SI-BONE, Inc. Q2 FY2024 Earnings Call

Good afternoon and welcome to SI-BONE's Second Quarter 2024 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 hand 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 June 30, 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 requirements for authorization and 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 risk to the continued normalization 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 product, 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 the call, management may also discuss certain non-GAAP measures, including the company's adjusted EBITDA results. Unless otherwise noted, any reference to profitability is in terms of adjusted EBITDA. For a reconciliation of these non-GAAP measures to GAAP accounting, please see the company's full earnings release issued earlier today. Unless otherwise noted, all results are compared to the comparable period in the prior year. 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, August 5, 2024. With that, I'll turn the call over to Laura.

Thanks, Saqib. Good afternoon and thank you for joining us. I'm pleased with our team's execution as we delivered another strong quarter and set new records across several key metrics. In the second quarter, we delivered a record $40 million in worldwide revenue, representing 20% growth. U.S. revenue was a record $37.8 million, representing 21% growth, as we benefited from strengthening demand for our growing number of solutions. We added 220 active physicians in the quarter compared to the prior year, hit another new record for active physicians, and completed a record-breaking number of new physician trainings in the quarter. Our second quarter results are indicative of the company's transformation from a single product company to a unique, high-growth medical device platform. We have a proven track record of identifying and successfully developing new markets with large unmet clinical needs across sacropelvic conditions. Complementary markets in pelvic fixation and trauma have doubled our total target procedure volume to approximately 0.5 million annual procedures, driven by deeper physician penetration and allowed us to deliver 20-plus percent average revenue growth over the last 3 years. We also made dramatic progress on our profitability goals in the quarter as we delivered a 43% improvement in our adjusted EBITDA. Over the last 3 years, we've achieved over 30 percentage points of improvement in adjusted EBITDA margin. We continue to achieve significant operating leverage in the business, driven by our strong revenue growth, increasing use of our hybrid commercial model, and scalable corporate infrastructure. Given the durability of the tailwinds in our business, we expect revenue growth to accelerate in the second half, driven by the continued physician growth across all our markets, procedure volume growth across surgeons and interventional spine for SI joint dysfunction, and acceleration in demand for our pelvic fixation solutions. We expect this top-line growth to translate to positive adjusted EBITDA in the fourth quarter of 2024. This inflection in our adjusted EBITDA profitability combined with our solid liquidity, as well as our capital-efficient model will give us the flexibility to self-fund our future growth. We're also positioned to capture the large numerous markets in the sacropelvic space and deliver sustainable and profitable revenue growth going forward. Now let me provide an update on our key initiatives as we look to extend our leadership, drive long-term growth, and create shareholder value. Starting with sales infrastructure. We ended the quarter with 84 territory managers, supported by clinical support specialists and third-party agents for case coverage. Our hybrid commercial strategy drove a 24% increase in our trailing 12 months revenue per territory to a record $1.7 million. Our differentiated portfolio is attracting the attention of multiple large regional distributors, who have expressed interest in building agency partnerships. We continue to expand our agent network, primarily for pelvic fixation and trauma opportunities. The expansion of our agent network is allowing us to reach more physicians and also drive incremental operating leverage in the business. Concurrently, we plan to selectively and strategically hire additional territory managers to ensure that we can expand our physician users and density as well as provide the highest quality of service through our growing user base. Moving on to physician engagement. We exited the quarter with more than 1,150 active physicians, representing 23% growth. This is a continuation of the double-digit growth in active users we've seen in the last 3 years. In the second quarter, 17% of our active physicians used more than one of the procedural solutions we offer. The 25% increase in the number of active physicians performing more than one type of procedure, highlights the synergistic nature of our portfolio. With the launch of Granite 9.5 solution, we're targeting both deformity and increasingly degenerative spine procedures which account for a significant portion of the procedure volumes for our active physicians. We now have a platform to drive deeper engagement and more procedures per physician. This cross-portfolio interest is a positive leading indicator of sustained demand momentum and productivity. Moving to our academic program. We trained 80 residents and fellows in the second quarter, bringing the total number of trained residents and fellows to over 1,700 since 2018. This effort translates into a growing number of physicians trained who now understand the incidence and diagnosis of sacropelvic disorders and treatment options using our technologies. We're encouraged by the elevated interest in training and the adoption trends by previously trained residents have followed. In the first half of 2024, sustained adoption from previously trained residents and fellows resulted in revenue attributable to this group growing 75%. Turning to products and clinical evidence. We continue to define the SI joint dysfunction, pelvic fixation, and pelvic trauma markets and reinforce our commitment to improving patient outcomes and advancing medical care by offering differentiated products backed by clinical evidence. We recently finalized five-year follow-up data for SALLY, our first prospective clinical trial with iFuse-3D. The study indicated that the clinical response to SI joint fusion using iFuse-3D showed marked immediate and sustained improvement in all outcome measures, consistent with our prior SI joint fusion studies. The patient pain score improved by 58 points. The disability scores improved by 25 points, while the percentage of people on opioids decreased from 57% at baseline to 17% at five years. The physical function test showed persistent improvement from baseline, and the long-term radiographic analysis was positive with a 100% rate of joint fusion. Our physicians have migrated from the original iFuse to iFuse-3D due to porosity and fenestrated design, driving faster and better fixation and fusion. iFuse-3D accounts for almost the entirety of our triangular titanium implant revenue and is patented through 2035. iFuse-TORQ, building on the success of iFuse-3D, continues to be a key contributor to procedure volume growth and active physician engagement across both SI joint dysfunction and pelvic trauma and has been a cornerstone of our Interventional Spine engagement strategy. While we provide comprehensive training on both iFuse-INTRA and iFuse-TORQ, in the second quarter, the majority of the cases performed by interventionalists utilized iFuse-TORQ in a lateral transfixing trajectory which is reimbursed under CP2 code 27279. The growing confidence of interventionalists in adopting iFuse-TORQ aligns with the early outcomes we're seeing in our prospective multi-center interventional STACI study. Interim results which were recently presented at the American Society of Pain and Neuroscience Annual Meeting in Miami confirm the safety and efficacy of lateral transfixing SI joint fusion when performed by interventionalists. The safety and effectiveness of the lateral procedure with iFuse-TORQ was also confirmed in a recent publication in the Journal of Pain Research by Dr. Michael Jen, a leading interventional spine physician at Wisconsin Spine and Pain. Dr. Jon published the results from his first 49 lateral SI joint fusion cases using iFuse-TORQ. The outcomes were commensurate with those observed in a large meta-analysis of studies of lateral SI joint fusion published last year. An average of six months of follow-up, 88% of patients reported at least 50% improvement in pain. Since its launch in 2022, iFuse Bedrock Granite has been highlighted as one of the most innovative products by our customers and has seen rapid and durable adoption. Even with the rapidly increasing demand, we still have a large underpenetrated opportunity. We believe that Granite will become the standard of care for fixation infusion of the SI joint to provide a strong foundation at the base of long construct procedures addressing a clear unmet clinical need in spine surgery. Granite has also found significant application in shorter, two to four level lumbar fusion procedures. In the second quarter, we launched Granite 9.5 to address the specific needs of this broader category of lumbar fusion procedures. We believe that Granite 9.5, including shorter length appropriate replacement in the S1 pedicle, will provide the best-in-class offering for approximately 100,000 annual target procedures. It will also allow us to engage deformity surgeons who have expressed an additional preference for a smaller diameter implant to better enable two points of pelvic fixation. The reception for Granite 9.5 has been spectacular. Looking ahead, we have an active pipeline of differentiated products that will be launched in the coming months and years, beginning with the fourth quarter launch of a product specifically targeting the pelvic market. Before Anshul discusses our financial performance, let me provide a quick update on the recent additions to our Board of Directors. On June 25, our shareholders elected Thomas Left to our Board of Directors at our Annual Stockholder Meeting. Tom is the CEO of Nalu Medical, a privately held medical device company with a lead position in peripheral nerve stimulation, selling primarily to interventional pain physicians. Tom built his career at Johnson & Johnson and Hologic and was recently the CEO of Intersect ENT, up to its acquisition by Medtronic. Today, we also announced the appointment of Dan Wolfe to our Board. Dan is currently the Senior Vice President and Chief Strategy and M&A Officer at Baxter International. Previously, Dan held positions of increasing responsibility at Medtronic including business development and operational leadership of Medtronic's push in personalized spine surgery with the acquisition and management of Medicrea. Tom and Dan bring a great mix of operational and strategic medical device experience across spine surgery and interventional pain and are tremendous additions to our Board of Directors. With that, I'll hand the call over to Anshul.

Thanks, Laura. Good afternoon, everyone. My comments will be focused on second quarter growth, profitability trends, and liquidity. Starting with revenue growth. Our second quarter worldwide revenue was approximately $40 million, representing growth of 20%. U.S. revenue grew 21% to $37.8 million due to strong U.S. procedure volumes and the continuation of the favorable ASP trends we have seen for the last several quarters. We have now delivered more than 20% U.S. revenue growth in 9 out of the last 10 quarters. The consistency of this revenue growth is an outcome of our strategy to work with a sizable physician base to create new market categories and diversify our revenue streams. International revenue in the quarter was $2.2 million. Moving to gross margin and operating leverage. Our gross margin for the quarter was 79%. Our gross margin was impacted by procedure and product mix. These were partially offset by the benefit from our ongoing effort to streamline our supply chain to lower our implant costs. Operating expenses were $41.7 million, representing approximately 7% growth. The increase was due to higher commissions driven by revenue growth, an increase in commercial activity to support new product launches, research and development investments, and an increase in stock-based compensation. Looking at the first half of 2024, we are proud of the more than 2x operating leverage in the business. Our net loss improved by 20% to $8.9 million or $0.22 per diluted share. Our adjusted EBITDA loss was the lowest since the IPO at $2.7 million, reflecting a 43% improvement. Compared to the first quarter of 2024, our adjusted EBITDA improved 33%. Turning to liquidity. We exited the quarter with a robust balance sheet, including $151 million in cash and marketable securities. Our cash usage in the quarter was $6.5 million as we invested in Granite 9.5 inventory as well as surgical capacity to support the anticipated second half demand. Finally, moving to our updated outlook for 2024. Based on our second quarter results, we are increasing our 2024 worldwide revenue guidance. We now expect 2024 worldwide revenue of between $165 million and $167 million, implying year-over-year growth of approximately 19% to 20%. Considering the 2x operating leverage for the full year 2024, we expect to achieve adjusted EBITDA breakeven in the fourth quarter. With that, I will turn the call over to Laura.

Thanks, Anshul. We're seeing robust demand for our differentiated solutions, as well as record physician engagement. That, combined with our efficient execution, will allow us to deliver industry-leading and profitable growth going forward. I'd like to thank our world-class team for their efforts to help build a sustainable high-growth medical device platform that has helped over 100,000 patients. With that, we're happy to take your questions. Operator?

Our first question comes from Matthew O'Brien with Piper Sandler.

Maybe for starters, Laura, just the dock utilization in the quarter and I know that number has been rising nicely. But just on a seasonally adjusted basis, it was softer in Q2 of this year than we saw in Q2 of last year. So I'm just wondering what kind of dynamics are going on that are impacting it? I don't know if it's the shift to more interventionalists or something along those lines. But just can you talk a little bit about why that's a little bit softer than we saw this time last year. And then I do have a follow-up.

Thanks for the question. We are really pleased with another strong quarter, achieving record performance across all of our key performance indicators. We experienced a 21% growth in U.S. revenue, driven by robust demand across our target markets, a 25% increase in the number of physicians performing multiple procedure types, and a 23% growth in our active physician base. We also noted a record number of new physician trainings due to heightened interest in various parts of our portfolio, and we take pride in our productivity improvements. Overall, we believe this quarter has been strong. Over the past three years, we have consistently experienced double-digit growth each quarter in our active physicians. While we typically evaluate year-over-year due to possible seasonality, we ended the second quarter with 1,150 active physicians, marking a 23% growth with 220 additional users year-over-year. This is the second consecutive quarter with a record number of new physicians trained, indicating positive future growth in active physicians. Given our expanded portfolio and our exceptional medical affairs team focused on training physicians in multiple modalities, I am optimistic about our capacity to increase the number of active physicians in the second half of the year as well as the cases per physician.

Got it. I'm not sure if this question is for you or Anshul, but when I look at the first half of the year, the performance in the U.S. is really strong. However, the guidance and the decision to raise it based on the Q2 results suggests a significant slowdown in the two-year stack for the latter half of the year, despite addressing many more patients with 9.5. I'm curious about how we can explain this deceleration in the U.S. in light of all the new stocks, representatives, and products we have.

Yes, I can address that question. We don't view the business in terms of stack growth, as there are multiple factors that can influence the starting point. You're correct that our guidance of $165 million to $167 million represents an acceleration in the second half of 2024. For the third quarter, we anticipate a typical sequential decline of 2% to 3%, which we plan to counterbalance with the advantages of the Granite 9.5 rollout that Laura mentioned. Our guidance approach is always careful. We have consistently exceeded expectations, but I want to remain cautious going into the second half. We have strong key performance indicators, including a record number of active physicians and trainings, plus increasing engagement on the intervention side. Overall, we are optimistic about the second half.

Our next question comes from Andrew Ranieri with Morgan Stanley.

To begin, Anshul, this one is likely directed at you. Regarding the positive adjusted EBITDA guidance for the fourth quarter, as we consider the longer term outlook for 2025, how should investors understand the factors influencing breakeven next year? I believe consensus is already anticipating this on an adjusted EBITDA basis. It seems you have more new products on the way and possibly some additional sales representatives being hired. How are you approaching the challenge of balancing and sustaining this 19% to 20% growth alongside the operational expenditure investments you will probably need to continue making next year?

I appreciate the question, Drew. We are very proud of the operating leverage we've achieved in the business, and we have steadily converted a growing portion of our gross margin dollars into adjusted EBITDA. The trend we anticipate for the second half gives us confidence in reaching breakeven by the fourth quarter. Looking at the longer term, beyond 2024, we expect annual revenue growth to continue to outpace operating expenses moving forward. While there may be some seasonal fluctuations in the first quarter, we are optimistic about maintaining this trend and reporting positive adjusted EBITDA in the coming years. As you noted, we have significant opportunities ahead of us. We will continue to find the right balance by making targeted investments in expanding our sales force and research and development, while also expecting to see considerable leverage on operating expenses, particularly in general and administrative costs. Even in R&D, the growth rate will not match revenue growth, allowing us to benefit from some economies of scale. Overall, I believe the business is well positioned going into 2025 to sustain positive adjusted EBITDA on an annual basis.

It's encouraging to hear. Laura, it seems the trauma product is still on track for the fourth quarter. I noticed there was a new TORQ 510(k) posted on the FDA's website about a month ago. Could you provide more details about the product or your thoughts on the fragility fracture market?

Yes. Thanks, Drew. And yes, we are really excited about the new trauma product. As we've said, we're expecting a Q4 launch. And while we've seen success with TORQ, the new product that we're planning to launch in the fourth quarter, it's specifically designed to fit the workflow of trauma surgeons. What's also been interesting is that we're attracting the attention of multiple regional distributors who are expressing interest in agency partnerships around those trauma surgeons to get access to our unique solutions. So, it's a planned portfolio expansion and combining that with the use of our hybrid commercial model is going to allow us to capture this trauma opportunity as well as contribute to our long-term revenue growth.

Our next question comes from Richard Nut with Truist Securities.

Hi, good afternoon. Thanks for taking the question. This is Ravi in for Rich. Can you hear me okay?

Yes.

So I just wanted to kind of get into the accelerating guidance commentary. Strong procedure volumes, kind of favorable trends you mentioned in the script, how do we think about that from kind of a price volume breakdown as it comes to reconciling the growth rates with your guide? And then I have a follow-up.

Happy to take that. On the guidance side in the back half of the year, our assumptions depending on the range, right? So on the low end of the range, our assumption is sort of a low single-digit ASP decline. Now we've done significantly better than that over the last several quarters where our ASP has been fairly stable. And the rest would come from volume. So if you look at the high end of the range, it's similar ASP trends that we've seen thus far in the year and the rest is volume on the low end, it's 1% to 3% ASP pressure and the rest is coming from volume.

Great. And then just maybe if you could help us think about, you have access to a number of different physician channels at this point with the different product launches that are coming out. Help us think about kind of what you're seeing on a macro level around procedures, new product launches, maybe throughput in terms of how you're getting access to the doctors in terms of the procedures you're doing, maybe on the ortho side and the interventional side? And then any color you could give around how you plan to address the trauma doctors as well, that would be great.

Yes, I'm happy to take that question. So as we mentioned, we're continuing to see an increase in the number of physicians that we're working with. It was a we were at a record at the end of the quarter with over 1,150 active physicians. And we do have a number of different call points. But simplistically, what we are seeing is that we are targeting primary SI joint fusion with our direct sales force with both spine surgeons, as well as interventionalists and seeing continued strong growth with spine surgeons and then excitement to start doing our procedure with interventionalists. So that continues to be the core that's driving the business, pelvic fixation with our Granite 9.5 product and the recent launch of that product continues to drive our growth in pelvic fixation in a number of different ways, addressing constructs and need potentially for a smaller diameter implant or potentially using four implants in those particular cases. What has become fairly typical there is we're using a hybrid model in those cases where you continue to have a direct sales person from SI-BONE involved but also third-party agents that are actually covering those particular cases. And that's helping us to drive the increase in sales rep productivity that you're seeing. So that's the second procedure type. And then finally, the third one is the area of pelvic trauma. And this is still a relatively small area for the business but growing very nicely. We're really excited about the launch of this new product in the fourth quarter of this year. And that's another area where we have a hybrid commercial model, where we have our direct sales force working closely with third-party agents, typically those that work more with trauma surgeons in order to drive the growth of that business. So those are the three different areas and those are the ways that we're approaching them from a commercialization perspective.

Our next question comes from Xuyang Li with Jefferies.

I guess to start, I wanted to get a little bit more color and details on the new product launches from this year. And it sounded like Granite 9.5 with launches and really going really, really well. If you can share some additional details, that would be great, simply for INTRA, any incremental color would be helpful. And how much are those products sort of baked into the second half guidance?

Yes, I'm happy to take the first part of that question. So we've launched two products thus far in the year. And then as I've mentioned a couple of times on this call, we have a third one that's going to be coming by the end of the year. So the first product that we launched was our product INTRA earlier this year and that was a dorsal allograft product targeted primarily toward interventionalists. We've seen a nice uptake on that product but most of the sales that we have seen thus far in interventional are actually using our TORQ product, our lateral transfixing product in those interventional cases which is what we had expected. We just wanted to have that additional solution for interventionalists who are interested in a bone product instead of a device. And then we are very pleased with what we're seeing with Granite 9.5 right now. So within the lumbar fusion market, we're building on the success of our original Granite product and we're really encouraged by the surgeon interest in using 9.5 in shorter constructs which is around 100,000 annual procedures in those particular cases. Within deformity, we also see Granite 9.5 as an opportunity to engage a subset of surgeons who want a smaller diameter implant. And then in certain instances, we're seeing our existing active deformity surgeons use Granite 9 to enable two points of fixation on either side which obviously increases our ASP. So I'm very happy with what we're seeing from an interventional perspective overall with that launch. And then as well with Granite 9.5 building on the base that we had formed with our original Granite product and also looking forward to the launch of our trauma product in the fourth quarter. I'll have Anshul speak a little bit more on the other part of the question.

Yes. Regarding guidance, we've been utilizing 10.5 in the degenerative spine market. The development of a short construct market over the last couple of years with Granite 9.5 allows us to target the S1 opportunity in both primary and revision cases, which adds potential upside to our guidance. We are being careful about integrating this as we continue rolling out Granite; we did a limited rollout in the second quarter, so we want to proceed cautiously. On the interventional side, TORQ is performing well. As Laura mentioned, we're observing some adoption of INTRA based on reimbursement, but we always expected broad adoption to depend on the outcome of the dropped LCD. Therefore, we're not factoring much of that into our current guidance, as we believe this is the appropriate strategy.

Alright. I guess just a follow-up. It looks like on your presentation, you updated the iFuse patent extended it by about five months. I think most of the iFuse coming from iFuse-3D which has about 10 years left. You also have approach INTRA that has about 10 years left on it as well. I guess I'm just kind of curious, in light of the iFuse patent expiration. I wanted to get an update on the competitive dynamic currently.

Yes. I mean, we pride ourselves on being a company that identifies unmet clinical needs. And then what we do is develop innovative products and we patent those products. And so we are constantly looking at our patent portfolio and patent protecting all of the products that we're working with. As you had mentioned, with iFuse-3D, we have patents that actually run through 2035. And that is the vast majority of sales of our triangular titanium implants. But we continue to also try to extend at least a little bit the patents on the original iFuse. But most importantly, iFuse-3D accounts for almost the entirety of our triangular titanium implant revenue and is patented through 2035. We also did receive a new patent for the broach instrument recently which extends into 2034 which also impacts our core iFuse franchise. So we've continued to build the patent portfolio with our iFuse implants as well as Granite which is patented through 2039 and TORQ which is patented through 2040.

Our next question comes from Caitlin Cronin with Canaccord Genuity.

Congrats on a great quarter. Can you just provide a little bit more color on the updated commercial strategy that you outlined? And maybe quantify any more reps that you expect to add? And also any distributors you expect to onboard through the process?

Yes, happy to do that. So under the leadership of Tony Recupero, we've built the best direct sales force in the industry. And we continue to see strong interest from reps wanting to join our team because of the differentiation of our company compared to others, evidence-backed and differentiated portfolio as well as a high-performance culture. So with the evolution of our portfolio, we've been leveraging this hybrid commercial model. So in particular, engaging third-party agents as well as adding more associate level reps to create additional capacity for our territory managers. They are our most valued asset. And what we want to do is ensure high-quality service and support for our physicians and basically just effectively capture the demand for our solutions across multiple target markets. So if you think about it longer term, the hybrid model has allowed us to deliver average revenue growth of over 20% over the last 3 years and nearly double our revenue per territory to $1.7 million during that period. And it's also driven dramatic operating leverage in the business. So over the next couple of years, we're going to continue to use the hybrid model while selectively adding sales reps. So, what we envision is that we're going to get to 100 territories with approximately $2 million of sales rep productivity apiece which will build a $200 million business. So you should expect to see us end 2024 with a handful of new territories.

Got it. That's helpful. And then just a couple of questions on the intervention with call point. How does the appointment of Thomas West really help you shape your interventional strategy going forward? And I also remember you mentioning recently that the target interventional surgeons was 1,000 versus the initial 4,500 that you initially targeted of the interventional surgeons. Do you see opportunities to expand to the extra 3,500 that are just doing the needle-based procedures over time?

Yes. So asking the question about Tom and then also expansion to those 4,500 interventionalists. Our focus from the inception of the company has been on surgeons. It's orthopedic and neuro spine surgeons, in particular, and there are around close to 8,000 of those that we're targeting. And if you look at the number of physicians that we've worked with, we still have a long way to go with those particular surgeons. But we also recognize that the interventional market, our solutions are similar but the market is different. The call point is different. And so Tom, with his experience with Nalu Medical, is a really nice addition to the Board of Directors to help us to think about that new call point and strategize around it. In terms of who we're targeting from an interventional perspective, the 1,000 that we're talking about are the ones that are really going to be doing the lateral TORQ transfixing procedure. And so those really have been the focus for us with our initial rollout. And what we're seeing is that, that come to fruition that we are seeing more of those positions doing those procedures but primarily with TORQ. In terms of getting to the additional 3,500 in that group, we do think that there's an interesting opportunity that's here. And that with some of the additional products that we currently have like INTRA, it does give us the opportunity to also penetrate that market, too.

Our next question comes from David Turkaly with Citizens JMP.

Laura, given your comments on INTRA and TORQ, and then also sort of the increase we keep seeing in active docs and physicians. I'm curious, would you call out do you have interventionalists in that 1,150 today?

Short answer to that is yes, Dave. So we're seeing a nice adoption by interventionalists as well as our spine surgeons that we work with on our other procedures.

Got it. And then I appreciate the color you gave on 9.5 and the facility from the docs to possibly use even more than sort of two, maybe up to four implants. I just wanted to clarify one thing. Is that also new technology add-on payment? Is that relevant for that as well?

It actually is, yes. So the Granite family, the NTAP actually applies to the original product as well as the new Granite 9.5 product. So it has that same benefit where the hospital using our Granite products can receive up to around $9,800 of additional payment for pelvic fixation using Granite.

Our next question comes from David Saxon with Needham & Company.

This is Joseph on for David. Congrats on the record quarter. Just maybe another question on interventionalists, just to try to understand the channel a little bit more. Does that have a different pattern as it relates to ramping SI procedures once the doctors are trained? I guess and just any differentiating factors between the interventionalist and spine surgeons would kind of help us understand a little bit better.

Yes, we are targeting two significant markets. The SI joint fusion market exceeds $2 billion, with about 8,000 spine surgeons available to perform these procedures, and around 4,500 interventionalists. We're initially focusing on the first 1,000 and primarily promoting our TORQ products, specifically the lateral transfixing product, which is billed under code 27279. Our approach to engaging surgeons and interventional spine specialists has been fairly similar, as we're reaching out to those who are already confident and experienced with procedures. As we delve further into the interventional market of 4,500, our strategy will evolve. For example, our INTRA product might appeal more to those specific physicians. Overall, we are engaging directly with our sales representatives who are selling the TORQ device to both spine surgeons and interventionalists.

Okay, great. Very helpful. And then I guess, EBITDA, adjusted EBITDA profitability, you guys are getting there pretty soon. When you do get to EBITDA profitability, how far out should we kind of be thinking about free cash flow profitability?

Yes, I can address that question, Joseph. We maintain high gross margins due to higher average selling prices, and our asset model is relatively light, which sets us apart from traditional spine companies that require substantial capital investment for growth. As you've observed in recent quarters, our decrease in cash use has aligned with our adjusted EBITDA improvements. Looking ahead, we anticipate continued annual improvements in adjusted EBITDA, which should lead to better cash flow trends as well. While new product launches and capacity adjustments may affect this somewhat, we are confident in our cash flow progress once we reach adjusted EBITDA breakeven. Additionally, with over $150 million in cash and the capacity to sustain our adjusted EBITDA improvement, we are optimistic about our financial resources to support future growth.

our next question comes from Ross Osborn with Cantor Fitzgerald.

Congrats on the quarter. So regarding the fourth quarter launch of a new product in the public trauma market, will this be an offering that will require real-world data? Or do you expect to see a pretty quick adoption rate?

Yes, good question. And we have already been working in the trauma market since we launched TORQ. So we launched TORQ in, I believe it was April of 2021. And so we have been selling to trauma surgeons. They have been using the product for sacral insufficiency fractures. And so with that success, we do have data that we can share with these particular surgeons. So overall, coming into the second half of the year, I think we're set up really well. We're seeing the benefit from strong demand trends and we're capitalizing on accelerating demand within the pelvic fixation market with the rollout of Granite 9.5. We have growing engagement within Interventional Spine with TORQ and we also have the new product launch targeting the trauma market in the fourth quarter. And then top line momentum positions us to deliver adjusted EBITDA breakeven in the fourth quarter which is a major fiscal inflection for our P&L profile. So our company-specific fundamental demand trends and the anticipated additions to our portfolio over the coming years, it gives me confidence that we have the platform to deliver strong and profitable revenue growth going forward. The strong performance this quarter and the consistency of our strong results in the last several quarters across revenue growth, surgeon engagement, operating leverage, it's an outcome of our focused strategy to transform the business from a single product to a multi-modality med device platform with large unmet target markets.

Great. And then in terms of STACI, it's nice to see the positive interim results comments there. But would you remind us of the rough timelines associated with the next milestones?

Yes. So with STACI, we have already completed enrollment in that particular study. We have the set of results. And I believe that our plan is to have a publication out by early 2025 with STACI.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Laura for any closing remarks.

I just want to say thank you all for your participation in our call today and we look forward to seeing you at upcoming conferences and on our roadshows.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.