Q3 2022 Axonics Inc Earnings Call
Good day and thank you for standing by welcome to Axon ex Q3, 2022 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need.
Press Star one one on your telephone please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today Neil Balaguer. Please go ahead.
Thank you good afternoon, and thank you for joining <unk> third 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 really.
Late to future plans events prospects or performance are forward looking statements as defined under the private Securities Litigation Reform Act of 1095, 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 <unk> filings with the Securities and 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 October 31, 2022, except as required by law Exxon ex 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 like to now turn the call over to.
Great.
Thanks, Neil I'd like to welcome everyone. Joining this call this afternoon and before I begin with my remarks I wanted to note.
Two really notable events that is.
A day on October 31st Halloween.
Exactly four years since the date of our initial public offering so it's a it's kind of a big day for us today with our four year anniversary and Moreover on November the first which will be tomorrow was the date of our first U S implant of a second a modulation.
Device in America, So October .
October 31st November 1st. These are these are data that they really resonate with us electronics, so getting onto the business at hand, we're really proud of our third quarter 2022 financial results in which axon X generated record total revenue of $74 million. This is now the <unk>.
<unk> quarter in a row.
Our total revenue has grown over or have grown by over 50% year over year and demonstrates the growing demand for <unk> best in class incontinence products.
More specifically.
Second on modulation revenue was $56 $9 million, representing an increase of 42% compared to the same period of last year. This record level of secondary modulation revenue is being driven by a combination of market expansion and continued share capture from the incumbent.
The broad U S commercial launch of our recharge free SLM system as we've dubbed the Exxon X F. 15 has been very well received by implanting physicians and continues to exceed even our own high expectations.
Now turning to Bocom AD revenue in the third quarter was $13 $5 million, including $11 million, which was generated in the United States record results were driven by solid reorder rates from existing accounts and the Onboarding of new accounts, we expect approximately 50000 women will have there.
Stress urinary incontinence symptoms treated with Bocom at worldwide during calendar year 2022, we're humbled by this result, and believe we are still scratching the surface of what is possible in this large and highly underserved and undertreated female stress urinary incontinence market.
Based on this pad this past quarter's strong results, we are raising our fiscal year 2022 total company revenue guidance to two five excuse me.
$262 million, which represent an increase of 45% compared to 2021.
Now I'm going to provide some additional business updates prior to the Q&A Q&A session. However, I'd like to turn the call over to Dan for his detailed review of third quarter financial results. So Dan take it away.
Thanks, Greg.
Noted <unk> generated net revenue of $74 million in the third quarter of 2022.
This represented an increase of 50% compared to the prior year period.
They called Neuromodulation net revenue was $56 $9 million of.
Which 98% was generated in the United States.
<unk> net revenue was $13 5 million of which 82% was generated in the U S.
Gross profit for the third quarter of 2022 was $51 3 million, representing a gross margin of 72, 8%.
Paired to 66, 5% in the prior year period.
Overall manufacturing efficiencies higher sales volume.
Ultimate sales and a product mix weighted towards the <unk> neuro stimulator contributed to a favorable gross margin compared to the prior year period.
Regarding supply chain, we continue to experience challenges in certain in sourcing certain components for our implantable system.
To date, we've been able to manage through these issues. However, it remains an area, we are monitoring and managing closely.
Operating expenses for the third quarter of 2022 were $67 6 million.
Included in operating expenses are $8 2 million.
Of noncash costs for the change in the fair value of contingent consideration related to the $35 million milestone payment.
The <unk> acquisition.
Excluding acquisition related costs.
<unk> operating expenses were $59 4 million compared to $47 $7 million in the prior year period.
Net loss for the third quarter was $16 $3 million compared to a net loss of $17 $3 million in the prior year period.
We are pleased to note that this marks the second quarter in a row that Exxon X generated positive adjusted EBITDA.
In addition to interest taxes depreciation and amortization.
We are also excluding stock based compensation and noncash acquisition related costs in our calculation of 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 topline results and corresponding gross margins.
With that said based on current trends, we expect that <unk> will be adjusted EBITDA and cash flow positive on a consistent basis at an annualized revenue level of approximately $350 million.
As of September 30, cash cash equivalents and short term investments were $350 million compared to $213 million as of June 30th.
This increase was a result of the $128 million equity offering we completed in August and positive cash generated during the quarter.
With respect to fiscal year 2022 guidance, our updated outlook is as follows.
Total company revenue of $263 million, an increase of $9 million compared to prior guidance.
This represents an overall revenue increase of 45% compared to fiscal year 2021.
We now anticipate sacral neuromodulation revenue of $212 million.
An increase of 35% compared to fiscal year, 2021, and bulk of net revenue of $50 million, an increase of 120% compared to fiscal year 2021.
I will now turn the call back over to Ray for additional remarks.
Thank you Dan.
So I would now like to provide a few updates on commercial regulatory manufacturing and product development initiatives.
As most of you know in April of this year, we commenced the broad U S. Commercial launch of the long standing or long lived I should say recharge free axon X F 15, sacral Neuromodulation system physician.
Response to the introduction of the <unk> continues to be overwhelmingly positive we are enjoying the benefits of having a complete secondary modulation portfolio and are capturing a higher share of wallet in existing accounts and selling our <unk> products into what were previously competitive accounts.
We now have 330 field based personnel on the U S. Commercial team of which 160 are directly involved in selling or sales management with the balance of personnel being clinical specialists.
We are well staffed at this time and expect only a modest increase in commercial head count.
Into 2023.
The <unk> find real relief direct to consumer advertising campaign continues to progress well.
As a reminder, the advertisement are on National television Facebook digital radio and various websites. They encourage adults with urinary incontinence symptoms to visit find real relief dot com, our patient face patient facing landing page.
Website provides information about <unk> in content and content solutions and directs individuals to complete a short symptom quiz the campaign underscores our commitment to our population primarily female that for too long has gone underserved and under treated due to a lack of awareness of advanced therapy.
PS.
Now many of our customers have told us that patients have come into their practices asking about axon ex therapy after seeing our ads on television or online.
The campaign continues to generate goodwill with our physician customers as they are grateful that we are helping ensure adults with these conditions are being seen by a clinician and advancing along the care pathway.
In the third quarter alone we had over 429000 unique individuals visit our website to learn about Exxon ex therapy and since launching the campaign in April the number of unique web visitors now totals 829000.
Qualified leads are those individuals that complete a symptom survey on the website.
And in the third quarter. There were approximately 33000 qualified leads and since launching in April our campaign has generated over 57000 qualified leads.
Now our call Center continues to work diligently to connect qualified leads with a specialist physician in the local community.
Our local community, depending on where the person is responding from.
So now turning to product development initiatives in late Q2, we submitted a PMA supplement to the FDA for our fourth generation rechargeable Neurostimulator.
You may recall that this device utilizes the same small five SEC form factor as our current rechargeable device.
The fourth generation rechargeable Neurostimulator requires recharging just once every six months for one hour and has an expected useful life in the body of at least 20 years.
Now in August we participated in what we call a 90 day substantive review meeting with the FDA. The review clock stopped for a few weeks, while we prepared our responses to standard questions from the FDA that they had on our submission.
As a result, we expect the fourth generation rechargeable neurostimulator be approved in January with a limited commercial launch to customers in Q1 2023.
Now turning to respect or with respect to manufacturing and operations. We are in the process of doubling our manufacturing footprint in Irvine, California, we are investing in personnel and capex to ensure that we can fulfill demand for our products in 2023 and beyond.
Now in closing I want to say that we remain grateful for the trust physicians patients and shareholders have placed in <unk> as always I would like to thank our team in the field and our colleagues in Irvine for their diligent efforts and dedication to fulfilling the Exxon ex mission of improving the lives of adults with incontinence.
With hard work and a keen focus on quality generating strong clinical outcomes and providing best in class support to physicians and their patients <unk> is making significant progress on its path to market leadership.
Now that concludes our prepared remarks, and I'd like to turn the call back over to Neil. Thanks Ray at this time, we are ready to move to the Q&A session. We would like to ensure that each analyst gets the opportunity to ask a question. So we request that you. Please limit yourself to one question and one follow up Amy please.
Begin the Q&A session.
Thank you as a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
And our first question comes from Adam <unk> with Piper Sandler Your line is open.
Hi, Ray Hi, Dan Hi, Neil Thanks for taking the questions here and congrats on a great quarter.
Wanted to start with the guidance update.
And by my math, the Q4 implied guidance imply something like $74 million and change that's up about 5% sequentially quarter over quarter, you had a double digit step up sequentially.
In Q4 of last year, So maybe just walk us through some of the puts and takes to kind of arrive at that figure.
Conservatism baked into the guidance raise and then just any early commentary on the business for the month of October .
Sure and thanks, Adam I appreciate the questions.
So look we've increased the guidance for the full year.
A bit more than the beat of course and.
The $74 $2 million, if you do the math turns out to be 63, and <unk> and $13 nine in.
In Bocom at now the $13 nine is unchanged from the consensus going into the quarter.
The 63 is up $1 million over what the consensus was so.
As always we tried to be a bit conservative in terms of the guidance and we'll do our best to exceed those but.
As you've seen this as a really strong year for us and we've we beat these numbers and we've increased the guidance every single quarter now during during 2023 so.
Things are looking good we've got good momentum in the business and you know.
Not much more to add from there.
Okay understood. Thanks, that's helpful and then for the follow up just wanted to ask about <unk>.
Direct to consumer and.
Maybe just remind us kind of the expectation for full year spend.
In 2022 from DTC initiatives, and then I know it's.
Not quite 2023, yet but.
Just talk about the game plan or the strategy and budget really.
For DTC spending in 2023, and just any other opex spend color you want to add at this point in time. Thanks, So much guys. Congrats yes.
Yes, Thanks Adam.
<unk>.
The DTC campaign has.
Worked better than we could have expected.
That's a fair way to put it.
I mean, these responses are quite amazing and.
We're running about 7%.
For the unique visitors, 7% of them are filling out symptom surveys.
That's the number that really matters I mean, it's great to have.
830000 people visit the website learn about Exxon X and and obviously that number is going to be well over 1 million clearly by the end of the year, but it's the people who are filling out the survey who identify themselves give us their information.
And then we can call those individuals and then get them placed with a local physician that's really the key. So this has worked extremely well.
<unk>.
Great Halo effect for the company.
And actionable for the physicians.
Obviously.
Some are better than others right in calling out to two people to get them in the case count to get them in their calendars and so forth, but nevertheless, we're going to continue we've already based on these results that we've seen since April of this year, we're going to continue with the campaign, we're going to continue into 2023 with the campaign and the numbers.
We provided was around $2 $24 million.
With respect to our DTC efforts and Thats kind of an all in cost it's not just the advertising itself, but it's the logistics and the backend work to reach out and call people and so forth. So in terms of a plug for 2023.
I would anticipate a very similar number.
For the year and I think I think that was covered your questions. Adam So thank you for that.
Thank you. Please standby for your next question.
And our next question comes from the line of Chris Pasquale with Nephron Research. Your line is open.
Thanks, and congrats on another strong quarter guys.
Dan you mentioned some challenges in the supply chain just curious whether you felt like you had any issues meeting demand in the quarter.
Are there any other macro factors that you felt were a bit of a headwind in <unk>.
Yes, good question, Chris No no no issue meeting demand just.
Because of supply chain constraints, we feel it's prudent to mention that into not just ignore it and make it look like we're somehow not aware of these issues.
But we continue to use our balance sheet to buy our way around it place larger purchase orders and.
We're working hard to build inventory and safety stock, but some of these supply chain issues are preventing us from growing as fast as we want but we bought no no issue meeting demand.
Okay. That's helpful.
And then Rainbow commit had another nice result, you talked about only scratching the surface despite being on track for $50 million in sales this year.
How are you thinking about the potential for that product now.
What do you need to do to realize that potential should we expect more dedicated sales resources or product iterations any color there would be helpful.
Sure. Thanks, Chris So look I think that.
Right now with <unk> with respect to bulk of it it's really just blocking and tackling.
We don't need to do anything fancy at this point.
I mean, the number of customers that we have now.
Just focusing on the United States, because the international business is very mature.
Pretty stable.
At a.
Relatively modest line in the countries that we sell internationally, but here in the U S is where all the action is.
So.
We've got the sales footprint that we need.
Will we add some incremental heads sure we're going to do that across the board, but it's going to be incremental.
Think that the find real relief campaign also helps with Vulcan Mad because we're advertising generically just.
The people who are looking for the most part so when people fill out the survey that's when we get a chance to really differentiate between do they have stress urinary incontinence do they have urinary urge incontinence or are they have mixed incontinence.
And then we can kind of sort those.
Those individuals out and get them to the right providers.
So I think there's enormous amount of blue Sky I'm, obviously, not I don't know.
Want to get over our skis in terms of what the numbers could be we've been pleasantly surprised up to this point.
I think that.
In terms of what our 2023 number will be will speak about that when the year closes.
And provide some specific guidance, we do anticipate obviously that the growth has got to trend down I mean this is.
<unk> right to have a 120% increase from.
From the prior year, so we'll see some reduction in terms of this.
The growth.
Ramp.
But.
Two more comments one existing customers are seeing great results and they're doing they're treating more.
Ah patients and we still have a lot of interesting or interested parties coming to the company. So we consistently are signing up new accounts every week.
But I really do think that.
We've got a lot of room to go with this particular product line.
And there is there is other physician groups that we really haven't called on yet and we think <unk> in particular are an exciting opportunity for the company.
Where there are certainly capable they see the patients, but we just havent been focused yet I think I've mentioned this before that in 2023, we're going to we're going to start to focus on also calling on <unk>. In addition to the youre going to colleges and neurologists.
Thanks.
Yes, Thank you Chris I appreciate it.
Thank you one moment for our next question.
And our next question comes from Travis Steed with Bank of America Securities. Your line is open.
Good afternoon, and thanks for taking the question.
That's the way to start out I wanted to ask about the market growth in <unk>. Just curious if you think the market is still growing at 15% now and how you think about that moving forward with BTC and Medtronic investing again.
Yes, well thanks, Travis I appreciate the question.
We really are encouraged to see that Medtronic is spending some money.
To create some awareness, maybe 20 years late but it never it never too late I guess in this category. So we're pleased about that.
I think.
We're clearly, causing the matter of seeing revenue growth.
There is no question that the market is expanding and we.
We're getting taking advantage of that but we're also creating that situation. So I think there's a lot of.
There's a lot of different layers with respect to expansion in the market in.
It really comes back down to something we've talked about before which is the confidence there.
That our products and still in the physician implant or.
For the first time, they are seeing phosphate products patients getting really great clinical results not coming back constantly for re programming or being confused about how to interface with their with their device. So I think that there is we have to overcome what has been a therapy of last resort when as it pertains to the second.
<unk>. So we are changing that attitude with high quality products with great support in the field from our people not only in the or or procedure room. When it when it's done but also in follow up to make sure that they understand that.
Horse of a different color so to speak versus what they might have experienced in the past when it was just one player with a monopoly. So I think it's a combination of factors and quite frankly, Travis I mean, we can create all the awareness in the world and get all kinds of leads and things coming into doctors' offices, but the key thing is man that dog.
Mark.
And the.
Advanced providers, you know the nursing staff those are the folks that really need to have to have the confidence.
To be able to communicate to that next patient that that segment.
<unk> taken a modulation is the way to go as compared to say Botox, where you've got to come back every four to six months.
For another treatment and that gets really tiresome after a while so a lot of moving parts here, but no question the market is definitely expanding.
I think that our prediction if you may of 15% annualized growth felt a little bold maybe at the time, but it's certainly happening.
And so we really feel good about the future of this market and we think we've got a lot of legs here to or a lot of blue Sky to go yet.
Okay, No that's helpful and.
On the 2023 I think earlier you had said you were comfortable with the 25% growth the street modeled so making sure that's still the right place and any other puts and takes on 2023 I don't know Dan you mentioned $350 million is kind of like breakeven better profitability in <unk>.
It seems like you'd be approaching that.
Point in 2023 on an annualized basis. So should we think about at some point in 2023. Your op margins could go positive or is that more of a 2024 standpoint.
Dan I'll, let you answer the question in a very.
You don't mind, just you may want to confirm the 23 guidance as well, but that's part of the answer.
Yes, I was going to say, we're comfortable with the current 2023 consensus and so we will provide official guidance on our Q earnings call in February .
And.
Travis you are correct, but as I as I mentioned in my talking points were going to see some swings up and down based on seasonality revenue lines of margin and so we've been consistently saying that we expect to crossover into positive cash flow and profitability consistently.
At an annualized run rate of $350 million. So I think for the past two quarters, what we've all seen as the operating leverage in the business and so as revenue increases and margin is solid right you can really see that leverage.
Things are improving and so we have said it before.
And if we.
We can significantly increase revenue without having to significantly increase spend in our sales and marketing lines. So things are tracking perfectly according to plan and couldn't be happier.
Great. Thanks for taking my questions.
Thanks Travis.
Thank you one moment for our next question.
And our next question comes from Larry <unk> with Wells Fargo. Your line is open.
Hi, This is Nathan trademark com for Larry Congrats on the great quarter.
Just just thinking about the DTC upwards. So you recently, indicating that your competitor has also stepped up its investment in us and and began a DTC campaign can you talk about how this compares to your DTC upwards and do you expect this could drive volumes away from Exxon.
Yes.
Well.
So look.
We're certainly not expert on what the competitors are doing or not doing my comments are.
Fairly generic and non specific.
Perfect.
<unk>.
So are they doing some things yeah.
Search engine optimization, it's Facebook, we havent seen them on national TV, but would encourage them to do so.
So.
I think if you're a.
Facebook user and you're in a certain demographic and you see some inter stem adds youre going to probably click through there and get captured on their side of the equation, but I don't see.
I really don't see anything theyre doing thats going to take away from from our efforts. So.
It's not that generic.
This is a pretty specialized category.
Besides.
What what is important to point out is the objective of our advertising.
<unk> is to get patients into a doctor's office for a consult.
Now once they walk in that door. The physician has to decide really what is appropriate for that patient.
To work them up they got to figure out where they are in the care pathway. So just so we're clear we're not selling sacral neuromodulation over the internet.
What we're doing.
What we want to do is get them to one of our customers and and then play it by ear they might be appropriate for <unk>, they might be appropriate for <unk> taken a modulation they may need to get a prescription for a drug and if they do that and that is we found about 60% of all the patients that are filling out surveys are treatment naive.
Which you could say Oh, that's a shame, but actually it really underscores how big an under penetrated this market is when so many of these people have not even seen a physician for this problem. They never even tried to drug before now there is no drugs for stress urinary incontinence, so I'm, referring to urge urinary incontinence, which is what sacral neuromodulation.
<unk>, along with frequency and along with fecal incontinence as well so hopefully that's a fulsome answer to your question Nathan.
Yeah, that's helpful and for my follow up around <unk> can you provide a little more detail about the traction that you've made with competitive accounts.
Okay.
Well I mean.
I'm, sorry, I'm hesitating, because I'm just trying to think about how I'm going to answer the question, which is to give you a really polite non answer.
So.
What I can say is that every single day, we sign up a competitive accounts every single day. This happens here. So it's not like some unique odd thing right.
A lot of these customers are realizing that F 15 is.
It's a winning hand, I mean, you've got a product that where the good implant can last 20 or more years and the body. It's a beautiful form factor, it's got a wireless patient remote that doesn't need to be recharged. So it's a true recharge free system and.
Physicians are seeing that this is this is a great product.
And it's going to last on average probably twice as long as the competitive offering from from Medtronic. So.
People are gravitating.
To us because of because of this product in.
We got a pretty pretty damn good rechargeable product as well and even more interesting one coming down the pike. So.
Anybody who's been watching us and paying attention since we launched in the United States and it's only been three years to the day almost it's only been three years and we try to remind people regularly that we've made a lot of progress.
In this period of time, and we're going to continue to March towards leadership in this category.
Great. Thank you for the congrats again alright.
Alright, thank you.
Thank you one moment for our next question.
And our next question comes from the line of David Ross Scott with tourists. Your line is open.
Hey, guys. Thanks for taking the questions and congrats on another strong quarter.
Dan I wanted to quickly just follow up on one of the comments you made around gross margin I think you heard supply chain, you mentioned that you've been kind of buying your way around some of the supply chain.
Headwinds potentially.
But youre still seeing kind of that 30 or 73% gross margin in past few quarters in the past you've discussed that at scale electronics could be at a mid 70%.
The company grew up on the gross margin line. So I was wondering.
If we are potentially reaching that scale since you have done so well in the past two quarters on gross margins and then just wondering if over the longer term. This mid seventies Morgan line could be ultimately conservative.
I think the way I would answer the question is look it's going very well.
Sales are strong and so we've had.
<unk> of that plus the product mix with <unk>, which has.
The higher gross margin profile than our <unk>.
And then also <unk> revenue coming in better than planned and so those are all contributing to.
There is a margin improvement.
Or does that is because we haven't been building as much inventory as we would like in the short term.
<unk> had lower absorption of overhead which is going against the margin. So I think what I would say is.
Since we're ramping up production of F 15, and we'll be bringing our 'twenty online.
That's approved at the end of the year.
That will have some impact anytime you start to scale manufacturing, but look as we go forward and we move through 'twenty three 'twenty four.
We still want people to be thinking about this as a mid seventies gross margin.
Look if we can do better than that fantastic, but I don't want to get people as ray says over their skus pushing.
Pushing the numbers higher and higher and let us let us continue to move it up we were in the <unk> last year. This last quarter. We're at 72 eight we were at 72 in the previous quarter.
Let's just keep advancing the ball moving it up and get to the mid Seventy's first and then we'll see where we go.
Okay. That's that's helpful Ray maybe on bulk <unk> and you mentioned that.
Essentially two years ahead of plan as it relates to heading the initial guidance that you gave when you completed the acquisition.
So just wondering you know.
Compared to the initial guidance, what's kind of changed and T. The acquisition I mean is that something that you can really kind of chocolate, but just being conservative at the time or has the product in the U S. Really just taken off a lot quicker than your initial expectations and when you think about that as far as expanding the market taking share from traditional bulking agents taking share from slang can you just level set us as far as to where a lot of that growth has come from.
Thanks, and congrats again.
Yes, thanks, David So.
No.
Whenever you acquire a new product line of course.
You don't really know right and I think everybody on this call understands rate that.
It's hard to predict if you've never even ever done something before its hard to predict so I think that it's just gone significantly better than we would've anticipated and you say, okay, why well number one it's because of the commercial reach of our organization that is the number one reason some of it was having as many fee.
On the street as we do because we're not.
Be mindful that this is a thousand dollar product right. This is not a segment of modulation as close to 16000 so.
Each each patient that we treat is only bringing $1000 back to the company. So we're treating a lot of patients to get there I think that number one.
That commercial reach where we were able to get into more accounts.
Quickly.
That hasn't had a big part of it I think that once the product is in the hands of the physician theyre pretty amazed by how easy it is to deliver the merchandise we've got.
Scope that is specifically designed for the female anatomy.
Some of this may be old news to people, but that's a big deal. The fact that the material is not viscous and that can be injected accurately and easily.
These are all part it's all part of it right. So once again, it's easy to get a physician comfortable we can do.
Training with pig ladders, so they can.
Get practice their technique during a training session, which these days, we do right in their office.
And then we liked them to schedule say five patients right away all stacked up and one day hopefully the same day, if not the next morning or a couple of days later after their training and then we go in we will sit with them and make sure that they do a good job on the first group of patients and then they're pretty much on their own after that right. We don't need to be they are holding their hands, but we want to make.
Sure that Theyre trained we will not sell the product to a physician who is not trained.
And we want to make sure we're there to make sure. These procedures go well the reason I say that is because this is a technique dependent.
Product if you don't put the hydrogel in the right spot, it's not going to work.
And very similar to <unk> modulation works as well if implant the lead in the right spot, it's not going to work. So so we have to pay attention to that so getting back to your question.
I think that.
When you look at what is it that women want what is it what besides handbags and jewelry.
When it comes to treatment for stress urinary incontinence, and they don't want to sling.
That is a real operation, it's a major operation with major downtime and recovery and all the rest of it.
It is not an attractive alternative to a person who's coughing sneezing exercising a lifting in object and leaking a little bit of urine. So when theyre offered bulk I'm Ed as a first line therapy. In fact, it's an easy answer for them. It's covered by the insurance, it's covered by private insurance.
<unk> companies Medicare whatever it's easy for them to do something that's going to take 15 minutes.
Not a big deal there's no there's no side effects. There is no downtime and it works extremely well and so people can get dry.
Based upon.
Inexpensive.
Situation, where they are not spending a lot of time and don't have to take time away from work or their families or whatever the case might be you can see this is a very attractive alternative and so physicians when they offer this and they get a positive response and they get it yes. Once again, its very reinforcing right. So theyre more when they see a good result, and they're more willing to talk to the next woman about this.
This potential treatment so it's.
It's not as if we're competing with slings right. We're not we never talk about links right. We don't have to.
Do a comparison against the sling. This is just a great alternative first line therapy for women and I think from that standpoint, we truly have scratched the surface.
And we will remind folks there is like 28 or 29 million women in the United States alone that are suffering from this problem. So.
People say well what do you think is possible here I mean.
Ultimately, we shouldnt be talking about a few hundred thousand women I mean, we should be talking about much bigger numbers. So so we think we've got a long way to go with this product line.
And the only caution about it which will keep the numbers.
Some reasonable range is just that once again, it's a thousand dollar per patient. So there's a lot of logistics involved.
In treating as many patients as we're treating in the United States. So hopefully that was a good answer to your question.
Yes very helpful. Thank you.
Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Cecilia furlong with Morgan Stanley . Your line is open.
Hey, good afternoon, Hi, Dan and thank you for taking the question I wanted to ask just on your next Gen. Just.
Nextgen rechargeable system today, how youre thinking about really balancing volume build of your current rechargeable system that head of launch and then really how we should think about the rollout in 2020 now noting that the updated timelines.
I think that and thank you for the questions.
The timeline is substantially the same as what we've talked about today I said January just because we had a few few weeks, where we're off the clock.
So instead of 180 days it will probably turn out to be 210 days in terms of regulatory timeline, which is still quite quite acceptable for us we're going to roll the product out we're going to we're going to try to be.
Let's just say a little more limited in the launch there.
But I think it is going to be quite well received in.
It may take a little bit of time for people to really understand.
This is a product that you hardly ever have the recharge so I think longer term.
Think this is going to be a really nice contributor to the company's revenue line.
Short term I'm not sure we're going to see a lot.
Just because at the moment the market is very much enamored with F 15.
I mean, they're just getting their teeth into that product as we speak today.
So we have high expectations for the product, but once again, we don't we don't see in the short term, it's going to it's going to move the meter and in terms of production you asked a little bit about that.
As Dan mentioned.
When you build a new product there are some issues in terms of availability of components and all that so.
As much as we'd like to have literally thousands of F fifteens and thousands of new <unk>.
On the shelf from the get go.
That's a little bit challenging given the current environment. So so we have to balance all of these things together.
And.
And so forth, but as Dan mentioned, we want to absorb overhead we want to build products theyre not eggs theyre not going to go bad we got good long.
A shelf life.
How should I say.
The shelf life on the devices is lengthy so so no problem.
We're going to do the best that we can to pile up as much inventory in the short run and try to overcome some of these supply chain issues that we have so sorry for going on and on with a simple question, but I appreciate the question.
Super helpful. Ryan if I could follow up just.
How youre thinking about the next near term specifically between recharging rechargeable and recharge free and then also I appreciate the longer term outlook on gross margins, but I was just thinking about <unk> near term set up some of the macro dynamics as well as the mix shift across your business could you just help level set how youre thinking sequentially around gross margins and thanks for taking.
Paul.
Yeah, you bet. Thanks, Dan if you don't mind I'll, let you answer this one.
Yes.
Sure and so in the short term I think the first question you were asking was the product mix split between F 15, or 15 and did you also ask what we expect to see with the launch of our 'twenty.
And this is more the mix between the two ahead of launch and then how you see that transitioning post launch and then just near term gross margin.
Sure, we're expecting the mix to stay fairly consistent as it is now.
I mean.
And as Ray said numerous times.
We're agnostic it doesn't matter to us and then.
With the launch of our 'twenty next year, we'll see it obviously tremendously attractive with a six month recharging interval and only having to recharge for one hour once every six months.
We haven't.
David anything about the change in our outlook on margin for the year, but on the last call. What I said was that we were asking people to think about modeling the second half of the year and I believe 69% gross margins.
And I think given what's happened over the last two quarters and given where we are today with manufacturing I think it would be safe to say.
If people wanted to.
Playa, 71% gross margin in Q4 that would be perfectly fine and in line with where we are now.
Okay. Thank you for taking the questions.
Our pleasure.
Our next question and our next question comes from Michael <unk> with Wolfe Research.
Line is open.
Good afternoon happy Halloween and thank you for taking the question I'd just be curious.
<unk> for your perspective on market conditions, you know a lot of medical device companies are having a RASK.
Rasco and comments on staffing.
I didn't hear anything about kind of facility level.
Sourcing and staffing constraints, so obviously not evident in your numbers here, but you know what.
What are you seeing on the ground.
And how are you helping providers manage through it.
Mike.
It's kind of like as soon as we Miss our numbers, we're going to have all kinds of supply chain problems and staffing issues and all the rest right but.
So look here's the bottom line.
Our momentum in our business really is overcoming.
A lot of these let's just call them headwinds maybe their macro headwinds.
So our customers are not exempt.
They have challenges the private doctors have challenges with staff in their office, that's an accurate statement coming out of the amounts of other Ceos, we see it.
It's real.
What's the underlying reasons, that's not for me to say.
We don't are not challenged as much at the institution level.
Because all of our procedures as you know.
Perfectly, but they're done in the in a procedure room and.
On the outpatient section of a hospital or in a true ambulatory surgery Center.
And when you think about staff for us for Exxon X.
Second a modulation, it's basically the implanting physician, a scrub nurse and an exon ex personnel that's who's in the room, you don't need a whole bunch of other people in there. So I think that's helpful. And then these are de cases, I shouldn't even say day cases, there our couple of our cases, so patients come in they get prepped up they get some <unk>.
A follow up maybe a little versus said they get the procedure done and then and then they're out right. So we don't have to worry about is there a bed available and what the staffing level is up on the floor. So to speak. So I think that's why our situations a little different now having said that we're overcoming some of these macro headwinds.
<unk> <unk>.
Based upon the momentum in the business and I think Thats why you don't hear us.
Referring to these things as major topics <unk>. So I think the success of our team.
Commercially has helped and I think look the secret sauce to us.
For us has been the clinical specialist that we have I mean.
We've got 170 people, they're all nurses some of them are <unk> NPS our rins.
The vast majority of them have a nursing degree these are phenomenal people they provide excellent service.
We're all kind of sorted done the job that <unk> in the physician's office.
Even in the institutions have done so theyre very empathetic they understand the role they understand what's going on.
They are able to provide some additional support.
And I think that goes a long way towards people being confident to do business with Exxon and they know we are going to be in every single case in three years in the United States. We have never missed a case once not once so they know we're going to be there. They can count on us they can count on competent people, who are well trained with great attitudes.
And so on so forth. So I think it's not one thing right. It's a big it's a combination of many different factors that I think are helping to conspire us conspire to help us.
Be successful and continue to put some.
Some good numbers on the board.
I appreciate that Ryan I think I get a follow up so I will.
Uh huh.
I will ask it zooming out I think bulk of it is proved to be a very successful extension of the platform and I think you know it's clear you have a platform or the <unk>.
Prospects for Exxon X, adding a third product.
To the bag over the next year or two or three are you still looking.
Any perspective, you would be willing to share on that would be appreciated. Thanks. So much.
Sure. Thanks.
I appreciate the question so.
Look we don't have a third act that we've been rehearsing okay.
Sure.
Really cool products that fit perfectly with our call point of foreign fee between.
Sure.
We're.
I mean, we're not going to get into say the BPH business.
For men.
We're going to stay focused on treating women, primarily not to say that its ecmo modulation doesn't work for them and it does but predominantly that the population is female.
We are open.
We're receptive.
Listen to anybody that's got something that they think is going to fit with US. We are actively looking for things, but we're going to be extremely cautious very careful we do not want to upset the applecart things are going quite well for the company and we have so much opportunity ahead of us that I think is the key thing when you have the prevalence and <unk>.
<unk> of the.
The conditions that we're going after and such an underpenetrated and underserved market I think it would be foolish for us to take take our eye off the ball so to speak so so I wouldn't be anticipating any any kind of big news coming out of <unk> in the short run.
The capital we have on our balance sheet is not burning a hole in our pocket.
We're happy to be well financed to invest our money in <unk>.
Spanning our manufacturing capabilities, bringing more procedures in house expanding the number of units that we can make so I think this is that interesting time, Mike and I'm sure. As you appreciate having looked at many different companies that management could really screw things up pretty good about right now.
And we have no intention of doing that so we want to really stick to what has gotten us to this point and continue to grow I mean to have product lines that you could grow.
40% to 50% and this is incredible so we're real pleased with what's happening now in the products that we have and we're becoming more and more important to the customers that we serve.
Thank you our next question.
And our next question comes from Michael <unk> with Jefferies. Your line is open.
Thanks, Good afternoon, Ray ban and Neil and thanks for taking the question.
It's about my gross one.
You've got a really strong <unk> launch.
Last two quarters outside.
Outside of your competitors' investment in increasing awareness are you seeing anything else on the competitive response front.
Well look it depends on where.
What's your vantage point.
If you're a rep in the field.
Obviously and you're taking over some pretty good accounts then.
They're going to hear some noise on the local level, we've always heard a lot of noise on a local level.
But at 40000 feet, there's just isn't there isn't much happening.
So.
Look they're not laying down.
Which which is fine.
But on the other hand to be honest with you.
I mean, we got some pretty strong medicine in terms of our product line and the capability of our people on the street. So I don't think the incumbent bargained for.
The kind of.
Competitor that Exxon Xs and I want to add that look we we don't play games.
We play the game right.
It's the tone from the top in this organization is always do the right thing everybody knows what that is we don't shove products down People's Throats, We don't we don't stack the ceilings with product.
What you guys are seeing from US is actual demand for these products and these are products that are going into patients may be getting injected.
Enter into the ladies or they're getting implanted.
And so forth, so I feel compelled to say that right.
We're trying to play this game.
As clean and as appropriate as possible.
And thats the tone of this organization.
Got it that's helpful. Thank you and just for my follow up could you just give us an update on our sales rep productivity has been trending particularly against your expectations.
Yes, I think it's been.
I think it's been along the lines of what we expected I mean, we're seeing on average productivity of around $2 million per head in the field.
And <unk>.
Imports right. If you do the simple math the number of salespeople, we have times that $2 million now clearly we've got some people that are doing significantly more revenue than that.
The folks at the top of the pyramid.
It's we're talking $4 million to $7 million for some some territories and some representatives. So theres a lot of headroom to go but.
We I think the last time that this question was asked I My answer was around $1 $5 million that was probably the 2021 number and now this year 2 million, obviously, we have higher expectations for 2000.
<unk> three so it's not we don't.
We're working on the productivity per rep concept getting people to be more productive in a given geography as opposed to just constantly layering on people.
That's important we want our folks to make money that's important to us that they are well compensated and earning a good living and.
We like the productivity. So that we are quite pleased with how that's going and look there's always going to be X amount of folks that you'd like to see them do better.
Particularly in some expansion areas and so forth, but the productivity per rep is pretty solid and I think $2 million is a good number to plug if you're running a model our spreadsheet.
Great. Thanks, a lot ray.
Thank you.
Thank you and our next question.
And our next question comes from Mike Matson with Needham <unk> Company. Your line is open.
Good evening, Thanks for taking my questions I guess.
I want to ask one on pricing so.
I know when you sort of entered the market you were pricing trying to price at parity to Medtronic, but I was just curious if <unk> seen any pricing changes on their part and is there maybe an opportunity to take some pricing on your side since it does seem like you have sort of an.
An advantage here now with the lifespan of your products, particularly with.
This new R 20 coming.
Sure.
Yes, it's interesting question Mike.
Price, it's really been interesting we have seen.
A stable price of our products.
Let's talk second Demodulation first since since we started prices have been pretty rock solid stable. During this period of time.
I think it's important for people to understand if you're interested in this topic that the prices are negotiated with institutions.
That physicians with the exception of.
Maybe 20% of them, who might have a financial interest in an ASC.
Whether they are partner or participant in it.
So maybe 20% of our physicians actually even know what the price of a full implant is.
And it is negotiated with institutions and the institutions are very sophisticated.
Meaning that they have access to pricing data, so they're actually able to see.
As an example, what.
Let's say, an HCA pays or some other large institution.
There's visibility.
Those prices not from us it's just it's out there in the public domain. So what we have instituted has been a pricing policy based upon volume so in other words.
Look HCA is the biggest customer in America, so clearly they're going to get the best price.
But if youre not doing in your network, if youre not doing some thousands of units youre not going to get the HCA price and that's how we're able to try to keep things slotted. So we are basically.
<unk> gone.
Gone to kind of volume based pricing, sometimes that is 100%, 100% comports with what they've been paying medtronic.
And sometimes it's not it might be a little bit more a little bit less depending so we're not as lock step with the parity pricing as much as we are now moved to a more sophisticated model, which is much more defensible.
Basically give people prices based upon how many implants they do in a given year.
Bulk <unk> of course with $1000 price.
Sure maybe.
Maybe somebody paid $50 difference, one way or another $100 that would be a big spread difference. So thats kind of off the table in terms of pricing so long.
Long winded answer, but it's a very sophisticated market. These are doctors don't buy these products they put them in but they don't buy them, they're purchased through institutions, which are run by supply chain individuals.
Who are not really keen on paying higher prices for anything.
In general so we're more interested in growing the business Mike than trying to pick up a point or two on <unk>.
The aggregate.
Okay. No that was very helpful. And then just looking at your R&D spending I mean, it looks like we've had two quarters in a row now where it was down on a dollar basis year over year. So I just I'm, just wondering kind of what's the outlook for R&D spending.
As I understand you might get some leverage but it looks like it's actually been down on a dollar basis as well.
So the reason it's down on a dollar basis, Mike is because that's the line item, where the royalty to the Alfred Mann Foundation comes through.
Not paying a royalty on the F 15, recharge free system.
Have you heard about it break it out.
If you were to break it out and look at the detail what you would see is were.
Maintaining and slightly adding the number of engineers because of the amount of activity and new programs in development.
The overall spend on a dollar basis is down because of that royalty change.
Okay got it thank you.
Thanks, Mike.
Thank you Amit for our next question.
And our next question comes from <unk> <unk> with RBC capital market. Your line is open.
Hey, good afternoon. This is <unk>.
Again, congrats on a good quarter.
Just to circle back with just.
Got to consumer AD campaign.
Thanks for giving some color on qualified leads and all of that can.
Can you give us a sense on the percentage of patients that are now coming in and like that you're converting and actually treating are you that far along in the process are there any data points you can give us.
And at what rate you're doing that.
Anything any color would be helpful. Thank you.
Yes look we we've been hesitant.
To provide conversion statistics, and we will continue to withhold that information for the time being.
Will we.
We've been providing more and more color about our DTC efforts on each call. We'll continue to do that and provide some additional insights into in 2023 about this.
Suffice it to say that in our.
Sure.
Opinions based upon being stewards of the company.
This is providing us a respectable return on investment so we would not be we would not throw good money after bad if it wasn't turning into revenue for us and it is.
As you might imagine there are a lot of challenges in terms of tracking all this data.
And we are putting more and more sophisticated systems in to be able to get better visibility.
But I would tell you that the DTC.
It's just part of a bigger overall marketing strategy of the <unk>.
Company. So as an example, the single most productive effort that we do is what we call direct to patient marketing, which is where physicians with our help are getting letters out with symptom surveys to their own paid excuse me patient population.
And I will tell you that.
That is unbelievably productive and we're seeing 5% to 10% response rates and 50% conversions to procedures within a quarter.
So thats our number one go to program.
That not everybody can take advantage of it there is some shared costs associated with those kinds of programs and large institutions sometimes are reluctant.
To pull ICD 10 data and have third party mailings go out to their patients so but that is the that's the immediate return on investment. So we don't do just one thing I think this is the point everybody is kind of locked into the DTC program because of the visibility on TV and people seeing ads and things.
Of that nature, but we got a pretty sophisticated marketing setup, if you may and a suite of different options.
And <unk>.
Facebook is a very strong.
A part of our DTC, but these direct to patient mailings and other programs that we do with physicians Webinars and other things like that are also extremely productive. So it's a combination right.
Got it.
And different markets different things pull better than others, and so on and so forth. So so.
Part of the reason why.
Not answering your question directly.
Is that theres more than one thing that we're up to.
But I'll leave you with this silly comment and that is the juice is definitely worth the squeeze.
Yes.
Appreciate it.
And that's it for me thanks.
Alright, thank you.
Im showing no further questions at this time I would now like to turn the conference back to Raymond Cohen for closing remarks. Thank you excellent. Thank you operator, and thanks to everybody France for your questions. We really appreciate your these questions are really important gives us a chance to tell a bit more of the story and in the prepared remarks. So so thank you.
For your interest and attention and for those of you who are listening in covering the company. Thanks for your continued interest in <unk>.
And we look forward to speaking with you all again publicly in a few more months. So you all have a happy Halloween stay safe and we'll talk to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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