All right. Afternoon, everybody. Thanks for joining us. Matt O'Brien, I cover MedTech here at Piper. We're really fortunate to have the management team from SI-BONE with us. Laura is the CEO, Anshul is the CFO of the company. Thanks again so much for coming out to the conference.
Thank you. We really appreciate it.
So, can we start with Q4? You were up $6 million sequentially versus Q3. But the Street's only modeling you up about $2 million this year in total. So is there something going on as far as—and sorry, I should back up a little bit. I think it was—you're up $6 million sequentially Q3 versus Q2. One of these days I'll get my calendar right. But Street's only modeling you up a couple million bucks in Q4. Is there any reason why that would slow down in Q4 specifically, when I'm hearing from every company how good volumes are?
Yeah. First, I got to start with, we had such a strong Q3, so I'm gonna start there. So and actually, the whole year has really been a year of inflection for us. I've been with the company for 8.5 years at this point, and we really built the SI joint space, and a lot of it, when you're building a space, is reimbursement. So we worked a lot on reimbursement over these early years before we were public and since we've been public. And then going through the pandemic was another little bit of a roller coaster, but really, 2023 has been a huge highlight for us. In the third quarter, we grew 29% year-over-year revenues of $34 million.
We meet, beat, and raised, and we raised significantly beyond where we had beat for the third quarter. But with that said, what we've been doing all year long is making sure to provide conservative guidance for the company, really positioning ourselves for success because, as I said, we're really seeing this inflection this year for us. But in terms of what we're seeing, we continue to see momentum in the business, and I feel incredibly excited about ending the year and also moving into 2024 with all the tailwinds that we have right now.
Got it. Okay, sounds great. The other thing that stood out to me, again, I don't cover the company, but, you know, you performed, I think it was 16, 17,000 cases, or you performed that, you know, annually.
Mm-hmm.
There's a 500,000 case opportunity.
Right.
So you're just unbelievably lightly penetrated.
Yeah.
How do you continue to penetrate this market to get the message out about SI joint?
Yeah
... pain, and that's the source of a lot of
Yeah
A lot of low back pain?
Yeah. Well, let me start once again. As I said, we started out as the SI Joint Company, and that's over 200,000 procedures a year as a TAM. And so we've been working in that space for a long time, but it's really only been in the last year or two that we have significantly expanded the business. We now have three different procedure types that we go after. We are what we call a sacro pelvic solutions company. So the core of the business is SI joint fusion, still less than 10% penetrated in that space. Reimbursement was the biggest challenge, that for the most part, that challenge has been resolved. It is pretty much universally covered here in the United States, and so it puts us into a great position in that core market.
The second market that we have is what's called Pelvic Fixation, and that is a very new market and product for us, and that's where we're working primarily in adult deformity procedures and providing a base for the long construct or Pelvic Fixation in those cases. If you include short constructs and long constructs, we believe there's around a billion-dollar market opportunity there, with around 130,000 cases per year. Literally, we're just a little over a year into that particular space. So I think part of it is the core business is developing, especially with the full reimbursement that is profitable at all sites of service. But then it's also these other areas that we're in, including Pelvic Fixation. We're really just at the start of them right now.
But what we do is we identify these unmet clinical needs in the sacro pelvic space, develop innovative products around them, we educate surgeons around them, we provide high-quality clinical data. We have over 120 peer-reviewed, published papers, and then we make sure that the health economics from a reimbursement perspective makes sense for the site of service and for the surgeon as well.
Not that you don't have plenty of room to go in your existing opportunity, but, I mean, are there other areas of sacro-
Yeah
sacropelvic health that you can go to eventually?
So, as I said, we're in, we're in three different areas at this point, and just getting started in them. One of the things that we've talked about is we do have a second product that's gonna be coming out in 2024. So I mentioned that 130,000, uh, potential pelvic fixation cases in the U.S. The product that we have currently is targeting 30,000 of those, so the adult deformity opportunity in the U.S. The other 100,000 is short constructs. And so we're actually going to launch a product, it's a Granite, uh, line extension, and that product is gonna come out in 2024, and it's specifically targeting those short constructs.
Yeah.
We're not giving much more information about it at this time, but it's actually getting at a bigger opportunity than what we're going after currently. So we're excited there. And then we are also going after fragility fractures. So these are older patients, usually poor bone quality, very similar to our SI joint space, where the patients typically are not treated or they're conservatively treated. They're on bed rest, and they have a 25% probability of mortality at the end of 12 months if they're not up and moving. So if you think about hip replacements, this is very similar, where you actually do want to treat these patients, and we believe that we have the products and technique in order to do that. So three different areas that we're focused on, and you'll see products in all of those areas coming out in 2024.
And then we have a few other things that are in the background, too, but it gives us a lot to chew on here for the next 12-24 months.
Yeah, absolutely. Okay, same clinicians are going to be doing all three of those areas?
They do. So it's we work with orthopedic and neurosurgeons. Typically, they are spine surgeons. Some of the surgeons that we work with are general ortho trauma as well. So those are the two areas that we primarily work with.
I think you said, you've got about 1,000 clinicians at this point. Is that right? And then-
So we had over 1,000 surgeons that did at least one procedure just in the third quarter, which we were incredibly excited by that. That was 30% growth if you looked at it year-over-year, and a significant increase between Q2 versus Q3 as well. In fact, if you look at all of our 2021, we had fewer surgeons that did at least one case in 2021 than what we just had in Q3.
Wow!
So, so that 1,000 is just for that, just for that third quarter. But our target is around 7,500 surgeons in total. So we have a lot of room to run in terms of the number of surgeons that can do procedures. Also, in terms of the number of cases that those surgeons can do, we think we have a significant opportunity there. Right now, we have a little less than 4 cases per quarter that a surgeon, an active surgeon completes. We know just in our SI joint fusion business, that if they fully adopted the procedure, they're doing around 9 a quarter. So an opportunity to more than double just in our core business, and that doesn't include those surgeons that are doing multiple procedure types, doing the pelvic fixation cases or the trauma cases.
A lot of opportunity for growth with adding surgeons, but also adding additional surgeon density.
Okay. You know your customers well, Laura. Those clinicians that are using you 4x , you know-
Yeah.
- versus 9x .
Yeah.
What are they using for the other five? Why wouldn't they just use SI-BONE for all of them?
They're not using anything. So what they're typically doing, there's, you know, there's different versions of surgeons. We have certain surgeons that are doing those nine cases a quarter just in SI joint fusion, and they may be doing adult deformity cases with pelvic fixation, they may be doing degenerative cases with pelvic fixation, and they may be treating fragility fractures. They could be treating across the spectrum. The surgeons that are just doing cases intermittently, there's, given how rapidly we have grown the number of surgeons that are doing cases, that's part of it, right? Because typically they'll try our products. They'll be working with a particular patient. They want to see the efficacy of it.
Okay.
So sometimes it's just the surgeons that are starting out that are doing lower volumes of procedures. In other cases, it's just getting the surgeon to fully adopt the procedure into his or her practice. And what that means is making sure that they're not only just somebody's walking in and they're ready to have a surgery, but somebody walks in, they need to make sure to diagnose that patient and make sure that the patient meets medical necessity criteria. We help to make sure that this fits into the workflow of the surgeon.
Okay. What about that utilization ramp? I mean, what do you typically see out of those clinicians? I mean, do you have clinicians get trained and then decide not to do it, or I don't know if they're going with a competitor, or-
Yeah
... what happened?
The utilization is different depending upon which procedure type you're talking about. In primary SI joint fusion, it typically takes some time. The reason why I say that is you're going to a surgeon, and they're a spine surgeon. They don't necessarily have a strong knowledge of the pelvis and the SI joint. So you'll go through the anatomy, you'll help them understand the SI joint as a pain generator. You'll help them understand the diagnosis and then the treatment and prevalence. All of those things are part of what we do. Then, as I said, they'll typically try the procedure, and then they start regularly diagnosing and treating patients. So it can take 12 months, 24 months, in order for those surgeons to really get up to the volumes that we're looking for.
The pelvic fixation business is different, however. So in that case, we actually are replacing existing product that already is in the surgeon workflow. So they're just using technologies that are older technologies. They haven't necessarily worked as well as our technology does. We provide fixation and fusion, which provides that appropriate base for the long construct. That's why we got the Breakthrough Device Designation, and we have an NTAP of $9,800 for the use of our technology in Medicare cases. In those cases, when they're replacing something, we literally can be going in a day before, bringing in an instrument tray, doing an instrument review, and being in a case the next day. Compared to our core business.
So it's very different utilization, and that's kind of the situation between the two. It's very different.
Understood. Okay. Anshul, I swear I'll get to you in just a second. Just, just hang in there with me. You've grown your surgeon base by 30% this year.
Yeah.
I think that's right.
Yeah.
Why wouldn't that be the starting point for top line growth next year?
Yeah.
I mean, why wouldn't they adopt it? If they're getting trained, it seems like they really like what they're doing.
Well, what I just described to you is we have an opportunity, not just with the surgeon growth, but we also have an opportunity to increase the number of procedures that each of the surgeons are doing. But as I said, what we're really trying to do is to set, you know, reasonable expectations and to see the success unfold, which is exactly what's happening here in 2023.
Okay, and not to push too much, but the Street's got you at about 18% top line growth.
Mm-hmm.
That seems like a reasonable number for next year.
Mm-hmm
... just given all these other factors that you have, which could provide upside?
Yeah.
Okay.
I agree. And, you know, last year, if you think about where we started 2023, the original guidance that we provided was 17%-19% growth. Our most recent guidance was finishing the year at $136 million-$137 million in sales, or 28%-29% growth. So pretty significantly ahead of that, but the number that you're talking about is consistent with where we started 2023.
Got it. Okay, appreciate that. What about the sales force? You—I think you're, you've got 83 at the end of Q3. How does that need to trend over 2024 and 2025 to keep growing as quickly as you want?
So our sales force is our crown jewel. They really are our key asset to the business. The reason why they're so important is because of the fact that we do identify these unmet clinical needs, and we need to go in with an education and clinical focus. So it takes a unique group in order to do that. We finished the third quarter with 83 quota-carrying senior territory managers. The utilization or the productivity for each one of those sales reps is up to around $1.5 million a year. Our target has been $1.5 million-$2 million.
Okay.
And the way that I've always looked at the business, I've been saying this pretty much since I started, was our sales reps should be able to do around $2 million of business a year. This is the U.S. specifically. With 100 territory managers, we should be able to do around $200 million of business in the United States. Growing more than 50% from where we're at and, you know, hiring an additional 17 people over that period of time.
Got it. Okay. Maybe talk a little bit about the, the three different products, Bedrock, Granite, and then you pair with iFuse and iFuse 3D. What does that do in terms of accessing clinicians, having that full portfolio? Does it make it a lot easier, or is it now it's still, you know, the, the core business and then we kind of build off of there?
I think it just deepens the relationship with the surgeon. So we started with most of these surgeons with our primary SI joint fusion business, although we've generated a lot of excitement with our Granite product as well, and I think I've described those two products. And then the third product as well, for fragility fractures with our TORQ product. You know, what it does is it makes us somebody that they have a close relationship with their rep, and they're, it's helping them to build out their practice, basically, in these innovative areas that are outside of the typical work that they do.
So I think that, you know, the more procedure types that the surgeon is doing, the stickier the business actually gets, and the more likely that they're going to fully adopt these different types of procedures into their practices. So from our perspective, it's really just helping to build out the entire business, and continue the growth momentum that we have.
Does it give you a moat versus some of your competitors out there, having a more robust portfolio?
I think the way that surgeons look at us is they look at us as a company that innovates in an area that's not known as being particularly innovative.
Yeah.
So I do think that we have a really strong reputation in the industry at this point. And then as we're launching additional products, for example, the Granite product in adult deformity, adult deformity cases typically are completed by key opinion leaders at academic medical centers. So we are getting this halo effect of working with the leaders in the industry that are always up on the podium, and they're talking about pelvic fixation, they're talking about the SI joint, they're talking about the sacro pelvic solutions that we provide. And so it really has provided a reputation boost for us as well, given the additional areas that we're going into.
Got it. Okay. And, Anshul , I told you I was gonna, I was gonna get you in, which I will now. How big of a gross margin headwind is the addition of Bedrock and TORQ to the portfolio?
Yes, as Laura said, adding the new products have been very instrumental in us growing our addressable market, almost doubling the addressable market and, and accelerating top-line growth, which has very quickly translated into significant adjusted EBITDA leverage as well. It's improved around close to 60% year-over-year in adjusted EBITDA... the loss reduction. So very pleased with how these new products are going through the P&L. Now, you are having some gross margin pressures because these products are more complex from a design standpoint and a manufacturing standpoint. We are putting a lot more capacity into the field in terms of instrument trays to support the demand that we see for these products, and that depreciation is also flowing through the P&L.
The third piece is we have expanded our operations in California and added a second facility to support our logistics function, and that's also flowing through the gross margin. Those three things are flowing through the gross margins. Again, when you think about the reduction in the gross margin points, but the benefit you're getting on the Adjusted EBITDA level-
Yeah.
because the leverage you get on the sales and marketing G&A, it is significant, and we're very focused on getting to Adjusted EBITDA breakeven in the not-too-distant future.
Okay. When, when might some of those gross margin pressures abate? Is it a 2024 phenomenon or 2025?
What we've indicated to the street is we plan to exit the year at about 78% gross margins for the fourth quarter, and that's a good proxy for-
Okay.
- for 2024. At 78%, it's still one of the best gross margins within this space, so we're very proud of that. We do have a pipeline of additional products coming out, so you might see some more gross margin pressure. But again, the impact on the top line, the ability to get that leverage to the bottom line is very accretive.
Okay. I wanted to talk a little bit about that, because you mentioned the EBITDA improvement. It looks like it's gonna be about $13 million better this year versus 2022 on the incremental $30 million improvement in on the top line. Is that the kind of leverage we should think about you guys driving going forward, like, $30 million equals that $13 million on the EBITDA line?
Yeah, based on where we see revenue growth going, if you look at what happened this year, our Adjusted EBITDA improvement was very linear to top line growth, and a lot of that was driven by the fact that we were able to get leverage out of all the investments we made throughout the pandemic. Our sales force doubled between when the pandemic started and when we exited the pandemic. Our active surgeon base has doubled because we've invested a lot in education. And we've been able to get this level of revenue growth without adding to our headcount in the sales force this year. As we look into the future, we do expect revenue growth rate to outpace OpEx growth rate, but we will be making investments. To Laura's point, we're gonna invest in R&D.
We're gonna target getting to those 100 territories in the next few years, so you're gonna see some of that play out as well. But we expect that the leverage will continue. The pace may moderate a bit, but it'll continue to stay strong.
Okay. And so, EBITDA breakeven, you guys haven't provided that specifically?
We haven't provided the timeline, but if you extrapolate sort of how we've done throughout this year versus prior years, we're not that far away from a timing perspective.
Okay.
Our view is let's just get there versus just project when we get there.
Okay. How big of a expense is the capital side of things, especially on the instrument side?
Yeah. So, fortunately for us, even though our capital footprint has increased as we've added new products, we're still a relatively asset-light business. And if you look at our historical CapEx, it's been between $5 million and $7 million, depending on when a product is launched. So the good part of that is, if you look at what happened with Adjusted EBITDA, our Adjusted EBITDA loss was sub $4 million in the fourth quarter—in the third quarter, and our cash usage in the third quarter was sub $3 million. So our expectation is, as soon as we get to Adjusted EBITDA breakeven, cash flow breakeven should be a few quarters right after that.
Okay. Okay. What about the capital position of the business? It seems like, you know, you're, you're getting pretty close on the EBITDA side of things. You know, balance sheet, doing pretty good there?
Yeah, so we have about $167 million of cash at the end of the third quarter. We feel really good about the liquidity position we are in, especially as we think about the path to Adjusted EBITDA breakeven, the path to cash flow breakeven. We feel very confident that we have the liquidity to do that while we continue to invest in R&D, build the commercial sales force on the periphery as we add more headcount. We're very well positioned from a liquidity perspective.
Okay. And then, Laura, just a few more for you with the last couple of minutes that we have. As far as these new products go-
Mm-hmm.
you know, you've already got a big opportunity as it is. I mean, are these, these areas that are also, I know you don't want to say too much?
Mm.
big opportunities as well?
Mm.
Similar profitability, profitability profile, reimbursement profile, et cetera?
Yeah. It's very similar to what we've done previously, and as I said, the products that you'll see in 2024, they're in those three spaces that we talked about. But us very consistently either, you know, building additional products that are follow-ons, for example, the Granite line extension that's targeted more toward the short construct market, to open that up a little bit more, you know, or, or additional products in those areas. But, but we are also looking at additional opportunities that are longer term, and, and once again, what we do is identify unmet clinical needs. Our, we look to be the market leader in the spaces that we're in. We wanna make sure that the products are differentiated.
We make sure to use clinical data to show the safety, efficacy, biomechanics, economics of these different products, and then take this clinical educational approach to launching them.
Got it. And last one, I don't wanna ask a GLP question. But, what about on the reimbursement side? That's a, that's a muscle that you guys have, is on the reimbursement side.
It is.
Is that something that's continuing to build with all the data that you're building as far as, you know, specific-
Yeah.
you know, policies for SI-BONE?
Mm-hmm. Our leadership team had to become reimbursement experts-
Yeah
... because of the fact that we had to build reimbursement in our core business. And so, us getting a Breakthrough Device Designation from the FDA for Granite, getting an NTAP for Granite, that shows how we have continued to build on all that. But, you know, we were able to take an entire space and make sure that it was profitable at all sites of service and had an appropriate payment for the surgeons as well, had pretty much universal coverage in the United States. And so it's always something that we have in mind. Unmet clinical need, innovative patent-protected product, educational focus, clinical data, and reimbursement support are really the key things that we do to ultimately become leaders in new spaces.
Got it. Okay. Lots of good things going on. Very compelling story. I really appreciate all the feedback. Thanks so much.
Thanks for the time. Thank you.