EOLS Evolus Inc

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For the transition period from ___________ to ___________

Delaware

46-1385614

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

520 Newport Center Drive Suite 1200 Newport Beach, California

92660

(Address of Principal Executive Offices)

(Zip Code)

(949) 284-4555

(Registrant’s Telephone Number, Including Area Code)

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

EOLS

The Nasdaq Stock Market LLC (Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☐			Accelerated filer			☐
Non-accelerated filer			☒			Smaller reporting company			☒
						Emerging growth company			☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒     

			TABLE OF CONTENTS
						Page
			Special Note Regarding Forward-Looking Statements			3
			Summary of Risk Factors			3
			PART I - FINANCIAL INFORMATION
Item 1.			Condensed Consolidated Financial Statements (unaudited)			6
			Condensed Consolidated Balance Sheets			6
			Condensed Consolidated Statements of Operations and Comprehensive Loss			7
			Condensed Consolidated Statements of Stockholders’ Equity			8
			Condensed Consolidated Statements of Cash Flows			10
			Notes to Condensed Consolidated Financial Statements			12
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			45
Item 4.			Controls and Procedures			46
			PART II - OTHER INFORMATION
Item 1.			Legal Proceedings			47
Item 1A.			Risk Factors			48
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			78
Item 3.			Defaults Upon Senior Securities			78
Item 4.			Mine Safety Disclosures			78
Item 5.			Other Information			78
Item 6.			Exhibits			79
			Signatures			80

•We currently depend entirely on the successful commercialization of our only product, Jeuveau®. If we are unable to successfully market and sell Jeuveau®, we may not generate sufficient revenue to continue our business.

•We have a limited operating history and have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one approved product, which, together with our limited operating history, makes it difficult to assess our future viability.

•We may require additional financing to fund our future operations, and a failure to obtain additional capital when so needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate the scope of our operations.

•If we or our counterparties do not comply with the terms of our settlement agreements with Medytox Inc., or Medytox, and Allergan Limited, Allergan Inc. and Allergan Pharmaceuticals Ireland, or, collectively Allergan, we may face litigation or lose our ability to market and sell Jeuveau®, which would materially and adversely affect our ability to carry out our business and our financial condition and ability to continue as a going concern.

•The terms of the Medytox/Allergan Settlement Agreements with Medytox and Allergan impacts our profitability and may affect the extent of any discounts we may offer to our customers.

•Our business, financial condition and operations have been, and may in the future be, adversely affected by the COVID-19 outbreak or other outbreaks of contagious diseases.

•Unfavorable global economic conditions, which may adversely impact consumer discretionary spending or cause our customers to delay making payments for our product, could affect our ability to raise additional capital when needed on acceptable terms, if at all, and may result in supply chain disruptions impacting the availability of our products.

•We rely on the license and supply agreement, as amended, with Daewoong, which we refer to as the Daewoong Agreement, to provide us with exclusive rights to distribute Jeuveau® in certain territories. Any termination or loss of significant rights, including exclusivity, under the Daewoong Agreement would materially and adversely affect our development and commercialization of Jeuveau®.

•Our failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.

•Jeuveau® faces, and any of our future product candidates will face, significant competition and our failure to effectively compete may prevent us from achieving significant market penetration and expansion.

•Jeuveau® may fail to achieve the broad degree of physician adoption and use or consumer demand necessary for commercial success.

•Our ability to market Jeuveau® is limited to use for the treatment of glabellar lines, and if we want to expand the indications for which we market Jeuveau®, we will need to obtain additional regulatory approvals, which will be expensive and may not be granted.

•Third party claims of intellectual property infringement may prevent or delay our commercialization efforts and interrupt our supply of products.

•If we or any of our current or future licensors, including Daewoong, are unable to maintain, obtain or protect intellectual property rights related to Jeuveau® or any of our future product candidates, we may not be able to compete effectively in our market.

•We may need to increase the size of our organization, including our sales and marketing capabilities, in order to further market and sell Jeuveau® and we may experience difficulties in managing this growth.

•We rely on our digital technology and applications and our business and operations would suffer in the event of computer system failures or breach.

•We are subject to extensive government regulation, and we may face delays in or not obtain regulatory approval of our product candidates and our compliance with ongoing regulatory requirements may result in significant additional expense, limit or delay regulatory approval or subject us to penalties if we fail to comply.

EVOLUS™, Jeuveau®, Evolux® are three of our trademarks that are used in this Quarterly Report on Form 10-Q. Jeuveau® is the trade name in the United States for our approved product with non-proprietary name, prabotulinumtoxinA-xvfs. The product has different trade names outside of the United States, including Nuceiva® in Canada and Great Britain, but is referred to throughout this Quarterly Report on Form 10-Q as Jeuveau®. This Quarterly Report on Form 10-Q also includes trademarks, trade names and service marks that are the property of other organizations, such as BOTOX® and BOTOX® Cosmetic, which we refer to throughout this Quarterly Report on Form 10-Q as BOTOX. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our use or display of other

(in thousands, except par value and share data)

			September 30, 2022						December 31, 2021
			(Unaudited)
ASSETS
Current assets
Cash and cash equivalents			$	65,572					$	146,256
Accounts receivable, net			20,920						14,657
Inventories			21,565						1,762
Prepaid expenses			3,656						5,082
Other current assets			4,233						11,042
Total current assets			115,946						178,799
Property and equipment, net			1,882						1,371
Operating lease right-of-use assets			2,149						2,722
Intangible assets, net			49,108						50,625
Goodwill			21,208						21,208
Other assets			2,426						2,758
Total assets			$	192,719					$	257,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable			$	8,564					$	6,091
Accrued expenses			29,883						29,993
Accrued litigation settlement			5,000						15,000
Operating lease liabilities			1,307						1,265
Contingent royalty obligation payable to Evolus Founders			6,517						5,314
Total current liabilities			51,271						57,663
Accrued litigation settlement			—						5,000
Operating lease liabilities			1,491						2,256
Contingent royalty obligation payable to Evolus Founders			39,000						39,426
Term loan, net of discount and issuance costs			71,712						71,222
Deferred tax liability			25						40
Total liabilities			163,499						175,607
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.00001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively			—						—
Common stock, $0.00001 par value; 100,000,000 shares authorized; 56,183,414 and 55,576,988 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively			1						1
Additional paid-in capital			513,717						504,757
Accumulated other comprehensive loss			(368)						—
Accumulated deficit			(484,130)						(422,882)
Total stockholders’ equity			29,220						81,876
Total liabilities and stockholders’ equity			$	192,719					$	257,483

See accompanying notes to consolidated financial statements.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenue:
Product revenue, net			$	33,215					$	26,677					$	103,604					$	64,314
Service revenue			684						—						1,366						702
Total net revenues			33,899						26,677						104,970						65,016
Operating expenses:
Product cost of sales (excludes amortization of intangible assets)			13,490						11,490						42,517						27,700
Settlement payment from Daewoong			—						—						—						(25,500)
Selling, general and administrative			34,794						31,673						105,111						78,801
Research and development			1,376						301						3,394						1,641
In-process research and development			—						—						2,000						—
Revaluation of contingent royalty obligation payable to Evolus Founders			1,216						1,400						3,946						4,049
Depreciation and amortization			920						923						2,695						4,702
Total operating expenses			51,796						45,787						159,663						91,393
Loss from operations			(17,897)						(19,110)						(54,693)						(26,377)
Other income (expense):
Interest income			38						—						42						1
Interest expense			(2,343)						(311)						(6,466)						(1,256)
Loss from extinguishment of debts, net			—						—						—						(968)
Other expense, net			(62)						—						(93)						—
Loss before income taxes:			(20,264)						(19,421)						(61,210)						(28,600)
Income tax expense			12						12						38						33
Net loss			$	(20,276)					$	(19,433)					$	(61,248)					$	(28,633)
Other comprehensive gain (loss):
Unrealized loss, net of tax			(203)						—						(368)						—
Comprehensive loss			$	(20,479)					$	(19,433)					$	(61,616)					$	(28,633)
Net loss per share, basic and diluted			$	(0.36)					$	(0.35)					$	(1.09)					$	(0.60)
Weighted-average shares outstanding used to compute basic and diluted net loss per share			56,176,949						55,007,132						55,997,545						47,818,288

			Series A Preferred Stock												Common Stock												Additional Paid In Capital						Accumulated Other Comprehensive Gain (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Amount						Shares						Amount
Balance at December 31, 2020			—						$	—					33,749,228						$	1					$	303,113					$	—					$	(376,072)					$	(72,958)
Issuance of common stock in connection with litigation settlement			—						—						6,762,652						—						48,421						—						—						48,421
Issuance of common stock for conversion of convertible note			—						—						3,136,869						—						39,808						—						—						39,808
Issuance of common stock in connection with the incentive equity plan			—						—						88,222						—						11						—						—						11
Stock-based compensation			—						—						—						—						1,606						—						—						1,606
Net income			—						—						—						—						—						—						6,401						6,401
Balance at March 31, 2021			—						$	—					43,736,971						$	1					$	392,959					$	—					$	(369,671)					$	23,289
Issuance of common stock upon follow-on offering, net of issuance costs			—						—						10,350,000						—						92,212						—						—						92,212
Issuance of common stock under “at-the-market” (ATM) program			—						—						209,532						—						2,707						—						—						2,707
Issuance of common stock in connection with the incentive equity plan			—						—						76,289						—						644						—						—						644
Stock-based compensation			—						—						—						—						2,887						—						—						2,887
Net loss			—						—						—						—						—						—						(15,601)						(15,601)
Balance at June 30, 2021			—						$	—					54,372,792						$	1					$	491,409					$	—					$	(385,272)					$	106,138
Issuance of common stock under “at-the-market” (ATM) program									—						724,835						—						8,203						—						—						8,203
Issuance of common stock in connection with the incentive equity plan			—						—						456,165						—						—						—						—						—
Stock-based compensation			—						—						—						—						2,496						—						—						2,496
Net loss			—						—						—						—						—						—						(19,433)						(19,433)
Balance at September 30, 2021			—						$	—					55,553,792						$	1					$	502,108					$	—					$	(404,705)					$	97,404

			Series A Preferred Stock												Common Stock												Additional Paid In Capital						Accumulated Other Comprehensive Gain (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Amount						Shares						Amount
Balance at December 31, 2021			—						$	—					55,576,988						$	1					$	504,757					$	—					$	(422,882)					$	81,876
Issuance of common stock in connection with the incentive equity plan			—						—						464,376						—						17						—						—						17
Stock-based compensation			—						—						—						—						2,959						—						—						2,959
Net loss			—						—						—						—						—						—						(17,501)						(17,501)
Other comprehensive loss			—						—						—						—						—						(103)						—						(103)
Balance at March 31, 2022			—						$	—					56,041,364						$	1					$	507,733					$	(103)					$	(440,383)					$	67,248
Issuance of common stock in connection with the incentive equity plan			—						—						22,049						—						167						—						—						167
Stock-based compensation			—						—						—						—						2,979						—						—						2,979
Net loss			—						—						—						—						—						—						(23,471)						(23,471)
Other comprehensive loss			—						—						—						—						—						(62)						—						(62)
Balance at June 30, 2022			—						$	—					56,063,413						$	1					$	510,879					$	(165)					$	(463,854)					$	46,861
Issuance of common stock in connection with the incentive equity plan			—						—						120,001						—						355						—						—						355
Stock-based compensation			—						—						—						—						2,483						—						—						2,483
Net loss			—						—						—						—						—						—						(20,276)						(20,276)
Other comprehensive loss			—						—						—						—						—						(203)						—						(203)
Balance at September 30, 2022			—						$	—					56,183,414						$	1					$	513,717					$	(368)					$	(484,130)					$	29,220

See accompanying notes to consolidated financial statements.

			Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities
Net loss			$	(61,248)					$	(28,633)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			2,695						4,702
Stock-based compensation			8,421						6,927
Provision for bad debts			1,363						501
Amortization of operating lease right-of-use assets			573						512
Amortization of debt discount and issuance costs			805						882
Paid-in-kind interest on convertible note			—						272
Deferred income taxes			(15)						—
Revaluation of contingent royalty obligation payable to Evolus Founders			3,946						4,049
Loss from extinguishment of debts			—						968
Changes in assets and liabilities:
Accounts receivable			(7,626)						(4,110)
Inventories			(15,283)						(7,161)
Prepaid expenses			1,426						344
Other assets			2,300						—
Accounts payable			2,338						(2,312)
Accrued expenses			(110)						14,334
Accrued litigation settlement			(15,000)						(15,000)
Operating lease liabilities			(723)						(619)
Net cash (used in) provided by operating activities			(76,138)						(24,344)
Cash flows from investing activities
Purchases of property and equipment			(752)						—
Additions to capitalized software			(796)						(580)
Maturities of short-term investments			—						5,000
Net cash (used in) provided by investing activities			(1,548)						4,420
Cash flows from financing activities
Repayment of long term debt			—						(76,323)
Payment of contingent royalty obligation to Evolus Founders			(3,169)						(2,295)
Proceeds from follow-on offering, net of underwriters fees			—						92,426
Payments for offering costs			—						(214)
Proceeds from ATM sales of shares			—						10,910
Issuance of common stock in connection with incentive equity plan			539						654
Net cash (used in) provided by financing activities			(2,630)						25,158
Effect of exchange rates on cash			(368)						—
Change in cash and cash equivalents			(80,684)						5,234
Cash and cash equivalents, beginning of period			146,256						102,562
Cash and cash equivalents, end of period			$	65,572					$	107,796

See accompanying notes to consolidated financial statements.

			Nine Months Ended September 30,
			2022						2021
Supplemental disclosure of cash flow information
Cash paid for interest			$	5,651					$	79
Cash paid for income taxes			$	70					$	—
Non-cash investing and financing information
Conversion of convertible note to equity			$	—					$	39,808
Issuance of common stock in exchange for accrued litigation settlement expense			$	—					$	48,421
Capitalized software recorded in accounts payable and accrued expenses			$	—					$	10

See accompanying notes to consolidated financial statements.

Evolus, Inc., (“Evolus” or the “Company”) is a performance beauty company focused on delivering products in the self-pay aesthetic market. The Company received the approval of its first product Jeuveau® (prabotulinumtoxinA-xvfs) from the U.S. Food and Drug Administration (the “FDA”) in February 2019. The product was also approved by Health Canada in August 2018 and the European Commission (“EC”) in September 2019. 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. The Company commercially launched Jeuveau® in the United States in May 2019, in Canada through a distribution partner in October 2019, and in Great Britain in September 2022. The Company currently generates all of its net revenues from Jeuveau®. The Company is headquartered in Newport Beach, California.

In December 2021, the Company entered into a $125,000 Term Loan agreement with BPCR Limited Partnership, BioPharma Credit Investments V (Master) LP, and Biopharma Credit PLC (collectively, “Pharmakon”). The first tranche of $75,000 was funded on December 29, 2021. The second tranche of $50,000 may be drawn at the Company’s election no later than December 31, 2022, subject to the terms and conditions of the loan agreement. As of September 30, 2022, the Company has not drawn the second tranche. The Company received net proceeds of $68,695 from Pharmakon, after issuance costs and debt discounts in December 2021. See Note 6. Term Loans for additional information.

In 2013, Evolus and Daewoong Pharmaceutical Co. Ltd. (“Daewoong”) entered into an agreement (the “Daewoong Agreement”), pursuant to which the Company received an exclusive distribution license to Jeuveau® from Daewoong for aesthetic indications in the United States, European Union, United Kingdom, members of the European Economic Area, Switzerland, Canada, Australia, Russia, certain members of the Commonwealth of Independent States, and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. Jeuveau® is manufactured by Daewoong in a facility in South Korea. The Company also has the option to negotiate first with Daewoong to secure a distribution license for any product that Daewoong directly or indirectly develops or commercializes that is classified as an injectable botulinum toxin (other than Jeuveau®) in a territory covered by the Daewoong Agreement. The Company relies on Daewoong, its exclusive and sole supplier, to manufacture Jeuveau®. Any termination or loss of significant rights, including exclusivity, under the Daewoong Agreement would materially and adversely affect the Company’s commercialization of Jeuveau®. See Note 9. Commitments and Contingencies and Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

Inventories consist of finished goods held for sale and distribution. Cost is determined based on the estimated amount payable to the Company’s supplier after accounting for any reimbursement receivable pursuant to the Daewoong Settlement Agreement (as such term is defined, and such agreement is discussed, in Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement), using the first-in, first-out method with prioritization of the items with the earliest expiration dates. Inventory valuation reserves are established based on a number of factors including, but not limited to, finished goods not meeting product specifications, product excess and obsolescence, or application of the lower of cost or net realizable value concepts. The determination of events requiring the establishment of inventory valuation reserves, together with the calculation of the amount of such reserves may require judgment. No material inventory valuation reserves have been recorded for the periods presented. Adverse changes in assumptions utilized in the Company’s inventory reserve calculations could result in an increase to its inventory valuation reserves.

Product cost of sales, excluding amortization of intangible assets, consisted of the inventory cost, and, for periods on or after December 16, 2020, included certain royalties on the sale of Jeuveau® payable to Medytox and Allergan pursuant to the Medytox/Allergan Settlement Agreements (as such term is defined in Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement), as partially offset by reimbursement receivable from Daewoong pursuant to the Daewoong Settlement Agreement with respect to such royalties. In the nine months ended September 30, 2021, the Company recorded a one-time settlement payment of $25,500 from Daewoong in connection with the Daewoong Settlement Agreement as part of cost of sales.

•Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, or can be corroborated by observable market data for substantially the full term of the asset or liability; and

•Level 3—Prices or valuation techniques that require inputs that are unobservable that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The distribution right intangible asset related to Jeuveau® is amortized over the period the asset is expected to contribute to the future cash flows of the Company. The Company 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.

Long-term debt represents the debt balance with Pharmakon (see Note 6. Term Loans), net of discount and issuance costs. Debt issuance costs represent legal, lender and consulting costs or fees associated with debt financing. Debt discounts and issuance costs are amortized into interest expense over the term of the debt.

The Company generates 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.

•Volume-based Rebates — Volume-based rebates are contractually offered to certain customers. The rebates payable to each customer are determined based on the contract and quarterly purchase volumes.

•Consumer Loyalty Program — In May 2020, the Company launched a consumer loyalty program, which allows participating customers to earn rewards for qualifying treatments to their patients (i.e. consumers) using Jeuveau® and redeem the rewards for Jeuveau® in the future at no additional cost. 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 (“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. The portion of invoice price allocated to the Reward is initially recorded as deferred revenue. Subsequently, when customers redeem the Reward and the related product is delivered, the deferred revenue is recognized in net revenues at that time.

•Co-Branded Marketing Programs — The Company offers eligible customers with a certain level of Jeuveau® purchases to receive advertising co-branded with the Company. The co-branded advertising represents a performance obligation. At the time Jeuveau® product 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 the 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. Subsequently, when the advertisement airs, the deferred revenue is recognized in net revenues at that time.

In February 2021, upon entering into certain agreements to settle intellectual property disputes relating to Jeuveau®, the Company agreed to pay to Allergan and Medytox $35,000 in multiple payments over two years, of which $15,000 was paid in the third quarter of 2021 and $15,000 was paid in the first quarter of 2022, and issued 6,762,652 shares of its common stock to Medytox. In addition, for the period from December 16, 2020 to September 16, 2022 (the “Restricted Period”), the Company agreed to pay to Allergan and Medytox a royalty 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. Royalties for sales during the Restricted Period ended in the third quarter of 2022. For the period from September 17, 2022 to September 16, 2032, the Company agreed to pay to Medytox a mid-single digit royalty percentage on all net sales of Jeuveau®. The royalty payments are made quarterly and recorded as product cost of sales on the accompanying condensed consolidated statements of operations and comprehensive loss in the periods the royalties are incurred.

Separately, in March 2021, Daewoong and the Company entered into certain agreements, pursuant to which Daewoong agreed to pay the Company an amount equal to $25,500, which was recorded as a settlement payment from Daewoong and included as part of cost of sales on the accompanying condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2021. For the period from December 16, 2020 to September 16, 2022, Daewoong also agreed to reimburse the Company certain amounts with respect to the royalties payable to Medytox and Allergan. This reimbursement is received quarterly and recorded as an offset to the related royalties to Medytox and Allergan in the product cost of sales on the accompanying condensed consolidated statements of operations and comprehensive loss.

See Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement for the details of all litigation settlement agreements.

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update will increase transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of transactions; (2) the accounting for the transactions; and, (3) the effect of the transactions on a business entity’s financial statements. ASU No. 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021, with early application permitted. The Company has adopted this guidance on the effective date of January 1, 2022. There are no material impacts to the condensed consolidated financial statements as a result of this adoption.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”). Both ASU No. 2020-04 and ASU No. 2021-01 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 and ASU No. 2021-01 are effective upon issuance for contract modifications and hedging relationships, and the Company is allowed to elect to apply the amendments prospectively through December 31, 2022. The Company does not expect adoption of this guidance will have a material impact on its consolidated financial statements.

			As of September 30, 2022
			Fair Value						Level 1						Level 2						Level 3
Liabilities
Contingent royalty obligation payable to Evolus Founders			$	45,517					$	—					$	—					$	45,517

			As of December 31, 2021
			Fair Value						Level 1						Level 2						Level 3
Liabilities
Contingent royalty obligation payable to Evolus Founders			$	44,740					$	—					$	—					$	44,740

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Fair value, beginning of period			$	45,415					$	42,683					$	44,740					$	41,546
Payments			(1,114)						(783)						(3,169)						(2,295)
Change in fair value recorded in operating expenses			1,216						1,400						3,946						4,049
Fair value, end of period			$	45,517					$	43,300					$	45,517					$	43,300

			Weighted-Average Life (Years)						Original Cost						Accumulated Amortization						Net Book Value
Definite-lived intangible assets
Distribution right			20						$	59,076					$	(10,806)					$	48,270
Capitalized software			2						8,252						(7,414)						838
Intangible assets, net									67,328						(18,220)						49,108
Indefinite-lived intangible asset
Goodwill			*						21,208						—						21,208
Total as of September 30, 2022									$	88,536					$	(18,220)					$	70,316

			Weighted-Average Life (Years)						Original Cost						Accumulated Amortization						Net Book Value
Definite-lived intangible assets
Distribution right			20						$	59,076					$	(8,589)					$	50,487
Capitalized software			2						7,314						(7,176)						138
Intangible assets, net									66,390						(15,765)						50,625
Indefinite-lived intangible asset
Goodwill			*						21,208						—						21,208
Total as of December 31, 2021									$	87,598					$	(15,765)					$	71,833

The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2022 that are subject to amortization:

Fiscal year
Remaining in 2022			$	859
2023			3,434
2024			3,195
2025			2,955
2026			2,955
Thereafter			35,710
			$	49,108

Distribution right represents the license and associated distribution right to develop Jeuveau®, the initial term of which expires in September 2023 and is automatically extended for unlimited additional three-year terms provided that the Company meets certain performance requirements. The Company paid Daewoong $3,000 in milestone payments in 2019, pursuant to the Daewoong Agreement, which increased the cost basis of the distribution. Under the Daewoong Settlement Agreement (as defined in Note 11.), there is no additional cash consideration due to Daewoong. See Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

			September 30,						December 31,
			2022						2021
Accrued royalties under the Medytox/Allergan Settlement Agreements			$	7,936					$	12,447
Accrued payroll and related benefits			7,094						6,856
Accrued revenue contract liabilities			10,188						7,934
Other accrued expenses			4,665						2,756
			$	29,883					$	29,993

Fiscal year
Remainder of 2022			$	—
2023			—
2024			—
2025			25,000
2026			25,000
Thereafter			25,000
Total principal payments			75,000
Unamortized debt discounts and issuance costs			(3,288)
Long term debt, net of discounts and issuance costs			$	71,712

On March 23, 2021, the outstanding principal balance including all accrued and unpaid interest thereon, of $40,779 was converted, at the conversion price of $13.00 per share, into 3,136,869 shares of the Company’s common stock under the Conversion Agreement (as defined in Note 11.). The conversion was accounted for as an extinguishment of debt resulting in a gain of $971, which is recorded in loss from extinguishment of debts, net on the accompanying condensed consolidated statements of operations and comprehensive loss. The Daewoong Convertible Note was not registered, and the shares of the Company’s common stock issued upon conversion of the Daewoong Convertible Note have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. See Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement for the details of the Conversion Agreement.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Fixed operating lease expense			$	273					$	268					$	811					$	797
Variable operating lease expense			18						20						65						40
			$	291					$	288					$	876					$	837

			As of September 30,
			2022						2021
Weighted-average remaining lease term (years)			2.3						3.3
Weighted-average discount rate			9.4		%				9.4		%

Fiscal year
Remainder of 2022			$	318
2023			1,320
2024			1,377
2025			115
2026			—
Total operating lease payments			3,130
Less: imputed interest			(332)
Present value of operating lease liabilities			$	2,798

As of September 30, 2022, the Company has entered into commitments to purchase services and products for an aggregate amount of approximately $1,074. Certain minimum purchase commitments related to the purchase of Jeuveau® are described below.

On October 16 and 28, 2020, two putative securities class action complaints were filed in the U.S. District Court for the Southern District of New York by Evolus shareholders Armin Malakouti and Clinton Cox, respectively, naming the Company and certain of its officers as defendants. The complaints assert violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, claiming that the defendants made false and materially misleading statements and failed to disclose material adverse facts related to the Company’s acquisition of the right to sell Jeuveau®, the complaint against the Company filed by Allergan and Medytox in the U.S. International Trade Commission related to Jeuveau® (the “ITC Action”), and risks related to the ITC Action. The complaints assert a putative class period of February 1, 2019 to July 6, 2020. The court consolidated the actions on November 13, 2020, under the caption In re Evolus Inc. Securities Litigation, No. 1:20-cv-08647 (PGG). On September 17, 2021, the court appointed a lead plaintiff and lead counsel. On November 17, 2021, the lead plaintiff filed an amended class action complaint against the Company, three of its officers, and Alphaeon Corporation, the Company’s former majority shareholder. On January 18, 2022, the Company and the officer defendants served their motion to dismiss the amended complaint. On February 10, 2022, Alphaeon Corporation served its motion to dismiss the amended complaint. Both motions were fully briefed on June 16, 2022. The outcome of the legal proceeding is uncertain at this point. Based on information available to the Company at present, management cannot reasonably estimate a range of loss with respect to this matter.

and directors as defendants. The complaints alleged substantially similar facts as those in the Securities Class Action and assert claims for, among other things, breach of fiduciary duty, waste of corporate assets, unjust enrichment, and violations of Section 14(a) of the Exchange Act and for contribution under Sections 10(b) and 21(D) of the Exchange Act. On December 29, 2020, the plaintiffs filed a joint stipulation to consolidate their actions and on February 5, 2021, the court consolidated the action under the caption In re Evolus, Inc. Derivative Litigation, No. 1:20-cv-09986-PPG, and adjourned defendants’ time to move, answer or otherwise respond to the complaints. On September 20, 2021, the court so-ordered the parties’ stipulated stay of the consolidated derivative suit pending the court’s decision on the defendants’ motion to dismiss the Securities Class Action.

On February 28, 2021, the Company issued 6,762,652 shares of its common stock to Medytox pursuant to the Share Issuance Agreement. See Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

On March 25, 2021, the Company issued 3,136,869 shares of its common stock to Daewoong in connection with the conversion of Daewoong Convertible Note. See Note 7. Daewoong Convertible Note for additional information.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Volatility			83.8		%				79.6		%				78.6		%				78.9		%
Risk-free interest rate			3.25		%				1.12		%				1.92		%				1.16		%
Expected life (years)			6.25						6.25						6.19						6.25
Dividend yield rate			—		%				—		%				—		%				—		%

															Weighted
									Weighted						Average
									Average						Remaining						Aggregate
			Stock						Exercise						Contractual						Intrinsic
			Options						Per Share						Terms (Years)						Value
Outstanding, December 31, 2021			3,922,286						$	11.23					7.10						$	455
Granted			1,665,786						6.74
Exercised			(53,098)						10.08
Canceled/forfeited			(602,342)						14.17
Outstanding, September 30, 2022			4,932,632						$	9.37					7.23						$	4,245
Exercisable, September 30, 2022			2,860,912						$	10.35					6.01						$	1,338

									Weighted Average
									Grant Date
			Restricted						Fair Value
			Stock Units						Per Share
Outstanding, December 31, 2021			1,926,467						$	8.06
Granted			1,667,320						6.88
Vested			(553,328)						8.22
Forfeited			(401,656)						6.88
Outstanding, September 30, 2022			2,638,803						$	7.46

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Selling, general and administrative			$	2,398					$	2,399					$	8,236					$	6,784
Research and development			85						77						185						143
			$	2,483					$	2,476					$	8,421					$	6,927

Effective February 18, 2021, the Company, Allergan and Medytox entered into a Settlement and License Agreement (the “U.S. Settlement Agreement”), pursuant to which, among other things: (i) Allergan and Medytox agreed to file a petition requesting the remedial orders related to the ITC Action be rescinded with respect to the Company; (ii) Medytox agreed to dismiss substantially similar litigation in California against the Company; (iii) the Company, on the one hand, and Medytox and Allergan, on the other hand, agreed to mutually release certain claims they may have against one another and their respective affiliates; (iv) Allergan and Medytox granted to the Company and its agents a license to manufacture and commercialize certain products identified in the U.S. Settlement Agreement, including Jeuveau® (the “Licensed Products”), in the United States during the 21 month period that, pursuant to the ITC Action, the Company was restricted from, among other things, selling, marketing, or promoting such imported Jeuveau® in the United States (the “Restricted Period”); (v) the Company agreed to pay to Allergan and Medytox $35,000 in multiple payments over two years, of which the Company paid the first cash payment of $15,000 in the third quarter of 2021 and the second cash payment of $15,000 in the first quarter of 2022; and (vi) during the Restricted Period, the Company agreed to pay to Allergan and Medytox certain confidential royalties on the sale of Licensed Products, calculated on dollar amount per vial sold of Licensed Products by or on behalf of the Company in the United States. Royalties for sales during the Restricted Period ended on September 16, 2022.

In connection with the execution of the Daewoong Settlement Agreement, on March 23, 2021, the Company and Daewoong also entered into the Third Amendment to the Supply Agreement (the “Daewoong Agreement Amendment”). Pursuant to the Daewoong Agreement Amendment, the parties amended the Daewoong Agreement to (i) expand the territory within which the Company may distribute Jeuveau® to certain countries in Europe, (ii) reduce the period of time with respect to which the Company is required to deliver binding forecasts to Daewoong, (iii) introduce certain limitations on Daewoong’s ability to convert the Company’s exclusive license for certain territories to a non-exclusive license in the event the Company fails to meet certain minimum purchase requirements for such territory, (iv) adjust the minimum purchase requirements and reduce the transfer price per vial of Jeuveau® applicable to various territories, (v) require that any Jeuveau® supplied by Daewoong match certain shelf-life thresholds, and (vi) prohibit the Company from sharing certain confidential information of Daewoong with Medytox or its affiliates or representatives.

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.

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 and we are finalizing plans for entering additional countries in Europe as part of a phase rollout. We received acceptance of our submission to the Australian Therapeutics Good Administration, or TGA, for regulatory approval of our neurotoxin product in Australia in the first quarter of 2022. We expect to receive full TGA regulatory approval and launch the product in Australia in 2023.

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. We completed our patient enrollment in the clinical study evaluating the “extra-strength” dose in the second quarter of 2022. This program provides us with the opportunity to offer the first multi-strength neurotoxin, giving customers and consumers increased treatment options. We anticipate completing the study in the first half of 2023.

In February 2021, we settled litigation claims related to a complaint against us filed by Allergan, Inc. and Allergan Limited (together, “Allergan”) and Medytox, Inc. (“Medytox”) in the U.S. International Trade Commission related to Jeuveau® (the “ITC Action”) and certain related matters by entering into a Settlement and License Agreement with Medytox and Allergan, which we refer to as the U.S. Settlement Agreement, and another Settlement and License Agreement with Medytox which we refer to as the ROW Settlement Agreement. We refer to the U.S. Settlement Agreement and the ROW Settlement Agreement collectively as the Medytox/Allergan Settlement Agreements.

Under the Medytox/Allergan Settlement Agreements, we agreed to (i) make cash payments of $35.0 million in multiple payments over two years to Allergan and Medytox, of which we paid the first payment of $15.0 million in the third quarter of 2021 and the second payment of $15.0 million in the first quarter of 2022, with the final payment of $5.0 million due in 2023, (ii) pay to Allergan and Medytox 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 to September 16, 2022, (iii) from December 16, 2020 to September 16, 2022, pay Medytox 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) from September 17, 2022 to September 16, 2032, 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. We also issued 6,762,652 shares of our common stock to Medytox.

In addition, in March 2021, we entered into a Confidential Settlement and Release Agreement and certain related agreements with Daewoong Pharmaceutical Co. Ltd (“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 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. See Note 11. Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional details on the litigation settlement agreements.

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

			Three Months Ended September 30,												Nine Months Ended September 30,
(in millions)			2022						2021						2022						2021
Total net revenues			$	33.9					$	26.7					$	105.0					$	65.0
Cost of sales:
Product cost of sales (excludes amortization of intangible assets)			13.5						11.5						42.5						27.7
Settlement payment from Daewoong			—						—						—						(25.5)
Amortization of distribution right intangible asset			0.7						0.7						2.2						2.2
Total cost of sales			14.2						12.2						44.7						4.4
Gross profit			19.7						14.5						60.2						60.6
Gross profit margin			58.0		%				54.2		%				57.4		%				93.2		%
Add: Settlement payment from Daewoong			—						—						—						(25.5)
Add: Amortization of distribution right intangible asset			0.7						0.7						2.2						2.2
Adjusted gross profit			$	20.4					$	15.2					$	62.5					$	37.3
Adjusted gross profit margin			60.2		%				56.9		%				59.5		%				57.4		%

			Three Months Ended September 30,
(in millions)			2022						2021
Product revenue, net			$	33.2					$	26.7
Service revenue			0.7						—
Total net revenues			33.9						26.7
Operating expenses:
Product cost of sales (excludes amortization of intangible assets)			13.5						11.5
Selling, general and administrative			34.8						31.7
Research and development			1.4						0.3
Revaluation of contingent royalty obligation payable to Evolus Founders			1.2						1.4
Depreciation and amortization			0.9						0.9
Total operating expenses			51.8						45.8
Loss from operations			(17.9)						(19.1)
Other income (expense):
Non operating expense, net			(2.3)						(0.3)
Other expense, net			(0.1)						—
Loss before income taxes:			(20.3)						(19.4)
Income tax expense			0.0						0.0
Net loss			$	(20.3)					$	(19.4)

Net revenues of Jeuveau® sales increased by $7.2 million, or 27.0%, to $33.9 million for the three months ended September 30, 2022 from $26.7 million for the three months ended September 30, 2021, primarily due to higher sales volumes. Net revenues during the three months ended September 30, 2022 included $0.7 million of service revenue. 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.

Product cost of sales, excluding amortization of intangible assets, primarily consisted of the cost of inventory purchased from Daewoong. In addition, during the period from December 2020 to September 2022, product cost of sales, excluding amortization of intangible assets, also includes 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 Settlement Agreement 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.

Our gross profit margin was 58.0% and 54.2% for the three months ended September 30, 2022 and 2021, respectively. Our adjusted gross profit margin, calculated as total net revenues less product cost of sales, excluding amortization of intangible assets, as a percentage of net revenues was 60.2% and 56.9% for the three months ended September 30, 2022 and 2021, respectively. Our gross profit margin and adjusted gross profit margin were impacted negatively from royalty obligations from December 2020 through September 2022, offset by payments we receive under the Daewoong Settlement Agreement. Beginning on September 17, 2022, our gross profit margin and adjusted gross profit margin began to increase as royalty obligations to Allergan concluded on September 16, 2022, and our royalty obligations to Medytox were reduced to a mid-single digit percentage of net revenue for ten years thereafter. We 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.

			Nine Months Ended September 30,
(in millions)			2022						2021
Product revenue, net			$	103.6					$	64.3
Service revenue			1.4						0.7
Total net revenues			105.0						65.0
Operating expenses:
Product cost of sales (excludes amortization of intangible assets)			42.5						27.7
Settlement payment from Daewoong			—						(25.5)
Selling, general and administrative			105.1						78.8
Research and development			3.4						1.6
In-process research and development			2.0						—
Revaluation of contingent royalty obligation payable to Evolus Founders			3.9						4.0
Depreciation and amortization			2.7						4.7
Total operating expenses			159.7						91.4
Loss from operations			(54.7)						(26.4)
Other income (expense):
Non operating expense, net			(6.4)						(1.3)
Loss from extinguishment of debts, net			—						(1.0)
Other expense, net			(0.1)						—
Loss before income taxes:			(61.2)						(28.6)
Income tax expense			0.0						0.0
Net loss			$	(61.2)					$	(28.6)

Net revenues of Jeuveau® sales increased by $40.0 million, or 61.5%, to $105.0 million for the nine months ended September 30, 2022 from $65.0 million for the nine months ended September 30, 2021, primarily due to higher sales volumes and a slightly higher average selling price of Jeuveau® in the United States. Net revenues during the first quarter of 2021 were negatively impacted prior to entering into the Medytox/Allergan Settlement Agreements in February 2021 due to an increase in pricing during the presidential review period related to the ITC Action. 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.