Ladies and gentlemen, thank you for standing-by and welcome to the SI-BONE First Quarter 2020 Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions] As a reminder, this program is being recorded. I would now like to introduce your host for today’s program Carrie Mendivil, Investor Relations. Please go ahead.

Thank you all for participating in today’s call. Joining me today are Jeff Dunn, President and Chief Executive Officer and Laura Francis, Chief Financial Officer and Chief Operating Officer of SI-BONE. Earlier today, SI-BONE released financial results for the quarter ended March 31, 2020. A copy of the press release is available on the Company’s website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of Federal Securities Laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements including, without limitation, our examination of operating trends and our future financial expectations, which includes expectations for hiring, active surgeons, new products, reimbursement decisions 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 recent quarterly report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2020. SI-BONE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is only accurate as of the live broadcast today, May 4, 2020. And with that, I will turn the call over to Jeff.

Thanks, Carrie. Good afternoon and thank you for joining us. I hope you and your loved ones are safe and healthy as our communities continued to be affected by the Corona virus. Before we get into the details of the quarter, I want to take a moment to thank our partners and the healthcare community, all of whom are making extraordinary efforts to care for both COVID and non-COVID patients in these difficult times. The year started-off very strong and for the first two and a half months of the quarter, iFuse Procedures in the U.S. and in Europe outpaced expectations. We attribute this strong growth to the significant investments we made in 2019, including sales force expansion, surgeon training and education and reimbursement. However, beginning in mid-March, Elective Procedures began to be deferred in order to preserve resources for COVID-19 patients and to protect surgical candidates from potential exposure to the Corona virus. During the last two weeks of the quarter. We saw significant -- a significant decline as a scheduling of new cases and 300 scheduled cases were cancelled worldwide. Including just the cases scheduled to the quarter end as of March 15, revenue growth for the quarter would have been 29%. Accordingly, our first quarter 2020 performance was impacted, revenue for the first quarter was $16.8 million with $15.3 million of revenue in the United States, up 12% and 14% respectively compared to the first quarter of 2019. In the short-term, we expect our business to continue to be impacted by the deferral of Elective Procedures. However, we are confident that most deferred procedures will ultimately return and patients will eventually receive treatment. The robust procedure volumes we saw early on in the quarter confirmed the increasing acknowledgement of the SI joint as the pain generator and…

Thanks Jeff. First Quarter revenue increased by 12% to $16.8 million. U.S. sales provided the majority of this revenue just over 90% delivering a growth rate across the quarter of 14%. International revenue was relatively flat at $1.5 million compared to the corresponding prior year period. As Jeff discussed, our case volumes dropped in the second half of March which meaningfully impacted our performance. Gross margin for the first quarter 2020 was at 89% compared to 90% in the first quarter of 2019. The change in gross margin was due to higher cost of operations to support the growth of the business. We expect our gross profit and gross margin will continue to be affected by factors impacting revenue and cost of goods sold, due to an expected decrease in overall demand in the second quarter of 2020 from COVID-19, we anticipate that our operations will run at less than normal capacity. Accordingly, certain labor and overhead costs will be expensed as incurred, significantly reducing our gross profit and gross margin. We cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall demand in the near-term. However, we have sufficient inventory, our supply chain dynamics are well in-hand and product flow is in good shape. Operating expenses increased 20% to $26.8 million in the first quarter of 2020 compared to $22.3 million in the first quarter of 2019. The increase in operating expenses was primarily driven by higher employee related costs due to higher headcount, mainly from sales, hiring, surgeon training and stock-based compensation. As Jeff noted, we've taken pre-emptive steps to curtail spending, while there is more clarity to the extent and duration of the impact from the pandemic. We've already implemented a number of cost saving measures including implementing hiring restrictions, eliminating discretionary spending,…

Thank you, Laura. Before closing, I want to thank our team at SI-BONE for their efforts and strength through these difficult times. I'm incredibly proud to be part of this team and believe that we will come out of this period even stronger as a company. While the immediate future is unclear, I'm confident that SI-BONE is well positioned to navigate these challenging times. The underlying fundamentals of our business remain strong. Through mid-March, we saw record procedure volumes resulting from the significant investments we made across our commercial organization to develop this market. And as Laura mentioned in the near-term, we are taking a very disciplined and thoughtful approach to financial decisions and capital allocation priorities. As we continue to do our part to battle this pandemic, we remain fully committed to support patients, customers and our communities. Stay safe and thank you for joining us. We will now open it up to questions. Operator?

Certainly. [Operator Instructions] Your first question comes from the line of David Lewis from Morgan Stanley. Your question please

Good afternoon. Thanks for taking the questions. Jeff, a few for me this afternoon. The first just I want to kind of get into COVID in a second here, but obviously the first two that months of the quarter, by our math you had, these five to seven points and [indiscernible] acceleration. I just wonder, as you think about where the regions of the country that was strong any sense of what the primary drivers were, how much was driven by your new commercial expansion, new payer contracts or frankly, was it more national, which would be sort of more indicative that the benefit was tied to better physician reimbursement, just any color in the first two that months of the year in terms of the inflection will be great? Then I’ve a couple of follow-ups.

Yes, sure, David. It really was absolutely all across the country for the first two and a half months and the -- that growth rate and that strength, felt great. And obviously, we had a lot of cancellations in the last two weeks and those numbers that 29% didn't even include bookings that might have come in. So there really was good strength all across the country. And I think it's no different than what we saw, in the previous quarter's things getting slotted in the five or so drivers in the business, more salespeople more people trained, more surgeons trained, more reimbursement. And of course, the surgeon payment didn't hurt and we were really firing on all cylinders. It's a little bit different as we get into COVID, we are seeing pockets and I'm happy to answer that if that's where you want to go, where there's strength in the country that's coming back sooner than other areas.

Okay, let me just shift to cover for a second here. It kind of may be a couple of part question here, Jeff, but, people are generally doing spine procedures as being fairly deferrable than some emergent procedures. How do you think about SI-BONE, kind of relative to traditional spinal procedures and maybe some more color on sort of what are some of the characteristics of where you're seeing these pockets of strength and they have a very significant outpatient mix. And I wonder how much of that is participating? Are you seeing more procedures shift to the outpatient market? So just sort of where you are from an Elective perspective relative to spine and sort of what is the characteristics of some of these places you're seeing recovery?

Well, I mean, David, first of all, if you talk to surgeons out there, I think, most -- maybe a big percentage saying this is something they love to do. It has tremendous success rates, the patient satisfaction is tremendous. So I think it's a very popular surgery and it has great impact very quickly. And now with the payment, I think it's a very attractive procedure from that aspect as well. So I think, we certainly going to see more procedures that are outpatient as a percentage over the last number of weeks. We've seen more in ASCs, but I think that's more a result of slower numbers in the hospitals themselves. So the percentage certainly has gone up from our -- what we talked about traditionally at 10% out in ASCs. As to -- what we're seeing now, the last week, we certainly are seeing procedure volumes come back on with the opening of the 25 states as of today with Florida opening up and that's more than 70% of the potential volume a little bit higher than that of our traditional volume across the country. So it's hard for us to parse out, what percentage of those cases are actually cases that were canceled in March, those hundreds of cases for their new procedures. So that's a mix. It's a little more difficult. But certainly over the last five to six days, we've seen strength coming back to the business.

Okay. And just lastly Jeff, from me, just international, that number actually fared better than expected, and then maybe just too relative to your exposure in Germany where procedures have been a little better, but just to your thoughts you've had international and any recovery you've seen outside the U.S.? Now jump back in queue. Thanks.

Sure. You’re welcome David. So yes, we're seeing strength in Germany prior to call in March 15, we saw strength in Germany and the U.K. and in France, so some of the bigger countries as to the COVID effect, we are seeing Germany comeback. The U.K. as I'm sure you've heard from other companies, as well as France is slower at this point, and we'll just have to see how that develops from an opening standpoint.

Okay, thanks so much.

You’re welcome.

Thank you. Our next question comes from the line of Bob Hopkins from Bank of America. Your question please.

All right, thank you. Good afternoon.

Hi, Bob.

Hey, Jeff, Just curious I'm happy to hear you say that last five, six days you’ve seen some improvement. I'm sorry, if I missed this, can you get through a sense, in the last week are you guys -- is it down 30% or 60%, just some sense as to what the year-over-year growth rate looks like last week or so?

Yes. The numbers going into May, year-over-year. So the – what I'm talking about is the first day of May how bookings look like, how big the backlog was going into May, compared to a year ago was not hugely down from a year ago. So it's hard to say how much of that is, those cases that came back on from -- they were canceled again. But, April was quite honestly very, very rough -- down very significantly, but I think we're seeing a nice recovery in May.

Okay. And then one other question I wanted to ask was, obviously for a period of time here, you've been unable to be out in the field in a regular sentence. And you're not -- probably not able to kind of be out there kind of developing your market, which I know is a huge part of the story. How much do you think that, set you back at this sort of inability to go out there and tell your story just over the last month or month and a half?

I don't think it's that much, Bob. I think the sales forces are anxious to get back to work. They are getting back to work in the middle of the country and in places like Texas, we're seeing cases come back on very strongly. I think the surgeons that I talked to quite a lot of them, they're very anxious to get back to work. And as you might recall, we went deeper as a team into the accounts that we have an increase the number of cases per surgeon. Last quarter, I don't remember the exact number. I think it was 3.14 or 3.41 or something like that. Lower could probably help me there. But I, I honestly don't think that this month and a half of -- sort of being on the sidelines -- any material effect over what we think about the business longer, mid-term and longer term. I think there's greater realization we've seen store of this as a problem is -- there are surgeons actually who don't have time to learn and because they're so busy in their practices and one of the things that we have seen is the sales folks are communicating with these surgeons, the webinars that we had and I mentioned one earlier where we had over 100 surgeons in the adult deformity webinar for an hour that actually brought in some surgeons who traditionally just haven't had time to meet with our people. So the world is changing a little bit and so there are some positive things around some of these education initiatives and I find that the surgeons are staying on the phone with me and staying on I suspect with the salespeople a little bit longer because they have a little more time on their hands. So ours is a story as you know, Bob about understanding education, differential diagnosis, including the SI joints and I think that momentum continues and I think that these webinars and the salespeople reaching out to these surgeons and sales management, it's continuing that momentum. Clearly we didn't wish for this. We were, as I said, firing on all cylinders and been a very rough period for everyone. But, I don't see anything different about the opportunity for the business in the future.

What do you think -- last quick question, what do you think better might have done in the quarter without – how was that trending?

It's getting a lot of traction, particularly from an education standpoint. I mean, I have to tell you, Bob, I was -- when Tony Recupero told me that they were going to be over 100 surgeons on the adult deformity webinar, I -- that was way more than double what I thought would be on that webinar. So I think, we have a really good strategy in place. I think that there has been, as I've said before, pretty lousy development from a technology standpoint in the SI joint before we came on the scene. I think the adult deformity results we're seeing and I just got a report on revision rates, which we track and they're terrific on the SI joint, and they're unbelievably good on the adult deformity cases. And then thirdly, I think that the whole trauma space which we're just starting to enter has had pretty sub-standard technology development, and with our technology now entering that we've seen a tremendous interest there. And so, I think all three areas are going to contribute and be of course multiplier with each other for our company. So I didn't quite tell you exactly how many adult deformity cases we did, which I'm -- but we are seeing strengthen in all three of those areas.

Great. Thank you very much.

You're welcome, Bob, good to talk to you.

Thank you. Our next question comes in the line of Kyle Rose from Canaccord. Your question, please.

Great, thank you very much for taking the question. I kind of wanted to dovetail a little bit on some of the previous questions from David and Bob. Jeff, when I think about the sales trends through April. I think there's been -- ours surveys suggest anywhere from a 70% to 80% decline in procedure volumes for the month of April, but you had some encouraging commentary about the 50% of states opening back up in May. And those represent about 75% of your business. So maybe kind of help us frame, how we should think about that month-over-month improvement. When we get into May and June, does that go from 70% to [30% to 40%] declines, just trying to understand on a relative basis, how we should think about the business trending?

Jeff, maybe I can help out on this particular question, because I do have some data on it. Kyle, as Jeff had said, the month of April, looks like it was a trough and what we experienced was a decline compared to our plan of over 80% in terms of case volumes in the United States. So we were off by over 80% on cases in the month of April. But when we look at May bookings, and it's just looking at May 1 and where the bookings are in the United States for the whole month of May. This is our primary leading indicator that we use to understand what the month is going to look like. A typical case will be booked two to three weeks prior to the time that it's performed. And if we compare that metric to last year, we're at approximately 80% of last year bookings on the same day as of May 1. So if you compare that to more of a plan, we would be more in 60% of plan or 40% down from where we would have anticipate it. So a big jump from the 80% down in April 2, it looks like more like 40% down in May, at least with that one indicator.

That's very helpful. Thank you very much for the color there. And you also touched a little bit on the trends in the outpatient in the ASC setting. I just want to make sure I heard you correctly. Did you say that 10% of your historical business is in the ASC and then I just wondered if you could break out the mix with respect to outpatient versus inpatient and how that may have changed, even in the first quarter to-date with a better physician reimbursement.

It has traditionally been 10%, 12% in ASCs. We don't have the exact number in the hospitals i.e. both the outpatient and inpatient. But certainly, we think that about 80% plus of the surgeries that are done in hospitals are actually outpatient procedures. As to the change in that, there really wasn't much change through the first two and a half months in the first quarter. And the last two quarters, there wasn't much done at all. But in April, we certainly saw the ASC numbers, even though we were working on, we were working on a small -- smaller basis, as Laura alluded to, we are being down 80%. More were down in ASCs, so significantly greater percentage was done in ASCs. But, I think that's really a little deceptive in the sense because the number that we're actually done in hospitals was quite small.

Okay, thank you very much for taking the questions. I'll hop back in queue.

You’re welcome.

Thank you. Our next question comes from the line of Kaila Krum from SunTrust. Your question please.

Great. Hi, guys. Thanks for taking our questions.

Sure Kaila,

You mentioned that you're curtailing operating expenses as you navigate COVID. So and you’ve talked about the hiring restrictions and delaying clinical projects. So can you speak, I guess, to how significantly those plans have changed and just help us understand or give us comfort that, if there were any major changes and how do we think about your long -term growth from here? Is there any impact to your competence there?

I just talking in general that Laura can add on here. Kaila, as we talked about in the past cut, variable expenses, some of those were cut naturally. Obviously, with conventions and annual meetings and those kinds of things. And I don't think that's going to change all year. I don't think those expenses are coming back and they're not in our control. So I think that that expense, you have to sort of take them one at a time. The expense were related to surgeon training will go up and we will support whatever surgeon wants to get trained and slot those back in as surgeons are allowed to be trained. Within that training area, I have alluded in the past to a new training system that we're developing, which is an advanced training system that can be used, that will be able to train surgeons on different kinds of anatomy. This is a proprietary system. This will allow us to do it -- do the surgeon trainings more locally, which means surgeons won't have to travel. And we'll be rolling that out in the second half of the year. So that actually from an expense standpoint, I'll let Laura comment on that. But there's some capital equipment expenditures in there. But there'll be travel expense changes within that whole program. As to variable expenses and marketing, we have cut back quite a bit on things like Facebook and those kinds of things. But we have been doing webinars. So I think as things evolve over -- between now and the end of the year, we'll begin to ramp that up as we see fit and there will be a little more change in the percentage of money that we spend on direct-to-patient marketing versus going to the annual meetings because that number is not, as I said going up. Laura anything you want to add into that.

I think probably the most important thing to add, based on your question, Kaila is, we did not make any changes from people perspective with the exception of a hiring freeze and management salary reductions. We have spent the last 18 months since we went public building a quite extraordinary group of people, both at our headquarters operation as well as in the field and we were seeing significant acceleration of our revenues. And so our goal was to keep our people intact and supported during this difficult period. So that we could come out of this pretty rapidly and I just talked a little bit about what happened in April, which was a low point for us. But that May is starting to come out of this at least based on early indicators. And we have the people in place with the relationships with our surgeons in order to get those cases going again and we have the support staff in order to drive sales. In addition, we're keeping our project prioritizations in place as well, major projects that the company was working on, we are continuing to push forward on those. And so, the real focus was on expenditures that would not have a significant impact long-term on the business so that as things returned, we were ready to jump on the opportunity and re-accelerate the business. And from a percentage perspective when we were looking at variables expenses, we tried to cut out 10% to 15% of operating expenses with those variable costs that we took out. And so we went through every single expense. And Jeff talked about quite a few of those already. We also looked at working capital just to make sure we were being prudent with our inventories and our payables and our receivables and all of those items. And then Jeff also mentioned that that we looked at capital expenditures, for example, not purchasing certain items that we had intended to or just pushing those out a little bit. So we went through a full list of items and made some decisions to be both prudent from a capital perspective but also make sure that we did not impact the long-term opportunity for the business.

That makes a lot of sense. Thank you, Laura and Jeff. That -- I guess this is a follow-up to that, you're still continuing your efforts with trauma. Can you just give us a little bit more detail on your efforts there and how you're planning to launch into that stage? Thank you.

Well, the first the first thing obviously Kaila as we use this time with our field organization to train them up in the trauma area, so that actually was well spent time we've used the whole -- we've implemented a whole new training system called Brainshark which allows us to push out educational content to the field and it's a paced learning, tracked learning. And so I think the team actually has had the opportunity to come up and understand the opportunities and get trained in the trauma space more rapidly they might have if they were at work every day. So Tony and the team, along with his training team are most of the way through a lot of that and it's launching now. And certainly we're starting to see some nice trauma cases. And so, that's -- that actually worked out okay [picked] in that sense and there are going to be some investments in the clinical area, we've seen a few surgeons step up and say we want to do our own study. Because, we just said we're going to hold on some of this clinical investment for a few months and so I think we're going to see some doctors validate some of this on their own. And so we're pretty excited about the trauma space and what we see going on and more to come on that front.

Great, thank you.

You're welcome.

Thank you. Our next question comes from line of David Turkaly from JMP Securities. Your question, please.

Thanks. So I was just wondering if you could remind us the average age of the patient treated and then I think you talked a little bit about CMS first private payer mix last quarter, but if I'm trying to get the age of the patients, it seems like some of the elderly may not be as willing to be in the hospital and I know that still is kind of a majority of the procedures today. So if you could just remind us where that aid stands today and then the mix between private and CMS.

Happy to do it. So we have patients that are 20 years to 80 years old. The average patient is 50 and two-thirds are female. So that's the landscape. The percentage of patients in 2019 that were Medicare patients was a little shy of 50%. We certainly expect that to change. And we expect over the call it next year or two for 80% of our patients to be non-Medicare patients. So the commercial side to increase.

Yes, makes sense. I'm glad to hear that you you're going to have that kind of those numbers. I guess the other one I had quickly was in terms of the procedures, what percent would you say today that your sales force of the assistants are actually in line, I guess you mentioned some of the places bouncing back. But I know rep access has been a problem at some hospitals. So I'm imagining that some of your accounts don't need somebody there all the time. But any thoughts on that as places begin to reopen? Thank you.

Yes, you're welcome, David. Virtually all of our procedures in the past have had our reps in there. We certainly, hope we can continue on that front. They add value. We are adding training capability to actually I think train the surgeons better so they could practice on, male patients, female patients, dysmorphic patients, et cetera where we haven't had some of that capability. We'll roll that out. We view our sales forces, highly skilled and adding value. Some of these surgeons do just a few procedures in a quarter and you might have a sales rep who's seen an order-of-magnitude larger than that. So they absolutely add value as to actual access. I think it's too early to tell exactly how that's going to play out here. I think it's going to -- we certainly see reps and I get emails from reps so pictures [indiscernible] in their car on the way to work these days and say, I'm going to do a case Jeff and I've asked them to send me those pictures because I want to know that that's going on. So there are certainly a few instances where we've seen reps that haven't been allowed to go in, but at least what I've heard so far. And I may want to get back to this after talking a little bit more with Tony, but I think in almost all the cases, the reps have been allowed in to the cases that we've done in the last sort of week or so.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of David Saxon from Needham. Your question please.

Yes, good afternoon. I guess, just one on the recovery. What have you been hearing from doctors about their capacity as they reopen and how long it might take to work through the backlog? And then you mentioned [300] cases were pushed out. I was just wondering, what portion of those do you think will be ultimately rescheduled?

As to the surgeons capacity, I think that they can go up 20% or so from where they would normally be the surgeons I've talked to and I know the sales force we’ve talked to because I've heard this multiple different places is, I think everyone fully expects in Q3 and particularly in Q4 as the country hopefully fully opens up to work Saturdays and work a lot of evenings and I think our sales force is super dedicated and not just willing to go back to work, they're excited to go back to work and get into the game and help these patients. And so I suspect we're going to see a bunch of Saturday soccer games missed. And we're going to be in the operating room, pretty often. And remind me what the second portion of your question was?

And you mentioned 300 cases were pushed out just wondering if -- how many of those – yes --

Yes, sure. I suspects hard -- it’s to say. But I wouldn't be surprised if 95% of those cases come back on the books. I don't think that a lot of people that are ready to go to the operating room in three days, just punt. I think these people are in severe pain and they are convinced in their surgeons are convinced that they can be helped in a significant way. And so, I don't think we're going to see a lot of loss there. I think it's more a question of when, as opposed to if I think in certain places like the Northeast where we're going to see and I think all companies are going to see a lower recovery of the surgical rates. Those ones are going to take longer to come back, those places may not get back to normal to Q4, Q1. I don't know, I'm not the oracle here in that sense. So I don't think anyone is in places like the South Florida and Texas and some of these other places, I think you're going to see much faster recovery in those 300 cases or the portion they're out there in those particular geographies should come back pretty fast.

Okay. yes, that's helpful and encouraging. And then, I guess my second question is, I mean, previously you've talked about the decorticator and the iFuse bone and that as a kind of a move to attract new surgeons, just wanted to hear up through mid-March, how those products were doing in terms of bringing in new active surgeons. Thanks very much.

You’re welcome. I think that we're very different from every other company that's competing in this space in that sense that we have the full -- we have a full bag and so absolutely new surgeons are coming on. I think we've got a couple of big things in our pocket that'll come call it a year from by a year from today or so, in that kind of timeframe and we're going to add to our strength there. So the strategy is enter all those -- all three of those markets with the SI joint fusion spaces as the foundation of the whole company, but [indiscernible] out from the trauma and adult deformity spaces to increase the awareness and increase the revenue and then bring these other products so that we're even more competitive in the next year.

Great. Appreciate the color.

You’re welcome.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Jeff Dunn, President and CEO for any further remarks.

Sure, just a quick thank you for joining today. Obviously, this challenging times. I honestly feel pretty good about how the team is held together. In fact, I feel great about how the team is held together and are excited to get back to work and I hope all you guys out there are safe and the families are healthy and look forward to getting back to whatever the new normal is in the not too distant future. Well, thanks again for joining.

Thank you ladies and gentlemen for your participation I today’s conference. This does conclude the program. You may now disconnect. Good day.