Axonics, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Exonix third 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising 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 would like now to turn the conference over to Neal Bollett, CORE, Exonix, and Best Relations. Please go ahead.

Okay. Thank you, Michelle. Good afternoon, and thank you for joining Exonix's third quarter 2023 results conference call. Presenting on today's call are Raymond Cohen, Chief Executive Officer, and Kerry Keese, Chief Financial Officer. Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events, prospects, or performance are forward-looking statements as defined under the Price and Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, These statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in Axonics filings with the Securities and Exchange Commission, all of which are available at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, October 30th, 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.

Thank you, Neil. And I would like to welcome everyone joining this afternoon's call. With respect to the third quarter, we had strong company-wide execution. We generated solid results in this quarter with revenue at $93.1 million, representing an overall increase of 32% compared to the prior year period. More specifically, cyclone modulation revenue was $73.9 million, an increase of 30% compared to the prior year period. This strong level of growth was achieved despite a 42% growth comparison in Q3 of last year, a period which benefited from the launch of our F15 recharge-free sequential modulation system. Over the last 12 months, approximately half of our S&M revenue growth in the United States has been driven by higher utilization and share of wallet at existing accounts, with the other half of our growth coming from the addition of competitive accounts that are now doing business with Exonix. Drilling down even further, over the last 12 months, our existing customers have grown their S&M procedural volumes in the high teens compared to the prior 12-month period. We believe this growth represents or reflects the significant unmet need of the people with moderate to severe incontinence, physicians' enthusiasm for partnering with Exonix on S&M, and increasing public awareness of advanced therapies thanks to our DTC campaign. Internationally, while our S&M revenue is modest, sales of S&M systems grew by nearly 40% compared to last year as a result of measurable contribution from our recently deployed direct sales force in Australia. We are working with TGA, which is Australia's competent authority, and BSI, our notified body in Europe, to gain approval for the F-15 recharge-free S&M system and are optimistic that these approvals will have a positive impact on international S&M revenue in 2024. The exact timing of these approvals is difficult to predict given the recent changes in the regulatory review process. Moving on to BulkMed, revenue was $19.2 million an increase of 42% compared to the prior year period. Results were driven by increasing reorder rates from existing accounts, the onboarding of new accounts, and the addition of additional sales personnel primarily focused on promoting Volcomit. Our gross margin in the third quarter was 74.2%, which is up from 72.8% in Q3 of last year. We also generated $14 million of adjusted EBITDA and nearly $4 million of GAAP net income in the quarter as we continue to realize and benefit from the operating leverage of our business. Now, Carrie will discuss our financial performance in further detail in her prepared remarks. But before we go there, I'd like now to provide several other corporate updates. We have approximately 415 commercial team members in the United States, of which 200 are directly involved in selling or sales management. The balance of the team are field clinical specialists, field marketing specialists, and remote therapy support personnel. Internationally, we have approximately 25 field-based personnel located in Western Europe and Australia. We're well staffed at this time and expect only a modest increase in our commercial headcount heading into 2024. Turning to the Exxonix Find Real Relief direct-to-consumer advertising campaign, we continue to generate more than 10,000 qualified leads each month. Qualified leads are those individuals that complete a symptom questionnaire on our website telling us about their symptoms and providing contact information. In addition, many of our customers tell us that patients come into their practices asking about exonics therapy after seeing our ads on television or on the Internet. The campaign continues to generate goodwill with our physician customers who are grateful that we are getting the message out to the public and that there are advanced therapies available to treat adults with these conditions. Now, we continue to see that over half of the individuals filling out these questionnaires are treatment naive, underscoring the notion that people don't know that it's not a normal part of aging to leak urine or suffer from bowel dysfunction. Our call center continues to work diligently to connect qualified leads with urology specialists in their local community. The DTC program is yielding measurable S&M and bulk of ed revenue with an encouraging return on investment. Given the success of the DTC program, we recently launched new television commercials relating to the conditions of stress, urinary incontinence, and bowel dysfunction, as well as refreshing our OAB commercials. Other marketing, educational, and clinical initiatives include but are not limited to our attendance at national and regional medical conferences, monthly programs to educate APPs, those are APs, NPs, and RNs, visits to our Irvine campus by physicians, master courses for physicians seeking to better their skills for SNM and or BulkMed, educational fellows and residency programs, webinars, and also helping to facilitate mailings from physicians to patients who may not be aware that there are new products that can address their incontinence symptoms. Turning to product development initiatives, we continue to expect the foramen finder lead placement technology that we acquired earlier this year to be commercially available in mid-2024. We're also making good progress on our new external trial system that aims to enhance the external trial experience and make it more comfortable for patients and more convenient for physicians. We have additional initiatives underway that we will not be discussing publicly at this time due to competitive reasons. So, at this point, I'd like to turn the call over to Carrie for her detailed review of financial results. Carrie?

Thanks, Ray. As Ray noted, exonics generated net revenue of $93.1 million in the third quarter of 2023. This represented an increase of 32% compared to the prior year period. Sacral neuromodulation revenue was $73.9 million. of which 98% was generated in the U.S. Volcomit revenue was $19.2 million, of which 81% was generated in the U.S. Growth profit in the third quarter of 2023 was $69.1 million, representing a gross margin of 74.2% compared to 72.8% in the prior year period. Through the first nine months of 2023, Axonics generated a gross margin of 74.7%. While we are pleased with these results, as you know, gross margin is sensitive to overhead absorption, manufacturing yields, and supply chain disruptions. Taking these factors into account and given that we are continuing to ramp up the manufacturing lines of the R20 and F15 cyclone modulation products, we expect gross margin in the fourth quarter of 2023 to range between 74% to 75%. Operating expenses were $69.8 million in the third quarter of 2023, excluding acquisition-related expenses. This compares to $59.4 million in the prior year period. We expect operating expenses of approximately $79 million in the fourth quarter of 2023 which is consistent with the 280 million of adjusted operating expenses in 2023 that we have guided to previously. Net income in the third quarter of 2023 was $3.9 million, aided by interest income of just over 4 million. This result compares to a net loss in the prior year period of $16.3 million. In the third quarter of 2023, ExxonX generated $14 million of adjusted EBITDA compared to $3.3 million in the prior year period. The attractive financial profile of the company and the inherent operating leverage of our business model continues to be evident in our financial results. Cash, cash equivalents, and short-term investments were $344.7 million as of September 30th, 2023, an increase of $13.2 million compared to June 30, 2023. Turning to fiscal year 2023 guidance, our updated outlook is as follows. We are increasing total company full year guidance to $362 million, up from $358 million previously. This represents growth of 32% compared to fiscal year 2022. We anticipate S&M revenue of $288.5 million, an increase of 30% compared to fiscal year 2022, and bulk-admitted revenue of $73.5 million, an increase of 42% compared to fiscal year 2022. That concludes our prepared remarks. I will now turn the call back to Neil.

Great. Thanks, Carrie. 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 re-enter the queue, and we will take your second question if time permits. With that, Michelle, please begin the Q&A session.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. The first question comes from Chris Pasquale with Nephron Research. Your line is open.

Thanks, and congrats on a nice quarter, guys. Ray, I wanted to ask about the stat you gave around your existing customers growing at a high teams rate. I think that's a really interesting data point above what we think the overall market is growing. I'm curious, what do you think the biggest drivers of that have been? Are you able to really direct the DTC efforts to those accounts, and so you're helping to funnel patients there? Or do you think that it's really a function of having the Axonix technology at those accounts and having a more appealing therapy to offer those patients?

Thanks, Chris. Appreciate the question. I think it's a multifaceted answer to your question. It's not just one thing. You know, our objective is to go deep in all of the current accounts that we have. And when I say go deep, I mean, there's a number of initiatives that we're dealing with. First of all, we'd like to see that they hand out questionnaires, very similar to the symptom questionnaire that we provide on our website. So if every patient that walks in the door to a urology or urogynecology office gets a questionnaire, then they're going to score themselves immediately. And if they're moderate to severe, it just pops right off the page. Then they can get counseled appropriately. I think every single customer that we have doing that, not yet, not everyone, but it's a big initiative at our field force. The other thing is our clinical specialists spend a lot of time with the office staff talking about how to move patients more efficiently through the care pathway. And also, once they get an external trial, to make sure that they get scheduled efficiently for a permanent implant, right? So that's key. DTC, of course, is a part of it, but it's a small part of it because, as we have mentioned many times, a lot of the patients are treatment naive, and it takes quite a while for them to work their way through the care pathway. Having said that, as I mentioned in my prepared remarks, we are getting a nice return on that investment today. But here we are, you know, it's October of 23. We started this process back in April of 22, as I recall. So, you know, it's taking some time, but it is starting to work. So I think that, you know, of course, getting better clinical results and being sure that and our customers becoming aware of those results, unlike the way it used to be back in the day before exonics was in the market. This is another big part of the equation. If physicians are aware that these patients are doing extremely well with our technology, then obviously they're that much more motivated to talk to the next person about sequinal modulation. And lastly, we clearly, having Volcomed, as part of the portfolio or armamentarium also helps us as well. So it's about presence of mind. It's about people thinking about the products that we have to offer. So it's a really good question, but I would tell you there's a lot of things involved in that. And I mentioned, you know, one of the marketing initiatives also is that we do what's called these APP events where we have these nurses coming in Every month, there's a program someplace in the United States, which is typically attended by about 50 people, 50 nurses, and they're able to then get insights into what's working in other accounts and things of that nature. So, you know, there's a big, long laundry list of things, Chris, that we're doing. Now, I'll just finish by saying we're thrilled to see this kind of growth from our existing customers, and this really gives us the confidence that the market is really growing, it's untapped, and in our hands, it's going to continue to grow. We can't speak to what our competitors are doing or not doing, but in our own hands, it's clear that this gives us a lot of confidence about some of the things we've been saying about the underserved population and the potential to grow this market. That's helpful. Thanks.

Please stand by for the next question. The next question comes from Larry Beagleson with Wells Fargo. Your line is open.

Good afternoon. Thanks for taking the question, Ray. Congrats on a nice quarter here. Ray, just at a high level, taking a step back, you're at over one-third share now. What are the drivers to market leadership in the U.S. for you? How long do you think it'll take? And Is there any reason you can't grow S&M revenue by 25% next year? Thanks for taking the question.

Thanks, Larry. Appreciate the question. So, look, we're not backing off kind of what we've been talking about in terms of this general notion of 25% exonics growth in S&M revenue year over year and in the neighborhood of 15% growth in the market, right? So we're confident about that, and we will continue. And I think if you just run the numbers out, then, you know, we're going to get there. You know, I mean, of course, I'd like it to happen sooner than later, but if we get there by the end of 2025, then that would be fantastic, right? So I think everything is moving in the right direction, and we're pleased with the results, and we're just going to keep executing the game plan. Thank you.

Please stand by for the next question. The next question comes from Travis Steed with Bank of America Securities. Your line is open.

Hey, thanks for the question, and congrats on the margin upside this quarter. I'll focus my question on the margins. Just curious if you can elaborate on some of the stuff you're doing to get the margin expansion this quarter and how you can push that into 2024. It did sound like you were raising gross margin for Q4 a bit. I don't know if there's any additional color behind that. I think before it was 73 to 74, and now you're at 74 to 75. Want to comment, Karen?

Sure. Hey, Travis. Yeah, we have had some meaningful improvements to our gross margin, as you stated. We've had and expect to continue to see some choppiness quarter to quarter as, you know, we're still, getting to that even production capacity. At the end of Q2, we had some line of sight to certain yield and supply chain issues. So we had previously guided to 73% to 74% in the second half. We do feel that these items are fairly squared away at this point and have updated the guide to 74% to 75%, as you mentioned, for Q4. And we do note that Q3 came in at 74%. 0.2%, the high end of that previous guide. So longer term, we do think there's several ways to continue to improve gross margin. We do not think 75% is the cap. And, you know, for now, we just need to keep executing, refining our process and supply chain, have longer production runs, and continue to optimize the overall process with expected higher volumes.

And EBITDA margins as well.

Yeah, on EBITDA margins, I think this Q3 marks the sixth consecutive quarter of adjusted positive EBITDA. So, you know, there's no reason that this trend shouldn't continue. We think that the results are being driven by, you know, the natural operating leverage in the business model. For Q4, we made the remark of 79 million for expected OPEX. If you look at adjusted OPEX, meaning just backing out the non-recurring acquisition-related costs and the one-time acquired IPR&D charge, you can really see a steady increase quarter to quarter in that adjusted OPEX number. So we think that trend will continue. The Q4 OPEX guide is slightly higher. You know, as we expect some increased spend in Q4 for higher commissions, more spend on certain marketing initiatives and product development initiatives. But the overall 2023 OPEX number at 280 is right in line with consensus, which we're comfortable with.

Great. Thank you.

Please stand by for the next question. The next question comes from Richard Newiter with Truist Securities. Your line is open.

Hi, thanks for taking the questions. Congrats on the quarter. Maybe just following up on the margins here. For 2024, looking ahead, Ray, do you still feel comfortable getting to a 20% plus EBITDA margin? And I'm just wondering if you could give us a sense as to timing or cadence of OPEX as we think out the next couple of quarters. Specifically with the fourth quarter, it looks like there's a little bit of deleveraging as I think your applied sales growth is going to grow a little bit below OPEX. You know, I'm just trying to think, you know, should we be thinking about the operating leverage year over year, you know, disproportionately weighted in any part of the year next year?

Yeah, look, you know, I can give you some general comments, but, you know, we would rather wait to talk about 2024 until we finish Q4, you know. As you know, consensus is $105 million in the quarter in terms of total revenue. So, you know, I think we've provided some pretty good inputs that one can riddle out what adjusted EBITDA is going to look like and so forth. In terms of cadence for next year, I think we've been very, very clear And really tried to message this beginning earlier this year that Q1 is the softest quarter for a company like Exonix given that our product represents an elective procedure. So we see that Q1 will be the lightest quarter. Q2 is always strong, and then you hope that Q3 is roughly equivalent to what you're able to do in Q2, given that there is momentum in the business budget and you have the holidays to deal with. And then, of course, Q4 is the strongest quarter of the year. So that's kind of the way that we've seen it work out the last couple of years. okay, you know, there was a product launch that was a big deal in 2022 that maybe skewed the numbers a bit heavily in a particular quarter. But that's about, that's the cadence that we expect. And we don't see us slipping back if that's part of the question that you're asking, right? In other words, you know, given the increasing revenue and the ability to for us to manage things in terms of our build plan and all the rest of the things that Carrie was talking about. I think we're in pretty good shape. But we'd rather wait, if you don't mind, until early next year, likely, you know, in the January or February period, and we'll provide, you know, solid guidance for 2024 at that time.

But I appreciate the question, Richard. Thank you.

Please stand by for our next question. The next question comes from Adam Meter with Piper Sandler. Your line is open.

Hi. Good afternoon. Congrats on the nice quarter, and thank you for taking the question. I'm going to maybe go a little bit off script here and ask about the international business and raise specifically the comments on F-15. If I look at my sacral remodulation model, which admittedly is not perfect, I show the OUS market at a little more than $100 million, and I have your market share at roughly mid-single digits internationally. I'm curious if you could comment on those figures. And with a product like F-15 in the market, I mean, how quickly do you think you can go more on the offensive like we've seen here in the United States? Thanks for taking the questions.

Yeah, thanks, Adam. I appreciate the question. You know, to start with, you know, you're talking about we have, in effect, 10% of the personnel internationally that we have in the United States. So, I mean, we've got to kind of start there. I think we're appropriately staffed considering the modest revenue that we currently have. In order for us to compete and to really grow our business internationally, we need the non-rechargeable S&M product. We need that product approved. You know, with that approval, I think we're in a much better position to compete, honestly, in these various different markets. I can't, I don't know what Medtronic's international number is. The only thing that we know was that it represented about 10% of their overall revenue according to public remarks that they made back in 2018 when we were first going public. So, as you know, we don't have privy to that information and I haven't heard any hard numbers. So, I don't know if it's as robust as you described. And just to remind people who may not be as aware, The issue internationally is you're dealing primarily with single payer systems who have budgets that don't provide a lot of money for products that are just a quality of life products, right? So that's the issue that there's these caps in, you know, whether it's Canada or the UK or the Netherlands or other markets we might talk about. Australia is a little more of a laissez-faire market, which is why we're focused now with a direct sales force there, and we're focused on that. But this shouldn't take too much longer, right? I think that's the point I was trying to get across in my remarks, Adam, was that, you know, we're down the path, right? We are engaged with these regulatory bodies. and we fully expect to get this product approved. There's no show stoppers per se, but things have changed a lot internationally in terms of the MDR requirements and even TGA requirements down under. So we're working on it, and hopefully we can get the approval in our hands in a matter of months as opposed to a longer period of time than that. But you'll see revenue increasing for us once these products get approved internationally. And hopefully, you know, this could become a more measurable part of our S&M business going forward.

Appreciate that question, Adam. Thanks, Ray.

Please stand by for the next question. The next question comes from Mike Polark with Wolf Research. Your line is open.

Hey, good afternoon. Thank you for taking the question. Just on recharge-free versus rechargeable mix in the quarter, the mentions in recent quarters has been like two-thirds, one-third recharge-free versus rechargeable. Seeing any change there, and I guess just curious if any new insights as to what patients are preferring in the field.

You know, thank you, Mike. I appreciate the question. It's interesting. that we all, you know, would like to attribute whether somebody goes rechargeable or not rechargeable to patient preference. But I would tell you, you know, based upon, you know, dozens and dozens of conversations I've had directly with our customers, that it's not so much patient preference. It's exactly whatever the doctor guides them to, which determines what they ultimately wind up with. You know, which is why we try to remind our customers that with the new R20, you're talking about a recharging interval of one hour every six to 12 months. I mean, that makes a rechargeable product not rechargeable, really, because they don't have to do anything. They just schedule the patient back in.

Ladies and gentlemen, please stand by.

Michelle, we're back on. Are you there?

Yes.

Okay. So, shall we go ahead and continue?

Yes. Mike is still, his line is still open for questions. Sorry about that.

Okay. So, Michelle, we're live now again?

Yes.

Okay. All right. Apologies. I think we had a power outage here in Irvine, California. So, sorry about that. Mike's question was about the split between rechargeable and non-rechargeable, and I was just kind of going down the path of explaining that as a company, we're agnostic, but it's more about physician preference, it seems to us, than patient preference. And the fact that the recharging interval is significantly long and not burdensome for people. But nevertheless, you know, it's tough to erase the perceptions that physicians have, but because for 20-something years, the only thing they knew was a non-rechargeable device from our competitor. So, but the direct answer to your question, Mike, is that it's now about 75% non-rechargeable and about 25% rechargeable. So, F15 continues to gain in popularity. Product is working great. People are highly satisfied with the product. And, you know, we're okay either way. As long as they're doing business with Exonix, we're happy to get the business regardless of which device they want to implant.

Helpful, Ray. Thank you.

Please stand by for the next question. Our next question comes from Shagan Singh with RBC Capital Markets. I do apologize. His line did disconnect. Please stand by for the next question. The next question comes from Mike Mattson with Needham and Company. Your line is open.

Yeah, thanks. Great to see the continued strength of what Paul committed. I was just wondering if, you know, in terms of the r d pipeline is there any opportunity to you know create enhancements reformulations of that product um and uh are there any opportunities for indication expansions or maybe going into additional international markets so with respect to bulkamed we have a pretty robust business internationally mike in fact i think

it was uh 81 of the bulk of that revenue uh you guys checking on me on this number 19 international so 81 in the united states um so you know almost 20 of our of the business uh in the quarter came from international markets and we're selling in quite a few countries um so that that will continue um You know, at the moment, Mike, we got heads down. We're just focused on continued adoption and utilization of bulk med. You know, we are, our pants are not on fire to try to do more things with that product. It's going really well. And I think the key thing for us now is just kind of continuing to get the word out, you know, on the product and it's fast becoming first line therapy for women with stress urinary incontinence. So, I think that pretty well answers the question as directly as I can.

Yeah, I appreciate it.

Thanks. Thank you, Mike.

Please stand by for the next question. The next question comes from David Rescott with Bayard. Your line is open.

Hey, guys. Thanks for the questions and congrats on the strong quarter here. Ray, I think in the prepared remarks, you called out a modest increase in headcount heading into 2024. I'm not necessarily entirely sure where the street is for next year, but we're kind of in that mid-teens Apex growth outlook into 2024. I'm just wondering if you could provide any more color on really how you're thinking about or qualifying this modest increase in headcount next year.

Thank you.

Well, you know, I would say, you know, modest is probably in the neighborhood of 5% or so. Um, I mean, if it was 10%, it's not so modest. Right. Uh, but you know, we're, we're covering literally the entire United States. I mean, we, we don't have areas of the country where we don't have representation. Uh, I mean, we're even in maybe Alaska last remaining state in the union. We have a representative now in Hawaii selling both PolkaMed and and sequential modulation So we've got good coverage, but we you know, we are now doubling down in certain territories around the United States where For one reason or another our competitor may have more business than than we do that we're not getting our fair share and and in those are the markets that we're really looking to to invest more in terms of personnel and So, we make sure we call on all those folks that are not doing business with us. So, what I would say is that, you know, we have very good data at this point. We know exactly who's doing cyclone modulation in the United States. We know from third party billing data how many procedures they're doing. We know a lot of stuff that we just didn't have this information, you know, years ago. So, you know, we're pretty focused now. And the key thing for us is we want to bring some bigger users, if you may, people that have higher volume to the party. That really helps move the meter. So I think at this point, considering we're, you know, less than, well, we're almost four years now, almost four years now commercial in the United States, that I think we've made phenomenal progress during this period of time and

And I'm really excited about, you know, the next 18 to 24 months and what we can accomplish during that period.

Please stand by for the next question. The next question comes from Kristen Stewart with CLP. Your line is open.

Hi, thanks for taking my question and congrats on a good quarter. I was wondering if you could just go into a little bit more detail on the new external trialing system. And sorry if I missed this, but any thoughts on timing for that?

So, yes.

In terms of timing, we're working diligently to be able to get that filed with the FDA in mid-2024. and assuming standard statutory timelines, the product hopefully will be in the market by the end of next year. So it does take some time, as you could imagine. The product is now fully developed, but we've got to do all the validation, verification, testing, and that's required in making the filing. So this is, the product is designed to eliminate A lot of these cables and things that are being used today make it much more streamlined, lower profile, and most importantly, we've said this publicly before, the ability for patients to be able to take a shower when they're undergoing that, you know, that three-day, typically three-day external trial. So I could tell you there's an enormous amount of enthusiasm amongst our customer base who have heard about the new product. And I think the combination of the foramen finder and the new external trial system, I mean, these things in combination should really help. And I think, Kristen, the piece of the puzzle here or the message that we're really trying to get out to not only the investing public and our shareholders, but also to our customers that, you know, Exxonix is the innovator in this space. We're the ones that are driving the market forward. coming up with new things and trying to make things more streamlined, et cetera, et cetera. And the message that we say to our customers and say to shareholders, if you're going to bet, bet on electronics because we're not stopping. And, you know, we're listening very intently to feedback from our customers and we're nimble enough to be able to react. And when we talk about one of our key values being thoughtful innovation, that's really where it comes from, right? It's listening, asking questions, listening, and then taking it under advisement and making the changes. So I think that, um, saquenal modulation has, has undergone a renaissance in our hands, uh, and we will continue to push the envelope forward, uh, in terms of, you know, making this as easy as possible, uh, for caregivers and patients to get the symptoms that they're looking for. So I appreciate the question. Um, you know, I'd draw you a picture, but, uh, you know, it's difficult to do live over the phone line, but, uh, But we'll be having a lot more information about this in the coming year.

Thanks very much.

Thank you.

Please stand by for the next question.

The next question comes from Shagun Singh with RBC Capital Markets. Your line is open.

Great. Thank you so much. And I'm so sorry I dropped. But, Ray, congratulations on a on a strong quarter, and it does look like you have a lot of momentum going into 24. I was just wondering if you can, you know, maybe talk to us about how you think about adjacencies or call points that Exxonix could potentially expand into, even though there is a lot of runway right now with your current businesses, but you've had BulkMed, that's turned out really well. You know, just how do you think of, you know, ITNS, does that make sense, urology, women's health? You know, how do you think about it more broadly? And then separately, just how do you think about Exonix strategically? Would you be open to interest from other players? Thank you for taking the question.

If I decode the last part of your message, I think you're asking me, would Exonix be open to being acquired by a larger company? I think that's the question. Is that how you heard it, Neil? Okay. Okay. So my answer to that would be, you know, Exxonix's stock is for sale every minute of every day, and we encourage people to buy it. So you can buy a little bit, a lot of bit, or the whole bit. And I think that, you know, that would be my reaction to that question. I mean, you know, none of us are here for lifetime employment. You know, we're here to create shareholder value. That's the game. And so we're certainly open. It's not something we think about. We just focus on the execution of our business. The other question you asked is really a big question and difficult to kind of get one's arms around it. I mean, we're constantly looking at different things. We have a lot of folks coming to us, and they saw that we acquired VolcomEd and we acquired the frame and finder. So we get a lot of inbounds, as you might imagine. Our main focus is in the incontinence field, and we're trying to stay straight down the fairway with respect to that. So we've been evaluating a number of other potential products that could add to the bag that are strategic in nature and would move the meter. We don't want to fill the bag up with a bunch of miscellaneous stuff, right? That's inexpensive. That doesn't make sense for us. So we're going to be judicious and thoughtful about what we do. and we'll just go from there. In terms of adjacencies, if that means what else could we do with neurostimulation, I think that we've said numerous times that we do not anticipate getting into an adjacent business utilizing neurostimulation as a platform. That does not make sense. Different call points, different businesses completely, so we're going to stick to our knitting and and just kind of stay straight ahead. We got a good business. We have such underappreciated, or I should say untapped market with a combination between SUI patients who've been differentially diagnosed or who have the moderate to severe forms of stress urinary incontinence or urge urinary incontinence patients to go to the bathroom in time. I mean, these are tens of millions of patients out there. And I think our DTC efforts really underscore you know, the magnitude of this opportunity, you know, and so forth. And when you run ads on television and you've got over 250,000 people per quarter, you know, and this year will be well over a million people coming to our website looking for information at findrealrelief.com. So that, I think, also underscores the fact that this is a really unbelievable market. And I think it would, quite frankly, kind of a bit foolish for us to take our eye off the ball. So we're going to continue to go down the path and, you know, focus on growing the company, growing it profitably in the years to come. And I do appreciate the questions today.

Thank you.

Please stand by for our next question. The next question comes from Anthony Patron with Mizuho. Your line is open.

Great, and congratulations here on a strong quarter. A couple just on account penetration, referencing some statistics from last quarter. You mentioned, Ray, last quarter that the highest volume accounts at Exonix are doing about 50 surgeries a year. Just wondering where the average is across the user base and how many can get up to that 50 upper bound, let's say, over the next year or so, and then The second quick follow-up would be on just bulk of med synergies here. You know, got that up to about 20,000 implants as of last quarter. And it certainly seems like there's synergies that are driving, I think, you know, competitor wins just considering that Medtronic doesn't have it for bags. So how much more runway is there with bulk of med just in terms of that procedure being Now a bigger option for patients and practices, but also potentially a lever to gain share from Medtronic. Thanks again and congratulations.

Yeah, thank you, Anthony. I appreciate your comments. Let me clean something up. I think that either some misinterpretation or a little bit out of context. We have some customers that are doing well over 50 implants a year. So I just want to get that point across. They're rare. and I think we kind of put them in three buckets, quite frankly. One is the, well, we use the term dabbler bucket, which is folks that are doing around one per month, right? So that's kind of, you know, there's a lot of those docs out there. I mean, any one physician that's doing one implant per month, they have the ability to do probably three to five times more than that with just a teeny little bit of effort, right? So we're continuing to move those physicians up in terms of their volume, which is why we made it a point to talk about the mid to high teens rate of growth on a per count basis. Obviously, it's easier to get somebody who's doing 12 to turn that into 20 than it is to take somebody who's doing 60 and turn it into 80 or 90, right? So we're aware of that. But, you know, we are looking to move the dabblers into the middle category, and we are looking, obviously, to maximize what we can out of high-volume accounts. The key thing for us is to bring some more of those high-volume accounts to Exxonix. And, you know, if they were a high-volume account, we came into the market, you know, clearly our competitor, you know, kind of withdrew their forces, if you may, and surrounded the castles. to try to keep us out of the bigger high-volume accounts. Now, we've been able to penetrate quite a few of them, but BulkMed has been the key for us to get into those castles and to get people using BulkMed and then to play the longer game with them with respect to giving us an opportunity on cyclone modulation. So your question was implying or asking whether or not BulkMed is helping us to gain share and to gain business from a sacral modulation standpoint? And the answer is absolutely without a doubt, no question. We would not be where we are today if we had not made that strategic acquisition and had that product in our line. And you're right, it does clearly separate us from Medtronic, who has no other business in urology other than sacral modulation. So now the good news is that we – only have about half of our bulk of med customers that are doing cyclone modulation with exonics. A bunch of them are doing it with our competitor and some are just doing Botox. So we're, we're continuing to work on that. There's a lot of cross selling initiatives that, that we're doing as a company, as you would imagine. And it's all moving in the right direction. I just think it's just going to take a little more time. You know, it's difficult to displace a competitor at a monopoly for 25 years, right? I mean, it's, You know, and we've talked about, you know, the legacy associated with that. So, but, you know, we're moving in the right direction. And I think that the word's out, right? When it comes to sacral modulation, we got the goods. Patients do really, really well with our products. They get great support from our team and so on and so forth. And bulk med works like a charm. And it is clearly much easier for a woman who has stress urinary incontinence to say yes to Volcomad than to a sling procedure as an example. So hopefully that gave you a pretty close answer, Anthony, to your question. Excellent. Thank you so much.

Please stand by for the next question. The next question comes from Callum Kitchmarsh with Morgan Stanley. Your line is open.

Yeah, thanks a lot guys for taking the question. Just on the DTC campaign, some interesting comments there. I'm wondering whether there's been certain respondent demographics or populations that have surprised you, anything that's varied from the typical patient type you've seen receiving SNM treatment across the years. I mean, given the goal of these campaigns is to spread awareness, I wanted to see whether you've seen anything different in patient mix since commenting the ads. Thanks a lot.

Thank you for the question.

I wouldn't say that there's anything different about the people responding to DTC from the actual patient demographics of who we're actually implanting. I would say it's pretty consistent. I think the only difference is that we have more men responding to DTC than actually we have as percentages of our customers that get an implant. You know, as it turns out, maybe 25% of the people inquiring are men, but in terms of actual implants, it's less than 15% or somewhere around that number. So that would be the only thing I'd call out. I think it's going to be really interesting now, starting this month, actually, we will have the first bowel dysfunction or fecal incontinence commercial that will be running with a gentleman who is a patient who talks about him having had both urinary and fecal incontinence and how, you know, exonics therapy has really changed his life. So it'll be interesting to see, and we very specifically picked the man to do that particular commercial. Now, we also have a woman who also has the same dual incontinence symptoms, and we're running that commercial as well. So this November... We have, for the first time, stress urinary incontinence commercials. We have dual incontinence commercials where people are talking about urinary and sacral incontinence at the same time. And in addition to the kind of straightforward, more generic, you know, OAB ads. So you can see that we're trying to get to your question in a way. I mean, we're changing up the messaging and see what kind of response we get. Is it any different than what we've seen so far? But I think it was time for us to be a little more specific with some of these symptoms and see if we can draw some people in. We're really curious to see how the fecal incontinence ad draws because talk about people being embarrassed. I mean, it's one thing to talk about urinary dysfunction, it's really embarrassing to talk about fecal dysfunction. So, uh, we do know that about 30% or so of the patients that actually get sacral nerve modulation for urinary urge incontinence have some form of fecal incontinence to go along with it. So if we can draw some of those people in presenting with fecal incontinence as their primary indication, it'll be really interesting to see, you know, how that impacts our business in general. So, um, That's, you know, that's kind of what we're up to. But the demographic, you know, and why are we on television, right? Well, we're on television because if you look at third-party stats, you'll find that it's the people 60 years or older are the ones that are watching network television these days. And, you know, that's why we're on television because that's our demographic that we're after. The average age of a person getting signal modulation for exonics is 58 years old. So, That that's the case. We've tried some streaming services and some other fancy stuff in the past, and it just doesn't pull as well as, you know, just plain vanilla Facebook and and obviously a network television. So that's that's the story. Great. Appreciate it. Yeah. Thank you.

Please stand by for the next question. The next question comes from Michael Sarconi with Jefferies. Your line is open.

Hey, good afternoon, and thanks for squeezing me in here. Sure. Just a quick question. Can you just talk about, in the U.S., what does rep productivity look like on average and kind of, you know, where do you think that could ultimately go?

That's a good question. You know, we talked publicly early days that when we looked at the headcount of our competitor for segmental modulation, their average productivity per rep was about $3.5 million. Now, that was with a monopoly with no competition. This year, in 2023, we expect average productivity to be a little over $2.5 million on a per rep basis. And we would expect, obviously, you know, nice increases consistent with what we're guiding in terms of our growth trajectory in 2024. So you could imagine, once again, not even finished our fourth year and to see the productivity to be as high as it is, we're very encouraged by that. So that's the answer to your question. I think You've got to round it up higher, obviously, for 2024, but that's what we're looking at.

Great.

Thank you, Ray.

Thank you. Please stand by for the next question. The next question comes from Mike Crackey with LeRinc Partners.

Your line is open.

Hi, everyone. Thanks for taking our question. So are your newly implemented DTC efforts and the new television commercials likely initiatives that you expect to continue throughout or potentially accelerate in 2024? And then just as a quick follow-up, how do you kind of balance the trade-off in that DTC spending versus committing to more meaningful investment at the headcount side?

Well, I think they're mutually exclusive, quite frankly. Once again, we're not looking at DTC as a driver of our business. We kind of look at it like that's the icing on top, right? And we're playing the long game. The DTC is about playing the long game for us, really counter programming messages that people are hearing on television. that are ads that are suggesting it's normal to leak urine. And if you just take my pill or wear my panties or whatever, adult diapers or whatever it is, then everything is great. So we're the company that's doing the counter-programming. But I want to emphasize that DTC is not the driver of our business. It's all the other initiatives that we've talked about, and some of which I mentioned in the script today, that are really driving the business. Now, having said that, our customers really appreciate the fact That, you know, we're on the airwaves and that we're, you know, providing these messages to folks. And, you know, some of this is going to be difficult to measure, right? There's additional benefits where not everybody's going to fill out a symptom questionnaire. Not everybody's going to go to the website. Some of them just walk right into these offices and say, ask me about exonics, ask me about exonics therapy. Now, of course, when they walk into a customer location that doesn't offer exonics and they go, tell me about exonics therapy, they go, yeah, we got that too. It's called InterStim. I'm still waiting for the thank you card from our competitor for doing national television, but that hasn't been forthcoming. In any event, hopefully that gives you a reasonably colorful answer to your question.

Much appreciated. Thank you. Thank you.

I show no further questions at this time. I would now like to turn the call back to Raymond Cohen for closing remarks.

Thank you, operator. I appreciate your help today. So, in closing, I'd like to say that our mission-driven team remains committed to innovating, supporting our dedicated physician customers and their patients, raising awareness of our best-in-class therapies, And we're confident that exonics will continue to grow rapidly and profitably in the years ahead as we continue to expand and penetrate the underserved and undertreated incontinence markets in which we participate. We remain grateful for the trust physicians, patients, and shareholders have placed in exonics. And as always, I would like to thank my colleagues in Irvine and our team in the field for our diligent efforts, for their diligent efforts and dedication to fulfilling the exonics mission of improving the lives of adults with incontinence. So thank you so much for the call today. Appreciate all the questions from the analyst community, and we look forward to seeing and speaking with you in the weeks and months ahead.

This concludes today's conference call. Thank you for participating. You can now disconnect. Everyone have a great afternoon.