Axonics, Inc. (NASDAQ:AXNX) Q4 2022 Earnings Call Transcript

Axonics, Inc. (NASDAQ:AXNX) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Good day and thank you for standing by. Welcome to Axonics’ Fourth Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Neil Bhalodkar. Please go ahead.

Neil Bhalodkar: Thank you, Shannon. Good afternoon and thank you for joining Axonics’ fourth quarter 2022 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’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 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, March 1, 2023. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances, or unanticipated events that may arise. I would 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 our fourth quarter of 2022 and the financial results were nothing short of outstanding. Axonics generated record revenue of $86 million, an increase of 62% compared to the prior year period. This marked the third quarter in a row in which our revenue has grown at least 50% year-over-year. More specifically, sacral neuromodulation revenue was $70.3 million, an increase of 58% compared to the prior year period. This record level of revenue is being driven by a combination of higher utilization of our SNM systems in existing accounts and the addition of new accounts. Bulkamid revenue was $15.6 million, representing an increase of 79% compared to the prior year period.

Record results were driven by solid reorder rates from existing accounts and the onboarding of new customers. Our gross margin hit a new high watermark of 73.3% in the fourth quarter. We also generated $10 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 financial performance and outlook in further detail in his prepared remarks. I would now like to provide a few updates on sales, marketing, and product development initiatives. In 2022, the launch of our long-lived F15 recharge-free system completed our sacral neuromodulation portfolio. We captured a high share of wallet in existing accounts and activated new competitive accounts. From the time of our U.S. commercial launch in late 2019, we have continually enhanced the value proposition Axonics offers to our customers and we now have nearly 1,000 physicians in the United States implanting Axonics SNM systems.

In addition, we acquired Bulkamid, our unique hydrogel for the treatment of female stress urinary incontinence. We’re the only company that offers solutions for all forms of bladder and bowel incontinence, be it urgency – for urgency, frequency, stress, or fecal incontinence. We have grown our U.S. field team in therapy support specialist group to provide best-in-class service and support to physicians and their patients. We have invested in a multi-channel DTC campaign to reduce stigma and increased public awareness that incontinence is not normal and then the symptoms can be treated with advanced therapies. We also launched a call center to assist in connecting people who have incontinence to specialists in their local community. We have conducted numerous medical education seminars for physicians and their clinical staff on sacral neuromodulation implanting best practices and how to improve navigating patients through the care pathway.

We’ve hosted dozens of physicians at our headquarters in Irvine to meet with the senior management, tour our manufacturing facility to see firsthand the care and quality that goes into making our products, and of course, to discuss how we can ensure that more of their patients are getting the long-lasting efficacious symptom relief that they deserve. Physicians are seeing Axonics act like the market leader. We have demonstrated our commitment to this category, and it is clear that Axonics has been causing the matter of the U.S. sacral neuromodulation market expanding significantly since our entry into the U.S. market just a few years ago. More specifically, based on external definitive healthcare claims data and the limited directional information from our SNM competitor that they disclosed, we estimate that the U.S. sacral neuromodulation market compounded at an annual growth rate of 18% from 2019 to 2021 and 14% from 2019 to 2022, consistent with the mid-teens outlook we projected going all the way back to the time of our IPO.

It’s important to note that this level of growth was generated in the midst of a global pandemic and widespread staffing shortages that you have heard many physicians and management teams discuss previously. As it pertains to 2022 specifically, we understand that Analyst had pegged U.S. market growth at 6% for this year – for last year. I want to provide some important context to that figure. First, there was significant disruption and an adverse impact from Omicron, i.e., COVID-19 in the first quarter of 2022, so much so that the overall market is estimated to have contracted by 5% in that period. If we exclude the first quarter due to Omicron and just look at the last three quarters of 2022, the U.S. sacral neuromodulation market grew approximately 10% year-on-year during that period.

And perhaps most encouraging is that the market growth has accelerated each quarter of 2022, generating 8% growth in the third quarter and 18% growth in the fourth quarter. As we have said many times, the addressable market in the United States remains large and highly under-penetrated. According to IQVIA, over 18 million total prescriptions were written for OAB drugs in 2021 alone. It is worth noting that according to Definitive Healthcare, over three million Americans received an OAB diagnosis from their physician in 2021. Looking at all these factors, we remain confident that the sacral neuromodulation market will expand at a mid-teens annual growth rate for years to come. Now turning to an update on our commercial team, we now have 340 field-based personnel in the United States of which 165 of them are directly involved in selling or sales management with the balance of our personnel being clinical specialists.

We are well-staffed at this time and expect a modest increase in commercial team headcount in 2023. The Axonics Find Real Relief direct-to-consumer advertising campaign continues to progress well. As many of you know the advertisements on national television and Facebook encourage adults with incontinence symptoms to visit findrealrelief.com, our patient-facing landing page. The website provides information about Axonics incontinent solutions and direct individuals to complete a short symptom quiz or questionnaire. The campaign underscores our commitment to a population, primarily female, that for too long has gone underserved and undertreated due to lack of awareness of advanced therapies. Many of our customers continue to 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 with our physician customers as they are grateful that we are helping to ensure that adults with these conditions are being seen by a clinician and advancing along the care pathway. In the fourth quarter of 2022, we had over 420,000 unique individuals visit our website to learn more about Axonics therapies. Since launching the campaign in April of ’22, the number of unique web visitors totaled approximately 2.25 – excuse me – 1.25 million individuals. We take 2.25 as well, but 1.25 is the right number. Now, this is the important part, qualified leads as we refer to them are individuals that complete the symptom questionnaire on our website. In the fourth quarter, there were 33,000 qualified leads and since launching in April, our campaign has generated 90,000 of these such survey responders or questionnaire responders.

In fact, in January of this year, the number is accelerating and there were over 11,000 people who filled out a symptom questionnaire in January alone. Our call center continues to work diligently to connect qualified leads with a specialist physician in their local community. Now turning to International activities, we recently launched commercial operations in Australia, which we kicked off with a well-received Physician Seminar held in Sydney during the President’s Day weekend. The company’s field team has started with four sales professionals who have years of experience in sacral neuromodulation and strong relationships with implanters in Australia. Axonics estimates that Australia is currently a $15 million SNM market with approximately 1,200 SNM procedures performed annually.

Our competitor has regulatory approvals for their short-lived InterStim 2 product and InterStim Micro. Now Axonics currently has a regulatory and private – has regulatory and private reimbursement approvals for our rechargeable system in Australia, as well as for Bulkamid. Now the F15, this is the recharge-free or non-rechargeable system, is currently under regulatory review by the Australian TGA and we expect approval in the coming weeks. We also recently submitted our latest rechargeable device called the R20 for regulatory review and expect approval in the second half of 2023. Our competitor already has regulatory approvals for their products – legacy products in Australia. Okay, it’s important to note that even after receiving regulatory approval for our F15, we will have to wait for private reimbursement approval in Australia, which we expect will come by year-end.

As such, we are only forecasting $1 million to $1.5 million of revenue contribution from Australia in 2023, with a much more significant contribution coming in 2024. Now turning to product development initiatives, we received regulatory approval – U.S. regulatory approval for the Axonics R20 rechargeable simulator in January of this year and previously from Health Canada in December of 2022. Now, this device utilizes the same small 5CC form factor as our previous rechargeable product the R15, however, requires recharging just once every six to 10 months for one hour and has an expected useful life in the body of at least 20 years. Early feedback from customers that have implanted the device have been overwhelmingly positive. Now in summary, looking back on 2022, we’re proud to have exceeded the commercial and operational objectives that we set forth at the start of last year.

More importantly, we recognize the impact that Axonics is having on changing the lives of people with bladder and bowel dysfunction. In fact, in 2022 alone, our sacral neuromodulation systems and Bulkamid were used to treat over 65,000 patients worldwide, and yet we are still scratching the surface of what is possible in the large underserved undertreated markets in which we participate. Our mission-driven team remains committed to innovating, supporting our dedicated physician customers and their patients, and raising awareness of our best-in-class therapies. So with all that said, I’ll now turn the call over to Dan for his detailed review of fourth quarter financial results. Dan?

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Dan Dearen: Thanks, Ray. As Ray noted, Axonics generated net revenue of $85.9 million in the fourth quarter of 2022. This represented an increase of 62% compared to the prior year period. Sacral neuromodulation revenue was $70.3 million of which 98% was generated in the United States. Bulkamid revenue was $15.6 million of which 79% was generated in the U.S. Gross profit in the fourth quarter of ’22 was $63 million, representing a gross margin of 73.3% compared to 66.6% in the prior year period. Higher sales volume, Bulkamid sales, and a product mix weighted toward the F15 neurostimulator contributed to a favorable gross margin compared to the prior year period. Operating expenses in the fourth quarter of 2022 were $66.6 million included in operating expenses as a $2.1 million non-cash charge for the change in fair value of contingent consideration related to the Bulkamid acquisition.

Excluding acquisition-related charges, adjusted operating expenses were $64.5 million in fourth quarter 2022 and $51.6 million in the prior year period. Net income in the fourth quarter of 2022 was $700,000 and benefited from $3.8 million of interest and other income. Net loss in the prior year period was $15.2 million. In the fourth quarter of 2022, Axonics generated $10.1 million of adjusted EBITDA. We are pleased to note that this marks the third quarter in a row, Axonics has generated positive adjusted EBITDA. The attractive financial profile of the company and the inherent operating leverage in our business model is becoming more evident in our financial results. To set proper expectations in the quarters ahead, there will be periods where we will swing back and forth between positive and negative adjusted EBITDA based on the seasonality of top-line results and corresponding gross margins.

Based on current trends, we expect Axonics to be adjusted EBITDA and cash flow positive on a consistent basis at an annualized revenue level of approximately $350 million. We also generated positive free cash flow in the fourth quarter. As of December 31, cash, cash equivalents, and short-term investments were $357 million compared to $350 million as of September 30. With respect to fiscal year 2023 revenue guidance, we are reiterating the outlook that was provided in our January 11 pre-announcement, overall company revenue is anticipated to be $342 million based on sacral neuromodulation and Bulkamid revenue, each growing 25% compared to the fiscal year 2022. That concludes our prepared remarks, and I will now turn the call back 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 and one follow-up. Shannon, please begin the Q&A session.

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Q&A Session

Operator: Our first question comes from the line of Travis Steed with Bank of America. Your line is now open.

Travis Steed: Hi, everybody, thanks for taking the questions. I guess I’ll start with the market growth. I appreciate the numbers you gave. I don’t know if there is a source that you had for those numbers if you have your claim database or kind of how you came up with those numbers on the market growth. I think we had pretty similar numbers in our market model as well, but also if you could talk about kind of the path on getting to that mid-teens growth for next year, any green shoots you’re seeing in the momentum from the DTC, just some other color around what you’re seeing in the marketplace to help provide confidence in that sustained mid-teens market growth from here.

Raymond Cohen: Would you take the first part?

Neil Bhalodkar: So, Travis, this is Neil. On the question about the sources for the market growth, it’s partially definitive healthcare claims data for the claims that have been uploaded as of this date, so that’s partially the driver of 2022 and then also using the information that Medtronic discloses in their quarterly results. I’ll turn it over to Ray for further details.

Raymond Cohen: Yeah, so look, in terms of the future, I mean I think it’s pretty clear, right, this market is accelerating, it’s happening in real-time and we’ve seen it, certainly in the three quarters of 2022 and I think the DTC campaign is what is creating a lot of these green shoots as you referred to them. I mean, think about the magnitude of the number of people that are visiting our website inquiring about advanced therapies, whether it be for stress incontinence or urinary urge incontinence whatever the case might be. So I think that’s happening, I think that it’s interesting to note that our competitor despite as they are referred to competitive pressures, also saw increases in their revenue in this category in the last quarter.

So we take that as good news, and we’re thrilled to see that. We’ve said all along since the beginning that it’s about raising the tide here, and it will float everybody’s boat in this current duopoly that we’re involved in. So we’re going to continue to press hard on our DTC initiatives. We’re not going to spend that much more in ’23 than we did in ’22, just because there’s so many people inquiring that we want to give justice to the people who fill out these quizzes and get them placed with – for a consult with a qualified physician in the local area. And I think the last comment I would say is if you just take a step back and you think about what has transpired from an innovation standpoint in this market in three years, I mean in November of 2019, the only thing you could get was a device that would last two to five years in your body that was non-MRI compatible and was not easy to use, okay, and here we are now with a whole lineup of products that will last 20 years or longer in a person’s body whether they are rechargeable or not rechargeable and think about what we’ve done now from a rechargeable standpoint, where you need to get a product that is going to last decades in your body and you maybe have to recharge this thing for one hour every six months or maybe in some cases as long as 10 or even 12 months at a time.