What happened
Shares of Shockwave Medical (SWAV 0.31%) were down 9.5% as of 11:35 a.m. ET Tuesday, according to data provided by S&P Global Market Intelligence, after the company announced mixed second-quarter 2023 results relative to Wall Street's expectations.
Shockwave Medical's quarterly revenue climbed 49% year over year to $180.2 million, translating to net income of $28.9 million, or $0.76 per diluted share. Analysts, on average, were modeling lower revenue of $173.8 million, but higher earnings of $0.79 per share.
So what
As Shockwave CEO Doug Godshall state:
Our teams throughout the Shockwave organization continue to execute at the highest level, enabling us to offer an expanding range of products to meet the needs of our customers across the globe. The consistent growth across our business is a testament to the need for our novel products and we look forward to continuing to provide innovative solutions to improve outcomes for patients suffering from cardiovascular diseases.
Indeed, Shockwave Medical made significant strides as it pertains to expanding its reach, announcing the full commercial availability in select international markets of its new Shockwave C2+ Coronary Intravascular Lithotripsy (IVL) Catheter to treat severely calcified coronary artery disease. The company also closed on its previously announced $75 million acquisition of specialty medical-device company Neovasc and commenced integration during the quarter.
Perhaps most exciting, Shockwave also told investors three new coronary IVL-specific Medicare Severity Diagnosis Related Groups (MS-DRGs) -- which were also first announced in April -- will become effective Oct. 1, 2023. These new codes will be associated with higher payments to Shockwave than those for other Percutaneous Coronary Intervention (PCI) procedures.
So why the earnings shortfall? Shockwave's operating expenses climbed 66% year over year to $123.3 million -- easily outpacing revenue growth -- due to a combination of sales for expansion, higher headcount to support growth, and expenses related to the acquisition of Neovasc.
Now what
Shockwave Medical also raised its full-year 2023 outlook to call for revenue of $725 million to $730 million, up from $700 million to $720 million previously and good for growth of 48% to 49% from last year.
In the end, I'm not particularly concerned about Shockwave's slight earnings miss, as those rising expenses are necessary to continue driving outsized growth while the company chases its large total addressable market. As it continues to scale the business and expand its global presence, increased operating leverage should begin to take hold with commensurate earnings growth to follow -- and Shockwave's share price should eventually respond in kind. As such, this drop could prove to be a fantastic chance for patient, long-term investors to open or add to a position.
