SI-BONE, Inc. — Q1 2020 Form 10-Q
Business and period: The medical-device company sells the iFuse system for sacroiliac-joint fusion. This unaudited report covers the three months ended March 31, 2020, compared with Q1 2019. The company reported more than 46,000 procedures performed by over 2,000 surgeons across the U.S. and 35 other countries as of quarter-end.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $16.8 million | $15.0 million; up 12% |
| Gross profit / margin | $14.9 million / 88.5% | $13.5 million / 89.8% |
| Operating expenses | $26.8 million | $22.3 million; up 20% |
| Loss from operations | $11.9 million | $8.8 million |
| Net loss / diluted loss per share | $12.8 million / $0.47 | $9.3 million / $0.38 |
| Cash used in operating activities | $9.4 million | $7.1 million |
| Cash and cash equivalents | $67.6 million | $10.4 million at Dec. 31, 2019 |
| Cash and investments | $146.2 million | $93.1 million at Dec. 31, 2019 |
| Borrowings, net of issuance costs | $39.3 million | $39.2 million at Dec. 31, 2019 |
U.S. revenue was $15.3 million, up from $13.5 million; international revenue was $1.5 million, approximately flat. The company had an accumulated deficit of $208.4 million and stated it had not achieved positive operating cash flow. Current assets were $162.0 million and current liabilities were $20.6 million at March 31.
Material changes versus the prior comparable period
- Revenue growth reflected higher U.S. case volumes, sales-force productivity and headcount, and increased active surgeons; international sales were relatively flat. COVID-19-related cancellations reduced cases late in March.
- Gross margin declined 1.3 percentage points, primarily due to higher operating costs and inventory write-downs.
- Operating expenses increased 20%, led by sales and marketing, which rose 22% with increased personnel costs, stock compensation and commissions. Research and development rose 24%, and general and administrative expenses rose 13%.
- Operating cash burn increased by $2.3 million. Financing provided $63.2 million, principally from the follow-on offering; cash and cash equivalents consequently rose $57.1 million during the quarter.
Outlook, risks and unusual items
- COVID-19: Elective-surgery deferrals caused a substantial worldwide reduction in case volumes beginning in mid-March. Management withdrew full-year 2020 financial and procedure guidance, citing substantial uncertainty and difficulty forecasting sales. It anticipated lower Q2 demand and potentially lower gross margin as operations ran below normal capacity.
- Response: The company reported hiring restrictions, reduced discretionary and marketing spending, salary reductions for executives, lower capital expenditures, and delayed clinical research. It also guaranteed certain Q2 sales-team incentive compensation to support retention.
- Liquidity: Management believed cash and investments would fund operating and capital requirements for at least 12 months, while cautioning that pandemic duration and severity could accelerate cash use. The company expects additional losses.
- Debt covenant risk: The $40 million term loan carries a fixed 11.5% interest rate, is secured by substantially all assets, and begins scheduled principal repayment after the interest-only period ends in September 2020. Covenants require at least $5 million cash and compliance with either sales or trailing-12-month EBITDA targets. The company was compliant at quarter-end but warned COVID-19 could prevent meeting future targets, potentially allowing the lender to demand repayment.
- Contingencies: A $3.2 million accrual remained for settlement of a TCPA class action; the ultimate loss could exceed the accrual. The filing also reports a related-party development agreement with SeaSpine, whose CEO is a SI-BONE director; Q1 expense was $22,000, and future product sales may carry royalties for 10 years after launch.
- Commercial and clinical risks: The business depends substantially on iFuse, reimbursement and surgeon adoption. COVID-19 delayed site initiation and patient enrollment in the SILVIA trial of the Bedrock technique. Management also cited risks from competitors, pricing pressure, supplier concentration, inventory obsolescence and elective-procedure disruption.
- Other developments: SI-BONE received FDA 510(k) clearance in March 2020 for an expanded iFuse indication supporting its trauma program. A January–February follow-on offering generated $63.0 million net proceeds, with 3,135,053 company shares recorded as issued in the quarter.
Important facts for investors to verify
- How elective-procedure volumes, revenue, collections and inventory levels evolved after March 31, and whether the company later reinstated or revised guidance.
- Whether the company met the term-loan sales or EBITDA covenant tests, and the timing and amount of scheduled principal payments.
- Whether operating cash burn and the stated 12-month liquidity outlook remain consistent with updated forecasts.
- The final cost and disposition of the TCPA settlement, including whether it exceeded the $3.2 million accrual.
- The commercial uptake and reimbursement impact of the expanded trauma indication and Bedrock technique, including progress in the delayed SILVIA trial.