All right, thank you everyone for joining us today. I'm Drew Ranieri, one of the medical device analysts here at Morgan Stanley, and I'm pleased to have with us today, SI-BONE, Laura Francis, the company's CEO. Before we get started this morning, just everyone's favorite disclosures, but for important disclosures, please see the Morgan Stanley Research Disclosure website. And if you have any questions, reach out to your sales rep. But Laura, thanks for joining us today.
Thank you, Drew.
We appreciate you being here. With our time today, I'd like to dig into a few topics. One is surgeon adoption and utilization. Two is new products with TNT and 9.5, and then third is profitability. Maybe before we kind of get into there, just on a high level perspective, and outside of a really nice Q2, the company started to use the word kind of platform in its language. And the exact wording was, "We now have a platform to drive deeper engagement and more procedures per physician." So just the language change there, just help us with that nuance there. Are you thinking about the company differently now than you were at the start of the year or last year?
I don't know if we are thinking differently about it, but it's more trying to properly capture what we're doing as a company. So we've been talking for quite some time now about being more of a sacropelvic solutions company. Our name is synonymous with the SI joint and our being a pioneer in that space. But what we've been able to do with the core business is to start to expand outward into more of a platform, and there's a couple of reasons for that. So first of all is, if you think about the technologies that we've developed, we've really developed this capability to identify unmet clinical needs, specifically in the sacropelvic space. And we're developing differentiated technologies in the space, too.
And so we started out with our iFuse 3D product for SI Joint Fusion, then moved to TORQ, then to Granite, and now you see TNT coming out as well. And each one of these implants, in our last press release on TNT, we talked about anatomically specific implants for the pelvis, and it's actually what we've been doing across this platform of technologies. So we really have developed something, and when I talk about anatomically specific, it's not patient specific per se, where you have to measure for every single patient upfront using preop planning. It's more developing specific SKUs, but to meet the needs of the particular patient. So there's a technology underpinning that's happening here across these different products. But then if you think about it from a business perspective, what are we trying to accomplish?
We've been growing pretty substantially in terms of the number of surgeons that we're working with, and we finished this last quarter with 1,150 surgeons, approximately, that we're working with, and they're doing around 3.5 procedures a quarter. And so with the launch, for example, of Granite 9.5, it gives us the opportunity not just to be selling SI Joint Fusion, but also to be working with them on pelvic fixation with degenerative spine cases, and this is kind of the core of their business. So the goal of the platform is to have these innovative technologies that we're using, number one, but then number two, to be developing solutions where we have multiple contact points for different procedure types with our surgeon base.
Got it. No, great, great to hear. And before we kind of jump into some of those growth drivers that you were just touching on, just to maybe hit the back half a little bit. But the guidance implies an acceleration to about 21% year over year versus about the high teens that you did in the first half. Just kind of assuming it embeds stable price mix, so the bulk of the growth kind of seems to be more volume-based. So maybe just talk about the volume components there, between new active physicians and kind of the utilization improvements. My math looks like utilization might be flat to slightly up in the back half. But just kind of talk to us about those couple components there.
Yeah. Yeah. So your, your math is correct on this. So we, we are guiding to 19%-20% growth in total for the year, and in the first half of the year, we grew at approximately 18%. In terms of what we're expecting, what has historically been the growth driver is, you know, we've been increasing the number of surgeons doing our procedures by over 20% over the last three years. So that's been a heavy driver for us, and it'll continue to be a strong driver. So we're going after around 7,500 spine surgeons that are out there, and as I said, we sold to a little less than 1,200 physicians in just the Q2. So we have the opportunity to continue to expand.
We also, as I also mentioned, have this opportunity to go deeper, especially with our new Granite 9.5 product and pelvic fixation, selling to our existing spine surgeons who are primarily doing SI Joint Fusion, and then in terms of ASP, that's a little bit of a factor that's playing in here, too. We actually saw a low single-digit increase in the ASP in the Q2, which is something that's relatively unique and recent, based on the new product mix that we're seeing coming through.
Okay, yeah. I want to dig into some of those, and maybe just on the surgeon adoption utilization dynamic here. And not to pick on the company, but the company has consistently grown active surgeons, to your point, like 20% since 2019. But when I kind of look at our model, I mean, utilization has maybe moved up more low single digits.
Yeah.
I guess just talk to us about, like, when should investors kind of expect to see an inflection in utilization?
Yeah.
Like, is the portfolio there today? I guess, what's the roadmap there to get it from 3.5 cases to four, to five, to six?
Yeah. I think the short answer is yes, you should expect to see an increase in surgeon density. It's in particular going to be a focus for us in 2025, coming up here, and Granite 9.5 is really the driver for that. And it's really more going to our existing surgeons and talking to them more about pelvic fixation. Our original Granite product has been a highly successful product. I would say that it was primarily focused on adult deformity applications early on, although we did see it used in shorter constructs. But now with Granite 9.5, there's a pretty specific focus on increasing the number of procedures that our surgeons are doing and with multiple modalities. So doing SI Joint Fusion, but also doing pelvic fixation.
Okay. And maybe just on the, the 9.5 product, just it's fairly recent in its launch, but just talk to us about what you're seeing in terms of the field, new surgeon adoption, and what's kind of giving you the confidence in those early accounts that it's going to have, like, more widespread, utilization drivers longer term. And sorry to toss another one in there.
Yeah.
But I mean, even too, from like just an instrumentation set standpoint like, is the, do you have the adequate capacity to meet demands for 9.5?
Yeah. We are excited about what we're seeing thus far. So our first case was done in April of this year, but we really started a more significant launch with significant implant inventory in June. So it's very recent, but we really like what we're seeing. And we like it in a number of different ways. We're getting to surgeons that hadn't previously used Granite. They were looking for a smaller diameter implant, they were looking for a shorter implant, they were looking for a more of a implant that met their needs with short constructs, or in some cases, they were previously using two implants and actually wanted to use four. And Granite 9.5 gives them the opportunity to use four implants at the bottom of the construct, which provides not just pelvic fixation, but fusion as well.
In terms of the sets that you're asking about, it's the Granite 9.5 product uses the same sets as the original Granite. So it's really just making sure that we have enough sets in the field to meet the demand for all of the Granite family of products. So very different from the initial launch, where it was, "Hey, we have to get a significant number of trays out." Now it's just, you know, making sure that we can, you know, meet the new demand for the product. We also have actually worked on the cost of Granite, so Granite 9.5 actually has a lower cost of goods sold than the original Granite. So there's this focus on efficiency, but there's also a focus on gross margin expansion as well.
Okay. And just with the 9.5 launch, just maybe talk a little bit more about kind of your expectation of, like, what that could do for surgeon adoption versus just pushing more into the density. Just, are there any, like, figures you can kind of toss behind that?
With Granite, specifically?
Yeah, with 9.5, yeah.
Yeah, so maybe if you're looking for figures, the total market for pelvic fixation and fusion, our estimate is around $1 billion in total or 130,000 cases per year. And the original Granite was targeted toward primarily adult deformity, which is around 30,000 cases a year in the US. And then there's an incremental 100,000 cases that are short construct cases. So it actually opens up, Granite 9.5 opens up the majority of the pelvic fixation and fusion market for us.
Gotcha. And you should be able to see some synergies for, like, iFuse as well?
Very, I think so. So we're using. As I said, iFuse is the core of the business, and so the way that we're thinking about 9.5 is approaching our surgeons and talking to them about using this product in kind of their more typical lumbar fusion cases. And it's not all patients that it's appropriate to use pelvic fixation with a shorter construct, but there are certain patients, whether it's a larger patient or whether it's the anatomy and high pelvic incidence or osteoporotic bone. There are a number of different reasons for why, even in a shorter construct, you want to do pelvic fixation. So there's some education that's involved versus an adult deformity. It really is a standard of care to use pelvic fixation of some sort, and we just have a better technology there.
Got it. I want to make sure we hit on TORQ TNT the new 510(k) cleared product that you got for fragility fractures. So maybe just it's early days here, but talk to us about the market opportunity, kind of like what commercial efforts are you putting behind TNT? And really just, help us understand maybe the reimbursement economics for a hospital, because looking at some, like European experience, for instance. Some of the pelvic fragility fractures, length of stay could be 30, 40 days for some of these patients. So just a lot of questions in there. B ut just maybe frame it iFuse TORQ TNT for us.
So this was our next foray, identifying a specific unmet clinical need. We've been working in this space since we launched our original TORQ product in 2021. But, you know, a typical construct that we were seeing with the use of TORQ in pelvic trauma was using two TORQ implants and then just a typical trauma screw. So you got fixation as well as fusion in those cases, but that was a typical construct where they weren't using our technology. So these are patients, there's around 120,000 a year in the United States, that have these fragility fractures. Tend to be older patients with poor bone quality, and typically, as you said, they're not treated. They go into rehab, basically, and it's very similar to quite a few years ago with hip fractures.
With somebody that was older, they wouldn't treat the hip fracture, but if the patient isn't moving, if they're not mobilizing, it can cause a lot of problems for those patients, and this is a very similar circumstance. So TNT is meant to address those needs. We got a breakthrough device designation from the FDA on it, so this is our second breakthrough device. And why is breakthrough device important? It shows that, you know, the innovation that we're doing as a company, but as important is the reimbursement, that there is typically differentiated reimbursement. So for example, with Granite, in a hospital inpatient Medicare case, the surgeon in the facility is able to receive up to a $9,800 new technology add-on payment for Granite.
So similarly with TORQ TNT, our intention is to work with CMS and apply for a new technology add-on payment. Just given the time frame of when the product cleared, if we do receive an NTAP, it would be October of 2025, so a little over a year away at this point. But that's our plan, and as I said, it would provide differentiated economics for the procedure.
Got it. And has the NTAP been, like, filed, paperwork submitted yet, or is that-
Not yet.
-in progress?
Not yet, no. But that is our intention to do exactly that.
Gotcha. Maybe just a couple of follow-up questions here on TNT. But, I mean, I guess when we think of trauma, we think of Level I , II centers. It's just like, how do these patients necessarily present? And you've been working on this hybrid sales model. Is that kind of still how you're thinking about targeting the trauma opportunity?
It's. There's two ways that we're going after the trauma opportunity. First of all, spine surgeons do regularly see these patients because this presents as lower back pain, but historically, they haven't known what to do with them. So that's how we originally entered into the pelvic trauma space, was actually just working with our own surgeons on the trauma applications. But the other opportunity is with more general ortho trauma surgeons. In the case of working with spine surgeons, we have the opportunity to work with our direct sales force or with some of the agents that we're working with now on Granite.
But we also have started to put together a group of third-party agents that are just going after trauma surgeons, and we are working with a number of key opinion leaders, too, in trauma, and they're from Level I trauma centers. They're very well known. We'll be at the Orthopedic Trauma Association meeting in October, doing kind of a big coming out party for the TNT implant. But yeah, in terms of the commercial model, we do expect to use agents, especially in the case where we're selling to orthopedic trauma surgeons.
Got it. And just given that the standard of care is more just, not even watchful waiting, but bed rest at this point, I mean, is there really a knowledge gap for the surgeon on fragility fractures to the point where it's maybe more of a market development sale? Or do you expect it to be a pretty rapid uptake, like maybe the NPI product?
It is a little more of a market development story in this case, because it reminds me a lot more of SI Joint Fusion than it does of pelvic fixation. In the case of Granite and pelvic fixation, we were replacing other technologies with our better technology, quite frankly. Here, it's once again treating a condition that oftentimes is not treated, and so there is an education effort that's going to be required here that, you know, don't just let these patients heal. They're going to do better by actually treating them. We also have a study that's ongoing right now called SAFFRON, that's gonna provide some information on that, and expect a publication on that sometime in early 2025.
... Okay, got it. Maybe just to shift gears kind of on the sales force expansion productivity. But just maybe how should we be thinking about adding reps looking ahead? There was the big bolus a couple years ago. You've kind of maintained some stability. Y ou've employed the hybrid sales model. Just, I mean, how important is sales force expansion on a direct basis for the company to get to, like, $250 million in sales?
Yeah, you know, it has been interesting. If you look at our territory manager numbers over the last 18 months, they've stayed pretty flat. And our intention is to certainly add additional territory managers, but between our ability to gain significant leverage on our sales force and use agents, we've found that to be highly effective here over the last 18 months or so to use that approach. So our revenue per rep per year at this point, we're at around $1.7 million. Our target has been around $2 million. So when we were envisioning $200 million of US sales long time ago, I came into the company almost ten years ago, and I've been giving the same numbers ever since, we were envisioning $2 million of sales per territory manager o r for a business of $200 million, that we had 100 territory managers in place.
So I still expect for us to continue to add to those. I think we finished at 84 in Q2. Expect to continue to see us, you know, make incremental increases as we get closer to that $200 million mark. But then after that point, I think that you're gonna continue to see more leverage on our sales force. So our top territories are over $4 million in size, and in some cases, they're using one junior rep. In some cases, they're actually using two junior reps in the field. In some cases, they're very effectively using third-party agents. So there's a number of different ways that we're actually looking at moving beyond that $2 million of productivity per rep.
Got it. And I mean, is going from $2 million to $4 million at some of the higher accounts, is it just all a function of, like, surgeon density and pushing through more utilization, or is it still kind of expanding within the hospitals?
It's a, you know, each one is a little bit different. I, you know, I'm thinking of our largest one right now, and he works a lot. He travels a lot, but he does have pretty high density with his particular surgeons. He did at a certain point, we did actually end up adding a second junior rep into his territory. He does not use a lot of agents right now, but my guess is that he will, and he's shown the ability to continue to grow by doing all of these different things. So it can be territory by territory. You know, do you have a lot of Granite? Is it at an academic medical center? You can get a lot of leverage that way.
Are you in, you know, New York, so that you don't have to drive too far in order to reach your surgeons and your cases? It's unique, depending upon which territory you look at. But we have a number of ways to get that leverage, whether it's greater surgeon density with the new products, whether it's an incremental junior rep, or whether it's using third-party agents.
Got it. Maybe just going back to some of the newer products, but you did launch INTRA earlier in the year. I guess, talk about how the company's kind of approached the interventionalists with TORQ versus INTRA.
Yeah.
Talk a bit about the strategy there, and just with some of the proposed LCDs that are kind of being proposed, for lack of better words, just talk about the opportunity for SI-BONE if it, if the proposal goes through in its current form versus maybe something that becomes less challenging for, for allografts on an amended LCD.
Yeah, so we started working in earnest with interventional spine specialists in the last 12 months or so, and that was because of some of the changes in reimbursement. You now have 27278, which really focuses more on these posterior procedures, versus 27279, which is the code that we've been using since 2015 for more of our lateral procedures with iFuse 3D or TORQ or what have you. When we started to target interventionalists, there's around 4,500 interventionalists in total that are out there. These are anesthesiologists, PM&R, and interventional radiologists, and we actually didn't target the full 4,500.
We only targeted around a thousand who have been regularly performing spine procedures, so various interspinous procedures that they may be performing or placement of permanent spinal cord stimulators. So we were already going after those physicians that were doing procedures already. And so we have the two options: They can use our TORQ product, or they can use our INTRA product. Given the physicians that we were targeting, most of the sales that we're making are currently TORQ sales with them, which is under 27279, which is well reimbursed and no questions around the 27279 code. 27278 is INTRA.
And so the way that we look at it is we offer a couple of different options to those physicians, and they can choose which one they want to use. So whatever happens with 27278 is fine by us. We'll either focus more on Torque or if there's more of an opportunity with 27278, that may expand the opportunity with those physicians that are in that 4,500 group.
Yeah, so if, like 27278, the proposal goes through in its current form, you could actually see some of those interventionalists that were doing procedures migrate over to TORQ, potentially?
Yeah, I think so. Yeah. Yeah, and one of the things that we have done is very similar to all of the other products that we've put out. We put out high-quality clinical data. So we've been working the last year or so with interventionalists with our TORQ product, and there's a study on clinicaltrials.gov called STACIE that shows the. And you'll probably see a publication also late this year or early next year on STACIE that'll show the safety and efficacy of that product being used with interventionalists. And so that's important information for interventionalists to show, you know, here, here's a study only with interventionalists using the TORQ product in a lateral trajectory and just giving them the confidence to use that product.
Got it. I wanna make sure that we touch on profitability. Because that was another really interesting thing to hear on the Q2 call, was kind of the commitment towards profitability. I know I was excited to hear it. But just walk us through or kinda get us over that bridge of getting to EBITDA breakeven in 2025 on a full year basis. It sounds like you're on track to do it in the Q4, but just you've been driving operating leverage. Is it all that? Is it, some of the gross margin cost out that you were mentioning with 9.5? Just help us on how we should think about that for 2025.
Yeah, it's primarily operating leverage. So our guidance for this year is $165-167 million of revenue. So we're getting to the size where we're not significantly impacting the top line by being judicious with operating expenses. So we were able to leverage our R&D function, our clinical capability, our sales force, our professional education, organization, reimbursement, and G&A. So a lot of this is really quite natural, right? Certainly, there is a demand in this market to be profitable, to stop burning cash. But the timing for us has been quite good because it is a natural point for us to gain leverage on the business. And, you know, if you look at what we did last year, we got pretty substantial operating leverage on the business.
Something similar this year. If you looked at the Q2, our adjusted EBITDA number was a loss of $2.7 million. I believe that was over a 40% decrease from the prior year, and so it's really just naturally seeing the company continue to grow and growing operating expenses at a significantly lower level. So this year, our plan is growth of 19%-20%, but operating expense growth of around 9%, so two times leverage on the business in 2024, and we haven't given numbers for 2025, but we have said that we will be profitable on an adjusted EBITDA basis for all of 2025, and it's just similar to what we're doing currently.
Okay, so positive for all of 2025.
Correct.
There could be some quarterly variation.
Right.
Yeah.
So annually, we will have a positive adjusted EBITDA number for the entire year of 2025.
Gotcha. Maybe just to touch on the gross margins, a bit. So, I mean, you're still high seventies right now. I mean, as I kind of like look over the last five years, you were mid-eighties, low eighties, and now, high seventies. I mean, I would imagine some of that step down has been mixed, but how are you thinking about gross margin stability from here? E specially as the company kind of continues to diversify the product portfolio.
Yeah. It is, it is primarily, the, the reduction in the gross margin is just the new products that are coming out. It's the implants do have a higher cost than our original implants, and then you're also having to deploy new trays as well into the, into the field. And so our primary focus has been on, on growing the top line, but as, as I mentioned, we are also focused on reducing cost of goods sold, whether it's the cost of the implants or the efficiency of the, the instrument trays or the fixed assets that are, that are depreciated into, into cost of goods sold. So it's, that is a significant focus area for us. In terms of what you can expect, we're this year, we've given guidance of around 78%. We'll probably be a little higher than that.
If you look at what we did in Q2, we were at 79%, and continuing on that path. But going forward, our models are saying more in the 76%-77% range, but some of these activities that we're engaged in right now to improve cost of goods sold should help us improve that.
Got it. And maybe just on 2025, but for this year, I mean, you initially guided to high teens growth. That ticked up to 19%-20%.
Yep.
The implied back half is 21%. I mean, do you feel like 20% is more the floor for growth at SI-BONE looking ahead? I know you probably don't wanna less numbers, but please do if you want. But just maybe kind of what are the puts and takes that w e should be thinking about, as we're going into next year?
The way that I think about it is more about kind of going back to your very first question, right? We've created a platform for the business with all focused on sacropelvic solutions, all focused on multiple points of contact with our customers, and increasing that surgeon density. And all of that should, first of all, drive the top line, but also drive the bottom line as well. And so more broadly, if you think about the TAM that we're working with right now, I mentioned pelvic fixation specifically, and I think I mentioned the number for trauma too. But if you include SI Joint Fusion, we're actually going after a TAM that's over $3 billion in size, and over 400,000 cases a year.
We have the ability to grow, whether it's, you know, further increasing the number of physicians that we're working with, so increasing that 1,150 number and continuing to grow that. We have the opportunity to do that. But then also to take that 3.5, you know, cases per quarter per surgeon and to increase that further. That's another opportunity for us, too. And then we're even actually improving our ASP as well. So all of those things are going to drive the growth of the company, and they'll also help to improve the bottom line, too. We're in a great position for the foreseeable future to continue to grow a sustainable, profitable, high-growth medical device business.
Gotcha. And if we assume my hypothetical 20% is right, as you're thinking about OpEx leverage for next year, is it another 2X , or just any way to frame it?
Once again, I don't necessarily want to give numbers, but you can see what we're growing at right now and the leverage that we're able to get on the business. And, you know, a lot of the growth, quite frankly, in operating expense is just commissions. It's just variable related to the actual growth of the business. But we've. I'm really proud of the team that we have. We have a terrific sales team. Our leadership with Tony Recupero there, he's been in the industry for many years. They've done an extraordinary job of building a best-in-class sales force and also leveraging that sales force now with this hybrid model and a significant number of agents as well.
So I'm really proud of what we're doing in the field, but I'm also really proud of what we're doing in the home office as well, and wearing a lot of different hats in order to put out these innovative products, breakthrough devices, you know, differentiated economics through our NTAP. So I really think it's the team and the culture that we've built here that is created a unique company and gives us the opportunity to continue to grow and prosper in the future.
Got it. Sadly, we'll have to end it there. But Laura, thanks for joining us today. Really appreciate your time.
Thank you, Drew. Always a pleasure.
Thanks.