SEC Filing | SI-BONE, Inc.

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sibn-20220630

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, 2022

☐ 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 34,305,039 as of July 31, 2022.

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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34

	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	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	69

SIGNATURES		70

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

•the impact the COVID-19 pandemic has on the global supply chain and our third-party manufacturers and suppliers, which could adversely impact the availability or cost of materials, which could disrupt our supply chain related to implants and instruments.

•our ability to maintain a healthy workforce in light of the ongoing COVID-19 pandemic;

•our expectation that a significant portion of our revenues will be derived from sales of the iFuse Implant System, or iFuse;

•our ability to develop and commercialize additional revenue opportunities, including new indications for use and new devices;

•our ability to retain and grow our sales team based on the demand for our products;

•our ability to identify, train, and retain surgeons to perform procedures using our products;

•our ability to obtain and maintain favorable coverage and reimbursement determinations from third-party payors;

•our estimates of our market opportunity;

•our expectations regarding the scope of protection from intellectual property rights covering our products;

•developments or disputes concerning our intellectual property or other proprietary rights;

•timing of and results from clinical and other trials;

•marketing clearances and authorization from the FDA and regulators in other jurisdictions;

•timing of regulatory filings and feedback;

•competition in the markets we serve;

•our expectations of the reliability and performance of our products;

•our expectations of the benefits to patients, providers, and payors of our products;

•factors impacting the supply chains we rely on, including the availability of raw materials and skilled labor serving our suppliers, and the cost of these factors of production which may in turn impact the prices we pay for our devices;

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

•our ability to sustain or increase demand for our products;

•our estimates regarding our costs and risks associated with our international operations and expansion;

•our expectations regarding our ability to retain and recruit key personnel;

•our ability to attract and retain employees, including those with specialized skills and experience;

•our expectations regarding acquisitions and strategic operations;

•our ability to access capital markets;

•our ability to fund our working capital requirements;

•our compliance with, and the cost of, federal, state, and foreign regulatory requirements;

•the factors that may impact our financial results; and

•anticipated trends and challenges in our business and the markets in which we operate.

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

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

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, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	24,319	$	63,419
Short-term investments	90,095		83,560
Accounts receivable, net of allowance for doubtful accounts of $255 and $264, respectively	15,118		14,246
Inventory	16,484		11,498
Prepaid expenses and other current assets	2,325		3,143
Total current assets	148,341		175,866

Property and equipment, net	12,810		8,992
Operating lease right-of-use assets	4,611		5,248
Other non-current assets	385		400
TOTAL ASSETS	$	166,147	$	190,506

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,141	$	3,198
Accrued liabilities and other	10,189		12,353
Current portion of long-term borrowings	—		—
Operating lease liabilities, current portion	1,342		1,339
Total current liabilities	16,672		16,890
Long-term borrowings	35,075		34,973
Operating lease liabilities, net of current portion	3,529		4,166
Other long-term liabilities	38		57
TOTAL LIABILITIES	55,314		56,086

Commitments and contingencies (Note 6)

STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.0001 par value; 100,000,000 shares authorized; 34,221,614 and 33,674,085 shares issued and outstanding, respectively	3		3
Additional paid-in capital	442,570		429,914
Accumulated other comprehensive income	32		352
Accumulated deficit	(331,772)		(295,849)
TOTAL STOCKHOLDERS’ EQUITY	110,833		134,420
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	166,147	$	190,506

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,
	2022		2021			2022		2021
Revenue	$	25,585	$	22,194		$	48,024	$	42,636
Cost of goods sold	3,465		2,375			6,448		4,575
Gross profit	22,120		19,819			41,576		38,061
Operating expenses:
Sales and marketing	28,843		23,084			54,448		44,006
Research and development	3,478		3,149			7,058		6,104
General and administrative	7,680		6,551			14,819		12,491
Total operating expenses	40,001		32,784			76,325		62,601
Loss from operations	(17,881)		(12,965)			(34,749)		(24,540)
Interest and other income (expense), net:
Interest income	136		46			209		107
Interest expense	(622)		(1,075)			(1,183)		(2,139)
Other income (expense), net	(146)		13			(200)		349
Net loss	$	(18,513)	$	(13,981)		$	(35,923)	$	(26,223)
Other comprehensive income (loss):
Changes in foreign currency translation	(14)		35			(14)		(80)
Unrealized gain (loss) on marketable securities	(58)		(5)			(306)		16
Comprehensive loss	$	(18,585)	$	(13,951)		$	(36,243)	$	(26,287)

Net loss per share, basic and diluted	$	(0.54)	$	(0.42)		$	(1.06)	$	(0.80)

Weighted-average number of common shares used to compute basic and diluted net loss per share	34,052,692		32,978,914			33,923,229		32,836,040

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, 2021	33,674,085	$	3	$	429,914	$	352	$	(295,849)	$	134,420
Issuance of common stock upon exercise of stock options, net of shares withheld	34,798	—		169		—		—		169
Issuance of common stock upon vesting of restricted stock units	163,480	—		—		—		—		—
Stock-based compensation	—	—		5,507		—		—		5,507


Net unrealized loss on marketable securities	—	—		—		(248)		—		(248)
Net loss	—	—		—		—		(17,410)		(17,410)
Balance as of March 31, 2022	33,872,363	3		435,590		104		(313,259)		122,438
Issuance of common stock upon exercise of stock options, net of shares withheld	4,469	—		30		—		—		30
Issuance of common stock related to employee stock purchase plan	112,773	—		1,199		—		—		1,199
Issuance of common stock upon vesting of restricted stock units	232,009	—		—		—		—		—
Stock-based compensation	—	—		5,751		—		—		5,751
Foreign currency translation	—	—		—		(14)		—		(14)
Net unrealized loss on marketable securities	—	—		—		(58)		—		(58)
Net loss	—	—		—		—		(18,513)		(18,513)
Balance as of June 30, 2022	34,221,614	$	3	$	442,570	$	32	$	(331,772)	$	110,833


	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

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,
	2022		2021
Cash flows from operating activities
Net loss	$	(35,923)	$	(26,223)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	11,258		8,287
Depreciation and amortization	1,505		845

Accretion of discount on marketable securities	515		721

Amortization of debt issuance costs	101		175

Loss on sale and disposal of property and equipment	105		125
Changes in operating assets and liabilities:
Accounts receivable	(720)		1,746
Inventory	(4,882)		(2,482)
Prepaid expenses and other assets	851		157
Accounts payable	936		554
Accrued liabilities and other	(2,099)		(1,415)
Net cash used in operating activities	(28,353)		(17,510)
Cash flows from investing activities
Maturities of marketable securities	48,000		56,977

Purchases of marketable securities	(55,356)		(43,337)
Purchases of property and equipment	(4,275)		(4,191)
Net cash (used in) provided by investing activities	(11,631)		9,449
Cash flows from financing activities





Proceeds from issuance of common stock under employee stock purchase plan	1,199		1,566
Proceeds from the exercise of stock options	199		1,251


Net cash provided by financing activities	1,398		2,817
Effect of exchange rate changes on cash and cash equivalents	(514)		(212)
Net decrease in cash and cash equivalents	(39,100)		(5,456)
Cash and cash equivalents at
Beginning of period	63,419		53,581
End of period	$	24,319	$	48,125



Supplemental disclosure of non-cash information
Vesting of early exercised stock options	$	—	$	18
Unpaid purchases of property and equipment	1,593		106

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 musculoskeletal disorders of the sacropelvic anatomy. The Company introduced its first generation iFuse implant in 2009 in the U.S., in 2010 in certain countries in the European Union, and in 2015 in certain countries in the rest of the world.

Risks and Uncertainties

The Company is subject to continuing risk and uncertainties as a result of the COVID-19 pandemic, and is closely monitoring the impact of the pandemic on all aspects of its business, including the impacts on its customers, patients that would benefit from procedures involving the Company's products, employees, suppliers, vendors, business partners and distribution channels. Economies worldwide continue to be negatively impacted by the COVID-19 pandemic, in particular with recurrent mutations of the virus, despite advances in vaccines, and the Company anticipates these disruptions will continue. While the Company has not experienced material disruptions to its supply chain to date, certain of its third-party suppliers have faced delays, product shortages and rising costs resulting from disruptions in the global supply chain, primarily related to the instruments. As a result, the Company is continuing to work closely with its manufacturing partners and suppliers, as well as determining alternative sourcing strategies to enable the Company to source key components and maintain appropriate inventory levels to meet customer demand. As such the Company's future results of operations and liquidity could be adversely impacted by a variety of factors related to the COVID-19 pandemic and global supply chain issues, including those discussed in the section entitled "Risk Factors" in this report. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic and global supply chain issues may materially impact the Company's financial condition, liquidity, or results of operations remains uncertain.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments that are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2021 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant accounting estimates and management judgments reflected in the condensed consolidated financial statements primarily includes the fair value of performance-based restricted stock unit awards. Estimates are based on historical experience, where applicable and other assumptions believed to be reasonable by the management. Actual results could differ from those estimates.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to these accounting policies, except for the accounting policy related to performance-based restricted stock unit awards noted below that was added to the Company’s significant accounting policies in the first quarter of 2022.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Performance-Based Restricted Stock Unit Awards

The Company grants restricted stock unit awards subject to market and service vesting conditions to certain executive officers. This type of grant consists of the right to receive shares of common stock, subject to achievement of time-based criteria and certain market-related performance goals over a specified period, as established by the Compensation Committee of the Company’s Board of Directors. For these awards that are subject to market-related performance, the fair value is determined based on the number of shares granted and a Monte Carlo valuation model, which incorporates the probability of the achievement of the market-related performance goals as part of the grant date fair value. If such performance goals are not ultimately met, the expense is not reversed. Stock-based compensation expense is recognized ratably over the requisite service period.

Segments

The Company's chief operating decision makers are the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). The CEO and the CFO review financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure.

The Company derives substantially all of its revenue from sales to customers in the U.S. Revenue by geography is based on billing address of the customer. International revenue accounted for less than 10% of the total revenue during the periods presented. Long-lived assets held outside the U.S. are immaterial. Following table summarizes the Company's revenue by geography:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021			2022		2021
	(in thousands)
United States	$	23,771	$	20,230		$	44,137	$	39,000
International	1,814		1,964			3,887		3,636
	$	25,585	$	22,194		$	48,024	$	42,636

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which requires the lessee to recognize a lease right-of-use asset and a lease liability for operating leases, initially measured at the present value of lease payments, in its consolidated balance sheet. In the fourth quarter of 2021, the Company adopted ASU 2016-02 using the modified retrospective method with the effective date of January 1, 2021. As a result, the Company has retrospectively changed its previously issued condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 as presented in its June 30, 2021 Quarterly Report on Form 10-Q to reflect the adoption of Topic 842 on January 1, 2021. The condensed consolidated financial statements for the three and six months ended June 30, 2021 presented herein differ from the Company’s condensed consolidated financial statements included in its June 30, 2021 Quarterly Report on Form 10-Q, as those financial statements were prepared using the former accounting standard referred to as ASC Topic 840, Leases.

The following table summarizes the effect of the adoption of Topic 842 on the condensed consolidated balance sheet as of January 1, 2021:

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As Previously Reported		Impact of Topic 842 Adoption		As Adjusted
	(in thousands)
ASSETS
Operating lease right-of-use assets	$	—	$	3,507	$	3,507


LIABILITIES AND STOCKHOLDERS’ EQUITY
Operating lease liabilities, current portion	—		852		852
Operating lease liabilities, net of current portion	—		2,933		2,933
Accrued liabilities and other	10,199		(345)		9,854
Accumulated deficit	(239,277)		68		(239,209)

The adoption of Topic 842 did not have any other material impact on the condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (ASC 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by removing the beneficial conversion and cash conversion accounting models for convertible instruments and removes certain settlement conditions that are required for contracts to qualify for equity classification. This new standard also simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method for convertible instruments and requires that the effect of potential share settlement be included in diluted earnings per share calculations when an instrument may be settled in cash or shares. The new standard requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The ASU is effective for public companies, excluding entities eligible to be smaller reporting companies, for fiscal years beginning after December 15, 2021. The new standard went effective on January 1, 2022, and it did not impact the Company's consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” ("ASU 2021-04") which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The new standard went effective on January 1, 2022, and it did not impact the Company's consolidated financial statements and related disclosures.

Recently Accounting Standards Not Yet Effective

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs in ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors. In addition, ASU 2022-02 also requires that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The ASU is effective for public companies, excluding entities eligible to be smaller reporting companies, for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of applying this guidance on its consolidated financial statements and related disclosures.

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, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
	(in thousands)
Money market funds	$	18,084	$	—	$	—	$	18,084


Cash equivalents	18,084		—		—		18,084

U.S. treasury securities	56,156		—		(257)		55,899
Corporate bonds	20,285		—		(84)		20,201
Commercial paper	13,995		—		—		13,995
Short-term investments	90,436		—		(341)		90,095



Total marketable securities	$	108,520	$	—	$	(341)	$	108,179


	December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
	(in thousands)
Money market funds	$	57,829	$	—	$	—	$	57,829

Cash equivalents	57,829		—		—		57,829

U.S. treasury securities	28,064		—		(16)		28,048
Corporate bonds	31,558		4		(23)		31,539
Commercial paper	23,973		—		—		23,973
Short-term investments	83,595		4		(39)		83,560



Total marketable securities	$	141,424	$	4	$	(39)	$	141,389

The amortized cost of the Company's available-for-sale securities approximates their fair value. Unrealized losses are generally due to interest rate fluctuations, as opposed to credit quality. However, the Company reviews individual securities that are in an unrealized loss position in order to evaluate whether or not they have experienced or are expected to experience credit losses. During the six months ended June 30, 2022 and 2021, unrealized gains and losses from the investments were not material and were not the result of a decline in credit quality. As a result, the Company did not recognize any credit losses related to its investments and that all unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

The Company elected to present accrued interest receivable separately from short-term and long-term investments on its condensed consolidated balance sheets. Accrued interest receivable was $0.3 million as of June 30, 2022, and was recorded in prepaid expenses and other current assets. The Company also elected to exclude accrued interest receivable from the estimation of expected credit losses on its marketable securities and reverse accrued interest receivable through interest income (expense) when amounts are determined to be uncollectible. The Company did not write off any accrued interest receivable as of June 30, 2022 or December 31, 2021.

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. Fair Value Measurement

Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities and market interest rates, if applicable. The carrying value of the Company’s long-term debt also approximates fair value based on management’s estimation that a current interest rate would not differ materially from the stated rate. There were no other financial assets and liabilities that require fair value hierarchy measurements and disclosures for the periods presented.

The table below summarizes the fair value of the Company’s marketable securities measured at fair value on a recurring basis based on the three-tier fair value hierarchy:


	June 30, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Marketable securities
Money market funds	$	18,084	$	—	$	—	$	18,084
U.S. treasury securities	55,899		—		—		55,899
Corporate bonds	—		20,201		—		20,201
Commercial paper	—		13,995		—		13,995
Total marketable securities	$	73,983	$	34,196	$	—	$	108,179

	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Marketable securities
Money market funds	$	57,829	$	—	$	—	$	57,829
U.S. treasury securities	28,048		—		—		28,048
Corporate bonds	—		31,539		—		31,539
Commercial paper	—		23,973		—		23,973
Total marketable securities	$	85,877	$	55,512	$	—	$	141,389

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. Balance Sheet Components

Inventory

As of June 30, 2022, inventory consisted of finished goods of $15.9 million and work-in-progress of $0.6 million. As of December 31, 2021, inventory consisted of finished goods.

Property and Equipment, net:


	June 30, 2022		December 31, 2021
	(in thousands)
Machinery and equipment	$	12,721	$	10,573
Construction in progress	5,604		3,657
Computer and office equipment	909		916
Leasehold improvements	1,631		503
Furniture and fixtures	307		309
	21,172		15,958
Less: Accumulated depreciation and amortization	(8,362)		(6,966)
	$	12,810	$	8,992

As of June 30, 2022, construction in progress pertains to the cost of individual components of a custom instrument set used for surgical placement of the Company's products that have not yet been placed into service of $3.8 million and construction costs related to the new lease in Santa Clara of $1.8 million. Depreciation expense was $0.8 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively, and $1.5 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively.

Accrued Liabilities and Other:


	June 30, 2022		December 31, 2021
	(in thousands)
Accrued compensation and related expenses	$	7,927	$	10,055

Accrued professional services	652		995

Others	1,610		1,303
	$	10,189	$	12,353

Accounts Receivable and Allowance for Credit Losses:

The movement in the allowance for credit losses was as follows:


	June 30, 2022		December 31, 2021
	(in thousands)
Balance at beginning of year	$	264	$	263
Provision	—		14
Write-offs	(9)		(13)
Balance at end of year	$	255	$	264

6. Commitments and Contingencies

Operating Leases

The Company has a non-cancelable operating lease for an office building space, located in Santa Clara, California which expires in May 2025 and a building used for research and development and warehouse space in Santa Clara, California which expires in

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

October 2026. The Company also has non-cancelable operating leases for its office building spaces in Gallarate, Italy and Knaresborough, United Kingdom, which expire in August 2027 and December 2025, respectively.

The Company also leases vehicles under operating lease arrangements for certain of its personnel in Europe which expire at various times throughout 2022 to 2027.

Supplemental information related to lease expense and valuation of the lease assets and lease liabilities are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating lease expense	$	397	$	263	$	806	$	546
Variable lease expense	119		65		223		106
Total lease expense	$	516	$	328	$	1,029	$	652

Cash paid for amounts included in the measurement of operating lease liabilities	$	396	$	281	$	804	$	566
Leased assets obtained in exchange for new operating lease liabilities	$	77	$	240	$	77	$	277

	June 30, 2022		December 31, 2021
Weighted average remaining lease term (in years)	3.51		3.98
Weighted average discount rate	5.76%		5.75%

Future minimum lease payments under non-cancelable operating leases as of June 30, 2022 was as follows:


Year Ending December 31,	(in thousands)
Remainder of 2022	$	800
2023	1,555
2024	1,498
2025	993
2026	529
Thereafter	8
Total operating lease payments	5,383
Less: imputed interest	(512)
Total operating lease liabilities	$	4,871

As of June 30, 2022, the Company had no operating lease liabilities that had not commenced.

Purchase Commitments and Obligations

The Company has certain purchase commitments related to its inventory management with certain manufacturing suppliers wherein the Company is required to purchase the amounts forecasted in a blanket purchase order. The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding. These outstanding commitments amounted to $0.6 million and $1.2 million as of June 30, 2022 and December 31, 2021, respectively.

Indemnification

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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.

Legal Contingencies

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any material legal proceedings that, if determined adversely to the Company, would have a material adverse effect on the Company.

7. Borrowings

Term Loan

The following table summarizes the outstanding borrowings from the term loan as of periods presented:


	June 30, 2022		December 31, 2021
	(in thousands)
Principal outstanding and final fee	$	35,700	$	35,700
Less: Unamortized debt issuance costs	(85)		(100)
Unaccreted value of final fee	(540)		(627)
Outstanding debt, net of debt issuance costs and unaccreted value of final fee	$	35,075	$	34,973
Classified as:

Long-term borrowings	$	35,075	$	34,973

In May 29, 2020, the Company entered into a term loan with Solar Capital Partners (“Solar”). Pursuant to the Loan and Security Agreement, Solar provided an aggregate principal amount of $40.0 million term loan (the “Solar Term Loan”). The Solar Term Loan bore interest at a rate per annum equal to 9.40% plus London Interbank Offered Rate (“LIBOR”), payable monthly in arrears. LIBOR means the greater of (i) 0.33% or (ii) one-month LIBOR (or a comparable replacement rate to be determined by the collateral agent if the LIBOR is no longer available), which rate shall reset monthly. The Solar Term Loan included an interest-only period of 36 months through June 2023, and then repaid in equal monthly principal payments plus interest through June 1, 2025. The Company was also obligated to pay a final fee equal to $1.0 million or 2.5% of the aggregate principal amount of the Solar Term Loan, which was fully earned by Solar on the effective date of the Loan and Security Agreement with Solar. With respect to the Solar Term Loan, this final fee was due and payable on the earliest of (i) the maturity date, (ii) the acceleration of the loan balance or (iii) its full prepayment, refinancing, substitution or replacement. The Company paid in full and terminated the Solar Term Loan in August 2021. The effective interest rate related to the Solar Term Loan was 10.6% for three and six months ended June 30, 2021.

The outstanding debt as of June 30, 2022 and December 31, 2021 is related to a term loan pursuant to the Loan and Security Agreement dated August 12, 2021 (the “Effective Date”), entered into by the Company with Silicon Valley Bank (“SVB”). Pursuant the agreement, SVB provided an aggregate principal amount of $35.0 million to the Company (the “SVB Term Loan”). The Company used the proceeds of the SVB Term Loan to repay in full and terminate the Solar Term Loan, which was accounted for as debt extinguishment in accordance with the accounting standards. The Company recognized the unamortized debt issuance costs and unaccreted value of final fee of $1.3 million and the prepayment penalty and lender fees of $0.5 million related to Solar Term Loan as a loss on debt extinguishment. The costs and fees are reflected as interest expense in the consolidated statement of operations for the year ended December 31, 2021. The total debt issuance costs of $0.1 million associated with the SVB Term Loan were recorded in the condensed consolidated balance sheet as a direct deduction from the carrying amount of the loan, and are amortized as a component of interest expense using straight-line method over the life of the term loan. The SVB Term Loan matures (the “Maturity Date”) on either

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(a) August 1, 2025 or (b) August 1, 2026 dependent on the Company’s achievement of a certain financial performance milestone as of December 31, 2022, as set forth in the Loan Agreement. Interest on the SVB Term Loan is payable monthly at an annual rate set at the greater of (a) 5.75% and (b) prime rate as published in the Wall Street Journal plus 2.5%. Commencing on September 1, 2023, the Company will be required to make monthly principal amortization payments. The Company may elect to prepay the SVB Term Loan prior to the Maturity Date subject to a prepayment fee equal to 1% if the prepayment occurs prior to the second anniversary of the Effective Date and 0% if the prepayment occurs on or at any time after the second anniversary of the Effective Date. The SVB Term Loan is secured by substantially all the Company's assets other than the Company's intellectual property. The Company is also obligated to pay a final payment equal to $0.7 million or 2% of the aggregate principal amount of the SVB Term Loan, which is considered fully earned by SVB on the effective date of the Loan and Security Agreement with SVB. This final payment shall be due and payable on the earliest of (i) the Maturity Date, (ii) the full repayment of the loan, (iii) permitted prepayment and mandatory prepayment upon an acceleration as specified in the agreement or (iv) the termination of the agreement. The final payment is included within the long-term borrowings and is accreted to interest expense using straight-line method over the life of the term loan. The effective interest rate related to the SVB Term Loan for the three and six months ended June 30, 2022 was 6.9% and 6.6%, respectively.

The table below summarizes the future principal and final fee payments under the SVB Term Loan as of June 30, 2022:


Year ending December 31,	(in thousands)
Remainder of 2022	$	—
2023	7,292
2024	17,500
2025	10,908
2026	—

Total principal and final fee payments	$	35,700

The Loan Agreement includes affirmative and negative covenants applicable to the Company and certain of its foreign subsidiaries. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports, and maintain insurance coverage. The negative covenants include, among others, restrictions regarding transferring collateral, pledging the Company's intellectual property to other parties, engaging in mergers or acquisitions, paying dividends or making other distributions, incurring indebtedness, transacting with affiliates, and entering into certain investments, in each case subject to certain exceptions. As of June 30, 2022, the Company was in compliance with all debt covenants.

CARES Act

On March 27, 2020, the U.S. federal government enacted the “Coronavirus Aid, Relief and Economic Security (CARES) Act,” which, among other things, allowed employers to defer the deposit and payment of an employer's share of social security taxes through December 31, 2020. The Company recorded a total liability of $0.5 million related to the deferral of the social security taxes that is included in the accrued liabilities and other in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

8. Stock-Based Incentive Compensation Plans

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Stock Options

The table below summarizes the stock option activity for the six months ended June 30, 2022:


	Number of Shares	Weighted- Average Exercise Price
Outstanding as of December 31, 2021	2,009,513	$8.73

Exercised	(39,267)	5.09
Canceled and forfeited	(14,229)	12.36
Outstanding as of June 30, 2022	1,956,017	10.22

As of June 30, 2022, the unrecognized compensation cost related to stock options was $0.7 million, which is expected to be recognized over a period of approximately 0.5 years.

There were no stock options granted during the three and six months ended June 30, 2022 and 2021.

Early Exercise of Unvested Stock Options

Early exercises of stock options under the Company's 2008 Stock Option Plan are subject to a right of repurchase by the Company of any unvested shares. The repurchase rights lapse over the original vesting period of the options. The Company accounts for the cash received in consideration for the early exercised options as a liability included in accrued liabilities, which is then reclassified to stockholders’ equity as the options vest. As of June 30, 2022 and December 31, 2021, the Company had no shares subject to repurchase.

Restricted Stock Units

Restricted stock units (“RSUs”) are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. RSUs generally vest over two to four years based upon continued services and are settled at vesting in shares of the Company's common stock. The grant date fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.

In January 2022, the Company granted performance-based restricted stock unit awards subject to market and service vesting conditions to certain executive officers under SI-BONE's 2018 Equity Incentive Plan (“PSUs”). The shares subject to the PSUs vest over a three-year performance period beginning January 1, 2022 and ending December 31, 2024. The actual number of PSUs that will vest in each measurement period will be determined by the Compensation Committee based on the Company’s total shareholder return (“TSR”) relative to the TSR of the Median Peer Companies (as defined in the award agreement). The grant date fair value of each stock award with a market condition was determined using the Monte Carlo valuation model. The table below summarizes the assumptions used to estimate the grant date fair value of the PSUs granted:


	Six Months Ended June 30, 2022
Expected volatility of common stock				48.9%	to	58.7%
Expected volatility of peer companies						24.2%	to	152.5%
Correlation coefficient of peer companies				(0.13)	to	1.00
Risk-free interest rate						0.4%	to	1.2%
Dividend yield	—%	to	1.0%

The table below summarizes RSU and PSU activity for the six months ended June 30, 2022:

SI-BONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	RSUs		PSUs
	Number of Shares	Weighted Average Grant Date Fair Value	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2021	1,566,522	$25.17	—	$—
Granted	1,130,467	21.30	155,596	19.50
Vested	(395,489)	24.88	—	—
Canceled and forfeited	(129,123)	23.81	—	—
Outstanding as of June 30, 2022	2,172,377	23.29	155,596	19.50

As of June 30, 2022, the unrecognized compensation cost related to the RSUs was $42.2 million, which is expected to be recognized over a period of approximately 2.8 years. As of June 30, 2022, the unrecognized compensation cost related to the PSUs was $2.3 million, which is expected to be recognized over a period of approximately 2.5 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 th