Q2 2022 SI-BONE Inc Earnings Call

August 8, 2022

Good afternoon, and welcome to <unk> second quarter earnings Conference call.

At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this coast being recorded for replay purposes I would now like to turn the conference to turn the call over to Matt <unk> 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 Monish worry Chief Financial Officer.

Here today Si bone released financial results for the quarter ended June 32022, 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 995.

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 Companys current expectations and inherently involve risks and uncertainties. These risks include the impact of the COVID-19 pandemic will have on the ability and desire of patients and physicians to undergoing.

Foreign procedures using the companys products the duration of the COVID-19, pandemic and whether the COVID-19 pandemic will incur in the future. Other forward looking statements include our examination of operating trends and our future financial expectations, such as expectations for hiring surgeon training and adoption active surgeons new products clinical.

While enrollment and reimbursement decisions 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.

Certain fees associated with our business. Please refer to the risk factors section of our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission Si bone 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.

Vince or otherwise this conference call contains time sensitive information and is accurate only as of the live broadcast today August eight 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 will provide a business update and onshore will provide additional detail regarding our financial results.

Before I cover our record second quarter results, let me highlight some recent wins for the company.

At the end of May we received FDA five 10-K clearance for ICU bed rock granted a breakthrough product that is intended to provide our Si joint fusion. In addition to think Republic fixation for adult spinal deformity procedures.

This clearance policy earlier designation by the FDA of ICU bed rock granted as a breakthrough device.

In August CMS published the final decision confirming the new technology add on payment or untapped of up to $9828 for eligible cases, using ICU bed rock granted.

The untapped will be exclusive to ICU bedrock granite and become effective October one 2022 for a period of up to three years.

On the initial strong surgeon reception, we're really excited about the potential for ICU bed dark granite to accelerate our penetration into a highly synergistic $250 million of adult deformity market.

In mid June we received FDA clearance for expanded indications of Ip's torque for pelvic fracture fixation, including acute non acute and non traumatic pelvic fracture.

<unk> was previously cleared for both Si joint fusion and fracture fixation.

With this expanded clearance we can now promote the use of ICU storch for treatment of patients with fragility and insufficiency fractures of the pelvis, which are fractures caused by low energy traumatic event.

We estimate this patient population accounts for $300 million of our $350 million market opportunity.

We believe the expanded indication will accelerate our growth in the trauma market as ICU talks unique osteo integration feature will be effective option to brie mobilized patients many of whom have osteoporosis, who are suffering from fracture related pain and disability, thereby improving quality.

<unk> of life, while simultaneously, reducing re hospitalization, which can provide cost savings to the healthcare system.

We're confident that the clearance of Ice's bedrock granite and the expanded trauma indication for eyepiece tour will complement our core market and be catalysts for strong future topline growth.

Now moving to our performance in the second quarter of 2022.

In the second quarter, we generated worldwide revenues of $25 $6 million representing growth of approximately 15% compared to the second quarter of 2021, and 14% growth over the first quarter of 2022.

In the U S. Our revenue grew 18% in the quarter compared to a prior year period to a record $23 $8 million, which was driven primarily by the robust demand for our procedures.

We're pleased with the 23% U S procedure volume growth in the quarter, especially when considering that healthcare providers continue to navigate capacity and staffing issues due to the pandemic.

We believe them to be outpatient nature of our procedure combined with the solid execution by our dedicated field organization contributed to the robust volume growth.

We exited the quarter with strong operating momentum with June being the highest procedure volume month in the company's history.

Additionally, anecdotal feedback from surgeons suggest that the new patient funnel continues to grow indicating that we're progressing toward a more normalized operating environment.

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

Starting with sales infrastructure, our dedicated sales force remains an important driver of growth as we expand our core market and grow our presence in trauma and adult deformity.

Our sales force at the end of the second quarter included 85 territory managers and 76 clinical support specialists.

In addition to growing our sales force to ensure high quality coverage for our surgeons, we remained focused on territory manager productivity.

We're confident that with the selective expansion of our sales force and improving territory manager productivity will continue to support our surgeons and deliver strong top line growth.

Let me kind of a surgeon engagement, we ended the second quarter with a record 720 active surgeons, who performed at least one procedure in the quarter.

In addition, a surge in growth. We're also encouraged by the high single digit increase in surgeon utilization, which reaffirms that our health care provider engagement initiatives and our expanded portfolio offering is working.

We believe surgeon adoption and improving utilization, our strong positive leading indicators of procedure demand for the rest of 2022 and beyond.

Our expanding product portfolio positions us to accelerate surgeon engagement and activation as we progress through the year.

We continue to experience a steady increase in adoption rate of surgeons, who have been trained on the simulator, which remains a valuable component and our surgeon training programs.

Moving forward, we expect to leverage our simulator training along with in person local training and regional training to drive cost effected surgeon engagement.

We also continue to expand our academic programs to educate residents and fellows since inception of the program. We've held training events and approximately 200 academic facilities in the U S and trained approximately 1100 surgical residents and fellows.

In the academic year ended June 2022, we trained approximately 500 residents and fellows demonstrating the growing interest in our products within academic facilities.

Additionally, education on bedrock and ICU bed rock granted are now integral elements to each training.

We're encouraged by the steady increase in these previously trained fellows and residents converting to active surgeons as they begin practicing.

Turning to products and solutions.

We're pleased with the strong performance of Ice's torque, which delivered record revenue in the quarter.

The strong uptake of <unk> toric in the last 12 months reaffirms that our portfolio diversification strategy is resonating with our surgeons.

With the expanded indication we're excited about the potential opportunity in trauma for Ips torque to treat cycle of fragility and insufficiency fractures, which are currently estimated to have an incidence of approximately 120000 injuries per year in the U S. Most of which are currently not treated surgically.

This fragility fracture market is of strategic importance since over 75% of patients with this condition are initially treated with bad breast and have over a 25% one year mortality rate.

With the indication on label, we've increased our targeted sales and marketing efforts to engage and educate trauma surgeons and believed trauma provides a huge growth opportunity for the company.

More to ICU bed rock granted we're pleased with the strong initial reception for this unique solution that combines the strength of a solid implant with the porosity of three D printed technology.

<unk> bedrock granite was developed to address with surgeons preference to augment stability at the base of long construct used to treat adult spinal deformity.

With an increasing user base of more than 300 surgeons, who have performed a bedrock procedures. Since 2019, we're optimistic about the adoption of Ice's bedrock granted.

We also believe there'll be a subset of surgeons, who will want to use some combination of our products to get two points of fixation across ESI joined on either side.

<unk> and broader portfolio penetration and higher procedure asps.

But differentiated technology, the seamless workflow integration and the exclusive antenna for a period of up to three years provides a significant competitive advantage as we expand our presence in the adult deformity market.

On the clinical research front in June we completed enrollment in Sylvia a two year perspective International Multicenter randomized controlled trial of two different methods for pelvic fixation in adult patients undergoing long construct spinal fusion.

We anticipate the results for the primary endpoint in 2024.

Consistent with our focus on clinical evidence and with the expanded ip's torque indication in place. We're in the process of initiating the <unk> study a prospective randomized controlled trial of surgery, using our IP towards device versus non surgical management in patients with stable, but debilitating sacral for agility.

<unk> insufficiency fractures.

This landmark trial will enroll up to 120 patients at up to 20 sites across the U S.

We're targeting enrollment completion by the end of 2023 with early results available in late 2024.

Moving to health economics and reimbursement.

<unk> recently posted the calendar year 2023 proposed rule for hospital outpatient and ASC payments.

While preliminary the current proposal would increase calendar year 2023 facility reimbursement for minimally invasive Si joint fusion procedures performed in ASC and hospital outpatient settings by approximately 28% and 35% respectively.

80% of our procedures are performed in an outpatient setting or surgery centers.

As our procedures continue to move to ASC is the potential higher reimbursement in 2023 could serve as a tailwind to demand and also allow us to maintain our pricing and these types of service.

In addition in June the American Medical Association posted its decision to add a new category III CPT code or T code to describe Si joint procedures, using inner positional products more commonly referred to as dorsal allograft procedures.

The <unk> determined that in order to report CPT $2 787 nine.

I would use to describe lateral ice's procedures.

Fixing device must be used. Additionally, if the implant is not cross ESI joined and the trajectory is different from a lateral or trans iliac approach than the new T code must be used.

As a result, starting January one 2023 dorsal allograph procedures, which have no long term evidence demonstrating durable outcome or radio graphic evidence showing fusion can no longer be reported is $2 77 nine for reimbursement purposes.

Our recent multicenter retrospective study of 37 patients published in July highlighted that Si joint stabilization involving placement of Standalone structural allograph using a dorsal approach has demonstrated complications, including persistent or recurrent postoperative pain implant Mel positioning structural.

Failures and lack of joint fusion further substantiates the M E T code decision.

Talking about our patient awareness initiatives.

In the second quarter, we further optimized our direct to patient outreach campaign, resulting in higher website traffic patient engagement and surgeon referral specifically.

Specifically, our find a doctor locator metrics continued to hit New records each month in the second quarter.

We view the find the Doctor metric is a leading indicator of patient engagement and potential future demand.

As a reminder, these outreach programs are targeted at patients in chronic severe si joint pain who've been in conservative care for an extended period.

Our goal is to connect patients with surgeons in their area, who perform minimally invasive si joint procedures using our products.

Before I turn it over to onshore I'd like to provide an organizational update.

In July Jeff Bertolini joined Us as our senior Vice President of operations and Technology, Jeff who was previously at new basis as the Vice President of sales operations and logistics has over 25 years of experience in the life Sciences and medical device industries.

Given our expanding portfolio jeffs experience will be invaluable to optimize our supply chain and drive operating efficiencies to ensure we maintain industry leading gross margins.

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 second quarter 2022, total revenue was $25 6 million.

Representing growth of approximately 15% compared to the prior year period.

U S revenue was $23 8 million increase.

Increasing 18% compared to the prior year period.

Growth in the U S was driven by strong demand for our solutions, which resulted in a 23% growth in procedure volumes versus the prior year period.

We were encouraged by the steady sequential increase in monthly U S procedure volumes as we progressed through the quarter.

Indicating that the operating environment continues to normalize.

Consistent with our experience in the last few quarters.

Our cedar volumes for minimally invasive Si joint fusion.

<unk> continued to increase.

ASE procedure volumes increased to the low 20% range.

From mid teens in the prior year period.

International revenue was $1 8 million a decline of 8% compared to prior year period.

While procedure volume increased by low double digit percent year over year led by strong performance in France that was more than offset by lower asps and FX headwinds from weakening of the euro.

Gross margin for the second quarter of 2022 was 86% compared to 89% in the prior year period.

The second quarter gross margin was impacted by an anticipated mid single digit decline in the ASP due.

Due to procedure inside of service mix and.

An increase in cost of operations to support the growth of the business, especially associated with the launch of new products and higher freight cost.

Operating expenses increased 22% to $40 million in the second quarter of 2022 as compared to $32 $8 million in the prior year period.

On a sequential basis operating expenses grew approximately 10% compared to the first quarter of 2022.

The sequential increase was driven by higher Commission.

Increase in travel and freight cost as well as the timing of our global sales meeting and certain training programs.

If we look at the rest of the year, we expect total operating expenses in the second half of 2022 to be low single digit percentage higher compared to the operating expenses in the first half of 2022.

Our net loss was $18 5 million.

Or <unk> 54 per diluted share for the second quarter of 2022 as compared to a net loss of $14 million or <unk> 42 per diluted share in the prior year period.

As of the end of the quarter, our cash and marketable securities were approximately $114 4 million.

And long term borrowings were approximately $35 $1 million.

Our cash outflow in the first half of 2022 included over $8 million in strategic investments to support our facility expansion and build inventory and instrument traced to ensure the successful launch of <unk> bedrock granted and the expansion of <unk> torque.

Based on our anticipated investments and Q3 and Q4 operating expenses, we expect cash outflow to moderate in the second half of 2022.

Moving to guidance.

While we are experiencing strong demand momentum, we remain cognizant of macroeconomic environment and its impact on health care.

We are currently maintaining our 2022 total revenue guidance of approximately $106 million to $108 million.

Representing growth of 18% to 20% compared to full year 2021.

The guidance range reflects strong growth in the U S.

Partially offset by foreign currency headwinds in the back half of the year.

We also continue to expect gross margin to be in the mid 80% range for fiscal year 2022.

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

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Yeah.

Our first question comes from David Saxon from Needham <unk> Company. Please go ahead.

Yeah.

Hi, Laurent thanks for taking the questions and congrats on the quarter.

Maybe just start off just on procedure volumes going into the third quarter I mean, it sounds like June was it was a really strong months.

And returning to a more normal operating environment, how should we think about the normal seasonality. We typically see in the third quarter are you expecting kind of a slowdown.

Or do you think we could see some sequential growth just given some of the <unk>.

Building momentum with torque.

Janet and I views.

David I can take the question around.

The cadence for the rest of the year and thanks, so much for the question.

Youre right. This does feel a lot to us like 2000 22019 was.

Especially based on the acceleration of growth that we saw in the first half.

Sort of going from 10% to now 15% is worldwide and the U S actually doing even better than that based on the strong procedure volume rebound that we've seen.

And you're right when we think about historical patterns Q3 tends to be sequentially flat to even lower from Q2, but given the momentum we see in the business. We do expect Q3 to be sequentially up.

Albeit low single digits up.

And there are a couple of factors that play into that one is just the strong volume in the U S that we expect to continue but some of the staffing challenges that we experienced in Q2, we think some of those will we'll continue to unravel as you progress through the year, especially in Q4, starting to normalize and then you've got.

Some of the FX challenges that we saw in Q2, we expect some of those to continue in Q3 and Q4 as well and then as you think about Q4 that that is always the strongest quarter for us from a seasonal perspective is as patients have met deductibles and.

There is an increase in elective procedures in general so.

About the cadence of sequential growth that we saw in 2019 to sort of be very similar in.

In the Q4 of 2022, when you think about Q3 to Q4 as well.

Okay, that's super helpful.

And then my follow up is just on Opex I. Appreciate the color you provided in the script should should we be kind of starting at a mid mid <unk> for the back half in terms of Opex.

And then I guess just on.

The increase from the first half to second half are you pulling forward any investments or is that just.

To support the higher revenue thanks.

Thanks, so much.

Yes, so when you think about the first half Opex, our opex was around 70 $576 million and I'm, just talking opex not looking at Cogs or anything.

Our expectation is a low single digit percentage increase.

In the second half versus the first half if you recall.

Earlier in the year, we had talked about.

The productivity in the P&L, especially as we progress through the year and some of that is going to play out.

In Q3, and Q4 and then also there were some spend items that we knew coming into the year that would be more on the first half we highlighted a few of those specifically around the global sales training.

Each surgeon and employee training events, which don't get replicated in the second half of the year.

Got it thank you.

The next question comes from Craig The Ju from Bank of America. Please go ahead.

Good after noon Lora onshore thanks for taking the question.

But let me well.

Let me start with the guidance in the second half and.

<unk> guidance for the second half.

I think by my math.

20% up over over the first half, which is meaningful step up and I do think.

Year over year growth almost doubles, what it would be or what it was in the first half.

Understand.

Encourage.

What youre seeing and you're encouraged by what you're seeing.

In the field, but.

And maybe just a little bit more color on what gives you the confidence in that ramp and then you know.

Additionally, with the torque momentum that youre seeing in the new indications and the launch of granite can you just help us think about how.

Or what's driving the higher sales in the second half.

Whether it's core versus torque versus.

Versus granted obviously, it's going to be all of it.

Any color on kind of the magnitude there.

Yes. Thanks for the question Craig and yes, we are very bullish about how the business is developing here.

Yeah.

Seeing the acceleration occurring in the second quarter and a lot of the tailwind that we discussed on the call earlier today, not yet completely in place and so you're right. It's a little bit of everything first of all it's primarily our core business that we're seeing that grow so as we.

Said the volume growth was around 23% year over year in the second quarter in the United States and that represented 18% growth in.

<unk> revenue in dollar revenue.

And so it is primarily in the core business that we're talking about that we're seeing this.

A rebound in the business and part of it is from a more normalized environment that we're operating in.

And some of these other factors that we talked about.

I think our factors there too I think TORC has had an impact too in terms of allowing us to convert some competitive accounts with with that technology. So so primarily it is the core business and onshore had mentioned this earlier in his his comment.

That's where if you think about how the business developed before Covid hit we actually saw the same exact sort of acceleration in the core business and at the time that was only our <unk> business. So so that's the core but then on top of it we have these two additional.

Opportunities that literally just came to fruition in the last month of 2022 and first of all it is our granite product and adult deformity and we're very excited about the opportunity that's here.

It really is a product that's meeting an unmet clinical need provide fixation infusion in spinal pelvic cases for the first time.

As a clear need for it in terms of failures of long construct with screws loosening rods braking and revisions and over 20% of cases, and then and we have the technology that addresses. This particular issue. We've also been working with over 300.

The surgeons for the last almost three years now.

And then we also have the <unk> tap, which is going to go in place as of October one of 2022 for over $9800. So we do believe that granted is going to be a significant driver of.

The business in the second half to aid.

Going on with our core business and then finally, there is the opportunity here in trauma with torque the biggest opportunity in trauma is with these pelvic safer.

Sacral insufficiency fractures.

And for agility fractures and those just went on label in June of this year. So it gives us the ability to to more broadly.

Market these products under that indication, which is another huge opportunity for us as well so all three of those things.

For market adult deformity and torque, but once again, if you look at how our business developed in 2019 with just the core business. The acceleration that we're talking about is very similar to what youre seeing in our current guidance our current guidance.

Got it.

Very helpful. Thank you, Laura and maybe a follow up for onshore opex.

So I appreciate the color that you provided and the thoughts on the second half.

And if I could push a little bit on maybe 2023, now youre not going to provide guidance for that but how.

How should we think about your ability to.

See operating leverage going forward and is it possible recognizing that youre going to see some of it in the second half.

Is it possible to see some.

The acceleration in that operating leverage in 'twenty three.

How do some of the inflationary environment or some of those challenges.

Factor into your ability to see that operating leverage in 'twenty, three and potentially beyond.

Yes, correct.

Craig will now be we're not going to be providing 2023 guidance at this point.

But as we think about our business, Greg and you look at the last 24 months, we've made a significant amount of investment to build out our commercial organization to build a supporting operating infrastructure. We've continued to invest in R&D and we've actually built a very solid foundation.

To be able to deliver strong sustainable growth as we come out of the pandemic into a more normalized environment.

And we're getting to a scale now Greg.

We think about it as an inflection point, where we are now focused on gaining leverage on the P&L. So as we think about 2023 youre not going to see is not invest in the items that we know delivered topline growth of R&D, Laura talked about a couple of examples of granted in pork and what impact it can have on the business.

R&D will remain a very crucial investment for us in 2023 as well and then it's going to be a lot of selective addition to our sales force.

We've grown our sales force over 30% last year and as that sales force matures and you combine that with the broader portfolio that allows for deeper surgeon engagement and high utilization both of them give us confidence in.

The productivity growing as we get into Q4, and then accelerating into 2023, especially as we look to.

To get to that adjusted EBITDA breakeven overtime, so feel really good about the setup that we have and now it's about monetizing the investments that we've made great.

Great. Thanks for taking the questions.

Again, if you have a question. Please press Star then one.

Our next question comes from David.

<unk> from <unk> Securities. Please go ahead.

Hey, guys. Good afternoon, thanks for taking the question.

I guess first on the reimbursement front, obviously, that's been extending reimbursement for reimbursement there has been a tailwind from the past several years and the.

The proposals to increase reimbursement by 'twenty.

Yes.

Next year is obviously a positive so I guess first congrats on that but just wondering how you're thinking about that at this point and how we should be thinking about this either driving increased utilization.

Active surgeon base I'm, just wondering how that that improvement next year would impact the business.

Thanks, David So yeah.

As you said CMS recently proposed 2023 facility payment increases of 28% and 35% in afcs and in the hospital outpatient setting respectively.

So the final proposal won't be out until November so we don't want to speculate on that but historically the final rulings have not been material materially far from the proposal. So that obviously is a significant increase we think it's going to be significant to surgeons.

We think it's going to be significant to hospitals and surgery centers in our case, 80% of our procedures are already in surgery centers or hospital outpatient and and so our procedure is already economically attractive at all sites of service.

But assuming that the final decision is close to the current proposal. We do think that it's going to be beneficial for facilities that had been dealing with and pressures.

From inflation and from Covid.

That is going to be a factor that there'll be considering and then we think it should be accretive to our revenues as well in terms of demand.

Or also potentially reduced ASP pressures as well at these various sites of service, especially as we continue to see a shift of procedures to afcs.

Okay. That's that's helpful and then I guess.

I guess sticking on reimbursement so that this new IMA temporary code.

If I could go into place next year, just wondering yes.

That is something that is specific to the IV product versus typical.

Typical to AIG two schools.

Next year and is there a significant difference in the reimbursement between those two segments and how does that.

Help you guys into 'twenty, two and three.

Yeah.

So our product our <unk> product is a product that is a transfixing product. So the implant is placed by a surgeon it goes across the joint and typically three of these implants are placed laterally and.

That is how CPT code $272 seven nine is actually described.

What the HMA has decided to do is they've decided to create a category three code not a permanent category one code.

Ford.

I'm going to just say, commonly referred to as dorsal allograft procedure. So they're taking a posterior approach not a lateral approach across the OEM toward the sacrum across CSI joined but posteriorly approach and.

So based on a lack of evidence available for these procedures as well as many differences from MIF lateral left Si joint procedures.

Which include the placement of a transfixing device like Icu's they've made this decision to create a category III code. So so we do not sell these dorsal allograft products or procedures or ICU product is a transfixing lateral approach product.

And so we do expect there'll be a significant impact on reimbursement for these other dorsal allograft procedures.

And and.

And so we do not believe that commercial payers are going to cover the new T code.

In the near term here.

And so we do see this as a significant development.

Okay very very helpful. Thanks, I'll get the question.

Thank you.

The next question comes from drew Ranieri from Morgan Stanley . Please go ahead.

Hi, Thanks for taking the questions.

Maybe one on.

The bedrock tap just reading through the documents it looks like CMS might have been expecting like 1400 in many cases, maybe in the first year is that kind of how we should be thinking about the rollout and Loren onshore.

Would you be disappointed if you're only doing that level bedrock cases over the next 12 months just given the significance of the product.

Thanks for the question.

And yes, you definitely read through.

The federal register to get that sort of information.

Yes.

It's a question as to what the demand will actually be for the product.

But if.

If you think about bedrock, it's what it's trying to do is to address this unmet clinical need this year and thats around screws loosening.

And breakage of rods.

Approximately 30% of adult deformity cases, and an over 20% of them were revisions are actually required and our product is is a breakthrough from the perspective that it not only provides fixation at the base of the long construct but but fusion as well.

And our best estimate here is that this is a.

Yes.

<unk> $250 million market opportunity this year.

And that our best estimate is that there are around 33000 adult deformity cases that go to the base of the law.

The base of the spine.

In these long construct cases and so those are the targets for US are those 33000 cases.

And the question is how rapidly can we capture that market opportunity.

And as I said earlier, we do have a head start on us because of our original bedrock technique, where surgeons who are using our <unk>.

Product at the base of the long construct and have already worked with older over 300 of these surgeons with these procedures. So they are familiar with the granite is really a very significant change here that it integrates with the long construct.

And it has all of these benefits associated with it including the economic benefits of the untapped.

Okay.

Thank you Lauren.

Maybe just kind of thinking about R&D for a moment and just hearing on sean's comments that youre going to continue to spend.

Extra on R&D, you just got a new indication for towards bedrock granted.

And the untapped just curious kind of what's next in the product portfolio as youre kind of shifting maybe more of the portfolio to travel any additional products that we should be thinking about in the back half of the year into 2023. Thank you.

Thanks drew so we're not we're not talking about future launches as you know we're.

We are pretty tight to the vast on those sorts of.

Our announcements, but what I will say is that we are a sacral pelvic surgical solutions company.

And what we've done is really identified a space that was was not.

Well.

Served by other companies in this space and we have become the expert in the sacral pelvic space. So it all started out with our core product our <unk> product.

<unk> three D targeting minimally invasive Si joint fusion.

And then with our launch of torque around a year ago also targeting the core market, but.

Trauma as well and then the new indication over the last few weeks really opens up that pelvic ring fracture market for us and now with the granite launch focusing on adult deformity. So what you can expect to see is for us to continue to first of all first and foremost focus.

On the development of our core market. There is a multibillion dollar market opportunity. There we have a very strong position. We are the clear market leader in this space. Our best estimate is that we have close to 70% market share.

In our core market, but we are diversifying our products and our business as well through torque and granted by capturing more of this opportunity in sacral pelvic surgical solutions. So that's really the focus for us.

For our business you can see that the innovative product, that's differentiated and putting us in a position of addressing unmet clinical needs.

Where others have not.

Again, if you have a question. Please press Star then one.

That's star then one.

The next question comes from Dave <unk> from JMP Securities. Please go ahead.

Great. Thanks.

And maybe as we're looking at product differentiation, obviously, the original IP as three D.

There was a lot different than other things out there, but some competitors did launch products that.

Arguably are.

Not at the same caliber without the data, but when you look at.

Work in bedrock.

I just wanted to get your thoughts sort of on IP protection, and then sort of.

Competitors responses as anyone else sort of looks.

Looking at these opportunities and.

Maybe coming with products. They already have approved are you aware of anyone else.

Sort of maybe tweaking what they have today to potentially come at some of these opportunities as well or do you feel like you're really the game in town. Thank you.

Thank you.

David.

It's a good question that you're asking and as I said as a response to the last question. We really are all about the differentiation of our products.

Protecting them with patents.

In addition, having the most clinical data on these.

Products and.

Conditions that we can so now over 100.

Peer reviewed published papers at this point on our various products techniques bio mechanics economics and so on.

And so we're differentiating ourselves through through product patent clinical data education sales force and we really are unique in the industry from this perspective, there are others that are certainly trying to follow us into these are.

But in each case, what we do is we've built a lot of moats.

Around our businesses so in the.

The case of ICU three D. The clinical data of the exclusive reimbursement the patents that we have.

In the case of granite that we just talked about the product itself. The breakthrough device designation the Ah <unk>.

And tap that's out there and if you look at the results of what we've done we have seen our market share grow from the time that we became a public company, where we were in the mid fifties to now approaching approximately 70%. So it really does tell you that we are developing.

<unk> that are winning in the marketplace and so our goal now is not so much to be capturing more market share. Our goal is to to grow the market overall and our core business.

And then to exploit the markets in adult deformity fixation infusion as well as as well as with the fragility fractures in trauma. These areas are unmet clinical needs that we are addressing with unique products.

<unk> and with a lot of data and education to support our positions.

Great. Thank you.

Okay.

There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Laura Francis for any closing remarks.

Thank you and thanks to all of you for joining us on the call today is as I've talked about we have several tailwind that we believe are going to accelerate our revenue growth over the next 18 months and that includes our increasingly productive sales force, our new product launches a favorable reimbursement landscape and indication.

Expansion into attractive new markets we.

We look forward to seeing you all at the upcoming Canaccord Conference in Boston, The Morgan Stanley Conference in New York as well as the Needham Virtual conference, Thanks, again and Goodbye.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

[music].

Good afternoon, and welcome to <unk> second quarter earnings Conference call.

At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call's being recorded for replay purposes I would now like to turn the conference 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 <unk> Chief Financial Officer earlier today Si bone released financial results for the quarter ended June 32022, a copy of the press release is available on the company's website before we begin I would like to remind you that management.

We 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 995 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 comps.

<unk> current expectations and inherently involve risks and uncertainties. These risks include the impact of the COVID-19 pandemic will have on the ability and desire of patients and physicians to undergo and perform procedures using the companys products. The duration of the COVID-19, pandemic and whether the COVID-19 pandemic will incur in the future. Other forward looking statements include.

Our 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 decisions 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 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 August eight 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 a business update and onshore will provide additional detail regarding our financial results.

Before I cover our record second quarter results, let me highlight some recent wins for the company.

At the end of May we received FDA five 10-K clearance for ICU bed rock granted a breakthrough product that is intended to provide our Si joint fusion. In addition to fake Republic fixation for adult spinal deformity procedures.

This clearance policy earlier designation by the FDA of ICU bed rock granted as a breakthrough device.

In August CMS published the final decision confirming the new technology add on payment or <unk> of up to $9828 for eligible cases, using ICU bed rock granted.

The untapped will be exclusive to ICU bedrock granite and become effective October one 2022 for a period of up to three years.

Just on the initial strong surgeon reception, we're really excited about the potential for Ics that dark granite to accelerate our penetration into a highly synergistic $250 million of adult deformity market.

In mid June we received FDA clearance for expanded indications of Ip's tour for pelvic fracture fixation, including acute non acute and non traumatic pelvic fracture.

<unk> torque was previously cleared for both Si joint fusion and fracture fixation.

With this expanded clearance we can now promote the use of ICU storch for treatment of patients with for agility and insufficiency fractures of the pelvis, which are fractures caused by low energy traumatic event.

We estimate this patient population accounts for $300 million of our $350 million market opportunity.

We believe the expanded indication will accelerate our growth in the trauma market is <unk> unique osseointegration feature will be effective option to brie mobilize patients many of whom have osteoporosis, who are suffering from fracture related pain and disability, thereby improving quality.

<unk> of life, while simultaneously, reducing re hospitalization, which can provide cost savings to the health care system.

We're confident that the clearance of Ip's bedrock granite and the expanded trauma indication for eyepiece tour will complement our core market and be catalysts for strong future topline growth.

Now moving to our performance in the second quarter of 2022 and.

In the U S. Our revenue grew 18% in the quarter compared to a prior year period to a record $23 $8 million, which was driven primarily by the robust demand for our procedures.

We're pleased with the 23% U S procedure volume growth in the quarter, especially when considering that healthcare providers continue to navigate capacity and staffing issues due to the pandemic.

We believe that the outpatient nature of our procedure combined with the solid execution by our dedicated field organization contributed to the robust volume growth.

We exited the quarter with strong operating momentum with June being the highest procedure volume month in the Companys history. Additionally.

Additionally, anecdotal feedback from surgeons suggest but the new patient funnel continues to grow indicating that we're progressing toward a more normalized operating environment.

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

<unk> net sales infrastructure, our dedicated sales force remains an important driver of growth as we expand our core market and grow our presence in trauma and adult deformity.

Our sales force at the end of the second quarter included 85 territory managers and 76 clinical support specialists.

In addition to growing our sales force to ensure high quality coverage for our surgeons, we remain focused on territory manager productivity.

We're confident that with the selective expansion of our sales force and improving territory manager productivity will continue to support our surgeons and deliver strong top line growth.

When do they kind of surgeon engagement, we ended the second quarter with a record 720 active surgeons, who performed at least one procedure in the quarter.

In addition to serve and grow we're also encouraged by the high single digit increase in surgeon utilization, which reaffirms that our health care provider engagement initiatives and our expanded portfolio offering is working.

We believe surgeon adoption and improving utilization, our strong positive leading indicators of procedure demand for the rest of 2022 and beyond.

Our expanding product portfolio positions us to accelerate surgeon engagement and activation as we progress through the year we continue.

To experience a steady increase in adoption rate of surgeons, who have been trained on the simulator, which remains a valuable component and our surgeon training programs.

Moving forward, we expect to leverage our simulator training along with in person local training and regional training to drive cost effected surgeon engagement.

In the academic year ended June 2022, we trained approximately 500 residents and fellows demonstrating the growing interest in our products within academic facilities.

Additionally, education on bedrock and ICU bed rock granted are now integral elements to each training.

We're encouraged by the steady increase in these previously trained fellows and residents converting to active surgeons as they begin practicing.

Turning to products and solutions.

We're pleased with the strong performance of Ice's torque, which delivered record revenue in the quarter.

The strong uptake of <unk> toric in the last 12 months reaffirms that our portfolio diversification strategy is resonating with our surgeons.

This fragility fracture market is of strategic importance since over 75% of patients with this condition are initially treated with bad rust and have over a 25% one year mortality rate.

With the indication on label, we've increased our targeted sales and marketing efforts to engage and educate trauma surgeons and believed trauma provides a huge growth opportunity for the company.

More to ICU bed rock granted we're pleased with the strong initial reception for this unique solution that combines the strength of a solid implant with the porosity of three D printed technology.

<unk> bedrock granite was developed to address with surgeons preference to augment stability at the base of long construct used to treat adult spinal deformity.

With an increasing user base of more than 300 surgeons, who have performed a bedrock procedures. Since 2019, we're optimistic about the adoption of Ip's bedrock granted.

We also believe there'll be a subset of surgeons, who want to use some combination of our products to get two points of fixation across ESI joined on either side, resulting in broader portfolio penetration and higher procedure asps.

But differentiated technology, the seamless workflow integration and the exclusive N tab for a period of up to three years provides a significant competitive advantage as we expand our presence in the adult deformity market.

We anticipate the results for the primary endpoint in 2024.

Consistent with our focus on clinical evidence and with the expanded ip's torque indication in place. We are in the process of initiating the <unk> study a prospective randomized controlled trial of surgery, using our IP towards device versus non surgical management in patients with stable, but the ability sacral for agility.

<unk> insufficiency fractures.

This landmark trial will enroll up to 120 patients at up to 20 sites across the U S.

We're targeting enrollment completion by the end of 2023 with early results available in late 2024.

Moving to health economics and reimbursement.

<unk> recently posted the calendar year 2023 proposed rule for hospital outpatient and ASC payment.

Today, 80% of our procedures are performed in an outpatient setting or surgery centers.

As our procedures continue to move to ASC is the potential higher reimbursement in 2023 could serve as a tailwind to demand and also allow us to maintain our pricing.

Service.

In addition in June the American Medical Association posted its decision to add a new category III CPT code or T code to describe Si joint procedures using enter positional products more commonly referred to as dorsal allograft procedures.

The <unk> determined that in order to report CPT $2 787, nine code used to describe lateral ip's procedures.

Fixing device must be used. Additionally, if the implant is not cross ESI joined and the trajectory is different from a lateral or trans iliac approach than the new T code must be used.

Failures and lack of joint fusion further substantiates the Ami T code decision.

Talking about our patient awareness initiatives.

In the second quarter, we further optimized our direct to patient outreach campaigns, resulting in higher website traffic patient engagement and surgeon referral specifically.

Specifically, our find a doctor locator metrics continued to hit New records each month in the second quarter.

We view the find the Doctor metric is a leading indicator of patient engagement and potential future demand.

As a reminder, these outreach programs are targeted at patients in chronic severe si joint pain who've been in conservative care for an extended period or.

Our goal is to connect patients with surgeons in their area, who perform minimally invasive si joint procedures using our products.

Before I turn it over to onshore I'd like to provide an organizational update.

Given our expanding portfolio jeffs experience will be invaluable to optimize our supply chain and drive operating efficiencies to ensure we maintain industry leading gross margins.

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 second quarter 2022, total revenue was $25 $6 million.

Representing growth of approximately 15% compared to the prior year period.

U S revenue was $23 8 million, increasing 18% compared to the prior year period.

Growth in the U S was driven by strong demand for our solutions, which resulted in a 23% growth in procedure volumes.

As the prior year period.

We were encouraged by the steady sequential increase in monthly U S procedure volumes as we progressed through the quarter, indicating that the operating environment continues to normalize.

Consistent with our experience in the last few quarters procedure volumes for minimally invasive Si joint fusion at <unk> continued to increase.

ASE procedure volumes increased to the low 20% range.

From mid teens in the prior year period.

International revenue was $1 8 million.

A decline of 8% compared to prior year period, while procedure volume increased by low double digit percent year over year.

Led by strong performance in France.

Was more than offset by lower Asps and FX headwinds from weakening of the euro.

Gross margin for the second quarter of 2022 was 86% compared to 89% in the prior year period.

The second quarter gross margin was impacted by an anticipated mid single digit decline in asps due.

Due to procedure inside of service mix and.

An increase in cost of operations to support the growth of the business, especially associated with the launch of new products and higher freight cost.

Operating expenses increased 22% to $40 million in the second quarter of 2022 as compared to $32 8 million in the prior year period.

On a sequential basis operating expenses grew approximately 10% compared to the first quarter of 2022.

The sequential increase was driven by higher Commission.

Increase in travel and freight cost as well as the timing of our global sales meeting and certain training programs.

As we look at the rest of the year, we expect total operating expenses in the second half of 2022 to be low single digit percentage higher compared to the operating expenses in the first half of 2022.

Our net loss was $18 5 million.

Or <unk> 54 per diluted share for the second quarter of 2022 as compared to a net loss of $14 million or 42 per diluted share in the prior year period.

As of the end of the quarter, our cash and marketable securities were approximately $114 $4 million and long term borrowings were approximately $35 1 million.

Based on our anticipated investments and Q3 and Q4 operating expenses, we expect cash outflow to moderate in the second half of 2022.

Moving to guidance.

While we are experiencing strong demand momentum, we remain cognizant of macroeconomic environment and its impact on health care.

We are currently maintaining our 2022 total revenue guidance of approximately $106 million to $108 million.

Representing growth of 18% to 20% compared to full year 2021.

The guidance range reflects strong growth in the U S.

Partially offset by foreign currency headwinds in the back half of the year.

We also continue to expect gross margin to be in the mid 80% range for fiscal year 2022.

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

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from David Saxon from Needham and company. Please go ahead.

Hi, Lauren and Paul Thanks for taking the questions and congrats on the quarter maybe.

Maybe just start off just on procedure volumes going into the third quarter I mean, it sounds like June was it was a really strong months.

Returning to more normal operating environment, how should we think about the normal seasonality. We typically see in the third quarter are you expecting kind of a slowdown.

Or do you think we could see some sequential growth just given some of the <unk>.

Building momentum with pork.

Granted ni views.

David I can take the question around.

The cadence for the rest of the year. Thanks, so much for question.

Youre right. This does feel a lot to us like 2000 22019 was.

Especially based on the acceleration of growth that we saw in the first half.

Sort of going from 10% to now 15% is worldwide and the U S actually doing even better than that based on the strong procedure volume rebound that we've seen.

And you're right when we think about historical patterns Q3 tends to be sequentially flat to even lower from Q2, but given the momentum we see in the business. We do expect Q3 to be sequentially up.

Albeit low single digits up.

Some of the FX challenges that we saw in Q2, we expect some of those to continue in Q3 and Q4 as well and then as you think about Q4 is that that is always the strongest quarter for us from a seasonal perspective is as patients have met deductibles and.

There is an increase in elective procedures in general so.

Think about the cadence of sequential growth that we saw in 2019 to sort of be very similar in <unk>.

In the Q4 of 2022, when you think about Q3 to Q4 as well.

Okay. That's super helpful. And then my follow up is just on Opex I appreciate the color.

You provided in the script should should we be kind of starting at a mid mid <unk> for the back half in terms of Opex.

And then I guess just.

On the increase from the first half to second half are you pulling forward any investments or is that just.

To support the higher revenue thanks.

Thanks, so much.

Yes, so when you think about the first half Opex. Our Opex is around 70 576 million and I'm, just talking opex not looking at Cogs or anything.

Our expectation is a low single digit percentage increase.

In the second half versus the first half.

Recall.

Earlier in the year, we had talked about.

The productivity in the P&L, especially as we progress through the year and some of that is going to play out.

In Q3 and Q4.

And then also there were some spend items that we knew coming into the year that would be more in the first half we highlighted a few of those specifically around global sales training certain each surgeon and employee training events, which don't get replicated in the second half of the year.

Got it thank you.

The next question comes from Craig The Ju from Bank of America. Please go ahead.

Good after noon Lora onshore thanks for taking my question.

But let me well.

Let me start with the guidance in the second half and what.

The implied guidance for the second half.

Okay.

By my math, it's about 20% up over over the first half, which is meaningful step up and I do think you.

Year over year growth almost doubles, what it would be or what it was in the first half.

Understand.

Encourage.

What youre seeing and you are encouraged by what Youre seeing.

In the field, but.

Maybe just a little bit more color on what gives you the confidence in that ramp and then.

Additionally, with the torque momentum that youre seeing in the new indications the launch of granite can you just help us think about how.

Or what's driving the higher sales in the second half.

Whether it's core versus torque versus.

Versus granted obviously, it's going to be all of it.

Any any color on kind of the magnitude there.

Yes. Thanks for the question Craig and yes, we are very bullish about how the business is developing here.

Yes.

Said the volume growth was around 23% year over year in the second quarter in the United States and that represented 18% growth in.

Revenue in dollar revenue.

And so it is primarily in our core business that we're talking about that we're seeing this.

A rebound in the business in that part of it is from.

A more normalized environment that we're operating in.

And some of these other factors that we talked about.

I think our factors there too I think TORC has had an impact too in terms of allowing us to convert some competitive accounts with without technology. So so primarily it is the core business.

And onshore had mentioned this earlier in his his comments, where if you think about how the business develops before COVID-19 hit we actually saw the same exact sort of acceleration in the core business and at the time that was only our IQ <unk> <unk> business.

So that's the core but then on top of it we have these two additional opportunities that literally just came to fruition in the last month of 2022 and first of all it is our granite product in it.

Adult deformity, and we're very excited about the opportunity that's here.

It really is a product that's meeting an unmet clinical need provide fixation infusion in spinal pelvic cases for the first time, there is a clear need for it in terms of failures of long construct with screws loosening rods braking.

And revisions and over 20% of cases, and then and we have the technology that addresses. This particular issue. We've also been working with over 300 of these surgeons for the last almost three years now.

And then we also have the added tap which is going to go in place as of October one of 2022 for over $9800. So we do believe that granted is going to be a significant driver.

Of the business in the second half to aid whats going on with our core business and then finally, there is the opportunity here in trauma with torque the biggest opportunity in trauma is with these pelvic safe.

Sacral insufficiency fractures.

And for agility fractures and those just went on label in June of this year. So it gives us the ability to to more broadly.

Market these products under that indication, which is another huge opportunity for us as well. So all three of those things core market adult deformity and torque, but once again, if you look at how our business developed in 2019 with just the core business the.

<unk> that we're talking about is very similar to what youre seeing in our current guidance our current guidance.

Got it.

Very helpful. Thank you and maybe a follow up for onshore opex.

So I appreciate the color that you provided and the thoughts on the second half.

And if I could push a little bit on maybe 2023, no youre not going to provide guidance for that but how.

How should we think about your ability to.

See operating leverage going forward and is it possible recognizing that youre going to see some of it in the second half.

Is it possible to see some.

The acceleration in that operating leverage in 'twenty three.

How do some of the inflationary environment or some of those challenges.

Factored into your ability to see that operating leverage in 'twenty, three and potentially beyond.

Yes, Greg Thanks.

Craig will now be we're not going to be providing 2023 guidance at this point.

To be able to deliver strong sustainable growth as we come out of the pandemic into a more normalized environment.

And.

Getting to a scale now Craig.

We think about it as an inflection point, where we are now focused on gaining leverage on the P&L. So as we think about 2023 youre not going to see.

He is not invest in items that we know delivered topline growth of R&D, Laura talked about a couple of examples of glad it in pork and what impact it can have on the business. So R&D will remain a very crucial investment for us in 2023 as well and then it's going to be a lot of selective addition to our salesforce.

We've grown our sales force over 30% last year and as that sales force matures and you combine that with the broader portfolio that allows for deeper surgeon engagement and how utilization both of them give us confidence in.

The productivity growing as we get into Q4, and then accelerating into 2023, especially as we look to.

To get to that adjusted EBITDA breakeven overtime, so feel really good about the setup that we have enough about monetizing the investments that we've made quick.

Great. Thanks for taking the questions.

Again, if you had a question. Please press Star then one.

Our next question comes from David.

<unk> from <unk> Securities. Please go ahead.

Hey, guys. Good afternoon, thanks for taking my questions.

I guess first on the.

The reimbursement front, obviously, that's been extending reimbursement reimbursement there has been a tailwind for the.

The past several years and the.

The proposals to increase reimbursement by.

Yes.

Active surgeon base I'm, just wondering how that that improvement next year would impact the business.

Thanks, David So.

As you said CMS recently proposed 2023 facility payment increases of 28% and 35% in afcs and in the hospital outpatient setting respectively.

But assuming that the final decision is close to the current proposal. We do think that it's going to be beneficial for facilities that had been dealing with and pressures.

From inflation and from Covid.

That is going to be a factor that there'll be considering and then we think it should be accretive to our revenues as well in terms of demand.

Or also potentially reduced ASP pressures as well at these various sites of service, especially as we continue to see a shift of procedures to afcs.

Okay. That's helpful and then I guess.

I guess sticking on reimbursement so that this new IMA temporary code.

If I could go into place next year, just wondering yes.

That is something that is specific to the IV product versus typical.

Typical loss to AIG two.

<unk> next year and is there a significant difference in the reimbursement between those two segments and how does that.

Hope you guys into 'twenty, two and three.

Yes.

So our product our <unk> product is a product that is a transfixing product. So the implant is placed.

By a surgeon it goes across the joint and typically three of these implants are placed laterally and that is how CPT code $272. Seven nine is actually described.

What the Army has decided to do is they've decided to create a category three code not a permanent category one code.

Sure.

Grant just say, commonly referred to as dorsal allograft procedure. So they're taking a posterior approach not a lateral approach across the LTM toward the sacrum across CSI joined but posteriorly approach and and so based on a lack of evidence available for these procedures.

<unk> as well as many differences from Mif's lateral left Si joint procedures, which.

Which include the placement of a transfixing device like ICU they've made this decision to create a category III code. So so we do not sell these dorsal allograft products or procedures or ICU product is a transfixing lateral approach product.

And so we do expect there'll be a significant impact on reimbursement for these other dorsal allograft procedures.

And and.

And so we do not believe that commercial payers are going to cover the new T code.

In the near term here.

And so we do see this as a significant development.

Okay very very helpful. Thanks for the questions.

Thank you.

The next question comes from drew Ranieri from Morgan Stanley . Please go ahead.

Hi, Thanks for taking the questions.

Maybe one on.

The bedrock tap just reading through the documents it looks like CMS might have been expecting like 1400, 80 cases, maybe in the first year is that kind of how we should be thinking about the rollout.

Laura on onshore.

Would you be disappointed if you're only doing that level bedrock cases over the next 12 months just given the significance of the product.

Sure.

For the question.

And yeah, you definitely read through.

Yes.

The federal register to get that sort of information.

Yes.

It's a question as to what the demand will actually be for the product.

But if.

If you think about bedrock, it's what it's trying to do is to address this unmet clinical need this year and that's around screws loosening and.

And breakage of rods.

But fusion as well and our best estimate here is that this is a.

Yeah.

<unk> $250 million market opportunity this year.

And that our best estimate is that there are around 33000.

Adult deformity cases that go to the base of the law.

The base of the spine.

In these long construct cases and so those are the targets for US are those 33000 cases.

And the question is how rapidly can we capture that market opportunity.

And as I said earlier, we do have a head start on us because of our original bedrock technique, where surgeons were using our <unk>.

Product at the base of the long construct and have already worked with older over 300 of these surgeons with these procedures. So they're familiar with it granted is is really a very significant change here that it integrates with the long construct.

And it has all of these benefits associated with it including the economic benefits of the untapped.

Okay.

Thank you Laura.

Maybe just kind of thinking about R&D for a moment just hearing on sean's comments that you are going to continue to spend.

And to the extra on R&D, you just got a new indication for towards bedrock granted.

And the untapped just curious kind of what's next on the product portfolio as youre kind of shifting maybe more of the portfolio the trauma.

Additional products that we should be thinking about in the back half of the year. The 2023. Thank you.

Thanks drew so we're not we're not talking about future launches as you know we're.

We are pretty tight to the vast on those sorts of.

Our announcements, but what I will say is that we are a sacral pelvic surgical solutions company and what we've done is really identified a space that was was not.

Well.

Served by other companies in this space and we have become the expert in the sacred pelvic space. So it all started out with our core product our <unk> product.

ICU three D targeting minimally invasive Si joint fusion than with our launch of torque around a year ago also targeting the core market but.

On the development of our core market. There is a multibillion dollar market opportunity. There we have a very strong position. We're the clear market leader in this space. Our best estimate is that we have close to 70% market share in.

In our core market, but we are diversifying our products and our business as well through torque and granite by capturing more of this opportunity in sacral pelvic surgical solutions. So that's really the focus for us for.

For our business you can see that the innovative product, that's differentiated and putting us in a position of addressing unmet clinical needs.

Where others have not.

Again, if you have a question. Please press Star then one.

Thats Star then one.

The next question comes from Dave <unk> from JMP Securities. Please go ahead.

Great. Thanks.

And maybe as we're looking at product differentiation, obviously, the original IP as three D.

Was a lot different than other things out there, but some competitors did launch products that.

Arguably are.

Not at the same caliber without the data, but when you look at the top.

Work in bedrock.

I just wanted to get your thoughts sort of on IP protection, and then sort of.

Competitors responses is there anyone else sort of looks.

Looking at these opportunities and.

Maybe coming with products. They already have approved are you aware of anyone else.

Sort of maybe tweaking what they have today to potentially come at some of these opportunities as well or do you feel like you're really the game in town.

Thank you.

David.

It's a good question that you're asking and as I said as a response to the last question. We really are all about the differentiation of our products.

<unk> them with patents.

In addition, having the most clinical data on these.

Products and conditions.

Conditions that we can so now over 100.

Peer reviewed published papers at this point on our various products techniques biomechanics economics and so on.

And so we're differentiating ourselves through through product patent clinical data education sales force and we really are unique.

The industry from from this perspective, there are others that are certainly trying to follow us into these areas, but in each case, what we do is we've built a lot of moats.

Around our businesses so.

The case of ICU three D. The clinical data the exclusive reimbursement the patents that we have.

In the case of granite that we just talked about the product itself the breakthrough device designation the.

And tap that's out there.

And if you look at the results of what we've done we have seen our market share grow from the time that we became a public company, where we were in the mid fifties to now approaching approximately 70%. So it really does tell you that we are developing strategies that are winning in the <unk>.

Market place and so our goal now is not so much to be capturing more market share. Our goal is to to grow the market overall and our core business.

And then to exploit the markets in adult deformity.

Fixation infusion.

As well as as well as with the fragility fractures in trauma. These areas are unmet clinical needs that we are addressing with unique products and with a lot of data and education to support our positions.

Great. Thank you.

Okay.

There are no more questions in the queue.

This concludes our question and answer session I would like to turn the conference back over to Laura Francis for any closing remarks.

And indication expansions into attractive new markets.

We look forward to seeing you all at the upcoming Canaccord Conference in Boston, The Morgan Stanley Conference in New York as well as the Needham Virtual conference, Thanks, again and Goodbye.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q2 2022 SI-BONE Inc Earnings Call

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