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spk03: to Silk Road Medical Conference Call. At this time, all participants are in a listener-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 one one on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Marisha Beisch. Please go ahead.
spk19: 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 under December 31, 2022. 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 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 it's a live broadcast today, February 28, 2023. Silk Road Medical just claims 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.
spk16: Good afternoon, and thank you all for joining us. 2022 closes the books on a remarkable year at Silk Road. We achieved 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 Road's category leadership in the treatment of carotid artery disease. with the expansion of TCAR's 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 in support of 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 SVSVQI 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 US TCAR, 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 over time. 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's why, throughout this year, we remain focused on driving more touchpoints 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. 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've spent the last five plus years laying a foundation for growth in the U.S. carotid disease market. through our broad portfolio of key car 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 Shonin approvals in Japan for both our on-route neuroprotection system and the on-route 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 trans-carotid technologies, We recently announced the clearance of our Inflate Transcarotid Rapid Exchange Balloon Dilation Catheter, or Inflate for short. The first balloon, purpose-built for TCAR, and the fifth product in our TCAR portfolio. We initiated a limited launch of Inflate 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 enrollment progress in our night one 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 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.
spk04: Thank you, Erica. Revenue for the three months ended December 31st, 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 in 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 margin 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 and 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 34 cents per share, as compared to a net loss of 14.7 million or a loss of 42 cents 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 in 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 1,100 hospitals with almost 2,500 trained physicians served by 70 active sales territories. We anticipate 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 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, will not be breaking out contributions of TCAR procedures by patient surgical risk profile nor product level revenues. At this point, I'd like to turn the call back to Erica for closing comments.
spk16: Thank you, Lucas. I'd 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 base of clinical evidence, established commercial footprint, and full market access, We are, in many ways, arriving at the next era in the Silk Road medical story. We are excited to continue our work in earnest. We will now open the line to questions.
spk03: 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 1 1 on your telephone and wait for your name to be announced. To withdraw your questions, press star 1 1 again. One moment, please. while we compile the Q&A roster. Our next caller is Travis Steed of Bank of America Securities. Travis, your line's open.
spk09: Hi, everybody. Thanks for taking the questions. I guess I'll start with the guidance and maybe to 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, if that's low single digits or mid single digits, we have to think about the pricing. And when you think about market penetration and the 2023 guidance, it looks like you did around two and a half points or three points of market penetration last year and guiding for about the similar level of market penetration in 2023, despite Senate risk. So just kind of thinking about if that's fulfilling for market penetration or how we should think about the upside to that.
spk16: Yeah. 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. You know, as we said in our prepared remarks, the guide really reflects, you know, what we consider to be ongoing normalization of the operating environment and hospital 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've talked about before, we're not going to break out those trends by risk factor, but instead sort of talk about it collectively. But I do think it's 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'll let Lucas take some of the detailed answers to your question.
spk04: Yeah, Travis, thanks for the question. In terms of the quarterly cadence, it's going to be another year where it's kind of back half loaded, which is partly a function of the 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're still building from 70 to 75 and beyond throughout the year. And so we'll see kind of that step up. Q1 historically has been flattish to Q4. There's some COVID noise in that. So maybe it's flattish to modest 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'll give some color on that as we go forward. If you do the math on our implied guidance, we're 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's our best estimate as we sit here today. And then on the penetration question, you're right. You've 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 the full label and the clinical evidence and the critical mass we have is the job. It's a very sensitive metric, and so if we're slightly better or slightly worse, the output will be as such. But that's where we're focused is on driving the adoption curve in 2023. It's really a year of commercial execution.
spk09: Great. Very helpful. And I guess a follow-up for Lucas would just be on the better leverage you can get this year. Just curious how you can put some numbers around the leverage could get or market penetration for breakeven. And then a follow-up for Erica would just be on the CMS NCD review. Anything that come out of that or curious what would happen if the sense that the reimbursement there.
spk04: Yeah, so we certainly expect revenue to grow faster than operating expenses this year. We are in 2023, we'll have the full year effect of quite a bit of hiring we did in 2022. We will also incrementally invest in Salesforce expansion, as I mentioned, but we do expect operating expenses as a percentage of revenue to continue to tick down. We did not provide a specific revenue scale or timing of profitability. Again, we really want 2023, the year of commercial execution, to show us what we're capable of with the full label, the additional product of the product portfolio, and the overall critical mass. And so as we progress throughout the year on revenue growth and see that operating leverage, we can start to think about that path to profitability.
spk16: Yeah, and Travis, on your NCD reconsideration question, you know, we continue to believe there are a range of favorable outcomes for Silk Road and for KECAR. And generally, we welcome this opportunity for a wholesome review of the evidence. As you heard in the prepared remarks, we're sitting here with greater than 25,000 patients' worth of data. in peer-reviewed high-impact factor journals, and more data are generated on a daily basis in the real-world evidence of the TCAR surveillance project. So we're pleased with the outcomes that have been posted so far. We know that the training metrics, the less restrictive patient criteria, all of those things are in our favor. In terms of where we are from a process point of view, the first comment period is behind us. The public comments are public, so you can see them, and we did, of course, post a public comment. July is the first draft decision memo that will come from CMS, and we'll wait to see what happens and keep our heads down and do the good work we're doing in the meantime.
spk08: All right, great. Thanks for taking the question.
spk03: Thank you very much. One moment while we get our next question. And our next question comes from Robbie Marcus of JP Morgan. Robbie, your line's open.
spk07: Great. Congrats on a nice quarter. Thank you. Maybe to follow up after Travis asked all the questions. You know, if I take Lucas at 25,000 procedures, it gives us revenue per procedure about $7,200 for the year. How do we think about the cadence of that through the year as you add in the balloon? Is it a more second half weighted revenue per procedure, similar to how you're building out the territories? And I appreciate the first quarter color, but is there anything abnormal about the 2Q through 4Q ramp we should be thinking about?
spk04: Yeah, first of all, I would interpret the roughly 25,000 as on the under, not the over. And again, I think the average is probably going to be in that 7,250 range. There has always been quarter-to-quarter variability. But yes, it would likely scale from the 7,200 range up towards the 7,300 range. Again, there's some uncertainty on exactly how much utilization and units per procedure as we get into the full market release in Q2 and beyond. And a full market release still requires the administrative churn of VAC committees and pricing contracts and those things. So we'll progress throughout the year in terms of both the territory expansion, the procedures per position, and the on-flate contribution on the margin.
spk07: Got it. And, you know, as you contemplate expanding outside the U.S. versus the cash you now have on the balance sheet, how are you considering M&A at this point? Is there something else you can add into the bag of the sales reps that you think might be worthwhile and accretive to the business, or is the use of cash solely on TCAR in the U.S. and outside the U.S.? ?
spk16: Yeah, I appreciate the question, Robbie. Look, you know, the way to think about this business with 12% penetration closing out 2022 in the United States is there is so much room to run here. And as I said in my prepared remarks, our best investment for growth is right here in the United States in US TCAR expansion. If you look at the total market opportunity of just the treated patients alone, We're just getting started. So I think it's safe to say the focus is on increasing the adoption of TCAR and driving the leverage we have right here at home in the United States.
spk06: Great. Thanks a lot.
spk03: Thank you very much. One moment for our next question. And our next question comes from Adam Mater of Piper Sandler.
spk11: Hi, Erica. Hi, Lucas. Thank you for taking the questions and congrats on the progress in 2022. Did want to start with one on Q4 and just dig in a little bit more there. I'm curious if you're able to kind of talk about the trends, you know, month by month, October through December, you know, certainly solid performance and good to see the business up 7% sequentially. But the quarter recorded growth was a little bit lighter than past quarters. So just wanted to understand, you know, you know, any considerations there. And it frankly could just be a difference in selling days or seasonality from holiday. But anything you'd call out and then I'd have a follow-up or two. Thanks.
spk16: Yeah. Hi. Good to hear from you. Let me just give you some high-level views. You know, coming out of Q3, we talked about the relatively more normal, you know, healthcare operating environment. We did caution around the cold, flu, COVID season potentially having an impact on labor shortages in Q4. But I think it's safe to say that we continue to see relative normalization in the operating environment. And I'll let Lucas talk about kind of specifically your points on selling days, et cetera.
spk04: Yeah, Adam, I guess the short answer is nothing specific to call out. We're not really providing month to month commentary um it was a a strong quarter with the 70 territories going out to work we had the normal seasonality that we always planned for and we're excited about the momentum into 2023. okay thanks for the the incremental color there and then for the follow-up um wanted to ask about gross margin lucas um you know a little bit of choppiness in 22 i think because of the
spk11: the second manufacturing side and getting that up and running. You know, how do we think about 2023? I think I heard in the prepared remarks maybe some near-term challenges, but, you know, how do we think about progression of gross margin this year? Thank you.
spk04: Yeah, I think you should think about it similarly to kind of the top line commentary, which is, you know, improvements more back half loaded. And I think overall we'll be roughly similar in gross margin percentage as 2022 for different reasons. We're carrying kind of higher labor and materials costs that have been capitalized into inventory, and we're obviously carrying the overhead of two manufacturing facilities versus one. As we maintain price discipline and drive increased unit volume over time, we'll see some improvement potentially in the back half of the year and beyond, and a little bit lighter in the front half of the year.
spk10: Very helpful. Thank you.
spk03: Thank you. Please stand by one moment for our next question. Our next question comes from Joanne Wunsch of Citi. Joanne, your line's open.
spk18: Good evening, and thank you for taking the question. I appreciate the sequential commentary. I just want to make sure that the first quarter got set up right. I mean, how are you thinking about the sequential quarter, you know, in terms of revenue delivery? And I'll ask a follow-up question. If I did my math correctly, you ended – 2022 with roughly 300 physicians trained, are you in a position to establish a goal for 2023?
spk16: Why don't we take those in reverse order, Joanne, and thanks so much for joining us and for your question. So, in the year of 2022, we achieved roughly greater than 400 physicians trained, which was in excess of how we had guided in the first part of the year. ending the year with roughly 2,500 physicians trained, which is a great setup for 2023. As we've talked about before, training physicians is kind of an investment in our future. And you probably noticed, Joanne, that we did not guide to a specific number of trained physicians for this year in 2023, and we probably won't going forward. And that's because it's kind of de minimis compared to the number of physicians that are already trained. And the real growth driver being moving these trained physicians up the adoption curve. So, you know, the best way to think about it is kind of mid to high-ish single-digit percentage growth in trained physicians every year from here on forward. And that would include, of course, fellows and, you know, younger physicians coming in replacing the old retirees.
spk04: And Joanne, your question on sequential growth was Q1 of this year versus Q4 of last year. Is that correct?
spk00: Yes.
spk04: Yeah. So I'll reiterate some of the prepared comments, and if there's a follow-up, let me know. But again, the historical trend has been roughly flat, but the historical trend includes some COVID spikes in various time periods. We ended the year with 70 territories and started the year with 70 and, again, have a goal to expand. And so I think modest sequential growth is the right way to think about Q1. And then as we get the year progressing and continue commercial expansion and continue all of our initiatives and continue the on-flate rollout, we'll have some sequential step-ups from there with the normal growth. seasonality adjustments that we make. But at the end of the day, it's really procedures per doc and what are the inputs around driving physician utilization and obviously having the folks out in the field go do their thing more and more with more touch points is the goal.
spk17: Sounds good. Thank you for that incremental info.
spk03: Thank you. One moment, please, while we queue up our next question. And our next question comes from John McCauley of Stifel. John, you're open.
spk05: Hi, Lucas. Hi, Erica. Thanks for taking my questions today. I guess to start off taking a look at operating leverage for 23, maybe putting a finer point on it. you grew top line around 37% and OpEx was around 24. It's like a 13% Delta. What do you see in 23? Do you see that gap potentially widening as you kind of reach more scale with the Salesforce or do you see OpEx kind of continuing to grow in that mid-20s percentage range?
spk04: Yeah, short answer. mid-20s growth. And we don't have specific OPEX guidance, but the things to think about, again, the biggest line item in the company is people costs and compensation costs across all functions. And we did a fair amount of hiring in 2022, so we'll get the full year effect of salaries and bonuses and stock comp and things like that. The second is the continued expansion of the number of sales territories and the human resources to drive those territories. I think from a G&A perspective and R&D perspective, as I've said prior, those are really at steady state. There's always quarter-to-quarter variability, but I think that all pencils out to roughly mid-20s growth, including non-cash stock compensation expenses, where there are always things going on on that line item specifically.
spk05: Great. That's helpful. And then just one more for me, kind of from a bigger picture perspective. You're talking about kind of reaching a critical mass of docs trained, of clinical data. I mean, what other factors, what else do you need in place, do you think, Lucas or Erica, to to accelerate TGAR growth to the 20, 30, 40, 80% penetration. Just kind of looking for your big picture thoughts there. Thanks for taking my questions.
spk16: Yeah, absolutely. And you're right, John, recognize that the setup for success is really there with trained physicians, open territories, open hospital accounts, and access to the full market. So I think that the short answer to your question is we are growing, and we're growing meaningfully in procedures per physician and overall. And the business of treating the brain is one where time and experience matter. And we've said this before, that it takes an individual physician a year to a year and a half just to get comfortable with switching more and more patients to TCAR versus carotid endarterectomy. And we know from our own experience that increasing the touch points, the number of times the quota-carrying professionals are in front of their physicians, that that helps to drive adoption, which is one of our key areas of focus for this year and beyond. And I also said in my prepared remarks that more and more we're turning our attention to patients. And we know that patients are doing more work than ever on informing themselves around treatment decisions. And this is true of any disease state, not just here in carotid artery disease. And so we have really up-leveled our engagement in this area, both in terms of providing patients with the educational material that they need, but also really assessing how patients think about TCAR, and particularly patients who've had both TCAR and carotid endarterectomy. and taking some results of some early work that we've done there and capitalizing on patients prefer TCAR. And that's just one example of many on our focus to have patients asking for TCAR more and more.
spk02: Thank you.
spk03: At this time, I'd now like to turn the call back to Erica Rogers for closing remarks.
spk15: Thank you all for joining us.
spk03: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
spk14: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. you Thank you
spk13: Thank you. you
spk03: 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 listener 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 1 1 on your telephone and 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 now like to hand the conference over to your speaker today, Marisha Byshe. Please go ahead.
spk19: 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 under December 31, 2022. 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 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 because of new information, future events, or otherwise. And with that, I will turn the call over to Erica Rogers, Chief Executive Officer.
spk16: Good afternoon, and thank you all for joining us. 2022 closes the books on a remarkable year at Silk Road. We achieved 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 Road's category leadership in the treatment of carotid artery disease, with the expansion of TCAR's 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 in support of 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 SVSVQI 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 US TCAR, 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 over time. 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's why, throughout this year, we remain focused on driving more touchpoints 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. 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've spent the last five plus years laying a foundation for growth in the U.S. carotid disease market through our broad portfolio of TCAR 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 shonen approvals in Japan for both our on-route neuroprotection system and the en route 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 trans-carotid technologies, We recently announced the clearance of our Inflate Transcarotid Rapid Exchange Balloon Dilation catheter, or Inflate for short. The first balloon, purpose-built for TCAR, and the fifth product in our TCAR portfolio. We initiated a limited launch of Inflate 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 enrollment progress in our night one 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 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.
spk04: Thank you, Erica. Revenue for the three months ended December 31st, 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 in 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 margin 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 and 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 34 cents per share, as compared to a net loss of 14.7 million or a loss of 42 cents 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 in 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 1,100 hospitals with almost 2,500 trained physicians served by 70 active sales territories. We anticipate 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 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, will not be breaking out contributions of TCAR procedures by patient surgical risk profile nor product level revenues. At this point, I'd like to turn the call back to Erica for closing comments.
spk16: Thank you, Lucas. I'd 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 base of clinical evidence, established commercial footprint, and full market access, We are, in many ways, arriving at the next era in the Silk Road medical story. We are excited to continue our work in earnest. We will now open the line to questions. Operator?
spk03: 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 1 1 on your telephone and wait for your name to be announced. To withdraw your questions, press star 1 1 again. One moment, please. while we compile the Q&A roster. Our next caller is Travis Steed of Bank of America Securities. Travis, your line's open.
spk09: Hi, everybody. Thanks for taking the questions. I guess I'll start with the guidance and maybe to 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, if that's low single digits or mid single digits, we have to think about the pricing. And when you think about market penetration and the 2023 guidance, it looks like you did around two and a half points or three points of market penetration last year and guiding for about the similar level of market penetration in 2023, despite Senate risk. So just kind of thinking about if that's fulfilling for market penetration or how we should think about the upside to that.
spk16: Yeah. 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. You know, as we said in our prepared remarks, the guide really reflects, you know, what we consider to be ongoing normalization of the operating environment and hospital 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've talked about before, we're not going to break out those trends by risk factor, but instead sort of talk about it collectively. But I do think it's 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'll let Lucas take some of the detailed answers to your questions.
spk04: Yeah, Travis, thanks for the question. In terms of the quarterly cadence, it's going to be another year where it's kind of back half loaded, which is partly a function of the 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're still building from 70 to 75 and beyond throughout the year, and so we'll see kind of that step up. Q1 historically has been flattish to Q4. There's some COVID noise in that, so maybe it's flattish to modest 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'll give some color on that as we go forward. If you do the math on our implied guidance, we're 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's our best estimate as we sit here today. And then on the penetration question, you're right. You've 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 the full label and the clinical evidence and the critical mass we have is the job. It's a very sensitive metric, and so if we're slightly better or slightly worse, the output will be as such. But that's where we're focused is on driving the adoption curve in 2023. It's really a year of commercial execution.
spk09: Great. Very helpful. And I guess a follow-up for Lucas would just be on the better leverage you can get this year. Just curious how you can put some numbers around the leverage could get or market penetration for breakeven? And then a follow-up for Erica would just be on the CMS NCD review. Anything that come out of that or curious what would happen if the sense got the reimbursement there?
spk04: Yeah, so we certainly expect revenue to grow faster than operating expenses this year. We are, in 2023, we'll have the full year effect of quite a bit of hiring we did in 2022. We will also incrementally invest in Salesforce expansion, as I mentioned, but we do expect operating expenses as a percentage of revenue to continue to tick down. We did not provide a specific revenue scale or timing of profitability. Again, we really want 2023, the year of commercial execution, to show us what we're capable of with the full label, the additional product to the product portfolio, and the overall critical mass. And so as we progress throughout the year on revenue growth and see that operating leverage, we can start to think about that path to profitability.
spk16: Yeah, and Travis, on your NCD reconsideration question, you know, we continue to believe there are a range of favorable outcomes for Silk Road and for KECAR. And generally, we welcome this opportunity for a wholesome review of the evidence. As you heard in the prepared remarks, we're sitting here with greater than 25,000 patients' worth of data. in peer-reviewed high-impact factor journals, and more data are generated on a daily basis in the real-world evidence of the TCAR Surveillance Project. So we're pleased with the outcomes that have been posted so far. We know that the training metrics, the less restrictive patient criteria, all of those things are in our favor. In terms of where we are from a process point of view, the first comment period is behind us. The public comments are public, so you can see them, and we did, of course, post a public comment. July is the first draft decision memo that will come from CMS, and we'll wait to see what happens and keep our heads down and do the good work we're doing in the meantime.
spk08: All right, great. Thanks for taking the question.
spk03: Thank you very much. One moment while we get our next question. And our next question comes from Robbie Marcus of JP Morgan. Robbie, your line's open.
spk07: Great. Congrats on a nice quarter. Thank you. Maybe to follow up after Travis asked all the questions. You know, if I take Lucas at 25,000 procedures, it gives us revenue per procedure about $7,200 for the year. How do we think about the cadence of that through the year as you add in the balloon? Is it a more second half weighted revenue per procedure similar to how you're building out the territories? And I appreciate the first quarter color, but is there anything abnormal about the 2Q through 4Q ramp we should be thinking about?
spk04: Yeah, first of all, I would interpret the roughly 25,000 as on the under, not the over. And, again, I think the average is probably going to be in that 7,250 range. There has always been quarter-to-quarter variability. But, yes, it would likely scale from the 7,200 range up towards the 7,300 range. Again, there's some uncertainty on exactly how much utilization and units per procedure as we get into the full market release. in Q2 and beyond. And a full market release still requires the administrative churn of VAC committees and pricing contracts and those things. So we'll progress throughout the year in terms of both the territory expansion, the procedures per position, and the on-flate contribution on the margin.
spk07: Got it. And, you know, as you contemplate expanding outside the U.S. versus the cash you now have on the balance sheet. How are you considering M&A at this point? Is there something else you can add into the bag of the sales reps that you think might be worthwhile and accretive to the business, or is the use of cash solely on TCAR in the U.S. and outside the U.S.? Thanks.
spk16: Yeah, I appreciate the question, Robbie. Look, you know, the way to think about this business with 12% penetration closing out 2022 in the United States is there is so much room to run here. And as I said in my prepared remarks, our best investment for growth is right here in the United States in US TCAR expansion. If you look at the total market opportunity of just the treated patients alone, We're just getting started. So I think it's safe to say the focus is on increasing the adoption of TCAR and driving the leverage we have right here at home in the United States.
spk06: Great. Thanks a lot.
spk03: Thank you very much. One moment for our next question. And our next question comes from Adam Mater of Piper Sandler.
spk11: Hi, Erica. Hi, Lucas. Thank you for taking the questions and congrats on the progress in 2022. Did want to start with one on Q4 and just dig in a little bit more there. I'm curious if you're able to kind of talk about the trends, you know, month by month, October through December, you know, certainly solid performance and good to see the business up 7% sequentially. But the quarter recorded growth was a little bit lighter than past quarters. So just wanted to understand, You know, any considerations there, and it frankly could just be a difference in selling days or seasonality from holiday. But anything you'd call out, and then I'd have a follow-up or two. Thanks.
spk16: Yeah, hi. Good to hear from you. Let me just give you some high-level views. You know, coming out of Q3, we talked about the relatively more normal, you know, healthcare operating environment. We did caution around the cold, flu, COVID season potentially having an impact on labor shortages in Q4. But I think it's safe to say that we continue to see relative normalization in the operating environment. And I'll let Lucas talk about kind of specifically your points on selling days, et cetera.
spk04: Yeah, Adam, I guess the short answer is nothing specific to call out. We're not really providing month-to-month commentary um it was a a strong quarter with the 70 territories going out to work we had the normal seasonality that we always planned for and we're excited about the momentum into 2023. okay thanks for the the incremental color there and then for the follow-up um wanted to ask about gross margin lucas um you know a little bit of choppiness in 22 i think because of the
spk11: the second manufacturing side and getting that up and running. You know, how do we think about 2023? I think I heard in the prepared remarks maybe some near-term challenges, but, you know, how do we think about progression of gross margin this year? Thank you.
spk04: Yeah, I think you should think about it similarly to kind of the top line commentary, which is, you know, improvements more back half loaded. And I think overall we'll be roughly similar in gross margin percentage as 2022 for different reasons. We're carrying kind of higher labor and materials costs that have been capitalized into inventory, and we're obviously carrying the overhead of two manufacturing facilities versus one. As we maintain price discipline and drive increased unit volume over time, we'll see some improvement potentially in the back half of the year and beyond, and a little bit lighter in the front half of the year.
spk10: Very helpful. Thank you.
spk03: Thank you. Please stand by one moment for our next question. Our next question comes from Joanne Wunsch of Citi. Joanne, your line's open.
spk18: Good evening, and thank you for taking the question. I appreciate the sequential commentary. I just want to make sure that the first quarter got set up right. I mean, how are you thinking about the sequential quarter, you know, in terms of revenue delivery? And I'll ask a follow-up question. If I did my math correctly, you ended – 2022 with roughly 300 physicians trained, are you in a position to establish a goal for 2023?
spk16: Why don't we take those in reverse order, Joanne, and thanks so much for joining us and for your question. So, in the year of 2022, we achieved roughly greater than 400 physicians trained, which was in excess of how we had guided in the first part of the year. ending the year with roughly 2,500 physicians trained, which is a great setup for 2023. As we've talked about before, training physicians is kind of an investment in our future. And you probably noticed, Joanne, that we did not guide to a specific number of trained physicians for this year in 2023, and we probably won't going forward. And that's because it's kind of de minimis compared to the number of physicians that are already trained. And the real growth driver being moving these trained physicians up the adoption curve. So, you know, the best way to think about it is kind of mid to high-ish single-digit percentage growth in trained physicians every year from here on forward. And that would include, of course, fellows and, you know, younger physicians coming in replacing the old retirees.
spk04: And Joanne, your question on sequential growth was Q1 of this year versus Q4 of last year. Is that correct?
spk00: Yes.
spk04: Yeah. So I'll reiterate some of the prepared comments, and if there's a follow-up, let me know. But again, the historical trend has been roughly flat, but the historical trend includes some COVID spikes in various time periods. We ended the year with 70 territories and started the year with 70 and, again, have a goal to expand. And so I think modest sequential growth is the right way to think about Q1. And then as we get the year progressing and continue commercial expansion and continue all of our initiatives and continue the on-flight rollout, we'll have some sequential step-ups from there with the normal growth. seasonality adjustments that we make. But at the end of the day, it's really procedures per doc and what are the inputs around driving physician utilization and obviously having the folks out in the field go do their thing more and more with more touch points is the goal.
spk17: Sounds good. Thank you for that incremental info.
spk03: Thank you. One moment, please, while we queue up our next question. And our next question comes from John McCauley of Stifel. John, you're open.
spk05: Hi, Lucas. Hi, Erica. Thanks for taking my questions today. I guess to start off taking a look at operating leverage for 23, maybe putting a finer point on it. you grew top line around 37% and OpEx was around 24th. It's like a 13% Delta. What do you see in 23? Do you see that gap potentially widening as you kind of reach more scale with the Salesforce or do you see OpEx kind of continuing to grow in that mid-20s percentage range?
spk04: Yeah, short answer. mid-20s growth. And we don't have specific OPEX guidance, but the things to think about, again, the biggest line item in the company is people costs and compensation costs across all functions. And we did a fair amount of hiring in 2022, so we'll get the full year effect of salaries and bonuses and stock comp and things like that. The second is the continued expansion of the number of sales territories and the human resources to drive those territories. I think from a G&A perspective and R&D perspective, as I've said prior, those are really at steady state. There's always quarter-to-quarter variability, but I think that all pencils out to roughly mid-20s growth, including non-cash stock compensation expenses, where there are always things going on on that line item specifically.
spk05: Great. That's helpful. And then just one more for me, kind of from a bigger picture perspective. You're talking about kind of reaching a critical mass of docs trained, of clinical data. I mean, what other factors, what else do you need in place, do you think, Lucas or Erica, to to accelerate TGAR growth to the 20, 30, 40, 80% penetration. Just kind of looking for your big picture thoughts there. Thanks for taking my questions.
spk16: Yeah, absolutely. And you're right, John, recognize that the setup for success is really there with trained physicians, open territories, open hospital accounts, and access to the full market. So I think that the short answer to your question is we are growing, and we're growing meaningfully in procedures per physician and overall. And the business of treating the brain is one where time and experience matter. And we've said this before, that it takes an individual physician a year to a year and a half just to get comfortable with switching more and more patients to TCAR versus carotid endarterectomy. And we know from our own experience that increasing the touch points, the number of times the quota-carrying professionals are in front of their physicians, that that helps to drive adoption, which is one of our key areas of focus for this year and beyond. And I also said in my prepared remarks that more and more we're turning our attention to patients. And we know that patients are doing more work than ever on informing themselves around treatment decisions. And this is true of any disease state, not just here in carotid artery disease. And so we have really up-leveled our engagement in this area, both in terms of providing patients with the educational material that they need, but also really assessing how patients think about TCAR, and particularly patients who've had both TCAR and carotid endarterectomy. and taking some results of some early work that we've done there and capitalizing on patients prefer TCAR. And that's just one example of many on our focus to have patients asking for TCAR more and more.
spk02: Thank you.
spk03: At this time, I would now like to turn the call back to Erica Rogers for closing remarks.
spk15: Thank you all for joining us.
spk03: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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