Axonics, Inc.

Good day and thank you for standing by. Welcome to the Exonix second quarter 2023 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 a session, you will need to press star 1-1 on your telephone. You will then hear an automated message. Your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker today. Neil Blodker, please go ahead.

Thanks, Victor. Good afternoon, and thank you for joining Exonix's second quarter 2023 results conference call. Presenting on today's call are Raymond Cohen, Chief Executive Officer, and Dan Deren, President and Chief Financial Officer. Before we begin, I would 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 Axonix's 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, July 27, 2023. Except as required by law, Exonix undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances, or unanticipated events that may arise. With that, I'd now like to turn the call over to Ray.

Thanks, Neil. I'd like to welcome everyone joining this afternoon's call. So with strong company-wide execution, Exonix generated record results in the second quarter. Revenue was $92.9 million in the second quarter, an overall increase of 35% compared to the prior year period. More specifically, Cyclone modulation revenue was $74.2 million, an increase of 33% compared to the prior year period. We are particularly proud of this level of growth considering this is the first quarter in which we anniversary last year's launch of the F-15 recharge-free system, which is currently our top-selling S&M system. Revenue growth is being driven by a combination of higher utilization and share of wallet in existing accounts, as well as the addition of competitive accounts that have converted to exonics. Internationally, our S&M revenue grew by over 50% compared to last year as a result of a measurable contribution from our recently deployed direct sales force in Australia. Bulkamed revenue was $18.7 million, an increase of 41% compared to the prior year period. Results were driven by increasing reorder rates from existing accounts the onboarding of new accounts, and the addition of new sales reps primarily focused on promoting BulkMed. Our gross margin in the quarter was 75.6%, up from 72.8% in the prior year period. The most exciting news for us is that we generated over $18 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 margin expectations and financial performance outlook in further detail in his prepared remarks. I would now like to provide several other corporate updates. On the reimbursement front, CMS recently published proposed Medicare payment rates that will take effect in the calendar year 2024. In summary, the proposal includes S&M facility fees that would increase by 1.5% in surgery centers and be flattish in hospital outpatient departments. As for physician fees, while the conversion factor was down 3.4% across the board for all specialties, physicians performing sacral neuromodulation would actually see an increase due to the work RVUs increasing for implanting the neurostimulator. More specifically, physicians performing an external trial with a PNE in their office, followed by a full implant in a facility, would see a 50 basis point increase in reimbursement under the proposal, while physicians who perform an advanced trial in a facility followed by an implant would see a 23% increase in reimbursement. Our commercial team currently accounts for nearly 60% of Exxonix's 725-person full-time employee headcount. We have approximately 400 commercial team members in the United States, of which 185 are directly involved in selling or sales management, with the balance of the personnel being field clinical specialists, field marketing specialists, and remote therapy support specialists. Internationally, we now have approximately 25 field-based personnel, and they're located in Western Europe and Australia. We are well staffed at this time and expect only a modest increase in our commercial team headcount for the balance of 2023. Turning to the Exonix Find Real Relief direct-to-consumer advertising campaign, we continue to generate more than 10,000 qualified leads each month. A qualified lead is those individuals that complete a symptom questionnaire on our website telling us about their symptoms and providing contact information. In addition, many of our customers tell us that patients come into their practice asking about Exonix therapy after seeing our ads on television or on the Internet. The campaign continues to generate goodwill within our physician customers as they are grateful that we are helping to ensure that adults with these conditions are seen by a clinician and advancing along the care pathway. Now, we continue to note that over half of the individuals filling out these questionnaires are treatment naive, underscoring the notion that people don't know that it's not a normal part of aging to leak urine and that advanced therapies exist to treat incontinence. Our call center continues to work diligently to connect qualified leads with a physician specialist in their local community. Now, it's been about 18 months since the launch of the DTC program, and as we anticipated, it is yielding measurable FNM and bulk med revenue and an encouraging return on investment. Given the success of the DTC program, we are in the process of launching new commercials related to the conditions of stress, urinary incontinence, which is served by Bochumet, or fecal incontinence, which is part of our S&M system in the second half of this year. Now, turning to the IP lawsuit with our competitor, we will limit our comments on this topic to the following. As we have previously said and continue to maintain, we do not believe that Exonix infringes on any of our competitors' patents, And this case is simply litigation to create a financial and legal burden on exonics in an attempt to slow down our market penetration. Now, recently, the United States Court of Appeals for the Federal Circuit reversed the decision of the PTAB that the time lead patents asserted against exonics were valid, finding instead that the PTAB committed legal errors in its analysis. The Federal Circuit remanded the matter to the PTAB for another review consistent with its opinion and direction. Now, there are a few more patents under review by the Federal Circuit, and we anticipate that the appeals court decision will be forthcoming in a couple of weeks. Because of these developments, the U.S. District Court for the Central District of California issued a stay on the litigation proceedings pending the outcome of the proceedings before the PTAB. As a result, the jury trial previously scheduled for August has been postponed indefinitely. Now, turning to product development initiatives. We're making really good progress on the foramen finder lead placement technology we acquired from Radian in April, and we continue to expect it to be commercially available in mid-2024. Another project we're working on internally is a new external trial system that aims to enhance the PNE trial experience, making it more comfortable for patients and more convenient for physicians. Now, in closing, we feel like, or closing from my perspective, we feel like we're just scratching the surface of really what is possible in this under-penetrated and under-treated patient population. Now, with that said, I'm going to turn the call over to Dan, who has some prepared remarks with respect to the financial results.

Thanks, Ray. As Ray noted, Axonics generated net revenue of $92.9 million in the second quarter of 2023. This represented an increase of 35% compared to the prior year period. Stakeholder modulation revenue was $74.2 million, of which 97% was generated in the United States. Volcomed revenue was $18.7 million, of which 79% was generated in the United States. Gross profit in the second quarter was $70.2 million, representing a gross margin of 75.6%, compared to 72.8% in the prior year period. In the first half of 2023, gross margin was 75%. While we are pleased with this result, as you know, gross margin is sensitive to overhead absorption, manufacturing yields, and supply chain disruptions. Taking these factors into account and given that we are continuing to ramp up the manufacturing lines of the R20 and F15 products, We expect gross margin for 2023 to be within the 73 to 74% range for the remainder of the year. As we've stated previously, we expect gross margin scale to be in the mid 70s. Operating expenses were $82.3 million in the second quarter. Note that this includes a one-time $15.4 million non-cash charge for acquired in-process research and development related to the Radian technology acquisition of the foramen finder and a $600,000 non-cash charge for the change in fair value of contingent consideration related to the bulk emit acquisition. Excluding these non-cash charges, adjusted operating expenses were $66.2 million in the second quarter of 2023. We continue to expect adjusted operating expenses of $280 million in fiscal year 2023. Net loss in the second quarter was $7.3 million compared to a net loss in the prior year period of $21.4 million. In the second quarter of 2023, Axonics generated $18.4 million of adjusted EBITDA compared to $1.6 million in the prior year period. The attractive financial profile of the company and the inherent operating leverage of our business model is becoming more evident in our financial results. In fact, this marks the first quarter of that Axonics was profitable on an operating income basis, which includes stock-based compensation, depreciation and amortization expense, and only excludes non-cash charges associated with the radian in-process R&D and the change in the fair value of the contingent consideration related to the bulk med acquisition. Cash, cash equivalents, and short-term investments totaled $331.5 million as of June 30th. During the second quarter, Axonix made a $35 million milestone payment to Contura Holdings Limited related to Bulkamed, achieving over $50 million of sales, and the 12-month period ended March 31, 2023. Turning to fiscal 2023 guidance, our updated outlook is as follows. Total company revenue of $358 million, an increase of $10 million compared to prior guidance. This represents an overall revenue increase of 31% compared to fiscal year 2022. We now anticipate S&M revenue of $285.5 million, an increase of 29% compared to fiscal year 2022, and bulk emit revenue of $72.5 million, an increase of 40% compared to fiscal year 2022. This concludes our prepared remarks, and I will now turn the call back over to Neil. 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 only. If you have an additional question, please reenter the queue, and we will take your second question if time permits. With that, Victor, please begin the Q&A session.

And as a reminder, to ask a question, please press star 101 on your telephone and wait for a name to be announced. To withdraw your question, just press star 11 again. Please stand by. We'll compile the Q&A roster. One moment for our first question. Our first question will come from Chris Pasquale from Nefron Research. Your line is open.

Thanks, and congrats on a great quarter, guys. Ray, I thought the comments around the DTC campaign were interesting. Seems like the focus there is shifting a little bit, maybe getting a little bit more specific on the stress and fecal indications. I thought one of the advantages you guys had there was the ability to be somewhat generic in the way you advertised because you covered the full spectrum. So just curious how you're thinking about optimizing that program longer term and if quantify in any way what kind of return you've gotten thus far off of the work you've done there.

Sure. Thanks, Chris. Appreciate your comments and question. So our commercials now, whether they be found on Facebook or on television, they are generic in the sense that we're just talking about if you have these symptoms, you're leaking urine as an example, then we'd like to help you get a consult with a specialized or, you know, with a physician in your area. We're not selling anything in 30-second TV commercials. We're not talking about cyclinal modulation. We're not talking about bulk med. We're not being too specific at all about the condition. It's basically, you know, urinary incontinence has been the focus. So the commercial has been pretty much geared towards overactive bladder patients. The responses, as you've seen, have been really amazing. In the first six months of this year, a million people, unique visitors, went to findrealrelief.com, and about 8% of them filled out a questionnaire and told us who they are and indicated an interest in getting with a physician. Now, of course, the challenge, of course, is getting those interested people actually booked with an appointment, and I'm sure everybody can appreciate that's not a simple process. Okay, having said that, we now, 18 months later, are able to measure a return on investment on a name-to-name basis. We can easily match the person who responded on the questionnaire to actually a patient who has an implant in their body. This is very encouraging for us, and it is exactly what we had hoped but we knew it was going to take some time before we could actually measure a return. So given that we're encouraged by this, we want to now increase, if you may, the messages that we're providing, you know, let's just say on television or on the internet. This doesn't imply an increase in expenditure, per se, but we're going to have some different messages out there. So one of the things that we're going to do, and I'll try not to be too wordy about all this, is that we're going to be running an ad on television, on Facebook, where we have a patient who is younger, a woman in her 30s who had some children and had stress urinary incontinence. And so she's going to say, you know, when I laugh, when I lift, when I exercise or cough or sneeze, I leak. And then I found Exonix and I got Bulkamed. So it's going to be a Bulkamed commercial, all right? which we haven't done before. So even though we're getting a lot of patients getting BocaMed as a result of our OAB commercials. So we're going to be a little more specific. And then, of course, their questionnaires will identify the symptoms that they have and so on and so forth. So we're excited about that. We think that makes a lot of sense for us to do that. We're also going to do a commercial for fecal incontinence. So we have a patient. And by the way, these are all volunteers. These are not paid actors or actresses. These are patients who volunteered to do these commercials. So we think that's a more powerful approach than having a celebrity or so on and so forth. So in any event, so we've got a gentleman who's got fecal incontinence and will be very specific about his condition and the fact that exonics therapy can help resolve this. So that's what we're talking about when we say, you know, SUI and FI and so on and so forth. So we're going to run OAB commercials, SUI commercials, and fecal incontinence commercials. And they'll all be running kind of simultaneously. But once again, we're not talking about tripling our spend or even doubling our spend. We may spend a few more dollars incrementally, but we're getting a nice return. So hopefully, Chris, that's a super fulsome answer to your question.

Yeah, that's great. Thank you, Ray. Dan, one for you. The operating leverage has been very impressive, especially when you exclude some of the one-time items here. It certainly doesn't seem like mid-70s needs to be a final resting place for gross margin, given the progress you've already made. Why can't you push it further than that, particularly as the portfolio over time shifts, I think, entirely to F-15 and R-20 versus carrying three products?

We agree with you, and we can. We're just not providing guidance for 2024 yet. But we've picked mid-70s as the target going back a couple of years now. And the messaging, we just want to keep it on point that we're clearly trending in that direction, especially when you see 75.6% in the quarter. And we're just trying to keep everything in check as we ramp production. So you're correct. Look, we don't have to change the product. We don't have to change anything in the supply chain. We just have to keep executing and have longer production runs, and we see it trending the way you do.

Great. Thank you.

One moment for our next question. Our next question will come from the line of Larry Beagleson from Wells Fargo. Your line is open.

Hi, this is Nathan Trey back on for Larry. How are you? So in the past, you talked about your S&M sales growing at 25% and the market itself growing at 15%. How do you still feel about these targets considering, you know, the strong growth you posted in the first half? Has anything changed with regard to market growth? And if so, why?

Well, look, I think that, you know, the market growth is going to continue. You know, unfortunately, Only Exonix is involved in the market growth game. Our other competitor seems not to be too keen, let's just say, on doing some of the things that we're doing. So having said that, we're the ones carrying the water. We see that the market is growing, and, you know, In any given quarter, it's going to be up or down or whatever, but 10% to 15% is certainly in the range. And we think over time, 15% is what we would expect to see, which is consistent with what we've been saying since 2018. And the market's been growing. So we're just focused on putting our heads down and executing the plan. And we've got a lot of initiatives that are happening in accounts to help identify additional patients that could benefit from the therapy. And the issue is, and I've said this many times before, every single urology and urogynecology practice in the United States has anywhere from hundreds to thousands of untreated patients in their paper filing cabinets or their electronic EMR system. And it's just simply a matter of activating those individuals and having somebody speak to them about the notion of, An advanced therapy like we have that provides a fundamentally permanent or long-term solution measured in a couple of decades to these chronic problems. We don't believe that Botox, which is a four- to six-month treatment for OAB, is appropriate. Most patients drop out after two injections. We know that adherence to OAB medications is terrible and that 70% or 80% of the patients will stop their medications certainly within a year. So these are all the reasons why we believe that in the end of the day, cyclinomodulation is the way to go. It's going to provide long-term therapy relief for patients who have a chronic problem. So the difference here is despite the fact that there was a product in the marketplace for two decades with a company that had a monopoly, we're overcoming that, the notion that cyclinomodulation is the therapy of last resort. That attitude is now changing amongst our physician customers and so on and so forth. So we're extremely bullish about the future, and we expect to continue to grow our revenue in saquinomodulation for many years into the future. And I have to tell you, BulkMed certainly is helping us as well because we're able to get more mind share from these customers by providing additional therapies, And one last comment about that in that is that, look, these are not discrete persons who show up. It's not like a woman shows up today and she's got urinary urge incontinence and nobody has fecal incontinence or nobody has stress urinary incontinence. The reality is a third of our urinary urge incontinence patients have fecal incontinence and almost a third of those patients who have urinary urge incontinence have stress urinary incontinence. So, you know, that's the reason why VocaMed is such an important part of our product line because we're able to treat the whole person. And that's what we're up to.

Thank you. One moment for our next question. Our next question comes from Michael Pollard from Wolf Research. Your line is open.

Good afternoon. Thank you for taking the question. I think we know the why behind it, the Exonix value proposition, the innovation you've introduced into the market, but I'm curious, Ray, for your perspective on recent account conversions. You know, order of magnitude, have the numbers gotten bigger again? Maybe the other way to ask the question is, as I look at, you know, say 30%, 35% S&M growth in the U.S., you know, how much of that do you perceive to be from accounts that are freshly new to exonics?

Well, you know, as we – Mike, thanks for the question. So as we've said, you know, and I think everybody's acknowledged and certainly yourself and other analysts have been writing about it, you know, the reality is that, you know, 60% of all the people, you know, practicing sacral demodulation in the United States – I mean, I'm giving you a round number – are not our customers today. Okay? Okay. Now, I dare say that we're helping some of those accounts that are not our customers because people are walking in their office, too, asking about exotics therapy, and they go, oh, yeah, well, we got that, too, but it's called something else. So that's kind of what's going on out there. This is the first time we're creating awareness in the marketplace. So it's this awareness that's being created and the tools that we're providing. In other words, something as simple as, a symptom questionnaire that is handed to new patients when they walk into the door, or existing patients when they walk in the door, so that the patient can sit there and in two minutes can score themselves. So if they're moderate to severe in terms of incontinence, then the physician and the staff can talk to them about this. This has never been done before. So, I mean, this is basic blocking and tackling. I mean, we're talking the most basics. Now, have we been able to get every account that we have to implement this? No. Okay? You know, we're still working through those processes. But what we're seeing is better utilization in these accounts than we've seen before. And we've called it same-store sales. I think that's a good way to refer to it. So they're increasing. And that is really what is driving the revenue of the company. Now, are we picking up new accounts? Absolutely. And we're going to continue to pick up new accounts. And I would dare tell you that until we have them all, we're going to continue to hammer on everybody to get our message across. And so the word's out, right? The word is out. The docs are popping their head up out of the sand and are hearing from their other colleagues, hey, these Exonix folks, man, they got the technology, they got great people, they provide great support, and these products last a really, really long time. So I think we're doing all the right stuff, and it's just going to be a matter of time now before we continue to have more and more share of wallet and more and more share of this market. You know, one of the things that we're keenly focused on in these accounts that we've converted is to get them to give us more of that business, right? So we still have people that are splitting their business and they may be early in the conversion to Exonix. So we still have a long way to go, even in the accounts that have recently converted. So, you know, I understand the question. I understand that there's a lot of folks out there that are thinking, oh, wow, is this just a share shift game? And it's not. I mean, the fact is it's not like these are budgets. It's not like sacral modulation is budgeted, right? There's so many patients that are going to get it. I mean, this is about patients walking in, coming to the realization between their physician and themselves that this is the right therapy for them, and we're going to continue to stay focused on that.

Thank you. One moment for our next question. Our next question will come from Shagan Singh from RBC Capital Markets. Your line is open.

Thank you for taking the question. Ray, this one from me. Could you discuss where utilization could go for S&M procedures longer term? And perhaps you can share the current range within your customer base, what that looks like and what you're doing to really expand that. You did touch on DTC, but just curious if there's anything else we should be focused on. Thank you.

I understand the question. I appreciate the question. I think that everyone would be surprised at how low the utilization of S&M is on a per-account basis. Let's just say the average is in the neighborhood of 12 to 15 per year. This is abysmal in terms of what is reasonable, what is possible, et cetera, et cetera. We're dealing with a whole lot of dabblers, as we refer to them out there. So that's the state of the state. That's what we've kind of come into this market, and that's what we find. Now, are we satisfied with that? No, it's ridiculous. It's ridiculously low. Now, there are plenty of accounts that we have that they do 15 to 50 a year. Those are some really, really nice accounts. And then there's less that do more than, say, 50 implants in a year. Nice prize if you can get those accounts, obviously, and we're keenly focused on the smaller and larger accounts. All right, so what are we doing? I mean, there's too many things that we're up to for me to describe on a conference call like we have today. But I'll give you one of the most basic things that we do, which is the single most effective marketing program. And that is getting... the account with our help to send a letter to their customers that have already been differentially diagnosed with, let's just say, overactive bladder or fecal incontinence or whatever the case might be. Simple letter. It goes out from the doctor, personalized, electronically signed by them, and included in the letter it says basically, hey, Dan, we've got new technology for your chronic condition. Why don't you fill out this symptom questionnaire and put it in this pre-stamped return envelope and send it back to our office? Simple as that. It's all HIPAA-compliant stuff, and it gets great response from the existing patient base. This is back to my comment about names in their file cabinets or in their EMR system. That is the number one thing, and it really surprises our customers because they're like, oh, I thought I was doing a really good job, and then they realize they sent 500 letters out, and next thing you know, there's 30 or 40 people that have raised their hand and said, yeah, yeah, yeah, yeah, I want to come in, and I want to talk about this advanced therapy. So that's one example. We also spend a lot of time with the APPs, these advanced practice providers, the nursing staff, the NPs, PAs, RNs in the accounts, so that we can help them with their talk tracks. How do you communicate about saquinomodulation or Volcomet to your patients? Enrolling them in this process, because physicians have very little time, and I'm sure everybody on the call understands this. The average doc spends maybe 10 minutes with a patient, so you can't rely on the physician to be explaining all these things to these patients. They're very limited on time. So we realize this, and we've been working on on all kinds of different programs where we can help utilize the staff and so on and so forth to get more patients into the therapy. So this is just one of a whole list of various different marketing programs that we have available. I mean, basic stuff, even things like making sure that on the physician's website that they actually have information about sacral remodulation or bulk embed. You'd be surprised. you know, a very small percentage of them even have invested in these types of basic things. So it's not, and this is the point I've been trying to get across for a number of years now, that in order to grow this business, in order for us to continue to see increases in utilization and for us to grow year over year, it is not rocket science. This is all basic stuff, you know, 101 marketing, right, that we're talking about and so forth. Now, The fact that none of this has ever been done before, okay, this is not what was happening before Exonic showed up on the scene is the time that it's taking now. We have to overcome the legacy situation. So I appreciate the question. Hopefully this was a good enough answer so you get a sense about the kinds of things that we're doing.

Thank you. One moment for our next question. Our next question will come from Richard from Truist Securities. Your line is open.

Hi. Thanks for taking the question. So congrats on the operating performance, particularly the margin improvement and profitability here this quarter. I guess my question is really just about how you balance pursuing revenue growth from here. And, you know, you're clearly at an inflection point of sorts on, on the profitability curve. So I'd love to hear Ray, just, you know, how you're prioritizing those two, especially as we, we think, think out a little further and, and particularly if you could put into context where the investment goes with respect to reps, maybe even have an A in addition to DTC. Thanks.

Yeah. Thanks. Thanks for the, um, question, and thanks for acknowledging the superb adjusted EBITDA result in the quarter, which I think really, as Dan said, it really underscores the leverage that we have in this business model. So here's the thing, and we'll make this comment. We are not holding back on spending money. Let's be clear about that. We are doing everything that we think makes sense to help us grow this business. We are not holding back on hiring salespeople. We're not holding back on training them. We're not holding back on HQ visits from physicians or APP events or DTC. We are not holding back. This is not about squeezing blood out of a rock to make it look good from a financial standpoint. This is natural. This is just what's occurring and naturally occurring in our business. So, I mean, that's the comments. If we see an opportunity where if we have underserved, in other words, we're not making a penetration in a given part of the United States, then we're going to add the additional people that we need to get to those accounts that we're not getting to. So I think that's important for us to get that message out. Yes, we're at an inflection point, but it's a good one because we've got leverage in the business and money's dropping to the bottom line, and this is what we had predicted all along. So Dan and I are not surprised. that this is actually what's occurring. Granted, you know, the margin, okay, a point here, a point there, one way or another is going to be variable. But other than that, I think we've turned a corner now, and this is going to be a fast-growing profitable company for years to come. Thank you.

One moment for our next question. Our next question comes from Adam Meter from Piper Sandler. Your line is open.

Hi, Ray. Hi, Dan. Congrats on a nice quarter, and thank you for taking the questions here. I'll keep it to one. Wanted to ask about the updated guidance for the full year. You increased the guide by 10 million. It looks like that increase is evenly split between SACWL and BulkMed, and for Q2, I think you beat by 6.5 million or so, so you're raising by more than you beat. Can you just talk a little bit about kind of what's informing that decision? And then broad strokes, any more color that you can provide on the second half cadence in 2023 Q3 versus Q4. Thank you.

Sure. Hi, Adam. Thanks. Always good to hear from you. The thing that's driving the change in the guidance is, look, we obviously meet regularly with the entire field team. And they basically come back with what they see each of their accounts doing. We roll it up to the area director level. And then we have a discussion. And so, you know, look, we're just being transparent and changing the guidance as we see fit to be as accurate as possible. And so, really, it's just basic blocking and tackling. We have 725-plus employees in the company with over 400 in the field, but As you would expect, we have a very capable and large infrastructure of people in sales management, including the chief commercial officer, the area directors, and the key account managers. We have very detailed, granular insight into each of our accounts. One thing that Ray talked about earlier was the same-store sales. We've seen high teens' growth in same-store sales from year to year. For us to adjust guidance is just an indication it's going well. What we predicted and guided at the beginning of the year was that we'd have a big step up from Q1 to Q2. Q3 would look a lot like Q2, and then there's the seasonality step up in Q4 when patients have met their deductibles. So really no change in the guidance other than business is going well, and we just want to keep messaging that everything is tracking according to plan.

Thank you. One moment for our next question. Our next question comes from Mike Madsen from Needham. Your line is open.

Yeah, thanks. So, you know, just given the strong adjusted EBITDA on the quarter and kind of what, you know, this consensus is modeling or the guide supplies for the second half, I mean, your revenue should be even higher. I mean, is there any reason that your kind of adjusted EBITDA margins won't at least stay at this level or even potentially go higher over the rest of the year?

No, you're reading it. Hi, Mike. Good to hear from you. No, you're reading it correctly, which is, you know, when we look forward at the OPEX, we're still confirming the guidance we provided earlier in the year in terms of total OPEX for 2023. And you're right, as revenue steps up, even with a, you know, a point or point and a half change in the gross margin percentage, you're absolutely right, which is it should continue to trend as you are estimating, which is it should look very similar or even better as we go into Q3 and Q4. We're continuing to add to the sales team. We're continuing to add some expenses in G&A, you know, back-of-house operations to support the field team and to support the customers. But just to lay it on the line, there's no significant OpEx expenditure that's coming down the lane in the near future that we see that's going to impact our path to profitability.

Thank you. One moment for our next question. Our next question comes from Anthony Petrone from Missoula. Your line is open.

Great, and congrats on a great quarter here. Two quick ones, you know, from our end, just high-level views on the CMS proposal for tibial in the ASC setting, just early views there from Exonix, if that were to be finalized, you know, how do you think that influences the decision between tibial and sacral neuromodulation next year, and The other one, I'll quickly put it in there, is Intuitive Surgical report a couple weeks ago opened up the idea that GLP-1s could, you know, are seeing some impact in U.S. bariatric surgeries. And one of the behavioral recommendations for overactive bladder is weight loss. And I think there's a higher incidence in 32 plus BMI. So any thoughts on, you know, could GLP-1s influence the the overactive bladder space. Thanks again.

So, all right, this is Ray. Thanks for the question. Look, this GLP-1 phenomenon, I mean, I don't think anybody really knows what the impact's going to be over time and how long anybody's going to stay on that Ozempic or Manjaro or whatever it might be. So we'll see, you know, what that means. We have tens of millions of patients with moderate to severe overactive bladder. We've got, I think the latest number was like 22 million specifically moderate to severe stress urinary incontinence patients. I mean, this is a huge underpenetrated and untapped market. So we are nonplussed and I wish everybody out there who wants to lose a few pounds good luck doing that, right? So that's great. In terms of implantable tibial nerve stimulation, I think the most recent comments or results from CMS, I think just simply underscore what we've been saying all along. And, you know, let me just be clear. We're in the sacral modulation business. We think sequential modulation is the way to go. These are permanent, long-term implants to provide symptom relief in the 90th percent symptom relief for patients. We are not in the ITNS business. We don't intend to get in the ITNS business, and we don't see ITNS having any impact on our business going, any measurable impact on our business going forward. So I appreciate the questions.

One moment for our next question. Our next question will come from Callum Titchmarch from Morgan Stanley. Your line is open.

Hey, guys. I appreciate you taking the question. Just on Radian, could you maybe share some initial takes from any engagement you've had here with Docs about the tech? We spoke with one recently, and he seemed pretty excited about the placement solution. But I'd assume your sample size is a bit bigger than ours. And then maybe if you could share some thoughts on any further enhancements you'd like to add to the S&M portfolio in the long term. Thanks a lot.

What was the second part of the question? Any other enhancements to the S&M system?

So I think that I alluded to it in my prepared remarks that we also have a new external trial system that is forthcoming, and we think this is going to make it more comfortable for patients and more convenient for physicians. So that's kind of included and kind of sort of combined with the – lead finding or the sacrum finding technology, but two discrete things. Just so we're clear, we did quite a bit of diligence with respect to the foramen finder. We discuss it when, you know, physicians come to visit us, and we get a lot of very positive feedback from them. But just to be clear, this product is not in anybody's hands. Okay. So we're in the process of hardening or finalizing the hardware design and hardening the software package and all that stuff. And then we'll start to, later this year, we'll get the product under, let's just say, a non-significant risk kind of study concept into the hands of a few customers so that we can do some usability testing and so forth. Look, people are enthusiastic about it, but just in fairness, I don't want to oversell it because the fact is we haven't put it in the hands of physicians yet. But people get the concept and they think this could be helpful. Back to talking about that, I mean, just the elimination of having to use live fluoro, I think, is a big thing because, you know, just less exposure to fluoro is a good thing. And if we can help people save a few minutes... by doing an external trial and getting that lead placed in the right place, then it's a winner. And the beautiful part about the product is it's not expensive. It's a little piece of hardware and some software. So it's not like this is something that is costly or is going to create a burden financially or anything else. So we're excited about it. We think it makes sense. We're going to keep our eyes open. Anything that we can do that could enhance the S&M portfolio, that we're certainly keen on doing it. But at the moment, I think we've got, you know, two big projects that are forthcoming in 2024. And, you know, that's keeping us busy internally. Thank you.

One moment for our next question. Our next question will come from the line of David Riscott from Baird. Your line is open.

Oh, great. Thanks. Thanks for getting the questions and congrats on the strong quarter. Ray, I appreciate the comments that you provided just around this, you know, 15% kind of market growth outlook. You touched on some of the kind of account share basis, you know, growth that's been going on in the quarter and thus far so far. You know, we do get a lot of questions just around the 12 to maybe 18-month kind of growth implications for S&M and I mean, I look at consensus today and our model, I think 2024 sits at maybe 20 plus percent or so. And, you know, that assumes probably some of those share gains and some of those market growth outlooks that you've talked about. And I'm really just wondering here, you know, if you could provide any color, at least maybe more around specifically that level of visibility that you do have, but again, gives you just this confidence in a, you know, longer term rising adoption trend for S&M as a whole. Thank you.

Sure. I think folks know that personally, as CEO of the company, I'm probably a little bit more involved than most CEOs are in terms of customer-facing activities and talking with our customers. A, I enjoy it. B, it's helpful to have these kinds of conversations where I'm not relying on information that got filtered through five different layers. So I can tell you that every single doctor that I've spoken to, and I've probably spoken to at least 100 of them personally this year, every one of them says they're not doing anywhere near the volume in SNM that they could be doing. They all will admit it now, that, you know, yeah, we've been doing a lousy job and, you know, only a very small percentage. I mean, we're talking less than 5% of the patients who, you know, are in their practice have actually gotten advanced therapies. and so forth. So we see how this is happening with bulk emit. This is very interesting. Look at this phenomenon. Nobody used bulking. Bulking is trash, blah, blah, blah, blah, blah. It was all about slings, right? Well, look what's happened. I mean, just in this last quarter alone, 20,000 people got bulk emit. 20,000 people got bulk emit for a product that heretofore nobody was using. So that speaks to the power of of what happens when people get behind a new therapy and realize these great results. We're overcoming a legacy that existed for over two decades where sacral nomodulation was perceived as a therapy of last resort because it wasn't MRI compatible, it didn't last long, and it was fussy. So it's going to take some time, and we're three and a half years into the game with a global pandemic in the middle of it, towards changing the way people view this technology. So I can tell you every data point we look at, whether it's same-store sales, whether it's response to DTC, whether it's response to mailers that go from the office, or whether it's attendance at the events that we put on it, The interest is high. Their patients are plentiful. All we need to do is have people open their mouth and say, hey, we have some technology that's going to last a long time that could solve this problem once and forever for you. It's working with stress urinary incontinence. Nobody wants a sling, but they want relief, and they're signing up for BocaMed left and right. Same thing is starting now to happen. There are little shoots. that are springing up all across the United States with respect to this. So we can't be more bullish. I don't know how to explain it or what words I can use to explain how enthusiastic we are and how bullish we are about the future for this technology.

Thank you. One moment for our next question. The next question comes from Brett Fishpin from KeyBank. Your line is open. All right.

Hey, Ray and Dan. Thanks so much for taking the question. I thought I'd throw one in on BulkMed. I think you mentioned on the last conference call that you were planning to start to look at placing some more focus on calling on GYN practices as, you know, a potential channel for BulkMed procedures. Just curious if you could touch on, you know, if you think the team has started to make some progress on that initiative in 2Q. And then overall, how do you look at the process for eventually bringing more of these doctors on board as potential customers, given the scope of that opportunity? Thank you.

Yeah, thanks. It's a really good question. I appreciate that question. So a couple comments. So I've talked about two initiatives, two kind of new marketing initiatives, if you may. One is a focus on Botox injectors, people that dropped out of the or never got behind sequential modulation for the reasons I've already described. And so that is our number one kind of focus in terms of a new marketing approach. We now have just started, literally in Q3 now, marketing to physicians that do a lot of Botox to try to get them to listen, you know, take a meeting with us and listen to why they should consider doing less Botox and more sequential modulation. You know, as we said in the past, you know, I mean, we think about in 2022, our data suggests that nearly around 150,000 patients got Botox. So, you know, and when you combine the two companies in the space for S&M, it was only 52,000 implants. So, you know, we see Botox as the big competitor, quite frankly, for a sequinal modulation. Now, that wasn't your question, but going to Bocomed, Right now, we're only selling to urologists and urogynecologists. And more urogynecologists are doing more bulk med than the urologists because we have a lot of urologists that are focused on male urology, right? So they're into all the other stuff, okay? So GYNs are a huge potential opportunity for us because they're the primary care physician for most women. And it makes no sense that these people, these women are walking in the door for their standard care and they're not being offered a solution for incontinence. We know that they're all walking in that door first. Before they ever show up at a urogynecologist's office, they're at a GYN's office, right? But we haven't gotten around yet to a marketing initiative geared specifically towards that patient population. because we've had other, you know, kind of bigger fish to fry, so to speak, and the bulk of med business is going so well. But we are going to do it. And, you know, I think maybe it's best I say that, you know, we'll get something going this year, but really it's a 2024 initiative. I think that's the best way for us to frame it. But you can see a lot of opportunity out there for, you know, revenue growth on the bulk of med side as well.

Thank you. And I'm not showing any further questions in the queue. I'd like to turn the call back over to Raymond Cohen for any closing remarks.

All right. Well, thank you. Thank you for everybody's questions. They're really good questions today. We appreciate the questions. It always gives us a chance to give a little more color on these calls. So I just want to say that, look, we're very thankful for the trust that our physician customers and patients have put into us. We really appreciate the support from shareholders. who have stuck with Exonix through thick and thin, so to speak. And I want to thank all my colleagues here in Irvine who are, you know, got their heads down every day trying to make things happen and building our products with care and quality. And then obviously for our sales team in the field, not only in the United States, but also internationally and down in Australia for their efforts and dedication to helping us fulfill our mission of improving the lives of more adults with incontinence. So I thank everybody for joining the call today and your continued interest in exonics, and we look forward to speaking with you again in the near future.

That concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.