SI-BONE, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. SI-BONE is a medical-device company focused on minimally invasive sacroiliac-joint implants and related products, primarily the iFuse family. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $26.4 | $22.3 | $74.5 | $64.9 |
| Revenue growth | 19% | — | 15% | — |
| Gross profit | $22.3 | $19.8 | $63.8 | $57.9 |
| Gross margin | 84% | 89% | 86% | 89% |
| Operating expenses | $35.8 | $33.0 | $112.2 | $95.6 |
| Operating loss | $(13.6) | $(13.2) | $(48.3) | $(37.7) |
| Net loss | $(14.2) | $(15.9) | $(50.1) | $(42.1) |
| Net loss per share, basic and diluted | $(0.41) | $(0.48) | $(1.47) | $(1.28) |
Q3 revenue growth was driven by higher U.S. case volumes; U.S. revenue rose to $24.6 million from $20.4 million, while international revenue declined to $1.8 million from $1.9 million. For the nine-month period, management cited higher case volumes, increased sales personnel and more active surgeons, partly offset by lower average selling prices and foreign exchange effects. Gross margin fell in both comparisons, reflecting pricing and product/procedure mix, facility mix, foreign exchange and higher costs for new products and business growth. Operating expenses increased 9% in Q3 and 17% year to date, with sales and marketing the largest category.
Cash, liquidity and debt
- Cash and cash equivalents were $26.3 million and short-term investments were $77.8 million at September 30, 2022, totaling $104.1 million, down from $147.0 million at December 31, 2021.
- Operating cash used was $34.9 million for the first nine months, versus $26.8 million in the prior-year period. The increased use reflected the larger loss and working-capital needs, including inventory build for iFuse-TORQ and Bedrock Granite.
- Investing activities used $2.9 million; capital expenditures were $7.8 million, mainly for instrument sets and Santa Clara facility improvements. Financing activities provided $1.5 million.
- Carrying value of borrowings was $35.1 million at quarter-end, including $1.5 million classified current. The SVB term loan has $35.7 million of principal and final-fee obligations, variable interest at the greater of 5.75% or prime plus 2.5%, and principal amortization beginning September 2023. Maturity is August 2025 or August 2026 depending on a performance milestone. The company reported compliance with its debt covenants.
- Management stated that existing cash and investments were expected to fund operating expenses and capital needs for the next 12 months and beyond, while cautioning that pandemic-related and other uncertainties could increase cash needs. The company has not achieved positive operating cash flow and expects further losses.
Material developments and outlook
- FDA clearances in 2022 expanded iFuse-TORQ indications to additional fracture types and use with the Bedrock technique. The iFuse-Bedrock Granite system received FDA clearance in May; CMS finalized a New Technology Add-on Payment of up to $9,828 for eligible cases.
- U.S. payor coverage was described as broad, with more than 300 million people having access to minimally invasive SI-joint fusion. However, the filing notes potential changes to coverage policies and reimbursement, including a payor policy that was no longer exclusive to triangular implants.
- New Category III CPT codes for competing non-transfixing and hybrid procedures were scheduled to take effect in 2023, with a code conversion in 2024. Management warned that related reimbursement or coverage changes could affect procedure demand and pricing.
- The filing provides no specific revenue, earnings or margin guidance. Management expects continued investment in commercial capabilities and R&D, and anticipates ongoing losses.
- Key risks include COVID-19-related procedure deferrals, inflation and supply-chain constraints, supplier concentration and limited sourcing alternatives, pricing pressure, reimbursement changes, competition, and reliance on the iFuse product family. The company also disclosed that its current U.S. patents on the original iFuse design expire in November 2024.
- Management reported no material pending legal proceedings and concluded disclosure controls were effective at the reasonable-assurance level. No material change in internal control over financial reporting was reported for the quarter.
Key facts for investors to verify
- Whether case-volume growth can continue and offset lower average selling prices and weaker gross margin.
- Whether cash burn, inventory investment and capital spending remain consistent with management’s stated liquidity outlook.
- The SVB loan’s performance milestone, applicable maturity date, variable-rate exposure and covenant headroom.
- How new CPT codes, coverage-policy changes and reimbursement levels affect procedure volumes, pricing and product mix.
- Whether supply constraints, product launches and surgeon adoption support growth without further margin deterioration.
- The competitive and commercial impact of the original iFuse U.S. patent expiration in November 2024.