Q4 2022 SI-BONE Inc Earnings Call

Speaker 2: Good afternoon and welcome to SIBON's fourth quarter 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. I would now like to turn the conference over to Saquib Iqbal, Director of Investor Relations at SIBON for a few introductory comments. Sir, you may begin.

Speaker 3: Thank you for participating in today's call. Joining me are Laura Francis, Chief Executive Officer, and Anshul Maheshwari, Chief Financial Officer. Earlier today, SI-BON released financial results for the quarter ended December 31, 2022. After follow-up calls, the meeting was adjourned.

Speaker 3: A copy of the press release is available on the company's website. Before we begin, I would 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 Retrogation Reform Act of 1995.

Speaker 3: Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.

Speaker 3: These forward-looking statements are based on the company's current expectations and inherently involve risks and uncertainty.

Speaker 3: These risks include the duration of secondary impacts of the COVID-19 pandemic, such as facility staffing shortages, whether the COVID-19 pandemic will recur in the future, and our ability to effectively commercialize new products going forward.

Speaker 3: 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.

Speaker 3: 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.

Speaker 3: 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.

Speaker 3: SI-BONE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or overlooking 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. Step 3.

Speaker 3: February 27, 2023. With that, I'll turn the call over to Laura.

Speaker 4: Thanks, Tkav. Good afternoon and thank you for joining us. For today's call, I'll provide a business update and on show we'll provide additional detail regarding our financial results. I'm pleased with our strong finish in 2022 as we effectively navigated some macro challenges, zero steady reacceleration of the business, and delivered record performance.

Speaker 4: The Jamaity Recall, our worldwide year-over-year revenue growth in 2022, went for 10% in Q1 to 15% in Q2 to 19% in Q3 and finally 27% in Q4. Our growth was driven by both our core as I joined Fusion business, as well as new products targeted toward adult deformity and trauma applications.

Speaker 4: 2022 was a milestone year for the company as we extended our market leadership, expanded our addressable market with the launch of ICU's Bedrock Granite, a breakthrough product.

Speaker 4: and received expanded FDA clearance for applications of ITU's torque and fragility fractures and plant health fixation. Our comprehensive portfolio allowed us to achieve record U.S. Act in surgeon growth, which we believe is crucial to deliver strong and sustainable growth in 2023 and beyond. As we progress through 2022,

Speaker 4: We delivered substantial operating leverage and significantly reduced our adjusted EBITDA loss and cash usage while investing in our long-term growth initiatives. Before I discuss the details of our performance, I'd like to thank our employees for their dedication and focus to achieve these major milestones. You supported over 1,300 U.S. surgeons who performed a procedure using our solutions in 2022.

Speaker 4: Most importantly, you have to improve the quality of life for over 13,000 patients worldwide.

Speaker 4: Now moving to our performance for the fourth quarter of 2022, our worldwide revenue was $32 million, reflecting 27% growth compared to the fourth quarter of 2021 and 21% growth compared to the third quarter of 2022. Our US revenue in the fourth quarter of 2021, 28% compared to the price...

Speaker 4: Our U.S. revenue grew over 19% compared to full year 2021 to $98.8 million.

Speaker 4: The sequential acceleration in our U.S. revenue growth in each quarter of 2022 reaffirms strong demand for our solutions and a normalizing operating environment.

Speaker 4: Now, let me provide some details on our key initiatives as we look to expand our leadership positions and drive strong long-term growth.

Speaker 4: Starting with sales infrastructure, our dedicated direct sales force and agent partners are an important driver of growth as we develop our core market and grow our presence in trauma and adult deformity.

Speaker 4: We ended 2022 with 88 territory managers and 73 clinical support specialists.

Speaker 4: In 2022, the average annual revenue preparatory manager increased to $1.2 million, reflected in double-digit percentage growth compared to 2021.

Speaker 4: We believe there is significant opportunity for operating leverage in 2023, given the potential for average territory productivity to be in the range of $1.5 to $2 million over time. With our expanded portfolio, we're leveraging our growing network of agents for case coverage, and our

Speaker 4: and selectively evaluating consignment strategies at high-volume hospitals. We're confident that this hybrid approach will help the territory manager drive surge engagement, ensure high quality support for a surgeon, and deliver strong productive top-line growth.

Speaker 4: Moving on to surgeon engagement, surgeon adoption is one of the best leading indicators of long-term procedure demand. We exited the fourth quarter with a record 920 active surgeons.

Speaker 4: This equates to over 33% growth in our active surgeon base over the fourth quarter of 2021 and approximately 15% sequential growth compared to the third quarter of 2022.

Speaker 4: This is the eighth consecutive quarter of double digit year over year growth in our active surgeon base and the highest growth rate in active surgeon base since we've been a public company.

Speaker 4: This growth in active surgeon base is a testament to our focus on surgeon engagement, education, and outreach over the last several years. The increase in surgeons in the fourth quarter came from those who performed a minimally invasive SI joint fusion procedure, as well as adult deformity or trauma procedures. Additionally, it's exciting to see a growing surgeon overlap across our various procedures.

Speaker 4: In 2022, over half of our active surgeons who performed an adult deformity procedure also performed a minimally invasive SI joint fusion procedure using our solutions. We believe our complementary portfolio provides a significant opportunity to drive deeper engagement with our active surgeon base and increase the procedures per surgeon.

Speaker 4: With the trauma indication expansions for ITU's torque, the loss of ITU's bedrock granite and the growing interest in the spinal public fixation and fusion, surge in education is crucial to driving engagement and activation.

Speaker 4: Additionally, we're experiencing great success with our academic programs that are focused on residents and fellows.

Speaker 4: Since the inception of the program, we've held training events in over 200 academic facilities in the United States and trained approximately 1300 vertical residents and fellows.

Speaker 4: We're encouraged by the steady adoption of our procedures by these previously trained fellows and residents when they began practicing.

Speaker 4: In 2022, the number of fellows in residence who did their first case increased nearly threefold compared to 2021, while their procedure volumes increased fourfold.

Speaker 4: Turning to products and solutions, the key tenant of our strategy has been to expand our platform of sacred public solutions to address outside joint pain, adult deformity, and trauma.

Speaker 4: With iFuse 3D, iFuse Torque, and now iFuse FedRec Granite, we believe that the value of our innovative, versatile, and complementary product portfolio provides surgeons with a comprehensive set of alternatives and positions us as the top choice for surgeons for sick or pelvic solutions. iFuse Torque continues its strong growth and has become an important addition to the portfolio.

Speaker 4: of fixation. We're seeing a study of taking the use of the product to complement ITUs by Brad Granis and the second point of fixation as a joint. From a biomechanical perspective, having two points of fixation is important to attain fusion.

Speaker 4: In trauma or in the early stages of market development are encouraged by the progress in the use of IQs torque for sacral insufficiency fractures.

Speaker 4: 20,000 of these injuries per year in the US, most of which are currently not treated surgically, the fragility fracture market is a recognized unmet clinical need. The trauma opportunity is of strategic importance to us as the Staker Public Solutions leader and will be an important avenue for growth over the long term. Moving to IQ bedrock granite.

Speaker 4: The reception of i-PuBED Granite has been exceptional, driven by strong surgeon and hospital interest in adopting the product. Based on our early interest, we believe that Granite may become a standard of care for stabilizing the basal lung constructs in adult deformity procedures and in certain degenerative spinal fusion cases.

Speaker 4: Corona.

Speaker 4: Since launch, nearly 2,500 hospitals across the U.S. have added iFuse Bedrock Granite to their approved product list. Additionally, with the recent FDA clearance to allow the use of iFuse Bedrock Granite with a variety of pedicel-spur and rod systems, surgeons can now have confidence using their preferred system with iFuse Bedrock Granite as the foundation for their construct.

Speaker 4: We believe both these milestones will be additional catalysts to drive future growth. Given the positive experience with IPU's bedrock granite, we're seeing surgeons expand the use of the product to stabilize the base of shorter multi-level constructs as part of treatments for degenerative spinal conditions.

Speaker 4: Approximately one-third of our iFuse Bedrock Granted cases have been in these degenerative procedures. There are over 100,000 short and multi-level spinal fusion procedures per year in the U.S. While still early, the expanded use of iFuse Bedrock Granted in these short and multi-level spinal fusion procedures for select patients could be an exciting opportunity for us.

Speaker 4: and could expand our total addressable market beyond our initially estimated $250 million. Before I hand it over to Arnshell, I'd like to provide a reminder on the CMS rule for hospital outpatient and AMC payments the one effective January first.

Speaker 4: In 2023, Medicare facility fees and minimally invasive procedures performed using CPT code 27279 and hospital outpatient or ASC settings increased by 33% to approximately $22,000 from 26% to approximately $17,000 respectively.

Speaker 4: Today, 80% of our minimally invasive SI joint procedures are performed in an outpatient setting or at surgery centers. We expect more of our minimally invasive procedures to move to ASCs over time.

Speaker 4: While it is too early to assess the business impact of this significant increase in facility fees, we believe it could be a tailwind for demand and ASP stabilization if these sites serve.

Speaker 4: I'll now turn the call over to Anshul to provide more detail on our financial results.

Speaker 5: Thanks, Laura. Good afternoon, everyone. My comments today will be focused on fourth quarter revenue growth, operating leverage, and liquidity.

Speaker 5: everyone, my comments today will be focused on Fort Quarter revenue growth, operating leverage, and liquidity. Starting with revenue growth.

Speaker 5: Our fourth quarter total revenue was $32 million, representing growth of approximately 27% compared to the prior year period and 21% sequentially.

Speaker 5: US revenue was $30 million, increasing 28% compared to the prior year period. Growth in the US was driven by strong demand for our solutions, which resulted in approximately 33% procedure volume growth versus the prior year period and 23% growth sequentially. ASC procedure volume

Speaker 5: were in the low 20% range consistent with the prior year period. International revenue was $2 million, reflecting growth of approximately 3% in U.S. dollars compared to the prior year period.

Speaker 5: Across Europe , France maintains strong performance, often by under-performance in Germany and the UK.

Speaker 5: Gross margins for the fourth quarter of 2022 was 84% in line with the third quarter gross margin. The fourth quarter gross margin reflects a low single-digit percentage impact from lower average selling price, increase in freight costs and higher costs of new products, as well as the increase in depreciation from the ongoing deployment.

Speaker 5: of instrument trades to support strong new product demand. Moving to operating leverage, operating expenses increased 7% to $38.2 million in the fourth quarter of 2022, as compared to $35.8 million in the prior year period. The increase was driven by higher commission.

Speaker 5: associated with the revenue growth, increased travel and freight costs, and higher investment in R&D.

Speaker 5: On a sequential basis, operating expenses increased approximately 6%, driven by higher commissions associated with the higher revenue in the quarter.

Speaker 5: We're pleased with the acceleration and operating leverage as a revenue growth rate was four times the operating expense growth rate in the fourth quarter.

Speaker 5: The operating leverage was driven by strong top-line performance and across-the-board productivity gains from investments we have made to scale our platform over the last few years. Our net loss was $11.2 million or 32 cents per diluted share for the fourth quarter of 2022 as compared to a net loss of $14.5 million or 43 cents per diluted share for the fourth quarter of 2022. Our net loss was $11.2 million or 32 cents per diluted share for the fourth quarter of 2022 as compared to a net loss of $14.5 million or 43 cents per diluted share for the fourth

Speaker 5: for diluted share in the prior year period. Our adjusted EBITDA loss improved significantly in the second half of 2022.

Speaker 5: With full quarter adjusted EBITDA loss of negative $4.2 million and improvement of over 50% over the prior year period.

Speaker 5: adjusted EBITDA loss of negative $4.2 million and improvement of over 50% over the prior year period. Turning to liquidity. The built in

Speaker 5: We exited 2022 with $97.3 million in cash and marketable securities. Our cash outflow steadily declined as we progressed to 2022.

Speaker 5: A total cash outflow in the fourth quarter was $7 million, an improvement of approximately 51% compared to the prior year period, and an improvement of over 34% compared to the third quarter of 2022.

Speaker 5: While we plan to make additional investments in instrument trades and implants to support our growth, we expect continued progress in operating leverage to moderate cash usage in 2023.

Speaker 5: In January of 2023, we refinanced the outstanding $35 million term loan with a new $51 million credit facility with Silicon Valley Bank.

Speaker 5: including a $36 million term loan and a $15 million revolving line of credit. The new credit facility includes a $15 million accordion that is available to the company subject to the credit approval of the bank.

Speaker 5: The refinancing allows us to lower our borrowing costs, delay amortization by nearly two years, and have access to additional liquidity if needed.

Speaker 5: Finally, moving to our outlook for 2023. We continue to experience demand momentum for our comprehensive portfolio of solutions as well as elevated surgeon engagement.

Speaker 5: However, we are being thoughtful in our approach to annual guidance given the early phase of re-acceleration of the US business and the pace of recovery in our international business.

Speaker 5: Considering these factors, we expect 2023 worldwide revenue of approximately $124 million to $127 million, in applying year-over-year growth of approximately 17 to 19%. In 2023...

Speaker 5: we expect gross margins to stabilize at approximately 80%. Our gross margin assumptions incorporate low single-digit ASP degradation, as well as additional depreciation expense from the deployment of IFEWS Red Rock Granite and IFEWS torque trades in the back half of 2022 and throughout 2023.

Speaker 5: Turning to operating expenses, we anticipate operating expenses will grow at a mid-single digit percentage rate in 2023. We foresee a reduction in adjusted EBITDA loss compared to the full year 2022 based on the strong top-line growth and continued operating leverage. With that I will turn the call over for questions.

Speaker 2: Thank you. Ladies and gentlemen, to ask the question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker 2: Please stand by while we compile the Q&A roster. Our first question comes from the line of Katell Rose with Canna Court. Your line is open. Hi, good afternoon, everybody. And thank you for taking the question. Ladies and gentlemen, please

Speaker 6: from a long-term perspective when we think about the gross margin profile of the company.

Speaker 5: Hey Kyle, thanks for the question. This is Anshul. From a gross margin perspective, as you've seen over the last couple of years since we've introduced two new products, we have been putting a lot of investment in instrument trays to support what we see as strong demand for both torque and for granite. And if you look at the PP&E line in our balance sheet, you will see that have gone up from about...

Speaker 5: say four millionish at the end of 2020 to north of 15 million at the end of 2022 Now these trays get depreciated over a three-year period They obviously have a much longer life lifespan that they're used for but that's about four to five million of Deforestation that goes to your gross margin line

Speaker 5: which will equate to about three to four points of gross margin deterioration. A lot of the granite investment came about in the second half of 2022. We expect to continue to roll out additional granite trays throughout 2023. So we took that into account as well. I'd say a lot of the gross margin impact is driven by the depreciation of those instrument trays.

Speaker 5: Now on the ASP side, Kyle, we tend to make assumptions around based on what we've seen historically and sort of in the low to mid single digit range ASP decline is what we always look at. So sort of the three to 5%. It's still early days in the year, but we are seeing sort of beyond the lower side.

Speaker 6: of that ASP trend than we have historically been. So that's how we've sort of framed our gross margin guidance. Okay, very helpful. And I appreciate the commentary about the new product launches. And I hate to put the cart before the horse, so to speak, given you're still early in the granted and the torque launch. But what should we be expecting from a new product development perspective as the company focuses on being a larger public reconstruction?

Speaker 6: or pelvic ring focused company. What are the other areas that you think are underserved in the market that you think would be worth allocating R&D resources moving forward?

Speaker 4: Kyle, thanks for the question. When we went public, we were a single product company focused on SI joint fusion. We're the pioneer in that market. We built that market and we are by far the market leader in the space. What we've been doing over the last few years is capturing

Speaker 4: the broader opportunity in sacral pelvic solutions. And so we have launched products that provide us with opportunities in adult deformity as well as in trauma as well. So we're seeing that strategy play out very well for us. And we do certainly have

Speaker 4: an additional pipeline of products that we'll be speaking to at future dates. But right now what we're really focused on is market development of our core market in F by joint fusion and we're really pleased about the reacceleration that we've seen in our core market.

Speaker 4: Also, we do believe that we have a near-term opportunity to capture our opportunity with granite and adult deformity with spinal pelvic fixation infusion. And then the trial market is really more of that longer-term opportunity because this is unidentified on that clinical need, but it is an area where these...

Speaker 4: develop that particular market. So more on new products coming in the future, I would say that the message that we really have today is we have an extraordinary opportunity in our core and adjacent markets, and we're focused on market development in those areas.

Speaker 2: Great. Thank you for taking the questions. Thanks, Kyle. Thank you. Please stand by for our next question. Our next question comes from the line of David Rescott with Truis. Your line is open.

Speaker 6: Hey, guys, congrats on the quarter and thanks for taking the questions. Maybe just starting off better than on the 4th quarter, you know, it seems like the, the kind of world when came in essentially ahead of where. The guidance essentially was prior to to lowering on a Q3. So just wondering maybe what went right in the 2nd, part of the quarter to.

Speaker 4: really pleased with what we saw in the fourth quarter. 27% growth year-over-year, that was 21% sequential growth. And to just see the continued acceleration throughout the year, it shows the normalization of the operating environment, it shows the reacceleration of our primary SI joint fusion.

Speaker 4: But what we saw is this very nice acceleration in November and December . So taking us back into that original range of what we had anticipated for the year of a hundred and six to a hundred million in sales. And what we've seen actually is that has continued into the first.

Speaker 4: based upon the continued acceleration of the business. And I probably would say that the last point I would focus on here is the active surgeon numbers were ecstatic about those numbers at this point. 33% increase year over year.

Speaker 4: up to 920 surgeons who did at least one case in the fourth quarter of 2022. That's 15% sequential growth in that metric. And for us, it's a great forward-looking indicator for that future demand. And then, David, on your question around the guidance for the year,

Speaker 5: I sort of break it down into a few different tranches from a guidance perspective. Laura just highlighted our expectations for where one queue would be at the 30% year-over-year growth. We've got a couple months behind us now and as you know our visibility is pretty strong when we look out in the next 30 days or so. We feel good about how the business is set up.

Speaker 5: in the near term. And then, you know, as we think about, and even on the 30% growth, right, you know, by COVID, but when you think about it even sequentially, you're looking at high single digit Q4 to Q1 decline, which if you look at the last four years has been low double digits. So again, you know, seeing a nice acceleration, you know, a bit.

Speaker 5: OUS recovery from a business coming back perspective. And some of these factors could play out better than we anticipate, but given that we're this early in the year and several of the tailwinds are in the nascent stages, like, you know, gratitude is still being rolled out and the facility fees that went into effect in January , right? And hopefully to see what the potential impact of that could be.

Speaker 5: So we thought our guidance appropriately bracketed some of the risks and opportunities there. And then the other aspect of our guidance was just to continue to focus on operating leverage that we expect to see as we progress through the year into 2023. You know, Kyle asked the question around the gross margin and gross margins that saw that that stabilizing at about 80% are still industry leading and really do

Speaker 6: in 2023 assumes that there is stabilization of gross margins brought on by that improved reimbursement rate or perhaps they're maybe as upside just as you progress through the year. And then the second part of that, you know, just based on kind of our initial estimates, gross margins, you know, a little bit lower than we were anticipating, but, you know, still expecting improving EBITDA through the year. So just

Speaker 6: wondering what the biggest driver of that improving profitability is, and maybe how we should think about the cadence of that coming on through the rest of the year, especially since Q1 seems to be maybe a higher top-ling roast rate than the rest of the year. Thank you.

Speaker 5: Yes, that's a great question. So let me just take the question on what's going to drive operating leverage and even the acceleration first, and then go back to the gross margin side. So, you know, as we came into last year, David, we had talked about the business being at a natural inflection point to harvest all the investments that we made since going public and throughout the pandemic.

Speaker 5: Now we have had three consecutive quarters where revenue growth has exceeded operating expenses. We are really pleased with that trajectory. It has been pretty linear to revenue growth. As revenue growth accelerated, you saw the leverage accelerate as well because we have got the foundational infrastructure in place.

Speaker 5: As we get into 2023, we do not think that trend is going to change. We are still going to make investments in R&D. We're still going to make investments in trades, which will go as depreciation on the P&L. We are going to selectively grow our sales force, but the foundational infrastructure is there to support a much higher level of revenue.

Speaker 5: So when you think about the year as the revenue accelerates or as we progress through the year, you will see the leverage accelerate and we expect year over year, just that you've begun to continue to improve. You might have some seasonality sequentially, but year over year we should see an improvement. Okay, thanks, John .

Speaker 5: think about the year as the revenue accelerates or as we progress through the year you will see the leverage accelerate and we expect year over year I'll just that you've been done to continue to improve you might have some seasonality sequentially but year over year we should see an improvement okay thank you thank you

Speaker 6: Please stand by for our next question. Our next question comes from the line of Craig Baju with Bank of America. Your line is open. Good afternoon guys. Thanks for taking questions and congrats on a strong quarter. So I wanted to start with the active surgeon increase and I appreciate

Speaker 7: Laura, your comments on the acceleration of the core procedure. So I wanted to see, you know, what, if any, information you'd be willing to share on the mix of surgeons, of those active surgeons doing SI joint fusions and those doing adult deformity procedures.

Speaker 7: Is it evenly split and then kind of in the same line of questioning, how much of the increase in active surgeons from SI joint fusions were new to you guys versus previously trained but inactive surgeons? lines which are quite consistent.

Speaker 4: Yeah, thanks for the question Craig and I think you are highlighting a really important metric that we have here given how rapidly we're seeing an increase in the active surgeon base. If you look at all of 2021, I believe that we had...

Speaker 4: 1000 surgeons in total that did procedures for us in 2021, whereas in the fourth quarter alone, we had 920 surgeons doing procedures. So it really is pre-extrordinary progress that we've seen just in a 12 month period. So a 33% increase year over year, and then even a 15% increase, if you look sequentially quarter over quarter.

Speaker 4: really do see this as one segment of our business. We're a sacral pelvic solutions company, and all of these different areas, be it the primary market or adult deformity or trauma, really fall into the same category. With that said, we recognize that there is a need to at least provide some information.

Speaker 4: it's interesting that you made that comment. It is nearly even if you look at those just doing minimally invasive F-side joint fusion versus those that are in our adjacent markets of adult deformity and trauma. If you look at the ads, it's around 50-50 between the core market versus the new products. And so we're seeing it come from all different ends. And what we're also pleased with is that we're seeing this growing overlap

Speaker 4: in the sacral pelvic space. We have this favorable reimbursement tailwind in 2023 in our core market. And we think that surgeon engagement and density is going to accelerate this year. Got it, that's helpful. Thank you, Laura. You've mentioned it a couple of times, you've had a couple of reimbursement.

Speaker 7: positives over the last six months, call it. So, one, I wanted to see the, you know, get a little bit of color from you on the NTAP for granted and, you know, how much of that is, you know, our hospitals realizing or getting the payment that they expected that you guys had kind of outlined, how much of that is driving that.

Speaker 7: that growth in Q4 and then how to think about it in 23, and then also on the actual SI joint fusion procedure. I know it's early, but any anecdotal feedback on the reimbursement went there.

On the NTAP, very good question on that. And as you recall, the NTAP went into effect on October 1, 2022. So we really have just a little over a quarter of experience on that NTAP. But we think that this is a really important factor.

for granite and the adoption of our product here in adult deformity. I was recently at a conference with adult deformity surgeons. One of the questions that was asked on a panel was, how are companies in our industry thinking about Q-

adopted. And we are seeing that play out at this point. We are starting to see cases where the NTAP has been paid. And this is going to be important, obviously, to the surgeons and as importantly to the hospitals as well. So

We think that while the additional economics are meaningful, we believe the strong surgeon interest in the product is also due to granite's unique design. It seamlessly fits into the surgeon workflow and it actually allows them to drive fusion and fixation to address this major unmet clinical need and that is the securing of a long construct.

So that's the end tap in terms of the increase in the facility fees for procedures that are coded to 27279, mentally and base of FI joint fusion. We talked a little bit about how things are going in terms of the first quarter and what we're anticipating.

Great. Thanks for taking the questions.

Thank you. Thank you. Please stand by for our next question.

Our next question comes from the line of Ross Osborne with cancer. Your line is open. Hi, congrats on the quarter and thanks for taking our questions. Starting off, has there been any progress in turning around your business in Germany and the UK, following a new leadership team there? And as a follow-up, do you plan to devote more resources to the UK?

on the businesses in Germany and the UK while helping to support the growth that we're seeing in France and in the rest of Europe . So I think given that Neville is in the UK it gives him a very specific opportunity to get his arms very much around that business.

There was also a kickoff meeting in January with the senior leadership team plus the entire AMIA team. And a lot of this is just very basic blocking and tackling in these countries. It is focusing on the Salesforce and training of surgeons, getting the surgeons to first case and regular-

leadership. Yeah, what I would say, Ross, is our expectation is, you know, any improvement that we see OUS will be, you know, at best pack half loaded.

Okay, got it. Thank you. And then one more from me. Would you be able to share the latest enrollment numbers from your staff on study? I don't think we're actually giving out enrollment numbers. I think our plan is to actually provide information at T.

Our next question comes from a line of dates to Sir Callie with JMP Security. Shilana is open.

Great, thanks. Laura, given the numbers that you saw in the fourth quarter, the 30% plus procedure volume growth, we're just trying to reconcile it with what we've heard from some of the other competitors in the ortho sparring world.

in terms of where you think we are coming out or the rebound from COVID. I mean, it seems like your US might be all the way back and maybe you still have some lingering OUS things to tackle, but I heard you mentioned freight, but I didn't hear you say anything about staffing shortages. I know you said depreciation as well, but I'd just like to get your thoughts on, domestically, do you feel like we're back? You know, it's an interesting question. We're looking...

We're looking at this as a normalized operating environment. And if anything, I was frustrated at the fact that it took four quarters in order to really see it. But we're pretty excited about where we're at. I do think that if I think about our procedures, Dave, our procedure is a relatively straightforward procedure in the operating room. For the most part, it's done outpatient or in a surgery center. And I think that even with a squeeze on labor in some cases, the

The sites of service and the surgeons are able to squeeze in these procedures. I do think that some of these improvements that we've seen in reimbursement will have an impact on the procedure being prioritized as well. And so I think all of those things are working in our favor. Got it. And then maybe a quick follow up just on the M&A landscape. We've seen some things start to happen again, which is nice, but a little bit of a delay there. I guess I'd sort of like to hear your thoughts on where you're getting some of the new reps and where you plan to bring that force to this year. And if you think any of a –

the transactions might help you gain some competitive folks. It's definitely interesting to watch what's going on at this point. It does seem like the M&A environment has come back to life because 2022 was pretty quiet at least in our particular space. So we're actually happy to see it. We there's a couple of things from a rep perspective. We've done a very good job of retaining our key reps within SI Bone and then we've also done a good job of growing our reps.

two. So hiring these more junior clinical support specialists and in 50% of cases when we do split a territory we actually promote a clinical support specialist into a territory manager. So we we try and promote from within wherever we can. Does it provide additional opportunity for us to hire new? Our focus is more on getting leverage of the Salesforce in 2023. So growing that 1.2 million of productivity up to the you know 1.2.

for our next question.

Our next question comes from the line of Drew Raniere with Morgan Stanley . Your line is open. Your line is open.

Hi, thanks for taking questions, Lauren on Schul. Maybe just on the overall environment, I mean, a few companies have talked about softness in the fourth quarter. This may go back to a question that was already asked, but as you are thinking about rolling out granite through 23. Can you just maybe talk about any factors that you are seeing in terms of growth rate and adoption? Are you seeing these incremental headwinds affecting the granite launch?

And then just from a set perspective, do you think, or at this point, do you have adequate supply to meet all demand in the marketplace right now? And I have a follow-up. Thank you. Yeah. Great. Thanks, Drew. In terms of the environment, as you can see, we weren't necessarily seeing an impact or any softness in any particular part of the market in the fourth quarter. And as I also shared for Q1, our expectation is to see even further acceleration over a year over

deformity, it's really more is there a surgeon that's going to perform a long construct procedure and are they looking to use granite for spinal pelvic fixation and fusion. So there's a much more potential opportunity for rapid uptake in our granite products than there have been in our previous products.

But what's important here is that we have enough implants in the field, we have enough instrument trays in the field, and then also that we're on the approved list at the various hospitals where these procedures are going to be performed. And I can tell you we've made extraordinary progress just in the last few months when we spoke in the last few months.

November , that was a rate limiting factor for us, but we started to, even toward the middle of Q4, we were bringing in more implants, more trays, and it's giving us the ability to try and keep up with some of this demand. And so I'm feeling pretty confident that we can meet the demand for both implants and trays for our granite product, but it's definitely probably the primary point of focus on fully recognizing the opportunity that we have in front of us with granite.

Thank you and maybe Feronchele, we've talked about guidance a few times tonight, but can you help us maybe frame volume growth, your expectations for volume growth in 2023 just coming off the strong fourth quarter and just help us kind of better contextualize what acceleration means in terms of volume growth and then second, just any framework you can provide on CapEx for 2023. Thanks for taking the question.

degradation is what's put in there. So if you do the math of 17 to 19, you know, that will give you an estimate of where the volume growth should be to be able to hit, you know, the low end of the hind of the range. And even within the US and OUS, our expectation is that growth is going to be faster in the US, the OUS growth, like I said previously, to an earlier question would be, you know, a lot more muted and more back half loaded as well.

So that's sort of on the on the volume side. Now in terms of, you know, the trend and acceleration, you know, that's something that we've talked about internally a lot on, you know, how should the sequencing be as you progress through the year? And, you know, unfortunately, when you look at the first half of the last three years, you know, it's been significantly disported by COVID. So it's really difficult to say what a normal sequential trend would look like going from Q1 to Q2.

Then you layer on some of the new products that we have launched in the last two years. That makes it even a little bit more difficult to say what the trending would look like. Like Laura said, we expect Q1 to be at about 30% growth year over year. Seasonally you think Q2 is a little bit higher than that. Q3 we think will be more flattish. And then you have that Q4 ramp again. We think that's the same trajectory you'll see now. Got it. And then CapEx for the year? I would say from a CapEx perspective the trend should be very similar to what you saw last year.

from a cap expense perspective because, you know, we'll still continue to introduce more torque rays, but the focus on continuing to put out more grinded rays is going to be key for us to be able to capture the opportunity Laura talked about. Thanks for taking the questions. Thank you. As a remodeled ladies and gentlemen, that's Star 11 to ask the question. Please stand by for our next question. Thank you.

Our next question comes from the line of David Saxon with Needleman Company. Yaline is open. Hi, good afternoon and thanks for taking the questions. Maybe I'll start on active surgeons, really strong and to the year obviously maybe was wondering, you know, what your expectations are for 2023 in terms of active surgeon count. And then I think I eat, you said in the past the quarterly average procedures per doc is in the through to four range. So we'd love to hear where you think that could go over the next 12 to 24 months.

as you see some pull through across the portfolio? Yes, David, happy to take that question. In terms of active surge in growth, you know, again, we've had eight quarters of double-digit growth, so I feel really good about it. Coming into this year, our expectation is, you know, growth in the mid-teens range at the end of Q4 2023.

when you compare it to Q4 of 2022, just to give you points of reference there. And if you think about the guidance range of 17 to 19, the delta of the guidance rates versus aftersurgeon base will come from increase in productivity.

You know, we have better control on making sure we are Reaching out to surgeons training them and getting them to first case and then the sales team Works really closely with the surgeons to get them to do repeat cases But that's where we focus more on how many surgeons can be trained and get the first case But with the broader portfolio we expect

that the number of procedures were... When we think about adult deformity and SI joint fusion, because even the limited time feeder that we've been doing adult deformity, as an example, 2022, of the surgeons that did an adult deformity procedure... there is actual utilize for it, whereas it's extremely rare at low investigations. crashes such as mine, possible instances where you have motionmusic, very Newman 2016, visualizations and background fascinating... all we wanted to be able to do for spatial developWIS film,

also did an SI joint fusion procedure. So there is low hanging fruit there that we can go after with this existing surgeon base and stop having them diagnose patients and perform SI joint fusion procedures as well. But we wanna be conservative on sort of that density for a surgeon at this point.

Okay, that's super helpful. And then maybe I just wanted to follow up on the gross margin guidance. Until I think in the script you said gross margin stabilized is that 80%. So does that mean you're exiting the year at 80% or is that a full year guide kind of applying your exit plate, you're exiting slightly below that? And thanks so much for seeing the questions.

in 2022, the gross margin will end the year at around that 80% mark, because we will continue to roll trades out. And then we expect it to stabilize at that 80% level, which again, look, they're inductively leading gross margins, the huge competitive differentiator for us. So we will continue to work hard to maintain those gross margins going forward.

There are a couple of things that will play out as you get beyond 2023 from a gross margin perspective. One is, when you launch a product, you see the market with significant capacity to be able to capitalize on the demand. We've done that with Tor starting in 2021, we're starting to do that with Granite in 2022.

What you have is a roll off effect. Some of the older trays roll off. The newer trays that come on are more replacement capacity. So you have some stabilization on gross margin there. That's number one. Number two is, as these products gain scale in the market, you start seeing the cost per implant potentially also improving over time. So we haven't taken that into account yet because it's still early for both those products.

Okay, super helpful. Thanks for taking questions. Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Laura Francis for closing remarks. Thanks Twanda and thank all of you for joining the call today. As I'm sure you've heard in our voices, we're bullish about the opportunity ahead of us in 2023.

there as well as at upcoming investor events. Thank you. Goodbye. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

To raise and lower your hand during Q&A, you can dial star 1-1.

I.

I have.