Good afternoon and welcome to SI-BONE's First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Matt Basco from the Gilmartin Group for introductory comments..

Thank you for participating in today's call. Joining me are Laura Francis, Chief Executive Officer and Anshul Maheshwari, Chief Financial Officer. Earlier today, SI-BONE released financial results for the quarter ended March 31, 2022. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These forward-looking statements are based on the company's current expectations and inherently involve risks and uncertainties.

These risks include the impact of COVID-19 pandemic will have on the ability and desire of patients and physicians to undergo and perform procedures using the company's products, the duration of the COVID-19 pandemic and whether the COVID-19 pandemic will recur in the future.

Other forward-looking statements include our examination of operating trends and our future financial expectations such as expectations for hiring, surgeon training and adoption active surgeons, new products, clinical trial enrollment and reimbursement decisions and are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission.

SI-BONE disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today May 9, 2022.

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

Thanks, Matt. Good afternoon and thank you for joining us. For today's call, I'll provide a business update and Anshul will provide additional detail regarding our financial results.

Before I cover our first quarter results, I want to share the exciting news on iFuse Bedrock Granite, a breakthrough product which is intended to provide SI joint fusion in addition to sacropelvic fixation for adult spinal deformity procedures.

iFuse Granite, which has been in development for a number of years, combines the strength of a solid implant with porosity of 3D printer technology. iFuse Granite is now awaiting FDA clearance which we expect to receive this year. We received Breakthrough Device Designation for iFuse Granite in November 2021.

We're proud of this recognition, which has previously been extended to only a very select number of orthopedic technologies. The FDA agrees iFuse Granite will provide for more effective treatment of a debilitating condition than the current standard of care for patients undergoing multisegment spinal fusion procedures.

This recognition further distinguishes us as an industry pioneer focused on introducing disruptive technologies to improve patient outcomes. As you saw from our announcement in late April, CMS proposed a New Technology Add-on Payment or NTAP for iFuse Granite.

The NTAP program is designed to recognize new technologies that provide substantial clinical improvement over existing therapies. This NTAP proposal is supported by the FDA Breakthrough Device Designation for iFuse Granite.

Once the NTAP proposal was finalized and we have FDA clearance, it will allow Medicare beneficiaries timely access to this innovative technology, while providing incremental reimbursement to healthcare providers when using iFuse Granite as part of multisegment spinal fusion procedures.

While preliminary based on the CMS proposal, the add-on payment will be based on 65% of the per patient anticipated hospital cost is achieved, including iFuse Granite, up to a potential maximum of approximately $9,800.

We believe the benefits of iFuse Granite's differentiated technology, the seamless surgeon workflow integration and potential for incremental reimbursement, puts us in a strong competitive position. It will allow us to accelerate our growth in an attractive $250 million adjacent adult deformity market.

Now moving to our performance in the first quarter of 2022, we generated total revenue of $22.4 million, representing growth of approximately 10% compared to the first quarter of 2021. Despite significant COVID disruption in January and February, we were able to deliver the revenue growth due to a robust recovery in March.

In fact, we experienced the highest monthly procedure volumes in the company's history in the month of March.

We believe that the outpatient nature of our procedure with approximately 80% of our procedures being performed in an outpatient setting, or at surgery centers, combined with the solid execution by our dedicated field organization contributed to a rapid recovery in procedure volumes. In terms of COVID impacts approximately 160 U.S.

procedures were deferred due to Omicron in the first quarter of 2022. This impacted revenue by over $1.4 million in the quarter with the largest impact seen in January. These are the procedures that were booked and then postponed, but of course, there are more procedures that were affected by COVID.

The operating environment improved significantly in the back half of the quarter as Omicron continued to subside, with March seeing fewer than 20 procedure deferrals.

We're encouraged by the pace of recovery in March and the continuing momentum in procedure volumes in April from new patient demand, as well as the recapture of previously deferred procedures.

Additionally, anecdotal feedback from surgeons suggests that the new patient funnel continued to grow, indicating progress toward a more normalized operating environment. Now let me provide you an update on our key initiatives as we look to extend our leadership position and drive durable long-term growth.

Starting with sales infrastructure, our sales team remains an important driver of growth as we penetrate our core market and grow our presence in trauma and adult deformity. Our sales organization at the end of the first quarter of 2022 comprised of 154 individuals, including 88 territory managers, and 66 clinical support specialists.

Additionally, to support our expanding portfolio, we added two new regions in the U.S. for a total of 18 regions. The methodical expansion of our sales organization is crucial to ensure high quality support for surgeons, drive adoption and increase active search and engagement.

While we'll continue to strategically add headcount by investing in high quality reps to deliver strong and sustainable long-term growth, we are also focusing on increasing productivity of our seasoned territory managers by adding to our bench of clinical support specialists.

Moving to surgeon engagement, we ended the first quarter with over 680 active surgeons who performed at least one procedure in the quarter. This represents 17% growth when compared to the prior year period. We're encouraged by the durability of our surgeon base, given the challenges with Omicron and the normal business seasonality in the quarter.

This is a good leading indicator of surgeon interest and engaging with us and positions us to drive strong top line growth. Our growing commercial footprint, near universal coverage and expanding product portfolio positions us well to accelerate surgeon engagement and activation as we progress through the year.

We're also encouraged by the steady increase in adoption rate of surgeons who have been trained on the simulator, which remains a valuable component in our surgeon training programs.

As we move to a more normalized environment, we expect to use a combination of in-person local training, regional training, and simulator training to drive surgeon engagement. As part of our long-term strategy to grow our active surgeon base, we continue to expand our academic programs to educate residents and fellows.

Since inception of the program, we've held approximately 175 academic programs in the U.S., resulting in the training of over 950 surgical residents and fellows. In the first quarter of 2022, 20% of all completed academic training events occurred in new academic centers.

We trained over 110 new fellows and residents, demonstrating the growing interest in our academic training initiative. Turning to products and solutions, our portfolio expansion strategy has allowed us to grow the market for sacropelvic solutions and extend our market leadership.

According to the 2021 market data from Spine Marketing, an independent third party provider of industry data, we increased our market share of sacropelvic surgical devices into the high 60% range, confirming that our broad product strategy is resonating with our surgeons.

Since its introduction last year, iFuse TORQ along with our flagship iFuse 3D contributed to our market share growth by providing surgeons with a comprehensive set of surgical solutions for minimally invasive SI joint fusion.

We're pleased with the strong reception of iFuse TORQ, which consistent with the overall business has record procedure volume in March. Additionally, we continue to methodically build traction in trauma and expect iFuse TORQ to continue to be a tailwind as we accelerate the penetration into the pelvic trauma market in the second half of 2022.

After the successful commercialization of iFuse TORQ, we're excited to expand our portfolio with the addition of iFuse Bedrock Granite.

iFuse Granite is a unique technology that builds on our experience since 2019 with the bedrock technique, which addresses surgeons desire to augment stability at the base of long constructs used to treat adult spinal deformity. We look forward to providing additional details once we launch the product.

On the clinical research front, we're at approximately 90% of target enrollment in SILVIA, a two-year prospective international multicenter, randomized controlled trial of two different methods for pelvic fixation in adult patients. We expect enrollment to be completed shortly and anticipate the first follow up results in 2024.

Talking about our patient awareness initiative, during the first quarter, we continued to make investments in direct-to-patient marketing. These marketing programs are targeted at patients in chronic severe SI joint pain who have been in conservative care for extended period of time.

Our goal is to connect patients with surgeons in their area who perform minimally invasive SI joint procedures through a variety of channels, including search, social and display. We have deployed a number of campaigns and are continually optimizing to maximize surgeon referral volume.

Our data driven approach enables us to focus our investment on the most cost effective programs. We're pleased with our progress thus far based upon increased website traffic, patient engagement, and surgeon referrals. With that, I'll now turn the call over to Anshul to provide more detail on our financial results..

Thanks, Laura. Good afternoon, everyone. Our first quarter 2022 total revenue was $22.4 million, representing growth of approximately 10% compared to the prior year period. U.S. revenue was $20.4 million, increasing 9% compared to the prior year period. In the first quarter U.S.

procedure volumes grew 14% compared to the prior year period, international revenue was $2.1 million increasing 24% compared to the prior year period, led by strong performance in France and continued recovery in the UK. Gross margin for the first quarter of 2022 was 87% compared to 89% in the prior year period.

Gross margin in the first quarter was impacted by anticipated mid-single-digit decline in ASP due to procedure mix and site of service mix. Higher freight cost, as well as an increase in cost of operations to support the growth of the business.

Operating expenses increased 22% to $36.3 million in the first quarter 2022 as compared to $29.8 million in the prior year period. On a sequential basis this represents a little over 1% increase, compared to the fourth quarter of 2021.

The year-over-year increase was driven by the planned sales force expansion, research and development investment, scaling of operating infrastructure, higher travel cost, and an increase in stock based compensation expense associated with the increase in headcount.

As we continue to invest across our strategic initiatives, we expect operating expenses to sequentially increase at a modest pace throughout the year. Our net loss was $17.4 million, or $0.52 per diluted share for the first quarter of 2022 as compared to a net loss of $12.2 million, or $0.37 per diluted share in the prior year period.

As of the end of the quarter, our cash and marketable securities were approximately $130.7 million, and long-term borrowings were approximately $35 million. Moving to guidance, we are encouraged by the pace of recovery in March, and the continuing momentum in April.

However, we remain cognizant of the near-term macro uncertainty and the potential risks to healthcare infrastructure and elective procedures from future COVID surges. As a result, we are currently maintaining our 2022 total revenue guidance of approximately $106 million to $108 million, representing growth of 18% to 20% compared to full year 2021.

We expect the gross margin to be in the mid 80% range for fiscal year 2022 based on our cyto service mix and product mix, higher cost of instruments and implants specially from new products as we ramp up volume and depreciation of instrument trays based on investments in 2021 and expected investments in 2022.

With that, I will turn the call over for questions.

Operator?.

[Operator Instructions] Our first question comes from Craig Bijou with Bank of America..

Good afternoon, guys. Thanks for taking the question..

Hi Craig..

Hi Laura. I want to start with the growth guidance through the year and obviously you kept it flat, but I think it implies 21, if I'm doing the math correctly, 21% growth for the rest of the year. So basically, I guess I wanting to understand the cadence throughout the year.

And also what gives you the confidence that you will see that accelerating growth? And then start there, thanks..

Thanks, Craig. So I think Anshul was going to give a couple or comments on that particular question..

Yes, so correct, thanks for the question. As you think about our performance in the first quarter, we were really encouraged by the strong rebound in the procedure volumes across our solutions in March.

And as we looked at April, some of those trends continued and even the anecdotal feedback that we've heard from surgeons as the patient funnel continues to grow. And even preliminary bookings that we're seeing in early May are very, very encouraging.

But you know, as you think about it, on a macro level, you've got to have the overhang of hospital staffing and you also have this maybe it's a lot lower, but a remote risk of healthcare infrastructure being impacted by future COVID surges.

So as we looked at our guidance for the rest of the year, we wanted to get a couple more months under our belt and thought it would be prudent and deliver it in the near-term to hold guidance where it was at least systematic issues on one, we feel pretty good about our growth trajectory on a sequential basis for the rest of the year, combination of the investments that we've made all through last year, the success that we've had with TORQ, our core market growing, as well as the potential that Granite gives us in the back half of the year.

So overall, those are the things that get us excited as we look at Q2 and beyond..

Okay, thanks for that Anshul.

And then just on operating expenses, it looks, came in a lot higher than we were expecting, or higher than we were expecting in Q1, and just wanted to understand how much of that was some of the added costs or maybe inflationary costs? And then how should we think about, how should we think about your ability to leverage operating expenses throughout the year? I heard your comments Anshul the sequential improvement, but just want to understand the operating leverage opportunity in 2022?.

Sure, happy to take that as well, Craig. So on the first quarter, our OpEx year-over-year was high, but when you think about it on a sequential basis, compared to 4Q, it was up 1%.

And there's a few things when you think about it from a year-over-year standpoint, we've made significant amount of investments in our commercial and operating infrastructure throughout last year, you've got some of that impact playing out in Q1 from an annualized cost perspective.

You've got some of the investments on the R&D side growing as well, as we think about the new product launches that are upcoming. And the third piece is our sort of investments in scaling operations.

And if you look at our Q, we got an additional site in Santa Clara in the second half of last year and we're also making some investments around the software side to actually build operational scale to support our revenue growth, so some of those are flowing through the P&L as well.

And then you layer on some of the -- we don't know if it's transitory or not, but some of the high inflation aspects of freight and travel costs, that's also flowing through Q1.

And if you think about the cadence of our OpEx, look at what we did last year, right? You had about a sort of 10% growth in Q2 versus Q1, then sort of a flat lining and then an increase again in Q4. We believe that that cadence from Q1 out to Q2, Q3, and Q4 is the right way to think about it..

Got it, great. Thanks for taking the questions..

Our next question comes from Drew Ranieri with Morgan Stanley..

Hi Laura and Anshul. Thanks for taking the question. Just maybe to go to gross margins for a moment and I appreciate Anshul you mentioned some puts and takes about your gross margins for the year. But can you just help us think through if we look at it on a year-over-year basis, I think it was 250 basis point compression there.

Can you just help us bucket kind of what was actually investment and sets versus macro, just trying to get a better sense of maybe what's investment for versus just factors that you can't really control necessarily?.

Sure. So when you think about our gross margins, again sequentially the gross margins were in line on a year-over-year basis. There's a few things that are impacting gross margin. One is just the shift in the product and site of service mix, which is having an impact on ASP. We've historically talked about mid to, low to mid-single-digit ASP impact.

When you compare Q1 over Q1 our ASP contribution went from sort of in the teens to 20%, so that has an impact on the ASP from a procedure perspective. You've also got the impact of the investments in instrument trays that we're making with regards to TORQ both for competitive conversions and in trauma. So you've got that playing through as well.

You've got the additional expenses associated with the facility expansion that I just talked about. And then you've got some of the higher inflation impact as well from freight. And also, when you think about the cost of instruments and implants, especially for the new products, as we ramp up volume, those costs tend to be a bit higher.

So you've seen some of that flow to the P&L as well. So that's on the gross margin side.

But what we've been focused on is, maintaining our high industry leading gross margins, but also derisking our supply chain to ensure that we have the supply of the instruments and implants drive the top line growth, especially as we look at the back half of 2022 into 2023..

Got it. And may go back to Craig's question on sequential growth, but it sounds like there's still some puts and takes, but you're maybe cautiously optimistic in recovery.

I mean, is there any reason to think that heading into the second quarter of this year that you wouldn't be able to post sequential growth that's similar to what you did in 2021?.

I think we feel really strongly about the future for the business, Q2, Q3, and Q4 and all the things that Anshul highlighted and the fact that we anticipate that we will have sequential growth throughout the rest of the year, and that we've seen COVID receding at this point, all of that is encouraging for us.

And with all of the investments that we just talked about in the business, that bodes well for us too with the investments we made over the last 12 months in our sales force, the investments we've made in training surgeons, new product with TORQ has been in the market now for approximately 12 months, still just scratching the surface on trauma, although nice penetration already in minimally invasive SI joint fusion.

We have Granite on the horizon that we're really excited about, as I mentioned, and then some of the direct-to-patient work that we mentioned too. All of those things give us a lot of confidence about the business for the rest of the year.

But on guidance, what we wanted to do was to just remain conservative this quarter and grow into it a little bit..

Okay, thanks for taking the questions..

Thanks Drew..

Our next question comes from Kyle Rose with Canaccord..

Great, good afternoon, and thanks for taking the questions. This is Gibran on for Kyle. I wanted to maybe start with the entire proposal you had mentioned at the top of the call, Laura.

Does that have any potential as you see it to meaningfully shift the commercial adoption curve at all? Is there may be some potential upside in the second half of this year with pull through or will that be a bit more measured in terms of potential pull through NTAP of course appreciating that clearance is still pending?.

Yes, thanks for the question Gibran and we are really excited about the expansion of the portfolio to include Granite and the fact that we received Breakthrough Device Designation from the FDA. And we're also proud of the recognition that's only been extended to a very select number of orthopedic technologies.

So it really does distinguish us as an industry pioneer that is focused on introducing disruptive technologies that are shown to improve patient outcomes. And we've been developing Granite, the implants and the instruments for a number of years.

And the implant combines the strength of a solid implant with the porosity of 3D printed technology, and we pioneered that with the launch of iFuse-3D back in 2017. So we're using a lot of what our engineering and our product teams have learned in that area to create this breakthrough technology. So we actually, Granite is a unique technology.

It's building on the experience that we've had with our Bedrock technique, addressing surgeons' desire to augment stability at the base along constructs and it's used in treating adult deformity. And so it's intended to provide SI joint fusion in addition to sacropelvic fixation for those sorts of procedures.

You know, given that we've been working with the Bedrock technique for a long time, we understand the biomechanical forces on the SI joint, that increased 50$ to 150%, based on a single or multilevel fusion of the lower spine.

And what Bedrock Granite was developed to do is to address more common sacropelvic complications that are associated with these long construct surgeries and specifically foundational fixation failure after adult spinal deformity correction.

There is literature that's out there that reports that traditional iliac and S2AI pelvic fixation methods have lumbopelvic surgery failure, fixation failure rates as high as 30% due to screw loosening and fixation fracture, and that revision surgeries occur in over 20% of the cases.

And so, Bedrock Granite is offering surgeons not only a robust stabilization, but also an SI joint fusion option to improve patient outcomes. I think the other thing that may be important to know is, we have an existing user base of more than 300 surgeons who have performed Bedrock procedures since 2019.

So we're really optimistic about the potential for iFuse Granite and we believe the benefits of the differentiated technology, the seamless surgeon workflow, and the potential for the incremental reimbursement really puts us in a strong competitive position.

And I think, as we've said previously, we think it will accelerate the adoption, extend our growth in what we believe may ultimately be a $250 million addressable market.

So if we think about the 2022 impact, which was where your question originally started, we're being measured about the contribution of iFuse Granite right now, because similar to what I said earlier to Drew, what we'd like to do is see our business grow into that development. But we are very excited about the potential opportunity that's here..

That's very helpful. I appreciate the color there, Laura.

And then maybe if I could just a second question on backlog, I think if my notes are right, I had three to four months of backlog you guys had mentioned on the Q4 call, has that maybe improved? Or what are the dynamics around that considering the growing funnel you had also mentioned as well? Just trying to get a sense of how that's being worked through both in the Q1 but also for the rest of the year?.

Yes, thanks. Thanks for the additional question on that. And we did talk about three to four months of backlog. And we did see a lot of cases deferred in the back half of 2021 and early 2022.

And, you know, some of those we think may have been rescheduled in the first quarter, but we do believe that many of them also will be rescheduled over the next few months.

And, you know, if we think about the deferred cases, the overall volumes over the last two years have been impacted by patients who have yet to be diagnosed, or they've been diagnosed, but have not scheduled their surgeries yet. And we do still know that patients were cautious in deferring health care during this uncertain time.

So we do believe that this could be creating a shadow backlog which could impact us favorably when the environment normalizes more fully. But we've not included that sort of revenue from backlog in our guidance, because we can't quantify it.

And I really don't think it would be prudent to speculate on it, as potential pent up demand for cases that that could convert. I think probably the most important thing to say is that this is a significantly under penetrated market right now. We believe that there are close to 280,000 patients annually who could benefit from the procedure.

So you know, at a fundamental level is patient awareness continues to grow in a variety of different ways that also sets us up to drive strong growth as we progress through 2022 and beyond..

Great, thanks again..

Thanks Gibran..

Our next question comes from David Rescott with Truist..

Hey, guys, thanks for taking the questions. First from us and kind of a two part question. We just wanted to first clarify what Q1 ended at as far as the direct rep count and whether or not that was maybe sequentially down from Q4.

But then as a second part of that just representative, you know, you've talked in the past about how it's maybe a four to five quarters, between when reps reach productivity curve or you get toward the upper end of that productivity curve. And I think maybe Q1 and Q4 of last year had some pretty big rep hires.

And so as we think about them, you know, ramping up the productivity curve, how do you think about those reps contributing toward the guidance that you set out so far this year?.

Thanks for the question. So two parts of the question, first, the number of reps, we did increase the number of reps during the quarter. So we had 85 reps, territory managers at the end of Q4, and we finished with 88 reps, so three additional reps there. And then last year, we finished with 65 clinical support specialists, and we ended with 66.

So we did increase overall, in both of those areas. And we do intend to continue to add to our sales force in order to drive the growth of our reps. In terms of productivity, you're correct that that is a very important metric for us this year, given the increase in the number of reps that we've had over the last couple of years.

You know, we will be looking increasing that number. So a typical rep, in a territory, a territory manager can do approximately $1.5 million of business per year, and then starts to run into challenges with case coverage and surge and engagement. And that's when we'll typically add in a clinical support specialist.

And when you add in that support specialist, we can get up to approximately $2 million a year. And at that point, then we typically will split a territory.

And so, we are below those levels currently and so what we're doing is, we are continuing to focus on rep productivity increases, while also selectively increasing the number of reps and territories..

Okay, that's helpful and then apologies, I guess I misheard the direct sales rep number wrong. I guess, more on the active account base.

Could you provide any color? Because I know this can kind of be lumpy around a quarter to quarter basis, but within the quarter, I guess, could you maybe highlight whether or not there was any maybe increase in the number of ads or whether or not there were some just rolling off from the prior year and then really how we should think about that trending through the remainder of the year? Thanks..

Yes, so we finished last year with 600, approximately 690 surgeons in this quarter, we finished with 680. So there were a few lass surgeons between Q4 and Q1. I will tell you that that is a normal pattern for us from a seasonality perspective.

And actually, we're pretty happy with that number of active surgeons in the first quarter, given the extent of the disruption from COVID, especially earlier in the quarter. And so if you look at it year-over-year, it's actually an increase of approximately 17% in the number of active surgeons between Q1 2022 versus Q1 2021.

And so this in fact is a measure that we're quite happy with here that despite the disruption in the quarter, we saw -- we were able to retain most of those surgeons, and if you look at it year-over-year grow at a good clip..

Yes, I would also add that we're seeing really good traction with reactivation of previously trained surgeons as well, that's been a focus for us, too. So we've seen good progress there, which is also very encouraging for us..

Okay, great. Thanks for taking the questions..

Thank you..

Our next question comes from David Saxon with Needham..

Hi, good afternoon, and thanks for taking the question. Maybe I'll start with the adult deformity in this slide that looks like you're just typing it at that 250 million. And if memory serves at least, that's up from 200 million previously.

So we'd just be curious to hear if that has to do primarily with the NTAP coming in later this year potentially if it's finalized or if you're thinking about kind of the volume side of the equation any differently?.

Yes, it's a little bit of both. So what we've been doing is really digging into this market a little bit further. And then what we're trying to do is to actually do a very basic calculation based on the number of implants that we think are going to be used in those particular cases.

So it's taking long construct cases, how many cases go all the way to the sacrum in total deformity cases? And then where do we think spinal pelvic fixation will occur and then what number of implants are they actually going to be used.

So I would say that as opposed to the NTAP coming into play, what was more important here is really just digging into the numbers and tweaking the numbers, both in terms of how many long construct cases go to the sacrum, and then also how many implants are going to be used.

I will say, though, at the point in time that we receive the Breakthrough Device Designation, and that we receive the NTAP that we were pretty excited by receiving both of those, because it's a point in time where our team thought about the impact of that NTAP, it does have implications for how many surgeons and how many hospitals are interested in adopting this technology and being early adopters of the technology.

And so what that's going to give to our sites of service is it's going to allow Medicare beneficiaries timely access to the Granite technology, and it's going to provide incremental reimbursement to the facility, when Granite is used as part of a multisegment spinal fusion procedure.

And while it's preliminary based on the CMS proposal, the add-on payment is based on 65% of the difference between hospitals payments, and the per patient anticipated cases cost including Granite, and it can be up to a potential maximum of approximately $9,800. So we believe that this development is going to be significant to our surgeons.

We believe it's going to be significant to our sites of service. And we think it may have implications for the rate of adoption, what we originally anticipated versus how we're thinking about it now..

Okay, that's super helpful. And then just on TORQ, I think it's been just over a year since you launched that and it sounds like most of the revenue contribution has been mostly from primary SI joint fusion procedures.

So just wondering how you're thinking about the continued rollout in the back or the rest of this year? And does trauma revenue contribution start to build or there's still going to be mostly primary SI joint fusion until maybe 2023? Thanks so much..

Yes, thank you, David. And I think that's another great question. The low hanging fruit really for us always was the minimally invasive SI joint fusion applications for our TORQ technology. And really, if you think about the conversation that we're having here, we have our core product with iFuse 3D. We introduced TORQ last year.

We're going to be introducing Granite this year, and it really is a portfolio expansion strategy that we have going on right now. And it's really allowing us to live this vision that we have of owning the sacropelvic solutions market. And so iFuse TORQ was a big part of that.

The trauma applications are the largest market that's here for TORQ, and we are in fact making quite a bit of investment there currently. So it's -- the TORQ trauma market is an adjacent market, our best estimate is that it's approximately $350 million of additional market opportunity for us with pelvic ring fractures.

And really the alternative right now for these patients is using traditional trauma screws or sacroplasty. But in most cases, these patients are on bed rest, and so we think that TORQ is filling a gap for these patients who have experienced these pelvic ring fractures.

So it's -- right now there's an education process that's going on with trauma surgeons, and we've already made the investments in this particular area. If you look at our 10-K from 2021, which you're going to see a significant growth in inventory, significant growth in fixed assets, which primarily is our trays that are out there.

And so we have provided the solutions, and it really gives us another opportunity, in addition to what I talked about in adult deformity to grow our business, but in this case in trauma..

Great, thanks so much, and congrats on the quarter..

Thank you..

Our next question comes from Ross Osborn with Cantor Fitzgerald..

Hi, thanks for taking the question. Congrats on the quarter.

Maybe just one from me with regards to your direct to patient activities are there any quantitative results that you could share or is that, maybe at least directionally relative to the last quarter?.

We have not been giving specific metrics, although as you may guess, it's really all about the metrics from our internal perspective. And as I said, our focus here with the direct-to-patient initiative is, they are the patients who have been in conservative care for an extended period of time.

And how do we make sure that those patients are aware of an alternative, like iFuse. And so when we look at the different measures, we're using digital marketing initiatives for direct-to-patient initiatives.

And so we look at our website traffic, we look at the engagement that the surgeon or that the patient is -- the work that they're doing on our website, it may be engaging in our pain quiz. But we mostly focus on our Find a Doctor function, where we actually are referring patients to our surgeons in order to follow up directly with them.

So we have a series of different measures where we can really try and understand what the return on investment is with these different patients. And so we're pleased with what we're seeing so far and what we're doing right now is we're trying a number of different campaigns.

And then we're shifting resources depending upon where we have the highest return on investment..

Got it. Thank you for the additional color there and congrats again on the quarter..

Thanks Ross..

And I'm not showing any further questions at this time, I'll turn the call back to Laura for any closing remarks..

Well, thank you. I really appreciate all of you joining the call today and I hope I adequately shared with you the momentum that we're seeing in the business. The operating environment is continuing to normalize and we are really excited about the opportunities for the rest of the year.

We have a diverse portfolio and we think it's going to drive higher surge and engagement and it's going to accelerate our growth as well. The only other comment I'd make is Anshul and I will be attending the upcoming Bank of America and UBS investor conferences this month, and so we hope to see many of you in person. Thank you and goodbye..

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day..