SI-BONE, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. SI-BONE develops and sells minimally invasive implant systems for sacroiliac joint fusion and other sacropelvic procedures. Its principal products include iFuse, iFuse-3D, iFuse-TORQ and iFuse Bedrock Granite. The company operates as one reportable segment and derives most revenue from the United States.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $34.0 million | $26.4 million | $100.0 million | $74.5 million |
| Gross profit | $27.0 million | $22.3 million | $80.7 million | $63.8 million |
| Gross margin | 79% | 84% | 81% | 86% |
| Operating loss | $11.2 million | $13.6 million | $34.4 million | $48.3 million |
| Net loss | $10.0 million | $14.2 million | $32.4 million | $50.1 million |
| Net loss per share, basic and diluted | $0.25 | $0.41 | $0.86 | $1.47 |
- Revenue increased 29% in Q3 and 34% for the nine-month period year over year. Management attributed growth primarily to higher procedure volumes. U.S. revenue was $32.3 million in Q3 and $94.0 million for the nine months; international revenue was $1.7 million and $6.1 million, respectively.
- Gross margin fell five percentage points in both comparison periods. The company cited product and procedure mix, higher costs and royalties for iFuse-TORQ and iFuse Bedrock Granite, and higher depreciation; nine-month results also reflected increased freight costs.
- Operating expenses rose 6% in Q3 and 3% for the nine months. Despite this, operating and net losses narrowed, with higher revenue and interest income contributing to the improvement.
- Cash and cash equivalents were $53.5 million and short-term investments were $113.3 million at September 30, totaling approximately $166.8 million, compared with $97.3 million in cash and investments at December 31, 2022. Current assets were $211.0 million and current liabilities $19.4 million.
- Net cash used in operating activities was $16.4 million for the nine months, versus $34.9 million in 2022. Capital expenditures were $6.7 million. Cash and cash equivalents increased $32.8 million, supported principally by financing proceeds.
- Long-term borrowings, net, were $36.0 million; no revolving-credit balance was outstanding. The term loan matures in 2027, carries a floating rate with a stated floor of 6.75%, and begins monthly principal amortization in July 2025.
Material changes and notable items
- In May 2023, SI-BONE received $83.7 million net from a public stock offering. The offering included company-issued shares and shares sold by a stockholder; the company received no proceeds from the stockholder’s sale. Shares issued and outstanding rose to 40.4 million at September 30, from 34.7 million at December 31, 2022.
- The term loan was amended in January 2023, including a $36.0 million term loan and a $15.0 million revolving facility. The lender rights transferred from SVB through Silicon Valley Bridge Bank to First-Citizens following SVB’s failure.
- The company disclosed a March 2023 covenant issue after opening accounts at another bank and transferring funds. A waiver was obtained; SI-BONE reported compliance with debt covenants at September 30. However, it could not draw on the revolver until certain cash-management accounts are moved back to First-Citizens.
- Keith Valentine served as CEO until September 11, 2023; Laura Francis signed the filing as CEO. The filing does not explain the transition in the supplied text.
Outlook, risks and contingencies
- Management stated that existing cash and marketable securities were expected to fund operating expenses and capital expenditure needs for the next 12 months and beyond. No specific revenue, margin or earnings guidance was provided.
- The company expects continued operating losses and has not achieved positive operating cash flow. It anticipates continued investment in commercial capacity, research and development, inventory and instrument sets; it may need additional capital if resources are consumed faster than expected.
- Key risks include dependence on a concentrated product and procedure family; reimbursement and pricing changes; competition and adoption of newer products; clinical evidence and trial outcomes; supplier concentration, sterilization and supply-chain constraints; and regulatory requirements. A shift toward ambulatory surgery centers may increase pricing pressure.
- Clinical studies include SILVIA, with primary endpoint results anticipated in 2024, and SAFFRON, with results anticipated in late 2024. These are management expectations, not guaranteed timelines or outcomes.
- The company reported no material pending legal proceedings and no income tax provision for the periods presented; it maintains a full valuation allowance against net deferred tax assets.
Investor verification points
- Whether procedure-volume growth continues and translates into durable revenue growth and improved operating performance.
- Whether gross margin stabilizes or declines further as product mix, royalties, depreciation and freight costs evolve.
- Cash use, inventory growth and investment needs for implants and instrument sets, alongside management’s stated liquidity runway.
- Debt covenant compliance and the steps and timing required to restore access to the revolver; also monitor floating-rate interest costs.
- Coverage and reimbursement developments, competitive changes, and results and timing of the SILVIA and SAFFRON trials.
- The effect of the 2023 equity issuance on share count and dilution, and any further financing needs.