SI-BONE, Inc. Q1 FY2024 Earnings Call

Good afternoon and welcome to SI-BONE's First Quarter 2024 Earnings Conference Call. As a reminder: This call is being recorded for replay purposes. I would now like to turn the call over to Saqib Iqbal, Senior Director of Investor Relations at SI-BONE, for a few introductory comments.

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 March 31, 2024. 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 SI-BONE's ability to introduce and commercialize new products and indications, SI-BONE's ability to maintain favorable reimbursement for its products and procedures, changes in payer requirements for authorization of procedures involving SI-BONE's products, the impact of potential economic weakness on the ability and desire of patients to undergo elective procedures, SI-BONE's ability to manage risks to its supply chain, the impact of future capital requirements driven by new product introductions and risks to the continued renormalization of the health care operating environment. Other forward-looking statements include our examination of operating trends and our future financial expectations such as expectations for physician training and adoption, active physicians, new products and clinical trial enrollment; 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 filed with the Securities and Exchange Commission. During this call, management may also discuss certain non-GAAP measures, including the company's adjusted EBITDA results. For a reconciliation of these non-GAAP measures to GAAP accounting, please see the company's full earnings release issued earlier today. 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, May 6, 2024.

Thanks, Saqib. Good afternoon and thank you for joining us. I'm pleased with our solid first quarter results driven by continued robust procedure demand in the U.S. across all our target markets. We delivered $37.9 million in worldwide revenue, representing growth of 16% over the prior year period. I'm particularly impressed with our performance in the first quarter when you compare to typical industry seasonality trends and our stellar performance in the prior year. The demand momentum was also evident in our impressive physician engagement trends. In the first quarter, we maintained a near-record number of active U.S. physicians and completed a record-breaking number of new physician training. As we look at the rest of 2024, we remain enthusiastic about the revenue growth acceleration fueled by three key tailwinds: first, the continued growth in our physician base driven by the record level of engagement we're seeing; second, building on the strong success of iFuse-3D and expanding adoption of TORQ across all our call points; and third, the exciting opportunity to leverage the expanded family of granite implants with our active physician base to accelerate adoption within pelvic fixation and increase procedures per physician. In the first quarter, we received 510(k) clearance from the FDA for our 9.5-millimeter-diameter iFuse Bedrock Granite implant, with market-expanding indication for placement in the S1 pedicle and pediatric deformity. These are new but adjacent market opportunities for us. We launched this implant at the end of April with Dr. CJ Kleck, a key opinion leader at the University of Colorado; Dr. Ali Mesiwala, a surgeon who guided the development of our granite technology; and Dr. Ronald Lehman, a nationally recognized expert in the treatment of adult and pediatric spine conditions at Columbia University, utilizing both open- and closed-head options, performing the first cases in the country. Given the high level of enthusiasm and anticipation in the surgeon community and among our commercial organization from granite 9.5 as well as the 130,000 annual target procedures, we're confident that this line extension will augment granite's pace of adoption. The addition of granite 9.5 is the continuation of our strategy, which we laid out in 2021, to build a broad portfolio of innovative products to address unmet clinical needs and accelerate our growth. In the last three years, we successfully launched iFuse-TORQ in 2021, granite in 2022, a closed-head granite line extension in 2023 and now INTRA and granite 9.5 in 2024. We've leveraged this industry-leading franchise of highly differentiated solutions to diversify our revenue streams, expand our call points and create new markets in pelvic fixation and pelvic trauma. The impact of this strategy is reflected in our strong results since 2021, as we delivered 24% cumulative annual revenue growth and doubled our active physician base. Before I get into the details of our strategic priorities, I want to take this opportunity to recognize a major milestone in the company's history. We recently celebrated the completion of 100,000 procedures using our products. We take pride in our market leadership and in execution, which includes focusing on education, market access and awareness of sacropelvic conditions. We feel honored to work with so many impressive physicians who help give patients their lives back every day. Now let me provide an update on our key initiatives as we look to extend our leadership position, drive strong long-term growth and create shareholder value. Starting with sales infrastructure. Our sales, marketing and professional education teams provide us with a tremendous competitive advantage. We're impressed with the continued effectiveness of our sales and commercial teams, known for their industry-leading expertise and extensive experience across our target markets. We've expanded operating leverage in sales and marketing infrastructure by creating hybrid models with select sales agents while consistently delivering unparalleled support and education for physicians. This is evident in our P&L with 3-year cumulative growth in revenue of 24%, while sales and marketing expense grew 14% during that period. We ended the first quarter with 85 quota-carrying U.S. territory managers. We augment our territory manager bandwidth with clinical support specialists and third-party sales agents for case coverage. The expanded portfolio as well as the hybrid commercial model resulted in trailing 12 months revenue per territory at the end of the first quarter of 2024 of approximately $1.6 million, reflecting 26% growth compared to the trailing 12-month period ended the first quarter of 2023. We expect the annual revenue per territory to steadily grow toward $2 million. We plan to methodically add territories over the next few years to ensure we maximize the potential of our growing portfolio and facilitate deeper engagement with our physicians. Moving on to physician engagement. We exited the first quarter with over 1,100 active physicians, an increase of over 150 active physicians in the quarter compared to the prior year period. The 16% growth in U.S. active physicians over the first quarter of 2023 was the 13th consecutive quarter of double-digit year-over-year growth. With nearly 12,000 potential target physicians, we remain confident in our ability to grow our active physician base. Our sales force is also leveraging our growing portfolio of proprietary products to drive deeper physician engagement. In the first quarter of 2024, 15% of our active physicians performed more than one procedure type. With our granite 9.5 implant targeting degenerative spine procedures, which account for a significant portion of the procedure volumes for our active physicians, we have an exciting opportunity to increase revenue per physician over time. Since 2018, another important initiative to grow our active physician base has been our academic training programs. We've since trained nearly 1,600 residents and fellows, including over 250 in the current 2023-2024 academic year. We're excited to see strong adoption trends from these physicians in the quarters and years that follow their education. In the first quarter of 2024, strong adoption resulted in revenue from this group increasing by 50% compared to the prior year period. Turning to products and solutions. We have a demonstrated track record of building innovative and proprietary products and surgical techniques to address unmet clinical needs and improve patient outcomes. The sustained procedure volume growth we've experienced in the U.S. substantiates the value of our innovation. We have an active product pipeline, with over 10% of our revenue being reinvested in development of new products and clinical evidence. We expect to launch differentiated products in the coming year to further extend our portfolio leadership and accelerate revenue growth. With applications across SI joint dysfunction, pelvic fixation and pelvic trauma, iFuse-3D and iFuse-TORQ give physicians access to industry-leading solutions when performing sacropelvic procedures. Over the last three years, iFuse-TORQ has built on the success of iFuse-3D and has been a key contributor to demand acceleration as well as strong active physician engagement across all our target markets. As we engage select interventional pain physicians, we're leading with iFuse-TORQ; and also training them on iFuse INTRA, our allograft solution. The interventional pain physicians have expressed their excitement about our comprehensive portfolio as well as better surgical technique and intraoperative support that increase the likelihood of the best patient outcomes. Adoption trends in the first quarter suggest that iFuse-TORQ has been the preferred implant for active interventional pain physicians. Based on this experience as well as the guidance of our interventional advisory board, we're encouraged by the growing confidence of interventional pain physicians to adopt iFuse-TORQ after being treated in the lateral transfixing technique when performing an SI joint fusion procedure, which is reimbursed under CPT code 27279. We're encouraged by the pace of iFuse-TORQ adoption for treating pelvic trauma patients. Toward the end of 2024, we'll launch a complementary pelvic trauma product. With over 120,000 sacral insufficiency fractures a year; and a 1-year mortality rate of up to 25% for the patients treated with bed rest, currently the most common approach, the trauma market will be a long-term growth driver for us. Within pelvic fixation, iFuse Bedrock Granite, our breakthrough device, continues to be a game-changing addition to our portfolio. We're just scratching the surface in terms of market penetration and adoption of granite, and we're pleased with the increasing demand for the product. As we target 30,000 annual adult deformity procedures, we believe that granite will become the standard of care for fixation and fusion of the SI joint providing a strong foundation at the base of a long construct. Since 2022, over 40% of our granite case volume has been in shorter 2- to 4-level lumbar fusion procedures, typically used to treat degenerative spine conditions. The current adoption of the larger-diameter granite in these shorter-level fusion procedures illustrates the increasing interest among the surgeon community to include pelvic fixation in high-risk patients undergoing these procedures. As I highlighted earlier, in April, we initiated our launch of the granite 9.5 implant; and are planning an expanded rollout in June. We believe that granite 9.5, including shorter-length appropriate replacement in the S1 pedicle, will provide a best-in-class offering for the approximately 100,000 annual fusions to the sacrum, as well as engage deformity surgeons who have expressed an additional preference for a smaller-diameter implant. Before I hand the call over to Anshul, I want to congratulate our employees for helping nearly 100,000 patients get their lives back. To our world-class team: Your grit and relentless commitment enables us to develop breakthrough products backed by high-quality clinical evidence, educate payers and physicians and ensure that the nearly 500,000 annual target patients have access to best-in-class solutions. Thank you for all that you do. With that, I'll hand the call over to Anshul to discuss our financial performance.

Thanks, Laura. Good afternoon, everyone. My comments today will be focused on first quarter revenue growth, gross margin trends, productivity and liquidity. Additionally, all the comparisons provided will be versus the same period in the prior year unless noted otherwise. Starting with revenue growth. Our first quarter worldwide revenue was $37.9 million, representing growth of 16%. U.S. revenue also grew 16%, to $35.4 million, due to increasing U.S. procedure volumes, with our procedure ASP in the first quarter being relatively flat. International revenue in the first quarter was $2.4 million, representing 8% growth. Moving to gross margin and operating leverage. Our gross margin for the first quarter was 79%. The gross margin reflects the impact of product and procedure mix, higher freight driven by revenue growth as well as depreciation from deployment of additional instrument trays. Operating expenses were $41.9 million in the quarter, representing 10% growth. The increase was driven by higher commissions related to revenue growth, impact from stock-based compensation and research and development investments. The increase in operating expenses was also impacted by the timing of our global sales meeting which was held in the first quarter of this year versus the second quarter of last year. Our net loss improved by 2% to $10.9 million or $0.27 per diluted share. Net loss per diluted share for the first quarter of 2024 also reflects the increase in shares outstanding due to our follow-on common stock offering in May 2023. Our adjusted EBITDA loss in the first quarter was $4 million, which was nearly flat compared to the prior year period. Turning to liquidity. We exited the first quarter of 2024 with a robust balance sheet including $157.8 million in cash and marketable securities. We delivered 30% improvement in our net cash flow from operations. Given our strong liquidity position, our relatively asset-light business model and a clear line of sight to adjusted EBITDA breakeven, we have the financial resources to self-fund our long-term growth priorities going forward. Finally, moving to our updated outlook for 2024. Based on our first quarter results, we are increasing our 2024 worldwide revenue guidance. We now expect 2024 worldwide revenue of between $164 million and $166 million, implying year-over-year growth of approximately 18% to 20%. Considering the potential 2x operating leverage in the business, we expect significant adjusted EBITDA improvement for the full year 2024, putting us within reach of our adjusted EBITDA breakeven goal.

Thanks, Anshul. Based on the momentum in the portfolio, we're set up to deliver a strong 2024. As we look beyond 2024, we're confident that the combination of our commercial footprint, differentiated portfolio across multiple target markets and planned new product launches in the coming years will allow us to continue delivering top-tier medical device revenue growth. With that, we're happy to take questions. Operator?

Our first question comes from the line of Young Li of Jefferies.

All right, great. I guess, to start, I wanted to hear a little bit about the progress with INTRA since you launched, the early feedback from it. I mean it still sounds like TORQ is the focus for a lot of the interventionalists. And I guess I'm just kind of curious. Is the combined interventional portfolio opening doors to new physicians who weren't referring before? Is it expanding the market for you?

Yes, thanks for the question, Young. And we are pleased with what we're seeing with INTRA thus far. So we're still obviously very early in this journey, but we like the early results and how they're setting up. Especially from the perspective of our strategy, we wanted to engage a subset of interventionalists and get access to this discrete and untapped patient funnel. As you said, this is additive to our current sales with our surgeons, so we're pleased with the level of interventionalist engagement and their interest in being trained with TORQ as well as with INTRA. We're not planning to break down revenue by physician or procedure type, but what's impressive is the adoption trends of TORQ with interventionalists as they're being trained in the lateral technique. Within INTRA, we're still in the early days, but we do believe that there's a subset of physicians who are going to be initially hesitant to use a metal implant. And so these physicians are going to be INTRA users, so we're positioned to be a preferred partner to this call point regardless of what their needs actually are. And as a market leader, we really felt a strong need to address this market. We have the best commercial sales force. We have unparalleled educational and advocacy infrastructure. We have a comprehensive product portfolio. And we've gotten clear feedback from interventionalists that SI-BONE is highly respected for our market leadership position. And we are particularly impressed by the large number of interventionalists who are already working with us or have begun the process of getting trained.

All right, great. That's very helpful. I guess, maybe to follow up, I wanted to ask about rep productivity. I think the territory managers are doing about $1.6 million. Before, you had a goal of $2 million plus. It's more of a milestone, not a ceiling. But I wanted to hear a little bit about, as you get closer to that, $2-plus million range, what's the next milestone or target you think they can hit before maxing out. And also, your agent base has increased a lot in recent quarters. Maybe thoughts on their contribution, so far, and adding more agents going forward.

We are very proud of the 26% growth in our trailing 12-month rep productivity, which has reached $1.6 million. Our commercial leadership team has effectively utilized hybrid commercial models, involving junior clinical support specialists alongside territory managers to identify new physicians and assist in case coverage. Additionally, we've onboarded a significant number of third-party agents who are also selling the product and covering cases, which has greatly contributed to our productivity. There are four key drivers behind this improvement: the caliber of our seasoned sales force supported by hybrid models, our differentiated portfolio of solutions, the synergistic physician call point that boosts physician density, and increased field surgical capacity due to the rollout of instruments and implants that streamline logistical workflows. Looking ahead, our goal is to continue growing towards the $2 million per territory manager level. Many of our representatives are already exceeding $3 million per territory, which serves as a benchmark for us. In some regions, representatives are collaborating with two clinical support specialists, while in others, they are heavily leveraging third-party agents. These strategies reinforce our confidence in our ability to enhance territory manager productivity. We plan to selectively expand our sales team and expect to end the year with just over 90 territory managers, all while focusing on achieving strong, sustainable, and profitable growth. We anticipate continued year-over-year improvement in sales force productivity in the coming year.

Our next question comes from the line of Craig Bijou of Bank of America Securities.

Congratulations on a strong start. Anshul, I wanted to hear your thoughts on the expected growth of operating expenses and also your comments regarding sales rep spending, specifically on adding new sales reps. Can you share your insights on operating expense growth for the remainder of the year? Additionally, concerning EBITDA, should we anticipate positive EBITDA in Q4 of this year? Is that a possibility?

Thank you for your question. We're very satisfied with how the quarter turned out, both in terms of revenue and operating leverage. To provide some clarity: as I mentioned in my prepared remarks, the first quarter was affected by our global sales meeting, which impacted timing. Operating expenses were somewhat higher this quarter compared to the previous year due to this meeting. We've previously stated that we expect revenue growth to be twice the operating expenses growth rate. If you consider the midpoint of our guidance around 19%, this suggests an operating expenses growth of about 9.5%. This growth is mainly driven by increased commission rates linked to higher revenue and some accounting related to stock-based compensation. We're continuing to see leverage and feel optimistic about it. Regarding adjusted EBITDA breakeven, we're still early in the year. Our strategy has always been to let our results demonstrate our progress, and we'll provide more details on our journey toward achieving breakeven as the year unfolds. However, we are confident about our current trajectory and believe we can reach adjusted EBITDA breakeven and quickly achieve cash flow breakeven due to our asset-light model.

Got it. As a follow-up, I would like to discuss your guidance for the year. You exceeded expectations by approximately $1.5 million, which appears to be an increase for the year. While it's encouraging to see the raise, could you elaborate on whether this reflects a conservative outlook at the beginning of the year? How do you envision the year unfolding, particularly regarding the rhythm of revenue? What should we keep in mind about that?

Yes, I'm happy to address that, Craig. The midpoint of the raise is approximately $1.5 million higher than our previous midpoint, which aligns with the upside we experienced in Q1. Since it's still early in the year, we want to be cautious. We have several favorable factors, such as the record number of physicians we are training. We continue to see strong adoption among surgeons and positive traction on the interventional side. With granite 9.5 set to begin rolling out in the second quarter, particularly in June, we are optimistic about the business. However, we want to remain mindful as we come out of the first quarter. Regarding our revenue growth, we expect it to accelerate year-over-year in each of the upcoming quarters. Even considering the typical seasonal trends in the third quarter, we believe the rollout of granite 9.5 in June will help mitigate some of that seasonality. Overall, we are confident in the business setup as we exit the first quarter.

Our next question comes from the line of Matthew O'Brien of Piper Sandler.

Laura and Anshul, you've mentioned a couple of these points, but the two-year growth rate in the U.S. has been really impressive, significantly better than what we observed over the last four quarters or during the same period last year. What specifically is contributing to this strong performance? Is it mainly due to the new representatives or their increasing productivity? The momentum seems quite positive, especially with more favorable comparisons, as Craig previously asked. Are there any potential factors that could hinder this momentum, such as the proposed LCDs or other concerns? What do you think might impede the strong performance we witnessed in the first quarter?

Thank you, Matt, for highlighting that point. Last year, we achieved 46% growth in the first quarter. When you consider the 2-year stack with the 16% growth, it indicates we have had a very strong quarter. We are pleased with how the year has begun. Taking into account historical seasonality and a tough comparison, it was a strong quarter across all key performance indicators. We are continuing to see strong demand in the U.S. across all target markets and call points, leading to a 17% increase in procedure volume. Additionally, we maintained a stable average selling price in the U.S. and experienced near-record physician engagement with over 1,100 active U.S. users, up 16%. We also received 510(k) clearance for granite 9.5, which positions us to build on our momentum and enhance adoption in pelvic fixation. Beyond the strong top-line growth, we saw a 30% improvement in cash flow from operations compared to last year. We are also investing in our growth priorities, as reflected in our new product introductions. As we move forward, we want to be careful with our guidance, but as Anshul mentioned, we anticipate continued acceleration in our growth rate throughout the year. We are not concerned about the LCD side mentioned. Most adoption currently is with our TORQ product, which is under CPT code 27279 without issues. While we recognize challenges with CPT code 27278, we believe we have the products and solutions to meet the needs of our physicians, whether they are surgeons or interventionalists. Given our market leadership and strong field force, we are optimistic about our prospects for 2024.

And Matt, the only thing on the guidance side I would add. Like Laura said, we've got a lot of experience in the reimbursement side. And our strategy anticipated some of this reimbursement challenge, so we don't expect this to have any impact on the guidance we just said at the $164 million to $166 million.

Thank you for those comments. Regarding the 278 LCD specifically, I’m new to covering this area, but it seems to me that this would be a positive factor for your business since everyone will be transitioning to 279. They will be using TORQ, which should be more advantageous than INTRA for you. Is this something we should consider as we look ahead to the 278 situation?

Yes, we have observed growing interest from interventionalists in our lateral procedure using TORQ, which started last year. This interest continues to be strong, especially compared to allograft procedures, likely due to the uncertainty surrounding reimbursement for codes 27278 versus 27279. As the market leader in this area, we are equipped to offer a variety of products, provide comprehensive education, and offer support regarding reimbursement. Additionally, with 85 territory managers and a slightly reduced number of clinical support specialists, our sales team can effectively support these interventionalists.

Our next question comes from the line of Andrew Ranieri of Morgan Stanley.

Maybe just to start. Laura, you mentioned in your comments of maintaining near-record docs, physicians in the quarter. I know that there's a little nuance here. It's declining a bit sequentially, but can you just help us better understand maybe some of the dynamics that were happening here? And then what's embedded from a new doc add dynamic to reach your full year guidance? And I'll stop there for right now.

Yes. So we're actually very pleased with where we're at having over 1,100 docs. It is a few less than we had at the end of Q4. That is typical for us. Last year, I think, was the exception to that particular rule, but it is very typical from a seasonality perspective that we will have a few less doctors that are performing procedures in Q1 versus Q4. We're very pleased, however, and we did throw in a little bit of qualitative information, about training here. We had very strong training trends in the first quarter with a combination of surgeons as well as interventionalists as well. And that's a great forward-looking indicator for us. The active surgeon number is just the number of surgeons that performed at least one case in the quarter, but all of these even more forward-looking indicators such as training give us a lot of confidence in this acceleration into the next few quarters. Also with new product coming out as well, it gives us a lot of confidence too. So in particular if you think about granite 9.5 is targeting 100,000 degenerative spine procedures and the expectation that that's going to increase physician density in the future is exciting. And finally, with the addition of interventionalists, it's increased our target physician number from around 7,500 to around 12,000 in total, so gives us the opportunity to sell to additional physicians and also the opportunity to increase the number of procedures per physician per quarter.

It appears that utilization has remained relatively stable from quarter to quarter. In light of the granite 9.5 launch, could you help us understand some of the factors driving utilization and what you anticipate? I know that surgeons and physicians are using your products significantly, but when can we expect to see a noticeable increase in utilization? You are making great strides with surgeons, but when do we expect to see a substantial uptick in utilization?

Yes, yes. So we did talk a little bit about physician density. Now we're in these early innings of expanding our portfolio, but we are seeing a growing number of physicians that are performing multiple procedure types. We did mention specifically that, in the first quarter, around 15% of our active physicians performed more than one type of procedure, but once again if I go back to granite 9.5, granite 9.5 is targeting degenerative spine procedures. And that's the bread-and-butter procedure of our target surgeon and so the majority of their practice is going to be in that particular category. And we just had our first procedures with granite 9.5 completed in the month of April. And then we're rolling out and we expect an expanded rollout and launch in June, so I think you're going to start to see the impact in the second quarter, but I think you're going to really start to see that accelerate in the second half of the year. So very excited about the opportunity that's there with our surgeons and increasing our density there; and then with interventionalists, the opportunity to further increase the number of physicians, active physicians, we're working with quarter by quarter.

Our next question comes from the line of Dave Turkaly of Citizen JMP.

Laura, maybe one for you just on the competitive front. It seems like there were several sort of fast imitators on the core SI joint MIS market, and I'm just curious. Like what are you seeing in terms of TORQ or Bedrock Granite or some of these other sort of markets that you're kind of creating or targeting? But I don't know that I've seen the competition follows quickly. And I'm curious to see and get your thoughts on what's happening there and what you expect moving forward.

Thank you for the question. We take pride in identifying unmet clinical needs and developing differentiated products to address those needs. We are finding new markets, particularly in areas where physicians typically do not perform procedures, such as SI joint fusion and sacral insufficiency fractures, which are often treated conservatively. Our objective is to pinpoint these needs and create innovative solutions or significantly enhance existing techniques or products that meet these needs. We anticipate increased competition in these areas, as others are entering the market with basic offerings. We believe that in markets with unmet clinical needs, our capabilities are crucial, whether through our differentiated, patent-protected products, our strong clinical data, or reimbursement support like NTAP for our granite product. Additionally, we take an educational approach, driven by our professional education team and sales force. This is how we lead in these markets, and we know that physicians value this. We will continue to disrupt the market and have already launched two products this year, with plans for a third by year-end. You can expect ongoing innovation and growth as we leverage our competitive advantages to develop these markets, treat patients, support physicians, and strengthen our company.

Great. And then I think you even mentioned ASPs. I think you said they were flattish, but given that differentiation you're talking about and what we've seen from some of your peers, I'm just curious. I mean, is there an opportunity for price increases? I know we've kind of modeled it declining over time, but you seem to have some things that are pretty unique. And I'm just curious as you look ahead. Do you think there's opportunity potentially for price? Or is that something we shouldn't think about?

Yes, this is Anshul. Thank you for the question. Regarding the average selling price, we have nearly 500,000 annual target procedures that we are aiming for, representing a significant opportunity. Our focus is on market development, and we maintain average selling prices that support our attractive gross margins, allowing us to reinvest in the business through research and development. This is something that Tony and the team regularly review to ensure we can manage the average selling price while promoting adoption. We feel confident about this. Generally, our average selling price trends are influenced more by the mix of procedures rather than price erosion. For example, deformity procedures use four implants, while degenerative procedures typically use three, and SI joint fusions use three as well. These variations can affect our pricing, but overall, we are quite disciplined in maintaining our average selling price per implant.

Our next question comes from the line of Caitlin Cronin of Canaccord Genuity.

Congrats on a great quarter. Just to start with the training: You mentioned a record number of docs with first training this quarter. How many of those were interventionalists? And just thoughts on, given the uptake and interest of TORQ and the lateral trajectory for those interventionalists, would you start thinking about training them in 3D as well.

Yes, thank you for the question, Caitlin. We are excited about the record number of first trainings we achieved. There was certainly increased interest from interventionalists during the quarter, which contributed to the number of first trainings. We also noticed strong interest and demand from surgeons across various procedures. Specifically, the clearance of granite 9.5 played a significant role, along with the efforts we're making in the trauma sector. Overall, we observed interest across the board. Now, could you remind me of the second part of your question?

Yes, no, just any thoughts given kind of the uptake of TORQ and the lateral trajectory for those interventionalists that we're training. Would you think to start training them in 3D at some point?

So we're not. TORQ really has been the product of choice for those interventionalists that are interested in the lateral technique. The iFuse-3D procedure falls into a category that I would call more orthopedic in nature, so that's not a product that interventionalists are naturally gravitating to. It is definitely a product. It's the gold standard product that's out there. It has the most clinical data around it. And we have some very loyal users of that particular product, but the interventionalists are actually a little bit surprised at the ease of use with TORQ and the technique and the outcomes that they're starting to see with this, some of the early interventionalists that are performing the procedure. So TORQ really, as it relates to the lateral technique, is the product of choice. And then there certainly are interventionalists right now that prefer a bone allograft product. And so that's the product that some of these interventionalists are at least thinking about before they get more comfortable with the lateral technique, but you mentioned iFuse-3D. And as I said, there's we have the most data on that product. And when physicians think about us SI-BONE, they really do think about level 1 clinical evidence and level 2 clinical evidence. And so we have one study called the SALLY study which was evaluating iFuse-3D, and we expect to see the 5-year SALLY study results coming up in the second half of this year. So we're continuing to work closely with our portfolio of products, whether it's iFuse-3D, with SALLY; whether it's TORQ, with the STACI study or with the SAFFRON study; and then granite and the Bedrock technique, with our SILVIA study, with our PAULA study. We're continuing to really focus on clinical data and being the market leader in this space.

Just jumping off of that really quickly. Any updates to the progress on the STACI or the SAFFRON studies?

Yes. I think you'll be seeing a little bit more here later this year. So enrollment in STACI is expected to be completed this summer, and the early results are very promising and exciting. And so the purpose of STACI was to provide post-market information on lateral minimally invasive SI joint fusion procedures performed with TORQ when performed by interventionalists, so it's going to give us more information on the interventional physicians performing lateral SI joint fusion procedures using our TORQ product. SAFFRON, you're going to actually expect to see some initial results that will be available later this year. So that will be in line with the launch of our new trauma product as well. You'll see some clinical data coming through as well as a new product as well. So those are a couple of things, in addition to SALLY, you can expect to see.

Our next question comes from the line of David Saxon of Needham & Company.

Congratulations on the quarter. I wanted to follow up on a previous question about pricing. This is probably for Anshul. Pricing is tracking better than I think, with a low to mid-single-digit decline assumed in guidance. Is there anything that could cause pricing to worsen throughout the year? I’m not sure if it's related to the 9.5 launch or if that's more about being conservative as we consider the guidance.

Yes, Dave, thank you for the question. So when you think about the low end of the guidance, some of that conservatism on ASPs are reflected there. We haven't really changed our ASP expectations for the rest of the year, in the guidance. Now in terms of what could have an impact on the ASP, you're right. With the 9.5 launch, even though there is no change in price per implant, the potential for the shorter construct procedures using two implants, versus the deformity procedure using four, could have an impact, but we think there's potential for upside on the ASP front as we progress through the year. But again, it's the first quarter. It's early in the year, so we think it's just prudent to hold some of that conservatism to see how it unfolds in the second quarter and the third quarter.

Yes. So the granite NTAP. We have approximately 18 more months left on the granite NTAP. It will go through October 1, 2025. And what we've been doing is looking at the utilization of the NTAP with Medicare, seeing strong utilization on that NTAP. And so what that's going to help us to do is to quantify the value of granite and pelvic fixation in these particular cases. And so right now we're looking at a number of different ways in order to make sure that the incremental payment continues after the NTAP is complete, so it could be with a new code, for example. Or it could potentially be with an increase in the existing code or pointing to a higher-value code. Those are all three different options that we have right now, but we're midway through this. We do think that reimbursement is important. We have always focused, as a company, on ensuring that we have covered lives across the United States. Us building the SI joint fusion market, when I started in 2015, there was no coverage. And now we have complete coverage. And SI-BONE and our clinical data was a very big part of the work in order to build that reimbursement for SI joint fusion, so I see granite and pelvic fixation in a similar way to that. And we expect to continue to focus on using our clinical data and as well as the health economic data in order to support incremental reimbursement for pelvic fixation with granite.

Our next question comes from the line of Sam Brodovsky of Truist Security.

Congrats on a good quarter, especially a solid EBITDA result. I'll just ask a quick one, to start, on gross margin a little bit above the high end of the guide for this year. So how should we think about that progressing through the year?

Yes. Sam, thanks for that question. On the gross margin side, it is still early in the year. And we're really pleased with how the quarter played out in terms of coming on sort of the high end of the gross margin range, but again we're just holding onto our guidance for 78% gross margin at this point, the key reason being we are going to put more surgical capacity out there, especially as we get into the second half of the year. And that might have a timing impact on gross margin, so we want to see how it plays out again in the first half of the year before we make any changes to the guidance there.

Got it. And then I'll just ask a bit of a broader one thinking more long term, but the 2:1 ratio rep growth to OpEx growth, is that something we should think about happening this year? Is that a consistent operating model we can think of the company being able to hold onto for a while here?

Sam, thanks a lot. I mean look. We haven't provided long-term guidance in terms of how OpEx leverage would work out. Our view is that top line growth is going to remain strong with all the tailwinds that we have in 2024. Plus, like we've talked about, we've got a pretty significant investment in R&D, so we expect new product launches to come out, so our focus on leverage is going to be more driven by how do we drive more product to the call point. How do we drive more density or more procedures per physician? And that should translate into sales force leverage. And like Laura said earlier, our next milestone is sort of getting to that $2 million, but we've got reps that do more than $2 million today with additional ancillary support, whether it's junior reps or coverage agents, so we think leverage will continue. We feel really good about that. We'll just stay with what we've provided for the year at sort of that 2x leverage, but we don't think it's the end of the leverage. We think it will continue at a pretty healthy clip going forward.

Our next question comes from Ross Osborn of Cantor Fitzgerald.

Just one. With regard to the smaller-diameter granite launch, would you touch on feedback or level of early adoption within the pediatric population?

Yes. We're excited about the expanded uses for granite 9.5, including pediatric deformity as well as in the S1 pedicle. We've received inquiries from pediatric deformity surgeons interested in using a smaller granite implant for their patients, and we believe granite 9.5 could be a good solution for them. We're pleased to meet that specific need for both surgeons and patients. The S1 pedicle opportunity is also significant for us, as it's a part of the market we are currently not covering with our previous product. Some newer surgeons we mentioned in our prepared remarks have already started using the product for that purpose. Another area of focus is the feedback we've received from surgeons who found the 10.5 or 11.5 products too large for their preferences. They've expressed discomfort with using stacked implants or two implants on both sides for pelvic fixation and fusion. The smaller-diameter implant allows these surgeons to switch from using two implants to using four instead. There is substantial opportunity ahead with the granite 9.5 product, whether for pediatric deformity, the S1 trajectory, surgeons who preferred a smaller implant, or those looking to use four implants in a more manageable size. We have just begun, having completed a few cases in April, and we expect to see some acceleration in May and June. We're really enthusiastic about what we can achieve in the second half of the year. I just wanted to say thank you for your participation in today's call. And we look forward to seeing you. Those of you that are going to be at the Bank of America health care conference, we will see you there. Thank you. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.