RVL Pharmaceuticals plc (RVLP) Q4 2022 Earnings Call Transcript

RVL Pharmaceuticals plc (NASDAQ: RVLP) Q4 2022 earnings call dated Mar. 20, 2023

Corporate Participants:

Lisa Wilson — Investor Relations

Brian Markison — Chief Executive Officer

Mike DePetris — Interim Chief Financial Officer

James Schaub — Executive Vice President and Chief Operating Officer

Analysts:

Louise Chen — Cantor Fitzgerald — Analyst

Douglas Tsao — H.C. Wainwright — Analyst

Greg Fraser — Truist Securities — Analyst

John Vandermosten — Zacks Investment Research — Analyst

Vishal — Barclays — Analyst

Glen Santangelo — Jefferies — Analyst

Presentation:

Operator

Good morning, everyone. My name is Shelby and I will be your conference operator. At this time, I’d like to welcome everyone to the RVL Pharmaceuticals Fourth Quarter and Full Year 2022 Financial Results Call. [Operator Instructions] After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, this conference call is being recorded today, March 20, 2023.

It is now my pleasure to turn the floor over to Ms. Lisa Wilson, Investor Relations for RVL Pharmaceuticals. Please go ahead.

Lisa Wilson — Investor Relations

Thank you, operator. Welcome to RVL Pharmaceuticals’ fourth quarter 2022 financial results and commercial update call. This is Lisa Wilson, Investor Relations for RVL.

With me on today’s call are RVL’s Chief Executive Officer, Brian Markison; Chief Operating Officer, JD Schaub; and Interim Chief Financial Officer, Mike DePetris. This morning, the company issued a press release detailing financial results for the three months ended December 31, 2022. This press release and a webcast of this call can be accessed through the Investors section of the RVL website at rvlpharma.com.

Before we get started, I would like to remind everyone that any statements made on today’s conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company’s future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to RVL’s management as of today and involve risks and uncertainties, included those noted in this morning’s press release and the company’s filings with the Securities and Exchange Commission. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. RVL specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.

During this call, we refer to non-GAAP financial measures such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income or loss from continuing operations, please see the tables at the end of today’s press release.

The archived webcast of this call will be available for one year on RVL’s website, rvlpharma.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on Monday, March 20, 2023. Since then, RVL may have made announcements related to the topics discussed, so please reference the company’s most recent press releases and SEC filings.

With that, I’ll turn the call over to RVL’s CEO, Brian Markison.

Brian Markison — Chief Executive Officer

Thank you, Lisa. And thank you everyone for joining our call this morning.

Last year was a transformational year for RVL Pharmaceuticals. We launched into medical aesthetics and clearly created a new category in ocular aesthetics around UPNEEQ for the treatment of blepharoptosis or droopy eyelid. We also opened two new commercial channels or customer segments. More specifically, we launched direct-to-practice sales in medical aesthetics, and two quarters later, we entered into two telemedicine partnerships.

We also wound down personal selling in eye care, and I am pleased to share that our sales in that channel remain stable with a high percentage of refills supporting underlying demand. In fact, we will still consistently see adding more than 100 new UPNEEQ eye care prescribers each week. Clearly at some point in the future, we will revisit the potential in the eye care segment.

We have barely scratched the surface with UPNEEQ, and later in this call, JD will give more color around our early growth and will provide a view as to the untapped potential of this brand. But what I’d like to highlight very briefly is that fourth quarter aesthetics sales were comprised approximately of 50% reorder customers which gives us clear signals into the traction within our accounts, and it’s very exciting.

UPNEEQ is uniquely positioned as a first-in-class cash pay product with no competition. Our model is designed to optimize patient and provider access across multiple channels: eye care, aesthetics, and now telemedicine, which we believe caters to a segment of the population that is reluctant to visit a clinician. As we look ahead, we are heavily focused on two near term imperatives. First, the roll-out of Elevate, our next generation e-commerce portal where we will be introducing subscription options across our aesthetics and eye care segments. And secondly, business development. We have been able to attract an outstanding sales and leadership team responsible for growing UPNEEQ and we believe that it’s only natural to leverage our footprint and see if we can bring more into this company.

Before I turn the call over to Mike, I will briefly describe a refinement to our revenue methodology that we recently adopted. Since the inception of our Direct Dispense model in which we ship to our customers through a third-party logistics company or 3PL, we have recognized sales upon shipment from the 3PL. As the company has grown in size and scale, we will now refine our methodology to record sales upon receipt of the final customer destination starting with the fourth quarter of 2022. Therefore, approximately $2.3 million of net product sales that were a part of the previously disclosed $12.1 million will now be booked in Q1 of 2023. The $2.3 million of sales was supported by firm unconditional orders and have all been received by the end customer.

With that, I’d like to now turn the call over to Mike for a further review of our fourth quarter financials. Mike?

Mike DePetris — Interim Chief Financial Officer

Thank you, Brian, and hello, everyone. I’ll begin by sharing comments on our results specific to the fourth quarter of 2022. A reminder that our quarterly and annual information and highlights can be found in today’s earnings press release. We expect to file our annual report on Form 10-K later in the day.

Net product sales relating entirely to UPNEEQ increased by $6.7 million to $9.8 million in Q4 from an increase in sales volume reflecting expanded commercialization through the year. Total cost of goods sold for Q4 increased by $1.5 million to $2.6 million. This increase was primarily driven by higher product costs due to volume growth. Our gross profit percentage from product sales was 75% in Q4 as compared to 58% in the prior year quarter, reflecting improved overhead absorption driven by higher volumes and from more favorable average selling prices.

SG&A expenses for Q4 decreased by $6.1 million to $17.6 million. The decrease in SG&A was primarily driven by a $3.3 million decrease from debt and equity issuance fees unique to the 2021 period, a $2.4 million decrease from foreign currency translation also unique to the 2021 period, and from $1.4 million in lower legal and other professional fees. R&D expenses for Q4 decreased by $0.2 million to $0.9 million, reflecting slightly lower year-over-year spending in support of medical grants.

Unique to Q4 and classified among total operating expenditures, we booked a $13.3 million non-cash impairment charge. The write-down was against our IPR&D for arbaclofen, an asset that treats the alleviation of spasticity in multiple sclerosis patients. The current quarter charge was triggered by an accounting revaluation after we received a potentially adverse response from the FDA in Q4. Notably, in Q4, we again demonstrated our commitment to rationalize total operating expenditures and to keep spend in check. After adjusting for non-recurring or exceptional items, such as the impairment, I’m pleased to share that Q4 opex spend was once again below the $7 million average monthly ceiling that we have so often referred to.

Moving below operating income, total other non-operating activities in Q4 2022 contributed $5.9 million of income as compared to income of $3.3 million in the 2021 period. The year-over-year change is largely influenced by changes in the fair value of the company’s debt and warrant liability, which have been re-measured through our earnings since October 2021. Our adjusted EBITDA loss for Q4 was $9.3 million, nearly 40% lower than the comparable EBITDA loss of $15.2 million in the prior year quarter.

Next turning to our balance sheet and liquidity. At December 31, we held cash of $45 million, while total debt and financing obligations at year end had aggregate principal amounts due of $75 million.

Subsequent to year end, there are a few developments to share regarding our liquidity. In February, we received $5 million in cash from Alora related to a contingent milestone payment. In March, we subsequently paid the $5 million to our lenders in satisfaction of mandatory repayment conditions under our debt. The repayment reduced the outstanding principal of our notes by $4.3 million. On March 8th, we entered into a second amendment of our debt solely to secure the immediate reduction of the minimum liquidity requirement from $15 million previously to $12.5 million going forward. Lastly, between January and March, the company received an aggregate of $4.1 million in federal tax refunds relating to income taxes paid in prior periods. The company is continuing to pursue the collection of $1.8 million of residual federal refund claims.

As mentioned previously, there continues to be many variables in play that will likely influence our cash runway through 2023. Our near term commercial development in particular in the midst of changing and increasingly challenging macroeconomic conditions will play a very important factor.

With that, I’ll turn the call over to JD for some added color.

James Schaub — Executive Vice President & Chief Operating Officer

Thanks, Mike, and good morning, everyone. As you heard from Brian, we made tremendous progress in 2022 across our business, most importantly with the growth of UPNEEQ. We are incredibly proud of the results and collective achievements and we’d be remiss to not acknowledge and thank the entire RVL team for their contributions.

This past year was a critical step in our evolution as an organization, specifically the continued expansion of our market building efforts with UPNEEQ. All told, the approximately 11 months with an aesthetics sales team in place delivered the most robust medical aesthetic product launch in recent history when measuring new location openings. Not only did the team introduce UPNEEQ to over 4,300 locations, but we were able to solidify and expand our talented sales organization because of growing provider and patient enthusiasm for UPNEEQ. Another important component to our success was delivering this year-over-year growth while decreasing opex, a testament to the discipline and operating leverage we can create with this brand.

Turning now to some comments regarding Q4 momentum and general expectations ahead in 2023. The eye care segment continued to be a stable contributor in Q4 despite being the first quarter with no personal promotion. We continue to see a growing paid prescriber base, 18,414 as of year-end, an increase of 1,467 or 9% over Q3, a steady flow of new prescriptions and an ever-expanding base of refills. These factors along with growing awareness are expected to drive continued growth in 2023. Overall, we expect eye care to be about 20% to 30% of revenue, largely dependent upon the ultimate growth from the aesthetic channel.

Now some updates on our medical aesthetic launch. As mentioned upfront, 2022 represented the establishment of our aesthetic business and the introduction of UPNEEQ to a large and diverse new group of providers. What began as about 50 reps and a 1,000 new locations in Q1 of ’22 evolved into a stronger and more talented footprint of between 65 and 70 and over 4,300 locations with UPNEEQ by year-end. We are extremely proud of the leadership and execution across this team. Throughout the year, this segment of our business has continued to grow quarter-over-quarter, and importantly, though not the focus, the composition of revenue from quarter-to-quarter was increasingly from reordering accounts, resulting in a Q4 aesthetic revenue contribution comprised of about 50% new, 50% reorder.

As we move further into 2023, our strategic priorities are anchored in growth from this channel, specifically our sales effort is going to be more heavily focused on supporting the existing practices around integration and ultimately realizing the true potential of UPNEEQ in each practice. Having established a meaningful breadth of ordering locations, we believe this will be the greatest return on the team’s time and effort.

Conservatively, our data and market research continued to suggest a low end of 10% to 20% of patients within these practices as potential patients, which if you assume approximately 2,000 unique patients within the average practice, puts somewhere between 200 to 400 patient starts per practice when providers are integrating UPNEEQ into their treatment protocols and patient assessment. Lastly, we are seeing and continue to expect new accounts to contribute as a function of growing awareness and desire to carry the product, though to a lesser extent than the more than 4,000 new openings from last year.

More recently, we strategically layered in a third channel of our business, which we call telemedicine. During the latter part of this past year and early part of Q1, we have partnered with two national providers of telemedicine to position the brand for broader access to a segment of patients who do not rely on traditional eye care and/or aesthetic providers for treatments. Additionally, these channels serve to further enhance consumer awareness and education which in turn supports our efforts of establishing this new market. Importantly, we view this channel as synergistic. Both retail pricing and patient base do not compete with our ongoing efforts within the practice and subsequently requires minimal investment from our P&L. The early quarters involve ramp-up and optimization on the part of our partners, and we expect this segment to contribute more consistently as the year progresses. Lastly, we do not anticipate expanding this effort through additional partners and feel confident we have the existing capabilities to deliver UPNEEQ via telemedicine with our current consortium.

Beyond the segments that comprise our growth in revenue, we continue to believe in the underpenetrated yet outsized commercial opportunity for UPNEEQ. Just recently, we updated a consumer research study of awareness among adult women of UPNEEQ. Of this nationally projectable group of 1,500 adult women, only 4% had at least some knowledge of the brand, 1% very aware and 3% a little aware. When coupled with the broad points of access established and a growing real world repository of positive patient feedback and provider buy-in, we remain excited by what’s in front of us and confident in our ability to continue to build.

Lastly, we believe the strength of our business and unique model leaves us well positioned to capitalize on strategic opportunities to further scale through business development. We look forward to updating our progress throughout the year and continuing to deliver on our mission to establish UPNEEQ as a meaningful brand in the U.S.

And with that, I’d like to turn the call back to Brian for any closing remarks.

Brian Markison — Chief Executive Officer

Thanks, JD, and thanks everyone for listening to our prepared remarks today. As you can tell, we are really excited about our progress with UPNEEQ. And with that, what I’d like to do is ask the operator to open up the lines for questions. So, operator, I’ll turn it to you.

Questions and Answers:

Brian Markison — Chief Executive Officer

Thank you. [Operator Instructions] We’ll take our first question from Louise Chen with Cantor.

Louise Chen — Cantor Fitzgerald — Analyst

Hi. Congratulations on all the progress this quarter, and thanks for taking my questions here. So I had a few questions for you. First one I wanted to ask you is how do we think about revenues in 2023, maybe the quarterly progression, if you could give a little bit of color at least on the first quarter given the change in accounting methodology for revenue?

And then second thing is, following on that, how do we think about opex, is the fourth quarter 2022 a good proxy for building upon for the rest of the year?

And then last question I have for you is just on impact of the economy and what it’s meant for your business? We’ve heard some conflicting views out there from other competitors, so just curious what you’re thinking here? Thank you.

Brian Markison — Chief Executive Officer

Yes, thanks, Louise, and good morning to you and the team. Starting with the economy, I think bridging from JD’s last comments, our view is that we’re fairly underpenetrated across the board in aesthetics, and even eye care. So while the economy is certainly headline news, we believe that we’re not seeing a material impact and we’re too new as a category. So it’s hard for us to really judge based on what we’re hearing from others as well. So we’re putting our head down and basically just continuing to grow the brand. So I’m not really that focused on the economy with respect to our penetration into aesthetic accounts.

As far as revenue build for the year, a couple of things of importance. In the first quarter, we’re spending a lot of time working with the accounts that have previously ordered, getting them to work through the product, make it become everyday part of their practice. And as JD mentioned, seeing nearly 50% reorders in Q4 gives us a really strong signal that traction is gaining here. But I think the way our revenue shapes up for this year is we see it more ramping, almost a reflection of how it looked last year, because right now we’re following the playbook where we’re focused on the reorder customer to make sure we have traction, and we’re seeing it.

But the other — you know, the other thing I want to point out and it’s really important is you can’t look at this product like a toxin or a filler. You can’t compare us to those markets because we don’t need to pay for market share. We’re not competing against anyone. We’re basically competing for a slice of the total market, not just a piece of a market. So while the toxin and filler markets certainly claim a lot of headlines, we’re going at our own pace, which brings me to opex. I think Q4 is a fairly reasonable way to look at our opex for the year. We’re going to be very disciplined in how we spend money, and we’re looking to create leverage within the P&L right now because we’re one and only and have no competition.

Operator

And we’ll take our next question from Douglas Tsao with H.C. Wainwright.

Douglas Tsao — H.C. Wainwright — Analyst

Hi. Good morning. Just curious if you can help us maybe understand a little bit in the context of the shift in revenue from the fourth quarter in the — into 1Q ’23. How we should look at that in terms of the growth trajectory, because obviously now when we look at what’s the performance in 4Q versus 3Q, we saw sort of basically flat revenues. And so just trying to understand how we should think about that? Thank you.

Brian Markison — Chief Executive Officer

Yes. And I think that’s a fair question, Doug, and good morning. You know, the way we’re looking at it is the change in our accounting or our revenue methodology is, as I said in the prepared remarks, it’s based on firm, unconditional orders, so it’s real sales. And again — and we’ll be following up with everyone after the call to help in the refinement of modeling conversations. But I think it’s fair to say that we will ramp in a similar manner to last year because right now in this quarter, we’re heavily focused on the reorder customer and making sure that we get traction, because we don’t want to end up sort of six months down the road from now and many people haven’t really worked it into their practice. So that’s really important for us.

And I think JD, if you wouldn’t mind, add a little more color if you could.

James Schaub — Executive Vice President & Chief Operating Officer

Yes, and good morning, Doug. I don’t think the change in revenue recognition is something that we view as impacting revenue growth and opportunity. The way I would look at kind of Q4 to Q1, given some of the shift, is probably — obviously, we now expect a little bit better revenue performance in Q1 than we otherwise would have. I think, traditionally, there is a bit of a drop-off from Q4 to Q1. I think we would expect it to be significantly less with our business because of the revenue change.

And then importantly, Doug, we look at the business, the make-up of the revenue is a keen area of focus for us. In other words, the stickiness of revenue is one of the things we pay closest attention to in terms of the health and forward-looking opportunity, and I think that’s where this business is going to continue to drive as we move through the rest of this year. We could definitely go out and continue to meaningfully expand points of sale, but as a new category, despite receptivity, we know that’s not going to be something that becomes sustainable. We’ve got to help these practices take to the product and integrate it in a way that fits within each practice, and that’s going to be the focus and how we drive this business moving forward.

Douglas Tsao — H.C. Wainwright — Analyst

And — but I guess sort of the question that I think I’ve gotten and trying to understand is how should we think about the performance and measure progress from Q3 to Q4 in the context of the sort of shift, because obviously before it was easy, we could say, okay, revenues were up 20% sequentially. The question I’ve gotten now is revenue looked flat, so we get the 1Q but how do we feel confident about the overall trajectory in the context of what on the surface looks like flattening? Thank you.

Brian Markison — Chief Executive Officer

Yes, Doug, I get it. And on the surface with the change in how we’re recording revenue, yes, it would look flat. But those orders were in the fourth quarter, those sales occurred in the fourth quarter and now they’re being simply recorded in Q1. And again, we’ll be more forthcoming later on the revenue trajectory, but the other thing to keep in mind is we’re in a number of important business development conversations and any one of those are likely to have an impact on the near term future. So we don’t want to get over our skis. We like what we’re seeing, we’re going to be out later on with more information to help in the modeling.

But again, as I mentioned to Louise, I think our revenue trajectory will look similar to how it did last year in growth. But again in the first quarter, we’re going to be careful because we are driving that reorder business and we want to be mindful of that, because we’re not spending nearly as much as what the consensus would have out there because we have no competition. So there’s no need for us to worry about bundled rebates to physician practices with this product. So we are developing leverage within the P&L, so we can grow consistently and carefully.

Douglas Tsao — H.C. Wainwright — Analyst

Okay, great. Thank you.

Brian Markison — Chief Executive Officer

Thanks, Doug.

Operator

And we’ll take our next question from Greg Fraser from Truist Securities.

Greg Fraser — Truist Securities — Analyst

Good morning, guys. Thanks for taking the questions. Once a practice, an aesthetics practice is onboard and ordering, how much attention does a practice require from the rep? And I think clearly your focus is shifting towards supporting the current customers. I’m curious what percentage of time reps will be devoting to ordering customers going forward versus what they have been doing previously?

Brian Markison — Chief Executive Officer

Yes, once we see a cadence where we’re getting a few patients per day, I think that can be roughly 10% of their time, not a major part of their day, but right now most of our practices aren’t really giving us two a day or one a day. So we spend a lot of time on events with them and trying to bring in their local influencers, build the momentum, and then also we’ve got to train the practice, which is quite easy for this product and, quite frankly, we’re getting a lot of help from the front desk in the assessment, which is unusual because it’s very easy to diagnose, if you will, and look for a very interesting result with this product because we’re happy to provide samples, so there’s no risk to the patient. So, at the end of the day, it shouldn’t require too much of their time, but right now depending upon the size, scale of the practice, it could be a fair amount of their time driving it through and camping out for a while, but there’s no replacement for the early boots on the ground here.

Greg Fraser — Truist Securities — Analyst

Got it. Okay. Can you talk a bit more about the runway and the options that you’re considering to strengthen the balance sheet. And then on business development, maybe some color on the types of things that you’re looking at? And do you have to strengthen the balance sheet before moving forward with [Indecipherable] before moving forward with one of these deals that you are contemplating? Thank you.

Brian Markison — Chief Executive Officer

Yes, certainly from a cash and covenant perspective, we’re comfortable for the year. I think when you look at single product companies, I think it’s very clear that you need to leverage that base of expertise. And I think if there’s one thing that is very clear, it’s our sales organization has really crushed it in introducing a whole new category and carving out sales where there was nothing. So we really want to leverage that team, and we are in a number of conversations right now that I think give us a lot of confidence that we’re going to get there.

Operator

And we’ll take our next question from John Vandermosten with Zacks.

John Vandermosten — Zacks Investment Research — Analyst

Good morning, guys. I’d explore how the e-commerce platform is going and what are some of the hurdles, I guess, that you’ve seen so far with that and what do you expect going forward?

Brian Markison — Chief Executive Officer

Yes, John, thanks. And that’s really a key part of our revenue build as we go through the year, and I’ll let JD elaborate on it in a few moments. But this will be the sort of final piece that we were really missing from the very beginning of our launch, both into eye care and then into aesthetics, and that’s the ability to create a subscription model, which is really what the telemedicine companies have down to a science.

So JD, you want to take it a little bit?

James Schaub — Executive Vice President & Chief Operating Officer

Yes. Yes and thanks for the question, John. We are currently in the midst of ongoing testing, and I think that’s been a really important part of the roll-out for us. Anything technology-driven, and we’ve seen this time and time again across the industry, but we’ve got to make sure that this is working, the bugs, the simplicity, the efficiency, etc., both from a provider or customer standpoint, but also from a patient perspective. And so we’re spending time right now ensuring that all of that is working. And remember this is a fairly unique and complex platform in the sense that we’re able to connect patients that are coming into offices that we otherwise would not have direct visibility or line of sight in terms of walking out the door with an UPNEEQ prescription or box in our direct dispense model, and giving our business but also providers the ongoing connectivity to prescribe and allow our pharmacy to pull through refills and ongoing customer orders.

So it’s going well, we’re excited about it, and I think it’s going to add, and Brian touched on this, a completely different dimension to the scalability of our business because we know from the original business model, where everything was coming through our pharmacy, which still constitutes a nice piece of the business, that patient behavior results in refills. So when we’re able to be connected with new patient starts in that way, we’re able to pull through refills. So it is going to be a meaningful addition and enhancement, and I think a value-add to both patients and providers.

John Vandermosten — Zacks Investment Research — Analyst

Okay, thanks. Thanks, JD. Yes, I’m getting the message throughout the whole business, it’s really a big focus on the reorders and getting customers to stick with the product. As I do my work, I frequently see your social media ads and wanted to ask about that. How are those campaigns doing, and how do you see the effectiveness of those? And is that the best place for your marketing dollars? What are your thoughts on that, and how do you sense that it’s working?

Brian Markison — Chief Executive Officer

Yes, John, great question, and I’m going to flip it to JD. But I think, the social media is very interesting. Most of what you see is from our providers that are posting results within their own practices, whether it’s on actually themselves for the most part or in fact some of their patients and also it’s influencers that are managed or treated at the practices. But I think the real opportunity for us is in the total scheme of consumer awareness. I don’t think people know this brand really exists yet. So JD, you want to add to that, I know this is a topic very close to your heart.

James Schaub — Executive Vice President & Chief Operating Officer

Yes. And look, I think, one of the questions, John, is, you know, is that the most effective use of marketing dollars. And I think you can tell, right, we’re trying to create operating leverage here and be disciplined in our spend. And so one of the ways that we are able to do that is through providers driven social media because that’s not something that cost us a lot of money in terms of deployment of cash and investment. That’s more of an organic marketing tool that we can leverage based upon the experience and enthusiasm of this product being introduced to a practice. And I think where it really helps us is continuing to raise not just broader awareness in terms of patients that are going to new practices, that are added, and having the ability to learn about the product, but also the consistency of experience across a growing number of accounts.

This is not something that is just a handful of practices that we’re prompting to post great before and after. This is becoming a routine part of how each practice introduces the product to their patient base, and I think it’s helping. At the end of the day, we’ve got to expand the top of the funnel and help practices pull through that expanded top of the funnel, and it’s a little bit of the traditional push-pull concept. So we leverage their social media to introduce patients and then we’re in there, rolling up sleeves, figuring out the most efficient way to make this a routine part of what they’re doing because of the patient satisfaction and the results that we’re getting as we continue to expand the new patient start piece of our business, day in and day out.

John Vandermosten — Zacks Investment Research — Analyst

Great. Thanks for that. And also want to ask about gross margin. You know, we’ve seen inflationary pressures throughout the last couple years, and your gross margin has been very strong. Where do you see that in the next year, in 2023, as some of those pressures continue? Does that affect your pricing decisions at all or maybe you can give us a rundown on how you’re looking at that and what pressures you’re facing?

Mike DePetris — Interim Chief Financial Officer

Yes, John, hey, good morning. It’s Mike DePetris. Yes, I think…

John Vandermosten — Zacks Investment Research — Analyst

Hey, Mike.

Mike DePetris — Interim Chief Financial Officer

Yes, I think we’re not seeing a tremendous impact from inflation. Our primary costs are kind of locked in, so I think what you’re seeing from us now, low-to-mid 70s for gross margin on product sales, I think that’s mostly locked in at this point, certainly in the near term. And on the pricing front, I think when we roll out the e-commerce platform, Elevate, I think we’re going to have a lot of pricing options for the consumer. So while we enjoy a pretty good price right now in the practices and providers enjoy a very good margin, we will be able to reward continuing customers with many more price options if they find that price is an issue. So I think we’re really [Technical Issues].

John Vandermosten — Zacks Investment Research — Analyst

Okay. And just a follow-up on that, if I may. If we look at the second, third and fourth quarter gross margin, as you said, Michael, it’s in the mid-70s, approximately. Should we see 2023 levels flat with that, with the second, third and fourth quarter, or might it go up or down a little bit from there?

Mike DePetris — Interim Chief Financial Officer

It might improve a tiny bit, but not much. It’s pretty much as we described.

John Vandermosten — Zacks Investment Research — Analyst

Okay, great.

Mike DePetris — Interim Chief Financial Officer

Yes. All right. Thanks.

John Vandermosten — Zacks Investment Research — Analyst

Thank you so much. Appreciate it.

Mike DePetris — Interim Chief Financial Officer

Okay. Operator, next question?

Operator

Thank you. We’ll take our next question from Balaji Prasad with Barclays.

Vishal — Barclays — Analyst

Hi. Good morning. This is Vishal [Phonetic] on the call for Balaji. Thanks for taking our questions. I remember you mentioned 1,000 reordering account active in Q3 and 600 active in Q2. So maybe I missed the number, but what does this number look like for Q4? And do you expect similar uptake for the rest of the year? Thank you.

Brian Markison — Chief Executive Officer

Yes. So I want to make sure we have it right. So, JD, do you remember the new account growth that we saw in Q4 over Q3? I’m not sure…

James Schaub — Executive Vice President & Chief Operating Officer

It was nearly 1,000 accounts. It was from 3,500 to 4,300, I think is the cadence in the new account openings moving from September 30 to December 31st in aesthetics.

Brian Markison — Chief Executive Officer

Perfect. Okay, good. So, I think, as we look at 2023, we’re going to be a little more careful in opening new accounts. I think we want to slow it down a bit. We’re not in a race here with anyone but ourselves, and again we’re going to be spending more time with the accounts, driving that sticky reorder business. So we know we’re adding new accounts every single day this quarter, and when we come out with our first quarter results, there will be a meaningful uptick. But I don’t think it will definitely not be at the same pace as it was last year. Lots of people love the product, and we’re just going to get to the people that are going to commit to us the most time and energy first.

Vishal — Barclays — Analyst

Got it. Very helpful. Sorry for my confusion earlier. I need to say that, you had 1,000 reordering accounts active in Q3 and 600 reordering accounts active in Q2. So could I have the specific reordering account number active in Q4? And that’s the original question. Sorry for asking it in the wrong way.

Brian Markison — Chief Executive Officer

Okay. Unless JD has it on his fingertips, we’re going to have follow up with you after the call on that specific number.

Vishal — Barclays — Analyst

All right. Thank you so much.

James Schaub — Executive Vice President & Chief Operating Officer

Yes. We’ll close the loop on the specifics, but it’s about the same absolute growth that you saw from Q2 to Q3.

Vishal — Barclays — Analyst

That’s very helpful. Thank you.

James Schaub — Executive Vice President & Chief Operating Officer

Right around 1,400 or so.

Vishal — Barclays — Analyst

Got it.

Operator

[Operator Instructions] We’ll take our next question from Glen Santangelo with Jefferies.

Glen Santangelo — Jefferies — Analyst

Yes. Thanks for taking my question. Hey Brian, I wanted to follow up on this telehealth business that you’re sort of introducing here. Are you willing to disclose at this point who the two national providers are? And what I’m trying to get a sense of is how this business model is going to work? Are they going to send the scripts to you and you’re going to do the fulfillment, or are they going to do it? I’m just trying to — want to make sure I understand how the revenue recognition around this new initiative will work? And I’m kind of curious to get your thoughts, if you think it can be meaningful here in ’23 as you get it off the ground?

Brian Markison — Chief Executive Officer

Yes, Glen, and good questions, and good morning. I hope you didn’t have to wake up extra early for this. But the two telemedicine providers that we’re working with now are SkinSolutions.MD and Ro. Both of them are very different, both of them different in scale, scope, but have a meaningful presence and a bit of good history here in working in telemedicine. The way it works is we’re treating telemedicine as an aesthetic account. So we are shipping to them. When they receive the product, we record the revenue, and then they will be selling it through their channel, through their providers to their patients. So the patient needs an assessment. That’s done by the telemedicine provider, and they handle all the shipping. So in terms of efficiency, they may be our most efficient channel, if you will, because they handle fulfillment and shipping to the patient, and — but we treat them basically as a provider.

Glen Santangelo — Jefferies — Analyst

Okay. Maybe if I can just follow up with just two quick financial questions. I did want to follow up on the business development question because it seems — in your prepared remarks, you seem to suggest that something may happen in 2023, and I think we’re looking at the cash on the balance sheet, looking at the SG&A you reported this quarter, and just wondering how would you expect to finance something like that? Would your covenants allow you to take on more debt, or, you know, is it hard for us to think about the size of anything that you may potentially do?

And then my last question is really around the lack of guidance. It sort of seems like the aesthetic business is up and running and now clearly established, and maybe with a much better line of sight than what you had obviously last year. And so I’m just kind of curious as to what the logic is to not provide guidance at this time? Thanks.

Brian Markison — Chief Executive Officer

Yes, and I think the main logic is it all circles back to some extent the business development, and also the fact that we’re a brand-new category. So while we’re putting our head down right now, driving that reorder business, and again all the metrics there from our perspective are really very promising. The other component of this is right now, our sales force is spending 100% of their time driving UPNEEQ. If we bring in new programs or new products to leverage the team, that will take a little bit of time off UPNEEQ and obviously they’ll need to put it on the new program, and that’s a lot of the conversation that’s happening as well right now.

There’s also an opportunity in eye care where we are talking to people about do they want to go back into it with their platform, because they’re looking for the same thing we’re looking for in aesthetics. And I think ultimately if the model looks good and it makes sense, we can talk to our lender about increasing the debt, but we don’t want to increase debt and we don’t want to do another offering. What we want to do is operate as efficiently as possible, drive leverage off the P&L, and we’re doing it right now, and bring in programs that could help absorb our basic model right now and with additional revenue streams. And again, there’s a lot of those conversations ongoing right now, so guidance for me at this point would be premature.

Glen Santangelo — Jefferies — Analyst

Okay, thanks for the thoughts.

Brian Markison — Chief Executive Officer

Thank you.

Operator

It appears that we have no further questions at this time. I will now turn the program back over to Brian Markison for any additional or closing remarks.

Brian Markison — Chief Executive Officer

Thanks, operator, and thanks everyone for listening into our call today. I think it’s really important to keep front and center the fact that we are a unique product in the marketplace. We do not compete in the traditional aesthetic markets of fillers and toxins. We are a very simple product to administer and we make everybody look better who gets it, literally within minutes after they’ve received a sample. So we’re excited about our product, we love the growth we’re seeing, and I want to thank again everyone for sticking with us and listening to the call today. Thanks, operator. [Operator Closing Remarks]