SI-BONE, Inc. (NASDAQ:SIBN) Q1 2024 Earnings Call Transcript

SI-BONE, Inc. (NASDAQ:SIBN) Q1 2024 Earnings Call Transcript May 6, 2024

SI-BONE, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to SI-Bone First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes. I’ll now like to turn the call over to Saqib Iqbal, Senior Director, Investor Relations at SI-Bone for a few introductory comments.

Saqib Iqbal: Thank you for participating in today’s call. Joining me are Laura Francis, Chief Executive Officer, and Anshul Maheshwari, Chief Financial Officer. Earlier today, SI-BONE released financial results for the quarter ended March 31, 2024. 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 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.

These forward-looking statements are based on the Company’s current expectations and inherently involve risks and uncertainties. These risks include SI-BONE’s ability to introduce and commercialize new products and indications, SI-BONE’s ability to maintain favorable reimbursement for its products and procedures, changes in pair requirements for authorization of procedures involving SI-BONE’s products, the impact of potential economic weakness on the ability and desire of patients to undergo elective procedures, SI-BONE’s ability to manage risks to its supply chain, the impact of future capital requirements driven by new product introductions, and risks to the continued renormalization of the healthcare operating environment. Other forward-looking statements include our examination of operating trends and our future financial expectations, such as expectations for physician training and adoption, active physicians, new products, and clinical trial enrollment, and 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 most recent Form 10-K filed with the Securities and Exchange Commission. During this call, management may discuss certain non-GAAP measures, including the Company’s adjusted EBITDA results. For a reconciliation of these non-GAAP measures to GAAP accounting, please see the Company’s full earnings release issued earlier today. SI-BONE 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.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 6, 2024. With that, I’ll turn the call over to Laura.

Laura Francis: Thanks, Saqib. Good afternoon, and thank you for joining us. I’m pleased with our solid first quarter results driven by continued robust procedure demand in the U.S. across all our target markets. We delivered $37.9 million in worldwide revenue representing growth of 16% over the prior year period. I’m particularly impressed with our performance in the first quarter when you compared to typical industry seasonality trends and our stellar performance in the prior year. The demand momentum was also evident in our impressive physician engagement trends. In the first quarter, we maintained a near record number of active U.S. physicians and completed a record-breaking number of new physician trainings. As we look at the rest of 2024, we remain enthusiastic about the revenue growth acceleration fueled by three key tailwinds.

First, the continued growth in our physician base, driven by the record level of engagement we’re seeing. Second building on a strong success of iFuse-3D and expanding adoption of TORQ across all our coal points. And third, the exciting opportunity to leverage the expanded family of Granite implants with our active physician base to accelerate adoption within pelvic fixation and increase procedures per physician. In the first quarter, we received 510(k) clearance from the FDA for our 9.5-millimeter diameter iFuse Bedrock Granite implant with market expanding indications for placement in the S1 pedicle and pediatric deformity. These are new but adjacent market opportunities for us. We launched this implant at the end of April with Dr. CJ Kleck, a key opinion leader at the University of Colorado.

Dr. Ali Mesiwala, a surgeon who guided the development of our Granite Technology; and Dr. Ronald Lehman, a nationally recognized expert in the treatment of adult and pediatric spine conditions at Columbia University, utilizing both open and closed head options, performing the first cases in the country. Given the high level of enthusiasm and anticipation in the surgeon community and among our commercial organization from Granite 9.5, as well as the 130,000 annual target procedures, we’re confident that this line extension will augment Granite’s pace of adoption. The addition of Granite 9.5 is the continuation of our strategy, which we laid out in 2021 to build a broad portfolio of innovative products to address unmet clinical needs and accelerate our growth.

In the last three years, we successfully launched iFuse-TORQ in 2021, Granite in 2022, a closed-head Granite Line extension in 2023, and now INTRA and Granite 9.5 in 2024. We’ve leveraged this industry leading franchise of highly differentiated solutions to diversify our revenue streams, expand our call points, and create new markets in pelvic fixation and pelvic trauma. The impact of this strategy is reflected in our strong results since 2021 as we delivered 24% cumulative annual revenue growth and doubled our active physician base. Before I get into the details of our strategic priorities, I want to take this opportunity to recognize a major milestone in the Company’s history. We recently celebrated the completion of 100,000 procedures using our products.

We take pride in our market leadership and in execution, which includes focusing on education, market access, and awareness of sacred pelvic conditions. We feel honored to work with so many impressive physicians who help give patients their lives back every day. Now let me provide an update on our key initiatives as we look to extend our leadership position, drive strong long-term growth and create shareholder value. Starting with sales infrastructure. Our sales, marketing and professional education teams provide us with a tremendous competitive advantage. We’re impressed with the continued effectiveness of our sales and commercial teams known for their industry leading expertise and extensive experience across our target markets. We’ve expanded operating leverage and sales and marketing infrastructure by creating hybrid models with select sales agents, while consistently delivering unparalleled support and education for physicians.

This is evident in our P&L with three–year cumulative growth and revenue of 24%, while sales and marketing expense grew 14% during that period. We ended the first quarter with 85 quota caring U.S. territory managers. We augment our territory manager bandwidth with clinical support specialists and third-party sales agents for case coverage. The expanded portfolio, as well as the hybrid commercial models resulted in trailing 12-month revenue per territory at the end of the first quarter of 2024 of approximately $1.6 million. Reflecting 26% growth compared to the trailing 12 month period ended the first quarter of 2023. We expect the annual revenue per territory to steadily grow toward $2 million. We plan to methodically add territories over the next few years to ensure we maximize the potential of our growing portfolio and facilitate deeper engagement with our physicians.

Moving on to physician engagement, we exited the first quarter with over 1,100 active physicians, an increase of over 150 active physicians in the quarter compared to the prior year period. The 16% growth in U.S. active physicians over the first quarter of 2023 was the 13th consecutive quarter of double-digit year over year growth. With nearly 12,000 potential target physicians, we remain confident in our ability to grow our active physician base. Our sales force is also leveraging our growing portfolio of proprietary products to drive deeper physician engagement. In the first quarter of 2024, 15% of our active physicians perform more than one procedure type. With our Granite 9.5 implant targeting degenerative spine procedures, which accounts for a significant portion of the procedure volumes for our active physicians.

We have an exciting opportunity to increase revenue per physician overtime. Since 2018, another important initiative to grow our active physician base has been our academic training programs. We’ve since trained nearly 1,600 residents and fellows, including over 250 in the current 2023, 2024 academic year. We’re excited to see strong adoption trends from these physicians in the quarters and years that follow their education. In the first quarter of 2024, strong adoption result in revenue from this group going 50% compared to the prior year period. Turning to products and solutions, we have a demonstrated track record of building innovative and proprietary products and surgical techniques to address unmet clinical needs and improve patient outcomes.

The sustained procedure volume growth we’ve experienced in the U.S. substantiates the value of our innovation. We have an active product pipeline with over 10% of our revenue being reinvested in development of new products and clinical evidence. We expect to launch differentiated products in the coming years to further extend our portfolio leadership and accelerate revenue growth. With applications across SI joint dysfunction, pelvic fixation, and pelvic trauma, iFuse-3D and iFuse-TORQ give physicians access to industry leading solutions when performing sacropelvic procedures. Over the last three years, iFuse-TORQ is built on the success of iFuse-3D and been a key contributor to demand acceleration as well as strong active physician engagement across all our target markets.

As we engage select interventional pain physicians, we’re leading with iFuse-TORQ and also training them on iFuse INTRA our Allograft solution. The interventional pain physicians have expressed their excitement about our comprehensive portfolio as well as better surgical technique and intraoperative support that increase the likelihood of the best patient outcomes. Adoption trends in the first quarter suggest that iFuse-TORQ has been the preferred implant for active interventional pain physicians. Based on this experience, as well as the guidance of our interventional advisory board, we’re encouraged by the growing confidence of interventional pain physicians to adopt iFuse-TORQ after being treated in the lateral transfixing technique, when performing an SI joint fusion procedure, which is reimbursed under CPT code 27279.

We’re encouraged by the pace of iFuse-TORQ adoption for treating pelvic trauma patients. Toward the end of 2024, we’ll launch a complimentary pelvic trauma product with over 120,000 sacral insufficiency fractures a year, and a one-year mortality rate of up to 25% for the patients treated with bedrest. Currently, the most common approach the trauma market will be a long-term growth driver for us. Within pelvic fixation, iFuse Bedrock Granite, our breakthrough device continues to be a game changing addition to our portfolio. We’re just scratching the surface in terms of market penetration and adoption of Granite, and we’re pleased with the increasing demand for the product. As we target 30,000 annual adult deformity procedures, we believe that Granite will become the standard of care for fixation and fusion of the SI joint, providing a strong foundation at the base of the long construct.

Since 2022, over 40% of our Granite case volume has been in shorter two to four level lumbar fusion procedures typically used to treat degenerative spine condition. The current adoption of the larger diameter Granite in the shorter level fusion procedures illustrates the increasing interest among the surgeon community to include pelvic fixation in high-risk patients undergoing these procedures. As I highlighted earlier, in April, we initiated our launch of the Granite 9.5 implant and are planning and expanded rollout in June. We believe that Granite 9.5, including shorter length appropriate replacement in the S1 pedicle will provide a best-in-class offering for the approximately 100,000 annual fusions to the sacrum, as well as engaged deformity surgeons who have expressed an additional preference for a smaller diameter implant.

Before I hand the call over to Anshul, I want to congratulate our employees for helping nearly 100,000 patients get their lives back. To our world class team, your grit and relentless commitment enables us to develop breakthrough products backed by high quality clinical evidence, educate payers and physicians, and ensure that the nearly half a million annual target patients have access to best in class solutions. Thank you for all that you do. With that, I’ll hand the call over to Anshul to discuss our financial performance.

Anshul Maheshwari: Thanks, Laura. Good afternoon everyone. My comments today will be focused on first quarter revenue growth, gross margin trends, productivity, and liquidity. Additionally, all the comparisons provided will be purchased the same period in the prior year unless noted otherwise. Starting with revenue growth, our first quarter worldwide revenue was $37.9 million, representing growth of 16%. U.S. revenue also grew 16% to $35.4 million due to increasing U.S. procedure volumes with a procedure ASP in the first quarter being relatively flat. International revenue in the first quarter was $2.4 million, representing 8% growth. Moving to gross margin and operating leverage. Our gross margin for the first quarter was 79%.

The gross margin reflects the impact of product and procedure mix, higher freight driven by revenue growth as well as depreciation from deployment of additional instrument rates. Operating expenses were $41.9 million in the quarter, representing 10% growth. The increase was driven by higher commissions related to revenue growth, impact from stock-based compensation and research and development investments. The increase in operating expenses was also impacted by the timing of our Global Sales Meeting, which was held in the first quarter of this year versus the second quarter of last year. Our net loss improved by 2% to $10.9 million or $0.27 per diluted share. Net loss per diluted share for the first quarter of 2024 also reflects the increase in shares outstanding due to a follow on common stock offering in May, 2023.

Our adjusted EBITDA loss in the first quarter was $4 million, which was nearly flat compared to the prior year period. Turning to liquidity, we exited the first quarter of 2024 with a robust balance sheet, including $157.8 million in cash and marketable securities. We delivered 30% improvement in our net cash flow from operations. Given a strong liquidity position, our relatively asset like business model and a clear line of sight to adjusted EBITDA break even, we have the financial resources to self-fund our long-term growth priorities going forward. Finally, moving to our updated outlook for 2024. Based on our first quarter results, we are increasing our 2024 worldwide revenue guidance. We now expect 2024 worldwide revenue of between $164 million $166 million, implying year over year growth of approximately 18% to 20%.

Considering the potential 2x operating leverage in the business, we expect significant adjusted EBITDA improvement for the full year 2024, putting us within reach of our adjusted EBITDA breakeven goal. With that, I will turn the call over to Laura.

Laura Francis: Thanks, Anshul. Based on the momentum in the portfolio, we’re set up to deliver a strong 2024. As we look beyond 2024, we’re confident that the combination of our commercial footprint, differentiated portfolio across multiple target markets and plan new product launches in the coming years will allow us to continue delivering top tier medical device revenue growth. With that, we’re happy to take questions. Operator?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of [Young Li of Jeffco]. Your line is now open.

Unidentified Analyst: I guess to start, wanted to hear a little bit about the progress with interest since you launched, the early feedback from it. I mean, it still sounds like TORQ is the focus for a lot of the intervention analyst. And I guess I’m just kind of curious, is the combined interventional portfolio opening doors to new physicians who weren’t referring before? Is it expanding the market for you?

Laura Francis: Yes, thanks for the question, Young, and we are pleased with what we’re seeing with the INTRA thus far. So, we’re still obviously very early in this journey, but we like the early results and how they’re setting up. Especially from the perspective of our strategy. We wanted to engage a subset of interventional — interventionalists and get access to this discreet and untapped patient funnel. As you said, this is additive to our current sales with our surgeons. So, we’re pleased with the level of interventionalist engagement and their interest in being trained with TORQ as well as with INTRA. We’re not planning to break down revenue by physician or procedure type, but what’s impressive is the adoption trends of TORQ with interventionalists, as they’re being trained in the lateral technique.

With INTRA, we’re still in the early days and but we do believe that there’s a subset of physicians who are going to be initially hesitant to use a metal implant. These physicians are going to be INTRA users. So, we’re positioned to be a preferred partner to this call point regardless of what their needs actually are. And as a market leader, we really felt a strong need to address this market. We have the best commercial sales force. We have unparalleled educational and advocacy infrastructure. We have a comprehensive product portfolio and we’ve got into clear feedback from interventionalists that SI-BONE is highly respected for our market leadership position. And we are particularly impressed by the large number of interventionalists who are already working with us or have begun the process of getting trained.

Unidentified Analyst: All right. Great. That’s very helpful. I guess maybe to follow up, I wanted to ask about RevPAR productivity. I think the territory managers are doing about 1.6 million before you had a goal of 2 million plus. It’s more of a milestone, not a ceiling. But wanted to hear a little bit about as you get closer to that two plus million range what’s the next milestone or target you think they can hit before maxing out? And also, your agent base has increased a lot in recent quarters. Maybe thoughts on their contributions so far and adding more agents going forward.

Laura Francis: We are extremely proud of the 26% growth that we had in trailing 12-month rep productivity, giving us up to the 1.6 million. And the commercial leadership team has done a really great job of leveraging hybrid commercial models here. So, we have junior clinical support specialists that are working with our territory managers that help to identify new physicians as well as to cover cases. And then, as you said, we’ve also added a significant number of third-party agents that are also selling the product and covering cases as well. So that really has helped us to grow our productivity in a significant way. Really four key drivers to that productivity. First is just the caliber of our increasingly seasoned sales force complimented with these hybrid commercial models.

Secondly, our highly differentiated portfolio of solutions. Third, the synergistic position call point, which is allowing us to drive position density. And then finally, the increase in field surgical capacity with the rollout of instruments and implants to reduce the logistical workflow. So, in terms of where we’re going, as I said, our intention is to continue to grow over time to that $2 million per territory manager level. We do have a significant number of reps that are already selling an excess of 3 million per territory. And so that’s been a guide for us. And in some of those particular territories, they’re actually working with two clinical support specialists and others. They’re heavily leveraging third party agents. And so, those are just some of the ways that that we’re getting at this opportunity to continue to grow territory manager productivity.

And they give us a lot of confidence that we can actually do more than where we’re at currently. But overall, we’re going to continue to selectively add to our sales force and maybe exit the year with a little over 90 territory managers, but remain focused on driving strong, sustainable, and profitable growth. And we do expect that year over year sales force productivity to continue to improve in the year.

Operator: Our next question comes from the line of Craig Bijou of Bank of America Securities. Your line is now open.

Craig Bijou: Anshul maybe for you to start, wanted to talk about expectations for operating expenses growth. And then even some of your comments to the last question, Laura, on sales rep spend or adding sales reps and what the spend would be. But we’d love to just kind of get your thoughts on operating expense growth for the rest of the year. The comments on EBITDA, does that mean that we should, or we could see EBITDA, positive EBITDA in Q4 of this year? Is that something that’s on the table?

Anshul Maheshwari: Correct. Thanks for the question. We’re really pleased with how the quarter played out, both on the top line and also on the leverage side. So just to provide some context, as I shared in my prepared remarks, the first quarter included the impact of our global sales meeting, the timing of that. So, you’ve got OpEx being a bit higher in the first quarter than you did prior year, because of when the global sales meeting happened. And what we’ve said, in our remarks also is we do expect to see 2x OpEx growth rate, revenue growth rate being 2x OpEx growth rate — sorry. So, what that would imply is, if you think about the midpoint that the guidance at about 19%, you’re looking at OpEx growth of 9.5%, and it’s primarily driven by the higher commission rates that you could earn because of the higher revenue and as well as some of the accounting on the stock base side.

So, the leverage continues and we feel really good about that. Now, in terms of adjusted EBITDA break even. Look, we’re early in the year and as we’ve always articulated, our strategy is to just have our results speak for themselves and get there in terms of adjusted EBITDA, break even timeline. As we go through the year, we’ll be able to provide more information on the progress we’re making towards that break even. But what I would leave you with is we are feeling really good about the trajectory that we’re on and we feel good about our ability to get to adjusted EBITDA break even and also very quickly to cash flow break even given our asset light model.

Craig Bijou: Got it. Thanks for that. And then maybe as a follow up, I did want to talk about your guidance for the year. So, you beat by roughly 1.5 million. I think that was the raise for the year. Obviously, good to see the raise, but maybe if you can just talk about, you know, is that conservatism to start the year? What do you see or how do you see the year progressing and maybe a little bit on the cadence of revenue and how should we think about that?

Anshul Maheshwari: Yes, no, happy to take that as well. Craig, so if you look at the, the midpoint of the raise, midpoint of the raise is about 1.5 million from the prior midpoint, which is pretty much what we did in Q1 in terms of the upside on the performance. It is still early in the year, so you’re right. We just want to be thoughtful. We’ve got a lot of things that are going in our favor. When you think about the number of physicians that we are training, it was a record number of physicians that had their first training, still seeing really good adoption on the surgeon side, seeing good traction on the interventional side and with Granite 9.5 being sort of starting to roll out in the second quarter, more in June. And then, so all of those things make us feel really good about the business, but it still coming out of the first quarter, so we want to be thoughtful.

In terms of cadence, we do expect revenue growth to accelerate on a year over-year-basis in each of the quarters going forward. So even the typical seasonality that you see in the third quarter, our expectation is with the rollout of the Granite 9.5 in June should help us offset some of that seasonality. So net, net feel really good about the setup that we have in the business coming out of the first quarter.

Operator: Our next question comes from the line of Matthew O’Brien of Piper Sandler. Your line is now open.

Matthew O’Brien: Laura and Anshul, you’ve kind of touched on a couple of these here, but the two-year stack growth rate in the U.S. was really strong much better than we saw the last four quarters or the four quarters of last year. So what is it specifically that’s really driving that? Is it a function of those new reps or productivity amongst the new reps that’s really driving that? And then the momentum there again, seems really good with easier comps kind of price question earlier. Is there anything you’re factoring in that could disrupt some of that momentum? I don’t know, if it’s these LCDs that are proposed or, or other things like that you’re really worried about, but what would slow down some of that momentum that we really saw in Q1?

Laura Francis: Matt, thank you so much for highlighting that point. As you know, last year we grew at 46% in the first quarter. And if you do your two-year stack with the 16% growth, you’re talking about a very strong quarter that we have here. Out of the gates, we really feel great about the way the year has started. And even if you think about historical seasonality trends as well as that tough comp, it was just a strong quarter across all of the key KPIs. And it is a continuation of the strong demand that we’ve seen over the last few quarters. So, in the U.S. we saw robust demand across all our target markets and across all our call points. And it allowed us to deliver 17% procedure volume growth and as well as maintaining a relatively stable ASP in the U.S. near record physician engagement with over 1,100 active U.S. users up 16%, and then getting 510(k) clearance for Granite 9.5, which is positioning us to build on Granite momentum and further accelerate adoption within pelvic fixation.

And then if you even just look beyond the strong top line drivers, we continue to see strong operating leverage with a 30% improvement in cash flow from operations versus a year ago. But we’re also continuing to invest in our growth priorities, as you can see from the different product introductions. What we really wanted to do, thinking about kind of that longer term trajectory given that we’re just starting the year, what we wanted to do was to be thoughtful about our guidance. But as Anshul said, really expect to see continued acceleration of our growth rate throughout the year. We’re not concerned on the LCD side that you mentioned. As I said, most of the adoption that we’re seeing currently with interventional is with our TORQ product and that that product is coded to CPT code 27279 where there are no issues, we’re not surprised at seeing some of the challenges with a CPT code 27278 because it’s early days on this right now.

But we think that we have the products and solutions in order to address whatever needs are physicians have, whether they’re surgeons or interventionalists. And given our market leadership position here and our incredible field force, we’re really excited about where we can go for 2024.

Anshul Maheshwari: And Matt, the only thing on the guidance side, I would add, like Laura said, we’ve got a lot of experience in the reimbursement side and our strategy anticipated some of this reimbursement challenge. So, we don’t expect this to have any impact on the guidance we just set at the 164 million to 166 million.

Matthew O’Brien: Appreciate those comments. And then as far as that LCD goes, is there — that the 278 one is specifically, I’m obviously new to covering the name, but and you guys, but just — it seems to me like that would be more of a tailwind for your business, because now everybody’s going to transition to 279, they’re going to use TORQ and that’s going to be better than INTRA for you. Is that a dynamic that we should potentially be thinking about later throughout this the proposed 278?

Laura Francis: Yes, you’re correct. That we have seen interest from Interventionalists starting last year already in our procedure, the lateral procedure using TORQ. And we’re continuing to see strong interest in that particular procedure over allograft procedures currently likely due to the uncertainty around reimbursement for 27278 versus 27279. So given, where we’re at as the market leader in this particular space. We’re able to provide a number of different products. We’re able to provide the right education. We’re able to provide the right support from a reimbursement perspective. And finally, our sales team with 85 territory managers and a few less clinical support specialists, provides us with the opportunity to adequately support those interventionalists.