Silk Road Medical Inc Q1 2023 Earnings Call
Good day, Thank you for standing by and welcome to the Silk Road Medical's 2023 first quarter earnings call.
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I'd now like to hand, the conference over to your Speaker Marissa Baisch Investor Relations. Please go ahead.
Great and thank you for joining today's call joining.
Joining me are Erica Rogers, Chief Executive Officer, and Lucas Buchanan, Chief Financial Officer, and Chief operating Officer.
We are today, so far at medical released financial results for the three months ended March 31 2023.
Copy of the press release is available on the company's website.
Or are we began 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.
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.
Or performance are forward looking statements.
All forward looking statements, including without limitation.
Two 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 approval reimbursement competition and product development are based upon our current estimates.
Its assumption.
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.
Our western 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 nine 2023.
This conference call contains time sensitive information.
Alright, only as of the live broadcast today May nine 2023 so.
So part of 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.
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 <unk> 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 5800 procedures. We are pleased to see strong underlying demand for key car and considering our progress thus far and our outlook ahead, we are re.
Iterating, 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 or 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 the 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.
CCAR 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 and over 20000 patients from the vascular quality initiative or V T Y which investigated outcomes in standard.
Surgical risk patients treated with T car versus C E.
Outcomes from the publication largely reflect Liang at all presentation at the vascular annual meeting in 2021.
The 25, the study found statistically equivalent outcomes across primary endpoints with significantly lower incidents of cranial nerve injury and procedure time using T car.
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 T car's value proposition in this expanded population and all eligible patients for that matter.
The continued collection and analysis of real world outcomes in the <unk> and.
In 2022 alone there were 31 T car related <unk> papers published in major medical journals and another 11 in the first quarter of this year.
Roadster three are prospective post approval study for patients with 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 T car versus trends femoral 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 trans carotid and neuro protection core competencies.
After a successful limited market release, we recently initiated the full scale commercial launch of inflate. The first balloon purpose built for T car 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 key car centers.
I'm also excited to announce that we received five 10-K clearance for our next generation on route neuro protection 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 on route Neuro protection system. We're now focused on approval for on road stent as well as regulatory activities supporting future clearance of the on routes NPS plus.
In Japan, we are actively investigating potential distribution partners, while we work towards the reimbursement submission later this year following the clearance of our on route neuro protection system and onwards done last year.
We are also working towards clearance of N P S plus.
Well 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 dollar 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.
Thank you Erica revenue for the three 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 <unk> adoption as evidenced by greater than 5% sequential quarterly growth in procedures.
Our sixth straight quarter of sequential growth in procedures per trained physician.
The number of CCAR procedures in the quarter was approximately 5830 or 45% increase from the same period of the prior year.
As a result 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 and demand for tea cart.
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 or 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 and 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 <unk> 43 per share as compared to a net loss of $16 7 million or a loss of 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 to 184 billion.
Reflecting growth of 27% to 33% over 2022.
Based on roughly 25000 T car 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 <unk> and a modest tailwind from the rollout of the inflate balloon.
As a reminder, we ended 2022 with a commercial presence in over 1100 hospitals with almost 2500 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 <unk> 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 <unk> as the standard of care.
At this point I will turn the call back to Erica for closing comments.
Lucas.
I'd like to close by inviting everyone to join US in just a few weeks on may 25th for a panel discussion between our executive medical director, Dr. <unk> Mcdonald and 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 key car admixed the broader treatment landscape.
Especially as we add knowledge stroke awareness month, we hope our may 25th events sheds light into the current treatment landscape and how <unk> 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 will join us.
With that I'll open it up to Q&A operator.
Thank you at this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to draw. Your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Robbie Marcus of Jpmorgan. Your line is now open.
Oh, great good afternoon, and thanks for taking the questions.
Yes.
I wanted to start with first quarter trends Lucas you talked about.
Normal quarterly fluctuations.
<unk> came in below the street. This is one of the first quarter's guidance hadn't been raised so I was hoping you could dig into exactly what's going on is there.
A stall in the standard risk indication is it less utilization is it some other seasonal trend that we arent aware of.
I think most investors were expecting a number a bit higher than that so I'd love to dive into the underlying trends here.
Sure Robbie maybe I'll give a quick answer and then I'll turn it back to Erica for for kind of a bigger picture.
The procedures in the quarter grew nicely as we said in the adoption trends were great.
Where we were a little bit light was in was in revenue per procedure that's within the.
The variation we've seen historically, but.
But slightly less than we modeled and we can talk about that further later, but I'll turn it back to Erica for the broader dynamics in the quarter, Hey, Ravi. Thanks, so much for being on.
Look we took the first quarter to catch up.
On some necessary sales organization architecture, and Thats really to prepare us for continued high growth.
It's normal course of business and a fast growing med tech, but we accelerated our planned pace of creating new leadership positions balancing some territory geographies, creating new territories all in service of increasing physician touch points.
No from our own data when we do this we see accelerated adoption.
As a result of all of that we saw some temporary distortions in revenue and we've seen this before as you alluded to in our business with fluctuations in the timing of orders and that was slightly exacerbated by our territory balancing efforts, but I will say, we're really pleased.
<unk> with the quality of the people, we're attracting the people we already have and the pace of adding these sales professionals and leaders and therefore, we're confident in the guidance range.
Got it and maybe to touch on our full year guidance range.
Are you still thinking about.
The same revenues, which I think was about 20, just under 25000 procedures for the year and something about $7200 an ASP per procedure for the year are there any changes to that and does it have anything to do with the slowdown in <unk>.
First quarter of <unk>.
Stocking from train physicians, thanks, a lot.
Sure Ravi I'm happy to address that so the nuance is we're slightly.
More confident in total procedures for the year. So the roughly 25000 on the last call was the under now it's the over so again the procedure trends are good.
To your point.
7200, the average last year was 7100, so so in our own expectations and modeling we've brought that down slightly and just to do a little bit of math.
If we take a $180 million at the midpoint of our 2023 guidance and divide it by <unk>.
<unk>, where we came in in 2022 on revenue per seat per procedure.
7100 rounded that's 25400 procedures.
If we came in at 7200 that would get us.
Towards the higher side of our range and if we came in less than 7100.
The math is the math so we've reduced our we've increased our procedures. We're at plan relative to our Asps disciplined.
We are slightly lowering our expectations on revenue per procedure to end up at the same point.
Great I'll leave it there thanks a lot.
One moment for our next question.
Okay.
Our next question comes from.
Rick Wise of Stifel. Your line is now open.
Hi, Good afternoon, Hi, Erika Hi, Lucas.
Let me start off.
I just wanted to really make sure I'm understanding it.
Sure.
Your procedure numbers were basically exactly what we'd look for help me better understand.
If you could just give us a little more color on the $1 per procedure or less I mean that doesn't really have anything to do with the sales force expansion or the disruption I understand that that's going to be helpful. Later in the year, but I just want make sure I'm really understanding this point.
Yeah, No Rick I'm. So glad you asked that let me clarify that which is when we add sales leadership. We generally are promoting from within and so now we have a sales leader who is leading and also managing that territory. They left behind when we talk about balancing territory is what we're doing is is splitting and <unk>.
Moving people around and so what that does in effect is leave some vacancies leave some holes in territories and while our therapy development specialists are just terrific at covering cases in case planning and that aspect there not the quota carrying professionals and so there's a lag in <unk>.
Sweeping back around to pick up the revenue or the order. If you will from that case and so that's why we talk about temporary distortions as it relates to these expansions.
So overall.
We're feeling good and confident in the revenue guidance for the year.
No I got that that's I appreciate that.
And.
Maybe just to make sure I'm understanding so does that suggest that maybe some of the revenue that might have been in the first quarter falls into the second quarter of the result, or am I not thinking about it correctly and maybe just as part of that Lucas.
I get to be the one who says can you help us think through the cadence.
Of the first to second second or third derivative product you did say <unk>.
First quarter flattish and I'm understanding.
It is sort of flattish.
I would say a shade more exuberant, but again the procedures are right. So can you help us think through how to think sequentially in the distribution to get to the midpoint of your guidance range.
Sure Rick I think Thats a two part question. So that so the first was it is it could it be somewhat of a timing issue and the answer the quick answer is yes again, we've seen this before in Q4, we were at just over 7200 revenue per procedure in Q1, we were too.
Shy of 6900 that matches trends from from prior from the prior year, obviously, it's hard to make comparisons with.
Different dynamics in the scale of our organization and the pandemic and things like that and keep in mind revenue per procedure is derivative of units sold per procedure. That's when we recognize revenue in the units sold in a quarter is a function of how many new hospitals, we have how many total hospitals, we have how many docs trained per hospital.
We have how many territories, we have where we are at splitting territories is there a body is there a quota carrying rep actually in the territory at the time.
The par levels that the hospitals carry across our different product lines and skus.
Whether the hospitals are being affected by their own financial pressures or pandemic pressures all of that makes that particular metric.
Somewhat uncertain and which is why it has ranged.
Between that kind of 60 $973 7400, historically again, what gives us confidence is strong pricing discipline strong procedure growth and strong adoption curve metrics.
And so as we look at the cadence of the rest of the year.
As Eric mentioned, we were last year, we wanted to get to 70% to 75 territories. We hit the low end of that range and so we had some catch up to do.
And we really not only focused on catching up but really accelerating.
Based on the talent, we were seeing in the marketplace.
And again that creates some kind of first half disruption as youre going through that change, but sets us up really well for the back half of the year.
Beyond and so obviously in the second half of the year, we will have more touch points per physician based on all of the training and hiring we're doing right now I would say the busiest people in the organization are the the hiring managers and the sales organizations and their partners and NH.
In HR, while we continue to conduct the business of T car.
And we'll also get the benefit in the back half of.
The margin of the balloon revenue rate right now, we're transitioning to that full market release, but Theres hospital contracting and getting first cases done.
And so we're really set up well for the second half of the year based on all of the activity in Q1 and Q2.
Yes.
I'll, let somebody else ask if the second quarter will be sequentially flat or up.
Thanks, so much.
One moment for our next question.
Our next question comes from Adam Mater of Piper Sandler Adam meter of Piper Sandler Your line is now open.
Great.
Hi, Erika Hi, Lucas Thank you for taking the questions.
I guess I'll take that question on Q2 and just ask.
I show Q2 revenue.
Around $43 5 million for consensus.
I think that implies 8% to 9% growth sequentially quarter over quarter versus your Q1 result.
Any reaction to that figure then I had a follow up or two thanks.
Yes, I think again, the first quarter versus fourth quarter trend, obviously is flattish that matches prior year trends.
What we're seeing with the adoption curve, what we're investing in with our commercial organization expansion.
And reiterating our guidance all of that implies kind of a quarterly step up in growth Q2 over Q1 Q3 over Q2 Q4 over Q3 with all of the with all of the other inputs, we model and seasonality and things like that I think that's a reasonable expectation.
Okay. Thanks for the color there and then.
Maybe we can turn to China, so congrats on that.
The clearance there for the enroute system.
It sounds like you are focusing on getting the stent across the regulatory goal line, maybe just talk about pathway forward for that.
For the stack do you need to run a study can you use already available clinical data and really the Genesis of the question is could we potentially see revenue from China or Japan.
Later this year in 2023 or is that more of a 'twenty four.
And then one follow up thanks.
Yes, sure Adam I'll take that one thanks for joining US yeah, we're really excited to see NPS clearance in China and Youre right were working on this debt we haven't given the specifics in part because we're working with the Chinese regulatory authorities that we haven't given those specifics what I can say is that the approval process is going well and as expected.
Good.
<unk> stent, but as we've said in prior calls.
I think it's fair to say there will not be revenue contribution from either China or Japan in 2023.
Okay I appreciate the clarification, there Erika and then just one last one.
It's around the.
The cash and CB reconsideration from CMS, just wondering if there is any update there and how you are thinking about potential.
Likelihood of outcomes and timings and.
I saw that you submitted.
A common documents CMS just was hoping you could kind of walk us through the Cliff notes version of what that documents as in your view on the NCD reopening. Thanks, so much for taking the questions.
The person's from the V T y.
Large database comparisons so the next steps in the process there will be a kind of June 12th or sorry July 12th draft decision memo.
And you know will will come back to you with with what we think that means for us, but right now we're feeling confident and as we said we see a range of positive outcomes for <unk>.
Thanks, so much.
One moment for next question.
Our next question comes from.
Joanne one.
City. Your line is now open.
Good afternoon. This is Anthony off for Jordan. Thank you for taking our questions. The.
The first just going back to the commercial reorganization.
Who's been plucked from the supposed to be contained for the first quarter or is this still ongoing and then I just had one follow up.
Yeah, Hi, Anthony Thanks for joining US I think you know uhm reorganization might not be the choice of words I would use we're <unk>, we really refer to this is kind of balancing out territory geographies and we've done this historically and it's very commonplace in medtech as the business grows.
So does the sales organization to kind of meet and get ahead of that demand and getting ahead of driving adoption. So what we did here Anthony was accelerate the pace of our own plan and create a little more disruption and distortion in Q1 kind of taking more of the medicine.
Up front, rather than spread out slowly over the year and in part we were responding to the amazing talent that is coming our way and taking advantage of that talent being available or wanting to be available now in seeking out silk road. So.
You know, there's there's more to do here, but I'd say that you know in in Q1, we made some real significant progress and I'm couldn't be more excited about the folks who are in training and their kick our training right now.
Got it that's helpful. And then my second one Lucas is there any way you could quantify and are you so modest impact of gross margin and second <unk>.
Numbers around just trying to understand what the ramp looks like in the back half of the year. Thank you.
Sure well well gross margin came in at 69% as I referenced Q4 of last year was.
Just shy of 73% so that so that gives you kind of that range gives you a sense of the impact because.
We have strong price discipline in each quarter, we have higher unit unit volume against a relatively fixed overhead at this point with two main manufacturing.
Facilities and so we took some period expense related to some.
Issues that we needed to solve that's mostly a Q1 impact it will.
Partially impact Q2, as well and then we'll get back to normal barring any other specific issues.
Thank you.
One moment for our next question.
Our next question comes from Neil.
<unk> be Riley your line is now open.
Good afternoon, thanks for taking our questions.
Curious I know you said that the procedure.
Procedure groceries with healthy and first quarter. Just curious if you could maybe just give us an update on the operating environment and first quarter and <unk>.
Early second quarter.
I need to impact from staffing or <unk> or any other factors on volumes.
Yeah, Hi, Neil I'm glad that you asked that question.
Embedded in the kind of reiterating our guidance range is the fact that we're seeing hospital inpatient U S. Inpatient hospital business Kinda normalized there are as you've heard from others and pockets still here and there of labor shortages, but by and large I think patients or back to the business of getting screened and.
Seeing their physicians and.
This is her back to doing procedures in hospitals. So it feels like a more normalised operating environment, which is one of the assumptions in our guidance.
Alright, maybe.
Maybe just an employee touched on sorry.
Starting to get some feedback there from the whole large just curious.
Any more color would those kind of initial sites.
Can you just remind us you know if you're still expecting a positive impact on the revenue procedure.
Sure I'll take part of that Neil Yeah. The the feedback has been very positive just as we expected. The balloon was really to solve kind of some ergonomic challenges in some ease of use <unk>.
Procedural benefits improving the safety margin of that particular step in the procedure that was the purpose of developing the honestly balloon and all of that is turning out to be true. So the feedback is quite positive were in their early days of deferral full market release, which really happened and Q2.
And so we're still working through hospital pricing hospital contracting that sort of thing I'll, let Lucas take the back half of your.
Yeah, Yeah in terms of the revenue per procedure given that it's a it's a new product. It's our fifth product as we spoke about on the last call. We do expect that to be a.
Tailwind over time.
To revenue per procedure.
Against the headwind of some of the the slightly.
Lower units per procedure of all the other products for all the reasons I listed in a prior question. So there's there's a net effect there.
We've all taken a step back we've always said that that kind of the revenue per procedure would ultimately come closer to kind of our actual product level PSP.
Assuming kind of one unit each and a teacart procedure as we get to this critical mass and there's fewer and fewer kind of new accounts in new stocking orders and it and it's really.
Utilization driven revenue and we show that in our Investor deck, and we're very focused on managing the business that way, we want all of our revenue to come from Reorders and growing utilization.
And again, we've seen.
Peaks and valleys in the revenue per procedure for timing and other factors, but we're getting.
Closer to a normalized.
Metric on that front going forward.
But small changes up or down have have big impacts for a very focused business.
Got it what's it for me thanks.
Thank you I would now like to turn it back to Erika Rogers Chief Executive Officer for closing remarks.
Thank you very much for joining us.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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Yes.
Okay.
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