Axonics, Inc. (NASDAQ:AXNX) Q3 2023 Earnings Call Transcript

Axonics, Inc. (NASDAQ:AXNX) Q3 2023 Earnings Call Transcript October 30, 2023

Axonics, Inc. beats earnings expectations. Reported EPS is $0.08, expectations were $-0.05.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Axonics Third Quarter 2023 Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like now to turn the conference over to Neil Bhalodkar, Axonics Investor Relations. Please go ahead.

Neil Bhalodkar: Thank you, Michelle. Good afternoon and thank you for joining Axonics’ third quarter 2023 results conference call. Presenting on today’s call are Raymond Cohen, Chief Executive Officer; and Kari Keese, Chief Financial Officer. Before we begin, I’d 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 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, October 30, 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: Thank you, Neil and I would like to welcome everyone joining this afternoon’s call. With respect to the third quarter, we had strong company-wide execution. We generated solid results in this quarter with revenue at $93.1 million, representing an overall increase of 32% compared to the prior year period. More specifically, sacral neuromodulation revenue was $73.9 million, an increase of 30% compared to the prior year period. This strong level of growth was achieved despite a 42% growth comparison in Q3 of last year, a period which benefited from the launch of our F15 recharge-free sacral neuromodulation system. Over the last 12 months, approximately half of our SNM revenue growth in the United States has been driven by higher utilization and share of wallet at existing accounts, with the other half of our growth coming from the addition of competitive accounts that are now doing business with Axonics.

Drilling down even further, over the last 12 months, our existing customers have grown their SNM procedural volumes in the high teens compared to the prior 12-month period. We believe this growth represents or reflects the significant unmet need of the people with moderate to severe incontinence, physicians’ enthusiasm for partnering with Axonics on SNM and increasing public awareness of advanced therapies, thanks to our DTC campaign. Internationally, while our SNM revenue is modest, sales of SNM systems grew by nearly 40%, compared to last year as a result of measurable contribution from our recently deployed direct sales force in Australia. We are working with TGA which is Australia’s competent authority and BSI, our notified body in Europe, to gain approval for the F15 recharge-free SNM system and are optimistic that these approvals will have a positive impact on international SNM revenue in 2024.

The exact timing of these approvals is difficult to predict given the recent changes in the regulatory review process. Moving on to Bulkamid, revenue was $19.2 million, an increase of 42% compared to the prior year period. Results were driven by increasing reorder rates from existing accounts, the onboarding of new accounts and the addition of additional sales personnel primarily focused on promoting Bulkamid. Our gross margin in the third quarter was 74.2% which is up from 72.8% in Q3 of last year. We also generated $14 million of adjusted EBITDA and nearly $4 million of GAAP net income in the quarter as we continue to realize and benefit from the operating leverage of our business. Now, Kari will discuss our financial performance in further detail in her prepared remarks.

But before we go there, I’d like now to provide several other corporate updates. We have approximately 415 commercial team members in the United States, of which 200 are directly involved in selling or sales management. The balance of the team are field clinical specialists, field marketing specialists and remote therapy support personnel. Internationally, we have approximately 25 field-based personnel located in Western Europe and Australia. We are well staffed at this time and expect only a modest increase in our commercial headcount heading into 2024. Turning to the Axonics’ Find Real Relief direct-to-consumer advertising campaign. We continue to generate more than 10,000 qualified leads each month. Qualified leads are those individuals that complete a symptom questionnaire on our website telling us about their symptoms and providing contact information.

In addition, many of our customers tell us that patients come into their practices asking about Axonics therapy after seeing our ads on television or on the Internet. The campaign continues to generate goodwill with our physician customers who are grateful that we are getting the message out to the public and that there are advanced therapies available to treat adults with these conditions. Now we continue to see that over half of the 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 to leak urine or suffer from bowel dysfunction. Our call center continues to work diligently to connect qualified leads with urology specialists in their local community.

The DTC program is yielding measurable SNM and Bulkamid revenue with an encouraging return on investment. Given the success of the DTC program, we recently launched new television commercials relating to the conditions of stress urinary incontinence and bowel dysfunction as well as refreshing our OAB commercials. Other marketing, educational and clinical initiatives include but are not limited to, our attendance at national and regional medical conferences, monthly programs to educate APPs, those are APs, NPs and RNs, visits to our Irvine campus by physicians, master courses for physicians seeking to better their skills for SNM and/or Bulkamid, educational fellows and residency programs, webinars and helping — and also helping to facilitate mailings from physicians to patients who may not be aware that there are new products that can address their incontinence symptoms.

Turning to product development initiatives. We continue to expect the foramen finder lead placement technology that we acquired earlier this year to be commercially available in mid-2024. We are also making good progress on our new external trial system that aims to enhance the external trial experience and make it more comfortable for patients and more convenient for physicians. We have additional initiatives underway that we will not be discussing publicly at this time due to competitive reasons. So at this point, I’d like to turn the call over to Kari for her detailed review of financial results. Kari?

Kari Keese: Thanks, Ray. As Ray noted, Axonics generated net revenue of $93.1 million in the third quarter of 2023. This represented an increase of 32% compared to the prior year period. Sacral neuromodulation revenue was $73.9 million, of which 98% was generated in the U.S. Bulkamid revenue was $19.2 million, of which 81% was generated in the U.S. Gross profit in the third quarter of 2023 was $69.1 million representing a gross margin of 74.2% compared to 72.8% in the prior year period. Through the first 9 months of 2023, Axonics generated a gross margin of 74.7%. While we are pleased with these results, as you know, gross margin is sensitive to overhead absorption, manufacturing yields and supply chain disruptions. Taking these factors into account and given that we are continuing to ramp up the manufacturing lines of the R20 and F15 sacral neuromodulation products, we expect gross margin in the fourth quarter of 2023 to range between 74% to 75%.

Operating expenses were $69.8 million in the third quarter of 2023. Excluding acquisition-related expenses, this compares to $59.4 million in the prior year period. We expect operating expenses of approximately $79 million in the fourth quarter of 2023 which is consistent with the $280 million of adjusted operating expenses in 2023 that we have guided to previously. Net income in the third quarter of 2023 was $3.9 million, aided by interest income of just over $4 million. This result compares to a net loss in the prior year period of $16.3 million. In the third quarter of 2023, Axonics generated $14 million of adjusted EBITDA, compared to $3.3 million in the prior year period. The attractive financial profile of the company and the inherent operating leverage of our business model continues to be evident in our financial results.

Cash, cash equivalents and short-term investments were $344.7 million as of September 30, 2023, an increase of $13.2 million compared to June 30, 2023. Turning to fiscal year 2023 guidance. Our updated outlook is as follows: we are increasing total company’s full year guidance to $362 million, up from $358 million previously. This represents growth of 32% compared to fiscal year 2022. We anticipate SNM revenue of $288.5 million, an increase of 30% compared to fiscal year 2022 and Bulkamid revenue of $73.5 million, an increase of 42% compared to fiscal year 2022. That concludes our prepared remarks. I will now turn the call back to Neil.

Neil Bhalodkar: Great. Thanks, Kari. At this time, we are 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 1 question only. If you have an additional question, please re-enter the queue and we will take your second question if time permits. With that, Michelle, please begin the Q&A session.

See also 25 Countries With the Highest Flood Risk and 30 Most Corrupt Countries in the World Heading into 2024.

Q&A Session

Operator: [Operator Instructions] The first question comes from Chris Pasquale with Nephron Research.

Chris Pasquale: Congrats on a nice quarter, guys. Ray, I wanted to ask about the stat you gave around your existing customers growing at a high teens rate. I think that’s a really interesting data point above what we think the overall market is growing. I’m curious what do you think the biggest drivers of that have been? Are you able to really direct the DTC efforts to those accounts and so you’re helping to funnel patients there? Or do you think that it’s really a function of having the Axonics technology at those accounts and having a more appealing therapy to offer those patients.

Raymond Cohen: Thanks, Chris. Appreciate the question. I think it’s a multifaceted answer to your question. It’s not just one thing. Our objective is to go deep in all of the current accounts that we have. And when I say go deep, I mean, there’s a number of initiatives that we’re dealing with. First of all, we like to see that they hand out questionnaires very similar to the symptom questionnaire that we provide on our website. So if every patient that walks in the door to urology or urogynecology office gets a questionnaire, then they’re going to score themselves immediately. And if they’re moderate to severe, it just pops right off the page, then they can get counselled appropriately. I think every single customer that we have doing that, not yet, not everyone but it’s a big initiative at our field force.

The other thing is our clinical specialists spend a lot of time with the office staff, talking about how to move patients more efficiently through the care pathway. And also, once they get an external trial to make sure that they get scheduled efficiently for a permanent implant, right? So that’s key. DTC, of course, is a part of it but it’s a small part of it because as we have mentioned many times, a lot of the patients are treatment naive and it takes quite a while for them to work their way through the care pathway. Having said that, as I mentioned in my prepared remarks, we are getting a nice return on that investment today. But here we are, it’s October of ’23, we started this process back in April of ’22, as I recall. So it’s taking some time but it is starting to work.

So I think that, of course, getting better clinical results and being sure that — and our customers becoming aware of those results, unlike the way it used to be back in the day before Axonics was in the market, this is another big part of the equation. If physicians are aware that these patients are doing extremely well with our technology, then obviously, they’re that much more motivated to talk to the next person about sacral neuromodulation. And lastly, we — clearly having Bulkamid as part of the portfolio or armamentarium, also helps us as well. So it’s about presence of mind, it’s about people thinking about the products that we have to offer. So it’s a really good question. But I would tell you a lot of things involved in that. And I mentioned one of the marketing initiatives also is that we do what’s called these APP events where we have these nurses coming in.

Every month, there’s a program someplace in the United States which is typically attended by about 50 people — 50 nurses and they’re able to then get insights into what’s working in other accounts and things of that nature. So there’s a big, long laundry list of things, Chris, that we’re doing. Now I’ll just finish by saying, we’re thrilled to see this kind of growth from our existing customers and this really gives us the confidence that the market is really growing. It’s untapped. And in our hands, it’s going to continue to grow. We can’t speak to what our competitors are doing or not doing. But in our own hands, it’s clear that this gives us a lot of confidence about some of the things we’ve been saying about the underserved market, the underserved population and the potential to grow this market.

Operator: The next question comes from Larry Biegelsen with Wells Fargo.

Larry Biegelsen: Congrats on a nice quarter here. Ray, just at a high level, taking a step back, you’re at over 1/3 share now. What are the drivers to market leadership in the U.S. for you? How long do you think it will take? And is there any reason you can’t grow SNM revenue by 25% next year?

Raymond Cohen: Thanks, Larry. Appreciate the question. So look, we’re not backing off kind of what we’ve been talking about, in terms of this general notion of 25% Axonics growth in SNM revenue year-over-year and in the neighbourhood of 15% growth in the market, right? So we’re confident about that and we will continue. And I think if you just run the numbers out, then we’re going to get there. I mean, of course, I’d like it to happen sooner than later but if we get there by the end of 2025, then that would be fantastic, right? So I think everything is moving in the right direction and we’re pleased with the results and we’re just going to keep executing the game plan.

Operator: The next question comes from Travis Steed with Bank of America Securities.

Travis Steed: Congrats on the margin upside this quarter. And I’ll focus my question on the margins. Just curious if you can elaborate on some of the stuff you’re doing to get the margin expansion this quarter? And how you can push that into 2024? And then it did sound like you were raising gross margin for Q4 but I don’t know if there’s any additional color behind that? I think before it was 73% to 74% and now you’re at 74% to 75%.

Raymond Cohen: Do you want to comment, Kari?

Kari Keese: Sure. Travis, Yes, we have had some meaningful improvements to our gross margin as you’ve stated. We’ve had and expect to continue to see some choppiness quarter-to-quarter as we’re still getting to that even production capacity. At the end of Q2, we had some line of sight to certain yield and supply chain issues. So we had previously guided to 73% to 74% in the second half. We do feel that these items are fairly squared away at this point and have updated the guide to 74% to 75% as you mentioned, for Q4 and we do note that Q3 came in at 74.2%, the high end of that previous guide. So longer term, we do think there’s several ways to continue to improve gross margin. We do not think 75% as the cap. And for now, we just need to keep executing. We’re finding our process and supply chain have longer production runs and continue to optimize the overall process with expected higher volumes.

Travis Steed: And EBITDA margins as well?

Kari Keese: Yes. On EBITDA margins, I think this Q3 marks the sixth consecutive quarter of adjusted positive EBITDA. So there’s no reason that this trend shouldn’t continue. We think that the results are being driven by the natural operating leverage in the business model. For Q4, we made the remark of $79 million for expected OpEx. If you look at adjusted OpEx, meaning just backing out the nonrecurring acquisition-related costs and the onetime acquired IP R&D charge, you can really see there’s a steady increase quarter-to-quarter in that adjusted OpEx number. So we think that trend will continue. The Q4 OpEx guide is slightly higher. We expect some increased spend in Q4 for higher commissions, more spend on certain marketing initiatives and product development initiatives. But the overall 2023 OpEx number at $280 million is right in line with consensus which we’re comfortable with.

Operator: The next question comes from Richard Newitter with Truist Securities.

Richard Newitter: Congrats on the quarter. Maybe just following up on the margins here. For 2024, looking ahead, Ray, do you still feel comfortable getting to a 20% plus EBITDA margin? And I’m just wondering if you could give us a sense as to timing or cadence of OpEx as we think out the next couple of quarters, specifically with the fourth quarter, it looks like there’s a little bit of deleveraging as I think your applied sales growth is going to grow a little bit below OpEx. I’m just trying to think, should we be thinking about the operating leverage year-over-year disproportionately weighted in any part of the year next year?

Kari Keese: So look…

Raymond Cohen: I can give you some general comments but we would rather wait to talk about 2024 until we finish Q4. As you know, consensus is $105 million in the quarter in terms of total revenue. So I think we’ve provided some pretty good inputs that one can riddle out what adjusted EBITDA is going to look like and so forth. In terms of cadence for next year, I think we’ve been very, very clear and really tried to message this beginning earlier this year that Q1 is the softest quarter for a company like Axonics given that our product is an elective — represents an elective procedure. So we see that Q1 will be the lightest quarter. Q2 is always strong and then you hope that Q3 is roughly equivalent to what you’re able to do in Q2, given that there is momentum in the business but then you have the holidays to deal with.

And then, of course, Q4 is the strongest quarter of the year. So that’s kind of the way that we’ve seen it work out the last couple of years, okay? There was a product launch that was a big deal in 2022, that maybe skewed the numbers a bit heavily in a particular quarter. But that’s about — that’s the cadence that we expect. And we don’t see us slipping back if that’s part of the question that you’re asking, right? In other words, given the increasing revenue and the ability for us to manage things in terms of our build plan and all the rest of the things that Kari was talking about, I think we’re in pretty good shape. But we’d rather wait, if you don’t mind, until early next year, likely in the January or February period and we’ll provide solid guidance for 2024 at that time.

But I appreciate the question, Richard.

Operator: The next question comes from Adam Maeder with Piper Sandler.

Adam Maeder: Congrats on the nice quarter. I’m going to maybe go a little bit off script here and ask about the international business and, Ray, specifically the comments on F15. If I look at my sacral neuromodulation model which admittedly is not perfect, I show the OUS market at a little more than $100 million and I have your market share at roughly mid-single digits internationally. Curious if you could comment on those figures. And with a product like F15 in the market, I mean, how quickly do you think you can go more on the offensive like we’ve seen here in the United States?

Raymond Cohen: Yes. Thanks, Adam. I appreciate the question. Look, to start with, you’re talking about we have in effect, 10% of the personnel internationally that we have in the United States, right? So I mean we got to kind of start there. I think we’re appropriately staffed, considering the modest revenue that we currently have. In order for us to compete and to really grow our business internationally, we need the non-rechargeable SNM product. We need that product approved. With that approval, I think we’re in a much better position to compete, honestly, in these various different markets. I can’t — I don’t know what Medtronic’s international number is. The only thing that we know was that it represented about 10% of their overall revenue according to public remarks that they made back in 2018 when we were first going public.

So as you know, we don’t have privy to that information and I haven’t heard any hard numbers. So, I don’t know if it’s as robust as you described. And just to remind people who may not be as aware, the issue internationally is you’re dealing primarily with single payer systems who have budgets that don’t provide a lot of money for products that are just the quality of life products, right? So that’s the issue that there’s these caps, whether it’s Canada or the U.K. or the Netherlands or other markets we might talk about. Australia is a little more of a laissez-faire market which is why we’re focused now with the direct salespeople — sales force there and we’re focused on that. So — but this shouldn’t take too much longer, right? I think that’s the point I was trying to get across in my remarks, Adam, was that we’re down the path, right?

We are engaged with these regulatory bodies and we fully expect to get this product approved. There’s no showstoppers per say. But things have changed a lot internationally in terms of the MDR requirements and even TGA requirements Down Under. So we’re working on it and hopefully, we will get the approval in our hands in a matter of months as opposed to a longer period of time than that. So — but you’ll see revenue increasing for us once these products get approved internationally. And hopefully, this could become a more measurable part of our SNM business going forward. I appreciate that question, Adam.

Operator: The next question comes from Mike Polark with Wolfe Research.

Mike Polark: Just on recharge-free versus rechargeable mix in the quarter, the mentions in recent quarters has been like 2/3, 1/3 recharge-free versus rechargeable. Seeing any change there? And I guess, just curious if any new insights as to what patients are preferring in the field?

Raymond Cohen: Thank you, Mike. I appreciate the question. It’s interesting that we all would like to attribute whether somebody goes rechargeable and not rechargeable to patient preference. But I would tell you, based upon dozens and dozens of conversations I’ve had directly with our customers that it’s not so much patient preference. It’s exactly whatever the doctor guides them to which determines what they ultimately wind up with. Which is why we try to remind our customers that with the new R20, you’re talking about a recharging interval of 1 hour every 6 to 12 months, mean that makes a rechargeable product not rechargeable really because they don’t have to do anything. They just schedule the patient back in.

Operator: [Operator Instructions]

Neil Bhalodkar: Michelle, we’re back on. Are you there?

Operator: Yes.

Neil Bhalodkar: Okay. So should we go ahead and continue?

Mike Polark: Yes. Mike is still — his line is still open for questions.

Raymond Cohen: Sorry about that. Okay. So Michelle, we’re live now again?

Operator: Yes.

Raymond Cohen: Okay. All right. Apologies. I think we had a power outage here in Irvine, California. So sorry about that. So Mike’s question was about the split between rechargeable and non-rechargeable and I was just kind of going down the path or explaining that as a company, we’re agnostic but it’s more about physician preference, it seems to us than patient preference. And the fact that the recharging interval is significantly long and not burdensome for people. But nevertheless, it’s tough to erase the perceptions that physicians have but because for 20-something years, the only thing they knew was a non-rechargeable device from our competitor. So — but the direct answer to your question, Mike, is that it’s now about 75% non-rechargeable and about 25% rechargeable.

So F15 continues to gain in popularity. Product is working great, people are highly satisfied with the product. And we’re okay either way. As long as they’re doing business with Axonics, we’re happy to get the business regardless of which device they want to implant.

Operator: Our next question comes from Shagun Singh with RBC Capital Markets. I do apologize, his line did disconnect. The next question comes from Mike Matson with Needham & Company.

Mike Matson: Yes, thanks. Great to see the continued strength with Bulkamid. I was just wondering if in terms of the R&D pipeline, is there any opportunity to create enhancements, reformulations of that product? And are there any opportunities for indication expansions or maybe going into additional international markets?

Raymond Cohen: So with respect to Bulkamid, we have a pretty robust business internationally, Mike. In fact, I think it was 81% of the Bulkamid revenue? You guys checking me on this number?

Kari Keese: It’s 19% international.

Raymond Cohen: 19% international, so 81% in the United States. So almost 20% of the business in the quarter came from international markets and we’re selling in quite a few countries; so that will continue. At the moment, Mike, we got heads down. We’re just focused on continued adoption and utilization of Bulkamid. We are — our pants are not on fire to try to do more things with that product. It’s going really well. And I think the key thing for us now is just kind of continuing to get the word out on the product and it’s fast becoming first-line therapy for women with stress urinary incontinence. So I think that pretty well answers the question as directly as I can.

Operator: The next question comes from David Rescott with Baird.

David Rescott: Congrats on the strong quarter here. Ray, you — I think in the prepared remarks, you called out a modest increase in head count heading into 2024. Not necessarily eternally sure where the Street is for next year but we’re kind of in that mid-teens OpEx growth outlook into 2024. I’m just wondering if you could provide any more color on really how you’re thinking about or qualifying this modest increase in headcount next year?

Raymond Cohen: Well, I would say modest is probably in the neighborhood of 5% or so. I mean if it was 10%, it’s not so modest, right? But we’re covering literally the entire United States. I mean, we don’t have areas of the country where we don’t have representation. I mean we even — maybe Alaska is last remaining state in the union. We have a representative now in Hawaii selling both Bulkamid and sacral neuromodulation. So we’ve got good coverage — but we are now doubling down in certain territories around the United States where for one reason or another, our competitor may have more business than we do, that we’re not getting our fair share and those are the markets that we’re really looking to invest more in terms of personnel.

So we make sure we call on all those folks that are not doing business with us. So what I would say is that we have very good data at this point. We know exactly who’s doing sacral neuromodulation in the United States. We know from third-party billing data how many procedures they’re doing. We know a lot of stuff that we just didn’t have this information years ago. So we’re pretty focused now. And the key thing for us is that we want to bring some bigger users, if you may, people that have higher volume to the party, that really helps move the meter. So I think at this point, considering we’re less than — well, we’re almost 4 years now, almost 4 years now commercial in the United States, that I think we’ve made phenomenal progress during this period of time.

And I’m really excited about the next 18 to 24 months and what we can accomplish during that period.

Operator: The next question comes from Kristen Stewart with CL King.

Kristen Stewart: Congrats on a good quarter. I was wondering if you could just go into a little bit more detail on the new external trialing system. And sorry if I missed this but any thoughts on timing for that?

Raymond Cohen: So, yes, in terms of timing, we’re working diligently to be able to get that filed with the FDA in mid-2024. And assuming standard statutory timeline of the product, hopefully, we’ll be in the market by the end of next year. So it does take some time, as you can imagine. The product is now fully developed. But we’ve got to do all the validation, verification testing and that’s required and making the filing. So this is — the product is designed to eliminate a lot of the cables and things that are being used today, make it much more streamlined, lower profile. And most importantly, we’ve said this publicly before, the ability for patients to be able to take a shower when they’re undergoing that 3-day, typically 3-day, external trial.

So I could tell you there’s an enormous amount of enthusiasm amongst our customer base who have heard about the new product. And I think the combination of the foramen finder and the new external trial system, I mean, these things in combination should really help. And I think, Kristen, the piece of the puzzle here or the message that we’re really trying to get out to not only the investing public and our shareholders but also to our customers that Axonics is the innovator in this space. We’re the ones that are driving the market forward, coming up with new things and trying to make things more streamlined, et cetera, et cetera. And the message that we say to our customers and I’d say to shareholders, if you’re going to bet, bet on Axonics, because we’re not stopping.

And we’re listening very intently to feedback from our customers and we’re nimble enough to be able to react. And when we talk about one of our key values being thoughtful innovation, that’s really where it comes from, right, is listening, asking questions, listening and then taking it under advisement and making the changes. So I think that sacral neuromodulation has undergone a renaissance in our hands. And we will continue to push the envelope forward in terms of making this as easy as possible for caregivers and patients to get the symptom relief that they’re looking for. So I appreciate the question. I draw you a picture but it’s difficult to do live over the phone line but we’ll be having a lot more information about this in the coming year.

Operator: The next question comes from Shagun Singh with RBC Capital Markets.

Shagun Singh: I’m so sorry, I dropped. But, Ray, congratulations on a on a strong quarter and it does look like you have a lot of momentum going into ’24. I was just wondering if you can maybe talk to us about how you think about adjacencies or call points that Axonics could potentially expand into even though there is a lot of runway right now with your current businesses but you’ve add Bulkamid, that’s turned out really well. Just how do you think of IDNs, does that make sense, urology, women’s health? How do you think about it more broadly? And then separately, just how do you think about Axonics strategically? Would you be open to interest from other players?

Raymond Cohen: If I decode the last part of your message, I think you’re asking me, would Axonics be open to being acquired by a larger company. I think that’s the question. Is that how you heard it, Neil? Okay. So my answer to that would be Axonics’ stock is for sale every minute of every day and people — we encourage people to buy it. So you can buy a little bit, a lot of bit or the whole bit. And I think that that would be my reaction to that question. I mean none of us are here for lifetime employment. We’re here to create shareholder value, that’s the game. And so we’re certainly open. It’s not something we think about. We just focus on the execution of our business. The other question you asked is really — it’s really a big question and difficult to kind of get one’s arms around it.

I mean we are constantly looking at different things. We have a lot of folks coming to us and they saw that we acquired Bulkamid and we acquired the foramen finder. So we get a lot of inbounds, as you might imagine. Our main focus is the new continence field and we’re trying to stay straight down the fairway with respect to that. So we’ve been evaluating a number of other potential products that could add to the bag that are strategic in nature, would move the meter. We don’t want to fill the bag up with a bunch of miscellaneous stuff, right? That’s inexpensive, that doesn’t make sense for us. So we’re going to be judicious and thoughtful about what we do. And we’ll just go from there. In terms of adjacencies, if that means what else could we do with neurostimulation?

I think that we said numerous times that we do not anticipate getting into an adjacent business utilizing neurostimulation as a platform that does not make sense, different call points, different businesses completely. So we’re going to stick to our knitting and just kind of stay straight ahead. We got a good business. We have such underappreciated or I should say, untapped market, with a combination between SUI patients who’ve been differentially diagnosed — or who have the moderate to severe forms of stress urine incontinence or urgent incontinence patients at the bath time. And these are tens of millions of patients out there. And I think our DTC efforts really underscore the magnitude of this opportunity and so forth. And when you run ads on television and you’ve got over 250,000 people per quarter and this year, we’ll be well over 1 million people coming to our website looking for information at findrealrelief.com.

So that, I think, also underscores the fact that this is a really unbelievable market. And I think it would quite frankly, kind of a bit foolish for us to take our eye off the ball. So we’re going to continue to go down the path and focus on growing the company, growing it profitably in the years to come. And I do appreciate the question, Shagun.

Operator: The next question comes from Anthony Petrone with Mizuho.

Anthony Petrone: Congratulations sharing a strong quarter. A couple just on account penetration, referencing some statistics from last quarter. You mentioned, Ray, last quarter that the highest volume accounts at Axonics are doing about 50 surgeries a year. Just wondering where the average is across the user base and how many can get up to that 50 upper bound let’s say, over the next year or so? And then, the second quick follow-up would be on just Bulkamid synergies here. Got that up to about 20,000 implants as of last quarter. And it certainly seems like there are synergies that are driving, I think, competitor wins, just considering that Medtronic doesn’t have it for bags. So how much more runway is there with Bulkamid, just in terms of that procedure being now a bigger option for patients and practices but also potentially a lever to gain share from Medtronic?

Raymond Cohen: Yes. Thank you, Anthony. I appreciate your comments. Let me clean something up. I think that either some misinterpretation or a little bit out of context. We have some customers that are doing well over 50 implants a year. So I just want to get that point across. It’s — they’re rare. And I think we kind of put them in 3 buckets, quite frankly. One is the — well, we use the term dabbler bucket. Which is folks that are doing around 1 per month, right? So that’s kind of — there’s a lot of those docs out there. I mean any one physician that’s doing 1 implant per month, they have the ability to do probably 3x to 5x more than that, with just a teeny little bit of effort, right? So we’re continuing to move those physicians up in terms of the volume which is why we made it a point to talk about the mid- to high teens rate of growth on a per account basis.

Obviously, it’s easier to get somebody who’s doing 12 to turn that into 20 than it is to take somebody who’s doing 60 and turn it into 80 or 90, right? So we’re aware of that. But we are looking to move the dabblers into the middle category and we are looking obviously to maximize what we can out of high-volume accounts. The key thing for us is to bring some more of those high-volume accounts to Axonics. And if they were a high-volume account, we came into the market. Clearly, our competitor kind of withdrew their forces, if you may and surrounded the castle to try to keep us out of the bigger high-volume accounts. Now we’ve been able to penetrate quite a few of them. But Bulkamid has been the key for us to get into those castles and to get people using Bulkamid and then to play the longer game with them with respect to giving us an opportunity on sacral neuromodulation.

So your question was implying or asking whether or not Bulkamid is helping us to gain share and to gain the business from a sacral neuromodulation standpoint. And the answer is absolutely without a doubt, no question. We would not be where we are today if we had not made that strategic acquisition and had that product in our line and you’re right, it does clearly separate us from Medtronic, who has no other business in urology other than sacral neuromodulation. So now the good news is that we only have about half of our Bulkamid customers that are doing sacral neuromodulation with Axonics. A bunch of them are doing it with our competitor and some are just doing BOTOX. So we’re continuing to work on that. There’s a lot of cross-selling initiatives that we’re doing as a company as you would imagine.

And it’s all moving in the right direction. I just think it’s just going to take a little more time. It’s difficult to displace a competitor who have had a monopoly for 25 years, right? I mean — and we’ve talked about the legacy associated with that. So — but we’re moving in the right direction. And I think that the word’s out, right? When it comes to sacral neuromodulation, we got the goods. Patients do really, really well with our products. They get great support from our team and so on and so forth. And Bulkamid works like a charm. And it is clearly much easier for a woman who has stress urinary incontinence to say yes to Bulkamid than to a sling procedure as an example. So hopefully, that gave you a pretty open-end answer, Anthony, to your question.

Operator: The next question comes from Kallum Titchmarsh with Morgan Stanley.

Kallum Titchmarsh: Just on the DTC campaign, some interesting comments there. I’m wondering whether there’s been certain respondent demographics or populations that have surprised you. Anything that’s varied from a typical patient type you’ve seen receive an SNM treatment across the years? I mean given the goal of these campaigns is the spread awareness, I wanted to see whether you’ve seen anything different in patient mix since commencing the ads?

Raymond Cohen: Thank you for the question. I wouldn’t say that there’s anything different about the people responding from — to DTC from the actual patient demographics of who we’re actually implanting. I would say it’s pretty consistent. I think the only difference is that we have more men responding to DTC than actually we have as percentages of our customers that get an implant. As it turns out maybe 25% of the people inquiring are men but in terms of actual implants, it’s less than 15% or somewhere around that number. So that would be the only thing I’d call out. I think it’s going to be really interesting now starting this month actually. We will have the first bowel dysfunction or fecal incontinence commercial that will be running with a gentleman who is a patient who talks about him having had both urinary and fecal incontinence and how Axonics has — Axonics’ therapy has really changed his life.

So it will be interesting to see and we very specifically picked a man to do that particular commercial. Now we also have a woman who also has the same dual incontinence symptoms. And we’re running that commercial as well. So this November we have, for the first time, stress urinary incontinence commercial. We have a dual incontinence commercial where people are talking about urinary and fecal incontinence at the same time. And in addition to the kind of straightforward more generic OAB ads. So you can see that we’re trying to get to your question in a way. I mean we’re going to — we’re changing up the messaging and seeing what kind of response we get is maybe different than what we’ve seen so far. But I think it was time for us to be a little more specific with some of these symptoms and see if we can draw some people in.

We’re really curious to see how the fecal incontinence add draws. Because talk about people being embarrassed. I mean it’s one thing to talk about urinary dysfunction, it’s really embarrassing to talk about fecal dysfunction. So we do know that about 30% or so of the patients that actually get sacral neuromodulation for urinary urge incontinence have some form of fecal incontinence to go along with it. So if we can draw some of those people in presenting with fecal continence as their primary indication, it will be really interesting to see how that impacts our business in general. So that’s kind of what we’re up to. But the demographic and why are we on television, right? Well, we’re on television because if you look at third-party SaaS, you’ll find that it’s the people 60 years or older, are the ones that are watching network television these days.

And that’s why we’re on television because that’s our demographic that we’re after. The average age of a person getting sacral neuromodulation for Axonics is 58 years old. So that’s the case. We’ve tried some streaming services and some other fancy stuff in the past and it just doesn’t pull as well. As just plain vanilla Facebook and obviously a network television. So that’s the story.

Operator: The next question comes from Michael Sarcone with Jefferies.

Michael Sarcone: Just a quick question. Can you just talk about, in the U.S., what does rep productivity look like on average? And kind of where do you think that could ultimately go?

Raymond Cohen: That’s a good question. So we talked publicly early day that when we looked at the headcount of our competitor for sacral neuromodulation, their average productivity per rep was about $3.5 million. Now that was with a monopoly with no competition. This year, in 2023, we expect average productivity to be a little over $2.5 million on a per rep basis. And we would expect, obviously, nice increases consistent with what we’re guiding in terms of our growth trajectory in 2024. So you could imagine, once again, not even finished our fourth year and to see the productivity to be as high as it is, we’re very encouraged by that. So that’s the answer to your question. I think you got to round it up higher, obviously, for 2024 but that’s what we’re looking at.

Operator: The next question comes from Mike Kratky with Leerink Partners.

Mike Kratky: So are your newly implemented DTC efforts and the new television commercials likely initiatives that you expect to continue throughout or potentially accelerate in 2024? And then just as a quick follow-up, how do you kind of balance the trade-offs in that DTC spending versus committing to more meaningful investment at the headcount side?

Raymond Cohen: Well, I think they’re mutually exclusive, quite frankly. We’re — once again, we’re not looking at DTC as a driver of our business. We kind of look at it like that’s the icing on top, right? And we’re playing the long game. The DTC is about playing the long game for us, really counterprogramming messages that people are hearing on television that are ads that are suggesting it’s normal to leak urine. And if you just take my pill or where my panties or whatever or adult diapers or whatever it is, then everything is great. So we’re the company that’s doing the counter programming. But I want to emphasize that DTC is not the driver of our business. It’s all the other initiatives that we’ve talked about and some of which I mentioned in the script today, that are really driving the business.

Now having said that, our customers really appreciate the fact that we’re on the airways and that we’re providing these messages to folks and some of the — some of this is going to be difficult to measure, right? There’s additional benefit where not everybody is going to fill out a symptom questionnaire. Not everybody is going to go to the website. Some of them just walk right into these offices and say, asking about Axonics — asking about Axonics therapy. Now of course, when they walk into a customer location that doesn’t offer Axonics and they go tell me about Axonics therapy, they go, “Yes, we got that, too. It’s called InterStim right?” I’m still waiting for the thank you card from our competitor for doing national television but that hasn’t been forthcoming.

So in any event, hopefully, that gives you a reasonably colorful answer to your question.

Operator: I show no further questions at this time. I would now like to turn the call back to Raymond Cohen for closing your remarks.

Raymond Cohen: Thank you, operator. I appreciate your help today. So in closing, I’d like to say that our mission-driven team remains committed to innovating, supporting our dedicated physician customers and their patients, raising awareness of our best-in-class therapies and we’re confident that Axonics will continue to grow rapidly and profitably in the years ahead as we continue to expand and penetrate the underserved and undertreated incontinence markets in which we participate. We remain grateful for the trust physicians, patients and shareholders have placed in Axonics. And as always, I would like to thank my colleagues in Irvine and our team in the field for our diligent efforts — for their diligent efforts and dedication to fulfilling the Axonics’ mission of improving the lives of adults with incontinence.

So, thank you so much for the call today. Appreciate all the questions from the analyst community and we look forward to seeing and speaking with you in the weeks and months ahead.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great afternoon.