Shoulder Innovations, Inc. 2026 Q2 Earnings Call

Please go ahead. Good afternoon, thank you for participating in today's call.

Joining me from Shoulder Innovations are Rob Ball, Chief Executive Officer, and Jeff Points, Chief Financial Officer. Earlier today, Shoulder Innovations issued a press release announcing financial results for the second quarter ended June 30, 2026. A copy of the press release is available on the investor relations section of the company's website. Before we begin, I'd like to remind you that management will make remarks during this call that constitute forward-looking statements within the meaning of federal securities laws, and that these are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a listing descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Additionally, during this conference call, the company will discuss certain financial measures that have been prepared in accordance with GAAP. This non-GAAP information should not be considered in isolation or as a substitute for or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release for a reconciliation of these measures to the most directly comparable GAAP financial measure.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 6, 2026. Shoulder Innovations disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I'll now turn the call over to Rob.

Thanks, Sam. Good afternoon, everyone, welcome to our second quarter earnings call. We have several noteworthy updates today across our future results and growth strategies, particularly with respect to our innovation pipeline. We're excited to share those with you. At a high level, I'm pleased to report that our organization continued to demonstrate remarkable strength through the second quarter. Following a very strong first quarter start to 2026, we again delivered year-over-year and sequential revenue growth in Q2 as we rapidly onboarded new surgeons, deepening utilization within our existing customer base, and made steady progress on several key product initiatives. This performance enabled us to deliver second quarter net revenue of $17.2 million, an increase of 56% year-over-year. Q2 gross margin was also strong at 78.3%, up both year-over-year and sequentially.

These improvements reflect ongoing operational efficiency. We expect further gross margin expansion from several additional cost reduction initiatives Jeff will cover shortly. Given these results, our growing scale, and the expanding efficiency of our commercial organization, we are raising our full year 2026 net revenue guidance today to a range of $67 million to $69 million, representing growth of 42%-46% over 2025. This compares to our prior range of $65 million to $68 million, or 37%-44% growth. Our guidance reflects our continued expectation for a normal degree of orthopedic seasonality that began as expected in June and will continue into the third quarter, consistent with patterns we've experienced in the past. Customer activity and our pipeline remain robust, giving us high conviction in this guidance.

Our ability to deliver this growth in 2026 and beyond is grounded in the same three strategic priorities we've discussed during our last few calls, which include driving adoption among new surgeons, increasing penetration in our existing customer surgeon base to increase procedural volume, and adding products to our portfolio to address the unmet needs of patients and surgeons. Beginning with new surgeon adoptions, we maintained our high pace of new customer additions through the second quarter following our very strong start to the year. As a reminder, in the first quarter, we grew new customer additions at more than double the pace of the prior year. In the second quarter, we added even more new customers than we did in Q1, an acceleration on top of an already strong start.

Our W2 commercial leadership organization is focused on targeting the roughly 1,800 high-volume surgeon specialists in the U.S. That approach is translating into rapid growth in our customer base. We are encouraged by these trends and expect that momentum to be durable for the balance of the year. To further capitalize on this sustained momentum, we again accelerated commercial expansion plans. We added the top talent to our commercial leadership team in Q2 following our investment in this area in Q1. Just as our first half performance has benefited from the accelerating productivity gains within the W2 commercial leadership cohort hired in 2025, we expect these newly hired team members to be a growth driver in future quarters as they ramp and build deeper relationships within their territories.

As always, the focused execution from our commercial leadership team is supported by our proprietary business intelligence platform, which has proven to be a true differentiator in our ability to execute on top of strong fundamentals. We also continue to invest in our surgeon-to-surgeon education programs, which we view as central to our commercial strategy. Our CEME team has carried out more than 90 surgeon engagement events so far this year, touching hundreds of surgeons, and the organic peer advocacy these events foster remains a key differentiator for our commercial model. In April, we hosted our national symposium in Napa, the largest such event in SI's history by surgeon attendance. In the three months since, we've already seen a tangible increase in procedural volumes among attending surgeons as compared to before the event, further evidence of the power of our education program.

Turning to our second strategic priority of increasing utilization and procedural growth within our customer base. In the second quarter, total implant volume across our core contender and prospect customers increased approximately 50% year-over-year to 2,238 units. This growth volume is strong on its own, what stands out even more is the composition behind it. The vast majority of our implant volume growth this quarter was derived from our core surgeon category, with core surgeons also carrying out more procedures, meaning our growth is coming from core on both a physician and unit basis, exactly as our customer base is designed to progress. Surgeons frequently enter the funnel as prospect, move to contender, and then grow to become core. Those first two categories remain consistent across quarters, while our core category only continues to grow.

This trend, combined with sequential increase of new surgeon adds to the funnel this quarter, gives us a highly encouraging outlook on the current trajectory of our customer base. Importantly, we're seeing these utilization increases broadly across all our territories. In the second quarter, each of our territories grew year-over-year, the majority demonstrating more than 80% growth year-over-year. We also continue to enter new markets and deepen our presence in the current ones. For instance, we recently expanded our commercial presence within two highly prominent hospital systems and now have full access at both centers. Even as we continue to make progress activating new markets across the U.S., we believe there is a significant greenfield opportunity remaining for our expanded commercial leadership team to target.

To ensure we continually equip surgeons with the best-in-class product portfolio, we also remain focused on our third strategic priority of developing and launching new technologies to address the unmet needs of patients and surgeons. 2026 has been an active year on this front, I want to start with three recent product introductions then walk through updates on our enabling technology platform, our robotic program, four additional pipeline projects. First, on recent progress, we transitioned our I135 RFX humeral stem to full commercial launch last quarter following receipt of expanded clearance from FDA to include more complex fractures. Full launch progressed through the second quarter in line with our expectations, we're pleased with the consistent surgeon feedback across both anatomic and reverse shoulder arthroplasty configurations. Second, we recently moved our N22 Glenosphere into full launch since debuting it earlier this year.

This product is the first introduction of our new line of technologies designed for patients with metal hypersensitivity and represents an incremental addressable marker for us. Third, we fully rolled out our new titanium plasma spray, or TPS, reverse base plate as a product line extension, which provides an additional option for surgeons to match implant selection to patient need. We're seeing early success across each of these products. In fact, a growing portion of our total procedures year to date have involved the use of one of these new products, and all three have contributed to our recent uplift in average selling price. Beyond these recent introductions, we're also committed to further extending our technology advantage and have significantly advanced several programs across enabling technology and new product development.