SEC Filing | SI-BONE, Inc.

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sibn-20200630

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 June 30, 2020

☐ 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 share	SIBN	The 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 filer

☐

Accelerated filer

☒

Non-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 28,629,991 as of July 31, 2020.

TABLE OF CONTENTS

Page

PART I-FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets (unaudited)

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited)

Condensed Consolidated Statements of Cash Flows (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II-OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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:

•impact the COVID-19 pandemic will have on our company, 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 the iFuse Implant System, the ability and desire of patients and physicians to undergo and perform such procedures, the duration of the COVID-19 pandemic, and whether the COVID-19 pandemic will recur in the future;

•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;

•our reliance on a limited number of suppliers, including sole source suppliers, which may impact the availability of instruments and materials;

•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 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. 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.

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

SI-BONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	66,169	$	10,435
Short-term investments	71,499		81,345
Accounts receivable, net of allowance for doubtful accounts of $263 and $238, respectively	10,260		11,720
Inventory	4,969		5,452
Prepaid expenses and other current assets	1,632		2,510
Total current assets	154,529		111,462
Long-term investments	—		1,278
Property and equipment, net	4,407		3,954
Other non-current assets	312		315
TOTAL ASSETS	$	159,248	$	117,009

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,455	$	2,811
Accrued liabilities and other	9,272		11,605
Current portion of long-term borrowings	—		4,358
Total current liabilities	11,727		18,774
Long-term borrowings	39,264		34,865
Other long-term liabilities	389		362
TOTAL LIABILITIES	51,380		54,001

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; 28,612,451 and 25,163,803 shares issued and outstanding, respectively	3		3
Additional paid-in capital	328,079		258,121
Accumulated other comprehensive income	610		464
Accumulated deficit	(220,824)		(195,580)
TOTAL STOCKHOLDERS’ EQUITY	107,868		63,008
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	159,248	$	117,009

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

SI-BONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Revenue	$	14,049	$	16,317	$	30,870	$	31,308
Cost of goods sold	2,117		1,588		4,049		3,114
Gross profit	11,932		14,729		26,821		28,194
Operating expenses:
Sales and marketing	15,755		16,727		35,036		32,542
Research and development	2,165		1,946		4,255		3,629
General and administrative	4,151		4,194		9,551		8,960
Total operating expenses	22,071		22,867		48,842		45,131
Loss from operations	(10,139)		(8,138)		(22,021)		(16,937)
Interest and other income (expense), net:
Interest income	329		695		827		1,439
Interest expense	(2,683)		(1,233)		(3,914)		(2,463)
Other income (expense), net	21		22		(136)		(38)
Net loss	$	(12,472)	$	(8,654)	$	(25,244)	$	(17,999)
Other comprehensive income (loss):
Changes in foreign currency translation	(2)		12		10		(7)
Unrealized gain (loss) on marketable securities	(85)		59		136		84
Comprehensive loss	$	(12,559)	$	(8,583)	$	(25,098)	$	(17,922)

Net loss per share, basic and diluted	$	(0.44)	$	(0.35)	$	(0.91)	$	(0.74)

Weighted-average number of common shares used to compute basic and diluted net loss per share	28,492,582		24,577,938		27,872,505		24,484,608

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

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
	Shares	Amount
Balance as of December 31, 2019	25,163,803	$	3	$	258,121	$	464	$	(195,580)	$	63,008
Issuance of common stock from public offering, net of underwriting discounts, commissions and offering costs	3,135,053	—		62,978		—		—		62,978
Issuance of common stock upon exercise of stock options, net of shares withheld	43,334	—		174		—		—		174
Issuance of common stock upon vesting of restricted stock units	63,938	—		—		—		—		—
Stock-based compensation	—	—		2,622		—		—		2,622
Vesting of early exercised stock options	—	—		27		—		—		27
Foreign currency translation	—	—		—		12		—		12
Net unrealized gain on marketable securities	—	—		—		221		—		221
Net loss	—	—		—		—		(12,772)		(12,772)
Balance as of March 31, 2020	28,406,128	3		323,922		697		(208,352)		116,270
Issuance of common stock upon exercise of stock options, net of shares withheld	46,608	—		185		—		—		185
Issuance of common stock related to employee stock purchase plan	74,685	—		991		—		—		991
Issuance of common stock upon vesting of restricted stock units	85,030	—		—		—		—		—
Stock-based compensation	—	—		2,955		—		—		2,955
Vesting of early exercised stock options	—	—		26		—		—		26
Foreign currency translation	—	—		—		(2)		—		(2)
Net unrealized loss on marketable securities	—	—		—		(85)		—		(85)
Net loss	—	—		—		—		(12,472)		(12,472)
Balance as of June 30, 2020	28,612,451	$	3	$	328,079	$	610	$	(220,824)	$	107,868


	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2018	24,450,757	$	3	$	246,927	$	439	$	(157,177)	$	90,192
Issuance of common stock upon exercise of stock options, net of shares withheld	46,809	—		125		—		—		125
Stock-based compensation	—	—		1,871		—		—		1,871
Vesting of early exercised stock options	—	—		66		—		—		66
Additional accrual of IPO related costs	—	—		(160)		—		—		(160)
Foreign currency translation	—	—		—		(19)		—		(19)
Net unrealized gain on marketable securities	—	—		—		25		—		25
Net loss	—	—		—		—		(9,345)		(9,345)
Balance as of March 31, 2019	24,497,566	3		248,829		445		(166,522)		82,755
Issuance of common stock upon exercise of stock options, net of shares withheld	137,185	—		442		—		—		442
Issuance of common stock related to employee stock purchase plan	99,086	—		1,263		—		—		1,263
Issuance of common stock upon vesting of restricted stock units	27,320	—		—		—		—		—
Stock-based compensation	—	—		1,814		—		—		1,814
Vesting of early exercised stock options	—	—		56		—		—		56
Foreign currency translation	—	—		—		12		—		12
Net unrealized gain on marketable securities	—	—		—		59		—		59
Net loss	—	—		—		—		(8,654)		(8,654)
Balance as of June 30, 2019	24,761,157	$	3	$	252,404	$	516	$	(175,176)	$	77,747

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

SI-BONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(25,244)	$	(17,999)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	5,577		3,685
Depreciation and amortization	505		395
Bad debt expense	200		—
Accretion on marketable securities	(20)		(940)
Realized gain on marketable securities	(43)		—
Amortization of debt issuance costs	100		130
Loss on extinguishment of debt	1,534		—
Loss on sale and disposal of property and equipment	80		98
Changes in operating assets and liabilities:
Accounts receivable	1,287		(916)
Inventory	500		(1,092)
Prepaid expenses and other assets	875		102
Accounts payable	(290)		338
Accrued liabilities and other	(2,289)		725
Net cash used in operating activities	(17,228)		(15,474)
Cash flows from investing activities
Maturities of marketable securities	33,500		83,600
Sales of marketable securities	12,592		—
Purchases of marketable securities	(34,768)		(82,516)
Purchases of property and equipment	(1,264)		(893)
Net cash provided by investing activities	10,060		191
Cash flows from financing activities
Proceeds from follow-on public offering, net of underwriting discounts, commissions and offering costs	62,978		—
Proceeds from debt financing	45,297		—
Principal repayments of debt financing	(45,297)		—
Payments of debt issuance costs	(589)		—
Payments of prepayment penalty and lender fees	(843)		—
Proceeds from issuance of common stock under employee stock purchase plan	991		1,263
Proceeds from the exercise of stock options	359		567
Payments of additional initial public offering related costs	—		(167)
Net cash provided by financing activities	62,896		1,663
Effect of exchange rate changes on cash and cash equivalents	6		(4)
Net increase (decrease) in cash and cash equivalents	55,734		(13,624)
Cash and cash equivalents at
Beginning of period	10,435		25,120
End of period	$	66,169	$	11,496



Supplemental disclosure of non-cash information
Vesting of early exercised stock options	$	53	$	122
Unpaid purchases of property and equipment	145		57
Unpaid debt issuance costs	161		—

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

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 the most common types of sacroiliac joint disorders that cause lower back pain. The Company introduced its primary product, the iFuse Implant System, or iFuse, 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 October 2018, the Company completed its initial public offering (“IPO”), by issuing 8,280,000 shares of common stock, at an offering price of $15.00 per share, for net proceeds of $113.4 million after deducting underwriting discounts and commissions and offering costs.

In January 2020, the Company received $50.3 million of net proceeds, after deducting the underwriting discounts and commissions, from its public offering of 4,300,000 shares of the Company's common stock at a public offering price of $21.50 per share, of which 2,490,053 shares were offered and sold by the Company. Further, in February 2020, the underwriters fully exercised their option to purchase 645,000 shares of the Company's common stock at a public offering price of $21.50 per share for an additional net proceeds of $13.0 million to the Company, after deducting underwriting discounts and commissions. 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 other selling shareholders 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 shareholders was recognized as transaction costs within general and administrative expenses on the unaudited condensed consolidated statements of operations in the first quarter of 2020.

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, 2019 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 and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 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, 2019 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2020.

Risks and Uncertainties

In late 2019, SARS-CoV-2, a novel strain of coronavirus which causes the disease COVID-19, was reported in China, and in March 2020 the World Health Organization declared it a pandemic. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic and the information surrounding the pandemic is rapidly evolving. The Company's customers, which include hospitals and medical centers, diverted and may continue to divert resources to treat COVID-19 patients. As a result, the Company's customers deferred and may continue to defer elective surgical procedures. The actions of the Company's customers impacted and may continue to impact revenues as well as receivable collections and inventory obsolescence. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it has caused a global recession. Such economic disruption could have a continued material adverse effect on the Company's business. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, excess and obsolete inventory, and the impact of any initiatives and programs that the Company may undertake to address financial and operations challenges faced by its customers.

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 consolidated financial statements include: fair value of assets and liabilities; analysis of the allowance for doubtful accounts; inventory valuation; valuation of deferred tax assets, including related valuation allowances; stock-based compensation; and useful lives of long lived assets. 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, 2019. There have been no material changes to these accounting policies.

JOBS Act Accounting Election

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company has elected to take advantage of the extended transition period for adopting new or revised accounting standards that have different effective dates for public and private companies. Those standards apply to companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company continues to be an emerging growth company until December 31, 2023, unless one of the following occurs: (i) the Company's total annual gross revenues are $1.07 billion or more; (ii) the Company has issued more than $1.0 billion in non-convertible debt in the past three years; or (iii) the Company becomes a “large accelerated filer,” as defined in Rule 12b-2 of the Exchange Act.

Segments

The Company manages and operates as one reportable segment. 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. No single country outside the U.S. accounts for more than 10% of the total revenue during the periods presented. Long-lived assets held outside the U.S. are immaterial. The table below summarizes the Company's revenue by geography:


	Three Months Ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
United States	$	13,221	$	15,019	$	28,518	$	28,469
International	828		1,298		2,352		2,839
	$	14,049	$	16,317	$	30,870	$	31,308

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Adoption of New Revenue Recognition Standard

The Company adopted the new revenue recognition standards (“ASC 606”) using the modified retrospective method effective for the year ended December 31, 2019. This approach was applied to all contracts that were not completed as of January 1, 2019. As an emerging growth company that elected to take advantage of the JOBS Act accounting election, the Company was not required to adopt the new revenue standard in the interim reporting periods on the year of adoption and is not required, and intends not, to revise its 2019 interim periods which were reported under previous revenue recognition standards (“ASC 605”). The adoption of ASC 606 did not result in a material impact on the Company’s condensed consolidated financial statements and no adjustment was made to the opening balance of accumulated deficit at January 1, 2019. ASC 606's core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As it relates to product sales where the Company's sales representative delivers the product at the point of implantation at hospital or medical facilities, which represents majority of the Company's revenue, the Company continues to recognize the revenue upon completion of the procedure and authorization by the customer, net of rebates and price discounts. As it relates to sale of products through distributors and hospitals where product is ordered in advance of the procedure, the Company continues to recognize the revenue upon shipments to the customers, net of rebates and price discounts. Additionally, ASC 606 requires the capitalization of costs to obtain a contract, primarily sales commissions, and amortization of these costs over the contract period or estimated customer life. The Company’s sales commissions paid to its sales representatives is generally based on the surgeries performed. The Company applied the practical expedient that permits an entity to expense the cost to obtain a contract as incurred when the expected amortization is one year or less. As such, the Company recognize sales commission as expense when incurred.

The Company disaggregates revenues from contracts with customers into geographical regions. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. For information regarding revenue by geography, refer to Segments in “Note 2 - Summary of Significant Accounting Policies” in the accompanying Notes to Condensed Consolidated Financial Statements.

Recently Issued Accounting Standards Not Yet Effective

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires that lessee's recognize a right-of-use asset and a lease liability for all leases with lease terms greater than twelve months in the balance sheet. A lease liability is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset is an asset that represents the lessee’s right to use, or control use of, a specified asset for the lease term for all leases (with the exception of short-term leases) at the adoption date. In July 2018, the FASB issued ASU 2018-10 and ASU 2018-11, which provides clarification on the narrow aspects of the guidance and provide an additional transition method to adopt the new leases standard. The new transition method allows an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In March 2019, the FASB issued ASU 2019-01, which provides clarification on implementation issues associated with adopting ASU 2016-02. The new leases standard must be adopted using a modified retrospective transition method and allows for the application of the new guidance at the beginning of the earliest comparative period presented or at the adoption date. In November 2019, the FASB issued ASU 2019-10, which revised the mandatory effective dates of the new leases standard. Further, due to the impact of the COVID-19, in June 2020, the FASB issued ASU 2020-05 to further defer the effective date for one year for entities in the “all other” categories. For public companies, the new guidance became effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the new guidance is now effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is still permitted for any interim or annual financial statements not yet issued.

As an emerging growth company, the new leases standard is now effective for the Company for the fiscal year ending December 31, 2022 and interim periods within fiscal year ending December 31, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements including the timing of its adoption. The Company anticipates electing several practical expedients that permit the Company not to reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. The Company expects that the adoption of this new standard will have a material impact on its balance sheet. The most significant impact would be the recognition of operating lease right-of-use assets and liability. The standard is not expected to have a material impact to the Company's consolidated statements of income and cash flows.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. FASB issued ASU 2019-05 in May 2019 and ASU 2019-08 in November 2019 for codification improvements of Topic 326. The new standard revises the accounting requirements related to the measurement of credit losses and will require organizations to measure all expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts about collectability. Assets must be presented in the financial statements at the net amount expected to be collected. In November 2019, the FASB issued ASU 2019-10, which defers the effective date of ASU 2016-13 for public companies that are eligible to be smaller reporting companies and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The Company is currently evaluating the impact of this standard on its consolidated financial statements but does not expect the standard will have a material impact on the Company's consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Improvements to Non-employee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718, Compensation-Stock Compensation, to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. ASU 2018-07 supersedes Subtopic 505-50, Equity-Based Payments to Non-Employees. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of ASC 606. The Company is currently assessing the impact of this new guidance but does not expect it to have a material impact on its consolidated financial statements, and anticipates adopting the standard for the fiscal year ending December 31, 2020.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements, which eliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is currently assessing the impact of this new guidance but does not expect it to have a material impact on its consolidated financial statements, and anticipates adopting the standard for the fiscal year ending December 31, 2020.

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:


	June 30, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
	(in thousands)
Money market funds	$	56,750	$	—	$	—	$	56,750

Cash equivalents	56,750		—		—		56,750

U.S. treasury securities	60,010		133		—		60,143
Corporate bonds	8,604		58		—		8,662
Commercial paper	2,694		—		—		2,694
Short-term investments	71,308		191		—		71,499



Total marketable securities	$	128,058	$	191	$	—	$	128,249


	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
	(in thousands)
Money market funds	$	3,068	$	—	$	—	$	3,068
Commercial paper	2,495		—		—		2,495
Cash equivalents	5,563		—		—		5,563

U.S. treasury securities	67,051		34		(2)		67,083
Corporate bonds	9,075		24		(2)		9,097
Commercial paper	5,165		—		—		5,165
Short-term investments	81,291		58		(4)		81,345

Corporate bonds	1,278		—		—		1,278
Long-term investments	1,278		—		—		1,278
Total marketable securities	$	88,132	$	58	$	(4)	$	88,186

The long-term investments outstanding as of December 31, 2019 mature in April 2021.

Unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets. The Company evaluates its investments to assess whether those in unrealized loss positions are other-than-temporarily impaired. The Company considers impairments to be other-than-temporary if it is related to deterioration in credit risk or if it is likely the Company will sell the securities before the recovery of their cost basis. The Company did not identify any of its marketable securities as other-than-temporarily impaired as of June 30, 2020 and December 31, 2019.

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 or liabilities that required 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:

June 30, 2020

Level 1

Level 2

Level 3

Total

(in thousands)

Marketable securities

Money market funds

56,750

—