Good morning, everybody. Thanks so much for joining us. My name is Matt O'Brien. I'm one of the med tech analysts here at Piper Sandler. Very excited to have Shoulder Innovations with us next on the list here around the agenda. From the company, we have Rob, who's the CEO, and then Jeff, who's the CFO of the company. Gents, thanks so much for coming out.
Thanks for having us.
Appreciate it. Shoulder is, yep, of course. Shoulder is a newer public company, so I thought maybe, Rob, it might make sense to talk for a couple of minutes about the history of the company and where you're at now and what you're thinking about in the future.
Yeah, of course, so as a team, we've been in the shoulder arthroplasty space for kind of a little under 30 years, quite frankly. We had a significant role in developing the DePuy Orthopaedics product line, which was number one market share for many years. We then went on and developed a product line at Tornier, which kind of went to number one market share. And so the foundation of the company was actually created by a surgeon by the name of Steve Gunther in 2005 with some intellectual property in 2009 when they founded the company. We, as a group, actually got involved by acquiring control of the company in 2015. And we began operations of the company really then, did our first clinical product in 2016 with what we call our InSet glenoid.
That product is intended and does solve the main problem in anatomic shoulder arthroplasty, which is loosening of the glenoid component. So that loosening happens through a mechanism of action called rocking horse motion. We have a number of clinical publications that do present the fact that we solve that problem. We've extended that technology to be applied to both anatomic shoulder arthroplasty and reverse shoulder arthroplasty. Over our 10 years or so of operations, we've released a number of iterations of product to expand our exposure to the marketplace, which now represents about 85% of the available market in the U.S. Of course, we don't treat fracture or revision indications yet, but intend to here in the relatively near future. Obviously, just reported Q3, kind of guided to $45 million-$46 million here in 2026. Still, excuse me, 2025.
Yeah, I didn't want to get that correct. But obviously excited about the trajectory we're on and having a lot of fun, though a youthful company.
Got it. Got it. Okay. And then hot off the presses, and thanks for saving the news for the Piper Sandler Conference. And by the way, the clock's not running back there. But can you just talk a little bit about the update that we had this morning on the robotic side? Because that seems pretty exciting as well.
Of course. We're obviously very, very excited about it. So we, as a team, have also been very integral in the development of enabling technologies in the shoulder arthroplasty space specifically. And as we kind of entered operations with Shoulder Innovations, we built a platform called ProVoyance. And ProVoyance is our AI-enabled automated preoperative planning solution for shoulder arthroplasty effectively to the extent that we can measure, quite frankly, every single one of our shoulders goes in through that preoperative planning solution. Of course, the gap is once you've planned it, kind of how do you execute it in the operating room? And obviously, some other participants in the marketplace have presented robotic solutions. And we know a lot about the penetration of those in particularly the knee arthroplasty space. It's been obviously a robust topic in that area.
So today, however, some of those technologies are not well suited for shoulder arthroplasty. And Matt, as you know, our focus has been anticipating and realizing the benefit of the transition of these types of surgeries from an inpatient setting to an outpatient setting, and particularly the ambulatory surgery center, which is a completely different economic environment. And so we sought to solve for a few things. One is, obviously, you need to create the solution that creates the benefit for the surgeon and the patient. But that's got to work within the context of the ambulatory surgery center and that economic model, mostly both logistic and economic problems. And so we've worked for some time to create this solution, identified a great partner. We've worked together a lot over the past several quarters, quite frankly, kind of conceiving our strategy into this space.
So I'm just really, really excited about the benefit that this can provide to the marketplace. Not only that, the transition to a robotic-enabled surgery does open up some opportunities for new technology, some new approaches to the surgery, and new types of implants, which I think can be quite transformational for the market as a whole. So excited about where this can go in the future. That said, don't think about this as an event. Think about this as a process over a number of years that can unlock a number of advantages for patients.
What kind of benefits can you bring to the robotics market in this space? Because, I mean, your InSet product is excellent. What can you do on the robotic side? And is it all glenoid focused? Is that the real opportunity is from a robotics perspective?
No, I'd characterize that when you look at the shoulder arthroplasty market today, there's ambiguity among surgeons about what is the optimal positioning of the implant relative to the anatomy, both on the scapular and on the humeral side. So the robotics is applicable on both sides of the joint, both are relevant. To the extent there's ambiguity about where it should be placed, and there's also a lack of understanding or validation that if I plan to place it in position X, did I actually position it in position X, if that makes sense? Did I execute it properly in surgery? With that gap, you cannot measure outcomes as a function of position. You have to close that loop, right? So that's one of the advantages that we'll be bringing in that robotics component is the ability to plan in ProVoyance.
The surgeon will be able to deploy that plan in the operating room as an extension of ProVoyance. That's one ecosystem. That's one flow of work, if that makes sense. And then simultaneous with that, in the operating room, you'll be able to validate that I actually positioned the implant where I thought I intended to. That will finally, for our space, give us the ability to kind of close that loop, measure, did I put it where I thought I wanted to? And then what's the outcomes of impact of that positioning, if that makes sense, Matt? And that allows you then to measure outcomes as a function of position, which will allow us to perfect longevity, quite frankly.
Got it. I'm not sure how much you want to share on this, but these things take a long time to develop, a lot of money. What does it look like for you guys from a developmental time perspective and then from a financial resource commitment perspective? And I don't know if that question's for Jeff or not.
Yeah, I think we can share the answer here. So one great advantage of the partnership we've created is that the basic hardware, I think the servo motors, the machinery is already in the operating room and a couple other indications in the U.S., and in a 510(k) clearance environment without the need for clinical data. So we believe that context puts us in pretty strong footing in our ability to execute a relatively reliable plan. So we think about this as a relatively typical development process like an orthopedic implant, if that makes sense. And obviously, we have a running start here, I'll put it that way. From an economic standpoint, I think there's two components that are important to understand.
One is we have been very sensitive to the ability to deploy this into an ambulatory surgery center and so have focused on creating kind of an economic foundation that gives us a lot of flexibility in terms of the environment of deployment and the economic relationship of that deployment. So that obviously kind of translated, we think this is a pretty minimal capital investment on a per-site basis or on a per-surgery basis that puts us in a position to just be able to write the correct relationship with the operating center that works for them economically. As we go forward as well, as we model what impact this can have, obviously, we've produced excellent gross margins in our business. Kind of we don't see this having a material impact on those gross margins on an ongoing basis.
I'll just add, Matt, this doesn't change our ability to get to cash flow break-even with our cash on hand. Obviously, this is part of a broader R&D strategy. And I think the ability, the fact that we raised more money kind of this summer through the convertible note and the IPO gives us some flexibility. And I think we've been working on this for a while, and now it's come to fruition.
Yeah.
Okay. And I don't want to stay on this forever, but I mean, you're going to go up against a couple of behemoths here, especially Stryker, right? I know Zimmer's got their own system as well. But how do you differentiate with those guys? And then I think the place where you guys are really unique is like, hey, we're really good in ASCs and our capital requirements are much lower. What does that do to the model? First of all, competing with those guys and then just the model in general. Because I'm assuming ASCs probably aren't going to buy one of these. It's probably more hospital-based. How do we think about that?
You're assuming that we're going to ask them to buy one.
Yeah. And so I think our mantra here is, on some level now, with our platform fully portable, our existing representation will walk into an operating room with a suitcase with a robot in it, right? So that puts us in a position where every operating room is now a robotic operating room. Surgeons don't have to fight for that time or fight for that optionality or, frankly, that capital investment. So we think that flexibility alone puts us on very unique footing as it relates to our ability to rapidly penetrate the market. I think the second thing is that we have tried to integrate the robotic deployment within the context of existing surgeon workflows. So we're not asking surgeons to prepare their bony structures in a different way. We're asking them to use exactly the same instrumentation we use today.
We're just providing them a mechanism to very briefly deploy that in a more accurate fashion relative to the ProVoyance plan, if that makes sense.
That makes total sense. Okay.
So the way I like to express it is we're giving them everything that they're asking for, and we're giving them nothing that they're not asking for, right? So just keep it very brief and simple in the operating room, and that's been very effective for us as a business.
Got it. Okay. All right. So I think I'm a little curious about the implants on the robotic side being differentiated. I don't know if there's anything you could.
Yeah. I'm not sure I'm ready to go into details there yet, but I just characterize that once you envision robotic deployment of the implant, like any new technology, you begin to understand more broadly where can this take you in terms of kind of patient care. It creates an innovation cycle in and of itself, I'll put it that way, so.
Got it. Okay. Interesting. Okay. All right. So let's get off robotics then. The other thing that's been great, the last two quarters, you have increased your Core Contender surgeon group by 50% each of the past two quarters. Can you talk a little bit about the type of clinicians you're attracting now?
Yeah, sure. So just for the group, there's about 15,000 surgeons that may do at least one shoulder arthroplasty. There's about 1,800 that we call high volume. We define that as 35 or more annually. And then we think about how those 1,800 interact with our company in three categories: prospect, contender, and core. And so core does three or more surgeries in a quarter. Excuse me. Contender does three or more surgeries in a quarter. Core does nine or more surgeries in a quarter. And so 95% of our revenue is those core and contender surgeons. And so our ability to grow the business or scale the business is very much tied to our ability to scale those customers and this penetration of those customers. So when you think about those core and contender surgeons, our view on that group is that they are one of those 1,800.
It's not a perfect overlapping Venn diagram, but very representative of that case. So these are shoulder specialists. And that's who we are seeking to spend our time with and support. And we've created our ecosystem in order to serve those specialists. That's what we're focused.
Got it. Yep. Okay. How do these guys tend to ramp up?
It does take time, so there's a number of inhibitions. Many of them have been using the same product they trained on. They've been using it for 10 years, and while they find our product line enticing, it does represent risk, right, and so over time, we have to help them overcome that sense of risk and understand how they can improve patient care with our product line, and then we also run into kind of hurdles such as Value Analysis Committees or administrative functions that are obviously appropriately seeking to create value for patients, but at the same time don't always rapidly recognize the potential value that patients may derive out of new technology.
So we find that it commonly takes between 6 and 12 months to take up what we call a prospect customer, someone that's used one or two, all the way to that core position. We manage that through cohorts that we analyze quarterly. And fortunately for us, a couple of things have been true the last couple of quarters. One is we've actually increased that pace, that pace at which they can go from prospect to core. We have also increased the ratio of core to contender, kind of so meaning that we've increased the utilization of that core and contender group nicely over time. And when you look at our Q3 performance, 50% year-over-year core and contender growth, but almost 60% growth of the business. So obviously, not only are there more surgeons, there are more surgeons doing more surgery, if that makes sense, right?
Got it. Yeah. Makes total sense. How do they typically start off? Do they start off like, "Hey, I'm going to use it on a younger patient first. I'm going to do anatomic first," and then morph into more complex cases, more older patients? How does that typically work?
Yeah. I mean, it's a great question, Matt. We are very much known for the InSet glenoid. It is a problem that we have sought to solve and have sought to communicate around our solution to. So frequently, surgeons are aware of us as a business because of that technology. And that's obviously they gravitate towards that in terms of their first use. However, there's an expression. If you want to learn more about the way surgeons think about our business, on our website is, I think, 40-some interviews that we've had of surgeons and their experience with our company. There's one surgeon that coined the phrase that we use commonly, "I came for the InSet, but I stayed for the reverse." And that's been a powerful mantra for us in the sense that the InSet solves a real problem.
Obviously, Anatomic shoulder arthroplasty is a smaller portion of the market today, Reverse being a larger portion. That Anatomic shoulder arthroplasty solution gives us an open door that we can then leverage to sell through to our greater product line. And that's been successful over and over and over again.
Got it. Okay. And then maybe this question's for Jeff. I think you did about 1,500 cases in Q3. How did that break down between reverse and anatomic?
Yeah. So we are really close to the market in that regard, Matt. So the market's about 70% reverse and 30% anatomic. We're right around those numbers, so.
And what are the ASP delta difference between those two then? Does reverse tend to be higher ASP?
Reverse sells at a premium, for sure.
Got it. And then this is another numbers question, so maybe I'll pass it your way. And there's a lot, so forgive me. But when I look at you mentioned those 1,800 high-volume clinicians that you're really going after. I think you have about 115 core contender surgeons. Again, I know it's not perfect. That means you're about 6% penetrated of that group. And they're a majority of all the cases, right, in the U.S. And so that's like you're 6% penetrated there, but you're only 2% market share, maybe 3%, something like that. When you account for the 15% of cases you can't address, how quickly can you close that delta between how many docs you're in with versus getting them to use you for pretty much all of your cases?
Is that a two, three-year process, or could it even be faster than that given all the benefits of the product?
Yeah. Do you want to? Yeah.
So I think you have to understand, first, understand that in a high-growth environment, so adding 50% year-over-year, and if it takes us 12 months to take a doc from first use to core, you naturally will have a lag there. And so to the extent that we are growing our customer base at that pace, which we're hopeful we can continue for some time, obviously, I think that gap will remain, quite frankly, Matt. We'll get better at moving them along faster, but I think there will remain a gap just in that sense that we're trailing in their growth into their relationship with our business. I think you also have to remember that there are a number of indications that we don't yet treat, which is obviously a challenge for us.
So if you look at the number of units that our core surgeons use, it is right on par with the average number of units of the 1,800. So a core surgeon effectively is representing that high-volume surgeon kind of on average. And so those are fully penetrated surgeons. Of course, however, we don't treat fracture and revision indications. They may use us. They call us for every surgery except those, right? And so, of course, they're calling a competitor for those, which we find inconvenient. Fortunately, we will literally be into fracture and revision indications in Q1 of 2026 and obviously excited about the impact that can have on the business.
I would also point out those Core and Contender surgeons are at various levels of productivity. Some, we have 100% of their business and others we've just brought on and are starting to work with. Obviously, that impacts the conversation as well.
Got it. Yeah. So, Rob, you've been in this space forever. And Tornier differentiated massively on the InSet side. Done pretty well on the glenoid side too, or sorry, the reverse side. How can you differentiate in fracture and in revision?
Yeah. So one of the ways that we redifferentiate in the reverse shoulder arthroplasty is just simply the biomechanics that we have deployed. So for me personally, this is the third kind of broad shoulder arthroplasty platform that I've been a part of bringing to market, and if you learn a lot about how to design those things. So we find surgeons respond that their patients. This is obviously anecdotal, but their patients, even at the six-week visit, come back kind of higher degrees of function than they're used to. And so that biomechanics translates all the way from the I70 stem that we just have released all the way to our long I185 stem for revision indications. It's exactly the same biomechanics throughout that entire portfolio. And so we think that that functional outcome will be persistent with all of those products.
Okay. Does it cost you the ability to attract surgeons at all not having fracture and revision, so there's some guys that are like, "When you have these, come back and see me.
100%.
Okay. All right. Excellent. The first half of next year is when we should expect those?
Sooner.
Okay.
Yeah.
Cool. Maybe talk. Well, you mentioned I want to get into the sales force, but you talked about the I70 product. How much more bone-sparing is it, and does it make the case faster?
So, I don't think that it really has a meaningful impact on the pace at which the case is performed, but it is one inch shorter than kind of I95. And so, think about I70 as bringing a level of optionality to surgeons that all within the same technique and same kind of case entry, if you will. So, maintaining that two-tray mantra or two-tray stature that's been very important for the capitalization of the business, but puts us in a position where surgeons have additional optionality. So, any device brings advantages and disadvantages. Longer is perhaps more stable, but less flexible in the operating room. So, the choice between an I70, I95, or I135 brings the ability for a surgeon to select what is the right device for that patient using the same technique, the same process, same workflow. And so, that's really what the I70 is about.
So yeah.
Can you charge a price premium for it?
For I70 specifically? Not really, no.
Okay. All right. Let's talk about the sales force then. How much of the U.S. are you covering today with your sales force?
So it's a great question. I think if you looked at the number of zip codes that we have a contract with a 1099 rep is covering, it's probably 70% of the U.S. If you ask me how many of those zip codes are effectively covered with a highly engaged, well-trained rep, it's less than 50%.
Got it. Okay. So in the territories where you have some of that engagement, I mean, your market share is much higher. Do you have any? I know it's early, but do you have any places where you're 25% market share or some big number in a specific geography?
Yeah. That's a great question, Matt. I don't want to go off the ranch. I don't know if 25% is the right number, but there's for sure some communities or kind of some geographies, I guess I won't go into the details, but for sure that we're much higher penetrated than 2% or 3% market share, right?
Got it.
I mean, that's yeah.
Okay. And then something that came up during the IPO roadshow a lot, and it should not be surprising at all, but the ortho space is a copycat industry. Why can't somebody knock off what you're doing with InSet now or in the future?
Yeah. Well, I mean, for sure, we've got intellectual property, robust intellectual property that we have defended through legal process. So that's been effective for us in the past. Obviously, those patents will run out one day. And can someone copy our InSet glenoid at that point? Sure. But if our business performance was a function 100% of just the InSet glenoid, I think that would be a challenging circumstance for our business. And so that's why we have characterized or sought to characterize for the market that our success is not just a function of those implants, right? I mean, the InSet glenoid implant, right? So there's a broad spectrum of technologies, including ProVoyance, including kind of the reverse. We have intellectual property around all of our implant products that indeed we are in the process of asserting against another party at this point.
That's an important component, but we view the technology around the implants almost as table stakes, right? I mean, when we have a conversation with a surgeon about using our devices, if we're not bringing innovation that solves a problem in their operating room, then they're not going to be that interested in talking about us. However, our success is a function of the way that we communicate through our CEME organization with those surgeons and the environment that they create, they can practice in, our enabling technology, the highly specialized Salesforce that we bring to a specialized company we are today, the only pure play shoulder surgical-oriented, publicly traded, well-funded company that puts us in a really neat position. For sure, IP matters, but it's all those other components that make for a lasting story, I think, Matt.
Got it. Okay, and then Jeff, and sorry for making you wait so long, but as far as the profitability profile of the business, I mean, gross margins in Q3 were awesome. Something that's plagued the ortho space historically has been, "Hey, it takes these guys forever to make money." You guys have a much less capital-intensive business than other ones. So if it takes it's been taking the average ortho company 10 years to get to profitability. How much faster can SI get there versus the typical ortho company?
Yeah. So I think that's obviously focus is going to be a big part of that. And our two-tray system, obviously you mentioned the lower capital requirements, but our focus on shoulder as well with just the 1,800 surgeons that do the vast majority of the procedures allows us to kind of more effectively deploy the resources as well. So I think that will benefit us. And obviously, getting to profitability over time will be a focus, and kind of creating leverage, operational leverage is going to be a focus as well. So obviously, we're not giving any sort of time frames, but that will be something that we keep in mind.
Yeah. Just to reinforce that, I think there's a very simple, effective, small market just in terms of number of people to talk to, if that makes sense, though it's almost a $3 billion market. So it makes it very effective for us, efficient for us commercially. And then add to that, the efficiency we've created just in the product itself is kind of a one-two punch in terms of our ability to drive profitability.
Got it. Got it. Okay. I think we're all out of time, so I have to end it there. Thank you guys so much for all the feedback. Appreciate it.
Great. Thanks, Matt.