SHOULDER INNOVATIONS, INC. (SI) Earnings

Management highlights

### Core Strategic Priorities Progress - Driving adoption among new surgeons: The company grew its surgeon customer funnel, more than doubling new customer entries compared to Q1 2025. Surgeon adoption is supported by a proprietary business intelligence platform, improving productivity from 2025-hired commercial team members, targeted high-touch peer-to-peer surgeon education programs, and new commercial talent hires in Q1 to scale into new U.S. territories. - Increasing penetration in existing surgeon customer bases: Q1 2026 total implant volume grew 51% year-over-year, with core customers (the highest-volume, most-utilized segment) delivering the strongest growth, outpacing all other categories. Higher-volume core surgeons offset average volume compression from new core entrants, proving existing core customers continue to grow their utilization even as the segment expands. - Developing new products to address unmet clinical needs: The company achieved multiple key product milestones in Q1 2026. ### New Product Development Milestones - I-135 RFX humeral stem: Transitioned from limited user release to full commercial launch in Q1 2026 after receiving FDA expanded clearance for complex fracture cases. The product now supports primary, revision, and fracture total shoulder arthroplasty, allowing the company to address nearly the full spectrum of shoulder arthroplasty procedures, and is built on the company's proprietary inset lateral-lateral implant philosophy with proven clinical benefits. The company's clinical data registry now has over 500 enrolled patients to generate real-world evidence for all implant products. - N22 Glenosphere: Initiated limited user release for the new product designed for patients with metal hypersensitivity, receiving positive early market feedback. - Shoulder-specific micro-robotic solution: Product development is progressing slightly ahead of schedule, with a successful full-procedure cadaver lab completed in March 2026. The solution integrates seamlessly with the existing Prevoyance preoperative planning platform for a connected workflow from planning to intraoperative execution. FDA submission is targeted for 2027.

Guidance

- Full year 2026 net revenue guidance is raised to a range of $65 million to $68 million, representing 37% to 44% year-over-year growth, up from the prior guidance range of $62 million to $65 million (31% to 37% year-over-year growth). Management notes the updated guidance reflects high conviction in business trajectory, accounts for typical industry seasonality (lower sequential volumes in Q3 followed by a step up in Q4), and is intentionally conservative given the early stage of the year, with no adverse market factors prompting the conservative framing. - Gross margins are expected to remain near Q1 2026 levels for the remainder of 2026, with potential minor quarter-to-quarter fluctuations driven by product mix and average selling price (ASP) changes. Ongoing cost reduction initiatives are expected to continue driving gross margin expansion as the business scales. - SG&A expenses as a percentage of full-year revenue are expected to increase slightly from Q1 2026 levels, with the most significant increases coming in Q2 and Q3, followed by a decline in Q4. The increase reflects planned investments in greenfield geographic expansion for the commercial team. - R&D expenses as a percentage of revenue are expected to moderate in the second half of 2026. - Cash burn is expected to decline significantly starting in Q2 and continuing through the end of 2026, after elevated Q1 cash burn driven by proactive inventory and asset purchases to prepare for accelerated growth. Management confirms the company has sufficient cash on hand to fund growth investments and reach cash flow breakeven.

Segment performance

Shoulder Innovations operates a single portfolio of shoulder arthroplasty products and enabling technologies, with overall Q1 2026 net revenue of $16.7 million, representing 65% year-over-year growth and 16% sequential growth. Gross margin for the quarter was 77.7%, up 80 basis points year-over-year. Selling, general, and administrative (SG&A) expenses were $18.2 million, up from $10.5 million year-over-year, and represented 109% of total revenue, down from 128% in Q3 2025, demonstrating operating leverage. Research and development (R&D) expenses were $3.8 million, up from $1.6 million year-over-year, primarily driven by investments in the robotic platform development. Net loss for the quarter was $8.4 million, increasing from a $4.7 million net loss year-over-year, while adjusted EBITDA loss was $7.0 million, up from a $3.5 million loss year-over-year. Total implant volume grew 51% year-over-year to 2,184 units, with core surgeon customers serving as the highest growth segment, as contender surgeons are actively converted to the core category. As of March 31, 2026, cash and cash equivalents totaled $108.5 million.

Risks & headwinds

Forward-looking statements included in the call are subject to material risks and uncertainties that could cause actual results to differ materially from projected outcomes. A full description of relevant risks is available in the company's most recent Form 10-K and other SEC filings. No new material operational risks or unanticipated failures were discussed on the call.

Analyst Q&A

• Q: What drove the significant year-over-year and sequential growth inflection in Q1 2026, and why is the updated full-year guidance conservative relative to the strong Q1 performance? /

  A: Growth came from three balanced contributions: strong new customer growth, volume increases from existing customers, and higher ASPs. All growth stems from excellent cross-organization execution, particularly from the commercial and clinical education teams leveraging the company's proprietary business intelligence platform. The guidance is conservative simply because it is still very early in the year, and management has high conviction in the guided range with no adverse market factors that would change the company's underlying business trajectory. (312 characters)

• Q: As the customer base scales, will conversion of prospects to the high-volume core surgeon category become harder, and what drove the stronger-than-expected ASP in Q1? Is this ASP level durable? /

  A: The company currently has only 134 core and contender surgeons out of 1,800 target high-volume surgeons, leaving substantial long-term greenfield growth opportunity for conversion. Higher ASPs came from focused targeting of appropriate centers and improved negotiation skill from the commercial team, with a small incremental contribution from newly launched higher-ASP products. Management expects ASPs to remain near the Q1 2026 level for the rest of the year, with only minor expected variation. (398 characters)

• Q: How is the company's shoulder-specific robotic solution differentiated from competing products, and how will it impact business performance? /

  A: The solution has two key differentiators: it uses existing surgical techniques with no added procedure time (a key clinical benefit), and it follows a robotics-as-a-service portable model rather than requiring expensive capital acquisition by hospitals, with the entire system fitting in a carry-on sized case. Market feedback on the differentiated value proposition has been very positive, improving customer stickiness and brand equity with existing surgeon customers, and opening a new cycle of innovation for the company. (382 characters)

• Q: Can profitability be achieved earlier than historical timelines for comparable orthopedic companies, which have typically reached profitability around $200-$250 million in revenue? /

  A: The company is built as a highly capital-efficient business with above-market gross margins by design, and has already demonstrated operating leverage in SG&A expenses as revenue grows. Management balances ongoing growth investments with the goal of long-term profitability and expects continued progress toward profitability over time, but declined to provide a specific revenue threshold or timeline for reaching profitability. (321 characters)