Q4 2021 SI-BONE Inc Earnings Call

February 28, 2022

Pardon me. This is the operator todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.

[music].

Good afternoon, and welcome to S. Iphones four quarters earnings conference call. At this time, all participants are in a listen only mode, we will be facilitating a.

Question and answer session towards the end of today's call.

A reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Matt Maxwell from Daycare Martijn group for a few introductory comments.

Thank you for participating in today's call. Joining me are Laura Francis Chief Executive Officer, and onshore <unk> Chief Financial Officer earlier today Si bone released financial results for the quarter ended December 31, 2021, a copy of the press release is available on the company's website before we begin I'd like to remind you that management will make statements.

During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.

These forward looking statements are based on the company's current expectations and inherently involve risks and uncertainties. These risks include the impact of COVID-19, pandemic will have on the ability and desire of patients and physicians to undergo procedures using the companys products. The duration of the COVID-19, pandemic and whether the COVID-19 pandemic will recur in the future. Other forward looking statements include alright.

Examination of operating trends and our future financial expectations, such as expectations for hiring surgeon training and adoption active surgeons, new products clinical trial enrollment and reimbursement decision.

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 and Form 10-Q filed with the Securities and Exchange Commission <unk> 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 broad.

Today, I grew 28, 2022, and with that I'll turn the call over to Laura.

Thanks, Matt Good afternoon, and thank you for joining us.

For today's call I'll provide opening comments and a business update followed by onshore who will provide additional detail regarding our financial results and initial 2022 guidance.

Let me start with our performance in the fourth quarter and full year 2021.

I am pleased with the team's execution in 2021, as we extended our market leadership position.

Commercial infrastructure to a 150 U S sales representatives.

Band It exclusive payer coverage to over $160 million U S covered lives and ended the year with a record 690, plus U S active surgeons.

Our revenue.

With our pre announcement on January 10 for the fourth quarter of 2021 was $25 $2 million.

Presenting growth of 14% compared to the fourth quarter 2020.

Despite various COVID-19 <unk> throughout the year, we were able to generate sequential revenue growth for the third straight quarter.

For the full year 2021, we generated revenue of $90 2 million representing growth of 23% compared to full year 2020, we navigated through the pandemic very well due to consistent and focused commercial execution.

Now, let me provide some insight into the impact of COVID-19 on our U S operations in the fourth quarter and early 2022.

Despite the impact of Delta and omicron growing demand for our solutions allowed us to deliver sequential monthly revenue growth in the fourth quarter.

Conor booking records in the fourth quarter, approximately 100 cases, which had been scheduled were deferred due to COVID-19 in the U S.

This impacted revenue in the fourth quarter by over $800000.

These are the cases that were booked and then postponed.

There are many more cases that were affected by COVID-19 .

We estimate that omicron resulted in approximately 40 U S cases being deferred in the back half of December representing approximately $350000 in revenue.

We believe that the execution by our dedicated field organization has been a key differentiator as we manage through the pandemic better than many of our peers.

We're also well positioned because approximately 80% of our procedures are performed in an outpatient setting or surgery center.

Thus far in the first quarter of 2022, we experienced an increase in the deferral of procedures due to on the crime.

Based on our booking records over 100 cases were deferred in January .

These deferred cases represented approximately $900000 in revenue.

Case deferrals in February declined to approximately 40 cases, which gives us optimism that the operating environment is improving.

We remain confident based on our prior recovery experience and our ability to recapture the deferred cases over the next few months as the pandemic recede. Additionally.

Additionally, while anecdotal based on our conversations with surgeons, who are aware of some surgeons, who have built backlogs of three to four months due to the pandemic surges in hospital infrastructure limitation.

The resiliency of our performance throughout the pandemic and the record operating milestones, we achieved reaffirm that our investments in growth initiatives over the last 18 months are delivering and they positioned us to be a much stronger company in 2022.

Now let me provide you an update on our growth initiatives as we look to extend our leadership position and drive durable long term growth.

Starting with sales infrastructure expansion.

Our sales team remains an important driver of growth as we penetrate our core market and expand our presence in trauma and adult deformity.

Really proud of our commercial leadership team's effort under the leadership of Tony Recupero to attract high caliber talent and end the year with a 150 person sales force.

<unk> of 85 territory managers and 65 clinical support specialists.

These numbers translate to a 30% increase in territories in 2021.

The dedicated sales teams has been a clear differentiator, especially in this unique coke operating environment as it allows us to remain focused on surgeons and deliver 25% growth in procedure volume in 2021.

In 2022, we will continue to strategically add head count by investing in high quality sales reps to set up the platform to deliver strong and sustainable long term growth.

Additionally, we remain focused on driving sales force productivity by adding to our bench of clinical support specialists.

We're targeting ending 2022 with an approximately 170 person salesforce, which 55% are anticipated to be sales territory managers.

Moving onto the surgeon engagement, we ended the year with over 690 <unk> U S. Active surgeons performed at least one case in the fourth quarter of 2021.

Representing a year over year increase of approximately 18% and a sequential increase of 10% from the third quarter of 2021.

In 2021, we had over a thousand surgeons perform at least one procedure in the year.

To put that in context since our inception around 1800 surgeons have been trained and treated at least one patient.

The growth in active surgeon base in the quarter, driven by both new and re engage surgeons reaffirms that our multi pronged approach to drive surgeon engagement is delivering.

Investments in building a dedicated sales organization combined with the introduction of torque exclusive coverage with anthem and United Healthcare and the expansion of our proprietary simulator to train surgeons have provided the ideal foundation for us to engage new surgeons and reactivate previously trained surgeons.

Our goal is to grow our active surgeon base by approximately 15% by the end of 2022.

Our simulator technology remains a cornerstone of our surgeon training program, specifically over half of our surgeons trained in the fourth quarter were trained using the simulator. We've continued to experience a steady increase in adoption rate amongst surgeons, who have been trained on the simulator.

With 2004 simulators in use worldwide and approximately 6000 surgeons to be trained and retrained. We believe we have the infrastructure to drive surgeon engagement and further expand the active surgeon base.

As part of our long term strategy to grow our active surgeon base, we continue to expand our academic programs to educate residents and fellows on primary Si joint diagnosis, and the degenerative and deformity surgical applications of our solution.

Since inception of the program, we've held approximately 170 academic programs in the U S, resulting in the training of over 850 surgical residents and fellows.

Turning their products and solutions.

The strong performance of Ip's torque in 2021, reaffirm that our broadening product strategy is resonating with our customers.

In 2021, our initial focus was on targeted competitive conversion to drive adoption and extend our market leadership as a sacred public solutions company.

In 2022, we expect Ip's torque to continue to be a tailwind as we accelerate our penetration into trauma, which we estimate to be a $350 million market opportunity.

And adult deformity, we're excited about the opportunity to build on the excess of bedrock with our second generation product.

We remain on track to launch this differentiated product in the first half of 2022 on.

On the clinical research front, while the pandemic has impacted the pace of enrollment and Sylvia a two year perspective International Multicenter randomized controlled trial of two different methods for pelvic fixation in adult patients.

We made significant progress on enrollment in the fourth quarter nearing approximately 80% of target enrollment.

We expect enrollment to continue through the first half of 2022 and anticipate the primary endpoint results in 2024.

Talking about our patient awareness initiative, we focused our investment in targeted digital marketing programs and our fourth quarter to educate and empower patients and their ESI journey.

To provide some preliminary insight we have more than doubled the number of potential patients. We are engaging through marketing while significantly increasing the referral of patients to surgeons at the end of 2021 compared to the prior year, showing the effectiveness and efficiency of the targeted digital marketing spend.

While the preliminary insights are encouraging we continue to take a disciplined approach to continuously optimizing and focusing our investments across various digital platforms.

With that I'll now turn the call over to onshore to provide more detail on our financial results.

Thanks, Laura good afternoon, everyone.

Our fourth quarter total revenue was $25 2 million.

Representing growth of 14% compared to the prior year period.

U S revenue was $23 3 million.

Leasing, 13% compared to the prior year period.

International revenue was $1 9 million.

Increasing 28% compared to the prior year period.

Even with the multiple surgeries in the quarter, resulting in approximately 100 case deferrals in the U S and pressure on Europe case volumes in December we delivered steady sequential monthly growth in worldwide procedure volumes with December being the highest case volume month in company history.

Reaffirming the underlying momentum in the business.

Gross margin for the fourth quarter of 2021 was 87% compared to 90% in the corresponding period in 2020.

Gross margin in the fourth quarter was impacted by an increase in cost of operations to support the growth of the business.

Operating expenses increased 29% to $35 8 million.

In the fourth quarter 2021, as compared to $27 7 million in the prior year period.

The increase was driven by higher sales and marketing costs related to increased sales hiring higher travel costs research and development expenses and increased stock based compensation.

Our net loss was $14 5 million or.

<unk> 43 per diluted share for the fourth quarter of 2021 as compared to a net loss of $9 million or 28 cents per diluted share in the prior year period.

Yes.

As of the end of the quarter, our cash and marketable securities were approximately $147 million and long term borrowings were approximately $35 million.

We believe we are well positioned from a liquidity standpoint to support our strategic priorities that will allow us to create long term growth and shareholder value.

Moving to guidance.

We are entering 2022 with several structural tailwind, including increasing underlying demand.

Reductive salesforce growing surgeon engagement near Universal coverage in the U S and a growing portfolio of highly differentiated products.

However, we remain cognizant of the unique external operating environment due to COVID-19, and its impact on elective procedures as well as health care infrastructure and staffing levels.

Our 2022 outlook is highly sensitive to assumptions on a steady global recovery, which anticipates key scheduling and elective procedure levels normalizing throughout the year.

For 2022, we expect annual revenue to range between $106 million.

The $108 million.

Representing year over year annual growth between 18% and 20%.

The guidance reflects the assumed impact from Omnicom variant in the fourth quarter of 2022, which we expect will result in mid to high single digit revenue growth in the first quarter of 2022, when compared to the first quarter of 2021.

We expect the annual gross margin for 2022 to be in the mid to high 80% range.

The annual gross margin range assumes our normal low single digit ASP decline based on site of service mix and procedure mix and a higher depreciation of instrument trees based on our investments in 2021.

With that I will turn the call over for questions operator.

Thank you and to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key.

Please standby, while we compile the Q&A roster.

Our first question is from Craig <unk> with Bank of America. Your line is open.

Good afternoon, and thanks, Thanks for taking the questions.

No.

Pretty strong quarter. Thanks.

Thanks, Craig where maybe.

Maybe just.

Talking about the sales reps and productivity with the reps.

The thought process for I believe youre, not adding too many reps.

The numbers correct.

Or you are not expecting to add too many reaction in 'twenty two so.

Maybe just a little bit more understanding of your thought process there the philosophy.

How do you see rep productivity.

Improving in 'twenty two.

Yes. Thanks for the question and you're right. We are pretty pleased with our performance in the quarter and for the fiscal year end.

We like the sequential revenue growth that we saw in the quarter. We like the fact that Q4 was a record quarter with sequential monthly growth on top of it.

And we think that we really didnt navigate quite well through a very difficult environment.

I'm also really pleased with the team was able to hit.

The target for the year in terms of number of sales reps getting to that 150 people dedicated sales force or 30% growth in territories. So going forward for 2022, we certainly have the opportunity to grow.

Sure.

Our productivity in terms of our sales team. So they are an important driver of our growth as we're penetrating our core market and expanding our presence in trauma and adult adult deformity, especially with our second generation product coming online during the first half of this year, we think that having a dedicated sale.

<unk> team has been a clear differentiator, especially in this unique COVID-19 operating environment.

Did contribute to 25% procedure growth during the year.

But it does help us to enter 2022 with.

Our strong bench that we should be able to to leverage over time and so we're currently targeting to end 2022 with 170 individuals in the sales force and then more than half of them are going to be quota bearing territory managers. So.

Mid teens.

Teens increase from that particular perspective.

Really all comes to.

Gaining that leverage on the existing sales force, we know that a rep.

And a territory by himself or herself can do around 1 million and a half of business and then in a territory with the rep plus a clinical support specialist they can do on average approximately $2 million of business. So the goal is to continue to add reps, but then start to see that leverage on our <unk>.

Sales force as well in 2022.

Great. That's helpful. Thank you.

And I do want to ask about expenses.

Kind of how to think about expenses going forward. Obviously, there was there was a bit of an uptick this year.

But I know in the past you've made comments about getting back to normal spending levels.

It sounds like you might be able to get some leverage.

As you are.

Bringing on as many salespeople mix next year, but.

And maybe some of the R&D spending that you've done over the last couple of years, you'll get some leverage out of there how does that exactly I would love it.

Yeah, No I was saying that's exactly right Craig.

And the.

The investments that we've made from a sales perspective, and an R&D perspective, we believe that 2022 is a year, where we can start to gain leverage on those particular investments. So our primary focus has been on revenue growth and capturing the opportunity that we have.

And the saker pelvic space.

But we do also see 2022 is a year, where we can gain leverage on that sales force in those R&D investments and maybe onshore can add a little bit more in terms of our thoughts there, yes, thanks, Laura Hey, Greg good to talk to you.

So when you think about opex growth rate.

<unk>.

From the way we model the Opex growth rate is going to be a bit lower than the revenue growth rate.

And what Laura said, it's going to be balancing between continued reinvestment in the business and the productivity gains. So that's what we're targeting and when you think about the spend from a dollar perspective. It will increase for a few reasons one is.

If you just annualize the new hires that we did last year. Laura said, we grew our sales force by 30% last year.

Tms by 30% last year, you start annualizing some of the costs there.

We will continue to invest in R&D, even though we will get leverage out of our existing portfolio.

<unk> a great example of where we've come up with a differentiated product, we've actually had a big impact on the market. So we feel good about that.

And then we're also making some investments to scale, our operating infrastructure to be able to support the topline growth that we're looking at over the next few years.

Great. Thanks for taking my question, so ill hop back in queue.

Thanks, Craig.

Thank you. Your next question comes from Kyle Rose with Canaccord. Your line is open.

Hi, everyone and congrats on the quarter I wanted to see if we could just dig a little bit more into.

<unk> previous question just around productivity.

I think you've provided that $1 five and that 2 million number for two years now when I just look at the backdrop I mean, you've got.

Much better reimbursement you now have a product portfolio. That's arguably three products will include trauma deformity versus just primary.

I'm trying to understand how we should really think about where those productivity gains from $1 million territory to a $2 million territory really comes from and then if you could just help us quantify.

The impact of torque in 2021, we think about the competitive.

<unk> gains versus moving into in the trauma, but more of a trauma focused in 'twenty two would be helpful.

Thanks, Kyle so as I said from a productivity perspective.

We definitely have the opportunity to grow the average sales per rep in the United States and.

It's.

Given how important the sales team is to our revenue growth. It also can be regional in terms of the decisions that we're making it's.

How large is a particular territory in terms of the number of surgeons or the size of the particular territory. How much travel is required in a particular territory, but we're getting to that point, where we're big enough and we have enough coverage at this point in order to really focus a little bit.

More on sales productivity. So we increased the number of sales reps. This last year and I'm talking about the senior territory managers by 30% over the last 12 months.

And so what we're trying to do now is to get some leverage from from those reps that we've added.

Plus.

And it takes around 12 to 18 months in order to get those reps productive so let's be clear on that as well, but but the goal in 2022 is to moderate the number of ads that we have and to start really pushing that productivity and so the productivity.

Comes from the senior sales Rep, but it also comes from these junior clinical support specialists that we hired that are less expensive than the.

The senior reps, so we're already thinking about ways in order to gain leverage on the channel.

And so our plan is to start gaining leverage in 2022.

And beyond.

So that's the answer to your first question. Your second question on tour, we are not giving.

Breaking out the specific revenues for torque, but I will tell you. We are very pleased with the strong performance of the product, particularly with competitive conversions, which where our focus in 2021 and the commercial team has really done an exceptional job in TARP.

Getting competitive surgeons to drive that additional or initial adoption momentum and we know who the surgeons actually are that are performing these procedures in many cases, we originally trained those surgeons and so we've had the ability to go out to those that we think torque would be of intra.

<unk>.

And we've been quite successful in gaining that business.

So it really does provide us with the potential to expand the market and extend our market leadership position, but I'll also say that we're just scratching the surface right now on the core market opportunity for torque and Thats the trauma market. So.

We increased our investment in inventory and instrument trays in the second half of 2021, which you've seen in the Q3 report youre going to see that in the 10-K as well and a lot of that increase in inventory and instrument traders is actually related to torque as we methodically accelerated our penetration of the trauma opportunity.

And so it provides a really nice tailwind for us into 2022.

Great. Thank you and then just one follow up on my end is just.

I think you've made a change or brought on a new marketing leader.

Really focusing around some of the direct to patient initiatives.

Spending actually showed very similar ROI on those additional dollars as the core dollars that we're spending previously so so our new VP of.

Digital marketing really just started with the nuts and bolts of search driving patients to our website.

Having them complete the pain quiz going through our find a doctor function and then ultimately being referred to surgeons. So and we are able to track all of that information and some of the metrics that we were mentioning are actually directly tied to those items that I just discussed in addition.

In the fourth quarter the team engaged in more direct to patient marketing focusing on the lower part of the funnel using display advertising using an educational type of campaign and what I mean by the lower part of the funnel is those patients who have been in <unk>.

<unk> management with <unk>.

Chronic si joint issue for an extended period of time.

And so ultimately these sorts of investments normally take around 12 months for us to actually see the impact from them, but as I said, we've already been making pretty significant investments during the second half of 2021, and so we would expect to see the impact directly turn into case development in.

The second half of 2022.

Your next question comes from David Ross, Scott withdrew Securities. Your question. Please.

Hi, Laura Thanks for taking the questions.

<unk>.

Expanded reimbursement that you talked about <unk>.

It's been a couple of months, so far where where that's been in place and you have a couple of months. So far this year already but could you maybe discuss if at all whether it's anecdotal or more broadly just where the impact of these factors that sort of a kind of a business I mean is this.

Opening the door for new reps to re engage with new accounts is it reactivating inactive physicians or just more utilization with them.

Some of the existing accounts and then how should we think about that impact throughout the year I mean is that something that scales and starts to.

Better impact the business in the second half of the year any color would be helpful.

Yeah, David Thanks for the question and we are really pleased with what we've seen from a reimbursement perspective, we finished 2021 with near Universal coverage of.

Of minimally invasive Si joint fusion and even more so with over 160 million patients who are exclusively covered for ICU. So we're really pleased with what we've seen there in terms of the impact of some of those decisions.

I think.

In particular talking about anthem and United those exclusives. So anthem first of all was really one of the last payors to cover this procedure. They have a non coverage procedure prior to August of 2021, and so they finally move to a positive coverage.

Foundation and that recommendation was exclusive to ICU. So it was a it was a huge win for US and then a little bit surprising was the decision by United healthcare to switch from.

Positive general coverage decision too.

Two an exclusive decision.

<unk> and.

In terms of what we're seeing right now.

We're seeing these payers in force the exclusive policy and while it is early days, we did see an uptick in anthem case volumes in the fourth quarter that we do attribute to the anthem decision. We do think that some of these early.

<unk>.

Sure.

Increases in anthem cases are likely due to patients who are already in the system for some period of time certainly some patients that had been denied coverage and then that coverage was overturned it was appealed and there was a.

Positive decision that was made so that's what we believe that we're seeing here in these early days, but I will say we are quite excited about the potential tailwind for 2022 from the coverage decisions and the exclusives, especially in the case of <unk> since they were a non coverage decision.

So in terms of what we would expect that normally takes anywhere from six to 12 months for a.

New case to work itself through the system before seeing a meaningful impact on volume.

But we have been.

Really focused on the potential impact of these exclusives and our 2022 guidance and so like I said more of a six to 12 month timeframe in terms of impact.

Okay. That's helpful I.

I guess just.

Some commentary from the canceled procedures.

Backlog of cases coming from from Q4, and then into January February I.

I guess.

What does the backlog look like at this point I mean, you mentioned theres. Some physicians that are scheduled out to three months or so or.

But I guess what is the current backlog look like how is the pipeline of patients looking and then how should we think about this.

Or are these patients I guess progressing throughout the year.

How did you kind of comfortable that within your guidance. Thank you yeah. It's been an unusual period of time, obviously, we had delta in Q3, and then the start of OMA Kron in Q4.

And then we did talk very openly about what we saw in January and February as well and so what we what we've.

Trying to do is to think about.

This contribution from these procedures.

Over the next few months.

And.

We're encouraged by the fact that we're seeing.

A decline in the deferrals between January and February we don't know what March will necessarily look like and in terms of backlog the way that our system works is we typically will see.

The scheduling of cases at the point in time, where it's put on the books at a surgeon's office. So it's normally only a few weeks, but we do know anecdotally that there are significant backlogs in the three to four month range as I had mentioned in my prepared remarks.

From talking with with some of our surgeons. We also know that historically the way that this has worked we've gone through so many surges at this point that what typically happens is you'll have a surge youll see a lot of deferrals, then youll see a decline than a stabilization and then the rescheduling of cases.

And so the way that our guidance is looking at this right. Now is that January was a tough month February a decline or stabilization in March and then starting to see some of this rescheduling in the second quarter.

Okay. That's helpful. Thanks for taking the questions.

Thanks, David. Thank you. Our next question is from David Saxon with Needham Your question. Please.

Hi, good afternoon, and thanks, so much for taking the questions.

I guess just one on.

2022.

Guidance implies 20% at the high end.

But in the past you've talked about being able to grow well into the 20% range I think Jeff said, it's 30% plus.

Just wanted to hear your view on whether.

The lower implied growth reflects any change in confidence.

Opportunity in front of you or if it's really just.

Tougher COVID-19 impacted market.

With perhaps some conservatism baked in.

Yes, Thanks for the question, David and you're you're hinting in the right direction for US we're really pleased with the execution in 2021, we actually had 25% growth in case volumes, even with multiple surge isn't it doesn't reaffirm the growing demand for our procedure we're in the.

Strongest position in the history of the company with our Universal coverage of 160 million patients covered exclusively all of the surgeon engagement and the increase in the number of active surgeons are.

30% increase in the number of territories in the United States with our sales team and then the growing portfolio of products. So we feel great about that too.

The operating environment was difficult in January it's definitely improved in February with fewer deferrals and.

And we believe that the health care environment is still progressing toward becoming fully normalized.

And so when we think about procedure volumes continuing to grow month over month, we remain bullish on the underlying business momentum, but given the macro environment. We really think it's prudent to take a more conservative position around the pace of normalization and being deliberate on the.

Impact of the tailwind, including the exclusive expansion into trauma or new product launch all of those things on 2022 revenue growth but.

I will reaffirm we are extremely excited about the year 2022, we believe the underlying demand for our products remains robust.

There is definitely upside assuming a sustained recovery from OMA chronic COVID-19 more broadly and that certainly could further accelerate growth in the second half of 2022 through higher surgeon productivity from our backlog and growth in our trauma and adult deformity businesses is the only thing I would add David is you.

You're spot on and the low end of our guidance as Laura said it assumes a very conservative scenario.

With some amount of impact from COVID-19 throughout the year, including continued case deferrals and prolonged backlog recapture rates.

So similar to some of the disruptions we've seen over the last two years, which again if those on the sidelines. We do believe there is tremendous upside in the second half of the year.

Got it that's Super helpful. And then just one on.

The exclusive.

<unk> I was just wondering if you've seen any benefit with regards to certain training and how your messaging.

Lucid coverage two docks that maybe we're reluctant.

To take age in the past.

So much for taking the questions.

Thanks, David.

As it regards the exclusive policies at the.

The point in time, where the decisions were made by anthem and United Health care, We had a very major marketing campaign.

That worked with our field sales team in order to reach out to all of the surgeons, who were impacted around the country by those decisions and so there was a first round of of very significant sales and marketing activities around the anthem decision in the third quarter.

And then there were more activities that we engaged in in the fourth quarter with United Healthcare and you are correct that it did give us the opportunity to to Reengage with surgeons that we hadn't engaged with for a while it allowed us to train some of those surgeons using the <unk>.

Simulator. It makes it very easy to reactivate surgeons, who may have been trained previously.

Or are those that have expressed interest but never gone through training.

And then it also even gave us the opportunity to talk about what's new within the business. So.

We went in and there were some cases, where it was appropriate to talk to the surgeons about our new torque product there were.

In cases, where it made sense to talk about bad rock in adult deformity, and so what our team was able to do was use the opportunity to to speak with those surgeons. Once again show them all of our clinical data show them. The five year data that's driving a lot of these exclusive decisions.

And then talk to them about ways to engage with US. So it was it was a major focus point for the sales team along with our field marketing team and.

Gave us a lot of opportunities for engagement in the second half of the year.

Great Thanks, and congrats on the quarter. Thanks, David.

Your next question comes from drew Ranieri with Morgan Stanley Your question. Please.

Alright, Thats all thanks for taking my questions.

Just as we're thinking about 2022.

Can you maybe talk about some of the trends that youre seeing.

Youre procedures moving to the ASC setting I mean are you seeing more of a.

Or are you expecting more of a shift the current operating environment.

But I'll stop there.

The follow up.

Yeah. The ASC environment has been a really important site of service for us over the last couple of years. So.

As I stated in my prepared remarks, approximately 80% of our procedures are either hospital outpatient procedures or ASC procedures in.

Before the pandemic that number was in the single digit range. We now have gotten in the in certain months and quarters into the 20% to 25% range for ASC sales.

We do see the ASC is.

A long term growth opportunity for us just because a lot of procedures are shifting to that site of service. It is.

Cost effective location for service and it's appealing for quite a few different reasons that also has been absolutely critical to our business over the last two years with the pandemic during surges, if hospitals were not able to perform procedures. So.

I'm not sure how much business, we're going to see in the AFC setting that that has yet to be stated I. Originally thought that around 25% was going to be getting toward a maximum for us and I simplistically did that by thinking 50% of our surgeons are.

Employed by hospitals. The other 50% are private practice and Simplistically said those in private practice half of them may do procedures in afcs, but that's changed there are more of the private practice surgeons that want to do business in <unk> and in fact, a lot of the half.

But <unk>.

Are actually developing relationships with ASC and and our shifting business there as well so I think it is.

Long term growth opportunity for the business.

Got it understood and then just to shift gears to gross margins, but.

Made some comments about the quarter, but I'd like to better understand.

Kind of your your guidance for 2022, and some of the pieces, there and whether or not kind of the inflationary cost environment as really being a factor.

The gross margin guidance.

85% is this kind of range kind of the right go forward upside down gross margin rate. Thank you.

Hey, drew thanks, a lot for that question.

We obviously are really proud of our industry, leading gross margins.

We came in for 2021 at about 88%. So when you think about our guidance both in 2022 and as we think longer term.

The way we model. It here is we've got a few levers that we look at one is.

ASP decline that we tend to pricing on a per procedure basis, not a not a per implant basis and a lot of that is driven by site of service like Laura.

More procedures in the ASC, they tend to be a little bit more price sensitive.

Especially if you see contribution from torque and adult deformity, which tend to use fewer implant than the primary of Si joint fusion. So you've got some of that ESP.

The pressure that we tend to model in and then we look into two other aspects. The second one being the depreciation expense, especially as we expand our product portfolio. We are expanding the amount of instrument trees that are in the field that depreciation flow through of gross margins. So that will put some pressure on it.

And then when you think about inflation as well, we do model in some amount of inflation, especially this year given everything thats going on even though our supply chain team has done a phenomenal job in managing through the cost element.

Actually being very forward looking in terms of the demand trends and what we need we do model that in.

Now where do you see long term gross margin sort of that mid to potentially high <unk> is where we look at.

We're not going to be able to say is that 85, but our aim is to keep it above the 85 number.

Okay.

Our next question comes from Dave <unk> with JMP Securities. Your line is open.

Great. Thanks.

You say that the re engaged searches or maybe some of the new products, we're helping with that but.

Of the 690 active do you comment at all it's sort of how many of them were reengage guys versus let's say the brand new customers.

We don't comment on it but it definitely has been a focal area for us too.

Re engage surgeons there was a pretty major push in the second half of 2022.

Two.

Speak with Surgeons, who had previously been trained.

And second half of 'twenty one.

In the second half of 2021, yes right.

And we will continue to do that going forward as well as we said there were.

1800.

Surgeons, who have trained and treated at least one patient and a thousand of them approximately did at least one procedure in all of 2021. So what that means that there are approximately 800 surgeons, who did not engage with us in that 12 month period and so those continue.

To be targets for us.

Got it thanks a lot.

Thanks, Dave.

Thank you and this anti Q&A session I will toss it to back to Laura Francis for her final remarks.

Thanks, So much Carmen I am pleased with the team's execution in 2021, we hit several record milestones and as we look beyond the near term impact from the recent resurgence of COVID-19, including the pressure on hospital infrastructure, we see strong underlying momentum in our business in 2022.

We'll continue to leverage our investments to expand the market for sacral pelvic surgical solutions and drive strong top line growth.

Thank you for joining us today, and I look forward to meeting you at upcoming Investor conferences and events Goodbye.

And with that ladies and gentlemen, we thank you for participating in today's program. You may now disconnect have a wonderful day.

[music].

Yes.

Oh.

[music].

Good afternoon, and welcome to S. Iphones four quarters earnings conference call. At this time all participants are in a 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.

Now I'd like to turn the call over to Matt back So from the Gilmartin group for a few introductory comments.

Thank you for participating in today's call. Joining me are Laura Francis Chief Executive Officer, and onshore, Mike <unk>, Chief Financial Officer earlier today Si bone released financial results for the quarter ended December 31, 2021, 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.

<unk>. 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.

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 set.

<unk> 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 grew at 28, 2022, and with that I'll turn the call over to Laura.

Thanks, Matt Good afternoon, and thank you for joining us for today's call I'll provide opening comments and a business update followed by onshore will provide additional detail regarding our financial results and initial 2022 guidance.

Let me start with our performance in the fourth quarter and full year 2021.

I'm pleased with the team's execution in 2021, as we extended our market leadership position or a commercial infrastructure to 150 U S. Sales representatives expanded exclusive payer coverage to over 160 million covered lives.

And ended the year with a record 690, plus U S active surgeons.

Our revenue.

With our pre announcement on January 10th for the fourth quarter of 2021 was $25 $2 million.

Representing growth of 14% compared to the fourth quarter of 2020.

Despite various COVID-19 surgeries throughout the year, we were able to generate sequential revenue growth for the third straight quarter.

Now, let me provide some insight into the impact of COVID-19 on our U S operations in the fourth quarter and early 2022.

Despite the impact of Delta and omicron growing demand for our solutions allowed us to deliver sequential monthly revenue growth in the fourth quarter.

Based on our booking records in the fourth quarter, approximately 100 cases, which had been scheduled were deferred due to COVID-19 in the U S.

This impacted revenue in the fourth quarter by over $800000.

These are the cases that were booked and then postponed but of course there are many more cases that were affected by COVID-19 .

We estimate that omicron resulted in approximately 40 U S cases being deferred in the back half of December representing approximately $350000 in revenue we.

We believe that the execution by our dedicated field organization has been a key differentiator as we manage through the pandemic better than many of our peers.

We're also well positioned because approximately 80% of our procedures are performed in an outpatient setting or a surgery center.

Thus far in the first quarter of 2022.

<unk> increased in the deferral of procedures due to on the crime.

Based on our booking records over 100 cases were deferred in January .

These deferred cases represented approximately $900000 in revenue.

Case deferrals in February declined to approximately 40 cases, which gives us optimism that the operating environment is improving.

We remain confident based on our prior recovery experience and our ability to recapture the deferred cases over the next few months as the pandemic recede. Additionally.

Additionally, while anecdotal based on our conversations with surgeons, who are aware of some surgeons, who have built backlogs in three to four months due to the pandemic surges in hospital infrastructure limitation.

Now let me provide you an update on our growth initiatives as we look to extend our leadership position and drive durable long term growth.

Starting with sales infrastructure expansion.

Our sales team remains an important driver of growth as we penetrate our core market and expand our presence in trauma and adult deformity I'm really proud of our commercial leadership team's effort under the leadership of Tony Recupero to attract high caliber talent and end the year with a 150 person sales force consisting of 85.

Territory managers and 65 clinical support specialists.

These numbers translate to a 30% increase in territories in 2021.

In 2022 will continue to strategically add head count by investing in high quality sales reps to set up the platform to deliver strong and sustainable long term growth.

Additionally, we remain focused on driving sales force productivity by adding to our bench of clinical support specialists.

We're targeting ending 2022 with an approximately 170 person sales force.

55% are anticipated to be sales territory managers.

Moving onto the surgeon engagement, we ended the year with over 690 U S. Active surgeon performed at least one case in the fourth quarter of 2021.

Representing a year over year increase of approximately 18% and a sequential increase of 10% from the third quarter of 2021.

In 2021, we had over a thousand surgeons perform at least one procedure in the year.

To put that in context since our inception around 1800 surgeons have been trained and treated at least one patient.

The growth in active surgeon base in the quarter, driven by both new and re engage surgeons reaffirms that our multi pronged approach to drive surgeon engagement is delivering.

Our investments in building a dedicated sales organization combined with the introduction of torque exclusive coverage of anthem, and United Healthcare and the expansion of our proprietary simulator to train surgeons have provided the ideal foundation for us to engage new surgeons and reactivate previously trained surgeons our goal.

It is to grow our active surgeon base by approximately 15% by the end of 2022.

Since inception of the program, we've held approximately 170 academic programs in the U S, resulting in the training of over 853rd co residents and fellows.

Turning their products and solutions.

The strong performance of Ip's torque in 2021, reaffirm that our broadening product strategy is resonating with our customers.

In 2021, our initial focus was on targeted competitive conversion to drive adoption and extend our market leadership as a fake Republic solutions company.

In 2022, we expect Ip's torque to continue to be a tailwind as we accelerate our penetration into trauma, which we estimate to be a $350 million market opportunity.

And adult deformity, we're excited about the opportunity to build on the excess of bedrock with our second generation product. We remain on track to launch this differentiated product in the first half of 2022 on.

We made significant progress on enrollment in the fourth quarter nearing approximately 80% of targeted enrollment.

We expect enrollment to continue through the first half of 2022 and anticipate the primary endpoint results in 2024.

Talking about our patient awareness initiative, we focused our investment in targeted digital marketing programs and our fourth quarter to educate and empower patients and their ESI journey.

While the preliminary insights are encouraging we continue to take a disciplined approach to continuously optimizing and focusing our investments across various digital platforms.

With that I'll now turn the call over to onshore to provide more detail on our financial results.

Thanks, Laura good afternoon, everyone.

Our fourth quarter total revenue was $25 2 million reps.

Representing growth of 14% compared to the prior year period.

U S revenue was $23 3 million, increasing 13% compared to the prior year period.

International revenue was $1 9 million, increasing 28% compared to the prior year period.

Reaffirming.

Momentum in the business.

Gross margin for the fourth quarter of 2021 was 87% compared to 90% in the corresponding period in 2020.

Gross margin in the fourth quarter was impacted by an increase in cost of operations to support the growth of the business.

Operating expenses increased 29% to $35 8 million in.

In the fourth quarter of 2021 as compared to $27 7 million in the prior year period.

The increase was driven by higher sales and marketing costs related to increased sales hiring higher travel costs research and development expenses and increased stock based compensation.

Our net loss was $14 5 million or 43 per diluted share for the fourth quarter of 2021 as compared to a net loss of $9 million.

<unk> 28 per diluted share in the prior year period.

As of the end of the quarter, our cash and marketable securities were approximately $147 million and long term borrowings were approximately $35 million.

We believe we are well positioned from a liquidity standpoint to support our strategic priorities that will allow us to create long term growth and shareholder value.

Moving to guidance.

We are entering 2022 with several structural tailwind, including increasing underlying demand, but productive sales force growing surgeon engagement near universal coverage in the U S and a growing portfolio of highly differentiated products.

However, we remain cognizant of the unique external operating environment due to COVID-19, and its impact on elective procedures as well as healthcare infrastructure and staffing levels.

Our 2022 outlook is highly sensitive to assumptions on a steady global recovery, which anticipates key scheduling and elective procedure levels normalizing throughout the year.

For 2022, we expect annual revenue to range between $106 million.

A $108 million representing.

Representing year over year annual growth between 18% and 20%.

We expect the annual gross margin for 2022 to be in the mid to high 80% range.

With that I will turn the call over for questions operator.

Thank you and to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key.

Please standby, while we compile the Q&A roster.

The first question is from Craig Bijou with Bank of America. Your line is open.

Good afternoon, and thanks, Thanks for taking the questions and congrats Armando.

Pretty strong quarter.

Thanks, Craig where maybe.

Maybe just.

Talking about the sales reps and productivity with new reps.

The thought process for I believe youre, not adding too many reps.

The numbers correct.

Or you're not expecting to add two interaction in 'twenty two so.

Maybe just a little bit more understanding of your thought process there the philosophy.

How do you see rep productivity.

Improving in 'twenty two.

Yes. Thanks for the question and you're right. We are pretty pleased with our performance in the quarter and for the fiscal year end.

We like the sequential revenue growth that we saw in the quarter. We like the fact that Q4 was a record quarter with sequential monthly growth on top of it.

And we think that we really didnt navigate quite well through a very difficult environment.

I'm also really pleased with the team was able to hit their targets for the year in terms of number of sales reps getting to that 150 people dedicated sales force or 30% growth in territories, so going forward for 2022.

We certainly have the opportunity to grow our.

Team has been a clear differentiator, especially in this unique COVID-19 operating environment.

It did contribute to 25% procedure growth during the year.

But it does help us to enter 2022 with.

Our strong bench that we should be able to leverage over time and so we're currently targeting to end 2022 with 170 individuals in the sales force and then more than half of them are going to be quota bearing territory managers. So.

Mid tier.

Teens increase from that particular perspective.

Really all comes to.

Gaining that leverage on the existing sales force, we know that a rep in a territory by himself or herself can do around a million and a half of business and then in a territory with the rep plus a clinical support specialist they can do on average approximately two.

A business. So the goal is to continue to add reps, but then start to see that leverage on our sales force as well in 2022.

Great.

Helpful. Thank you.

And I do want to ask about.

Tankage.

And kind of how to think about expenses going forward. Obviously, there was there was a bit of an uptick this year.

But I know in the past you've made comments about getting back to normal spending levels.

It sounds like you might be able to get some leverage.

As you know.

Bringing on as many salespeople mix next year, but.

And maybe some of the R&D spending that you've done over the last couple of years, you'll get some leverage out of that how does that exactly I would love it.

Yeah, No I was saying that's exactly right Craig.

And.

The the investments that we've made from a sales perspective, and an R&D perspective, we believe that 2022 is a year, where we can start to gain leverage on those particular investments. So our primary focus has been on revenue growth and capturing the opportunity that we have.

And the sacred pelvic space.

So when you think about opex growth rate.

<unk>.

From a from the way we've modeled it the opex growth rate is going to be a bit lower than the revenue growth rate.

And like Laura said, it's going to be balancing between continued reinvestment in the business and the productivity gains. So that's what we're targeting and when you think about the spend from a dollar perspective. It will increase for a few reasons one is.

You just annualize the new hires that we did last year. Laura said, we grew our sales force by 30% last year.

<unk> by 30% last year, you start annualizing some of the costs there.

We'll continue to invest in R&D, even though we'll get leverage out of our existing portfolio, but talks a great example of where we've come up with a differentiated product we've actually had a big impact on the market. So we feel good about that.

And then we're also making some investments to scale, our operating infrastructure Craig to be able to support the top line growth that we're looking at over the next few years.

Great. Thanks for taking the questions al I'll hop back into queue.

Thanks, Craig.

Thank you. Your next question comes from Kyle Rose with Canaccord. Your line is open.

Hello, everyone.

And congrats on the quarter I wanted to see if we could just dig a little bit more into kind of <unk>.

<unk> previous question just around productivity.

I think you've provided that one five in that 2 million number for two years now when I just look at the backdrop I mean <unk> got.

Much better reimbursement you now have a product portfolio, that's arguably three products, which include trauma deformity versus just primary.

Just trying to understand how we should really think about where those productivity gains from one territory to a 2 billion territory really comes from and then if you could just help us quantify.

The impact of torque in 2021.

Think about the competitive.

Gains versus moving into in the trauma, but more of a trauma focused in 'twenty two would be helpful.

Thanks, Kyle so as I said from a productivity perspective.

We definitely have the opportunity to grow the average sales per rep in the United States and.

It's it's.

Given how important the sales team is to our revenue growth. It also can be regional in terms of the decisions that we're making it.

More on sales productivity. So we increased the number of sales reps. This last year and I'm talking about the senior territory managers by 30% over the last 12 months.

And so what we're trying to do now is to get some leverage from from those reps that we've added plus.

And it takes around 12 months to 18 months in order to get those reps productive so let's be clear on that as well, but but the goal in 2022 is to moderate the number of ads that we have and to start really pushing that productivity and so the productivity.

Comes from the senior sales Rep, but it also comes from these junior clinical support specialists that we hired that are less expensive than the senior reps. So we're already thinking about ways in order to gain leverage on the channel.

And so our plan is to start gaining leverage in 2022.

And beyond.

So that's the answer to your first question. Your second question on tour, we are not giving.

<unk> surgeons to drive that additional or initial adoption momentum and we know who the surgeons actually are that are performing these procedures in many cases, we originally trained those surgeons and so we've had the ability to go out to those that we think torque would be of interest.

And we've been quite successful in gaining that business.

We increased our investment in inventory and instrument trays in the second half of 2021, which you've seen in the Q3 report youre going to see that in the 10-K as well and a lot of that increase in inventory and instrument strength is actually related to torque as we methodically accelerated our penetration of the trauma opportunity.

And so it provides a really nice tailwind for us into 2022.

Great. Thank you and then just one follow up on my end is just.

I think you've made a change or brought on a new marketing leader.

Really focusing around some of the direct to patient initiatives.

I heard some of the commentary in the prepared remarks, just about seeing a doubling of the patient is targeted could you just talk about how that translates into demand in the pull through are you seeing in the field.

There's a couple of key areas that we invested in in the second half of 2021 as it relates to direct to patient. The first was just.

The increase in.

In search spend because we had such a tight amount of search spend.

Addition of spending actually showed very similar ROI on those additional dollars as the core dollars that we're spending previously so so our new VP of.

Digital marketing really just started with the nuts and bolts of search driving patients to our website.

Having them complete the pain quiz going through our find a doctor function and then ultimately being referred to surgeons. So.

We are able to track all of that information and some of the metrics that we were mentioning are actually directly tied to those items that I. Just discussed in addition in the fourth quarter. The team engaged in more direct to patient marketing focusing on the lower part of the funnel using.

Display advertising using an educational type of campaign and what I mean by the lower part of the funnel is those patients who have been in pain management with <unk>.

Chronic si joint issue for an extended period of time.

The second half of 2022.

Your next question comes from David Westcott withdrew a securities your question. Please.

Yes.

Hi, Laura Thanks for taking my questions.

First on the expanded reimbursement that you talked about in the prepared remarks, I mean, it's been a couple of months, so far where that's been in place and you have a couple of months. So far this year already but I guess could you discuss if at all whether it's anecdotal or more broadly just where the impact of these factors are starting to come out of the business. I mean is this opening up the door for new.

Reps to Reengage with new accounts is it reactivating inactive physicians or just more utilization within.

Some of the existing accounts and then how should we think about that impact throughout the year I mean is that something that scales and starts to.

Better impacted us in the second half of the year any color would be helpful.

Yeah, David Thanks for the question and we are really pleased with what we've seen from a reimbursement perspective.

We finished 2021 with near Universal coverage of.

Of minimally invasive Si joint fusion and even more so with over 160 million patients who are exclusively covered for ICU. So we're really pleased with with what we've seen there in terms of the impact of some of those decisions.

I think.

Foundation and that recommendation was exclusive to ICU. So it was a it was a huge win for US and then a little bit surprising was the decision by United healthcare to switch from.

Positive general coverage decision too.

Two an exclusive decision.

No.

In terms of what we're seeing right now.

We're seeing these payers enforce the exclusive policy and while it is early days, we did see an uptick in anthem case volumes in the fourth quarter that we do attribute to the anthem decision. We do think that some of these early.

Yeah.

That's what we believe that we're seeing here in these early days, but I will say we are quite excited about the potential tailwind for 2022 from the coverage decisions and the exclusives, especially in the case of <unk> since they were a non coverage decision.

So in terms of what we would expect it normally takes anywhere from six to 12 months for a new case to work itself through the system before seeing a meaningful impact on volume.

But we have been.

Really focused on the potential impact of these exclusives and our 2022 guidance and so like I said more of a six to 12 month timeframe in terms of impact.

Okay. That's helpful I.

I guess just can you provide.

Commentary from the canceled procedures and backlog of cases coming from from Q4, and then into January and early February .

I guess what is what does the backlog look like at this point and then you mentioned theres. Some physicians that are scheduled out to three months or so or less.

But I guess what is the current backlog look like how is the pipeline of patients looking and then how should we think about this.

These patients I guess progressing throughout the year and how did you kind of comfortable that within your guidance. Thank you yeah.

Been an unusual period of time, obviously, we had delta in Q3, and then the start of OMA crime in Q4.

And then we did talk very openly about what we saw in January and February as well and so what we've what we've tried to do is to think about.

This contribution from these procedures over the next few months.

And.

We're encouraged by the fact that we're seeing.

A decline in the deferrals between January and February we don't know what March will necessarily look like and in terms of backlog the way that our system works is we typically will see.

Okay. That's helpful. Thanks for taking the questions.

Thanks, David.

Our next question is from David Saxon with Needham Your question. Please.

Hi, good afternoon, and thanks, so much for taking the questions.

I guess just one on.

2022.

Guidance implies 20% at the high end.

But in the past you've talked about being able to grow well into the 20% range I think Jeff once said, it's 30% plus.

Just wanted to hear your view on whether.

The lower implied growth reflects any change in confidence.

Opportunity in front of you or if it's really just.

Tougher COVID-19 impacted market.

With perhaps some conservatism baked in.

Yes, Thanks for the question, David and Youre hinting in the right direction for US we're really pleased with the execution in 2021, we actually had 25% growth in case volumes, even with multiple surge isn't it doesn't reaffirm the growing demand for our procedure where in the.

30% increase in the number of territories in the United States with our sales team and then the growing portfolio of products. So we feel great about that too.

The operating environment was difficult in January it's definitely improved in February with fewer deferrals and.

And we believe that the health care environment is still progressing toward becoming fully normalized.

And so when we think about procedure volumes continuing to grow month over month, we remain bullish on the underlying business momentum, but given the macro environment. We really think it is prudent to take a more conservative position around the pace of normalization and being deliberate on the.

Impact of the tailwind, including the exclusive expansion into trauma or new product launch all of those things on 2022 revenue growth but.

I will reaffirm we are extremely excited about the year 2022, we believe the underlying demand for our products remains robust.

There is definitely upside assuming a sustained recovery from all the chronic COVID-19 more broadly and that certainly could further accelerate growth in the second half of 2022 through higher surge in productivity from our backlog and growth in our trauma and adult deformity businesses is the only thing I would add there David is you.

We're spot on in the low end of our guidance as Laura said it assumes a very conservative scenario.

With some amount of impact from COVID-19 throughout the year, including continued case deferrals and prolonged backlog recapture rates.

So similar to some of the disruptions we've seen over the last two years, which again if those on the sidelines. We do believe there is tremendous upside in the second half of the year.

Got it that's Super helpful. And then just one on.

The exclusive policies I was just wondering if you've seen any benefit with regards to certain training and messaging.

Messaging the exclusive coverage two docks that maybe we're reluctant.

To take age in the past thanks, so much for taking the questions.

Thanks, David.

As it regards the exclusive policies at the at the point in time, where the decisions were made by anthem and United Healthcare, We had a very major marketing campaign.

That worked with our field sales team in order to reach out to all of the surgeons, who were impacted around the country by those decisions.

So there was a first round of of very significant sales and marketing activities around the anthem decision in the third quarter and then there were more activities that we engaged in in the fourth quarter with United Health Care and you are correct that it did give us the opportunity to two <unk>.

Reengage with surgeons that we hadn't engaged with for a while it allowed us to train some of those surgeons using the simulator. It makes it very easy to reactivate surgeons, who may have been trained previously.

Or those that.

Have expressed interest but never gone through training.

And then it also even gave us the opportunity to talk about what's new within the business. So.

We went in and there were some cases, where it was appropriate to talk to the surgeons about our new torque product there were.

And then talk to them about ways to engage with US. So it was it was a major focus point for the sales team along with our field marketing team and.

You gave us a lot of opportunities for engagement in the second half of the year.

Great Thanks, and congrats on the quarter. Thanks, David.

Your next question comes from drew Ranieri with Morgan Stanley Your question. Please.

Hi, Laura natural thanks for taking my questions.

Just as we're thinking about 2022.

Can you maybe talk about some of the trends that youre seeing in your.

Your procedures moving to the ASC setting I mean are you seeing more of a.

Or are you expecting more of a shift the current operating environment.

But I'll stop there.

A follow up.

Yes, the ASC environment has been a really important.

Site of service for us over the last couple of years so.

As I stated in my prepared remarks, approximately 80% of our procedures are either hospital outpatient procedures or ASC procedures in.

And before the pandemic that number was in the single digit range. We now have gotten in the in certain months in quarter or into the 20% to 25% range for AFC sales.

We do see the ASC is.

A long term growth opportunity for us just because a lot of procedures are shifting to that site of service. It is.

<unk>.

Are actually developing relationships with ASC and and our shifting business there as well. So I think it's a long term growth opportunity for the business.

Got it understood and then just to shift gears to gross margins, but.

You've made some comments about the quarter, but I'd like to better understand.

Kind of your your guidance for 2022, and some of the pieces, there and whether or not kind of the inflationary cost environment as really being a factor.

The gross margin guidance.

At 85% is this kind of range kind of the right go forward Si bone gross margin rate. Thank you.

Hey, drew thanks, a lot for that question.

We obviously are really proud of our industry, leading gross margins.

Came in for 2021 at about 88%. So when you think about our guidance both in 2022 and as we think longer term.

We model. It here is we got a few levers that we look at one is.

The ASP decline that we tend to pricing on a per procedure basis, not a not a per implant basis and a lot of that is driven by site of service like Laura said more procedures in the ASC they tend to be a little bit more price sensitive.

Especially if you see contribution from torque and adult deformity, which tend to use fewer implant than the primary Si joint fusion. So you've got some of that ASP.

The pressure that we tend to model in and then we look into two other aspects.

The second one being the depreciation expense, especially as we expand our product portfolio. We are expanding the amount of instrument trays that are in the field that depreciation flow through of gross margins. So that will put some pressure on it.

Actually been very forward looking in terms of the demand trends and what we need we do model that in.

Now where do you see long term gross margin sort of that mid to potentially high <unk> is where we look at.

We're not going to be able to say is that 85, but our aim is to keep it above the 85 number.

Okay.

Our next question comes from Dave <unk> with JMP Securities. Your line is open.

Well I think I heard you say that the re engaged surgeons there may be some of the new products, we're helping with that but of the 690 active do you commented at all it's sort of how many of them were <unk>.

Reengage guys versus let's say the brand new customers.

We don't comment on it but it definitely has been a focal area for us too.

Re engage surgeons there was a pretty major push in the second half of 2022.

To speak with Surgeons, who had previously been trained.

Sure.

And second half of 'twenty one.

In the second half of 2021, yeah right.

And we will continue to do that going forward as well as we said there were.

1800.

Surgeons, who have trained and treated at least one patient and a thousand of them approximately did at least one procedure in all of 2021 and so what that means is there are approximately 800 surgeons, who did not engage with us in that 12 month period and so those continue.

We need to be targets for us.

Got it thanks a lot.

Thanks, Dave.

Thank you and this ends our Q&A session I will toss it back to Laura Francis for her final remarks.

To leverage our investments to expand the market for sacral pelvic surgical solutions and drive strong top line growth I want to thank you for joining us today and I look forward to meeting you at upcoming Investor conferences and events Goodbye.

And with that ladies and gentlemen, we thank you for participating in today's program. You may now disconnect have a wonderful day.

Q4 2021 SI-BONE Inc Earnings Call

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