SI-BONE, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. SI-BONE develops and sells minimally invasive implants and instruments for sacroiliac-joint fusion, primarily through its iFuse product family. This unaudited filing covers the quarter and six months ended June 30, 2020. Results were significantly affected by COVID-19-related deferrals of elective surgeries.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $14.0 million | $16.3 million | $30.9 million | $31.3 million |
| Gross profit / margin | $11.9 million / 85% | $14.7 million / 90% | $26.8 million / 87% | $28.2 million / 90% |
| Operating loss | $10.1 million | $8.1 million | $22.0 million | $16.9 million |
| Net loss | $12.5 million | $8.7 million | $25.2 million | $18.0 million |
| Basic and diluted loss per share | $0.44 | $0.35 | $0.91 | $0.74 |
- Q2 revenue declined 14% year over year; U.S. revenue fell to $13.2 million from $15.0 million and international revenue to $0.8 million from $1.3 million. First-half revenue decreased 1%; U.S. revenue was essentially flat, while international revenue declined.
- Q2 gross margin fell five percentage points, primarily due to lower capacity utilization and inventory write-downs. Operating expenses declined 3% in Q2, but rose 8% for the first half, largely reflecting employee-related costs and stock-based compensation.
- Cash and cash equivalents were $66.2 million and short-term investments were $71.5 million at June 30, for $137.7 million in combined cash and marketable securities. Total assets were $159.2 million; total liabilities were $51.4 million; stockholders’ equity was $107.9 million.
- Net cash used in operating activities was $17.2 million for the first half, versus $15.5 million a year earlier. Investing activities provided $10.1 million and financing activities provided $62.9 million, principally from the follow-on stock offering. Cash and cash equivalents increased by $55.7 million to $66.2 million.
- Debt carrying value was $39.3 million at June 30. The company refinanced its prior loan with a $40.0 million Solar term loan, bearing interest at 9.40% plus the greater of LIBOR or 0.33%, with interest-only payments through June 2023 and maturity in June 2025. The loan is secured by substantially all assets and includes minimum-liquidity covenants.
Material changes, outlook and risks
- Management reported a substantial worldwide reduction in surgical case volumes from mid-March through April. Revenue was down 84% year over year in April, then grew 6% in May and 42% in June as elective procedures resumed. Management cautioned that the rebound partly reflected rescheduled cases and was not a reliable indicator of future growth.
- The company withdrew its full-year 2020 revenue guidance because the pandemic’s duration, elective-surgery restrictions and demand recovery were difficult to forecast. Management said existing cash and marketable securities were expected to fund operating expenses and capital expenditures for at least the next 12 months, while warning that pandemic-related uncertainty could accelerate cash use.
- Management described cost controls including hiring restrictions, reduced discretionary spending and capital expenditures, executive salary reductions, reduced marketing spending, and delayed clinical research. It sought to retain its sales force and continue major product initiatives.
- Key risks include renewed restrictions on elective procedures, reduced hospital spending, reimbursement and pricing pressure, competition, dependence on the iFuse product family and third-party suppliers, and potential delays to clinical work. The company was in compliance with its debt covenants at June 30, but future revenue affects the applicable minimum-liquidity threshold.
- The TCPA class-action matter was settled for $2.6 million; the company reversed $0.6 million of previously accrued litigation expense and paid the settlement on July 1, 2020. A $5.3 million PPP loan received in April was repaid in full eight days later after the company reassessed eligibility.
- Other notable items include a January–February 2020 follow-on offering that generated $63.0 million net proceeds and a related-party development agreement with SeaSpine. The agreement includes potential product royalties for 10 years from launch.
Investor verification points
- Track elective-procedure volumes and revenue after the temporary rebound, including whether COVID-19 restrictions recur and how case deferrals affect demand.
- Verify the company’s cash burn, liquidity runway, and compliance with Solar’s revenue-linked liquidity covenant as trailing 12-month product revenue changes.
- Assess the sustainability of gross margin amid utilization changes, inventory write-downs, sales mix and potential pricing pressure.
- Review the Solar loan’s interest costs, repayment schedule, collateral and covenants, as well as the impact of the refinancing and related fees.
- Monitor reimbursement coverage, surgeon adoption, clinical evidence and regulatory progress for iFuse indications and development programs.