Q2 2022 Axonics Inc Earnings Call

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Good day and thank you for standing by welcome to the analytics Q2, 2022 results conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

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<unk>. Please go ahead.

Thank you.

Good afternoon, and thank you for joining <unk> second quarter 2022 results and update 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.

Form 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.

<unk> filings with the Securities Exchange Commission, all of which are available online at Www Dot SEC Dot Gov listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date August <unk> 2022, except as required by law Exxon ex undertakes no.

Vacation 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.

Excellent. Thanks Neal.

I'd like to welcome everyone joining this afternoon's call.

We're very proud of our second quarter 2022 financial results.

<unk> generated total revenue of $69 million in the second quarter of 2022, which represents growth of 50% year over year. This record revenue result reflects growing demand for our best in class.

Content solutions.

More specifically <unk>.

Oh, no modulation revenue was $55 $8 million, an increase of 39% year over year. This record level of S. N. M revenue is primarily attributable to the broad U S. Commercial launch of our recharge free system dubbed the Axon X F 15, which by the way.

It has exceeded our own high expectations.

Now that the pandemic is receding, we are seeing signs that procedural volume for sacral Neuromodulation is expanding in addition, we are continuing to gain share from the incumbent as we continued to make progress on our path to second on modulation market leadership.

Turning to bulk them at revenue in the second quarter was $13 2 million, including $10 2 million that was generated in the United States results were driven by solid reorder rates from existing accounts and the onboarding of new accounts.

We now expect approximately 50000 women will have their stress urinary incontinence symptoms treated with bocom at during calendar year 2022, and we're just scratching the surface of what is possible in the large and highly underserved and underpenetrated female stress urinary incontinence market.

Based on this quarter's strong.

Results and positive business momentum, we are raising our fiscal year 2022, total company revenue guidance to $253 million from prior revenue guidance of $238 million, which represents growth of 40% compared to 2021.

I'll provide some additional color and business updates prior to the Q&A section session. So for now I'm going to turn the call over to Dan for his detailed review of second quarter financial results Dan.

As Ray noted axon X generated net revenue of $69 million in the second quarter of 2022. This represents an increase of 50% compared to the prior year period.

Sacral Neuromodulation net revenue was $55 8 million, 98% of which was generated in the United States bulk.

<unk> net revenue was $13 $2 million of which $10 2 million or 77% was generated in the United States.

Gross profit for the second quarter of 2022 was $52 million.

Representing a gross margin of 72, 8% compared to 62, 6% in the prior year period.

During the quarter gross margin benefited from higher sales volume, partially offset by decreased efficiencies and overhead absorption and manufacturing yield.

<unk> sales on a product mix weighted toward the recharge free neuro stimulator called F. 15 also contributed to a favorable gross margin compared to the prior year period.

We expect gross margin to average 69% in the second half of the year and at scale. We continue to expect gross margin to be in the mid 70 percents.

Regarding our supply chain similar to other medical technology companies, we have experienced challenges in sourcing certain components for our sacral neuromodulation system to.

To date, we've been able to manage through this by sourcing parts from new vendors and paying higher prices when necessary.

Just as we solve a particular supply chain issue new ones crap up. So this issue remains something we are monitoring closely and working to resolve on a daily basis.

Total operating expenses for the second quarter of 2022 were $71 $6 million.

Included in operating expenses are $12 $2 million of noncash cost for the change in fair value of contingent consideration related to the acquisition of bulk Ahmed.

Excluding noncash acquisition related costs operating expenses were $59 $4 million compared to $44 $7 million in the prior year period.

Net loss for the second quarter was $21 $4 million compared to a net loss of $25 $1 million in the prior year period.

As of June 32022, cash cash equivalents and short term investments were $213 million, which is unchanged from March 31 2022.

Turning to fiscal year 2022 guidance. Our updated outlook is as follows total company revenue of $253 million up $15 million from higher guidance.

This represents an overall revenue increase of 40% compared to fiscal year 2021.

We are now expecting S. N M revenue of $205 million, an increase of 30% compared to fiscal year 2021, and bulk of med revenue of $48 million, an increase of 111% compared to fiscal year 2021.

I will now turn the call back over to Ray for additional remarks.

Thank you Dan.

Yes.

I would now like to provide a few updates on our commercial and product development initiatives.

In April we commenced the broad U S commercial launch of the Exxon X F 15, our newly developed a recharge free sacral Neuromodulation system <unk>.

Physician response to the introduction of the F 15 has been overwhelmingly positive.

<unk> is now enjoying the benefits of having a complete sacral neuromodulation portfolio and as a result, we are now capturing a higher share of wallet in existing accounts and selling our <unk> products into what were previously competitive accounts.

These accounts are more receptive to doing business with <unk> now that we have a non rechargeable option to offer them.

During the second quarter, the Axon X F 15 represented approximately two thirds of our sacral neuromodulation sales mix.

As we have said previously we are agnostic as to which Exxon ex Neurostimulator is implanted and are pleased to offer physicians and patients the choice of too safe highly efficacious and significantly long lived second modulation devices.

As a reminder, when we entered the U S market in late 2019, the only S. N M product available from the incumbent lasted only three to five years and required ex planting if the patient needs in MRI.

Today, we have two small devices that are full body MRI compatible for both one five and three <unk> scanners and expected to provide patient symptom relief for approximately 15% to 20 years and in some cases even longer.

In April we also launched our direct to consumer television advertising campaign.

The find real relief campaign is directed towards women with any form of urinary incontinence.

<unk> aims to reduce the stigma associated with these conditions.

Raise awareness of the axon X brand and therapies and with our access with our assistance help women consult a bladder specialist the TV advertisement are scheduled to run through the end of this year.

Find real relief campaign also includes targeted advertising on Youtube Facebook digital radio and various websites.

As a reminder, the.

At advertisement encourage viewers to visit find real relief dot com, our new patient facing landing page. This website provides information about <unk> in continent solutions and directs interested individuals to complete a short symptom quiz in the second quarter, we had over 400000 unique.

Individuals' visit our patient landing page to learn more about Exxon ex therapy.

Qualified individuals who filled out the survey are then contacted by a team of nurses in an effort to connect the person to our urology specialist in their community.

In addition to the thousands of patients filling out the surveys and getting referred many of our customers tell us that patients are coming into their practice asking about Exxon ex therapy after seeing our commercials on TV ads on Facebook.

Even though we are in the early stages of our DTC efforts, we are already able to measure reductions in cost per inquiry cost per qualified lead and patient procedures that can be traced back to our DTC efforts.

As a reminder, we acquired bulk of matter, where the bulk of it hydrogel for female S. UI on February 25 2021.

Just 16 months since we began marketing bolcom Ed to physicians in the United States <unk> has achieved market leadership in bulking for stress urinary incontinence in the last three months alone over 10000 women in the United States and another approximately 3000 women internationally have had their <unk> symptoms resolved.

In the U S. We onboard new customers everyday. However, it is the same store sales that are driving the revenue result.

As mentioned earlier, we now expect approximately 50000 women will be treated with Bocom Ed during calendar year 2022.

This level of sales as to full year sooner than what we had previously anticipated.

As expected bulk of med has increased our stature with the urology community in the U S. Given that <unk> is the only player that offers treatments for women with any form of incontinence Bottomline bulk <unk> is fast becoming first line therapy for women with S. UI and an extremely attractive alternative to a surgical slip.

<unk> operation.

Turning to product development initiatives in late May we submitted a PMA supplement to the FDA for our fourth generation rechargeable Neurostimulator. Our current rechargeable system requires recharging only once and once a month for one hour the fourth generation device, which is the same small <unk>.

<unk> form factor will need to be recharged just once every six months for one hour.

We continue to expect this device to be approved before year end 2022 and to begin shipping to customers in the first part of 2023.

Finally on the reimbursement front CMS recently published proposed outpatient facility payment rates for 2023.

The relevant segment modulation codes proposed an increase of 5% to 7% while the relevant bulk amid code has proposed an increase of approximately 4%.

So in closing.

I'd like to say that we remain grateful for the trust of physicians patients and shareholders that they have placed an exon X. We would also like to thank our commercial field team and our colleagues in Irvine for their diligent efforts and dedication to fulfilling our mission of improving the lives of adults suffering from incontinence with hard work and a keen focus.

On quality products, great clinical outcomes and strong support <unk> is making significant progress on its path to SM market leadership.

So at this time, we're happy to take questions I would like to turn it to the operator.

Thank you.

As a reminder to ask a question you will need to press star one on one on your phone.

These standby as we compile the Q&A roster.

One moment.

Okay.

Our first question will come from Travis Steed of Bank of America Securities. Your line is open.

Hey, good afternoon, and congrats on a good quarter.

I guess I would start with B F 15 mixed this quarter two thirds of the <unk> business I don't know if it was a onetime uplift from the launch or how youre thinking about that mix moving forward. It seems like there's a big preference for the F 15 over the recharge device I Wonder if you can see the market moving away from recharge and also if you could give a little color on the accounts this quarter and what portion of that was.

Breaking into new accounts versus F 15, replacing some of your existing recharge business.

Sure and thanks, Travis I appreciate the comments and the question.

So.

There was a multi part question. So I'm looking at my colleagues that will help me.

Sort this out but.

Let the F 15.

Taken off like a rocket ship there is no question about that.

Think that the the reason is really primarily attributable to the fact that for over 20 years physicians in the United States have only worked with non rechargeable system.

Think the attractiveness of the F 15 product, where with a good implant physicians can get over 20 years in a patient's body I think is something that no. One has anticipated so given that it's a recharge free system the patient remote does not need to be recharged and doesn't.

Require replacement batteries I think that the market has found.

To be very attractive so I think there obviously was.

Some enthusiasm about people getting their hands on the new product and trying that out.

It's 20% smaller.

<unk>.

It's.

It's a good form factor and so on so forth. So I would say that I would expect that.

The mix if you may and I think that was one of your questions I think the mix will kind of swing back to probably 50 50 over time.

I don't think it's that unusual that in the quarter that we introduced the product that that would have swung in the way that it did.

So I think Thats, one part of the question or two parts of the question. So.

In terms of.

Account acquisition.

There are two things I mentioned in my remarks, Travis one was that we're getting a higher share of wallet in the existing accounts. So I've said in the past I've said this product is expected to close the hole in the bottom of the bucket, where we were bleeding out even in loyal existing accounts.

We're happy to do business with <unk>, we were still bleeding out some some revenue out the back door based on not having a non rechargeable option that has stopped.

And.

We have of course as represented by the increase the significant increase in the revenue from Q1 to Q2 and year over year. It's clear that we have a lot of new accounts have come our way or I should say competitive accounts.

That may not have been working with us before or if they were they were doing some rechargeable and we werent getting the lion's share of the wallet in those accounts so.

I mean as you can see from the results I mean things are going quite well for the company and the fact that we we have the complete line now.

And I would dare say you no longer live products higher quality products easier to use products that its really been turning a lot of heads from the physicians that might've been reluctant in the past to come our way Bolcom Ed was the first foray, where we got a lot of people are wanting to.

Behind Bolcom, Ed that gave us a chance to be in those accounts and then next thing you know we come out with the recharge free system, which has really surprised people in terms of its characteristics and the good news is we were already in the accounts, we were there with Exxon ex personnel. So.

What have we had hoped in terms of the lift in stature of the lift and a good listening from customers with Vulcan Med has paid off and obviously, it's now a one two punch between bulk <unk> and F 15.

That's helpful color and just a quick follow up on the guidance.

Looks like you are assessing them guidance assumes pretty much flat Q3, Q4 revenue versus what you did in Q2, just conservatism at this point, but would love to hear your comments on on the guidance. There and then if there was any stocking this quarter.

So with respect to stocking this is something we've talked about since we first started.

Not in that in that business. So to speak right. We only sell products that are earmarked to be implanted in patients.

So you know there may be a par level that.

Accounts that are doing a reasonable number of implants, they might keep one or two on the shelf, but other than that it's just not something that we have done we don't incentivize our salespeople. So what you see is what you get with axon X when it comes to sales revenue.

In terms of going forward.

Look I think that we're trying to be conservative in particular about this current quarter.

Not to suggest that July sales were a problem July sales were very good but.

There's a lot of vacations going on right now and I think anybody.

Recognizes that this is an issue in Q3 is always lighter in the medical device.

And this year, I think everybody and their brother and their cousin.

Going on holiday somewhere.

And I think physicians and patients obviously are in that in that boat. So we were comfortable with consensus which is a little over $51 million for SM in.

In Q3, and we have obviously a rate.

Increasing guidance.

For Bocom, Ed by a couple million dollars. So we think 11 eight is a reasonable number that we could achieve theres going to be some drop off clearly in Q3 as compared to Q2 and then we think we will go strong into Q4. So that's kind of how we see the rest of the year playing out and I appreciate that question Travis.

Hopefully that will help with the rest of the questions that we're going to get in a moment.

Alright, thanks, very very helpful.

We will follow up.

Thank you.

One moment for our next question.

Oh.

Okay.

And our next question will come from Adam Nadir of Piper Sandler Your line is open.

Hi, Ray Hi, Dan Congrats on a great quarter and thanks for taking the questions here.

Maybe just to start would love to ask for a little bit more color just on what youre seeing from a.

Procedure environment standpoint, and maybe just to kind of run through some of the puts and takes.

On the headwind side anything from.

Staffing standpoint that was noticeable or procedure cancellations from COVID-19.

Did you have any catch up on the tailwind side of things, obviously F 15.

Had a nice impact this quarter, but maybe just walk through some of those puts and takes and then to the extent you're able to kind of provide.

Some color on monthly progression in Q2 that would be much appreciated. Thanks.

Yes.

So.

The ladder.

Last question was about progression during the quarter April May June and.

Their results were pointing towards.

The notion of Covid being a problem deferrable procedures.

Staffing shortages things from that standpoint.

Adam.

I mean, all I can tell you is we just didnt werent impacted by those but those factors we just werent.

You know.

Covid is still real and I think we do see there is a little bit more infection, that's going around in real time, then there has been let's say in the previous three months, what I had said and have said many times is that if you give exxon X a clean quarter, where we're not.

<unk> directly by Covid and defend deferment of procedures and cancellations and all of that we will show you. What we can do and I think this is the first quarter really since early days of 2020, where we've had a pretty clean quarter. So from our perspective, we really just didn't see.

Any kind of procedural slowdown or.

Issues with staffing that got in the way of us being able to get our business done.

I just want to remind people that we have 100% outpatient pre.

<unk> here I mean this is a day case patients are in the institution for a few hours, whether it's an ASC or an outpatient section of the hospital. So when it comes to staffing shortages I could see where companies that have procedures that require multiple days in CCU ICU things of that nature, that's not the case for us.

Yes.

Did we see a catch up of implants well.

Not really I mean, we've been consistent all along that first of all we don't track cancellations per se.

Just it's just not it's not the juice isn't worth the squeeze for us in that in that regard so.

I understand the question.

Understand the reason for the question, but Q2 for Exxon X was.

A beautiful quarter end.

Things just kind of broke our way that entire quarter now in Q3 sure we will see a little bit of seasonality in this quarter and we'll just keep our fingers crossed that the COVID-19 headwinds.

Ste.

How should we say minimal at this point.

That's great color appreciate that and then for the follow up maybe just to ask about bulk on that.

Can you level set us on where you are in terms of number of accounts, where can that figure go in the quarter I'm sorry in the future.

If the growth being driven by same store sales or is it new physician adds and then maybe longer term do you think this is a technology that can potentially go beyond urology and euro gynecologist.

Call point and potentially into B gynecologists community. Thanks, so much for taking the questions and congrats again.

Yes, Thanks, Ed I appreciate your comments.

Look I think that I think that every G y N in America should be doing bulk of it.

It has not been a call point focus of our call point for us, but it will be one in the future.

There is no question in bulk <unk> is fast becoming first line therapy for patients with Sci because women would much rather choose to get.

An injection.

And be done in 15 minutes and dry and get off the table dry and walk out the door and go about their normal activities right. There is no downtime there is no recovery.

The product works really well.

It says it is noninvasive as you could imagine so this product has got legs and.

I think that.

We could be accused of sandbagging, but the facts are that we never expected it to be as big as it is and to be embraced.

To the level that its currently going.

I'm going to avoid your question about the number of accounts, because we would prefer not to give that information out I would tell you its a substantial number.

But it is same store sales as I mentioned in my remarks that are driving the revenue. So this is not about just adding people and then doing a couple of procedures and then on to the next and the next that's not the case. This is people realizing how well. This works and then starting to incorporate this is a big part of their practice.

Where can this go.

I.

I've made some comments at a conference or two that I thought we've got $100 million product line on our hands.

I honestly believe that and now that the data and the numbers are supporting that so with the.

<unk> have a little seasonality, which we're going to probably expect to have right now in real time.

Think that this business should continue to grow in Bocom and should continue to grow for us very nicely I mean, whether we can keep up 111% year over year is another story altogether, but.

It's it's really going great and the feedback from the marketplace has been spectacular and the magnitude of the number of women that we are treating it over 13000 women treated with this product worldwide vast majority in the United States.

Incredible.

It's just incredible to see and is very rewarding for us as you might imagine I mean, we're just thrilled to death that we are able to help so many people who.

Who are suffering with this very annoying problem and to get those women dry so.

Now the last part of your question was.

Did he asked other clinical indications or just other markets. Okay. Cool. So we'll leave it at that Adam and I appreciate your questions and your comments.

Thanks, so much ray.

Okay.

Thank you one.

One moment for our next question.

Our next question will come from Cecilia furlong of Morgan Stanley . Your line is open.

Good afternoon, and thank you for taking the questions and congrats on a great quarter.

I wanted to start just with your gross margin outlook for the back half of the year.

Really first is what you signed two Q and if you could just walk through how much of that is stemming from conservatism or just supply chain potential headwinds that you are thinking about.

Offsetting the positive impact you could see from F 15, and Vulcan that.

That's primarily can say hi, Cecilia that's primarily conservatism I mean, our gross margins are tracking according to plan. We've always said at scale, we expect to be in the mid seven days things are going quite well.

We're launching.

Launched a new product and we are still ramping up manufacturing for that we brought a number of process steps in house, which contribute to higher margin, but with that and I made the comment partially offset by decreased efficiencies in absorption in yield that's where that comment comes from so we just don't want to oversell it.

And it's really not so much about supply chain risk because it is just ramping up the manufacturing of this product and also ramping up the manufacturing and getting prepared for the eventual market launch of the next generation rechargeable system.

Which will be the one with <unk>.

Recharge interval once every six months one hour once every six months. So we're just being conservative we don't want to get over our skis and promise.

Low seventy's this year and then disappoint. So we raised it up slightly from where we were before and that's why we're saying 69% for the back half of this year.

Okay understood and then if I could follow up as well just how youre thinking about opex for the back half of this year.

Really incorporated in that where you are right now relative to your DTC expectations for the year and how we should think about the cadence <unk>, Iran. DTC does from a expense standpoint, but then how youre thinking about it.

From an adoption.

Right.

I'll translate into increased volumes and thank you for taking my questions.

No.

Go ahead, yeah, sure so I'll start and I'll pass it to Dan. So look we're full blown into the DTC effort. So the expenses that we incurred in Q2 consistent with what we would see in Q3 or Q4, so we've accounted for that.

The DTC effort has gone quite well I mean, so many people are responding in the ads are resonating.

However, what we have learned is that about 60% of the people who are responding are naive patients meaning these are patients that haven't even tried a drug yet.

Now some of them could could be have <unk> and that are responding as well right, but the patients who have urinary urge incontinence. We are finding that their early in the care pathway now the 40% that are later in the care pathway that have tried to draw or may have had botox in the past.

Or might've, even had a interesting years ago, that's dead in their body or something like that.

Those are the patients that we're going to see faster conversion into procedures.

I would say that.

We're still looking at four to six months is like the timeline to gestation timeline, if you may for somebody to.

CNN AD go to the website register themselves.

Before we could start to see some procedures. So we have a lot of anecdotal information here and there but.

But we have the ability to track this and we are going to track it very closely.

So right now it's the stats that we can share R. R.

Only relevant to cost per inquiry and things of that nature, which obviously is much easier to track in the early days of the DTC effort, so, but it's not like some big surprise coming in terms of DTC expenses in Q3, Q4, so with that I'll pass it to Dan for the rest of the answer yes. Thanks Ryan.

We mentioned operating expenses for the quarter was $71 $6 million, but of that $12 2 million was related to a noncash accounting entry related to.

Contingent value consideration, so when you back that out.

Opex, even with stock based comp and depreciation and amortization was $59 4 million for the quarter compared to $64. Eight was the consensus estimate so were $5 4 million.

Under our favorable for the quarter and so what we're sticking with now is we don't think we want to move the consensus estimate for Q3, which is currently at $66 6 million or for Q4 of $77 million.

We're happy with how expenses are going we're being disciplined and as Ray said without foresee any surprises in the back half of the year on Opex.

Okay. Thank you for taking the questions and congrats on the quarter.

I appreciate it.

Thank you.

And one moment for our next question.

Our next question will come from Laurence Eagleson of Wells Fargo. Your line is open.

Hi, good afternoon, guys and congratulations on a really impressive quarter here.

A couple of follow ups from me on maybe if you could talk a little bit more about the supply chain challenges.

In the past when we've talked about this you've talked about having at least for F 15.

A significant amount of inventory so.

Where are you on inventory and how big a concern is or the supply chain.

Challenges that you mentioned and I had one follow up.

Sure sure.

So thank you for your comments, Larry and I just want to let you know we changed the conference call to Monday, So that you could join.

Thanks, Joe Thanks for bringing it up.

The night that when everyone else is doing it seriously.

Actually we tried to find a night, where it was with empty opened.

So in any event.

Sure.

So I couldn't resist.

It's been quite a few times.

We've bumped up against everybody else. So in any event look supply chain issues are real I mean everybody's talking about it it exists in every aspect of our lives right now.

And we're seeing it and as Dan mentioned earlier, you know, it's like you get one you solve one issue and then another one like whack a mole.

And it just it's just an issue prices are increasing pizza everybody's got a price increase.

Everything from components, the plastic to you name it you name it.

And it's just something we're all working through and I think I think the whole industry is just scrambling around trying to make all this work one day. It's a policy. The next day at some component you need to put on our board.

Having said that.

We've got a strong balance sheet right. So we've always tried to use our balance sheet to keep ourselves out of trouble. We've got product ordered from every key supplier from now until the cows can come home and for two years out even.

And we continue to be vigilant and do everything we can to stay on top of our suppliers.

We don't mind, the price increases as long as we can get the product right.

So that's what's going on now F 15, as the new products. So obviously, we haven't had time to stack up inventory the way we did on the rechargeable right. So it is a little bit hand to mouth in that regard and but our team is working.

Vigilantly to stack up products so at the moment.

<unk>.

We're on it.

We're paying close attention.

And.

There's no cause for alarm.

Having said that this is the business we have all chosen and.

We got to execute not only on the revenue side, but we have to execute on the manufacturing side.

Well and just kind of work through some of these challenges so hopefully that answers your question and with some reasonable level of color.

Yes. It does thanks, so much and just one follow up.

Love to understand how much do you think you're expanding the market versus.

Taking share Greenfield accounts, if you will versus competitive counts on competition.

What kind of response have you seen.

Thanks for taking the questions.

Yeah, Thanks, Larry so.

It's been as we've said all along it's been challenging to try to measure increases in the size of the market given the COVID-19 related issues. So.

I would like to kind of let a couple more quarters go by before we could come back and say, yes, we see that we are seeing our existing customers expanding there.

Expanding the number of procedures that they're doing in sacral Neuromodulation I mean, we track that very closely and we are seeing increases there. The question is is that.

Is that closing the hole in the bottom of the bucket or is that actual procedural volume we suspect.

We have said earlier that the market will grow by about 15% and we're going to grow faster than the market. So we are seeing that it is just going to take a couple more quarters before we can be a little more definitive about that.

I think that answered the question directly so hopefully we can take it from there so.

Please competitive response rate or do you think.

Yes, yes, yes, the competitive responses.

I always got to be careful right people listening.

It's been puny.

That's the only thing to say I mean.

Our competitor is <unk>.

Ride every possible scheme and story and everything you can imagine to try to hold us back.

But despite.

All of the noise that they created in the past.

Customers are paying attention to the quality of the products and the quality of the support and are coming our way so.

I just don't see anything I mean, the interesting ex came out.

With let's just call it an eight to 10 year longevity in the body and were doubled we're double that so.

So far so good.

I don't know what other tricks they might have up their sleeve, but we're not we're not thinking about it we're not worried about it we just got our heads down and taking care of our customers and fighting to pick up contracts and some remaining hospital systems that.

Hadn't hadn't contracted with <unk> in the past so there's still a lot more blue Sky ahead.

For us and we feel pretty bullish about our prospects going forward.

Alright, thanks, so much.

Thanks, Larry.

Thank you.

One moment please.

Next question.

And our next question will come from Mike Polak of Wolfe Research. Your line is open.

Hey, good afternoon. Thank you for taking the question I have one more on mix curious if anything is evolving on this front. So prior period say last year.

For <unk>.

<unk> replacements as a portion of your business had bounced around from 10% to 15%.

Give or take I'm curious what the chart. The launch of F. 15 have you seen that mix change.

Dramatically or is it still kind of 90 10, new patients Intersting replacements.

That's a really good question actually.

It's about the same I mean, we've had a fair amount of replacements all along.

I think that's just a consequence of being in these accounts.

And having people switched wholesale to Exxon X. So therefore, if they don't <unk> in the past they've got patients coming back who need a replacement.

Then we're getting it done so.

I think you've got it correct that it runs between 10 and 15% of implants that we're doing and in terms of what.

What is the longer term impact of the recharge free system on either the pace of replacements.

Or how the mix is going to go.

Yeah.

In quarters to come it's just a little early for us.

We've only had that product in the market for well now with July for call. It four months. So it's early but it's the book the product is working phenomenally well.

Quality of these implants are.

Better than than we would have imagined and I think part of that is because our people are very vigilant.

With these physicians in the or we want them to recognize and to understand that the quality of the implant has a direct impact on the longevity of the device and this is something that is new information to most of these implant or as you might think oh, that's obvious but it wasn't obvious in the past because.

The prior.

The incumbent as we refer to them.

Didn't really care I mean, if you did.

Not a great implant in the device only lasts for three or four years, where they had no competition. They are happy to make another sale.

We're asking our physicians to take a few extra moments to be careful about the placement of the lead because it has a direct impact on the longevity of the non rechargeable device or the recharge free device. So I think that.

<unk>.

If you may it's the training, it's the attention to detail.

That is motivating these physicians and they are amazed I mean, when they walk out of the yard and done a nice job in an implant and we can share with them that we're expecting this device to last 22 years in the body you can imagine theres not a lot of debate about whether <unk> is getting that next implant.

Good color if I may one follow up on the DTC effort and I may have misheard. So please just tell me if that's the case, but ray in your prepared remarks.

You said something about the TV ads are scheduled to run through the end of this year, which caught my ear and then in the context of your response to one of the prior questions.

60% of folks showing up at Fine Railroad released dot com are treatment naive and need to start with drugs before.

They are candidates for you and so I am putting this together and maybe not hearing a commitment.

Holds bar to this effort.

'twenty three and beyond so I guess what.

Sitting here, knowing youre going to have a bunch more information in six months like what are the odds that this effort continues at the current pace in 'twenty three what are the chances that it kind of takes a new form any color.

On this investment in the out years would be would be helpful. Thank you so much.

Yes. Thanks, it's a good question, but I think it's once again, it's premature.

For us to make a decision around how what kind of spend we might have in 2023 on on DTC I mean, it's clear as we do in every aspect of our business, we're going to optimize this process right, where we're learning we've already.

Learned some things that have increased response rates and that are helping us move these patients faster than our patients yet move these people faster through the process to land them with.

With accounts so.

Im not trying to be evasive I just don't have the answer to your question, yet and we're saying we're committed to running it through this year and then we will evaluate and then we'll look to optimize and then.

We'll then talk about what what our level of expense expenditures might be.

But.

It doesn't seem to let me just say this there is no fallout falloff in terms of response rates right. As we continue to run. These ads. The response rates are actually increasing so I think this is that repetition.

Anytime you do this kind of advertising.

It does require a fair amount of repetition for people to actually take action. So.

That's where we are.

So once again I am sorry to not give you a hard answer but.

You guys will appreciate that we're looking at this closely and we'll make our best judgments going forward.

Clarify right. Thank you so much.

Thank you.

Thank you.

The next question.

And our next question comes from David Ross Scott.

Securities Your line is open.

Hey, Ray and Dan Thanks for taking the questions and congrats on the quarter.

First one from US just on profitability I know in the past you've kind of talked about this $350 million annualized run rate is where we can start to think about breakeven for the company. So I guess.

After the quarter, what were some pretty decent lumpier shown so far I guess, one is just still the goal for the company in <unk>. So I mean looking at some of the updated guidance for this year consensus growth estimates into next year. It would seem to suggest that breakeven could be possible as early as even in the middle of next year. So I guess just based on what Youre seeing in the underlying business as expected.

Spend with DTC over the next 12 18 months does it seem like a reasonable timeframe, where we can start to think about.

The breakeven for the business.

Yes. Thanks.

David I appreciate the comments in your question.

Good question.

And I think for the first time since we started this.

Commercial effort as a company, we're seeing leverage we're actually seeing leverage in the business based on this level of revenue.

And we anticipate that will continue because it's not as if and Dan has said this many times, it's not as if we need to add another 100 salespeople in order to grow our business again in 2023 over 'twenty two we feel like we're fully staffed at this point, yes, well, we add some incremental heads here and there of course, we will.

In sales and more heads of course in manufacturing to keep up with demand.

We're starting to see leverage already and we're not walking back off previous comments about this.

$350 million or so level of revenue so we're sticking with that.

With margins in the mid to low to mid seventies.

With some more revenue on the topline and with discipline in terms of expenses I think we're going to get there so that's pretty exciting.

We sit here today I mean, we only started this game in November of 2019, and it's only been a few years and we've had a pandemic in the meantime, so.

Honestly things could not be going better for Exxon X and we're just thrilled with the pace that the business is growing in and really looking forward to closing out the year strong in <unk>.

An exciting 2023.

Okay. That's helpful. I guess on bulk and that I know in the past you've always talked about how the share gains here.

Coming from existing bulking procedures, as well as potentially taking share from from bankruptcies as well. So my guess is that you probably haven't had a lot of success with taking share from the soy area bulking agents, thus far and I'm. Just wondering if you could comment at all about where are you seeing the biggest growth. I mean are you seeing growth from sling procedures ready or is a lot of us really just coming from.

From bulk of nutritional bulking agents. Thank you, yes, so David Thats, a really good question actually.

So here's the reality.

Bulking has been in the past kind of a therapy of last resort. It was used as salvage almost.

I don't think any of the physicians, we are particularly keen on any of the bulking agents that have come before us.

So.

It was never seen never used for the most I mean, everything I say of course, you have to <unk>.

Qualify a bit but it just bulking wasn't done as a first line therapy.

And so this is a completely new phenomenon and here's the reality if you just think about this.

A woman walks in the practice complaining that when they cough or sneeze or pick up an object or exercise or any one of the normal daily activities, they leak urine and it's become bothersome to them.

And so theyre seeking treatment here's your options I can do bolcom Ed.

Right here right now 15 minutes you are off the table dry no recovery time.

Sure. We can sign you up for a surgical procedure called sling I'm a great surgeon.

I know there was some adverse events associated with that but in my hands, we're going to do a good job, but you do need to be aware, we have to schedule, it and theres going to be recovery time associated with that and.

No.

But it's effective and it works really well now this bulking spoke of med stuff you could get seven years with this product maybe even if it only last five you just come back and we'll give you a couple of more injections and you're good to go which would you prefer ma'am.

And the answer is in the back of the book. So the these women are selecting bulk <unk> as treatment for STI.

And every single patient that gets bulk <unk>, that's one less swing operation Thats being done and in America and around the world. So hopefully that is a very definitive straightforward answer to your question.

Yes, thanks for taking the questions and congrats again on the quarter.

Alright, Thanks, David appreciate it.

Thank you.

And one moment for our next question.

Our next question will come from Mike Mattson of Needham and company. Your line is open.

Yes. Thanks.

I wanted to follow up on Larry's question about Medtronic response tier success and.

Just to ask about pricing, specifically I mean, they seem to be kind of against the ropes here. So.

Would they what would happen if they did try to play the pricing card really lower prices aggressively do you think that would even get any traction in the marketplace.

Would that benefit the doctors.

Wallets at all or is that all really just going to the facilities.

Well.

So Mike.

Prices, it's a fairly complicated process. So a couple of comments I want to make one.

We have not had any price decreases in the last a year over year, so year over year actually we've got.

Slightly higher prices that we're getting for our product, but it's in the margin.

Let me just make it make a comment first of all.

Medtronic has the lion's share of the business right now okay.

So why would they why would they dropped their price I mean, it's completely a logical right.

Second thing.

The market is complex in the following way 70%.

Of all of the purchase orders, we get come from institutions either hospitals.

Hospital systems.

Or ambulatory surgical centers the physicians have no idea what the price of the actual implant is they don't buy it.

You know what I mean, so it's added it has nothing to do really with physicians physicians, who are not employed.

By a hospital system. They may buy some external trials they buy external trials for their office, Okay fine private docks, but thats once again only 30% of the customers that are out there and the only thing they are buying from US is external trial when it comes to the implant.

All of our purchase orders come from Asc's or hospitals right. So I mean, that's that's the kind of nature of the business. So we have more employed physicians than ever before in general in the marketplace and so on so forth. So.

I think that if you just take a step back.

One good thing.

Positive thing I can say about Medtronic is there disciplined when it comes to price because theyre EPS driven company. So why.

Why would they do something that is different than their character right.

And the other piece is Exxon ex believe it or not is actually expanding.

The market and expanding Medtronic business at the same time, they have more market share than we do right and then and we are out there, creating awareness and doing all this kind of stuff. So I think that this is.

Whats that expression the rising tide floating all boats here and I think this is about Tam expansion and we've been a little bit conservative about trying to make a big deal out of a point to it just because the data is squishy right now given the pandemic so.

I think everyone should be thinking about this is a market expansion story. This is a tam that has unbelievable. There's 80 million people out there that are suffering with these problems. We've only scratched the surface. So I think there is enormous amount of blue sky and a big opportunity and as we have said all along.

This what makes sonics is.

Entry into the sacral Neuromodulation market has been the best thing honestly that has ever happened to Medtronic because now they've got.

Better products than they had even three years ago.

On and on and the market is expanding so.

I, just we're just not anticipating.

Any any price pressure going forward I mean and keep it. This last piece of mind op second modulation products for a full system sell for about $10000 less than spinal cord stimulators. So these are not that expensive as compared to other products that are sold are similar.

<unk> in the market.

Okay. Thanks.

And then I think Dan called out some margin benefit from the mix of <unk> versus the rechargeable.

I know youre, probably not going to quantify the difference in the gross margins, but can you maybe just talk about that a little bit about how much more profitable.

<unk> surcharge will version.

Sure. So the margin benefit to axon acts on the F 15 product comes in two ways, which is one.

<unk> system, but theres not a charging system. So you don't have to ship the charging station.

And the belt that holds it in place the other thing is with the mandate in the pocket.

And with the with the manufacturing process, we brought a number of steps in house into our Irvine manufacturing facility. So we have better control over cost and throughput, which is also providing incremental margin.

Okay, great. Thanks.

Thanks, Mike.

Thank you.

That concludes the Q&A portion of the conference I would now like to turn the conference back to Raymond Cohen for closing remarks.

Thank you operator look we appreciate everybody listening in on the call today appreciate the questions and we look forward to doing this again.

In the next couple of months. So you all have a good day and stay safe out there.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

The conference will begin shortly to raise your hand during Q&A you can.

Dial Star one one.

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Okay.

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Okay.