonably estimate the financial impact of increased inflation on our financial condition, results of operations or cash flows in the future.

Management’s Use of Adjusted Gross Profit Margin

Adjusted gross profit and adjusted gross profit margin are not required by, nor presented in accordance with United States generally accepted accounting principles, or GAAP.

Adjusted gross profit is defined as total net revenues less product cost of sales, excluding the one-time settlement payment from Daewoong in 2021 and amortization of an intangible asset.

Adjusted gross profit margin is calculated as adjusted gross profit divided by total net revenues.

Management believes that adjusted gross profit margin is an important measure for investors because management uses adjusted gross profit margin as a key performance indicator to evaluate the profitability of sales without giving effect to costs that are not core to our cost of sales, such as the settlement payment from Daewoong and the amortization of an intangible asset.

Adjusted gross profit margin

should not be considered a measure of financial performance under GAAP, and the items excluded from adjusted gross profit margin should not be considered in isolation or as alternatives to financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.

As adjusted gross profit margin is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation, this metric, as presented, has limitations as an analytical tool and may not be comparable to other similarly titled measures of other companies.

The following are reconciliations of adjusted gross profit to gross profit, the most directly comparable to GAAP measure, and adjusted gross profit margin to gross profit margin, the most directly comparable GAAP measure:

(in millions) 2022 2021

Total net revenues $ 148.6 $ 99.7

Cost of sales:

Product cost of sales (excludes amortization of intangible assets) 55.9 43.5

Settlement payment from Daewoong — (25.5)

Amortization of distribution right intangible asset 3.0 2.9

Total cost of sales 58.9 20.9

Gross profit 89.8 78.7

Gross profit margin 60.4 % 79.0 %

Settlement payment from Daewoong — (25.5)

Amortization of distribution right intangible asset 3.0 2.9

Adjusted gross profit $ 92.7 $ 56.1

Adjusted gross profit margin 62.4 % 56.3 %

Results of Operations

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Product cost of sales (excludes amortization of intangible assets) 61.6 55.9

Settlement payment from Daewoong — (25.5)

Selling, general and administrative 164.9 141.8

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Non-operating expense, net (12.3) (9.0)

Loss from extinguishment of debts, net — (1.0)

Loss before income taxes:

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Comprehensive loss $ (61.8) $ (74.7)

The following table summarizes our gross profit margin for the periods indicated:

Year Ended December 31,

(in millions) 2023 2022

Total net revenues $ 202.1 $ 148.6

Cost of sales:

Product cost of sales (excludes amortization of intangible assets) 61.6 55.9

Amortization of distribution right intangible asset 3.0 3.0

Total cost of sales 64.5 58.9

Gross profit $ 137.6 $ 89.8

Gross profit margin 68.1 % 60.4 %

We currently operate in one reportable segment, and all of our net revenues are derived from sales of Jeuveau ® .

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Net revenues of Jeuveau ® sales increased by $53.5 million, or 36.0%, to $202.1 million for the year ended December 31, 2023 from $148.6 million for the year ended December 31, 2022, primarily due to higher sales volumes.

We anticipate our continued sales growth will depend on our ability to grow our customer base and increase purchases by our current customers in the competitive medical aesthetic market.

Net revenues during the year ended December 31, 2023 and 2022 consisted of $2.4 million and $2.0 million of service revenue, respectively, from the sale of Jeuveau ® through a distribution partner in Canada.

We anticipate our continued sales growth will depend on our ability to grow our customer base and increase purchases by our current customers in the competitive aesthetic market as well as on regulatory approval for the Evolysse TM dermal filler product line in the United States and Europe by Symatese.

Cost of Sales

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In addition, during the period from December 2020 to September 2022, product cost of sales, excluding amortization of intangible assets, also included certain royalties on the sale of Jeuveau ® payable to Medytox and Allergan pursuant to the Medytox/Allergan Settlement Agreements, partially offset by reimbursement receivable from Daewoong pursuant to the Daewoong Arrangement with respect to such royalties.

Our royalty obligations to Allergan concluded on

September 16, 2022, and beginning on September 17, 2022, our royalty obligations to Medytox were reduced to a mid-single digit percentage of net revenue for ten years thereafter.

Product cost of sales, excluding amortization of intangible assets, increased by $12.4 million, or 28.4%, to $55.9 million for the year ended December 31, 2022 from $43.5 million from the year ended December 31, 2021 primarily due to higher sales volume.

We anticipate that our product cost of sales will fluctuate in line with changes in revenues.

Settlement Payment from Daewoong

In the first quarter of 2021, we recorded a one-time settlement receipt of $25.5 million from Daewoong in connection with the Daewoong Settlement Agreement.

Our royalty obligations to Allergan concluded on September 16, 2022, and beginning on September 17, 2022, our royalty obligations to Medytox were reduced to a mid-single digit percentage of net revenue through the expiration of our Medytox royalty obligation in September 2032.

Product cost of sales, excluding amortization of intangible assets, increased by $5.7 million, or 10.1%, to $61.6 million for the year ended December 31, 2023 from $55.9 million from the year ended December 31, 2022 primarily due to higher sales volume, offset by reduced royalty obligations to Medytox.

We anticipate that our product cost of sales will fluctuate in line with changes in revenues until the expiration of our Medytox royalty obligation in September 2032.

Gross Profit Margin

Our gross profit margin was 68.1% and 60.4% for the years ended December 31, 2023 and 2022, respectively.

Our adjusted gross profit margin, calculated as total net revenues less product cost of sales, excluding amortization of intangible assets and the one-time settlement payments from Daewoong, as a percentage of total net revenues was 62.4% and 56.3% for the years ended December 31, 2022 and 2021, respectively.

Our gross profit margin and adjusted gross profit margin were impacted negatively and materially through September 2022, offset by payments we receive under the Daewoong Arrangement, by our payments under the Medytox/Allergan Settlement Agreements.

Our gross profit margin and adjusted gross profit margin will continue to be negatively impacted to a lesser extent from September 2022 to September 2032 as we pay royalty obligations to Medytox at a mid-single digit percentage of net revenue.

We also anticipate our gross profit margin and adjusted gross profit margin will fluctuate as we implement various marketing programs that may affect the average selling price for Jeuveau ® and as we expand internationally.

Our gross profit margin was impacted negatively and materially through September 2022, by our payments under the Medytox/Allergan Settlement Agreements.

Our gross profit margin has been and will continue to be negatively impacted to a lesser extent from September 2022 to September 2032 as we pay royalty obligations to Medytox at a mid-single digit percentage of net revenue.

We also anticipate our gross profit margin will fluctuate as we implement various marketing p rograms that may affect the average selling price for Jeuveau ® and as we expand internationally.

Selling, General and Administrative

Selling, general and administrative expenses increased by $29.8 million, or 26.6%, to $141.8 million for the year ended December 31, 2022 from $112.1 million for the year ended December 31, 2021, primarily resulting from increased personnel costs and increased commercial activities.

Selling, general and administrative expenses may fluctuate in the future primarily due to potential changes in marketing strategies and future launches internationally.

Selling, general and administrative expenses increased by $23.1 million, or 16.3%, to $164.9 million for the year ended December 31, 2023 from $141.8 million for the year ended December 31, 2022, primarily resulting from increasing personnel costs and related to our commercial activities.

Selling, general and administrative expenses may fluctuate in the future primarily due to potential changes in marketing strategies and international launches.

Research and Development

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The increase was primarily attributable to increasing our clinical operations and research and development expenses related to the Phase II “extra-strength” clinical trial.

We expect our research and development expenses to continue to increase if and when we seek to develop further product candidates and as we pursue regulatory approvals in other jurisdictions.

We expect our research and development expenses to continue to increase if and when we develop further product candidates and as we pursue regulatory approvals in other jurisdictions.

In-process Research and Development

In the second quarter of 2022, we recorded an upfront payment of $2.0 million in connection with the License and Research Collaboration Agreement (the “Collaboration Agreement”) we entered into in June 2022 with a 3D printing company with biomaterial capabilities.

In-process research and development increased by $6.9 million, or 343.5%, to $8.9 million for the year ended December 31, 2023 from $2.0 million for the year ended December 31, 2022.

In 2022, we recorded an upfront payment of $2.0 million in connection with the License and Research Collaboration Agreement (the “Collaboration Agreement”) we entered into with a 3D printing company with biomaterial capabilities.

In 2023, we recorded the upfront payment of $4.4 million and the issuance of shares of $4.4 million in connection with the Symatese U.S.

Agreement and Symatese Europe Agreement, respectively.

Basis of Presentation and Summary of Significant Accounting Policies for additional information.

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The change in the fair value of the contingent royalty obligation payable to Evolus Founders is recorded in operating expenses in each reporting period.

During the years ended December 31, 2022 and 2021, the revaluation charge of $5.8 million and $6.3 million, respectively, were primarily driven by changes in management assumptions relating to revenue forecasts, the discount rate used and the t iming of cash flows.

During the years ended December 31, 2023 and 2022, the revaluation charges of $4.3 million and $5.8 million, respectively, were primarily driven by changes in management assumptions relating to revenue forecasts, the discount rate used and the timing of cash flows.

Depreciation and Amortization

Depreciation and amortization decreased by $1.9 million, or 33.8%, to $3.7 million for the year ended December 31, 2022 from $5.6 million for the year ended December 31, 2021 due to the decrease in amortization of the internal-use software.

Depreciation and amortization increased by $1.4 million, or 37.9%, to $5.1 million for the year ended December 31, 2023 from $3.7 million for the year ended December 31, 2022, primarily due to an increase in amortization of internal-use software and leasehold improvements.

Non-Operating Expense, Net

Non-operating expenses, net, increased by $7.6 million, or 544.2%, to $9.0 million for the year ended December 31, 2022 from $1.4 million for the year ended December 31, 2021, primarily due to higher interest expense for the Pharmakon Term Loans.

The interest on the Pharmakon Term Loans is based on a variable interest rate, which we expect will continue to result in higher interest expense in the current interest rate environment.

Loss from Extinguishment of Debts, Net

Loss from extinguishment of debts, net includes a $1.9 million loss from payoff of long-term debt with Oxford Finance, LLC in January 2021, partially offset by a $1.0 million gain from the conversion of the Daewoong Convertible Note in March 2021.

Non-operating expense, net, increased by $3.3 million, or 36.6%, to $12.3 million for the year ended December 31, 2023 from $9.0 million for the year ended December 31, 2022, primarily due the advancement of the $50.0 million second tranche of the Pharmakon Term Loans in 2023.

Interest on the Pharmakon Term Loans is based on a variable interest rate, which we expect will continue to fluctuate with the market.

Income Taxes Expense

Income tax expense was de minimis for the year ended December 31, 2022 and 2021.

There was minimal income tax expense for the years ended December 31, 2023 and 2022.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $53.9 million, positive working capital of $54.3 million and stockholders’ equity of $18.5 million.

We have a limited history of generating revenues and began shipping Jeuveau ® in May 2019.

Since inception, we have incurred recurring net operating losses and as of December 31, 2022, we had an accumulated deficit of $497.3 million.

We incurred net losses of $74.4 million and $46.8 million in the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2023, we had cash and cash equivalents of $62.8 million, positive working capital of $64.1 million and stockholders’ deficit of $20.7 million.

We began selling Jeuveau ® in May 2019 and have a relatively limited history of generating revenues.

Since inception, we have incurred recurring net operating losses and have an accumulated deficit of $559.0 million as of December 31, 2023 as a result of ongoing efforts to develop and commercialize Jeuveau ® , including providing selling, general and administrative support for our operations.

We had net loss of $61.7 million and $74.4 million in the years ended December 31, 2023 and 2022, respectively.

We had a net loss from operations of $49.2 million and $65.3 million in the years ended December 31, 2023 and 2022, respectively.

We used net cash of $34.0 million and $84.9 million in operating activities for the twelve months ended December 31, 2023 and 2022, respectively.

We expect to continue to incur significant expenses for the foreseeable future as we increase marketing efforts for Jeuveau ® in the U.S., Europe, and Australia and maintain our regulatory approvals.

We expect to continue to incur significant expenses for the foreseeable future as we increase marketing efforts for Jeuveau ® in the U.S., Europe, and Australia, pursue regulatory approvals in other jurisdictions and ready for commercial launch of the Evolysse™ Lift, Smooth, Sculpt and Eye dermal filler product line.

Impact of Inflation

The markets in which we operate are currently experiencing increased inflation.

While we do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented, a prolonged inflationary environment could increase our cash required for operations and impact our liquidity position.

While we do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented, a prolonged inflationary environment could impact consumer discretionary spending for aesthetic medical procedures, increase our cash required for operations and impact our liquidity position.

“At-the-market” Offerings of Common Stock

On March 8, 2023, we entered into an “at-the-market” sales agreement (the “ATM Sales Agreement”) and filed a shelf registration statement on Form S-3 and corresponding prospectus with the SEC to permit sales under the ATM Sales Agreement, which registration statement became effective on June 8, 2023.

We have not sold any shares under the ATM Sales Agreement.

Stockholders’ Equity for additional information.

The Pharmakon Term Loans

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On December 5, 2022, we entered into a Second Amendment to the loan agreement to extend our option to draw down the second tranche of $50.0 million until December 31, 2023.

The second tranche of $50.0 million may be drawn at our election no later than December 31, 2023.

As of March 8, 2023, we have not drawn the second tranche.

We shall make 12 equal quarterly payments of principal on the outstanding Pharmakon Term Loans commencing in March 2025 and continuing through the maturity date.

On May 9, 2023, we entered into a Third Amendment to the loan agreement, which provided for the advancement of the second tranche of $50.0 million in two installments:

(i) $25.0 million

advanced on May 31, 2023 and (ii) $25.0 million advanced on December 15, 2023, which amounts were advanced on such dates subject to the terms and conditions of the Pharmakon Term Loans.

We are required to pay interest only under the loan agreement until March 2026, after which we make seven equal quarterly payments, each in an amount equal to 1/12th of the outstanding principal amount of the loan.

We pay the remaining principal of the loan on the maturity date.

The Pharmakon Term Loans will mature on the sixth year anniversary of the closing date of the first tranche.

The term loan bears an annual interest rate equal to the U.S.

Dollar LIBOR rate (subject to a LIBOR rate floor of 1.0%) plus 8.5%, and matures in December 2027.

The term loan bears an annual interest rate equal to the 3-month secured overnight financing rate (“SOFR”) (subject to a SOFR rate floor of 1.0%) plus 8.5% per annum.

The proceeds of the Pharmakon Term Loans are used to fund our general corporate and working capital requirements.

Contingent Royalties and Promissory Note Payable to the Evolus Founders

Contingent Royalties to Evolus Founders

We are obligated to make quarterly royalty payments of a low single digit percentage of net sales of Jeuveau ® to the Evolus Founders.

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The fair value of the obligations is valued quarterly and is referred to in our consolidated financial statements as the contingent royalty obligation.

In November 2021, we also paid $20.0 million to satisfy in full a promissory note that matured in November 2021.

As of December 31, 2022 and 2021, we recorded an aggregate balance of $46.3 million and $44.7 million, respectively, on our consolidated balance sheets for the royalty payment obligation.

Daewoong Convertible Note

On July 6, 2020, pursuant to a Convertible Promissory Note Purchase Agreement with Daewoong, we issued to Daewoong a Convertible Promissory Note for the principal amount of $40.0 million, which we refer to as the Daewoong Convertible Note, which was funded on July 30, 2020.

On March 23, 2021, the outstanding principal balance, together with all accrued and unpaid interest thereon, in the amount of $40.8 million was converted, at the conversion price of $13.00 per share, into the right to receive 3,136,869 shares of our common stock under the Conversion Agreement.

As of December 31, 2023 and 2022, we recorded an aggregate balance of $45.0 million and $46.3 million, respectively, on our consolidated balance sheet for the future royalty payment obligation to Evolus Founders.

Litigation Settlement

As described in “—Overview— Impact of Settlement Agreements ,” on February 18, 2021, upon entering into the Medytox/Allergan Settlement Agreements, we agreed to pay to Allergan and Medytox $35.0 million in multiple payments over two years, of which we paid $15.0 million in the third quarter of 2021 and $15.0 million during the first quarter of 2022, with final payment of $5.0 million paid in the first quarter of 2023.

As described in “—Overview— Impact of Settlement Agreements ,” on February 18, 2021, upon entering into the Medytox/Allergan Settlement Agreements, we agreed to pay to Allergan and Medytox $35.0 million in multiple payments over two years, of which we paid the first payment of $15.0 million in the third quarter of 2021, the second payment of $15.0 million in the first quarter of 2022, and the final pay ment of $5.0 million in the first quarter of 2023.

We also issued 6,762,652 shares of common stock to Medytox.

In addition, during the period from December 16, 2020 through September 16, 2022, we agreed to pay to Allergan and Medytox royalties on the sale of Jeuveau ® , based on a certain dollar amount per vial sold in the United States, and a low-double digit royalty on net sales of Jeuveau ® sold in other Evolus territories.

In addition, during the period from December 16, 2020 through September 16, 2022, we agreed to pay to Allergan and Medytox royalties on the sal e of Jeuveau ® , based on a certain dollar amount per vial sold in the United States, and a low-double digit royalty on net sales of Jeuveau ® sold in other Evolus territories.

During the period from September 17, 2022 to September 16, 2032, we agreed to pay to Medytox a mid-single digit royalty percentage on all net sales of Jeuveau ® .

The royalty payments are made quarterly.

As described in “—Overview— Impact of Settlement Agreements ,” on March 23, 2021, upon entering the Daewoong Arrangement, Daewoong paid us $25.5 million in April 2021, cancelled all remaining milestone payments up to $10.5 million in aggregate under the Daewoong Arrangement and agreed to reimburse us certain amounts (calculated on a dollar amount per vials sold basis in the United States) for sales of certain products with respect to which we are required to pay Medytox and Allergan royalties pursuant to the U.S.

Settlement Agreement.

License and Supply Agreement

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These potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions.

Symatese U.S.

The Symatese U.S.

Agreement includes certain milestone payments, development cost-sharing arrangements, and minimum annual purchases we are required to make in order to maintain the exclusivity of the license.

We may, however, meet these minimum purchase obligations by achieving certain market share in our licensed territory.

These potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share.

Symatese Europe Agreement

The Symatese Europe Agreement includes certain milestone payments and minimum annual purchases we are required to make in order to maintain the exclusivity of the license.

We may, however, meet these minimum purchase obligations by achieving certain market share in our licensed territory.

These potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share.

Operating Leases

Our corporate headquarters in Newport Beach, California is under a five-year non-cancelable operating lease, which expires on January 31, 2025 with an option to extend the term for an additional 60 months.

Our corporate headquarters in Newport Beach, California is under a non-cancelable operating lease, which expires on January 31, 2030 with an option to extend the term for an additional 60 months.

Lease payments increase based on an annual rent escalation clause that occurs on each February 1 anniversary.

We may, under certain circumstances, terminate the lease on the 36 months anniversary of the lease commencement date by providing a written notice 12 months prior to such anniversary and paying a termination fee equal to six months basic rent plus certain other expenses.

Current and Future Capital Requirements

We believe that our current capital resources, which consist of cash and cash equivalents, future cash generated from operations, and cash available under the Pharmakon Term Loans, will be sufficient to satisfy our cash requirements for at least the next twelve months for working capital to support our daily operations and meet commitments under our contractual obligations with third parties, although we may need to access the debt and equity markets or other sources of financing to satisfy our long-term cash requirements as further discussed below.

We have based our projections of capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources, which consist of cash and cash equivalents, cash generated from operations, and cash available under the Pharmakon Term Loans, sooner than we expect.

Our cash requirements depend on numerous factors, including but not limited to the impact of any potential disruptions to our supply chain, inflation or other economic conditions, and other long-term commitments and contingencies.

We believe that our current capital resources, which consist of cash and cash equivalents, future cash generated from operations and sales under the ATM Sales Agreement will be sufficient to satisfy our cash requirements for at least the next twelve months for working capital to support our daily operations and meet commitments under our contractual obligations with third parties, although we may wish to access the debt and equity markets or other sources of financing to satisfy our long-term cash requirements as further discussed below.

We have based our projections of capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources, which consist of cash and cash equivalents and cash generated from operations, sooner than we expect.

Our cash requirements depend on numerous factors, including but not limited to, the impact of any potential disruptions to our supply chain, inflation or other economic conditions, uncertainty regarding the stability of certain financial institutions, and other long-term commitments and contingencies.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our products, we are unable to estimate the exact amount of our operating capital requirements.

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However, there can be no assurance such financing or other alternatives will be available to us on acceptable terms, or at all.

The global economy, including the financial and credit markets, has recently experienced significant volatility

and disruptions, including severely diminished liquidity and credit availability and rising interest rates.

The global economy, including the financial and credit markets, has recently experienced significant volatility and disruptions, including severely diminished liquidity and credit availability and rising interest rates.

These conditions may adversely impact our ability to raise additional capital on acceptable terms, or at all.

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• the rate of revenue growth for Jeuveau ® in the United States and success of planned international launches;

• the timing of regulatory approval for the Evolysse™ dermal filler product line in the United States and Europe by Symatese and our ability to successfully commercialize these products;

• development costs and milestone payments related to the Evolysse™ products;

• our ability to forecast demand for our products, scale our supply to meet that demand and manage working capital effectively;

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• the amounts of the royalty payable to the Evolus Founders;

• the cost of commercialization activities for Jeuveau ® or any future product candidates are approved or cleared for sale, including marketing, sales and distribution costs;

• the cost of commercialization activities for Jeuveau ® , the Evolysse™ dermal filler product line or any future product candidates that are approved or cleared for sale, including marketing, sales and distribution costs;

• the cost of maintaining a sales force, the productivity of that sales force, the market acceptance of our products and the actions and product introductions of our competitors;

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(in millions)

Net cash (used in) provided by:

Net cash provided by (used in):

Operating activities

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Operating Activities

For the year ended December 31, 2022, operating activities used $84.9 million of cash, which primarily resulted from our net loss of $74.4 million, as adjusted for certain non-cash charges including $10.8 million of stock-based compensation expense, $1.6 million of provision of allowance for doubtful accounts, $1.1 million of amortization of debt discount and issuance costs, $3.7 million of depreciation and amortization and $5.8 million in revaluation of our contingent royalty obligation.

In addition, net operating assets and liabilities changed by $34.3 million primarily driven by $15.0 million of accrued litigation settlement expenses and various timing of inventory purchases and payments, collections from customers and payments to vendors.

For the year ended December 31, 2021, operating activities used $33.4 million of cash, which primarily resulted from our net loss of $46.8 million as adjusted for certain non-cash charges including $9.6 million of stock-based compensation expense, $0.6 million of provision of allowance for doubtful accounts, $0.9 million of amortization of debt discount and issuance costs, $5.6 million of depreciation and amortization and $6.3 million in revaluation of our contingent royalty obligation.

In addition, net operating assets and liabilities changed by $11.5 million primarily driven by $15.0 million of accrued litigation settlement expenses and various timing of inventory purchases and payments, collections from customers and payments to vendors.

For the year ended December 31, 2023, operating activities used $34.0 million of cash, which primarily resulted from our net loss of $61.7 million.

Net operating assets and liabilities changed by $5.9 million, primarily driven by improved collections from customers, payments to vendors, the timing of inventory purchases from our supplier, and the final cash litigation settlement payment of $5.0 million to Medytox and Allergan.

Operating activities also includes adjustments for certain non-cash charges including $16.5 million of stock-based compensation expense, $1.4 million of provision of allowance for doubtful accounts, $1.1 million of amortization of debt discount and issuance costs, $5.1 million of depreciation and amortization, $4.3 million in revaluation of our contingent royalty obligation and $4.4 million of in-process research and development expense.

For the year ended December 31, 2022, operating activities used $84.9 million of cash, which primarily resulted from our net loss of $74.4 million.

Net operating assets and liabilities changed by $34.3 million, primarily driven by timing of receipts from customers and payments to vendors and the second cash litigation settlement payment of $15.0 million to Medytox and Allergan.

Operating activities also includes adjustments for certain non-cash charges including $10.8 million of stock-based compensation expense, $5.8 million in revaluation of our contingent royalty obligation, $1.6 million of provision of allowance for doubtful accounts, $1.1 million of amortization of debt discount and issuance costs and $3.7 million of depreciation and amortization.

Investing Activities

Cash used in investing activities was $2.9 million for the year ended December 31, 2022 compared to cash provided by investing activities of $4.0 million for the year ended December 31, 2021.

The change in cash used in investing activities was attributable to maturities of short-term investments with no new purchases during the year ended December 31, 2021.

Cash used in investing activities was $1.6 million for the year ended December 31, 2023, compared to $2.9 million for the year ended December 31, 2022.

Financing Activities

Cash used in financing activities was $4.1 million for the year ended December 31, 2022, compared to $73.1 million of cash provided by financing activities for the year ended December 31, 2021.

For the year ended December 31, 2022, cash used in financing activities primarily resulted from the payment of contingent royalty obligation to Evolus Founders of $4.2 million.

For the year ended December 31, 2021, cash provided by financing activities resulted from the net proceeds from our follow-on offering of $92.4 million, sales of $10.9 million of our common shares under the ATM Program, and $72.0 million net proceeds from long-term debt with Pharmakon, offset by the repayment of long-term debt with Oxford of $76.3 million and repayment of the promissory note payable to Evolus Founders of $20.0 million.

Cash provided by financing activities was $44.6 million for the year ended December 31, 2023, compared to $4.1 million of cash used in financing activities for the year ended December 31, 2022.

For the year ended December 31, 2023, cash provided by financing activities resulted from $50.0 million net proceeds from drawing on the second tranche of the Pharmakon Term Loans as described above.

See “ —Liquidity and Capital Resources ” for a description of our Pharmakon Term Loans.

Material Cash Requirements

Our material cash requirements from known contractual and other obligations primarily consist of (i) principal and interest payments related to our Pharmakon Term Loans (future interest payments on our outstanding Pharmakon Term Loans total approximately $33.8 million, with $9.3 million due within twelve months), (ii) a final payment of $5.0 million related to the Medytox/Allergan Settlement Agreements, which was paid in February 2023, (iii) quarterly royalty payments to the Evolus Founders of a low single digit percentage of net sales of Jeuveau ® (these obligations terminate in the quarter after the 10-year anniversary of the first commercial sale of Jeuveau ® in the United States), (iv) quarterly royalty payments to Medytox of a low-double digit royalty on net sales of Jeuveau ® sold in the United States and other Evolus territories (during the period from September 17, 2022 to September 16, 2032) and (v) obligations under operating leases related to our office spaces.

Our material cash requirements from known contractual and other obligations, including commitments for capital expenditures, primarily consist of (i) principal and interest payments related to our Pharmakon Term Loans (future interest payments on our outstanding Pharmakon Term Loans total approximately $60.9 million, with $17.9 million due within twelve months), (ii) quarterly royalty payments to the Evolus Founders of a low single digit percentage of net sales of Jeuveau ® (these obligations terminate in the quarter after the 10-year anniversary of the first commercial sale of Jeuveau ® in the United States), (iii) quarterly royalty payments to Medytox of a low-double digit royalty on net sales of Jeuveau ® sold in the United States and other Evolus territories (during the period from September 17, 2022 to September 16, 2032), (iv) minimum purchase obligations under the Daewoong Agreement, (v) €12.1 milestone payments under the Symatese U.S.

Agreement consisting of €1.6 million in June 2025, €4.1 million in June 2026, €3.2 million in June 2027, and €3.2 million in June 2028, in each case subject to three of the dermal filler products gaining approval prior to that date, (vi) €3.1 million of milestone payments under the Symatese Europe Agreement consisting of :

€1.2 million on the second anniversary of certain regulatory approvals and €1.9 million on the earlier of the third anniversary of certain regulatory approvals or following a year in which we achieves €25 million in revenue in Europe for the dermal filler products, and (vii) obligations under operating leases related to our office space which are described in more detail in Item 8.

Consolidated Financial Statements and Supplementary Data - Note 7.

Operating Leases.

Critical Accounting Policies and Estimates

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A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition.

We generate product revenue from the sale of Jeuveau ® in the United States and Great Britain and service revenue from the sale of Jeuveau ® through a distribution partner in Canada.

We generate product revenue from the sale of Jeuveau ® in the United States and Europe and service revenue from the sale of Jeuveau ® through a distribution partner in Canada.

For product revenue, we recognize revenue when control of Jeuveau ® is transferred to a customer upon receipt.

For service revenue, we are determined to be the agent in the distribution of Jeuveau ® in Canada and record the sale as service revenue on a net basis.

Product revenues are recorded net of sales-related adjustments, wherever applicable, for the volume rebates, consumer loyalty program and co-branded marketing programs.

Volume rebates are contractually offered to certain customers, and the rebates payable to each customer are determined based on the contract and quarterly purchase volumes, which are readily available.

Product revenues are recorded net of sales-related adjustments, wherever applicable.

The consumer loyalty program allows participating customers to earn rewards for qualifying treatments to their patients (i.e.

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The loyalty program represents a customer option that provides a material right and, accordingly, is a performance obligation.

At the time Jeuveau ® product is sold to customers, the invoice price is allocated between the product sold and the estimated material right reward, or Reward, that the customer might redeem in the future.

The standalone selling price of the Reward is measured based on historical sales data, estimated average selling price of Jeuveau ® at the time of redemption, expected customer and consumer participation rates in the loyalty program, and estimated number of qualifying treatments to be performed by customers.

Jeuveau ® product is sold to customers, the invoice price is allocated between the product sold and the estimated material right reward, or Reward, that the customer might redeem in the future.

The standalone selling price of the Reward is measured based on estimated average selling price of Jeuveau ® at the time of redemption and the expected redemption rate by customers based on historical sales data.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to establish the liability for the Reward.

However, if the actual customer and consumer participation rates and number of qualifying treatments in any future periods materially differ from the estimates, we may be exposed to adjustments that could be material.

The portion of invoice price allocated to the Reward is initially recorded as deferred revenue, and when customers

redeem the Reward and the related product is delivered, the deferred revenue is reversed and included in net revenues.

Through the co-branded marketing programs, eligible customers with a certain level of Jeuveau ® purchases receive advertising co-branded with us.

At the time Jeuveau ® is sold to customers, the invoice price is allocated between the product sold and the advertisement.

The standalone selling price of the advertisement is measured based on estimated market value of similar advertisement adjusted for the customer’s portion of the advertisement.

The portion of invoice price allocated to the advertisement is initially recorded as deferred revenue, and when the advertisement airs, the deferred revenue is recognized in net revenues at that time.

Accounts receivable are recorded at the invoiced amount and do not bear interest.

We assess the probability that we will collect the entitled consideration in exchange for the goods sold, by considering the customer’s ability and intention to pay when consideration is due.

On a recurring basis, we estimate the amounts of receivables considered uncollectible to reflect an allowance for doubtful accounts.

The portion of invoice price allocated to the Reward is initially recorded as deferred revenue, and when customers redeem the Reward and the related product is delivered, the deferred revenue is reversed and included in net revenues.

Contingent Royalty Obligation to the Evolus Founders

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Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement, which could materially impact the fair value reported on the consolidated balance sheet.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination.

We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.

We perform an annual qualitative assessment of goodwill in the fourth quarter each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill.

If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required.

If further testing is required, we perform a two-step process.

The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill.

If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value.

An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.

For the purpose of impairment testing, we have determined that there is one reporting unit.

There has been no impairment of goodwill for any of the periods presented.

Intangible Assets

Intangible assets are consisted of a definite-lived distribution right of Jeuveau ® and capitalized internal-use software.

The distribution right is amortized over the period the asset is expected to contribute to our future cash flows.

We determined the pattern of this intangible asset’s future cash flows could not be readily determined with a high level of precision.

As a result, the distribution right intangible asset is being amortized on a straight-line basis over the estimated useful life of 20 years.

We capitalize certain internal-use software costs associated with the development of its mobile and web-based customer platforms.

These costs include personnel expenses and external costs that are directly associated with the software projects.

These costs are included as intangible assets in the accompanying consolidated balance sheets.

The capitalized internal-use software costs are amortized on a straight-line basis over the estimated useful life of two years upon being placed in service.

We review long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment analysis is performed.

An impairment loss is measured as the amount by which the carrying amount of the asset or asset groups exceeds the fair value for assets to be held and used or fair value less cost to sell for assets to be disposed of.

We also review the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the

remaining useful life.

Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized.

There was no material impairment of long-lived assets for any periods presented.

Recently Issued and Adopted Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis