SI-BONE - Q1 2024

Transcript

Operator (participant)

Good afternoon, and welcome to SI-BONE's Q1 2024 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 turn the call over to Saqib Iqbal, Senior Director of Investor Relations at SI-BONE, for a few introductory comments.

Saqib Iqbal (Senior Director of Investor Relations)

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 March 31, 2024. 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 SI-BONE's ability to introduce and commercialize new products and indications, SI-BONE's ability to maintain favorable reimbursement for its products and procedures, changes in payer requirements for authorization of procedures involving SI-BONE's products, the impact of potential economic weakness on the ability and desire of patients to undergo elective procedures, SI-BONE's ability to manage risks to its 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 our examination of operating trends and our future financial expectations, such as expectations for physician training and adoption, active physicians, 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 a 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, filed with the Securities and Exchange Commission. During this call, management may also discuss certain non-GAAP measures, including the company's Adjusted EBITDA results. For a reconciliation of these non-GAAP measures to GAAP accounting, please see the company's full earnings release issued earlier today. 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, May sixth, 2024. With that, I'll turn it over to Laura.

Laura Francis (CEO)

Thanks, Saqib. Good afternoon, and thank you for joining us. I'm pleased with our solid Q1 results, driven by continued robust procedure demand in the US across all our target markets. We delivered $37.9 million in worldwide revenue, representing growth of 16% over the prior year period. I'm particularly impressed with our performance in the Q1 when you compare to typical industry seasonality trends and our stellar performance in the prior year. The demand momentum was also evident in our impressive physician engagement trends. In the Q1, we maintained a near record number of active US physicians and completed a record-breaking number of new physician trainings. As we look at the rest of 2024, we remain enthusiastic about the revenue growth acceleration fueled by three key tailwinds.

First, the continued growth in our physician base, driven by the record level of engagement we're seeing. Second, building on a strong success of iFuse 3D and expanding adoption of TORQ across all our call points. Third, the exciting opportunity to leverage the expanded family of Granite implants with our active physician base to accelerate adoption within pelvic fixation and increase procedures per physician. In the Q1, we received 510(k) clearance from the FDA for our 9.5 millimeter diameter iFuse Bedrock Granite implant, with market-expanding indications for placement in the S1 pedicle and pediatric deformity. These are new but adjacent market opportunities for us. We launched this implant at the end of April with Dr. C.J. Kleck, a key opinion leader at the University of Colorado, Dr. Ali Mesiwala, a surgeon who guided the development of our Granite technology, and Dr.

Ronald Lehman, a nationally recognized expert in the treatment of adult and pediatric spine conditions at Columbia University, utilizing both open and closed head options, performing the first cases in the country. Given the high level of enthusiasm and anticipation in the surgeon community and among our commercial organization from Granite 9.5, as well as the 130,000 annual target procedures, we're confident that this line extension will augment Granite's pace of adoption.... The addition of Granite 9.5 is the continuation of our strategy, which we laid out in 2021, to build a broad portfolio of innovative products to address unmet clinical needs and accelerate our growth.

In the last three years, we successfully launched iFuse TORQ in 2021, Granite in 2022, a closed head Granite line extension in 2023, and now iFuse INTRA and Granite 9.5 in 2024. We've leveraged this industry-leading franchise of highly differentiated solutions to diversify our revenue streams, expand our call points, and create new markets in pelvic fixation and pelvic trauma. The impact of this strategy is reflected in our strong results since 2021, as we delivered 24% cumulative annual revenue growth and doubled our active physician base. Before I get into the details of our strategic priorities, I want to take this opportunity to recognize a major milestone in the company's history. We recently celebrated the completion of 100,000 procedures using our products.

We take pride in our market leadership and in execution, which includes focusing on education, market access, and awareness of sacropelvic conditions. We feel honored to work with so many impressive physicians who help give patients their lives back every day. Now, let me provide an update on our key initiatives as we look to extend our leadership position, drive strong long-term growth, and create shareholder value. Starting with sales infrastructure. Our sales, marketing, and professional education teams provide us with a tremendous competitive advantage. We're impressed with the continued effectiveness of our sales and commercial teams, known for their industry-leading expertise and extensive experience across our target markets. We've expanded operating leverage in sales and marketing infrastructure by creating hybrid models with select sales agents, while consistently delivering unparalleled support and education for our physicians.

This is evident in our P&L, with 3-year cumulative growth in revenue of 24%, while sales and marketing expense grew 14% during that period. We ended the Q1 with 85 quota-carrying US territory managers. We augment our territory manager bandwidth with clinical support specialists and third-party sales agents for case coverage. The expanded portfolio, as well as the hybrid commercial models, resulted in trailing twelve-month revenue per territory at the end of the Q1 of 2024 of approximately $1.6 million, reflecting 26% growth compared to the trailing twelve-month period end of the Q1 of 2023. We expect the annual revenue per territory to steadily grow toward $2 million. We plan to methodically add territories over the next few years to ensure we maximize the potential of our growing portfolio and facilitate deeper engagement with our physicians.

Moving on to physician engagement. We exited the Q1 with over 1,100 active physicians, an increase of over 150 active physicians in the quarter compared to the prior year period. The 16% growth in US active physicians over the Q1 of 2023 was the 13th consecutive quarter of double-digit year-over-year growth. With nearly 12,000 potential target physicians, we remain confident in our ability to grow our active physician base. Our sales force is also leveraging our growing portfolio of proprietary products to drive deeper physician engagement. In the Q1 of 2024, 15% of our active physicians performed more than one procedure type. With our Granite 9.5 implant targeting degenerative spine procedures, which account for a significant portion of the procedure volumes for our active physicians, we have an exciting opportunity to increase revenue per physician over time.

Since 2018, another important initiative to grow our active physician base has been our academic training programs. We've since trained nearly 1,600 residents and fellows, including over 250 in the current 2023/2024 academic year. We're excited to see strong adoption trends from these physicians in the quarters and years that follow their education. In the Q1 of 2024, strong adoption resulted in revenues from this group growing 50% compared to the prior year period. Turning to products and solutions, we have a demonstrated track record of building innovative and proprietary products and surgical techniques to address unmet clinical needs and improve patient outcomes. The sustained procedure volume growth we've experienced in the US substantiates the value of our innovation.

We have an active product pipeline with over 10% of our revenue being reinvested in development of new products and clinical evidence. We expect to launch differentiated products in the coming years to further extend our portfolio leadership and accelerate revenue growth. With applications across SI joint dysfunction, pelvic fixation, and pelvic trauma, iFuse 3D and iFuse TORQ give physicians access to industry-leading solutions when performing sacropelvic procedures. Over the last three years, iFuse TORQ has built on the success of iFuse 3D and been a key contributor to demand acceleration, as well as strong active physician engagement across all our target markets. As we engage select interventional pain physicians, we're leading with iFuse TORQ and also training them on iFuse INTRA, our allograft solution....

The interventional pain physicians have expressed their excitement about our comprehensive portfolio, as well as better surgical technique and intraoperative support that increase the likelihood of the best patient outcomes. Adoption trends in the Q1 suggest that iFuse TORQ has been the preferred implant for active interventional pain physicians. Based on this experience, as well as the guidance of our interventional advisory board, we're encouraged by the growing confidence of interventional pain physicians to adopt iFuse TORQ after being treated in the lateral transfixing technique when performing an SI joint fusion procedure, which is reimbursed under CPT code 27279. We're encouraged by the pace of iFuse TORQ adoption for treating pelvic trauma patients. Toward the end of 2024, we'll launch a complementary pelvic trauma product.

With over 120,000 sacral insufficiency fractures a year and a one-year mortality rate of up to 25% for the patients treated with bed rest, currently the most common approach, the trauma market will be a long-term growth driver for us. Within pelvic fixation, iFuse Bedrock Granite, our breakthrough device, continues to be a game-changing addition to our portfolio. We're just scratching the surface in terms of market penetration and adoption of Granite, and we're pleased with the increasing demand for the product. As we target 30,000 annual adult deformity procedures, we believe that Granite will become the standard of care for fixation and fusion of the SI joint, providing a strong foundation at the base of the long construct.

Since 2022, over 40% of our Granite case volume has been in shorter 2- to 4-level lumbar fusion procedures, typically used to treat degenerative spine conditions. The current adoption of the larger diameter Granite in these shorter level fusion procedures illustrates the increasing interest among the surgeon community to include pelvic fixation in high-risk patients undergoing these procedures. As I highlighted earlier, in April, we initiated our launch of the Granite 9.5 implant and are planning an expanded rollout in June. We believe that Granite 9.5, including shorter lengths appropriate for placement in the S1 pedicle, will provide a best-in-class offering for the approximately 100,000 annual fusions to the sacrum, as well as engage deformity surgeons who have expressed an additional preference for a smaller diameter implant.

Before I hand the call over to Anshul, I want to congratulate our employees for helping nearly 100,000 patients get their lives back. To our world-class team, your grit and relentless commitment enables us to develop breakthrough products backed by high-quality clinical evidence, educate payers and physicians, and ensure that the nearly 500,000 annual target patients have access to best-in-class solutions. Thank you for all that you do. With that, I'll hand the call over to Anshul to discuss our financial performance.

Anshul Maheshwari (CFO)

Thanks, Laura. Good afternoon, everyone. My comments today will be focused on Q1 revenue growth, gross margin trends, productivity, and liquidity. Additionally, all the comparisons provided will be versus the same period in the prior year, unless noted otherwise. Starting with revenue growth. Our Q1 worldwide revenue was $37.9 million, representing growth of 16%. US revenue also grew 16% to $35.4 million due to increasing US procedure volumes, with our procedure ASP in the Q1 being relatively flat. International revenue in the Q1 was $2.4 million, representing 8% growth. Moving to gross margin and operating leverage. Our gross margin for the Q1 was 79%. The gross margin reflects the impact of product and procedure mix, higher freight driven by revenue growth, as well as depreciation from deployment of additional instrument trays.

Operating expenses were $41.9 million in the quarter, representing 10% growth. The increase was driven by higher commissions related to revenue growth, impact from stock-based compensation, and research and development investments. The increase in operating expenses was also impacted by the timing of our global sales meeting, which was held in the Q1 of this year versus the Q2 of last year. Our net loss improved by 2% to $10.9 million, or $0.27 per diluted share. Net loss per diluted share for the Q1 of 2024 also reflects the increase in shares outstanding due to our follow-on common stock offering in May 2023. Our Adjusted EBITDA loss in the Q1 was $4 million, which was nearly flat compared to the prior year period. Turning to liquidity.

We exited the Q1 of 2024 with a robust balance sheet, including $157.8 million in cash and marketable securities. We delivered 30% improvement in our net cash flow from operations. Given our strong liquidity position, our relatively asset-light business model, and a clear line of sight to Adjusted EBITDA breakeven, we have the financial resources to self-fund our long-term growth priorities going forward. Finally, moving to our updated outlook for 2024. Based on our Q1 results, we are increasing our 2024 worldwide revenue guidance. We now expect 2024 worldwide revenue of between $164 million and $166 million, implying year-over-year growth of approximately 18%-20%.

Considering the potential 2x operating leverage in the business, we expect significant Adjusted EBITDA improvement for the full year 2024, putting us within reach of our Adjusted EBITDA breakeven goal. With that, I will turn the call over to Laura.

Laura Francis (CEO)

Thanks, Anshul. Based on the momentum in the portfolio, we're set up to deliver a strong 2024. As we look beyond 2024, we're confident that the combination of our commercial footprint, differentiated portfolio across multiple target markets, and planned new product launches in the coming years will allow us to continue delivering top-tier medical device revenue growth. With that, we're happy to take questions. Operator?

Operator (participant)

Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Young Li of Jefferies. Your line is now open.

Young Li (SVP and Equity Research Analyst)

All right, great, thanks for taking our questions. I guess to start, wanted to hear a little bit about the progress with INTRA since you launched the early feedback from it. I mean, it still sounds like TORQ is the focus for a lot of the interventionalists. And I guess I'm just kind of curious, you know, is the combined interventional portfolio opening doors to new physicians who weren't referring before? Is it expanding the market for you?

Laura Francis (CEO)

Yeah, thanks for the question, Young. And we are pleased with what we're seeing with the intra thus far. So we're still obviously very early in this journey, but we like the early results and how they're setting up, especially from the perspective of our strategy. We wanted to engage a subset of interventionalists and get access to this discrete and untapped patient funnel. As you said, this is additive to our current sales with our surgeons. So we're pleased with the level of interventionalist engagement and their interest in being trained with TORQ as well as with intra. We're not planning to break down revenue by physician or procedure type, but what's impressive is the adoption trends of TORQ with interventionalists as they're being trained in the lateral technique.

With intra, we're still in the early days, but we do believe that there's a subset of physicians who are going to be initially hesitant to use a metal implant, and so these physicians are going to be intra users. We're positioned to be a preferred partner to this call point, regardless of what their needs actually are. As a market leader, we really felt a strong need to address this market. We have the best commercial sales force. We have unparalleled educational and advocacy infrastructure. We have a comprehensive product portfolio, and we've gotten clear feedback from interventionalists that SI-BONE is highly respected for our market leadership position.

We are particularly impressed by the large number of interventionalists who are already working with us or have begun the process of getting trained.

Young Li (SVP and Equity Research Analyst)

All right, great. That's very helpful. I guess maybe to follow up, I wanted to ask about rep productivity. I think the territory managers are doing about $1.6 million. Before you had a goal of $2 million plus. It's more of a milestone, not a ceiling. But wanted to hear a little bit about, you know, as you get closer to that $2+ million range, you know, what's the next milestone or target you think they can hit before maxing out? And also, your agent base has increased a lot in recent quarters. Maybe thoughts on their contribution so far and adding more agents going forward.

Laura Francis (CEO)

Yep. Yep. So we are extremely proud of the 26% growth that we had in trailing twelve-month rep productivity, getting us up to the $1.6 million. And the commercial leadership team has done a really great job of leveraging hybrid commercial models here. So we have junior clinical support specialists that are working with our territory managers that help to identify new physicians as well as to cover cases. And then, as you said, we've also added a significant number of third-party agents that are also selling the product and covering cases as well. So that really has helped us to grow our productivity in a significant way. So really four key drivers to that productivity.

You know, first is just the caliber of our increasingly seasoned sales force, complemented with these hybrid commercial models. Secondly, our highly differentiated portfolio of solutions. Third, the synergistic physician call point, which is allowing us to drive physician density. And then finally, the increase in the field surgical capacity with the rollout of instruments and implants to reduce the logistical workflow.... So in terms of, you know, where we're going, you know, as I said, our intention is to continue to grow over time to that $2 million per territory manager level. We do have a significant number of reps that are already selling in excess of $3 million per territory, and so that's been a guide for us. And in some of those particular territories, they're actually working with two clinical support specialists.

In others, they're heavily leveraging third-party agents. And so those are just some of the ways that we're getting at this opportunity to continue to grow territory manager productivity. And they give us a lot of confidence that we can actually do more than where we're at currently. But overall, we're gonna continue to selectively add to our sales force and maybe exit the year a little with a little over 90 territory managers, but remain focused on driving strong, sustainable, and profitable growth. And we do expect that year-over-year sales force productivity to continue to improve in the year.

Young Li (SVP and Equity Research Analyst)

All right, excellent. Thank you very much.

Laura Francis (CEO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Craig Bijou of Bank of America Securities. Your line is now open.

Craig Bijou (VP of Equity Research)

Good afternoon. Thanks for taking the questions, and congrats on a good start. Anshul, maybe for you to start, you know, wanted to talk about, you know, expectations for operating expenses growth, and then even some of your comments to the last question, Laura, on sales rep spend. So or adding sales reps and, you know, what the spend would be. But would love to just kind of get your thoughts on operating expense growth for the rest of the year. And, you know, the comments on EBITDA, does that mean that we should, or we could see EBITDA, positive EBITDA in Q4 of this year? Is that something that's on the table?

Anshul Maheshwari (CFO)

Greg, thanks for the question. We're really pleased with how the quarter played out, both on the top line and also on the leverage side. So just to provide some context, you know, as I'd shared in my prepared remarks, the Q1 included the impact of our global sales meeting, the timing of that. You've got OpEx being a bit higher in the Q1 than you did prior year, because of when the global sales meeting happened. And what we've said in our remarks also is, we do expect to see revenue growth rate being 2x OpEx growth rate, sorry. So what that would imply is, if you think about the midpoint of the guidance at about 19%, you know, you're looking at OpEx growth of 9.5%.

And it's primarily driven by the higher commission rates that you could earn because of the higher revenue, and as well as some of the accounting on the stock-based side. So, you know, the leverage continues, and we feel really good about that. Now, in terms of, you know, Adjusted EBITDA breakeven, look, we're early in the year, and as we've always articulated, our strategy is to just have our results speak for themselves and get there in terms of Adjusted EBITDA breakeven timeline. And, you know, as we go through the year, we'll be able to provide more information on the progress we're making towards that breakeven.

But what I would leave you with is, we're feeling really good about the trajectory that we're on, and we feel good about our ability to get to Adjusted EBITDA breakeven and also very quickly to cash flow breakeven, given our asset-light model.

Craig Bijou (VP of Equity Research)

Got it. Thanks. Thanks for that. And then, maybe, as a follow-up, I did wanna talk about your guidance for the year. So you, you beat by, you know, roughly $1.5 million. I think that was the raise for the year. Obviously, good to see the raise, but, maybe if you can just talk about, you know, is that conservatism to start the year? What, what do you see, or how do you see the year progressing? And, and maybe a little bit on the cadence of revenue, and how should we think about that?

Anshul Maheshwari (CFO)

Yeah, no, happy to take that as well, Craig. So if you look at the midpoint of the raise, the midpoint of the raise is about $1.5 million from the prior midpoint, which is pretty much what we did in Q1 in terms of the upside on the performance. It is still early in the year, so you're right. You know, we just wanna be thoughtful. We've got a lot of things that are going in our favor when you think about the number of physicians that we're training. It was a record number of physicians that had their first training. Still seeing really good adoption on the surgeon side, seeing good traction on the interventional side, and with Granite 9.5 being sort of starting to roll out in the second quarter, more in June.

And then, you know, so all of those things make us feel really good about the business, but it-- you know, still coming out of the Q1, so we wanna be thoughtful. In terms of cadence, we do expect revenue growth to accelerate on a year-over-year basis in each of the quarters going forward. So even the typical seasonality that you see in the Q3, you know, our expectation is with the rollout of the Granite 9.5 in June, should help us offset some of that seasonality. So net-net, feel really good about the setup that we have in the business coming out of the Q1.

Craig Bijou (VP of Equity Research)

Thanks for taking the questions.

Operator (participant)

Thank you. One moment for our next question.... Our next question comes from the line of Matthew O'Brien of Piper Sandler. Your line is now open.

Matthew O'Brien (Managing Director and Senior Research Analyst)

Afternoon. Thanks so much for taking the questions. You know, and Laura and Anshul, you've kind of touched on a couple of these here, but the two-year stack growth rate in the US was really strong, much better than we saw in the last four quarters or the four quarters of last year. So what is it specifically that's really driving that? Is it a function of those new reps, or productivity amongst the new reps that's really driving that? And then the momentum there, again, seems really good with easier comps, kind of Craig's question earlier. Is there anything you're factoring in that could disrupt some of that momentum? I don't know if it's these LCDs that are proposed or other things like that that you're really worried about.

But what would slow down some of that momentum that we really saw in Q1?

Laura Francis (CEO)

So Matt, thank you so much for highlighting that point. As you know, last year, we grew at 46% in the Q1. And if you do your two-year stack with the 16% growth, you're talking about a very strong quarter that we have here. So, out of the gates, we really feel great about the way the year has started. And even if you think about historical seasonality trends as well as that tough comp, it was just a strong quarter across all of the key KPIs. And it is a continuation of the strong demand that we've seen over the last few quarters.

So you know, in the US, we saw robust demand across all our target markets and across all our call points, and it allowed us to deliver 17% procedure volume growth and as well as maintaining a relatively stable ASP in the US. You know, near-record physician engagement with over 1,100 active US users, up 16%, and then getting 510(k) clearance for Granite 9.5, which is positioning us to build on Granite momentum and further accelerate adoption within pelvic fixation. And then if you even just look beyond the strong top-line drivers, we continue to see strong operating leverage with a 30% improvement in cash flow from operations versus a year ago. So but we're also continuing to invest in our growth priorities, as you can see from the different product introductions.

So you know, what we really wanted to do, thinking about kind of that longer-term trajectory, given you know that we're just starting the year, what we wanted to do was to be thoughtful about our guidance. But as Anshul said, really expect to see continued acceleration of our growth rate throughout the year. We're not concerned on the LCD side that you mentioned. As I said, most of the adoption that we're seeing currently with interventional is with our TORQ product, and that product is coded to CPT code 27279, where there are no issues. We're not surprised at seeing some of the challenges with a CPT code 27278, because it's early days on this right now.

But we think that we have the products and solutions in order to address whatever needs our physicians have, whether they're surgeons or interventionalists. And given our market leadership position here and our incredible field force, we're really excited about where we can go for 2024.

Anshul Maheshwari (CFO)

And Matt, the only thing on the guidance side I would add, like Laura said, you know, we, we've got a lot of experience on the reimbursement side, and our strategy anticipated some of this reimbursement challenge. So we don't expect this to have any, any impact on the guidance we just set at the $164 million to $166 million.

Matthew O'Brien (Managing Director and Senior Research Analyst)

Okay, appreciate those comments. And then as far as that LCD goes, is there the 27278 specifically? I'm obviously new to covering the name, but just, you know, it seems to me like that would be more of a tailwind for your business because now everybody's going to transition to 27279. They're going to use TORQ, and that's going to be better than INTRA for you. Is that a dynamic that we should potentially be thinking about, you know, later throughout this-

Laura Francis (CEO)

Yeah, you're, you're correct.

Matthew O'Brien (Managing Director and Senior Research Analyst)

Propose 278.

Laura Francis (CEO)

Yeah, you're correct that, you know, we have seen interest from interventionalists starting last year already in our procedure, the lateral procedure using TORQ, and we're continuing to see strong interest in that particular procedure over allograft procedures currently, likely due to the uncertainty around reimbursement for 27278 versus 27279. So and given, you know, given where we're at as the market leader in this particular space, you know, we're able to provide a number of different products. We're able to provide the right education. We're able to provide the right support from a reimbursement perspective. And finally, our sales team, with 85 territory managers and a few less clinical support specialists, provides us with the opportunity to adequately support those interventionalists.

Matthew O'Brien (Managing Director and Senior Research Analyst)

Got it. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Drew Ranieri of Morgan Stanley. Your line is now open.

Drew Ranieri (VP of Medical Technology Equity Research)

Hi, Laura. Hi, Anshul. Thanks for taking the question, questions. Maybe just to start, Laura, you mentioned in your comments of maintaining near record docs, physicians in the quarter. I know that there's a little nuance here. It's declining a bit sequentially, but can you just help us better understand maybe some of the dynamics that were happening here? And then what's embedded from a new doc add dynamic to reach your full year guidance? And I'll stop there for right now.

Laura Francis (CEO)

Yeah. So we're actually very pleased with where we're at, having over 1,100 docs. It is a few less than we had at the end of Q4. That is typical for us. Last year, I think, was the exception to that particular rule, but it is very typical from a seasonality perspective that we will have a few less doctors that are performing procedures in Q1 versus Q4. We're very pleased, however, and we did throw in a little bit of qualitative information about training here. We had very strong training trends in the Q1 with a combination of surgeons as well as interventionalists as well. You know, that's a great forward-looking indicator for us.

The active surgeon number is just the number of surgeons that performed at least one case in the quarter. But all of these even more forward-looking indicators, such as training, give us a lot of confidence in this acceleration into the next few quarters. Also, with new product coming out as well, it gives us a lot of confidence, too. So, you know, in particular, if you think about Granite 9.5, is targeting 100,000 degenerative spine procedures, and the expectation that that's going to increase physician density in the future is exciting. And finally, with the addition of interventionalists, it's increased our target physician number from around 7,500 to around 12,000 in total.

So gives us the opportunity to sell to additional physicians and also the opportunity to increase the number of procedures per physician per quarter.

Drew Ranieri (VP of Medical Technology Equity Research)

Got it. Maybe just on the utilization side for a moment. I mean, it looks relatively stable quarter over quarter. Just piggybacking off of the Granite 9.5 launch, just maybe help us better understand some of the utilization or some of the more utilization drivers and what you're expecting. And I know that there's surgeons, physicians that are using your products far in excess of that. But when do we really start to see, like a real true inflection in utilization? I mean, you're making great progress on the surgeon side, but when do we kinda see the utilization really kind of pick up? Thanks.

Laura Francis (CEO)

Yeah. Yeah. So, we did talk a little bit about physician density. Now, we're in these early innings of expanding our portfolio, but we are seeing a growing number of physicians that are performing multiple procedure types. We did mention specifically that in the Q1, around 15% of our active physicians perform more than one type of procedure. But once again, if I go back to Granite 9.5, Granite 9.5 is targeting degenerative spine procedures, and that's the bread and butter procedure of our target surgeon. And so the majority of their practice is going to be in that particular category. And we just had our first procedures with Granite 9.5 completed in the month of April, and then we're rolling out, and we expect an expanded rollout and launch in June.

So I think you're gonna start to see the impact in the Q2, but I think you're gonna really start to see that accelerate in the second half of the year. So very excited about the opportunity that's there with our surgeons and increasing our density there. And then with interventionalists, the opportunity to further increase the number of physicians, active physicians we're working with quarter by quarter.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Dave Turkaly of Citizens JMP. Your line is now open.

David Turkaly (Managing Director and Senior Research Analyst)

Good evening, Laura, maybe one for you, just on the competitive front. You know, it seems like there was several sort of fast imitators on the core SI joint, you know, MIS market. And I'm just curious, like what are you seeing in terms of, you know, TORQ or Bedrock Granite or, you know, some of these other, sort of markets that you're kind of creating or targeting? But I don't know that I've seen such the competition follow as quickly, and I'm curious to see, you know, get your thoughts on what's happening there and what you expect moving forward.

Laura Francis (CEO)

Yeah, I think, Dave, thanks for the question. And what we pride ourselves on is identifying unmet clinical needs and then developing differentiated products around those unmet clinical needs. And so we're identifying new markets in some cases. So, where there typically a physician is not operating on a patient, performing a procedure on a patient. So SI joint fusion was in that category, and certainly, sacral insufficiency fractures, most of those cases are treated conservatively as well. So, you know, our goal is to either identify these unmet clinical needs and develop new solutions around them, or to develop a significantly improved technique or product or both, that addresses an unmet clinical need, and Granite really falls more into that category.

And so we expect to see competition coming in, and what they're doing is creating widgets basically, and, and, selling those into, into the market. And we think that especially when you're in a market where there is an unmet clinical need, having the capabilities that we have are really important. So whether it's differentiated, patent-protected product, whether it is the, level one, level two clinical data that we have, reimbursement support, including the NTAP, for example, for Granite. And then just taking an educational approach to the market as well, which really, is supported by both our professional education group as well as by our, our sales force. You know, those are the ways that we really are leading in all of these markets.

We, you know, we know that that's appreciated by physicians in these markets, and that's what we're gonna continue to do. So, you know, I, I think that we're gonna keep disrupting the market. We've launched two products so far this year. We've talked about a third that we're gonna launch by the end of the year. You're gonna continue to see us innovate and, and grow and, and utilize these competitive advantages that we have in order to, to build these markets, treat these patients, support the physicians, and build the company.

David Turkaly (Managing Director and Senior Research Analyst)

Great. Thank you for that. And then, you know, I think you even mentioned ASPs. I think you said they were flattish, but, you know, given that differentiation you're talking about and what we've seen from some of your peers, I'm just curious, I mean, is there an opportunity for price increases? I know we've kind of modeled it declining, you know, over time, but you seem to have some things that are pretty unique, and I'm just curious, as you look, you know, ahead, do you think there's an opportunity potentially for price, or, or is that something we shouldn't think about? Thank you.

Anshul Maheshwari (CFO)

Yeah. So, so Dave, this is Anshul. Thanks for the question. In terms of the ASP, you know, when you, when you think about the opportunity that's ahead of us, we've got almost 500,000 annual target procedures that we're going after, and so there's a huge opportunity. So for us, we're focused on market development. We maintain ASPs that allow us to maintain our attractive gross margins, so that we can continue to reinvest in the business from an R&D standpoint. This is something Tony and team review on a very regular basis on how to make sure we can, we can manage the ASP alongside driving adoption. We feel good about that. You` know, our ASP trending generally is based on the procedure mix versus a price erosion to some extent.

You know, when you're doing a deformity procedure using 4 implants versus a degen procedure using 3, versus SI joint fusion, you're using 3. Those things can have an impact, but overall, from a per implant ASP, we seem to be pretty disciplined on holding that.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Caitlin Cronin of Canaccord Genuity. Your line is now open.

Caitlin Cronin (Director and Senior Equity Research Analyst)

Hey, thanks for taking the questions, and congrats on a great quarter. Just to start with the training, you know, you mentioned a record number of docs with first training this quarter. How many of those were interventionalists? And just thoughts on, you know, given the uptake and interest of Torque and the lateral trajectory for those interventionalists, would you start thinking about training them in 3D as well?

Laura Francis (CEO)

Yeah, thanks for the question, Caitlin. So yeah, we are excited about the record number of first trainings that we saw, and there certainly was a heightened interest from interventionalists during the quarter, and that definitely was a contributor to the number of first trainings. But we also saw strong surgeon interest and demand for being trained across our procedures. So pelvic fixation, in particular, with the knowledge that you know, Granite 9.5 had been cleared and was imminent, was certainly a driver as well, and then some of the work that we're doing on the trauma side, too. So it's really across the board that we actually saw that interest. And then remind me of the second part of the question?

Caitlin Cronin (Director and Senior Equity Research Analyst)

... Yeah, no, just, any thoughts given kind of the uptake of TORQ in the lateral trajectory for those interventionalists that we're training, would you think to start training them in 3D at some point?

Laura Francis (CEO)

So we're not. TORQ really has been the product of choice for those interventionalists that are interested in the lateral technique. The iFuse 3D procedure falls into a category that I would call more orthopedic in nature. So that's not a product that interventionalists are naturally gravitating to. It is definitely a product, it's the gold standard product that's out there. It has the most clinical data around it, and we have some very loyal users of that particular product. But the interventionalists are actually a little bit surprised at the ease of use with TORQ, and the technique and the outcomes that they're starting to see with this, some of the early interventionalists that are performing the procedure.

So TORQ really, as it relates to the lateral technique, is the product of choice. And then there certainly are interventionalists right now that prefer a bone allograft product. And so, you know, that's the product that some of these interventionalists are at least thinking about before they get more comfortable with the lateral technique. But, you know, you mentioned iFuse 3D, and as I said, there's... We have the most data on that product. And when physicians think about SI-BONE, they really do think about level one clinical evidence and level two clinical evidence.

And so we have 1 study called the SALLY study, which was evaluating iFuse 3D, and we expect to see the 5-year SALLY study results coming up in the second half of this year. So we're continuing to work closely with our portfolio of products, whether it's iFuse 3D with SALLY, whether it's TORQ with the STACI study or with the SAFFRON study, and then Granite and the Bedrock technique with our SILVIA study, with our PAULA study. We're continuing to really focus on clinical data and being the market leader in this space.

Caitlin Cronin (Director and Senior Equity Research Analyst)

Mm-hmm. Just jumping off of that really quickly, any updates to the progress on the STACI or the SAFFRON studies?

Laura Francis (CEO)

Yeah, I think you'll be seeing a little bit more here later this year. So enrollment in STACI is expected to be completed this summer, and the early results are very promising and exciting. And, you know, so the purpose of STACI was to provide post-market information on lateral, minimally invasive SI joint fusion procedures performed with TORQ when performed by interventionalists. So it's gonna give us more information on the interventional physicians performing lateral SI joint fusion procedures using our TORQ product. SAFFRON, you're gonna actually expect to see some initial results that'll be available later this year. So that'll be in line with the launch of our new trauma product as well. You'll see some clinical data coming through, as well as a new product as well.

Those are a couple of things in addition to SALLY, you can expect to see.

Caitlin Cronin (Director and Senior Equity Research Analyst)

Thanks so much.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of David Saxon of Needham & Company. Your line is now open.

David Saxon (Senior Equity Research Analyst)

Oh, great. Good afternoon, Laura and Anshul. Thanks for taking my questions, and congrats on the quarter. I wanted to follow up on a previous question around pricing. This is probably for Anshul. So, you know, pricing is tracking better than I think it's the low to mid-single digit decline that's assumed in guidance. So is there anything that would cause pricing to get worse throughout the year? I don't know if it's the 9.5 launch, or is that more of an area of conservatism as we think about the guidance?

Anshul Maheshwari (CFO)

Yeah, Dave, thank you for the question. So when you think about the low end of the guidance, some of that conservatism on ASPs are reflected there. You know, we haven't really changed our ASP expectations for the rest of the year and the guidance. Now, in terms of what could have an impact on the ASP, you're right, with the 9.5 launch, even though there is no change in price per implant, the potential for the shorter construct procedures using two implants versus the deformity procedure using four, you know, could have an impact. But we think there's potential for upside on the ASP front as we progress through the year.

But again, it's the Q1, it's early in the year, so we think it's just prudent to hold some of that conservatism, to see how it unfolds in the Q2 and the Q3.

David Saxon (Senior Equity Research Analyst)

Okay, great. And then maybe for Laura. So the Granite NTAP, I think that runs out next October. So how should we think about that as it relates to Granite procedure volumes? How impactful has that NTAP been to Granite adoption that you've seen over the last couple of years? And is there any way you can do work around, like, Granite coding to preserve, you know, this premium facility fee or even a pro fee? Thanks so much.

Laura Francis (CEO)

... Yeah, so, the Granite NTAP, we have approximately 18 more months left on the Granite NTAP. It'll go through October first of 2025. And, what we've been doing is looking at the utilization of the NTAP with Medicare, seeing strong utilization on that NTAP. And so what that's gonna help us to do is to quantify the value of Granite and pelvic fixation in these particular cases. And so right now, we're looking at a number of different ways in order to make sure that the incremental payment continues after the NTAP is complete. So it could be with a new code, for example, or it could potentially be with an increase in the existing code or pointing to a higher value code.

Those are all three different options that we have right now. But we're midway through this. We do think that, you know, reimbursement is important. We have always focused as a company on ensuring that we have covered lives across the United States. Us building the SI joint fusion market, when I started in 2015, there was no coverage, and now we have complete coverage. And SI-BONE and our clinical data was a very big part of the work in order to build that reimbursement for SI joint fusion. So I see Granite and pelvic fixation in a similar way to that.

We expect to continue to focus on using our clinical data, as well as the health economic data, in order to support incremental reimbursements for pelvic fixation with Granite.

David Saxon (Senior Equity Research Analyst)

Great. Thanks so much.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Samuel Brodovsky of Truist Securities. Your line is now open.

Samuel Brodovsky (Equity Research Analyst)

Hey, thanks for squeezing me in, and again, congrats on the good quarter, especially the solid EBITDA result. I'll just ask a quick one to start on gross margin, a little bit above the high end of the guide for this year. Just how should we think about that progressing through the year?

Anshul Maheshwari (CFO)

Yeah. Hey, Sam, thanks for that question. On the gross margin side, it is still early in the year, and, you know, we're really pleased with how the quarter played out in terms of coming on sort of the high end of the gross margin range. But, you know, again, we're just holding on to our guidance for 78% gross margin. At this point, you know, the key reason being we are gonna put more surgical capacity out there, especially as we get into the second half of the year, and that might have a timing impact on gross margin. So we wanna see how it plays out again in the first half of the year before we make any changes to the guidance there.

Samuel Brodovsky (Equity Research Analyst)

Okay. And then I'll just ask a bit of a broader one, thinking more long term. But the, the 2-to-1 ratio, rep growth to OpEx growth, is that something we should think about happening this year, or is that, is that a consistent operating model we can think of the company being able to hold on to for, for a while here? Thanks for taking the question.

Anshul Maheshwari (CFO)

You know, Sam, thanks a lot. I mean, look, you know, we haven't provided long-term guidance in terms of how OpEx leverage would work out. You know, our view is our top line growth is gonna remain strong with all the tailwinds that we have in 2024. Plus, like we've talked about, we've got a pretty significant investment in R&D, so we expect new product launches to come out. So our focus on leverage is gonna be more driven by how do we drive more product through the call point, how do we drive more density or more procedures per physician, and that should translate into sales force leverage.

And like Laura said earlier, you know, our next milestone is sort of getting to that $2 million, but we've got reps that do more than $2 million today with additional ancillary support, whether it's junior reps or coverage agents. So, you know, we think leverage will continue. We feel really good about that. You know, we'll just stay with what we've provided for the year as sort of that two times leverage, but we don't think it's the end of the leverage. We think it'll continue at a pretty healthy clip going forward.

Operator (participant)

Thank you. One moment for our next question. Again, as a reminder, to ask a question, you'll need to press star one one on your telephone. Our next question comes from the line of Ross Osborne of Cantor Fitzgerald. Your line is now open.

Ross Obsorne (Equity Research Analyst)

Hey, guys, congrats on the results, and thanks for squeezing me in. Just one: With regard to the smaller diameter Granite launch, would you discuss feedback or level of early adoption within the pediatric population? Thank you.

Laura Francis (CEO)

Yeah. We're actually excited about the expanded indications for Granite 9.5, so, and including pediatric deformity as well as in the S1 Pedicle as well. So, we have gotten inquiries from pediatric deformity surgeons that would actually like to use a smaller Granite implant with their patients, and we think that Granite 9.5 is going to be a potential solution for them. So, we're happy to be able to address that particular need for those surgeons and for those patients. But, you know, the S1 Pedicle opportunity is quite significant for us, too. That's a significant part of the market that we're not addressing at this point in time, and with our previous product.

And so some of these newer surgeons that we talked about in our prepared remarks, they're starting to use the product already for that purpose. And then that's the second area of focus. And then the third is that we did get some feedback from surgeons that just said that the 10.5 or 11.5 product was just larger than what they wanted to use, or they felt uncomfortable using stacked implants or two implants on both sides, which provides both pelvic fixation and fusion. And so the smaller diameter implant also provides an opportunity for surgeons who are currently using two implants instead to use four implants.

So there's a lot of opportunity that's here with the Granite 9.5 product, whether it's pediatric deformity, as you mentioned, whether it's the S1 trajectory that I talked about, or, or whether it's surgeons that previously felt that they needed a smaller implant, or, or finally, those that, that have said, "I'd like to use four, but I, I want something that's a little bit smaller." So great opportunity for us going forward. Just getting started, just had those first few cases done in April. Gonna see some acceleration into May and June and, and really excited about what we can do in the second half of the year.

Operator (participant)

Thank you. I'm showing no further questions at this time. I would now like to turn it over to Laura for closing comments.

Laura Francis (CEO)

I just wanted to say thank you for your participation in today's call, and, we look forward to seeing you, those of you that are going to be at the Bank of America Healthcare Conference, we will see you there. Thank you. Bye-bye.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.