SI-BONE, Inc. (NASDAQ:SIBN) Q2 2023 Earnings Call Transcript

SI-BONE, Inc. (NASDAQ:SIBN) Q2 2023 Earnings Call Transcript August 7, 2023

SI-BONE, Inc. misses on earnings expectations. Reported EPS is $-0.3 EPS, expectations were $0.41.

Operator: Good afternoon, and welcome to SI-BONE’s Second Quarter Earnings Conference Call. At this time, all participants are in 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 would now like to Saqib Iqbal, Senior Director of Investor Relations at SI-BONE for a few introductory comments. Sir, please go ahead.

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 June 30, 2023. 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 the impact SI-BONE’s ability to introduce and commercialize new products and indication, SI-BONE’s ability to maintain favorable reimbursement for its products and procedures, the impact of potential economic weakness, on the ability and desire of patients to undergo elected procedures, SI-BONE’s ability to manage risk to 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 are examination of operating trends, and our future financial expectations, such as expectations for surgeon training and adoption, active surgeons 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 the 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 and form 10-Q, filed with the Securities and Exchange Commission. SI-BONE disclaimed 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, August 7, 2023.

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 performance in the quarter as we delivered over 30% revenue growth led by robust demand for a portfolio of solutions, strong surge and engagement and favorable reimbursement tailwinds. The US procedure growth trends over the last several quarters, give me confidence that we’re well positioned to deliver a strong second half of 2023. Furthermore, our strong liquidity position bolstered by the successful capital raise in May provides us the flexibility to continue our judicious investments, and portfolio expansion, and commercialization initiatives. We believe these investments combined with secular growth factors in the business will allow us to deliver continued revenue growth and accelerate our progress toward adjusted EBITDA and cash flow breakeven.

Before I discuss our results, I want to thank our employees as they’ve continued to demonstrate unwavering dedication to serve our expanding surgeon base, and ensure patients have access to our best-in-class solutions. This level of consistent record performance over the last several quarters would not be possible without you. Now moving to our second quarter performance. In the second quarter of 2023, we generated record worldwide revenue of $33.3 million, an increase of over 30%, compared to the second quarter of 2022. The quarterly result was led by record US revenue of $31.2 million, which represents US revenue growth of over 31% compared to the prior year period. This fifth consecutive quarter of record worldwide revenue and improving operating leverage exemplifies the consistency of our execution and strength in the business.

Now, let me provide an update on our key initiatives as we continue to look to extend our leadership position and drive strong long-term growth. Starting with sales infrastructure, our direct sales team is our biggest asset as we expand our product portfolio and surgeon base. At the end of the second quarter, our US commercial organization comprised 85-quota bearing territory managers, we complement our territory managers with clinical support specialists, as well as a growing network of third party sales agents for case coverage. We also selectively placed instrument sets and high volume hospitals to meet demand. We’re confident that our hybrid strategies will allow us to further penetrate the surgeon market cost effectively, accelerate top line growth and achieve higher productivity.

At the end of the second quarter, our trailing 12-month average revenue per territory in the US was approximately $1.4 million representing a 32% productivity gain over the comparable trailing 12- month period. Our strong revenue growth and increased operating leverage over the last several quarters are the results of our investments in building a world class commercial organization Moving on to surgeon engagement, we exited the second quarter with approximately 935 active surgeons. This equates to approximately 30% growth in our active surgeons over the second quarter of 2022. This was the 10th consecutive quarter of double digit year-over-year growth interactive surgeons. Based on the early third quarter trends, we surpassed the 950 active surgeons milestone we set at the end of the first quarter.

It’s also encouraging to see surgeon overlap across our procedures. We expect our complementary portfolio to drive deeper engagement and increase procedures per surgeon over time. These trends and active surgeon base reaffirm that our portfolio expansive strategy and investment in education are resonating with our customers. On academic training, we’re pleased to see steady adoption of our procedures by surgeons first trained its residents and fellows, as they matriculate to independent practice. For example, among the cohort of surgeons first trained as residents and fellows, procedure revenue in the second quarter of 2023 nearly doubled compared to the second quarter of 2022. Turning to products and solutions with iFuse 3D, iFuse-TORQ and iFuse Bedrock Granite, the value of our innovative, versatile and complementary product portfolio has positioned us as the top choice for surgeons looking for safer pelvic solutions.

iFuse-TORQ has become a key growth driver for us due to its expanded clearance, covering SI joint dysfunction, trauma, and adult deformity. iFuse-TORQ provides a complementary technology to iFuse 3D for our existing surgeons. It’s also allowed us to engage new surgeons and successfully convert several surgeons using competitor products when performing minimally invasive SI joint fusion procedures. While we remain strong advocates of the lateral trans iliac trajectory as being the gold standard when performing SI joint fusion procedures. In June, we received FDA clearance for placement of iFuse-TORQ in the posterior lateral trajectory. This clearance provides surgeons mostly those who are competitor conversions, the flexibility and confidence to use their preferred approach.

The use of iFuse-TORQ is the second point of fixation across the SI joint and adult deformity procedures is increasing since the product received FDA clearance for the bedrocks trajectory last year. In trauma, we remain in the early stages of market development and are encouraged by the adoption we’re seeing for iFuse-TORQ in sacral insufficiency fractures. The trauma opportunity is of strategic importance to us as the sacred pelvic solutions leader and is an important avenue for growth over the long term. Moving to iFuse Bedrock Granite, we are extremely pleased with the success of Granite in its first full year on the market. This breakthrough device has allowed us to target 130,000 annual cases across long construct adult deformity procedures and degenerative spine procedures to the sacrum, expanding our total addressable market by approximately $1 billion to over $3 billion.

Given the positive surgeon reception, we’re actively rolling out instruments and implant sets to capitalize on the demand momentum for Granite. Furthermore, in June, we expanded the Granite implant family with the launch of a Closed Head Granite implant. This addition to the Granite family will allow us to drive adoption with a subset of surgeons who prefer implants with a closed to head to attach to rod. We believe Granite has the potential to become the standard of care for stabilizing the base along construction in adult deformity procedures and this addition ensures that Granite can address the preferences of surgeons performing pelvic fixation procedures. In addition to the use of Granite in long construct adult deformity procedures, we are encouraged to see that year-to-date, nearly 40% of the procedures in which Granite is used are actually shorter multilevel constructs, generally a treatment for degenerative spine disorders.

Given the demand trends, and over 100,000 annual procedures involving spinal fusion to the sacrum, we’re progressing toward a 2024 launch of another new product in the Granite family. We believe the new product will further accelerate adoption of Granite in these short construct procedures. Along with the growing demand for Granite, we’re seeing a consistent trend in surgeons using some combination of our products with Granite to achieve two points of fixation across the SI joint on either side and long construct procedures. This is driving a significant pull through opportunity for the portfolio, and a higher per procedure average selling price. Moving on to clinical evidence, given the growing interest in the SI joint space as a market leader with commitment to clinical evidence and patient safety.

We launched the STACI study in June, STACI is a prospective study of the use of iFuse-TORQ in patients with sacroiliac joint dysfunction. The purpose of Stacy is to work with a select group of physicians and gather post market information on the use of iFuse-TORQ for sacroiliac joint fusion. I’ll now turn the call over to Anshul to provide more detail on our financial results.

Anshul Maheshwari : Thanks, Laura. Good afternoon, everyone. I will focus my comments today on second quarter revenue trends, operating leverage and liquidity and end with our updated 2023 guidance. Starting with our second quarter revenue. As Laura noted, our worldwide revenue in the second quarter was $33.3 million, representing growth of over 30% compared to the prior year period. Second quarter US revenue was $31.2 million increasing over 31% compared to the prior year period. This record US performance was driven by growth in the procedure volumes which rose by approximately 30% compared to the prior year period. In addition to robust volume growth for the second consecutive quarter, our US pro procedure average selling price increased compared to the prior year period.

International revenue was $2.1 million, reflecting growth of approximately 15% compared to the prior year period. Across Europe, France maintains strong volume growth, offset by ongoing recovery in Germany and the UK. Moving to gross margin and operating leverage. In the second quarter of 2023, our gross margin was 81% in line with our expectations, as anticipated, the gross margin reflects the impact of procedure and product mix, due to higher total cost of iFuse-TORQ and Granite, increase in depreciation from the deployment of instrument trays to support the growing demand for these products, depreciation associated with a second facility in Santa Clara and higher freight costs. Operating expenses were $38.9 million in the second quarter of 2023 versus $40 million in the prior year period.

This 3% decrease in operating expenses is mainly due to timing of certain commercial activities that are scheduled for the second half of 2023. This was partially offset by an increase in stock-based compensation and higher commission associated with the revenue growth in the second quarter of 2023. We’re pleased that we have now demonstrated several consecutive quarters of improved operating leverage while investing in R&D and clinical research, which are crucial to delivering strong and sustainable revenue growth over time. Our net loss was $11.2 million, or $0.30 per diluted share for the second quarter of 2023 compared to a net loss of $18.5 million, or $0.54 per diluted share in the prior year period, representing 46% earnings per diluted share improvement.

The earnings per diluted share for the second quarter of 2023 are also impacted by the increase in the number of shares outstanding from a follow on common stock offering in May. Adjusted EBITDA loss in the second quarter improved 59% to $4.7 million versus $11.5 million in the prior year period. Turning to liquidity, we ended the quarter with a strong balance sheet including approximately $169 million in cash and marketable securities. Our cash balance includes approximately $84 million in net proceeds from the following offering in May. Our first half cash used in operating activities was $14.3 million, an improvement of nearly 50% compared to $28.4 million in the prior year period. We are pleased with our trajectory of cash utilization in the last few quarters while continuing our investment in long term growth initiatives.

Additionally, we are building our instrument trays and inventory capacity to support the growing demand for Granite as we prepare for a seasonally strong fourth quarter. Finally, moving to our updated guidance for the year. Based on our second quarter performance, we are increasing our full year 2023 worldwide revenue guidance and tightening the range $132 million to $134 million, up from a previous guidance of $128 million to $131 million. This revised guidance translates to year-over-year growth of approximately 24% to 26% versus the previous range of 20% to 23%. We continue to expect the 2023 annual gross margin to be approximately 80%. Based on the updated guidance, we anticipate operating expenses will increase in the mid-single digit percent for full year 2023 due to anticipated higher commission and bonus expense from higher revenue.

With that, I will turn the call over to the operator for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question will come from Craig Bijou of Bank of America.

Craig Bijou: Good afternoon, thanks for taking the questions. And congrats on another strong quarter. I wanted to start I know you’re typically reluctant to give details on specific products. But I’m going to try anyway. And I want to see if there’s any color that you can provide on the strength in the first half. And then looking at revenue guidance even with the raise, it implies, essentially, flat revenue first half first versus second half, maybe slightly more in the second half. So is there anything on the product level that we should be thinking about which suggests that the strong first half growth that you saw, will continue in the second half?

Laura Francis: Thanks, Craig. Thanks for the question. And what I’ll do is I’ll answer your first question on the on the product side. And then I’ll have — I’ll turn it over to Anshul to talk a little bit more about the guidance, we’re really pleased with the quarter that we just exited 30% growth in the quarter, strong continued momentum in the US, strong momentum with our active surgeon base, improvement in our ASP. 60% improvement in our bottom line losses. We’re really excited about how we performed this quarter. And we just see very strong momentum going into the second half of this year as well, which is why we felt confident with the raise that we provided in guidance. From a product perspective, we’re seeing performance across the board here.

So our core business continues to drive our results. And when I say core business, I mean primary SI joint fusion, and that can be with our iFuse 3D, or it can be with iFuse-TORQ, we’re also continuing to see momentum in our trauma business with iFuse-TORQ specifically with sacral insufficiency fracture. And finally, we did talk quite a bit about Granite, which has just been a terrific launch for us. And we have a lot of excitement around Granite. We did talk a little bit about the product extension with the Closed Head Granite that was launched late in the second quarter, and that opens up some additional opportunity with certain surgeons who prefer that particular product. I won’t, and as you said, I’m not going to break down what the growth was.

But we’re seeing growth in all of the areas that I just mentioned, and are really excited for the second half of the year.

Anshul Maheshwari : And, Craig, to answer your question on guidance. So what Laura talking about some of the enthusiasm in the business that we’ve seen not just in the first half, but also the second half of last year. And we’ve had about five quarters now of record revenue. And obviously, this first half of the year is actually the strongest sequential growth and year-over-year growth we’ve seen as a public company. So feeling really good about how the business is set up, some of the assumptions that we have made in our guidance, and the last increase in guidance we did at the end of first quarter and are played out better than what we anticipate both in terms of the Granite adoption, the rollout in the ASP trends. Now while all that’s been going on, we also while being very confident of the strength and the secular trends in the business, and ultimately acknowledge that there’s potential seasonal strength in the second half, we just want to be very thoughtful as we’re going into the back half of the year.

And that’s sort of reflected in our guidance. And some of the assumption changes that we had was we provided some more upside from the Granite roll out in the second half. And historically we’ve talked about mid-single digit ASP decline. And even though we had two consecutive quarters of positive ASP, we’re still assuming ASP pressure in the back of the year, albeit low, single digit now. So we think it’s appropriately hedge in terms of getting into the second half of the year.