# SI-BONE, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [SI-BONE, Inc.](/companies/sibn.md) (CIK 1459839)
- Form: 10-Q
- Filed: 2024-08-06
- Accepted by EDGAR: Aug 6, 2024, 16:15 ET
- Period: 2024-06-30
- Accession: 0001459839-24-000065
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1459839/000145983924000065/sibn-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1459839/000145983924000065/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $40.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $77.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $8.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $16.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $31.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $61.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $8.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$10.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$22.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $880.0k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $1.8m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$8.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$19.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.22 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.22 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 41,317,627 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 41,126,009 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$13.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $5.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $25.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $202.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $223.8m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $22.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $59.1m | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $36.1m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-06-30 | $164.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,147 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K filed with the SEC on February 27, 2024. Some of the information contained in this discussion and analysis, or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the “Risk Factors” section of this our Annual Report on Form 10-K filed on February 27, 2024, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.*

### Overview

We are a medical device company dedicated to solving musculoskeletal disorders of the sacropelvic anatomy. Leveraging our knowledge of pelvic anatomy and biomechanics, we have pioneered proprietary minimally invasive surgical implant systems to address sacroiliac joint dysfunction as well as address unmet clinical needs in pelvic fixation and management of pelvic fractures. Our products include a series of patented titanium implants and the instruments used to implant them, as well as implantable bone products. Since launching our first generation iFuse in 2009, we have launched multiple titanium implant product lines, including iFuse-3D in 2017, iFuse-TORQ in 2021, iFuse Bedrock Granite in 2022 and iFuse INTRA, an implantable bone product, in January 2024. Within the United States, iFuse, iFuse-3D and iFuse-TORQ have clearances for applications across sacroiliac joint dysfunction and fusion, adult spinal deformity and degeneration, and pelvic trauma.

We market our products primarily with a direct sales force as well as a number of third-party sales agents in the United States, and with a combination of a direct sales force, and sales agents and resellers in other countries. As of June 30, 2024, over 100,000 procedures have been performed using our products by over 3,900 physicians in the United States and 38 other countries since we introduced iFuse in 2009.

In May 2023, we received a total of $83.7 million of net proceeds from the offering of 3,775,000 shares of our common stock, and the exercise of the underwriter's option to purchase an additional 566,250 shares of our common stock, at a public offering price of $22.00 per share. Of these shares, 272,753 shares were offered by a selling stockholder and did not result in any proceeds to us.

### Factors Affecting Results of Operations and Key Performance Indicators

We monitor certain key performance indicators that we believe provide us and our investors indications of conditions that may affect results of our operations. Our revenue growth rate and commercial progress is impacted by, among other things, our key performance indicators, including our ability to expand access to solutions, increase physician penetration, launch new products, address human capital needs and gain operational efficiencies.

### Expand Access to Solutions

As we expand our portfolio, the experience, caliber, and strong clinician relationships of our sales force, including our network of third-party sales agents, will be crucial to drive adoption of our future products and procedures. Since our initial public offering in 2018, we have made significant investments in our commercial infrastructure to build a valuable sales team to expand the market, drive physician engagement and deliver revenue growth.

While we will continue to selectively expand our sales force, we are also focused on increasing our sales managers' capacity and driving sales force productivity by adding more clinical support specialists and implementing hybrid models, including selectively adding third-party sales agents for case coverage, and by placing instrument trays and implants at select sites of service. This expansion of our sales force is one aspect of increasing the overall number of procedures in a given period that we can support with products, which is what we call “surgical capacity.” Our surgical capacity is also limited by the volume of implant inventory and the number of instrument trays held ready for surgery, either at our headquarters facility, forward deployed with our sales force or placed at customer facilities. As we grow, and as adoption of our solutions continues to mature, our overall surgical capacity may become an important driver of the amount of revenue that we can generate.

As of June 30, 2024, our U.S. sales force consisted of 84 territory sales managers and 69 clinical support specialists directly employed by us and 204 third-party sales agents, compared to 85 territory sales managers and 66 clinical support specialists directly employed by us and 141 third-party sales agents as of June 30, 2023. As of June 30, 2024, our international sales force consisted of 11 sales representatives directly employed by us and a total of 29 third-party sales agents and resellers, compared to 12 sales representatives directly employed by us and a total of 31 third-party sales agents and resellers as of June 30, 2023.

As of June 30, 2024, over 20 percent of our procedures for sacroiliac joint dysfunction were performed at ambulatory surgery centers, or ASCs. With the steady increase in the numbers of minimally invasive procedures, including sacroiliac joint fusion procedures, being performed at ASCs, we continue to actively engage with these facilities to educate their management groups on our clinical evidence, exclusive commercial payor coverage and focus on driving improved education and pathways between pain physicians and surgeons.

### Physician Engagement

Engaging and educating physician and other healthcare professionals about the clinical merits and patient benefits of our solutions will be important to grow physician adoption. Our medical affairs team works closely with our sales team to increase physician engagement and activation. Physician activity includes both the number of physicians performing our procedures as well as the number of procedures performed per physician. In addition to training new physicians, we have several initiatives to re-engage inactive physicians.

We utilize a combination of hands-on cadaveric and dry-lab training, as well as the SI-BONE SImulator - a portable, radiation-free, haptics and computer-based simulator - for training purposes, and optimize our programs to improve adoption rate, time to first case and ultimately physician productivity.

We are currently targeting over 12,000 U.S. physicians, including over 8,000 orthopedic and neurological surgeons and approximately 4,500 interventional spine physicians, to perform our procedures. As of June 30, 2024 and 2023, in the United States more than 2,900 and 2,400 physicians, respectively, have been trained on our products and have treated at least one patient. Outside the United States, as of June 30, 2024 and 2023, more than 1,000 and 940 physicians, respectively, have been trained on our product and have treated at least one patient. Since launching our academic training program in August 2018, we have trained approximately 1,700 surgical residents and fellows in nearly 250 academic programs in the United States.

### Expand Addressable Markets

Expanding our platform of sacropelvic solutions to address sacroiliac joint dysfunction, pelvic fixation and pelvic trauma has been a key tenet of our strategy, and we have made substantial progress on this mission. With iFuse-3D, iFuse-TORQ and iFuse Bedrock Granite, we believe that the value of our innovative, versatile, and complementary product portfolio provides physicians with a comprehensive set of alternatives, and positions us as the top choice for physicians for sacropelvic solutions. We also offer an allograft bone implant for physicians who believe that this kind of implant can be important to obtaining stabilization and /or fusion.

In June 2022, we completed enrollment in SILVIA, a two-year prospective international multi-center randomized controlled trial of two different methods for pelvic fixation in adult patients undergoing multi-segmental, or long-construct, spinal fusion. We anticipate the results for the primary endpoint in 2025. We are working with a select group of physicians on STACI, a prospective study on the use of iFuse-TORQ in patients with sacroiliac joint dysfunction. The purpose of STACI is to provide post-market information on the safety and effectiveness of minimally invasive sacroiliac joint fusion procedures performed with iFuse-TORQ. We are no longer actively recruiting patients in our SAFFRON study and anticipate publishing follow-up results in 2025.

We continue to invest in research and development initiatives to bring new and differentiated solutions to the market that deliver on our vision of improving patient quality of life through differentiated solutions to target segments with a clear unmet clinical need. Robust clinical evidence is central to drive adoption and favorable reimbursement, and we remain focused on continuing to set the industry standard in delivering evidence-based care through best-in-class clinical trials that demonstrate the efficacy, safety, and economic benefit of our solutions. During the six months ended June 30, 2024, we spent $8.7 million on research and development, equating to 11% of our revenue. During the six months ended June 30, 2023, we spent $6.9 million on research and development, equating to 11% of our revenue.

### Enhance Employee Experience and Engagement

Our ability to recruit, develop and retain highly skilled talent is a significant determinant of our success. To attract, retain, and develop our talent, we seek to create a diverse and inclusive workplace with opportunities for our employees to thrive and advance in their careers. We support this with market-competitive compensation, comprehensive benefits, and health and wellness programs.

In addition to ensuring workforce diversity and equitable compensation for our employees, we maintain a strong focus on enhancing employee retention and job satisfaction. To achieve this, we have established a feedback mechanism to continually monitor and respond to employee sentiment. Using this feedback, we deploy strategies that enhance the skills of our people managers and improve internal communications with employees. Furthermore, we provide ongoing learning and leadership training opportunities to support professional growth.

In 2023, we conducted instructor-led trainings designed to build people leadership capabilities and train managers on delivering actionable feedback. We have also adopted a goal for each of our managers to have regular check-ins with employees to discuss their personal goals and career plans in furtherance of our commitment to career and professional development.

We maintain a commitment to employee retention by leveraging insights from exit interviews and engagement surveys to continuously enhance the workplace experience.

### Gain operational efficiency

To support our growing portfolio of solutions, we continue to evolve our business processes to identify, measure and improve operational efficiency. The information developed will allow us to optimize processes, increase sales force productivity and improve asset utilization.

We are focused on increasing our territory sales managers and sales representatives capacity, efficiency and productivity. We may do this by adding more clinical support specialists and third-party sales agents as part of hybrid arrangements for case coverage, and by consigning instrument trays and implants at select sites of service. As of June 30, 2024, our trailing twelve month average revenue per territory sales manager was approximately $1.7 million.

We have made significant investments in instrument trays used to perform surgeries. Our goal is to deploy instrument trays to the market where the demand exists to increase our asset utilization rates over time and use capital more effectively by having our instrument trays used in more surgeries in any given time period. Given supply chain disruptions impacting the industry, we are working closely with our suppliers to reduce lead time for our implants to ensure we can support our expanding physician footprint and over time build the resilience in our supply chain to reduce our cash investment in inventory. Additionally, we are partnering with our suppliers around design for manufacturing, specifically for newer products, to reduce the overall cost of the implants as we scale, and reduce waste and rework. Lastly, we are integrating our demand planning and manufacturing systems, to ensure we leverage actual usage trends as we build surgical capacity to support our growth.

### Components of Results of Operations

### Revenue

Our revenue from sales of implants fluctuates based on volume of cases (procedures performed), discounts, mix of international and U.S. sales, different implant pricing and the number of implants used for a particular patient. Similar to other orthopedic companies, our case volume can vary from quarter to quarter due to a variety of factors including reimbursement, sales force changes, physician activities, product launches, and seasonality. In addition, our revenue is impacted by changes in average selling price as we respond to the competitive landscape and price differences at different medical facilities, such as hospitals, ASCs and office-based labs or OBLs. Further, revenue results can differ based upon the mix of business between U.S. and international sales mix of our products used, and the sales channel through which each procedure is supported. Our revenue from international sales is impacted by fluctuations in foreign currency exchange rates between the U.S. dollar (our reporting currency) and the local currency.

Our business is affected by seasonal variations. For instance, we have historically experienced lower sales in the summer months and higher sales in the last quarter of the fiscal year as patients have more time in the winter months to have the procedure completed or want to take advantage of their annual limits on deductibles, co-payments and other out-of-pocket payments specified in their insurance plans. However, taken as a whole, seasonality does not have a material impact on our financial results from year to year.

### Cost of Goods Sold, Gross Profit, and Gross Margin

We utilize third-party manufacturers for production of our implants and instrument trays. Cost of goods sold consists primarily of costs of the components of implants and instruments, instrument tray depreciation, royalties, scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. Our cost of goods sold has historically increased as case levels increase and from changes in our product mix.

### Operating Expenses

Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, sales commissions and other cash and stock-based compensation related expenses. We intend to make investments to execute our strategic plans and operational initiatives. We anticipate certain operating expenses will continue to increase to support our growth.

#### Sales and Marketing Expenses

Sales and marketing expenses primarily consist of salaries, stock-based compensation expense, and other compensation related costs, for personnel employed in sales, marketing, medical affairs, reimbursement and professional education departments. In addition, our sales and marketing expenses include commissions and bonuses, generally based on a percentage of sales, as well as certain commission guarantees paid to our senior sales management, territory sales managers, clinical support specialists and third-party sales agents.

#### Research and Development Expenses

Our research and development expenses primarily consist of engineering, product development, clinical and regulatory expenses (including clinical study expenses), consulting services, outside prototyping services, outside research activities, materials, depreciation, and other costs associated with development of our products. Research and development expenses also include related personnel compensation and stock-based compensation expense. We expense research and development costs as they are incurred.

Research and development expenses for engineering projects fluctuate with project timing. Based upon our broader set of product development initiatives and the stage of the underlying projects, we expect to continue to make investments in research and development. As such, we anticipate that research and development expenses will continue to increase in the future.

#### General and Administrative Expenses

General and administrative expenses primarily consist of salaries, stock-based compensation expense, and other costs for finance, accounting, legal, insurance, compliance, and administrative matters.

### Interest Income

Interest income is primarily related to our investments of excess cash in money market funds and marketable securities.

### Interest Expense

Interest expense is primarily related to borrowings, amortization of debt issuance costs, and accretion of final fees on the First-Citizens Term Loan.

### Other Income (Expense), Net

Other income (expense), net consists primarily of net foreign exchange gains and losses on foreign transactions.

### Results of Operations

We manage and operate as one reportable segment. The table below summarizes our results of operations for the periods presented (percentages are amounts as a percentage of revenue), which we derived from the accompanying condensed consolidated financial statements:

*(in thousands, except for percentages)*

| Consolidated Statements of Operations Data: | Three Months Ended June 30, 2024 Amount% |  | 2023 Amount% |  | Six Months Ended June 30, 2024 Amount% |  | 2023 Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $39,969 | 100% | $33,305 | 100% | $77,836 | 100% | $66,013 | 100% |
| Cost of goods sold | 8,393 | 21% | 6,318 | 19% | 16,395 | 21% | 12,242 | 19% |
| Gross profit | 31,576 | 79% | 26,987 | 81% | 61,441 | 79% | 53,771 | 81% |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Sales and marketing | 28,970 | 72% | 27,492 | 83% | 58,357 | 75% | 54,805 | 83% |
| Research and development | 4,352 | 11% | 3,656 | 11% | 8,697 | 11% | 6,947 | 11% |
| General and administrative | 8,332 | 21% | 7,802 | 23% | 16,508 | 21% | 15,275 | 23% |
| Total operating expenses | 41,654 | 104% | 38,950 | 117% | 83,562 | 107% | 77,027 | 117% |
| Loss from operations | (10,078) | (25)% | (11,963) | (36)% | (22,121) | (28)% | (23,256) | (36)% |
| Interest and other income (expense), net: |  |  |  |  |  |  |  |  |
| Interest income | 2,015 | 5% | 1,582 | 5% | 4,128 | 5% | 2,515 | 4% |
| Interest expense | (880) | (2)% | (850) | (3)% | (1,761) | (2)% | (1,689) | (3)% |
| Other income (expense), net | 4 | —% | 25 | —% | (89) | —% | 99 | —% |
| Net loss | $(8,939) | (22)% | $(11,206) | (34)% | $(19,843) | (25)% | $(22,331) | (35)% |

We derive the majority of our revenue from sales to customers in the U.S. Revenue by geography is based on billing address of the customer. The table below summarizes our revenue by geography:

*(in thousands except for percentages)*

|  | Three Months Ended June 30, 2024 Amount% |  | 2023 Amount% |  | Six Months Ended June 30, 2024 Amount% |  | 2023 Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| United States | $37,813 | 95% | $31,215 | 94% | $73,238 | 94% | $61,665 | 93% |
| International | 2,156 | 5% | 2,090 | 6% | 4,598 | 6% | 4,348 | 7% |
|  | $39,969 | 100% | $33,305 | 100% | $77,836 | 100% | $66,013 | 100% |

28

### Comparison of the Three Months Ended June 30, 2024 and 2023

***Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin:***

*(in thousands, except for percentages)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $39,969 | $33,305 | $6,664 | 20% |
| Cost of goods sold | 8,393 | 6,318 | 2,075 | 33% |
| Gross profit | $31,576 | $26,987 | $4,589 | 17% |
| Gross margin | 79% | 81% |  |  |

*Revenue.* The increase in revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by a $6.7 million increase in our U.S. revenue from the increase in case volumes due to our expanded product portfolio.

*Gross Profit and Gross Margin.* Gross profit increased $4.6 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, mainly driven by higher revenue. The gross margin was 79% for the three months ended June 30, 2024 as compared to 81% for the three months ended June 30, 2023. Gross margin decreased in the three months ended June 30,

2024 as compared to the three months ended June 30, 2023, primarily due to the changes in procedure and product mix.

***Operating Expenses:***

*(in thousands, except for percentages)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $28,970 | $27,492 | $1,478 | 5% |
| Research and development | 4,352 | 3,656 | 696 | 19% |
| General and administrative | 8,332 | 7,802 | 530 | 7% |
| Total operating expenses | $41,654 | $38,950 | $2,704 | 7% |

*Sales and Marketing Expenses.* The increase in sales and marketing expenses for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily due to a $1.0 million increase in commissions driven by higher revenues and $0.5 million increase in training, travel and consulting costs to support the expansion of our sales and marketing activities.

*Research and Development Expenses.* The increase in research and development expenses for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to a $0.4 million increase in product development activities and $0.3 million increase in employee-related costs and stock-based compensation due to an increase in headcount within research and development departments.

*General and Administrative Expenses*. The increase in general and administrative expenses for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to a $0.3 million increase in employee-related costs and stock-based compensation due to an increase in headcount within general and administrative departments and a $0.2 million increase in legal, consulting and travel costs as we continue to invest in our general and administrative organizations to support our business growth.

***Interest and Other Income (Expense), Net:***

*(in thousands, except for percentages)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $2,015 | $1,582 | $433 | 27% |
| Interest expense | (880) | (850) | (30) | (4)% |
| Other income (expense), net | 4 | 25 | (21) | 84% |
| Total interest and other expense, net | $1,139 | $757 | $382 | (50)% |

*Interest Income.* The increase in interest income for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily due to higher interest earned on our investments in marketable securities, primarily as a result of higher interest rates.

*Interest Expense*. The increase in interest expense for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily due to higher interest rates associated with the First-Citizens Term Loan.

*Other Income (Expense), Net.* The change in other income (expense), net for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to foreign currency fluctuations.

### Comparison of the Six Months Ended June 30, 2024 and 2023

***Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin:***

*(in thousands, except for percentages)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $77,836 | $66,013 | $11,823 | 18% |
| Cost of goods sold | 16,395 | 12,242 | 4,153 | 34% |
| Gross profit | $61,441 | $53,771 | $7,670 | 14% |
| Gross margin | 79% | 81% |  |  |

*Revenue.* The increase in revenue for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by a $11.6 million increase in our U.S. revenue due to the increase in case volumes.

*Gross Profit and Gross Margin.* Gross profit increased $7.7 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, mainly driven by higher revenue. The gross margin was 79% for the six months ended June 30, 2024 as compared to 81% for the six months ended June 30, 2023. Gross margin decreased in the six months ended June 30, 2024 as compared to the six months ended June 30, 2024, primarily due to changes in procedure and product mix.

***Operating Expenses:***

*(in thousands, except for percentages)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $58,357 | $54,805 | $3,552 | 6% |
| Research and development | 8,697 | 6,947 | 1,750 | 25% |
| General and administrative | 16,508 | 15,275 | 1,233 | 8% |
| Total operating expenses | $83,562 | $77,027 | $6,535 | 8% |

*Sales and Marketing Expenses.* The increase in sales and marketing expenses for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to a $1.7 million increase in training and travel costs to support the expansion of our sales and marketing activities, $1.5 million increase in commissions driven by higher revenues, and a $0.4 million increase in employee-related costs and stock-based compensation driven by an increase in headcount within sales and marketing departments.

*Research and Development Expenses.* The increase in research and development expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to a $1.3 million increase in research, regulatory, and consulting fees to support our product development activities and a $0.5 million increase in employee-related costs and stock-based compensation due to an increase in headcount within research and development departments.

*General and Administrative Expenses*. The increase in general and administrative expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to a $1.0 million increase in employee-related costs and stock-based compensation due to an increase in headcount within general and administrative departments, a $0.1 million increase in audit fees related to the audit of our financial statements and the audit of our internal control over financial reporting, and a $0.1 million increase in allowance for credit losses on certain aged receivable balances.

***Interest and Other Income (Expense), Net:***

*(in thousands, except for percentages)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $4,128 | $2,515 | $1,613 | 64% |
| Interest expense | (1,761) | (1,689) | (72) | (4)% |
| Other income (expense), net | (89) | 99 | (188) | 190% |
| Total interest and other expense, net | $2,278 | $925 | $1,353 | (146)% |

*Interest Income.* The increase in interest income for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to higher interest earned on our investments in marketable securities, primarily as a result of higher interest rates earned.

*Interest Expense*. The increase in interest expense for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to higher interest rates associated with the First-Citizens Term Loan.

*Other Income (Expense), Net.* The change in other income (expense), net for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to foreign currency fluctuations.

### Liquidity and Capital Resources

As of June 30, 2024, we had cash and marketable securities of $151.5 million compared to $166.0 million as of December 31, 2023. We have financed our operations primarily through the sale of our common stock in our public offerings and debt financing arrangements. As of June 30, 2024 and December 31, 2023, we had $36.1 million in outstanding debt.

As of June 30, 2024, we had an accumulated deficit of $420.3 million, compared to $400.4 million as of December 31, 2023. During the six months ended June 30, 2024, we incurred a net loss of $19.8 million. During the years ended December 31, 2023 and 2022, we incurred a net loss of $43.3 million and $61.3 million, respectively, and expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date.

In May 2023, we received a total of $83.7 million of net proceeds after deducting the underwriting discounts and commissions from the public offering of our common stock.

Based upon our current operating plan, we believe that our existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements over the next 12 months from the filing of this Form 10-Q. However, the economic impact of a potential future disruptions in the healthcare operating environment and uncertainties affecting the economic and capital markets environment and the financial services industry pose risks and uncertainties to our future available capital resources. Further, we may face challenges and uncertainties and, as a result, may need to raise additional capital as our available capital resources may be consumed more rapidly than currently expected due to, but not limited to the following: (a) decreases in sales of our products and the uncertainty of future revenues from new products; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our business strategy; (d) regulatory and reimbursement developments affecting our existing products; (e) changes we may make in our research and development spending plans; and (f) other items affecting our forecasted level of expenditures and use of cash resources. In addition, as we seek to deploy new product offerings, the need for additional capital to fund the purchase of inventories of implants and instrument trays may become more acute and may limit the number of revenue opportunities that we pursue. Each new product line introduced typically requires the purchase of consumable implant inventory as well as investment in a fleet of instrument trays required to support procedures nationwide.

### Term Loan

Our outstanding debt is related to a term loan pursuant to the Loan and Security Agreement dated August 12, 2021 (the “Original Loan Agreement”), entered into by us and Silicon Valley Bank (“SVB” or “Lender”). Pursuant to the Original Loan Agreement, SVB provided a term loan in the aggregate principal amount of $35.0 million to us (the “Original Term Loan”).

On January 6, 2023, we entered into a First Amendment to Loan and Security Agreement (the “Amendment” and together with the Original Loan Agreement, the “Amended Loan Agreement”) with SVB, which increased our Original Term Loan facility of $35.0 million to $36.0 million. Upon entry into the Amendment, we borrowed $36.0 million pursuant to a new term loan (the “Term Loan”), which was substantially used to repay in full the Original Term Loan, and we also secured a revolving credit facility in an aggregate principal amount of up to $15.0 million (the “Revolving Line”) and an uncommitted accordion term loan in an aggregate principal amount of up to $15.0 million, which accordion may be approved by the Lender, solely in its discretion, upon our request. The Term Loan matures on December 1, 2027 (the “Term Loan Maturity Date”). Interest on the Term Loan will be payable monthly at a floating annual rate set at the greater of (i) the prime rate as published in the Wall Street Journal plus 0.5% or (ii) 6.75%. Commencing on July 1, 2025, we will be required to make monthly principal Term Loan amortization payments. A final fee payment of 2% of the original principal amount of the Term Loan is due upon the earlier of the Term Loan Maturity Date, termination of the Amended Loan Agreement, acceleration by the Lender following an event of default, or prepayment of the Term Loan. We may elect to prepay the Term Loan in whole prior to the Term Loan Maturity Date subject to a prepayment fee equal to 2% of the principal amount of the Term Loan prepaid at such time. No prepayment fee would be due if the Term Loan is refinanced by the Lender. Pursuant to the terms of the Amended Loan Agreement, revolving loans may be borrowed, repaid and reborrowed until the maturity date, which will be July 6, 2025 (the “Revolving Line Maturity Date”). Borrowings under the Revolving Line are based on 80% of eligible domestic accounts receivable borrowing base. Interest on the outstanding balance of the Revolving Line will be payable monthly at a floating annual rate set at the greater of the prime rate as published in the Wall Street Journal or 6.25%. Interest on borrowings is due monthly and any principal balance is due on the Revolving Line Maturity Date, provided that when Revolving Line Advances are outstanding, in the event we do not maintain an adjusted quick ratio of at least 1.5 to 1.0, then falling below such threshold will allow the Lender to apply accounts receivable collections to outstanding Revolving Line borrowings. We will pay a total commitment fee of $187,500 on account of the Revolving Line payable in installments, but fully earned at close. We will also be required to pay a fee of $150,000 if we terminate the Amended Loan Agreement or the Revolving Line prior to Revolving Line Maturity Date, or if the Lender terminates the Loan Agreement or the Revolving Line following an event of default. No termination fee would be due if the Revolving Line is replaced with a new facility with the Lender.

On March 14, 2023 all of SVB’s assets and liabilities, including all of SVB’s rights as the lender pursuant to the Amended Loan Agreement, were assigned to Silicon Valley Bridge Bank. On March 27, 2023, all of Silicon Valley Bridge Bank’s assets and liabilities were assigned and assumed by First-Citizens Bank & Trust Company (“First-Citizens”). On January 25, 2024, the Company entered into a Second Amendment to Loan and Security Agreement with First-Citizens which amends the Company's Amended Loan Agreement (the “Second Amendment” and together with the Amended Loan Agreement, the “Second Amended Loan Agreement”). The Second Amendment revised certain provisions related to financial covenants and the periods in which the covenants apply. No amounts were outstanding under the Revolving Line as of June 30, 2024.

On March 10, 2023, we violated certain terms of the Amended Loan Agreement by opening bank accounts with another financial institution and transferring funds from SVB. We entered into a letter agreement with Silicon Valley Bridge Bank waiving enforcement of this covenant and providing us the right to hold a portion of our cash at other financial institutions. A future violation of any covenants could result in a default under the Second Amended Loan Agreement that would permit First-Citizens to restrict our ability to further access the Revolving Line of Credit for loans and require the immediate repayment of any outstanding loans under the agreement. As of June 30, 2024, we were in compliance with all debt covenants, provided, however, that in order to access future credit advances under the Revolving Line of Credit, we will be required to redirect certain customer payments and transfer certain cash management account balances, in each case, back to First-Citizens. As of June 30, 2024, we had cash management accounts with a financial institution other than First-Citizens and instructed our customers to direct payments to us to these separate operating accounts. Until such customer payments are directed back to certain First-Citizens cash collateral accounts, and certain balances and funds are moved back to the First-Citizens cash collateral accounts and other accounts held at First-Citizens, we will be unable to obtain credit advances under the Revolving Line.

The Second Amended Loan Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on First-Citizens' security interest over the collateral, a material adverse change, the occurrence of a default under certain other indebtedness of our company and our subsidiaries, the rendering of certain types of judgments against us and our subsidiaries, the revocation of certain government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. In addition, the Second Amended Loan Agreement contains a financial covenant which requires us to maintain, at all times during which we are subject to financial covenants under the Second Amended Loan Agreement is in effect, certain net revenue levels as agreed upon by us and First-Citizens. If we do not comply with the various covenants under the Second Amended Loan Agreement and an event of default occurs under the Second Amended Loan Agreement, the interest rate on outstanding amounts can increase by 3% and First-Citizens may, subject to various customary cure rights, decline to provide additional advances under the Revolving Line, require the immediate payment of all loans and other amounts outstanding under the Second Amended Loan Agreement, and foreclose on all collateral.

Our material cash requirements include various contractual and other obligations consisting of long-term debt obligations with First-Citizens, operating lease obligations and purchase obligations with some of our suppliers and have not changed materially since the Form 10-K filed with the SEC on February 27, 2024. As of June 30, 2024, expected timing of those payments are as follows:

*(in thousands)*

|  | Total | Payments Due By Period Less than 1 year | 1-3 years | 4-5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Principal obligations and final fee on debt (1) | $36,720 | $— | $22,800 | $13,920 | $— |
| Interest obligations (2) | 7,261 | 1,656 | 5,006 | 599 | — |
| Operating lease obligations | 2,394 | 771 | 1,616 | 7 | — |
| Purchase obligations | 379 | 379 | — | — | — |
| Total | $46,754 | $2,806 | $29,422 | $14,526 | $— |

(1) Represents the principal obligations and the final fee at maturities of our First-Citizens Term Loan.

(2) Represents the future interest obligations on our First-Citizens Term Loan estimated using an interest rate of 9.00% as of June 30, 2024.

This compared to $49.2 million of contractual obligations as of December 31, 2023.

### Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods presented below:

*(in thousands)*

| Net cash provided by (used in): | Six Months Ended June 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Operating activities | $(13,905) | $(14,343) | $438 |
| Investing activities | 4,517 | 13,984 | (9,467) |
| Financing activities | 1,881 | 90,328 | (88,447) |
| Effects of exchange rate changes on cash and cash equivalents | (187) | 129 | (316) |
| Net increase (decrease) in cash and cash equivalents | $(7,694) | $90,098 | $(97,792) |

#### Cash Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2024 of $13.9 million resulted from cash outflows due to a net loss of $19.8 million, adjusted for $14.0 million of non-cash items, and cash outflows from net changes in operating assets and liabilities of $8.1 million. Net cash used in operating activities for the six months ended June 30, 2023 of $14.3 million resulted from cash outflows due to a net loss of $22.3 million, adjusted for $14.0 million of non-cash items, and cash outflows from changes in operating assets and liabilities of $6.0 million. The decrease in net loss, net of non-cash items for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was mainly due to increased revenues. Net cash outflows from changes in operating assets and liabilities for the six months ended June 30, 2024 was primarily due to higher inventory due to new product introductions, higher accounts receivable due to timing of collections, and higher accrued liabilities attributable to the normal timing of expenses. Net cash outflows from changes in operating assets and liabilities for the six months ended June 30, 2023 was primarily due to higher inventory due to the inventory build-up related to our implants, and lower accrued liabilities attributable to the normal course timing of expenses.

#### Cash Flows From Investing Activities

Net cash provided by investing activities in the six months ended June 30, 2024 was $4.5 million compared to cash provided by investing activities of $14.0 million in the six months ended June 30, 2023. Net cash provided by investing activities for the six months ended June 30, 2024 consisted of purchases of our marketable securities net of maturities of $9.7 million, and purchases of property and equipment of $5.2 million primarily related to individual components in instrument sets to support revenue growth. Net cash provided by investing activities for the six months ended June 30, 2023 consisted of maturities of our marketable securities net of purchases of $19.3 million, partially offset by purchases of property and equipment of $5.3 million primarily related to individual components in instrument sets to support revenue growth, as well as leasehold improvements made to the building used for research and development and warehouse space in Santa Clara.

#### Cash Provided by Financing Activities

Cash provided by financing activities in the six months ended June 30, 2024 was $1.9 million resulting from the issuance of common stock under our stock-based incentive compensation plans. This compares to $90.3 million of cash provided by financing activities in the six months ended June 30, 2023 resulting from net proceeds of $0.7 million from the refinancing of our term loan with First-Citizens, proceeds of $4.0 million from the issuance of common stock under our stock-based incentive compensation plans, and proceeds of $84.1 million, excluding the payment of $0.5 million in offering costs, from the issuance of common stock under our follow-on public offering.

### Critical Accounting Policies, Significant Judgments, and Use of Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Our critical accounting policies and estimates are described in “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Significant Judgments, and Use of Estimates” in our 2023 Annual Report. There had been no material changes to the descriptions of these accounting policies, judgments and estimates.

### Seasonality

Our business is affected by seasonal variations. For instance, we have historically experienced lower sales in the summer months and higher sales in the last quarter of the fiscal year. However, taken as a whole, seasonality does not have a material impact on our financial results.

## Market risk

As filed, 2,562 characters.

We are exposed to market risks, including changes to foreign currency exchange rates and interest rates.

### Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, have in the past, and may in the future, negatively affect our revenue and other operating results as expressed in U.S. dollars.

We have experienced and will continue to experience fluctuations in net loss as a result of transaction gains or losses related to remeasuring certain current asset and current liability balances denominated in currencies other than the functional currency of the entities in which they are recorded. At this time, we have not entered into, but in the future we may enter into, derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the effect hedging activities would have on our results of operations. Foreign currency gains or losses, net recognized in the three and six months ended June 30, 2024 and 2023 were not material. A hypothetical 10 percent change in foreign exchange rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements.

### Interest Rate Risk

Our exposure to changes in interest rates relates to interest earned and market value on our cash and cash equivalents and short-term investments. Our cash and cash equivalents and short-term investments consist of cash, money market funds, U.S. government securities. The market value of our marketable securities may decline if current market interest rates rise. Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. We do not make investments for trading or speculative purposes.

Interest on the Term Loan will be payable monthly at a floating annual rate set at the greater of the prime rate as published in the Wall Street Journal plus 0.5% or 6.75%. Rising interest rates will increase the amount of interest paid on this debt. We believe that our exposure to interest rate risk is not significant due to the low risk profile of our investments and amount of our Term Loan, therefore a hypothetical 10 percent change in market interest rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements.

## Controls and procedures

As filed, 2,053 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of June 30, 2024, our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), have evaluated our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our CEO and our CFO have concluded that, as of June 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in internal control over financial reporting

During the quarter ended June 30, 2024, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 703 characters.

There have been no material changes from the risk factors disclosed in Part I, Item 1A. “Risk Factors” of our 2023 Annual Report. The risk factors described in our 2023 Annual Report, as well as other information set forth in this Quarterly Report on Form 10-Q, could materially adversely affect our business, financial condition, results of operations and prospects, and should be carefully considered. The risks and uncertainties that we face, however, are not limited to those described in the 2023 Annual Report. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities.

Filed Aug 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001459839-24-000065. Last ingested by Listed: Nov 10, 2026, 04:05 ET. No prices; not investment advice.