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.
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