Axonics, Inc. (NASDAQ:AXNX) Q2 2023 Earnings Call Transcript

Axonics, Inc. (NASDAQ:AXNX) Q2 2023 Earnings Call Transcript July 27, 2023

Axonics, Inc. misses on earnings expectations. Reported EPS is $-0.47 EPS, expectations were $-0.11.

Operator: That today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Neil Bhalodkar. Please go ahead.

Neil Bhalodkar: Thanks, Victor. Good afternoon and thank you for joining Axonics’ Second 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, July 27, 2023. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or anticipated events that may arise. With that, I’d now like to turn the call over to Ray.

Raymond Cohen: Thanks, Neil. I’d like to welcome everyone joining this afternoon’s call. So with strong company-wide execution, Axonics generated record results in the second quarter. Revenue was $92.9 million in the second quarter, an overall increase of 35% compared to the prior year period. More specifically, sacral neuromodulation revenue was $74.2 million, an increase of 33% compared to the prior year period. We are particularly proud of this level of growth considering this is the first quarter in which we anniversary last year’s launch of the F-15 recharge-free system, which is currently our top-selling S&M system. Revenue growth is being driven by a combination of higher utilization and share of wallet in existing accounts as well as the addition of competitive accounts that have converted to Axonics.

Internationally, our S&M revenue grew by over 50% compared to last year as a result of a of a measurable contribution from our recently deployed direct sales force in Australia. Bulkamid revenue was $18.7 million, an increase of 41% 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 new sales reps primarily focused on promoting Bulkamid. Our gross margin in the quarter was 75.6%, up from 72.8% in the prior year period. The most exciting news for us is that we generated over $18 million of adjusted EBITDA in the quarter as we continue to benefit from the operating leverage inherent in our business model. Dan will discuss our margin expectations and financial performance outlook in further detail in his prepared remarks.

I would now like to provide several other corporate updates. On the reimbursement front, CMS recently published proposed Medicare payment rates that will take effect in the calendar year 2024. In summary, the proposal includes S&M facility fees that would increase by 1.5% in surgery centers and be flattish in hospital outpatient departments. As for physician fees, while the conversion factor was down 3.4% across the board for all specialties, physicians performing sacral neuromodulation would actually see an increase due to the work RVUs increasing for implanting the neurostimulator. More specifically, physicians performing an external trial with a PNE in their office, followed by a full implant in a facility would see a 50 basis point increase in reimbursement under the proposal, while physicians who perform an advanced trial in a facility, followed by an implant would see a 23% increase in reimbursement.

Our commercial team currently accounts for nearly 60% of Axonics 725 person full-time employee head count. We have approximately 400 commercial team members in the United States, of which 185 are directly involved in selling or sales management with the balance of the personnel being field clinical specialists, field marketing specialists and remote therapy support specialists. Internationally, we now have approximately 25 field-based personnel and they’re located in Western Europe and Australia. We are well staffed at this time and expect only a modest increase in our commercial team headcount for the balance of 2023. Turning to the Axonics find real relief direct-to-consumer advertising campaign, we continue to generate more than 10,000 qualified leads each month.

A qualified lead is 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 practice asking about Axonics therapy after seeing our ads on television or on the Internet. The campaign continues to generate goodwill within our physician customers as they are grateful that we are helping to ensure that adults with these conditions are seen by a clinician and advancing along the care pathway. Now we continue to note 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 normal — that’s not a normal part of aging to leak urine and that advanced therapies exist to treat incontinence.

Our call center continues to work diligently to connect qualified leads with a physician specialist in their local community. Now it’s been about 18 months since the launch of the DTC program. And as we anticipated, it is yielding measurable F&M and Bulkamid revenue and an encouraging return on investment. Given the success of the DTC program, we are in the process of launching new commercials related to the conditions of stress urinary incontinence, which is served by Bulkamid or fecal incontinence, which is part of our S&M system in the second half of this year. Now turning to the IP lawsuit with our competitor, we will limit our comments on this topic to the following. As we have previously said and continue to maintain, we do not believe that Axonics infringes on any of our competitors’ patents.

And this case is simply litigation to create a financial and legal burden on Axonics in an attempt to slow down our market penetration. Now recently, the United States Court of Appeals for the Federal Circuit reversed the decision of the PTAB that the time lead patents asserted against Axonics were valid, finding instead that the PTAB committed legal errors in its analysis. The Federal Circuit remanded the matter to the PTAB for another review consistent with its opinion and direction. Now there are a few more patents under review by the Federal Circuit, and we anticipate that the appeals court decision will be forthcoming in a couple of weeks. Because of these developments, the U.S. District Court for the Central District of California issued a stay on the litigation proceedings pending the outcome of the proceedings before the PTAB.

As a result, the JARE trial previously scheduled for August has been postponed indefinitely. Now turning to product development initiatives. We’re making really good progress on the foreman finder lead placement technology we acquired from Radian in April, and we continue to expect it to be commercially available in mid-2024. Another project we’re working on internally is a new external trial system that aims to enhance the PNE trial experience, making it more comfortable for patients and more convenient for physicians. Now in closing, we feel like — or closing from my perspective, we feel like we’re just scratching the surface of really what is possible in this underpenetrated and undertreated patient population. Now with that said, I’m going to turn the call over to Dan, who has some prepared remarks with respect to the financial results.

Dan Dearen: Thanks, Ray. As right noted, Axonics generated net revenue of $92.9 million in the second quarter of 2023, and — this represented an increase of 35% compared to the prior year period. Sacral neuromodulation revenue was $74.2 million, of which 97% was generated in the United States. Bulkamid revenue was $18.7 million, of which 79% was generated in the United States. Gross profit in the second quarter was $70.2 million, representing a gross margin of 75.6% compared to 72.8% in the prior year period. In the first half of 2023, gross margin was 75%. And — while we are pleased with this result, 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 F-15 products, we expect gross margin for 2023 to be within the 73% to 74% range for the remainder of the year.

As we’ve stated previously, we expect gross margin at scale to be in the mid-70s. Operating expenses were $82.3 million in the second quarter. Note that this includes a onetime $15.4 million noncash charge for acquired in-process research and development related to the Radian technology acquisition of the Foreman finder and a $600,000 noncash charge for the change in fair value of contingent considerations related to the Bulkamid acquisition. Excluding these noncash charges, adjusted operating expenses were $66.2 million in the second quarter of 2023. We continue to expect adjusted operating expenses of $280 million in fiscal year 2023. Net loss in the second quarter was $7.3 million compared to a net loss in the prior year period of $21.4 million.

In the second quarter of 2023, Axonics generated $18.4 million of adjusted EBITDA compared to $1.6 million in the prior year period. The attractive financial profile of the company and the inherent operating leverage of our business model is becoming more evident in our financial results. In fact, this marks the first quarter that Axonics as profitable on an operating income basis, which includes stock-based compensation, depreciation and amortization expense and only excludes noncash charges associated with the Radian in-process R&D and the change in the fair value of the contingent consideration related to the Bulk Med acquisition. Cash, cash equivalents and short-term investments totaled $331.5 million as of June 30. And — during the second quarter, Axonics made a $35 million milestone payment to Contura Holdings Limited related to Bulkamid achieving over $50 million of sales in the 12-month period ended March 31, 2023.

Turning to fiscal 2023 guidance. Our updated outlook is as follows: total company revenue of $358 million, an increase of $10 million compared to prior guidance. This represents an overall revenue increase of 31% compared to fiscal year 2022. The — we now anticipate S&M revenue of $285.5 million, an increase of 29% compared to fiscal year 2022 and bulked revenue of $72.5 million, an increase of 40% 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 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 one question only. If you have an additional question, please reenter the queue and we will take your second question if time permits. With that, Victor, please begin the Q&A session.

Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Chris Pasquale from Neon Research.

Chris Pasquale: Congrats on a great quarter, guys. Ray, I thought the comments around the DTC campaign were interesting. It seems like the focus there is shifting a little bit, maybe getting a little bit more specific on the stress and fecal indications. I know one of the advantages you guys had there was the ability to be somewhat generic in the way you advertise because you covered the full spectrum. So just curious how you’re thinking about sort of optimizing that program longer term? And if you could quantify in any way what kind of return you’ve gotten thus far off of the work you’ve done there.

Raymond Cohen: Sure. Thanks, Chris. Appreciate your comments and question. So our commercials now, whether they be found on Facebook or on television. They are generic in the sense that we’re just talking about if you have these symptoms, you’re leaking urine as an example, then we’d like to help you get a consult with a specialized with a physician in your area. We’re not selling anything in 30-second TV commercials. We’re not talking about sacral neuromodulation. We’re not talking about Bulkamid. We’re not being too specific at all about the condition. It’s basically urinary incontinence has been the focus. So the commercial has been pretty much geared towards overactive bladder patients. The responses, as you’ve seen, have been really amazing.

In the first 6 months of this year, 1 million people, unique visitors went to find real relief.com and about 8% of them filled out a questionnaire and told us who they are and indicated an interest in getting with the physician. Now of course, the challenge, of course, is getting those interested people actually booked with an appointment, and I’m sure everybody can appreciate. That’s not a simple process. Okay. Having said that, we now 18 months later, are able to measure a return on investment on a name to name basis, we can easily match the person who responded on the questionnaire to actually a patient who has an implant in their body. This is very encouraging for us. And it is exactly what we had hoped, but we knew it was going to take some time before we could actually measure a return.

So given that we’re encouraged by this, we want to now increase, if you may, the messages that we’re providing, let’s just say, on television or on the Internet. This doesn’t imply an increase in expenditure per se, but we’re going to have some different messages out there. So one of the things that we’re going to do, and I’ll try not to be too worry about all this, is that we’re going to be running an ad on television on Facebook, where we have a patient who is younger, a woman in her 30s who had some children and had stressed urinary incontinence. And so she’s going to say, when I laugh, when I lift, when I exercise or call for sneeze, I leak. And then I found Axonics, and I got Bulkin, — so we’re going to — it’s going to be a bulk of ed commercial, all right, which we haven’t done before.

So even though we’re getting a lot of patients getting Balcean [ph] as a result of our OAB commercial. So we’re going to be a little more specific. And then, of course, their questionnaires will identify the symptoms that they have and so on and so forth. So that’s going to — we’re excited about that. We think that makes a lot of sense for us to do that. We’re also going to do a commercial for fecal incontinence. So we have a patient — and by the way, these are all volunteers. These are not paid actors or actresses — these are patients who volunteered to do these commercials. So we think that’s a more powerful approach than having a celebrity or so on and so forth. So in any event, so we’ve got a gentleman who’s got fecal incontinence and we’ll be very specific about his condition and the fact that Axonics therapy can help resolve this.

So that’s what we’re talking about when we say SUI and FI and so on and so forth. So we’re going to run OAB commercials, SUI commercials and fecal incontinence commercials. And they’ll all be running kind of simultaneously. But once again, we’re not talking about tripling our spend or even doubling our spend. We may spend a few more dollars incrementally, but we’re getting a nice return. So hopefully, Chris, that’s a super fulsome answer to your question.

Chris Pasquale: Yes, that’s great. And Dan, one for you the operating leverage has been very impressive, especially when you exclude some of the onetime items here. It certainly doesn’t seem like mid-70s needs to be a final resting place for gross margin given the progress you’ve already made. Why can’t you push it further than that, particularly as the portfolio overtime shifts, I think, entirely to F-15 and R2 versus carrying 3 products?

Dan Dearen: We agree with you, and we can. We’re just not providing guidance for 2024 yet. But we picked mid-70s as the target going back a couple of years now. And the messaging, we just want to keep it on point that we’re clearly trending in that direction, especially when you see 75.6% in the quarter, — and we’re just trying to keep everything in check as we ramp production. So you’re correct. Look, we don’t have to change the product. We don’t have to change anything in the supply chain. We just have to keep executing and have longer production runs, and we see it trending the way you do.

Operator: Our next question will come from the line of Larry Biegelsen from Wells Fargo.

Unidentified Analyst: This is Niko Trebek [ph] on for Larry. So in the past, you talked about your S&M sales growing at 25% and the market itself growing at 15%. How do you still feel about these targets considering the strong growth you posted in the first half. Has anything changed with regard to market growth? And if so, why?

Raymond Cohen: Well, look, I think that the market growth is going to continue. Unfortunately, only Axonics is involved in the market growth game. Our other competitor seems not to be too keen, let’s just say, on doing some of the things that we’re doing. So having said that, we’re the ones carrying the water. We see that the market is growing. And in any given quarter, it’s going to be up or down or whatever. But 10% to 15% is certainly in the range. And we think over time, 15% is what we would expect to see, which is consistent with what we’ve been saying since 2018. And the market has been growing. So we’re just focused on putting our heads down and executing the plan. And we’ve got a lot of initiatives that are happening in accounts to help identify additional patients that could benefit from the therapy.

And the issue is, and I’ve said this many times before, every single urology and urogynecology practice in the United States has anywhere from hundreds to thousands of untreated patients in their paper filing cabinets or their electronic EMR system. And it’s just simply a matter of activating those individuals and having somebody speak to them about the notion of a an advanced therapy like we have that provides a fundamentally permanent or long-term solution and measured in a couple of decades to these chronic problems. We don’t believe that BOTOX, which is a 4- to 6-month treatment for OAB is appropriate. Most patients drop out after 2 injections. We know that adherence to OAB medications is terrible, and that 70% or 80% of the patients will stop their medication certainly within a year.

So these are all the reasons why we believe that in the end of the day, sacral neuromodulation is the way to go. It’s going to provide long-term therapy relief for patients who have a chronic problem. So the difference here is despite the fact that there was a product in the marketplace for 2 decades, okay, with a person — with a company that had a MONOPOLY, we’re overcoming that. The notion that sacral neuromodulation is the therapy of last resort. That attitude is now changing amongst our physician customers and so on and so forth. So we’re extremely bullish about the future, and we expect to continue to grow our revenue in sacral neuromodulation for many years into the future. And I have to tell you, Bulkamid certainly is helping us as well because we’re able to get more mind share from these customers by providing additional therapies.

And one last comment about that in that is that look, these are not discrete persons who show up. It’s not like a woman shows up today and she’s got urinary urge incontinence. And nobody has fecal incontinence or nobody has a stress urinary incontinence. The reality is 1/3 of our urinary urgent continence patients have fecal incontinence and almost 1/3 of those patients who have urinary incontinence have stress. So that’s the reason why Bulkamid [ph] is such an important part of our product line because we’re able to treat the whole person. And that’s what we’re up to.

Operator: One moment for our next question. Our next question comes from the line of Michael Polark from Wolf Research.

Michael Polark: I think we know the why behind it, the Axonics value proposition, the innovation you’ve introduced into the market. But I’m curious, Ray, for your perspective on recent account conversion. Order of magnitude, have the numbers gotten bigger again? Maybe the other way to ask the question is, as I look at, say, 30%, 35% S&M growth in the U.S. How much of that do you perceive to be from accounts that are freshly new to Axonics.

Raymond Cohen: As we — Mike, thanks for the question. As we’ve said, and I think everybody is acknowledged and certainly yourself and other analysts have been writing about it. The reality is that 60% of all the people practicing sacral neuromodulation in the United States, I mean I’m giving you a round number, are not our customers today, okay? Now I dare say that we’re helping some of those accounts that are not our customers because people are walking in their office too asking about Axonics therapy, and they go, “Oh, yes, well, we got that too, but it’s called something else. So that’s kind of what’s going on out there. It was the first time we’re creating awareness in the marketplace. So it’s this awareness that’s being created and the tools that we’re providing.

In other words, something as simple as a symptom questionnaire that is handed to new patients when they walk into — or existing patients when they walk in the door so that the patient can sit there and in 2 minutes can score themselves. So if they’re moderate to severe in terms of incontinence, then the physician and the staff can talk to them about this. This has never been done before. So I mean, this is basic blocking and tackling. I mean, we’re talking the most basics. Now have we been able to get every account that we have to implement this? No, okay? We’re still working through those processes. But what we’re seeing is better utilization in these accounts than we’ve seen before, and we’ve called it same-store sales. I think that’s a good way to refer to it.

So they are increasing. And that is really what is driving the revenue of the company. Now are we picking up new accounts Absolutely. And we’re going to continue to pick up new accounts. And I would dare tell you that until we have them all, we’re going to continue to hammer on everybody to get our message across. And so the word is out, right? The word is out. The docs are popping their head up out of the sand and are hearing from their other colleagues, hey, these Axonics folks, man, they got the technology, they’ve got great people. They provide great support, and these products last a really, really long time. So I think we’re doing all the right stuff and it’s just going to be a matter of time now before we continue to have more and more share of wallet and more and more share of this market.

One of the things that we’re keenly focused on in these accounts that we’ve converted is to get them to give us more of that business, right? So we still have people that are splitting their business and they’re maybe early in the conversion to Axonics. So we still have a long way to go even in the accounts that have recently converted. So I understand the question. I understand that there’s a lot of folks out there that are thinking, “Oh, wow, is this just a share shift game. And it’s not. I mean, the fact is, it’s not like these are budgets, not like sacral neuromodulation is budgeted, right? There’s so many patients that are going to get it. I mean, this is about patients walking in, coming to the realization between their physician and themselves that this is the right therapy for them, and we’re going to continue to stay focused on that.

Operator: [Operator Instructions] Our next question will come from the line of Shagun Singh from RBC Capital Markets.

Shagun Singh: Ray, just one from me. Could you discuss where utilization could go for S&M procedures longer term? And perhaps you can share the current range within your customer base, what that looks like and what you’re doing to really expand that. You did touch on DTC, but just curious if there’s anything else we should be focused on?

Raymond Cohen: We have — so I understand the question. I appreciate the question. I think that everyone would be surprised at how low the utilization of S&M is on a per account basis. I mean the average, let’s just say, the average is in the neighborhood of 12 to 15 per year. okay? I mean this is a dismal in terms of what is reasonable, what is possible, et cetera, et cetera. So we’re dealing with a whole lot of dabblers as we refer to them out there, okay? So that’s the state of the state. That’s what we’ve kind of come into this market, and that’s what we find. Now are we satisfied with that? No. It’s ridiculous. It’s ridiculously low. Now there are plenty of accounts that we have that they do 15 to 50 a year. Those are some really, really nice accounts, and then there’s less that do more than, say, 50 implants in a year, right?

Nice price. If you can get those accounts, obviously, and we’re keenly focused on the smaller and larger accounts, all right? So what are we doing? I mean it’s — there’s too many things that we’re up to for me to describe on a conference call like we have today. But I’ll give you one of the most basic things that we do, which is the single most effective marketing program, and that is getting the account with our help to send a letter to their customers that have already been differentially diagnosed with, let’s just say, overactive bladder or fecal incontinence or whatever the case might be. Simple letter goes out from the doctor, personalized, electronically signed by them and included in the letter, it says basically, hey, Dan, we’ve got new technology for your chronic condition.

Why don’t you fill out this symptom questionnaire and put it in this prestamp return envelope and cutback to our office. Okay? As simple as that, it’s all HIPAA compliance stuff, and it gets great response from the existing patient base. This is back to my comment about names in their file cabinets or in their EMR system. That is the number 1 thing, and it really surprises our customers because they’re like, “Oh, I thought I was doing a really good job, and then they realize they send 500 letters out next thing, oh, there’s 30 or 40 people that have raised their hand and said, “Yes, yes, yes, yes, I want to come in, and I want to talk about this advanced therapy. So that’s one example. We also spent a lot of time with the APPs, these advanced practice providers, the nursing staff, the NPs, PAs, RNs and the account so that we can help them with their talk tracks.

How do you communicate about sacral neuromodulation or Balcean [ph] to your patients getting — enrolling them in this process because physicians have very little time, and I’m sure everybody on the call understands this, the average doc spends maybe 10 minutes with the patient. So you can’t rely on the physician to be explaining all these things to these patients. They’re very limited on time. So we realize this, and we’ve been working on all kinds of different programs where we can help utilize the staff and so on and so forth to get more patients into the therapy. So this is just one of a whole list of various different marketing programs that we have available. I mean basic stuff, even things like making sure that on the physician’s website that they actually have information about sacral neuromodulation or Balcaen [ph], you’d be surprised.

A very small percentage of them even have invested in these types of basic things. So — it’s not — and this is the point I’ve been trying to get across for a number of years now that in order to grow this business in order for us to continue to see increases in utilization and for us to grow year-over-year, it is not rocket size. This is all basic stuff, 101 marketing right [ph] — we’re talking about and so forth. Now the fact that none of this has ever been done before, okay? This is not what was happening for Axonics showed up on the scene is the time that it’s taking now, we have to overcome the legacy situation. So I appreciate the question. Hopefully, this was a good enough answer, so you get a sense about the kinds of things that we’re doing.

Operator: [Operator Instructions] Our next question will come from the line of Richard Newitter from Truist Securities.

Richard Newitter: So congrats on the operating performance, particularly the margin improvement in profitability here this quarter. I guess my question is really just about how you balance pursuing revenue growth from here and you’re clearly at an inflection point of sorts on the profitability curve. So I’d love to hear rays how you’re prioritizing those 2, especially as we think, think out a little further? And particularly, if you could put into context where the investment goes with respect to reps and maybe even M&A in addition to DTC?

Raymond Cohen: Yes. Thanks for the question, and thanks for acknowledging the superb adjusted EBITDA result in the quarter, which I think really, as Dan said, it really underscores the leverage that we have in this business model. So here’s the thing, and we’ll make this comment. We are not holding back on spending money. Let us be clear about that, right? We are doing everything that we think makes sense to help us grow this business. We are not holding back on hiring salespeople. We’re not holding back on trade then. We’re not holding back on HQ visits from physicians or APP events or DTC. We are not holding back. This is not about squeezing blood out of a rock to make it look good from a financial standpoint. This is natural.

This is just what’s occurring and naturally occurring in our business. So I mean, that’s the comment. If we see an opportunity where if we have underserved — in other words, we’re not making a penetration in a given part of the United States, and we’re going to add the additional people that we need to get to those accounts that we’re not getting to. So I think that that’s important for us to get that message out. Yes, we’re at an inflection point, but it’s a good one because we’ve got leverage in the business and money is dropping to the bottom line. And this is what we had predicted all along. So Dan and I are not surprised that this is actually what’s occurring. Granted, the margin, okay, a point here, a point there one way or another is going to be variable.

But other than that, I think we’ve turned a corner now, and this is going to be a fast-growing profitable company for years to come.

Richard Newitter: Thank you.

Operator: One moment for our next question. Our next question comes from the line of Adam Maeder from Piper Sandler.

Adam Maeder: I’ll keep it to one. I wanted to ask about the updated guidance for the full year. You increased the guide by $10 million. It looks like that increase is evenly split between [indiscernible]. And for Q2, I think you beat by $6.5 million or so. So you’re raising by more than new beat. Can you just talk a little bit about kind of what’s informing that decision? And then broad strokes, any more color that you can provide on the second half cadence in 2023, Q3 versus Q4?

Dan Dearen: Sure. As always good to hear from them. Look, the thing that’s driving the change in the guidance is, look, we’ve obviously met regularly with the entire field team. And they basically come back with what they see each of their accounts doing. We roll it up to the Area Director level. and then we have a discussion. And so look, we’re just being transparent and changing the guidance as we see fit to be as accurate as possible. And so really, it’s just basic blocking and tackling. We have 725-plus employees in the company with over 400 in the field. But as you would expect, we have a very capable and large infrastructure of people and sales management and including the Chief Commercial Officer of the area of directors and the key account managers.

And so we have very detailed granular insight into each of our accounts. And one thing that Ray talked about earlier was the same-store sales. We’ve seen high teens growth in same-store sales from year to year. And so for us to adjust guidance is just an indication it’s going well. What we predicted and guided at the beginning of the year was that we’d have a big step up from Q1 to Q2. Q3 would look a lot like Q2, and then there’s the seasonality step-up in Q4 when patients have met their deductibles. So really no change in the guidance other than business is going well, and we just want to keep messaging that everything is tracking according to plan.

Adam Maeder: Thank you.

Operator: [Operator Instructions] Our next question comes from the line of Mike Matson from Needham.

Mike Matson: So just given the strong adjusted EBITDA in the quarter and kind of what the consensus is modeling or the guidance applies for the second half, I mean, your revenue should be even higher. So I mean is there any reason that your kind of adjusted EBITDA margins will at least stay at this level or even potentially go higher over the rest of the year?

Dan Dearen: No, you’re reading it — Mike, good to hear from you. Now you’re reading it correctly, which is when we look forward at the OpEx, we’re still confirming the guidance we provided earlier in the year in terms of total OpEx for 2023. And you’re right, as revenue steps up even with 1 point or 1.5 point change in the gross margin percentage you’re absolutely right, which is it should continue to trend as you are estimating, which is it should look very similar or even better as we go into Q3 and Q4. We’re continuing to add to the sales team. We’re continuing to add some expenses in G&A back-of-house operations to support the field team and to support the customers. But just to lay it on the line, there’s no significant OpEx expenditure that’s coming down the lane in the near future that we see that’s going to impact our path to profitability.

Mike Matson: Thank you.

Operator: [Operator Instructions] Our next question comes from the line of Anthony Petrone from Mizuho.

Anthony Petrone: Congrats on a great quarter here. Two quick ones from our end. Just kind of high-level views on the CMS proposal for TiVo in the ASC setting. Just early views there from Axonics if that were to be finalized, how do you think that influences the decision between [indiscernible] sacral neuromodulation next year? And the other one I’ll quickly put it in there is Intuitive Surgical reported a couple of weeks ago, opened up the idea that GLP-1s could — are seeing some impact in U.S. bariatric surgeries. And one of the behavioral recommendations for overactive bladder is weight loss. And I think there’s a higher incidence in 32-plus BMI. So any thoughts on could GLP-1s influence the overactive bladder space.

Raymond Cohen: Anthony, this is Ray. Thanks for the question. Look, it’s — this GLP-1 phenomenon, I mean, I don’t think anybody really knows what the impact is going to be over time and how long anybody is going to stay on that Ozempic or Maduro or whatever it might be. So we’ll see what that means. We have tens of millions of patients with moderate to severe overactive bladder. We’ve got, I think the latest number was like $22 million, specifically, moderate to severe stress urinary incontinence patients. I mean, this is a huge underpenetrated and untapped market. So we are non-plused [ph] and I wish everybody out there who wants to lose a few pounds, good luck doing that, right? So that’s great. In terms of implantable tibial nerve stimulation, I think the most recent comments or results of the — from CMS, I think just simply underscore what we’ve been saying all along.

And let me just be clear. We’re in the sacral neuromodulation business; we think capital modulation [ph] is the way to go. These are permanent long-term implants to provide symptom relief in the 90% percent [ph] symptom relief for patients. We are not in the IT&S business. We don’t intend to get in the IT and business and we don’t see IT&S having any impact on our business going, any measurable impact on our business going forward. So I appreciate the questions.

Operator: [Operator Instructions] Our next question. next question will come from the line of Kyle [ph] from Morgan Stanley.

Unidentified Analyst: Just on Radian, could you maybe share some initial takes from any engagement you’ve had here with docs about the tech. And we spoke with one recently and you seem pretty excited about the placement solution, but I’d assume your sample size is a bit bigger than us. And then maybe if you could share some thoughts on any further enhancements you’d like to add to the S&M portfolio in the long term.

Raymond Cohen: What was the second part of the question?

Unidentified Analyst: Any other enhancements to the S&M system?

Raymond Cohen: So, I think that I alluded to it in my prepared remarks that we also have a new external trial system that is forthcoming, and we think this is going to make it more comfortable for patients. and more convenient for physicians. So that’s kind of included and kind of sort of combined with the lead finding or the sacrum finding technology, but 2 discrete things. Just so we’re clear, we did quite a bit of diligence with respect to the [indiscernible]. We discuss it when physicians come to visit us, and we get a lot of very positive feedback from them. But just to be clear, this product is not in anybody’s hands, okay? So we’re in the process of hardening or finalizing the hardware design and hardening the software package and all that stuff.

And then we’ll start to — later this year, we’ll get the product under let’s just say, a nonsignificant risk kind of study concept into the hands of a few customers so that we can do some usability testing and so forth. So look, people are enthusiastic about it. But just in fairness, I don’t want to oversell it because the fact is we haven’t put it in the hands of physicians yet. But people get the concept, and they think this could be helpful back to talking about that. I mean just the elimination of having to use live fluoro [ph], I think is a big thing because just less exposure to Fluor’s a good thing. And if we can help people save a few minutes by doing an external trial and getting that lead placed in the right place, then it’s a winner.

And the beautiful part about the product is it’s not expensive. It’s a little piece of hardware and some software. So it’s not like this is something that is costly or is going to increase — create a burden financially or anything else. So we’re excited about it. We think it makes sense. We’re going to keep our eyes open. Anything that we can do that could enhance the S&M portfolio that we’re certainly keen on doing it. But at the moment, I think we’ve got 2 big projects that are forthcoming in 2024, and that’s keeping us busy internally.

Operator: [Operator Instructions] Your next question comes from the line of David [ph] from Baird.

Unidentified Analyst: Great. Thanks and congrats on the strong quarter. Ray, I appreciate the comments that you provided just around this 15% kind of market growth outlook. You touched on some of the kind of account share basis growth that’s been going on in the quarter and thus far, so far. We do get a lot of questions just around the 12 maybe 18-month kind of growth implications for S&M. And I mean I look at consensus today and our model, I think, 2024 so it maybe 20-plus percent or so. And that assumes probably some of those share gains and some of those market growth outlooks that you’ve talked about. And I’m really just wondering here if you could provide any color, at least, maybe more around specifically that level of visibility that you do have that again gives you just this confidence in a longer-term rising adoption trends for S&M as a whole?

Raymond Cohen: Sure. I think folks know that personally, as CEO of the company, I’m probably a little bit more involved than most CEOs are in terms of customer-facing activities and talking with our customers. I enjoy it. B, it’s helpful to have these kinds of conversations where I’m not relying on information that got filtered through 5 different layers. So I can tell you that every single doctor that I’ve spoken to, and I’ve probably spoken to at least 100 of them personally this year, every one of them says they’re not doing anywhere near the volume in S&M that they could be doing. They all will admit it now. that, yes, we’ve been doing a lousy job and only a very small percentage. I mean we’re talking less than 5% of the patients who are in their practice have actually gotten advanced therapies and so forth.

So we see what — how this is happening with Volcan. This is very interesting. Look at this phenomenon, right? Nobody used bulking. Bulking is trash [ph] — it was all about slings, right? Well, look what’s happened. I mean, just in this last quarter alone, 20,000 people got bulk, 20,000 people got Bulkamid. For a product that [indiscernible] was using, okay? So that speaks to the power of what happens when people get behind a new therapy and realize these great results, we’re overcoming a legacy that existed for over 2 decades where sacral neuromodulation was perceived as a therapy of last resort because it was an MRI compatible. It didn’t last long, and it was fussy, okay? So it’s going to take some time. And we’re 3.5 years into the game with a global pandemic in the middle of it towards changing the way people view this technology.

So I can tell you every data point we look at, whether it’s same-store sales, whether it’s response to DTC, whether it’s response to mailers that go from the office or whether it’s attendance at the events that we put on. The interest is high. Their patients are plentiful. All we need to do is have people open their mouth and say, “Hey, we have some technology that’s going to last a long time that could solve this problem once and forever for you. It’s working with stress urinary incontinence. Nobody wants to Sling [ph]. But they want relief and they’re signing up for Bulkamid [ph], right. Same thing is starting now to happen. There are little shoots that are springing up all across the United States with respect to this. So we can’t be bullish.

I don’t know how to explain it or what words I can use to explain how enthusiastic we are and how bullish we are about the future for this technology.

Operator: [Operator Instructions] Our next question will come from the line of Brett Fishman [ph] from KeyBanc.

Unidentified Analyst: I thought I’d throw one in on Bulkamid. I think you mentioned on the last conference call that you were planning to start to look at placing some more focus on calling on a few IM practices as a potential channel for bulk procedures. Just curious if you could touch on if you think the team has started to make some progress on that initiative in 2Q? And then overall, how do you look at the process for eventually bringing more of these doctors on board as potential customers given the scope of that opportunity?

Raymond Cohen: Yes, thanks. It’s a really good question. I appreciate that question. So a couple of comments. So I’ve talked about 2 initiatives, 2 kind of new marketing initiatives, if you may. One is a focus on BOTOX injectors, people that dropped out of the sacral neuromodulation game or never got behind sacral neuromodulation [ph] for the reasons I’ve already described. And so that is our number 1 kind of focus in terms of a new marketing approach. We now have just started literally in Q3 now marketing to physicians that do a lot of BOTOX to try to get them to listen — take a meeting with us and listen to why they should consider doing less BOTOX and more sacral neuromodulation. So as we said in the past, I mean, we think about in 2022, our data suggests that nearly around 150,000 patients got BOTOX.

So — and when you combine the 2 companies in the space for S&M, it was only 52,000 implants. So we see BOTOX as the big competitor, quite frankly, for sacral neuromodulation. Now that wasn’t your question. But going to Bulkamid, right now, we’re only selling to urologists and urogynecologists and more urogynecologists are doing more Bulkamid than the urologists because we have a lot of urologists that are focused on male urology, right? So they’re into all the other stuff, okay? So GYNs are a huge potential opportunity for us because they’re the primary care physician for most women. And it makes no sense that these people — these women are walking in the door for their standard care, and they’re not being offered a solution for incontinence.

We know that they’re all walking in that door first. Before they ever show up at a urogynecologists office, they’re a GYN’s office, right? So — but we haven’t gotten around yet to a marketing initiative geared specifically towards that patient population because we’ve had other kind of bigger fish to fry, so to speak, and the Bulkamid business is going so well but we are going to do it. And I think maybe it’s best I say that we’ll get something going this year, but really, it’s a 2024 initiative. I think that’s the best way for us to frame it. But you can see a lot of opportunity out there for revenue growth on the Bulk of ed side as well.

Unidentified Analyst: Thank you.

Operator: And I’m not showing any further questions in the queue. I’d like to turn the call back over to Raymond Cohen for any closing remarks.

Raymond Cohen: All right. Well, thank you. Thank you for everybody’s questions. A really good questions today. We appreciate the questions. It always gives us a chance to give a little more color on these calls. So I just want to say that, look, we’re very thankful for the trust that our physician customers and patients have put in to us. We really appreciate the support from shareholders who have stuck with Axonics through thick and thin, so to speak. And I want to thank all my colleagues here in Irvine, who are — got their heads down every day trying to make things happen and building our products with care and quality. And then obviously, for our sales team in the field, not only in the United States but also internationally and down in Australia for their efforts and dedication to helping us fulfill our mission of improving the lives of more adults with incontinence.

So, I thank everybody for joining the call today and your continued interest in Axonics, and we look forward to speaking with you again in the near future.

End of Q&A:

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