Shockwave Medical

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Shockwave Medical has been introduced to this board before as long ago as June 2021 and again in September. For whatever reasons, I did not pay much attention to those posts. Be that as it may, an SA article I read this morning got me interested enough to take close look. I’ve not got a track record of introducing companies to the board, so I welcome others to comment.

Briefly, this is a cardiovascular medical device company. They make catheters in a variety of diameters, suited to different locations in the body. Their products are primarily focused on treatment of calcified cardiovascular disease treated with Intravascular Lithotripsy (IVL).

What’s their moat? I assume they have a gaggle of patents, but beyond that, maybe not much. I think being first to market is probably it. What makes them unique is that they employ proven sonic technology for treating kidney stones to arterial calcium. In any case, the name of the company is derived from this technology. If you want to know more, I suggest you visit their website. https://shockwavemedical.com/

I’ve reviewed several quarterly reports, while I did not dig into every detail, I did take down some important numbers which I will share with you here. There’s supposed to be a way of sharing a table, but I don’t know how to do it, so I’ll wing it:

Revenue 1Q 2Q 3Q 4Q
2021 $31.9 $55.9 $65.2 $84.2
2022 $93.7 $120.7 $131.3 $144
2023 $161.1

Gross Profit
2021 $24.0 $46.0 $ 54.2 $71/5
2022 $80.7 $104.0 $113.5 $126.5
2023 $140

Gross Margin
2021 75.0% 82.0% 83.0% 85.0%
2022 86.2% 86.0% 86.0% 88.0%
2023 86.9%

Net Income (Millions) Note, the large 4Q22 was due to a tax situation
2021 -$23.60 -$0.40 $1.90 $12.9
2022 $14.5 $25.6 $35.0 $140.9
2023 $39.1

EPS
2022 $0.39 $0.68 $0.97 $3.71
2023 $1.03

If you are interested, their quarterly reports break down the revenue by product and geography. They have a presence in 68 countries and don’t see much opportunity for further geographic expansion. However, they do see more opportunity in Germany, Japan and China.

Most of their revenue growth in the first quarter of 2023 came from existing customers. They are expanding their efforts related to training and cultivation of specialists. They don’t provide quarterly guidance, but they raised their annual guide from $660M - $680M to $700M - $720M. they beat their 2022 guide by $14M.

During last quarter’s Q&A there was a lot of questions and discussion about reimbursements, I did not fully comprehend a lot of it, as it was product and procedure specific, but the general notion was that insurance (be it private or national) has covered most, if not all of their offerings.

Finally, there are rumors of Shockwave being in takeover discussions with Boston Scientific. When asked about it, the CEO said no comment, but then proceeded to say words to the effect that Shockwave has a very competent board and they will do right for the company and owners. Kinda, sorta seemed to me that he was confirming the rumors.

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Thanks, @brittlerock .

The only thing I certainly did not like and it aligns with your comment was that the management team seemed–I always listen because that’s where I find the real value of a call–disengaged. Like they know the ride is nearly over. It really came across as very different from the Q4 call.

In terms of performance negatives, speaking from the top of my head, they have a regulatory process coming up in 2024 that may cause some issues for half a year if delayed, search for TPT here:

I expect SWAV to deliver easily over 50% revenue growth in 2023 while being exceptionally profitable:

Gaap ROE is 55% , which puts it 3rd in my list of 40 headed by AAPL and ENPH.
Gaap profit per employee is 240,000 (GOOG is 308,000; MSFT 312,000)

In addition, revenue per employee is 556,000 vs, for example, 351,000 for SNOW or 327,000 for NET.

In addition, while I cannot elaborate on this here, it can be argued that its ROA is far above GAAP and its actual PE far below GAAP.

This is not to say that it is cheap but IMO it is outstanding overall.

I am no expert and I know nothing about the medical devices themselves though it all sounds good to me. Just my 2c.

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Interesting observation. I did not listen to the call as I reviewed 5 quarters. I might try that. One thing I observed and did not comment on was that it appears that they’ve had three CFOs over a short period of time. I might be wrong about that, it may be only two which wouldn’t be a cause for concern in my mind.

It seems difficult to understand why “the ride might be over” unless it’s due to the potential for acquisition. That sort of thing always causes heartburn in the C suite as several positions suddenly become redundant. From a shareholder perspective though, it seems like it would likely be a good thing.

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Sorry, that’s what I meant, it felt as if the rumors are true and the acquisition would happen, thus “ride over.” Try to listen to Q4 and Q1 back-to-back, if you can afford the time, and see what you think. I have heard so many calls lately, I have no desire to re-do those two:)

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Myself and others have posted SWAV on this board and it has received very little enthusiasm from what I can tell. I would direct you to the SWAV board which also is a little sleepy.
https://community.fool.com/tag/swav

SWAV is a risky stock not a risky company. I have held it since 2020 and have a 10x return spiffy pop. If buy out talks fall down publicly, the stock will take a hit. If this hopefully happens, I’ll buy more of already a full position. The technology is proven and no significant competition. The management is mature, invested, and has a ‘steady as she goes’ style. They are currently focused on growing out its successful adoption and expansion in existing sites. They have great international growth but this is slow slog of regulation approvals and adoption. I am watching the partnership in China. More than half the revenue comes from the C2 coronary product. ATK and BTK (legs have skinny arteries) are more challenging adoptions as it is a new technology procedure versus coronary where the C2 is an adjunct to the popular stenting procedure. C2 shockwaves makes stenting much safer when the arteries are calcified and brittle. 30+% of all arteries are calcified so there is a huge untapped market.

If the acquisitions fall through, I would make SWAV a strong buy on any pullback. Sounds like Boston Scientific fell through but there is also J&J and a third company rumored.

Here is my SWAV forecast for 2023 that I posted last month on the message board April 12 pre Q1 announcement. Actual Q1 revenue of $161 beat my forecast of $152. So I am happy to keep holding.

Here is my revenue and net income forecast for 2023 before this CMS announcement. I have extrapolated quarters using a 36% CAGR (mid range from CFO estimates). I am forecasting on net income without one time tax credit in 2022 Q4. I am now wondering if my estimates are too low. If additional revenue is expected from ASC procedures ($4-5,000 each) now covered by the new CMS codes September 1, perhaps I am understating the 2023 Q3 and Q4 revenue forecast. Dunno if the SWAV CEO included this assumption in his YOY growth rate. The one thing that stands out is the net income is really growing substantially. 2022 net income was $120. My 2023 forecast is $204 for about a 72% growth in net income which is faster than forecast 36% revenue growth. SWAV is becoming a cash machine!

Forecast Forecast Forecast Forecast Forecast
Q1-23 Q2-23 Q3-23 Q4-23 2023
Revenue Total 152 162 172 183 669
Revenue growth QOQ % 6% 7% 6% 6%
Rev Growth % YOY 36%
Net Income 46.44 49.50 52.56 55.92 204.42 71.63%

-zane

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I appreciate you bringing this to the board repeatedly… and I agree that it looks like the kind of stock I’d love to own after checking out the EPS and growth.

Unfortunately, I’ve convinced myself that the other stuff I own is better (at least over the next year or so) and I won’t be buying. Nevertheless, I’m commenting because you deserve a rousing round of applause for a really good suggestion and you shouldn’t just hear crickets instead.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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I just want to second what Rob said. I am mostly a lurker here and don’t post very much. I really appreciate it when someone brings a company to the board or gives an update on a company that does not get much coverage. We are all looking for good ideas and continually evaluating our present investments and looking for better ones. Even if I am not going to invest in a company I really appreciate the information given.

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@Iamnzane Thank you for providing more details about Shockwave. As I noted, I just came across this company a couple of days ago and after reviewing the numbers over the last five quarters I felt it was worth a small investment.

SWAV is a 2% position for me. That’s not putting a lot at risk. I’ve kept it small primarily because I’ve not done much research at this point. Your post strengthens my confidence, but so far I’ve not increased my position. I have the same problem others have noted, I need to take something away from other positions in order to grow this one. I don’t feel like there’s anything I want to sell. So, I’ll watch it. If it performs well, I will raise my stake.

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