SI-BONE, Inc. Q4 FY2022 Earnings Call

Good afternoon, and welcome to SI-BONE's Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Saqib Iqbal, Director of Investor Relations at SI-BONEing introductory comments. Sir, you may begin.

Thank you for participating in today's call. Joining me are Laura Francis, Chief Executive Officer; and Anshul Maheshwari, Chief Financial Officer. Earlier today, SI-BONE released financial results for the quarter ended December 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These forward-looking statements are based on the company's current expectations and inherently involve risks and uncertainties. These risks include the duration of secondary impact of the COVID-19 pandemic such as facility staffing shortages, whether the COVID-19 pandemic will recur in the future and our ability to effectively commercialize new products going forward. Other forward-looking statements include our examination of operating trends and our future financial expectations such as expectations for hiring, surgeon training and adoption, active surgeons, new products, clinical trial enrollment and reimbursement decisions and are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. SI-BONE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 27, 2022. With that, I’ll turn the call over to Laura.

Thanks, Saqib. Good afternoon and thank you for joining us. For today's call, I'll provide a business update and Anshul will provide additional detail regarding our financial results. I'm pleased with our strong finish in 2022 as we effectively navigated some macro challenges, drove steady reacceleration of the business and delivered record performance. As you may recall, our worldwide year-over-year revenue growth in 2022 went from 10% in Q1 to 15% in Q2 to 19% in Q3 and finally 27% in Q4. Our growth was driven by both our core SI-Joint fusion business, as well as new products targeted toward adult deformity and trauma applications. 2022 was a milestone year for the company as we extended our market leadership, expanded our addressable market with the launch of iFuse Bedrock Granite, a breakthrough product and received expanded FDA clearance for applications of iFuse’s torque and fragility fractures and spino-pelvic fixation. Our comprehensive portfolio allowed us to achieve record U.S. Active Surgeon growth, which we believe is crucial to deliver strong sustainable growth in 2023 and beyond. As we progressed through 2022, we delivered substantial operating leverage and significantly reduced our adjusted EBITDA loss and cash usage, while investing in our long-term growth initiatives. Before I discuss the details of our performance, I'd like to thank our employees for their dedication and focus to achieve these major milestones. You supported over 1,300 U.S. Surgeons, who performed a procedure using our solutions in 2022. Most importantly, you helped improve the quality of life for over 13,000 patients worldwide. Now moving to our performance. For the fourth quarter of 2022, our worldwide revenue was $32 million, reflecting 27% growth compared to the fourth quarter of 2021 and 21% growth compared to the third quarter of 2022. Our U.S. revenue in the fourth quarter grew 28%, compared to the prior-year period to a record $30 million, driven by 33% procedure volume growth in the quarter. For the full-year 2022, we generated worldwide revenue of $106.4 million, reflecting 18% growth, compared to the full-year 2021. Our U.S. revenue grew over 19%, compared to full-year 2021 to $98.8 million. The sequential acceleration in our U.S. revenue growth in each quarter of 2022 reaffirmed strong demand for our solutions in a normalizing operating environment. Now let me provide some details on our key initiatives as we look to expand our leadership position and drive strong long-term growth. Starting with sales infrastructure. Our dedicated direct sales force and agent partners are an important driver of growth as we develop our core markets and grow our presence in trauma and adult deformity. We ended 2022 with 88 territory managers and 73 clinical support specialists. In 2022, the average annual revenue per territory manager increased to $1.2 million, reflecting double-digit percentage growth, compared to 2021. We believe there is a significant opportunity for operating leverage in 2023, given the potential for average territory productivity to be in the range of $1.5 million to $2 million over time. With our expanded portfolio, we're leveraging our growing network of agents for case coverage and selectively evaluating consignment strategies at high-volume hospitals. We're confident that this hybrid approach will help the territory manager drive surgeon engagement, ensure high-quality support for a surgeon and deliver strong productive top line growth. Moving on to surgeon engagement. Surgeon adoption is one of the best leading indicators of long-term procedure demand. We exited the fourth quarter with a record 920 active surgeons. This equates to over 33% growth in our active surgeon base over the fourth quarter of 2021 and approximately 15% sequential growth, compared to the third quarter of 2022. This is the eighth consecutive quarter of double-digit year-over-year growth in our active surgeon base and the highest growth rate in the active surgeon base since we've been a public company. This growth in active surgeon base is a testament to our focus on surgeon engagement, education and outreach over the last several years. The increase in surgeons in the fourth quarter came from those who performed a minimally invasive SI joint fusion procedure, as well as adult deformity or trauma procedures. Additionally, it's exciting to see a growing surgeon overlap across our various procedures. In 2022, over half of our active surgeons, who performed an adult deformity procedure also performed a minimally invasive SI joint fusion procedure using our solutions. We believe our complementary portfolio provides a significant opportunity to drive deeper engagement with our active surgeon base and increase the procedures per surgeon. With the trauma indication expansions for iFuse-TORQ, the launch of iFuse Bedrock Granite and the growing interest in spino-pelvic fixation and fusion, surgeon education is crucial to drive engagement and activation. Additionally, we're experiencing great success with our academic programs that are focused on residents and fellows. Since the inception of the program, we've held training events in over 200 academic facilities in the United States and trained approximately 1,300 surgical residents as fellows. We're encouraged by the steady adoption of our procedures by these previously trained fellows and residents when they began practicing. In 2022, the number of fellows and residents who did their first case increased nearly threefold, compared to 2021, while their procedure volumes increased fourfold. Turning to products and solutions. The key tenet of our strategy has been to expand our platform of sacropelvic solutions to address direct SI joint pain, adult deformity and trauma. With iFuse-3D, iFuse-TORQ and now iFuse Bedrock Granite, we believe the value of our innovative, versatile and complementary product portfolio provides surgeons with a comprehensive set of alternatives and positions us as the top choice for surgeons for sacropelvic solutions. iFuse-TORQ continues its strong growth and has become an important addition to the portfolio. TORQ provides an alternative to iFuse-3D for our existing surgeons and has allowed us to convert users of competitive screw systems as well as engage new surgeons performing minimally invasive SI joint fusion. Following the FDA clearance for iFuse-TORQ to include fusion in conjunction with spino-pelvic fixation, we're seeing a steady uptake in the use of the product to complement iFuse Bedrock Granite as a second point of fixation as a joint. From a biomechanical perspective, having two points of fixations is important to attain fusion. In trauma, we're in the early stages of market development and are encouraged by the progress in the use of iFuse-TORQ for sacral insufficiency fracture. Based on our market analysis, many of our spine surgeons routinely see fragility fracture patients, providing us an opportunity to leverage existing relationships as we build this market. With approximately 120,000 of these injuries per year in the U.S., most of which are currently not treated surgically, the fragility fracture market is a recognized unmet clinical need. The trauma opportunity is of strategic importance to us as the sacropelvic solutions leader and will be an important avenue for growth over the long term. Moving to iFuse Bedrock Granite, the reception of iFuse Bedrock Granite has been exceptional, driven by strong surgeon and hospital interest in adopting the product. Based on our early interest, we believe that Granite may become a standard of care for stabilizing the base-long construct in adult deformity procedures and in certain degenerative spinal fusion cases. As I indicated earlier, we're seeing several surgeons using some combination of our products to achieve two points of fixation across the SI joint on either side, resulting in a significant pull-through opportunity for the overall portfolio and higher procedure average selling price. This launch, nearly 2,500 hospitals across the U.S. have added iFuse Bedrock Granite to their approved products list. Additionally, with the recent FDA clearance to allow the use of iFuse Bedrock Granite with a variety of pedicle spring rod systems, surgeons can now have confidence using their preferred system with iFuse Bedrock Granite as the foundation for the construct. We believe both these milestones will be additional catalysts to drive future growth. Given the positive experience with iFuse Bedrock Granite, we're seeing surgeons expand the use of the product to stabilize the base of shorter multilevel constructs as part of their treatment for degenerative spinal conditions. Approximately one-third of our iFuse Bedrock Granite cases have been in these degenerative procedures. There are over 100,000 short multilevel spinal fusion procedures per year in the U.S. While still early, the expanded use of iFuse Bedrock Granite in the shorter multilevel spinal fusion procedures for fixation could be an exciting opportunity for us and could expand our total addressable market beyond our initially estimated $250 million. Before I hand it over to Anshul, I'd like to provide a reminder on the CMS rule for hospital outpatient and ASC payments that went effective January 1. In 2023, Medicare facility fees and minimally invasive procedures performed using CPT code 27279 and hospital outpatient or ASC settings increased by 33% to approximately $22,000 and 26% to approximately $17,000, respectively. Today, 80% of our minimally invasive SI joint procedures are performed in an outpatient setting or at surgery centers. We expect more of our minimally invasive procedures to move to ASCs over time. While it is too early to assess the business impact of this significant increase in facility fees, we believe it could be a tailwind for demand and ASP stabilization at these sites. I'll now turn the call over to Anshul to provide more detail on our financial results.

Thanks, Laura. Good afternoon, everyone. My comments today will be focused on fourth quarter revenue growth, operating leverage and liquidity. Starting with revenue growth. Our fourth quarter total revenue was $32 million, representing growth of approximately 27%, compared to the prior year period and 21% sequentially. U.S. revenue was $30 million, increasing 28%, compared to the prior year period. Growth in the U.S. was driven by strong demand for our solutions, which resulted in approximately 33% procedure volume growth versus the prior year period and 23% growth sequentially. ASC procedure volumes were in the low-20% range, consistent with the prior year period. International revenue was $2 million, reflecting growth of approximately 3% in U.S. dollars, compared to the prior year period. Across Europe, France maintained strong performance offset by underperformance in Germany and the U.K. Gross margins for the fourth quarter of 2022 was 84%, in line with our third quarter gross margin. The fourth quarter gross margin reflects a low single-digit percentage impact from lower average selling price, increase in freight cost and higher cost of new products, as well as the increase in depreciation from the ongoing deployment of instrument trades to support strong new product demand. Moving to operating leverage. Operating expenses increased 7% to $38.2 million in the fourth quarter of 2022, as compared to $35.8 million in the prior-year period. The increase was driven by higher commissions associated with the revenue growth, increased travel and freight costs, and higher investments in R&D. On a sequential basis, operating expenses increased approximately 6%, driven by higher commissions associated with the higher revenue in the quarter. We're pleased with the acceleration in operating leverage as our revenue growth rate was 4 times the operating expense growth rate in the fourth quarter. The operating leverage was driven by strong top line performance and across-the-board productivity gains from investments we have made to scale our platform over the last few years. Our net loss was $11.2 million or $0.32 per diluted share for the fourth quarter of 2022, as compared to a net loss of $14.5 million or $0.43 per diluted share in the prior-year period. Our adjusted EBITDA loss improved significantly in the second half of 2022 with fourth quarter adjusted EBITDA loss of negative $4.2 million, an improvement of over 50% over the prior-year period. Turning to liquidity. We exited 2022 with $97.3 million in cash and marketable securities. Our cash outflow steadily declined as we progressed through 2022. Our total cash outflow in the fourth quarter was $7 million, an improvement of approximately 51%, compared to the prior year period and an improvement of over 34%, compared to the third quarter of 2022. While we plan to make additional investments in instrument trades and implants to support our growth, we expect continued progress in operating leverage to moderate cash usage in 2023. In January of 2023, we refinanced the outstanding $35 million term loan with a new $51 million credit facility with Silicon Valley Bank, including a $36 million term loan and a $15 million revolving line of credit. The new credit facility includes a $15 million accordion that is available to the company subject to the credit approval of the bank. The refinancing allows us to lower our borrowing costs, delay amortization by nearly two years and have access to additional liquidity, if needed. Finally, moving to our outlook for 2023. We continue to experience demand momentum for our comprehensive portfolio of solutions, as well as elevated surgeon engagement. However, we are being thoughtful in our approach to annual guidance, given the early phase of reacceleration of the U.S. business and the pace of recovery in our international business. Considering these factors, we expect 2023 worldwide revenue of approximately $124 million to $127 million, implying year-over-year growth of approximately 17% to 19%. In 2023, we expect gross margin to stabilize at approximately 80%. Our gross margin assumptions incorporate low single-digit ASP degradation, as well as additional depreciation expense from the deployment of iFuse Bedrock Granite and iFuse-TORQ trades in the back half of 2022 and throughout 2023. Turning to operating expenses. We anticipate operating expenses will grow at a mid-single-digit percentage rate in 2023. We foresee a reduction in adjusted EBITDA loss compared to the full year 2022 based on the strong top line growth and continued operating leverage. With that, I will turn the call over for questions.

Thank you. Our first question comes from Kyle Rose with Canaccord. Your line is open.

Hi, good afternoon, everybody. And thank you for taking the question. I just want to kind of dig in just on the gross margin guidance for a second here. 80%, I appreciate the commentary about the ASP decline and some higher depreciation costs. Maybe just talk a little bit more about the ASP stabilization that you're seeing there? And just how we should interpret that from a long-term perspective when we think about the gross margin profile of the company?

Kyle, this is Anshul. From a gross margin perspective, as you've seen over the last couple of years since we've introduced two new products, we have been putting a lot of investment in instrument trays to support what we see as strong demand for both TORQ and for Granite. And if you look at the PP&E line in our balance sheet, you will see that it has gone up from about, say, $4 million at the end of 2020 to north of $15 million at the end of 2022. Now these trays get depreciated over a three-year period. They obviously have a much longer lifespan that they are used for. But that's about $4 million to $5 million of depreciation that goes to your gross margin line, which will equate to about 3 to 4 points of gross margin deterioration. A lot of the Granite investment came about in the second half of 2022. We expect to continue to roll out additional Granite trays throughout 2023. So we took that into account as well. So I'd say a lot of the gross margin impact is driven by the depreciation of those instrument trays. Now on the ASP side, Kyle, we tend to make assumptions around based on what we've seen historically and sort of in the low-to-mid single-digit range ASP decline is what we always look at to sort of be in the 3% to 5%. And it's still early days in the year, but we are seeing sort of be on the lower side of that ASP trend than we have historically been. So that's how we've sort of framed our gross margin guidance.

Okay. Very helpful. And I appreciate the commentary about the new product launches. And I have to put the cart before the horse, so to speak, given you're still early in the Granite and the TORQ launch. But what should we be expecting from a new product development perspective as the company focuses on being a larger pelvic reconstruction or pelvic ring focused company? What are the other areas that you think are underserved in the market that you think would be worth allocating R&D resources moving forward?

Yes, thanks for the question, Kyle. When we went public, we were primarily focused on our single product for SI joint fusion and have become the leading player in that market. Over the past few years, we have expanded into broader sacropelvic solutions. We have introduced products that target both adult deformity and trauma, which is showing promising results. Currently, we're concentrating on developing our core market in SI joint fusion and are encouraged by the recent growth we've observed. We also see a near-term opportunity with Granite in adult deformity through spino-pelvic fixation infusion. The trauma market represents a longer-term opportunity, as it addresses an unmet clinical need, although these patients are not frequently treated surgically. This situation is reminiscent of our initial journey in primary SI joint fusion. As always, we are committed to utilizing clinical data, education, and reimbursement support to advance this market. Overall, we believe we have significant opportunities in our core and adjacent markets and are dedicated to their development.

Great. Thank you for taking the questions.

Thanks, Kyle.

Thank you. Our next question comes from David Rescott with Truist. Your line is open.

Hey, guys. Congrats on the quarter and thanks for taking the questions. Maybe just starting off better than on the fourth quarter. It seems like the quarter came in essentially ahead of where the guidance essentially was prior to lower end in Q3. So just wondering maybe what went right in the second part of the quarter to essentially beat the guidance you set out there and then how we should be thinking about the way you're thinking about the guidance for 2023?

Yes. Thanks, David for the question and your questions are spot on. We are really pleased with what we saw in the fourth quarter, 27% growth year-over-year that was 21% sequential growth and to just see the continued acceleration throughout the year, it shows the normalization of the operating environment. It shows the reacceleration of our primary SI joint fusion business and then it shows the adoption curve with our Granite product in pelvic fixation. So pleased with everything that we saw there. In terms of getting into a little more detail for you, October results were solid. But what we saw is this very nice acceleration in November and December. So taking us back into that original range of what we had anticipated for the year of $106 million to $108 million in sales. And what we've seen actually is that has continued into the first quarter as well. So just continued indicators that the business is continuing to accelerate. And so our expectations for the first quarter from a revenue perspective is growth of approximately 30% in the first quarter based upon the continued acceleration of the business. And I probably would say that the last point I would focus on here is the active surgeon numbers were ecstatic about those numbers at this point, 33% increase year-over-year, up to 920 surgeons, who did at least one case in the fourth quarter of 2022. That's 15% sequential growth in that metric. And for us, it's a great forward-looking indicator for that future demand.

David, regarding your question about the guidance for the year, I want to break it down into several parts. Laura mentioned our expectations for the first quarter, aiming for around 30% year-over-year growth. We have a few months' data to review now, and our visibility remains strong as we look ahead to the next 30 days. We feel confident about the near-term setup of the business. Even with the 30% growth, we are observing a high single-digit decline from Q4 to Q1, which over the past four years has typically been in the low double-digit range. Thus, we are seeing a notable acceleration entering Q1. When considering our annual guidance, we believe it's wise to take a cautious approach and evaluate the potential risks while acknowledging the positive factors Laura mentioned regarding procedure ASP trends, the pace of Granite adoption, and the recovery of our OUS business. Some of these elements might unfold more favorably than we expect. However, since we are early in the year and some of these tailwinds are just starting to develop, such as the ongoing rollout of Granite and the facility fees introduced in January, it remains too soon to predict their impact. Therefore, we believe our guidance effectively accounts for both risks and opportunities. Additionally, we maintain a strong focus on achieving operating leverage as we move through the year into 2023.

Okay. Great, thanks. So that just leads to the next question then. So I'm wondering, one, if the 80% gross margin in 2023 assumes that there is stabilization of gross margins brought on by that improved reimbursement rate or perhaps there may be is upside just as you progress through the year? And then the second part of that, just based on kind of our initial estimates, gross margins, a little bit lower than we were anticipating, but still expecting improving EBITDA through the year. So just wondering what the biggest driver of that improving profitability is and maybe how we should think about the cadence of that coming on through the rest of the year, especially since Q1 seems to be maybe a higher top line growth rate than the rest of the year? Thank you.

Yes. David, that's a great question. So let me just take the question on what's going to drive operating leverage and EBITDA acceleration first and then go back to the gross margin side. So as we came into last year, David, we had talked about the business being at a natural inflection point to harvest all the investments that we made since going public and throughout the pandemic. And now we've had three consecutive quarters where revenue growth has exceeded operating expenses. And we're really pleased with that trajectory. And it's been pretty linear to revenue growth, right? So as our revenue growth accelerated, you sort of saw the leverage accelerate as well because we've got the foundational infrastructure in place. And as we get into 2023, we do not think that, that trend is going to change. We are still going to make investments in R&D. We're still going to make investments in trades, which will go as depreciation on the P&L. And we are going to selectively grow our sales force, but the foundational infrastructure is there to support a much higher level of revenue. So when you think about the year, as the revenue accelerates or as we progress through the year, you will see the leverage accelerate, and we expect year-over-year adjusted EBITDA to continue to improve. You might have some seasonality sequentially, but year-over-year, we should see an improvement.

Okay, great thanks. So that just leads to the next question then. So I'm wondering, one, if the 80% gross margin in 2023 assumes that there is stabilization of gross margins brought on by that improved reimbursement rate or perhaps there may be is upside just as you progress through the year?

Yes. That’s correct, we'd expect gross margin to stabilize around the 80% level, and there may be some upside as we progress through. Thank you.

Thank you. Our next question comes from Craig Bijou with Bank of America.

Good afternoon, everyone. Thank you for taking the questions and congratulations on a strong quarter. I wanted to start with the increase in active surgeons and appreciate Laurie's comments on the acceleration of the core procedure. I'd like to know if you can share any information on the mix of surgeons among those active surgeons performing SI joint fusions compared to those handling adult deformity procedures. Is it evenly split? Additionally, could you provide insight on how many of the active surgeons performing SI joint fusions were new to your company versus those who were previously trained but inactive?

Yes, Craig, you are pointing out a very important metric here, especially given the rapid increase in the active surgeon base. Looking back at 2021, we had a total of 1,000 surgeons performing procedures for us, and in the fourth quarter alone, we had 920 surgeons doing procedures. This represents extraordinary progress in just 12 months, marking a 33% year-over-year increase and a 15% increase quarter-over-quarter. This is the highest level we've seen since going public, and it’s really exciting for me. We typically don’t provide extensive information about the different areas of our business in terms of product differentiation since we view ourselves as a sacropelvic solutions company, and all these areas—whether it’s the primary market, adult deformity, or trauma—are part of the same segment. However, we understand the need to share some details. We want to emphasize that the core market is reaccelerating; it's not just the new or adjacent markets contributing to our business growth. Interestingly, the additions of surgeons have been nearly evenly split between those focused on minimally invasive SI joint fusion and those in adjacent markets like adult deformity and trauma, with about a 50-50 ratio. We are also pleased to see an increasing overlap where surgeons are conducting procedures across different areas such as SI joint fusion, adult deformity, and trauma. In summary, this highlights our commitment to execution and educational outreach over the past few years. We have a strong product portfolio and are a leader in the sacropelvic space. With a favorable reimbursement environment in our core market for 2023, we believe surgeon engagement and density will accelerate this year.

Thank you, Laura, for your insights. You've mentioned a few positives in reimbursement over the past six months. I would like to understand more about the NTAP for Granite, specifically how much hospitals are receiving in payments compared to what was anticipated and how this is influencing growth in Q4 and outlook for 2023. Additionally, regarding the SI joint fusion procedure, although it's early, do you have any feedback on the reimbursement successes there?

Yes. On the NTAP, very good question on that. And as you recall, the NTAP went into effect on October 1, 2022. So we really have just a little over a quarter of experience on that NTAP, but we think that this is a really important factor for Granite and the adoption of our product here in adult deformity. I was recently at a conference with adult deformity surgeons. And one of the questions that was asked on a panel was how our companies in our industry thinking about these issues of additional cost without additional reimbursement. And so something like the new technology add-on payment is definitely critical to making sure that a disruptive technology like Granite is adopted. And we are seeing that play out at this point. We are starting to see cases where the NTAP has been paid, and this is going to be important, obviously, to the surgeons and as importantly, to the hospitals as well. So we think that while the additional economics are meaningful, we believe the strong surgeon interest in the product is also due to Granite's unique design. It seamlessly fits into the surgeon workflow and it actually allows them to drive fusion and fixation to address this major unmet clinical need, and that is the securing of a long construct. So that's the NTAP. In terms of the increase in the facility fee for procedures that are quoted to 27279 minimally invasive SI joint fusion, we talked a little bit about how things are going in terms of the first quarter and what we're anticipating. It's not clear whether the reimbursement is driving some of the continued acceleration or if it's really just entering into a normalized environment at this point, but we are certainly pleased with what we're seeing how to begin it in the first quarter.

Great. Thanks for taking the questions.

Thank you.

Thank you. Our next question comes from Ross Osborn with Cantor. Your line is open.

Hi. Congrats on the quarter and thanks for taking our questions. Just starting off, has there been any progress in turning around your business in Germany and the U.K. following the new leadership team there? And as a follow-up, do you plan to have more resources to the U.S. business this year?

Ross, thanks for the question. We certainly are pleased with how Neville is stabilizing that business. He is focusing very specifically on the businesses in Germany and the U.K., while helping to support the growth that we're seeing in France and in the rest of Europe. So I think given that Neville is in the U.K., it gives him a very specific opportunity to get his arms very much around that business. There was also a kickoff meeting in January with the senior leadership team, plus the entire EMEA team. And a lot of this is just very basic blocking and tackling in these countries. It is focusing on the sales force and training of surgeons, getting the surgeons the first case and regularly diagnosing and treating patients. So that takes time with us. On average, it usually takes 12 months to see the impact of those sorts of moves. And so those things were considered as we were giving information on guidance, but we think the right things are happening there under new leadership.

Yes. What I would say, Ross, is our expectation is any improvement that we see OUS will be at best back half loaded.

Okay. Got it. And then one more from me. Would you be able to share the latest enrollment numbers from your SAFFRON study?

I don't think we're actually giving out enrollment numbers. I think our plan is to actually provide information at key points in time. And I think that it actually probably will be 2024 before we give a detailed report out on SAFFRON.

Okay, got it. Thanks for the questions and congrats another quarter.

Thanks, Ross.

Thank you. Our next question comes from Dave Turkaly with JMP Securities. Your line is open.

Great, thanks. Laura, given the numbers that you saw in the fourth quarter, the 30% plus procedure volume growth, I'm just trying to reconcile with what we've heard from some of the, let's say, some of the other competitors in the ortho spine world, but in terms of where you think we are coming out or the rebound from COVID, I mean it seems like your U.S. might be all the way back and maybe you still have some lingering OUS things to tackle, but I heard you mention freight, but I didn't hear you say anything about staffing shortages. I know you said depreciation as well, but I'd just like to get your thoughts on domestically, do you feel like we're back?

You know, it’s an interesting question. We're looking at this as a normalized operating environment. And if anything, I was frustrated at the fact that it took four quarters in order to really see it. But we're pretty excited about where we're at. I do think that if I think about our procedures, Dave, our procedure is a relatively straightforward procedure in the operating room. For the most part, it's done outpatient or in a surgery center. And I think that even with a squeeze on labor in some cases, the sites of service and the surgeons are able to squeeze in these procedures. I do think that some of these improvements that we've seen in reimbursement will have an impact on the procedure being prioritized as well. And so I think all of those things are working in our favor.

Got it. And then maybe a quick follow-up just on the M&A landscape. We've seen some things start to happen again, which is nice, but it's been a little bit of a delay there. I guess I'd sort of like to hear your thoughts on where you're getting some of the new reps and where you plan to bring that force to this year? And if you think any of the transactions might help you gain some competitive folks?

It's certainly intriguing to observe the current developments. The M&A environment appears to be revitalizing, especially since 2022 was relatively quiet in our sector. We're pleased to see this change. From a representative standpoint, we have successfully retained key representatives at SI-BONE and have also expanded our team. In half of the cases where we divide a territory, we promote a clinical support specialist to a territory manager. We aim to promote from within to create more opportunities while hiring new talent. Our primary objective for 2023 is to enhance the effectiveness of our sales force, aiming to increase productivity from $1.2 million to a range of $1.5 million to $2 million, depending on whether there is a junior representative in the territory. Therefore, our focus is on boosting productivity and developing our sales team rather than recruiting from external sources due to the shifts in the M&A landscape.

Thank you.

Thanks, Dave.

Thank you. Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open.

Thanks for the questions, Laura Anshul. Regarding the overall environment, several companies have mentioned a slowdown in the fourth quarter. This may relate to an earlier question. As you continue rolling out Granite throughout 2023, could you discuss any factors that are impacting growth rates and adoption? Are you experiencing any additional challenges affecting the Granite launch? Additionally, do you currently have enough supply to satisfy all demand in the marketplace? I have a follow-up.

Yes, thanks, Drew. In terms of the environment, we did not observe any impact or softness in any specific area of the market during the fourth quarter. For Q1, we expect to see an even greater acceleration in our year-over-year growth. The latter part of your question is indeed relevant. Our opportunity with Granite is quite unique for us at SI-BONE. While our core market in SI joint fusion and the trauma segment involving fragility fractures take time to develop, the case with Granite and adult deformity is different. It's primarily dependent on whether surgeons performing long construct procedures are interested in utilizing Granite for spino-pelvic fixation and fusion. This situation presents a considerable opportunity for rapid adoption of our Granite product compared to our previous offerings. It’s crucial that we have an adequate number of implants and instrument trays available, as well as being on the approved vendor list at various hospitals where these procedures will take place. I can say we have made significant progress in recent months. Back in November, we identified supply as a limiting factor, but as we approached the middle of Q4, we began to secure more implants and trays, which helps us keep pace with the demand. I am confident that we can meet the demand for both implants and trays for our Granite product, and this is our main focus in fully capitalizing on the opportunity that lies ahead with Granite. Additionally, we have made substantial progress in ensuring that Granite is included on the approved lists of hospitals. Currently, about 2,500 hospitals have Granite on their approved list, and we continue to work through the remaining ones. Overall, we are in a good position. I hope that answers your question.

Yes. Great color. Thank you. And maybe for Anshul, we've talked about guidance a few times tonight, but can you help us maybe frame volume growth, your expectations for volume growth in 2023, just coming off the strong fourth quarter and just help us kind of better contextualize what acceleration means in terms of volume growth? And then second, just any framework you can provide on CapEx for ‘23? Thanks for taking the questions.

Yes. So in terms of our breakdown between volume and volume growth from a revenue growth perspective, Drew, our ASP assumptions are sort of having an ASP degradation that's similar to what we've had sort of in the last 12 months, which is between that 4% to 5% ASP degradation is what's put in there. So if you do the math of 17 to 19, that will give you an estimate of where the volume growth should be to be able to hit the low-end or the high-end of the range. And even within the U.S. and OUS, our expectation is that growth is going to be faster in the U.S.; the OUS growth, like I said previously to an earlier question, would be a lot more muted and more back-half loaded as well. So that's sort of on the volume side. Now in terms of the trend and acceleration, that's something that we've talked about internally a lot on how should the sequencing be as you progress through the year and unfortunately, when you look at the first half of the last three years, it's been significantly distorted by COVID. So it's really difficult to say what a normal sequential trend would look like going from Q1 to Q2. And then you layer on some of the new products that we've launched in the last two years, that makes it even a little bit more difficult to say what the trending would look like. But like Laura said, we expect Q1 to be at about 30% growth year-over-year. Seasonally, you think Q2 is a little bit higher than that. Q3, we think will be more flattish and then you have sort of that Q4 ramp again. And we think that's the same trajectory you'll see now.

Got it. And then CapEx for the year?

I would say from a CapEx perspective, the trend should be very similar to what you saw last year from a CapEx spend perspective because we'll still continue to introduce more TORQ trays, but the focus on continuing to put out more Granite trays is going to be key for us to be able to capture the opportunity Laura talked about.

Thanks for taking the questions.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Laura Francis for closing remarks.

Thanks, Towanda, and thank all of you for joining the call today. As I'm sure you've heard in our voices, we're bullish about the opportunity ahead of us in 2023. Based on the demand momentum, we're seeing growing surgeon interest and also a favorable health economic environment, I'm optimistic that we're entering a period of strong and sustained procedure growth in the U.S. Just also wanted to say that we're going to be attending the upcoming AAOS meeting in Las Vegas, and I hope to see some of you there as well as at upcoming investor events. Thank you. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.