Good afternoon and welcome to the 45th Annual Canaccord Genuity Global Growth Conference. My name is Caitlin Cronin, and I'm one of the Medical Device Analysts here at Canaccord Genuity. SI-BONE, a longstanding pioneer of solutions in the sacropelvic solution space, with its expanding portfolio of products addressing unmet clinical needs, is joining us today. We're very pleased to be joined by Anshul Maheshwari, CFO. We've got a fireside chat followed by any Q&A after. I have a list of questions I'm hoping to get through, but I also want to make this as value-add as possible. If there's anything, please raise your hand if you have any questions, and we'll make sure to get to it. Before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and our firm website. With that, we'll get started.
I think the best place to start here is the Q2. As Anshul, you guys recently released Q2 results, and you raised both your revenue and gross margin guidance. What now gives you the confidence in generating 17%- 18% growth and gross margins of 70.5%- 79% for the full year?
Yeah, thanks, Caitlin. Thanks for inviting us to the conference. Q2 was a very strong quarter for us. Our worldwide growth was 22%. Our U.S. growth was 23% revenue growth. That was led by 25% procedural volume growth. If you actually look at the business since the IPO, we've consistently grown at a 20% CAGR during that time, and that growth's actually accelerated in the last three years. Feeling really good about the way the business is performing. That growth's been broad-based. We've seen double-digit procedure volume growth across all the modalities that we serve. We've seen double-digit growth in all the call points that we work with. That gives us a lot of confidence that our strategy to build out a platform of technologies is really working well for us.
When you go down the P&L as well, you've seen really good traction from that top-line growth translated into gross margin expansion. Our gross margin expectations for the year were 77%- 78% when we started the year. We're obviously well ahead of that at close to 80%. Really proud of how the team's done on the gross margin side and some of the operational efforts we've taken on there. That's translated into a third consecutive quarter of positive adjusted EBITDA, as well as our first quarter of achieving cash flow break-even, which at our scale, we're really proud of. It again goes back to our asset-light business model that we've been talking about, and that's showing up in our numbers as well. A lot of the things that impacted our first half of the year's strong performance are secular in nature.
The double-digit physician growth, which ended up having a 25% growth overall in active physicians at 1,440, exiting the quarter, gives you a really nice forward-looking indicator of what the potential growth potential of the business is. When you add on to that, a lot of the tailwinds that we have in the business with regards to the strength of Granite 9.5 adoption, which will only accelerate with the launch of additional granite capacity, the TNT product, which is doing really well for us with additional capacity and the potential for NTAP coming out on October 1, which is $4,100, which is quite significant when you compare it to what the reimbursement would have been, is a really nice tailwind for the business there as well.
The continued strength that we're seeing in the SI joint dysfunction business, where we've also seen double-digit physician growth, but double-digit procedure volume growth as well, are the things that give us confidence not just to end 2025 at a strong note, but also give us confidence going into 2026.
You mentioned that you saw earlier than expected cash flow in the quarter, but you also expect a modest cash burn in the second half. Maybe just walk us through the rationale behind that modest cash burn expectation.
Yeah, so again, the algorithm that we've seen in our business is 12 months after you get to adjusted EBITDA break-even, you should be able to get a cash flow break-even. We're not a heavy CapEx business. Our annual CapEx spend is $7 million- $8 million on instrument trades, so it's pretty asset-light from that perspective. You've seen that manifest in the P&L already from a profitability standpoint, but that is now reflected in the cash flow as well, getting to break-even. We do have a lot of opportunity ahead of us, especially as we look at the back half. Q4 tends to be our biggest quarter. We're going to be putting out more surgical capacity for Granite 9.5 to capture the demand there, and also preparing for the NTAP going effective. We're going to be putting out more TNT capacity out there.
You're going to see us use a modest amount of cash, not a lot of cash, but a modest amount of cash in the third quarter to be ready for that strong fourth quarter rollout, as well as sort of preparing for the first quarter rollout of this next SI joint dysfunction product that we want to launch.
You also noted expectations for positive adjusted EBITDA for the full year, as you've had kind of quarterly adjusted EBITDA positivity. What has your OpEx leverage been in the recent past, and is that something that's sustainable going forward? I believe you spoke on the call about a range 1.25x- 1.7x operating leverage in your model, depending on the investments made.
Yeah, so our operating leverage has been a direct outcome of the strong top-line growth that we've seen. It's almost been linear. As our growth has accelerated, the leverage has accelerated as well. More recently, you've seen that leverage sort of be in that two times range. Our revenue growth has been a little bit over two times our OpEx expense growth. As we look at it going forward, our assumption is we have a lot of opportunity ahead of us. We've got a very active R&D pipeline. We've got a lot of products that will be backed by clinical evidence, so we'll continue to invest in R&D. We are going to expand our sales force, although we'll continue to see leverage on the sales force side as well with the hybrid models.
On the G&A side, it's going to be more incremental, so you'll see a lot more leverage come out on the G&A side. When you combine those three things together, our best expectation is operating leverage, depending on where we are in the cycle of innovation, could be, you know, average 1.5 turns. Some years it could be 1.25, some years 1.75 or even 2. We feel very comfortable with that. When you think about the high gross margins sort of in the high 70s, that kind of leverage, you can easily see how much drop through you can have to the bottom line as you continue that top-line growth.
With the number of investments you're speaking about, do you believe the 12- 15 month timeframe that you mentioned for cash flow positivity after the adjusted EBITDA break-even could potentially be extended by these investments?
Yeah, it's, so from a cash flow break-even standpoint, we actually got there already in the second quarter. It sort of highlights the strength of the platform. The diversification is driving the high gross margins, which is translating into profitability and strong cash flow. From our perspective, the investments that we're making are in anticipation of the demand that we see in the back half of this year and all through 2026. These investments can actually accelerate our timeline to cash flow versus delay the timeline to cash flow. We feel really good about our ability to get to cash flow break-even again in 2026 and then sustain it going forward, all driven by that top-line growth, which is what these investments will drive.
Got it. Maybe let's touch on your recent launches and the reimbursement tailwinds there. The recent launches over the past few years have really given you a number of sacral pelvic solutions addressing unmet clinical needs across the SI joint dysfunction, pelvic trauma, insufficiency fractures, and spinal deformity and degen spaces. Just give the audience a sense of how large your TAM is now, along with the overall market penetration for SI-BONE and competitors.
Sure. SI-BONE plays in three main markets. The first one is the SI joint dysfunction market, which is our biggest market and the market that the company was founded on. Our best estimate is there's potentially 300,000 target patients annually in that market. We estimate that market to be about $2.5 billion in total addressable market. In 2022, we launched Granite, which was a breakthrough device from the FDA, designated as a breakthrough device from the FDA. That product was specifically targeting the pelvic fixation market. I would break it down into two. You've got the adult deformity market, which is approximately 30,000 procedures. You've got the degenerative spine market, which we estimate about a quarter of the fusion procedures in the spine, so about 100,000 target procedures that end at the sacrum are the target markets there.
The reason Granite was developed was to address a failure rate, a failure incidence rate of about 24% in deformity procedures. It's done really well for us. When you think about that market at 30,000 cases a year at $12,000 ASP, that's around a $400 million market there. On the degen side, you've got 100,000 potential target procedures. Assuming on average they do two implant cases, that's 600,000. That's another billion-dollar opportunity for us that we've been able to develop with Granite. Last year, we made a foray deeper into trauma with the launch of iFuse TORQ TNT, which was our second breakthrough device in two years. That's targeting sacral insufficiency fractures. Our best estimate is there are about 60,000 target procedures that could benefit from our iFuse TORQ TNT Implant. That would be an estimated on a two-implant basis, another $300 million market.
If you add it all together, you've got a market that's got close to a half a million target procedures a year and a TAM of close to $4 billion. A very sizable market. If you think about what we've done from a revenue standpoint and our most recent guide, even if you round it up to $200 million, that's looking at about 5% of the total TAM being penetrated. We have a huge opportunity ahead of us to penetrate that TAM. That's even before we start adding new products that are going to further increase our TAMs that we're going after.
Is SI joint dysfunction a majority of your procedures, or, put another way, how much more diverse is your procedure mix now than it was a few years ago?
Yeah, we've been on a very thoughtful expansion strategy, and a lot of our platform expansion has come from physicians looking at our implants and asking our help in developing solutions that allow their implants to be used in different modalities. SI joint dysfunction, as I said, is the biggest TAM for us. It continues to be the biggest market for us from a revenue standpoint. What's encouraging is, even with the diversification of the portfolio, it's actually having a huge benefit on the SI joint dysfunction market because you're getting a nice halo on the SI joint dysfunction business. Now we're able to go to docs that are using Granite and be able to work with them on SI joint dysfunction and vice versa, do the same thing with SI joint dysfunction docs, work on Granite. The synergistic nature of our portfolio is playing out really well.
That's reflected in the broad-based procedure volume growth and also the broad-based physician growth that we're seeing.
You seem to have a number of reimbursement tailwinds related to, you know, CMS and other payer sentiment towards spine procedures in general and the rate, you know, at which they should be reimbursed and also specific to SI-BONE. Can you talk through some of those recent updates and then, you know, also how those could relate to, you know, the movement of spine procedures to the ASC and outpatient settings?
The beauty of our business is because we are targeting unmet needs, we're coming up with unique solutions and then backing it up with clinical data. We're very uniquely positioned to be able to get favorable reimbursement. It started with the NTAP for Granite a couple of years ago. If you look at just this year, we were able to get a TPT for Granite for outpatient procedures with zero device offset. What it effectively means, if Granite is used in an outpatient setting for a Medicare-covered patient, their facility would be reimbursed 100% of the cost of Granite. That's very rare, but that highlights the differentiation and the uniqueness of the solution. That's one example that started at the start of the year that's up to three years. CMS has already proposed extension of that in 2026. That will be a nice tailwind.
I'll get to how that can be beneficial with some of the APC changes in a second. The second piece from a reimbursement standpoint is our iFuse TNT TORQ is also a breakthrough device. CMS has proposed and finalized last week the NTAP payment of around $4,100 for iFuse TORQ TNT, just to provide you the potential magnitude of impact. That's anywhere between 20%- 30% increase in reimbursement for Medicare cases done inpatient. Most of these patients are inpatient procedures and are Medicare patients. A really nice tailwind there as we look to drive access of this solution with physicians and patients. The third piece on the reimbursement side that's specific to SI-BONE is we have an allograft product that fits in the office-based lab setting really well. It's, we believe, the only percutaneous office-based lab SI joint dysfunction procedure on the market.
The proposal from CMS is to increase the reimbursement for the office-based lab procedure by close to 17% starting 1/1/2026. That could be a really nice tailwind for the allograft side of the business with interventionalists as well. That's specific to SI-BONE. That's very exciting for us from a reimbursement standpoint and sets us up well for not just this year, but 2026 and 2027. The other change that has been proposed by CMS is this APC Level 7 code, which is moving some of the complex spine procedures, Fusion 360 procedures to an outpatient setting as well, and also taking out the CPT 27280 code for physician payment from an inpatient-only list. The reason this is important is we believe 40% of the degen procedures that Granite was used in could be outpatient eligible procedures.
With this new APC code that's being proposed, assuming it's finalized, if it goes into place, what that allows is for Granite to be used more actively in the outpatient setting on degen procedures. Deformity is always going to be inpatient on the degen side and then benefit from the TPT.
Great. Let's touch on the product pipeline. You have a couple of products in your near to medium-term pipeline that you've talked about. Let's start with your next upcoming product, which you noted is a next-gen SI joint solution expected to launch in late Q1 2026. You noted plans to further engage interventionalists and optimize the product for EASC. When you say further engage interventionalists, is this really going deeper into the about 1,000 surgically inclined target docs that you've noted, or could this product really help broaden your focus to the full 4,000 interventionalist base?
Yeah, so the SI joint dysfunction business, as I said earlier, we're seeing really strong growth across the call points. We've seen double-digit physician growth and the procedure volume growth followed that with double-digit procedure volume growth. Surgeons continue to be a majority of our SI joint dysfunction business. As you know, when we entered the interventional market with our SI joint fusion product, we were very targeted. We've always viewed the interventional opportunity as an incremental opportunity for us that's accretive to everything that we do on the surgeon side. We've stayed true to that. We today have two products that we market to interventionalists, the TORQ product, which is what we started the interventionalist journey with in mid-2023 and launched the STACI study.
In 2024, we launched our allograft product, INTRA, which is targeting physicians who like a percutaneous approach to be able to do it in an office-based lab and don't want to use the lateral approach as their first line of defense. Both of those products have done really well for us on the interventional side. This new product that we want to launch, that we will be launching in Q1 of next year, effectively takes our learnings from our INTRA product, our allograft product that is reimbursed in 27278. Our experience with titanium implants combines the two. It streamlines the workflow for the ASC setting. It fits the workflow that could be a preferred workflow for interventionalists, especially those that use the allograft or the percutaneous approach. It fits right into the ASC and the 27279 reimbursement code as well.
It's still targeting the same amount of interventionalists, but it gives them an opportunity to have another solution that is going to allow them to have preference on workflow and technique.
You also noted a second half 2026 submission for your second product in development, a breakthrough device product. You also noted it was novel and could become the standard of care. Any more color you're willing to share on the product? Is this a product you would need to establish reimbursement for? Is there a pathway to an NTAP? How about in terms of surgeon education? What do you think the learning curve will be for the product?
Yeah, so we're really excited about this third breakthrough device product that we're working on. We're one of the few companies that can claim that they have three breakthrough devices in our industry. It’s a feat in itself. This is another unique solution where we know there is an unmet clinical need and clinical failure rates are quite elevated. We're using our knowledge of understanding bone quality, understanding biomechanics to address this unmet need. The beauty is it builds on all our learnings from products like Granite. It is with the same call point where today Granite is used. There’s a lot of synergy there from a call point perspective and from a training standpoint, so that's on the synergy side. It is a unique solution that we do believe can become the standard of care because this unmet need is very well known.
In terms of additional details, I'm not going to share much more. We did talk about hitting a major engineering milestone in the quarter, which is why we want to share that with the investor community. We will be filing the 510(k) in the back half of next year. Given our experience with Granite and iFuse TORQ TNT on the NTAP side, we feel very good about the opportunity to be able to get an NTAP. Now, we'll have to work through the process and get to the other side. There's never guarantees, but we feel good about our experience there. From a training standpoint, we view this very similar to the Granite training, which is a lot more of a trainer view versus actual cadaveric training. What's made Granite really successful is it fits the physician workflow. There is no incremental training required, and it's addressing an unmet need.
This product that we're working on right now actually checks all of those three boxes as well. It should be a really exciting opportunity for us and should set us up really well for 2027 and beyond.
As you think about expanding your portfolio and going through further R&D, just thoughts on branching out into enabling technologies?
We like the fact that we're agnostic to a lot of the enabling technologies. We're compatible with all of them. What we're focused on is addressing these unmet needs with unique solutions and making sure that we can support our physicians with the procedures. We're compatible with all the enabling technologies and NAV technologies as well. I think that's the path we're going to be on.
You have a great internal R&D engine, as we've talked about, but thoughts on M&A to either acquire a differentiated technology or maybe consolidate competition in the space?
Yeah, I'd venture to say we have probably the best engineering and design team in the industry, and that's reflected in our highly differentiated products that we've launched. If you think about the journey of the company, we've always focused on identifying unmet needs, coming up with unique solutions, backing it up with clinical data that allows us to get favorable reimbursement. These are core competencies of the company. We're going to stay true to our core competencies. We've talked about two additional products at this point, one in Q1, the other one, a 510(k) being filed in the back half of next year. We have a very active pipeline of additional products that we're working on that all in itself would be addressing, each one of themselves will be addressing unmet needs.
We feel very excited about what we see in the pipeline, and that's where our focus is going to be.
You know, I'm sure larger companies look at you and see the internal R&D engine and the growth that's coming with it, and the platform of technologies that you already have. I mean, would you be open to being part of a larger company at this point?
The way we run our business is, again, we want to be able to make sure that we stay highly differentiated. We come up with unique solutions, maintain our high gross margins, maintain our profitability, and scale our business that way. Like I said earlier, we have a very active pipeline of R&D products, so that's where our focus is. We also know that we are highly complementary to other companies, but that's not how we think about our business. For us, it's all about how do we add another Granite, another iFuse TORQ TNT, another product that goes into the SI joint dysfunction space. How do we go deeper with our call points, whether it be more implants per procedure or more different modalities per doc? We have the framework to be able to drive that strong top-line growth with profitability ourselves.
With all of these current products launched and products in your pipeline, do you see these new products as helping you to maintain current growth or potentially accelerating it in the future?
Yeah, if you look at what's happened with the business in the last three years versus since the IPO, you've actually seen new products accelerate growth. They've been all accretive to top-line growth. When you look at the products that we have in the hopper right now, even the ones that we launched last year, we're still in the early stages of driving growth from those products. There's a significant amount of runway with our allograft product, Granite 9.5, and TNT to continue to drive strong top-line growth. TORQ continues to be the most versatile implant that we have in our portfolio, and that continues to drive growth as well. These new products that we are launching are going to be accretive to top-line growth. They're complementary to the solution set. Like I said, a lot of these solutions are geared towards achieving two outcomes.
One is being able to service the doc across multiple modalities, maybe even add more modalities, or being able to be in the same case and be able to support the doc with multiple solutions. We feel very good about these being all accretive to the top-line growth.
I think we'll end it there. Thanks, Anshul.
Thank you.