Axonics Inc

NASDAQ:AXNX

Earnings Call Transcript 2022-Q4

[Operator]

Good day and thank you for standing by. Welcome to Axonics' Fourth Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your host today, Neil Bhalodkar. Please go ahead.

[Neil Bhalodkar, VP of IR]

Thank you, Shannon. Good afternoon and thank you for joining Axonics' fourth quarter 2022 results conference call. Presenting on today's call are Raymond Cohen, Chief Executive Officer; and Dan Dearen, President and Chief Financial Officer.

Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events, prospects, or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause results to differ materially from the expectations expressed on this conference call.

These risks and uncertainties are disclosed in more detail in Axonics' filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, March 1, 2023. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances, or unanticipated events that may arise.

I would now like to turn the call over to Ray.

[Raymond Cohen, CEO]

Thanks, Neil.

I'd like to welcome everyone joining this afternoon's call. So our fourth quarter of 2022 and the financial results were nothing short of outstanding. Axonics generated record revenue of $86 million, an increase of 62% compared to the prior year period. This marked the third quarter in a row in which our revenue has grown at least 50% year-over-year.

More specifically, sacral neuromodulation revenue was $70.3 million, an increase of 58% compared to the prior year period. This record level of revenue is being driven by a combination of higher utilization of our SNM systems in existing accounts and the addition of new accounts. Bulkamid revenue was $15.6 million, representing an increase of 79% compared to the prior year period. Record results were driven by solid reorder rates from existing accounts and the onboarding of new customers.

Our gross margin hit a new high watermark of 73.3% in the fourth quarter. We also generated $10 million of adjusted EBITDA in the quarter as we continue to benefit from the operating leverage inherent in our business model. Dan will discuss our financial performance and outlook in further detail in his prepared remarks.

I would now like to provide a few updates on sales, marketing, and product development initiatives. In 2022, the launch of our long-lived F15 recharge-free system completed our sacral neuromodulation portfolio. We captured a high share of wallet in existing accounts and activated new competitive accounts.

From the time of our U.S. commercial launch in late 2019, we have continually enhanced the value proposition Axonics offers to our customers and we now have nearly 1,000 physicians in the United States implanting Axonics SNM systems.

In addition, we acquired Bulkamid, our unique hydrogel for the treatment of female stress urinary incontinence. We're the only company that offers solutions for all forms of bladder and bowel incontinence, be it urgency - for urgency, frequency, stress, or fecal incontinence.

We have grown our U.S. field team in therapy support specialist group to provide best-in-class service and support to physicians and their patients. We have invested in a multi-channel DTC campaign to reduce stigma and increased public awareness that incontinence is not normal and then the symptoms can be treated with advanced therapies.

We also launched a call center to assist in connecting people who have incontinence to specialists in their local community. We have conducted numerous medical education seminars for physicians and their clinical staff on sacral neuromodulation implanting best practices and how to improve navigating patients through the care pathway.

We've hosted dozens of physicians at our headquarters in Irvine to meet with the senior management, tour our manufacturing facility to see firsthand the care and quality that goes into making our products, and of course, to discuss how we can ensure that more of their patients are getting the long-lasting efficacious symptom relief that they deserve. Physicians are seeing Axonics act like the market leader.

We have demonstrated our commitment to this category, and it is clear that Axonics has been causing the matter of the U.S. sacral neuromodulation market expanding significantly since our entry into the U.S. market just a few years ago. More specifically, based on external definitive healthcare claims data and the limited directional information from our SNM competitor that they disclosed, we estimate that the U.S. sacral neuromodulation market compounded at an annual growth rate of 18% from 2019 to 2021 and 14% from 2019 to 2022, consistent with the mid-teens outlook we projected going all the way back to the time of our IPO.

It's important to note that this level of growth was generated in the midst of a global pandemic and widespread staffing shortages that you have heard many physicians and management teams discuss previously.

As it pertains to 2022 specifically, we understand that Analyst had pegged U.S. market growth at 6% for this year - for last year. I want to provide some important context to that figure. First, there was significant disruption and an adverse impact from Omicron, i.e., COVID-19 in the first quarter of 2022, so much so that the overall market is estimated to have contracted by 5% in that period.

If we exclude the first quarter due to Omicron and just look at the last three quarters of 2022, the U.S. sacral neuromodulation market grew approximately 10% year-on-year during that period. And perhaps most encouraging is that the market growth has accelerated each quarter of 2022, generating 8% growth in the third quarter and 18% growth in the fourth quarter.

As we have said many times, the addressable market in the United States remains large and highly under-penetrated. According to IQVIA, over 18 million total prescriptions were written for OAB drugs in 2021 alone. It is worth noting that according to Definitive Healthcare, over three million Americans received an OAB diagnosis from their physician in 2021.

Looking at all these factors, we remain confident that the sacral neuromodulation market will expand at a mid-teens annual growth rate for years to come. Now turning to an update on our commercial team, we now have 340 field-based personnel in the United States of which 165 of them are directly involved in selling or sales management with the balance of our personnel being clinical specialists.

We are well-staffed at this time and expect a modest increase in commercial team headcount in 2023. The Axonics Find Real Relief direct-to-consumer advertising campaign continues to progress well. As many of you know the advertisements on national television and Facebook encourage adults with incontinence symptoms to visit findrealrelief.com, our patient-facing landing page.

The website provides information about Axonics incontinent solutions and direct individuals to complete a short symptom quiz or questionnaire. The campaign underscores our commitment to a population, primarily female, that for too long has gone underserved and undertreated due to lack of awareness of advanced therapies.

Many of our customers continue to tell us that patients come into their practice asking about Axonics therapy after seeing our ads on television or on the Internet. The campaign continues to generate goodwill with our physician customers as they are grateful that we are helping to ensure that adults with these conditions are being seen by a clinician and advancing along the care pathway. In the fourth quarter of 2022, we had over 420,000 unique individuals visit our website to learn more about Axonics therapies.

Since launching the campaign in April of '22, the number of unique web visitors totaled approximately 2.25 - excuse me - 1.25 million individuals. We take 2.25 as well, but 1.25 is the right number. Now, this is the important part, qualified leads as we refer to them are individuals that complete the symptom questionnaire on our website.

In the fourth quarter, there were 33,000 qualified leads and since launching in April, our campaign has generated 90,000 of these such survey responders or questionnaire responders. In fact, in January of this year, the number is accelerating and there were over 11,000 people who filled out a symptom questionnaire in January alone. Our call center continues to work diligently to connect qualified leads with a specialist physician in their local community.

Now turning to International activities, we recently launched commercial operations in Australia, which we kicked off with a well-received Physician Seminar held in Sydney during the President's Day weekend. The company's field team has started with four sales professionals who have years of experience in sacral neuromodulation and strong relationships with implanters in Australia. Axonics estimates that Australia is currently a $15 million SNM market with approximately 1,200 SNM procedures performed annually.

Our competitor has regulatory approvals for their short-lived InterStim 2 product and InterStim Micro. Now Axonics currently has a regulatory and private - has regulatory and private reimbursement approvals for our rechargeable system in Australia, as well as for Bulkamid.

Now the F15, this is the recharge-free or non-rechargeable system, is currently under regulatory review by the Australian TGA and we expect approval in the coming weeks. We also recently submitted our latest rechargeable device called the R20 for regulatory review and expect approval in the second half of 2023.

Our competitor already has regulatory approvals for their products - legacy products in Australia. Okay, it's important to note that even after receiving regulatory approval for our F15, we will have to wait for private reimbursement approval in Australia, which we expect will come by year-end. As such, we are only forecasting $1 million to $1.5 million of revenue contribution from Australia in 2023, with a much more significant contribution coming in 2024.

Now turning to product development initiatives, we received regulatory approval - U.S. regulatory approval for the Axonics R20 rechargeable simulator in January of this year and previously from Health Canada in December of 2022. Now, this device utilizes the same small 5CC form factor as our previous rechargeable product the R15, however, requires recharging just once every six to 10 months for one hour and has an expected useful life in the body of at least 20 years. Early feedback from customers that have implanted the device have been overwhelmingly positive.

Now in summary, looking back on 2022, we're proud to have exceeded the commercial and operational objectives that we set forth at the start of last year. More importantly, we recognize the impact that Axonics is having on changing the lives of people with bladder and bowel dysfunction.

In fact, in 2022 alone, our sacral neuromodulation systems and Bulkamid were used to treat over 65,000 patients worldwide, and yet we are still scratching the surface of what is possible in the large underserved undertreated markets in which we participate. Our mission-driven team remains committed to innovating, supporting our dedicated physician customers and their patients, and raising awareness of our best-in-class therapies.

So with all that said, I'll now turn the call over to Dan for his detailed review of fourth quarter financial results. Dan?

[Dan Dearen, President and CFO]

Thanks, Ray.

As Ray noted, Axonics generated net revenue of $85.9 million in the fourth quarter of 2022. This represented an increase of 62% compared to the prior year period. Sacral neuromodulation revenue was $70.3 million of which 98% was generated in the United States. Bulkamid revenue was $15.6 million of which 79% was generated in the U.S.

Gross profit in the fourth quarter of '22 was $63 million, representing a gross margin of 73.3% compared to 66.6% in the prior year period. Higher sales volume, Bulkamid sales, and a product mix weighted toward the F15 neurostimulator contributed to a favorable gross margin compared to the prior year period.

Operating expenses in the fourth quarter of 2022 were $66.6 million included in operating expenses as a $2.1 million non-cash charge for the change in fair value of contingent consideration related to the Bulkamid acquisition.

Excluding acquisition-related charges, adjusted operating expenses were $64.5 million in fourth quarter 2022 and $51.6 million in the prior year period. Net income in the fourth quarter of 2022 was $700,000 and benefited from $3.8 million of interest and other income. Net loss in the prior year period was $15.2 million.

In the fourth quarter of 2022, Axonics generated $10.1 million of adjusted EBITDA. We are pleased to note that this marks the third quarter in a row, Axonics has generated positive adjusted EBITDA. The attractive financial profile of the company and the inherent operating leverage in our business model is becoming more evident in our financial results. To set proper expectations in the quarters ahead, there will be periods where we will swing back and forth between positive and negative adjusted EBITDA based on the seasonality of top-line results and corresponding gross margins.

Based on current trends, we expect Axonics to be adjusted EBITDA and cash flow positive on a consistent basis at an annualized revenue level of approximately $350 million. We also generated positive free cash flow in the fourth quarter.

As of December 31, cash, cash equivalents, and short-term investments were $357 million compared to $350 million as of September 30. With respect to fiscal year 2023 revenue guidance, we are reiterating the outlook that was provided in our January 11 pre-announcement, overall company revenue is anticipated to be $342 million based on sacral neuromodulation and Bulkamid revenue, each growing 25% compared to the fiscal year 2022.

That concludes our prepared remarks, and I will now turn the call back to Neil.

[Neil Bhalodkar, VP of IR]

Thanks, Dan. At this time, we are ready to begin the Q&A session. We would like each analyst to have an opportunity to ask a question, so we request that you please limit yourself to one question and one follow-up. Shannon, please begin the Q&A session.

[Operator]

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

[Travis Steed, Bank of America]

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

[Raymond Cohen, CEO]

Would you take the first part?

[Neil Bhalodkar, VP of IR]

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

[Raymond Cohen, CEO]

Yeah, so look, in terms of the future, I mean I think it's pretty clear, right, this market is accelerating, it's happening in real-time and we've seen it, certainly in the three quarters of 2022 and I think the DTC campaign is what is creating a lot of these green shoots as you referred to them. I mean, think about the magnitude of the number of people that are visiting our website inquiring about advanced therapies, whether it be for stress incontinence or urinary urge incontinence whatever the case might be.

So I think that's happening, I think that it's interesting to note that our competitor despite as they are referred to competitive pressures, also saw increases in their revenue in this category in the last quarter. So we take that as good news, and we're thrilled to see that. We've said all along since the beginning that it's about raising the tide here, and it will float everybody's boat in this current duopoly that we're involved in.

So we're going to continue to press hard on our DTC initiatives. We're not going to spend that much more in '23 than we did in '22, just because there's so many people inquiring that we want to give justice to the people who fill out these quizzes and get them placed with - for a consult with a qualified physician in the local area.

And I think the last comment I would say is if you just take a step back and you think about what has transpired from an innovation standpoint in this market in three years, I mean in November of 2019, the only thing you could get was a device that would last two to five years in your body that was non-MRI compatible and was not easy to use, okay, and here we are now with a whole lineup of products that will last 20 years or longer in a person's body whether they are rechargeable or not rechargeable and think about what we've done now from a rechargeable standpoint, where you need to get a product that is going to last decades in your body and you maybe have to recharge this thing for one hour every six months or maybe in some cases as long as 10 or even 12 months at a time.

So I think it's a combination of many factors that are contributing. Innovation is key, advertising, so that let people know that it's not normal to leak urine, and then, of course, the number of feet on the street that we have and then the whole innovative piece of the puzzle. So hopefully that's not too long-winded but covers kind of the basis of why we're bullish about this.

Now, it's taken a little bit of time to be able to get third-party data and to be able to be very clear about growth rates that we've been seeing and partially because of the pandemic and it's funny how everybody seems to want to forget that we just lived through this for a number of years and things are much better today, but we only had now actually, if you think about Axonics has operated in a "normalized environment" for approximately four months since we started to commercialize in November 2019.

[Travis Steed, Bank of America]

Okay, great. Thanks, Ray. And then maybe one for Dan on margins, I heard your comments kind of back and forth on EBITDA over the course of 2023, maybe a little more color on that, and you gave the $350 million number, but it seems like you'd be there by the end of 2023, and so as you move into 2024, what's the pathway for margins once you start to hit the sustained profitability and how quickly can you get to 20%, 30% EBITDA margins in this business?

[Dan Dearen, President and CFO]

We've always basically - we've never put a specific timeframe on it. What we're looking at throughout 2023 as we mentioned on the gross margin outlook is we're expecting to see a 100 basis point increase in '23 over '22 on a gross profit basis and that's driven by a better manufacturing yield, overhead absorption, and partially offset by inflation and supply chain costs.

And then as you get out into 2024 and you look at the crossover point into positive cash flow and adjusted EBITDA positive, as time goes on, the operating leverage here, and we've said this numerous times, we expect to significantly increase, and in some cases, we've said double the revenue with roughly the same sales and marketing spend we have with minimal ads. So I think when you just look out not that far, you can get to your 20% EBITDA operating margins. So I just don't want to put a stake in the ground as to what quarter that's going to happen.

[Travis Steed, Bank of America]

That's fair. Thanks for taking the questions, and I'll let others jump in. Thank you.

[Dan Dearen, President and CFO]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is now open.

[Larry Biegelsen, Wells Fargo]

Good afternoon. Thanks for taking the question and congrats on the strong end to a strong year. Ray, I wanted to ask about the guidance, you had about a 33% share of the U.S. SNM market in calendar Q4, the market - U.S. market was about $780 million, if the market grows 15% in 2023 and your share holds at 33%, it would imply U.S. sacral neuromodulation sales of over $290 million which is above your guidance of $278 million worldwide, so my question is, is there something unusual about your share in calendar Q4, do you expect the U.S. market to grow below 15% this year or is there just some conservatism here?

[Raymond Cohen, CEO]

I think the short answer, Larry, we're just trying to be a little conservative, not get over our skis and I mean we can predict perfectly what exact percentage the market is going to grow in 2023. All we can do is put our heads down and execute the game plan as we've been doing, which is not new, Larry, I mean we've been talking about this - Axonics has been all about execution since we took the company public in - on Halloween in 2018. So look, our objective, of course, is to give guidance and obviously to overachieve. I mean that's what everybody is focused on, and so I don't think there is more to it than other than that.

[Larry Biegelsen, Wells Fargo]

Okay, fair enough. Ray, I feel compelled to ask because we keep getting asked about it, on tibial nerve stimulation, you don't seem - maybe I'm just asking, I guess if anything has changed, you don't seem interested in having access to this technology internally for Axonics nor do you see it as a threat. I'd love to hear your updated thoughts on why? Thanks for taking the question.

[Raymond Cohen, CEO]

Well, thanks, Larry. But personally, I'm boycotting those questions, but Dan has volunteered to answer.

[Dan Dearen, President and CFO]

It's an inside joke, Larry, you know as well. Look, our position hasn't changed, we understand, we know these companies well, we've tracked them for the better part of 10 years now, and look our thinking is, an implant is an implant, our device has a 90% efficacy in our FDA study, we haven't seen any efficacy for many of the implantable tibial companies that comes close to that.

It's a complex procedure and a part of the anatomy that these doctors are trained to do, and there are obviously a lot of questions about how you do market rollout, and then ultimately what reimbursement looks like coming from the CPT Editorial Panel.

So I would just leave it at that, look, we're watching and will pay attention to this, this is going to unfold over the next three to five years and we'll see how it plays out, but we're not concerned and we certainly don't see it as a short-term or intermediate-term competitive threat.

[Larry Biegelsen, Wells Fargo]

All right, thanks for taking the questions.

[Operator]

Thank you. Our next question comes from the line of Chris Pasquale with Nephron Research. Your line is now open.

[Chris Pasquale, Nephron Research]

Thank you and congratulations, guys, on a great year. Wanted to maybe dig in on the other half of Larry's question about the guidance and the assumptions there and talk about Bulkamid, 25% is a nice round number, how you're thinking about the goals for that franchise in '23, and you talked about getting more involved with the gynecology call point, is that something that you're planning for this year?

[Raymond Cohen, CEO]

Yeah, thanks. Thanks, Chris. I appreciate the question. Once again, I think that it's very difficult to predict, right. We're going to grow this particular product line at 75% again this year. I mean it's very, very difficult to do that. So we're once again trying to be conservative. We think this product has got a lot of legs as we have seen so far, and is very quickly become first-line therapy for women with stress urinary incontinence.

Now having said that, we treated - the number was maybe, call it 52,000 or so patients in 2022, but if we go back to slings in 2015, there were 350,000 sling operations done in 2015, so - and you can imagine, it's difficult for women to agree, yeah, I'd like operation because I cough or sneeze and leak some urine or exercise, I mean it's annoying problem, there's no question about it, and it can directly impact people's quality of life, we understand that.

But women don't want an operation for stress urinary incontinence, that's not what they want. And so I think it's just going to take some time for us not to persuade the people, the women, but to persuade the physician community that Bulkamid is the right solution for the vast majority of patients who present with these symptoms, that's our challenge.

And as you know Chris, medicine changes slowly, it's almost like built in and it's just going to take time for us to continue to create awareness and get the physicians to really start talking about this as an option to their patients. Now, you mentioned the GYN community, right, so that's a community that we haven't been aggressive with, but we're starting now to market to that community, but even within our core urology and urogynecology community, I mean, not enough of them are currently offering Bulkamid, right. Now, we just started to scratch the surface.

So if you're asking me, what do I think the potential is, the potential is for hundreds of millions of dollars of sales of Bulkamid on an annual basis, but it's just going to take us some time for us to be able to get there and to get these physicians, in fact, prescribing Bulkamid. Not talking about, well, there is this other option, I've been doing the sling operations and they really work, but let me tell you about the adverse, yet there's this - there's this option that you may want to consider, no, that's not the top track that they should be using, right.

So we got some work to do and we're very bullish about it. It's just that we're really trying not to get over our sleeves - our skis on this. So give us a little more time but I inherent in your question is how bullish are we, and it's hard to be more bullish about the potential for Bulkamid to treat stress urinary incontinence as first-line therapy for patients.

[Chris Pasquale, Nephron Research]

That makes sense. Thanks, thanks for walking through that. Switching back to the SNM side, curious what you see as the biggest remaining bottlenecks in terms of growing that market today. You guys fixed the technology problem, the market before you got there, you're raising awareness, it is the biggest rate limiter today, the number of physicians who are doing the procedure or how much of their practice their devoting to it or is it something else?

[Raymond Cohen, CEO]

It's really, it's really a good question. I mean it really is a good question. And as you might imagine, Chris, we spend a lot of time internally talking about this, and when I say internally, I mean with our sales people, our sales managers, and amongst senior management. So here's the problem that we're facing, and I am going to be careful because I don't want to disparage our competitor, but they had a product that just wasn't that attractive and for 20-something years, it was the only option, so what has been implanted in physicians' minds is that sacral neuromodulation is difficult to do, it's fussy.

It's not so easy to drop this lead down and the tools maybe weren't as easy to use, and then my patients would need to come back for re-programing and all this other noise and it just takes time to kind of erase that legacy mindset. And I would tell you if physicians spent more time talking to their patients, and actually prescribing, once again with that new word, prescribing sacral neuromodulation then this market would double overnight, okay.

So what does all that mean, that means that, we have to be persistent, we have to be out there, keep beating the drum, making things easier to use, reinforcing the great clinical results that we're actually getting.

I mean we have instituted a program, which our field team has embraced, which we call quarterly business reviews, where we actually sit down with our customers at the end of each quarter and say, look, here's how many patients that presented that you did an external trial on, here's your conversion rates, here's the satisfaction data coming out of your actual patients because we're the ones talking to those folks and making sure they're good to go and they're tucked in.

So I think it's just going to take some time and it's almost as if we've kind of created a new category called sacral neuromodulation, okay, and it's a grandfather's product, right. So I think that's the story, so you can tell, Chris, I mean, we're really enthusiastic about what's going on about this business, I mean it's turned out to be all the things that we expected in terms of how under-penetrated it is and how much potential it is.

But I think, look, we're going to continue to keep our heads down, we're going to continue to execute. We're going to grow our business at record rates here. We're proud of what we've accomplished, but we honestly feel like we've just scratched the surface. We've got a lot more work to do and it's to get - sorry - I spent a lot of time not answering your question, but here is the answer. It's same-store sales. It's getting the average physician instead of doing 12 of these things a year to do 24 of them a year.

I mean that's how we double our business. It's not about going out and finding another 2,000 doctors who want to dabble with sacral neuromodulation. This is about getting the people that know what they're doing, giving them better products, easier tools, better support, and just getting them to talk more about it and I think if sounds quite simple. And in one respect, it really is, but once again requires real keen focus and execution.

[Chris Pasquale, Nephron Research]

Great, thanks, Ray.

[Raymond Cohen, CEO]

Yeah. Thank you.

[Operator]

Thank you. Our next question comes from the line of Cecilia Furlong with Morgan Stanley. Your line is now open.

[Cecilia Furlong, Morgan Stanley]

All right, great. Good afternoon and thanks for taking the questions. I wanted to follow-up just on some of your comments around the phenomenon OUS markets realizing Australia and the framework that you put around that, could you one for Australia just kind frame the opportunity what market is today on a relative basis versus how do you think about growth beyond '23 and then for '23 specifically in Europe, in other locations where you're benefiting now from Bulkamid presence, how we should think about SNM growth in those regions?

[Dan Dearen, President and CFO]

I mean, at a high level as Ray - this is Dan. Hi, Cecilia, nice to hear you. As Ray mentioned in his prepared remarks, the Australian market for SNM we estimated around $15 million per year and we have approvals and we have coverage, but we don't have it yet on our F15 recharge free product, which is why the statement that was made is we expect to do between $1 million and $1.5 million revenue in 2023.

Now beyond that, look, we intend like we do in all markets to be the market leader, it's just a question of perseverance in time and we don't want to put a specific date on that. But look, as we continue to grow, the market is so heavily skewed towards the United States for all of these products that even though we will increase our OUS sales in both product categories for SNM and also for Bulkamid, the U.S. growth is going to help drive it.

And so this will probably forever be a story about the U.S. market, but our goal continues to be the market leader and as a global player as we want to take care of patients, physicians, and their practices worldwide. And so that's why we continue these efforts, OUS.

We, of course, make revenue and margin off of it, but just as being a good corporate citizen in treating patients, it's part of the plan, and we started in Europe and we've worked with a number of these physicians and our previous company, we were in Australia in a big way and so it's kind of natural for us to also move into this market since we have the full product line and we have the approvals.

[Raymond Cohen, CEO]

I would add two things to your question and that is that the markets outside the United States were all capitated and that's the fundamental issue here. If there was always a fair market, we'd be on it hard, but it's not the case. And I've mentioned this many times before if you take a market like the U.K., as an example, which probably one of the largest markets if not the largest market in Europe.

The government is going to pay for 800 implants. So right now, you've got two companies fighting each other to get the lion's share of that business and how much energy do you really want to spend in trying to grow that business when, in fact, the state of Mississippi outsailed the country of the United Kingdom, right, so you can imagine, it's a lot easier for us to expand our efforts in Mississippi than it is in throughout the U.K.

So hopefully that gives you some context why we're so focused on the U.S. market and there is a correlation of course between having Bulkamid available in some of these other markets around the world, but SNM is a completely different animal. That's a product line that you need presence to make sure implants go well to program the patient.

So it's a much heavier lift for us to really open up a new market. Now, last comment, obviously, we are looking to Asia in the future. We understand big potential in places like Japan and China, and that's something for the future of the company, but right now we're going to continue to stick to our knitting and focus mainly here in the United States.

[Cecilia Furlong, Morgan Stanley]

Thank you for the color. And if I could follow up as well, just on where you are at this point in the diluted market release. And if you think about '23, just the R-20 rollout targeting and also pricing that, how we should think about the impact to gross margin?

[Dan Dearen, President and CFO]

So I think the - you're a little broken up, but I think your question, you were referring to our new rechargeable R20. And here's my comment about that. I'm going to not predict it because the last time I was asked to predict the split between rechargeable and nonrechargeable, I was off a bit. . So we're optimistic early on, we have seen that this product is capturing the imagination of physician implanters in the United States and their patients.

I mean it's a pretty cool product. So already, we see an increase in rechargeable sales in the few short weeks that we've had the product in the marketplace. So - but it's going to be hard to predict.

I mean that F15, I just think it just blew people's minds, honestly. - about the longevity of the product and how nice and small it is and everything else. So it's kind of a fun thing where now we have these really amazing products that are actually competing for mind share with patients and providers. So we're - last word there is we're agnostic. We've got great margins or good margins, I should say, at least on these products. And whatever it is that a physician and their patients decide to do, we're just happy that it's Axonics.

[Cecilia Furlong, Morgan Stanley]

Thank you for taking the question.

[Dan Dearen, President and CFO]

Thank you.

[Operator]

Thank you. Our next question comes from the line of David Rescott with Truist. Your line is now open.

[David Rescott, Truist]

Hi, guys, thanks for taking the questions, and congrats on a strong fourth quarter and strong end of the year, I guess just first on the guidance, wonder if you could provide any color maybe around how we should think about the cadence for the year, I think consensus right now has about 34% growth in Q1. Obviously, there is Q1 seasonality but year-over-year comfortable but easier, and then growth kind of stepping down throughout the year, so just wondering first maybe how we should think about that growth on a quarterly basis to the year.

[Raymond Cohen, CEO]

Yeah, I mean, I think you've already - you've hit on it, David, which is we're all aware of the impact of first quarter drop off due to seasonality of people not having met their deductibles. These are elective procedures, both for SNM and Bulkamid, and so we're in this particular therapy category, we're particularly sensitive to the seasonality and so as we've noted, the guidance for 2023 projects 25% year-over-year revenue growth for both sacral neuromodulation and Bulkamid and because of - and that said, because of the impact of Omicron in Q1 of last year, which contracted the market, we expect growth year-over-year in Q1 to be in the low 30s this quarter year-over-year, and then for the remainder of 2023, what that drops out is we expect to see growth in the low to mid-20s as you look forward, so does that answer the question?

[David Rescott, Truist]

Yes, yes. that's helpful. I guess just a second one from us, if you could provide any update maybe on ongoing litigation of the upcoming jury trial, maybe any risks associated with that, and whether or not we should be thinking about any type of incremental spend in 2023? Thank you.

[Raymond Cohen, CEO]

So, I guess the hot flash is that the trial date has been pushed, so we're now - it was originally scheduled for mid-April, it's now scheduled for mid-August, and I really don't think there's much more to say that we haven't said before unless, Dan, you want to add?

[Dan Dearen, President and CFO]

No, I mean I think the only thing I would add is a standard thing we always say, which is I mean going all the way back to 2019 when these claims were filed against us, which we've always said that we don't believe were infringing on any patent claims. We take this very seriously, but at some point this will be tried and then we'll report out on it, so, as Ray said, it's been pushed now to August and we still maintain our position, we haven't infringed on anything.

[David Rescott, Truist]

Okay, great, thank you.

[Operator]

Thank you. Our next question comes from the line of Adam Maeder with Piper Sandler. Your line is now open.

[Adam Maeder, Piper Sandler]

Hi, Ray. Hi, Dan. Good afternoon and thanks for taking the questions and congrats on a nice Q4 and 2022 year. Maybe Dan for you wanted to just kind of flush out some of the P&L assumptions to the extent you're willing to share just around kind of OpEx spend, how to think about that and cadence of spending as well as the level of DTC spend in 2023? Thanks.

[Dan Dearen, President and CFO]

Okay, So, we're just - Adam, good to hear from you. Just we're working off the same baseline, adjusted operating expenses in '22 were $240 million and so that includes stock-based compensation, as well as depreciation and amortization, what it would exclude are the non-cash charges related to the contingent consideration or milestone payment that [technical difficulty] for the acquisition of Bulkamid. Keep in mind, we have a milestone payment of $35 million when we sell a certain amount of Bulkamid in the trailing 12-month period.

Now looking at operating expenses, with that same platform, in 2023, we expect the total OpEx to be $280 million. It's a mid-teens increase above '22 and when you back that up against the 25% year-over-year increase in revenue for SNM and Bulkamid it just reiterates the operating leverage that we expect to see.

[Adam Maeder, Piper Sandler]

Really helpful, Dan, and thank you for the color there. And for the follow-up, I wanted to ask about it, one of the staff, I hope I heard it correctly that you guys provided in the prepared remarks, but I think you said you have nearly 1,000 physician implanters doing SNM in United States, I was wondering if you're able to kind of give a little bit more detail there and also remind us kind of how you kind of view market concentration and how fragmented the volumes are and then I guess the other part of the question is how do you think about that number kind of where can it go over time? Thanks so much for taking the questions.

[Raymond Cohen, CEO]

Yeah, thanks, Adam. So I'm trying to parse the question a couple of pieces here. So, if you take - the math is not that hard to come to, if you take the sacral neuromodulation revenue that we did in 2022 and divide it by the average selling price of, call it, $15,500, divided by the number of customers, then there it is, right, it comes out to about 14 SNM implants per customer and these are not accounts, these are - this is a physician count, right, so you could have four physicians in a given group urology practice, which may or may not be owned by the hospital, right, so that's kind of how we look at it, so those are the averages.

We've kind of avoided this as you know, Adam, we've avoided this in the early days, just because it's all over the board when you are first starting and you get some implanters that might be doing 50 a year, that's a great customer, right, and then some that may - they may just getting reinvigorated and they may only do six, so that's where you come about that average. I mean, I think it's embarrassing via abysmal, okay, I mean bottom line. I mean, this is silly that the average customer in the United States is doing as few as they are.

Now that presents a big opportunity and a big upside for us, right. I mean - and these numbers are better today than they were when we started in 2020, right. I mean, we are seeing incremental increases in same-store sales on that side. So it's all upside for us from that standpoint. So hopefully, I'm looking at my colleagues now to see if there was any other substantive part of the question.

[Dan Dearen, President and CFO]

No, I think…

[Raymond Cohen, CEO]

How many more could...

[Dan Dearen, President and CFO]

I think raised now, look, there are, call it, between 2,100 and 3,000 physicians that have implanted SNM, raised - I think in the prepared remarks or in one of the earlier questions, which is we don't need to go out and find new physicians to bring them into SNM and with the innovation that we've brought to the table and the sales and marketing team and the fact that we are smothering these accounts with clinical specialists to make sure that everything goes perfectly well for their patient population, it's just time, or it's perseverance and time for same-store sales to increase, we track this internally, we know exactly how many more units each customer did in 2022 over 2021 and it's really solid growth.

And so, we believe over the next five years, we're going to see a big increase in utilization and the great news, as Ray just mentioned is, since the average, if not all at that level, but it's very easy for these physicians to double or triple their volume without running into any issues with access to operating suite time for a patient population.

[Raymond Cohen, CEO]

You know, Adam, it's Ray again. I have one more thing I'd like to add and it's been really interesting with Bulkamid because what we have found is that only about half of the customers and by the way we have more Bulkamid customers than we have SNM customers right now and we found about half of them are not even doing sacral neuromodulation, and of the half that are doing it, not all of them are our customers, right, some of them are competitive accounts.

So this is really interesting and it's been a true eye-opener for us, right, and that is - look, if you're doing Bulkamid, I mean there is no reason in the world why you're not doing sacral neuromodulation, it's just that you've got it maybe a bad attitude about it given the legacy products that were out there, right, so - but once again, big opportunity for us in terms of that and having Bulkamid, it really helped, right, it's getting us into accounts that we normally wouldn't have been and is giving us a lot of opportunities for cross-selling which we've been taking full advantage of which I think is showing up in our market share numbers and so on so forth. So, but really appreciate the questions, a good question, we're happy to chat about that.

[Adam Maeder, Piper Sandler]

Good color. Thank you.

[Operator]

Thank you. Our next question comes from the line of Michael Polark with Wolfe Research. Your line is now open.

[Michael Polark, Wolfe Research]

Hi, good evening, a lot of questions are asked, so I boycott my second question, I'll just ask one, I'm curious, the expansion into being a two therapy company with Bulkamid has proved to be highly successful, you've built a real platform, the focus call point, I've asked this question before, I'm just curious for your updated views, is there interest in adding a third leg to the stool, what does that opportunity set looks like today or is the focus in '23 executing on this core vision? Thanks so much.

[Raymond Cohen, CEO]

It was, Mike, right?

[Michael Polark, Wolfe Research]

Yeah, yeah.

[Raymond Cohen, CEO]

Yeah, thanks, Mike. You know, when you're asking a question I just keep thinking about what's going to be the headline in your report that you're going to put out after we finish. In any event, it's going to have something to do - the way I answer this question might show up in this headline about the third leg on the stool, right. But you've already used the word boycott, so that's good inspiration.

[Dan Dearen, President and CFO]

Use the word focus, Mike, So, look, I think that it's not as if there are folks who come to us with all kinds of other opportunities and various different products that could fit even within the urology or urogynaecology arena. I just think that we're early as a company. We would just continue to kind of get that point across, it's three years since we've been commercial distribution and as you know, we've got this thing about execution and doing things well with quality and we don't want to lose focus.

This is such a greenfield opportunity that I think if all of a sudden we were to bring something new to the game that maybe deals with men or some other kind of urology product, I think that - I would be a little circumspect if I was sitting on the outside, I mean this is such a big opportunity that I think a lot of companies would be quite envious of what we're looking at.

So, therefore, we're going to stick to our knitting. It's not to say that we won't add additional, let's say, things that could make things easier in the future, et cetera, et cetera, but we're going to kind of focus in this area of incontinence and for the foreseeable future and then we'll reevaluate, but our goal is as we've stated, number one, market leadership in sacral neuromodulation and we are more than three-quarters of the way to that goal right now, so we're going to continue to press that hard and we'd like to be a $0.5 billion company, and we think that's within our grasp and then maybe things change for us, and we have more levers to push at that point, but you're not going to be surprised by some announcement that all of a sudden, we decided to get into BPH or something like that, that's not the direction that we're thinking about, so I appreciate the question.

[Michael Polark, Wolfe Research]

Understood, thank you.

[Operator]

Thank you. Our next question comes from the line of Shagun Singh with RBC Capital Markets. Your line is now open.

[Shagun Singh, RBC Capital Markets]

Great, thank you so much for taking the question. Just one topic from me, you talked about a big focus on same-store sales and doubling and tripling volumes, where are these patients coming from anecdotally, what are you hearing from customers on volume and demand in 2023? And then just on awareness, what are the levels of awareness for medical device intervention options, is it quantifiable, is it like in the single digits, double digits, like anything you can share? And I'm sorry I missed the DTC spend for 2023, can you just remind me what the amount was? Thank you.

[Raymond Cohen, CEO]

So we spent about $20 million in 2022 on DTC, we'll spend approximately the same amount in 2023. Where the patients coming from, they exist in every physician's practice in urologists and urogynecologists, they've been walking in the door and out the door. They will get the drug prescription and walk out the door and never coming back and we have proven this to a lot of our customers by just getting a mail or a simple letter in the mail to their existing customers saying, hey, we've got new technology, you may want - specific to your problem, you may want to consider coming back in here, want to fill out symptom questionnaire and we'll get you scheduled.

It is unbelievable how many new patients get activated. We've talked about Botox numerous times, the fact that about 150,000 women got Botox in 2022, well, 15% or 20% of all the customers that - all the patients that we treat have previously had Botox. So a big campaign of ours is getting that across to the physicians to say, look, you're just temporizing these patients, you're giving them a temporary solution for a chronic problem, let's get them back in here, let's talk to them about a long-term multi-decade solution that will solve their problems.

So we don't need to find, the patients are already there, and this is a point that I think is maybe counterintuitive, it's just counterintuitive, we think that, well, you go see a urologist, they're going to spend time or urogynecologist, they're going to spend time with you, they're going to talk to you about all the treatment options, but the reality is if you take a stop watching and you went in and installed what actually happened, I mean they're spending minutes, only minutes with these patients, and so that's part of the issue.

So you can see why we're doing all these other things. Why do we have storybooks? Why do we have clinical specialists, why are we providing DTC, we're trying to help patients identify themselves and wave their hands in front of the office and say, hey, I've got this problem, help me, don't give me another drug prescription that doesn't work.

So, I think there's nothing really new about this, it's just - this is what's going on and I mean there are 10s of millions of people that are just sitting out there right now and they're not getting the treatment that they deserve and we're going to do our little part to see that more of these patients get treated and I mean if the DTC numbers don't really get the point across, I don't know what else would. I mean 11,000 and 12,000 people are filling out our symptom questionnaire and saying, please connect me with a local provider in my community to get evaluated, these are incredible numbers. And once again pale in comparison to the number of patients that are already sitting in EMR systems or file cabinets of customer locations around the United States. So we really appreciate that question, you've helped us even further inform about this topic.

[Shagun Singh, RBC Capital Markets]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Michael Sarcone with Jefferies. Your line is now open.

[Michael Sarcone, Jefferies]

Thanks. Hi, Ray, Dan, and Neil. Thanks for squeezing me in here. That's just one follow-up on the DTC campaign. It does look like you're gaining some steam there. You talked about over 11,000 qualified leads in January, could you just give us an update on kind of what the mix of those patients looks like, I know in the past you've talked about 60% treatment-naive, so any update there? And then, when do you think you might start being able to mine some of the patients in terms of implants that come in through the funnel?

[Raymond Cohen, CEO]

So, Michael, thanks for the question. It's already happening. We are able to now start to make a direct correlation between patient names that have filled out questionnaires and those who are getting treated. The numbers are growing. We're seeing - we've said it's about a six-month gestation period before we could truly expect stuff. We are starting to see it, it is measurable. We're very encouraged by that.

Having said that, nothing has changed, I mean, it may be even more patients who - or more people who are filling out these questionnaires that are treatment-naive. So I think once again that just underscores how generally speaking the population here in the United States is unaware that there are advanced therapies to treat this problem.

So it's all good, it's all moving in the right direction, but the reason we're not spending more money on DTC is simply because we want to do justice to those individuals who have already raised their hand, and it's a process, 11,000 and 12,000 people raise their hand, you got to reach out to all of those individuals try to get them on the phone and try to get them an appointment, I mean, if anything, what we're doing differently in 2023 is moving more towards a concierge service, so that we can kind of keep people on the line and get them in the appointment book because that's where things kind of break down, right, practices are busy and all the rest. So - and everything else, every other management team has set, which we don't need to repeat on this call.

So - but could we do more, yes, could we spend more, yeah, could we generate more interest, yeah, but once again it's a big task right to be able to do justice to the "leads" that we're getting to begin with.

[Michael Sarcone, Jefferies]

All right, thank you.

[Raymond Cohen, CEO]

Thanks, Michael.

[Operator]

Thank you. Our next question comes from the line of Mike Matson with Needham and Company. Your line is now open.

[Mike Matson, Needham and Company]

Okay. Thanks, I'll just ask one question, since we're passed the 30-minute mark here, so I guess I'm just wondering about kind of the pipeline and we've seen tremendous improvements in the lifespan and size of these devices in a fairly short period of time, and you seem to have been launching kind of a new version annually, so can you continue that pace and are we nearing sort of the near-term limits in terms of battery life and size and things like that for these devices?

[Raymond Cohen, CEO]

So, another interesting question, Mike, I think the fair answer is that our engineering team has really overachieved. I don't think anybody expected this kind of longevity with these really very small, very thin devices. We feel very confident that we've kind of rolling out a lot of what can be had on the implantable pulse generator side, so I think we're kind of pencils down there on - for IPGs for the moment.

Our attention now is focusing on re-imagining our External Trial System, so that's more comfortable for people, that's something an initiative inside the company and other things related to just streamlining the whole process of getting patients through the care pathway and interfacing with our people and external trials and all these kinds of things.

So you're going to see more innovation from Axonics, no question, it's just not going to be in the near term being defined as the next year or two, it's not going to be on the IPG side, it's going to be other future months if you may for the system.

[Mike Matson, Needham and Company]

Okay, got it. Thank you.

[Operator]

Thank you. I would now like to hand the conference back over to Raymond Cohen for closing remarks.

[Raymond Cohen, CEO]

All right, well, thank you. That was a really good robust Q&A session. We really appreciate the questions coming from the analyst community. So just in closing, I'd like to just say that we remain grateful for the trust that physicians, patients, and of course, shareholders have placed in Axonics.

As always, I'd like to thank my colleagues in Irvine and our team in the field for their diligent efforts and dedication to fulfilling the Axonics mission of improving the lives of adults with incontinence and so I thank you all for joining us on today's call and we look forward to speaking with you more as the year unfolds, and you all have a good evening.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.