SI-BONE(SIBN) - 2023 Q1 - Quarterly Report

PART I Financial Statements This section presents SI-BONE, Inc.'s unaudited condensed consolidated financial statements for Q1 2023, detailing financial position, operations, and cash flows, showing revenue growth and a reduced net loss Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $149,076 thousand, decreasing from $157,552 thousand at year-end 2022, primarily due to reduced short-term investments Condensed Consolidated Balance Sheets (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $128,401 | $137,611 | | Total Assets | $149,076 | $157,552 | | Total Current Liabilities | $16,628 | $21,178 | | Total Liabilities | $55,117 | $59,250 | | Total Stockholders' Equity | $93,959 | $98,302 | | Total Liabilities and Stockholders' Equity | $149,076 | $157,552 | Condensed Consolidated Statements of Operations and Comprehensive Loss For Q1 2023, revenue increased 46% to $32,708 thousand, gross profit grew to $26,784 thousand, and net loss narrowed to $11,125 thousand or ($0.32) per share Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue | $32,708 | $22,439 | | Gross Profit | $26,784 | $19,456 | | Loss from Operations | ($11,293) | ($16,868) | | Net Loss | ($11,125) | ($17,410) | | Net Loss Per Share | ($0.32) | ($0.52) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for Q1 2023 improved to $10,753 thousand, while investing activities provided $11,703 thousand, ending the period with $22,969 thousand in cash Q1 2023 vs Q1 2022 Cash Flows (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($10,753) | ($13,512) | | Net cash provided by (used in) investing activities | $11,703 | ($22,608) | | Net cash provided by financing activities | $1,205 | $169 | | Net increase (decrease) in cash | $2,252 | ($36,090) | | Cash and cash equivalents at end of period | $22,969 | $27,329 | Notes to Condensed Consolidated Financial Statements This section details the company's business, accounting policies, debt structure, and stock-based compensation, focusing on minimally invasive surgical implants and revenue recognition - The company is a medical device firm specializing in a proprietary minimally invasive surgical implant system for sacroiliac joint fusion, with products including iFuse, iFuse-3D, iFuse-TORQ, and iFuse Bedrock Granite[25] Revenue by Geography (in thousands) | Region | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | United States | $30,450 | $20,367 | | International | $2,258 | $2,072 | | Total | $32,708 | $22,439 | - In January 2023, the company amended its loan agreement, borrowing $36,000 thousand to repay a previous $35,000 thousand facility and securing a new $15,000 thousand revolving credit facility[59] - The lender is now First-Citizens Bank & Trust Company following the failure of Silicon Valley Bank[59] Stock-Based Compensation Expense (in thousands) | Expense Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Cost of goods sold | $137 | $123 | | Sales and marketing | $2,910 | $2,594 | | Research and development | $752 | $633 | | General and administrative | $2,395 | $2,157 | | Total | $6,194 | $5,507 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, highlighting 46% revenue growth driven by case volumes and pricing, analyzing gross margin changes, operating expenses, and liquidity Overview and Key Performance Indicators This section outlines the company's focus on sacropelvic anatomy disorders, detailing key performance indicators and growth drivers including sales force expansion and new product launches - The company is focused on expanding its sales force, increasing surgeon engagement, launching new products, and improving operational efficiency to drive growth[88] U.S. Sales Force Composition | Role | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Territory Sales Managers | 87 | 88 | | Clinical Support Specialists | 67 | 66 | | Third-party Sales Agents | 126 | 66 | - As of March 31, 2023, over 2,300 surgeons in the U.S. and over 900 surgeons outside the U.S. have been trained and have used the iFuse system[96] Results of Operations Q1 2023 revenue increased 46% to $32,708 thousand, driven by U.S. sales, while gross margin decreased to 82% due to product mix and costs, and operating expenses rose 5% Financial Performance Comparison (in thousands) | Metric | Q1 2023 | Q1 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $32,708 | $22,439 | $10,269 | 46% | | Gross Profit | $26,784 | $19,456 | $7,328 | 38% | | Gross Margin | 82% | 87% | - | - | | Total Operating Expenses | $38,077 | $36,324 | $1,753 | 5% | - The increase in U.S. revenue was due to higher case volumes and improved domestic average selling prices[122] - Gross margin decreased due to procedure and product mix from newly launched implants with higher costs, as well as increased depreciation and freight expenses[123] Liquidity and Capital Resources As of March 31, 2023, the company held $86,000 thousand in cash and marketable securities, expected to fund operations for 12 months, following a debt refinancing in January 2023 - The company had $86,000 thousand in cash and marketable securities as of March 31, 2023, and believes this is sufficient to fund operations for the next 12 months[129][131] - In January 2023, the company entered into an amended loan agreement, borrowing $36,000 thousand under a term loan maturing in 2027 and securing a $15,000 thousand revolver[133][134] - The lender is now First-Citizens following the failure of SVB[134] Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Operating Activities | ($10,753) | ($13,512) | | Investing Activities | $11,703 | ($22,608) | | Financing Activities | $1,205 | $169 | Quantitative and Qualitative Disclosures About Market Risk As a "small reporting company," SI-BONE is not required to provide quantitative and qualitative disclosures about market risk - As a "small reporting company", SI-BONE is not required to provide quantitative and qualitative disclosures about market risk[146] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[149] - No changes were made to the company's internal controls over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal control[150] PART II-OTHER INFORMATION Legal Proceedings The company is involved in various legal actions in the normal course of business but reports no pending matters currently deemed material - The company is not presently a party to any material legal proceedings that would have a material adverse effect on the company if determined adversely[152] Risk Factors This section outlines significant risks including operating losses, reliance on the iFuse product family, supply chain disruptions, regulatory challenges, and intellectual property and financial market risks Risks Related to Business and Industry The company faces business and industry risks including significant operating losses with an accumulated deficit of $368,200 thousand, high dependence on the iFuse product family, and supply chain disruptions - The company has a history of significant operating losses, with a net loss of $11,100 thousand for Q1 2023 and an accumulated deficit of $368,200 thousand as of March 31, 2023[157] - The business is highly dependent on revenue from a single family of products (iFuse, iFuse-3D, iFuse-TORQ, iFuse Bedrock Granite), making it vulnerable to market shifts or issues with this product line[194] - The company faces risks from prolonged inflation and supply chain disruptions, which could lead to higher costs, lost revenue, and decreased profit margins[160][161] - Maintaining adequate coverage and reimbursement from third-party payors is critical, and any negative changes could significantly harm sales[163] Risks Related to Legal and Regulatory Environment The company faces significant legal and regulatory risks, including compliance with FDA and foreign regulations, fraud and abuse laws, and challenges related to the new EU Medical Device Regulation (MDR) - The medical device industry is extensively regulated by the FDA and foreign agencies, and failure to comply with requirements for design, manufacturing, marketing, and sales could cause the business to suffer[236] - The company must comply with numerous U.S. federal and state fraud and abuse laws, including anti-kickback and false claims statutes, and failure to do so could result in significant penalties[247][248] - Product modifications may require new 510(k) clearances or approvals, and a disagreement with the FDA on this could lead to marketing cessation or recalls[274] - The new EU Medical Device Regulation (MDR) introduces substantial changes and more stringent requirements, which will require a significant transition effort and could disrupt business in the EEA[288][291] Risks Related to Intellectual Property The company's intellectual property risks include the expiration of core U.S. patents on the iFuse implant in November 2024, potential patent litigation, and challenges in protecting trade secrets - The company's core U.S. patents on the triangular shape of the iFuse implant expire in November 2024, which could allow competitors to introduce similar products[298] - The company may be subject to costly patent litigation, as the medical device industry is characterized by frequent infringement claims, which could divert management attention and financial resources[307] - The company relies on trade secrets and confidentiality agreements, which may not provide meaningful protection if breached or if competitors independently develop similar technology[302] Risks Related to Ownership of Common Stock Risks related to common stock ownership include price volatility, fluctuating operating results, adverse banking industry developments, and restrictive covenants in the company's debt agreement - The company's stock price may be volatile due to factors like fluctuating operating results, regulatory actions, and general market conditions for healthcare stocks[309] - Adverse events in the banking industry, such as the failure of Silicon Valley Bank, could affect the company's operations and liquidity, although access to funds was restored[325][326] - The company's term loan with First-Citizens contains covenants that restrict certain business activities, and a breach could lead to default and acceleration of debt[329][331] Unregistered Sales of Equity Securities and Use of Proceeds There is nothing to report under this item for the period - Nothing to report[336] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[337] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[338] Other Information The company violated a debt covenant on March 10, 2023, by transferring funds from SVB, which was later waived, but future credit access requires transferring accounts back to First-Citizens - The company violated a debt covenant on March 10, 2023, by transferring funds from SVB to another bank[339] - A waiver was obtained on March 24, 2023, but access to the revolving line of credit is restricted until cash management accounts are moved back to First-Citizens[339] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to loan agreements and officer certifications