Good afternoon, ladies and gentlemen. And welcome to the SI-BONE to report Operating Results for the Third Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, to Ms. Lynn Lewis of Investor Relations. Ma’am, take it away.

Thanks. Thank you all for participating in today’s call. Joining me are Jeff Dunn, President and Chief Executive Officer; and Laura Francis, Chief Operating Officer and Chief Financial Officer of SI-BONE. Earlier SI-BONE released financial results for the quarter ended September 30, 2019. 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 the 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. All forward-looking statements, including, without limitation, our examination of operating trends, market sizing, and future financial expectations, which includes expectations for hiring active surgeons, reimbursement decisions, urgent payments and guidance for revenue 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 recently quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2019. SI-BONE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 11, 2019. And with that, I will turn the call over to Jeff.

Thanks, Lynn. Good afternoon and thank you for joining us. I am pleased to welcome you to SI-BONE’s third quarter 2019 earnings call. During the third quarter, we continue to execute and saw benefits from growing payer coverage, increased surgeon training and sales force expansion. Total revenue for the third quarter was $16.2 million, up 21% year-over-year. We are particularly pleased with our continued progress in the U.S., where revenue grew 22% over the prior year period to $14.9 million. Our team is working strategically to expand our commercial footprint. We ended the third quarter with a sales force of 106 total reps comprised of 53 direct sales reps and 53 clinical support specialists reaching a one for one target. As you may recall, we started the year with 67 total reps including 45 direct sales reps and 22 clinical support specialists. Our goal was to reach 102 to 112 total reps by the end of this year, hiring 10 to 15 direct sales reps and 25 to 30 clinical support specialist. With the hiring of eight direct sales reps so far this year, we are on track to meet the sales rep goal. And we have already exceeded our target by hiring 31 clinical support specialists through the end of the third quarter. We have primarily focused our hiring efforts to-date on clinical support specialists, who are responsible for identifying new surgeons and covering cases. The addition of a clinical support specialist to a territory gives the senior direct sales rep the ability to target the most promising new surgeons, facilitating the transition to surgeon training, conversion to first case and ultimately integration of the diagnosis and treatment of patients suffering from SI joint pain into surgeon practices. We are pleased that we have been able to meet and…

Thank you, Jeff. For the third quarter of 2019 revenue increased 21% to $16.2 million, compared to $13.4 million for the third quarter of 2018. The increase in revenue was primarily driven by an increase in domestic case volume. U.S. revenue for the third quarter was $14.9 million, representing 22% growth over the same period of the prior year. International revenue for the third quarter was $1.3 million, representing 14% growth over the same period of the prior year. Gross margin for the third quarter of 2019 were 90%, compared to 91% in the corresponding prior year period. The slight decrease in gross margin was driven by an increase in personnel spending to support the growth of our business. As a reminder, this is in line with our expectations for gross margin to trend toward the mid-to-high 80% range over the next couple of years. Operating expenses increased 65% to $25.1 million for the third quarter of 2019 and compared to $15.2 million in the corresponding prior year period. The increase was primarily driven by higher surge in education spending, an increase in sales force hires, digital resources allocated to advertising and marketing, stock-based compensation and litigation. Included in our G&A expenses we recognized the lost reserve of $2.5 million during the third quarter, which reflects the estimated costs the company may incur from settlement of litigation. The complaint by a chiropractor alleges that one of our field marketing representatives sent invitations to an educational dinner event by way effects seemly transmission, not including opt-out instruction. Further information concerning this litigation can be found in 10-Q filing that we plan to file with the SEC later this week. The operating loss was $10.6 million in the third quarter of 2019, compared to $3 million in the corresponding prior year period. Our net loss was $11.3 million for a loss of $0.46 per diluted share in the third quarter of 2019, as compared to $4.8 million or loss of $1.29 per diluted share in the corresponding prior year period. We ended the third quarter with a $101.5 million in cash and marketable securities. Turning to our outlook for 2019, we now expect revenue to be in the range of $65.5 million to $66.5 million, representing growth of 18% to 20% over full year 2018, as compared to the previously communicated range of $65 million to $66.5 million, which represented growth of 17% to 20% over full year 2017. I will now turn the call back over to Jeff for closing comments.

Thank you, Laura. We have a terrific team assembled at SI-BONE that is dedicated to transforming sacral pelvic treatment. Our growth rates are a result of better reimbursement coverage, increase field personnel, new products and the training of additional surgeons. I am encouraged by our sales performance and other accomplishments in the third quarter and I am confident in our ability to continue expanding our commercial footprint in the near- and long-term. With that, I will now open it up to questions. Operator?

Thank you, sir. [Operator Instructions] Our first question is from David Lewis from Morgan Stanley.

Good afternoon, Jeff, I just want to start on commercial investment for a second and then another quick one for you. So look as I take stock to the majority of this year, your clinical supports up materially and your training is up materially last nine months. But we haven’t yet seen an impact on the numbers, the quarter’s fine it’s in line with their estimates, but there is no underlying momentum improvement in the second quarter versus the third and your guidance doesn’t imply a step up into the fourth from a momentum perspective. So could help investors to understand why in light of nine months of investment, we just haven’t sort of seen that inflection yet in the U.S. market. And kind of related to that, what is your confidence that these initiatives really take hold heading into 2020 and we see that acceleration?

So three comments, David, first comment is, as you know, the growth rate is gone in the last four quarters from 13% to 18% to 19% to 21%. So it is certainly moving in the right direction. Secondarily, we invested as you know and the investors know, very little last year and so most of the investment has really been late in the year last year and this year. And as I think we have communicated, some of those investments take time, particularly the investment in the field organization and they take -- they typically take nine months to 12 months. And so some of that does have a delay that is associated with it and I think a lot of companies that go public invest ahead of the public offering. We didn’t have. It is what it is. And we made the investment -- we have now made the investments and as you saw we are even a little bit ahead of our plan to get to 106 kind of people on the field. We have done that by the third quarter as opposed to the fourth quarter. So we are doing that because we feel very confident in what we are doing. We think we are executing really well on the hiring front, really well on the education front, really well on the reimbursement, including the payment, which will certainly have some impact in the future. And then, I guess, finally, what I would say to your last question is, how confident are you in the fourth quarter, in the future? I am very confident. I feel very, very good that those investments are going to pay dividends and we are starting to see those with this. No, it’s not a huge jump up from 13% to 21% over the last four quarters, but I think it’s certainly not bad. And now we will have to see how the fourth quarter goes, and obviously, we are almost halfway through it. So we have a good feel for that, but we feel quite confident in where we are sitting today. And honestly, I think, the team is doing a great job executing against that. And except for this comment that we made that maybe some cases at the end of the quarter may flop in the next quarter, we feel very good about the Q4 numbers.

Okay. And maybe, Jeff, it’s a great segue in your last comment about the fourth quarter. I mean, impact of addition reimbursement like in our work, it had $1000 level is an important milestone for a lot of physicians in terms of whether they want to consider doing this procedure. I just kind of curious whether, is this an incentive for adoption or more just lowers in obstacle for the commercial team. And I guess more directly what I am asking is, is it an incremental positive or is it a rather material way in the way you think physicians are going to look at this procedure post the reimbursement and how concerned are you about sort of the fourth quarter churn relative to reimbursement in January?

I am not that concerned about the fourth quarter. I am just saying that we try to disclose risks in the business and that is a small risk. As to the beginning of your question, David, no doubt that when we got the word from CMS that they are going to raise the dollar amounts to $950, which if you have looked at the geographically adjusted numbers in places like New York and Chicago, the Medicare payment is now north of $1,100, which should mean, $1,400 on the commercial side-ish. We have seen some -- I had one of the area Vice President in last week, and he said, this doctor and this doctor and the same practice stop doing the procedure because they weren’t getting paid enough and they are coming back on. They already told me they are coming back on. So I do think we are going to see those people that sort of went sideways after the payment didn’t go up in the past come on. So I think we are going to see some positive effect. We are not quite ready to give you 2020 guidance. We will do that on the -- in the earlier part of next year, as we sort of baked together the whole picture and see what the -- how the fourth quarter finishes. But, overall, I think, we are going to see renewed strength in the business or continued strength in the business.

All right. Great. Thanks so much. I will jump back in queue.

You are welcome.

Thank you. The next question is from Bob Hopkins from Bank of America.

Great. Thank you. Just on the coverage, Jeff, can you kind of walk us through what potentially could happen over the course of the next six months in terms of some of the bigger players that have yet to come on Board. What’s the schedule look like and what’s the potential for some wins there?

Sure. So, Anthem, Bob continued, and back in September their expense experimental policy before the five year data came out. I suspect that we have got another year there with Anthem. We are, certainly, we have sent them the five year data and we are trying to get them to do an interim review. Humana, I think, what I am hearing from them is they are supposed to publish in December on all spine procedures. But the work involved with the sacroiliac joint update is a little bit bigger and that may get done off-cycle into the earlier part of next year that’s what we are hearing. At Cigna they are on review right now and as we have shared with you, they took that to their monthly meeting. And we have had confirmation of that multiple times for multiple places. So I will be surprised if the positive coverage goes in place any later than sort of mid-January. So we are quite optimistic about Cigna and Aetna’s review is due in January as well. So that’s kind of the wrap up on the four.

Okay. That’s super helpful. And just from a big picture perspective, how you are feeling about the prospects relative to, say, three months ago…

We feel very…

… perspective?

Yeah. We feel very good, are you talking about in general about the business or these guys [inaudible]?

No. No. No. This process, like, that was a helpful, really helpful update on timelines, but I just want to know like kind of more qualitatively, how are you feeling about the prospects for some wins here in the next six months that will give confidence?

No. We feel quite good about Cigna. We have had numerous surgeons being told, tell your patient to hang on for 60 days or those kinds of comments. So we feel very good about Cigna. With Humana, I am less sure, but we have got some direct discussions going on now. Aetna, we have been back and forth with Bob McDonough. They kind of go silent before they publish. So we haven’t had any communication in the last 30 days. And I think their date is January 9th or 15th, I can’t remember which one, but it’s in the first half of January. And Anthem is still tough, honestly, they have been harder to get a handle on from a communication standpoint. So, no, do I think we will get them all in the next 12 months? Sure. I do. But Anthem is the one where we kind of missed the window with the five year data and it’s hard to get them to get back on the horse in the middle of the race.

Okay. That’s great. And then I just want to also ask quickly about Bedrock. So this clinical trial that you are talking about, do you need to do that trial to drive interest in Bedrock. Just maybe talk about interest levels that you are seeing right now and the reason for the trial that maybe you have realized that you need to do this in order to make this product work, so just some commentary there. And I’d love to know what you are trying to share with the trial like what’s the end point?

Yeah. So, first of all, I don’t think we need to do it to show that it works. This is an unusual product in my mind and I think a lot of people mind. As you know, the sale cycle when you or in the SI joint business although the market is gigantic it takes time. And what I mean by that, Bob, is you have a -- you train a surgeon, they start evaluate patients and then the patient has to go through six months of conservative care and then you can put them on the table and help patient to get better. Here we are frequently seeing surgeon say this makes complete sense, I want to do this. So I don’t it’s a question of interest, a question of recognition of the improvement that Bedrock will bring, given the biomechanics being 30% better than anything that’s out there. The real reason for the trial is, I think, competitively and for long-term reimbursement, we are a company that has built our competitive capability where we have had a lot of people come at us, and I think we have done a tremendous job competitively competing out there because of clinical evidence. And philosophically, we just think it’s really important to invest in clinical evidence and show it in black and white. The reimbursement is fine today, but I want an insurance policy to make sure that we have insurance coverage over the long-term for this and what was the last question?

You covered it.

Okay. Great.

Thanks so much, Jeff.

You are welcome, Bob.

Thank you. The next question is from Dave Turkaly from JMP Securities. Excuse me, Dave your line is open.

Yeah. Sorry about that. You mentioned some of the momentum that you have sort of coming out of the NASS conference. And I was wondering, given a Bedrock, there was some interesting presentations there. But the surgeon -- active surgeon, I know you may not want to give us an exact number. But do you think we will see some of this long construct adult deformity, maybe KOL type guys becoming some of your active users from that over time. Will you see some of those folks wind up in that 550 by the end of the year?

I think, Dave, I think, we are going to see a Bedrock big KOLs and within those hospitals, we are going to see a mainstream SI joint fusion. And there’s one very big hospital for instance in the Midwest, that’s a very important hospital group, where we have not been able to get in there for call it five years. And three weeks ago, Saturday, we trained 14 surgeons, including the head KOL, and the reason we got in there was Bedrock. And we don’t train -- when we go in there we don’t train them on Bedrock. We train them first on the anatomy. We train them on SI joint diagnosis. We train them on mainstream SI joint fusion with iFuse. And then we train them on Bedrock. And so there were, as I said, 14 surgeons in that session. At California Hospital that’s I am going to put in the top no sort of three or four hospitals in California teaching hospitals. We had the same thing where there were, I think, it was a dozen surgeons still 10 o’clock at night on a Thursday night from 4 o’clock where the top two physician were there. And then there was a slew of junior surgeons and a few fellows and residents. So I think the way it’s going to play out is you are going to get Bedrocks done by a smaller group, but you are going to see and we are starting to see that kind of stuff percolate down to regular iFuse. And I think some of that doesn’t happen overnight, because we have really just know -- done these two examples in the last 30 days. But I think by the time we turn the corner into next year, we will start to see those major academic institutions where we have done very little have business from the second tier, but not the top people doing SI joint fusion. And certainly, the fellows and residents are keenly interested in all aspects of what we are talking about both Bedrock and iFuse.

That’s great. It sounds like you are getting more eyes on product and more experienced. Thank you for that. And just follow-up, the Director of Sales enablement, I think, you have got some senior guys that have done a lot of good things in spine over time. I am just curious, what made that made you guys make that decision to have a separate person and I think you mentioned junior sort of helping train some of the junior folks. But, yeah, I guess, just any color around why now and who that is? Thanks.

I -- there’s two aspects to that David. We have made a very big investment in the field for us. I think we have done a stupendous job hiring really good people right on schedule or maybe a little bit ahead of schedule. But it’s a gigantic investment and we want to make sure that the investment actually bears fruit. The person came from, I think, it was St. Jude and Vertiflex is a very senior person. And that person, we have had training and we had a full time training person, but not a senior is this person. We are -- I am very impressed with this particular person. And their job is to put programize all these kinds of educational initiatives, including putting programs online. So there’s self-learning, putting these people through more rigorous testing. Because it’s not about testing and giving them a grade, we want these people to be successful in the field. And so, we are actually last week we just went through another budgeting session for 2020. And this particular individual presented to myself and Laura and Tony Recupero and the finance team, and I got to tell you which was super impressed with the programs that he put together that I think will help the management, the sales management programize and really use the best practices out there across the entire organization of over 100 fields people.

Thank you.

Welcome.

Thank you. Your final question is from Kyle Rose from Canaccord Genuity.

Great. Thank you very much for taking the question. I wanted to kind of follow ups a little bit, I mean, obviously, you don’t understand the investment in a leader you are bringing in as far as the sales training. But maybe just talk about your -- what you are seeing in the most recent group of hires you brought on over the course of the last nine months to 12 months. I mean, what are the productivity metrics you are really following now particularly for the support reps and how should we be thinking about those reps taking that next step after that nine-month period and really moving to productivity Q4 and over the course of next year?

So, Kyle, this is Laura. Just a couple of comments, we have hired 31 clinical support specialists in nine months this year. And then we have hired great eight territory managers. And the clinical support specialists are more junior reps and the -- what those reps are involved in is they do a lot of cold calling with prospective surgeons, and then they try and identify a surgeon that has an interest in going to training and adopting iFuse to their practice, and that’s when that surgeon will the relationship moved over to the senior sales rep. And then, in addition, they cover a lot of cases as well. And so the idea is to take a territory with the territory manager, with the clinical support specialist underneath that territory manager. And as we know, the territory will max out at around a million and a half in revenue, because that territory manager can’t cover cases and more cases than that. So then what we are looking to do is to grow productivity from that $1.5 million to $2 million by adding the clinical support specialist. So the main measure that we look at is productivity. We look at the growth within the particular territory from a revenue perspective. We will also look at their active surgeons as well to see how that’s trending. We will look at how many surgeons they trained. But those are the main factors that we are actually looking at. In terms of hiring the Director of Sales enablement. The goal is to really see if we can bring especially the more junior reps up to speed more rapidly. So, as Jeff said, it really takes around 12 months in order to really start to see the productivity kicked in these cases. And so the goal is to use this additional online training right along in the field with the stable sales enablement group in order to bring them up to speed faster in order to drive our growth faster as well.

Okay. Great. And then just one follow up, I understand you are not going to talk about 2020 growth rate yet and I respect that. But maybe help me understand when I think about the drivers exiting 2019 and entering into 2020. You have got the underlying productivity metrics from these reps coming on Board. You should have increasing reimbursement for the procedure broadly. You outlined in the four major players…

Yeah.

… still on the sidelines, hopefully, one turns there. And then you also have this physician reimbursement number. I guess I am just trying to understand what can be the biggest driver when I think about it from a reimbursement perspective? Is the physician reimbursement rate more important or is it getting those four payers turned on? What is the biggest driver in 2020?

I would say, the biggest drivers, Kyle, are the sales team productivity kicking in. I would say, it’s surgeons trained, how many surgeons were we have added a lot of surgeons have come to training and that is increasing all the time. It is certainly the Bedrock effect and the trickle down. And I do think that there will be a help from the actual surgeon payment. I think we can grow at a very respectable rate and as going from 13 to 18 to 19 to 21 is reasonable progression, that even if none of these payers come on that we can have a very healthy growth rate in 2020. And as I said earlier, we are pretty confident that Cigna is going to contribute. But I think the bulk of the growth in the business is not going to come whether we get Humana or not. Humana as you know was an example is almost, not all, but very Medicare and very government-oriented. So, I believe that’s a little bit of a catalyst and I wouldn’t call it a great catalyst. It’s sort of a nice name on the marquee. But when it turns to numbers, it’s not as big. And -- we are certainly not coming on Anthem, although, we are working on it, and we are certainly sort of 50-50 on Aetna. So I think it’s really more of those other four things of the sales team, the surgeons coming and I think that payment sort of even beyond the Bedrock attraction from a surgeon standpoint, the payments sort of takes much of that off the table and I know some studies have been done by some of you on the analyst side around, what’s the elasticity and what’s the inflection that might or might not come from the payment number. But I don’t think it’s a black and white issue. But I do see we are already seeing examples of surgeons, as I mentioned, let’s say, okay, I am back in the game and I may not be in the minute, but I think that that’s going to increase the demand for surgeon training and potentially increase the number of active surgeons in a helpful way.

Okay. Great. Thank you for taking the question.

You are welcome, Kyle.

Thank you. That concludes the Q&A session. I would now like to turn the call back to Jeff Dunn for closing comments.

Okay. I just like to close by thanking you all for attending today and have a great evening and we will look forward to the next number of quarters. We feel like we are doing the right things and feel quite good about the business. So thank you very much.

Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation and you may now disconnect. Have a good day.