SI-BONE, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. SI-BONE develops and sells the iFuse minimally invasive implant system for sacroiliac joint fusion. The company says substantially all revenue is from iFuse sales.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $15.0 million | $12.7 million |
| Gross profit / margin | $13.5 million / 90% | $11.7 million / 92% |
| Operating expenses | $22.3 million | $14.6 million |
| Operating loss | $8.8 million | $2.9 million |
| Net loss | $9.3 million | $4.2 million |
| Net cash used in operations | $7.1 million | $4.4 million |
- Revenue rose 18%, primarily on higher U.S. case volumes, attributed to sales-force productivity and growth, more active surgeons, and improved reimbursement coverage. U.S. revenue was $13.5 million; international revenue was $1.5 million.
- Gross margin declined two percentage points, which management attributed mainly to increased operations personnel supporting growth. Cost of goods sold increased 46%, faster than revenue.
- Operating expenses increased 53%: sales and marketing rose 44%, R&D 40%, and G&A 98%. Drivers included hiring, commissions, stock-based compensation, commercialization spending, and public-company compliance costs.
- Interest income increased to $0.7 million from $0.1 million due to investment of excess cash; interest expense was $1.2 million. Basic and diluted loss per share was $0.38 versus $1.17; share-count and capital-structure changes following the October 2018 IPO make per-share comparison less informative than the net-loss comparison.
Liquidity, cash flow, and debt
- At March 31, 2019, cash and cash equivalents were $12.6 million and short-term investments were $102.7 million, totaling $115.3 million. Current assets were $129.4 million and current liabilities $9.9 million.
- Cash and cash equivalents decreased $12.6 million during the quarter. Investing cash outflow was $5.6 million, including net purchases of short-term investments and $0.4 million of property and equipment.
- Long-term borrowings were $39.0 million net of debt discount ($40.0 million principal). The secured term loan carries a fixed 11.5% rate, has interest-only payments through September 2020, and principal repayment thereafter through December 2022. It is secured by company assets, including intellectual property.
- Debt covenants require a minimum $5.0 million cash balance and compliance with either specified minimum net sales or trailing-12-month EBITDA targets. SI-BONE reported covenant compliance at quarter-end; failure to meet the applicable tests could accelerate the debt.
- Management expects available cash, cash equivalents, and investments to fund operating expenses and capital expenditures for at least the next 12 months, but cautions that spending or revenue changes could accelerate cash use. The company has not achieved positive operating cash flow and expects further losses.
Changes, outlook, and risks
- Management expects operating expenses to rise as it expands commercialization, sales capacity, R&D, and public-company functions. The filing provides no specific revenue or earnings guidance.
- As of March 31, payors covering 266 million lives regularly reimbursed for iFuse procedures, including 131 million privately insured lives. However, several major private payors, including Aetna, Cigna, Humana, and Anthem, still maintained experimental policies, and certain Blue Cross Blue Shield payors viewed standard-sized 3D-printed implants such as iFuse-3D as experimental.
- Key risks include reimbursement and coverage decisions, dependence on a single principal product, competition and pricing pressure, reliance on limited or single-source suppliers, regulatory requirements, and continued operating losses. The company reported that substantially all revenue came from the United States.
- A putative class action filed in February 2019 alleges violations of the Telephone Consumer Protection Act relating to fax invitations to an educational dinner. SI-BONE says it intends to defend the case; the potential loss could not be estimated. This disclosure appears in the notes although Part II lists legal proceedings as “Not applicable.”
- Operating lease payments totaled $5.6 million in future minimum commitments as of quarter-end. Inventory purchase commitments were $0.3 million.
Investor facts to verify
- Whether quarterly revenue growth and improved reimbursement coverage continue, particularly among private payors.
- Whether sales growth can outpace operating-cost growth and support a path toward lower losses and cash burn.
- Progress against each debt covenant sales or EBITDA threshold, the $5.0 million minimum cash requirement, and the debt’s repayment schedule.
- Cash use and investment balances relative to management’s stated minimum 12-month funding outlook.
- Developments in the TCPA class action and the reason for the filing’s differing legal-proceedings disclosures.
- Supplier capacity and continuity, and any reimbursement or coverage decisions affecting iFuse-3D.