SHOULDER INNOVATIONS, INC. (SI) Earnings

Management highlights

- Strategic Priorities Execution • New surgeon adoption: New customer additions accelerated in Q2 2026, exceeding the already strong pace set in Q1 2026 (which was more than double the prior-year Q1 pace). The company targets ~1,800 high-volume U.S. shoulder surgeon specialists, and expanded its commercial leadership team with top talent in Q2 to capitalize on growth momentum. • Existing customer utilization: Total implant volume across core and prospect customers grew ~50% year-over-year to 2,238 units, with the vast majority of growth coming from core (highest-utilization) surgeons, both via more surgeons joining the core category and higher volume per core surgeon. All U.S. territories grew year-over-year, with the majority exceeding 80% year-over-year growth. The company recently gained full access at two large prominent hospital systems, with significant untapped greenfield growth remaining across the U.S. market. • New product development and pipeline: Three new products launched in 2026: the I-135 RFX humeral stem (full commercial launch after receiving expanded FDA clearance for complex fractures), N22 Glenisphere (full launch, the first product for patients with metal hypersensitivity, expanding the company's addressable market), and a new titanium plasma spray (TPS) reverse base plate product extension. All three new products have driven an uplift in average selling prices (ASP). - Technology Platform and Robotic Program Updates • The Providence enabling technology platform is undergoing a full technological and software revamp to better align with surgeon needs, expand functionality, and serve as the core engagement hub for customers. The updated platform is fully compatible with the company's upcoming Inset Neo shoulder-specific micro-robotic solution. • Development of the Inset Neo robotic system is nearly a full year ahead of the company's initial internal forecast. FDA submission is planned for H1 2027, with a surgeon-led train-the-trainer training program scheduled to launch in Q1 2027. The platform is designed to require minimal changes to existing surgical techniques, deliver consistent procedure times, and offer a value-accretive economic model particularly suited for ambulatory surgery centers. • Four additional pipeline products are in advanced development: the Inset Clutch Guide system (limited launch Q3 2026, improves surgical plan execution in the OR and delivers modest ASP uplift), Inset One (FDA submission targeted 2027, patient-matched additive manufactured reverse solution for complex indications), subscapularis sparing technique instrumentation (limited user release Q3 2026, reduces the risk of a common post-operative complication), and Inset GO next-generation anatomic glenoid implant (first cases expected Q4 2026, reduces procedure time by up to 10 minutes per surgery). - Partnership and Clinical Updates • Two new strategic partnerships were announced: an exclusive collaboration with an additive manufacturing leader to develop customized solutions for complex revision shoulder deformity cases, expanding the company's addressable market for complex cases; and a relationship with a soft tissue device manufacturer that will enable commercialization of soft tissue products before the end of 2026 (no material 2026 revenue is expected from this partnership). • Real-world clinical data registry collection is ahead of expectations, with preliminary results showing improved post-operative outcomes including lower acromial fracture rates, reduced instability complications, improved range of motion, and better aesthetic outcomes. New partnerships with clinical centers holding large retrospective data sets are expected to accelerate publication of full results by multiple quarters. - Financial Operations • The company closed a $50 million refinancing package with Stifel Venture Banking, including a fully funded term loan to refinance existing debt and an undrawn line of credit. This strengthens the balance sheet, reduces future interest costs, and adds financial flexibility. The company expects to file a standard Form S-3 shelf registration statement, with no immediate plans for a primary capital raise; the filing only satisfies contractual registration rights for certain pre-IPO investors.

Guidance

- Full-year 2026 net revenue guidance was raised to a range of $67 million to $69 million, representing 42% to 46% year-over-year growth from 2025. This is an upward revision from the prior guidance range of $65 million to $68 million (37% to 44% year-over-year growth). The guidance includes expected industry-standard orthopedic seasonality, with lower sequential Q3 volumes and a product mix shift in the second half that reduces the share of higher-margin reverse procedures and impacts ASP. - Gross margins are expected to remain near current levels for the remainder of 2026, with potential minor quarter-to-quarter fluctuations driven by product mix and ASP changes. Longer-term, recently filed FDA clearance for additive manufacturing supply chain capabilities is expected to deliver cost reductions of up to 30% on some products starting in 2027, supporting further gross margin expansion. - SG&A expenses as a percentage of revenue are expected to increase in Q3 2026 from Q2 levels, then decline in Q4 2026, as the company continues to invest in greenfield commercial expansion opportunities. R&D expenses as a percentage of revenue are expected to moderate in late 2026 as current pipeline programs advance.

Segment performance

Shoulder Innovations reports one consolidated business focused on shoulder arthroplasty implants and related enabling technology, no separate product segments are broken out in the call. The overall Q2 2026 financial performance is as follows: Net revenue of $17.2 million, a 56% year-over-year increase from $11 million in Q2 2025. Gross margin was 78.3%, up 210 basis points from 76.2% year-over-year. Selling, general and administrative (SG&A) expenses were $20.1 million, up from $12.8 million year-over-year, with the increase driven by expanded commercial headcount, higher variable selling costs, and public company compliance costs. Research and development (R&D) expenses were $3.4 million, up from $1.4 million year-over-year, primarily due to increased investment in robotic platform development. Net loss for Q2 2026 was $10.2 million, compared to a $19.2 million net loss in Q2 2025; adjusted EBIT loss was $8 million, down from a $18.1 million loss year-over-year, with the reduction in loss primarily due to large prior-year fair value charges on preferred stock and warrant liabilities. Total cash, cash equivalents and marketable securities as of June 30, 2026 were $99 million.

Risks & headwinds

No new material standalone risks were discussed during the call. Management noted that all forward-looking statements are subject to existing material risks and uncertainties disclosed in the company's most recent Form 10-K and other SEC filings, which could cause actual results to differ materially from anticipated performance. Specific sources of uncertainty noted implicitly include potential delays in FDA approval of new products, slower-than-expected surgeon adoption of new technologies including robotics, and competitive pressures from other orthopedic device companies. The company also clarified that the upcoming Form S-3 shelf registration does not involve an imminent primary capital raise, but does enable future potential stock sales by pre-IPO investors, which could create share price volatility. The company has no obligation to update forward-looking statements unless required by law.

Analyst Q&A

• Q: The guidance implies roughly flat first half/second half revenue this year, compared to a meaningful second half bump last year. Are there any competitive or market dynamics we should be aware of for the second half? /

  A: Management confirmed the company's pace of new customer additions has accelerated year-over-year, and there are no changes to underlying market or competitive dynamics that are factored into the guidance. The published guidance reflects high-convidence estimates based on current performance trends, with no extra conservatism built in beyond normal seasonal adjustments. (312 characters)

• Q: Can you share commercial plans, ASP targets, and expected economic impact for the upcoming Inset Neo robotic system? /

  A: Management is not yet ready to disclose full pricing and commercial go-to-market strategy. The company's portable platform design positions it uniquely to support flexible economic models for both ambulatory surgery centers and inpatient hospitals, with pricing options that can be embedded in implants, charged as capital purchase, or a hybrid model. The company will launch with a limited user release to ensure quality, and expects meaningful economic benefit commensurate with the clinical value the system provides. (428 characters)

• Q: For the new Inset GO product that cuts 10 minutes of procedure time, will the benefit be used to win new accounts, increase utilization, or support higher pricing? /

  A: The primary benefit for customers is the ability to add an extra surgery to a surgeon's daily schedule in many cases, which delivers far more economic value to the hospital than per-minute overhead savings. The efficiency gains win positive feedback from both surgeons and OR staff, creating a competitive advantage that drives both new account adoption and higher utilization per existing surgeon, rather than being primarily used to justify direct price increases. (416 characters)

• Q: What drives surgeons to increase utilization of your products after they first adopt, and do you see a common trigger point for faster adoption? /

  A: There is no one-size-fits-all trigger, and the experienced commercial team tailors engagement to each surgeon's needs. A key recent shift is that the company is now widely recognized as a full platform provider, not just an anatomic glenoid company. More new surgeons are starting with the company's reverse platform, where positive clinical outcomes are visible more quickly, and this drives faster loyalty and transitions to higher utilization than historical adoption patterns. (402 characters)

• Q: Is your growth driven by overall market expansion or share gains from existing competitors? /

  A: Management estimates the vast majority of current growth (roughly 90%) comes from taking share from incumbent market players, with only a small portion from overall market expansion. While growth in the number of fellowship-trained shoulder surgeons expands the overall market, the company is still in the very early innings of penetrating the existing market, so share capture remains the dominant driver of growth. (321 characters)