Axonics, Inc. (NASDAQ:AXNX) Q1 2023 Earnings Call Transcript

Axonics, Inc. (NASDAQ:AXNX) Q1 2023 Earnings Call Transcript May 1, 2023

Axonics, Inc. beats earnings expectations. Reported EPS is $-0.19, expectations were $-0.29.

Operator: Thank you for standing by and welcome to the Axonics’ First Quarter 2023 Results Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session As a reminder today’s conference is being recorded. And now I would like to introduce your host for today’s program, Neil Bhalodkar. Please go ahead, sir.

Neil Bhalodkar: Thank you, Jonathan. Good afternoon and thank you for joining Axonics’ first quarter 2023 results conference call. Presenting on today’s call are Raymond Cohen, Chief Executive Officer; and Dan Dearen, President and Chief Financial Officer. Before we begin, I would like to remind listeners that statements made on this conference call that relate to future plans, events, prospects, or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management’s current expectations and beliefs, these statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause results to differ materially from the expectations expressed on this conference call.

These risks and uncertainties are disclosed in more detail in Axonics’ filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today’s date, May 1, 2023. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. With that, I’d now like to turn the call over to Ray.

Raymond Cohen: Thanks, Neil. And I’d like to welcome everyone who’s joining this afternoon’s call and may listen to the playback. Axonics generated revenue of $71 million in the first quarter, an increase of 46%, compared to the prior year period. More specifically, sacral neuromodulation revenue was $55.2 million, representing an increase of 41% compared to the prior year period. Revenue growth is being driven by a combination of higher utilization of our SNM systems in existing accounts and continued share gains from the addition of newly acquired competitive accounts. Bulkamid revenue was $15.5 million, an increase of 66%, compared to the prior year period. Results for Bulkamid were driven by solid reorder rates from existing accounts, the onboarding of new accounts and the addition of new sales representatives focused primarily on promoting Bulkamid.

Bulkamid continues to rapidly gain traction in the U.S. and is fast becoming first-line therapy for women with stress urinary incontinence. It’s also worth noting that despite these sequential stepdown in revenue from seasonality, we still generated positive adjusted EBITDA in the quarter. Now Dan will discuss our financial performance and outlook in further detail in his prepared remarks. So I would now like to provide some updates on other corporate initiatives. Last week, we announced the acquisition of a lead placement technology that complements Axonics existing sacral neuromodulation offering. Let me start by saying our business development strategy is to develop or acquire innovative technologies that enhance the physician and patient experience with the goal of increasing the penetration of advanced therapies for this vastly underpenetrated incontinence population.

With that as a backdrop, as many of you know, physicians determine a patient’s eligibility for long-term sacral neuromodulation therapy by performing a short two or three day external trial or Peripheral Nerve Evaluation typically referred to as a PNE. In a PNE, the temporary lead is placed – is placed, and is often done in an office setting without real-time imaging. Now, due to an anatomic variability between patients locating the appropriate sacral foramen closest to the desired root of the sacral nerve can be challenging without fluoroscopy. The acquired technology addresses this challenge with an elegant solution, comprising of a software application and a hardware tool that makes the PNE lead placement easier, faster and more accurate.

The technology has the potential to reduce procedure time and facilitate a more accurate placement, which in turn can increase physicians’ confidence in sacral neuromodulation procedure and drive increased therapy adoption, utilization and the permanent implant conversion rates. With a standard x-ray of the patient’s pelvis, a physician can leverage the software to determine the optimal location for needle entry and lead placement based on that patient’s specific anatomy. The technology can readily be implemented into existing clinical workflows as it takes only minutes to use and requires minimal training. Now, we believe this solution has the potential to drive increased utilization of sacral neuromodulation therapy and we’re eager to get this technology into the marketplace.

We expect the product to receive FDA clearance and to be commercially available by mid-2024. Now turning to an update on our commercial team, we now have approximately 360 field-based personnel in the United States, of which 175 are directly involved in selling or sales management. The balance of our personnel are clinical specialists and field marketing specialists. Internationally, we have a more modest footprint with 25 field-based personnel located in Europe and a handful in Australia. We are well staffed at this time and expect only a modest increase in our commercial team headcount, during the remainder of 2023. Now turning to the Axonics Find Real Relief DTC advertising campaign, many of our customers continue to tell us that patients come into their practices asking about Axonic’s therapy after seeing our ads on television or on the Internet.

The campaign continues to generate goodwill with our physician customers as they are grateful that we are helping to ensure that adults with these conditions are being seen by a clinician and advancing along the care pathway. Qualified leads are those individuals that complete a symptom questionnaire on the website. We continue to generate over 10,000 leads each month and have found that over half of those individuals filling out these questionnaires are treatment-naive underscoring the notion that people don’t know that it’s not a normal part of aging fleet urine and that advanced therapies do exist to treat incontinence. Our call center continues to work diligently to connect qualified leads with a physician specialist in their local community.

Now turning to product development initiatives, we recently received regulatory approval for the Axonics R20 rechargeable neurostimulator from the FDA in the month of January. The device utilizes the same small 5CC form factor as the R15 and requires recharging just once every six to ten months for one hour. The device has an expected useful life in the body of at least 20 years. Feedback from customers that have implanted device has been overwhelmingly positive. That said, the long-lived F15 recharge free system continues to represent a significant portion of SNM sales in the United States. Now, this past week, we also introduced an electronic diary called myAxonics, which is now available for download for free in the Apple and Android App Stores.

While, anyone can use the electronic diary, we developed it to move patients from paper diaries to an electronic format that allows us to upload diary results into our cloud-based patient care management portal. Since diary results are used to confirm a patient’s eligibility for sacral neuromodulation being able to store these records for our customers is a nice service, and is helpful with pre-authorization and reimbursement processes. Now in closing, we feel like we are just scratching the surface of what is possible in the large underserved underpenetrated markets in which we participate. Our mission-driven team remains committed to innovating and supporting our dedicated physician customers and their patients, as well as raising awareness of our best-in-class therapies.

So with that said, I’d like to turn the call over to my colleague Dan for his detailed remarks on financial results. Dan?

Dan Dearen: Thanks, Ray. As Ray noted, at Axonics generated net revenue of $70.7 million in the first quarter of 2023. This represented an increase of 46%, compared to the prior year period. Sacral neuromodulation revenue was $55.2 million, of which 98% was generated in the United States. Bulkamid revenue is $15.5 million, of which 75% was generated in the United States. Gross profit for the first quarter of 2023 was $52.5 million, representing a gross margin of 74.3%, compared to 68.7% in the prior year period. Higher sales, volume Bulkamid sales and a product mix weighted toward the F-15 neurostimulator contributed to a favorable gross margin, compared to the prior year period. Operating expenses in the first quarter of 2023 were $66.9 million, included in operating expenses is a $1.8 million non-cash charge for the change of a fair value contingent consideration related to the Bulkamid acquisition.

Excluding acquisition-related charges, adjusted operating expenses were $65.1 million in the first quarter of 2023, and $56.8 million in the prior year period. Net loss in the first quarter was $9.2 million, compared to a net loss in the prior year period of $22.7 million. In the first quarter, Axonics generated $900,000 of adjusted EBITDA. We are pleased to note that this marks the fourth quarter in a row that Axonics have generated positive adjusted EBITDA. The attractive financial profile of the company and the inherent operating leverage in our business model is becoming more evident in our financial results. As of March, 31st Cash Cash equivalents and short term investment totaled $357 million, which is unchanged from December 31st 2022.

On a related note, I wanted to mention one housekeeping item. Our existing shelf registration is expiring at the end of this week and so we will be filing a new shelf registration statement tomorrow. I want to be very clear, we are making this filing as a corporate finance best practice and we have no need or intent to raise equity capital for the balance sheet, going forward, considering our strong cash position and progress towards breakeven and ultimately profitability. Turning to fiscal year 2023 guidance, our updated outlook is as follows: total company revenue of $348 million, an increase of $6 million compared to prior guidance. This represents an overall revenue increase of 27%, compared to fiscal year 2022. We now anticipate sacral neuromodulation revenue of $280.5 million, an increase of 26%, compared to fiscal year 2022 and Bulkamid revenue of $67.5 million, an increase of 31% compared to fiscal year 2022.

This concludes our prepared remarks. And I will now turn the call back over to Neil.

Neil Bhalodkar: Thanks Dan. At this time, we’re ready to begin the Q&A session. We would like each analyst to have an opportunity to ask a question. So we request that you please limit yourself to one question. If you have an additional question, please reenter the queue and we will take additional questions if time permits. With that, Jonathan, please begin the Q&A session.

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Q&A Session

Operator: Certainly. One moment for our first question. And our first question comes from the line of Chris Pasquale from Nephron Research. Your question please.

Chris Pasquale: Thanks guys. Dan, maybe I’ll just start what you said on the guidance you talked about top-line, curios how you are thinking about gross margin and operating expenses for the year given the strong start you guys got off to here from a margin perspective?

Dan Dearen: No, great, great question. So from a revenue standpoint, what we did is, we guided up. If you break it down by SNM and Bulkamid, what you can see is, we increased the SNM number by $3 million or 1% total and in Bulkamid 3% or 4.6%. And so in aggregate, that represents a 1.7% increase in the revenue guidance for 2023. The gross margin for the quarter came in, in accordance with plan, we’ve been talking for a long time about mid-70s margin, $74.3 million is slightly ahead of what we projected for the quarter as we ramp through the rest of the year, since we’re bringing new products online, we don’t want to change that guidance. And OpEx remains unchanged for the remainder of the year for the next three quarters.

Chris Pasquale: Okay, that’s helpful. And then, Ray, I would just love your latest thoughts on what you’re seeing out there in the market. You guys continue to do a lot of work on market development. You feel like that’s starting to pay dividends and you’re seeing some of these patients come through that funnel that you’re starting them on the journey towards.

Raymond Cohen: No doubt. So our DTC efforts are continuing to yield dividends. I think the difference today, May the 1st as compared to where we were a year ago when we started this, is that now patients have had an opportunity to kind of work through the care pathway and still we’re starting to see and yield a lot more procedures as a result of the advertising. So, what we had hoped for is actually happening and is measurable now, in terms of us getting a return on the investment dollars that we put forth. We don’t track the Bulkamid names as we do the sacral neuromodulation names because there is so many patients coming through the process on Bulkamid. But we’re getting a lot of Bulkamid procedures as a result of the DTC advertising also, because just to remind people, our ads are not specific.

We’re not selling products in our in our ads either on Facebook or on television. We’re just saying that if you have this problem, then we can get you with a physician and get your console. So that’s the game for us to just get these patients in with that and put them more from up and figure out what the appropriate therapy is. But it but it’s working really, really well and we’re going to continue to invest in this activity.

Chris Pasquale: Great thanks. Thank you.

Raymond Cohen: Thank you.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Richard Newitter from Truist Securities. Your question, please.