SI-BONE, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. SI-BONE is a medical-device company whose revenue is primarily from its iFuse system for sacroiliac-joint fusion. Unless noted otherwise, amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $20.4m | $16.2m | $51.2m | $47.5m |
| Gross profit / margin | $17.8m / 87% | $14.6m / 90% | $44.6m / 87% | $42.7m / 90% |
| Operating loss | $(8.7)m | $(10.6)m | $(30.7)m | $(27.5)m |
| Net loss | $(9.5)m | $(11.3)m | $(34.7)m | $(29.3)m |
| Net loss per share, basic and diluted | $(0.33) | $(0.46) | $(1.23) | $(1.19) |
- Q3 revenue grew 26% year over year, primarily from higher case volumes in the U.S.; international revenue was $1.4m versus $1.3m. Nine-month revenue increased 8%, with U.S. growth partly offset by lower international sales.
- Gross margin fell three percentage points in both comparisons. Management attributed the decline principally to inventory write-downs (about $0.5m in Q3 and $0.9m for nine months), higher operating costs, and, for the nine-month period, suboptimal capacity and period costs during Q2.
- Q3 operating expenses rose 5% to $26.5m: higher sales and marketing and R&D expenses were partly offset by lower G&A, including no repeat of the prior-year litigation accrual. Nine-month operating expenses rose 7% to $75.3m.
Cash, liquidity and debt
- At September 30, 2020, cash and cash equivalents were $56.0m and short-term investments were $76.0m, totaling approximately $132.0m, versus $93.1m in cash and investments at December 31, 2019. Working capital was $137.7m.
- Operating cash used in the first nine months was $22.8m, broadly similar to $22.6m in the prior-year period. Investing activities provided $4.9m; financing activities provided $63.4m, mainly reflecting $63.0m net proceeds from the Q1 follow-on offering.
- Debt carrying value was $39.4m, with no current portion. The $40m Solar term loan bears interest at 9.40% plus LIBOR, is interest-only through June 2023, and matures June 2025; it is secured by substantially all company assets. Management reported compliance with covenants at quarter-end.
- Management said existing cash and investments were expected to fund operating expenses and capital expenditures for at least the next 12 months, while noting uncertainty from COVID-19. In October, the company received $71.9m net of underwriting discounts and commissions, but before offering expenses, from a second follow-on offering.
Material changes and unusual items
- COVID-19 disrupted elective procedures: revenue fell 84% year over year in April, then recovered as procedures resumed. Management reported Q3 revenue growth of 26%, but said rescheduled cases contributed to the rebound and future procedure volumes remained uncertain.
- In May, SI-BONE refinanced its prior Pharmakon loan with the Solar term loan. The refinancing generated a $1.5m loss on debt extinguishment in the nine-month period, including write-off of debt issuance costs and prepayment and lender fees.
- The TCPA class-action settlement was finalized for $2.6m and paid in July. A $0.6m excess accrual was reversed in Q2 2020; the prior-year Q3 included a $2.5m litigation accrual.
- A February 2020 joint-development agreement with SeaSpine, whose CEO is also a SI-BONE director, provides for reimbursement of development costs and royalties on resulting products for 10 years from launch. SI-BONE expensed $86,000 through September 30.
- The October follow-on offering issued 3,478,507 company shares at $22 per share; the company reported approximately $71.9m proceeds before offering expenses. The filing states no agreement or commitment existed for a potential acquisition.
Outlook, commentary and principal risks
- No specific revenue or earnings guidance is provided. Management expects continued losses and says operating expenses may rise as business activity normalizes and investment resumes.
- COVID-19 may again restrict elective procedures, hospital access, surgeon training and customer visits, and may affect demand, collections, supply, inventory and liquidity. Management noted rising infections and hospitalizations in some U.S. states.
- Commercial drivers cited include sales-force productivity, surgeon training and activity, reimbursement coverage, and product development. At quarter-end, 298.9m U.S. lives were covered by payors reimbursing iFuse, including 183.1m under private payors; Anthem’s policy remained limited to pelvic-trauma cases, with possible future review.
- Key risks include ongoing losses and cash burn; dependence on the iFuse product family and elective procedures; reimbursement and pricing pressure; competition; reliance on a limited number of suppliers; clinical-trial and regulatory uncertainty; and loan liquidity covenants. The SILVIA trial of the Bedrock technique faced COVID-related site and enrollment delays.
Important facts for investors to verify
- Whether procedure volumes and revenue growth persisted after Q3, or were partly a temporary recovery of postponed cases.
- Drivers of lower gross margin, especially inventory write-downs and operating capacity, and whether margins recover.
- Cash burn, runway assumptions, and compliance with Solar’s revenue-linked minimum liquidity covenant.
- Net proceeds, offering costs and dilution from the October offering; shares outstanding were 32,360,839 on October 29, 2020.
- Progress on reimbursement policies, clinical evidence and the Bedrock trial, as well as any material changes in COVID-19, supply-chain or litigation risks.