Good afternoon, everyone, and welcome to this year's Canaccord Genuity Global Growth Conference. My name is Caitlin Cronin, and I'm one of the medical device analysts here at Canaccord Genuity. With us today is SI-BONE, a long-standing pioneer of solutions in the sacropelvic solution space, with its expanding portfolio of products addressing unmet clinical needs. We're very pleased to be joined today by Anshul Maheshwari, CFO. So we've got a fireside chat today. But hopefully I can leave a couple minutes at the end for Q&A if anyone has any questions. So before I begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and/or firm website. With that, maybe Anshul, let's start with the Q2. Just I think it's the best place, the recently announced results.
You know, some record growth across a number of metrics, as well as a new timeline codified for Adjusted EBITDA breakeven. Maybe just provide us some thoughts on where we are, halfway through 2024, and what you're really trying to make sure investors understand coming out of the Q2 results.
Sure. Well, thank you for having us, Caitlin. We just had a phenomenal second quarter, and it was just building on the success we've had for the last three years, where our cumulative average growth rate's been around 20%. So when I think about the second quarter and the number of records we hit, we had record worldwide revenue. We had record U.S. revenue. Our revenue growth rate was around 21% in the U.S., which was the same procedure growth rate that we had at 21%, so a really stable ASP there. When you go beyond that on the operating metrics, we had a second consecutive quarter of record number of newly trained physicians. Q1 was the best; now we have Q2, which was now the best.
We had 23% growth in our active physician base, which was the fourteenth consecutive quarter of double-digit active physician growth. There's this new metric we're now starting to track, is how many physicians are doing multiple procedures. We had a 25% growth in the number of physicians that were doing multiple different procedure types, which is also exciting 'cause it's a great forward-looking indicator, along with the active surgeon growth on future revenue potential from the cohort of surgeons, while the base continues to grow. Our territory productivity, which was our revenue per territory, grew 24%, to about $1.7 million. When you think about it, three years ago, that number was sub-million. So really good traction there, and sets us up really well going into the next year on being able to deliver the operating leverage.
That growth, that level of productivity, allowed us to get significant leverage on the P&L and our adjusted EBITDA improved 43%, to the lowest point since being a public company at about $2.6 million. So really proud of what we achieved in the quarter. We also did launch a new product. 9.5 was launched in the second quarter, which was the extension of the 10.5 product that we had launched a couple of years ago. So really, really solid quarter. Sets up really well for the rest of the year. We did announce that, we would be adjusted EBITDA breakeven in the fourth quarter, so another major milestone in the inflection, the financial profile inflection of the company, to be able to be adjusted EBITDA positive and then also be adjusted EBITDA positive for full year 2025.
That's great. You know, and maybe just talk a little bit about utilization, you know, versus the strong growth that you saw in new surgeon users.
Yeah. So as I said earlier, we have had 14 consecutive quarters of double-digit growth rate in our active physician base. So we've gone from mid-500s a few years ago to 1,150 at the end of the quarter. What you've seen is, during that time period, sort of the cases per physician has been sort of flattish. It's been around, it was around 3.1 when we IPO'd, to about 3.8 at the end of the most recent quarter, so, but been fairly stable at that 3.8 number for the last several quarters.
It's actually very encouraging to see that number be stable, because when your denominator has grown as much as it has for us, what that implies is there's a subset of your doctors that are in the same cohort, that are moving up the volume scale, while you have newer docs coming into the funnel that are doing maybe one or two procedures in the initial, you know, adoption of our procedures before they start moving up the procedure scale. So it's actually a very positive indicator for us to be able to maintain that number while we've grown the denominator as much as we have.
That's great. You know, and I think it's, it's great how you guys have moved away from, you know, just core SI joint fusion to other areas, you know, deformity, degen, and also sacral insufficiency fractures, and really diversifying your portfolio. But I wanna start with the core SI joint fusion business and, you know, on the beginnings of, you know, a shift in the site of care, from solely spine surgeons performing SI joint fusions to now interventionalist pain docs, also directly treating these patients. You know, you previously noted the market was, you know, 4,500 interventionalists performing procedures, and you've since divided this into about 1,000 that can perform, you know, surgery, more complex surgery, versus 3,500 that can perform more guided procedures.
You know, I think this further deviation makes sense for you guys, given when you think of the context of your two product offerings, which you noted were, you know, laterally placed TORQ, which you're teaching these interventionalists, as well as INTRA, which is your posterior allograft for this call point. But can you really explain why TORQ requires, you know, more surgeon know-how from a surgical perspective versus INTRA? And you know, why your focus on TORQ has, you know, been a focus for these 1,000 docs that you're targeting?
Yeah, so you're right, we've definitely expanded the platform over the last three years, and the way we view ourselves is, we are a multi-product, multi-modality medical device company at this point, that's got differentiated solutions with unique techniques, favorable reimbursement, and good clinical data. SI joint fusion continues to be the largest part of our business. The total addressable market there is about 300,000 procedures a year, so about $2.5 billion TAM there. And you're right, we've been working with surgeons since the inception of the company, on identifying, diagnosing patients, and providing them the treatment with iFuse 3D and TORQ, which is reimbursed under CPT 27279. Around last year, at the start of last year, we did start engaging, a subset of interventionalists, the 1,000 that you mentioned.
The reason we went with those 1,000 is those 1,000 interventionalists, based on public data, have done other surgical procedures, either decompressions, Minuteman, Vertos, Vertiflex. So they're accustomed to surgical procedures. We started with TORQ with them, one, because we 27279. two, we now have a track record of long-term outcomes for TORQ because it's been in the market since 2021. So we started with TORQ. We actually launched a STACI study mid of last year, which was a post-market study to understand the use of TORQ by interventionalists to do the lateral SI joint fusion procedure. So that's gone really well. We announced preliminary early indications on the results and the safety and efficacy. We had no serious adverse events.
We're gonna be completing enrollment sometime this summer, with some preliminary data available in 2024, and the two-year readout at some point in 2025, and then two-year readout late 2025. So we feel really good about this incremental opportunity, right? We've got 8,000 target surgeons that we're going after, and there's 1,000 interventionalists that we're going after as well. This is a very discrete patient funnel because these patients were not being referred to surgeons, and as a market leader in SI joint space, we are developing the interventional market. We're defining the interventional market like we defined the surgical market.
That's great. And then, you know, just why teach these surgeons TORQ over your other lateral product-
iFuse 3D is very orthopedic, right? You have to drill, broach, and impact with a mallet on the implant. We believe that with TORQ, it's gonna have the form factor that's more convenient for interventional spine docs. And so that's the reason we're leading them with TORQ because it's a screw-based procedure versus an impact-based procedure.
That makes sense. You know, and how do you think you stand competitively in this space versus, you know, other companies calling to interventionalists directly?
So, as I said, you know, we're the market leader in the SI joint space. We have our brand is synonymous with the SI joint procedure. When you think about what's attracting interventionalists to SI-BONE is a few things. One, it's our differentiated product portfolio. We've got multiple solutions available for them versus being a single product company, which a lot of competition is. Our products are not me too, which is what if you look at the other products that are in the space, they're very undifferentiated as well. So that's number one. Number two is they are attracted to us because of our educational approach, because of our clinical advocacy, our patient advocacy infrastructure that we have in place, 'cause that's really important for any surgeon or any physician practice when they're adopting a new procedure.
The most important thing that goes a lot of times unnoticed is our commercial infrastructure. Our sales reps are the best and the best in terms of understanding the anatomy, helping the physicians through the procedures, through the process, and educating them through it. And we've got a sales force that's done over 100,000 procedures.
That's great. You know, and then can you provide any quantitative answers as to the amount of interventionalists you've trained so far or sold products to?
We don't break it down. Like I said, we've had record trainings, first trainings in Q1 and Q2. Interventional spine docs were part of that record training number. What I would say is we're very impressed and encouraged by the pace of adoption that we're seeing from interventionalists, the growing procedure volume, and what's equally encouraging is those that have been trained on TORQ, how well they're adopting TORQ as their preferred solution.
That's great. And then I think you mentioned on the call that the vast majority of your, you know, sales and, and trainings have been, TORQ over INTRA. You know, I think a lot of that might be, 27279, versus 27278. can you just describe, what these two codes are for people in the audience and, you know, which one is, is more, robustly reimbursed at this point?
27279 has been in existence since the 2016/2017 timeframe. That was the CPT code that we worked to get through multiple years of clinical data, more than five years of clinical data. That has full Medicare and commercial coverage at this point. That's the CPT code that iFuse 3D and TORQ are reimbursed under. The new code that was introduced at the start of this year was CPT code 27278. It is generally for the coverage of allograft procedures or posterior procedures done with any kind of an implant. The reimbursement currently on those procedures is about 40% lower for at the physician fee level, and at an ASC level, it's about 20% lower.
As you know, we had a few MACs come out earlier in the year and put out proposals for non-coverage LCDs on 27278. So that sort of had a little bit of an impact in certain markets, where those LCDs are effective on the adoption of the posterior or an allograft approach. With TORC, we have a product that solves for that because it's got full universal coverage for Medicare and commercial.
That's great. Maybe let's just turn to, another area of your business, deformity, degenerative procedures. You know, as you look to move further up the treatment curve, in your business, I think you're driving growth into these more complex procedures, and you launched your first Granite product in 2022. And earlier this year, you received clearance for Granite 9.5, and, you know, you noted a launch, broader launch in June. Can you just talk to, you know, why, launch this smaller size, for Granite, and how has uptake been?
Yeah. So Granite has been just a phenomenal product for us. It's been a great success story, and I think if you talk to surgeons, most of them will tell you, you know, this is one of the best implants that's come out in a long time. We believe... When Granite was launched, it was launched targeting deformity procedures at the base to provide a strong foundation, which is about 30,000 procedures, and our belief is, over time, Granite will become the standard of care for providing pelvic fixation and fusion of the base of these long construct procedures. What was exciting for us when we launched Granite was, while we were targeting deformity procedures, we saw about 40% of our revenue come from shorter construct, two- to four-level construct procedures, where Granite was being used.
And the feedback that we were getting from our docs was: "Hey, I love Granite. I love the form factor. I believe in the fact that Granite is solving a major issue at the base of these constructs," which, you know, because of various reasons, can really lead to high failure rates on these procedures. "But I'd love to see an implant that's got a smaller diameter, just because I don't need to have those big implants." So that was the genesis of Granite 9.5. Granite 9.5 does three things for us. One is, within the deformity space, and we're just scratching the surface in that market, it allows us to go work with deformity surgeons who are looking for the smaller diameter implant. So that's number one.
Number two is you've got a subset of deformity surgeons that may be using one implant on either side, but we know biomechanically, you wanna have two implants on either side to get fixation and fusion. With 9.5, we solve that real estate issue for the doctors, where they can now use two implants on either side, to be able to get the pelvic fixation and fusion. And then the third piece is Granite is on label for the S1, opportunity, which is a lot vast majority of the opportunity in the Degen space. So, the reception for 9.5 has been really stellar. I think the excitement for that product has been, very strong.
We've been fortunate as a company to have multiple really strong product launches in the last couple of years with TORQ in 2021 and Granite 10.5 in 2022. 9.5 has outperformed the demand that we're seeing compared to even 10.5 and TORQ.
Wow! You talk about, you know, multiple implants used for fixation. You know, talk about how that's a tailwind to ASP.
Yeah. So when you, when you think about our business, you've got, you've got three markets that we're in. You've got the SI joint fusion market, which you typically use three implants in. You've got the, the trauma market, where you typically will use two implants. In the deformity and Degen space, on the deformity side, what we typically see is surgeons using four implants, two on either side. So what that means, you, you're able to get a higher ASP. On the Degen side, you're using two. So if you look at the blend overall, you're getting to a little over three, 3.5 implants, and that's reflected in your ASP. So that's how we think about the ASP tailwind.
That's great. And maybe just moving on to sacral insufficiency, and I think you're really creating a procedural solution here where there wasn't one. You know, just tell the listeners why there's a need for a procedural solution, you know, for this, for this injury and why you've used your TORQ product as a jumping-off point.
Yeah, no, happy to. So the reason I called ourselves a disruptive med device - high-growth disruptive med device platform, was we really look for these unmet clinical needs and try to solve for them. SI joint fusion was an outcome of an unmet clinical need. TORQ was an outcome of an unmet clinical need in sacral insufficiency, and so was Granite for solving failure rates at the base of the long construct and short construct procedures. Now, when you think about sacral insufficiency fractures, before we introduced TORQ, there was no real good treatment for them. You basically had three avenues. One was bed rest, which led to pretty high mortality rate. I think our best estimate was the mortality rate for people who had pelvic ring fractures or pelvic insufficiency fractures was about 25%, so it was quite high.
The other two alternatives were subpar. One was sacroplasty, which was cement, which had other issues come with it. And then the third piece was just using traditional screws, which we know from our experience in the SI joint fusion space, traditional screws are always at the risk of backing out, and so you really don't get good solutions with it. With TORQ, we've basically gone after that market because of the fenestrated design, it allows you for fixation and fusion over time. And that was our approach to be able to address that market.
That's great. And can you describe what the SAFFRON study is, and when you expect to see readout?
So the SAFFRON study is basically comparing patients that have sacral insufficiency fractures that go through the treatment with TORQ and versus conservative care. We did stop enrollment in that study in the second quarter, and we expect to have some prelim results in 2025.
That's great. And then any more details you can give us on the product being launched later this year in this space? And is it complementary to TORQ, or will it be used on its own?
You know, trauma is about a $300 million opportunity for us, about 60,000 cases a year. And this new product that we're gonna be launching, it's gonna have a lot of similarities based on our experiences with Granite, which was we took surgeon feedback and came up with a product that was fitting within their workflow. And this new product that we're gonna launch in trauma is specifically based on feedback from trauma surgeons and fitting into their workflow. I won't disclose much more than that. We'll talk about more about that. We expect to launch that product in the fourth quarter. We think it'll be a nice tailwind for the trauma business for us. It will be complementary to TORQ.
It might be used in conjunction with TORQ, and then sometimes it might be used without TORQ.
Okay. Then maybe let's turn to sales force. Continued to show productivity gains here. You know, your commercial strategy is a hybrid model. I think you use both direct reps as well as agency distributors. I think you have 84 territory managers, and $1.7 million per-annualized productivity as of the Q2. How has that really trended over the recent history, and what are your longer-term goals for your direct sales team?
Yeah. So you know, we've got a tremendous leadership team in sales. Tony Recupero is just phenomenal in how he's built this commercial infrastructure and how he's thought about the commercial infrastructure as the business has added multiple modalities within deformity and trauma. So for us, we've got 85 TMs. We're really proud of the productivity that we've demonstrated. Like I said earlier in my comments, we were about sub-$1 million in average revenue per territory not too long ago, and two years in, now we're at about $1.7 million. So it's a really nice traction. It was up 24% year-over-year. The hybrid model's been really great for us, and we started really flexing in the hybrid model when we launched Granite within the deformity space.
A typical SI joint fusion procedure is about, you know, a couple hours versus these deformity cases can be really long, seven to eight, nine-hour cases. What we wanted to do was make sure that we were able to provide capacity for our reps, not to be spending that much time in the OR, and be able to actually be out there and selling and generating more business. So we started using this hybrid model, where we're leveraging third-party agents to provide case coverage for some of these procedures, and we're doing sort of a revenue split for them, a commission split for them between the rep and the distributor. It's a win-win situation for everybody because it's a variable cost for us as a company.
For the agent, he's already in the case, and he's getting incremental revenue with Granite. For the rep, it frees his time from the OR. He's still owner of the relationship. He's still meeting with the doc and the distributor on a regular basis, but it frees his time so he can go out and make more sales calls, cover more cases, and sort of continue to drive that growth in the business.
That's great. And then I think you noted on the Q2 call some recent increased interest from agency distributors. Why do you think that you're seeing this interest now, and, you know, what parts of your business are they most interested in?
Yeah, so you know, we've got about 200 agents that we work with today, and, you know, if you go back a few years, that was around 40. You know, part of that traction is just coming from the surgeon demand for our product, where some of these larger national agencies are looking at wanting to work with us to carry Granite, so that their surgeons can be able to use it. The focus with agents is generally gonna be around the deformity degen side.
We do think there's an attractive opportunity with trauma because it is a new call point for us, and with the new product that we plan to launch in the fourth quarter, we think there's an opportunity for us to leverage these agent relationships to also be able to grow that trauma franchise. So I think we've struck a really light, nice balance between creating bandwidth for our reps, creating leverage for the business, and making sure surgeons have access to our solution. Plus, you know, they can be assured of the white glove service that they've been used to with SI-BONE.
Then maybe, final minute here, let's touch on the financials. So you ended the quarter in a strong cash position. Where do you see your capital needs as you begin to inflect on an Adjusted EBITDA profitability perspective at some point?
Yeah. So we're a very unique business in terms of our... Our business is quite asset light. When you think about our gross margins, our gross margins year to date were about 79%. You know, we have a pretty significant drop-through to our adjusted EBITDA line. We have about $150 million in cash. We feel really good about our liquidity position. We expect revenue growth rate to continue to outpace growth rate—OPEX growth rate going forward, which means you should see a fall through to the adjusted EBITDA line going forward. Our biggest CapEx, our investments are gonna be around R&D. You know, we're not gonna skim on R&D, but you'll see leverage there, too. Salesforce is gonna be another aspect. We will continue to build it out. We wanna get to 100 territories.
And then it's around implants and CapEx, and our CapEx is about $7 million-$8 million a year.
That's great. I think we'll end it there. Thanks so much for joining us.
Thank you.