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spk05: Good afternoon and welcome to SI Bones' four-quarter earnings conference call. At this time, all participants are in a listen-on amount. 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 turn the call over to Matt Paxil from the Jill Martin Group for a few introductory comments.
spk10: Thank you for participating in today's call. Joining me are Jeff Dunn, President and Chief Executive Officer, and Laura Francis, Chief Financial Officer and Chief Operating Officer of SI Bone. Earlier today, SI Bone released financial results for the quarter and full year ended December 31, 2020. 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 law, 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 significant risks and uncertainties. These risks... include the impact the COVID-19 pandemic will have on the ability and desire of patients and physicians to undergo procedures using the iFuse implant system, the duration of the COVID-19 pandemic, and whether the COVID-19 pandemic will recur in the future. Other forward-looking statements include, without limitations, our examination of operating trends and our future financial expectations, such as expectations of hiring, surgeon training, and adoption, active surgeons, new products, clinical trial enrollments, and reimbursement decisions 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 a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our most recent quarterly report on Form 10Q filed with the Securities and Exchange Commission on November 3, 2020. SI bonus lends 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, March 8, 2021. And with that, I'll turn the call over to Jeff. Thanks, Matt.
spk03: Good afternoon, and thank you for joining us. Before we get into the details of the quarter, I want to thank all the healthcare workers taking care of COVID patients, as well as the over 100 SI bone field personnel who are in hospitals and ASCs virtually every day. as well as the almost 600 surgeons who treated sacroiliac joint dysfunction patients with eye fuse during the quarter. In accordance with our pre-announcement on January 7th, total revenue for the fourth quarter was a record $22.1 million, a 12% increase compared to the fourth quarter of 2019, and a 9% increase compared to the third quarter of 2020. As an organization, we continue to execute at a high level, which is reflected not only in our revenue growth, but also our ability to control expenses and manage operating losses. As we proactively adapted during the early days of the pandemic, one of the most impactful initiatives that has increased surgeon utilization rates and reduced costs has been the rollout of the SI bone simulator surgeon training system. This innovative training platform eliminates many of the barriers that we historically have had to overcome prior to the COVID-19 pandemic. Our sales and medical affairs teams can now train surgeons on demand, bypassing the cadaver lab, which eliminates radiation exposures for surgeons and staff. Additionally, there are no travel requirements on the part of the physician and reps. which significantly reduces overall costs and logistical planning. While this has been a positive for the company from an efficiency perspective, the key driver has been the positive perception from the surgeon community. Specifically, approximately 45% of all first-time U.S. surgeon trainings from July to December were executed using SI bone simulators. The number of trainings continues to ramp, and we expect this remarkable capability will attract many more surgeons in the future. We are targeting the approximately 7,500 spine surgeons in the United States, of which 1,600 have been trained and completed a procedure to date. We are making an impact, but there is still much more opportunity ahead. The enthusiastic reception of our simulators over the last six months has and the ease with which surgeons can be trained have allowed us to more effectively target new surgeons and re-engage with inactive surgeons. Four additional simulators were deployed to the field for training on February 15th, and we expect 16 additional units to be deployed by the end of the second quarter. We completed a follow-on offering in October 2020, yielding net proceeds of $71.6 million. We believe that our cash and marketable securities of $196.4 million we had at the end of the fourth quarter, including the proceeds from the offering, will allow us to continue focusing on driving sustainable growth, specifically given the improved reimbursement landscape with expanded insurance coverage from private payers, as well as the 23% increase in surging payments. which became effective at the beginning of 2020, before the pandemic began impacting our operation, we believe we are in a unique position to expand the market for minimally invasive SI joint fusion. We estimate the U.S. market in 2020 was a little over $100 million, with the potential to be over $2 billion per year in the future. As the current market leader, we are the we will be the primary beneficiaries of market expansion, and to capture this opportunity, we are investing in a number of growth initiatives in 2021. We intend to grow our field sales force, leverage our simulators to train surgeons, invest in patient awareness, expand product offerings in sacroiliac fusion, trauma, and deformity, and engage in process improvements and systems initiatives to scale the business to profitability. At the end of February, we had 70 direct sales reps and 53 clinical support specialists. We have also added to our sales leadership team to manage our expected headcount and sales growth in 2021. Effective January 1, 2021, we added a third area vice president of sales, in the central U.S. to complement our east and west regions. Finally, we expanded from 12 to 14 regions, promoting three of our top direct sales reps to regional sales director, while backfilling their areas with high-performing sales reps. Additionally, we have hired a vice president of digital marketing, Brian Brovolite, to spearhead our direct-to-patient efforts and digital marketing initiatives to increase awareness and utilizations of SI bone technologies. Brian has an extensive background and expertise in digital marketing, was formerly with Starkey Hearing, a medical device company, and Kellogg Company, and has years of advertising agency experience. We look forward to Brian's impact on our growth. Our initial strategy is to pilot direct-to-patient marketing tactics Although it is still early, we are encouraged by the results. We are in the midst of a second TV marketing test program in multiple cities, as well as making improvements in the operations related to patient inquiries to our call center. We will be evaluating the results of this second direct-to-patient TV test in the next few months. On the reimbursement front, we continue to add exclusive coverage from some of the largest health insurance providers in the United States. Specifically, in December, Humana established exclusive coverage for iFuse in minimally invasive SI joint fusion procedures, adding approximately 13 million covered lives. In addition, Priority Health became the 36th payer to announce an exclusive coverage policy in late December, adding roughly 800,000 lives, mostly in the state of Michigan. Lastly, Blue Cross Blue Shield Association Evidence Street updated its policy to continuing to support only triangular implants. Overall, reimbursement continues to be a tailwind for the company with broad coverage across the United States with total covered lives eclipsing 300 million, including approximately 80 million lives covered exclusively for procedures using iFuse. In other reimbursement news, the International Society for the Advancement of Spine Surgery, or ISS, which is the largest spine surgeon-only society in the United States, published its updated policy and guidelines on MIS-SI joint fusion. The policy and guidelines remain supportive of continued adoption of MIS-SI joint fusion procedures by the clinical and payer communities limited to procedures using a lateral transiliac approach, which includes the IFUSE procedure. While the ISS policy did not endorse any specific MIS-SI joint fusion system, the updated policy states that most high-level clinical evidence supporting the safety, effectiveness, durability, and economic benefit of lateral MIS-SI joint fusion is derived from the use of IFUSE. ISAS does not recommend minimally invasive posterior or dorsal SI joint fusion procedures, whether using an implantable device or a product such as bone allograft. In addition to the reimbursement momentum we benefited from in 2020, the number of clinical studies reporting positive outcomes of IFUs continues to increase. Specifically, at the end of 2020, There were 92 different published papers highlighting the breadth, positive results, and consistency of our clinical data. Despite COVID challenges to clinical trials, we were able to enroll more than 40 patients in our Sylvia adult deformity study, a randomized controlled trial of iFuse bedrock against S2AI screws alone in multilevel fusions. We expect to have our first readout from the study in 2022. We expect to talk to you quite a bit about new product introductions this year. Our goal is to become the global leader in sacral pelvic surgical solutions. In addition to iFuse, we have been pleased with the reception by surgeons to iFuse Bedrock, our second product intended to fuse the SI joint in long construct adult deformity cases. We expect to launch a next generation adult deformity product by the end of the year. We've also spoken about applications for our current products for general trauma. iFuse is currently indicated for acute, non-acute, and non-traumatic fractures involving the SI joint. We will be launching a product in the first half of this year that is targeting trauma patients. The product will also have applications for our SI joint fusion core market. To conclude, I would like to take a minute to thank the SI Bone family. As many of you know, we announced in early January that while I will remain with the company as executive chairman, I will be handing off the role of CEO to Laura on May 1st. It has been a privilege and honor to work with our remarkable team and lead the effort to help over 50,000 patients to date. Laura has been an exemplary leader and operator for SI Bone since joining the company in 2015. She's an exceptional executive who is passionate about our mission. She's highly respected by investors in our team as well as our board of directors. She's committed to our principles and values and knows how to lead and execute our strategy to invest in future growth. As executive chairman, I look forward to remaining highly engaged with SI Bone and its strategy and supporting Laura in her new role as CEO. We also announced the promotion of Tony Recupero to President of Commercial Operations. Tony is one of the industry's leading executives and has been with the company for the past five years as Chief Commercial Officer. In his new role, he will be heading up worldwide sales, marketing, reimbursement, and medical affairs. Since announcing these senior leadership changes, we are also in the process of searching for our new CFO. We anticipate they will have a new CFO in place by May. We're also excited to welcome Mika Nishimura to our board of directors. Mika brings a wide range of financial, strategic, and commercial leadership expertise, having launched disruptive medical technologies around the globe. Most recently, Mika was vice president of commercialization at Envision Medical and currently an operational partner with Guild Healthcare Partners, a $1.2 billion life science-focused venture fund. Nika holds a BA in economics from Yale and an MBA from Harvard. With that, I will now turn the call over to Laura Francis, our Chief Financial Officer and Chief Offering Officer, to provide more detail on our financial results.
spk07: Thanks, Jeff. As founder of the business over 12 years ago, Jeff has been a pioneer for the use of IFUs to treat sacroiliac joint dysfunction. He's left an indelible legacy and will continue to be a valuable resource as our executive chairman. I'm honored and excited to lead SI Bone during this unique period of opportunity. Turning to the financials, fourth quarter total revenue of $22.1 million is increased 12% compared to the prior year period. U.S. sales of $20.7 million, which accounted for approximately 93% of total revenue in the quarter, increased 12% compared to the prior year period. International revenue of $1.5 million increased 15% compared to the prior year period. The quarter started off as expected with October revenues growing at a similar rate to what we experienced in the third quarter of 2020. However, in the back half of November, cancellation rates started to increase, driven by the resurgence of COVID-19 cases. In December, these trends worsened, resulting in roughly 90 U.S. cancellations in the month. We estimate cancellations in the fourth quarter represented an approximate U.S. revenue headwind of of $1.25 million, which does not include other procedures that were likely not booked in the quarter due to the surge in COVID-19 cases. COVID-19 was also a challenge in certain European markets, especially the UK. Although COVID-19 was a headwind in the quarter, we believe we will recapture many of the COVID-19 impacted procedures as infection rates diminish. We ended the year with 64 direct sales reps and 58 clinical support specialists. In addition, we ended the fourth quarter of 2020 with a record 588 active surgeons, up from 539 in the fourth quarter of 2019, and 567 in the third quarter of 2020. Cost margin for the fourth quarter of 2020 was 90%, compared to 90% in the fourth quarter of 2019. Relative to the third quarter of 2020, gross margins increased by approximately 300 basis points, driven primarily by management of operations expense as revenue recovered. Operating expense increased 6% to $27.7 million in the fourth quarter of 2020, compared to $26.3 million in the fourth quarter of 2019. The increase in costs was primarily driven by higher employee-related costs and stock-based compensation due to higher headcount, mainly from sales hiring. We also made additional investments in research and development for our new product launches planned for 2021, as discussed previously by Jeff. The increase was partly offset by a reduction in general and administrative expenses in the fourth quarter of 2020, primarily due to the accrual of estimated settlement costs of the TCPA class action lawsuit of $600,000 in the fourth quarter of 2019. Our operating loss for the fourth quarter of 2020 was $7.9 million compared to an operating loss of $8.5 million in the fourth quarter of 2019. Our net loss was $9 million, or 28 cents per diluted share for the fourth quarter of 2020, as compared to a net loss of $9.1 million, or 36 cents per diluted share in the fourth quarter of 2019. To further strengthen our balance sheet, we completed a follow-on offering with net proceeds of $71.6 million in October of 2020. Cash and marketable securities were $196.4 million at the end of the fourth quarter. Based on our current operating plan, we believe that our existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements. Now, I'd like to provide our 2021 outlook. While encouraged by the strong underlying momentum in our business, we remain cautious given the uncertainty surrounding COVID-19 cases and the potential negative impact on hospitals and ASCs. Our guidance is highly sensitive to assumptions on global recovery, which anticipates more normalized case scheduling and elective procedure levels progressing throughout the year. Based on these assumptions, we expect total revenue of $92 to $94 million, representing growth of 25 to 28% compared to full year 2020. Additionally, we expect to end 2021 with approximately 90 direct sales reps and 60 clinical support specialists, up from 64 and 58 respectively in 2020. Lastly, we expect gross margin to trend toward the mid to high 80% range in 2021 as we increase spend in operations to support growth of the business. I will now turn the call back over to Jeff for closing comments.
spk03: Thank you, Laura. In closing, our confidence in the opportunity in front of us for the business and for shareholders is stronger than ever. With the additional funding we have put in place and an accelerated investment and growth plan, most importantly, it will help us achieve our mission to help many more patients. Direct-to-patient initiatives, increased surgeon training, additional field sales personnel to educate and support the surgeons, New product development and automation and scaling initiatives are the five key focus points of our investment strategy. With reimbursement broadly established in the U.S., we believe that now is the time to invest in substantial growth in our market, and as the market leader, we and our shareholders will be the beneficiaries of that market expansion. Thank you for joining the call today. We will now open it up to questions. Operator?
spk05: Thank you. And ladies and gentlemen, as a reminder, to ask a question, just press star 1 on your telephone keypad. To withdraw your question, press the pound or hash key. Again, star 1 to get in the queue. Our first question comes from David Lewis with Morgan Stanley. Your question, please.
spk01: Thanks, and good afternoon. First, Jeff, congratulations on building a fantastic company and creating a dramatic amount of value. You will be missed. And, Laura, congratulations on the new position.
spk09: Thanks, David.
spk01: A couple of things here. I want to focus on guidance and then the pipeline here. So a couple of questions on guidance. The first is just, rather, Jeff or Laura, what did you see throughout the – we're getting pretty late here in the first quarter. So what transpired in the business sort of late – February into March, because consensus kind of has your business down kind of 10% sequentially. What are you seeing in the business February, March, and what's the relative comfort at that sort of $20 million level kind of building off of to start the year?
spk07: Maybe I can... Sure, go ahead. Do you want me to start, Jeff? Okay. Okay. So I'll just talk about the quarter in general. And from a from a January perspective, if you call this the third COVID surge, I would put January as the trough, you had the highest cases that were out there, there were issues in the hospitals, there were issues with elective procedures in hospitals, and there was also patient concern. And so we actually experienced a decline in the month of January in our business for the first time since April of 2020. But then in February, we started to see a return COVID started to abate. And so we had, you know, fewer canceled cases in February, although to be honest, February was impacted. by some of these ice storms as well. We saw a lot of cases that were canceled to be rescheduled, and so it did tend to be in the Texas area in the mid part of the country where there were some issues. But we did see positive growth in the month of February. And then, as you know, we look at our case bookings, honestly, every single day, but Certainly, at the very beginning of the month, we just take a look at where our case bookings are at. Our case bookings are at a historic high for March. They're the highest that they've ever been at the beginning of the month. What appears to be happening is that, like I said, you saw this trough in January, a return to growth in February, and then a very strong start to March. If you take all of that information and you link it to our guidance, you know, what we're saying is we don't think that March is going to make up for what we saw in January and February, but we're starting to see the rescheduling of those cases that were canceled in Q4 as well as those cases that were canceled in January and February. Okay.
spk01: Okay, that's super helpful. And then I'll just ask my next two, and I'll jump back in queue. One is another guidance-based question. So I look at 21 guidance, and I appreciate you providing guidance because, in fact, many of your peers did not do so. But, look, it represents 40% growth, 21 over 19, you know, 20% per annum growth, which I frankly think the underlying business is probably tracking higher than secondarily. So in just 21 guidance, it's 20% per annum growth. But then sequentially, Laura or Jeff, if I back out stocking and – The backlog, it's kind of 20% growth into the fourth quarter, which is pretty robust, suggesting kind of 21 guidance is a little conservative. So what kind of went into that 21 number, I guess, is the question on guidance, kind of first half versus second half. And then, Jeff, maybe for you, just, you know, I don't think anyone really is focusing on significant impact from the fixation business. But now when I think about diligence we're getting from fixation, from bedrock, and then the second-generation launch we have in the second half, I sort of feel like this can be a much bigger part of the business, 22 and beyond. So let me just sort of share your thoughts on what percent of the business that could be or some of the trends you're seeing there. Thanks so much and sorry for the connection problem.
spk03: Yeah, no worries. Laura, you want to take the first one and I'll do the second?
spk07: That's perfect, yeah. So in terms of how we thought about the guidance, what we were taking into consideration is the impact of COVID-19 you know, early in this year. And then what we're assuming is that COVID will diminish with each sequential quarter as vaccine availability improves and patients begin to seek elective care in typical levels. So the assumption here is that we will see more normalized case scheduling and elective procedure levels beginning in the second quarter of 2021. So I hope that's helpful information. And, Jeff, maybe you can answer the second question.
spk03: Sure. So, David, as you know, there are three parts to business. The core SI joint fusion business, they're very solid, feeling great about it. And the fixation business or the adult deformity space, which I think you're just generalizing and calling fixation business, So it's turned out that this is not an easy cell, but a very straightforward cell. And in fact, surgeons understand the dynamics of the situation in that there is 29% some kind of complication with these adult deformity cases at the base of the spine. The biomechanics are very clear that they're is additional adjacent segment, uh, disorder effect from that. And we're engaged with dozens and dozens of surgeons across the country that are very excited about this particular area. Uh, and so, uh, you know, although it was, uh, not a huge part of the business, uh, in 2020, um, we certainly expected to, um, be a growth driver for us in 2021 and 22, particularly as we, you know, as you know, the bedrock technique is more of a technique with the same product that's longer. But as we introduce the next generation product later, late this year, we can envision not every surgeon, But any surgery we believe that goes to the sacrum we think will benefit from our next generation product or even from the current bedrock technique. So I don't think we've had but a handful of surgeons who say that's not necessary. The vast, vast majority think this makes complete sense. No one has anything like this, and when you see our next generation product, I think it has the chance to become a very standard product of adult deformity, which is a good-sized market. And then on the trauma side, as we've said, we're going to introduce the trauma and SI joint fusion core product, the first half of this year. So you will see that in the not-too-distant future, and we believe the reception for that product is going to be very robust. Trauma screws have had no invention to speak of, as we see it, and there are lots of aspects to improve the capability of trauma devices. And I think we've incorporated lots of those things in this new product line, and we think it will also help grow the business in our base SI joint fusion business. So on both fronts, we are quite excited about both. And most importantly, it's because the surgeons that we've engaged in with all the labs that we've done out there testing the product, trying the product, iterating the product, have made great progress. And Tony Recupero and Nick Kerr, who have led that charge, along with our engineering team led by Scott Yerby, have just done an extraordinary job setting those product lines up based on the needs out there, not on what we thought but what on the needs were.
spk01: Great, Jeff. Laura, thanks so much. You're welcome.
spk05: Thanks, David. Our next question comes from Bob Hopkins with Bank of America. Your question, please.
spk02: Oh, great. Thanks, and good afternoon. I appreciate the call here. A couple things just following up on David's questions. I'm sorry if I missed this, but, Laura, I'm just curious, relative to where consensus is for the first quarter, is that a number that you're roughly comfortable with?
spk07: So if you take a look at where the numbers are currently at, and I think that consensus was at around 94.8 million for the year, we are providing guidance of 92 to 94 million.
spk02: Certainly a good portion of that difference is related to the first quarter.
spk07: And so if you think about what I said about January and February, we actually had a decline in the business in January and then a return to growth in February, and we see a very strong march, but not to the levels of making up for what happened in January and February. So lower numbers in Q1.
spk02: Got it. No, no, thank you. I apologize for interrupting you. That was very clear. No worries. And then something else you said in response to David's question really caught my attention, though. Case bookings for March are the highest ever. Could you just, by ever, do you mean heading into any month in the history of the company?
spk07: Heading into any month of the company ever.
spk11: Okay.
spk07: And so what it tells me is that we're seeing cases return to more normalized levels But then on top of it, we're seeing these rescheduled cases coming in. That's what I believe is happening based on looking at our bookings. So kind of similar to what we saw a year ago in Q2, you certainly didn't have the trough that we saw in March and April of last year. But as you may recall, our April was a decline. Then May we saw and then we started to see very strong growth in June and July, which included those new cases as well as the rescheduled, and this feels like the same exact pattern once again.
spk02: Okay. Is that well-balanced across the country, or is it you've got a couple of really active places and then a couple that still need to catch up from a booking perspective? Yeah.
spk07: You're right. It is still variable by region. So, for example, our southwest region is still a little bit behind where we would have expected for it to be. So Southern California, those areas still appear to be challenging, but most other areas of the country we're seeing a very nice rebound.
spk03: Okay. That's helpful. And the same kind of thing, Bob, in Europe, where we're seeing countries like France and Germany doing really, really well, but the U.K. is trailing because of COVID. Yeah. But, you know, the U.K. was coming on so strong before COVID, we expect that to have once that dissipates, we would expect that to be a major contributor in a very positive way once we get a little farther down the road with the vaccines.
spk02: And then for Laura or Jeff, the launch that's happening in the first half of the year on the trauma side, can you just spend a quick second on you know, exactly what you're launching and maybe set some expectations, like how big, how do you quantify this market opportunity? Just a little more color on the first launch that you're scheduling on the trauma side. And that'll do it for me. Thank you.
spk03: Yeah, sure, Bob. So, you know, what we've said is that the device that will be used both on the trauma side and the core business is Um, you know, we, we have, uh, gotten clearance on that product. So we're just ramping up training and getting ready for the launch and inventory and that kind of thing. So, uh, we're, we, we have it almost ready to go. Um, so we'll certainly launch it in the first half. Um, but it's in, in the trauma space, it's for, uh, It can be used for fixation of either small or large bones, and that could be either in high energy fractures or low energy fractures, depending upon the particular circumstance. So it'll be, I think, a very effective capability to fixate bones in the trauma space we think better than anything that's out there in the marketplace today. And then in the core business of SI Joint Fusion, we're seeing, we think there's a significant capability or opportunity there to augment our leadership product in certain circumstances. And if you just be a little patient with us, it's not that far off that we'll launch that product.
spk02: Okay, great. Thank you very much, and congrats all around.
spk05: Thanks, Bob. And our next question comes from Kyle Rose with Canaccord. Your question, please.
spk08: Great. Thank you for taking the questions. So I just wanted to ask a little bit more about the simulators. I mean, it sounds like that's obviously a huge initiative. You've got a lot more simulators coming on by the end of the first half. Can you just maybe help us understand how that changes the ROI of your marketing and education programs? Does it allow you to take a wider shot of surgeons? Does it allow you to go deeper into specific territories and accounts? I'm just trying to understand what that looks like and then how that productivity with the simulator varies with some of your prior historical in-person cases. I'm just trying to understand that. the onboarding and the productivity opportunity here.
spk03: Yeah. So, Bob, Laura, why don't I start and then you can add in. You know, with the new simulators, because they're so convenient where you can train anyone in their office without any radiation, it will absolutely expand the number of people that we train and do so cost-effectively, Kyle. So, you know, if we're – You know, training someone who we think is going to do a case and you've got to fly them to, you know, three hours and, you know, it can cost thousands of dollars. Here, you know, if we think someone's going to do a case, it costs us very little to go and train them. So we can go wide. It's also from a productivity standpoint a much greater capability because, you If you think about the numbers, and you have, let's call it 20 simulators out there, and they're used 50 weeks a year, and they're used a couple of times a week, you can trade as many as a couple of thousand surgeons. And if you train a couple in a session, the numbers go up. So it almost gives us a limitless capability to train as many surgeons as want to get trained. It's also, you know, as we've said in the past, interesting to see how many surgeons are interested in the technology because it allows you to, you know, look at your progress along the training way. So with the cadaver lab, you put the screws in or you put the implants in, I should say, and, you know, you really can't see exactly where they are until the end. Here you can all along the process take as many pictures as you like without any radiation. So it's a very attractive thing. And I think the trick in the whole thing is to make sure that we're choosing good surgeons and using our time effectively. But this makes the ability to widen the number much easier.
spk08: Great. And then I think earlier this year, I think it was maybe on the Q2 or the Q3 call, you talked about some agreements with some of the larger chain, ASCs, outpatient centers. Just maybe comment on what type of trends you're seeing as far as the location of procedures in the 2020 and kind of how you think about that evolving in 2021. and then how that might influence pricing and ASPs on a per procedure basis.
spk07: I can talk a little bit about that, Jeff. Yeah, sure. So our sales in ASCs have continued to climb. We're getting close to 20% of our sales that are now in an ASC setting. And we think it is a very important setting for our procedure, given the simplicity of the procedure. as well as the surgeon's desire to be in an ASC in certain cases. And so we are continuing to see a trend in that particular direction.
spk08: Great. Thank you for taking the question.
spk05: Thank you, Kyle. Our next question comes from Dave Turkley with JMP Securities. Your question, please.
spk04: Yeah, congrats again on the executive leadership changes. Maybe, you know, you've shown some really good progress of late with the active surgeon, you know, getting increase in that base. I was wondering as we look to the 21 guide, is there any color in terms of how many you think you'll need to add to get to that 25% to 28% growth? Is that, you know, you mentioned the rep ads, but I'm curious as where you think that stat plays into sort of your forecast and should we expect, I don't know, over 100% new surgeons to become active this year?
spk07: Yeah, it's a good question. So in terms of how we're at least starting to think about active surgeons, we're looking at historical patterns. And historically what we've done since we went public is we've increased both the number of active surgeons that are using our products as well as the number of procedures that the active surgeons are performing. So, for example, when we went public, on average, an active surgeon was doing around three cases per quarter. Instead, now they're doing close to four cases per quarter instead. And so what we were baking into our guidance is an assumption that the increase in the active surgeons would account for the majority of that growth, but that there would also be some additional growth in the number of procedures being performed per active surgeon.
spk04: Got it. And Jeff, I think I heard you say the word profitability there. So my follow-up would be, as we look to 21, should we expect more operating leverage? You've been showing some of late. I know you've cut down the spending and I mean, that's a hefty growth rate you've forecasted for the year, but I guess just any color in terms of a bigger or smaller loss in 21 directionally and anything you want to add. Thanks so much.
spk03: Yeah, you're welcome, David. So we've said in 21 we are going to increase the loss a bit. So we haven't slowed down the spending at all. And as Laura shared earlier, you know, our guidance for the year is just a little bit less because of the Q1 effect of COVID and these storms in February. So, you know, net-net, we're going to widen the loss. You know, when we think about 2022, you know, we feel like, okay, now we can get back to hopefully to a more normal world and and get leverage in the businesses. And as you saw, the gross margin is holding pretty strong with 90% gross margins. And we certainly expect it to decline going forward somewhat. But we are going to have a wider loss this year because of the increased accelerated spending plan and the slightly less revenue forecast because of COVID. Thank you. You're welcome.
spk05: Our next question comes from Kayla Crump with Trist. Your question, please.
spk06: Hi, guys. Thanks for taking our questions. So just to follow up on the two new product launches coming, can you just give us a little bit more detail as to how meaningful these launches can be, mostly how you're incorporating those new products in your guidance as it stands today. And then just on the margin side, how should we think about growth margins just as these new products are being rolled out and over time?
spk03: Yeah. So, Kayla, I guess I'll make two comments, one on market opportunity. The second one is on market penetration, and I'll let Laura talk about margins and those kinds of things. The first one is in base SI joint fusion, the markets call it $2.5 billion, and it's still less than 10% penetrated. In the trauma and the adult deformity space, we think those markets are hundreds of millions of dollars each, and we think those are almost not penetrated at all because the whole opportunity is, we think, in front of us because it's a better product. So in putting in S2AI screws, in adult deformity patients has not been a great adventure. It's been fraught with a bunch of challenges, and we are sure that our capabilities will be much better than that. And more importantly, the surgeons think that. So, you know, the penetration rate is very low there as well. So I think in all three markets, you know, there's just tons of opportunity. But, you know, from a relative basis, you're talking about $2.5 billion and you're talking about a few hundred million and a few hundred million. So that just gives you a picture of market size, market penetration, and then Laura can talk a little bit in general about the gross margins.
spk07: Yeah, so I did give a little bit of information on gross margin in the script and what we're expecting is that gross margins are going to continue to move a little further downward. First of all, it's hard to keep up a 90% gross margin, which we had in this last quarter. We've obviously been very careful about our spend throughout the COVID challenges, and given how high our gross margins are, we don't want to lose business based on margin. And then we talked a little bit about ASCs previously, and there does normally tend to be a little lower price that we get in an ASC, but we have seen ASCs as absolutely critical sites of service. We're growing business there. We're growing market share there. And so they've been a very important place for us to sell Getting to your question about the new product launches, the new products in certain cases may contribute to lower gross margins as well. In some cases, we'll be using two implants versus three implants with our surgeons depending upon which product we're talking about. For example, right now our Bedrock product uses two implants versus the three in our typical eye fuse procedure. And so for all of those reasons, we are providing guidance that say our gross margins should be expected to be in the mid to high 80% range.
spk06: Got it. Now that makes a ton of sense. And then you guys are, I mean, you're hiring quite a bit. You've promoted some folks in sales and you've added new leadership. So do I mean, first, what are you sort of expecting the cadence of sales rep hires to be over the course of this year? You know, it sounds like they'll be more front half weighted. And then have you made any sort of material changes to Salesforce compensation or priorities this year as compared to last? Thanks for taking our questions.
spk03: You're welcome. You know, from a hiring standpoint, you know, we – We are continuing to aggressively hire Kayla. But the hiring done during this year really will affect 2022. But we absolutely believe it. I mean, it's a base to put more feet on the street, particularly when we're going to have three different areas SI joint fusion, adult deformity and trauma. We need more people out there to support those surgeons. We haven't slowed down the cadence. The management team is hard at work trying to bring on and successfully bringing on some really fantastic people. With regards to compensation, I think we've shared with you in the past that the sales force is mostly compensated on commissions related to the revenue that they bring in, but they also have a component that is associated with training to encourage initiatives and efforts in that particular area, which yields fruit down the road. And they're completely bought into that. They understand that. We have a very sophisticated group. And I think Tony and Troy have done a great job making sure everyone understands the plans. And I think, you know, more of the same is the right thing to do.
spk05: Thank you, guys. You're welcome. Our next question comes from David Saxon with NIRAM. Your question, please.
spk09: Yeah, good afternoon, everyone, and thanks for taking the questions. My first one is just on, yeah, hey, Jeff. Just on the fourth quarter, I think you said you had about 150 cancellations, and it sounds like you also had a lot in January. So just wondering, you know, how many you expect to come back and over what period of time? And then just looking at guidance, I guess, you know, what does guidance assume in terms of how many come back?
spk07: So I can give some information on the fourth quarter. I mean, you're right, David. We saw around 150 in the fourth quarter, and then we saw more in January and February. And what's difficult about those numbers that we're providing in terms of cancellations are those are only the ones we're aware of. And, you know, what that means is that there are probably a lot more cases that never made it to us. They never got on our books because the surgeon, you know, never booked them or they were canceled before they actually came to us. So we think that, you know, those numbers provide a good proxy for us to understand what was going on, especially related to COVID. but they certainly don't tell you the extent of the issues that our surgeons were having due to COVID. In terms of the return of the business, that's another interesting question, and that's why we felt it was important to provide month-by-month commentary to you and then do a comparison of what happened in mid-2020 when there were COVID issues. So like I said, January looked like a trough. February, we start to see the return of growth on a year-over-year basis to the business. And then March, we are seeing the highest bookings we've ever had in the history of the company just for this particular month. And so what does that mean? It likely means that we're seeing those rescheduled cases coming back in. So When this happened a year ago, we saw in the month of May a return of the business, in June very high growth, in July very high growth, and then more moderated growth in August and September. So it really takes around 90 days to get back a good portion of those rescheduled cases. And, you know, we are assuming that we should be able to see those cases coming in. Now, if there continue to be issues in certain places, that question was asked about are there still problem areas. There definitely are. You know, if there are resurgences or, you know, other things where COVID continues to impact the business, you know, we didn't want to really bake all of that into the guidance. So instead, as I said, what we did was we We assume that, you know, Q1 was impacted in January, February, and that we would see this move back to more normalized case bookings in the second quarter and then further improving in Q3 and in Q4.
spk09: Great. Very clear, and thanks for that color. My second question is on the direct marketing campaigns. Can you just talk a little bit more about those and how are you measuring the success of those initiatives? And is there any way you can use these as an incentive to get doctors trained in the regions you're targeting initially? And thanks so much for taking the questions.
spk03: Sure, David. So there, as we mentioned, you know, there are a number of TB ads running in multiple cities. We really measure it by how many patients call the call center and ask for the names of a few surgeons to make an appointment with, as we always give out multiple names in a particular locale or near that person's or patient's zip code. And, of course, we would do our best to track those patients through to measure the programs. That said, we've done some testing. I would say we've upped our game tremendously by bringing in Brian Brovolite, who has, with his advertising agency experience, seen lots of these programs across many, many companies. His experience at Kellogg, obviously one of the better consumer companies in the world, and his medical device experience. So I feel like, okay, we've taken the ball about 10 yards down the field, and we're going to give it to Brian along with the rest of the team who's done some great initial work, and we will hone it a lot. So I think we're going to get some readouts from the initial programs, but I expect Brian and the team to refine this program tremendously over the next six months, 12 months, so that it becomes an important part. I think it's strategically an important part of the business to be able to get to patients, to get them to understand that there is a robust, clinically effective procedure out there so that they don't have to get injections over a long period of time and that they actually can get fixed and stop going to the doctors. and so I think it's a very exciting message. I think they've done, as I said, a great job starting with the program, but I think for us to really get a great feel of how the program's working, I think if Brian was here, you know, nudging me, he'd say, you know, I'm really not going to know how this whole thing works in crisply for, you know, nine to 12 months, and But we absolutely fervently believe that it's going to be a driver in the business, certainly in 2022 and 23. Great. Thank you.
spk09: You're welcome.
spk05: Thank you. Our next question comes from Brandon Flokes with Kemp or Fitzgerald. Your question, please.
spk11: Hi. Thanks for taking my question. Congratulations on another good quarter. Maybe just one.
spk00: Thank you.
spk11: A lot of them have been answered. how should we think about Salesforce productivity ramping up in 2021 and maybe exiting 2021? Jeff, I know you touched on sort of 2022 is where we get the sort of full impact of the highs this year, but maybe just some color in terms of how we should think about the ramp in productivity this year for sales reps. Thank you. Yeah.
spk03: You know, As we've said, it takes about 12 months for a sales rep to start to chip in meaningfully. That said, productivity is a funny thing in the sense that if you add a lot of sales reps, the denominator gets larger. really what we think about is the whole structural initiative that Tony is driving forward with his management team along with the field team and saying when people get up there to a million two, million three, million four, how do we give them help so that they can grow the territory? And you can read within the numbers that Laura shared about the number of people we put in place. We have and we will continue to put in more support people that help drive the productivity of the sales rep. So I don't have any specific numbers because, you know, certainly we track it every single month, but I'm reluctant to share how the productivity is going to be forecast, you know, over the next year. But suffice it to say, with more products, more sales reps, the simulator training. We feel great about the productivity of the Salesforce. I think the Salesforce is very excited about what's going on in the field with the simulators, how that's really assisting them. They're excited about the new products. They've been exposed to those products and and they're excited about how our baseline product is doing in the field. So I think the enthusiasm in the field is what really gives me and Laura a great feeling about how the productivity is going to develop across the entire company and as an organization.
spk09: Great. Thank you very much.
spk05: Thanks, Brandon. You're welcome. And this concludes our Q&A session for today. I will pass the call back to Jeff Dunn for his final remarks.
spk03: Thank you, Carmen. And thanks for everyone for joining today. We're excited about what's going on, obviously. We're more excited about, you know, getting back to a normal game plan without COVID in the way. We feel like we've set up all kinds of great things with reimbursement with the people, with the simulators, and hopefully soon we'll actually get to show you, the shareholders, our real colors. Nothing wrong with our growth in the past, but I think if we can get this out of the way, we can really, under Laura's leadership, deliver some really great shareholder value. So thanks again for joining. Have a good rest of the day.
spk05: And with that, ladies and gentlemen, we thank you for participating in today's conference. You may now disconnect. Have a wonderful day.
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