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

Thank you. Hello. Good morning, everyone. Thanks for joining us today. I'm Eduardo Herden. I'm part of the Morgan Stanley team. Today, I have the pleasure of being joined by Anshul Maheshwari, Chief Operating Officer and Chief Financial Officer of SI-BONE. Before we begin, just need to do a little plug for our disclaimers. Please visit morganstanley.com/researchdisclosures.And with that, let's start with the fun part. Anshul, thank you very much for being with us today. So before we dive into performance, let's start with a big picture question. The company has evolved a lot in the last few years. Could you maybe walk us through that evolution and talk through how you see your products in end markets today?

Sure. Eduardo, thank you for having us. We appreciate being invited to Morgan Stanley. It's one of the best conferences we attend. In terms of how the company has evolved, you're right. If you go back to the start of the company, which goes back to 2008, 2009, we started as a single disease state company, which was addressing a donor disease state with an SI joint dysfunction. We had to build the market. We had to build clinical evidence. We had to build reimbursement. And we by far are the leading market share owner in the SI joint dysfunction space, whether it's on the surgeon side, and most recently we've expanded on the interventional side. In the last six years, what we've done is we've gone from this one disease state, one product company to a multi-product platform targeting the pelvis. And within that, we've built out a pelvic fixation franchise, which is with Granite. That was our first breakthrough device product, driving fixation and fusion, the base of deformity and degenerative spine procedures. And then more recently, two years ago, we launched our iFuse TORQ TNT product, which was a second breakthrough device that was for pelvic ring fractures, for fragility fractures in patients generally, patients who are older with Medicare and poor bone quality. That was our second breakthrough device that we launched specifically targeting towards Trauma. Now, as we built that franchise, there were a few common themes there. One, it was understanding the biomechanics of these bone products that were going into an anatomy that was facing a lot of load. #2 was your sacrum has one of the most poor quality, low density bone in a human anatomy. And so being able to drive fixation and fusion required a level of innovation that did not exist before SI-BONE came out. And #3 was because we're going after an unmet need, it was all about clinical data. And then it was about establishing reimbursement. And so we built that core skill set over the last decade and a half. And what you're now seeing us do is take that core skill set and say, what else can we do with it? We are by far the market leader in SI joint dysfunction. We are becoming the standard of care in spinal pelvic fixation. becoming a standard of care within fragility fractures with our iFuse TORQ TNT product. What you're now seeing is look at this as a compromised bone franchise, having had the expertise of fusing this low-quality bone in your sacrum, and we're now starting to look at opportunities for patients that have osteoporosis, osteopenia, how can we come up with solutions that help drive fixation and fusion for the patients that suffer from those disease states, still staying within spine and interventional as the core call points. And that's really important for us because we see a lot of unmet needs, areas where you have high failure rates, where we know our technology can improve patient outcomes because of a proven track record. Our product that we've been teasing everybody about for the last one year is this new TAM that we're going after, which actually takes into account all these learnings I just talked about and is targeting a known failure rate in spinal fusion procedures. And we believe this technology is going to have a very significant impact on our TAM. It's going to be a whole new TAM, the same call point that today works with us on Granite. It's going to have, because it's a third breakthrough device, it's also going to have the potential for new technology add-on payment that we plan to apply for that, assuming if it's approved, will go effective in October of 2027. So that's our first product that's building outside of the pelvis. What we now have also is a pretty robust pipeline of opportunities that we're going after that extend beyond this TAM. Our expectation is on a very good cadence basis, you will see us come out with new products that are targeting high failure rates in different procedures, again, within spine and interventional at a pretty regular cadence of 1 to 2 new TAMs a year going forward.

Awesome. That's all super interesting. I certainly will ask a few more questions about the new devices and pipeline in a bit. But maybe before we go into that, let's dive into performance a little bit. So you all have grown, you know, a pretty impressive 20% CAGR over the past five years. And you continue to have great updates, including this last quarter, that fuel like they're going to keep pushing the company's growth. Could you maybe walk us through some of those updates and how you see them affecting the trajectory?

Sure. So, we reported our second quarter earnings, and on a year-over-year basis, the worldwide growth was $56.0 million, up 15.2% from a year earlier. Now, that was versus a tough comp from last year. If you look at it on a 2-year stack, you're looking at high teens' growth rate. On the top line, what was equally impressive was the 19% growth rate we had in our active physician base, with close to 720 physicians performing a procedure in a quarter for us. That was a record # of physicians that did a procedure for us. So when you think about what we did, and then we had profitability increases, about a 178% improvement in adjusted EBITDA. We were free cash flow, -$300,000, operating cash flow positive, as well, close to $0.8 million. So all the metrics pointing in the right direction. What we're really excited about is all the other things that we did during the quarter that are going to set us up for a strong fourth quarter going into a robust multi-year innovation and growth acceleration cycle. Starting with working on the DRGs for Granite, which is our pelvic fixation product. That product had NTAP that expired in October of 2025. We'd been working with CMS to get DRG reassignments for that procedure. What we did get, and it was finalized and it goes effective October 1, 2026, is 3 new DRGs, which would increase reimbursement from anywhere between $20,000 on the low end and over $50,000 on the high end for procedures where Granite is incorporated as part of the procedure. So that's going to be a really nice tailwind for the business going out. The second thing that we were really excited about was the work that we did with the FDA on this third breakthrough device. We did file the FDA application in June, and that gives us confidence about commercializing the product in the fourth quarter, potentially as early as October to the Alpha launch. So that should be a really nice, exciting opportunity for us. And we continue to make progress into additional devices that we expect to go into design freeze at the end of this year with the potential to commercialize them in late '27, early 2028. And so our focus has been how do we transform SI-BONE from this single product, single anatomy company into a medical device technology platform where we can now start building technology platforms that have applications around a broad set of opportunities.

Very nice. So maybe let's hone in on the install base for a second. I think you mentioned 1,700 doctors, 19% growth year on year. What do you think is driving, you know, the growth of your install base at that scale? And, you know, are there any specific areas of the business that are driving that growth more than others?

Yes, so we're really proud of the physician-based growth that we've seen, I'd say, over the last five years. In 2023, we had less than 1,700 physicians do a case in a year. And we had over 1,700 physicians do a case in a quarter. And a large part of that is an outcome of the innovation that we've done. Our innovation with Granite continues to attract more physicians into the fold for pelvic fixation. Our expansion into interventional continues to be a really good growth driver for us with an SI joint dysfunction. Our launch of our iFuse TORQ TNT product a couple years ago, continues to get strong traction, especially with the partnership with Smith+Nephew, on the Trauma side as well. What we did see is broad-base growth. So you saw double-digit base growth across all call points. And that is really exciting because one of the hardest things to do is to build a customer base of our scale. We've done that. And now as we put out some of these innovative products, should allow us to now translate that into higher density, so more cases per physician, because we are going after procedures that these physicians perform today and are aware of the challenges that these procedures pose that we can solve.

Let's maybe talk about that a little bit more. So I think you're essentially saying that you're thinking about utilization expansion within your physician base. How should, how should we think of that evolution over time? And how do you look at it today? Because I think today it hasn't, we haven't seen it, but I think you're expecting to see some inflection in the near term, correct?

Yes, so from a utilization perspective, where we see an overlap today is physicians that do SI joint dysfunction. 25% of those physicians are doing another procedure type with us. Generally it's doing pelvic fixation with Granite. As we add more product, it will give us an opportunity to be able to do more cases with those docs. And that's what's really exciting for us. So these new products should not only drive the density, but they should also allow us to continue to increase the physician base # as well. Because if you think about the physician base, there's going to be two levers to the physician base. The first one is you have some episodic physicians. Those that use a product on an episodic basis, you have churn within the SI joint business where you're not regularly diagnosing patients. With this new product launch, because we're going after a procedure type that these physicians perform all the time in the spinal fusion side, we think you will be able to see a reduction in churn. So that should allow you to drive just an increase in physician base to start with, because your denominator is not shrinking first to then grow. And then with these new products that we're putting out there, we do expect more physicians to adopt that technology. Today, granted, if you think about the scope of Granite, there's about 500,000 spinal fusion procedures done in the U.S., only 130,000 of those, say less than a third of those, end at the sacrum or go to the pelvis. So that's the subset of physicians we're working with today. With these new products we want to put out there, we can go after procedures that are not ending at the sacrum or the pelvis. So that allows us to also grow the physician base while also but also go deeper with the physicians who use us today.

Right. Got it. So maybe pivoting towards reimbursement. I think you mentioned it a few questions ago that you had some great news with some new DRGs recently. Maybe can you provide an update and give a little bit more color on where you landed and how we should expect it to impact the business?

Yes, so I'd say we've got multiple reimbursement tailwinds going on in the business. So let's start with the DRGs first. These DRGs, will impact any procedure where Granite is used. You will automatically be able to bill these DRGs. Now, unlike NTAP, which is only for Medicare and which is up to 3 years, these DRGs are more durable. And on a rolling basis, commercial will also adopt these DRGs from a payment standpoint. So it really expands the opportunity for Granite both across commercial and Medicare. So that's a huge advantage. Now, when you think about how this will impact the business, it's going to impact the business in the following ways. #1 is we know biomechanically 2 points of fixation, so using 2 Granites on either side is the best way to get fixation and fusion. So we think there should be an uptake in physicians that are doing 2 points of fixation because now economics is no longer a challenge. That's #1. #2 is you've got certain physicians, and generally on the commercial side, who would be more selective in using Granite because of the reimbursement, because there was no NTAP for commercial. Over time, as commercial picks up the reimbursement of these new DRGs, that friction goes away as well. And then with some of the new sites that we're going after, you've got some pushback on the ASP, and we've been very disciplined in maintaining our ASP because we know we've been working on these DRGs, so we think those opportunities will also open up for us because physicians do want to use the product. When you couple that with the clinical data that we have with Pola where we've demonstrated no screw loosening, no breakage of Granite. You know, we're really well positioned to accelerate the penetration of Granite within deformity and degen. So that's on the DRG side with Granite, which should be a huge tailwind for us starting October 1st, but we think it'll have a more meaningful impact as you go into 2027, as the hospital systems and healthcare systems get educated and update their own internal workflows to adopt these DRGs. The second one is this new product that we want to put out in the fourth quarter. That product is a breakthrough device. It has been grandfathered in because it's been a breakthrough device already and will be eligible for NTAP, which we plan to apply for. And assuming that's approved, that would be a new technology add-on payment that will go effective October 1, 2027. So that should be a really nice tailwind for our business there. You already have the NTAP of up to $4,136 for Trauma procedures. So you've got that as a nice tailwind extending into 2027. And then the last piece is on our SI joint dysfunction side, there is the proposal to increase the payments for ASCs and OBLs for 278 and also for 279 between $1,000 and $2,000. And that will be a nice tailwind for that business, assuming it's approved, effective January 1, 2027. And there is also the proposal to have 27279 be eligible for office-based lab procedures. And with the Intra platform that we've built over the last 3 years, we're really well-positioned to service the OBL market and the ASC market for pain or surgeons. And then you've got iFuse TORQ and iFuse 3D that's very well suited for the ASC and outpatient office as well. So a lot of tailwinds, it's very unique to have a company at our scale to have that many commercial tailwinds, new product tailwinds and also reimbursement tailwinds.

Yep. So maybe let's talk about new products you mentioned. Your third breakthrough device maybe give us a bit more detail. What?

I'm not going to talk about the TAM yet. We've been deliberately quiet about the TAM opportunity or talking much about the product, mostly for competitive reasons, and we'll be able to talk about it once we get FDA clearance. Now, like I said, this is our first product outside of the pelvis. It's a whole new TAM. It is by far one of the largest unmet needs and an area of failure within spine fusion. And if you think about our history, we've built our history on addressing some of the most challenging issues in any procedure. And this is no different than that. Like I said, what's exciting is it's after the same call point that today uses Granite. So when we think about the advantages this product has vis-a-vis Granite, which has been a very successful product for us, it's been one of the fastest scaling products for us, is when we launched Granite, we had to build an agent network from a case coverage standpoint. We today have 300 agents that we work with that carry Granite. So this product will have access to those agents. With Granite, we have to build our presence in academic institutions and also build our presence with physicians who are doing deformity and degen procedures. This product will benefit from that. Because it is a known challenge within Spine, we've made sure that it fits the physician workflow. There is no real training requirement for this product. It is literally a tray review, which is what Granite is today. Granite is literally a tray review where you walk in, you show a physician the tray, they understand the workflow right away, and they want to use the product.

Really exciting opportunity for us from that perspective that you should see a much faster ramp for this product once we get to Alpha and Beta launch. Great. So maybe you've spoken about the Granite launch, but maybe can we talk a little bit about the Intra platform and how that launch has gone and how the interventional market is going?

Yeah, so we entered the interventional market about 3 years ago. And part of the reason for that was we've always worked with interventional, but more from a referral pattern perspective, back to surgeons. And we do know there's a subset of patients that are with interventionalists that they want to be able to treat. And so 3 years ago we started working with them on iFuse TORQ. This is a product that had been out since 2021, targeting towards surgeons. We started working with interventionists on that. We actually launched our STACY study, which showcased the safety and efficacy of interventionists using our iFuse TORQ product. And it had good, no SEAs, SAEs, and it was actually really good outcomes. And since then we've actually launched our Intra platform specifically targeted towards interventionalists. And that platform actually has a couple of Intra solutions, our iFuse Intra X, our iFuse Intra V. Most recently we launched our iFuse Intra TI product that's targeting interventionalists that are in markets where reimbursement for 27278 doesn't exist, or is not covered because of LCDs. And that product's done really well for us. So as a whole, the Intra franchise is doing really well for us, interventional has been a key growth driver for us within the SI joint dysfunction phase. Surgeons still account for majority of the business, but we're seeing a really good adoption from an interventional standpoint. We basically used the same playbook that we did with surgeons, which is we wanted to become a 1-stop shop comprehensive solution set for surgeons. So we started with the TriCor. We added iFuse TORQ. And we've done the same thing with interventionalists. We started with iFuse TORQ. Then we added a couple allograft solutions. Now we've added a metal solution. And our focus is, how do you make it simple? How do you make it reproducible? And how do you make it site agnostic? And we've done that very successfully.

Nice. And any lessons learned that can be applied elsewhere as you maybe look to launch your third breakthrough device or any other products that are maybe in the pipeline?

I think what you're going to see us do is you're going to see us launch products that actually incorporate all the lessons that we've learned. We know changing medicine is one of the most difficult things. We know people are looking for better outcomes. We know people are focused on healthcare economics. We know adoption accelerates when it's a simplified workflow. And so what you were seeing us focus on is we've got this significant, I'd say, a pretty substantial list of opportunities that we're going to go after where there's a known failure rate. We're going to be focused on solving them with unique solutions. We're not going to be a me-too product company. We're going to maintain our asset-light model. We're going to maintain our high ASP. We're going to focus on spine and interventional. And we're going to focus on making sure that it is within the workflow that they're used to.