SI-BONE(SIBN) - 2019 Q1 - Quarterly Report

Special Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements that involve known and unknown risks, uncertainties, and other important factors that may cause actual results, performance, or achievements to be materially different from those expressed or implied[10][11][14] - These statements cover various aspects including future results of operations, financial position, business strategy, prospective products, clinical milestones, regulatory authorizations (FDA), coverage and reimbursement, research and development costs, intellectual property, and competition[10][13] PART I - FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for SI-BONE, Inc, including balance sheets, statements of operations, and cash flows Condensed Consolidated Balance Sheets Balance Sheet Summary | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------------------ | :------------------------------- | :--------- | :--------- | | Cash and cash equivalents | $12,561 | $25,120 | $(12,559) | -50.0% | | Short-term investments | $102,748 | $97,103 | $5,645 | 5.8% | | Total current assets | $129,397 | $136,042 | $(6,645) | -4.9% | | Total assets | $132,054 | $138,521 | $(6,467) | -4.7% | | Total current liabilities | $9,908 | $9,006 | $902 | 10.0% | | Total liabilities | $49,299 | $48,329 | $970 | 2.0% | | Total stockholders' equity | $82,755 | $90,192 | $(7,437) | -8.2% | | Accumulated deficit | $(166,522) | $(157,177) | $(9,345) | 5.9% | Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Summary | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Revenue | $14,991 | $12,712 | $2,279 | 18.0% | | Cost of goods sold | $1,526 | $1,048 | $478 | 45.6% | | Gross profit | $13,465 | $11,664 | $1,801 | 15.4% | | Sales and marketing | $15,815 | $10,967 | $4,848 | 44.2% | | Research and development | $1,683 | $1,206 | $477 | 39.6% | | General and administrative | $4,766 | $2,408 | $2,358 | 97.9% | | Total operating expenses | $22,264 | $14,581 | $7,683 | 52.7% | | Loss from operations | $(8,799) | $(2,917) | $(5,882) | 201.6% | | Net loss | $(9,345) | $(4,201) | $(5,144) | 122.4% | | Net loss per share, basic and diluted | $(0.38) | $(1.17) | $0.79 | -67.5% | Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) Changes in Stockholders' Equity | Metric | Balance at Dec 31, 2018 (in thousands) | Issuance of common stock upon exercise of stock options (in thousands) | Stock-based compensation (in thousands) | Net loss (in thousands) | Balance at Mar 31, 2019 (in thousands) | | :------------------------------------ | :------------------------------------- | :---------------------------------------------------- | :-------------------------------------- | :---------------------- | :------------------------------------- | | Common Stock (shares) | 24,450,757 | 46,809 | — | — | 24,497,566 | | Common Stock (amount) | $3 | — | — | — | $3 | | Additional Paid-in Capital | $246,927 | $125 | $1,871 | — | $248,829 | | Accumulated Other Comprehensive Income | $439 | — | — | — | $445 | | Accumulated Deficit | $(157,177) | — | — | $(9,345) | $(166,522) | | Total Stockholders' Equity | $90,192 | $125 | $1,871 | $(9,345) | $82,755 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(7,078) | $(4,411) | $(2,667) | 60.5% | | Net cash used in investing activities | $(5,553) | $(218) | $(5,335) | 2447.2% | | Net cash provided by financing activities | $125 | $20 | $105 | 525.0% | | Net decrease in cash and cash equivalents | $(12,559) | $(4,616) | $(7,943) | 172.1% | | Cash and cash equivalents at end of period | $12,561 | $17,792 | $(5,231) | -29.4% | Notes to Condensed Consolidated Financial Statements - The company completed its Initial Public Offering (IPO) on October 16, 2018, selling 8,280,000 shares for net proceeds of $113.4 million, and converting all outstanding redeemable convertible preferred stock into common stock[27] - SI-BONE operates as a single reportable and operating segment, with substantially all revenue derived from sales to customers in the United States[33][34] Revenue by Geography | Geography | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :---------- | :----------------------------------------------- | :----------------------------------------------- | | Domestic | $13,450 | $11,295 | | International | $1,541 | $1,417 | | Total | $14,991 | $12,712 | - The company has adopted ASU 2016-15 (Cash Flows) and ASU 2018-02 (Income Statement-Reporting Comprehensive Income) for the fiscal year ending December 31, 2019, with no material impact on consolidated financial statements[42][44] - The company is currently evaluating the impact of ASU 2014-09 (Revenue from Contracts with Customers), ASU 2016-02 (Leases), ASU 2017-11 (Earnings Per Share), ASU 2018-07 (Non-employee Share-Based Payment Accounting), and ASU 2018-13 (Fair Value Measurements) for future adoption[39][41][43][45][46] Fair Value of Marketable Securities | Type | March 31, 2019 (Fair Value, in thousands) | December 31, 2018 (Fair Value, in thousands) | | :---------------------- | :---------------------------------------- | :----------------------------------------- | | U.S. treasury securities | $76,613 | $65,489 | | Corporate bonds | $17,167 | $19,720 | | Commercial paper | $8,968 | $11,894 | | Money market funds | $9,921 | $15,223 | | Total marketable securities | $112,669 | $119,961 | - As of March 31, 2019, the company had $39.0 million in outstanding long-term debt, net of debt discounts, with a fixed interest rate of 11.5%, and was in compliance with all debt covenants[65] Stock-Based Compensation Expense | Expense Category | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Cost of goods sold | $42 | $6 | | Sales and marketing | $670 | $127 | | Research and development | $96 | $39 | | General and administrative | $1,062 | $219 | | Total | $1,870 | $391 | Net Loss Per Share | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(9,345) | $(4,201) | | Weighted-average common shares | 24,390,648 | 3,593,658 | | Net loss per share, basic and diluted | $(0.38) | $(1.17) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, key operational factors, liquidity, and critical accounting policies Overview - SI-BONE is a medical device company that has pioneered the iFuse Implant System for minimally invasive surgical fusion of the sacroiliac joint, with over 38,000 procedures performed by more than 1,800 surgeons in the U.S. and 33 other countries since 2009[25][84] - The company has incurred net losses since its inception in 2008, reporting a net loss of $9.3 million for the three months ended March 31, 2019, and an accumulated deficit of $166.5 million[86] - Operations have been financed primarily through an initial public offering (IPO) in October 2018, which generated $113.4 million in net proceeds, private placements of equity securities, and debt financing arrangements[86][87] Factors Affecting Results of Operations - As of March 31, 2019, U.S. payors covering 266 million lives regularly reimbursed for iFuse procedures, with 131 million lives covered by private payors[91] - Forty-nine of the largest 65 private payors tracked have positive coverage policies for the iFuse procedure, with 30 of these policies being exclusive to iFuse due to clinical evidence, and 24 published since January 1, 2018[91] - The company's U.S. sales force consisted of 49 direct sales representatives and 34 third-party distributors, while international sales included 16 direct sales representatives and 27 exclusive third-party distributors across 33 countries as of March 31, 2019[96][98] Components of Results of Operations - Revenue is primarily derived from iFuse sales and fluctuates based on case volume, discounts, the mix of international and U.S. sales, and the number of implants used per patient[100] - Cost of goods sold consists of implant and instrument components, scrap, inventory obsolescence, and distribution expenses, expected to increase with case levels; gross margins are typically higher for direct sales[101][102] - Operating expenses (sales and marketing, R&D, G&A) are predominantly personnel costs and are anticipated to increase with continued business growth and public company operational requirements[104][105][106][107] Results of Operations (Comparison of Three Months Ended March 31, 2019 and 2018) Quarterly Performance Comparison | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Revenue | $14,991 | $12,712 | $2,279 | 18% | | Cost of goods sold | $1,526 | $1,048 | $478 | 46% | | Gross profit | $13,465 | $11,664 | $1,801 | 15% | | Sales and marketing | $15,815 | $10,967 | $4,848 | 44% | | Research and development | $1,683 | $1,206 | $477 | 40% | | General and administrative | $4,766 | $2,408 | $2,358 | 98% | | Total operating expenses | $22,264 | $14,581 | $7,683 | 53% | | Loss from operations | $(8,799) | $(2,917) | $(5,882) | 202% | | Net loss | $(9,345) | $(4,201) | $(5,144) | 122% | - Revenue increased by $2.3 million (18%) primarily due to a $2.2 million increase in domestic case volumes, driven by higher sales force productivity, increased sales personnel, and improved U.S. reimbursement coverage[114] - Gross margin decreased from 92% to 90% due to an increase in personnel in operations to support business growth[115] - Operating expenses significantly increased across all categories: Sales and marketing by $4.8 million (44%), Research and development by $0.5 million (40%), and General and administrative by $2.4 million (98%), mainly due to increased headcount, stock-based compensation, and public company compliance costs[116][117][118] - Interest income increased by $0.7 million (1100%) due to an increase in investments of excess cash in marketable securities[119] Liquidity and Capital Resources Liquidity Summary | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Cash and cash equivalents | $12,561 | $25,120 | | Short-term investments | $102,748 | $97,103 | - The company had an accumulated deficit of $166.5 million and incurred a net loss of $9.3 million for Q1 2019, with net cash used in operating activities totaling $7.1 million[122][131] - Existing cash, cash equivalents, and short-term investments are believed to be sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months, but additional capital may be needed due to various uncertainties[123][124] - The company has $39.0 million in outstanding debt with a fixed interest rate of 11.5%, subject to covenants requiring a minimum cash balance and meeting either minimum net sales or trailing 12-month consolidated EBITDA targets[125][126] Cash Flows Cash Flow Activity Summary | Cash Flow Activity | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Operating activities | $(7,078) | $(4,411) | $(2,667) | 60% | | Investing activities | $(5,553) | $(218) | $(5,335) | 2447% | | Financing activities | $125 | $20 | $105 | 525% | - Net cash used in operating activities increased by $2.7 million (60%) due to a $5.1 million increase in net loss, partially offset by higher non-cash charges and a decrease in changes in operating assets and liabilities[131] - Net cash used in investing activities significantly increased by $5.3 million, primarily due to $22.7 million in purchases of short-term investments, partially offset by $17.6 million in maturities of short-term investments[132] Critical Accounting Policies, Significant Judgments, and Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts, with actual results potentially differing from these estimates[134] - There have been no material changes to the company's critical accounting policies and estimates since the Annual Report on Form 10-K filed on March 14, 2019[135] Off-Balance Sheet Arrangements - The company did not have any relationships with unconsolidated organizations or financial partnerships for off-balance sheet arrangements during the three months ended March 31, 2019[136] Seasonality - The business experiences seasonal variations, typically with lower sales in summer months and higher sales in the last quarter of the fiscal year, though seasonality does not have a material impact on overall financial results[137] JOBS Act Accounting Election - As an 'emerging growth company' under the JOBS Act, SI-BONE has elected to take advantage of the extended transition period for adopting new or revised accounting standards, delaying their adoption until they apply to private companies[138] Recent Accounting Pronouncements - Refer to Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements for related discussions on updates to recently issued accounting pronouncements[139] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to SI-BONE as it qualifies as a smaller reporting company - This item is not applicable to SI-BONE as it is a smaller reporting company[140] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes in internal control - As of March 31, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[143] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2019, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[144] PART II - OTHER INFORMATION This part covers legal proceedings, risk factors, sales of equity securities, and other required disclosures Item 1. Legal Proceedings This item states that it is 'Not applicable,' indicating no new material legal proceedings to report for the quarter - This item is not applicable, indicating no material legal proceedings to report for the quarter[145] Item 1A. Risk Factors This section outlines significant risks including ongoing operating losses, reimbursement dependency, competition, and regulatory compliance - The company has incurred significant operating losses since inception, expects to continue incurring losses, and may not achieve or sustain future profitability, with an accumulated deficit of $166.5 million as of March 31, 2019[148] - Maintaining and growing sales depends on adequate coverage and reimbursement from third-party payors; if hospitals, surgeons, and other healthcare providers cannot obtain reimbursement, product adoption may be delayed, and acceptance limited[150][151] - The medical device industry is highly competitive, with numerous existing and potential competitors, many possessing substantially greater financial, technical, and marketing resources, which could negatively affect sales and operating results[171][172][174] - The company currently manufactures and sells products used in a single procedure (iFuse), making it solely dependent on its widespread market adoption, which could negatively affect operations and financial condition if sales do not increase[177] - The company is dependent on a limited number of third-party suppliers, some single-source, for most products and components, and the loss of any of these suppliers or their inability to provide adequate supply could materially adversely affect the business[199][201] - The company, its suppliers, and third-party manufacturers are subject to extensive governmental regulation both in the United States and abroad, and failure to comply with applicable requirements could cause the business to suffer[225][226][236] - Compliance with U.S. federal and state fraud and abuse laws, including those relating to physician kickbacks and false claims for reimbursement, as well as equivalent foreign laws, is critical, with potential for severe administrative, civil, and criminal penalties for violations[237][239][240] - The company relies on patent, copyright, trademark, and trade secret laws to protect its proprietary technologies, but these rights may not be meaningful, could be challenged, or may not provide sufficient commercial advantage against competitors[301][302][304][306][308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and confirmed the planned use of its IPO proceeds - No unregistered sales of equity securities occurred during the period[338] - The net proceeds of approximately $113.4 million from the initial public offering (IPO) in October 2018 are being used as planned, after deducting underwriting discounts and offering expenses[339][340] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported for the period[341] Item 4. Mine Safety Disclosures This item is 'Not Applicable' to the company - This item is not applicable to the company[342] Item 5. Other Information This item states 'None,' indicating no other information to report for the period - No other information to report for the period[343] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications - The report includes exhibits such as the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Form of Common Stock Certificate, 2019 US Bonus Plan, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[346] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 are filed/furnished[346][347] SIGNATURES The report is duly signed by the company's Chief Executive Officer and Chief Financial Officer - The report was duly signed on May 9, 2019, by Jeffrey W. Dunn, President and Chief Executive Officer, and Laura A. Francis, Chief Financial Officer, on behalf of SI-BONE, Inc[352][353]