Silk Road Medical, Inc (NASDAQ:SILK) Q4 2023 Earnings Call Transcript
Silk Road Medical, Inc (NASDAQ:SILK) Q4 2023 Earnings Call Transcript February 28, 2024
Silk Road Medical, Inc beats earnings expectations. Reported EPS is $-0.33, expectations were $-0.4. Silk Road Medical, Inc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Silk Road Medical’s 2023 Fourth Quarter Earnings Conference Call. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Marissa Bych, with Gilmartin Group Investor Relations. Please go ahead.
Marissa Bych: Great. Thank you all for joining today's call. Earlier today, Silk Road Medical released financial results for the three months and the year ended December 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 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 factor section of our latest annual report on Form 10-K filed with the Securities and Exchange Commission. Additionally, Silk Road Medical refers to adjusted EBITDA a non-GAAP financial measure. A reconciliation of adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, is included in our press release, which is available on our website. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 28, 2024.
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 now turn the call over to Chas McKhann, Chief Executive Officer.
Chas McKhann: Thank you, Marissa, and thank you all for joining today. I'm pleased to share that Silk Road Medical achieved full year 2023 revenue of just over $177 million, supported by more than 25,250 procedures, reflecting 28% and 29% year-over-year growth in revenue and procedures respectively. In 2023, more than ever, growth in the business was driven by deepening adoption of TCAR within our trained physician base. As we begin the call today, I'd like to take a step back and offer a brief introduction to my background since there are some of you with whom I've not had a chance to connect since joining Silk Road Medical in November 2023. I've been focused on the advancement of minimally invasive medical technologies throughout my career.
And over the last decade, I've been dedicated to the development and commercialization of several innovative products. Most recently, as CEO of Apollo Endosurgery, where we accelerated the company's growth through a transformational strategy rooted in product innovation, robust clinical evidence, and commercial discipline, before successfully being acquired by Boston Scientific early last year. Following the sale of Apollo and after 25 years of developing and commercializing medical devices, I was afforded the luxury of taking a step back to look for the next -- the right next opportunity. In my diligence, I focused on three core tenets, which I see as the foundation for success as measured by positive patient impact and durable growth. First, the technology must target a critical deficiency in the current practice of medicine.
Second, the solution for that deficiency must consistently yield best-in-class outcomes in a generalizable fashion. And third, the solution for the market must be supported by an experienced team that can adapt to an ever-evolving commercial landscape to drive success. And so I took this opportunity here at Silk Road because I saw all three of those factors. And three months in, my experience has only served to further validate the market for TCAR and our opportunity at Silk Road. So before turning to our 2024 strategy, I'd like to reiterate some of my remarks made at the recent JPMorgan Healthcare Conference, which underscore the winning tenets I just described. First, the deficiency in current carotid treatment is indisputable when we look at the devastating burden of stroke on patients and their families.
The consequences of stroke by the numbers are staggering. Stroke is a leading cause of morbidity and mortality in the US, with millions living in a state of persistent disability and billions in stroke-related costs to the healthcare system. And in particular, prior treatment modalities for patients with carotid artery disease fall short of addressing the issue. Patients historically choose -- historically chose between carotid endarterectomy, an invasive surgical procedure with significant patient morbidity and procedure-related complications, or transfemoral carotid stenting, a minimally invasive approach in which procedural difficulty and lack of effective neuroprotection can lead to excess procedure-related stroke risk. When patients are presented with an informed choice, evidence shows that they prefer TCAR.
Which leads me to my next point. TCAR works with incredible consistency, and the TCAR base of adoption is growing and healthy. Silk Road is built on extensive evidence collection through the VQI registry, a vast base of real-world evidence that includes nearly all of our commercial experience at launch and has contributed to more than 300 TCAR publications to date. Through the registry, we see market consistency in outcomes across different settings of care, operator experience levels, and patient profiles. TCAR is just as effective in a rural community hospital as it is in some of the most accomplished medical centers in the country. And the consistency of TCAR was recently highlighted at a presentation in November at the 2023 [VIVA] (ph) meeting in a retrospective study conducted by Schermerhorn, which studied real-world results in nearly 45,000 patients.
The study, which showed very low rates of perioperative stroke and death across both symptomatic and asymptomatic patients, well below acceptable thresholds, represents one of the largest applications of real-world data in the analysis of carotid treatment. And in my more than 25 years in med tech, I have very rarely seen data sets of this size supporting a medical therapy. The consisting outcomes and generalizability across patient cohorts speaks to an exquisite technology with a short learning curve. And these are critically important factors when the brain is at stake. Broad real-world clinical evidence and a short learning curve already have driven robust adoption and we expect to see further showings as TCAR becomes further entrenched in the marketplace.
And third, Silk Road was founded by pioneers in carotid treatment. And today, Silk Road is the only scaled company focused on addressing one of the leading causes of ischemic stroke, carotid artery disease. In my first hundred days, I've spent significant time with our leaders, most of whom have spent the majority of their careers focused on better treatments for carotid and other cardiovascular disease. That includes Lucas Buchanan, our CFO and COO, who is with me here today, along with the rest of our management team, who have all worked extensively in large cardiovascular enterprises and med tech. That also includes Andy Davis, our experienced Chief Commercial Officer, who leads a strong commercial team, employing a high-touch model to wrap around our physicians and their staff to offer unmatched support to their carotid programs.
The outstanding clinical outcomes for TCAR are a testament to the excellent support that our team provides to our customers every single day. And with the guidance of Dr. Sumaira Macdonald, our Executive Medical Director, is one of the leading experts in the world on the treatment of carotid artery disease, and the leadership of Bill Whealon, our EVP of R&D, our R&D team leads the way in carotid innovation to ensure that we remain at the forefront of minimally invasive carotid treatment. And so with these strong fundamentals I've outlined, our focus in 2024 is optimizing the transition from broadening our reach to now deepening adoption among our trained physician base, while recognizing and improving leverage that comes with scaled operations.
I'll start by focusing on deepening physician adoption. Silk Road has built a formidable commercial presence. Today, our team is as strong as ever, following initiatives we took last year to optimize our commercial model and to achieve greater scale and continue to evolve from going broad to going deep. In the process, last year, we experienced some growing pains, but we are confident that we are entering 2024 with the right talent and leadership in place to continue driving strong TCAR adoption. At the start of this year, approximately one-third of our sales reps have been with the company for less than a year. But we are already seeing that these additions to our team are strengthening their relationships and growing their case volumes across the physicians and staff they serve.
And we look forward to seeing these reps continue to move up the adoption curve or the experience curve as our entire organization executes against the Silk Road mission of treating more patients at risk of stroke. And over the long term, we know that we will be able to increase our leverage with this organization to maximize adoption while moving towards sustained profitability. As we drive deeper adoption, we will continue to emphasize effective clinical data collection to complement our sales and marketing efforts. We are actively building on a track record of more than 85,000 patients treated to date, and most of whom are captured in the VQI database. And we continue to analyze outcomes across all patient cohorts and profiles. This includes our prospective ROADSTER 3 post-market study, investigating outcomes in standard surgical risk patients, which is enrolling at a strong pace.
We anticipate completing enrollment in ROADSTER 3 in the second half of this year. Beyond the right commercial infrastructure, deepening adoption requires we continuously innovate on our key product lines to extend our leadership position in carotid treatment and enhance the offerings for TCAR. Last year, we rolled out our purpose-built TCAR balloon catheter, or inflate, which is seeing steadily increasing adoption, even with a premium price position relative to competitive balloons. And in 2024, we are introducing a tapered configuration of our ENROUTE transcarotid stent and our next-generation neuroprotection system, or NPS+. Today I'm excited to announce that we've initiated a limited market release of our tapered stent, customer feedback has been outstanding, and we plan to ramp up to a full market release in Q2.
We are also finalizing preparations for the launch of NPS+, which features important ease of use and technical advances, and we anticipate initiating the launch of NPS+ in the second quarter. In addition to our core commercial and product advancement strategy, we are looking beyond the horizon at the next phase of growth for Silk Road. Cultivating international markets offers an extension of TCAR growth in the long term. Our international focus has centered around China and Japan, two markets with compelling strategic and commercial dynamics for the treatment of carotid disease. In Japan, following clearance of our ENROUTE Stent and ENROUTE Neuroprotection System, I'm excited to announce that we've signed an agreement with a leading distribution partner, Medico’s Hirata, and we're actively working towards establishing reimbursement before initiating a post-market study.
In China, I'm excited to announce that we've received clearance in January for ENROUTE Stent following approval of our ENROUTE NPS in 2023. And more recently, we signed an agreement with Genesis MedTech Group, a leading distributor in China. While market development activities in both countries will take some time, and we do not anticipate a meaningful revenue contribution in the near term, we are excited to move to this next phase of expanding TCAR internationally. Finally, we'd like to touch upon our efforts to expand into new disease dates from our core competencies in carotid. Earlier this quarter, results of the NITE1 study, or Neuroprotection in Transcarotid Embolectomy, was presented at the International Stroke Conference. We are pleased with the outcomes of this early feasibility study, which showed that transcarotid acute stroke thrombectomy with flow reversal is feasible and safe.
And importantly, there was a clear signal that flow reversal could potentially offer incremental clinical benefits to patients. While advancement into NITE2 is not a strategic priority at the near term, results of the study directly inform other active R&D initiatives we are working on to extend our lead within carotid disease. And with our portfolio over 250 issued and pending patents globally and our core competence in transcarotid access and neuroprotection, we are well positioned to serve our stroke prevention mission and drive durable long-term growth. I'd like to close by discussing what all this means for our financial profile in 2024 and beyond. I hope it's abundantly clear that durable growth remains our number one priority. In 2024, we anticipate full year revenue of $194 million to $198 million, reflecting 10% to 12% year-over-year growth, as we capitalize on the strength of our commercial infrastructure to drive deeper adoption among our active physician base.
At the same time, we are committed to driving sustainable progress towards profitability, with a strong capital position and scaled infrastructure we have today. To that end and to chart our path forward for investors, we are introducing adjusted EBITDA to our reporting framework. And we are targeting annual improvement in adjusted EBITDA in 2024 relative to 2023, building off our progress in recent years. Lucas will provide more detail shortly. And so in sum, I am very excited about the year ahead. Silk Road is a world-class company with a world-class opportunity and we expect to capitalize on that opportunity for the betterment of patients and shareholders. And with that, I'd like to turn it over to Lucas, our Chief Financial and Chief Operating Officer, to review our results in more detail.
Lucas?
Lucas Buchanan: Thank you, Chas. Revenue for the three months ended December 31, 2023, was $47.3 million, an 18% increase from $40.1 million in the same period of the prior year. Growth was driven primarily by increased TCAR adoption and continued healthy demand, following expanded Medicare reimbursement, which went into effect October 11th of last year. The number of TCAR procedures in the quarter was approximately 6,625, a 20% increase from the same period of the prior year. Gross margin for the fourth quarter of 2023 was 74% compared to 73% in the fourth quarter of the prior year. The increase was a result of larger production volumes, which allowed us to spread fixed and overhead costs over a larger volume of units, as well as a benefit in stent unit cogs that will continue through Q1 before normalizing in Q2 and beyond.
The benefit is related to a temporary favorable purchase price variance. For 2024, we anticipate modest gross margin improvement over full year 2023. Total operating expenses for the fourth quarter of 2023 were $49.2 million, an 18% increase from $41.7 million in the fourth quarter of 2022. R&D expenses for the fourth quarter of 2023 were $10.1 million, compared to $9.2 million in the fourth 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 fourth quarter of 2023 were $39.1 million, compared to $32.5 million in the fourth quarter of 2022. The increase was primarily driven by the commercial expansion efforts we conducted throughout 2023.
Now more than ever, we are leveraging the years of work and investment we have put behind commercial, R&D, and back office infrastructure. Accordingly, we expect our forward revenue growth rate to outpace growth and operating expenses. Net loss for the fourth quarter was $13 million or a loss of $0.33 per share as compared to a net loss of $12.6 million or a loss of $0.34 per share for the same period of the prior year. As Chas noted, we are introducing adjusted EBITDA into our reporting framework to further illuminate our operating profile and path to sustained operating profitability. Adjusted EBITDA for the fourth quarter, 2023, was a loss of $4.1 million compared to an adjusted EBITDA loss of $4.4 million in the prior year period. On a full year basis, 2023 adjusted EBITDA was a loss of $17.7 million, reflecting an improvement of $7.4 million over full year 2022 adjusted EBITDA loss of $25.1 million.
Our expectation is for adjusted EBITDA improvement in the full year 2024 relative to 2023. However, note that we expect our first quarter 2024 adjusted EBITDA loss to be larger than the loss we saw in the fourth quarter of 2023, given standard first quarter expenses against an expectation for a mid-single-digit sequential revenue decline related to seasonal patterns. Finally, we ended 2023 with $190.9 million in cash, cash equivalents, and investments. In combination with our modest burn profile, we remain confident in our ability to achieve profitability with existing capital. Turning to our 2024 outlook and commercial strategy, as Chad mentioned, we expect full-year 2024 revenue to be in the range of $194 million to $198 million, reflecting revenue growth of 10% to 12% over 2023, driven primarily by growth in procedures and relatively stable revenue per procedure with normal quarter-to-quarter variation.
As a reminder, we recognize revenue when we sell units to hospitals, and those hospital-owned inventory units are later used by physicians and procedures, leading to some quarter-to-quarter variation in revenue growth relative to procedure growth. We are actively focused on driving adoption within our 2,800-strong trained physician base supported by 85 active sales territories, And we are excited to expand our patient impact as we execute on our 2024 commercial strategy with this established network. At this point, I would like to turn the call back to Chas for closing comments.
Chas McKhann: Thanks, Lucas. At this point in my career, it's all about delivering excellent patient outcomes, supporting an unmatched provider experience, and contributing to a better healthcare system. And I want to emphasize that we have a special opportunity to do just that at Silk Road. And so in closing, I'd simply like to say thank you to our customers and our team at Silk Road who impacted the lives of more than 25,000 patients undergoing the TCAR procedure last year. And with that, we'll turn to our operator for questions. Gerald, please open it up for questions.
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