SI-BONE, Inc.

Good afternoon, and welcome to S.I. Bones' third quarter earnings conference call. At this time, all participants are in listen-only mode. We'll 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 Marisa Weiss from the Gil Martin Group for a few introductory comments. 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 September 30, 2022. 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 duration of secondary impacts of the COVID-19 pandemic, the facility staffing shortages, whether the COVID-19 pandemic will occur in the future, and our ability to effectively commercialize new products going forward. Other forward-looking statements include our examination of operating trends in our future financial expectations, such as expectations for hiring, surgeon training and adoption, active surgeons, new products, clinical trial enrollment, and reimbursement decisions, and are based upon 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 factor section of our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. SI bone disclaims 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, November 7, 2022. And with that, I will turn the call over to Laurel.

Thanks, Marissa. Good afternoon, and thank you for joining us. For today's call, I'll provide a business update And Anshul will provide additional detail regarding our financial results. Before I cover our third quarter results, let me provide an update on recently published CMS final rules for calendar year 2023 hospital outpatient and ASC payments. On November 1st, 2022, CMS posted the calendar year 2023 rule for hospital outpatient and ASC payments. Based on the final rules, calendar year 2023 facility reimbursement for minimally invasive SI joint fusion procedures performed in ASCs and hospital outpatient settings will increase by approximately 26% to $17,109 and 33% to $21,898, respectively. Today, 80% of our minimally invasive SI joint procedures are performed in an outpatient setting or at surgery centers. As these procedures continue to move to ASCs, the higher reimbursement in 2023 could potentially serve as a tailwind to demand and also allow us to maintain our pricing at these sites of service. Now, moving to our performance in the third quarter of 2022. I'm very pleased with our strong execution, which resulted in record revenue driven by continued acceleration in procedure demand and robust surge in interest in our portfolio of solutions. In the third quarter, we generated worldwide revenue of $26.4M, reflecting approximately 19% growth compared to the third quarter of 2021 and 3% growth compared to the second quarter of 2022. In the U.S., our revenue grew 21% compared to the prior year period to a record $24.6 million. This revenue was driven by 25% U.S. procedure volume growth in the quarter. The continued increase in our U.S. procedure volume throughout 2022, while the healthcare system has continued adjusting to staff limitations, reflects strong demand for our solutions. In addition to accelerating top-line growth We gained operating leverage across our organization as our revenue growth significantly outpaced operating expense growth alongside a material sequential reduction in cash outflow in the quarter. With reimbursement tailwinds, expanded indications, and strong surging engagement across our differentiated product portfolio, I'm very excited about our potential to further accelerate growth. Our strategic investments in scalable infrastructure over the last few years provide a strong foundation to support our top-line growth, and drive incremental operating productivity as we get into 2023. Now, let me provide an update on our key initiatives as we look to extend our leadership position and drive strong long-term growth. Starting with our sales infrastructure, our dedicated sales force remains an important driver of growth as we expand our core market and grow our presence in trauma and adult deformity. Our sales force at the end of the third quarter included 85 territory managers and 72 clinical support specialists. With an increasingly seasoned sales force, our average trailing 12-month revenue per territory manager has increased by more than 10% since the start of the year. With our expanded portfolio, we're leveraging our growing distribution network for case coverage and selectively evaluating consignment strategies of high-volume hospitals. We're confident that this hybrid approach will complement our territory manager efforts and create additional capacity to drive surgeon engagement, ensure high-quality support for our surgeons, and continue to deliver strong and consistent top-line growth. Moving on to surgeon engagement, we ended the third quarter with a record active surgeon base of over 800 surgeons. This equates to approximately 27% growth in our active surgeon base over the comparable period in 2021 and approximately 12% growth sequentially. We've now seen seven consecutive quarters of double-digit year-over-year growth, which is a testament to our focused execution in education and outreach over the last several years. Surgeon adoption is one of the best leading indicators of long-term procedure demand. Additionally, we continue to experience a growing surgeon overlap across our various products. For example, in 2022, over half of our active surgeons who performed an adult deformity procedure also performed a minimally invasive SI joint fusion procedure using our solutions. We expect higher surgeon utilization as the synergistic surgeon base continues to grow over time. With the trauma indication expansions for ICU's TORC and the launch of ICU's bedrock grant, we're continuing to invest in surgeon education to drive engagement and activation. We've also experienced a steady increase in the adoption rate of surgeons who have been trained on the simulator, which remains a valuable component in our surgeon training program. Moving forward, we'll continue leveraging our simulator training along with in-person local training and regional training to drive cost-effective surgeon engagement. We continue to expand our academic programs to educate residents and fellows. Since inception of the program, we've held training events at approximately 200 academic facilities in the United States and trained approximately 1,200 surgical residents and fellows. We're also expanding our trainings into new academic centers as we've seen a growing interest in our products among surgeon educators in new facilities. Education on bedrock and IQ's bedrock granite in deformity are now integral to each training, and we're adding content on IQ's TORC trauma applications. We're encouraged by the increase we're seeing in adoption by previously trained residents and fellows as they start practicing. Year-to-date, the number of fellows and residents who have completed a first case has more than doubled compared to this time last year, while their procedure volumes have increased four-fold. Turning to products and solutions, our focused execution has resulted in nearly 3,000 surgeons worldwide performing over 75,000 procedures since the inception of the company. Expanding our platform of sacral pelvic solutions to address SI joint pain, spinal pelvic fixation, and pelvic trauma has been a key tenet of our strategy, and we've made substantial progress on this mission year to date. With iFuse 3D, iFuse Torx, And now, IQ's bedrock granite, we believe that the value of our innovative, versatile, and complementary product portfolio provides surgeons with a comprehensive set of alternatives and positions us as the top choice for surgeons for sacropelvic solutions. IFUSE Torque continues to exceed expectations with another quarter of record revenue. IFUSE Torque has been an important addition to the portfolio and provides a complementary option to IFUSE 3D for our existing surgeons and has been a valuable asset to convert users of competitive screw systems. In trauma, while preliminary, we're seeing an uptick in the application of IFUSE Torque to treat sacral fragility fractures. based on the FDA expanded clearance in June. There are approximately 120,000 of these injuries per year in the United States, most of which are currently not treated surgically. The fragility fracture market is a recognized unmet clinical need and is of strategic importance to us as the sacral pelvic solutions leader. Over 75% of patients with fragility fractures are currently treated with bed rest with a high cost for rehabilitation. and involving significant complications, deterioration, and overall health status in many cases, and a 25% one-year mortality rate. In addition to orthopedic trauma surgeons, many fragility fracture patients are seen by our spine surgeons. We continue to invest in surgeon training and instrument training confinement opportunities as we build out the trauma business, which we believe will be an important avenue for growth over the long term. In September, we also received FDA clearance for IFUSE TORQ to include fusion in conjunction with spinal pelvic fixation. Considering the successful launch of IFUSE bedrock granite, this expansion was important as it allowed IFUSE TORQ to complement IFUSE bedrock granite as a second point of fixation of the joints in the sacro-alar iliac trajectory, which, from a biomechanical perspective, is important to attain fusion. We're excited about the success of iFuse Bedrock Granite, driven by strong surgeon interest in adopting the product and making it a standard of care for stabilizing the base of lung constructs in adult deformity procedures. This was highlighted at a recently conducted spinal pelvic think tank meeting in San Diego. The meeting was hosted by Dr. David Pauly from the University of Minnesota, Dr. Greg Mundus from Scripps, and Professor Jean-Charles Louet from Bordeaux University and attended by approximately 20 leading spinal deformity surgeons. We're pleased with uptake of Granite despite our early stage and launch cycle. Additionally, Granite is providing a significant pull-through opportunity for the overall portfolio as a subset of surgeons are using some combination of our products to achieve two points of fixation across the SI joint on either side. resulting in a higher procedure average selling price. Given the positive experience with IQ's bedrock granite, we've seen surgeons expand the use of the product to stabilize the base of shorter multi-level constructs used in procedures to treat degenerative spinal conditions. Approximately one-third of our IQ's bedrock granite cases have been used in two- to four-level procedures, There are approximately 100,000 short construct procedures to the pelvis per year in the United States. Based on expanded use of ICU bedrock granite and short constructs for certain patients, this could result in an exciting opportunity for us to further expand our total addressable market. Given the broad spinal deformity surge in demand and support for IQ's bedrock granite, we continue to successfully work with major hospitals across the U.S. to get the product on the approved list. This process, which is typically for new and highly differentiated products, can take anywhere from a few days to a few weeks to complete, depending on the hospital procedures. We've also been working with our suppliers to optimize the workflow and address the challenges with near-term delays and adequate availability of implants. While the team is making significant progress on these workflows, both of these factors limited our ability to fully capitalize on the demand momentum in September and into the first half of the fourth quarter. On the clinical research front, in September, we enrolled the first of the targeted 120 patients in our Safran study. As a reminder, the SAFRN study is a prospective randomized controlled trial of surgery using IQ Torque device versus non-surgical management in patients with debilitating sacral fragility or insufficiency fractures. We anticipate results to be available in late 2024. Talking about our patient awareness initiative, in the third quarter, we continued to see high website traffic robust patient engagement, surgeon referrals, and our Find a Doctor low-care metric, while our cost of acquisition steadily declined. We view the Find a Doctor metric as a leading indicator of patient engagement and potential future demand. As a reminder, these outreach programs are targeted at patients in chronic, severe SI joint pain who have been in conservative care for an extended period. Our goal is to connect patients with surgeons in their area who perform mentally invasive procedures using our products. Before I turn it over to Anshul, I'd like to provide an organizational update related to an addition to our international leadership team. In September, we appointed Neville Lorimer as the vice president of international. Neville joined us from ConMed, where he was the general manager of the UK and Ireland, and has 20 years of experience in the healthcare industry, including over a decade at Stryker. Neville's experience across orthopedics, spine, and trauma will allow us to stabilize and grow our business in Europe, expand our international franchise, and further accelerate top-line growth. I'll now turn the call over to Anshul to provide more detail on our financial results.