Silk Road Medical, Inc (NASDAQ:SILK) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Good day. Thank you for standing by. Welcome to the Silk Road Medical’s 2023 First Quarter Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Marissa Bych, Investor Relations. Please go ahead.

Marissa Bych: Great, and thank you for joining today’s call. Joining me are Erica Rogers, Chief Executive Officer; and Lucas Buchanan, Chief Financial Officer and Chief Operating Officer. Earlier today, Silk Road Medical released financial results for the 3 months ended March 31, 2023. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements.

All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, expense management, expectations for hiring and growth in our organization and our business, physician training and adoption, market opportunity and penetration, commercial and international expansion, regulatory approvals, reimbursement, competition and product development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2023.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9, 2023. Silk Road Medical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I will turn the call over to Erica Rogers, Chief Executive Officer.

Erica Rogers: Good afternoon, and thank you all for joining us. Our first quarter progress marks the start of an important year at Silk Road as we capitalize on the strong foundation we have built to drive TCAR adoption and alleviate the devastating burden of stroke on patients’ lives. We delivered revenue of $40.1 million, reflecting 43% year-over-year growth, supported by over 5,800 procedures. We are pleased to see strong underlying demand for TCAR. And considering our progress thus far and our outlook ahead, we are reiterating our guidance for $176 million to $184 million in total 2023 revenue. As we make our way through the year, our most important objective remains to grow our business through U.S. physician adoption as we march towards the standard of care.

The largest opportunity to do so comes from leveraging our broad commercial footprint to drive utilization across our trained physician base. This includes onboarding and training new sales, sales management and other field professionals to expand and align our territories as we increase touch points with our customers. Early in the year, with this objective in mind, we carried forward an initiative to further optimize our expanding sales organization through hiring, promotions and territory design. We have been pleased with our recruiting ability and the quality of candidates that seek out Silk Road Medical. And we believe this effort creates the right structural balance for strong, continued growth looking forward. Simultaneously, we are strengthening our category leadership and commercial prospects following the expansion of our addressable market last year to include patients as standard surgical risk of surgical complications.

TCAR has demonstrated exceptional outcomes in this patient population, and we were pleased to see a paper published recently in JAMA Neurology, built on real-world propensity-matched data in over 20,000 patients from the vascular quality initiative or VQI, which investigated outcomes in standard surgical risk patients treated with TCAR versus CEA. Outcomes from the publication largely reflect Liang et al’s presentation at the Vascular Annual Meeting in 2021. The study found statistically equivalent outcomes across primary endpoints with significantly lower incidence of cranial nerve injury and procedure time using TCAR. The paper represents another important piece of clinical evidence and provides a strong foundation for our early momentum in this expanded patient population.

We will continue to reinforce TCAR’s value proposition in this expanded population and all eligible patients, for that matter, through the continued collection and analysis of real-world outcomes in the VQI. In 2022 alone, there were 31 TCAR-related VQI papers published in major medical journals and another 11 in the first quarter of this year. ROADSTER 3, our prospective post-approval study for patients at standard risk for surgical complications, recently eclipsed the 100 patients enrolled mark, and we are excited about the progress to date. The undeniable benefits of TCAR versus transfemoral carotid stenting and carotid endarterectomy continue to accrue. As we lead the field of stroke prevention forward, we are expanding and diversifying our portfolio by innovating around our transcarotid and neuroprotection core competencies.

After a successful limited market release, we recently initiated the full-scale commercial launch of ENFLATE, the first balloon purpose-built for TCAR and the fifth product and our market-leading portfolio. Early traction and utilization patterns are encouraging as we work through hospital contracting and continue to conduct the first cases across many TCAR centers. I’m also excited to announce that we received 510(k) clearance for our next-generation ENROUTE neuroprotection system or NPS Plus. This product was designed to further support the ease of use and minimize the risk of complications. We anticipate a limited market release followed by a broader release later this year. Finally, we continue to lay the groundwork to broaden our geographic reach, starting with China and Japan.

I am pleased to share that we received clearance in Q1 in China for our ENROUTE neuroprotection system. We are now focused on approval for our ENROUTE stent as well as regulatory activities supporting future clearance of the ENROUTE NPS Plus. In Japan, we are actively investigating potential distribution partners while we work towards a reimbursement submission later this year, following the clearance of our ENROUTE neuroprotection system and ENROUTE stent last year. We are also working towards clearance of NPS Plus. While there are several steps ahead on our path to commercialization in these countries, we are well on our way to unlocking the $2.3 billion international market opportunity. In summary, we are pleased to deliver strong growth in our business while our investments to diversify through product and geographic expansion begin to deliver.

I’ll now turn the call over to Lucas Buchanan, Chief Financial Officer and Chief Operating Officer.

Lucas Buchanan: Thank you, Erica. Revenue for the 3 months ended March 31, 2023, was $40.1 million, a 43% increase from $28.0 million in the same period of the prior year. Growth was driven primarily by increased TCAR adoption as evidenced by greater than 5% sequential quarterly growth in procedures and our sixth straight quarter of sequential growth in procedures per trained physician. The number of TCAR procedures in the quarter was approximately 5,830, a 45% increase from the same period of the prior year. As our results suggest, despite continued strong performance on product level ASPs, revenue in the period divided by procedures in the period trended below historical average, which was a function of standard quarterly fluctuations as we have seen from time to time.

Our underlying procedure growth demonstrates ongoing strength in demand for TCAR. Gross margin for the first quarter of 2023 was 69%, similar to the first quarter of the prior year, but sequentially down due to unfavorable production variances associated with select components. We have resolved this specific issue, and beyond a modest expected impact to second quarter gross margins, we expect higher gross margins into the back half of the year. Total operating expenses for the first quarter of 2023 were $44.5 million, a 26% increase from $35.4 million in the first quarter of 2022. R&D expenses for the first quarter of 2023 were $10.4 million compared to $8.1 million in the first quarter of 2022. The increase in R&D spending was driven primarily by growth in personnel, along with continued investments in new and ongoing programs.

Sales, general and administrative expenses for the first quarter of 2023 were $34.1 million compared to $27.3 million in the first quarter of 2022. The increase was largely driven by growth in personnel and increased stock-based compensation expense. As we look forward, we are leveraging our years of investment in commercial, manufacturing, R&D, and back-office infrastructure to drive durable top line growth and operating leverage. Turning back to first quarter results. Net loss for the first quarter was $16.5 million or a loss of $0.43 per share as compared to a net loss of $16.7 million or a loss of $0.48 per share for the same period of the prior year. We ended the quarter with over $200 million in cash, cash equivalents and investments.

As a reminder, we completed a debt financing at favorable terms in 2022 with current available capacity at roughly $175 million. Together, our balance sheet and committed capital provide us with substantial financial flexibility and great optionality to support our business and growth initiatives looking forward. Turning to our 2023 outlook. We continue to expect full year revenue to be in the range of $176 million to $184 million, reflecting growth of 27% to 33% over 2022 based on roughly 25,000 TCAR procedures at the midpoint of the range. Our guidance reflects several variables, including the pace and progress of our commercial organization expansion, expanded market access for TCAR and a modest tailwind from the rollout of the ENFLATE balloon.

As a reminder, we ended 2022 with a commercial presence in over 1,100 hospitals with almost 2,500 trained physicians served by 70 active sales territories. We cited on our last call that we believe we have achieved a critical mass for ongoing TCAR adoption, and we continue to expect incremental physician training and sales territory additions throughout the year and beyond. In summary, we are proud of our leadership and resiliency. We look forward to continued progress on the path to establishing TCAR as the standard of care. At this point, I will turn the call back to Erica for closing comments.

Erica Rogers: Thank you, Lucas. I’d like to close by inviting everyone to join us in just a few weeks on May 25 for a panel discussion between our Executive Medical Director, Dr.Dr.Sumaira Macdonald leading practitioners in the treatment of carotid artery disease. This will be the first in a series of educational events that we plan to host over the coming year to connect analysts and investors directly to the experts and open the dialogue around the benefits of TCAR amidst the broader treatment landscape, especially as we acknowledge stroke awareness month. We hope our May 25 event sheds light into the current treatment landscape and how TCAR is uniquely positioned to deliver long-term value to patients and providers as we evolve the standard of care. We’re excited for the discussion, and we hope you’ll join us. With that, I’ll open it up to Q&A. Operator?

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Robbie Marcus of JPMorgan.

Operator: Our next question comes from Rick Wise of Stifel. Your line is now open.

Operator: Our next question comes from Adam Maeder of Piper Sandler.

Operator: Our next question comes from Joanne Wuensch of Citi.

Operator: Our next question comes from Neil Chatterji of B. Riley.

Operator: I would now like to turn it back to Erica Rogers, Chief Executive Officer, for closing remarks.

Erica Rogers: Thank you very much for joining us.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.