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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number: 001-38701

SI-BONE, INC.
(Exact Name of Registrant as Specified in its Charter)
 

Delaware
26-2216351
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
471 El Camino Real, Suite 101, Santa Clara, California
95050
(Address of principal executive offices)(Zip Code)
 Registrant's telephone number, including area code: (408) 207-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.0001 per shareSIBNThe Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No x
The number of shares outstanding of the registrant’s Common Stock was 33,913,049 as of April 29, 2022.



TABLE OF CONTENTS
    Page
PART I-FINANCIAL INFORMATION 
 
PART II-OTHER INFORMATION










1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products and product candidates, sales force expansion, surgeon adoption, reimbursement determinations, clinical trial results, and U.S. Food and Drug Administration ("FDA") approvals, are forward-looking statements.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements include, but are not limited to, statements about the following:
the impact the COVID-19 pandemic and governmental actions taken to combat the COVID-19 pandemic will have on us, including our operations, financial results, liquidity and capital resources, the existence and duration of state and local orders temporarily prohibiting elective procedures including procedures using our products, the ability and desire of patients and physicians to undergo and perform such procedures, the duration and any potential resurgence of the COVID-19 pandemic, and whether the COVID-19 pandemic will recur in the future;
the impact the COVID-19 pandemic has on the global supply chain and our third-party manufacturers and suppliers, which could adversely impact the availability or cost of materials, which could disrupt our supply chain related to implants and instruments.
our ability to maintain a healthy workforce in light of the ongoing COVID-19 pandemic;
our expectation that a significant portion of our revenues will be derived from sales of the iFuse Implant System, or iFuse;
our ability to develop additional revenue opportunities, including new indications for use and new devices;
our ability to retain and grow our sales team based on the demand for our products;
our ability to identify, train, and retain surgeons to perform procedures using our products;
our ability to obtain and maintain favorable coverage and reimbursement determinations from third-party payors;
our estimates of our market opportunity;
our expectations regarding the scope of protection from intellectual property rights covering our products;
developments or disputes concerning our intellectual property or other proprietary rights;
timing of and results from clinical and other trials;
marketing clearances and authorization from the FDA and regulators in other jurisdictions;
timing of regulatory filings and feedback;
competition in the markets we serve;
our expectations of the reliability and performance of our products;
our expectations of the benefits to patients, providers, and payors of our products;
factors impacting the supply chains we rely on, including the availability of raw materials and skilled labor serving our suppliers, and the cost of these factors of production which may in turn impact the prices we pay for our devices;
our reliance on a limited number of suppliers, including sole source suppliers, which may impact the availability of instruments and materials;
2


our ability to sustain or increase demand for our products;
our estimates regarding our costs and risks associated with our international operations and expansion;
our expectations regarding our ability to retain and recruit key personnel;
our ability to attract and retain employees, including those with specialized skills and experience;
our expectations regarding acquisitions and strategic operations;
our ability to fund our working capital requirements;
our compliance with, and the cost of, federal, state, and foreign regulatory requirements;
the factors that may impact our financial results; and
anticipated trends and challenges in our business and the markets in which we operate.

Forward-looking statements are based on management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this report may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this report. These statements, like all statements in this report, speak only as of their date. We caution investors that our business and financial performance are subject to substantial risks and uncertainties. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, except as may be required by law.
3



PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

SI-BONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$27,329 $63,419 
Short-term investments103,402 83,560 
Accounts receivable, net of allowance for doubtful accounts of $258 and $264, respectively
12,682 14,246 
Inventory14,705 11,498 
Prepaid expenses and other current assets3,143 3,143 
Total current assets161,261 175,866 
Property and equipment, net10,276 8,992 
Operating lease right-of-use assets4,917 5,248 
Other non-current assets395 400 
TOTAL ASSETS $176,849 $190,506 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$4,998 $3,198 
Accrued liabilities and other9,169 12,353 
Operating lease liabilities, current portion1,286 1,339 
Total current liabilities15,453 16,890 
Long-term borrowings35,024 34,973 
Operating lease liabilities, net of current portion3,889 4,166 
Other long-term liabilities45 57 
TOTAL LIABILITIES54,411 56,086 
Commitments and contingencies (Note 6)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding
  
Common stock, $0.0001 par value; 100,000,000 shares authorized; 33,872,363 and 33,674,085 shares issued and outstanding, respectively
3 3 
Additional paid-in capital
435,590 429,914 
Accumulated other comprehensive income
104 352 
Accumulated deficit
(313,259)(295,849)
TOTAL STOCKHOLDERS’ EQUITY122,438 134,420 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$176,849 $190,506 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4



SI-BONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)

Three Months Ended
March 31,
20222021
Revenue
$22,439 $20,442 
Cost of goods sold
2,983 2,200 
Gross profit19,456 18,242 
Operating expenses:
Sales and marketing25,605 20,922 
Research and development3,580 2,955 
General and administrative7,139 5,940 
Total operating expenses
36,324 29,817 
Loss from operations
(16,868)(11,575)
Interest and other income (expense), net:
Interest income73 61 
Interest expense(561)(1,064)
Other income (expense), net(54)336 
Net loss
$(17,410)$(12,242)
Other comprehensive income (loss):
Changes in foreign currency translation
 (115)
Unrealized gain (loss) on marketable securities(248)21 
Comprehensive loss
$(17,658)$(12,336)
Net loss per share, basic and diluted
$(0.52)$(0.37)
Weighted-average number of common shares used to compute basic and diluted net loss per share
33,792,326 32,691,578 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


SI-BONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’ Equity
SharesAmount
Balance as of December 31, 202133,674,085 $3 $429,914 $352 $(295,849)$134,420 
Issuance of common stock upon exercise of stock options, net of shares withheld34,798 — 169 — — 169 
Issuance of common stock upon vesting of restricted stock units163,480 — — — — — 
Stock-based compensation— — 5,507 — — 5,507 
Net unrealized loss on marketable securities— — — (248)— (248)
Net loss— — — — (17,410)(17,410)
Balance as of March 31, 202233,872,363 $3 $435,590 $104 $(313,259)$122,438 
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’ Equity
SharesAmount
Balance as of December 31, 202032,583,220 $3 $408,113 $524 $(239,277)$169,363 
Issuance of common stock upon exercise of stock options, net of shares withheld93,975 — 601 — — 601 
Issuance of common stock upon vesting of restricted stock units131,339 — — — — — 
Stock-based compensation— — 4,030 — — 4,030 
Vesting of early exercised stock options— — 9 — — 9 
Foreign currency translation— — — (115)— (115)
Net unrealized gain on marketable securities— — — 21 — 21 
Net loss— — — — (12,242)(12,242)
Balance as of March 31, 202132,808,534 $3 $412,753 $430 $(251,519)$161,667 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6



 
SI-BONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20222021
Cash flows from operating activities
Net loss
$(17,410)$(12,242)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation5,507 4,030 
Depreciation and amortization713 340 
Accretion of discount on marketable securities244 331 
Amortization of debt issuance costs51 88 
Loss on sale and disposal of property and equipment31 104 
Changes in operating assets and liabilities:
Accounts receivable1,603 581 
Inventory(3,178)(1,725)
Prepaid expenses and other assets12 20 
Accounts payable2,086 1,059 
Accrued liabilities and other(3,171)(1,945)
Net cash used in operating activities(13,512)(9,359)
Cash flows from investing activities
Maturities of marketable securities25,000 33,200 
Purchases of marketable securities(45,334)(38,346)
Purchases of property and equipment(2,274)(1,976)
Net cash used in investing activities
(22,608)(7,122)
Cash flows from financing activities
Proceeds from the exercise of stock options 169 601 
Net cash provided by financing activities169 601 
Effect of exchange rate changes on cash and cash equivalents
(139)(337)
Net decrease in cash and cash equivalents(36,090)(16,217)
Cash and cash equivalents at
Beginning of period
63,419 53,581 
End of period
$27,329 $37,364 
Supplemental disclosure of non-cash information
Vesting of early exercised stock options
$ $9 
Unpaid purchases of property and equipment
241 1,195 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1. The Company and Nature of Business
SI-BONE, Inc. (the “Company”) was incorporated in the state of Delaware on March 18, 2008 and is headquartered in Santa Clara, California. The Company is a medical device company that has pioneered a proprietary minimally invasive surgical implant system to fuse the sacroiliac joint for treatment of musculoskeletal disorders of the sacropelvic anatomy. The Company introduced its first generation iFuse implant in 2009 in the U.S., in 2010 in certain countries in the European Union, and in 2015 in certain countries in the rest of the world.
In the first quarter of 2020, the Company received $63.0 million of net proceeds from its first follow-on public offering of 4,300,000 shares of the Company's common stock, of which 2,490,053 shares were offered and sold by the Company, and the exercise of underwriter's option to purchase from the Company an additional 645,000 shares of the Company's common stock, at a public offering price of $21.50 per share. The total public offering costs incurred in connection with the follow-on offering were allocated based on the gross proceeds received by the Company and the selling stockholders on a pro-rated basis. Public offering cost of $0.4 million allocated to selling of shares by the Company was charged against the gross proceeds received from the follow-on offering. Public offering costs of $0.2 million allocated to selling of shares by the selling stockholders was recognized as transaction costs within general and administrative expenses on the consolidated statements of operations in the year ended December 31, 2020.
In October 2020, the Company received $71.6 million of net proceeds from its second follow-on public offering of shares of the Company's common stock, of which 3,000,000 shares were offered and sold by the Company, and the exercise of underwriter's option to purchase from the Company an additional 478,507 shares of the Company's common stock, at a public offering price of $22.00 per share. In addition to the shares sold by the Company in this second follow-on offering, the selling stockholder sold 190,053 shares of the Company's common stock previously held by the selling stockholder at a price to the public of $22.00 per share. The Company did not receive any proceeds from the sale by the selling stockholder.
Risks and Uncertainties
The Company is subject to continuing risk and uncertainties as a result of the COVID-19 pandemic, and is closely monitoring the impact of the pandemic on all aspects of its business, including the impacts on its customers, patients that would benefit from procedures involving the Company's products, employees, suppliers, vendors, business partners and distribution channels. Economies worldwide continue to be negatively impacted by the COVID-19 pandemic, in particular with recurrent mutations of the virus, despite advances in vaccines, and the Company anticipates these disruptions will continue. While the Company has not experienced material disruptions to its supply chain to date, certain of its third-party suppliers have faced delays, product shortages and rising costs resulting from disruptions in the global supply chain, primarily related to the instruments. As a result, the Company is continuing to work closely with its manufacturing partners and suppliers, as well as determining alternative sourcing strategies to enable the Company to source key components and maintain appropriate inventory levels to meet customer demand. As such the Company's future results of operations and liquidity could be adversely impacted by a variety of factors related to the COVID-19 pandemic, including those discussed in the section entitled "Risk Factors" in this report. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations remains uncertain.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments that are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year.
The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2021 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022.
8


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant accounting estimates and management judgments reflected in the condensed consolidated financial statements primarily includes the fair value of performance-based restricted stock unit awards. Estimates are based on historical experience, where applicable and other assumptions believed to be reasonable by the management. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to these accounting policies, except for the accounting policy related to performance-based restricted stock unit awards noted below that was added to the Company’s significant accounting policies in the first quarter of 2022.
Performance-Based Restricted Stock Unit Awards
The Company grants restricted stock unit awards subject to market and service vesting conditions to certain executive officers. This type of grant consists of the right to receive shares of common stock, subject to achievement of time-based criteria and certain market performance-related goals over a specified period, as established by the Compensation Committee of our Board of Directors. For these awards that are subject to market performance, the fair value is determined based on the number of shares granted and a Monte Carlo valuation model, which incorporates the probability of the achievement of the market-related performance goals as part of the grant date fair value. If such performance goals are not ultimately met, the expense is not reversed. Stock-based compensation expense is recognized ratably over the requisite service period.
Segments
The Company's chief operating decision makers are the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). The CEO and the CFO review financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure.
The Company derives substantially all of its revenue from sales to customers in the U.S. Revenue by geography is based on billing address of the customer. International revenue accounted for less than 10% of the total revenue during the periods presented. Long-lived assets held outside the U.S. are immaterial. Following table summarizes the Company's revenue by geography:
Three Months Ended March 31,
20222021
(in thousands)
United States$20,367 $18,770 
International2,072 1,672 
$22,439 $20,442 
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which requires the lessee to recognize a lease right-of-use asset and a lease liability for operating leases, initially measured at the present value of lease payments, in its consolidated balance sheet. In the fourth quarter of 2021, the Company adopted ASU 2016-02 using the modified retrospective method with the effective date of January 1, 2021. As a result, the Company has retrospectively changed its previously issued condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 as presented in its March 31, 2021 Quarterly Report on Form 10-Q to reflect the adoption of Topic 842 on January 1, 2021. The condensed consolidated financial statements for the three months ended March 31, 2021 presented herein differ from the Company’s condensed consolidated financial statements included in its March 31, 2021 Quarterly Report on Form 10-Q, as those financial statements were prepared using the former accounting standard referred to as ASC Topic 840, Leases.
9


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table summarizes the effect of the adoption of Topic 842 on the condensed consolidated balance sheet as of January 1, 2021:
As Previously ReportedImpact of Topic 842 AdoptionAs Adjusted
(in thousands)
ASSETS
Operating lease right-of-use assets$ $3,507 $3,507 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Operating lease liabilities, current portion 852 852 
Operating lease liabilities, net of current portion 2,933 2,933 
Accrued liabilities and other10,199 (345)9,854 
Accumulated deficit(239,277)68 (239,209)
The adoption of Topic 842 did not have any other material impact on the condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (ASC 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by removing the beneficial conversion and cash conversion accounting models for convertible instruments and removes certain settlement conditions that are required for contracts to qualify for equity classification. This new standard also simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method for convertible instruments and requires that the effect of potential share settlement be included in diluted earnings per share calculations when an instrument may be settled in cash or shares. The new standard requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The ASU is effective for public companies, excluding entities eligible to be smaller reporting companies, for fiscal years beginning after December 15, 2021. The new standard went effective on January 1, 2022, and it did not impact the Company's consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” ("ASU 2021-04") which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The new standard went effective on January 1, 2022, and it did not impact the Company's consolidated financial statements and related disclosures.
Recently Accounting Standards Not Yet Effective
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs in ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors. In addition, ASU 2022-02 also requires that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The ASU is effective for public companies, excluding entities eligible to be smaller reporting companies, for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of applying this guidance on its consolidated financial statements and related disclosures.
10


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

3. Marketable Securities

All of the Company's marketable securities were available-for-sale and were classified based on their maturities. Marketable securities with remaining maturities at the date of purchase of three months or less are classified as cash equivalents. Short-term investments are securities that original maturity or remaining maturity is greater than three months and not more than twelve months. Long-term investments are securities for which the original maturity or remaining maturity is greater than twelve months.

The table below summarizes the marketable securities:
March 31, 2022
Amortized CostUnrealized GainsUnrealized LossesAggregate Fair Value
(in thousands)
Money market funds$16,778 $— $— $16,778 
U.S. treasury securities5,000 — — 5,000 
Cash equivalents21,778 — — 21,778 
U.S. treasury securities57,286  (168)57,118 
Corporate bonds27,414  (116)27,298 
Commercial paper18,986   18,986 
Short-term investments103,686  (284)103,402 
Total marketable securities$125,464 $ $(284)$125,180 
December 31, 2021
Amortized CostUnrealized GainsUnrealized LossesAggregate Fair Value
(in thousands)
Money market funds$57,829 $— $— $57,829 
Cash equivalents57,829 — — 57,829 
U.S. treasury securities28,064  (16)28,048 
Corporate bonds31,558 4 (23)31,539 
Commercial paper23,973   23,973 
Short-term investments83,595 4 (39)83,560 
Total marketable securities$141,424 $4 $(39)$141,389 

The amortized cost of the Company's available-for-sale securities approximates their fair value. Unrealized losses are generally due to interest rate fluctuations, as opposed to credit quality. However, the Company reviews individual securities that are in an unrealized loss position in order to evaluate whether or not they have experienced or are expected to experience credit losses. During the three months ended March 31, 2022 and 2021, unrealized gains and losses from the investments were not material and were not the result of a decline in credit quality. As a result, the Company did not recognize any credit losses related to its investments and that all unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.
The Company elected to present accrued interest receivable separately from short-term and long-term investments on its condensed consolidated balance sheets. Accrued interest receivable was $0.3 million as of March 31, 2022, and was recorded in prepaid expenses and other current assets. The Company also elected to exclude accrued interest receivable from the estimation of expected credit losses on its marketable securities and reverse accrued interest receivable through interest income (expense) when amounts are determined to be uncollectible. The Company did not write off any accrued interest receivable as of March 31, 2022 or December 31, 2021.
11


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. Fair Value Measurement
Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities and market interest rates, if applicable. The carrying value of the Company’s long-term debt also approximates fair value based on management’s estimation that a current interest rate would not differ materially from the stated rate. There were no other financial assets and liabilities that require fair value hierarchy measurements and disclosures for the periods presented.
The table below summarizes the fair value of the Company’s marketable securities measured at fair value on a recurring basis based on the three-tier fair value hierarchy:
March 31, 2022
Level 1Level 2Level 3Total
(in thousands)
Marketable securities
Money market funds
$16,778 $ $ $16,778 
U.S. treasury securities62,118   62,118 
Corporate bonds 27,298  27,298 
Commercial paper 18,986  18,986 
Total marketable securities$78,896 $46,284 $ $125,180 
December 31, 2021
Level 1Level 2Level 3Total
(in thousands)
Marketable securities
Money market funds
$57,829 $ $ $57,829 
U.S. treasury securities28,048   28,048 
Corporate bonds 31,539  31,539 
Commercial paper 23,973  23,973 
Total marketable securities$85,877 $55,512 $ $141,389 

12


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. Balance Sheet Components
Inventory
As of March 31, 2022, inventory consisted of finished goods of $13.9 million and work-in-progress of $0.8 million. As of December 31, 2021, inventory consisted of finished goods.
Property and Equipment, net:    
March 31, 2022December 31, 2021
 (in thousands)
Machinery and equipment
$11,209 $10,573 
Construction in progress
3,844 3,657 
Computer and office equipment
924 916 
Leasehold improvements
1,630 503 
Furniture and fixtures
309 309 
17,916 15,958 
Less: Accumulated depreciation and amortization
(7,640)(6,966)
$10,276 $8,992 
            
As of March 31, 2022, construction in progress pertains to cost of individual components of a custom instrument set used for surgical placement of the Company's products that have not yet been placed into service of $3.8 million. Depreciation expense was $0.7 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively.
Accrued Liabilities and Other:
March 31, 2022December 31, 2021
 (in thousands)
Accrued compensation and related expenses$7,250 $10,055 
    Accrued professional services 497 995 
Others1,422 1,303 
$9,169 $12,353 
Accounts Receivable and Allowance for Credit Losses:
The movement in the allowance for credit losses was as follows:
March 31, 2022December 31, 2021
 (in thousands)
Balance at beginning of year$264 $263 
Provision 14 
Write-offs(6)(13)
Balance at end of year$258 $264 
6. Commitments and Contingencies
Operating Leases
The Company has a non-cancelable operating lease for an office building space, located in Santa Clara, California which expires in May 2025 and a building used for research and development and warehouse space in Santa Clara, California which expires in October 2026. The Company also has non-cancelable operating leases for its office building spaces in Gallarate, Italy and Knaresborough, United Kingdom, which expire in August 2027 and December 2025, respectively.
13


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Further, the Company also leases vehicles under operating lease arrangements for certain of its personnel in Europe which expire at various times throughout 2022 to 2027.
Supplemental information related to lease expense and valuation of the lease assets and lease liabilities are as follows:

Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(in thousands)(in thousands)
Operating lease expense$409$282
Variable lease expense10442
Total lease expense$513$324
Cash paid for amounts included in the measurement of operating lease liabilities
$408$285
Leased assets obtained in exchange for new operating lease liabilities

$$37
March 31, 2022December 31, 2021
Weighted average remaining lease term (in years)3.763.98
Weighted average discount rate5.75%5.75%

Future minimum lease payments under non-cancelable operating leases as of March 31, 2022 was as follows:
Year Ending December 31,
(in thousands)
Remainder of 2022$1,213 
20231,544 
20241,491 
2025990 
2026531 
Thereafter10 
Total operating lease payments5,779 
Less: imputed interest(604)
Total operating lease liabilities$5,175 
As of March 31, 2022, the Company had no operating lease liabilities that had not commenced.
Purchase Commitments and Obligations
The Company has certain purchase commitments related to its inventory management with certain manufacturing suppliers wherein the Company is required to purchase the amounts forecasted in a blanket purchase order. The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding. These outstanding commitments amounted to $0.6 million and $1.2 million as of March 31, 2022 and December 31, 2021, respectively.

Indemnification
The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally
14


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.
Legal Contingencies
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any material legal proceedings that, if determined adversely to the Company, would have a material adverse effect on the Company.
7. Borrowings
Term Loan
The following table summarizes the outstanding borrowings from the term loan as of periods presented:
March 31, 2022December 31, 2021
 (in thousands)
Principal outstanding and final fee$35,700 $35,700 
Less: Unamortized debt issuance costs(93)(100)
          Unaccreted value of final fee(583)(627)
Outstanding debt, net of debt issuance costs and unaccreted value of final fee$35,024 $34,973 
Classified as:
Long-term borrowings$35,024 $34,973 

In May 29, 2020, the Company entered into a term loan with Solar Capital Partners (“Solar”). Pursuant to the Loan and Security Agreement, Solar provided an aggregate principal amount of $40.0 million term loan (the “Solar Term Loan”). The Solar Term Loan bore interest at a rate per annum equal to 9.40% plus London Interbank Offered Rate (“LIBOR”), payable monthly in arrears. LIBOR means the greater of (i) 0.33% or (ii) one-month LIBOR (or a comparable replacement rate to be determined by the collateral agent if the LIBOR is no longer available), which rate shall reset monthly. The Solar Term Loan included an interest-only period of 36 months through June 2023, and then repaid in equal monthly principal payments plus interest through June 1, 2025. The Company was also obligated to pay a final fee equal to $1.0 million or 2.5% of the aggregate principal amount of the Solar Term Loan, which was fully earned by Solar on the effective date of the Loan and Security Agreement with Solar. With respect to the Solar Term Loan, this final fee was due and payable on the earliest of (i) the maturity date, (ii) the acceleration of the loan balance or (iii) its full prepayment, refinancing, substitution or replacement. The Company paid in full and terminated the Solar Term Loan in August 2021. The effective interest rate related to the Solar Term Loan for the three months ended March 31, 2021 was 10.6%.

The outstanding debt as of March 31, 2022 and December 31, 2021 is related to a term loan pursuant to the Loan and Security Agreement dated August 12, 2021 (the “Effective Date”), entered into by the Company with Silicon Valley Bank (“SVB”). Pursuant the agreement, SVB provided an aggregate principal amount of $35.0 million to the Company (the “SVB Term Loan”). The Company used the proceeds of the SVB Term Loan to repay in full and terminate the Solar Term Loan, which was accounted for as debt extinguishment in accordance with the accounting standards. The Company recognized the unamortized debt issuance costs and unaccreted value of final fee of $1.3 million and the prepayment penalty and lender fees of $0.5 million related to Solar Term Loan as a loss on debt extinguishment. The costs and fees are reflected as interest expense in the condensed consolidated statement of operations for the three months ended March 31, 2022. The total debt issuance costs of $0.1 million associated with the SVB Term Loan were recorded in the condensed consolidated balance sheet as a direct deduction from the carrying amount of the loan, and are amortized as a component of interest expense using straight-line method over the life of the term loan. The SVB Term Loan matures (the “Maturity Date”) on either (a) August 1, 2025 or (b) August 1, 2026 dependent on the Company’s achievement of a certain financial performance milestone as of December 31, 2022, as set forth in the Loan Agreement. Interest on the SVB Term Loan is payable monthly at an annual rate set at the greater of (a) 5.75% and (b) prime rate as published in the Wall Street Journal plus 2.5%. Commencing on September 1, 2023, the Company will be required to make monthly principal amortization payments. The Company
15


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

may elect to prepay the SVB Term Loan prior to the Maturity Date subject to a prepayment fee equal to 1% if the prepayment occurs prior to the second anniversary of the Effective Date and 0% if the prepayment occurs on or at any time after the second anniversary of the Effective Date. The SVB Term Loan is secured by substantially all the Company's assets other than the Company's intellectual property. The Company is also obligated to pay a final payment equal to $0.7 million or 2% of the aggregate principal amount of the SVB Term Loan, which is considered fully earned by SVB on the effective date of the Loan and Security Agreement with SVB. This final payment shall be due and payable on the earliest of (i) the Maturity Date, (ii) the full repayment of the loan, (iii) permitted prepayment and mandatory prepayment upon an acceleration as specified in the agreement or (iv) the termination of the agreement. The final payment is included within the long-term borrowings and is accreted to interest expense using straight-line method over the life of the term loan. The effective interest rate related to the SVB Term Loan was 6.3% for three months ended March 31, 2022.
The table below summarizes the future principal and final fee payments under the SVB Term Loan as of March 31, 2022:
Year ending December 31,(in thousands)
Remainder of 2022$ 
20237,292 
202417,500 
202510,908 
2026 
Total principal and final fee payments$35,700 
The Loan Agreement includes affirmative and negative covenants applicable to the Company and certain of its foreign subsidiaries. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports, and maintain insurance coverage. The negative covenants include, among others, restrictions regarding transferring collateral, pledging the Company's intellectual property to other parties, engaging in mergers or acquisitions, paying dividends or making other distributions, incurring indebtedness, transacting with affiliates, and entering into certain investments, in each case subject to certain exceptions. As of March 31, 2022, the Company was in compliance with all debt covenants.
CARES Act
On March 27, 2020, the U.S. federal government enacted the “Coronavirus Aid, Relief and Economic Security (CARES) Act,” which, among other things, allowed employers to defer the deposit and payment of an employer's share of social security taxes through December 31, 2020. The Company recorded a total liability of $0.5 million related to the deferral of the social security taxes that is included in the accrued liabilities and other in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

8. Stock-Based Incentive Compensation Plans
Stock Options

The table below summarizes the stock option activity for the three months ended March 31, 2022:
Number of
Shares
Weighted-
Average
Exercise
Price
Outstanding as of December 31, 20212,009,513 $8.73
Exercised
(34,798)4.85
Canceled and forfeited(11,355)14.46
Outstanding as of March 31, 20221,963,360 9.86
As of March 31, 2022, the unrecognized compensation cost related to stock options was $1.0 million, which is expected to be recognized over a period of approximately 0.8 years.

16


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

There were no stock options granted during the three months ended March 31, 2022 and 2021.
Early Exercise of Unvested Stock Options
Early exercises of stock options under the Company's 2008 Stock Option Plan are subject to a right of repurchase by the Company of any unvested shares. The repurchase rights lapse over the original vesting period of the options. The Company accounts for the cash received in consideration for the early exercised options as a liability included in accrued liabilities, which is then reclassified to stockholders’ equity as the options vest. As of March 31, 2022 and December 31, 2021, the Company had no shares subject to repurchase.
Restricted Stock Units
Restricted stock units (“RSUs”) are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. RSUs generally vest over two to four years based upon continued services and are settled at vesting in shares of the Company's common stock. The grant date fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.
In January 2022, the Company granted performance-based restricted stock unit awards subject to market and service vesting conditions to certain executive officers under SI-BONE's 2018 Equity Incentive Plan (“PSUs”). The shares subject to the PSUs vest over a three-year performance period beginning January 1, 2022 and ending December 31, 2024. The actual number of PSUs that will vest in each measurement period will be determined by the Compensation Committee based on the Company’s total shareholder return (“TSR”) relative to the TSR of the Median Peer Companies (as defined in the award agreement). The grant date fair value of each stock award with a market condition was determined using the Monte Carlo valuation model. The table below summarizes the assumptions used to estimate the grant date fair value of the PSUs granted:
Three Months Ended March 31, 2022
Expected volatility of common stock48.9%to58.7%
Expected volatility of peer companies24.2%to152.5%
Correlation coefficient of peer companies(0.13)to1.00
Risk-free interest rate0.4%to1.2%
Dividend yield%to1.0%
The table below summarizes RSU and PSU activity for the three months ended March 31, 2022:
RSUsPSUs
Number of SharesWeighted Average Grant Date Fair ValueNumber of SharesWeighted Average Grant Date Fair Value
Outstanding as of December 31, 20211,566,522$25.17$
Granted1,001,11121.99155,59619.50
Vested(163,480)25.27
Canceled and forfeited(94,869)23.86
Outstanding as of March 31, 20222,309,28423.84155,59619.50
As of March 31, 2022, the unrecognized compensation cost related to the RSUs was $45.4 million, which is expected to be recognized over a period of approximately 3.0 years. As of March 31, 2022, the unrecognized compensation cost related to the PSUs was $2.7 million, which is expected to be recognized over a period of approximately 2.8 years.
Employee Stock Purchase Plan
The Company’s 2018 Employee Stock Purchase Plan (the “ESPP”) allows eligible employees to purchase shares of the Company's common stock through payroll deductions at the price equal to 85% of the lesser of the fair market value of the stock as of
17


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

the first date or the ending date of each six month offering period. The offering period generally commences in May and November. On March 26, 2020, the Company's Compensation Committee approved the amendment of the terms of future offerings under the ESPP which, among other things, increased the maximum number of shares that may be purchased on any single purchase date, provided for automatic enrollment in a new offering, and provided that the offering which commenced in May 2020 be twelve months in duration and consist of two purchase periods.
The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model, which is being amortized over the requisite service period. The Company did not issue any shares under ESPP during the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, total accumulated ESPP related employee payroll deductions amounted to $1.3 million and $0.3 million which were included within accrued compensation and related expenses in the condensed consolidated balance sheets.

Stock-Based Compensation
The table below presents the detail of stock-based compensation expense amounts included in the condensed consolidated statements of operations:
Three Months Ended
March 31,
20222021
(in thousands)
Cost of goods sold
$123 $174 
Sales and marketing
2,594 1,899 
Research and development
633 419 
General and administrative
2,157 1,538 
$5,507 $4,030 

9. Net Loss Per Share of Common Stock
The table below summarizes the computation of basic and diluted net loss per share:
Three Months Ended March 31,
20222021
(in thousands, except share and per share data)
Net loss
$(17,410)$(12,242)
Weighted-average shares used to compute basic and diluted net loss per share
33,792,326 32,691,578 
Net loss per share, basic and diluted
$(0.52)$(0.37)
Because the Company has reported a net loss in all periods presented, outstanding stock options, restricted stock units, shares subject to repurchase, ESPP purchase rights and common stock warrants are anti-dilutive and therefore diluted net loss per common share is the same as basic net loss per common share for the periods presented. The following anti-dilutive common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented:
18


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

19


SI-BONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Three Months Ended March 31,
20222021
Stock options
1,963,3602,311,932
Restricted stock units
2,309,2841,844,125
Shares subject to repurchase
 3,889
ESPP purchase rights
61,264101,282
Common stock warrants
118,122118,122
4,452,030 4,379,350 


10. Related Party Transaction
On February 24, 2020, the Company entered into a joint development agreement (the “Development Agreement”) with SeaSpine Orthopedics Corporation (“SeaSpine”) to develop a next generation device for sacropelvic fixation. Mr. Keith Valentine, who serves as the President, Chief Executive Officer and a member of the board of directors of SeaSpine, also serves as a member of the Company's Board of Directors since August 2015. On April 27, 2021, Addendum No.1 to the Development Agreement was entered into by and between the Company and SeaSpine to extend certain obligations as described under the Development Agreement to a consultant of the Company.
Pursuant to the development plan, SeaSpine shall use reasonable efforts to assist in the development of the potential product offering, including licensing certain existing intellectual property to be incorporated into such product. Under the terms of the Development Agreement, the Company agreed to make monthly payments to SeaSpine to reimburse for full time resources employed by SeaSpine responsible to conduct the development activities. For the three months ended March 31, 2022 and 2021, the Company expensed $6,225 and $10,000, respectively, of the reimbursement charges from SeaSpine. The reimbursement charges were recorded within research and development expense in the condensed consolidated statements of operations. The outstanding liability to SeaSpine as of March 31, 2022 amounted to $6,225, recorded within accounts payable in the condensed consolidated balance sheet. There was no outstanding liability to SeaSpine as of December 31, 2021.
Certain intellectual property developed pursuant to the project plan will be owned by the Company, certain intellectual property developed pursuant to the project plan will be owned by SeaSpine, and other intellectual property developed pursuant to the project plan will be jointly owned by SeaSpine and the Company. The Company also agreed to provide SeaSpine a royalty-free, worldwide, perpetual, non-exclusive license of certain of the Company's intellectual property incorporated into the product to be developed. The Company also agreed to pay SeaSpine a product royalty, in an amount specified in the Development Agreement, for each resulting product sold for a period of 10 years beginning on the initial market launch. The term of the Development Agreement shall continue until the expiration of all royalty terms, unless earlier terminated by either party, as provided for by the Development Agreement.

11. Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date profit or loss, adjusted for discrete items arising in that quarter. The Company updates its estimate of its annual effective tax rate at the end of each quarterly period. The estimate takes into account annual forecasted income (loss) before income taxes, the geographic mix of income (loss) before income taxes and any significant permanent tax items. The Company did not have provision for income taxes for the three months ended March 31, 2022 and 2021. The Company continues to maintain a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding realization of such assets.
The Company accounts for the uncertainty in income taxes by utilizing a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on an income tax return. There had been no changes in the estimated uncertain tax benefits recorded as of December 31, 2021.
20





21


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K filed with the SEC on March 1, 2022. Some of the information contained in this discussion and analysis, or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the Risk Factors section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.
Overview
We are a medical device company dedicated to solving musculoskeletal disorders of the sacropelvic anatomy. We have pioneered a proprietary minimally invasive surgical implant system, which we call iFuse, to addresss sacroiliac joint dysfunction and degeneration, adult deformity, pelvic ring traumatic fractures. Since we introduced iFuse in 2009, as of March 31, 2022, more than 65,000 procedures have been performed by over 2,700 surgeons in the U.S. and 36 other countries.
Our iFuse Implant System includes a series of patented titanium implants and the instruments we have developed to enable surgeons to perform the procedure. Surgeons place our implants across the sacroiliac joint, either from a lateral approach through the iliac bones into the sacrum, or from a posterior approach through the sacrum and into the iliac bones. Surgeons typically use three iFuse implants to fuse a sacroiliac joint in the lateral procedure, and one iFuse implant in each sacroiliac joint, typically alongside another device crossing the joint and joining to the spinal construct.
Our first-generation iFuse implant has a triangular cross section that resists twisting or rotation of the implant within the bone within which it is implanted, regardless of the surgical approach and technique used to place the implants. The triangular shape of our implants helps stabilize the joint, and the implants’ porous surface facilitates biologic fixation of the bone onto the implant, or bony ongrowth and ingrowth, that results in fusion. The implant has at least three times the strength of a typical eight-millimeter cannulated surgical screw, and the large porous surface area of our implants allows for bony ingrowth. We hold issued patents on implants with cross-sections of many non-round shapes, including the triangular shape of our first-generation iFuse implant. We also hold issued patents for the method of placing those implants across the sacroiliac joint, as well as other parts of the spine and pelvis.
We introduced our second-generation implant, iFuse-3D, in 2017. This patented titanium implant combines the triangular cross-section of the iFuse implant with the proprietary 3D-printed porous surface and fenestrated design. This design also allows the surgeon to fill the implant with ground-up bone before implantation, which some surgeons believe accelerates bone through-growth and biological fixation. iFuse-3D implants have shown positive bony ingrowth, ongrowth and through-growth and in animal studies, whether or not ground-up bone is used. We hold issued patents on 3D-printed triangular implants with fenestrations, or holes, which allow bone to grow into and through the implants.
In April 2019, we received clearance from the United States Food and Drug Administration, or FDA, to promote the use of our iFuse-3D implants for fusion of the sacroiliac joint in conjunction with multi-level spinal fusion procedures to provide further stabilization and immobilization of the sacroiliac joint. For this indication, surgeons typically use the posterior approach, through the sacrum and into the iliac bones, which we call the Bedrock technique. We received CE marking and began marketing iFuse for this indication and surgical technique in Europe in December 2019. In March 2020, we received FDA 510(k) clearance for an expanded indication for our triangular iFuse implants to support our trauma program.
In February 2021, we received clearance from the FDA for iFuse-TORQ, a 3D-printed portfolio of threaded implants designed to meet the needs of pelvic trauma and minimally invasive sacroiliac joint fusion applications. iFuse-TORQ is targeted to address an unmet clinical need for low energy pelvic ring fractures and chronic sacroiliac joint pain after high energy pelvic ring trauma. iFuse-TORQ also provides an opportunity for us to capture competitive screw business for minimally invasive sacroiliac joint fusions.
We market our products primarily with a direct sales force as well as a number of distributors in the U.S., and with a combination of a direct sales force and distributors in other countries.
In October 2018, we completed our initial public offering (“IPO”) resulting in net proceeds of $113.4 million after deducting underwriting discounts and commissions and offering expenses. In January and February 2020, we received a total of $63.0 million of net proceeds, after deducting the underwriting discounts, commissions and offering expenses, from our first follow-on public offering of our common stock. In October 2020, we received a total of $71.6 million of net proceeds from our second follow-on offering of our common stock.
22


Impact of COVID-19 Pandemic

The global COVID-19 pandemic presents significant risks to us and has impacted, and continues to impact our business, operations, and financial results and condition, directly and indirectly, including, without limitation, impacts on the health of our management and employees; our manufacturing, distribution, marketing and sales operations; our research and development activities, including clinical activities; and customer and patient behaviors.

Access to many hospitals and other customer sites was impacted by prevalence of COVID-19, which negatively impacts our ability to promote the use of our products with physicians. Additionally, many hospitals and ambulatory surgery centers have in the past suspended and may suspend in the future, many elective procedures, resulting in a reduced volume of procedures using our products. Our customer behavior is impacted by the prevalence of COVID-19 and changes in the infection rates in the locations where our customers reside. Quarantines, shelter-in-place, elective procedure moratoria and similar government orders have also impacted, and may continue to impact, our third-party manufacturers and suppliers, and could in turn adversely impact the availability or cost of materials, which could disrupt our supply chain. Periodic resurgence of the COVID-19 pandemic negatively impacted our revenues at various periods throughout 2021 and 2022 as evidenced by case deferrals attributed to COVID-19.

We have taken a variety of steps to address the impact of the COVID-19 pandemic, while attempting to minimize business disruption. Essential staff in operations and limited support functions worked from our Santa Clara headquarters throughout the pandemic, following appropriate hygiene and social distancing protocols. To reduce risk to our employees and families from potential exposure to COVID-19, other staff in our Santa Clara headquarters worked from home. We also restricted non-essential travel to protect the health and safety of our employees and customers. Starting June 15, 2021, we began the return to work for many of our headquarter-based personnel based upon new guidelines from the State of California. In December 2021, amid the rising cases related to the Omicron variant, we again required non-essential staff to work remotely until the level of cases subsided. We are continuing to monitor the impact of the COVID-19 pandemic on our employees and customers and on the markets in which we operate, and will take further actions that are considered prudent to address the COVID-19 pandemic, while ensuring that we can support our customers and continue to develop our products.

While we have not experienced material disruptions to our supply chain to date, certain of our third-party suppliers have faced delays, product shortages and rising costs resulting from disruptions in the global supply chain, primarily related to our instruments. As a result, we are continuing to work closely with our manufacturing partners and suppliers, as well as determining alternative sourcing strategies to enable us to source key components and maintain appropriate inventory levels to meet customer demand.

The existence and further duration of the COVID-19 pandemic may also further exacerbate certain risks as described in “Part II- Item 1A - Risk Factors” below.

We cannot currently predict with certainty the full extent to which the COVID-19 pandemic will impact demand for our products in the future, or the impact of the COVID-19 pandemic on our supply chain or other aspects of our business. Accordingly, the COVID-19 pandemic could have a material adverse effect on our results of operations, financial condition and capital resources.
Factors Affecting Results of Operations and Key Performance Indicators
We monitor certain key performance indicators that we believe provide us and our investors indications of conditions that may affect results of our operations. Our revenue growth rate and commercial progress is impacted by, among other things, our key performance indicators, including our ability to leverage our sales force, increase surgeon activity and training, engage key opinion leaders, and leverage broad coverage.
Leverage our sales force
We have made significant investments in our sales force since our initial public offering in 2018. We have built a valuable sales team, and we believe they are the key to expand the market and deliver revenue growth. We limited new sales force hiring in the second and third quarter of 2020 due to uncertainty from the COVID-19 pandemic and focused on sales force productivity during this period, but resumed hiring of salespeople in the fourth quarter of 2020 and into 2021.
As of March 31, 2022, our U.S. sales force consisted of 88 territory sales managers and 66 clinical support specialists directly employed by us and 66 third-party distributors, compared to 75 territory sales managers and 52 clinical support specialists directly employed by us and 44 third-party distributors as of March 31, 2021. As of March 31, 2022, our international sales force consisted of 18 sales representatives directly employed by us and 31 exclusive third-party distributors, compared to 21 sales representatives directly employed by us and 28 exclusive third-party distributors as of March 31, 2021.
23


Increase surgeon activity and training

Our medical affairs team works closely with our sales team to increase surgeon activity and training. Surgeon activity includes both the number of surgeons performing iFuse procedures as well as the number of procedures performed per surgeon. As of March 31, 2022 and 2021, in the U.S., more than 1,800 surgeons and 1,600 surgeons, respectively, have been trained on iFuse and have treated at least one patient. Outside the U.S., as of each of March 31, 2022 and 2021, more than 700 surgeons have been trained on iFuse and have treated at least one patient. We will continue to pursue the remainder of the approximately 7,500 target surgeons in the U.S., as well as international surgeons for training in the future.

The COVID-19 pandemic has challenged our traditional method of hands-on cadaveric and dry-lab training. Therefore, in addition to utilizing a virtual education series for surgeons and mid-level practitioners for training activities, we began using the SI-BONE SImulator - a portable, radiation-free, haptics and computer-based simulator for training purposes. Starting in July 2020 we began deploying the SImulators to cover all US regions and European subsidiaries and had 24 SImulators in our offices and the field as of the date of this report.

Launch new products

Our Bedrock technique is used in the treatment of adult spinal deformity. We introduced this technique in June 2019 for use in the fusion of the sacroiliac joints in conjunction with a multi-segment spinal fusion, or long construct, procedure. The Bedrock technique utilizes our proprietary triangular iFuse Implants, with one implant placed across each sacroiliac joint (for a total of two implants per case) using a posterior approach, through the sacrum, across the sacroiliac joint, and into the ilium. The Bedrock technique differs from our traditional iFuse procedure, whereby three iFuse Implants are placed across one sacroiliac joint via a lateral transarticular approach through the ilium and into the sacrum. The Bedrock technique is performed to increase stability at the base of a long construct. Biomechanical testing has shown that iFuse Implants placed in this position reduce sacroiliac joint motion by approximately 30% in conjunction with a long construct. We received CE mark clearance for the promotion of the Bedrock technique in Europe in November 2019 and we launched the promotion of this technique in select European markets in December 2019.

In addition, we received FDA clearance for our new trauma product, iFuse-TORQ, in the first quarter of 2021. iFuse-TORQ is a highly differentiated 3D-printed threaded implant for pelvic trauma and minimally invasive sacroiliac joint fusion applications. Relative to competitive trauma products, iFuse-TORQ is roughly two times stronger in bending and requires 10 times the rotational resistance, or torque, to insert due to its porosity and other design features. We believe that this rotational resistance gives surgeons confidence in the strength of mechanical fixation that iFuse-TORQ provides, and that the technological advancements incorporated into iFuse-TORQ represent a significant improvement compared to conventional trauma screws. Furthermore, iFuse-TORQ has a larger surface area for bone ingrowth than competitive trauma products and was specifically designed to allow for osteointegration. The addition of iFuse-TORQ to our product portfolio will allow us to serve a significant unmet need for patients with pelvic trauma, as well as sacroiliac joint dysfunction and degeneration.

Engage key opinion leaders

We conduct training courses in several academic centers in the U.S. and engage key opinion leaders to support our development efforts. Interest in the Bedrock technique among deformity surgeons, including many key opinion leaders, has provided our sales representatives with access to important academic medical centers in the U.S. This enables our representatives to train a broader group of spine surgeons, including residents and fellows at these centers, on both the Bedrock technique and minimally invasive sacroiliac fusion. To date, we have trained residents and fellows in over 175 academic programs in the U.S., resulting in the training of over 940 surgical residents and fellows since August 1, 2018.

Leverage broad coverage

We made significant progress in the number of covered lives for minimally invasive sacroiliac fusion in the U.S.
As of March 31, 2022, substantially all U.S. payors reimburse for sacroiliac joint fusion. As of March 31, 2022, a significant number of U.S. payors have issued positive coverage policies exclusive to our patented design of triangular titanium implants for sacroiliac joint fusion because of the clinical evidence.
We believe that the full impact of each coverage decision grows over time as surgeons gain confidence that they will receive reimbursement for the majority of their diagnosed patients. With recent payor decisions, over 300 million people in the U.S. now have access to minimally invasive SI joint fusion, representing nearly universal coverage of the procedure.

24


Components of Results of Operations
Revenue
We generate most of our revenue from sales of iFuse triangular titanium implants. Our revenue from sales of implants fluctuate based on volume of cases (procedures performed), discounts, mix of international and U.S. sales, and the number of implants used for a particular patient. Similar to other orthopedic companies, our case volume can vary from quarter to quarter due to a variety of factors including reimbursement, sales force changes, physician activities, seasonality, and the impact of COVID-19. In addition, our revenue is impacted by changes in average selling price as we respond to the competitive landscape and price differences at different medical facilities, such as hospitals and ambulatory surgical centers, or ASCs. Further, revenue results can differ based upon the mix of business between U.S. and international sales and mix of our products either delivered at the point of implantation at the hospital or other medical facilities or delivered through distributors or to hospitals where the products were ordered in advance of the procedure. Our revenue from international sales is impacted by fluctuations in foreign currency exchange rates between the U.S. dollar (our reporting currency) and the local currency.
Starting March 2020, the impact of COVID-19 pandemic on our revenue has varied by period and region based on various factors, including stage of containment, resurgence of variants, success of regional vaccination campaigns, and associated government and hospital actions around elective procedures.
Cost of Goods Sold, Gross Profit, and Gross Margin
We utilize third-party manufacturers for production of our implants and instrument sets. Cost of goods sold consists primarily of costs of the components of implants and instruments, instrument set depreciation, scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. Our cost of goods sold has historically increased as case levels increase.
Our gross profit and gross margin are affected by factors impacting revenue and cost of goods sold. In addition, our gross margins are typically higher on products we sell directly as compared to products we sell through third-party distributors. As a result, changes in the mix of direct versus distributor sales can directly influence our gross margins.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, sales commissions and other cash and stock-based compensation related expenses. During the second quarter of 2020, we took steps to reduce variable expenses that were ineffective and slowed down hiring due to the impact to our revenue from COVID-19. We returned to more normalized spending levels starting in the fourth quarter of 2020. We intend to make investments to execute our strategic plans and operational initiatives. We anticipate operating expenses will continue to increase to support our growth.

Sales and Marketing Expenses

Sales and marketing expenses primarily consist of salaries, stock-based compensation expense, and other compensation related costs, for personnel employed in sales, marketing, medical affairs, reimbursement and professional education departments. In addition, our sales and marketing expenses include commissions and bonuses, generally based on a percentage of sales, as well as certain commission guarantees paid to our senior sales management, direct territory sales managers, clinical support specialists and third-party distributors.

Research and Development Expenses

Our research and development expenses primarily consist of engineering, product development, clinical and regulatory expenses (including clinical study expenses), consulting services, outside prototyping services, outside research activities, materials, depreciation, and other costs associated with development of our products. Research and development expenses also include related personnel compensation and stock-based compensation expense. We expense research and development costs as they are incurred.

Research and development expenses for engineering projects fluctuate with project timing. Based upon our broader set of product development initiatives and the stage of the underlying projects, we expect to continue to make investments in research and development. As such, we anticipate that research and development expenses will continue to increase in the future.

25


General and Administrative Expenses

General and administrative expenses primarily consist of salaries, stock-based compensation expense, and other costs for finance, accounting, legal, insurance, compliance, and administrative matters.

Interest Income
Interest income is primarily related to our investments of excess cash in money market funds and marketable securities.
Interest Expense
Interest expense is primarily related to borrowings, amortization of debt issuance costs and accretion of final fees on the Solar and SVB Term Loan.
Other Income (Expense), Net
Other income (expense), net consists primarily of net foreign exchange gains and losses on foreign transactions.
26



Results of Operations
We manage and operate as one reportable segment. The table below summarizes our results of operations for the periods presented (percentages are amounts as a percentage of revenue), which we derived from the accompanying condensed consolidated financial statements:
Three Months Ended March 31,
20222021
Amount%Amount%
(in thousands, except for percentages)
Consolidated Statements of Operations Data:
Revenue$22,439 100 %$20,442 100 %
Cost of goods sold2,983 13 %2,200 11 %
Gross profit19,456 87 %18,242 89 %
Operating expenses:
Sales and marketing25,605 114 %20,922 102 %
Research and development3,580 16 %2,955 14 %
General and administrative7,139 32 %5,940 29 %
Total operating expenses36,324 162 %29,817 145 %
Loss from operations(16,868)(75)%(11,575)(56)%
Interest and other income (expense), net:
Interest income73 — %61 — %
Interest expense(561)(3)%(1,064)(5)%
Other income (expense), net(54)— %336 %
Net loss$(17,410)(78)%$(12,242)(59)%
We derive the majority of our revenue from sales to customers in the U.S. Revenue by geography is based on billing address of the customer. The table below summarizes our revenue by geography:
Three Months Ended March 31,
20222021
Amount%Amount%
(in thousands except for percentages)
United States$20,367 91 %$18,770 92 %
International2,072 %1,672 %
$22,439 100 %$20,442 100 %

27


Comparison of the Three Months Ended March 31, 2022 and 2021
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin:
Three Months Ended March 31,
20222021$ Change% Change
(in thousands, except for percentages)
Revenue$22,439 $20,442 $1,997 10%
Cost of goods sold2,983 2,200 783 36%
Gross profit$19,456 $18,242 $1,214 7%
Gross margin87 %89 %

Revenue. The increase in revenue for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 comprised a $1.6 million increase in our U.S. revenue and an increase of $0.4 million in our international revenue. The increase in revenue is due to the increase in domestic and international case volumes, higher number of sales personnel as we continue to invest in our sales organization and increased active surgeons, which benefited from the use of our SImulator to train both new surgeons and re-engage inactive surgeons. This increase was partially offset by lower average selling prices in the U.S.

Gross Profit and Gross Margin. Gross profit increased $1.2 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, mainly driven by higher revenue. The gross margin was 87% for the three months ended March 31, 2022 as compared to 89% for the three months ended March 31, 2021. Gross margin decreased in the first quarter 2022 due to an increase in cost of operations to support the growth of the business.

Operating Expenses:
Three Months Ended March 31,
20222021$ Change% Change
 (in thousands, except for percentages)
Sales and marketing
$25,605 $20,922 $4,683 22 %
Research and development
3,580 2,955 625 21 %
General and administrative
7,139 5,940 1,199 20 %
Total operating expenses
$36,324 $29,817 $6,507 22 %
Sales and Marketing Expenses. The increase in sales and marketing expenses for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to (a) increases in employee related costs, commissions and stock-based compensation of $3.0 million driven by increased headcount and higher revenues, (b) as COVID-19 pandemic restrictions eased, we experienced higher levels of travel, marketing, training activities, facilities and other related costs resulting in an increase of $1.5 million and (c) higher consulting fees of $0.2 million associated with more surgeon training programs and surgeon consulting fees.
Research and Development Expenses.