Earnings call: PROCEPT BioRobotics sees 83% revenue surge in Q1 2024

PROCEPT BioRobotics (ticker: PRCT) reported an 83% revenue increase in the first quarter of 2024, reaching $44.5 million, driven by robust sales of its AQUABEAM Robotics Systems in the United States and record international revenues.

The company's expansion in the UK and planned launch in Japan signify its growing global footprint in the urology sector. Despite a net loss of $26 million for the quarter, PROCEPT BioRobotics achieved an all-time high gross margin of 56.2% and expects this to rise to between 58% and 59% by year-end. The company ended the quarter with a strong cash position of $229 million and anticipates continued growth with a full-year revenue forecast of $213.5 million.

Key Takeaways

• PROCEPT BioRobotics' revenue grew by 83% in Q1 2024, totaling $44.5 million.
• The company's US install base reached 354 systems, targeting a market of 2,700 BPH surgery hospitals.
• AQUABEAM Robotics Systems sales generated $14.2 million, marking a 62% increase.
• US handpiece and consumable revenue surged by approximately 101% to $23.6 million.
• Full-year revenue for 2024 is projected to be $213.5 million, a 57% increase.
• Gross margin reached a record 56.2%, with a full-year expectation of 58-59%.
• Operating expenses for Q1 were $52.7 million, with a full-year forecast of $231.5 million.
• Net interest income is expected to be around $7 million in 2024.
• The company reported a net loss of $26 million for the first quarter, with an adjusted EBITDA loss of $20.4 million.

Company Outlook

• PROCEPT BioRobotics is focused on increasing utilization and maintaining operating expenses.
• The company aims for a gross margin target of over 60% exiting the year.
• A pilot program for ASCs is expected to drive profitability and adoption.

Bearish Highlights

• The company reported a net loss of $26 million in Q1 2024.
• Adjusted EBITDA also reflected a loss of $20.4 million.

Bullish Highlights

• Record international revenues and strong US sales indicate significant market penetration.
• The establishment of an IDN Strategic Account team has secured multiple deals.
• The company's safety data supports the expansion into ASCs and the treatment of BPH patients who have failed medications.

Misses

• No specific misses were discussed in the earnings call summary provided.

Q&A Highlights

• The company has seen minimal resistance to the price increase implemented in Q1.
• The correlation between handpiece shipments and procedures remains consistent.
• Ongoing clinical trials in the Prostate Cancer Developer program aim to open up new commercial opportunities.
• The AUA Investor event on May 3rd is a forthcoming milestone for the company.

In conclusion, PROCEPT BioRobotics has demonstrated strong financial performance in the first quarter of 2024, with significant revenue growth and a solid gross margin increase. The company's strategic focus on market expansion, both domestically and internationally, along with its commitment to operational efficiency, positions it for continued success in the burgeoning field of urology.

InvestingPro Insights

PROCEPT BioRobotics (ticker: PRCT) has shown a remarkable revenue growth of 83.29% in Q1 2024, reflecting the company's successful penetration into the urology market with its AQUABEAM Robotics Systems. As the company continues to expand its global footprint, here are some key metrics from InvestingPro that investors should consider:

• The company's Market Cap stands at $2.72 billion, highlighting its significant size within the medical device sector.

• PROCEPT BioRobotics is trading at an elevated Price / Book multiple of 11.1 as of the last twelve months up to Q4 2023, indicating a high valuation compared to its book value.

• The company has experienced an impressive one-year price total return of 112.12%, showcasing strong investor confidence and market performance.

InvestingPro Tips suggest that while analysts have revised their earnings downwards for the upcoming period and the stock is currently in overbought territory according to the RSI, PROCEPT BioRobotics has liquid assets that exceed short term obligations and operates with a moderate level of debt, which could be seen as positive indicators of financial health.

For investors looking for a deeper dive into PROCEPT BioRobotics' financials and future outlook, there are additional InvestingPro Tips available at https://www.investing.com/pro/PRCT. For those interested in an InvestingPro subscription, use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. With these insights and the 15 additional tips listed on InvestingPro, investors can make more informed decisions about their investments in the healthcare technology space.

Full transcript - Procept Biorobotics (PRCT) Q1 2024:

Operator: Good morning and welcome to PROCEPT BioRobotics First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. We'll be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Basco, Vice President, Investor Relations for a few introductory comments.

Matt Basco: Good morning and thank you for joining PROCEPT BioRobotics first quarter 2024 earnings conference call. Presenting on today's call are Reza Zadno, Chief Executive Officer, Sham Shiblaq, Chief Commercial Officer, and Kevin Waters (NYSE:), Chief Financial Officer. Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events, or performance or forward-looking statements is defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions, and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in PROCEPT BioRobotics filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place under reliance on these forward-looking statements, which speak only as of today's date, May 1st, 2024, except as required by law PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. During the call, we also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent are included in our earnings release. With that, I'll turn the call over to Reza.

Reza Zadno: Good morning and thank you for joining us. For today's call, I will provide opening comments and a general business update followed by Sham, who will go into detail on a few key commercial initiatives. Kevin will then provide additional detail regarding our financial performance and updated 2024 guidance before opening the call to Q&A. We are pleased to report another strong quarter with total revenue for the first quarter of 2024 of $44.5 million representing growth up 83% compared to the first quarter of 2023. Growth in the quarter was driven by strong US system sales, increased utilization from our expanded US install base, and record international revenues. US monthly utilization increase approximately 7% compared to the prior year period, which is significant given an 84% increase in our install base. We exited the first quarter of 2024 with a US install base of 354 systems out of target market of 2,700 total hospitals that performed BPH surgeries. The significant increase in new accounts in conjunction with our ability to move accounts up to utilization care further demonstrates not only our team's consistent commercial execution but growing customer and patient demand for Aquablation therapy. As we highlighted earlier this year, there are multiple factors trending in the right direction, which will allow us to continue to execute against our long-term growth plan, while being disciplined ensuring a path to profitability. We believe these underlying fundamentals reflect the technology that is laying the foundation to become the BPH surgical standard of care and a business that will be a leading urology franchise globally. Starting with the hospital CapEx environment, we continue to believe the market is stable to improving compared to the previous nine to 12 months. Specifically, we are having more proactive conversations with the hospital CFOs and IDN network partners who just a few quarters ago were exercising more caution in pursuing general CapEx investment given lingering macro headwinds. With a growing and increasingly educated patient population along with motivated urologists, we are seeing hospitals prioritize investment in our AQUABEAM Robotics system to ensure they stay competitive and not lose patients to other area hospitals. Given the disruptive nature of our technology and that patient outcomes are independent of surgeon skill or experience, every BPH hospital can now build a robust BPH practice with Aquablation therapy and not have to refer patients out to area specialists. Given this market dynamics, we are still very early in our adoption curve with a long runway in front of us selling to BPH hospitals. Additionally, in the first quarter, we launched a pilot program at our first ambulatory surgery center in the United States with one of our most experienced Aquablation surgeons. To be clear, we sold 38 systems in the first quarter but placed 39. The 39th is the affirmation ASC and is included in our US-installed base of 354. Our primary commercial strategy remains focused on penetrating BPH hospitals and partnering with the thousands of urologists who perform resective surgeries. For Aquablation therapy to be the market leader, we first need to convert the majority of TURP and laser procedures, which are primarily performed in the hospital setting before making a meaningful transition to ASC. Our objective in placing systems at ASCs is to ultimately expand the surgical market long-term and increase overall surgical patient volumes that were previously either on medication or failed medication. To note, there's established Medicare reimbursement for acquisition therapy in the ASC at approximately $6,200 per procedure. We are encouraged with early utilization metrics at this center and will provide additional updates when it makes sense in the future. Turning to our commercial organization, we entered 2024 with approximately 40 capital sales reps of which 10 were added in the third and fourth quarter of 2023. As a reminder, we believe the productivity curve for capital reps is approximately six months. Over these six months period, they are responsible for building out their respective pipelines. Thus, we do not expect the capital reps added in the fourth quarter of 2023 to start meaningfully contributing to US system sales until the second half of 2024, which is factored into our 2024 guidance. Additionally, we hired a new strategic account team, which is not included in the 40 capital reps. Sham will provide further detail on this team's early impact in the first quarter. Next, touching on our utilization team. Given our strong commercial momentum and expanding pipeline, 2023 was an investment year to meaningfully increase headcount and add capacity to support future growth. Similar to our capital sales rep team, we entered 2024 with the most experienced utilization team in the company's history. While we will continue to increase headcount in 2024, it'll be at the slower pace compared to 2023. Our goal in 2024 will be 40 reps to continue to identify and train new surgeons at the existing and new accounts to increase utilization. With respect to international performance in the first quarter, we generated $4.3 million of international revenue in the first quarter of 2024, representing growth of 65% compared to the prior year period. Growth in the first quarter was once again driven primarily by strong sales momentum in the United Kingdom. Given the accelerating interest from UK surgeons and strong unit economics on handpiece and system average selling prices, we plan to make further investments in 2024 in the UK to accelerate growth and expand patient awareness. Additionally, following our post-market survey in Japan, we have generated significant interest from Japanese surgeons. We are currently in the final stages of signing sales contracts with some of the most reputable urology practices in Japan, and we plan to launch a population therapy program later this year. While we are excited about these early placements, it'll take time to build our pipeline and launch accounts to start generating meaningful procedure volumes and revenue. Like the US and the United Kingdom, our strategy is to lead with clinical data and key opinion leader adoption to support a more robust and sustainable commercial launch. Lastly, I want to touch on prostate cancer. A few weeks ago we announced we will be hosting an investor event and surgeon panel at the 2024 American Urological Association Conference in San Antonio on Friday, May 3rd at 8:00 AM Central, a webcast option will be available on our IR website for those who cannot attend in person. The agenda for Friday's event will be to highlight six months follow-up data of patients treated for prostate cancer with Aquablation therapy. Additionally, one of our panelists will share a specific prostate cancer case and how the patient was treated? Lastly, we will conduct a fireside chat with Dr. Inderbir Gill, Founding Executive Director of USC, Urology and Chairman of Urological Cancer Surgery at Keck School of Medicine of USC. The fireside chat will focus on limitations of current prostate cancer treatment options and why Aquablation therapy has the potential to be a great option for patients and ultimately surgeons who want to recommend a treatment that is effective and reduces rates of unnecessary harm. We look forward to seeing many of you this Friday in person. To conclude my prepared remarks, every key metrics we track continues to move in the right direction. To summarize, our pipeline and sales funnel continue to grow nicely in what we currently believe is a stable to improving macro environment. On average, the longer an account has been active, the more procedures they do. We are launching new accounts with more surgeons while sustaining retention rates consistently above 90%. Our commercial organization is the largest and most tenured in the company's history, which we believe will lead to increased productivity. And lastly, we will continue to enroll patients in both prostate cancer studies to support Aquablation therapies, clinical value in this therapeutic area to expand our footprint in the larger urology market. Given this positive momentum, we believe Aquablation therapy is laying the foundation to become the BPH surgical standard of care and PROCEPT is emerging as a leading global urology company. With that, I will turn the call over to Sham.

Sham Shiblaq: Thanks, Reza. I appreciate the opportunity to speak today as this is my first time participating in our quarterly earnings calls. While I've met a number of you at various investor events and bus tours, my name is Sham Shiblaq and I am PROCEPT’s Chief Commercial Officer and have been with the company since March, 2019. Having been at PROCEPT for over five years now is very fulfilling to look back at what we have collectively been able to accomplish in a relatively short period of time. While our recent history has been exciting, we believe our future will be transformational. To build off Reza’s section, I want to provide additional context on a few key areas, starting with an update on our strategic accounts team and relationships with IDNs. As Reza mentioned, we successfully hired a strategic accounts team who joined PROCEPT with decades of experience selling capital equipment and building successful robotic programs and large IDNs. The role of this team will be to focus on partnering with strategic IDN networks across the country to improve our sales efficiencies in both the capital selling process and improve utilization at targeted IDNs. As a reminder, we successfully established sales and legal contracts with the majority of large strategic IDNs in 2023, which allowed this new team to hit the ground running in the first quarter. Our IDN strategy is initially focused on the top 17 strategic IDNs that account for 29% of BPH hospitals Regarding system sales in the first quarter, we saw several sales to these strategic IDNs and prior quarters’ hospitals, and these IDNs would access regional or local funds to purchase the AQUABEAM system. In the first quarter of this year, multiple strategic IDNs used corporate funds to complete AQUABEAM purchases. This is a positive shift demonstrating the support of Aquablation therapy at the corporate level of strategic IDNs. The systems purchased by these IDNs in the first quarter were already in our targeted sales pipeline and well-progressed in our sales process, so they did not add to our forecast incrementally. Nevertheless, the strategic account team played a crucial role in utilizing corporate funds to deploy aqua beam systems in hospitals where we already have an existing surgeon champion. Given an improving hospital CapEx environment and this team's early contributions in a quarter, that is typically seasonally difficult I not only have a high degree of confidence, but high expectations for what they can accomplish in future quarters. Turning to surgeon interest and patient awareness, as we have communicated to investors over the last few years, our primary focus is for Aquablation therapy to become the standard of care for BPH surgery. And to achieve this goal, we have prioritized surgeon engagement, patient outcomes, and training. Regarding surgeon engagement in the first quarter, we held numerous peer-to-peer medical education events, which included participation from hundreds of urologists who were introduced to Aquablation therapy for the first time. Given the growth we have experienced over the last few years, our medical education events have been a great way to highlight our technology and for customers to share their positive experiences with Aquablation to prospective physicians. This allows our participant surgeons to engage more effectively with the respective hospital CFOs to eventually acquire an AQUABEAM Robotic system. Regarding first quarter procedure volumes, the primary drivers of procedure volume continue to be active surgeon in growth, and adding new surgeons at both existing and new accounts. Additionally, our ability to maintain surgeon retention rates above 90% demonstrates the clear patient and surgeon benefits of our technology, which ultimately leads to increased utilization. As a company, we benefit greatly from this high level of surgeon retention as our commercial team can focus on adding new surgeons. And with that, I'll turn the call over to Kevin.

Kevin Waters: Thanks, Jim. Total revenue for the first quarter of 2024 with $44.5 million, representing growth of 83% compared to the first quarter of 2023. US revenue for the quarter was $40.2 million, representing growth of 85% compared to the prior year period. In the first quarter, we sold 38 AQUABEAM Robotics Systems with average selling prices of $373,000 generating total US system revenue of $14.2 million, representing system revenue growth of 62% compared to the first quarter of 2023. As Reza indicated, we sold 38 systems in the first quarter, but placed in additional system at an ASC. While we may consider additional ASC placements in 2024, these placements are not factored into our system revenue guidance for 2024. US handpiece and consumable revenue for the first quarter of 2024 was $23.6 million representing growth of approximately 101% compared to the first quarter of 2023. Handpiece growth was driven by an increase in the install base of AQUABEAM Robotic Systems, which has grown 84% from the first quarter of 2023. Additionally, monthly utilization of 6.8 handpieces per account increased approximately 7% compared to the first quarter of 2023. Utilization in the first quarter exceeded our initial guidance and as expected was down sequentially given normal elective procedure seasonality compared to the calendar fourth quarter. Overall, we continue to see increased utilization across all cohorts, which is a direct reflection of strong commercial execution, training new surgeons and surgeons taking the next step to adopt Aquablation therapy as their treatment of choice for all respective procedures. We shipped 6,811 handpieces in the US in the first quarter, representing unit growth of a 100% compared to the first quarter of 2023. First quarter handpiece average selling prices were approximately $3,200. We also recorded $1.8 million of other consumable revenue in the first quarter of 2024. International revenue for the first quarter was $4.3 million, representing growth of approximately 65%. Gross margin for the first quarter of 2024 was 56.2%, representing an all-time high and the 120 basis points above the high end of our first quarter guidance we provided in February. Gross margin expansion in the first quarter was due to strong execution from our operations team and our ability to absorb overhead expenses along with revenue over achievement. Moving down the income statement. Total operating expenses in the first quarter of 2024 were $52.7 million compared to $40.9 million in the same period of the prior year, and $50.8 million in the fourth quarter of 2023. The increase was driven by increased sales and marketing expenses, primarily to expand the commercial organization and increased research and development expenses and general and administrative expenses. When comparing revenue growth to operating expense growth, we grew revenues 83% in the first quarter on 29% operating expense growth, which is a favorable ratio of 2.9 times. Total interest in other income was $1.7 million. Quarterly interest expense from our $52 million term loan was offset by favorable interest income from our cash balances. Net loss was $26 million for the first quarter of 2024 compared to $28.5 million in the same period of the prior year. Adjusted EBITDA was a loss of $20.4 million compared to a loss of $23.9 million in the first quarter of 2023. Our cash and cash equivalence balance as of March 31st was $229 million. We believe our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business. Moving to our 2024 financial guidance, we now expect full-year 2024 total revenue to be approximately $213.5 million, representing growth of approximately 57% compared to 2023. Starting with US systems, we continue to expect approximately 45% of system sales to be in the first half of 2024, which we attribute to normal seasonality and our expanded sales force becoming more productive in the second half of 2024. This exhibits a similar cadence to what we experienced in 2023. We also anticipate system average selling prices in 2024 to be approximately $370,000. Turning to US Handpieces, we continue to expect to sell approximately 33,000 handpieces for the full year with average selling prices of approximately $3,200. We also expect other consumables revenue to be approximately $9 million for the full year. Regarding quarterly cadence, we expect utilization to modestly increase sequentially throughout the year. Additionally, we expect US service revenue to be approximately $12 million. Lastly, on international revenue, given another strong quarter and positive momentum in the United Kingdom, we now expect full-year international revenue to be approximately $18.5 million, representing growth of approximately 56%. Moving down the income statement, we now expect full-year 2024 growth margins to be approximately 58% to 59% an increase from our previously issued guidance of 57 to 58%. Regarding quarterly cadence, we expect gross margins to increase sequentially throughout the year with the second quarter being approximately 57%. Turning to operating expenses, we continue to expect full-year 2024 operating expenses to be approximately $231.5 million, representing growth of 29%. In terms of quarterly cadence, we expect the second and third quarter operating expense growth to be in the low 30% range compared to the prior year period. Given current interest rates, we expect to generate net interest income of approximately $7 million in 2024. Given the increase in revenue and gross margin, we now expect full-year 2024 adjusted EBITDA loss to be approximately $70 million, an improvement from a loss of $73 million from our previous guidance. Lastly, we expect our cash burn to approximate, our adjusted EBITDA, and improve sequentially throughout the year. At this point, I'd like to turn the call back to Reza for closing comments.

Reza Zadno: Thanks, Kevin. In closing, I want to thank our employees, customers, and shareholders for all their support to help us along our journey to becoming the standard of care for BPH. We will continue to leverage our commercial and clinical investment to execute on our long-term strategy. Have a great day, and I look forward to seeing many of you at our AUA investor event on May 3rd at 8:00 AM Central time in San Antonio, Texas. At this point, we will take questions. Operator?

Operator: Thank you. [Operator Instructions] Our first question comes from Craig Bijou with B of A Securities. Your line is open.

Craig Bijou: Good morning, guys. Thanks for taking the question and congrats on a good start to the year. I want to focus on, Kevin, your comments on utilization, and the sequential improvement in the monthly utilization and it's a little bit different than kind of the seasonality that you saw last year, so maybe if you can give us a little bit more color on kind of what you're seeing that gives you the confidence that you, you can see that utilization accelerate throughout the year.

Kevin Waters: Yeah, thanks, Craig, and good to speak to you this morning. So it's a fair observation. We are really pleased with the strong start to the year on monthly utilization, which is up about 7% year- over-year and coming off the first quarter, we just believe this provided us with multiple proof points and high confidence to continue to drive the sequential utilization throughout the year. And specifically, we do look at a variety of metrics around utilization, whether that's launching new accounts now with multiple surgeons, which has increased over prior year, which leads to sequential increases in utilization. We're also seeing older cohorts now perform more procedures than they were previously performing. And lastly, we continue to see surgeon retention rates kind of above 90%. So when we couple those factors together, we don't want expectations to get ahead of ourselves, but as our guidance applies, we're exiting the, we're going to exit the year with right around 500 systems in the US and given the larger install base, the new accounts are having less and less of a dilutive effect, which gives us some confidence to modestly increase utilization sequentially throughout the year.

Craig Bijou: Got it. That's helpful. Thanks Kevin. And if I can ask on, obviously, you know, it was good to see some of the profitability metrics, you know, the gross margin, you raised your guidance, OpEx, you know, stayed where it was, despite raising revenue guidance, so that's good to see. And you know, I would love to get a little bit more color on, you know, how confident you are that you can, you know, continue to drive the leverage in the business and potentially any additional leverage or upside to the leverage that you're already expecting.

Kevin Waters: Yeah, and we say this in our last call when we issued full-year operating expense guidance that we wanted 2024 to be a year where investors felt there was room to overachieve on the top line, but we would be disciplined and kind of maintain our guidance around our operating expenses. And, you know, that manifested itself in our first quarter results. And specifically when I look at OpEx, what's exciting for the business is really the exit velocity that our guidance implies from a leverage standpoint, you're going to see year-over-year OpEx growth in the fourth quarter in the low 20% range with improving margins, which should be 60% plus exiting the year. I think this is going to demonstrate to our investors tremendous leverage as we exit the year. And, you know, we feel really good about our ability to achieve that.

Craig Bijou: Great. Thanks for taking the questions, guys. Congrats again.

Kevin Waters: Thanks, Craig. Good to talk with you.

Operator: One moment before our next question. Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Matthew O'Brien: Maybe, just for starters on the ASC side. Just talk about what you are going to be looking for in terms of pursuing that opportunity. The investments you need to make to go down that pathway, the profitability profile versus the hospital. And I guess why, is now the time to start to pursue that, just given all the opportunity that you have within the hospital setting?

Reza Zadno: Yes, thanks, Matt. Our primary commercial strategies remains focusing on penetrating high-volume hospitals and partnering with the thousands of urologists who are performing resective surgeries. At the same time, we know in order to become market leader, we have to convert the majority of TURP laser procedure first in the hospital before we make meaningful transition to ASCs. In the prepared remarks, when we talked about the particular site that we installed, the system is the one of our most tenured and experienced surgeons, and in fact, this individual actually requested to pursue an ASC. This was quite frankly a pull, not a push, but our objective in placing system at ASC is to ultimately expand this market. I don't know, Sham, if you want to add anything to this.

Sham Shiblaq: Yeah, thanks Matt, for the question. The why now question is a good one in the sense of this is not a new interest from our surgeons we've received desire to go to ASC in the past and we've talked about it. As Reza mentioned, we have a lot of opportunity remaining in the hospital setting. We continue to be hyper-focused on that opportunity. With that being said, when we look at specific markets, there are some areas that have adopted the technology quite rapidly, where we have large penetration in certain geographic areas, surgeons with a lot of ablation experience, we have established Medicare reimbursement, the ASC, there are a lot of things that we potentially feel like we want to validate in 2024 as far as the pilot program goes. And like Reza mentioned, we have surgeons that have a desire to do it. So we're using 2024 as a pilot year for us to kind of get this program up and going. So in the future, if we desire to expand on the ASC, we have that process worked out. Regarding leverage leveragability of the sales force and profitability. We now have a good footprint in the US, we have a utilization team that has worked and experience with this experienced surgeon in the hospital. So we won't need to hire additional people to go into the ASC environment. What does continue to leverage our current sales force.

Matthew O'Brien: Got it. Appreciate that, Sham. And then maybe for Kevin or Matt. Just on the gross margin side was really good in the quarter. I think, [Craig] was talking about this to some extent as well, but just the performance was well above what we were expecting in a seasoning softer quarter. Can you talk about where some of the improvement came from there sustainability, that improvement, and then I know the guide for the year went up on that metric. Is the exit velocity potentially even higher coming out of Q4 for gross margins versus what we may have been thinking a few months ago? Thanks.

Matt Bacso: Yes, thanks. I'll first address our Q1 performance. The majority of the upside did come from us operating more efficiently at our new facility. We had increased production, we had reduced scrap, and we had improved fixed cost absorption, particularly compared to the fourth quarter, which we talked about on our last call being viewed as one-time items and I think the first quarter kind of proved that out. And we do expect this trend to continue to improve as we increase revenue. You also do see some pricing favorability in our revised guidance. We now believe we're going to be solidly in the 370 range on systems. You see handpiece ASPs going up about $40 to 3,200, and all of that is helping kind of drive confidence and predictability in our growth margins. Regarding specificity around Q4, I mean, we didn't guide a particular number. I did say that we do expect the second quarter to be approximately 57% and improving from there, which by definition would mean that Q4 has to be 60% plus to get to that full-year guide of 58% to 59%.

Operator: Our next question comes from Josh Jennings with TD Cowen. Your line is open.

Joshua Jennings: Thanks for taking the questions and it's great to see the strong start here in 2024. Wanted to follow up on just some of these profitability questions and thinking about the operating expense guidance for ‘24 and the leverage. And I think, you've called out, I guess two times revenue growth over OpEx growth in ‘24 versus 1.5 times in 2023, as we think about 2025 and not, you're not issuing guidance for the out years, but is that the right kind of pace of leverage improvement to think about as we're moving into 2025 and 2026 as we're updating our models?

Kevin Waters: Yeah, we're not going to guide specifically to ‘25, so I'll make a few comments. I've been consistent in saying that I do think that two to one OpEx leverage is a good leverage that will get this business to profitability, and something we're, we're striving to achieve for on future years of the company and we did demonstrate something better than that in the first quarter and those are the numbers, but what I can say, just the mentality of the company, and I've now been here kind of five plus years and where previously revenue growth was, I don't want to say the sole focus, but it was definitely the internal focus of the management team and making sure that we could prove to the market that we have a technology that has the ability to become the standard of care and that took a lot of investment to do. I now feel this, the mentality has changed internally where this pathway to profitability and commitment to profitability, understanding that now with our revenue growth, we need to ultimately show profits to our shareholders. That's been embraced by the whole team at -- and we're just operating in a, I would say, much more disciplined fashion than we have previously in the first quarter's only one quarter. But I feel good about kind of the direction the business is heading in.

Joshua Jennings: Understood. And then maybe another follow-up on or different follow-up on the ASC channel and I guess was hoping you could share just the pace of or the algorithm centers are using the discharge protocol. Are there more centers that are discharging patients to the hospital outpatient department, I guess scheduled on the same day, and just, are these patients being sent home with a catheter and coming back in for a check? And just additionally, I mean, is that same-day discharge attractive for centers? Is that algorithm kind of drive increased profitability for Aquablation treatment and is that a something that the team can market to drive even stronger adoption trends? Thanks a lot.

Reza Zadno: Thanks, Josh. Same-day discharge. We have many accounts that at the hospital setting started that COVID that we're implementing a protocol that allows same-day discharge. So at the ASC setting that also happens. Sham do you want to add anything about this particular account?

Sham Shiblaq: Yeah. Hi, Josh. So the uptake of same-day surgery in a hospital setting has significantly improved over the years, to a point now where we have a very large percentage of surgeons that discharge patients the same day. Obviously, in an ASC setting, you don't have a standard inpatient environment where you keep patients over, you could in many situations, but you choose most of the time to send them home the same day. And so when you do an Aquablation in an ASC setting, in a physician-owned ASC setting, your intent is to have that patient go on the same day. You'll see at the AUA this year and other publications that there are multiple centers now, one outside the US and one in the US that are routinely doing patients in the ASC and comfortably sending patients home the day of the surgery, which goes, going back to your question as far as the discharge. You wouldn't do that as a surgeon if you did not have ultimate confidence in your ability to treat the patient and send them home the same day. So you would never do a patient in ASC without that confidence. And so that speaks to the clinical improvement that's happened over the last five years. It speaks to the confidence our surgeons have and the safety of our product. And so all of those things only happen in an ASC when you have, all those boxes checked from a clinical and safety perspective. As far as the profitability of the procedure, the reimbursements established, we feel like this is an opportunity for surgeons to take this site of care, patients desire to be in environments like the A SC. And so we think there's a large opportunity for us, in the future to go into ASCs. But like I said, this is a market. We're focusing in the hospital. We think about when we think about the ASC for us as a market expansion opportunity, in the sense that there's a lot of patients that are on the sidelines that don't desire to go to a hospital. And we think this is an opportunity for us to expand the market beyond the hospital environment.

Joshua Jennings: Thank you.

Operator: One moment for our next question. Our next question comes from Richard Newitter with Truist Securities. Your line is open.

Richard Newitter: Hi, thanks for taking the questions, and congrats on a great start to the year. Several from me, maybe just starting on the IDN Strategic Account team. Good to see that in place. Seems like it's coming right at a time when you have good visibility into all of the kind of the corporate C-suite level, IDN contracts in place. What does this really do for you, in terms of, if you could talk to your visibility into the funnel conversion? Does this just give you a better line of sight to timing of the existing funnel, and when that can transit to revenue? I'm also just wondering if perhaps it does something for your visibility into pricing, now that you're putting a firm stake in the ground for a $370,000 ASP, that's tended to fluctuate and you've always said to brace for that. So is any anything changed there? And I have a follow-up.

Kevin Waters: Yeah. So I'll start. This is Kevin. Maybe I'll turn it over to Sham. And, Sham did mention in his remarks, we did see in the first quarter, for the first time, multiple strategic IDNs use corporate funds to complete AquaBeam purchases in the first quarter. And while this is positive, these deals were already in our targeted sales pipeline. They're well progressed in the funnel where in prior quarters, regional or local funds were used and it is good to see this momentum and just the dynamics of that team, I would argue that some of these deals wouldn't have gone over the finish line without the incremental adds that we had in the strategic accounts team and their relationships with these administrators at IDN. So with that, maybe I'll turn it over to Sham to talk a little bit about the team dynamics there.

Sham Shiblaq: Sure. So I think there's a couple of things to think about when you think about IDN relationships and programmatic success. Every IDN actually has a different goal. And so it's really important that when you are starting to get to the point where we are as a company, we're not working with one or two hospitals in IDN, we have significant footprint now in some of these IDNs that we understand what their goals are as a hospital network and that we're building programs to achieve those goals for each hospital. In the past few years, we are really focused on starting to build our footprint. And that is not something that companies need to necessarily focus on when you're just trying to show that you have a great program and there's the clinical benefit of the procedure. So for our strategic accounts team, they have a bifurcated kind of goal. One is to obviously get new hospitals to acquire the technology, but number two is to make sure those programs are very successful. So the IDN wants to continue to buy more robots in the future. What we talked about in our prepared remarks was the first time we really saw in Q1 of '24, that we sell corporate IDNs allocating funds at the corporate level to buy robots for PROCEPT. In the past, yes, we had contracts with the IDNs but they would let the local funds or regional funds to be used. And so this shift is obviously showing that our IDN team is starting to make a difference in understanding the needs of the corporate IDNs and hopefully, long term, that will serve us well.

Richard Samuel Newitter: Okay. Thank you. That's helpful color. And maybe just on the ASC. I guess physicians and checks we've done and the position we've spoken to have suggested anywhere from 15% to as much as 30% of their out of their TURP or receptive volumes being performed in the ASC, some have actually brought their ASC volumes back to the hospital outpatient just so they could use Aquablation. But I'm just curious, could you reconcile kind of that anecdotal feedback on the ASC kind of resective procedure opportunity and how that stacks up with what you see of the procedures being performed in the ASC? What's this open up to you?

Kevin Waters: Yes. Thanks, Richard. This is Kevin. The last data we publicly shared that was from 2019, which suggested that about 10% of the 300,000 resective procedures were performed in the ASC. We haven't updated that number, but just anecdotally, I think we hear the same thing that you hear that it would surprise us that if that number has increased from 2019. But the last data we have is that 10% of resective procedures were in ASC.

Reza Zadno: Yes. I would say that there's -- naturally, we've all read that the hospital trends long-term in the sense of wanting more procedures to move to an ASC setting. We're aware of that. And we believe, like I said, long term, we have a great opportunity to serve that market as well. But the majority of our procedures continue to be in the hospitals, the vast majority are in the hospital setting, the resective surgery. And when we look at ASCs, we look at that as a market expansion opportunity for us. There are millions of men that are on pharmaceuticals that fail pharmaceuticals that choose not to go to the hospital setting and that's what we're focused on in expanding the market.

Operator: Our next question comes from Brandon Vazquez of William Blair.

Brandon Vazquez: I just want to focus first on systems. You had a great quarter on the systems there. Just maybe talk a little bit about what kind of visibility and comfort you have into that ramping through the year because system placements still need to kind of ramp through the year as we move forward.

Kevin Waters: Yes, thanks, good to speak with you. So our guidance is really unchanged in terms of cadence where we still do expect 45% of our systems to be sold in the first half of the year, which is unchanged. But I think you are alluding to the fact that that would require kind of a large number of systems sold in the fourth quarter and obviously we have a funnel that we believe supports that. But when I look specifically at the exit of Q4, what our guidance would imply, it does suggest somewhere kind of in the 30% to 35% unit growth of systems in Q4 of ‘24 over ‘23, which if you look at that in terms of our sales capacity, we're going to have about 30% to 35% more fully productive sales reps as well. So not only do we believe we have the funnel that kind of supports that robust Q4, but we also have the sales capacity and we do believe we have kind of a high degree of visibility into that. So while it may appear to be kind of a hockey stick on the surface, we think it's in line with our historical performance and in line with our productivity metrics and in line with what we see in the funnel.

Brandon Vazquez: Okay. And then on the IDN side, I think you guys mentioned it was about 17 IDNs that you're initially focused with this new strategic team. Can you just talk to us a little bit about you have better data obviously on specific account adoption versus the whole market? Are these 17 high-volume IDNs that are maybe in the first quartile of adoption still and your opportunity here is to make ablation standard of care or are these some of the accounts? I know in the past you've talked about some accounts that have switched already basically to 100% ablation. Where on the adoption curve do these kinds of 17 accounts fall? Just to get a sense of what the opportunity is as you focus on them more?

Sham Shiblaq: The 17 strategic IDMs that we're talking about represent roughly 30% of our BPH hospitals. This is from a sheer numbers perspective, about 800 hospitals. That is not the only IDN opportunity we have. That's just our primary focus is working with the largest strategic IDNs. There are many other IDNs that we also have contracts with that are buying our systems. But just to make it clear on our strategy, we're just focusing on those Top 17 to build momentum in the market across the country. Regarding the actual adoption, it is very similar to the rest of the country at this point. We don't see these large IDNs necessarily adopting at a faster rate because we have pretty good adoption across the country. Like we've talked about before. We're actually seeing small and medium-sized hospitals adopt technology in addition to high-volume BPH hospitals. I do think long term there is an opportunity we already heard from some of our IDNs, the benefits of ablation. There's a strategic IDN that has told us and showed us data that represents their urology business as a whole in 2023 increasing. And they have shared with us that the a ablation is the primary reason why that occurred in their total urology business due to surgeons and patients shifting their practices and coming to the hospital for a ablation. So, a lot of excitement there on the IDM front.

Reza Zadno: And just to close on that, I think it was also good to see that even with these corporate IDM sales in the first quarter, we did not see downward pricing pressure on systems compared to the fourth quarter of 2023. So really good to see there as well.

Operator: Our next question comes from Chris Pasquale with Nephron Research.

Chris Pasquale: A couple of follow-ups on the ASC opportunity strikes me as an important milestone on a couple of fronts. For one thing, physicians don't tend to like to do procedures in that setting where there's a lot of bleeding risks. Maybe to start, could you just talk about what it says about where ablation stands today from a safety standpoint and resolve some of those very early issues with the procedure?

Sham Shiblaq: Yeah, thanks. As you recall, we had published data on bleeding more than a year ago with the protocol that we implemented in January of 2020. All the procedures conducted since then we are very happy with the outcomes. In fact, it's best in class as far as bleeding is concerned, even compared to other procedures. And many accounts, as I mentioned, have already started discharging the same day. So we are seeing great progress over there and that that conversation doesn't come up much anymore. It was pre, I would say, the protocol that was implemented in 2020.

Chris Pasquale: Thanks. And then Reza, let me just clarify what you think this really means for your long-term system placement opportunity. Do you see the ASC as being wholly incremental, where now, when you look at a high-volume hospital, you think about, not just one unit, but potentially multiple units in multiple settings of care or could it mean in some of these cases that it's a shift in setting and a unit is going into an ASC that might otherwise have gone into a hospital?

Reza Zadno: As we said, Sham and I, we said that this is really about market expansion. You know, initially yes, we started very thoughtfully with the high volume centers of hospitals, 860 of the 2,700. The data, as Kevin mentioned in 2019 was 300,000 resective procedures, but there are more than 12 million men with BPH and many failed to medication. So our ultimate goal is expanding that market, starting with the hospital. So this, we are not seeing this as either or it is, placing our system both at all these hospitals and ASCs.

Sham Shiblaq: Yeah. I would just add to that, Chris that we're being very deliberate in the sense of, and I mentioned this already, that we have a lot of interest to go to the ASC setting. We have not done that because we want to make sure that we do our proper job of penetrating the hospital market and we have a lot of opportunity to continue doing that. But there are certain areas where we have a lot of experience to high volume Aquablation surgeons that have now have their geographic area that has penetrated many hospitals, you'll hear from one on Friday at our investor conference. There is MSAs or geographic area that now have a complete footprint of Aquablation hospitals. That's an opportunity for us to go to the ASC and expand that market at that point.

Chris Pasquale: Great. Thank you.

Operator: Our next question comes from Nathan Treybeck with Wells Fargo. Your line is open.

Nathan Treybeck: Hi, thanks for taking the question and congrats on a strong quarter. I wanted to focus on AUA, you talked about showing six month follow-up data from your prostate cancer trial. I guess what are the key data points that you expect physicians will be focused on here and assuming the data is good, do you expect Aquablation use in prostate cancer in 2024?

Reza Zadno: Yeah. Thanks. Definitely we are very excited to share more data on Friday. I hope you will be able to attend. The agenda is to highlight the six months follow up on those early patients. Those early patients, that the primary focus initially was to remove the contraindication for patients who have BPH and cancer and FDA, remove that contraindication. The next step is the two IDE studies that we have started for -- so today, if patients have BPH and cancer, one can treat their BPH. But their goal is to leverage on our previous safety profile that we have shown for BPH because it's the same organ, same procedure to treat cancer patients. But this is too early to say this is ready for commercialization for cancer. The goal is to present more data and again, starting with the safety profile and shows efficacy there.

Sham Shiblaq: Nathan, I'd just say that we're very excited about the opportunity. You'll hear Friday from a couple of surgeons and their personal experience with Aquablation in BPH and cancer. The labeling for us, like Reza mentioned, allows us to treat BPH patients that have prostate cancer. You'll see some of that data as well on Friday, it's a large segment of men. And so we will continue to collect the data, and then we'll -- we're talking about prostate cancer. There's no running to this. We'll be cautious -- with what the data and what the surgeons drive the adoption once they see the data.

Nathan Treybeck: Okay. Thanks for that. I believe I also saw that you're going to have an ASC study presented at AUA. I mean, correct me if I'm wrong, but what can we expect from this data? And like do you expect this data to drive increased interest to moving into the ASC setting?

Sham Shiblaq: Yes, I would say what this does for us is it validates the safety of our procedure. For many years, we've had to kind of defend the fact that our procedure is safe in the early years of commercialization. And like we've talked about multiple times on this call, surgeons would not be doing this procedure in an ASC setting, if it was not a safe procedure to do. And so you'll see that the outcomes on the clinical side basically mirror the efficacy that you get in a hospital setting and the safety is obviously paramount, and that's highlighted in this data as well.

Operator: Our next question comes from Ryan Zimmerman with BTIG.

Ryan Zimmerman: I hate to stay on the ASC topic I'm sure you're sick of answering these questions. But I have to just ask is the goal with the ASC strategy to also bring in some of the non-resective cases that would otherwise be done alternatively to resective. And kind of -- and I don't know if you feel like you answered this, I apologize, but it's not clear to me. When you think about market expansive, are you saying just those TURPs that are done in the ASC, or is the broader goal to expand into the non-resective segment?

Reza Zadno: Thanks, Ryan. Our goal is to treat men who have BPH. A lot of the impact, most of these men today are on medication, whether they go for resective or non-resective. So our goal is to treat all men and, yes, today, we get some of those patients who are wanted to get non-resective in a hospital setting. So we are not necessarily focusing that are the patients for non-resective or resective, these are patients who are looking for long-term durability and efficacy on the procedure.

Sham Shiblaq: Hi, Ryan, I would say that ultimately, we want to be where the surgeons are going to spend their time operating and that means that the hospital and ASC are both settings that we want to be in. There's a huge opportunity currently with the over one million men in the US that have failed pharmaceuticals and have not done anything from a surgical option beyond that, we look at that as our ultimate opportunity when we talk about market expansion. It's real, it's there in front of us and so we don't necessarily say we're going to target to take this from one procedure or another. We're looking at BPH patients that have failed medications, and taking those as the ASC is a real opportunity for us.

Brandon Vasquez: Okay. Two other questions. I just want to throw in here, one, any impact that you've seen thus far on the loss the past through payment in the hospital setting? And then my second question that I'll squeeze in here is just I'm wondering if you could just talk to the dynamic and the discrepancy between kind of handpiece sales growth and the growth of utilization and kind of how to reconcile those two for investors that look at that and point to that as is something they're concerned about.

Reza Zadno: I'll take the TPT part of it. No, the short answer is no. We are not seeing that. In fact, we had started talking about the retirement of TPT more than a year ago, and the hospitals are buying our system for the clinical outcome and making the practice more efficient. In fact, as you saw, we had slight increase in our pricing last quarter, and we were very happy with utilization and felt. So the short answer is no, we are not seeing that impact.

Kevin Waters: To follow-up on your second question, just to reiterate to what Reza said, I mean, I think it is fantastic that we were able to raise handpiece ASPs in a quarter where the transitional pass through did some set itself, which we believe is a proof point that it's not impactful to our business at all. And in fact, we saw very little pushback from the price increase that we implemented in the first quarter. Your second question, I think, are you trying to discuss any differences between handpiece shipped and procedures? Is that kind of the genesis of your question? My understanding?

Brandon Vasquez: I think that's right, Kevin.

Kevin Waters: So, for us, our customers, we sell direct in the US so we don't sell the distributors, and therefore our customers tend to order as they need a product, which is somewhere in the 5 to 10 range is a standard order size. We don't have large stocking orders, we don't have fulfillment houses. So for us, we don't see that. I'd also suggest that our visibility in the procedures is, is very high. So we have the ability to see who's doing our cases when procedures are performed. And we have a high degree of visibility there. So I don't have any concern, or there hasn't been any changes in trends between handpieces sold and procedures. And in fact, when we went public back in 2021, we told the investment community, if there ever was a change kind of between those dynamics that we would be proactive and we just haven't seen anything there at all.

Operator: Our next question comes from Mike Kratky with Leerink Partners.

Mike Kratky: Maybe a couple of high-level ones from us just on the Prostate Cancer Developer program. First, how are you thinking about the size of this commercial opportunity and to what extent can this be TAM expansive? And then maybe just as a follow-up, can you provide an update on the timelines for your ongoing clinical trials and what a regulatory path forward in this indication could ultimately look like?

Reza Zadno: Yeah, thanks. As far as the opportunity for cancer, there are millions of men in the US who are on the sidelines and opting for, they're basically washable waiters for us, it's early to assess that market. That's why we are starting to conduct clinical studies. And where we see the benefit of our technology is, again, I start with the safety profile because we are, if we can replicate the same safety profile as we had in our Water study that is a great plus to what the current treatments are on Friday this will be discussed in more detail. Hopefully, you can attend and see that. And the second part of the question, could you?

Mike Kratky: Just on the timelines for the ongoing clinical trial?

Reza Zadno: Yeah. So, the second for your, we are conducting the PRCT-001 and 002. One is a hundred patients. The other one is 20 patients, one with BPH and cancer. The other one doesn't. Patients do not need necessarily to have BPH. So once we finish those studies, then we are going to move into another timeline. But at this point we are not talking about the nature of that study. But the whole goal similar to BPH, is to generate enough data because we want to lead with clinical data when we enter this market.

Mike Kratky: Got it. Thanks very much.

Operator: And I'm not showing any further questions. I'd like to turn the call back over to Reza Zadno our CEO, for any closing remarks.

Reza Zadno: Yeah, thanks everyone for attending this call. We look forward to seeing many of you hopefully at the AUA Investor event on May 3rd. And thanks again and see you soon.

Operator: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.

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