Good morning. My name's Craig Bijou, I'm the medical device analyst here at BofA. It's a pleasure to have SI-BONE with us, and from the company, Laura Francis, the CEO, and Anshul Maheshwari for CFO. Welcome. Thank you.
Thank you.
Thank you.
I know it's a bit of an abbreviated fireside chat, but we'll try to hit the most relevant topics here. Wanna start with your, you know, excellent performance in Q1. You know, maybe just kinda touch on what kinda drove that performance. I know it was a culmination of a lot of things, but love to hear exactly what.
Yeah.
You know, what drove that?
Happy to provide more info. Thanks to each of you for joining and listening in. We're really excited about where we're at as a business. SI-BONE has been a public company since 2018. We started out developing the minimally invasive SI joint fusion space. We're the market leader in that space. Our best estimate is we have around 70% market share. The biggest challenge early on in the business was reimbursement. At this point, we have pretty much universal coverage in the United States. There's actually exclusive coverage with a lot of commercial payers, and we believe the health economics of this are very attractive to our surgeons. We typically work with orthopedic and neuro spine surgeons.
What we've seen is, you know, coming out of the pandemic, we started out last year in Q1, we had around 10% growth in Q1 of 2022. If you look year-over-year, over those last five quarters, we were accelerating, in Q1 of 2023, our revenue grew by 46% worldwide. If you look at the U.S., it actually grew 50%. We did see that momentum build throughout the quarter. Our belief is that these weren't necessarily macro factors that were driving what was going on with our business. It was specific to SI-BONE.
It was our core business that drove a good amount of revenue growth. We actually saw a 30% increase in the facility fee in hospital outpatient, as well as in surgery centers at the beginning of this year. We think that that was partly a driver. We also have a new product that is really inflecting at this point called Granite. It's used in pelvic fixation cases. It has a Breakthrough Device Designation. We have a New Technology Add-on Payment for the next three years that's specific to us. All of those things drove the growth of the business. We have continued to see that momentum going into the second quarter as well. It's not just a, you know, one-quarter phenomenon. We are continuing to see the business accelerate.
Very excited about where we're at. I've been with the company for eight years. I've been the CEO for two years and, this past quarter was, I would describe it as fun.
That's great. I equally agree that the quarter, it was great to see, after all the work you guys have put in. I do have to ask, though.
Yes.
You guys beat the street by 12%.
Yeah.
You know, when you look at growth on a comp-adjusted basis.
Right.
It even accelerated 800 basis points versus Q4.
Yeah.
you raised guidance-
Yeah.
It was only by the Q1 beat.
Yeah.
Obviously the question is it conservatism? Is there anything else to think about? so.
Yeah. Yeah. We love how we're set up for the year. We had a great quarter, 46% growth, as I said. The guidance for this year was growth of 20%-23%. If I do a comparison to last year, last year, given COVID, I think most of us felt that maybe COVID would be in the rearview mirror a little sooner than it actually was. We were kind of digging ourselves out of a hole all year. We started out at 10% growth. We ultimately finished the year with approximately 18% growth, with 27% in the fourth quarter. This year we're in this opposite situation where I feel that we've set expectations in a way that really sets us up for success.
We think we're gonna continue to see strong performance. We want for the performance to speak for itself.
Okay. Understood. Operating leverage has been something else that has been very impressive over the last several quarters. You know, OpEx growth has fallen from 22% in the first half of last year to, I believe it's 9%, then 7%, and then 5% in Q1. Guidance, you kept up, Initial guidance was for 5% OpEx or mid-single digits OpEx growth for the full year. You know, OpEx growth in the first quarter was still in that range despite the, you know, the big revenue beat.
Mm-hmm.
I guess, you know, looking at what's driven that over the last several quarters and then ideally, you know, how do you maintain that while still trying to grow the top line at a healthy level?
Yeah. So the way that we've looked at the business is, you know, COVID was a pretty jarring situation initially, but it became clear to us after we were 6-12 months into it, what it was and what it wasn't. What we did was we took the opportunity to really invest in the business over the last couple of years. We made some significant investments in our field force in particular, we made investment in product. I talked about Granite in 2022. That was an important investment. We have focused on having high quality clinical data. The company has been in investment mode for the last couple of years. In 2023, we're really at this point of inflection, not just from a revenue perspective, but also our ability to attain operating leverage.
Let me use an example. We have 87 quota-bearing reps that are out there. They grew their annual sales on average from $1 million a year ago, to $1.3 million in the trailing 12 months. We know that we have the ability to grow their rep productivity up to around $2 million. We're able to get leverage on all of these investments that we've made in the business. It's not an accident that we grew 46% in revenue in the first quarter and only grew operating expenses by 5% in the quarter. If you look at what that meant, we use adjusted EBITDA as the measure that we speak to. That measure was around $11 million loss in the first quarter of 2022.
It was a $3.9 million operating loss in the first quarter of 2023. We're seeing that benefit very quickly. We're driving toward break- even. It's very important to us to do that, and quite frankly, we're just in a position to do that while still seeing outsized revenue growth.
Craig, to your question on where do we see it go? We expect operating leverage to continue to improve year-over-year as we progress through the year for the factors that Laura said. These are structural investments that we made, and our platform has the scale to support much higher levels of revenue. We feel really good about how this setup is there from a leverage perspective.
Got it. Helpful. Let me touch on you guys raised capital.
Yes.
Recently. With the business, the top line growing as it is, the operating leverage that you're seeing, you know, the question is, you know, the need for capital, why now? Why was now the right time? Does that change kind of how we should think about, the expectations for whether it's operating leverage or even top- line growth? You know, how does that capital raise? Like, what does it do for you? How does it position you for the future?
Yeah. We thought very hard about the capital raise 'cause as I said, we're driving very rapidly toward break even. We're not changing what we're doing from an operating expense perspective. However, what we did see is, in our business, given how rapidly the business is growing, we didn't want to dampen that growth. Let me use an example with our Granite product. There are daily discussions between our commercial team and our operations team to make sure that we have the implants that we need and the trays that we need. We're deploying every single day, every single week, every single month, but the demand is outstripping the supply still to this point.
What we wanted to do was make sure that at least on the margin, we had the ability to invest in working capital in order to continue to see that acceleration in the growth of the business. That, that was, that was the reason why we did the capital raise. We also did hear from a lot of investors that there was a liquidity overhang with the stock. There was an expectation that we were going to raise capital. We did have the ability to raise capital, and so we felt it was prudent to do that at this point in time.
Great.
We're glad it's behind us, and now we're really just focused on execution.
Great. That's helpful. You know, maybe just talking about Granite. One, obviously it's a small piece of your business, but it's an exciting part of your business.
Yeah. Yeah.
Just kind of, you know, what does that do for your overall business and for those that don't fully understand kind of the benefit that it can provide you?
Yeah.
The product itself specifically, but then the pull-through of some of your other products.
We talked about how the Granite opportunity is developing. Just so that you understand the business, Granite provides pelvic fixation and fusion at the base of the spine in a short or a long construct. A long construct was where we focused our attention when we initially developed the product. These are patients that have scoliosis. They have an S-shaped spine. The surgeon needs to straighten the spine with pedicle screws and rods. The issue, the unmet clinical need that we identified there was fixation failure. In around 25% of cases, you have screws loosening or rods breaking. Overall, 20% of all adult deformity cases need to be revised.
What we did was we provided a solution at the base of the long construct in order to provide that fixation and fusion and address the fixation failure issue. We've been moving along very rapidly. As I said, we have a Breakthrough Device Designation. The NTAP that we have pays up to $9,800, so it's very attractive to surgeons and to sites of service. What was very interesting to us is that we actually saw around 40% of cases that where Granite was being used in short constructs. Short constructs are just more your lumbar fusion cases, two to four level fusions. That's a much larger opportunity than adult deformity. If you look at it in total, it's around a $1 billion market opportunity.
I've been talking about making sure that we have the trays and the implants in the field. We also talked a little bit on our earnings call about a new product that we're developing that's a line extension that is more specific to these short constructs. Our core business is around a $2 billion market opportunity. We now have this adjacent market opportunity that's around a $1 billion in total that we're going after.
That's great. I mean, part of it is, part of the Granite, that I just mentioned is the implant pull-through that you can get to the other part of the business.
Absolutely. Yeah.
If you're willing to share, kind of how do we think about the percentage of Granite cases?
Yeah.
-that you're ending up seeing a pull-through of either iFuse or TORQ?
Well, let me be simplistic. I just told you that 60% of the cases are long construct cases. On average, those long construct cases are gonna have four implants with them, very simplistically. It may be four Granite implants, it might be two Granite and two TORQ, it may be two Granite and two iFuse 3D. On average, they're going to want to use four implants 'cause they want fusion as well as fixation in those cases in order to secure the long construct. In the case of short constructs, more typically two implants.
Okay. Is there I mean, I guess, I don't know, I guess to follow up on that is are SI-BONE implants being used primarily in all of those situations?
Yes.
Okay.
All of them.
Okay.
Yeah.
Maybe, the, you know, the opportunity, the TAM expansion, maybe let's just kinda touch on that, and what that does and maybe how to position the shorter construct procedures versus the larger construct and the fact that there's significantly more shorter constructs.
In terms of the size of the market, if you look at the long constructs, there's around 30,000 cases to the base of the spine, that's the adult deformity opportunity. With four implants, each implant costs around $3,000. That's the long construct opportunity. I think that, if I did my math correctly, is around $300 million. With the shorter constructs, there's around 100,000 that go to the sacrum in total and typically two, around 6,000. $600 million-$700 million. You add those two together, you get the billion-dollar market opportunity.
Got it. I think with that, we are out of time. I know it was quick, but thank you guys for coming.
Thanks, Craig.
Thanks, Craig.
Thank you.