SI-BONE, Inc. (SIBN) Earnings Call Transcript & Summary

Okay. Good morning, everybody. Thanks so much for joining us. We're very pleased to have with us today Laura Francis, CEO of SI-BONE. My name is Matt Miksic. I cover medical devices here in the U.S. at Barclays. We have some topics to cover, but I thought, given that we don't currently cover SI-BONE, it might not be a bad idea for Laura to make a few remarks just to kind of provide an overview and frame the conversation.

Yes, I'd be happy to. Thank you for the invite. Really appreciate it, and thanks to all of those that are in the room this morning. I'm Laura Francis. I'm the CEO of SI-BONE. I've been with the company for 9 years. I joined in 2015. And at the time that I joined SI-BONE was pioneering minimally invasive SI joint fusion. So first of all, what does that mean? You have 2 SI joints in your pelvis. They carry the weight from your upper body to your lower body, allow you to twist and bend. For women, they expand a little bit in pregnancy and child birth as well. And it is actually the largest joint in the human body. And until SI-BONE started our business, there was no surgical solution for the SI joint. So that's how the company started with identifying this very significant unmet clinical need and developing medical device technology as well as a technique that very clearly works. We have worked with historically orthopedic and neuro spine surgeons, and they have done over 95,000 cases since the inception of the company. So we've really built on that. We went public in 2018, and I became the CEO of the company 3 years ago. And since I joined the company, or since I became the CEO of the company, we've really become a multi-product platform business that focuses on the sacropelvic space. We have 3 different procedure types that we work with. And we really had a breakout year in 2023. We grew 31% in 2023 to approximately $139 million in sales. At the same time, we saw a pretty dramatic improvement in our operating leverage. We reduced our adjusted EBITDA operating loss by almost 50% last year. So grew revenues 31%, grew operating expenses 4%. So that's the type of leverage we're getting on our business, and we have a very clear line of sight to breakeven at this point. So coming off of a terrific year, a lot of momentum going into this year, and we have talked about 3 different products that we'll be launching this year as well that are going to help us with that momentum to accelerate off of that momentum in these 3 different markets that we're working in currently. So we provided guidance for 2024 of 17% to 19% growth. By the way, that's exactly the guidance that we provided a year prior and then 31%. Our gross margin is in the range of approximately 78%, and then our operating expenses growing approximately 9%. So continuing to see that operating leverage on the business. So I'm very excited for this year and what we can accomplish in building on the tremendous success from last year.

Okay. Well, it's a great overview and helpful. Yes, I did notice that you guided to 18% and delivered 31%. And so I guess, the question is, do you really think that you will be closer to 18% this year? Or I mean, maybe talk a little bit about how you think about guidance and what the potential flexes around that number.

Yes. Well, as I said, our guidance philosophy didn't change between last year and this year. And what we really want to do in 2024 is growing -- grow into the opportunity that we have, very similar to what we did last year. So in particular, our core business and minimally invasive SI joint fusion continues to grow. And just this past quarter, we have started to sell not just to orthopedic and neuro spine surgeons but also to, what we call, interventional spine, which is anesthesiologists, physiatrists and interventional radiologists. So it gives us the opportunity to more fully penetrate the SI joint fusion market with a number of different products. And there's actually new reimbursement. There's a new Category 1 CPT code that takes into consideration some of the different products. And we just launched a product called INTRA. It's a dorsal allograft product -- bone allograft product that fits nicely into this new code. So have the opportunity that's there. We also -- our pelvic fixation business is a big growth driver for us. We have a product called Granite. Breakthrough device designation and new technology add payment of over $9,800 per procedure, and that's been a big winner for us. We just, in January, announced a Granite line extension. So historically, our Granite product has been targeting long constructs, so adult deformity cases, scoliosis cases where the patient has S-shaped spine. The new Granite product is targeting short constructs, and that market is around 3x the size of the adult deformity market. So really nice opportunity that we're already cleared for in pelvic fixation, and we'll be launching that product officially in the second quarter of this year. And then the third area that we're focused on is pelvic trauma and very specifically sacral insufficiency fracture. These typically are older patients, poor bone quality and very similar to our original SI joint fusion business. They're treated conservatively. They're treated with rehab, and we have a surgical solution for them. So getting back to guidance, which was your question, what we're doing is we have these new product opportunities that we want to grow into and see the acceleration of the business versus baking all of that in. So very similar to the philosophy that we have in 2023. Let's see the growth from those new business opportunities and then progress throughout the year.

Got it. So more of a base business guide.

That's correct.

That makes a lot of sense. And maybe talk a little bit about penetration. You sketched out about 0.5 million procedures for these 3 markets. If you could talk a little bit about where are you in terms of...

Right.

You think in terms of penetration.

Right. So let me talk about the primary SI joint fusion market first. So our best estimate is that there are around 280,000 potential patients per year that are out there. And last year, that market, if you -- we have around 70% of the SI joint fusion market. So if you do those numbers in the U.S., there were a little over 20,000 procedures in the U.S. last year, so still less than 10% penetrated. And as I said, I think that we have a big opportunity to continue to build off the momentum in the existing business and then also a new opportunity here on the interventional side. So that's the first area. The secondary in pelvic fixation, we're really replacing products that have historically been used there for pelvic fixation with a new technology, a better technology, not just fixation, but fusion at the bottom of these constructs. And so we do believe that in long constructs, there's around 30,000 procedures, and we have the opportunity to be the standard of care in that area for fixation and fusion. And then this new Granite line extension, another 100,000 cases, very much untapped opportunity. And then finally, the trauma opportunity is around 60,000 cases per year, still a very small part of our business. I do think that this new product launch toward the end of the year is going to be really important to capturing that market opportunity. And then also, we should have some published data on the clinical study that we've been conducting called SAFFRON, which given that this is a new procedure historically, these patients have not been treated. The clinical data is going to be really important. So long story short, minimal penetration in these very large markets where we are the market leader in those spaces.

Okay. And minimum penetration even in your most mature market, if you want to call it.

Correct.

So growth, as with many small companies, and I still think of you as a small company, in this musculoskeletal space driven by reps and rep strategy, maybe talk a little bit about how your growth is driven by that and whether some of these new specialties require specialized reps. Are you getting some leverage out of your field force? How is that working?

Yes. We have an incredible field force and sales leadership as well. So our sales leadership is headed up by Tony Recupero. He's been in the industry for 20-plus years. He's well known in this industry. He was the VP of Sales for Kyphon when they went from $0 to $250 million. We're getting closer to that top end at this point. But they really understand -- our sales leadership really understands what it takes in order to build out a business like ours. And so this year, we have 82 territory managers. These are direct sales reps. And it's been very important for us to have direct sales reps because, once again, when you're identifying these unmet clinical needs, you have an educational sale that you're making here. And so our territory managers are the key to helping surgeons understand the anatomy, the prevalence of the concern, the diagnosis as well as the treatment of it. We got very significant leverage on our sales channel in 2023. So we grew sales rep productivity from around $1.1 million in 2022 to $1.6 million in 2023. And how did we do that? First of all, just seeing this inflection of the business, number one, is really important. But number two, it was we're actually selectively using distribution or more specifically third-party agents in order to cover cases. Especially some of these Granite cases, the long construct cases, a typical SI joint fusion procedure takes 45 minutes. It's one of the simplest procedures that a surgeon is going to perform, whereas adult deformity procedures are one of the most complex, and they take around 6 hours in total. So what our commercial leadership has done is develop this hybrid model where we're using direct sales reps, but also third-party agents to provide support. And then in addition, we have junior clinical support specialists that support as well. So it given us the opportunity for pretty -- first of all, to continue to grow our surgeon base. We actually work with over 1,600 surgeons last year, was really amazing, and over 1,100 just in the fourth quarter alone. So reaching out and increasing the number of surgeons that we're working with is really important, but at the same time, got this huge leverage on our sales channel.

Okay. That's great color. And when you say third-party agents, those are the folks who maybe are supplying another part of the case, like the pedicle screws and the...

That's exactly right.

Which really means -- I mean, I hate to name names, but I mean, that kind of boil us down to J&J, Medtronic and Stryker K2, I guess, are the 3 folks who are in those long construct deformity cases.

Well, we're working with over 170 agents at this point. And you are correct that what we do is we engage different agents in each market, and they typically -- let's go back to an adult deformity procedure. They're in the case. They are selling the hardware in that particular case. And so they're just bringing in this new disruptive technology, and we split commissions between our direct sales reps and between the agent. And so it gives us a tremendous opportunity, and it's also an opportunity for them to just increase the value of the OR visit they are making.

Sure. Yes. And for folks wondering about sort of the exclusivity of reps...

I'm not sure if it's you or me.

I'm not sure either. But except for those folks weighing about exclusivity, this is a product that these other companies don't have. As you said, it's kind of a disruptive.

Yes.

It's a disruptive product. And...

Yes. I mean, it's highly unusual to have a breakthrough device. We're a 510 cleared products, and there's literally just a handful of them. And we were able to get that breakthrough device designation, number one; and then number two, the new technology add-on payment typically comes with that breakthrough device designation. So it has a significant economic advantage as well.

Okay. And without breaking out a picture of the spine here and having an enemy list or anything like that, for folks, I think this sort of represents the anchor in what's a pretty complicated and long fusion construct.

Yes. If you think about a scoliosis case, the patients literally have an S-shaped spine. And so typically, what the surgeon is doing is they want to just straighten the spine. And they use pedicle screws and rods. We do not sell that product. Those tend to be commodity products. They're highly price-competitive products. So what we do is we come in and we provide these new products, in this case, the pelvic fixation and fusion product that has the breakthrough device and the new technology add-on payment. So we actually work pretty collaboratively with spine companies as a sacropelvic solutions company.

Okay. And so maybe, again, along the lines of distribution and how you're growing into these new opportunities, what's your expectation for sort of rep support? I don't know if education is as big a part of pelvic fractures, insufficiency fractures. Or is that also going to be an area where you can leverage folks who are in a trauma hospital?

Yes. The trauma opportunity is an interesting one in that the patients, as I said, typically aren't treated or they're treated with just rehab. And what I mean by that is that the patient can't just go home, right? If you have a pelvic ring fracture, think of your grandmother, she's not able to get up and get around. She can't make food for herself. She can't get to the bathroom. She can't bathe, all of those things. So she ends up in a facility. And so our goal is actually for those patients to be treated and be able to get up and go home and just go about the business of life and have mobility. The patients are seen by a number of different types of surgeons. So they're seen by a typical orthopedic and neuro spine surgeons, which is our primary call point. They're also seen by general ortho trauma surgeons, and they're seen by interventional radiologists, which, as I had just said, is a new call point for us. In terms of the general ortho trauma, we do think that distribution is going to be important to reach those particular surgeons because it is a different call point for us. And -- but we see the opportunity to work with distributors, very similar to what we've been doing on the pelvic fixation side.

Okay. So whereas some folks might say, "Boy, trauma can be kind of a tough market because you have to have reps willing to sit in their car and eat fast food until 3 in the morning and wait for cases at these work or something like that." This is a bit of a different trauma market.

It is different. First of all, it's not high-impact trauma. So it's not, 1:00 a.m., you're going in and having to put together somebody that's been on an automobile or a motorcycle accident. But we do think to reach that trauma call point, and we've been working with some of the Tier 1 or Level 1 trauma centers and some of the key opinion leaders in this space. So learning a lot about the products, about the solutions and about how to approach general ortho trauma surgeon.

Okay. And I wanted to...

I think it's you.

Thanks, thanks. Yes.

Because of when you start the talk.

I'm not sure what I can do exactly, except to maybe stop talking. I'll make my questions quick. Maybe talk a little bit about sort of the need for cash, the consigned -- the level of consignment inventories in the field, a little bit different from -- much different than like a spine or orthopedic business where there's lots of sizes and trays and sets. Maybe talk about your use of cash or need for cash.

Yes. Great question. So we ended the year with $166 million in cash, and we burned less than $1 million in our fourth quarter and moving very rapidly toward breakeven. So we feel like we're in a terrific spot in terms of our cash position. You're also right that a lot of people think of us as a "spine" company. I said this a million times, it doesn't really matter, but we're not a spine company. We're focused on the sacropelvic space. We do work with spine surgeons, but that's really where the comparisons end there. And also you mentioned the capital model for us is, let's take those adult deformity cases that I was talking about where we're in the OR with other spine reps that are bringing in pedicle screws and rods. They'll typically bring in $100,000 plus of instruments and trays into those cases. It's typical for us to bring something more like $15,000 of instruments into a case like that. And we're making about the same amount on that case as the spine company in the case. And so we're very different. If you really dig into our company, what you're going to find is we're really focused on identifying unmet clinical needs, we're developing innovative products around those unmet clinical needs, we have high-quality clinical data over 125 peer-reviewed published papers that are out there. Reimbursement, we had to learn a lot about reimbursement building out the SI Joint fusion space. And so we've become experts in this space to help our hospitals understand how reimbursement works for various procedures. And then just having this incredible asset in our sales force as well, it really differentiates us from other companies that are out there.

Okay. Yes. No. I remember that long journey through reimbursement to establish what you're now.

Yes. Lot of scars from that, but also an incredible amount of knowledge that we are applying in all of these areas because surgeons and hospitals, what's happening is that their payments -- their reimbursement payments are typically going down every single year. And the cost of solutions are tending to go up. And so what we're trying to do is make sure we're always thinking about the economics of our solutions and patient outcomes being absolutely the utmost important.

Sure. And on the category, to get a quick question, any thoughts on the potential importance of enabling technology, which has become such a strong theme elsewhere, medtech and surgery?

What we try to do is just be compatible with the solutions that are out there currently. We're agnostic on enabling technologies in our core market in minimally invasive SI joint fusion. As I said, it's one of the easiest procedures that a surgeon is doing. So we don't typically see navigation or robotics being used in those cases. In the case of pelvic fixation with adult deformity procedures, the majority of those, we're going to see navigation, some robotics as well. Trauma, typically not seeing enabling technologies. So our goal is to really stay agnostic on whatever the surgeon is interested in using that they can use our products with it.

Okay. Yes. That makes a ton of sense. And I guess, in a larger case, it's someone else's enabling technology that will be driving the vast majority of that case. You'll be delivering on that sort of smaller end. If the case -- maybe it was -- and I hate to end on this, so I won't. i was going to ask another question just on -- it's easy to do, but it was hard to establish as a market which is just, I think, a fact.

I think it's -- once again, we talked about the things that were difficult about building our business. One was reimbursement, and we became experts in reimbursement. The other is the educational side. And there's not a lot of innovation in the markets that we're in at this point, enabling technologies being the exception. That's really where you see some innovation. But what we're doing is something where we're identifying these unmet clinical needs. And so the focus on education that we needed since the inception of the company is really built into our culture at this point. And it allows us to create these solutions that can help patients that otherwise are not being properly treated.

Okay. Well, with that, we're at time. Thank you so much for coming.

Thanks for the time, Matt. Appreciate it.

It's a pleasure to speak with you.

Thank you, everybody.