SIBN - NASDAQ

Good afternoon, and welcome to SI-BONE Second Quarter 2025 Earnings Conference Call. [Operator Instructions] We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Saqib Iqbal, Vice President, FP&A and Investor Relations at SI-BONE, for a few introductory comments. Sir, you may begin.

Earlier today, SI-BONE released financial results for the quarter ended June 30, 2025. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management's remarks today may 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. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, such as our most recent Form 10-K, and actual results might differ materially from any forward-looking statements take today. Accordingly, you should not place undue reliance on these statements. These forward-looking statements may speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law. During the call, management may discuss certain non-GAAP measures, including the company's adjusted EBITDA results. Unless otherwise noted, any reference to profitability is in terms of positive adjusted EBITDA. For a reconciliation of these non-GAAP measures to GAAP accounting, please see the company's full earnings release issued earlier today. Unless otherwise noted, all results are compared to the comparable period in the prior year. With that, I'll return the call over to Laura.

Thanks, Saqib. Good afternoon, and thank you for joining us. Since our inception, our strategy has been to build a unique platform of solutions, targeting some of the most challenging procedures and patients treated by our physicians. Our proprietary solutions improved surgical outcomes with stronger fixation and infusion and lower failure rates. This is recognized and supported by clinical data and favorable reimbursement. We're delivering on that strategy with another quarter of strong and profitable revenue growth supported by the increasing adoption of our platform. We had a record number of U.S. physicians perform our procedures this quarter, reinforcing the expanding reach and clinical acceptance of our differentiated solutions. We added an important growth engine to our international markets with the successful launch of iFuse TORQ in Europe, our strong top line growth, coupled with our disciplined operating approach, enabled us to deliver our third consecutive quarter of positive adjusted EBITDA. Alongside maintaining consistent profitability, we reached an important cash flow milestone. We achieved cash flow breakeven in the quarter, well ahead of our original time line. Notably, we accomplished this while continuing to invest in building surgical capacity to support demand for our existing products as well as invest in product innovation to drive future growth. In the second quarter, we delivered worldwide revenue growth of approximately 22%. U.S. revenue, which accounts for 95% of our business, grew approximately 23%. U.S. revenue growth was supported by a 25% increase in procedure volumes, reaffirming the robust underlying demand we continue to see across our target markets. The volume growth was broad-based. We experienced double-digit percentage growth in volume across all the modalities we serve. This robust volume growth reflects the rapid adoption of last year's new offerings and sustained momentum in our existing solutions. Our surgeon base expanded rapidly in the quarter as we experienced double-digit percentage growth across all our call points. This was also our fifth consecutive quarter of sequential growth in the physician base. Our average territory productivity reached a new high watermark, underscoring the strength of our commercial execution. The high value of our unique solutions is recognized by payers, providers and regulators and is reflected in the favorable reimbursement decisions and designations for iFuse TORQ TNT and iFuse Bedrock Granite. These decisions validate our leadership and facilitate physician and patient access to our high-quality solutions. With a target of over 0.5 million annual procedures in the U.S., our current portfolio has significant growth potential. Meanwhile, new solutions in the pipeline are poised to target new addressable markets as we leverage our knowledge of dealing with patients with poor bone quality and deepening penetration of existing target markets by meeting the diverse needs and preferences of physicians. Now I'd like to highlight the progress we've made on our 4 key priorities: innovation in key markets, physician engagement, commercial execution and operational excellence. Starting with innovation in the area of SI joint dysfunction, our commitment to offering the most comprehensive portfolio of solutions tailored to physicians varied needs and preferences continues to prove effective. In the second quarter, the number of physicians performing our SI joint dysfunction procedure grew by double-digit percentage points. While surgeons account for the majority of our SI joint dysfunction volume, a growing base of interventional spine physicians are engaging us as they incorporate our procedures in their practice. On the product front, iFuse TORQ has become the preferred solution, especially among the newly trained physicians. iFuse venture adoption is growing in markets, where the interventional spine physicians initially prefer an in-office or allograft solution and the reimbursement for CPT 27278 is clearly defined. On the clinical front, early safety data from our STACI study was published in pain medicine. STACI is the first study to evaluate lateral SI joint fusion using our iFuse TORQ implant when performed by interventional spine physicians. The data is consistent with the published surgical literature supporting the safety and effectiveness of lateral SI joint fusion as performed by this physician specialty. A manuscript detailing the 6-month primary endpoint outcomes is currently under peer review at a prominent journal. We're excited to announce that in June, we received regulatory approval to launch iFuse TORQ in Europe. If early reception from surgeons and interventionalists is any indication of future demand, we expect TORQ to accelerate adoption and growth across our international markets. In July, we completed the cases across various European markets and in several instances, even converted physicians, who in the past, use competitive products. Moving to pelvic fixation. Since the launch of the iFuse Bedrock Granite platform in 2022 and the subsequent addition of iFuse Bedrock Granite 9.5 last year, we have led the industry in providing safer pelvic solutions for spinal deformity and degenerative conditions, requiring surgical intervention. Granite has been a stellar success with the potential to reduce the nearly 24% failure rate of lumbopelvic fixation. Granite 9.5 continues to have a trifecta effect on the business. First, it was a key contributor to our physician growth. Second, it allowed us to build a deeper relationship with our customers. Granite was the crucial driver of the 24% growth in the number of physicians performing more than 1 type of procedure in the quarter. Third, the number of Granite cases utilizing 4 implants grew approximately 50% in the quarter. This has contributed to our strong average selling price per procedure. On the reimbursement front, Granite has a transitional pass-through payment, including a $0 device offset, which CMS has proposed to continue for calendar year 2026 procedures. We see additional tailwinds for Granite in the significant changes proposed by CMS for hospital outpatient payments. For higher-cost lumbar fusion procedures, a Level 7 APC payment of nearly $28,000, and has been proposed to compensate hospitals for complex, multilevel spinal fusion procedure performed on an outpatient basis starting in calendar year 2026. In addition, CPT 27280 describing open SI joint fusion was removed from the inpatient-only list. We believe these changes will provide a tailwind for our business as some of these procedures migrate to the lower cost site of service. Granite will be an economically viable component of these procedures and can be an important part of the outpatient care for these patients. Moving to pelvic trauma. iFuse TORQ TNT, which was awarded a breakthrough device designation from the FDA, is ramping ahead of expectations as a record number of surgeons use TNT in the second quarter. We're in active dialogue to significantly expand our agent partnerships to help trauma surgeons gain access to this breakthrough technology for their patients, which is targeted toward pelvic fragility fractures. With nearly 60,000 potential target procedures annually, the pelvic trauma market has the potential to be a significant growth driver for the business. We're pleased with the finalized New Technology Add-On Payment for inpatient procedures for TNT. The NTAP will be effective starting October 1, 2025. This add-on payment of over $4,100 translates to a 20% to 30% reimbursement increase to the hospital for pelvic fracture fixation for Medicare patients. We believe higher reimbursement for hospitals by the NTAP will expand access to our technology for trauma patients and provide additional momentum to TNT's already strong start. Turning to our pipeline, innovation remains a core tenet of our long-term growth strategy. We have a track record of applying our proprietary technology, biomechanical expertise, clinical data and real-world experience to expand into new modalities. We identified pressing clinical needs where our platform technology superior fixation infusion capabilities can improve surgical outcomes. For the new SI joint solution we mentioned in prior calls, we expect to submit our 10-K application to the FDA soon and remain on track for commercial launch later in the first quarter of 2026. The solution leverages our 3D engineering and design expertise as well as our clinical experience with INTRA. We believe the solution is optimized for the ASC environment and will allow us to reach an even broader group of physicians and extend our leadership position at that site of service. We're also excited about the significant progress on the technology milestones underpinning our third breakthrough device, which we discussed on the prior earnings call. We believe this novel solution has the potential to become the standard of care for addressing one of the most pressing needs in spine surgery. Based on this encouraging progress, we anticipate filing our 510(k) for this groundbreaking product, sometime in the second half of 2026. Next, let's move on to physician engagement. In the second quarter, a record 1,440 U.S. physicians performed procedures using our products, representing an increase of 25% over the prior year period. The double-digit percentage growth across all our call points highlights the broad based demand for our differentiated solutions. The elevated level of physician interest is an outcome of our commercial team's efforts to drive deeper engagement with existing customers and successful expansion across all our call points. Our thoughtful platform expansion strategy clearly resonates with our customer base. Our platform supports multiple procedure types, and many physicians who adopt one of our solutions increase their utilization over time and are more likely to adopt additional solutions. Physicians who performed a case in the second quarter of 2025 and 2024, averaged nearly 5 procedures per physician. This was doubled compared to the number of procedures performed by our physicians, who are not active on our platform a year ago. Our academic programs remain a key contributor to our active physician and revenue growth. In the second quarter, revenue generated from physicians who were previously trained as residents and fellows, grew by 63% year-over-year, highlighting the outsized impact of these programs. Now let's turn to commercial execution. Our U.S. commercial team delivered another strong quarter, driven by our focused go-to- market strategy and operational excellence across our 85 territories. Our trailing 12-month revenue per territory increased to $2.1 million, representing 23% growth over the comparable prior year period. While we will add new territories over the next 12 months, we believe our hybrid commercial model will allow us to drive incremental productivity improvement over time. The hybrid model provides territory managers with the ability to maintain strong connectivity with their customers, focus on market development and expansion opportunities while also allowing our sales agents to focus on case coverage. In 2022, when we are in the early stages of our hybrid model expansion, we did 11,500 procedures across 85 territories. Procedures have since grown by 70% to 20,000 in the trailing 12 months while the number of territories is unchanged at 85, demonstrating the effectiveness and efficiency of our hybrid model. Before I hand it over to Anshul, I'd like to provide a leadership update. Tony Recupero, our President of Commercial Operations, has announced his decision to retire. Since joining the company in 2016, Tony has been instrumental in expanding SI-BONE's footprint, building a high-performance sales organization and delivering sustained revenue growth while significantly increasing the company's influence across the industry. We're deeply grateful for his leadership, vision and the lasting impact he's made on SI-BONE. Tony's retirement will be effective February 2026. At which point, he will transition to an advisory role for a 12-month period. I want to thank Tony for his outstanding leadership, partnership and friendship over the past decade. Nikolas Kerr will take on the role of Chief Commercial Officer effective February 2026. Nik joined SI-BONE in 2016 and currently serves as the Senior Vice President of Product, Marketing, and Business Development. Throughout his tenure, Nik has been a driving force behind the company's innovation strategy, market expansion and commercial evolution. With more than 25 years of experience in the medical device industry, Nik brings a unique combination of strategic foresight, customer-centric leadership and operational expertise. I would like to congratulate Nik on the promotion. We have a seamless transition plan in place. I'm confident that our seasoned sales team will continue to execute and deliver exceptional performance under the direction of our deeply experienced leadership team. With that, I'll hand over the call to Anshul to provide an update on our fourth key priority, operational excellence, and share our second quarter results and updated guidance in more detail.

Thanks, Laura. Good afternoon, everyone. My comments today will cover second quarter revenue growth, profitability and liquidity and then I will talk through our full year guidance. All of the comparisons provided will be against the prior year period, unless noted otherwise. Starting with revenue growth. Our worldwide revenue was $48.6 million in the second quarter, representing growth of 21.7%. Our strong momentum in the U.S. continues with revenue of $46.4 million, representing 22.8% growth. Our U.S. procedure volume was up 25%, driven by double-digit volume growth across all modalities. International revenue in the second quarter was $2.2 million. Our revenue growth in Europe in the quarter was impacted by the later- than-expected regulatory clearance for TORQ. Based on early user feedback, the enthusiasm for TORQ is evident. Consistent with our experience in the U.S., we expect TORQ to boost revenue growth in Europe in 2026 and beyond. Moving to profitability. Our focus on operational excellence is reflected in our industry-leading gross margins as well as strong operating leverage with revenue growth nearly double the level of operating expense growth. Our gross profit was $38.8 million, an increase of $7.2 million or 22.9%. Gross margin was 79.8%, expanding by 80 basis points year- over-year, driven by our actions to improve manufacturing and supply chain efficiencies over the last 12 months. Our average procedure ASP declined slightly but remains more stable than our assumptions going into the year due to the favorable procedure mix. Our operating expenses were $45.8 million, an increase of $4.2 million or 10%. The increase was mostly due to growth-related investments and higher commissions as well as elevated G&A spending in the quarter. Our net loss narrowed to $6.2 million or $0.14 per diluted share compared to a net loss of $8.9 million or $0.22 per diluted share in the prior year. We delivered positive adjusted EBITDA of $1 million compared to an adjusted EBITDA loss of $2.7 million in the prior year. This is our third consecutive quarter of positive adjusted EBITDA. For the trailing 12 months ended second quarter 2025, we delivered positive adjusted EBITDA of $3.1 million compared to an adjusted EBITDA loss of $15.4 million in the prior year period. Given the momentum in the business, we remain on track to deliver positive adjusted EBITDA in fiscal year 2025 and beyond while investing across our growth priorities. Turning to liquidity. We exited the quarter with $145.5 million in cash and marketable securities, up from $144.4 million in the previous quarter. The sequential increase of $1.1 million marks an important milestone as this is our first quarter, where we are at cash flow breakeven. Our ability to achieve this milestone ahead of plan is an indication of the potential for the business to consistently drive positive free cash flow at scale. Based on the planned increase in surgical capacity, we expect to consume a modest amount of cash in the second half of 2025. Now let me provide an update on our outlook for 2025. We are updating our full year revenue guidance to range between $195 million to $198 million. The updated guidance implies year-over-year growth of approximately 17% to 18% as compared to the previous guidance of approximately 16% to 18%. The updated guidance reflects the strong first half of the year and our conviction in the growing adoption of our solutions. Given the strength of our gross margin, we now expect the full year gross margin to be between 78.5% and 79% compared to a previous guidance of 78%. We still expect fiscal year operating expenses to grow at least 10% at midpoint of our revenue guidance, and we expect positive adjusted EBITDA for the full year of 2025. With that, I will turn the call over to Laura.

Thanks, Anshul. I want to thank all my colleagues for their commitment and contribution for delivering industry-leading top line growth and consistent profitability. We're energized by the momentum we're carrying into the second half with multiple growth drivers. We're excited about our innovation engine as we launch products that will address some of the most challenging patient needs. In addition to delivering strong top line growth, we're committed to growing our profitability and making progress toward delivering consistent free cash flow. With that, we're happy to answer your questions. Operator?

[Operator Instructions] First question comes from the line of Craig Bijou with Bank of America.

Congrats on another strong revenue growth and good profitability quarter. That's it. I do want to start with the guidance on the top line. And you guys had 20-plus percent growth in the first half. I think the guidance implies a step-down from there. So maybe you guys can talk a little bit about what some of the assumptions are underlying that growth for the second half and maybe even a little bit of color on cadence between Q3 and Q4.

Thanks for the question, Craig. I'll start, and then I'll have Anshul talk a little bit more about the details of the guidance. So first of all, we're really pleased with how the quarter ended and especially led by the U.S. growth of 23%, and what's interesting is if you look at the CAGR for the last 2 years, we actually saw growth acceleration between Q1 and Q2. So it really tells us that our strategy is working. In addition to growth, what we're doing is growing our way to profitability. So top line momentum helped us to deliver a third quarter of adjusted EBITDA profitability, and we're actually really excited about achieving cash flow breakeven during the period, which was quite a bit earlier than our stated goal. So we're proud of the business model. We really think we're a differentiated medical device company, high-margin asset-light and a growing company, a profitable company and these new cash flow metrics are substantiating all of that. Also, before we turn it over to Anshul to talk further about guidance, just talk about some of the highlights of the quarter. So 25% U.S. procedure volume growth, and that was broad based with double-digit procedure volume growth across all of the modalities that we serve. Also 25% growth in our physician base, so a new record of 1,440 surgeons, gross margin expansion by 80 basis points, additional gains in sales productivity moving up to $2.1 million per territory, and I've already mentioned our adjusted EBITDA and our cash flow goals as well. So all of this gives me really a strong sense of confidence about the demand across the portfolio and across all of our call points for the remainder of 2025. And I also talked a little bit about how we're thinking about new product development and continuing to broaden and deepen our solutions to solve these challenging unmet clinical needs. So I'll turn it over to Anshul to talk a little bit further about the details of guidance.

Yes. Thanks, Laura. Craig, good to connect again. As Laura highlighted, we're really encouraged by the strong first half performance, and our updated guidance on revenue and gross margin sort of reflects that strong first half. When we think about the business going into the second half of the year, we're maintaining our consistent and prudent approach to guidance. We've got a lot of tailwinds in the business. Going into the second half, all the surgeon momentum, Laura talked about the broad based volume demand that we're seeing. Beyond that as well, you look at the tailwinds that could provide potential for upside in the second half are faster-than-anticipated, continued adoption of Granite, especially within degen spine. Our assumptions around sort of this low single-digit decline in ASP, around 3% to 4%. And it could play out better, especially as we continue to see 4 implant deformity cases with Granite continue to go strong as we saw, it was a 50% increase year-over-year in the second quarter. So you've got that playing out. You've got the potential for additional TNT capacity, surgical capacity being rolled out and the potential impact of NTAP that goes into October 1 -- that goes effective October 1. And then to a lesser extent, you have the upside from TORQ in Europe. So a lot of tailwinds, but again, we just want to be thoughtful as we said guidance. We want to grow into those tailwinds, especially the ones with TNT and TORQ. So we're feeling good about how that setup is. Your question on cadence between Q3 and Q4. So consistent with what we've talked about on our prior calls, our assumption in our guidance is a sequential decline of circa, let's say, 4% in Q3. Most of that is driven by seasonality, certifications and conferences. Now if you go back the last few years, we've actually done better than that. Part of that is through execution. So we think there's potential to do better, but that's embedded in our guidance right now is sort of a sequential decline of about 4%. And then Q4, which is traditionally our largest quarter, our expectation is the continued ramp in Q4.

Got it. That's all very helpful. Maybe a similar question on the gross margin guidance. And obviously, it's been very strong, close to 80% in the first 2 quarters. It implies a little bit of a step-down, maybe that is also conservatism. But just talk about how we should be thinking about that. You don't seem to be getting that pricing pressure that you had called out at the beginning of the year. And then even beyond '25, just how do we think about those gross margins? Is it right to think about it stability there? Or could there be pressure in future years?

Yes. I'm happy to take that, Craig. So again, on the gross margin side, similar to revenue, we're being very thoughtful. If you recall, we started the year expecting gross margins to be around 77% to 78% for the year. We've obviously outperformed that original expectation, but also grown gross margin on a year-over-year basis by 80 basis points. I, in my prepared remarks, talked about some of the efforts that we've been doing on supply chain and manufacturing, that's helped improve the gross margin. So some of that is going to be sticky. In terms of our updated guidance, which is now at 78.5% to 79%, we're embedding some of that is sticky improvement in gross margins flowing through for the rest of the year. But we are being thoughtful around the ASP impact. Like I said, we're assuming sort of a 2% ASP pressure in the back half of the year, driven by just the procedure mix happening. Again, Granite with degen opportunity and even deformity is a strong revenue driver, but they are a little bit more expensive. So that has impact on COGS as well. We're putting out more TNT capacity, especially with the NTAP coming on and some of the other distribution arrangements we're working on. So you'll see some depreciation go through that. And then we just are in the final stages of implementing an automated platform through Salesforce Health Cloud and you'll see some depreciation from that as well. So I think we're fairly embedding some of those headwinds in the gross margin now. What we're not embedding in there is the potential for better-than-anticipated ASP. As you said, ASP has turned out better than we expected starting of the year and also impact of additional margin improvement initiatives. So I think there's going to be a balanced put and take there. In terms of beyond 2025, what we've shared previously is we're going to continue to look at improving our operating -- gross margins through various initiatives. But we do have new product launches coming out. Laura has talked about the potential commercialization of the next product in Q1. We're going to be filing the 510(k) for our third BDD device in the second half of '26, so our expectation is, over the medium term, so I'd say, over the next 2 to 3 years, gross margin sort of stabilizing in the 76% to 77% range. Now a lot of that is new products take time to scale, so they tend to put pressure on the gross margins initially. But we've got existing products that will be getting to scale to offset that.

Our next question comes from the line of Dave Turkaly with Citizens.

Congrats on the momentum. Laura, I was wondering if you might be able to provide a little color on the number of interventional docs that are now using product and maybe also -- maybe some color on how many of them are using more than one. I know that you called out INTRA and TORQ in the past. But I'm just trying to get a feel for how fast that base is growing.

Thanks for the question, Dave. The addition of interventional docs, we added them a little over a year ago at this point. We started to work with interventional, and it has been a very strong growth driver for the business. We don't break out how many of those 1,440 physicians are interventionalists. But as I said, it's a really nice strong growth driver for us. And in terms of the mix of the product that they're using, TORQ still is the product of choice for them, but quite a few of these interventionalists that are in areas where the reimbursement is clearly defined, really like our INTRA product as well. So just to be clear, surgeons continue to account for the overwhelming majority of SI joint dysfunction procedure volume. But as I said, interventional is a really nice growth opportunity for us. The other thing that we're doing is that a lot of the interventionalists that we're working with, they are in areas where the surgeons are not doing these procedures. And so it's been a real nice balance for us there. Overall, what we've tried to do is just develop the most comprehensive platform for SI joint dysfunction and really meet the needs of the physician and the patients as well. We do see some surgeons -- some interventionalists that are actually using both products depending upon what they think the needs are of the patient. The other thing that may be a little bit interesting to comment on here is that CMS has actually proposed around an 18% increase in the payment for CPT 27278 when it's performed in office. And so our INTRA product, which is the only truly percutaneous product on the market, that is primarily where that product is used. And so once again, the reimbursement needs to be clearly defined in those particular markets. But we do think that we have a great solution for interventionalists that are interested in using the product in office. Just the last thing I would say, Dave, on interventional is the new SI joint product we're launching in the first quarter of 2026. That's going to provide another surgical solution, and we believe it's going to simplify workflow and allow us to further expand our engagement with interventionalists.

Great. Maybe just as a quick follow-up, given some of the positive commentary around Granite, I know you kind of highlighted maybe 40% of those procedures with the TPT could go outpatient over time. Curious if you still think that's the right sort of target or could it be higher?

Yes. You're exactly right. Based on the data, right now, most of the surgeons that we're working with are performing these procedures in patients, but there was a pretty significant shift and proposal to increase and allow various procedures into the outpatient setting in ASC setting as well. So one of the things I'd highlight is that CMS proposed a Level 7 APC, which was around a $28,000 payment for certain higher-cost lumbar fusion procedures, and they're now allowed to perform those procedures in an outpatient setting. Also, CPT 27280, which describes open SI joint fusion was removed from the inpatient-only list. So it gives more confidence in the flexibility, the code selection and the economic viability of Granite. And then the last comment I would make is, given that Granite has been awarded a transitional pass-through code effective at the beginning of this year and a $0 device offset, we do think that, that may be another driver for surgeons to take some of these patients that previously had done procedures in an inpatient setting and move them to an outpatient setting. And it's a big opportunity, specifically, especially short construct degenerative spine procedures, there's around 100,000 of those that are performed every single year. And those are the particular procedures that we would expect to see more of in an outpatient setting.

Our next question comes from the line of Young Li with Jefferies.

I guess to start kind of curious, you've been adding more and more surgeons on a quarterly basis. Is there any way you can help us understand how quickly the newer surgeons come up to the curve versus surgeons in prior cohorts, prior years with more experience? Is it sort of easier to convert them to do more procedures just given there's more broader experience and literature out there?

Yes, it's a great question. And our product platform expansion strategy really is centered around increasing procedural density. So with the broadening of our portfolio and the ability for our surgeons to do multiple procedures, it really does help to drive that procedural density. We did talk a little bit about this information in our prepared remarks, where we said if you looked at a surgeon that had done a procedure a year ago that, that same surgeon on average was doing over 5 procedures per quarter, which is almost double what the average surgeon is actually doing. So it does give you an idea of how significant the maturation of the physician base will have on the growth in procedural density that we should see over the coming quarters. So that at least gives you a little bit of a picture. I'll also just say that on average, it takes around 3 years for a physician to fully ramp up and get to the overall average. Now that is just for SI joint dysfunction, but if you include deformity, it does go a little bit faster, but at least those year-over-year numbers help -- should help answer the question that you're asking.

All right. Great. Very helpful. And then I guess on the commercial side, you've been keeping the territories and agents pretty steady over the past year. They've been growing more and more productive increase in the average ticket per territory. I think you're going to be expanding to more territories, probably around 100, can you maybe add some thoughts around that timing and the pace of that as well as on the agent side? Should we expect to see some sort of expansion on the agent side as well?

Yes. Yes, I'm happy to take the question. So really pleased with how the commercial organization actually ramped up revenue per territory over the last several years now. Just in this quarter, you saw that revenue per territory grew 23% to about $2.1 million. So ahead of the goal that we had set when we went public at $2 million. We're not setting a new target at this point on how much more we can get -- do per territory. We know we've got examples out there where a lot of our large territories have used various permutations of the hybrid model and do well north of $3 million in annualized revenue. So we know we can do better. But what we're focused on is adding more territories over the next 12 to 18 months. You're right. We want to get to about 100 over the next, I'd say, 15 months. Part of that is in preparation for the new product launches that we have coming in Q1 and then also the third breakthrough direct device that once we file the 510(k), we want to start ramping up our sales force able to be set to drive the adoption there as well. So you will see us grow there. On the agent side, that model has actually worked out really well for us. So you will continue to see the agent side expand as well. It provides our territory managers with the ability to maintain the connectivity with the customers while focusing on market development and expansion and the agents and distributors can then provide bandwidth for case coverage, right? So that model has worked out really well for us. We don't see that change. And so I think, that model will continue. On our end, we will add new territories, but we do expect the hybrid commercial model to drive incremental productivity over time.

The next question comes from the line of Matthew O'Brien with Piper Sandler.

Maybe, Laura, just for starters on the new product side of things, can you just talk a little bit about where you are in terms of momentum across the portfolio? Because it sounds like it's building and you've got some reimbursement tailwinds that could accelerate it next year and then beyond. So just kind of where are we at in terms of a bunch of these new products and then some of these catalysts that may help you kind of even sustain or accelerate the performance of the business over the next 2 or 3 years?

Yes, great question. So what I'd say is the growth that we're experiencing is broad based at this point, Matt. So we're seeing strong demand for our existing solutions and then rapid adoption of some of our new products. We have 3 products that actually launched in 2024. So experiencing double-digit growth in our physician base across all of our call points. We also have healthy double-digit procedure volume growth across all of our modalities. And if I even dig a little bit deeper. Granite 9.5 is clearly becoming a preferred solution for our surgeons who are adopting pelvic fixation. And then TNT, although it's still small, as I said in my prepared remarks, we saw a record number of physicians perform a procedure there. And we're really excited about putting the -- when the NTAP goes into place on October 1, and I also mentioned a little bit about putting additional third-party agents into place, very similar to the strategy that we used with Granite that's been highly successful. And so we see something similar happening here. Finally, on SI joint dysfunction. We also saw that double-digit procedure volume growth and double-digit percentage physician growth, and it's off of a bigger base, as you may guess, so it really highlights the strength in the market. So the strategy that we're really following here is to maximize the potential of each of our physicians and we're trying to gain share as a leader in all of our modalities, the idea is to continue to drive that surgeon density, increase the number of procedures that are being done per surgeon while also trying to further penetrate that broad market opportunity we have. There's 12,000 physicians that we're targeting with our various procedures. And then finally, ASP is an important aspect of this too, and we're seeing continued strength in our ASPs beyond what we had even guided to. So the strategy that we have in place is working. We're seeing strong results and we're -- even though we're being conservative about how we're approaching our guidance for the second half of the year, we've never been in a better position as a company. And even talking about those new products as well, what we're trying to give you a flavor for is what's to come in 2026 and what's to come in 2027 that SI-BONE really provides this unique, differentiated, high-growth platform that we're now seeing consistent profitability, and we're seeing the turn toward positive cash flow.

Okay. I appreciate that. And then can you just talk -- your commentary about the ASC opportunity, especially with the new product that you should get early next year is intriguing. Can you talk about that opportunity to grow the business and then additional investments that are required there that we may not be fully contemplating?

Yes. Actually, it's a very natural extension for us. Currently, in SI joint fusion, I think we're going on around 35% of our business that is -- those procedures are being done in the ASC. So this isn't anything that's new for us. It's been a very strong area of growth over the last few years, starting basically from 0 a few years ago to where we're at today. So in terms of the new launch that we're talking about for SI joint dysfunction, as I said, we are expecting to launch it in the first quarter of next year. So we're preparing our 510(k) application for the FDA and expect to submit that soon. And so that's going to be a nice driver here for 2026 coming up. But -- and that will be a product that would be targeted toward ASCs specifically.

And from an investment standpoint, because it's with the existing call point, the existing sales force, it fits naturally to the bag of our commercial sales force.

Our next question comes from the line of Caitlin Cronin with Canaccord Genuity.

Congrats on a great quarter. So just to start -- I would have thought historically new surgeons would start utilizing your SI joint dysfunction products first. But as your portfolio evolves, maybe just provide some color on if naive SI-BONE surgeons are first engaging on other parts of your portfolio before SI joint fusion.

Yes. We do see SI joint fusion has been the cornerstone of the business, and we do, as I said previously, we're continuing to see significant growth around our SI joint fusion business and the number of physicians that are performing those procedures. But we also have seen it coming from our Granite business as well because Granite really is working with different surgeons in some cases. So especially, let's talk about surgeons that focus more specifically on adult deformity, those typically are not surgeons that are going to do SI joint fusion. So all of a sudden, we are actually being introduced to a new population of surgeons that previously had not adopted SI joint fusion. And what we try to do is meet the surgeon wherever they're at. If they're interested in SI joint fusion, we're working with them and educating them on that side of the business. If they're more interested in pelvic fixation, we're focusing there too. So in terms of how we think about deepening our relationships with these surgeons, let's take a typical SI joint fusion surgeon. What we're able to do is get them started on SI joint fusion, and then especially as it relates to their shorter construct procedures, which those are the procedures that these surgeons are doing every single day in their practice, we'll talk to them also and train them on our Granite product. But we'll also do the opposite with somebody that's a Granite user that really better understands the role of the SI joint and how SI joint fusion makes a difference for their patients as well. So it's a halo effect that we see with our SI joint fusion business, but similarly with our Granite business.

That's great. And then just a bit more color on the investments that would lead to cash use in the second half, is that the surgical capacity for TNT, specifically, just overall surgical capacity and spending?

Yes. So on the free cash flow side, Caitlin, look, we're really pleased with our third consecutive quarter of positive adjusted EBITDA and that's a reflection of the operational excellence and the business momentum that we have. Now we did get to cash flow breakeven in Q2, and we're really proud of that milestone. It's ahead of what we had set as an external target. In terms of the second half of the year, yes, most of the spend is going to be on surgical capacity and building the inventory, especially as we go into the fourth quarter, which tends to be our biggest quarter. But also, as we start ramping up for the launch of the product, Laura talked about, within the SI joint dysfunction in the first quarter of 2026.

Our next question comes from the line of Ross Osborn with Cantor Fitzgerald.

This is Matthew Park on for Ross today. I guess starting with the U.S. business and the TORQ rollout in Europe. I was just hoping to get some additional color on how the launch is ramping in terms of procedure volume or physician interest, and then more broadly, how are you thinking about the role of international markets that contributing to overall growth over the next few years?

Yes, I'm happy to take that. So international is a small percent of our business, but it's a really important market for us. And just to keep in mind, the last time we launched a new product in Europe, it was 7 years ago, right? So we're really excited about the impact TORQ could have in those markets, we know the impact TORQ had in the U.S. on the SI joint dysfunction business. It's been a very important growth driver, especially with newer docs. So we we're really excited about the potential for that in Europe. And then like I said in my prepared remarks, if early indications, both from surgeons and interventionalists, is an indicator of what that potential is, we're feeling pretty good about the impact TORQ can have on reigniting our growth in Europe. Now we did get the regulatory approval a little bit later than we expected. So the first cases were performed in the third quarter versus our expectation of the second quarter. And as we all know, third quarter in Europe can be a little bit slower. So our assumptions going in is most of the training will take place in the latter half of third quarter into the fourth quarter. So our current guidance assumes a very minimal impact of TORQ revenue in Europe in Q4, so that could be an upside if things go better, but our expectation is TORQ will accelerate growth for Europe in 2026.

Got it. That's helpful. And then maybe one more from me. I guess given that you guys achieved cash flow breakeven this quarter and maintained a strong cash position, how are you thinking about prioritizing capital deployment, particularly between the balance of continued investment in commercial and product initiatives versus other uses?

Yes. No, I'm happy to take that. So from cash flow perspective or profitability perspective, look, our expectation is revenue growth rate will outpace OpEx growth rate going forward. Now it may vary from 1 year to another. It could be 1.25 to 1.75x depending on the year and the amount of investment we're making. We are going to continue to make investment in R&D. Laura has talked about 2 products. We've got additional products in the hopper that will come out in subsequent years. So we will continue to make investments there. We will -- so you could think about it as sort of 10%-ish of revenue in R&D, similar to what we've done historically. On the sales and marketing side, you will see us add to our direct sales force, but most of the increase will be linear to revenue growth because it's variable compensation. And on the G&A side, I think you will continue to see leverage there as well. So net-net, I think the P&L is well positioned to be able to drive that leverage and we have the liquidity to make investment in some of these organic growth initiatives that we have.

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

Congrats on the quarter. So maybe I'll start with active surgeons, up 25% year-on-year, really strong growth there. In the script, Laura, you talked about med school training programs. So in terms of the average profile of the new doctors you're adding, are they mostly coming out of med school, or are these more experienced doctors? And then is there any difference in the utilization ramp that you see across docs coming out of grad -- sorry, mid-school versus more experienced or more established doctors?

Yes, those are good questions. So we are really pleased with the 1,440 surgeons who did at least 1 case in the second quarter, 25% growth. But as I said previously, there's actually around 12,000 physicians that are targets for us. And so we do have this very significant runway to expand our active user base. You talked a little bit about residents and fellows, and it's really a multiyear effort to engage residents and fellows. We started these activities in 2019, but what's great about it is, once you've provided that education to them, they think about diagnosis and treatment as soon as they start practicing. So it's very different from working with a surgeon who has been working with patients for many years. In terms of the profile, by and large, I would say that it continues to be physicians that have been in practicing for many years, just because there's only a few hundred surgeons typically coming out of a fellowship program and starting their careers in any given year. So it's a broad-based activity that we engage in, in order to both work with existing surgeons as well as new surgeons. In terms of utilization, as I said, the utilization is probably a little bit higher with the new physicians that we see coming in just because they're going to start regularly diagnosing and treating. But the reality is it's just getting those surgeons to fully adopt our procedures, number one; and then number two, to get them to be doing multiple procedures as well. So we're really pleased with what we're seeing. We see a very nice runway in front of us in terms of continuing to bring on active physicians and also deepening the relationship and increasing the number of procedures that our active surgeons are performing.

Okay. Great. And then, in terms of Granite, I think you've been working on getting a new code for that procedure. So is the NTAP extension related to that work? Or could we still see that new code come out at some point?

Yes. It's a very good question as well. So in terms of what's happening on the reimbursement side, so CMS' decision was to increase spinal fusion DRGs by 6% to 8% for inpatient procedures. So -- and that's a result of the cost data that's out there, and it reflects the increased frequency of lumbar fusion procedures that incorporate pelvic fixation. So, we believe the impact of the increased DRG could be as high as around $5,100 in unadjusted rates, but averaging around $3,800 in total, and that's comparable to the incremental NTAP reimbursement that the hospital received. Just as a reminder, for commercial payer cases, they never benefited from the NTAP, and the majority of our cases have actually been these commercial pay patients. What CMS said is that they need more time to analyze the underlying data, given the number of DRGs impacted by a reassignment request. So yes, we're confident in our data. We're working closely with CMS through what we see as an administrative process and the timing referral really is not related to our request. It's just the workload that CMS is working with right now. So we're excited about the proposed addition also of the Level 7 APC, which is higher cost lumbar fusion procedures, going into the outpatient setting and also removing 27280 from the inpatient list and TPT for Granite with that TPT with a $0 device offset, we think that could be a pretty significant tailwind to our business. So overall, a lot going on from a reimbursement perspective, from a Granite perspective, specifically a significant increase in the existing DRGs, continued activity from us around the DRG reassignment, excitement around the transitional pass-through code. And finally, the addition of the Level 7 APC code moving some of these procedures that would include Granite into the outpatient setting.

Our next question comes from the line of Richard Newitter with Truist Securities.

This is Felipe on for Rich. Just in the context of gross margin, the first half has been pretty strong. As we think about 2026, TheStreet is modeling about 100 basis points of gross margin compression. So could you just remind us just the different pieces that are impacting gross margin in '26 that we should be thinking about?

Yes. I'm not going to be providing specific 2026 guidance at this point. We'll provide that when we get into 2026. But as I've shared in my prepared remarks and previously, we expect our gross margins to be a little bit more dynamic over the next few years. We've obviously outperformed our original expectation for gross margin that we set at the start of this year, which was, like I said, 77% to 78%, we're now upping our guidance to 78.5% to 79%. So that bodes really well going into next year. We do think, over the medium term, so you could think over the next 2 or 3 years, gross margin sort of settling in the 76% to 77% range. Part of that, as I said earlier to an earlier question, we do expect savings from our ongoing gross margin initiatives to play out, but offsetting those are the cost of new products that we want to launch and the surgical capacity that goes with them. Those will be subscale in the initial year, so the cost tends to be a bit higher. So we think that's the appropriate thoughtful way of setting gross margin expectations over the next 2, 3 years.

for closing remarks.

Thank you so much, and thanks, everyone, for participating in our call today as well as your interest in SI-BONE, and we look forward to seeing you all at upcoming conferences. Goodbye.