Good afternoon, and welcome to SI-BONE's Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes. I would now like to Saqib Iqbal, Senior Director of Investor Relations at SI-BONE for a few introductory comments. Sir, please go ahead.

Thank you for participating in today's call. Joining me are Laura Francis, Chief Executive Officer; and Anshul Maheshwari, Chief Financial Officer. Earlier today, SI-BONE released financial results for the quarter ended June 30, 2023. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These forward-looking statements are based on the company's current expectations and inherently involve risks and uncertainties. These risks include the impact SI-BONE’s ability to introduce and commercialize new products and indication, SI-BONE’s ability to maintain favorable reimbursement for its products and procedures, the impact of potential economic weakness, on the ability and desire of patients to undergo elected procedures, SI-BONE’s ability to manage risk to supply chain, the impact of future capital requirements driven by new product introductions and risks to the continued renormalization of the healthcare operating environment. Other forward looking statements include are examination of operating trends, and our future financial expectations, such as expectations for surgeon training and adoption, active surgeons new products and clinical trial enrollment, and are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements. For the list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent Form 10-K and form 10-Q, filed with the Securities and Exchange Commission. SI-BONE disclaimed any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today, August 7, 2023. With that, I'll turn the call over to Laura.

Thanks Saqib. Good afternoon, and thank you for joining us. I'm pleased with our performance in the quarter as we delivered over 30% revenue growth led by robust demand for a portfolio of solutions, strong surge and engagement and favorable reimbursement tailwinds. The US procedure growth trends over the last several quarters, give me confidence that we're well positioned to deliver a strong second half of 2023. Furthermore, our strong liquidity position bolstered by the successful capital raise in May provides us the flexibility to continue our judicious investments, and portfolio expansion, and commercialization initiatives. We believe these investments combined with secular growth factors in the business will allow us to deliver continued revenue growth and accelerate our progress toward adjusted EBITDA and cash flow breakeven. Before I discuss our results, I want to thank our employees as they've continued to demonstrate unwavering dedication to serve our expanding surgeon base, and ensure patients have access to our best-in-class solutions. This level of consistent record performance over the last several quarters would not be possible without you. Now moving to our second quarter performance. In the second quarter of 2023, we generated record worldwide revenue of $33.3 million, an increase of over 30%, compared to the second quarter of 2022. The quarterly result was led by record US revenue of $31.2 million, which represents US revenue growth of over 31% compared to the prior year period. This fifth consecutive quarter of record worldwide revenue and improving operating leverage exemplifies the consistency of our execution and strength in the business. Now, let me provide an update on our key initiatives as we continue to look to extend our leadership position and drive strong long-term growth. Starting with sales infrastructure, our direct sales team is our biggest asset as we expand our product…

Thanks, Laura. Good afternoon, everyone. I will focus my comments today on second quarter revenue trends, operating leverage and liquidity and end with our updated 2023 guidance. Starting with our second quarter revenue. As Laura noted, our worldwide revenue in the second quarter was $33.3 million, representing growth of over 30% compared to the prior year period. Second quarter US revenue was $31.2 million increasing over 31% compared to the prior year period. This record US performance was driven by growth in the procedure volumes which rose by approximately 30% compared to the prior year period. In addition to robust volume growth for the second consecutive quarter, our US pro procedure average selling price increased compared to the prior year period. International revenue was $2.1 million, reflecting growth of approximately 15% compared to the prior year period. Across Europe, France maintains strong volume growth, offset by ongoing recovery in Germany and the UK. Moving to gross margin and operating leverage. In the second quarter of 2023, our gross margin was 81% in line with our expectations, as anticipated, the gross margin reflects the impact of procedure and product mix, due to higher total cost of iFuse-TORQ and Granite, increase in depreciation from the deployment of instrument trays to support the growing demand for these products, depreciation associated with a second facility in Santa Clara and higher freight costs. Operating expenses were $38.9 million in the second quarter of 2023 versus $40 million in the prior year period. This 3% decrease in operating expenses is mainly due to timing of certain commercial activities that are scheduled for the second half of 2023. This was partially offset by an increase in stock-based compensation and higher commission associated with the revenue growth in the second quarter of 2023. We're pleased that we have…

[Operator Instructions] Our first question will come from Craig Bijou of Bank of America.

Good afternoon, thanks for taking the questions. And congrats on another strong quarter. I wanted to start I know you're typically reluctant to give details on specific products. But I'm going to try anyway. And I want to see if there's any color that you can provide on the strength in the first half. And then looking at revenue guidance even with the raise, it implies, essentially, flat revenue first half first versus second half, maybe slightly more in the second half. So is there anything on the product level that we should be thinking about which suggests that the strong first half growth that you saw, will continue in the second half?

Thanks, Craig. Thanks for the question. And what I'll do is I'll answer your first question on the on the product side. And then I'll have -- I’ll turn it over to Anshul to talk a little bit more about the guidance, we're really pleased with the quarter that we just exited 30% growth in the quarter, strong continued momentum in the US, strong momentum with our active surgeon base, improvement in our ASP. 60% improvement in our bottom line losses. We're really excited about how we performed this quarter. And we just see very strong momentum going into the second half of this year as well, which is why we felt confident with the raise that we provided in guidance. From a product perspective, we're seeing performance across the board here. So our core business continues to drive our results. And when I say core business, I mean primary SI joint fusion, and that can be with our iFuse 3D, or it can be with iFuse-TORQ, we're also continuing to see momentum in our trauma business with iFuse-TORQ specifically with sacral insufficiency fracture. And finally, we did talk quite a bit about Granite, which has just been a terrific launch for us. And we have a lot of excitement around Granite. We did talk a little bit about the product extension with the Closed Head Granite that was launched late in the second quarter, and that opens up some additional opportunity with certain surgeons who prefer that particular product. I won't, and as you said, I'm not going to break down what the growth was. But we're seeing growth in all of the areas that I just mentioned, and are really excited for the second half of the year.

And, Craig, to answer your question on guidance. So what Laura talking about some of the enthusiasm in the business that we've seen not just in the first half, but also the second half of last year. And we've had about five quarters now of record revenue. And obviously, this first half of the year is actually the strongest sequential growth and year-over-year growth we've seen as a public company. So feeling really good about how the business is set up, some of the assumptions that we have made in our guidance, and the last increase in guidance we did at the end of first quarter and are played out better than what we anticipate both in terms of the Granite adoption, the rollout in the ASP trends. Now while all that's been going on, we also while being very confident of the strength and the secular trends in the business, and ultimately acknowledge that there's potential seasonal strength in the second half, we just want to be very thoughtful as we're going into the back half of the year. And that's sort of reflected in our guidance. And some of the assumption changes that we had was we provided some more upside from the Granite roll out in the second half. And historically we've talked about mid-single digit ASP decline. And even though we had two consecutive quarters of positive ASP, we're still assuming ASP pressure in the back of the year, albeit low, single digit now. So we think it's appropriately hedge in terms of getting into the second half of the year.

Got it. Thank you. And just a quick follow up, Laura, I think you said the new approval for TORQ better positions you to go after some of those competitive cases that the SI joint fusion that may prefer the screw versus the triangular implant iFuse, so maybe if you just expand a little bit on that and talk about how you are doing, picking up those competitive cases? Thanks.

Sure. And TORQ as you know is primarily launched to focus on the trauma opportunity that we have with sacral insufficiency fracture. So that continues to be a long term opportunity for the business that we're really excited about another adjacent market, our best estimate is around $350 million of potential there as well. But the more immediate opportunity with TORQ certainly has been in the primary minimally invasive SI joint fusion market. And so we've seen a very significant uptick of competitive surgeons that are converting over to iFuse technology using the TORQ implant. And some of those surgeons have provided feedback where they're actually interested in the lateral approach, but they're also interested in the posterior lateral approach. And what we want to do is we want to be the company that provides sacral, pelvic solutions, regardless of what the surgeon is interested in. And so while we remain strong advocates of the lateral approach, it's the gold standard, there's a lot of data out there showing the efficacy of the product using the lateral approach. We also want to give those competitive surgeons the solution that they're looking for, and the confidence to use it so that trajectory is now on label.

Next question will come from the line of Young Li of Jeffries.

All right, great. Thanks for taking our questions. And congrats on a strong quarter here, was wondering if you can maybe share some more color on the inter quarter growth, sounded like the momentum carried into July as well. But what are some of the expectations for the summer season? Sort of seasonality impacts, and can you provide some color on this high level Q3, Q4 cadence?

Yes, hey, this is Anshul. One, I think this question, so obviously, coming out of the second quarter, or the first half of the year, we feel pretty good about the business. And some of that is thoughtfully reflected in our increased guidance of 24% to 26%. When you think about quarterly trending sequentially in the third quarter. Historically, you see, as an industry, if sequential depth in the third quarter from the second quarter can be somewhere on the low single digit range. And in our guidance, that's what our assumption is that sequential decline for Q2 and Q3, mainly driven by this summer seasonality and actually having one less selling day in the quarter compared to the prior quarter, while continuing to acknowledge that we've got strong momentum is a new product rollout. And we're going to work hard to minimize the impact of that, but that's not incorporated in the guidance that we've set.

All right, great. Very helpful. I guess the follow up question on just in terms of getting a new surgeon on boarded for core SI joint fusion procedures, is that timeline or process getting shorter, either due to the portfolio effect or just pre success in the KOL, and the clinical community?

Yes, thanks for the question, Young. So in this dovetail a little bit with your previous question on inter quarter growth in July, we did mention in our prepared remarks that we have actually exceeded the high watermark of 950 surgeons in Q1 already at the end of July. So we did see some strong new surgeon growth heading into the month of July which is very encouraging, given the summer months. I do also believe that you are right that we have seen in a decrease in the amount of time it takes for us to bring on new surgeons and part of it is just that the procedure is more well known at this point in time. And part of it is the different modalities that we can use in order to reach the new surgeon. So it can be a regional course, with canal lab training, it can be a local training course in the OR, or it can be with our simulators, which we still are heavily using. And that's on the core primary SI joint fusion business. If you actually look at our Granite business, it's actually quite easy to go in. And we do what we call an instrumentation review, typically in the Office of the Surgeon, because this is a procedure that they're used to doing already, they're just going to be using the Granite technology, that's replacing some of the existing technologies that are out there. So in terms of adding active service, I do believe that we have a number of different ways to engage these new surgeons, and that we have significantly improved our ability to onboard.

And our next question will come from Kyle Rose of Canaccord.

Hi, great. Thanks, everyone. And congrats on a strong quarter. Wanted to just have, look, you've had the entire out of market growth over nine months now. Just wanted to see if you've seen a material changes in the amount of plans, we used for procedure. There's been a lot of talk of going to the potential for or somewhere along that path. And then secondly, I don't know if I missed it. Did you get the number of CFS reps you have in the field as well?

Sure, thanks, Kyle, for the question. I will answer the question on the end cab. So just as a reminder to others that are on the call, we have an end cap in place that a little over $98,000 for Medicare cases, it's exclusive to Granite and it does create a pretty strong competitive advantage for us. And that's really combined with the efficacy of the product. The goal here for surgeons is to ensure that they don't have fixation failure in these long construct cases, and these cases, on average can cost a couple of $100,000 for the initial case and can cost in the range in total of around $125,000 for revision, and obviously, the patient impact as well is significant. So what the end cap does is it really, it's economically beneficial to the surgeon, to the hospital, and for the payer, and we have seen strong interest in that particular end tab. So we're pleased with that. In terms of our CFS reps, this -- our typical pattern in prior years, look, actually give out both numbers. And it became a little bit confusing. And also, given the push that we've had for agents sales as well. What I'll tell you is that the CFS is similar to prior years are a little less than one CFS, two to one, senior quota carrying rep. And then as I said, we're also bringing on additional agents that are helping to increase this productivity that we've seen, on an average productivity increase of 32% this past 12 months if you compare it to the prior year, and it does show that we can really grow the territory rep productivity in 2021, it was less than a million last year with around 1.2. And now we're at $1.4 million. And those quota carrying reps are supported by the CFS is that you asked about, and then also the addition of agents who have been particularly helpful with Granite cases.

Next question will come from the line of Samuel Brodovsky of Truist Securities.

Hi, thanks for taking the questions. Just the first one. And thanks for the color around the certain dynamics to start 3Q, with new TORQ, should we think about a steady cadence of new competitive surgeon conversion through the second half? And or is that more of a onetime thing? And how should we think about what's contemplated in guidance in terms of new surgeon add this [inaudible]?

Yes, in terms of new surgeon ads, it's not just the posterior lateral project with TORQ, we're really focused, as we have been able to last several years through education and engagement to continue to grow that number. And it's really critical for us as we think about the long term outlook for the business. And based on what we've seen thus far, the quarter, we feel pretty confident that we will continue to hit new after surgeon milestones throughout 2023 at the end of each of the quarters. And right now, our expectation is to have that low to mid-teens growth in the fourth quarter of 2023, compared to the fourth quarter of 2022, which as you may recall, Sam was a pretty high watermark to start with the end of last year. So we feel very good about that. The other piece that also equally important for us is continuing to focus on growing certain overlap. Laura talked about the multiple modalities and treatment types that we're engaging surgeons with. And we've had a lot of success there and we've seen a 30% growth in this quarter in after surgeon base for our procedures performed for surgeons have stayed flat. So you've actually had surgeons moving up the volume scale as well that have been doing a procedure for a while. So both of those metrics are pointing in the right direction for us.

Great, that's really helpful and appreciate the other color you've given on assumptions around price through the second half, which is with the Granite launch going so well. Does that give you a more positive outlook on how you think about price per procedure evolving through 2024 and beyond? Thanks for taking our questions.

Yes, no, Sam, on the ASP side. Look, we're really encouraged by the ASP trends, specifically in the first half, having had two consecutive quarters of year-over-year ASP improvement. And it's driven by two things, right. The first one is the Granite volume that Laura's talked about where we've seen surgeons, specifically those that do adult deformity procedures using more than two points of fixation, so more than two SI-BONE implants in their procedures. And to some extent, we are also seeing a bit more moderate decline in ASP within the minimally invasive SI joint fusion business, even though we've continued to see a move to ASC. And historically, that decline has been in the mid-single digit at the ASC side of service. But with the increase in the fees in the start of 2023, the team has actually done a great job and working really hard, and in several cases being successful in maintaining that pricing on those contracts. But we also want to acknowledge it's been only two quarters, right. And while we feel good about some of the reimbursement tailwinds the procedure product mix, we just want to be thoughtful in our not incorporating that upside in the back half the year or at this point too premature to talk 2024.

Next question will come from Andrew Ranieri of Morgan Stanley.

Hi, Laura and Anshul. Thanks for taking the questions. Just maybe first on OpEx for [inaudible]. But you've a good job year-to-date, leverage is becoming more of an important part of the story. And in your kind of prepared remarks you talked about continued revenue growth and progress towards adjusted EBITDA and cash flow breakeven. So I was hoping you might be able to touch on kind of the latter two parts of these, and maybe kind of what your expectations are for laying the groundwork to eventually achieving these targets of adjusted cash flow and EBITDA breakeven.

Thanks for the question. In terms of the operating leverage, we're really pleased with the trajectory that we've demonstrated in operating leverage, it's been pretty linear to our top line growth. And it's basically driven by the foundation that we've built in making investments that we knew was required to support the level of growth acceleration we're seeing in the business. Now, in terms of how we see that evolve, we do believe that fiscal year 2023, we will continue to see operating leverage, albeit the year-over-year comps to become a bit tougher. And you are seeing that in last year as well. But we feel good about that. And we're not going to be giving up guidance on when we believe we get to breakeven from an adjusted EBITDA or cash flow perspective. But if you look at the trajectory that we've been on, and extrapolate where revenue has been, and is potentially going to go, when we provide 2024 guidance and beyond, we'll be able to share more.

Fair enough. And maybe second, on just the Granite instrument trays, I understand that you're continuing to roll this out. And part of the recent raise was to kind of build up the inventory here. But for the centers that you're in today, can you maybe just talk to us about what you're seeing in terms of utilization or productivity. You kind of hinted at some details, but any more clarity around what you're seeing kind of the early days of these accounts would be great, thank you.

Thanks Drew, on granite trays, the granite launch really has been trying to supply in order to meet the demand. And I talked in my prepared remarks about the efforts of our team in order to hit the results that we've hit. And this is a particular area that I would say that people have gone above and beyond here. So our operations team trying to supply the implants that are needed, the trays that are needed, and then the people in the field trying to utilize the trays that they have, it has not been unusual for our sales reps to have to drive hours in order to retrieve trays and actually go to another site. And so what we think we're doing here in the second quarter, and in the third quarter, is making sure that we have the inventory that we need, especially for granite, as well as the trays that we really need particularly going into the seasonally high volume fourth quarter that's coming here. And we feel very confident that we're in that position. But it really has been around 12 months of a lot of work in order to make sure to meet the demands that our surgeons are providing.

Our next question will come from the line of David Saxon of Needham & Company.

Hello, this is Joseph on for David. Maybe a high level question. Looking at 2024, Anshul, I know you said it was maybe a little early to comment on it, but maybe some high level details, you'll be facing much more difficult comps in 2024, but you also be farther along with the Granite and TORQ rollouts. And the assumption that you have shorter comps for Granite launch, they're going well, but just wanted to hear how you guys are feeling about sustaining that 20 plus growth, even if you start lapping those tougher comps.

Yes, Joseph, Thanks for the question. And, look, I think our execution over the last several quarters give us a lot of confidence in the underlying momentum in the business, the foundation of which is built on our differentiated portfolio, which as you highlighted is that the next family of granite products that we will launch next year, the favorable reimbursement both within the SI joint fusion side of the business, as well as the end cap on granite. And just the improving operating leverage tried to, we are set it really well. And we do believe we're in the early innings of delivering on our long term growth strategy that we've laid out over the last couple of years, and have all the ingredients in place to deliver strong and sustainable as well as fiscally responsible growth. But that said, we don't want to get ahead of ourselves. I want to make sure we can capitalize and deliver what we believe will be a strong second half before we talk about 2024. So too early for me to give you numbers on 2024 at this point, but we're doing everything possible to deliver on a strong second half and feel good about that.

Okay, great. Fair enough. Maybe we could we get an update on the marketing strategy. You've had the DTC campaign here out for a couple of years now. Maybe if you can talk relatively, wanted to hear you guys are feeling about consumer awareness now kind of relative to when you started those activities?

Yes, I'm happy to take that question, is this -- the digital marketing activities have been a focal point for us, we are trying to generate additional knowledge with patients of SI joint dysfunction and degeneration, we've been quite successful in doing that, whether it's bringing patients to the website, completing our pain survey, or using our Find a Doctor functionality in order to be referred to one of our surgeons, we've been quite successful in using search as well as social media in order to drive patients to a better understanding of this particular condition. Now, what we're really doing is we're starting to focus a little bit on a little lower in the funnel. And so for those patients who have actually had an interest in finding a doctor to help to further facilitate that process, as well. So our marketing strategy is evolving here as we continue to develop our digital marketing strategy.

Thank you. I don’t see no further questions in the queue. I would now like to turn the conference back to Miss Laura Francis, for closing remarks.

Thanks all of you for joining the call today. The year-to-date performance and the favorable demand trends. They bolster my conviction in a strong second half performance as well as our long term outlook for the business. And I'm confident that we have all the elements in place to deliver a strong and sustainable long-term growth and progress toward profitability. So thanks for your time today. Goodbye.

This concludes today's conference call. Thank you all for participating. You may now disconnect. And have a pleasant day.