Good afternoon, and welcome to SI-BONE's Third 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 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 September 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 prior 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, the impact of recent hurricanes on the availability of certain consumable products used in surgical 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 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 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, November 12, 2024. With that, I'll turn the call over to Laura.

Thanks, Saqib. Good afternoon and thank you for joining us. We had another strong quarter as we delivered record worldwide revenue and hit notable milestones across all our priorities. In the third quarter, we delivered worldwide revenue of $40.3 million, reflecting 19% growth. The record revenue allowed us to make dramatic progress on our profitability and liquidity goals. We were close to adjusted EBITDA breakeven and used only $700,000 in cash in the quarter. To deliver sequential revenue growth and close in on profitability in the third quarter is a testament to the power of our expanding platform. This performance is impressive considering third-quarter industry seasonality as well as quarter-end procedure disruption in certain markets due to hurricanes. Following on the phenomenal success of iFuse-TORQ and iFuse Bedrock Granite 10.5 and 9.5, in the third quarter, we received 510(k) clearance for iFuse-TORQ TNT. TNT is our second breakthrough device to launch in the last two years. This solution, designed with leading trauma surgeons, treats patients with sacral insufficiency fractures and expands our presence in the trauma market with an anatomy-specific implant system that complements the surgeon workflow. We pride ourselves on disrupting traditional orthopedic and neurosurgical industry norms, which are often burdened by low margins and undifferentiated products as well as large capital investment. With each new product launch, we are distinguishing SI-BONE as an asset-light platform of anatomy-specific products that are supported by clinical evidence and favorable health economics. Looking ahead, as we capture more of the nearly 0.5 million target procedures and expand our platform, I'm confident that we can deliver industry-leading profitable revenue growth. Now let me dive deeper into our key initiatives as we look to extend our leadership, drive long-term growth, and create shareholder value. Starting with sales infrastructure. Our surgeons are not only drawn to our comprehensive solutions but also value the exceptional support provided by our highly experienced sales team, which remains unmatched in the industry. The combination of our direct sales team consisting of 82 territory managers and an increasing number of third-party agents has accelerated market penetration and translated into significant operating leverage. Our trailing 12-month revenue per territory increased 21% to $1.8 million. Given the breadth of our platform and the success with hybrid commercial models, we believe we can increase the overall revenue per territory beyond our target of $2 million. Given the extensive physician interest in adopting Granite, we're actively building and in several instances, expanding strategic partnerships with large regional sales agencies. With the launch of TNT, we're fielding interest from trauma-specific agencies. We've signed agreements with some large regional trauma agencies, positioning us to increase our revenue in the estimated $300 million pelvic trauma market. On physician engagement, we're delighted with the positive trends across active physician growth, procedure utilization, and cross-modality engagement. We ended the quarter with over 1,200 active physicians, an increase of nearly 150 physicians. Over a three-year period, we have nearly doubled our active physician base. We're seeing the results of our activities targeted to grow the number of physicians performing multiple procedure types and also increase the number of procedures per physician. In the third quarter, the number of physicians performing more than one type of procedure increased by 35%. Additionally, our procedure volume from physicians who were active in both the third quarter of 2024 and the third quarter of 2023 grew by 25%. The expanding physician base, combined with our success in driving higher utilization and cross-portfolio interest over time, gives us confidence in our long-term procedure volume growth, density targets, and efficiency. Finally, we're impressed with the adoption trends from surgeons we trained as residents and fellows. Year-to-date, revenue attributable to previously trained residents and fellows grew more than 75%. Turning to products and clinical evidence. Let me start with TNT, our next-generation pelvic trauma implant system. TNT received breakthrough device designation and is specifically designed to meet the anatomical and bone density characteristics of the sacrum and ilium. TNT is unique in that it extends across the entire pelvis and delivers different fusion structures for different areas of the pelvis with the goal to facilitate bone integration. Strong surgeon excitement for TNT was evident at the recent Orthopedic Trauma Association event in Montreal, where there were multiple podium presentations highlighting the use of TNT. The device design, its simple instrumentation, and its seamless compatibility with existing workflows resonates with surgeons. Leveraging our experience in getting a new technology add-on payment or NTAP for Granite, we have initiated the NTAP process for TNT. If successful, the NTAP will take effect on October 2025. Given the early demand trends, we're enthusiastic about TNT's long-term revenue potential as we go after the pelvic trauma opportunity. Given its versatility, we are aggressively growing the adoption of TORQ across all procedure types and physician call points. TORQ continues to be the cornerstone of our interventional spine engagement strategy. While we provide comprehensive training on INTRA and TORQ, in the third quarter, the majority of cases performed by interventionalists continued to utilize TORQ. With the expanded iFuse platform, we have a comprehensive range of solutions that provides physicians with the flexibility to choose the best option for their patients when performing SI joint fusion procedures. On the clinical front, we've completed the enrollment of 110 patients across 15 sites for STACI, a prospective study of lateral transfixing SI joint fusion using TORQ when performed by interventional spine physicians. With zero reported serious adverse events, we're pleased by the early results confirming the safety of the procedure. Turning to the spinal pelvis segment. We're excited to announce that we were granted transitional pass-through or TPT payment status for Granite. This TPT payment status is effective January 1, 2025, and allows hospital outpatient departments and ASCs to be reimbursed for 100% of the Granite technology costs they report to Medicare. This 100% Granite technology cost reimbursement would be made in addition to the typical APC payment. In addition, CMS approved our request to remove CPT22848, the physician payment for pelvic fixation from the inpatient-only list. Starting in 2025, surgeons will have the flexibility to report the pelvic fixation code in a hospital outpatient setting as well and now have the facility to receive the TPT payment. We believe these changes will allow us to expand the market for Granite across multiple sites of service, specifically as we pursue the 100,000 degenerative lumbar fusion procedures that go to the pelvis. Our recently launched Granite 9.5 is exceeding expectations and accelerating the overall adoption of Granite across deformity as well as degenerative spine procedures. Based on the demand trends in the quarter, Granite 9.5 is on pace to surpass the success we experienced with TORQ and Granite 10.5. In the third quarter of 2024, not only has procedure volume grown, but we have also seen a 40% increase in the number of stacked Granite cases where multiple implants per side are used compared to the first quarter of 2024. With Granite 9.5, we have an opportunity to increase physician engagement, drive more procedures per user, and increase the overall procedure ASP as stacked Granite procedures grow. On the clinical front, we're enrolling patients in PAA, a multi-center prospective study of Granite. We expect to publish preliminary results in the second half of 2025. Over the next 18 months, we intend to launch a series of anatomy-specific solutions that leverage our core competencies and learnings from TORQ, Granite, and CNT. These solutions will have applications across our existing markets and position us to address unmet clinical needs and drive deeper engagement with our existing call points. Before I hand it over to Anshul to discuss our financials, I want to thank our incredible team members. Our success in identifying new markets as well as building and then successfully commercializing breakthrough devices is due to your innovative ideas and unwavering commitment to patients. We're excited about the future we can build together. With that, I'll hand the call over to Anshul.

Thanks, Laura. Good afternoon, everyone. My comments will be focused on third-quarter growth, profitability trends, and liquidity. Starting with the revenue growth. Our third-quarter revenue grew by 19% to $40.3 million. Most of that came from the U.S., which grew by 18% to $38.3 million. Towards the end of the quarter, we did see an impact to case scheduling and cancellations in certain markets that were impacted by Hurricane Helene. Our overall procedure average selling price in the quarter increased nearly 3%, driven by our evolving product and procedure mix. Our international revenue in the quarter was $2.1 million, representing 21% growth. The rebound in international growth was an outcome of our transformational efforts in Germany and the United Kingdom. Moving to gross profit and operating leverage. Our gross profit for the quarter was $31.9 million, representing an increase of 18%. Our gross margin was 79%, which was flat when compared to the prior year period. The gross margin was better than expected due to changes in product mix and benefits from supply chain optimization. Operating expenses were $39.5 million, representing 4% growth. Our year-to-date operating leverage in excess of 2x is the continuation of our progress on efficiency over the last several quarters. Our net loss improved by 34% to $6.6 million or $0.16 per diluted share. Our adjusted EBITDA loss was $200,000, reflecting a 94% improvement. Compared to the second quarter of 2024, our adjusted EBITDA improved by 91%. As we look ahead, we are confident that our revenue growth rate will continue to exceed the growth rate of operating expenses, allowing us to increase our adjusted EBITDA profitability. Turning to liquidity. We exited the quarter with a robust balance sheet, including nearly $151 million in cash and marketable securities. Our quarterly cash usage was only $700,000. In November, we refinanced our existing term loan with a new term loan with SVB First Citizens Bank at more favorable terms. The new term loan extends our maturity to 2029 and reduces our borrowing credit spread by 100 basis points. The significant improvement in credit terms demonstrates the strength of our longer-term financial profile. With $115 million of net cash and a clear pathway to sustained adjusted EBITDA expansion in 2025 and beyond, we are in a strong financial position to self-fund our strategic priorities going forward. Moving to our outlook for 2024. We are updating our 2024 worldwide revenue guidance to be in the range of $165 million to $166 million, implying growth of approximately 19% to 20%. We also expect to be fourth-quarter adjusted EBITDA positive. The strong start to the fourth quarter reaffirms our confidence in the underlying demand momentum. However, we have seen limited case deferrals at certain sites due to the IV solution supply issue. While we believe any impact is transient, we are continuing to monitor the situation.

Thanks, Anshul. Going into 2025, we have a great setup to deliver strong profitable revenue growth. Given the favorable underlying procedure demand trends, elevated physician interest, and new product launches, I'm excited about our future. With that, we're happy to take questions. Operator?

Thank you. Our first question is from Craig Bijou with BofA Securities. Your line is open. Please go ahead.

Good afternoon, and thanks for taking the questions. Maybe I want to start on, I guess, the quarter and guidance, and I appreciate the comments on the hurricanes and the IV shortage. But so I guess, can you guys quantify what that impact is? And is that the only reason why guidance came down?

Yeah. Let me start, and I'll have Anshul also provide some color as well. But I want to start with the quarter first and just kind of giving you an overview of it. I'm quite pleased with the performance in the quarter. If you look at our results, we achieved record revenue, a record revenue quarter, and we were close to adjusted EBITDA breakeven given that we had nearly four times operating leverage in the quarter. And also what you heard is we used less than $700,000 in cash. So the procedure demand strength is reflected across all of our KPIs, and that includes record active physicians, increasing case density as physicians get seasoned, and also our territory productivity. Now with that said, we did see some temporary disruption to case scheduling as well as cancellations in the markets that were impacted by Helene. And also, we did experience a little higher summer seasonality, mainly due to surgeon vacations. So that did impact the revenue potential for the quarter. But overall, coming into the fourth quarter, physician engagement and demand has been quite strong, and that translates into strong top-line and bottom-line performance.

And then on the guidance, Craig, as we shared in our prepared comments, around the pockets of new case scheduling being paused or measured and existing cases being rescheduled because of the IV issue. Now that impact is limited to a few sites that are single source, but also to some larger hospitals that are being a little more cautious. So as we were thinking about our guidance, we're looking at the feedback we got from the field around the seasonality strength of the fourth quarter, limiting the capacity at some of these sites to reschedule these deferred cases in Q4. So while these are transient factors, we did incorporate that into our guidance. So our working assumption is which is on the lower end of our guidance range is that not all the sites that have seen these deferrals due to the hurricane or due to the IV shortage, 100% of those cases come back this year. We think in our assumptions here that several of those deferred cases may move to 2025 just because of capacity limitations on hospitals more than anything else. Now, assuming that is not the case and the procedures do go back on the books sooner, that could put us on the top end of the range. And as Laura said, the momentum in the business is strong. But as always, we want to take a thoughtful approach based on some of the indications we have from the field and have reflected that in our guidance. But if things play out better, that could provide potential upside and play better than we expect.

Okay. That's helpful. Thank you both. I know you're not going to give 2025 guidance, but maybe if you can talk a little bit about some of the puts and takes or how we should be thinking about your ability to continue the momentum on the top line, certainly, but also the assumption that you're going to have positive EBITDA in Q4, how should we think about that carrying through into 2025? And could it be a positive EBITDA for all of 2025?

Yeah, Craig, happy to take that question on 2025. You're right, we're not going to be providing 2025 guidance at this point, but our focus is to deliver a strong 2024. And like I said, we're hoping that some of those thoughtful assumptions in our guidance play out better so we can end the year strong. Now when you think about 2025 and you think about the growth levers in the business, some of these are long-term and specific to SI-BONE. So let's start with number one, it's the elevated physician interest that we're seeing that's coming through both on the training side, but also on the adoption side across surgeons and interventionalists. So that sort of sets us up really well. Number two is the favorable reimbursement framework with the NTAP and TPT for Granite. Now the TPT may take a bit longer to play out, but that is a tailwind. The potential to get NTAP for TNT, which is in its early days, but we're very encouraged by the demand that we're seeing there and the adoption trends. And then the strong reimbursement in 7.9, but also the potential for the 30% increase in 27278 reimbursement, which also allows us to go after interventionalists that may have a preference for an allograft. So, it should be able to augment our TORQ initiative on the interventional side. So, feel good there. And then when you think about Granite, we're still scratching the surface with Granite with the 9.5 rollout. So, with the expanded Granite platform, we do believe we can accelerate the capture of the pelvic fixation opportunity across deformity and degenerative spine. So, that continues to be a big tailwind for us. And on the TNT side, we are going to put up more capacity in Q1, Q2, and we are very encouraged by the demand that we're seeing on TNT from the trauma surgeons. And then the last thing I'd say is we do expect to add to our sales force. We will be adding more heads there, and that should allow us to go not just wider to get more surgeons engaged, but also be able to go deeper with our existing surgeons through the expanded portfolio. So, that's on the top line. So, a lot of tailwinds that we feel good about. A lot of them are playing out in the fourth quarter as well. On the adjusted EBITDA side, we feel fairly confident that, that top line growth should translate into good operating leverage. If you look at our year-to-date leverage, it's been sort of north of 2.5 times. So, we expect operating leverage to continue next year. You'll see some seasonality. So, you might see some first-half adjusted EBITDA negative, but a lot more second-half weighted adjusted EBITDA positive. But that should translate into full-year adjusted EBITDA positive in 2025.

Thanks for taking the questions.

Thank you. Our next question is going to come from the line of Young Li with Jefferies. Your line is open, please go ahead.

Thank you for taking our questions. To start, I would like to discuss the overall health and strength of the SI joint fusion market. What are your thoughts on the growth prospects for this market? Additionally, could you share any changes in the competitive dynamics?

Yes. Young, happy to take that question. So, we continue to be the undisputed market leader in SI joint fusion. We see strong demand from our surgeon customers. And as you know, we've also developed products and are working with interventionalists as well who have expressed an interest in SI joint fusion. So, we now have our iFuse-3D product, our TORQ product, and our INTRA product that all meet the needs of either the appropriate physician or patient for those particular products. So, we're pleased with what we're seeing there, and we continue to leverage our sales force, which is really helping the physician, whether it's the anatomy, the prevalence of pain related to the SI joint, the initial diagnosis, and ultimately, the treatment of these patients. And we take an educational approach to this as well. And we talked specifically about our STACI study, which we just finished enrolling 110 patients with interventionalists using our TORQ product. So, we're pleased with everything that we're seeing there on the SI joint fusion side, while also seeing the strong growth generators that we have in Pelvic Fixation with Granite as well as TNT in pelvic fractures.

And then, just to add a couple of comments there. We talked about 150 active physician adds in the quarter on a year-over-year basis. What I would say is, over 60% of those active physicians added in the quarter, did a combination of SI joint fusion as well as pelvic fixation or trauma procedures, right? So the growth in the active physician base is coming across all modalities. And then the last thing I'd say is when we look at even the interventional opportunity, we had a record number of interventional spine physicians perform a procedure in the quarter, and that was led by TORQ. So we're seeing good traction across both. And all the training work, all the education work that Laura talked about, that the field is engaged in over the last 12 months, you're starting to see the impact of that in that adoption trend.

I think the other thing that could be interesting here, Young, is to see how this nearly 30% increase in the 27278 procedure plays out. As I said, we have the most comprehensive portfolio out there and the best commercial education and patient advocacy infrastructure in the industry. And although we've seen a majority of interventional spine revenue coming from TORQ, which is reimbursed under, 27279, we have been training physicians on both TORQ and INTRA. And there are subsets of interventionalists who may have a preference for allograft and for them, INTRA is a great solution. So with the higher reimbursement for 27278 that was just announced by Medicare, and there's some potential clarity from the MACs as well. We feel like we're best positioned to support the call point irrespective of which product they use.

All right. Great. That's very helpful. And I guess maybe if I can ask about the rep productivity. Good to hear that you expect them to generate more than $2 million going forward on average, any way to think about how productive they can get? And what's your most productive rep or territory currently generating? And maybe you can talk about the comment on increase in rep hiring, how much and why now, given it's been relatively stable for like the past three years?

Yeah. I'll talk a little bit to the rep productivity, and then I'll have Anshul talk a little bit more about our plans for rep hiring for the future. So first of all, we're extremely proud of our sales team with a 21% increase in rep productivity in the third quarter. And it really is this hybrid model that's allowed us to nearly double our revenue per territory to around $1.8 million in the last three years. And as you can tell, it's driven dramatic operating leverage in the business as well. So there's really an evolution of our platform that's happening right now, and we're leveraging a hybrid commercial model, which is engaging both our direct sales team as well as third-party agents. And we're now working with over 200 agents, and they typically are covering pelvic fixation cases with our Granite products. And that helps to free up the rep time to sell to new physicians and also drive deeper engagement with our existing physicians.

From a growing territories perspective, we are proud of how the commercial team has executed to leverage the sales force. Although we are not discussing how much higher we can go beyond $2 million yet, we have quickly moved from under $1 million to $2 million in a three-year period, showing strong momentum. Some territories have reached as much as $4 million in annualized revenue, indicating potential for growth, especially by utilizing hybrid models that might include multiple junior representatives in those markets. Our business strategy aims to achieve about 100 territories over the next 18 to 24 months. As we consider our expanded platform and the new products we plan to launch in the next 18 months, we believe that having this number of territories will help us maintain our educational approach, strengthen relationships with doctors, increase the number of cases they handle, and potentially offer them more solutions with the expanded platform. We are viewing this through a two-year lens, combining our existing platform with the new additions we anticipate.

Thank you very much.

Thank you. And one moment for our next question. Our next question is going to come from the line of Matthew O'Brien with Piper Sandler. Your line is open. Please go ahead.

Hi. Thank you. This is Samantha filling in for Matt today. One of our initial questions is about the TPT status for Bedrock Granite next year and how it might contribute to top-line growth in the upcoming year.

Great, Samantha. Happy to talk a little bit about that with you. We are really excited about the transitional pass-through payment for Granite starting January 1, 2025. It's a really important milestone for Granite and its clinical significance in sacropelvic stabilization fusion. So when they finalized their decision on the TPT award, CMS actually provided a unique code for hospitals to use when reporting the use of Granite implants. Additionally, what's really important is that CMS granted a $0 device offset. So that's very important. And what it allows for hospitals to do is fully pass-through 100% of the Granite technology costs that they report when they're actually using the product. So then with the zero offset, the entire device cost qualifies for the TPT reimbursement. And with the TPT award, Granite's full cost is eligible for that TPT payment. And that helps to enhance Granite's reimbursement profile, and it also is underscoring the unique clinical value that it has in the sacropelvic space. So just to be clear, today, almost all Granite cases are inpatient, but we anticipate more cases using Granite migrating to hospital outpatient. And this is either because of surgeon experience with the technique or for less severe cases involving shorter construct spinal fusions. And so TPT, the TPT is going to give patients, surgeons, and the hospital administrators the confidence that they need to do the procedure in the appropriate setting and receive the appropriate reimbursement.

Okay. Thank you. And one more for us. We were just wondering how the early use of your pelvic fracture device is going and any feedback you've gotten from physicians?

Yes. So I had mentioned in my prepared remarks that we actually did a launch at the Orthopedic Trauma Association meeting in Montreal in October. And so we're really excited about TNT. It's another example of our ability to develop a unique anatomy-specific solution that addresses an unmet clinical need. So in this case, TNT is designed to meet the specific anatomical and bone mineral density needs of the sacrum and ilium, and it will serve as a next-generation technology for pelvic fragility fracture fixation as well as SI joint fusion. So from a usage perspective, we're still in the early launch phase. But the KOL feedback has been quite strong. So TNT fits well within the workflow of the surgeons, and we believe that we have the best product on the market. We're also attracting attention from multiple regional distributors who they've expressed interest in building agency partners to enable trauma surgeons to get access to our unique solutions. And then finally, with the BDD designation for TNT, we're leveraging our experience on the granite NTAP and evaluating the pathway for TNT to get an NTAP. And if successful, it will be effective in October of 2025. So in summary, we think TNT has the potential to be a great growth driver to penetrate this nearly $300 million market opportunity, and the initial feedback has been very strong and positive.

Great. Thank you.

Thank you. And one moment for our next question. Our next question is going to come from the line of Drew Ranieri with Morgan Stanley. Your line is open. Please go ahead.

Hi, Laura. Hi, Anshul. Thanks for taking the questions. Just maybe, Laura, for you first, and I apologize if I am misremembering this number, but I think you said basically same surgeon sales growth in the quarter from a volume perspective was up 25% year-over-year. Blended procedure volume was up 15% year-over-year for the quarter. Just maybe talk to us about like what's it really going to take to get to that average up to some of those higher-volume surgeons? And as you're looking into 2025, do you think you have all the pieces in place to really kind of get to that level of growth?

I'll get started at least on the question, and then I can have Anshul talk a little bit further to it. There are a number of ways that we are addressing the opportunity that we have. So for physicians that were active in the quarter, if we talk about cross-modality procedures, we actually had a 35% increase in the number of physicians who performed more than one type of procedure. Now generally, that's going to be surgeons that are doing SI joint fusion and doing pelvic fixation procedures. But this is a significant opportunity for us at this point, given that we have three different procedure types that our physicians can perform. They can perform an SI joint fusion with us, and many have been working with us for a very long time. Granite presents another opportunity, and we have been penetrating the opportunity with adult deformity with our original Granite product. And we're just starting to penetrate the degenerative opportunity that we have here at this point. And those degenerative spine procedures, those are the types of procedures that our physicians that do SI joint fusions are typically performing on a daily basis. And then finally, we have the TNT product that addresses fragility fractures. And certainly, we're working with trauma surgeons, but we also see spine surgeons performing those procedures, too. So we're really pleased with the different opportunities that our physicians have to work with us, and we're starting to see that growth. Now if you think about us overall over the last three years, we've actually consistently seen double-digit growth every single quarter in active physicians. So we're seeing this elevated engagement and interest, and it really reaffirms that our overall strategy with anatomy-specific solutions is working. And then ending Q3 with over 1,200 active physicians, which is an increase of 150 really puts us into a nice spot. And as I said, if we can continue to see this momentum with our surgeons adopting additional procedures from SI-BONE, especially with the 35% increase that we saw in the quarter, that's really going to bode well for our future growth in 2025 and beyond.

Yes. To elaborate on how we can achieve higher growth, like Laura mentioned, our current portfolio allows us to expand further. It's encouraging to see that the 25% growth in active surgeons from the third quarter last year to this year supports our belief that as surgeons gain experience, their volume of procedures increases, and we are observing this trend. Looking towards 2025, two key indicators for us are the continual addition of physicians adopting our procedures, which remains positive throughout this year, and the record number of physicians we are training each quarter, which is promising for future activations not just in the fourth quarter but also into 2025. Additionally, as these physicians gain experience, the 25% increase in volume growth indicates we can be confident in seeing an increase in productivity heading into 2025 and 2026, particularly as Granite 9.5 becomes more integrated into the workflow for degenerative spine procedures.

Got it. And maybe just a follow-up. This might be more for you, Anshul. But I was thinking ASPs maybe for the back half might be more flattish. And I think you said up 3% for the quarter. So can you just talk a little bit more about the product procedure mix strength there, maybe some of the dynamics happening? And then as we're thinking about the fourth quarter, I mean, should we kind of be expecting like a similar rate? Or should fourth quarter be mainly driven by utilization gains if we kind of assume like you're going to add like another 50 surgeons? Thank you for taking the questions.

Yes, no worries. We're really pleased with how the average selling prices have trended. In the past years, we've typically seen a decline in average selling prices. Over the last 12 months, we've worked hard on a few things to maintain our pricing, and the commercial team has done an excellent job with that. The main factor contributing to the improvement in average selling prices has been the inclusion of Granite. Many Granite procedures typically use four implants for deformity cases. With the launch of 9.5, we observed a 40% increase in stacked granite cases, where more than four implants are used per procedure. This change is reflected in our average selling prices, which have been influenced by the mix of procedures. On the SI side, we've been disciplined in holding our pricing as well, and TNT is a premium priced product for us. Overall, we see the average selling prices trending positively. However, we tend to be conservative regarding the site of service, as the procedure mix and number of implants can affect prices. As we approach the fourth quarter, I won't provide specific guidance on average selling prices, but we are feeling good about the trend we've observed.

Thank you. And one moment for our next question. The next question is going to come from the line of Caitlin Cronin with Canaccord. Your line is open. Please go ahead.

Hi. Thanks so much for taking my questions. Just want to talk a bit about inventory set build. Since the broader launch of 9.5, it seems like it's going really well. Have you had to build out kind of additional Granite sets into the field? Or do you expect to do so going forward?

Yes, Caitlin, happy to take that. So let's just start with 10.5 is doing really well for us. So that's been a grand slam for us, and 9.5 has actually exceeded all our expectations in terms of the adoption trends we're seeing. So we're feeling really good about the Granite family usage trends that we're seeing. So that's number one. The beauty of Granite 9.5 is it actually uses the same instrument sets that go with the 10.5. So we have an opportunity to drive higher utilization of our instrument sets in the field with the availability of both different 10.5s and 9.5s. So we feel good about that. We are putting out more capacity each month, each week, almost each day to be able to support the demand that we're seeing in Granite, especially as we continue to penetrate the degenerative spine opportunity. But we've got the supply chain framework in place to be able to meet those demands. So we feel really good about that, especially as we go into 2025.

That's great. In a similar vein, will there be any build-out needed for the TORQ TNT product, or will it utilize similar instrument sets to traditional TORQ? Additionally, since it is the next generation of TORQ, how will it drive innovation within the more traditional TORQ procedures?

Yes, sure. So on the TNT side, you're right. It is a new tray. We've been rolling out those trays in the fourth quarter. We were in limited launch. So we'll continue rolling that out. We've got a lot more capacity coming online in 2025 as well. Again, we're being very thoughtful because the early indicators are very strong, and we're seeing good momentum there. So you will see us sort of continue to build capacity there on the TNT side to support demand, especially as we start seeing some of these large regional agencies or distributorships come online. We want to make sure we can support that demand. Just at a very high level as well, and I'll let Laura take the comments on the TNT innovation. But if you think about our CapEx footprint, we're a relatively asset-light CapEx model. Our annualized CapEx is around $7 million to $8 million a year, and we can be very, very efficient on our trade cost as well as the turns that we're getting there. We're starting to improve on that front too. So with $7 million to $8 million, even including new product launch, we feel really good about the asset-light model that we have.

Caitlin, I believe Anshul addressed most of your questions. From an innovation standpoint, TNT represents the next phase for us. We began with iFuse 3D, then progressed to TORQ and Granite, including Granite 9.5 and INTRA, and now we have TNT. Two of these technologies, Granite and TNT, are indeed breakthrough devices. We are demonstrating that we develop innovative products to meet unmet clinical needs. TNT continues this effort, and we are proud of our achievements in this area.

Awesome. Thanks so much.

Thank you. One moment for our next question. Our next question is going to come from the line of Richard Newitter with Truist Securities. Your line is open. Please go ahead.

Thanks for taking the questions. Maybe I just wanted to ask on provider economics or for the profit profile potential from Granite, especially if there's going to be potential migration into the outpatient care setting with the CPT. Can you talk about that a little bit and help us think through that, how it changes the facility?

Yes, I'm happy to. Regarding our expectations with hospitals and surgeons and how they respond to reporting for Granite procedures in outpatient settings, CMS recently announced CPT22848, which pertains to pelvic fixation. This is an add-on code for performing pelvic fixation, usually linked with S2AI screw deployment. This development is significant as it gives surgeons the choice to perform pelvic fixation, SI joint fusion, or both using Granite implants. Our indications for use support fixation or SI joint fusion. With the new CPT available, surgeons now have the flexibility to consider Granite in various situations and configurations, as well as in both hospital inpatient and hospital outpatient settings. It also accommodates ASCs. The payment for pelvic fixation procedures to the facility is already appropriate, but now there is an additional transitional pass-through payment that will cover the entire cost of Granite. The timing is crucial because when we launched our Granite 9.5 product, it was specifically aimed at degenerative spine procedures. These are typically shorter level constructs or degenerative procedures that surgeons perform regularly. We now have a product suitable for these constructs and appropriate payment for outpatient services. To highlight our market opportunity for Granite, we estimate there are about 130,000 potential cases, representing a $1 billion market opportunity. Most of these, around 100,000 procedures, will be degenerative spine procedures that will use the Granite 9.5 product in outpatient settings.

That's really helpful. Thank you. And then, Anshul, just maybe going back, I know you're not providing explicit 2025 guidance, but can you talk about some of the components within the P&L, if nothing else, directionally, like gross margin. Just how should we think about that directionally, up or down versus '24? And then also, you're clearly committing to further operating leverage and profitability on a full year basis. Just to make sure we're all on the same page, that's likely going to mostly come from S&M leverage. Is that correct? And then also, I know that you have your term loan is going to carry a lower interest rate. So maybe just quantify or give us some directional color on what to think about in that line as well. Thank you.

Sure. So let me just start with the operating leverage question. Obviously, we're not going to be providing guidance. But on a gross margin side, we feel really good about our ability to maintain gross margins through 2024, which has been flat year-over-year, if you think about where we ended the third quarter. So feeling really good about that. Now I won't be specific to 2025, but if you think about the next 2 or 3 years, what we have said on the gross margin side is, we expect gross margins to sort of stabilize in that 76%, 77% range over time. Part of that is driven by the continued efficiency that we can gain from scaling of Granite and TORQ, right? That should bring the cost of those products down. But offsetting that is some of the new products that we want to launch over the next 18 to 24 months. So you'll see some puts and takes there. So that's step one. In terms of the operating leverage, you're right, a lot of that operating leverage will come from sales and marketing and G&A. R&D dollars will grow as well, but you will see R&D dollar growth rate also be lower than the revenue growth rate. So, you will see operating leverage across the P&L. Now, is it going to be 2x? Is it going to be 1.5x? That will vary from year to year depending on the kind of R&D activities we are engaged in at that point in time and also the sales and marketing efforts that we have in play for new product launches. But we feel really confident that revenue growth rate will outpace operating expense growth rate each year going forward and that should translate into adjusted EBITDA profitability in 2025, but also adjusted EBITDA margin expansion beyond 2025.

Thank you.

Thank you. One moment for our next question. The next question is going to come from the line of Ross Osborn with Cantor Fitzgerald. Your line is open. Please go ahead.

Hey guys. This is Matthew Park on for Ross tonight. Thanks for squeezing me in. Just wanted to start off talking about your interventionalist call plan, and can you guys walk us through how you're planning on leveraging clinical data such as STACI to drive adoption amongst the rest of the interventionalist channel?

Sure. Happy to do that. So we've been working with interventionalists for the year of 2024. And we're finding a very receptive audience with interventionalists, given that we are the market leader in SI joint fusion. They have a strong interest in performing SI joint fusion procedures. Some of them are interested in our TORQ technology. And you had asked a question about clinical data. We just finished enrolling our STACI trial, and that is using TORQ in a lateral trajectory, 110 patients, 0 serious adverse events. And what's important to interventionalists is to see the safety profile of that product while being used by other interventionalists. So we're excited about publishing the results of that study and also seeing how the data develops on the efficacy of the product as well. We also have interventionalists that are more interested in our intra product or think that INTRA is the more appropriate product for their practice. In some cases, they can use the product in an office-based lab, and we have a solution for them as well. So regardless of what interventionalists are hoping to achieve in their practices or with their patients, we have the solution for them, and we feel quite good about the relationships that we've built, the commercial traction that we're getting as well as the strong positive clinical data.

Got it. That's helpful. And then just one more for me. Apologies if this was already answered on the call. But regarding the sequential step down in R&D in the quarter, is there anything to call out here? And how should we think about near-term spend here as we transition to 2025? Thanks guys.

In terms of the recent decrease in R&D spending, there's not much significance to it. Our R&D expenses are divided into various stages of product development and clinical research, and some of the changes are simply due to timing at these stages. Looking ahead to 2025, we anticipate an increase in R&D expenditures because we have a busy pipeline of products that we're planning to launch in the next 18 to 24 months. We will also be conducting extensive clinical work to support these products. However, the growth rate of R&D spending is expected to be slower than the revenue growth rate we foresee moving forward.

Great. Thanks. Congrats again on the quarter.

Thank you.

Thank you. And I would now like to hand the conference back over to Laura Francis for closing remarks.

I'd just like to thank you all for participating in today's call, and we look forward to seeing you at the upcoming Piper conference. Goodbye.

This concludes today's conference call. Thank you for participating, and you may now disconnect.