Silk Road Medical, Inc (NASDAQ:SILK) Q4 2022 Earnings Call Transcript

Silk Road Medical, Inc (NASDAQ:SILK) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2022 Silk Road Medical Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Marissa Bych. Please go ahead.

Marissa Bych: 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 three and 12-months ended December 31, 2022. A copy of the press release is available on the Company’s website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the Federal Securities Laws, which 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 November 9, 2022.

This conference call contains time sensitive information and is accurate only as of the live broadcast today, February 28, 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 we have the 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. 2022 closes the books on a remarkable year at Silk Road, we achieved a total revenue of $138.6 million, supported by over 19,500 procedures representing 37% and 41% year-over-year growth respectively. Our performance was driven by growing physician adoption and acceptance of TCAR as the solution in minimally invasive stroke prevention. We achieved our full-year territory expansion expectations and exceeded our trained physician guidance in response to increased demand. We also made important progress toward our objective of strengthening Silk Roads category leadership in the treatment of carotid artery disease, with the expansion of TCARs labeled indication to include patients at standard risk for surgical complications.

The FDA approval in May promptly followed by expanded Medicare coverage within the TCAR surveillance project opened our addressable market to the entire 170,000 annual carotid procedures in the United States, while expanding our access to the full 430,000 annual U.S. diagnoses, representing a $3.2 billion opportunity. Physicians are now able to simplify treatment decisions with the best interest and preference of patients at the core. Our success remains rooted in the large and expanding body of clinical evidence and supportive TCAR. In 2002, we surpassed 25,000 patients worth of clinical data from trials and registries published in high impact factor peer reviewed medical journals. In fact, we saw over 85 TCAR publications within the year authored by over 75 distinguished physicians with broad reach across the United States.

And we are pleased that the Society for Vascular Surgery, vascular quality initiative, the SVSV QI dataset continues to grow rapidly. This allows TCAR performing physicians to assess real world data in a contemporary timeframe sourced independent of industry. Adding to our 2022 successes, we bolstered our balance sheet by nearly $135 million, paving the way for ongoing investment and growth as we drive toward profitability. We also brought our Minnesota facility online adding manufacturing and distribution capacity, as well as access to a talented workforce. We will continue to prioritize advancements in U.S. TCARs specifically in our commercial team, product R&D, and ongoing clinical data such as ROADSTER 3. Our focus is on strategies to enhance our trajectory and meaningfully scale our business overtime.

This brings me to our 2023 objectives. Number one grow. As we shift our focus to the year ahead, our first objective remains consistent driving increased TCAR utilization through strong commercial execution. We know that the largest opportunity in front of us is bringing physicians up the adoption curve in the form of higher TCAR usage. And we know from years of commercial expansion that we achieve strong returns on increased physician engagement. That is why throughout this year we remain focused on driving more touch-points with physicians through territory expansion and comprehensive marketing campaigns. Now, more than ever, we are focused on highlighting the patient benefits of TCAR over other alternatives. We will continue to generate evidence to support patient decision-making and extend our commercial reach to more patient centered stakeholders.

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As we drive TCAR market penetration from roughly 12% in 2022 to mid-teens over the coming year and strong double-digits beyond. We are immensely excited about the trajectory ahead and remain focused on progressing TCAR toward the standard of care. Our second priority is to strengthen the business. We have spent the last five plus years laying a foundation for growth in the U.S. carotid disease market through our broad portfolio of key core products, solid commercial footprint and robust operations. We are building upon the strength of this foundation to support our growth outlook, and further extend our category leadership while we drive operating leverage on the path to creating and sustaining a profitable business. And finally diversify where our intentions are twofold.

For one, this includes extending our geographic reach. Our goal has always been to make TCAR the standard of care for the treatment of carotid artery disease globally. We made meaningful progress in 2022 on this front, receiving shown and approvals in Japan for both our ENROUTE Neuroprotection System and the ENROUTE stent. In addition to preparing for global launches, we will continue to expand on our core competencies through product innovation. This effort begins within carotid artery disease and positions us to expand the application of our category leading technology beyond. As part of our ongoing pursuit of innovation in Transcarotid technologies, we recently announced the clearance of our Enflate Transcarotid rapid exchange balloon dilation catheter or Enflate for short.

The first balloon purpose built for TCAR and the fifth product in our TCAR portfolio. We initiated a limited launch of Enflate in the fourth quarter of 2022 and we plan to commence our full scale commercial launch in the second quarter of this year. We have also made an enrollment progress and our NITE 1 feasibility study in acute ischemic stroke. And we continue enrolling and learning in 2023. All said, we are enormously optimistic about the future of Silk Road medical. We are pleased to initiate guidance of $176 million to $184 million in full-year 2023 revenue, reflecting roughly 25,000 TCAR procedures at the midpoint of the range. We are confident in the year ahead and in our prospects for continued long-term growth. I will now turn the call over to Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer.

Lucas Buchanan: Thank you, Erica. Revenue for the three-months ended December 31, 2022 was $40.1 million, a 42% increase from 28.3 million in the same period of the prior year. Growth was driven primarily by increased TCAR adoption, as evidenced by our fifth straight quarter of growth and procedures per trained physician. The number of TCAR procedures in the quarter was over 5,500 a 43% increase from the same period of the prior year. Gross margin for the fourth quarter of 2022 was 73% compared to 74% in the fourth quarter of the prior year. The decline was driven by higher manufacturing costs associated with labor and materials and maintaining two manufacturing facilities. With our recent investment in manufacturing capacity, we expect our gross margins to be slightly lower than prior periods in the short-term, but we anticipate improved margins over time with increased volumes and continued price discipline.

Total operating expenses for the fourth quarter of 2022 were $41.7 million, a 19% increase from 35.1 million in the fourth quarter of 2021. R&D expenses for the fourth quarter of 2022 were $9.2 million, compared to 7.5 million in the fourth quarter of 2021. 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 fourth quarter of 2022 were $32.5 million, compared to $27.6 million in the fourth quarter of 2021. Now more than ever, we are focused on operational excellence as we achieve greater scale. Last year, we dramatically increased our manufacturing capacity in human resources and with these expanded efforts in place, we are increasingly focused on supply chain, quality and design for manufacturing initiatives to mitigate risk and manage input costs.

We look forward to leveraging the years of work and investment, we have put behind commercial manufacturing, R&D and back office infrastructure and we expect operating expenses as a percentage of revenue to decrease going forward. Net loss for the fourth quarter was $12.6 million or a loss of $0.34 per share, as compared to a net loss of $14.7 million, or a loss of $0.42 per share for the same period of the prior year. We ended 2022 with $213.7 million in cash, cash equivalents and short-term investments. Having bolstered our balance sheet through a debt refinancing in the second quarter, which added approximately $25 million to our cash balance while also providing further access to liquidity and an equity financing in the fourth quarter which contributed approximately 109 million in net proceeds.

Together these raises provide substantial additional flexibility in support of our business and growth initiatives. Turning to our 2023 outlook and commercial strategy, we ended 2022 with a commercial presence in over 1100 hospitals with almost 2500 trained physicians served by 70 active sales territories. We anticipate the incremental physician training and territory growth in 2023 and beyond as we respond to strong TCAR demand with the intent to maximize our return on investment as part of our long-term profitability goals. With a critical mass of territories, trained physicians and hospital accounts entering 2023 we are well positioned to drive growth in procedures per trained physician while also driving operating leverage. As Erica mentioned, we expect full-year revenue to be in the range of $176 million to $184 million reflecting revenue growth of 27% to 33% over 2022 based on roughly 25,000 TCAR procedures at the midpoint of the range.

As always, our guidance accounts for several variables, including ongoing macro uncertainty and also assumes continued normalization in the hospital operating environment. The gradual layering effect of our recent standard surgical risk label expansion is reflected in our guidance range and we also expect our revenue per procedure opportunity to benefit modestly from the rollout of the inflate balloon. As a reminder, we will maintain our reporting framework going forward and as such we will not be breaking out contributions of TCAR procedures by patient surgical risk profile, nor product level revenues. At this point, I would like to turn the call back to Erica for closing comments.

Erica Rogers: Thank you, Lucas. I would like to reiterate that 2023 will be a year of growth and leverage for Silk Road carried by our team who has focused on building and scaling our platform for the last several years to put TCAR in the hands of more physicians, and benefit as many patients as possible. Collaboration, excellence and a commitment to doing the best we can for our providers and their patients are the values at the core of Silk Road culture and we know that the next phase of our Company’s growth will be driven by a culmination of these factors. With our broad based of clinic of clinical evidence established commercial footprint and full market access, we are in many ways arriving at the next era and the Silk Road medical story. We are excited to continue our work in earnest. We will now open the line to questions. Operator.

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Q&A Session

Operator: Thank you. Next caller is Travis Steed of Bank of America Securities. Travis your line is open.

Travis Steed: Hi everybody, thanks for taking the question. I guess, I will start with the guidance and maybe the start, how to think about the quarterly progression Q1 versus the Q4, you just did. And then on the 2023 guide, first, if you can define the modest benefit on price is that low single digits or mid single digits, we have had to think about the pricing. And when you think about market penetration and the 2023 guidance, it looks like you did around 2.5 points of our three points of market penetration last year and got in for about the similar level of market penetration is 2023 despite Senate risk, so just kind of thinking about it. That is the billing for market penetration or how we should think about the upside to that?

Erica Rogers: Yes. Hi Travis, thanks very much for your question and good to have you on the call here. So let me just talk about the kind of top-line puts and takes first of all. As we said in our prepared remarks, the guide really reflects, what we consider to be ongoing normalization and of the operating environment and hospitals stability, of course, with pockets here and there, I would say of some labor shortages. But it also represents the increased momentum in our business. And to your point, the full market access and standard surgical risk approval. As we have talked about before, we are not going to break out those trends by risk factor, but instead sort of talk about it collectively. But I do think it is important to point out that even in Q4, it was still early days in the rollout of standard surgical risk approval and safe to say that that momentum is building. I will let Lucas take some of the detailed answers to your question.

Lucas Buchanan: Yes. Travis thanks for the question. In terms of the quarterly cadence. It is going to be another year where it is kind of back half loaded, which is partly a function of a cadence of our continued territory expansion. And our goal for territories was 70 to 75 last year, and we reported that we met that at the low end of the range, so we are still building from 70 to 75 and beyond throughout the year, and so we will see kind of that step up. Q1, historically has been flattish to Q4, there is some COVID noise in that. So maybe it is flattish to modestly increase and then we build from there. In terms of the pricing, implied pricing and kind of revenue per procedure from inflate. Obviously, we need some more time to gather data as to what the pricing will be in the full market, what the utilization, what the units per procedure.

So we will give some color on that as we go forward. If you do the math, on our implied guidance, we are talking about a revenue per procedure metric in roughly the $7,200 to $7,300 range. And obviously, that will kind of be at the lower end at the beginning of the year, and potentially at the higher end. That is our best estimate, as we sit here today. And then on the penetration question, you are right, you have done the math roughly right, at the midpoint and procedures per doc is the goal of the organization and moving this procedure, up the adoption curve with the full label and the clinical evidence and the critical mass we have is the job. It is a very sensitive metric and so if we are slightly better or slightly worse, the output will be as such, but that is where we are focused is on driving the adoption curve in 2023 it is really a year of commercial execution.