Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  SI-BONE, Inc.    SIBN

SI-BONE, INC.

(SIBN)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector news

SI BONE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
08/04/2020 | 04:59pm EDT
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 March 11, 2020. 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 Quarterly Report on Form 10-Q, 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 focused on the development of implantable
devices used in the surgical treatment of the sacropelvic anatomy. We have
pioneered a proprietary minimally invasive surgical implant system, which we
call iFuse, to fuse the sacroiliac joint to treat sacroiliac joint dysfunction,
which often causes severe lower back pain. Since we introduced iFuse in 2009, as
of June 30, 2020, more than 48,000 procedures have been performed by over 2,100
surgeons in the U.S. and 35 other countries.
We introduced our second-generation implant, the iFuse-3D, in 2017. This
patented titanium implant combines the triangular cross-section of our
first-generation iFuse Implant with a proprietary 3D-printed porous surface and
fenestrated design.
In April 2019, we received clearance from the U.S. Food and Drug Administration
("FDA"), to promote the use of our iFuse system with the iFuse Bedrock technique
for fusion of the sacroiliac joint in conjunction with multi-level spinal fusion
procedures to provide further stabilization and immobilization of the sacroiliac
joint. We received CE marking and began marketing our iFuse system for the same
indication in Europe in December 2019. In March 2020, we received FDA 510(k)
clearance for an expanded indication for the iFuse Implant System to support our
trauma program.
We market our products primarily with a direct sales force as well as a number
of distributors in the U.S., and with a combination of a direct sales force and
distributors in other countries.
In October 2018, we completed our initial public offering ("IPO") resulting in
net proceeds of $113.4 million after deducting underwriting discounts and
commissions and offering expenses. In January and February 2020, we received a
total of $63.0 million of net proceeds, after deducting the underwriting
discounts, commissions and offering costs, from our follow-on public offering of
our common stock.
Impact of COVID-19 Pandemic

The COVID-19 pandemic and the resulting economic downturn are affecting business
conditions in our industry. The overall demand for our products decreased as a
result of the pandemic, which impacted our operating results for the three and
six months ended June 30, 2020. Many state and local governments in the U.S. and
foreign governments issued orders that temporarily precluded elective procedures
in order to conserve scarce health system resources in view of the pandemic. The
decrease in hospital admission rates and elective surgeries decreases the demand
for elective procedures using our iFuse implants. Prior to the spread of
COVID-19, we experienced case growth trends consistent with those experienced in
the fourth quarter of 2019. Beginning at the end of February 2020, we began to
see an impact on case volumes in Northern Italy due to the spread of the virus
in the Lombardy region, the location of our operation in Gallarate, Italy.
Overall, the disruption was not significant through the middle of March 2020, as
Italy represents a small portion of our worldwide sales. Beginning in mid-March
2020 through April 2020, we saw a substantial worldwide reduction in global case
volumes due to deferral of elective surgeries as a result of the spread of
COVID-19 in the U.S. and across Europe. In May and June 2020, case volumes began
to recover as hospitals and medical centers across the U.S. and Europe resumed
performance of elective surgery procedures.
We have taken what we believe are all necessary precautions to safeguard our
employees, patients, customers, and other stakeholders from COVID-19 pandemic.
We are following the Centers for Disease Control and Prevention's guidance and
local restrictions. We took actions to support patients, customers, and
employees, while maintaining business continuity in response to the COVID-19
pandemic. The majority of our employees who are not related to manufacturing and
order fulfillment are currently on a telecommunication work arrangement and have
generally been able to successfully work remotely. We restricted non-essential
travel to protect the health and safety of our employees, patients, and
customers. We modified operations and clinical support starting in March 2020,
maintaining streamlined assembly, distribution and related processes in order to
continue providing products to our customers. Specific protocols were designed
and implemented to minimize contact time among employees working on site. Where
healthcare operations were impacted, we supported healthcare providers via
telephone and online technologies. Starting in May 2020, we began to return to
more normalized operations and clinical support as local restrictions were
reduced. We also continue to focus on increasing surgeon activity by utilizing a
virtual education series for surgeons and mid-level practitioners to continue
our training activities.
                                       23
--------------------------------------------------------------------------------

During the quarter, our primary goal was to retain our employees and continue
forward with major new product initiatives to protect the long-term prospects of
our business. However, we curtailed operating expense in other areas due to
limited visibility on the extent and duration of the impact from COVID-19. We
took preemptive steps to manage spending, including implementing hiring
restrictions, eliminating discretionary spending, reducing executive salaries,
reducing capital expenditures, reducing non-essential marketing expenses, and
delaying clinical research projects. We will continue to take a thoughtful
approach to spending that will help align any return to investments in our
business with a return to revenue growth, while managing our net loss and
protecting our cash.
The extent to which the COVID-19 pandemic impacts our operations is dependent on
future developments, which are still highly uncertain and cannot be fully
predicted at this time, and include the duration, severity and scope of the
outbreak and the actions taken to contain or treat the COVID-19 pandemic. In
particular, the spread of the COVID-19 globally is adversely affecting global
economies and financial markets which could materially and adversely impact our
operations. The existence and further duration of the COVID-19 pandemic may also
further exacerbate certain risks as described in "Item 1A - Risk Factors".
Recently, certain U.S. states are experiencing increasing trends of COVID-19
infections and hospitalizations. This could result in governments reissuing
orders that temporarily preclude elective procedures which may significantly
reduce our future revenue and significantly impact our results of operations. We
continue to monitor the rapidly evolving situation and guidance from
authorities, including federal, state and local public health authorities and
may take additional actions based on their recommendations. In these dynamic
circumstances, there may be developments outside our control requiring us to
adjust our operating plan. We intend to continue to execute on our strategic
plans and operational initiatives during the COVID-19 outbreak. However, the
uncertainties discussed above may result in delays or modifications to these
plans and initiatives.
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 leverage our
sales force, increase surgeon activity, engage key opinion leaders and influence
coverage and reimbursements.

Leverage our sales force


We have made significant investments in our sales force since our initial public
offering in 2018. We have built a valuable sales team, and we believe they are
the key to the recovery that follows the pandemic. As such, we have made it a
top priority to support and retain our sales force through this challenging
period. However, we have also limited new sales force hiring in the second
quarter of 2020 given current uncertainties and are focusing on sales force
productivity during this period. As of June 30, 2020, our U.S. sales force
consisted of 62 territory sales managers and 54 clinical support specialists
directly employed by us and 37 third-party distributors, compared to 50
territory sales managers and 37 clinical support specialists directly employed
by us and 33 third-party distributors as of June 30, 2019. As of June 30, 2020,
our international sales force consisted of 20 sales representatives directly
employed by us and 31 third-party distributors, compared to 16 sales
representatives directly employed by us and 28 third-party distributors as of
June 30, 2019.

Increase surgeon activity

We continue to focus on increasing surgeon activity. Surgeon activity includes
both the number of surgeons performing iFuse procedures as well as the number of
procedures performed per surgeon. As of June 30, 2020 and 2019, in the U.S.,
more than 1,500 surgeons and 1,300 surgeons, respectively, have been trained on
iFuse and have treated at least one patient. Outside the U.S., as of June 30,
2020 and 2019, more than 600 surgeons and 500 surgeons, respectively, have been
trained on iFuse and have treated at least one patient. We will continue to
pursue the remainder of the approximately 7,500 target surgeons in the U.S., as
well as international surgeons for training in the future. However, this process
has been and will continue to be hampered during the duration of the COVID-19
outbreak. We are utilizing a virtual education series for surgeons and mid-level
practitioners to continue our training activities. As restrictions are lifted,
we will focus on increasing the number of procedures performed by our active
surgeons, converting recently trained surgeons to first case, and converting
inactive surgeons to active surgeons.

                                       24
--------------------------------------------------------------------------------

Engage key opinion leaders


We conduct training courses in several academic centers in the U.S. We are
seeing interest from key opinion leaders at academic centers in our Bedrock
technique. We introduced this technique in June 2019 for use in the fusion of
the sacroiliac joints in conjunction with a multi-segment spinal fusion, or long
construct, procedure. The Bedrock technique is based on our proprietary
implants, with one implant placed in each sacroiliac joint (for a total of two
implants per case) using a posterior approach, through the sacrum, across the
sacroiliac joint, and into the ilium. The Bedrock technique is in contrast to
placement with our traditional iFuse procedure, whereby three iFuse implants are
placed into one sacroiliac joint via a lateral approach through the ilium and
into the sacrum. The Bedrock technique is used to increase stability at the base
of a long construct, and biomechanical testing has shown iFuse implants in this
position reduce sacroiliac joint motion by approximately 30% in conjunction with
a long construct. Interest in the Bedrock technique has enabled our field sales
representatives to access leading spine surgeons at important academic medical
centers in the U.S. Our representatives are often then able to train a broader
group of spine surgeons, including residents and fellows in training at the
centers, on both the Bedrock technique and minimally invasive sacroiliac fusion.
Since the launch of Bedrock, we have conducted more than 45 training courses at
academic centers in the U.S., and more than 200 surgical residents and fellows
have been trained. We received CE mark clearance for the promotion of the
Bedrock technique in Europe and we launched the promotion of this technique in
select European markets. We believe that acceptance of the sacroiliac joint as a
pain generator by leading spine surgeons may result in more widespread awareness
of sacroiliac joint dysfunction and its role in causing certain types of chronic
low back pain. Our ability to engage with key opinion leaders has been impeded
by COVID-19. However, we are continuing our activities with key opinion leaders
through our virtual education series.

Influence coverage and reimbursement

We made significant progress in both the number of covered lives and the Medicare physician fee for surgeons performing minimally invasive sacroiliac fusion in the U.S.


•Covered lives - As of June 30, 2020, of the U.S. payors covering 297.8 million
lives that reimburse for iFuse, 182.0 million lives are covered by private
payors. This includes covered lives by Aetna, which adopted a new new coverage
for minimally invasive arthrodesis of the sacroiliac joint for sacroiliac joint
syndrome and sacroiliac joint pain, effective May 28, 2020. Aetna is the third
largest commercial health plan in the U.S. with over 22 million members.
Currently, the covered lives counts do not include Anthem, which announced in
December 2019 that they would cover minimally invasive sacroiliac fusion
procedures in the event of pelvic girdle trauma only. As of June 30, 2019, U.S.
payors covering 266.0 million lives reimbursed for iFuse, of which 131.0 million
were covered by private payors. We track the number of U.S. covered lives, or
individuals whose healthcare is paid for by a private commercial or governmental
payor that routinely reimburses for minimally invasive sacroiliac fusion, as a
proxy for availability of the procedure within the U.S. healthcare payment
system. As of June 30, 2020, 35 U.S. payors have issued positive coverage
policies exclusive to iFuse for sacroiliac joint fusion because of the clinical
evidence, compared to 33 exclusive coverage policies as of June 30, 2019. These
payors have based their exclusive coverage decisions on the quality of our data.
Further, as of June 30, 2020 and 2019, there were 21 and 18, respectively, U.S.
payors that are covering iFuse and other products for sacroiliac joint fusion.
We believe that the full impact of each coverage decision grows over time as
surgeons gain confidence that they will receive reimbursement for the majority
of their diagnosed patients.

•Surgeon payment - The Center for Medicare & Medicaid Services announced in
November 2019 that the U.S. national average physician fee reimbursement for
minimally invasive sacroiliac joint fusion increased from $720, effective
January 1, 2019 to $915, effective January 1, 2020. Many private payors set
their payment amounts with reference to the Medicare payment, often
approximately 10% to 33% higher than the Medicare payment for a procedure. We
believe that expanded coverage for minimally invasive sacroiliac fusion and the
increase in physician reimbursement for the procedure may enable surgeons to
treat more patients diagnosed with sacroiliac joint dysfunction and degeneration
with iFuse.
                                       25
--------------------------------------------------------------------------------

Components of Results of Operations
Revenue
We generate our revenue from sales of iFuse. Revenue from sales of iFuse
fluctuate based on volume of cases (procedures performed), discounts, mix of
international and U.S. sales, 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, and seasonality. In addition, our revenue
is impacted by changes in average selling price as we respond to the competitive
landscape. Further, revenue results can differ based upon the mix of business
between U.S. and international sales and mix of our products either delivered at
the point of implantation at the hospital or other medical facilities or
delivered through distributors or to hospitals where the products were ordered
in advance of the procedure. 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.
The COVID-19 pandemic reduced our expected number of cases in the first and
second quarters of 2020 due to local restrictions on elective surgeries. As the
pandemic continued in the U.S. and Europe, it had a significant impact on our
case volumes beginning mid-March 2020. The largest impact was felt in April
2020, where revenue declined by 84% from the prior year. Given the situation, a
considerable number of cases were deferred from mid-March through the end of
April 2020. In May 2020, case volumes began to recover as hospitals and medical
centers across the U.S. and Europe resumed performance of elective surgery
procedures, with revenue growth of 6% in May 2020 compared to the prior year.
Case volumes continued to improve in June 2020 with revenue growth of 42%
compared to the prior year. We believe a considerable number of cases performed
in May 2020 and June 2020 were rescheduled surgeries cancelled in the second
half of March through the end of April 2020. As rescheduled procedures diminish,
in addition to the heightened risk of further shutdowns in elective procedures
and geographic uncertainty, we do not view second quarter 2020 revenue
performance as an indicator of future growth.
The COVID-19 pandemic significantly disrupted and may continue to disrupt
capital markets as well as worldwide economies, leading to a prolonged global
economic recession. This could pressure hospital spending, impacting our
pricing. Further, the government restrictions to temporarily preclude elective
procedures may continue to disrupt scheduled procedures. As a result of these
factors, it has made it difficult for us to forecast future iFuse sales.
Therefore, we believe that historical revenue trends are not a good indicator of
future growth.
Cost of Goods Sold, Gross Profit, and Gross Margin
We utilize third-party manufacturers for production of iFuse implants and
instrument sets. Cost of goods sold consists primarily of costs of the
components of iFuse implants and instruments, instrument set depreciation, 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.
Our gross profit and gross margin are affected by factors impacting revenue and
cost of goods sold. In addition, our gross margins are typically higher on
products we sell directly as compared to products we sell through third-party
distributors. As a result, changes in the mix of direct versus distributor sales
can directly influence our gross margins.
Our operations ran at suboptimal capacity as a result of decreased iFuse demand
from worldwide restrictions on elective procedures. Accordingly, certain labor
and overhead costs were expensed as incurred which impacted our gross profit and
gross margin in the second quarter of 2020. We may experience similar issues in
future quarters due to the COVID-19 pandemic. As such, we cannot reliably
estimate the extent to which the COVID-19 pandemic will impact our overall cost
of goods sold, gross profit, and gross margin in the near-term.
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
anticipate operating expenses will continue to increase to support our
employees. However, we are currently limiting hiring of staff at this time due
to the COVID-19 pandemic. In addition, we have taken steps to reduce variable
expenses that are ineffective due to the COVID-19 pandemic.

                                       26
--------------------------------------------------------------------------------

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, to our senior
sales management, direct territory sales managers, territory associate
representatives and third-party distributors.
Our sales and marketing spending reflected normal business activities into
mid-March 2020. Due to the COVID-19 pandemic, we focused on protecting key
investments in our field force while curtailing most other areas of sales and
marketing spend during the second quarter of 2020. For example, we guaranteed
certain levels of incentive compensation to members of our field sales
organization for the second quarter 2020 in order to retain these employees and
partially mitigate the impact of the pandemic to their compensation. In
contrast, we reduced certain other spending during the COVID-19 pandemic, such
as travel and related expenses, regional surgeon training, trade shows, and
discretionary marketing. We expect these expenditures will resume as the acuity
of the pandemic recedes.

Research and Development Expenses


Our research and development expenses primarily consist of engineering, product
development, clinical and regulatory expenses (including clinical study
expenses), and 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. Clinical study expenses declined during
mid-March through April due to hospital postponement of trials as a result of
the COVID-19 pandemic. However, most hospitals allowed the resumption of
clinical trials starting in May and June 2020. 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,
compliance, and administrative matters. We have taken measures to control
discretionary items classified as general and administrative expenses, but
expect our general and administrative expenses to return to normal levels as the
acuity of the COVID-19 pandemic recedes. General and administrative activities
that sustain our business and support our operations as a public company,
include but are not limited to: expenses related to compliance with the rules
and regulations of the Securities and Exchange Commission and those of the
Nasdaq Global Market on which our securities are traded; additional insurance
expenses; investor relations activities; and other administrative and
professional services.

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 fee on our Solar Term Loan. Following the
refinancing of our term loan, interest expense also includes the loss on debt
extinguishment.

Other Income (Expense), Net

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

                                       27
--------------------------------------------------------------------------------


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:
                                                       Three Months Ended June 30,                                                                                     Six Months Ended June 30,
                                                  2020                                                     2019                                              2020                           2019
                                       Amount                     %             Amount             %              Amount             %             Amount               %
                                                                                     (in thousands, except for percentages)
Consolidated Statements of Operations Data:
Revenue                           $      14,049                  100  %       $ 16,317            100  %       $  30,870           100  %       $  31,308               100  %
Cost of goods sold                        2,117                   15  %          1,588             10  %           4,049            13  %           3,114                10  %
Gross profit                             11,932                   85  %         14,729             90  %          26,821            87  %          28,194                90  %
Operating expenses:
Sales and marketing                      15,755                  112  %         16,727            103  %          35,036           113  %          32,542               104  %
Research and development                  2,165                   15  %          1,946             12  %           4,255            14  %           3,629                12  %
General and administrative                4,151                   30  %          4,194             26  %           9,551            31  %           8,960                29  %
Total operating expenses                 22,071                  157  %         22,867            141  %          48,842           158  %          45,131               144  %
Loss from operations                    (10,139)                 (72) %         (8,138)           (51) %         (22,021)          (71) %         (16,937)              (54) %
Interest and other income (expense), net:
Interest income                             329                    2  %            695              4  %             827             3  %           1,439                 5  %
Interest expense                         (2,683)                 (19) %         (1,233)            (8) %          (3,914)          (13) %          (2,463)               (8) %
Other income (expense), net                  21                    -  %             22              -  %            (136)            -  %             (38)                -  %
Net loss                          $     (12,472)                 (89) %       $ (8,654)           (55) %       $ (25,244)          (81) %       $ (17,999)              (57) %

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. No single country outside the U.S. accounts for more than 10% of the total revenue during the periods presented. The table below summarizes our revenue by geography:

                                               Three Months Ended June 30,                                                                                 Six Months Ended June 30,
                                          2020                                                  2019                                             2020                           2019
                                  Amount               %             Amount             %             Amount             %             Amount               %
                                                                             (in thousands except for percentages)
United States                $     13,221              94  %       $ 15,019             92  %       $ 28,518             92  %       $ 28,469                91  %
International                         828               6  %          1,298              8  %          2,352              8  %          2,839                 9  %
                             $     14,049             100  %       $ 16,317            100  %       $ 30,870            100  %       $ 31,308               100  %



                                       28
--------------------------------------------------------------------------------

Comparison of the Three Months Ended June 30, 2020 and June 30, 2019 Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin:

                                 Three Months Ended June 30,
                                2020                       2019         $ Change       % Change
                                          (in thousands, except for percentages)
     Revenue              $      14,049$ 16,317$ (2,268)         (14)%
     Cost of goods sold           2,117                    1,588            529           33%
     Gross profit         $      11,932$ 14,729$ (2,797)         (19)%
     Gross margin                    85   %                   90  %



Revenue. The decrease in revenue for the three months ended June 30, 2020 as
compared to the three months ended June 30, 2019 comprised a decrease of $1.8
million in our U.S. revenue and a decrease of $0.5 million in our international
revenue. The decline in revenue is attributed to a reduction in U.S. and
international case volumes due to restrictions on elective surgeries put in
place by governments to address the COVID-19 pandemic.

Gross Profit and Gross Margin. Gross profit decreased $2.8 million for the three
months ended June 30, 2020 as compared to the three months ended June 30, 2019,
driven both by lower revenue and higher cost of goods sold. The gross margin
decreased to 85% for the three months ended June 30, 2020 as compared to 90% for
the three months ended June 30, 2019 primarily due to certain period costs
charged directly to cost of operations of $0.2 million and increases in
inventory write-downs of $0.2 million. Certain period costs were expensed as
incurred during the second quarter of 2020 because our operations ran at
suboptimal capacity due to lower case volumes as a result of the COVID-19
pandemic.

Operating Expenses:
                                      Three Months Ended June 30,
                                     2020                       2019         $ Change      % Change
                                               (in thousands, except for percentages)
  Sales and marketing          $      15,755$ 16,727$  (972)         (6)%
  Research and development             2,165                    1,946           219           11%
  General and administrative           4,151                    4,194           (43)         (1)%
  Total operating expenses     $      22,071$ 22,867$  (796)         (3)%


Sales and Marketing Expenses. The decrease in sales and marketing expenses for
the three months ended June 30, 2020 as compared to the three months ended June
30, 2019 was primarily due to decreases in travel and other sales and marketing
related expenses of $2.7 million as a result of the actions taken to curtail
discretionary spending in response to the COVID-19 pandemic. These decreases
were partly offset by an increase of $1.8 million in employee related costs and
stock-based compensation expense driven by increased headcount.
Research and Development Expenses. The increase in research and development
expenses for the three months ended June 30, 2020 compared to the three months
ended June 30, 2019 was primarily due to an increase of $0.4 million in employee
related costs and stock-based compensation expense driven by increased
headcount. The increase was partly offset by a decrease of $0.2 million mainly
due to the decline in clinical study activities while elective procedures were
restricted.
General and Administrative Expenses. General and administrative expenses for the
three months ended June 30, 2020 was relatively flat compared to the three
months ended June 30, 2019. An increase of $0.8 million in employee related
costs and stock-based compensation expense driven by increased headcount was
offset by the reversal of accrued litigation expense of $0.6 million following
the final settlement of the TCPA class action lawsuit as well as decreases in
other general and administrative expenses of $0.2 million as a result of
curtailment of discretionary spending in response to the COVID-19 pandemic.
                                       29
--------------------------------------------------------------------------------

Interest and Other Income (Expense), Net:

                                            Three Months Ended June 30,
                                              2020                  2019              $ Change             % Change
                                                            (in thousands, except for percentages)
Interest income                        $          329           $      695$    (366)              (53)%
Interest expense                               (2,683)              (1,233)            (1,450)               118%
Other income, net                                  21                   22                 (1)               (5)%

Total interest and other expense, net $ (2,333)$ (516)

         $  (1,817)               352%


Interest Income. The decrease in interest income for the three months ended June
30, 2020 as compared to the three months ended June 30, 2019 was mainly due to
lower interest earned on our investments in marketable securities, primarily as
a result of lower interest rates.
Interest Expense. The increase in interest expense for the three months ended
June 30, 2020 as compared to the three months ended June 30, 2019 was mainly due
to the loss on extinguishment of the Pharmakon Term Loan of $1.5 million, partly
offset by lower interest associated with the Solar Term Loan.
Other Income, Net. Other income, net was relatively flat for the three months
ended June 30, 2020 as compared to the three months ended June 30, 2019.
Comparison of the Six Months Ended June 30, 2020 and June 30, 2019
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin:
                                  Six Months Ended June 30,
                                  2020                    2019         $ Change       % Change
                                           (in thousands, except for percentages)
       Revenue              $     30,870$ 31,308$   (438)         (1)%
       Cost of goods sold          4,049                  3,114            935           30%
       Gross profit         $     26,821$ 28,194$ (1,373)         (5)%
       Gross margin                   87   %                 90  %



Revenue. The decrease in revenue for the six months ended June 30, 2020 as
compared to the six months ended June 30, 2019 was primarily due to a decrease
of $0.5 million in our international sales due to the effects of COVID-19
pandemic. Our U.S. revenue was flat for the six months ended June 30, 2020 as
compared to the six months ended June 30, 2019. The increasing growth trend of
our U.S. case count prior to the impact of COVID-19 was offset by the decline in
U.S. case volumes due to COVID-19. Prior to the impact of COVID-19, we
experienced case growth trends consistent with those experienced in the fourth
quarter of 2019. The case growth we experienced prior to impact of COVID-19 can
be attributed to higher sales force productivity, higher numbers of sales
personnel, and increased active surgeons due to improving U.S. reimbursement
coverage.

Gross Profit and Gross Margin. Gross profit decreased $1.4 million for the six
months ended June 30, 2020 as compared to the six months ended June 30, 2019
primarily driven by lower revenue and lower gross margin. The gross margin
decreased to 87% for the six months ended June 30, 2020 as compared to 90% for
the six months ended June 30, 2019 primarily due to certain period costs charged
directly to cost of operations of $0.2 million and increases in inventory
write-downs of $0.2 million. Certain period costs were expensed as incurred
during the second quarter of 2020 because our operations ran at suboptimal
capacity due to lower case volumes as a result of the COVID-19 pandemic.

                                       30
--------------------------------------------------------------------------------
Operating Expenses:
                                      Six Months Ended June 30,
                                      2020                    2019         $ Change      % Change
                                               (in thousands, except for percentages)
   Sales and marketing          $     35,036$ 32,542$ 2,494           8%
   Research and development            4,255                  3,629           626           17%
   General and administrative          9,551                  8,960           591           7%
   Total operating expenses     $     48,842$ 45,131$ 3,711           8%


Sales and Marketing Expenses. The increase in sales and marketing expenses for
the six months ended June 30, 2020 as compared to the six months ended June 30,
2019 was primarily due to an increase of $5.0 million in employee related costs
and stock-based compensation expense driven by increased headcount. The increase
was partly offset by decreases in travel and other sales and marketing related
expenses of $2.5 million as a result of the actions taken to curtail
discretionary spending in response to the COVID-19 pandemic.
Research and Development Expenses. The increase in research and development
expenses for the six months ended June 30, 2020 as compared to the six months
ended June 30, 2019 was primarily due to increases in employee related costs and
stock-based compensation expense of $0.8 million driven by increased headcount.
The increase was partly offset by a decrease of $0.2 million mainly due to the
decline in clinical study activities while elective procedures were restricted.
General and Administrative Expenses. The increase in general and administrative
expenses for the six months ended June 30, 2020 as compared to the six months
ended June 30, 2019 was primarily due to an increase of $1.1 million in employee
related costs and stock-based compensation expense driven by increased headcount
and $0.2 million public offering costs allocated to sale of common stock by
selling shareholders. The increase was partly offset by the reversal of accrued
litigation expense of $0.6 million in the second quarter of 2020 following the
final settlement of the TCPA class action lawsuit, and a decrease of $0.1
million in other general and administrative expenses as a result of curtailed
discretionary spending in response to the COVID-19 pandemic.
Interest and Other Income (Expense), Net:
                                            Six Months Ended June 30,
                                             2020                 2019             $ Change             % Change
                                                          (in thousands, except for percentages)
Interest income                        $        827$   1,439$    (612)              (43)%
Interest expense                             (3,914)             (2,463)            (1,451)               59%
Other expense, net                             (136)                (38)               (98)               258%

Total interest and other expense, net $ (3,223)$ (1,062)

      $  (2,161)               203%


Interest Income. The decrease in interest income for the six months ended June
30, 2020 as compared to the six months ended June 30, 2019 was mainly due to
lower interest earned on our investments in marketable securities, primarily as
a result of lower interest rates.
Interest Expense. The increase in interest expense for the six months ended June
30, 2020 as compared to the six months ended June 30, 2019 was mainly due to the
loss on extinguishment of Pharmakon Term Loan of $1.5 million, partly offset by
lower interest associated with the Solar Term Loan.
Other Expense, Net. The increase in other expense, net, for the six months ended
June 30, 2020 as compared to the six months ended June 30, 2019 was mainly due
to higher foreign exchange losses.
                                       31
--------------------------------------------------------------------------------

Liquidity and Capital Resources
As of June 30, 2020, we had cash and marketable securities of $137.7 million
compared to $93.1 million as of December 31, 2019. We have financed our
operations through our public offerings, debt financing arrangements, and the
sale of our products. As of June 30, 2020 and December 31, 2019, we had $39.3
million and $39.2 million outstanding debt, respectively.
As of June 30, 2020, we had an accumulated deficit of $220.8 million. During the
six months ended June 30, 2020, we incurred a net loss of $25.2 million. During
the years ended December 31, 2019 and 2018, we incurred a net loss of
$38.4 million and $17.5 million, respectively, and expect to incur additional
losses in the future. We have not achieved positive cash flow from operations to
date.
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 through at least the next 12 months. However, the
economic impact of the duration and severity of the COVID-19 pandemic, and our
responses thereto (including such actions we have taken or may take in the
future as disclosed elsewhere in this Report) pose risk and uncertainties in our
future available capital resources. Further, we may face challenges and
uncertainties and, as a result, our available capital resources may be consumed
more rapidly than currently expected due to, but not limited to, the following
as a result of the COVID-19 pandemic or otherwise: (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 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.
Term Loan
The outstanding debt as of June 30, 2020 is related to a term loan pursuant to
the Loan and Security Agreement dated May 29, 2020, entered into by us with
Solar Capital Partners ("Solar"). Pursuant to the Loan and Security Agreement,
Solar provided an aggregate principal amount of $40.0 million term loan to us
(the "Solar Term Loan"). Prior to Solar Term Loan, our outstanding debt was
related to a $40.0 million Term Loan with Biopharma Credit Investments IV Sub LP
("Pharmakon") entered in October 2017 (the "Pharmakon Term Loan"). In accordance
with the Loan and Security Agreement, we paid in full and terminated the
Pharmakon Term Loan, which we accounted for as debt extinguishment in accordance
with the accounting standards. As of June 30, 2020 and December 31, 2019, there
was no amount available that could be borrowed under the credit facilities.
The Pharmakon Term Loan included an interest-only period for 35 months through
September 2020 and equal quarterly principal payments plus interest through
December 2022. The Pharmakon Term Loan carried a fixed interest rate of 11.5%
and allowed for early prepayment. The prepayment penalty was equal to the
remaining interest due if prepaid within the first 30 months, a 2% penalty for
months 31-48, and a 1% penalty for months 49-60.
The Solar Term Loan bears interest at a rate per annum equal to 9.40% plus the
greater of (i) the London Interbank Offered Rate ("LIBOR") or (ii) 0.33%,
payable monthly in arrears. LIBOR means the greater of one-month LIBOR (or a
comparable replacement rate to be determined by the collateral agent if the
LIBOR is no longer available), which rate shall reset monthly. The Solar Term
Loan matures in 60 months on June 1, 2025 ("Maturity Date"), with an
interest-only period of 36 months through June 2023, and then repaid in equal
monthly principal payments plus interest through maturity date. Pursuant to the
Loan and Security Agreement, we may voluntarily prepay the Solar Term Loan, in
full or in part, in increments of $10.0 million, for a prepayment premium in an
amount equal to 3.0% of the principal if prepaid in year one, 1.25% of the
principal if prepaid in year two, and 0.50% of the principal if prepaid if
prepaid in year three or later. The prepayment premium will be waived if we
voluntarily prepay and refinance the outstanding balance with Solar. The Solar
Term Loan is secured by substantially all of our assets. We are also obligated
to pay a final fee equal to $1.0 million or 2.5% of the aggregate principal
amount of the Solar Term Loan. This final fee shall be due and payable on the
earliest of (i) the maturity date, (ii) the acceleration of the loan balance, or
(iii) the full prepayment, refinancing, substitution or replacement of Solar
Term Loan. The final fee was included within the long-term borrowings and is
accreted to interest expense using straight-line method over the life of the
term loan.

In July 2017, the head of the United Kingdom Financial Conduct Authority
announced the desire to phase out the use of LIBOR by the end of 2021. In
addition, the U.S.Federal Reserve, in conjunction with the Alternative
Reference Rates Committee, a steering committee composed of large U.S. financial
institutions, is considering replacing U.S. dollar LIBOR with the Secured
Overnight Financing Rate ("SOFR"), a new index calculated by short-term
repurchase agreements, backed by Treasury securities. Although there have been a
few issuances utilizing SOFR or the Sterling Over Night Index Average, an
alternative reference rate that is based on transactions, it is unknown whether
these alternative reference rates will attain market acceptance as replacements
for LIBOR. There is currently no definitive information regarding the future
utilization of LIBOR or of any particular replacement rate. As such, the
potential effect of any replacement of the LIBOR could have on our business and
financial condition cannot yet be determined.
                                       32
--------------------------------------------------------------------------------

Subject to other customary covenants set forth in the Loan and Security
Agreement, we are required to maintain unrestricted cash and cash equivalents
based on the trailing 12-month net products revenues tested on a monthly basis
as follows: (a) $15.0 million if net product revenue is less than $75.0 million;
or (b) $7.5 million if net product revenue is greater than or equal to
$75.0 million, but less than $100.0 million (the "minimum liquidity
requirement"). We are not subject to minimum liquidity requirement when trailing
twelve-month net product revenues exceed $100.0 million. Upon the occurrence of
an event of default of certain customary covenants, including the minimum
liquidity requirement, as specified in the Loan and Security Agreement, subject
to specified cure periods, all amounts owed by us would begin to bear interest
at a rate that is 5.0% above the rate effective immediately before the event of
default and may be declared immediately due and payable by Solar. As of June 30,
2020, we were in compliance with all debt covenants. Though there are
uncertainties surrounding the impact of the COVID-19 pandemic that may impact
our future revenue, we believe that we have sufficient cash and cash equivalents
to meet the minimum liquidity requirements in the foreseeable succeeding
periods.
Contractual Obligations

The following table summarizes our contractual obligations as of June 30, 2020:

                                                                               Payments Due By Period
                                                         Less than 1                                            More than 5
                                          Total              year            1-3 years         4-5 years           years
                                                                          (in thousands)
Principal obligations and final fee on
long-term debt (1)                     $ 41,000          $      -           $      -          $ 31,667$   9,333
Interest obligations (2)                 15,990             2,346              7,892             5,550                202
Operating lease obligations               4,648               562              1,985             1,738                363
Purchase obligations                        288               288                  -                 -                  -
Total                                  $ 61,926$  3,196$  9,877$ 38,955$   9,898





(1)Represents the principal obligations and the final fee at maturities of our
Solar Term Loan.
(2)Represents the future interest obligations on our Solar Term Loan estimated
using the fixed interest rate of 9.40% plus LIBOR held constant as of June 30,
2020.

This compared to $54.9 million of contractual obligations as of December 31, 2019.

                                       33
--------------------------------------------------------------------------------

Cash Flows
The following table sets forth the primary sources and uses of cash for each of
the periods presented below:
                                                           Six Months Ended June 30,
                                                          2020                     2019              $ Change
Net cash provided by (used in):                                            (in thousands)
Operating activities                                $    (17,228)$  (15,474)$   (1,754)
Investing activities                                      10,060                      191               9,869
Financing activities                                      62,896                    1,663              61,233
Effects of exchange rate changes on cash and cash
equivalents                                                    6                       (4)                 10
Net increase (decrease) in cash and cash
equivalents                                         $     55,734

$ (13,624)$ 69,358



Cash Used in Operating Activities
Net cash used in operating activities for the six months ended June 30, 2020 of
$17.2 million resulted from cash outflows due to a net loss of $25.2 million,
adjusted for $7.9 million of non-cash items, partly offset by cash inflows from
changes in operating assets and liabilities of $0.1 million. Net cash used in
operating activities for the six months ended June 30, 2019 of $15.5 million
resulted from cash outflows due to a net loss of $18.0 million, adjusted for
$3.4 million of non-cash items, and cash outflows from changes in operating
assets and liabilities of $0.8 million. The increase in net loss, net of
non-cash items for the six months ended June 30, 2020 compared to the six months
ended June 30, 2019 was mainly due to lower revenue due to the effects of
COVID-19 and higher operating expenses from the growth of the business, partly
offset by reduction of certain expenses as a result of the actions taken to
curtail discretionary spending in response to COVID-19. Cash inflows from
changes in operating assets and liabilities for the six months ended June 30,
2020 were primarily due to lower accounts receivable balance resulting from
lower revenue and timing of collections and lower inventory mainly due to the
timing of inventory build-up, partly offset by cash outflows due to decreases in
operating liabilities resulting from timing of payments. Cash outflows from
changes in operating assets and liabilities for the six months ended June 30,
2019 were primarily due to increases in inventory and accounts receivable from
increased case volumes, partly offset by increased operating liabilities due to
timing of payments.
Cash Provided by Investing Activities
Net cash provided by investing activities in the six months ended June 30, 2020
was $10.1 million compared to $0.2 million in the six months ended June 30,
2019. Net cash provided by investing activities for the six months ended June
30, 2020 consisted of maturities and sales of our marketable securities, net of
purchases of $11.3 million, partially offset by purchases of property and
equipment of $1.3 million. Net cash provided by investing activities for the six
months ended June 30, 2019 consisted of maturities of our marketable securities,
net of purchases of $1.1 million, partially offset by purchases of property and
equipment of $0.9 million.
Cash Provided by Financing Activities
Cash provided by financing activities in the six months ended June 30, 2020 was
$62.9 million compared to $1.7 million in the six months ended June 30, 2019.
The difference was primarily due to the receipt of the proceeds, net of
underwriting discounts, commissions and offering costs of $63.0 million from our
follow-on public offering during the first quarter of 2020. Cash provided by
financing activities in the six months ended June 30, 2020 also include proceeds
from the issuance of common stock under our stock-based incentive compensation
plans of $1.4 million, offset by payments associated with refinancing of our
debt of $1.4 million. This compares to the cash provided by financing activities
for the six months ended June 30, 2019 which consisted of proceeds from the
issuance of common stock under our stock-based incentive compensation plans of
$1.8 million, partly offset by payments of additional IPO related costs of $0.2
million.
                                       34
--------------------------------------------------------------------------------


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 and Estimates" in our Annual Report on Form 10-K
filed with the SEC on March 11, 2020. There had been no material changes to
these accounting policies. See Note 2 of Notes to Condensed Consolidated
Financial Statements (Unaudited) for related discussions on updates on recently
issued accounting pronouncements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future effect on our financial condition, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
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.
JOBS Act Accounting Election
In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides
that an "emerging growth company" can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with
new or revised accounting standards. Thus, an emerging growth company can delay
the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have elected to avail ourselves of this
exemption and, therefore, are not be subject to the same new or revised
accounting standards as other public companies that are not emerging growth
companies.
Recent Accounting Pronouncements
See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited)
for related discussions on updates on recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a "smaller reporting company," we are not required to provide the information
required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in the reports we file or submit pursuant
to the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer ("CEO") and Chief Operating Officer and Chief Financial
Officer ("COO/CFO"), as appropriate, to allow timely decisions regarding
required disclosure.

                                       35

--------------------------------------------------------------------------------


The effectiveness of any system of internal control over financial reporting,
including ours, is subject to inherent limitations, including the exercise of
judgment in designing, implementing, operating, and evaluating the controls and
procedures, and the inability to eliminate misconduct completely. Accordingly,
any system of internal control over financial reporting, including ours, no
matter how well designed and operated, can only provide reasonable, not absolute
assurances. In addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. We intend to continue to monitor and
upgrade our internal controls as necessary or appropriate for our business, but
cannot assure that such improvements will be sufficient to provide us with
effective internal control over financial reporting.
Management, with the participation of the CEO and COO/CFO, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of
the end of the period covered by this report. Based on this evaluation, our CEO
and COO/CFO have concluded that, as of June 30, 2020, our disclosure controls
and procedures were effective at the reasonable assurances level.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during
the quarter ended June 30, 2020, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. In response to the COVID-19 pandemic, certain of our employees still
continued to work from home during the quarter. Management took measures to
ensure that our internal control over financial reporting remained unchanged
during this period.

© Edgar Online, source Glimpses


share with twitter share with LinkedIn share with facebook
All news about SI-BONE, INC.
10/19SI BONE : To Report Third Quarter 2020 Financial Results on November 2, 2020
AQ
10/19SI-BONE To Report Third Quarter 2020 Financial Results on November 2, 2020
GL
10/16SI-BONE, INC. : Other Events, Financial Statements and Exhibits (form 8-K)
AQ
10/15SI BONE : NASS virtual Conference Surgeon Panel Presentation
PU
10/14SI BONE : Announces Pricing of Public Offering of Common Stock
AQ
10/14SI-BONE Announces Pricing of Public Offering of Common Stock
GL
10/14SI BONE : Announces Launch of Public Offering of Common Stock
AQ
10/14SI-BONE Announces Launch of Public Offering of Common Stock
GL
10/08SI-BONE, INC. : Results of Operations and Financial Condition, Financial Stateme..
AQ
10/08SI BONE : Reports Preliminary Unaudited Revenue for the Third Quarter 2020 and P..
AQ
More news