SI-BONE, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited. SI-BONE develops and sells minimally invasive implants and instruments for sacroiliac joint fusion; substantially all revenue is from its iFuse product family.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $22.3 million | $20.4 million | $64.9 million | $51.2 million |
| Gross margin | 89% | 87% | 89% | 87% |
| Operating loss | $13.2 million | $8.7 million | $37.7 million | $30.7 million |
| Net loss | $15.9 million | $9.5 million | $42.1 million | $34.7 million |
| Net loss per share, diluted | $0.48 | $0.33 | $1.28 | $1.23 |
| Operating cash flow | Not separately reported for the quarter | $(26.8) million | $(22.8) million |
- Q3 revenue grew 9% year over year; nine-month revenue grew 27%. U.S. revenue was $20.4 million in Q3 and $59.4 million for the nine months; international revenue was $1.9 million and $5.5 million, respectively.
- Higher revenue and lower inventory write-downs supported gross-margin improvement. However, operating expenses rose 25% in Q3 and 27% year to date, led by sales and marketing spending, contributing to larger losses.
- Cash and cash equivalents were $59.9 million and short-term investments were $101.0 million at September 30, 2021, or $160.9 million combined, versus $196.4 million at December 31, 2020. Current assets were $185.6 million and current liabilities $14.6 million.
- Net cash used in operations was $26.8 million for the nine months. Capital expenditures were $4.6 million. Cash and cash equivalents increased $6.3 million, partly reflecting net maturities of marketable securities.
- Net debt carrying value was $34.9 million, all classified long-term; total liabilities were $50.3 million. Stockholders’ equity was $143.6 million.
Material changes and notable items
- Management attributed revenue growth to higher case volumes, more active surgeons, sales-force expansion, and improved U.S. reimbursement coverage. Lower U.S. average selling prices partly offset growth.
- The Delta variant and associated case cancellations and deferrals weighed on Q3 procedures, particularly in August and September. Management also cautioned that Q3 2020 may have benefited from procedures rescheduled after earlier pandemic deferrals.
- Operating expenses increased as the company expanded its commercial team and resumed travel, surgeon training, marketing, research, and compliance activities. U.S. territory sales managers increased to 78 from 59 year over year.
- In August 2021, SI-BONE refinanced its Solar Capital term loan with a $35.0 million Silicon Valley Bank term loan and repaid Solar. The refinancing generated a $1.8 million debt-extinguishment loss in 2021. The SVB loan bears interest at the greater of 5.75% or prime plus 2.5%; principal amortization begins in September 2023. Maturity is August 2025 or August 2026, subject to a financial milestone. The company reported compliance with covenants.
- Inventory increased to $10.2 million from $5.6 million at year-end, partly reflecting a build for iFuse-TORQ. Property and equipment rose to $7.9 million from $4.5 million, including instrument-set investment.
Outlook, risks, and contingencies
- No specific revenue, earnings, or margin guidance is provided. Management expects continued operating losses and rising operating expenses, but believes existing cash and investments can fund operating and capital needs for at least the next 12 months. It has not achieved positive operating cash flow.
- Management plans further sales-force expansion in the remainder of 2021 and continued investment in commercial execution and research and development.
- Key risks include renewed COVID-19 disruption to elective procedures, hospital access and case volumes; supplier delays, shortages, inflation and rising costs, particularly for instruments; and dependence on a limited supplier base.
- The business remains heavily dependent on one product family. Other significant risks include competition and pricing pressure, reimbursement or coverage changes, clinical evidence and adoption, regulatory requirements, and the possibility of continued losses or a need for additional capital.
- SI-BONE reported over 300 million U.S. people had access to minimally invasive SI-joint fusion following positive coverage changes, including policies from Centene, Anthem, and UnitedHealthcare. Coverage decisions could change, and access does not ensure procedure volume or reimbursement.
- The company signed a new Santa Clara R&D and warehouse lease beginning November 2021, with a term through October 2026. Future minimum lease payments totaled $6.6 million; purchase commitments were $1.3 million.
- Management stated that no pending legal matters were currently believed to be material. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material quarter changes to internal control over financial reporting.
Important facts for investors to verify
- Whether case volumes recover from Delta-related deferrals and whether revenue growth translates into improved operating leverage.
- Cash burn, capital spending, and whether the stated 12-month liquidity outlook remains supportable as losses continue.
- SVB loan interest, the 2022 financial milestone governing maturity, covenant compliance, and future debt payments.
- Supply availability and costs, inventory levels, and the commercial performance of iFuse-TORQ and other growth initiatives.
- Durability of exclusive and broader reimbursement coverage, average selling prices, and competitive pressure.
- Impact of the new lease-accounting standard: the filing expects a material balance-sheet impact from recognizing operating lease assets and liabilities.