SILK - Sizing Up Silk Road Medical

2023-12-26 12:49:58 ET

Summary

• Today, we take a deeper look at Silk Road Medical, Inc., a medical device firm looking to become the standard-of-care in treating carotid artery disease.
• The company has seen steady revenue growth and has a significant potential market but remains unprofitable and the stock has declined greatly in 2023.
• Will a new CEO be able to turn the fortunes of Silk Road Medical around?  An analysis follows in the paragraphs below.

The simple step of a courageous individual is not to take part in the lie. "One word of truth outweighs the world. "? Aleksandr I. Solzhenitsyn.

Today, we put Silk Road Medical, Inc. (SILK) in the spotlight for the first time. The company got a new CEO in early November of this year. Previously, the new leader had served as President and CEO of Apollo Endosurgery, which was acquired by Boston Scientific in April of this year. He has over 25 years of experience in the medical device industry. Silk Road Medical is seeing solid sales growth, but this is not translating into improved profitability prospects. The stock as can be seen below has had a rough year in 2023. Can the new leader right the ship of this medical device concern? An analysis follows below.

Company Overview

Silk Road Medical, Inc. is headquartered in Sunnyvale, CA just outside of San Francisco. The company provides five separate products for treatment of carotid artery disease called transcarotid artery revascularization or TCAR. These are done to help lessen and prevent the chance of stroke. Over 75,000 TCAR procedures have been performed to date. The stock currently trades at just over $11.50 a share and sports an approximate market capitalization of $450 million.

Management believes their less invasive approach should continue to garner market share due to the benefits it delivers. Their aim is to establish TCAR as the standard of care in carotid artery disease.

Third Quarter Results

Silk Road Medical posted its Q3 numbers on November 8th. Revenues rose nearly 19% over 3Q2022 to $44.4 million, in line with expectations. Some 6,350 TCAR procedures were performed in the quarter, up 20% from the same period a year ago.

Operating expenses grew to $46.1 million in Q3, from $37.3 million in the same period a year ago. Management noted the increase was " due primarily to the continued expansion of the sales team and commercial efforts ."

Management guided for FY2023 revenue of between $170 million to $174 million. At the midpoint, this would represent just under 25% sales growth on a year-over-year basis.

Analyst Commentary & Balance Sheet

The analyst community is not sanguine about Silk Road Medical's near-term prospects, despite its revenue growth. Since third-quarter results were posted, five analyst firms including Citigroup and Piper Sandler have reissued Hold/Sell ratings on the stock. Price targets proffered range from $8 to $14 a share. Oppenheimer seems to be the lone current optimist on the equity. They chose to maintain their Outperform rating and $25 price target on the stock following quarterly numbers being posted.

Just over nine percent of the outstanding float of the shares are currently held short. Numerous insiders have been frequent but generally smallish sellers of the shares throughout 2023. They have disposed of just under $500,000 worth of equity so far in the second half of the year. The company ended the quarter with just under $200 million worth of cash and marketable securities on its balance sheet after posting a net loss of $12.8 million for the quarter.

Verdict

Silk Road Medical lost $1.54 a share in FY2022 on $139 million. The current analyst firm consensus sees similar losses in FY2023, even as revenues rise to $172 million. They then project right around the same losses in FY2024 as sales rise to $192 million.

Silk Road's approach/products have delivered average revenue growth over the past five years of 38% CAGR. That growth is slowing as the revenue base has become bigger, but the company still has plenty of room to grow in this market in the years ahead.

The problem with Silk Road Medical is that sales growth is not translating into a path to profitability as of yet. The good news is the company's balance sheet is in good stead, with no need for dilutive financing on the horizon. Hopefully, Silk Medical Road's new CEO will successfully lead the effort to reduce cash burn and accelerate the company's journey to being a profitable concern. However, until clear signs this is underway, I am with the analyst firms around Silk Medical Road in that I will remain on the sidelines.

Writing fiction is the act of weaving a series of lies to arrive at a greater truth ."? Khaled Hosseini.

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