PROCEPT BioRobotics Corporation

Good morning, ladies and gentlemen, and welcome to Procept's Biorobotics Fourth Quarter Earnings Conference Call. At this time, all participants are on the list and only mode. We will be facilitating 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 Baxo from Gilmartin Group for a few introductory comments. Please go ahead.

Thanks, operator. Good morning, and thank you for participating in today's call. Joining me from Procept Biorobotics are Reza Zadnao, CEO, and Kevin Waters, CFO. Earlier today, Procept released financial results for the quarter ended December 31st, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meanings of federal securities laws, which are 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. All forward-looking statements, including without limitations those related to our sales and operating trends and future financial performance, expense management, expectations for hiring or growth, market opportunity, revenue guidance, commercial expansion, the impact of COVID-19 on our business, and future product development and approvals are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our most recent quarterly report on Form 10Q filed with the Securities and Exchange Commission on November 5th, 2021 and available on EDGAR and in our other public reports filed periodically with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast March 8th, 2022. Procept by Robotics 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. And with that, I will now turn the call over to Reza. Thanks, Matt.

Good morning, and thank you for joining us. For today's call, I will provide opening comments and a business update, followed by Kevin, who will provide additional details regarding our coordinated results and initial 2022 guidance before opening the call to Q&A. Before moving to our quarterly results, I want to recognize the outstanding performance of the Procept team. Revenue for the full year was $34.5 million, which is almost a 350% increase over 2020 and was ahead of our expectations coming into the year. 2021 was also a milestone year for Procept as we became a public company providing us with the capital to better serve our patients and continue on our mission of becoming the standard of care in the surgical BPH market. All of this accomplished under circumstances that have been unprecedented in my career. These achievements would not be possible without contributions across the board, from our employees, our shareholders, and importantly, our customers. I'm truly humbled and just want to thank each and every one of you. Now turning to our quarterly revenue results. Consistent with our pre-announcement on January 11, total revenue for the fourth quarter of 2021 was $10.1 million, which came in the high end of the pre-announced range and above our Q4 revenue guidance of $8.7 to $9 million. In the fourth quarter, U.S. AquaBeam system revenue was $5 million. U.S. handpiece and consumable revenue was $3.4 million, and total international revenue was $1.4 million. Despite some COVID headwinds later in the quarter, we continued to see strong physicians' interest as we trained more surgeons at existing accounts, resulting in increased utilization. While we are still very early in our commercial launch, we believe our robust clinical data, outstanding real-world patient outcomes, supported by our recently published five-year data, and rapid early adoption indicate that hospitals, surgeons, and patients see the benefits of our robotic system and that we are on the right path and our strategy is working. One key factor contributing to our ability to implement our commercial strategy has been our success in hiring talented and experienced field-based sales personnel. Specifically, entering 2022, we have approximately doubled our field-based commercial team compared to 2021. Given the number of high-quality employees hired in the back half of 2021, we believe our strong commercial momentum will carry through in 2022, especially as we ended the year with what we believe is a robust pipeline of new targeted accounts. Let me first start by addressing two topics that have had a broad scale impact across the medical device industry. First being COVID. While we recognize the macro impact of elective procedures due to increased COVID cases and staffing shortages in the United States, we saw a negligible amount of customers and patients affected in the fourth quarter, primarily in the month of December. As a result, our ability to exceed our plan was relatively unaffected both on handpiece and system revenue. Exiting December, we did see incremental headwinds in January associated with the Omicron variant and its impact on procedure volume. We have seen in the past 40 days a return to more normalized operating environment. In the absence of new strain or some unforeseen situation, we remain optimistic that COVID-related disruption to our business for the balance of 2022 will not be significant. This said, we continue to monitor our accounts very closely and are pleased with the momentum we are seeing on both utilization and system sales quarter to date. Second is the disruption associated with the global supply chain. As we indicated in our Q3 earnings call, we made the decision to increase our inventory levels and believe we have sufficient material on hand to meet our current demands. We are also actively working with our manufacturing partners to ensure adequate product on hand in order to meet our robust growth forecast. While we do not expect supply chain issues to have an impact on our ability to meet our revenue plans, we continue to increase inventory levels for certain components to mitigate any future risk and are working closely with our suppliers. Now turning to quarterly business updates. Our goal was to double our commercial team by the end of 2021, to put us in position to execute our 2022 commercial growth plan. And we have been successful here. Even with a tight labor market, we continue to see strong interest from highly experienced medical device sales professionals, which gives us additional confidence in meeting our hiring and growth objectives in 2022. As we continue to expand our commercial footprint and educate hospital systems on aqua ablation therapy's superior clinical data, we have partnered with various integrated delivery networks, or IDNs. Specifically, we announced on January 19th that Atlanta's prestigious Northside Healthcare System had five AquaBeam systems installed in every one of their state-of-the-art surgical facilities. We continue to be encouraged by our ongoing discussions with large IDNs across the country and are excited about the future opportunity to partner with them. Additionally, a few weeks ago, we received a positive coverage policy decision from CareFirst, an independent licensee of the Blue Cross and Blue Shield Association, which increases aquabulation covered lives by roughly 3.5 million. As a reminder, as of January 2021, Aquabulation therapy has positive coverage policies from all seven Medicare administrative contractors, making aquabulation available for Medicare patients nationally, which we estimate represents about half of all hospital-based resected procedures. We also have positive private payer coverage from Anthem Blue Cross Blue Shield, Humana, Healthcare Service Corporation, Blue Cross of Massachusetts, Emblem, and Cigna. In 2021, we have seen significant momentum in AquaBeam robotic sales, and we believe that is directly related to increased coverage and our core strategy of targeting high-volume hospitals. Next, I would like to provide some color around our recently announced positive five-year water data. As a reminder, WATER is the only prospective randomized double-blind multicenter FDA pivotal study comparing the safety and efficacy of aqua ablation therapy to TURP. The study proves aqua ablation superior safety due to low irreversible complications and also superior symptom relief for prostates in the range of 50 to 80 milliliters. Diving into the data. At five years, iPSS score improved by 15.1 points in the aqua ablation group compared to 13.2 points in the TERP group. However, in a pre-specified analysis for men with larger prostates between 50 to 80 milliliters, iPSS reduction was 3.5 points greater across all follow-up visits in the aqua ablation group compared to the TERP group, demonstrating statistically significant superiority. Improvement in peak urinary flow rate was 125% and 89% compared to baseline for aquabulation and TURP, respectively. Lastly, the risk of retreatment defined as returning to BPH medication or requiring a surgical intervention was approximately 1% per year for aquabulation which compared favorably to Terp Arm where the risk was approximately double. Based on our five-year water data and real-world experience, we believe aqua ablation therapy is poised to become the treatment of choice for BPH and believe it does not require compromise between safety and efficacy. This study reinforces the durability of aqua ablation therapy. and we believe this data set further differentiates aquabulation from alternative therapies and will allow our sales force to better educate and train our surgeons on aquabulation therapy. We also anticipate the five-year water data will be well received by payer community. Many of the large payer policies have used five-year published data to establish coverage for other BPA surgical approaches introducing the market in recent years. Our five-year data have already been submitted to several of large national and regional plans, and we believe this could be impactful as they update their coverage policies. Due to difficulty in predicting timing of additional coverage, our 2022 revenue guidance does not assume incremental coverage in 2022. However, we remain committed to making aqua ablation therapy available to all men in the United States. While we do not assume incremental coverage from large commercial payers in 2022, I would like to comment on utilization and procedure trends we have seen in 2021. First, we believe the majority of aqua ablation procedure volumes are converted TURP cases. From an account level standpoint, we are seeing quarterly sequential increase in utilization from our accounts. As we believe surgeons are becoming more comfortable with not only the technology, but being able to treat a broader range of prostate sizes and shapes. This is a trend we expect to continue in 2022. Lastly, while still early, we do believe patients that were on the sidelines foregoing surgical intervention are being introduced to aquabulation therapy as they see the benefit of a solution that our studies show is durable, safe, and effective. Before I hand it to Kevin, I wanted to also inform everyone that Procept will be hosting an investor event in May at the American Urological Association Conference in New Orleans. We feel this will be a great opportunity to feature some top aquabulation surgeons to speak about their experience and take questions from investors. In April, we will provide more detail around the event. With that, I will turn the call over to Kevin.