Good afternoon and welcome to SI-BONE's Third Quarter Earnings Conference Call. At this time, all participants are in 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 Matt Bacso from the Gilmartin Group, for a few introductory comments. Please, go ahead. .

Thank you for participating in today's call. Joining me are Jeff Dunn, President and Chief Executive Officer; and Laura Francis, Chief Financial Officer and Chief Operating Officer of SI-BONE. Earlier today Si-BONE released financial results for the quarter ended September 30, 2020. 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 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 significant risks and uncertainties.

These risks include the impact that COVID-19 pandemic will have on the ability and desire of patients and physicians to undergo procedures using the iFuse implant system, the duration of the COVID-19 pandemic and whether the COVID-19 pandemic will recur in the future.

Other forward-looking statements include, without limitations, our examination of operating trends and our future financial expectations, such as expectations for hiring certain training and adoption, active surgeons, new products, clinical trial enrollment and reimbursement decisions 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 those 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 the most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 4 2020.

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 2, 2020.

And with that, I'll turn the call over to Jeff. .

Thanks, Matt. Good afternoon and thank you for joining us. Before we get into the details of the quarter, I want to take a moment to again thank members of the healthcare community and essential employees who continue to work diligently through COVID-19, while the world cautiously returns to normalcy.

In accordance with our pre-announcement on October 8, total revenue for the third quarter was a record $20.4 million, a 26% increase compared to the third quarter of 2019. This is the first time in our company's history where we have exceeded $20 million of revenue in a quarter.

During the quarter, we also surpassed 50,000 iFuse procedures, performed by more than 2,200 surgeons worldwide. As an organization, we continue to execute at a high level, which is reflected not only in our revenue growth, but also our ability to control expenses and manage operating losses.

As we were forced to adopt during the early days of the pandemic, one of the most impactful initiatives that has increased surgeon utilization rates and reduce cost has been the rollout of the SI-BONE simulator surgeon training system.

This innovative training platform eliminates many of the barriers that we historically had to overcome prior to the COVID-19 pandemic. Our medical affairs team can now train surgeons on demand, bypassing the cadaver lab, which eliminates radiation exposure for our reps and surgeons.

Additionally there are no travel requirements on the part of the physician and reps, which significantly reduces overall cost and logistical planning. While this has been a positive for the company, from an efficiency perspective, the key driver has been the positive reception from the surgeon community.

Specifically, we trained over 100 new surgeons in the quarter using this new system, which was well ahead of our expectations, as well the versatility, feedback capabilities and male female and dysmorphic anatomy options, combined with the ability to train on several relevant procedures has been extremely well received.

The number of surgeon trainings is ramping and we expect this remarkable capability will attract many more surgeons in the future. We are targeting approximately 7,500 surgeons in the United States, of which 1,500 have been trained and completed a procedure. So we have a long way to go.

Given the enthusiastic reception of our simulators over the last 90 days and the ease at which surgeons can be trained, it has allowed us to more effectively target new surgeons and reengage with inactive surgeons. As a result, we plan to add up to a total of 25 training simulators by the end of 2021.

Our virtual education series has also been a very well-received program over the course of the pandemic. Most notably, in July, we hosted Dr. Gary Dix of Maryland Brain, Spine and Pain, who led the program on SI joint diagnosis and fusion, attracting over 100 attendees.

To-date, we have completed 38 programs and have an additional four programs planned through the end of 2020. On October 8, we hosted a surgeon panel in conjunction with the North American Spine Society's Annual Meeting, featuring Dr. Peter Whang. from the Yale School of Medicine; Dr. William Tobler from the Mayfield Brain and Spine Clinic; Dr.

Bharat Desai from Panorama Orthopedics and Spine; and Dr. Robert Eastlack from Scripps Health. The webinar was attended by over 50 investors and analysts and highlighted the underpenetrated opportunity for minimally invasive SI Joint Fusion as well as what the future might hold for the procedure.

The webinar also addressed the potential for the Bedrock platform to treat patients suffering from adult spine deforming. We have also continued our progress with residents and fellows programs at Rush, UCSF, [Indiscernible], Boston University and other academic medical centers.

This brings the total number of academic medical center training programs to approximately 50 which resulted in the training of over 200 trained residents and fellows. It's also important to note that 20 of these major academic centers are now using Bedrock.

We are also engaging in projects to scale the business which more recently have included automation initiatives involving purchasing and hiring. We will continue this focus in 2021 with projects and automated sales order processing and field inventory management.

The goal of these projects is to enable us to scale the business more efficiently, leading to profitability as revenues grow. We could not have accomplished our Q3 results without widespread reimbursement coverage for minimally invasive SI Joint Fusion in the United States, where we now have approximately 300 million covered lives.

On August 19 Medica, an iFuse -- adopted an iFuse-exclusive coverage policy based on the strength of our clinical data compared to other solutions for minimally invasive SI Joint Fusion. Medica is one of the largest commercial payers in Minnesota, with an estimated 1.1 million covered lives.

Overall, reimbursement has turned into a tailwind for the company with broad coverage across the United States including 35 coverage policies exclusive to the iFuse family of products. Lastly, we completed a follow-on offering in October, yielding net proceeds of $71.9 million.

We believe that the proceeds from this offering combined with our cash and marketable securities of $132 million we had at the end of the third quarter will allow us to continue focusing on driving sustainable growth.

Specifically given the improved reimbursement landscape including expanded insurance coverage from private payers, as well as the 27% increase in surgeon payment, we believe we're in a unique position to expand the market for minimally invasive SI Joint Fusion. We estimate the U.S.

market in 2019 was a little over $100 million with the potential to be over $2 billion per year in the future. As the current market leader we will be the beneficiaries of market expansion. And to capture this opportunity we plan to invest in a number of growth initiatives in 2021.

We intend to grow our field sales force, leverage our simulators to train surgeons, invest in patient awareness, expand product offerings in sacroiliac Joint Fusion trauma and deformity and engage in process improvements and systems initiatives to scale the business to profitability.

While the majority of these investments will be made in 2021, it's important to note that they will be systematically introduced throughout the year. As a result, we do not anticipate these investments having a material impact on our 2021 revenue forecast. To conclude, we are pleased with our third quarter record revenue performance and 26% growth.

In the face of COVID-19 challenges, our sales team continues to operate normally, but we remain cautious about the second half of the fourth quarter given the uncertainty surrounding flu season and the resurgence of COVID-19 cases.

However, we believe our recent results support the underlying momentum in our business from improvements in the reimbursement landscape and post-IPO investments in the business that will carry into next year.

With that I will now turn the call over to Laura Francis, our Chief Financial Officer and Chief Operating Officer to provide more detail on our financial results..

Thanks, Jeff. Third quarter total revenue of $20.4 million increased 26% compared to the prior year period. U.S. sales of $18.9 million which accounted for approximately 93% of total revenue in the quarter, increased 27% compared to the prior year period. International revenue of $1.4 million increased 9% compared to the prior year period.

Monthly revenue trends were more evenly distributed throughout the quarter, with July being our strongest month, driven by additional rescheduled cases from the second quarter of 2020. We believe that, we ended September with a more normalized backlog. We also believe backlog contributed mid-single digits to growth in the quarter.

We ended the quarter with 59 direct sales reps and 57 clinical support specialists. We have accelerated our hiring of field personnel and are aiming to finish the year at 63 to 66 direct sales reps and 58 to 61 clinical support specialists.

Additionally, we ended the third quarter of 2020 with a record 567 active surgeons, up from 455 in the second quarter of 2020. Gross margin for the third quarter of 2020 was 87% compared to 90% in the third quarter of 2019.

The decrease in gross margin was primarily due to an increase in inventory write-offs and higher costs of operations to support the growth of the business in the third quarter of 2020. Operating expenses increased 5% to $26.5 million in the third quarter of 2020, compared to $25.1 million in the third quarter of 2019.

Costs increased due to higher employee-related costs and stock-based compensation due to the higher headcount mainly from sales hiring. We also made additional investments in research and development for our new product launches planned for 2021.

The increase was partly offset by the reduction in general and administrative expenses in the third quarter of 2020 primarily due to the accrual of estimated settlement costs of the TCPA class action lawsuit of $2.5 million in the third quarter of 2019.

Our operating loss for the third quarter of 2020 was $8.7 million compared to an operating loss of $10.6 million in the third quarter of 2019. Our net loss was $9.5 million or $0.33 per diluted share for the third quarter of 2020 as compared to a net loss of $11.3 million or $0.46 per diluted share in the third quarter of 2019.

Cash and marketable securities were $132 million at the end of the third quarter. To further strengthen our balance sheet, we completed a follow-on offering with net proceeds of $71.9 million in October of 2020.

Based upon our current operating plan, we believe that our existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements.

While encouraged by the rapid recovery in our business and growth in the third quarter, we remain cautious about the fourth quarter given the uncertainty surrounding flu season and resurgence of COVID-19 cases and its potential negative impact on ASCs and hospitals globally.

It's also important to point out that the fourth quarter of 2019 was our strongest growth quarter as a public company at 27%, making for a difficult comparison year-over-year. With those caveats we are reiterating our full year 2020 guidance range of $73 million to $74 million, representing growth of approximately 8% to 10% over 2019 revenue.

I'll now turn the call back over to Jeff for closing comments..

Thank you Laura. In closing, our confidence in the opportunity in front of us for the business and for shareholders is stronger than ever. With the additional funding we have put in place an accelerated investment and growth plan. Most importantly it will help us achieve our mission to help many more patients.

Direct-to-patient initiatives, increased surgeon training, additional field sales personnel to educate and support the surgeons, new product development and automation and scaling initiatives are the five key focus points of our investment strategy.

With reimbursement broadly established in the U.S., we believe that now is the time to invest in substantial growth in our market. And as the market leader, we and our shareholders will be the beneficiaries of that market expansion. Thank you for joining the call today. We will now open it up to questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of David Lewis with Morgan Stanley. Your line is now open..

Good afternoon, and thanks for taking the question. Just a few quick ones for me. Maybe Laura just start with you on resurgence. And I think your comments are pretty much on par with what most companies have suggested here into the fourth quarter.

I wonder if you can help us a little bit with the -- anything you saw now that we're in November with kind of October trends relative to September.

And we appreciate resurgence is likely to be a factor but has resurgence been a factor yet in terms of how you think about your business here in the fourth quarter?.

Thanks David. Obviously we just finished the month of October. From a general perspective, we did talk about resurgence. It's very similar to where we saw hotspots in the third quarter where you can see certain cases that will be canceled but then they try to pretty quickly get back online.

And so in terms of what we've seen starting into the fourth quarter, the fourth quarter has started out in a way that's very similar to what we saw in terms of trends in the third quarter..

Okay.

And are you comfortable saying if October was a sequential improvement relative to September?.

So what I'm saying is that's consistent -- and we even -- I did even make a comment in my pre-stated remarks where we talked about in fact from the perspective of the cadence in the third quarter, July actually was the stronger month compared to August and September.

And the reason for that was we do believe that we worked through all of the remaining backlog of cases during that month. And so, we saw more of a normalized business in August and September and continue to see those trends into October.

Jeff, any other comments from you?.

Well I would just add that we're continuing to see strength in the U.S. We have David specifically your question. You asked have we seen any resurgence. We've seen a little bit in Europe. We really haven't seen anything in the U.S. to speak of..

Okay. Very clear from my perspective. And then Jeff look the equity offering you may have surprised some right because you had a pretty good balance sheet and you raised a lot more money. So you're well capitalized. And you definitely described some areas where you're putting that money to work surgeon training, simulators.

But if we could quantify some of those investments and I appreciate they won't hit 2021. But I think about you adding maybe 15 people to the commercial organization in 2020.

I mean, can we be talking about a situation where that type of number doubles or triples so you could add 30 or 45 people to the commercial organization in 2021? I know you gave us the simulator number, but just sort of curious how the commercial reps could expand. And then one quick one for Laura and I'll jump back in queue..

Well I mean as Laura said, we -- this year alone we'll get up to sort of 63, 66 reps and up to 58 to 61 clinical support specialists. We do see David a significant increase in the field sales force compared to this year. We wouldn't have raised the money, if we didn't really feel it was time to step on the gas.

So I'm a little reluctant to give out an actual number. It's sort of like giving out the guidance right now for 2021. But suffice it to say, the accelerated plan as we call it calls for pretty aggressive hiring more regions and significant investment there.

So we are going to be pretty aggressive on the rep side as well as the product pipeline as well as we mentioned getting up to 25 simulators. And we continue to see on the simulator sign tremendous strength and interest from the surgeons into October. So we're hyper encouraged with the bookends of sales reps and training.

And then, we are going to layer in more direct-to-patient capabilities. Next week, we're actually going to start some test market TV ads that we've been testing on radio and are encouraged by that. So we think those three things sort of set up all together to really have a great 2021..

Okay. And just last for me and I'll jump back in queue. Laura, just I mean, I know it's early, but if I annualize your fourth quarter number I get something in the low 90s and you've been showing some sequential momentum in the business.

So I look at your consensus for next year in sort of 94-ish range, which aim much above frankly the annualized rate of the fourth quarter, if I assume sequential improvement.

Any comments you'd be willing to kind of offer on 2021 in terms of where The Street sits or frankly any parameters on 2021 we should be thinking about for our models? Thanks so much..

Thanks, David. We're obviously looking very carefully at the fourth quarter of 2020. And the way that our business works is there is some seasonality in the business. And typically the fourth quarter is the largest quarter.

And then we normally see a little bit of a decline into the first quarter, a jump up into the second relatively flat third quarter and then another jump into the fourth quarter. And so our intention is to provide more guidance on our next call because we really would like to see where the fourth quarter ultimately ends up.

But we are bullish on the business. We're seeing all of the investments that we made in the business, continue to drive strength even in this difficult environment. We are going to be making additional investments with the proceeds from the offering.

As I said in my pre-prepared remarks, we don't expect for that to have a significant impact on 2021, but we think that all of the investments that we made especially in 2019 given that it takes around 12 months for our salespeople to become productive that those are going to be bearing fruit for us next year..

Thank you. Our next question comes from the line of Bob Hopkins with Bank of America. Your line is now open..

Hi. Thanks, and good afternoon..

Hi, Bob..

So I apologize for the short-term oriented follow-up, but it's a unique environment we're in here. So it sounds like in the third quarter that July was the best month.

So that implies that to get to the Q4 guidance, you do need to see some kind of some nice improvement from current trends to get to the midpoint of that Q4 implied guidance that you're giving.

Is that correct?.

No, it actually doesn't. And in my pre-prepared remarks we grew by 26% in the quarter. And as I said that if you took out the growth that we saw from rescheduled cases that growth accounted for mid-single-digits. So, let's say without those rescheduled cases, we were in approximately the 20% range in terms of our growth for the quarter just new cases.

And the guidance that we provided is anywhere from 11% to 15% growth for the fourth quarter in order to get to the numbers that we've provided. So, we -- as I said we continue to see trends that are similar starting into the fourth quarter. And we are cautious because of COVID but the underlying business is performing quite well. .

I see. So, you were talking about similar in terms of year-over-year growth. I was thinking more in terms of sequential revenue dollars. So, I think--.

No, year-over-year growth is what I'm referring to. .

And Bob most of those rescheduled cases were in July. There's almost no rescheduled cases that affected August and September. And so if you take that sort of mid-single-digit call it 5% ballpark-ish and take it off to 26% you can sort of, figure out the math there.

So, September -- August and September were still very good months but there was a little chip in July. .

Got it.

And Jeff how's Bedrock doing relative to your expectations and your thoughts on continued momentum with that product?.

We're extraordinarily bullish. We said publicly Bob that we're in more than -- we're in 20 academic institutions. That's sort of a base number. We are seeing just great interest in that whole thing. We've done cases at UCSF and Mayo and the numbers continue to be ahead of our expectations. We're not going to break out the numbers right now.

But the two pieces of that as we've talked about both the trickledown effect getting us into these academic centers, as well as some revenue from that. Both of those things are ahead of our expectations. So, we expect great things from Bedrock in 2021.

And as we talked about in the product pipeline there is more coming in that area which we think will impress a lot of people and continue the momentum in adult deformity as well as trauma and base SI Joint Fusion.

Still we think the vast, vast majority of our revenue will be SI Joint Fusion but it's been just a great addition to the company's portfolio.

And when does that incremental pipeline visibility come Jeff?.

The first product will come in the first half Bob sort of midway probably closer to the early part of Q2. And the second product line will be launched in the earlier part of the second half of the year. So, there's a good cadence there to roll those out and both of those things are very much on track..

Great. Thanks very much..

You're welcome..

Thanks Bon..

Thank you. Our next question comes from the line of Kyle Rose with Canaccord Genuity. Your line is now open..

Great. Thank you very much for taking the question. So, I just wanted to ask just more of a general question. Just given you increased the war chest for the recent financing. Obviously, you've been executing well from a trend perspective.

Just trying to understand how we should think about return on investment from the incremental investments you're going to make. I know Jeff you talked about maybe laying the groundwork in 2021 for -- to realize growth in 2022.

But I'm just should we expect to see an acceleration from these growth levels? Is it going to allow you to sustain the current growth levels for a longer period of time. Just from a high level how you view those investments.

And then secondarily from a sales rep perspective one of the areas we see smaller companies sometimes struggle or have a hiccup is when they make material investments or expansions in the sales organization. You're dividing territories adding on just a lot of humans at the same time.

I guess how do you expect to make sure that you manage through that process and maybe don't realize some of those issues that some of the predecessors in the space have?.

Yes. So, there's really two questions there Kyle. Thank you. The first question at a high level is I think most people do or if I can be bold should think about us as a sort of a 25% growth company. In the fourth quarter last year, we were 27% growth. We were 26% this last quarter.

You could take out a little COVID, but if there wasn't COVID, we probably would have been at 30%. So at a high level, we're thinking about all these investments. That's the direct-to-patient investments, the surgeon training investments, the sales force investments and the product investments.

Investments so that we can get from a 25% growth company to call it a 35% growth company, exactly when that happens is the question. Now as we said earlier some of these things and as you know it takes time with the sales force. The simulator training stuff is going better than we had expected. We'll get into guidance next year.

But at a very high level given how big the opportunity is how absolutely sure we are about the opportunity. The whole goal of this investment strategy is to create a more frictionless growth environment.

And as we talked about that goes with making sure the surgeon payment is there, so they're happy with that making sure that the coverage is there, so they don't have to spend four hours making sure they can get trained very easily instead of getting on a plane to go someplace else.

They can get trained within a few days, making the whole process simpler and easier and that obviously comes with more products, so that they can do more things, more effectively.

And we just philosophically believe that if you create a more frictionless environment for the surgeons because this is a big market that you can grow the market overall and that we will be the beneficiaries there. And so we're really thinking about these things whether that happens later next year or into '22.

But it's really how do we make these investments and grow the market at a higher growth rate in the future. And so that's philosophically where we are in that. And your second question I didn't write it down. .

Just around -- with the expansion of the sales organization in 2021, just your thoughts about managing through that to make sure there's no potential hiccup or slowdown in growth in the interim?.

I don't think we could have a better guy at the helm or gal at the helm than Tony Recupero. I think that as you know Tony grew the type one that sales team, basically doubled it every single year for multiple years. I think we -- Tony knows how to do that. His senior management team including the VP of Sales of the U.S. Troy Wahlenmaier.

His area Vice Presidents, many of them were at Kyphon. They understand the sensitivities the importance of supporting our current sales team, making sure the right financial incentives are there.

When you do have territories that get changed that we put in financial protection for some period of time or overrides or those kinds of things and manage that like we care about every single sales rep in the field. And we do because they're a powerful, terrific, very talented group.

And so I have tremendous confidence in Tony and his management team to work through that. And I think as well the sales team in the field understands that and our discussions with them are very frequent that we're trying to grow the overall business, how do we get to $300 million, $400 million, $500 million as a market.

And they know that this is coming. It's not some secret. We don't surprise people. And so our confidence level there is really, really quite good. .

Thank you very much for taking the question..

You’re welcome..

Thank you. Our next question comes from the line of Dave Turkaly with JMP Securities. Your line is now open..

Great. Thanks. You called out faster adoption of iFuse 3D in your gross margin commentary. And I was just wondering is that everywhere now? And then could you also comment on any impact that might have had on ASP or anything else might have had on ASP given where we stand with COVID today? Thanks. .

Yes.

Laura, do you want to jump in and take this one?.

Yes sure. So we have seen a very strong uptake of iFuse 3D. I talked about it from the perspective of the gross margin in particular because we did have some write-offs of iFuse inventory. And quite frankly, we were originally planning for approximately 90% iFuse 3D sales, 10% iFuse sales and it's closer to 95.5%.

So there's been even a more successful rollout of that product than we had anticipated. In terms of ASPs it doesn't have a really significant impact on ASPs. So it's been a good transition of the business. .

And I guess as a quick follow-up at your NASS event the doctors are talking about pelvic fixation failure rates, backouts provisions and the like.

And I guess I'd just like to get your thoughts sort of where that stands today? Because we heard a couple of different numbers from a couple of different people but it certainly seems like the competitive devices have more issues. Thanks a lot..

Well, I think you have to break it down David into the different areas. SI Joint Fusion, our revision rates that are published out there are the first 11,000 cases. And as you know where over 50,000 cases was a little over 3% and most revision rates in spine are over 10%.

And more currently with iFuse 3D, because of its porosity and its characteristics and the learning curve and a more seasoned sales force. Our revision rates are running a little more than 1%. So some of the competitive products I can't imagine that they're with those kinds of rates.

They have nothing published but I think it has to do with the tremendous porosity of the product, its fusion capabilities. And so I think that compared to the competitors in SI joint fusion, that's very, very positive.

When you move to and I think you're referring to Bob Eastlack, who talked about some of the breakage levels and revision rates at the bottom of adult deformities and with the ISSG study, which is really some of the top – I guess it's about 30 top surgeons that are very, very focused on clinical evidence.

The revision rates were running something like 27% or 29%. And I think with Bedrock that with a 30% increase in stabilization, we're very confident. And I think the surgeons are very confident that those revision rates for adult deformity cases is going to go down.

So I think all of you have talked to surgeons and it's like putting the foundation at the bottom of the flag pole. If you put a really good one, you're going to not have lever kind of action at the bottom of flag pole. And so I think it's very natural and I think it's having a very positive effect real time. We're investing in the SILVIA study.

We're now over 25 patients enrolled in that study and we're trying to get to 50 maybe even by the end of the year. I don't think we'll get there but we might. So we're investing in that clinical evidence because we think clinical evidence is the foundation of almost everything..

Thank you..

You are welcome..

Thanks, David..

Thank you. Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald. Your line is now open..

Hi, thanks for taking my question and congratulations on a great quarter. Maybe first and I apologize if you did answer this.

On the Anthem reimbursement, did they provide any feedback in terms of why you were not included in the policy update? And then my second question, I was just asking a bunch of questions – maybe can you talk a little bit about your potential for direct-to-patient marketing? Thank you..

Sure. So on the Anthem piece, as we talked about Brandon, we certainly expected them to do something not because they told us but they told surgeons and so I guess they just didn't get to it, whether that was a COVID thing or a drag on their feet, I don't know.

We have had communication that it's under review and it will be – it's going to be reviewed in the future. I don't know whether that's Q1 or Q2 or Q3 next year. I'm reluctant to even say. I have a very good feeling. We've been told what the timing is but I'm reluctant to say given that they've missed deadlines even though they've communicated.

I think with 115 payers in the United States and 300 million lives, we have to look by that and we grew at 26% and we can't control that anymore. The clinical evidence is spectacular and there's no earthly reason why they shouldn't be covering. And I think it's just a question of time.

And I know that went on hold but I know there's multiple patient lawsuits against Anthem. And we hope that they would come to the right decision to help these patients. As to the direct-to-patient initiatives, we're early on in that.

We do think that it's – when we've gone out and talked to a lot of patients and done some homework, we think that there's a huge number of patients out there but there's really a lack of understanding out there among the broad population of 200 or 300 patients a year that there's a really good solution.

And so I think we're optimistic about the direct-to-patient initiatives. We're going to pilot starting on TV next week, I think it's November 9 in a few cities. And we delayed that because of election and the cost in many cities particularly swing state cities or political ads.

But we're going to test that and measure the heck out of it, but we think it's -- the time is now given good coverage so the patient can go see a doctor and there's a lot of surgeons that they can go to. And often time from these direct-to-patient initiatives they call us.

Or they call a call center that we have set up and they ask where do I go and we give them multiple choices in any area. And we're hoping that that goes well and we'll talk about that more in the future..

Great. Thank you very much..

You’re welcome..

Thank you. Our next question comes from the line of Kaila Krum with Truist Securities. Your line is now open..

Hi, everyone. Thanks for taking our question. So you guys mentioned I think in response to Kyle's question that we should think about SI-BONE as a 25% growth company going forward. So, I mean, is 25% sort of the low bar of what we should expect from a guidance perspective in 2021? And I just want to make sure I'm clear on that comment.

And then I have a follow-up on the training simulators..

Yeah. Maybe I wasn't clear Kaila. I think we're sort of a 25% kind of growth company now. Now if there's COVID resurgence in the fourth quarter who knows exactly. But we're the 27% in the fourth quarter last year and 26% in the quarter that we're talking about i.e. Q3 of this year.

I think of us as sort of in the range of a 25% growth company now, and the investments that we're talking about is how do we improve that growth rate in quarters in the future..

And Kaila if you think about what we did since we went public, the first quarter that we were a public company, we grew by 13%. We obviously made significant investments in the organization in some way similar to what we were doing at the time that the company went public certainly with the hiring of people in the sales force.

The training of surgeons although now with the simulator gives us the ability to train a lot more surgeons more rapidly and efficiently. New product development we were working on reimbursement, which really is not much of an issue for us any longer.

So as Jeff said, we grew from that 13% in the first quarter we were public as growth perspective to 27% in Q4 of 2019. And so the question for us is, how do we continue to grow beyond that point in time or beyond that percentage. And we really know how to do it.

What's -- where we're at as a business and a big reason why we did raise the additional financing is with the challenges that we have with reimbursement the -- it was a little more difficult to predict exactly what was going to happen when we placed a new sales rep.

There were certain sales reps where they were able to perform and hit the ground running very quickly when they entered the territory. There were others mainly due to reimbursement, whether it was the size of the payment for the coverage that was in that particular territory. We had variability in how those sales reps were able to perform.

And what we're seeing now that we have the strong reimbursement that we do, as we see this reproducibility of put the sales rep into the field that sales rep is going to start by developing relationships with surgeons, getting those surgeons to training, getting them to their first case, and ultimately getting them regularly diagnosing and treating patients.

And so what you can do, and your model really shows this, how do we continue to grow the business with that sort of process in front of us. And it's partly the hiring of additional salespeople and training surgeons. And then part of it is just growing the productivity as well.

So, it really gives us the ability to say, how much do we want to put into this business in order to drive future growth and accelerate growth beyond where we're at currently..

Okay. That makes a ton of sense. And then I guess just a couple on the training simulators. I mean, first, can you talk about sort of the cadence of how these simulators will be rolled out in 2021? It sounds like they'll be kind of scaled throughout the year pretty evenly, but I just want to make sure I'm clear on that.

And then you mentioned hiring more reps, but I imagine these simulators add some layer of efficiency to the business. So, I guess, how big do you think your sales force ultimately needs to be longer-term just in order to address sort of the broader opportunity again with those efficiencies in mind? Thank you..

Okay. I'll take the first question. I'll give Laura the second. So the simulators will -- the plan is to roll them all out in Q1 and a bit in Q2. So no they're not going to be scattered Kaila. We're early investing on those things. So I'm 90-plus-percent sure that we will have them all out in the field by the end of June at the latest.

So that's the first question I think. And Laura do you want to take the second around the size of the business and -- from a sales rep standpoint. .

Sure. Yes. And I think Kaila you were getting at efficiencies in the business. So when we train surgeons, the sales rep is definitely involved. But it primarily involves our professional education organization. And so what this does is, there are around 6000 surgeons in the United States that are target for us that have not yet been trained.

And so, what this allows us to do with the simulator is to more rapidly train those surgeons. In terms of the productivity of the sales force, we still look at it in a very similar way however. So and it's a -- with just a sales rep in a territory, we think that they can do approximately $1.5 million of business.

And then with the sales rep plus a clinical support specialist they can do around $2 million of business. And the bottlenecks are -- there's two different bottlenecks. And one is, just covering cases because we do have either a rep or a clinical support specialist in pretty much all of our cases.

The other one is, just the surgeon coverage and making sure that these sales reps have the bandwidth in order to cover the surgeons who are performing the procedures in their particular territory. So when we think simplistically about a business with -- our business and the size of the sales organization.

We usually think about a business where let's say, we're doing $200 million of business. What we would have is 100 of our sales reps with that size of business and they would be supported by 100 clinical support specialists. .

The only other thing, I'd add just to give you some flavor Kaila and others on the simulators is, we are not only training surgeons. And I've talked about new surgeons. I've talked about the challenge of getting a surgeon on a plane these days, getting a surgeon on a plane and taking 1.5 day out of their office.

We're also seeing a significant number of what we would call inactive surgeons getting trained with this new simulator. It was very difficult to predict how that would be received. But something like 30%, 40% of the surgeons that are being trained with the simulator are coming out of inactive surgeons. So they've gotten used to it.

Maybe they didn't have coverage maybe, they didn't like the pricing or the payment whatever it is. So there's the field team, the medical affairs team is very focused on the significant number of surgeons out there who are not the active group. And we put up a very good number in Q3 on active surgeons but we've trained a lot more than that.

And so getting those people back and active is also a major initiative in addition to training lots of new surgeons. .

Thank you. Our next question comes from the line of David Saxon with Needham. Your line is now open. .

Jeff and Laura, thanks for taking my question. I just had a follow-up on the simulators. You noted you've trained over 100 docs on the simulators that you have in the field now.

I was just wondering how many is that? And how should we think about this incremental 25 simulators in the field from a training perspective into this pool of 7500 docs?.

Yes. I mean we have let's say, less than a handful out there now. So I don't think that we are ready to put out guidance for a number of active surgeons or surgeons trained, David for 2021. But obviously going from a less than a handful to 25 and there'll be a couple of reserve in transit etcetera, etcetera.

But we plan on pushing those simulators out into the regions and adding to the medical affairs team to help with the training out in the field. So math-wise, you could do a little bit of math there. And in October, we saw continued momentum with the simulator. We don't think it was a, hey let's go, this is pretty cool.

And all of a sudden there's this big blip in Q3. I think we're going to see continued momentum with the training and we have seen that in October already.

Of course as we talk about just because you train a surgeon, doesn't mean that the patients coming and getting on – are getting their surgery right away because of the policies that are out there, because patients have to have sequence of conservative care they're not going to – and it has to be documented.

It takes time and hence back to Kaila's question, there are pushes to get those things out there as soon as possible given manufacturing lead times, but push them into the first half of next year. So perhaps, we could see some benefit in the back half next year in a significant way..

Yeah. That's helpful. And then just a question on reimbursement or the doc fees. The proposed conversion factor I think is set to decrease. And I – if I was looking at it correctly the RVUs for SI joint fusions are kind of flattish. So just – I know, you're making a ton of investments for next year.

How are you thinking about that reimbursement dynamic? Do you think this will impact the growth trajectory at all?.

I don't think so at all. I think it's all relative on I think surgeons – and I know all of you have talked to surgeons, I think surgeons think very highly of the procedure.

The patients do well, the clinical studies back that up, and I think as we talked about, I haven't heard and I don't think Laura has heard anyone say, hey, the payment's too low this year, since it's changed on January 1st. And a few dollars here or there doesn't make any difference.

I don't think in the big picture, it's more than it's in the right geography money wise. And we'll have to see, how it plays out. But I don't think it makes any difference whatsoever..

Great. Thanks so much and congrats for the quarter..

Thank you very much..

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Mr. Dunn for any further remarks..

Great. Just a quick, thank you for everyone for joining. Obviously, a very good quarter. We're very pleased with how the team worked together to power through this thing and the recovery and we are very excited about all the growth initiatives we've put in place. We think we have a great plan for the rest of the year and into 2021.

So have a good rest of the day. And again, thanks for joining. Thank you, Sarah..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a great day..