SI-BONE, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; this is an annual filing, not a standalone fourth-quarter report. Unless noted, comparisons are with FY2019. Dollar amounts are in U.S. dollars.
Business context
SI-BONE develops and sells implantable medical devices for sacroiliac joint fusion, principally its iFuse system. The company generates substantially all revenue from this product family. It reported more than 53,000 cumulative iFuse procedures by year-end, and approximately 8,900 procedures globally in 2020 versus 8,000 in 2019. U.S. procedures were approximately 7,500 versus 6,400.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $73.4 million | $67.3 million |
| Gross profit / margin | $64.5 million / 88% | $60.5 million / 90% |
| Operating expenses | $103.1 million | $96.5 million |
| Operating loss | $(38.6) million | $(36.0) million |
| Net loss | $(43.7) million | $(38.4) million |
| Net loss per share, basic and diluted | $(1.50) | $(1.55) |
| Cash used in operating activities | $(30.7) million | $(31.6) million |
Revenue grew 9%, primarily from higher U.S. case volumes, partly offset by lower average selling prices and a decline in international revenue. The pandemic caused a sharp interruption: April revenue was down 84% year over year; case volumes recovered from May, with third-quarter revenue up 26% year over year, before elective-surgery deferrals reappeared in November and December. Gross margin fell two percentage points, reflecting inventory write-downs, costs incurred at below-normal operating capacity, and higher employee and inventory-management costs.
Sales and marketing expense rose 8% to $73.8 million and R&D expense rose 30% to $9.5 million; G&A fell 6% to $19.8 million, partly reflecting the prior-year litigation accrual and reduced discretionary spending. The company remained unprofitable and reported an accumulated deficit of $239.3 million.
Liquidity, debt and financing
At December 31, 2020, cash and cash equivalents were $53.6 million and short-term investments were $142.9 million, totaling $196.4 million in cash and marketable securities, versus $93.1 million a year earlier. Total assets were $223.1 million and total liabilities were $53.8 million. Long-term borrowings, net of debt issuance costs and the unaccreted final fee, were $39.5 million; no current portion was reported.
Operating cash use was $30.7 million. Investing activities used $62.9 million, mainly reflecting net purchases of marketable securities; financing activities provided $136.4 million, primarily from $134.6 million of net proceeds from two 2020 follow-on offerings. The company said existing cash and marketable securities should fund operating and capital requirements for at least 12 months, subject to pandemic-related uncertainty.
In May 2020, SI-BONE refinanced its prior $40 million loan with a $40 million Solar term loan. The new loan bears interest at 9.40% plus a LIBOR-based rate, has interest-only payments through June 2023, and matures June 1, 2025. It is secured by substantially all company assets and includes revenue-linked minimum-liquidity covenants. The company reported covenant compliance at year-end. Shares outstanding increased from 25.2 million to 32.6 million during 2020, principally following the offerings.
Material changes, outlook and risks
- COVID-19 restrictions and patient or provider deferrals reduced procedure volumes, disrupted training and clinical studies, and led the company to cut discretionary spending and slow hiring temporarily. Spending and hiring moved toward more normal levels in the fourth quarter as revenue recovered.
- Management expects operating expenses and R&D investment to increase as it expands its commercial infrastructure and develops products; it expects losses to continue for the foreseeable future. No specific revenue or earnings guidance is provided.
- Coverage expanded to 311.6 million U.S. covered lives by year-end, up from 282.7 million in 2019; 79.7 million were covered under policies exclusive to iFuse. Coverage, reimbursement levels, surgeon adoption and the adequacy of provider payments remain uncertain.
- Business concentration is high: substantially all revenue comes from one product family and procedure. The company faces larger competitors, pricing pressure, possible shifts to lower-priced ambulatory surgery centers, and risk that payors change coverage policies.
- Supply is concentrated: RMS is the sole supplier of iFuse-3D implants, and Orchid supplies iFuse implants. Disruption, quality problems or regulatory noncompliance could constrain sales. U.S. patents covering the original iFuse design expire in November 2024; iFuse-3D patents expire in September 2035.
- The Solar loan carries restrictive covenants and a minimum-liquidity test tied to trailing revenue; a default could accelerate repayment. LIBOR replacement and its effect on borrowing costs were uncertain.
- The company settled a TCPA class action for $2.6 million in 2020 and reversed $0.6 million of the prior accrual. It also entered a related-party development agreement with SeaSpine; 2020 R&D expense included $118,000 of reimbursements, and the agreement provides for royalties on resulting products.
The independent auditor issued an unqualified opinion on the financial statements. Management stated that disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because SI-BONE qualified as an emerging growth company.
Investor verification points
- Check the pace of procedure-volume recovery and whether renewed COVID-19 disruptions affect cases, training, or clinical trials.
- Assess whether revenue growth can offset continued operating losses and cash burn, and track liquidity against the Solar loan’s revenue-based covenants.
- Verify the effect of lower average selling prices, gross-margin pressure, inventory write-downs, and any increased mix of lower-priced ASC procedures.
- Monitor payer coverage changes, reimbursement adequacy, surgeon activation, and progress in the Bedrock and trauma indications.
- Evaluate single-source supplier resilience, patent protection as original iFuse patents approach expiration, and dilution from equity compensation and future financing.
- Review the SeaSpine agreement’s product-development milestones, intellectual-property allocation, and potential royalty economics.