Good morning. My name is Craig Bijou. I'm one of the medical device analysts here at B of A, and it's a pleasure to have SI-BONE. With me from the company is Laura Francis, CEO, and Anshul Maheshwari, CFO.
Thank you.
Thanks for having us.
Let's start with maybe just a recap of Q1. Strong Q1 results. Beat the Street by 4%. Tough comp. But if you look at the business on a two-year stack basis, growth accelerated, pretty strong acceleration. Maybe just talk about some of the execution in the quarter. I guess we'll start there.
That's great. I'm happy to get started. Thanks for the invite. It's always great to be here at B of A. Elevators are a little slow. We have back-to-back meetings, which is good.
That's all good. But yeah, glad to be here and answer the questions, and especially highlight how well we're performing at this point because I think we are definitely an underappreciated story right now. And we're trying to make sure that we get the word out and help investors really understand the opportunity that we have here. So had a very strong quarter. If you look at a year ago, we grew 46% in the quarter. And if you look at our Q1 2024, we grew 16%. So as you said, you look at it from a two-year stacked perspective, very strong growth. And looking at that two-year stacked, you're seeing an acceleration of the business as well. And so what's happening in the business? The business is firing on all cylinders.
If you look at our growth drivers and our core business and primary SI joint fusion, we're performing extremely well. If you look at our pelvic fixation business as well, performing extremely well. And then if you look at our trauma business as well, a nice opportunity for us to grow upon. If you look at the number of physicians that we're working with, we hit a high- water mark. And we're at over 1,100 physicians that did one procedure in the first quarter. And we talked more generally about how strong training was in the first quarter as well. And that's across the board with spine surgeons that are interested in SI joint fusion, interventionalists that are interested in SI joint fusion, and spine surgeons that are interested in pelvic fixation. So those are the big areas where we're seeing a tremendous amount of interest.
We launched two products during the quarter. So one into our core market for SI joint fusion, more targeting interventional. And then a second product that we had cleared, a new pelvic fixation product, Granite 9.5, and had our first cases done on that in late April. So just around two weeks ago, we started to see cases being performed with that new product. So a lot of really exciting things that are going on from a revenue growth perspective. And then if you look at how we're performing on profitability measures as well, you can see the tremendous operating leverage that we're getting on the business, a 30% improvement in cash usage year-over-year from operations, and a clear line of sight to Adjusted EBITDA break even. So if you look at every KPI, you're going to see the improvement in the business.
And then also a lot of activities that are setting us up for further accelerating growth in the next few quarters between the training that I was talking about and then the new products that we launched as well.
Great. And we'll dive into profitability and some of the products in a little bit more detail. I do want to ask about the guidance. So despite the strong Q1 and the momentum that you guys have in the business, the guidance, you only raised by essentially the beat for the year. And if you look at on a stacked basis, again, it looks like some slower adjusted growth. Is that just conservatism to start the year? Or is there anything else that we should be thinking about more general in the business for the rest of 2024?
Yeah, correct. Thanks for that question. So when you think about our guidance philosophy, we tend to be very conservative and thoughtful about our guidance when we start the year. We did the same thing last year. We started at 17-19 at the start of last year. And you know where we ended at the end of the year, right? And we started the year with 17-19. Like Laura said, Q1 was stellar. We had a lot of good things out of the quarter on operational and revenue KPIs. And we got a lot of tailwinds in the back half of the year as well. But we're still early in the year.
We think maintaining that thoughtful approach, especially with some of these tailwinds around the Granite 9.5 opportunity in the second half of the year, sort of the buildup of the interventional opportunity as well, and then a trauma product launch at some point in Q4, we just want to see some of these growth opportunities play out throughout the year. And we'll incorporate that in our guide. The stacked guide is a great metric to look at year-over-year. But the way we look at our business is, how are we doing year-over-year from a growth basis? And what we've shared externally in our earnings call was, we expect revenue growth to accelerate as we progress through the year on a year-over-year basis.
And also with some of the tailwinds from 9.5 being launched in April but rolled out in June is the potential to continue to see sequential growth as well, which is not common in our space. Third quarter tends to be sequentially lower than the second quarter. But we believe we have an opportunity to even offset that. And to us, that's the right metric to look at from a momentum perspective is the year-over-year and the sequential trends.
Got it. T hat's helpful. Thank you, Anshul. I'm going to borrow your word, Laura. Underappreciated. So I think what's underappreciated about you guys by investors is kind of the changes that you've made and the broadening of the portfolio that you have seen over the last couple of years. So you've added a number of new products. You've diversified your revenue stream. So maybe just talk about some of the steps that you've taken over the last couple of years and kind of the markets that you're now targeting and your opportunity maybe within those markets.
Yeah. So maybe if I talk about the competitive capabilities that we've developed over the years. We've been in business for 15 years at this point. We created a new category. We created minimally invasive SI joint fusion as a category. The ability to treat patients that have chronic debilitating pain that's coming from their SI joint. We developed the algorithm for diagnosing it. We highlighted the prevalence, educated on the anatomy. Then we worked on helping surgeons with having the right product and the right technique in order to address the needs of these patients that were not being treated. What we've done and I've been with the company for 9 years. But I've been the CEO for the last 3 years.
What we've really done over the last three years is to take these core competencies that we've developed to identify unmet clinical needs and develop innovative products around them, to provide high-quality clinical data showing the safety and efficacy of the products, having a focus on reimbursement and economics, which is absolutely critical in some of these areas where you're identifying new unmet clinical needs, and then also taking this educational approach, and whether that is with our professional education and proper training of surgeons and physicians, or if it's our sales force. We have a direct sales force of 85 territory managers that understand more about the sacropelvic anatomy than anyone else that's out there in the industry. So what we did is we said, we have all of these core capabilities. How do we take those and address more unmet clinical needs?
Started out with our primary SI joint fusion business. In 2021, we launched our TORQ product. TORQ was targeting opportunities in minimally invasive SI joint fusion, but also in pelvic trauma, specifically sacral insufficiency fractures that, very similar to SI joint fusion or SI joint pain patients, was not being addressed surgically. In 2022, we launched our Granite product. Granite was identified as a breakthrough device by the FDA, highly unusual for a 510(k) cleared product. What it did is it provided a better solution for pelvic fixation at the bottom of a construct. As a result of that breakthrough device designation, received a new technology add-on payment from CMS of around $9,800, so differentiated reimbursement for the procedure as well. That was our Granite product. We've launched a number of different Granite products over the last couple of years.
Most recently, our Granite 9.5 product, which is targeted toward short constructs. So our original product was around adult deformity, long constructs, around 30,000 procedures per year in the U.S. This new product is targeting 100,000 short construct procedures. So that's another area that we focused on. And then finally, I had mentioned the trauma opportunity. We have announced that we will have a trauma product coming out in the fourth quarter of this year to complement TORQ that we think is going to help address the needs of the 120,000 patients in the U.S. that have sacral insufficiency fractures a year. So it's been a big part of our business to really leverage these capabilities that we have in order to help grow the company. And that's part of why you're going to see this acceleration throughout the year.
Got it. Helpful. I mean, the core opportunity or the core business is clearly SI joint fusion. So maybe if you could just talk about kind of where you are. It's always been a market development story. It still is a bit of a market development story. So maybe just talk about where you are today versus a number of years ago, and maybe even how some of the new products are increasing awareness, introducing you as a company to new doctors. You talked about the training, how you saw great training numbers during the year or in the quarter. So maybe just talk about how the entire company is kind of driving that market development story for the core SI joint fusion.
Right. Yep. So simplistically, if you do the math, there are around 280,000 potential patients per year that could benefit from an SI joint fusion procedure. If you look at the number of procedures that have been done, us being the majority of the market, it's a market that's less than 10% penetrated. And so a goal of ours has definitely been, how do we continue to penetrate that market? We don't want to keep taking more market share because we have the majority of the market. For us, what's really important is to further penetrate the TAM that's out there. And so we've done a number of things. We have our core product, our iFuse 3D product, that we have had for quite a few years. It has most of the clinical data behind it currently showing the safety and efficacy of that product.
We also launched our TORQ product, as I said, in 2021. That product is more of a threaded implant that the surgeon or physician does not need to impact in order to place the implant, which is important to some of them. Then most recently, we actually launched our INTRA product, which is a bone allograft product that's used in a posterior trajectory, typically by an interventional spine physician. So what we're trying to do is to meet the physician and the patient wherever they're at in that journey that they're on. So those products allow us to do that. Working in particular with interventional has been relatively new in terms of selling to them. It has not been new in terms of our relationships with pain management from the start of the company. But there's really two paths with interventional pain management.
One is a group of physicians that are just going to refer SI joint patients to spine surgeons. That's one group. And we've had a great relationship with them for a very long time. And there's a symbiotic relationship between the two. There's another group of interventionalists. So when we opened up the market with interventional, we were starting with around 7,500 spine surgeons. There's another 4,500 physicians that fall into that interventional spine category. And of that 4,500, there are around 3,500 that are not doing minimally invasive procedures. So those are typically physicians that are going to be referring. There's another 1,000 that do minimally invasive procedures. And they're not referring to spine surgeons. So what we've been doing, we started out around 18 months ago working on a small pilot. Then we developed a prospective clinical trial called STACY, working with these physicians using our TORQ product.
Now what we have between INTRA and TORQ is the opportunity for these physicians. Once again, it's these 1,000 that are doing procedures and not referring. We have this incremental opportunity with interventionalists in order to further grow and penetrate the market.
Got it. That's helpful. On interventionalists, I think there are a number of questions that have come from investors since you did announce that. I think the distinction is you announced it in Q4. The program was started 18 months ago or well before. Maybe if you can just give us a little bit of clarity on how you approach the interventionalists. With TORQ, with INTRA, you have two different products that can go, can be sold, or an interventional spine physician can use them. Maybe talk about your strategy there and where you're trying to get to engage the interventionalists.
Right. So as I said, there are two products, our INTRA product and our TORQ product. And what we do is we train those physicians on both products. The targeting that we do is we typically are looking for those 1,000 physicians, interventional spine, that have already been doing minimally invasive procedures. So they've been doing permanent implants of spinal cord stimulators. They've been doing lumbar decompression procedures. There's a number of different procedures that they're doing. Or they've been doing SI joint allograft procedures. Those are kind of some of the categories that we're looking at. And then what we're doing with them is we're bringing them to training and talking to them about INTRA. And we're talking to them about TORQ. But the way that we're selecting the physicians, these physicians are capable of doing a lateral procedure with our TORQ product.
We're not selecting those other 3,500 that probably aren't going to do procedures at all, or if they're going to consider them, it would only be an allograft procedure. So we're going after those 1,000. And what we've seen over the last few months is that most of them, in fact, are adopting the TORQ product and the lateral procedure and doing very well with it. And in fact, our STACY study, we have not put out the results yet. But things are going very well with those interventionalists on lateral procedures.
Got it. And just remind us, STACY, so it's a study, essentially in, I guess, my words, but kind of proving that interventional spine physicians can actually do a lateral MIS joint fusion.
It's a couple of things. First of all, on TORQ, there wasn't necessarily a significant amount of high-quality clinical data. And so a lot of the data is around the iFuse and iFuse 3D products, the triangular implants. And so what we wanted was high-quality data on SI joint fusion using the TORQ product. And that's what STACY is going to provide with the prospective trial results. That's number one. Number two, it is all interventional spine. And so once again, what you're typically trying to get at in these trials is to show safety and efficacy. And that's our intention.
When can we see results?
Yeah. I think toward the end of the year.
End of 2024.
Yeah. Yeah. We should see something that's published on that. The study's gone very well. And you should be seeing more shortly.
Got it. Maybe shifting gears a little bit to Anshul and the financials. And obviously, over the last couple of years, you've delivered strong operating leverage. OPEX growth has been significantly slower than revenue growth. So maybe just start with kind of what have been the drivers of that.
Sure. So one, we're very pleased with the trend that we've demonstrated since, I'd say, early 2022 on our operating leverage. And a lot of that is an outcome of all the investments that we made in the business in the prior years in anticipation of the revenue growth that we were expecting with the new product launch and just the continued penetration of our existing markets. And you've seen that happen. So we feel really good about that. You saw some of that play out in Q1 as well, despite the timing shift for our national sales meeting, which elevated expenses in the first quarter. But we're feeling really good about the rest of the year in terms of continuing to drive operating leverage. What we shared in our earnings call was we expect for 2024 fiscal year, revenue growth rate to be 2x operating expense growth rate.
So we feel very good about that. That allows us to have a clear line of sight to Adjusted EBITDA as well break even in the not too distant future. Very well set up there. Now, the leverage is coming across the P&L. One is as the sales force matures, as you're putting more product in the bag that's allowing us to go deeper with physicians, you're seeing leverage on the sales and marketing side. We've got a pretty good infrastructure on the G&A side. You don't have to scale that up with revenue growth. On the R&D side, we will continue to invest R&D dollars. We'll continue to see that grow. But you won't see it grow at the same pace as the revenue growth. So when we think longer term, leverage will continue.
Now, we haven't provided long-term guidance on leverage, on how much that will be. It'll vary from year to year depending on new product launches. But going forward, we expect revenue growth to continue to exceed operating expense growth. And we have a pretty good drop through from gross margin dollars to Adjusted EBITDA, as you've seen over the last couple of years, that quite a significant amount drops to that bottom line.
Maybe specifically on gross margin, how should we think about that? I think you're high 70s% now. How should we think about that going forward? And one notable thing that you from Q1 was your revenue per procedure, your ASP, was better than expected and flat, I believe, year-over-year, which is obviously better than expectations. But how to think about that gross margin looking forward?
Sure. So when you think about a gross margin, one, we were really proud of what we did in the first quarter at around 79% gross margin for the quarter. It's still early in the year. It's one quarter. You have some standard cost adjustments that take time to flow through the P&L. We're still holding our guide for the year at 78% gross margins, which is still industry leading. And there's a few things that play into our gross margin. We'll talk about ASP in a second. But the biggest piece is just the continued investment in new product. So some of our new products, Granite is very complicated. It's higher cost. TORQ as well is higher cost. So you're seeing some of that and the capital equipment spend go through the P&L as well.
Now, what you will see is once you get to a certain scale in Granite and TORQ, you start seeing benefits of scale where the cost of the product starts coming down. And we expect to see that happen over the next couple of years. You start seeing leverage on your asset base as well because you start seeing better utilization trends. We'll see that. But when we think about 2025-2026, what we are projecting is sort of that gross margin in the 76%-77% range. And there's puts and takes there. What we're incorporating in there is the benefit that you get from scaling off the existing portfolio with Granite, TORQ, 3D, and some of the new products that will come out this year. But then you offset that by additional products that we plan to launch in the coming years because that will require some capital investment.
Sort of a very good balance of puts and takes but sets us up really well
Got it. That's helpful. I was going to ask you about EBITDA. I mean, how to think about EBITDA break even? I know you have line of sight to it. You haven't really given us a timeline. I mean, is it a quarter? I mean, can it be Q4? Is it 2025? How should we think about that?
I mean, directionally, we've shown that the business with high gross margins can show a lot of leverage. And like I said, we expect that to continue. Our approach, Craig, has been ever since we started in 2022 is just get to certain metrics before you talk about it. We feel very confident about our ability to get to Adjusted EBITDA breakeven. We'll talk more about it as the year goes. Again, it's early in the year. So we'll be able to provide more color as we progress. But what's equally important is when we look at Adjusted EBITDA, we also look at free cash flow. And our CapEx footprint actually is quite small for the revenue base that we can support. On average, we're spending about $7 million or $8 million in CapEx. And that's generally when you're launching new products and building capacity.
It tends to scale up pretty quickly after that. So cash flow break even is not too many quarters after you get to Adjust ed EBITDA break even, which given a company of our scale is something we're really proud of.
Got it. That's helpful. Just a few minutes left. Maybe talk about Granite. I mean, you guys seem pretty excited about Granite 9.5. But maybe if you kind of start with kind of how well Granite has done thus far and then the opportunity that Granite 9.5 actually affords you.
Yeah. I talked a little bit about Granite, breakthrough device, and NTAP of $9,800. We believe that Granite will become the standard of care in all those 30,000 long construct procedures with our core product. What 9.5 provides is really a new opportunity in a number of different areas. So I had mentioned we had over 1,100 physicians that did at least one procedure in the first quarter. And the bread and butter for most of those SI joint fusion customers, surgeons, is degenerative spine procedures. And Granite 9.5 is targeted very specifically around those short construct procedures. So if we have the opportunity to significantly increase what we call surgeon density or number of procedures per quarter, there's a huge opportunity here with 1,100 surgeons that right now are doing a little less than four procedures per quarter.
Right now, only 15% of our surgeons are doing more than one procedure type. We have the opportunity here to use Granite 9.5 for pelvic fixation and also sell on the pelvic trauma side as well because our spine surgeons see those patients too. That's one opportunity: getting at those 100,000 short construct procedures with our existing surgeons and increasing surgeon density as well as attracting more surgeons. It's not just that. It's also adult deformity. There have been some surgeons that we've been working with the last couple of years who have been looking for a smaller diameter implant. Those are really the first targets for Granite 9.5: going after those surgeons that were not using our existing Granite product for their adult deformity needs.
The other thing that we're seeing is that some of the physicians that are using 9.5 are using four implants versus potentially two in a case because they have the ability they have the real estate, is what they call it, in order to place four implants. And what's important about two on either side is you don't just get fixation. You get fusion as well. And so some of these early cases that we've seen in late April, early May are primarily using the four implants in those cases. So really excited about the opportunity that Granite 9.5 provides us both to further penetrate pelvic fixation as well as increase our surgeon density or number of procedures per physician.
Great. I think we're about out of time. Maybe I'll end it there. Laura, Anshul, thank you for joining us today.
Thanks, Craig.
Thank you for hosting us.