SIBN - NASDAQ

Good afternoon, and welcome to SI-BONE's Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments. Please go ahead.

Thank you for participating in today's call. Joining me are Laura Francis, Chief Executive Officer; and Anshul Maheshwari, Chief Financial Officer. Earlier today, SI-BONE released financial results for the quarter ended September 30, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These forward-looking statements are based on the company's current expectations and inherently involve risks and uncertainties. These risks include the impact of the COVID-19 pandemic will have on the ability and desire of patients and physicians to undergo and perform procedures using the company's products, the duration of the COVID-19 pandemic and whether the COVID-19 pandemic will incur in the future. Other forward-looking statements include our examination of operating trends and our future financial expectations such as expectations for hiring, surgeon training and adoption, active surgeons, new products, clinical trial enrollment and reimbursement decisions and are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. SI-BONE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 7, 2022. And with that, I will turn the call over to Laura.

Thanks, Marissa. Good afternoon, and thank you for joining us. For today's call, I'll provide a business update, and Anshul will provide additional detail regarding our financial results. Before I cover our record third quarter results, let me provide an update on recently published CMS Final Rule for calendar year 2023 Hospital Outpatient and ASC payments. On November 1 2022, CMS posted the calendar year 2023 rule for hospital allocations and ASC payments. Based on the final rule, calendar year 2023 facility reimbursement for minimally invasive SI joint fusion procedures performed in ASCs and hospital outpatient settings will increase by approximately 26% to $17,109 and 33% to $21,898 respectively. Today, 80% of our minimally invasive SI joint procedures are performed in an outpatient setting or at surgery centers. As these procedures continue to move to ASCs, the higher reimbursement in 2023 could potentially serve as a tailwind to demand and also allow us to maintain our pricing and sites of service. Now moving to our performance in the third quarter of 2022. I am very pleased with our strong execution, which resulted in record revenue driven by continued acceleration in procedure demand and robust surgeon interest in our portfolio of solutions. In the third quarter, we generated worldwide revenue of $26.4 million reflecting approximately 19% growth, compared to the third quarter of 2021 and 3% growth compared to the second quarter of 2022. In the U.S. our revenue grew 21% compared to the prior year period to a record $24.6 million. This revenue was driven by 25% US procedure volume growth in the quarter, a continued increase in our U.S. procedure volumes throughout 2022, while the healthcare systems continue to adjusting the staff limitations reflects strong demand for our solutions. In addition to accelerating top-line growth, we gained operating leverage across our organization as our revenue growth significantly outpaced operating expense growth, alongside the material sequential reduction in cash outflow in the quarter. With reimbursement tailwinds, expanded indications and strong surgeon engagement across our differentiated product portfolio, I am very excited about the potential to further accelerate growth. Our strategic investments and scalable infrastructure over the last few years provide a strong foundation to the core top-line growth and drive incremental operating productivity as we get into 2023. Now, let me provide an update on our key initiatives as we look to expand our leadership position and drive strong long-term growth. Starting with our sales infrastructure, our dedicated sales force remains an important driver of growth as we expand our core markets and grow our presence in trauma and adult deformity. Our sales force at the end of the third quarter included 85 territory managers and 72 clinical support specialists. With an increasingly seasoned sales force, our average trailing 12 month revenue per territory manager could increase by more than 10% since the start of the year. With our expanded portfolio, we are leveraging our growing distribution network for case coverage and selectively evaluating confinement strategies in hospitals. We are confident that this hybrid approach will complement our territory manager efforts and create additional capacity to drive surgeon engagements, ensure high quality support for our surgeons, and continue to deliver strong, and consistent top-line growth. Moving on to surgeon engagements, we ended the third quarter with a record active surgeon base of over 800 surgeons. This equates to approximately 27% growth in our active surgeon base over the comparable period in 2021 and approximately 12% growth sequentially. We’ve now seen seven consecutive quarters of double-digit year-over-year growth, which is a testament to our focused execution and education and outreach over the last several years. Surgeon adoption is one of the best leading indicators of long-term procedure demand. Additionally, we continue to experience a growing surgeon overlap across our various products. For example in 2022, over half of our active surgeons who performed in adult deformity procedure, also performed a minimally invasive SI joint fusion procedure using our solutions. We expect higher surgeon utilization as the synergistic surgeon base continues to grow over time. With the trauma indication expansion for iFuse-TORQ and the launch of iFuse Bedrock Granite, we are continuing to invest in surgeon indication to drive engagement and activation. We’ve also experienced a steady increase in the adoption rate of surgeons who have been trained on the simulator, which remains a valuable component in our certain training programs. Moving forward, we’ll continue leveraging our simulator training along with in-person local training and regional training to drive cost-effective surgeon engagement. We continue to expand our academic programs to educate residents and fellows. Since inception of the program, we've held training events in approximately 200 academic facilities in the United States and trained approximately 1,200 surgical residents and fellows. We are also expanding our trainings into new academic centers as we’ve seen a growing interest in our products among surgeon educators in new facilities. Education on Bedrock and iFuse Bedrock Granite in deformity are now integral to each training and we're adding content on iFuse-TORQ for our traumic locations. We are encouraged by the increase we are seeing in adoption by previously trained residents and fellows as we start practicing. Year-to-date, the number of fellows and residents who have completed a first case has more than doubled compared to this time last year while their procedure volumes have increased four-fold. Turning to products and solutions, our focused execution has resulted in nearly 3,000 surgeons worldwide performing over 75,000 procedures since the inception of the company. Expanding our platform of sacral pelvic solutions to address SI joint pain, spinal pelvic fixation and pelvic trauma has been a key tenet of our strategy and we’ve made substantial progress on this mission year-to-date. With iFuse-3D, iFuse-TORQ, and now iFuse-Bedrock Granite, we believe there is some value of our innovative, versatile, and complementary product portfolio provides surgeons with a comprehension set of alternatives and positions us with vast choice for surgeons who take our pelvic solutions. iFuse-TORQ continues to exceed expectations with another quarter of record revenue. iFuse-TORQ has been an important addition to the portfolio and provides a complementary action to iFuse-3D for our existing surgeons. It has been a valuable asset to convert users a competitive screw system. In trauma, while preliminary, we are seeing an uptick in the application of iFuse-TORQ to treat sacral fragility fractures based on the FDA expanded clearance in June. There are approximately 120,000 of these injuries per year in the United States. Most of which are currently not treated surgically. The fragility fracture market is a recognized unmet clinical need, hence our strategic importance to us as the sacral pelvic solutions leader. Over 75% of patients with fragility fractures are currently treated with Bedrock with a high cost for rehabilitation and involving significant complication deterioration in overall health status in many cases and a 25% one year mortality rate. In addition, orthopedic trauma surgeons, many fragility fracture patients are seen by our spine surgeons. We continue to invest in surgeon training and instruments re-confinement opportunities as we build out the trauma business which we believe will be an important avenue for growth over the long-term. In September, we also received FDA clearance for iFuse-TORQ to include fusion in conjunction with spinal pelvic fixation. Considering the successful launch of iFuse-Bedrock Granite, this expansion was important as it allowed iFuse-TORQ to complement iFuse-Bedrock Granite and the second point of fixation of the joints in the sacral alar iliac trajectory, which from a biomechanical perspective is important to attain fusion. We are excited about the success of iFuse-Bedrock Granite driven by strong surgeon interest in adopting the product and making it a standard-of-care for stabilizing the base along construct in adult deformity procedures. This was highlighted at a recently conducted Spinal Pelvic Think Tank Meeting in San Diego. The meeting was hosted by Dr. David Polly from the University of Minnesota, Dr. Greg Mundis from Scripps and Professor Jean-Charles Le Huec from Bordeaux University and attended by approximately 20 leading spinal deformity surgeons. We are pleased with the uptake of Granite despite our early stage in launch cycle. Additionally, Granite is providing a significant pull-through opportunity for the overall portfolio, as some surgeons are using some combination of our product to at least two points of fixation across the SI joint on either side resulting in a higher procedure average selling price. Given the positive experience with iFUSE-Bedrock brand, we’ve seen surgeons expand the use of the product to stabilize the base of shorter multi-level construct used in procedures to treat degenerative spinal conditions. Approximately, one-third of our iFuse-Bedrock Granite cases have been used in two to four level procedures. There are approximately 100,000 short construct procedures to the pelvic per year in the United States. Based on expanded use of iFuse-Bedrock Granite in short construct for certain patients this specifically results in an exciting opportunity for us to further expand our total adjustable market. Given the broad spinal deformity surgeon demand and support for iFuse-Bedrock Granite, we continue to successfully work with major hospitals across the U.S. to get the product on the approved list. This process, which is typically for new and highly differentiated products can take anywhere from few days to few weeks to complete depending on the procedure. We’ve also been working with our suppliers to optimize the workflow and address the challenges with near-term delays in adequate availability of implants. While the team is making significant progress on these workflows, both of these factors limited our ability to fully capitalize on the demand momentum in September and into the first half of the fourth quarter. On the clinical research front, in September, we enrolled the first of the targeted 120 patients on a SAFFRON study. As a reminder, this SAFFRON study is a prospective, randomized controlled trial of surgery using our iFuse-TORQ device versus non-surgical management in patients with debilitating sacral fragility or insufficiency fractures. We anticipate results to be available in late 2024. Talking about our patient awareness initiatives, in the third quarter we continue to see high website traffic, robust patient engagement, surgeon referrals and our Find A Doctor Locator metrics, while our cost of acquisition steadily declined. We use the Find A Doctor metric is a leading indicator of patient engagement and potential future demand. As a reminder, these outreach programs are targeted at patients in chronic, severe SI joint pain who are willing to service care for an extended period. Our goal is to connect patients with surgeons in their area who perform minimally invasive SI procedures using our product. Before I turn it over to Anshul, I'd like to provide an organizational update related to an addition to our international leadership team. In September, we appointed Neville Lorimer as the Vice President of International. Neville joined us from Conmed where he was a General Manager of the UK and Ireland and have 20 years of experience in the healthcare industry including over a decade at Stryker. Neville’s experience across orthopedics, spine and trauma will allow us to stabilize and grow our business in Europe, expand our international franchise and further accelerate top-line growth. I'll now turn the call over to Anshul to provide more detail on our financial results.

Thanks, Laura. Good afternoon, everyone. Our third quarter 2022 total revenue was $26.4 million, representing growth of approximately 19% compared to the prior year period and 3% growth sequentially. U.S. revenue was $24.6 million, increasing 21% compared to the prior year period. Growth in the U.S. was driven by strong demand for our solutions, which resulted in 25% growth in procedure volumes versus the prior year period. The robust procedure volume and strong sequential increase reaffirms that the operating environment in the U.S. continues to normalize. Our ASC procedure volumes were in the low 20% range, consistent with the prior year period and sequentially. International revenue was $1.8 million, a decline of 5% compared to prior year period, as strong performance in France that was more than offset primarily by the continued underperformance in the Germany and the UK markets, as well as from additional foreign exchange weakness. Gross margin for the third quarter of 2022 was 84%. The third quarter gross margin reflects a low-single digit percentage decline in average selling price from procedures, site of service and product mix, as well as higher freight cost. The gross margin also reflects the higher cost of the new products and the increase in cost of operations including higher depreciation from the instrument trades deployed to support the strong new product demand. Operating expenses increased 9% to $35.8 million in the third quarter 2022, as compared to $33 million in the prior year period. The increase was driven by higher commissions, increase in travel and freight costs, continued investment in R&D and higher headcount. On a sequential basis, operating expenses decreased approximately 10% compared to the second quarter of 2022. The sequential improvement in operating expenses reflects productivity gains from an increasingly seasoned sales force, as well as leverage across the investments we have made over the last few years to build a scalable platform to support strong top-line growth. Our net loss was $14.2 million or $0.41 per diluted share for the third quarter of 2022 as compared to a net loss of $15.9 million or $0.48 per diluted share in the prior year period. As of the end of the quarter, our cash and marketable securities were approximately $104 million and current and long-term borrowings were approximately $35 million. Our cash outflow in the third quarter declined sequentially to $10 million from $16 million in the second quarter. Based on our anticipated investments and operating expense in Q4, we expect cash outflow to be in the same range as of third quarter. Moving to guidance. We expect 2022 worldwide revenue to range between $104 million and $105 million implying year-over-year growth of approximately 16% to 17%. The updated guidance assumes no international revenue growth for fiscal year 2022 based on foreign currency headwinds and the recovery challenges in Germany and the UK, as well as moderated upside in the U.S. from Granite to the end of 2022. The annual revenue guidance implies fourth quarter 2022 worldwide revenue to be between $29.5 million and $30.5 million reflecting growth between 17% to 21% over the prior year period and U.S. fourth quarter revenue growth between 18% to 23%. With that, I will turn the call over for questions. Operator?

[Operator Instructions] Our first question comes from the line of Kyle Rose with Canaccord. Please go ahead.

Great. Thank you for taking the questions. Yeah, I just wanted to talk a little bit more about the dynamic from transition from Q3 into Q4. Maybe just talk about the macro environment you are seeing as far as procedure volumes and staffing challenges. And then, if you could just comment more on the commercial side of the business, when you think about going after the trauma market and more into the deformity side of things, do you anticipate meeting your additional specialized sales forces or I think you talked about a confinement model potentially. Just help us think about what that build out might be from a commercial perspective. Thank you.

Thanks, Kyle. So, your first question was the dynamic going from Q3 to Q4. So, what I would say from a Q3 perspective is the team executed really well and we achieved several record milestones. So if you think about the acceleration of the business worldwide, in Q1 our growth rate was 10%, in Q2 our growth was 19%, and in Q3 it was 19%. Sorry, 15%, - 10% to 15% to 19%. If you look at the U.S., the U.S. was at Q1 9% growth, Q2 18%, Q3 21%. So we are continuing to see this robust rebound in volumes as well as dollars. And so, what I am also excited about is the growth that we are seeing in our active surgeon base, so hitting over 800 surgeons that performed at least one procedure during the third quarter. That’s a 27% increase year-over-year and it’s a 12% increase sequentially. So that bodes really well for the future of the business and in fact, we saw that growth continue very strongly into the month of October. Yes, a little bit about some of our additional products to work had a record quarter and then Granite, we are seeing strong surgeon engagement and significant interest in Granite for long constructs and for short constructs as well as, which has us excited overall for the business. So, from a top-line perspective, we are seeing that acceleration, but then if you look at the P&L and liquidity, we are seeing strong operating leverage across the organization. The revenue growth rate for the quarter was over double the OpEX growth rate. And then we also saw a double-digit increase in rep productivity in the quarter as well and then our cash outflow declined by 60% sequentially to around $10 million. So all of that is good. As I mentioned, the international environment is challenging from a macro perspective in particular but given the trends in the U.S., it gives me a lot of confidence in our ability to finish 2022 strong and then a further acceleration into 2023. I am going to talk a little bit on the commercial side too from a trauma and deformity perspective to answer your question there. So, from a deformity perspective, the same surgeons that perform primary SI joint fusion also perform our adult deformity procedures. And in fact, there is very strong overlap in my prepared remarks between those two procedures. And so, very, very close symbiotic relationship. In terms of the trauma opportunity, we actually are seeing a lot of these cases in our core market with orthopedic and neuro spine surgeons and in fact that is the area of focus for us with this particular product. And so, we don’t see a need to separate out our sales force at this point in time because of the symbiotic relationship between the products.

Great. Thank you very much for taking the questions. Very helpful.

Thank you. One moment for our next question. And it comes from the line of Craig Bijou with Bank of America. Your line is open.

Hey, Laura. Hey, Anshul. Thanks for taking the questions. I want to start with just the guidance. Anshul, I think you said moderated upside from Granite. I just wanted the main reasons why you took down the overall guidance? So, just wanted maybe a little bit more color there and does that has to do with the challenges and the availability of implants. And maybe just following on that, if you’ve seen it through the first half of Q4, when do you expect that to be back to normal.

Hey, Craig. Good to talk to you again. Why don’t I take the first half of the question on guidance and then, I think it might help getting some more context from Laura on what we are really seeing on the Granite side, because there is a lot of excitement there. On the guidance side, our updated guidance of 104 to 105, if you look at it from a fourth quarter perspective, it implies a growth rate of anywhere between 17% and 21% worldwide, versus a 19% we saw in the third quarter and in the U.S., it would imply a growth rate of 18% to 23%, because our expectations now based on Laura’s earlier comments on EMEA is expecting no growth out of Europe for this fiscal year 2022. So if you think about rough math, Craig, that means, Europe had an impact of about $1.5 million between Q2 to Q4. And I’d say, 70% of that impact was in the second half of the year, so circa $1.2 million-ish. And it’s evenly divided, I’d say between the FX impact that we’ve highlighted previously on our last earnings call that we expected to happen but also a slower recovery than we had expected coming out of COVID, especially in the UK and Germany. And that’s been a bit of a challenge for us. And we think that challenge will continue in the near-term and Neville is doing everything possible to make sure we stabilize the EMEA business and get them back to the growth trajectory. So what I’d say is, that was the biggest driver in terms of adjusting our guidance. Now, given what we have seen in the U.S., Craig, which was the continued acceleration in the business and this was before Granite launch at the end of May and the strong demand that we were seeing in Granite for the early part of the launch, we felt pretty confident about that being able to absorb the shortfall out of Europe, both in the FX and also the unknown shortfall from an operation perspective, as well. But with some of the new product launch dynamic that we had in the prepared remarks and Laura can go into the details, we are probably expecting a more moderated impact of it in the entire fourth quarter, even though we were seeing it coming into September and the first half of the quarter. We just want to make sure that we see that work its way through the process and then feel like going into 2023, we are positioned well. So we think the adjusted guidance appropriately brackets the risks from Europe and also potential upside from Granite, if you look at the range of the guidance. And then, Laura, if you want to talk about just Granite momentum and what’s going on there.

Yes. As Anshul said, the challenge that we have is to just keep up with the demand that we are experiencing right now on Granite has been exceptional. Surgeons believe it’s going to become the standard of care for stabilizing the base along construct. We are actually seeing quite a few of our surgeons using the product in short constructs, as well depending upon the needs of that particular patient and it’s also helping to drive deeper engagement with our surgeons given that over half of them are using them are primary products, iFuse-3D or TORQ in addition to Granite. It also has a nice pull through from the broader portfolio given the often-time surgeons are looking for two points of fixation on either side of a long construct. So, all of those things bode well. We are also being very thoughtful about how we roll this out to other hospitals. And what we want to do is to make sure that even though the timeline may vary in order to get the product on the approved list for a hospital, we’ve made great progress in a short period of time and we want to make sure to maintain it attracting pricing on the product, as well. And so, our team is doing a good job of doing both of those things. So, we think Granite bodes well for the future of the business in 2023.

Great. Thank you, both for all that color. Let me move on to kind of the operating expenses and cash spend. So, good to see that it went down in Q3. Anshul, maybe just wanted to understand with the spend – were there expenses that maybe you didn’t make during the quarter that led to the lower cash spend? And then when I think about $10 million a quarter in Q3 and Q4, how should we think about that gowing into 2023? Should we just kind of take that $10 million a quarter in cash spend and think about that for the quarters in 2023?

Yes. So, Craig, let me take the question on our OpEx leverage and the cash flow leverage that we saw in the quarter. As we talk throughout this year, Craig, we’ve made a lot of investments over the last 24 months across our organization, whether it’s building the commercial infrastructure, building the operational half and also making investments in R&D to build the platform that can deliver the strong sustainable growth. And coming into the year, we knew we were at an inflection point from a scale perspective, where we would see the fruits of those investments play out and they have with the accelerated top-line growth. So, overall, there was nothing unnatural that we are focused on to get the leverage. In a prior quarter we had talked about Q3 being lower than Q2 from an OpEx perspective, because there were some timing spend in Q2, but overall, with revenue growth being 2x OpEx growth, we feel really good about it. A lot of that is just driven by a more mature sales force. The fact that they have highly differentiated product calling on a synergistic surgeon base, driving density. So that’s having an impact, as well. And then, as we think about Q4, as well, we think that the OpEx leverage will continue and actually accelerate as we get into 2023. We continue to make progress with reducing our gap and making progress on the adjusted EBITDA profitability metric that that we are closely monitoring as well. And even on the cash flow side, Craig, look, if you look at our PP&E and our inventory, we’ve actually made a substantial amount of investment whether it’s in TORQ trays or Granite trays or TORQ implants and even though we are working through the supply chain, the Granite, we made significant investment in implants there too. And now it’s about deploying those assets in the field and you were seeing the timing of that play out on the cash flow side. We do expect to buy more instrument trays, because of the growth that we are seeing there and as we evaluate confinement opportunity and case coverage opportunity with distributors, but we think we’ve got adequate capacity to be able to support the growth that we see ahead of us. Now, when it comes to 2023, Craig, obviously, we are not going to provide guidance, you know that it’s too early, but from our perspective, the operating leverage should continue into next year, because we get more and more mature on our sales force. We continue to drive the deeper penetration. But all the ground game for us at this point and from a cash flow perspective, as the operating leverage comes in, you’ll see the cash outflow also decline, versus what you do in annualizing Q4.

Great. Thanks for taking the questions.

Thank you. One moment for our next question please. It comes from the line of David Rescott with Truist. Please go ahead.

Hi, thanks for taking the questions. This is Sam on for David. I’ll just start off with 4Q. When you think about the high end of rolling of the range, it sounds like it’s really the delta between how much that pressure in EMEA ends up being and how quickly, the Granite supply issues can get resolved? Is that the right way to think about it? Anything else in sort of core SI infusion markets to think about there?

Yes. No, what I would say is, the range that we provided adequately brackets the risk that we see in EMEA and we think that risk will take a few quarters to sort of work its way through the process as Neville sort of puts together a growth strategy for that market. The range delta is effectively the potential impact that we could see from Granite. In terms of how we keep working through successfully with the vacs at different hospitals to get this on the approved list and also on the supply chain side, making sure we can get the implants in. Our focus is to end the fourth quarter strong, but more importantly make sure that the momentum that we have in Granite, especially from a surgeon interest standpoint that we can capitalize on it starting Q1 of 2023 as aggressively as possible.

Got it. And then, just with the final rule confirmation, how should we – how significant event that going to be in 2030? And where should we think about that coming through in the business most significantly? Should that be more on the ASP side or should we think about that more bringing in new surgeons and maybe even helping to reactivate prior or currently inactive surgeons? Thanks for taking the question.

Yes. No, it’s a good question and this is a very significant increase in the facility payment both in the ASC environment, as well as in the hospital outpatient setting. And the total amounts of the payment in both of those settings is something of note, as well. And so, we do think that these sorts of decisions that surgeons are making about adopting SI joint fusion into their practices, part of it is just regularly diagnosing these patients and then treating them. And the health economics of that decision are important. And so, as you know around 80% of our procedures are in an ASP or an outpatient setting. We do think that it will attract new surgeons who previously were not doing the procedure. We also think that some surgeons who have been inactive will reactivate because of this decision, as well. So, we do think it’s significant and we expect to see that as a tailwind in 2023.

Thanks for taking the questions.

Thanks, Sam.

Thank you.

One moment for our next question please. Our next question comes from the line of Drew Ranieri with Morgan Stanley. Please go ahead.

Hi, Laura. Hi, Anshul. Just maybe on the procedure volume commentary, as you are kind of thinking about the year 14%, 23% and 25% in the third quarter, I think you mentioned that you are seeing maybe even an acceleration even in the early days of the fourth quarter. So, can you give us a little bit more commentary on that? And just as you are thinking about 2023, I mean, you still have talk about having a multiple tailwinds at your back. I mean, do you think that, as you were looking at the U.S. business that these levels you are hitting in the back half of the year are sustainable into next year with potential pricing as maybe an offset?

Thanks, Drew, for the question. We are pleased with the revenue acceleration that we are seeing in the U.S. and if you just look at the U.S. procedural volumes in Q1, you gave a number of 14% volume growth in Q1, 23% volume growth in Q2 and 25% volume growth in the third quarter. And we did not talk about what we are seeing in the fourth quarter thus far, but we do expect to continue to see that acceleration continue partly from our core business, but also from our adult deformity business and from our trauma business, as well. And so, we do see this as a factor. The other comment that I would make and it cleans off the question that I just repeat from Sam and that is, with the increase in the facility payments and the ASCs and hospital outpatients, what we would like to do is, see us hold the price in 2023 given that that should take some of the pressure off especially in the surgery center environment where we saw the most pricing pressure.

And then, Drew, on your question about 2023, again, it’s not guidance because we will wait for 2023 to come in before we provide guidance. But like Laura said, the trends in the procedure volumes in the U.S. did not underestimate the active surgeon growth numbers that we have seen, 27% growth year-over-year, 12% sequentially quarter-over-quarter. Those are pretty massive numbers in terms of active surgeon base growth and they actually are a very good forward-looking indicator for us in terms of procedure demand as we go into the future subsequent quarters. So the underlying U.S. business is actually fairly strong from a fundamental perspective. As you work through these new product dynamics, we feel pretty good about this. And when you think about the U.S. growth specifically, and I am talking revenues, and it was 21% growth in Q3 and if you think about the Q4 range of 18% to 22% depending on the low end and the high end range for the year. I think the midpoint of that is about 21%. That gives you a pretty good idea of the trend that we are seeing in the business. Now, EMEA will continue to be a bit of a challenge for the next few quarters and that may have an impact as we get into 2023. But you are spot on, when you think about 2022 TORQ had a record quarter. It’s continuing to do well. 3D is a great product with goes together. The other market-leading products for SI joint fusion, the facility fee increase that Laura talked about, the broader application of TORQ not just with the clearance for trauma, but also in adult deformity that we got in the September period, August period is a big deal to be able to deliver two points of fixation and complement Granite. So, overall, we feel the set up is really, really good in the U.S. and we just need to work through some of these dynamics we talked about today and deliver.

Got it. And then, maybe if we can talk a bit about the active surgeon number and you touch on this I think with your answer to Sam a bit. But as you are looking at the 800 active surgeon base in the third quarter, what are your expectations for the fourth quarter, the growth that you are potentially going to see? And then, as you are looking at these new surgeons with the 27% year-over-year increase, how does their utilizational ramp up compare now, then maybe what that looks like pre-pandemic. I guess, I just want to get a better sense of how sticky these procedures are and if these surgeons are – for lack of better words, becoming like true believers and core iFuse or even some of the adjacent products. Thanks for taking the questions.

Yeah, it’s a great question. And you are right, we are really encouraged by the continued increase in surgeon interest in our solutions and hitting that record 800 plus active surgeons in the quarter really highlights that and I did note in my prepared comments that that trend have continued into the fourth quarter. And you’re asking about the stickiness of the procedure. We’ve seen double-digit growth in our surgeon base for seven straight quarters at this point. And this quarter was particularly notable with the sequential 12% increase just between Q2 and Q3. These adoption numbers are great forward-looking indicators for demand trends, we are excited about the surgeon overlap between the different procedures, adult deformity and their minimally invasive SI joint fusion. It really just reaffirms this comprehensive set of solutions that we have and then our focus on education and training is yielding results. So, we are excited about where we are at. It is a very important indicator that’s why we provided and it’s one of the most exciting metrics we focus on to drive long-term growth.

One moment for our next question please. And it comes from the line of Dave Turkaly with JMP Securities. Please proceed.

Hi, good evening. Laura, I’d love to get your thoughts that [Audio Gap] of the 50%, over 50 adult deformity, also used – I mean, I was kind of thinking that out of the gate, it might be like, higher meaning that you take your core accounts with some of the newer products right out of the gate, so that that might make that number a even more significant one. Sorry, I am getting a call. But I’d love to get your thoughts about that and where you think that’s headed?

So, David, let me be clear about our surgeon base, okay? So, our adult deformity surgeons are orthopedic and neuro surgeons that do spine procedures. And those that are doing adult deformity tends to be in an academic medical center, they are key opinion leaders, they tend to work on the most complex cases that are out there. And so, they are the same call points, but what often occurs is there will be certain surgeons in a practice that maybe performing the minimally invasive procedures and those include iFuse and then there are those that are focusing on the open complex cases like scoliosis cases that are using Granite. But what we are seeing is, a significant overlap between the two and we are actually quite pleased with that number with the over 50% who have done a adult deformity procedure also doing a primary case. So, it also, once again going back to that point that I made, there may be another surgeon within the same practice that is doing the iFuse procedures while the KOL at a particular site is doing the adult deformity procedure. So that 50% number does not capture that information within it. But the point that I think is important to make here is that there is significant overlap and synergies between the procedures that our surgeons are doing and that even does extends to these trauma cases, as well, how to grain fragility fractures. Many times these patients are actually being seen by spine surgeons and historically they weren’t sure what to do with those particular patients. And what we are trying to do now is provide to education efforts and say there is a solution for these patients and it is our TORQ product.

Got it. And then, the active surgeon number, I can’t remember exactly how you define it, but, I mean, you have some folks in there that are new to probably all of your products that you are gaining with some of these new products and would that be a fair statement? Is that fueling some of the increase there?

No, that’s correct. And we did provide information as that we now have over 3,000 surgeons worldwide who have performed at least one procedure. So, we are seeing a significant increase here and it’s both – and as a reminder, an active surgeon is a surgeon who performs at least one case during the quarter. So, we had over 800 surgeons who performed at least one procedure with one of our products. And so, it’s an important measure and it shows that we are educating, training surgeons, they are coming on board and they are continuing to perform procedures. So we are very happy with that number, because it doesn’t necessarily reflects growth in the current quarter, but what it does is really helps you understand what the long-term opportunity is for the business.

Got it. Thank you.

Thank you. And one moment for our next question please. Our next question comes from the line of Ross Osborn with Cantor Fitzgerald. Please go ahead.

Hi. Congrats on the quarter. So I guess, just one for me at this point and kind of just going up the last question, so looking at the trauma opportunity, what push back or questions do you get for potential TORQ users that are currently going down the bed rest around at this point? Or is it really just a function of educating surgeons and what you believe surgeons need to see to drive adoption?

Yeah, thanks for the question, Ross. We do believe that this is a educational number, because historically 75% of these patients have been treated with bed rest, the other 25% primarily the surgeons have used trauma screws and so, we are used to this sort of an educational sale and actually it fits very well into our wheelhouse. And how we’ve done this in the past is, first of all, we have a very innovative product that addresses the issue of I’d say, efficiency and fragility fractures. So it starts there. The product is already there. Then it is our educational effort with our medical affairs team and with our surgeons. And so, those are the sorts of things that we need to engage in. And finally, we did talk a little bit about our SAFFRON study and that point to me very important as well, because this is a randomized controlled trial that is showing the results of four patients that have received treatment using TORQ compared to conservative care. And so, this is a sort of information when you are going through an educational effort like this, you require high level RCT clinical data in order to go back to surgeons and help them to adapt a new procedure.

Okay. Thank you. Congrats again on the quarter.

Thank you.

Thank you. One moment for our next question. It comes from the line of, hello, can you hear my voice?

Yes, we can.

Okay, perfect. It comes from the line of Young Li with Jefferies. Please go ahead.

All right. Great. Thanks for taking our questions. I guess, so you made a lot of progress this year with the surgeons and fellow residents seek training, new products and coverage and reimbursement. I guess, it sounds like qualitatively, growth can reaccelerate in the U.S. next year. Are there any headwinds we should be mindful of with staffing or supply chain or any macro dynamics going forward such as potential recessionary impacts?

I think we’ve spoken about the challenges that we are experiencing right now and international obviously is one where we are seeing some headwinds that we are in the process of addressing. And then, as we said on Granite, it’s really just a matter of ensuring that we have the implants and the instrument trays in order to meet the demands that are ahead of us. So those are really the couple of things that that we are addressing at this point in time and feel very good about our ability to execute on those things.

Thank you. And one moment for our last question. And our last question comes from the line of David Saxon with Needham & Company. Please proceed.

Hi, guys. This is Joseph on for David. Just wondering if there is going to be any impacts from C-Spine, pending merger with Orthopics on your iFuse grand partnership with C-Spine?

Thanks for the question. We don’t expect for there to be any impacts with that particular relationship.

Okay. Great. Good to know. And then I’ll just squeeze the last one in here. Could you maybe talk about your expectations for a sales rep hiring here in the final couple months of 2022, as well as 2023? And then maybe just on the P&L sheet some of the timing of the higher cost inventory working through that and maybe some of the impact on gross margins in 2023 from that?

Sure. So, happy to take the question on the rep hiring plans for the year. Our expectation is to end the year with about a 160 people in our sales force, which includes our territory managers and our territory representatives or TRs. I’d say, our TMs will be anywhere between, I’d say, 88 to 90 people and the rest would be the TRs. When we think about next year to get we are not going to deploy any numbers there, but we’ve made a lot of investments in our sales force. We think we will continue to make those investments but at a moderated pace. And then, between consignment opportunities and also leveraging distributor network for case coverage, we believe we have the capacity to be able to support the strong demand that we see in the U.S. On your second question, Joseph, on the gross margin side and the – and on the inventory side, as we came into this year, we’ve talked about our gross margin trends and sort of expecting to end the year with a fiscal year 2022 gross margin in the mid-80s range. And if you think about where we started the year, since then, a few things have happened, right, which we had already forecasted. One was, the introduction of the new products into the market with TORQ and Granite. These products generally have a higher cost since they are relatively new. They haven’t been at a scale where we can get cost efficiencies out of them. So that’s number one. And that will take some time as we build demand and scale of those products. The second piece was, we progressively invested and I talked about this earlier in our call, as well on instrument trays, both for TORQ and for Granite. And these trays are more expensive than our traditional 3D trays, as well. But we are doing that because we see a strong demand ahead of us both for adult deformity and also with TORQ in our core business and also in trauma. And this is going to lead to elevated depreciation. We depreciate our trays over a three year period. So, by the time you start seeing the tray turns to drive the revenue you are still seeing the depreciation both in the P&L. And then third piece is just general freight increase that everybody has experienced throughout this year. So, our gross margins are trending like we expected. We expect Q4 gross margins to be closer to what we saw in Q3. And then in terms of 2023, we will provide more guidance as we get into 2023, but some of the dynamics that I just talked about on new products and trays will continue to have an impact in 2023, as well.

Okay. Great. Thank you so much. Congrats on a great quarter.

Thanks, David.

Thanks, David. Thanks, Joseph.

Thanks, Joseph, sorry.

Thank you. And with that we conclude our Q&A. I will pass it back to Laura Francis for her final remarks.

Thanks all of you for joining the call today. We talked a lot about our revenue acceleration since the start of 2022 and it gives me a lot of confidence in our ability to capitalize on the strong demand for our solutions in a favorable reimbursement landscape. And as we exit 2022, we have the infrastructure and the liquidity profile to deliver strong and sustainable revenue growth and drive operating leverage as we progress towards profitability. So, thanks again for your time. Good bye.