SEC Filing | SI-BONE, Inc.

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sibn-20210630

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, 2021

☐ 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 33,271,020 as of July 31, 2021.

TABLE OF CONTENTS



		Page
	PART I-FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

	PART II-OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	68
Item 6.	Exhibits	69

SIGNATURES		71

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements include, but are not limited to, statements about the following:

•the impact the COVID-19 pandemic and governmental actions taken to combat the COVID-19 pandemic will have on us, including our operations, financial results, liquidity and capital resources, the existence and duration of state and local orders temporarily prohibiting elective procedures including procedures using our products, the ability and desire of patients and physicians to undergo and perform such procedures, the duration and any potential resurgence of the COVID-19 pandemic, and whether the COVID-19 pandemic will recur in the future;

•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.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	48,125	$	53,581
Short-term investments	128,508		142,851
Accounts receivable, net of allowance for doubtful accounts of $264 and $263, respectively	11,894		13,611
Inventory	8,151		5,633
Prepaid expenses and other current assets	2,434		2,565
Total current assets	199,112		218,241

Property and equipment, net	7,868		4,527
Other non-current assets	352		374
TOTAL ASSETS	$	207,332	$	223,142

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,918	$	3,271
Accrued liabilities and other	8,706		10,199

Total current liabilities	12,624		13,470
Long-term borrowings	39,630		39,455
Other long-term liabilities	880		854
TOTAL LIABILITIES	53,134		53,779

Commitments and contingencies (Note 6)

STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.0001 par value; 100,000,000 shares authorized; 33,236,270 and 32,583,220 shares issued and outstanding, respectively	3		3
Additional paid-in capital	419,235		408,113
Accumulated other comprehensive income	460		524
Accumulated deficit	(265,500)		(239,277)
TOTAL STOCKHOLDERS’ EQUITY	154,198		169,363
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	207,332	$	223,142

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,
	2021		2020		2021		2020
Revenue	$	22,194	$	14,049	$	42,636	$	30,870
Cost of goods sold	2,375		2,117		4,575		4,049
Gross profit	19,819		11,932		38,061		26,821
Operating expenses:
Sales and marketing	23,084		15,755		44,006		35,036
Research and development	3,149		2,165		6,104		4,255
General and administrative	6,551		4,151		12,491		9,551
Total operating expenses	32,784		22,071		62,601		48,842
Loss from operations	(12,965)		(10,139)		(24,540)		(22,021)
Interest and other income (expense), net:
Interest income	46		329		107		827
Interest expense	(1,075)		(2,683)		(2,139)		(3,914)
Other income (expense), net	13		21		349		(136)
Net loss	$	(13,981)	$	(12,472)	$	(26,223)	$	(25,244)
Other comprehensive income (loss):
Changes in foreign currency translation	35		(2)		(80)		10
Unrealized gain (loss) on marketable securities	(5)		(85)		16		136
Comprehensive loss	$	(13,951)	$	(12,559)	$	(26,287)	$	(25,098)

Net loss per share, basic and diluted	$	(0.42)	$	(0.44)	$	(0.80)	$	(0.91)

Weighted-average number of common shares used to compute basic and diluted net loss per share	32,978,914		28,492,582		32,836,040		27,872,505

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, 2020	32,583,220	$	3	$	408,113	$	524	$	(239,277)	$	169,363
Issuance of common stock upon exercise of stock options, net of shares withheld	93,975	—		601		—		—		601
Issuance of common stock upon vesting of restricted stock units	131,339	—		—		—		—		—
Stock-based compensation	—	—		4,030		—		—		4,030
Vesting of early exercised stock options	—	—		9		—		—		9
Foreign currency translation	—	—		—		(115)		—		(115)
Net unrealized gain on marketable securities	—	—		—		21		—		21
Net loss	—	—		—		—		(12,242)		(12,242)
Balance as of March 31, 2021	32,808,534	3		412,753		430		(251,519)		161,667
Issuance of common stock upon exercise of stock options, net of shares withheld	140,917	—		650		—		—		650
Issuance of common stock related to employee stock purchase plan	104,861			1,566						1,566
Issuance of common stock upon vesting of restricted stock units	181,958	—		—		—		—		—
Stock-based compensation	—	—		4,257		—		—		4,257
Vesting of early exercised stock options	—	—		9		—		—		9
Foreign currency translation	—	—		—		35		—		35
Net unrealized loss on marketable securities	—	—		—		(5)		—		(5)
Net loss	—	—		—		—		(13,981)		(13,981)
Balance as of June 30, 2021	33,236,270	$	3	$	419,235	$	460	$	(265,500)	$	154,198



	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

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,
	2021		2020
Cash flows from operating activities
Net loss	$	(26,223)	$	(25,244)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	8,287		5,577
Depreciation and amortization	845		505
Bad debt expense	—		200
Accretion (amortization) of discount on marketable securities	721		(20)
Realized gain on marketable securities	—		(43)
Amortization of debt issuance costs	175		100
Loss on extinguishment of debt	—		1,534
Loss on sale and disposal of property and equipment	125		80
Changes in operating assets and liabilities:
Accounts receivable	1,746		1,287
Inventory	(2,482)		500
Prepaid expenses and other assets	157		875
Accounts payable	554		(290)
Accrued liabilities and other	(1,415)		(2,289)
Net cash used in operating activities	(17,510)		(17,228)
Cash flows from investing activities
Maturities of marketable securities	56,977		33,500
Sales of marketable securities	—		12,592
Purchases of marketable securities	(43,337)		(34,768)
Purchases of property and equipment	(4,191)		(1,264)
Net cash provided by investing activities	9,449		10,060
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	1,566		991
Proceeds from the exercise of stock options	1,251		359


Net cash provided by financing activities	2,817		62,896
Effect of exchange rate changes on cash and cash equivalents	(212)		6
Net (decrease) increase in cash and cash equivalents	(5,456)		55,734
Cash and cash equivalents at
Beginning of period	53,581		10,435
End of period	$	48,125	$	66,169



Supplemental disclosure of non-cash information
Vesting of early exercised stock options	$	18	$	53
Unpaid purchases of property and equipment	106		145
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 the first quarter of 2020, the Company received $63.0 million of net proceeds from its first follow-on public offering of 4,300,000 shares of the Company's common stock, of which 2,490,053 shares were offered and sold by the Company, and the exercise of underwriter's option to purchase from the Company an additional 645,000 shares of the Company's common stock, at a public offering price of $21.50 per share. The total public offering costs incurred in connection with the follow-on offering were allocated based on the gross proceeds received by the Company and the 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 consolidated statements of operations in the year ended December 31, 2020.

In October 2020, the Company received $71.6 million of net proceeds from its second follow-on public offering of shares of the Company's common stock, of which 3,000,000 shares were offered and sold by the Company, and the exercise of underwriter's option to purchase from the Company an additional 478,507 shares of the Company's common stock, at a public offering price of $22.00 per share. In addition to the shares sold by the Company in this second follow-on offering, the selling stockholder sold 190,053 shares of the Company's common stock previously held by the selling stockholder at a price to the public of $22.00 per share. The Company did not receive any proceeds from the sale by the selling stockholder.

Risks and Uncertainties

The Company is subject to continuing risk and uncertainties as a result of the COVID-19 pandemic, and is closely monitoring the impact of the pandemic on all aspects of its business, including the impacts on its customers, patients that would benefit from utilizing the Company's products, employees, suppliers, vendors, business partners and distribution channels. Economies worldwide continue to be negatively impacted by the COVID-19 pandemic, in particular with recurrent outbreaks and mutations of the virus, despite advances in vaccines, and the Company anticipates these disruptions will continue. As such the Company's future results of operations and liquidity could be adversely impacted by a variety of factors related to the COVID-19 pandemic, including those discussed in the section entitled "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations remains uncertain.

The Company is also subject to risks common to medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, the ability to obtain adequate coverage and reimbursement from third-party payors and uncertainty of market acceptance of products. The Company is dependent on third-party manufacturers and suppliers, in some cases single source suppliers. The Company currently has limited long term contracts with its key suppliers and is subject to risks such as manufacturing failures, non-compliance with regulatory requirements, price fluctuations, inability to properly meet demand and third-party supplier discontinuation of operations.

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, 2020 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, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any other future year.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 2020 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2021.

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. 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, 2020. 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 has been 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.

On June 30, 2021, the Company’s public float exceeded $700 million and as such the Company will be deemed to be a large accelerated filer under Rule 12b-2 of the Exchange Act, commencing with the Company’s Annual Report on Form 10-K for the 2021 fiscal year. The Company will retain its current filer status until the end of 2021. As a large accelerated filer, the Company will no longer qualify as an emerging growth company nor be eligible to rely on the benefits afforded to emerging growth companies under the JOBS 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,
	2021		2020		2021		2020
	(in thousands)
United States	$	20,230	$	13,221	$	39,000	$	28,518
International	1,964		828		3,636		2,352
	$	22,194	$	14,049	$	42,636	$	30,870

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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. The Company expects to disclose the adoption of this standard for the fiscal year ending December 31, 2021. 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.

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, ASU 2019-08 and ASU 2019-11 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. The Company expects to disclose the adoption of this standard for the fiscal year ending December 31, 2021

In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this update on its consolidated financial statements. While the Company does not expect the adoption of ASU 2021-04 to materially impact the Company's consolidated financial statements and related disclosures because it does not currently anticipate modifications to its outstanding equity-classified written call options, the impact on the Company's consolidated financial statements and disclosures will depend on the facts and circumstances of any specific future transactions.

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, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
	(in thousands)
Money market funds	$	44,653	$	—	$	—	$	44,653

Cash equivalents	44,653		—		—		44,653

U.S. treasury securities	84,420		11		—		84,431
Corporate bonds	11,600		1		(1)		11,600
Commercial paper	32,477		—		—		32,477
Short-term investments	128,497		12		(1)		128,508



Total marketable securities	$	173,150	$	12	$	(1)	$	173,161


	December 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
	(in thousands)
Money market funds	$	45,948	$	—	$	—	$	45,948
Commercial paper	1,400		—		—		1,400
Cash equivalents	47,348		—		—		47,348

U.S. treasury securities	74,779		4		(7)		74,776
Corporate bonds	8,940		4		(6)		8,938
Commercial paper	59,137		—		—		59,137
Short-term investments	142,856		8		(13)		142,851



Total marketable securities	$	190,204	$	8	$	(13)	$	190,199

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, 2021 or December 31, 2020.

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, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Marketable securities
Money market funds	$	44,653	$	—	$	—	$	44,653
U.S. treasury securities	84,431		—		—		84,431
Corporate bonds	—		11,600		—		11,600
Commercial paper	—		32,477		—		32,477
Total marketable securities	$	129,084	$	44,077	$	—	$	173,161

	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Marketable securities
Money market funds	$	45,948	$	—	$	—	$	45,948
U.S. treasury securities	74,776		—		—		74,776
Corporate bonds	—		8,938		—		8,938
Commercial paper	—		60,537		—		60,537
Total marketable securities	$	120,724	$	69,475	$	—	$	190,199

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. Balance Sheet Components

Inventory

As of June 30, 2021 and December 31, 2020, inventory consisted entirely of finished goods.

Property and Equipment, net:


	June 30, 2021		December 31, 2020
	(in thousands)
Machinery and equipment	$	9,261	$	6,342
Construction in progress	2,771		1,692
Computer and office equipment	869		714
Leasehold improvements	503		503
Furniture and fixtures	231		233
	13,635		9,484
Less: Accumulated depreciation and amortization	(5,767)		(4,957)
	$	7,868	$	4,527

Construction in progress pertains to cost of individual components of a custom instrument set used for surgical placement of the Company’s products that have not yet been placed into service. Depreciation expense was $0.5 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $0.8 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.

Accrued Liabilities and Other:


	June 30, 2021		December 31, 2020
	(in thousands)
Accrued compensation and related expenses	$	7,495	$	9,175

Accrued professional services	459		511
Others	752		513
	$	8,706	$	10,199

6. Commitments and Contingencies

Operating Leases

The Company has a non-cancelable operating lease for an office building space, located in Santa Clara, California which expires in May 2025. The Company also has non-cancelable operating leases for its office building spaces in Gallarate, Italy and Knaresborough, United Kingdom, which expire in August 2027 and December 2025, respectively. Effective April 30, 2021, the Company terminated its office lease in Mannheim, Germany, and commenced a new lease that can be terminated at any time with six months written notice to the landlord. Further, the Company also leases vehicles under operating lease arrangements for certain of its personnel in Europe which expire at various times throughout 2021 to 2025.

Rent expense is recorded over the lease terms on a straight-line basis. Rent expenses charged to operations under operating leases were $0.3 million for the three months ended June 30, 2021 and 2020, and $0.6 million for the six months ended June 30, 2021 and 2020.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The table below summarizes aggregate future minimum lease payments under all leases as of June 30, 2021:


Year ending December 31,	(in thousands)
Remainder of 2021	$	576
2022	1,091
2023	995
2024	926
2025	385
Thereafter	24
	$	3,997

Purchase Commitments and Obligations

The Company has certain purchase commitments related to its inventory management and training materials with certain suppliers wherein the Company is required to provide forecasts and purchase certain amounts included in such forecasts. The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding. These outstanding commitments amounted to $1.8 million and $0.3 million as of June 30, 2021 and December 31, 2020, respectively.

Indemnification

The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.

The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.

7. Borrowings

Term Loan

The following table summarizes the outstanding borrowings from the term loan described below, as of the dates presented:


	June 30, 2021		December 31, 2020
	(in thousands)
Principal outstanding and final fee	$	41,000	$	41,000
Less: Unamortized debt issuance costs	(587)		(661)
Unaccreted value of final fee	(783)		(884)
Outstanding debt, net of debt issuance costs and unaccreted value of final fee	$	39,630	$	39,455
Classified as:

Long-term borrowings	$	39,630	$	39,455

In October 2017, the Company entered into a term loan with Biopharma Credit Investments IV Sub LP (“Pharmakon”) in for total loan proceeds of $40.0 million (the “Pharmakon Term Loan”). The Pharmakon Term Loan included an interest-only period for 35 months through September 2020 and then equal quarterly principal payments plus interest through December 2022. The

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Pharmakon Term Loan carried a fixed interest rate of 11.5% and allowed for early prepayment. The prepayment penalty fee was equal to the remaining interest due if prepaid within the first 30 months, a 2% penalty for months 31-48, and a 1% penalty for months 49-60. The Company paid in full and terminated the Pharmakon Term Loan in May 2020.

The outstanding debt as of June 30, 2021 and December 31, 2020 is related to a term loan pursuant to the Loan and Security Agreement dated May 29, 2020, entered into by the Company with Solar Capital Partners (“Solar”). Pursuant to the Loan and Security Agreement, Solar provided an aggregate principal amount of $40.0 million term loan (the “Solar Term Loan”). The total debt issuance costs of $0.8 million associated with the Solar Term Loan were recorded in the condensed consolidated balance sheet as a direct deduction from the carrying amount of the loan, and are amortized as a component of interest expense using straight-line method over the life of the term loan. In accordance with the Loan and Security Agreement, the Company paid in full and terminated the Pharmakon Term Loan, which was accounted for as debt extinguishment in accordance with the accounting standards. The Company recognized the unamortized debt issuance costs of $0.7 million and the prepayment penalty and lender fees of $0.8 million related to Pharmakon Term Loan as a loss on debt extinguishment. The costs and fees are reflected as interest expense in the consolidated statement of operations for the year ended December 31, 2020.

The Solar Term Loan bears interest at a rate per annum equal to 9.40% plus London Interbank Offered Rate (“LIBOR”), payable monthly in arrears. LIBOR means the greater of (i) 0.33% or (ii) one-month LIBOR (or a comparable replacement rate to be determined by the collateral agent if the LIBOR is no longer available), which rate shall reset monthly. The Solar Term Loan matures in 60 months on June 1, 2025 (“Maturity Date”), with an interest-only period of 36 months through June 2023, and then repaid in equal monthly principal payments plus interest through maturity date. Pursuant to the Loan and Security Agreement, the Company may voluntarily prepay the Solar Term Loan, in full or in part, but only in increments of $10.0 million, for a prepayment premium in an amount equal to 3.0% of the principal if prepaid in year one, 1.25% of the principal if prepaid in year two, and 0.50% of the principal if prepaid in year three or later. The prepayment premium will be waived if the Company voluntarily prepays and refinances the outstanding balance with Solar. The Solar Term Loan is secured by substantially all of the Company’s assets.

The effective interest rate related to the Solar Term Loan was 10.6% for the three and six months ended June 30, 2021 and 11.8% and 12.0% for the three and six months ended June 30, 2020, respectively.

The Company is also obligated to pay a final fee equal to $1.0 million or 2.5% of the aggregate principal amount of the Solar Term Loan, which was fully earned by Solar on the effective date of the Loan and Security Agreement. With respect to the Solar Term Loan, this final fee shall be due and payable on the earliest of (i) the maturity date, (ii) the acceleration of the loan balance or (iii) its full prepayment, refinancing, substitution or replacement. The final fee was included within the long-term borrowings and is accreted to interest expense using straight-line method over the life of the term loan.

The table below summarizes the future principal and final fee payments under the Solar Term Loan as of June 30, 2021:


Year ending December 31,	(in thousands)
2021 (remaining six months)	$	—
2022	—
2023	11,667
2024	20,000
2025	9,333

Total principal and final fee payments	$	41,000

Subject to other customary covenants set forth in the Loan and Security Agreement with Solar, the Company is required to maintain unrestricted cash and cash equivalents based on the trailing 12-month net products revenues tested on a monthly basis as follows: (a) $15.0 million if net product revenue is less than $75.0 million; or (b) $7.5 million if net product revenue is greater than or equal to $75.0 million, but less than $100.0 million (the “minimum liquidity requirement”). The Company is not subject to minimum liquidity requirement when trailing twelve-month net product revenues exceeds $100.0 million. Upon the occurrence of an event of default of certain customary covenants, including the minimum liquidity requirements, as specified in the Loan and Security Agreement, subject to specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is 5.0% above the rate effective immediately before the event of default and may be declared immediately due and payable by Solar. As of June 30, 2021, the Company was in compliance with all debt covenants. Though there are uncertainties surrounding the impact of the COVID-19 pandemic that may impact its future revenue, the Company believes that it has sufficient cash and cash equivalents to meet the minimum liquidity requirements in the foreseeable succeeding periods.

CARES Act

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

On March 27, 2020, the U.S. federal government enacted the “Coronavirus Aid, Relief and Economic Security (CARES) Act,” which, among other things, allowed employers to defer the deposit and payment of an employer's share of social security taxes through December 31, 2020. The Company recorded a total liability of $1.0 million related to the deferral of the social security taxes of which $0.5 million is included in each accrued liabilities and other and other long-term liabilities in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.

8. Stock-Based Incentive Compensation Plans

Stock Options

The table below summarizes the stock option activity for the six months ended June 30, 2021:


	Number of Shares	Weighted- Average Exercise Price
Outstanding as of December 31, 2020	2,405,957	$8.54

Exercised	(234,892)	5.33
Canceled and forfeited	(23,170)	16.02
Outstanding as of June 30, 2021	2,147,895	8.81

As of June 30, 2021, the unrecognized compensation cost related to stock options was $2.1 million, which is expected to be recognized over a period of approximately 1.4 years.

There were no stock options granted during the three months ended June 30, 2020 and six months ended June 30, 2021. The table below summarizes the weighted average grant date fair value per share and the assumptions used to estimate the grant date fair value using the Black-Scholes option-pricing model of the stock options granted in the six months ended June 30, 2020:


	Six Months Ended June 30,
	2020
Weighted average grant date fair value per share	$8.37
Expected term (years)		5.5	to	7.0
Expected volatility		46.7%	to	47.2%
Risk-free interest rate		1.56%	to	1.64%
Dividend yield	—%

Early Exercise of Unvested Stock Options

Early exercises of stock options under the Company's 2008 Stock Option Plan are subject to a right of repurchase by the Company of any unvested shares. The repurchase rights lapse over the original vesting period of the options. The Company accounts for the cash received in consideration for the early exercised options as a liability included in accrued liabilities, which is then reclassified to stockholders’ equity as the options vest. As of June 30, 2021 and December 31, 2020, the Company had a total of 1,945 shares and 5,836 shares of common stock, respectively, subject to repurchase under the Company's 2008 Stock Option Plan.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Restricted Stock Units

The table below summarizes restricted stock units activity for the six months ended June 30, 2021:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020	1,165,295	$20.07
Granted	1,000,129	29.72
Vested	(313,297)	20.14
Canceled and forfeited	(132,763)	25.51
Outstanding as of June 30, 2021	1,719,364	25.25

As of June 30, 2021, the unrecognized compensation cost related to the restricted stock units was $37.4 million, which is expected to be recognized over a period of approximately 3.1 years.

Employee Stock Purchase Plan

The Company’s 2018 Employee Stock Purchase Plan (the “ESPP”) allows eligible employees to purchase shares of the Company's common stock through payroll deductions at the price equal to 85% of the lesser of the fair market value of the stock as of the first date or the ending date of each six month offering period. The offering period generally commences in May and November. On March 26, 2020, the Company's Compensation Committee approved the amendment of the terms of future offerings under the ESPP which, among other things, increased the maximum number of shares that may be purchased on any single purchase date, provided for automatic enrollment in a new offering, and provided that the offering which commenced in May 2020 be twelve months in duration and consist of two purchase periods. The current offering period under the ESPP began on May 17, 2021 and the related purchase will occur on November 15, 2021.

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model, which is being amortized over the requisite service period. The Company issued 104,861 shares and 74,685 shares under the ESPP, representing approximately $1.6 million and $1.0 million in employee contributions, for six months ended June 30, 2021 and June 30, 2020, respectively. As of June 30, 2021 and December 31, 2020, total accumulated ESPP related employee payroll deductions amounted to $0.3 million and $0.4 million, respectively, which were included within accrued compensation and related expenses in the condensed consolidated balance sheets.

Stock-Based Compensation

The table below presents the detail of stock-based compensation expense amounts included in the condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Cost of goods sold	$	129	$	85	$	303	$	156
Sales and marketing	2,125		1,347		4,024		2,488
Research and development	404		288		823		528
General and administrative	1,599		1,235		3,137		2,405
	$	4,257	$	2,955	$	8,287	$	5,577

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

9. Net Loss Per Share of Common Stock

The table below summarizes the computation of basic and diluted net loss per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except share and per share data)
Net loss	$	(13,981)	$	(12,472)	$	(26,223)	$	(25,244)

Weighted-average shares used to compute basic and diluted net loss per share	32,978,914		28,492,582		32,836,040		27,872,505

Net loss per share, basic and diluted	$	(0.42)	$	(0.44)	$	(0.80)	$	(0.91)

Because the Company has reported a net loss in all periods presented, outstanding stock options, restricted stock units, shares subject to repurchase, ESPP purchase rights and common stock warrants are anti-dilutive and therefore diluted net loss per common share is the same as basic net loss per common share for the periods presented. The following anti-dilutive common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented:


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock options	2,147,895	2,652,683	2,147,895	2,652,683
Restricted stock units	1,719,364	1,333,501	1,719,364	1,333,501
Shares subject to repurchase	1,945	9,732	1,945	9,732