Shoulder Innovations, Inc. (SI) August 2026 Conference Transcript

Good afternoon, everyone, and thank you for joining us at this year's Canicor Genuity Growth Conference. My name is Kaitlin Roberts, and I'm one of the medical device analysts here at Canicor Genuity. We're joined today by Shoulder Innovations, a medical device company that has developed incent glenoid fixation technology to address one of the more significant issues in shoulder arthroplasty, unreliable fixation of the glenoid component. And with me today is Robert Ball, CEO. And before we begin, I want to remind everyone of any relevant disclosures which can be found on our conference and our firm website. With that, I'll hand it over to Rob.

Thank you, Caitlin. I appreciate the invitation and the opportunity. Thank you for your attention today. I'll just start by reading this forward-looking statement. It's an attempted humor, but we operate in the shoulder arthroplasty market or total shoulder replacement, which is about a $2.8 million market worldwide, a couple billion-dollar market in the U.S., But interestingly, growing at about 10% or a little bit more than 10% growth rate. So really the most attractive market in the orthopedic space. We are well positioned to continue to take share in that space, partly because there's a massive transition from the inpatient to outpatient care, particularly to the standalone surgery center, which gained approval by CMS for reimbursement in January 2024. We've built an ecosystem, like we like to characterize, of products and services, I'll put it that way, that put us in a very unique position to take advantage of that transition to the ambulatory care, including the, you know, kind of unique differentiated product portfolio that I'll go into in a little bit more detail. That product portfolio is enabled into the operating room with an enabling technology suite, including a robotic platform that we'll be filing for clearance early next year. And then we have built what I believe is a quite differentiated, unique commercial approach to the orthopedic marketplace It's quite different from how others have approached it, and it has been very effective for us. So about $34 million first half this year, just under. We have about 60% revenue growth so far this year, and including a material improvement in gross margins up to the very, very upper 70s range. So proud of our accomplishments in that respect. It does start with a team. We've been operating in this space literally for decades. You can see there along the bottom a number of the largest brands and most successful brands in the shoulder arthroplasty space, notably a number of us came through Tournier and built the product line that exists today under the Striker moniker, which obviously, or maybe not obviously, but does represent about 40% share in the worldwide space. And so we have a multi-decade experience in building both product and commercial organizations to be successful specifically in this shoulder arthroplasty space. It's important to understand when you think about the market, there are two main types of shoulder replacement. There's an anatomic shoulder replacement and a reverse shoulder replacement. The anatomic, you think about the word works. you're replacing the anatomy that is diseased with effectively replacements that replicate that anatomy. Reverse operates in the opposite in the sense that you put the ball, instead of on top of the humerus, you put that ball on the scapular side and so you have a cup-shaped device on the humeral side. And it's important to understand the main reason that you might use a reverse shoulder arthroplasty is because you have some sort of deficiency in the rotator cuff. And that That rotator cuff soft tissue feature is a main stabilizing factor in the shoulder joint itself, and so that mechanics of the reverse implant helps to overcome that deficiency of the rotator cuff. So today about 70% of the market is that reverse shoulder replacement. The market is a couple billion dollar market worldwide. Excuse me, in the U.S., 2.8 billion outside the United States, growing about a little over 10%. And one thing that's important to understand about the shoulder arthroplasty market is this transition to the ambulatory surgery center that's happening. So when you look backwards in time, the number of procedures being performed for hips and knees in the hospital versus the ambulatory surgery center, that's transitioned to kind of a 50-50 scenario. We're in the very early innings of that transition in the shoulder arthroplasty space, so we expect a very similar transition. So in that respect, it's not that we stopped doing hips and knees at hospitals. It's just that the growth that occurred in the marketplace occurred in that outpatient setting. And so we expect exactly the same dynamic in the shoulder arthroplasty marketplace in the sense that we're not going to do fewer shoulders in the hospital. We're just going to do many more shoulders. And that growth has all happened in the ambulatory surgery center space. And, of course, that company that's well prepared to support that outsized growth is indeed going to be in a better position to capture a fair number of that growth. will perform at least one shoulder arthroplasty. Our commercial approach drives us to focus only on about the 1,800 surgeons that perform a vast majority of those procedures, think about 80% of those procedures. And so that's about 1,800 high volume surgeons that gives us a very targeted commercial approach and a very efficient opportunity for a very, very efficient commercial model. Unfortunately for patients, but on some level fortunately for us, there remain significant unsolved challenges in the shoulder arthroplasty space, particularly relatively low rates of implant survivorship, particularly when you put it in the context of hips and knees. That can be a function of implant fixation, if you will, relative to the bone it's attempting to be attached to, but also the actual mechanical device itself. Numerous postoperative out complications are possible with anatomic shoulder arthroplasty. Subscapularis tendon failure rate, so that's a tendon that you will repair during the procedure, up to 15%, which is somewhat catastrophic for that anatomic procedure. Positioning is paramount to upgrade outcomes, and if you don't get that positioning correct, you can limit the potential life of that implant. And, of course, we're after improving both care and the economics around the procedure. We can do that simultaneously. And as we transition from the hospital to the ambulatory surgery center, many companies that produce a shoulder replacement are not well prepared to support that workflow transition. So that remains a very sticky element in the ability to gain that more effective process. And I'll talk about each one of these. Now, our approach to solving those problems is built around what we characterize as an ecosystem. Great implants and instruments is paramount, but just one element of that ecosystem. So in addition to that ecosystem, we must provide very effective enabling technology. So, for example, we present one of the only automated preoperative planning solutions. Preoperative planning has been demonstrated in the literature to dramatically improve the potential accuracy in surgery. And so we present a very effective platform there. Instead of presenting many, many trays, lots of metal and plastic into an ambulatory surgery center, we've reduced our instrument footprint to two trays. That's very differentiated in the marketplace, both economically and from a simplicity and a surgical workflow standpoint. We have built our commercial model around surgeon-to-surgent interactions. Surgeons can train one another how to clinically affect or cause the operation to happen, but they're also very powerful in overcoming anxieties and resistance to change. So that surgeon-to-surgent interaction is very, very important in that respect. And we are indeed the only publicly traded, well-funded company focused specifically on that high-volume shoulder surgeon call point. So we have a very unique advantage in presenting us a high level of expertise in the operating room because this is really the only market that we serve in. So that's been a bit of a superpower for us. As I mentioned, the loosening of the glenoid component or loosening of the components relative to bone has been a challenging and persistent complication, particularly in anatomic shoulder arthroplasty. So we have innovated what's called the inset glenoid. In a very simple description, you can see the two green arrows represent loads that the humeral component will apply to the scapular component during the procedure. And you can kind of imagine if you lean on one of those arrows, there's kind of a lifting effect on the other side. And so going back and forth, you cause what's called a rocking horse motion is what we characterize that as. We didn't coin or discover that. We just have proven a way to solve that. And so we do that by creating a pocket in the bone, that implant sits down in a pocket. Very simple innovation, but very effective innovation in that respect. And so we stand alone and exclusively in doing that. So we have demonstrated now, relative to the mechanism of action of this failure, 100% survivorship at 8.7 years, an 87% reduction in that rocking horse motion, that mechanism of action, and very effective outcomes for patients going from a 23 to a 95 post-op ASCS score, which is a phenomenal outcome, as you can imagine. So we are really the only company that has produced survivorship outcomes like that in anatomic shoulder arthroplasty. So it puts us in a very, very unique position. Of course, that's just one element of a broad spectrum of products. I characterize how the shoulder arthroplasty market is both anatomic and reverse. We sell numerous products throughout that full spectrum of indications that need to be treated. And, you know, I mentioned earlier one of those challenges that we face and one of the reasons you might use a reverse shoulder arthroplasty is because of some failure of the rotator cuff. So one element of that rotator cuff is what we call that subscapularis tendon. So when you perform an anatomic shoulder arthroplasty, you'll adjust the anatomy. You will take down the subscapularis tendon, replace the joint, and then you repair that subscapularis tendon back to the bone. That fails 5% to 25% of the time, depending on the literature that you refer to. But that failure of the subscapularis tendon indeed represents deficiency in the rotator cuff structure. And as I characterized earlier, if you have arthritis and deficiency in the rotator cuff, that means you need a reverse shoulder arthroplasty. So a very important segue into what's happened in the space. You can see early 2000s, a majority, more than half of our procedures were anatomic procedures and a relative minority reverse procedures. Over the last 15 years or so, we've learned a lot about reverse shoulder arthroplasty, and reverse has now become on the order of 70% of procedures that are performed. So that's a unique circumstance in the orthopedic marketplace in the sense that you're taking a non-anatomic mechanical structure and represents a majority of the marketplace. So it has been an interesting dynamic. And as that transition has happened, we've learned a lot, particularly about the biomechanics of reverse shoulder arthroplasty and transitioned away from what we would call an onlay arthroplasty, you can see up to the right, to an inlay arthroplasty. That's us on the lower right-hand side. And really what that means is we have repositioned or rebuilt the kinematics around reverse shoulder arthroplasty. So we as a company stand alone in what we characterize as lateral, lateral biomechanics. And what that really means for patients, better range of motion and lower likelihood of acromial fracture and subluxation. So some frequent postoperative complications relative to reverse shoulder arthroplasty. So we stand in a very good position relative to differentiation, both in anatomic and reverse shoulder arthroplasty. That it does provide those biomechanical advantages. I'll just point to the gal on the lower right there. This is literally a neighbor of mine. She has one of our anatomic shoulders on her left side and a reverse shoulder on the right side. What's very, very special about what she's able to accomplish is she can get full forward elevation on both sides, but you can see how she's reaching behind her back with both the anatomic and the reverse shoulder arthroplasty. This is kind of an unheard of outcome prior to the biomechanics that we've presented to the marketplace. So, again, puts us in a very special differentiated position. We accomplished that because of the level of modularity and the special design of the implants we presented. In this context, I'm not going to go through all of this in detail, but I will show you that you can see the inset stem there implanted in the humerus in the middle, and both an anatomic ball or the reverse cup can be applied to each of those. And what that means for us is we can easily transition intraoperatively between anatomic and reverse, providing a very high degree of flexibility for the surgeon as they carry out the procedure. Now, one thing that's challenged when you provide that level of complexity and flexibility usually comes with a very high burden of metal and plastic in the operating room. But fortunately, we began with the end in mind. You can see on the left-hand side, this is literally one of our larger multinational competitors arriving in an ambulatory surgery center, well, I think it's 10 or 12 boxes of instrumentation in an ambulatory surgery center for one surgery. This is up on the right, two boxes of instrumentation. When we walk into an ambulatory surgery center, it's a fundamental difference in the amount of equipment, thus a fundamental change in the cost structure associated with carrying out that procedure intraoperatively, and it's been a very, very compelling component. As I mentioned, in January 1 of 2025, CMS rendered positive payment decision for shoulder arthroplasty in the standalone surgery center. At that time, we did about 10% of our procedures at a standalone surgery center. By the end of 2025, we did 30% of our procedures at a standalone surgery center. This is a fundamental driver to that. We were just a much easier, much simpler, lower-cost solution in that environment. I'm going to skip this one. So that's all enabled by an automated AI-enabled CT-based preoperative planning solution. What we've been able to show in the literature is that surgeons are able to carry out much more accurate surgery if they actually preoperatively plan that procedure. It's the equivalent of looking at a map before you drive somewhere in a city that's unknown to you. And it's quite a powerful tool. And being automated causes us or puts us in a position the surgeon can actually do the planning themselves on their own laptop. So it's the effective analogy I used earlier today is put me in New York City and asked me to drive to the Empire State Mill, and I'll get there eventually. If you give me a map, I'll get there a lot sooner. If you let my wife look at the map, it doesn't help at all. And so this is very much the power behind preoperative planning, and so it's been a useful tool for us. We're moving on to our second generation of the preoperative planning tool. One of the key differentiators or changes in that second generation will be enablement with a robotic solution integrated with a preoperative planning solution. So we did announce in December of last year a partnership with a company called INS to integrate a robotic solution into our software solution. And we did announce just last week during our earnings call that we'll be filing for 510K in early 20, in the first half of 2027. Now, having said that, INS has been successful commercializing devices together with Medtronic in the U.S. in cranial surgery and with Alphatec in the U.S. in spinal pedicle screw placement, so it has a great reputation to be able to deliver here. What we're able to accomplish here is to do two things. Number one, use a robotic solution to provide accurate replication of the preoperatively planned surgery in the context of using the same surgical technique that surgeons are used to using today without a time sacrifice. So this will be time transparent for surgeons. Also, these products are completely portable. And what I mean by that is we can bring the robot into a surgery center 10 minutes prior to surgery, set it up, execute the procedure, and then remove that robot postoperatively. That puts us in a fundamentally different economic relationship with the operating center such that we can actually deploy robotics as a service as opposed to having a conversation about how much capital they're going to deploy in order to have access to the robot. But as it relates to shoulder arthroplasty, this solution is perfectly suited to the commercial circumstances of shoulder arthroplasty in a way that, I guess, robots that have been developed for other joints may not be compatible. So we're obviously very excited about the opportunity this represents for us on a go-forward basis. Of course, it requires a great commercial organization to be able to deploy all of this. So we do have three key components of our commercial organization. So all of our products are sold through a 1099 independent sales organization, but that 1099 independent sales organization is enabled by a couple other groups. Number one, we have our commercial leadership organization. Think about that as a little bit more than 40 W-2 leaders that stand on top of, so not in place of, but on top of that 1099 organization. And it gives me a position where the 1099s really think about them as service. They give me the opportunity to be in every single case and provide excellent levels of service. but the commercial leadership organization gives me the ability to scale my growth at the pace that I seek, right? So I have 100% control of their time every day and can control who they spend their time calling on and how they convert surgeons to our platform. So that's been a very powerful component for us as we've managed our growth rate, which has been quite high over time. And then we have our CEME organization, Customer Experience and Medical Education. So as the commercial leadership organization identifies which of those 1,800 surgeons we should focus our energy on, The CEME organization then takes those opportunities in their prioritized form and converts them into business by leveraging surgeon-to-surgeon and surgeon-to-expert interactions over time. To wit, we did over 90 CEME events in the first half of this year, touching 160 healthcare practitioners, and have demonstrated dramatic first-use surgeons out of those groups. So it's been a very successful year for us so far. We also announced during our earnings call last week a number of new initiatives as it relates to new product development or R&D. So in the first half of 26, you can see that middle column there. We have launched our inset 135 for complex fracture indications. We've launched our N20 tween glenospheres for patients with metal sensitivity, which represents about 15% of the population, and what we call our titanium plasmus barrier, TPS, reverse base blade. These represent products that are somewhat line extensions to our existing product line. that gave us access to some specific indications that we didn't previously touch, but do now represent a material part of what we sell on our current product line. In the second half of this year, we will be implementing a new reusable guide system that goes together with our pro-oil and software, creating an opportunity to duplicate without the robot in a lower-cost environment what's happening in that surgery center. I mentioned the complication associated with subscapularis tendon failure, So we have produced a surgical technique and instrumentation that enables subscapularis sparing technique, meaning you don't take down that tendon, potentially eliminating complications associated with that component of the surgery. That is in its limited user release stage at this point. And then we are known for our insect glenoid solving a main problem. We have now produced our second-generation insect glenoid that will be entering the market here in the next number of weeks. And, of course, I commented already about Inset Neo. Our micro-robotics solution will be filing 510K in the first half of next year. And then I've not mentioned here yet, but Inset One, which will be our additively manufactured patient-matched device, that will be coupled very closely with our preoperative planning solution. So a full spectrum or a very deep pipeline that we'll be able to produce for the market here in the very near future. Growth has been spectacular. As I mentioned, 60% year-to-date first-half growth, 50% year-over-year unit growth in Q2, 56% dollar growth in Q2. So we have indeed enjoyed a very pleasurable and encouraging growth rate and, frankly, have just taken share to accomplish that. We did go public last year in July, so we're just kind of crossing that one-year mark. Still have $99 million of cash on the balance sheet, and we believe that is indeed enough to turn the corner from a cash flow positive standpoint. And finally, last but not least, very proud of producing a gross margin in the upper 70s, 78.3%. We do have several cost-down initiatives that we continue to drive forward. We believe we can continue to improve that over the coming quarters. growth will be a function primarily of adding new customers into our pipeline as you can imagine we do have a number of very compelling reasons why surgeons may want to engage with our company fortunately for us we operate in a large and very fast growing market over 10 percent so we have the opportunity to enjoy that rising tide that does indeed lift all boats we characterize i talk about here, core and contender customers. At the end of last year, we had what we call 134 core contender customers. That's just a way that we define how they interact with us as a business. That has grown dramatically. I think it grew 65% last year. But we will continue to grow those numbers of customers, and we have demonstrated a very quick pace with which we've added to our pipeline. There's 1,800 high-volume surgeons, and so we will continue to penetrate into that marketplace. As I mentioned today, we have introduced several new products already this year. We'll be able to fully annualize the revenue associated with those products as we go forward, which will produce a component of growth. And we actually have been successful increasing average selling prices as we've gone broader into the marketplace. So all of those provide constructive elements to a rising growth picture and have all contributed to that growth rate that we've produced so far. And of course, we have yet the opportunity to enter select adjacent markets. We're focused on shoulder arthroplasty today and those very high volume shoulder arthroplasty surgeons typically represent less than half of their practice. So they work in soft tissue trauma indications. And so we are creating a very specialized channel to a very special market, a very high growth market. And we believe we'll be able to enable or leverage that commercial channel for other adjacent markets that could indeed on the order of double our TAM in the relative near future, and then we only sell in the U.S. today. We have yet to sell a product outside the United States, so obviously that represents an opportunity on a go-forward basis as well. I commented on gross margin already. I'm just going to skip this slide for now, but I appreciate everyone's time, and thank you for the opportunity to present. Caitlin, please.

Yeah, so a couple things.

I'll first talk about the idea of democratization of shoulder arthroplasty. Great point. So now it's going to be hard for me to repeat the question. She asked about larger competitors have introduced or sought to introduce robotics into the shoulder arthroplasty marketplace and have suggested that perhaps that can play an element in democratizing the accessibility, I'll put it that way, of shoulder arthroplasty to a broader spectrum of patients. And then also, generally, I think you're just asking for commentary about what impact would that have on the market. So first and foremost, when you think about democratization of shoulder arthroplasty, knee arthroplasty and shoulder arthroplasty are two fundamentally different procedures. The hardest part of shoulder arthroplasty is the incision and exposure of the joint. It's a very complicated process. The robot will do nothing for you about that component. If you can't get effective exposure, you can't even use the robot. So I think the idea of democratization of shoulder arthroplasty is not well thought out. I'll put it that way. I think even if that were true, let's just say I'm fundamentally wrong. I'm not focused on the same customer profile that my larger competitors are. I'm not focused on those patients, those surgeons that do hips and knees and a little bit of shoulder. I'm focused on a very special call point that represents the number one segment of orthopedics and the number two segment of orthopedics, which is sports medicine. And I built a commercial organization that's the most effective at calling on that call point. And so I don't know that a robot will do anything to diminish my ability to continue to capture share in that space. Now, broadly, as it relates to the ability for robotics to be effective in the shoulder arthroplasty space, I do believe robotics can play a role. I think even Kevin Lobo has expressed in public statements that robotics may be more effective in a more limited number or certain circumstances related to shoulder arthroplasty. So let's just take that at face value. If that indeed, let's say it's 20% of procedures, if that indeed is the case, why would a hospital system purchase a robot for the sake of leveraging a robot in 20% of the procedures that they want to do in a hospital? And so you find yourself in a circumstance where robotics as a service is exactly the perfect economic deployment of robotics for shoulder arthroplasty, as opposed to a full, you know, kind of Volkswagen-style robot. So I'll leave it at that. Great question, though. Please.

A lot of the ads are so high just for the nature of the business that you're in. What are you guys seeing? What are you guys seeing?

Yeah, so obviously we're in our very early stages of commercial development, so kind of are not producing free cash flow at this point, though we have sought to demonstrate and have demonstrated a reduction of cash deployment each quarter that we have been public. Burned $15 million in cash in the first quarter. We burned $9 million in cash in the second quarter. For sure, the model that we've built of a lower tray burden and lower levels of inventory on a per-procedure basis is very, very important for driving that free cash flow. And so we're very confident that we're going to turn that corner more quickly than others have imagined. I'll put it that way. So, please. Do you use Dr. John Warner at the NCHS? He's not. I know Dr. Warner very, very well. He is a very loyal consultant for Striker. So yeah, I put him in the category of competitor. How's that? So, yeah, so thank you very much.