Thanks, everyone, for joining us this morning. I'm Drew Ranieri, one of the Medical Device Analysts here, and it's my pleasure to have SI-BONE with us here today. And from the company, we have CEO; Laura Francis, and CFO; Anshul Maheshwari. Thank you both for being here.
Thank you.
Before we get started, quick disclosure, but for important disclosures, please go to morganstanley.com/researchdisclosures, for any of the disclaimers. And with that, kind of let's get into the discussion. And maybe first, going to you, Anshul, but just in terms of the revenue guidance that you gave for the back half of the year and third quarter specifically, there might be some confusion around the third quarter guide and the low single digit quarter-over-quarter decline that's implied. It sounds like you have a lot of momentum coming out of the second quarter into the third quarter, maybe one less selling day. But just why can't you grow through the selling day impact and kind of your general views on the third quarter?
Yeah, thanks for the question, Andrew. So from our perspective, when we set our guidance, we tend to be very conservative. So if you recall, we started the year at 17%-19% annual growth. We upped the guide at the end of the first quarter. We upped it again at the end of the second quarter to 24%-26% growth for the year. And incorporated in that updated guidance that we put in August was some of the seasonality implications that are more industry than us specific, around surgeon vacations and also one less selling day. But we clearly understand that we had a lot of momentum coming out to the second quarter.
We've seen that momentum continue into the third quarter, through our execution, whether you look at the active surgeon base growth, you know, we're approaching near 1,000 active surgeons in a quarter, or the volume growth that we're seeing in the quarter, which we believe is going to be able to counter some of the seasonality that we saw. But again, that was the conservatism that we put in.
And maybe to take this kind of one step further, but with the updated guidance to $132 million-134 million, up 24%-26%, from the prior 20%-30% or 20%-23% increase, I mean, to hit your midpoint, the guidance basically assumes a low single-digit second half increase over the first half. And I can't go back to a prior period, pre-pandemic, where you weren't growing kind of like low double digits first half to second half. So maybe just help us better understand maybe the dynamics a bit more. I mean, is there anything that you are more cautious about, necessarily into the back half of the year?
No. When you, when you think about the execution that we've had over the last five quarters, including the first half of this year, you know, it's been driven by active surgeon-base growth, strong rep productivity, continued rollout of Granite, continued rollout of TORQ, which is driving the growth in the core business as well. So all of those tailwinds exist going into the second half of the year as well. Like you said, we took a conservative approach to how we set guide, and when you incorporate the seasonality element that we had incorporated in our guide, you know, you get to that mid-single digit or low single digit, sequential growth. But we feel really good about our business going into the second half of the year.
Like I said earlier, we don't think that the seasonal impact will be as much as we get out of the third quarter, and we think we're very well set up as we put out more Granite into the field to be able to have a strong end to the year.
Okay. I want to come back to Granite, but maybe first, just to go over surgeon adoption, maybe going to Laura here. But sitting at 935 surgeons, it sounded like you were at like 950 in July. But anything in terms of trends that you're seeing at your quarter on surgeon adoption, and we've seen multiple quarters of double-digit growth in the active surgeon base. The past four quarters kind of averaged 30% plus, when it was about 20% pre-pandemic. But a couple questions here. I mean, what's changed? How sustainable is your active surgeon growth? And maybe what's kind of the long-term reasonable targets for active surgeons, given the number of docs out there?
Yeah. I was really excited to come in here today. We have a great story to tell at this point, and as you said, we're seeing this acceleration in the business, and we're seeing the acceleration in active surgeons. So, we had mentioned that we have seen 10 consecutive quarters of over 10% growth in our active surgeon base. An active surgeon, quite simply, is just a surgeon who did at least one case in the prior three-month period. And we've seen that accelerate as well. So, it was only in 2021 that we had 1,000 surgeons for the entire year do one procedure, and we are coming up on having 1,000 surgeons doing a procedure in one quarter.
I think what it tells you is the momentum that we have in the business, the inflection point that we're at in the business, in terms of our primary SI Joint Fusion business, and then also our Pelvic Fixation business as well. So if you think about the opportunity that we have in front of us, we have around 7,500 target surgeons in total. There are around 2,300 surgeons who have been trained and done at least one case, and then 935 just in the second quarter alone. So what it tells you is that we're seeing that inflection in the business occur, and also the multi-pronged product strategy is helping us as well.
Maybe just to follow up. With the procedure volume, it still hasn't felt like it's inflected yet when you're looking at it. Procedure volume growth has kind of outpaced adopting surgeon growth. I mean, how do you kind of see or think about maybe the inflection point in utilization now that you have your iFuse, you have Granite, and now you have kind of TORQ added into the mix as well?
Yeah. I think if you look at the last five quarters, our procedure growth has been over 20%. If you look at the last three quarters, our procedure volume growth has been over 30%. And so you're seeing this acceleration in the procedure growth. And I think that it's important for a number of different reasons. Number one is just the continued penetration in the surgeon base. That's number one. But also I think what you're getting at is also can we see more procedures being performed by our existing surgeons? So a typical surgeon who has fully adopted SI joint fusion is doing around nine cases a quarter, whereas our average surgeon is doing a little less than four. And so there's two different opportunities that we have.
One is to continue to penetrate the base of target surgeons, but then the second is to get them regularly diagnosing and treating patients for primary SI joint fusion. Then a third opportunity is for them to be doing multiple procedures with us. So primary SI joint fusion, pelvic fixation, and then also actually pelvic ring fractures in the trauma space as well. So gives us a lot of different opportunities, both to expand the market with new surgeons, as well as further penetrate the market and increase surgeon density with the number of different procedures that our surgeons can perform.
Got it. And you talked about last year, a thousand surgeons, or in 2021, maybe a thousand surgeons used it, 1,300 last year. I mean, how do you get from 935 to 1,300 on a, on a constant basis? And maybe what are the remaining hurdles? Is it just training on diagnosis? Is it just having the products. Just any detail about how you kind of get to that 1,300, because that alone could be $40 million-$45 million in incremental revenue there.
Right. It's a very important focus for us, is to get every single surgeon who is performing procedures to fully adopt the procedure into his or her practice. So, how do we get each one of those surgeons to include the SI joint in the differential diagnosis of lower back pain? We do think that reimbursement has a lot to do with the decision making that's here. For many years, our primary challenge was making sure that this procedure was covered in the United States. At this point, there's universal coverage for the procedure, and in certain cases, with commercial payers, it's exclusive to our technology. And so that's a big factor that we've looked at in order to try and drive additional adoption.
Got it. Maybe let's go into the, the sales force for a moment. You haven't shifted away from a direct sales model, but it's kind of evolved over the past year or so, and you're incorporating more of a, of a hybrid approach, especially with some of the newer products that you're launching. But just, for, for Laura, for Anshul, I mean, how are you thinking about maybe the sales force expansion, from the 85 direct reps today as we head into the back half or we head into 2024? I mean, how, how should we generally just be thinking about the, the core from, from here?
Yeah. The sales team we consider to be the crown jewels of our organization. This is a more complex sale. It's an educational sale, as you were saying, and so what we've done is we've built out a direct sales team, finished at 85 quota-carrying reps, at the end of the second quarter. And so those people have been very important to helping us to build the business. And we have increased their productivity pretty significantly over the last couple of years. So if you look at 2021, they were selling a little less than $1 million per quota-carrying rep. That went to around $1.2 million in 2022, and then this year, at the end of the second quarter, we were at around $1.4 million.
So pretty rapidly increasing the efficiency of the sales team. However, what we've always envisioned is a target sales rep productivity number of around $2 million per quota-carrying rep. So with 100 reps, we can do approximately $200 million of business in the United States, and we still have that as the target. Our highest performing sales rep is significantly higher than that two million number that I'm giving. So that's the primary way that we reach our customers. However, we are also getting leverage on the sales team by having junior clinical support specialists that help to support the quota-carrying reps. And then also, we've seen a pretty significant increase in the number of agents that we're using out in the field. We had almost 140 agents at the end of the second quarter.
That's a pretty dramatic increase, since the beginning of the pandemic, primarily because our typical case for primary SI Joint Fusion takes around 45 minutes. A very rapid case, the sales rep can get in and out, and they can move between multiple cases in a given day, whereas our Pelvic Fixation business, those are longer cases, and so typically, we are using an agent to cover those cases because of the fact that they're longer, and it helps us to get more utilization. So we're using a number of different sales models in order to increase the efficiency of the sales team, and we're seeing a pretty dramatic increase in the productivity.
Got it. And you were talking earlier about just the active surgeon opportunity that you have in front of you today. I mean, is the company sales force, is more emphasis being put on their ability to just expand the surgeon base or more on the utilization? Or just any kind of change in how the compensation structure is happening with the hybrid sales force?
The answer is yes and yes. I would say that what's easiest for us to manage is continuing to increase the number of surgeons that are performing the cases. So a lot of activities go into training of surgeons. And so the company, we spend resources and have very specific targets around training. However, what's actually easiest for the rep is to increase the surgeon density, and given some of the new products that we have, as well as just getting those surgeons to regularly diagnose and treat for primary SI joint fusion, that's going to be the natural angle that a sales rep is going to take.
So we're really a two-pronged strategy that we have here, and no matter which way you look at it, whether it's increasing surgeon density or whether it's the opportunity to further penetrate the surgeon base, it tells you how much of an opportunity SI-BONE has in front of it.
Got it. One of the exciting opportunities you have in front of you is still Granite, and it's still pretty early on in the launch and the NTAP. I mean, it seems like it has helped your procedure volume growth, even though you won't disclose the precision there. But you're also kind of seeing your demand outpacing kind of your supply right now. So maybe just help us better understand kind of your instrument set capacity that you have today, kind of what we should be expecting in the third quarter and even heading into the back half of 2024.
Yep. I'm really excited with the opportunity that we have with Granite. When we initially launched the product, our primary focus was on adult deformity cases. There are around 30,000 of those cases per year in the United States, long construct cases that go to the base of the spine. And so we saw it initially as around a $300 million opportunity. What we learned as we started to sell the product is that there is a very significant opportunity in shorter constructs, two-four-level constructs, more degenerative spine cases, and that's actually a larger market. It's around 100,000 procedures per year that go to the base of the spine in short constructs. So if you put the two together, it's around a billion-dollar market opportunity in total.
You're right that when we initially launched, we've been playing catch-up on instrument trays and on implants pretty much since the beginning because we were focused on a smaller market and are actually seeing a much larger market opportunity that's out there. We feel confident that we are in a great position at this point in time to meet the demand that's out there. We have a great Senior Vice President of Operations, Jeff Bertolini, that joined us around a year ago from NuVasive, and he's really helped us to build out that capability to scale the business and including Granite. It bodes really well for the second half of this year, as well as for 2024.
Got it. Maybe a few follow-up questions here on Granite, but I think, either last week or maybe early this week, you talked about Granite having some expansion with, like, Medtronic's systems, too.
Mm-hmm.
So as you do think about Granite adoption, I mean, what's left on that front, for some of these or some of your spine partners to further expand the Granite opportunity?
Yeah. S o thanks for raising that. We're really excited about the opportunity with Granite overall. We do have general rod clearance for Granite, for all of the pedicle screw system and rod systems that are out there. But Medtronic is the industry leader in adult deformity cases. A lot of these surgeons that we work with are academic medical centers, and they like having that extra confidence of knowing that those products do interface with Granite. So we're very pleased with that opportunity, too. And we're really just at the beginning of the opportunity that we have here with Granite. As I said, we think there's a billion-dollar market opportunity in total.
Our sales this year, our guidance is $132 -134 million, and that includes all aspects of our business, so it, it tells you how much run room we have in front of us.
Got it. And with the short construct, I think a new line extension is coming out for 2024.
Yeah.
Can you give any precision on when you're kind of expecting that first half, back half? And as you're kind of getting more supply out, are you going to run into maybe supply constraints with that launch, would you-
Mm-hmm.
Or are you thinking you're going to be, like, at ready capacity to handle the demand?
Yeah. With Granite, as I said, it's a big market opportunity for us, and the fact that our Granite product was primarily launched with adult deformity in mind, what we wanted to do was to make sure that we can address the opportunity with short constructs as well. We're already seeing around 40% of our procedures being done with short constructs. So, it's not necessarily limiting our business, but it's trying to develop a product that is more specific to the needs of those patients and those surgeons in degenerative spine cases. We're saying 2024, that's all the guidance that we're giving in terms of when the launch will be.
We're usually fairly close to the vest on talking about new products, but we felt it was appropriate to at least talk a little bit about the opportunity with short constructs, given the percentage of business that we're already seeing in that area. And that it takes the market opportunity from around $300 million to around $1 billion.
And what I would add there, Drew, is, because it's a line extension, we can actually leverage all the capital equipment that we're putting out into the field today with that line extension, so it does not have its own instrument tray. And like Laura said, we feel very confident that we are building the capacity, and we have the capacity, and we're continuing to add capacity in anticipation of that launch in 2024 as well, because the trays can be interchanged with the implants.
Got it, so you'll be well positioned for this?
Yes.
Got it. Maybe just to shift to TORQ for a second. But, I mean, you have been building out the long-term trauma but opportunity, a couple studies out there, but it's also TORQ has been driving adoption of some of the neurosurgeons-
Mm-hmm.
in the core business. But maybe just help us kind of understand what the surgeon mix is today between neurosurgeons and orthopedic surgeons-
Mm-hmm.
maybe versus pre-pandemic levels. And, I mean, is there a marked change in utilization of TORQ, I mean, versus iFuse 3D? Are you seeing more rapid utilization now as a result of TORQ being used by neurosurgeons?
Mm-hmm. As you said, our Torque product was primarily launched for pelvic ring fractures, so it was trauma cases and specifically fragility fractures. So another area that's an unmet clinical need that we've identified. We're doing clinical studies around that particular area, and we do see that as a long-term opportunity for the business, very similar to starting the business in primary SI Joint Fusion. However, Torque primarily is being used in our core market, in primary SI Joint Fusion. As you said, it was a decision that surgeons were making between our product and competitive products.
Neurosurgeons especially do prefer a product where they don't have to impact in order to place the product, and we consider ourselves an SI sacropelvic solutions company, and so we wanted to make sure to have the solutions that the surgeons were looking for at their fingertips. And so Torque has been a terrific product. The mix of surgeons is around 60% ortho, 40% neuro. That hasn't changed that significantly, but we have been able to increase our percentage of market share as we launch Torque in primary SI joint fusion, because we were seeing surgeons that converted to our technology from other companies. And also there were some surgeons that were splitting their business as well.
So for some patients, they were using what's the gold standard, and that is our iFuse 3D implant, but in other cases, they were splitting maybe an older patient, they were using a different product, and they've converted over to our TORQ product. So it's been really important to develop TORQ for the trauma applications, but then also to build out the opportunity in primary SI joint fusion.
Got it. Got it. Maybe just one of the last things to kind of touch on in terms of top-line growth is just blended ASP, and a few dynamics to kind of drill down here on. But, I mean, there's been a kind of a clear volume growth opportunity at the company, and we're kind of seeing that inflection. But I mean, your blended ASP has also been coming in better than kind of we have expected and even historical rates, more low single digit than kind of that mid-single digit expectation. But Anshul, maybe going forward, help us think through, like, what the expectation is with blended ASP looking ahead now that you have iFuse, now that you have Granite, now that you have TORQ.
It'd be great to just kind of hear how that could be a factor looking ahead.
Sure. So because of the diverse portfolio that we have, you're seeing a really good ramp in procedure volumes, like Laura said, in the 30% range. So we're very pleased with that. On the ASP front, you've got two things that impact ASP. On the procedure level, what we've seen in the first half of the year is, with the rollout of Granite, you're seeing a lot of cases for Granite in the deformity space that are using 4 implants. And that's having a positive impact on the ASP overall on a blended basis. The other side that's seeing a little bit of an impact, but not as much, is the pressure that we were seeing on our ASPs as our site of service for the core business, for minimally invasive SI joint fusion, was moving to the site of service at ASCs.
Historically, we were seeing sort of the mid- to high-single-digit price pressure on that throughout COVID. What you're seeing is, with the reimbursement changes that happened earlier this year, we've been able to negotiate lower decreases or in some cases, hold on to our pricing. So you're seeing some of the benefit of that. Now, when it comes to Granite, we're still in the early stages of Granite adoption, and with the degen procedures, as they get rolled out, you will see the blend of Granite procedures evolve as well. So what we're assuming, at least in the back half of the year, is sort of this low-single-digit blended ASP decline, because we see more of those short construct cases continue to come on.
In the long term, generally, when we model it out, we look at just general healthcare economics and the pressure there, and sort of always model in low to mid-single-digit decline. That's just the way we think about it from a business planning perspective, and hope to out-achieve that.
And if we move into a deflationary environment, does your thinking on pricing change at all, or you would still expect kind of that low single-digit erosion over time?
We—
Or your ability to just keep-
Yeah, so it's, it's side by side, Drew, and we try our best to keep up pricing, but we always model in sort of the low single-digit decline. And from our perspective, our view is we've got about 470,000 annual cases that we can go after a year, right? So we're focused on market development, penetrating that market, and getting the volume growth to go faster. So that's where our focus is. So I would say, you know, low single-digit decline is probably the way to go from a modeling standpoint.
Got it. And we have a few minutes left, but I want to make sure that we do hit on kind of profitability, too, because I think it's becoming a more major part of the story here, and it's coming up more frequently. So maybe help us better understand kind of the drivers that are going to get you to adjusted EBITDA breakeven. And we have in our model that 2025 seems to be a good year for hitting positive EBITDA, and you've made multiple investments over 2019 to 2022 that you're now leveraging. But just kind of help us kind of bridge that gap to getting from or getting towards EBITDA breakeven.
Yeah, no, appreciate that question. So from our perspective, our progress towards adjusted EBITDA breakeven is linear to top-line growth. So what you've seen over the last three years, between 2019 and 2022, we had made significant investments across the business, building our G&A sales force, investing in surgeon education. And then what you've seen in the last five quarters is as the growth accelerates, you start seeing the leverage in the P&L from all those investments. So we've got a really good foundation that we've built in terms of the infrastructure needed to support much higher levels of growth. Laura talked about the sales force and what it can achieve as well. So we feel really good about the trajectory. If you look at our adjusted EBITDA dynamics last year in the second quarter, it was close to $11 million.
Adjusted EBITDA loss, it was sub $4 million, and we think we're going to continue to make progress there. We haven't shared when we get to profitability, but if you extrapolate some of the trajectory that we are on, the fact that we expect revenue growth to continue to outpace OpEx growth in the back of 2023 and also into 2024, sort of gives you a good line of sight on when we could get to breakeven.
Okay. Okay, that's fair. And maybe to touch on next year, I mean, for 2023, you initially guided to high teens. The guidance now stands at 24%-26% growth. I mean, is it fair to assume that stable growth in revenue, or is it fair to kind of assume that you're going to see stable growth in revenue with tailwinds at your back heading into next year? And do you feel 20% is kind of now, like, really the floor growth opportunity for the company looking ahead?
Yeah. So again, not going to comment on 2024 yet, but when you think about what's allowed us to execute the way we have, these are secular tailwinds that are specific to SI-BONE, whether it's 10 consecutive quarters of active surgeon-based growth, whether it's the launch of Torque and Granite to diversify the portfolio, expand into the deformity degen market with Granite, the line extension that's coming out for Granite in 2024, and then the continued improvement in sales productivity that will allow us to drive more density per surgeons. These are all tailwinds that aren't specific to us one quarter or one year. These are things that carry on for a while. So we feel really good about how the business is set up.
We'll be able to provide more specific numbers in the guide, which we will always want to be conservative when we start out, like we did this year, and continue to grow into it. But we feel very good that the foundational elements will extend into 2024.
Got it. We're unfortunately out of time, but, I really appreciate you both making the trip out here, and thanks, thanks for presenting.
No, thank you.