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

All right. Good morning. Thank you, everybody, for day 2 at the MS Healthcare Conference. I appreciate it. The most exciting are the disclaimers, morganstanley.com/researchdisclosures. I'm sure you'll all be going there. But what is exciting is having with Laura and Anshul here as CEO and CFO of SI-BONE, respectively. So a beautiful morning. So thanks so much for joining, guys. You got in late last night?

Yesterday afternoon, coming in from LSI in London and surgeon dinner last night and meeting with a banker. I think we got done around 11 last night. So...

Inevitably, typical. Why don't we start big picture. The business originally on the sacropelvic joint space, it's really over the last few years become more of a platform. It might be helpful for you if you could sort of walk through that evolution of that journey and discuss the end markets and products that you're currently exposed to.

Yes. Thanks for the question. And so I've been with the company for over 10 years at this point. So started out with the company in 2015. I was the CFO at the time of the company. We're a private company and really focused very specifically on the SI joint, the largest joint in the human body. It was what we call the last joint in the human body because there was no surgical solution for that largest joint. So what I think today is quite obvious at the time wasn't. So we established ourselves as a company that can actually identify an unmet clinical need and figure out how to address that need. So that's how we really built the capabilities that we have. This innovation, clinical data has been absolutely critical. We have over 180 peer-reviewed published papers right now, 4 randomized controlled trials, a dozen prospective studies and so on that talk about the safety, efficacy, biomechanics, economics of our solutions. And the reason why that's so important is when you're actually building markets, you have to have that sort of data, especially from a reimbursement perspective. What's also important is the education side of things, too, right? So in our case, when I started with the company, many surgeons had not been trained on the SI joint in medical school. And so we took on the responsibility of really educating on the joint, the anatomy, the prevalence of pain in the joint, the diagnosis and ultimately the treatment. So that's really how we started the business, and we are the undisputed leader in the SI joint space, whether it's market share or thought leadership, clinical data, what have you. But what we've done is we've taken that base and we have built a diversified high-growth platform. And so that's what I'm really excited to talk about. And we -- what we've done with all of those core competencies that I just mentioned is we have started to launch a series of breakthrough devices that address different sacropelvic needs. So our first breakthrough device was in 2022, our Granite product, and that focused on pelvic fixation, so multilevel construct procedures and providing a better solution to address fixation failure. So that was our first breakthrough device. Our second breakthrough device, we just launched for pelvic ring fractures, and we're going to have an NTAP going in place next month already for that particular product. For our Granite product, we recently got a transitional pass-through for outpatient procedures. So you can see that we're continuing to build on the foundation developing this more diversified platform. And so what does all of that translated to? I mean, this year, we'll do a little less than $200 million in revenues this year, which is exciting. We are a high-growth platform. If you look at us since our IPO, we've grown over 20% on average per year. And that includes the last quarter that we just came out of. If you look at the number of surgeons that we're working with last quarter grew at around 25% year-over-year, and we still have a long way to go. We also have been adjusted EBITDA profitable for the last 3 quarters. And then we were also operating cash flow positive for the first time this last quarter. So that's what all of this has translated into.

I'm definitely going to hit on a lot of that. But over that time period, it's a long journey. Do you end up today where -- how is it compared to the vision when you were first there? Like how has that 10 years been in terms of expectations versus where you landed?

Boy, it's a constant adventure is the way I would describe it. But -- so I started out as the Chief Financial Officer of the business. I became the CEO. I'm going on 5 years now as the CEO of the company. And so the CEO, Jeff Dunn, who is our Chairman of the Board, he was the founder of the company. And when I took over, we were really a one-product company. We had our iFuse-3D triangular titanium implant. And since I took over, we've really diversified in a pretty significant way. So I would say that it's just that transition from founder to the next stage of management. And right now, we're putting together our business plan of how do we get to $0.5 billion in sales, right? And we have kind of an overarching theme, given the way that we started in the sacrum, the quality of bone in the sacrum is the poorest quality bone in the body. And so we have been working with solutions and developing this core competency of addressing patients with poor bone quality. So as we're thinking about an overarching principle kind of taking us to that next level, that's really where we're focusing our energies. So I would say the short answer to your question is we're evolving over time as we continue to grow and expand and generate profitability.

You mentioned in your comments before, you've got two 510(k) products coming out in a couple -- next year. Could you expand on what you've got going on there? And then maybe the SIJD products, Q1, I think, coming out?

That's correct. Yes. So SI joint fusion continues to provide the core base of the business. And I had mentioned SI joint fusion, I had mentioned pelvic fixation, I had mentioned pelvic ring fractures as well. And all of these areas are growing in the double digits, including our SI joint fusion business. As I said, the undisputed leader in that space. And so what we're continuing to do is to innovate. So as you mentioned, we do have a product that's going to come out in the first quarter. And that product is really just targeted towards the ASC environment and a more streamlined approach to SI joint fusion for a physician as well as for that site of service as well. So we just continue to innovate in that SI joint space in order to continue to catapult ourselves. It's a big market opportunity. So overall, we estimate that there are around 280,000 potential cases. That's the TAM. Every single year, we're still around 10% penetrated into that market at this point. So there's a lot of opportunity. And so we continue to innovate in order to make things happen. I'm also really excited about our third breakthrough device. I mentioned our first one in pelvic fixation, our second one in pelvic trauma. We have a third product that we have received breakthrough device for. I'm not saying that much about what the product is because we don't expect to file a 510(k) for that until the second half of 2026. But it's once again building on the foundation of the business and all the core tenets that I just mentioned, selling to our existing call points and we believe probably the largest unmet clinical need in the space currently. So just continuing to show this ability to innovate, develop breakthrough devices is very unique, right? If you think about the space that we're in, the orthopedics space, the pain space, you don't see a lot of breakthrough devices. And so we really are a unique company from the perspective of innovation, which is continuing to drive growth. And then we combine that with this asset-light model that we have high gross margins. Our gross margins are approaching 80% as well. And it provides a very compelling opportunity, we believe, for investors.

We're definitely get in on that as well. I think in the breakthrough device, you both referenced it as potentially changing the standard of care, which is often complex in quite a lot of areas, you guys are the standard of care. So it's always kind of interesting to sort of think about that. I know we'll be looking forward to learning a bit more about that, in the first half or we're going to have to wait for you to file in the second half?

I think we'll continue to talk about it, the closer that we get to the filing and the launch. But suffice it to say, we're very excited about where we're headed with this particular product launch, and I really do see it as a very major catalyst for the business.

To hit on some of the other breakthrough devices, Granite and TORQ TNT. So can you talk about how they're performing and how the genesis of those kind of came to be?

Yes. So what we typically do is we talk about our business overall, right? Because we're still a relatively small business. We're focused on the sacropelvic space. And as I said, all parts of the business, if we look at, there are really 3 distinct procedure types, SI joint fusion, pelvic fixation and pelvic trauma, each of them growing in those double digits. categories. Our pelvic fixation business has been quite exciting from our perspective. When we initially launched our Granite product, we were focused on the deformity side of the business. So long construct procedures, scoliosis patients, the surgeon is trying to straighten the spine. There's a lot of biomechanical forces that can cause fixation failure. And so that was where we specifically focused with our original Granite launch. And the breakthrough in that particular area was we not only provided fixation, but we provided fusion if the surgeon uses 2 points of fixation on either side of the joint. That was the breakthrough. And what we've seen is that we are becoming the standard of care in pelvic fixation. It has grown tremendously. Any KOL spine surgeons that you would speak to, orthopedic and neuro spine surgeons that typically are using that product. We have a tremendous reputation. We really take pride in that reputation. And quite frankly, they're using the product as well, right? So we have seen a lot of success. We launched a more recent version of the product, that was a smaller diameter. The goal was to allow more surgeons to use those 2 points of fixation with the smaller diameter in a variety of patients regardless of the size of the patient and also to start using the product in shorter level constructs as well. There are certain patients that need pelvic fixation for a shorter level construct too. And that's where the transitional pass-through code comes in. And our estimate is around 40% of these pelvic fixation procedures can be done outpatient. And the transitional pass-through code that we received covers the entire cost of the Granite technology for the hospital, which is a big deal. There's no device offset that's there. So not only do you have the compelling reason for why to use pelvic fixation, there's also not an economic barrier to the hospital and to the surgeon to use the technology. So we're continuing to drive forward in pelvic fixation. And then the other area that you mentioned was pelvic trauma. And the issue that we're addressing specifically there is what we call sacral insufficiency fractures. These are low-impact pelvic ring fractures, usually an older female that is going to have this condition, typically, they're not treated. So in a lot of ways, it reminded us of our days of starting out the SI joint fusion business. You have all of these patients, they're not treated. They go through rehab. In this particular case, if these patients don't get mobile, there's a high mortality rate with these patients after 12 months, it's around 25%. So very similar to getting a hip reconstruction. Years ago, well, the patient is older, we're not going to treat them, and they had a high mortality rate. This is the same situation. So it's calling upon these core competencies that we have once again, where we're saying we need to educate on this, right? We not only need to reach the surgeons and have a solution, our TNT solution in this case, and the economics help as well with the new technology add-on payments. For the most part, these procedures are done inpatient given the nature of the patient and the condition itself. But this is the area that we're targeting in order to address this unmet clinical need. And it is changing from not treating the patient at all, putting them into rehab versus here's a solution for you. So I was in a case. It was one of our first cases last year. It was around a year ago that we did our first cases. And I went in and it was 77-year-old female, 110 pounds obviously frail, and clearly had a fracture and looked miserable going into the operating room. And the next day, she was ambulating again. And that's what she wants. You want -- now she's not running marathons or anything like that. She's getting up with a walker and she's starting to move and movement of life. So those 2 areas are a significant part of the growth that we're seeing in addition to our core market and SI joint fusion.

And, I'm also not running maths.

Yes. Our SI joint fusion patients in a lot of cases, they talk about, I used to be a runner and I can run again. So that typical patient population is actually a 50-year-old female is a typical patient. So they do actually run marathons after getting an SI joint fusion. But usually, the patients that are being treated for pelvic ring fracture, it's more just basic mobility for the patient. Can they take care of themselves? Can they stay in their own home, those sorts of things. And it's incredibly rewarding for us to help these patients that otherwise they're just not being treated or they're being treated with conservative measures that we know really don't work very well.

Yes. Makes sense. Anshul, the buy side often paints with just a big broad brush. And sometimes it ends up being spine is spine is spine. But actually, you guys alluded to it earlier with the capital intensity of the business relative to some other spine companies, cash flow breakeven, which is kind of awesome to see because, again, as you know, there's a lot of [indiscernible] companies, but a very few that actually end up then breaking out. Maybe for people in the room who are less familiar, can you highlight like the relative differential on how you guys ended up with a better financial profile that you're in relative to some of your -- not peers?

Sure. So when you think about some of the investors bucketing us into the spine category, our call point is ortho spine, right? So that's where the similarity actually ends. Laura alluded to a lot of the facts that differentiate us. It starts with innovation. Spine is for us with new 2 products. It's price competition. We focus on unmet needs, coming up with good clinical evidence, getting favorable reimbursement that allows us to have premium ASPs, and that translates into 80% gross margins. So that's not typical within spine. So that's number one. Number two is because we're so focused on addressing these targeted modalities, it allows us to be very asset efficient and asset-light. We could typically walk into -- let's use a Granite case as an example. We could walk in into a Granite case with instruments that could be in the mid-teens thousands to $15,000, let's round it up. And we could walk out if they did 4 implant cases with $12,000. So the ROI tends to be pretty high on those trades as well, which is also highly differentiated. And then the third piece is because we don't have need-to products and we can leverage our P&L through hybrid sales infrastructure, with the high gross margins, with the better reimbursement and then leverage in the P&L, you can easily see what happens. And our inflection on profitability has been an outcome of our top line growth. So you've seen that leverage fall through the P&L and the asset-light model then translates into the cash flow breakeven. And what we've always said about our business is 12 months post getting to adjusted EBITDA, you should be able to see cash flow for that reason. You've seen that happen actually a year sooner. We had expected from an investor perspective to get to cash flow breakeven in 2026. We obviously got there sooner. But again, just shows the effectiveness of the business model there.

Super helpful. The other one is, and this comes up sometimes is the current guide sort of implies a lower optical, let's say, growth rate in the second half of the year. Help us understand the relative like -- there's no point in saying it's conservative if you point conservatism, but you understand the puts and takes in the second half.

Yes. So from a business standpoint, if you look at the last -- since our IPO, we've had a 20% CAGR on top line growth, right? So you're talking about 6 years of having 20% CAGR. If you actually look at the last 3 years, that CAGR has actually accelerated to close to 22%, 23%. And you look at the first half of this year, our growth was in the low 20s as well, Q2 being around 23% growth in the U.S., led by 25% volume growth in the U.S. So we're really pleased with how the business has actually accelerated. And part of that is reflected in our outperformance in the first half of the year, and that is always reflected in our updated guide. When you think about the drivers of that top line growth, it's strong demand for existing products. We're still in the early stages, whether it's working on Granite, TNT with interventional on the SI joint dysfunction side. So those tailwinds will continue. We're going to put up more surgical capacity in the second half of the year for Granite and TNT, especially with the NTAP coming online. Number three is the continued growth in interventional that we're seeing. And then you've got that combined with just adding to our sales force, right? So we've got all the ingredients in place that will continue to drive strong demand in the back half of the year. But we want to be thoughtful. We want to make sure we grow into these tailwinds as well, especially when we think about the NTAP going effective October 1. Our assumption is the impact is more 2026 than 2025. What we know from prior experience, you see a pickup in the business. That's number one. Number two is TORQ in Europe. Again, we've seen really good demand there, even though it's been a seasonally slow quarter in Europe, summer is, but we've actually seen really good traction for TORQ already. But our assumption is, again, that's more of a 2026 tailwind versus 2025. So that's number two, that could provide upside. And number three is our ASP has actually been fairly stable. But our assumption going into the back half of the year is as the procedure mix shifts to maybe lower implant cases, which should drive higher volume, you could see some ASP pressure, right? Now we think we can do better than that. And then the last piece in our guidance was sort of the seasonal expectation of a sequential decline in the third quarter, and that was around 4% sequential decline. If you look at historical trends, we've done better than that. And our focus always has been set expectations thoughtfully and then outperform them. And what we're seeing in the third quarter as well is we are performing better than what our initial expectations were in our updated guide. We still see some seasonality happening in the business. That's general for the industry, but we think we can work well to our original expectations.

Always good to. Yes. I mean on the NTAP and the TPT and that side of things, like the provider economics get considerably better. I mean what we've seen in a lot of the rest of med tech is utilization and volumes often do very, very well when the coverage in that way picks up. How should we think about the potential impact even just qualitatively as you move into next year? Because obviously, to your point, you don't want to assume anything this year, but it's a sizable increase.

Yes. No, absolutely. So we're one of the rare companies that can sit here today and tell you, if you look at the next 3 years, what the tailwinds in the business are, right? So it starts with the NTAP for TNT that goes into effect October 1. The approximate improvement in reimbursement could be anywhere between 20% and 30%, which is quite substantial. Majority of these patients are Medicare, which is where this will play out. Majority of them are going to be inpatient, which is where this will play out. So that's a nice real tailwind for us. The second thing Laura talked about was the TPT for Granite. It's mostly for hospital outpatient and ASCs. With the Level 7 APC code going into effect on October -- on January 1, 2026, we believe these procedures that will be performed in the outpatient setting or the ASC setting will benefit from Granite device offset from the TPT, which could be a really nice tailwind for Granite as well. So that's number two. Number three is you look at what we've been able to do with interventional with our TORQ product, which is reimbursement of 27279 with our allograft product, which is very specific for the office-based lab model. And there is approximately a 15-plus percent increase proposed effective January 1 on the office-based lab procedures as well. So those are 3 big tailwinds for the business that will be secular, so they'll be long term. When you combine that with the new product launch in Q1 of next year, that's targeting SI joint dysfunction, specifically at ASCs, that should be a nice tailwind for a business that's less than 10% penetrated. You've got the next BDD device that we will file the 510(k) for in the back half of next year. That should be a nice tailwind for the business as well. And then when you layer on that we're spending about 10% of our revenue on R&D, and we've got so many other products in the hopper. So we're not just going to stop at these 2 products. We got products coming out in '27 and '28 that we're not even talking about. So feel really good about the setup, not just for the back half of this year, not just 2026, but even if we look out to 2028.

I mean the surgeon growth, let's say, has been double digits, obviously, for a long time now. I'm curious like how are you seeing if it's relevant to surgeons and that utilization curve of the newer surgeons versus sort of the older vintage? And like has that changed? Or is it really identical? How has that kind of evolved?

I can talk a little bit about it. So we do look at what we call same-store surgeons, given how rapidly our surgeon base has grown, we had 1,440 surgeons last quarter that did at least one procedure. There's 12,000 physicians that are our target. So we still have a long way to go. So we really have this dual-pronged solution that we're going after. One is to continue to just penetrate those physicians to get them to training and doing their first case and regularly performing one or more of our procedures. But the second focus area that we have is on surgeon density. So right now, a typical surgeon does a little less than 4 procedures. If you look at that same-store number that I mentioned to you and you look at a surgeon that's done a case the year prior as well as in the current year, they're doing almost double the number of procedures. And some of that is just their adoption of one particular modality. They may be primarily doing SI joint fusion procedures. And so it's just getting them to fully adopt that into their practice, regularly diagnosing and treating the patients, right? But the other area of focus for us is to have the surgeons perform multiple procedure types with us. The most obvious one is surgeons that are doing SI joint fusion procedures start working with our technology for pelvic fixation, especially for those shorter level constructs that I mentioned to you because they do those procedures pretty much every single day or weekly in their practices. And so it's once again identifying the appropriate patients for pelvic fixation with the short-level construct. And perfect procedure once again with the transitional pass-through code, outpatient procedure. And so it's this focus, first of all, on continuing to penetrate that 12,000 physicians, number one. But then number two, how do we get those surgeons to do more of our procedures, whether it's just fully adopting a particular procedure into their practice or whether it is working with us on multiple procedure types as well.

Yes. It's really interesting. The other thing that was changing is on the CCO side. Nikolas coming in, what should we think about that change, the genesis of it then? And should we expect to change the commercial approach?

Yes. If you look at our executive team, I think the average tenure is over 10 years of our executive team. I'm incredibly proud of that, by the way, coming in as the CEO a little less than 5 years ago, and many of these people were my peers, but I worked with the fact that we've all continued to march forward and be very excited about the business. I would say that we're more excited today than we ever have been in terms of the opportunity that we have. I take a lot of pride in that. On the other hand, some of us are getting to that point, not me, but some of the people in our executive team, Tony, for example, is turning 67 this month. You wouldn't know it, by the way, by looking at him. He looks absolutely fantastic. He looks younger than the rest of us. But we are starting to see a little bit of that. And so when he was talking about retiring, and I've been talking to him for a long time about this. When I became the CEO of the company, he said, 2 years from now, I probably am going to want to retire. And every time I would talk to him, he'd say, 2 years from now, I'm going to want to retire. And finally, around 6 months ago, he said, a year from now, I think I want to retire. And that's where we go, okay, we actually need to do something about this. And he's been incredible, by the way. Our sales force is second to none, quite frankly. I mean, just incredibly high quality because of the educational focus that we take with our physicians and the innovative products that we have. It really is a more complex sale, we call it education. And he has built this tremendous team. And what we wanted to do is really just continue that. Now we did look outside. I would have been remiss to at least not look outside and think about should we think about bringing somebody else into the business. But ultimately, we decided to promote Nikolas Kerr to our Chief Commercial Officer because I'm really happy with the way that things are going. And I think we have a great model. I think we're on the right track. I love the execution that I'm seeing from our team. And so it's really just taking that next-generation team and continuing to drive forward with what we started. Now Nikolas is not new to the business. Nikolas has been with us for 9 years at this point. So he's a little shorter in tenure, right? He's only 9 years instead of 10, 11, 12, what have you. But he's been with the business for a very long time. He has really been the leader around the expansion of our product capabilities. I would call him best in the industry around the product side. And he's going to work hand-in-hand with our sales leadership. There's a gentleman, Luke Smith, he's our VP of U.S. Sales; and then Neville Lorimer, who is our VP of European -- OUS basically sales and work very closely with them to just drive this next level of change. But to me, it makes a ton of sense to have the person that has been driving the product road map as driving that commercial team because, as I said, as we're thinking about the next stage of the business, it really is around continuing to expand the indications that we're going after with these innovative products and who better to help drive that along with the sales leadership team that's been in place for a long time. The person I just mentioned, Luke Smith has been with us for over 10 years. So this is how we're thinking about things, just continuing the great work that has been happening under Toner Cooper in this next phase of business.

It's amazing duration. I'm so incredibly toxic. My team is the duration of milk.

It's impressive. I think maybe a good one to end with would be as you're kind of hinting at it in some ways is how do we think about growth over the next 2 to 3 years? You have a lot of different levers that are happening simultaneously, but nobody ever wants to get over their skis. So how do we think about that?

Yes. That's exactly the way we do. So we don't want to get over our skis. We want to continue to overdeliver. We're incredibly proud of what we've done here since we've been a public company, growing greater than 20% and seeing that acceleration of the top line as well. But at the same time, there were a lot of people that said, I don't think you're ever going to get the profitability just because we were being put in a certain bucket. You're not going to be able to get to cash flow putting us into that certain bucket. We've already shown those things. So I would really encourage people to take a close look at what we've been able to accomplish. But we've already talked about some of the things that are near-term catalysts for the business, continuing to build on our SI joint fusion business, and that's both with surgeons as well as interventionalists as well. But then also with some of these new breakthrough products that we believe that can become the standard of care. And that's just the near term. And then when you think about the longer term for the business, as I said, we're really looking at this overarching principle of how do we address patients that have poor bone quality and how do we develop these innovative solutions around unmet clinical needs. So as I said, we're right now developing that plan of where are we going to get to $0.5 billion in sales. And we already have a pretty firm plan on how we want to do it around these very specific strategies.

No pressure for both of you.

Makes it fun.

Yes, exactly. Laura, Anshul, thank you so much. Really appreciate the time. Thank you.

Thank you.

Thank you.