PROCEPT BioRobotics Corporation

Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Procept Biorobotics are Reza Zadnaou, CEO, and Kevin Waters, CFO. Earlier today, Procept released financial results for the quarter ended March 31st, 2022. 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 meaning 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 certainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place under reliance on these statements. For a list and description of the risks and certainties associated with our business, please refer to the risk factor section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2022, 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 on May 5th, 2022. Procept by Robotics explains any intention or obligation except as required by law to update or revise any financial projections or forelooking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Reza.

Thanks, Matt. Good afternoon, 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 detail regarding our financial performance and updated 2022 guidance before opening the call to Q&A, starting with our quarterly revenue results. Total revenue for the first quarter of 2022 was $14.2 million, representing growth of 97% compared to the first quarter of 2021, and 40% sequential growth compared to the fourth quarter of 2021. Regarding our U.S. performance, in the first quarter, we saw 22 aqua beam systems. Total U.S. system revenue was $7.8 million, representing growth of 70% compared to the first quarter of 2021. Growth was primarily driven by strong underlying demand from high-volume BPH hospitals. The recently announced five-year water study data continued to drive surge in interest, resulting in robust peer-to-peer communication about the benefits of our AquaBeam robotic system. Growth was also aided by the approximate doubling of our field-based commercial team entering 2022 as compared to 2021. Given the number of high quality employees hired in the back half of 2021 and successful onboarding, we believe our strong commercial momentum will carry through for the remainder of 2022, especially as we ended March with what we believe is a robust pipeline of new targeted accounts. First quarter 2022 U.S. handpiece and consumable revenue was $4.4 million, representing growth of approximately 174% compared to the first quarter of 2021. As communicated on our fourth quarter earnings call, we did see minor procedure volume headwinds in January associated with the Omicron variant. However, as the quarter progressed, this impact was dramatically reduced, resulting in a negligible number of customers affected in February and March. As a result, our ability to exceed first quarter revenue guidance was relatively unaffected, both on handpiece and system sales. In the absence of a new strain or some unforeseen situation, we remain optimistic that COVID-related disruptions to our business for the balance of 2022 will be insignificant. While we are still early in our commercial launch, we believe our robust clinical data, supported by our recently published five-year data, outstanding real-world patient outcomes, and rapid early adoption indicate that hospitals, surgeons, and patients see the benefits of our robotic system and our strategy is working. Before providing a business update, let me briefly address the current supply chain environment and its influence on our business. First, I want to highlight we have not experienced material product constraints in our ability to meet customer demand. That said, the current supply chain environment has become incrementally more challenging, resulting in moderately increased lead times for certain components. Given the strategic decision to increase inventory levels, we do not expect supply chain issues to have an impact on our ability to meet our revenue plans. As we progress through the year, our main focus will be to ensure we can supply our customers with what we need in a way that is high quality and timely. Lastly, we do not currently have any supply chain components coming directly from either Russia or Ukraine. Now turning to quarterly business updates. We approximately doubled our field-based commercial team at the end of 2021 and implemented an effective training and onboarding program to put us in position to execute on our 2022 commercial growth plan. 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 the back half of 2022. As I sit here in early May, I am proud to say that the reps hired in late 2021 have progressed nicely up their productivity curve and are now starting to hit their stride. The impact of our excellent clinical outcomes and rapid physician adoption coupled with the increases to our commercial team were evident in our first quarter performance. Additionally, we are seeing strong position interest at new accounts, and we have a high degree of visibility to the 2022 capital pipeline, which allowed us to increase full-year revenue guidance, which Kevin will touch on shortly. Next, I would like to comment on utilization and procedure trends we have seen in the last 12 months. As stated last quarter, we continue to believe the majority of aquabulation procedure volumes are converted TURP cases, although we do believe we are also taking resective procedures from other modalities like simple prostatectomy and laser procedures of the prostate. On hospital utilization, we are seeing quarterly sequential increases in utilization from our customers. We believe, based on our internal data, the increase in utilization is attributable to the following factors. First, given the predictability, reproducibility, and extremely low learning curve associated with the AquaBeam robotic system, we are seeing more surgeons using our system at our account. As a result, an increasing number of accounts are beginning to standardize their resected procedure protocol in favor of aqua ablation therapy. Second, since legacy resected treatments for larger prostates have poor safety outcomes, aqua ablation therapy fills that void immediately and becomes the obvious choice. Third, since clinical outcomes are independent of prostate size and shape, surgeons are using aqua ablation therapy in a broader range of prostate sizes. Specifically, when analyzing patient data over the last 15 months, the largest number of patients treated with aqua ablation generally fall within the 60 to 80 milliliter range, turning to payer coverage policies and regulatory approvals. As we announced last week, Aetna published its updated policy noting aqua ablation therapy is now covered surgical alternative for BPH, expanding access to aquabulation therapy for the treatment of the roughly 21 million commercial members in the US. Aetna thoroughly reviewed our updated clinical literature, including the recently published five-year outcome data, and concluded aquabulation therapy is a safe and effective treatment for men with BPH. This revised policy became effective as of April 26, 2022. In addition, we have continued momentum within the regional Blue Cross Blue Shield markets. As we announced on our last call, CareFirst, the Blue Cross Blue Shield payer of Virginia, Maryland, and Washington, D.C. issued a positive coverage policy in the first quarter of 2022. Additionally, effective April 25th, Independence Blue Cross Blue Shield also updated their BPH surgical treatment policy to remove aquabulation therapy from the list of procedures considered experimental and investigational and added aquabulation to the procedures considered medically necessary for the surgical treatment of BPH. is based in Southeastern Pennsylvania, covering approximately 4 million covered lives, and is one of the largest licenses of Blue Cross Blue Shield Association. As of today, we estimate total covered lives of acupuncture therapy to be approximately 175 million people, which we believe represents approximately 75% of men suffering from BPH. Even the strength of our clinical data, physician support, and real-world patient outcomes in the last 18 months, we have obtained positive coverage policies from five of the seven largest commercial payers and 100% Medicare coverage. As it relates to our business, there is a long-term benefit and a short-term benefit. The obvious long-term benefit is increased utilization, which will take time as we penetrate the surgical market. The more important short-term benefit is the increased value proposition of our technology and the lowering of barriers to sell capital equipment to targeted high-volume BPH hospitals. Turning to regulatory approvals. In the first quarter, we also received approval from the Korean Ministry of Food and Drug Safety for the AquaBeam robotic system. and we shipped our first system to Korea in the first quarter and completed our first aqua ablation procedures in April. In addition to Korea, we also received shonen approval from the Japanese Ministry of Health, Labor, and Welfare for the AquaBeam robot and expect to have full approval, which includes our third-party ultrasound system by the end of 2022. Both regulatory approvals mark major milestones for PROSEP in Asia Pacific region. In the coming years, we believe our procedure is well positioned to make a meaningful impact in these countries with large aging populations. In Japan specifically, our initial plan will be to focus on establishing reimbursement to support widespread adoption. As a first step, we will install our system in select academic medical centers to build strong clinical support, similar to our initial U.S. strategy. Additionally, in Japan, we plan to enroll patients in a PMDA-mandated post-market clinical study to expand PROSEP's already robust clinical data on the efficacy of aqua ablation therapy. While we are very excited about these milestones, It is important to point out that we do not expect to obtain reimbursement in the near future, and thus do not expect to generate meaningful revenue in the coming years. Before I hand it to Kevin, I wanted to also remind everyone that Procept will be hosting an in-person investor event on May 13th at 8.30 a.m. Central Time at the American Urological Association Conference in New Orleans. In addition to a short presentation on management, the event will feature three population therapy surgeons who will speak about their experience and take questions from the investors. With that, I will turn the call over to Kevin.

Thanks, Reza. As Reza highlighted, our revenue for the first quarter of 2022 was $14.2 million, representing growth of 97% compared to the first quarter of 2021 and 40% sequential growth. The increase was primarily driven by U.S. revenues, including both system sales to new hospital customers and increased handpiece revenue. In the U.S., we sold 22 AquaBeam systems, most of which were to new customers. AquaBeam system average selling prices were slightly above $350,000, which is flat sequentially and in line with our expectations. Our ending first quarter U.S. install base was 93 AquaBeam systems. Prior to obtaining Medicare coverage in January 2021, we did place numerous AquaBeam systems under evaluation agreements as compared to direct sale. Of the 93 systems in our U.S. install base, we still have three systems under these evaluation agreements, which is down from 10 as of December 31st, 2021. This will be the last quarter we intend to specifically call out the demo systems as the three remaining systems in our install base will either be sold or returned by the end of Q2. Turning to handpiece revenue. U.S. handpiece revenue was $4.4 million, representing growth of 174% compared to the first quarter of 2021. Handpiece revenue growth was driven primarily by increases in monthly utilization measured by handpieces sold per account and increased average selling prices. Specifically, Average selling prices in the quarter were approximately $3,000 per handpiece, up from $2,500 in the first quarter of 2021 and $2,700 in the fourth quarter of 2021. We shipped approximately 1,400 handpieces in the US in the first quarter. Accounts averaged approximately 5.5 handpieces purchased per month in the first quarter, which compares to approximately 5.3 in the fourth quarter of 2021. and three in the first quarter of 2021. Lastly, on total revenue, international revenue for the first quarter was $1.6 million, representing growth of 75% compared to the first quarter of 2021. Gross margin for the first quarter of 2022 was approximately 54%, an increase from 49% in the first quarter of 2021. Margins were above our expectations due to higher U.S. handpiece average selling prices and higher production volume as we spread the fixed portion of our manufacturing overhead costs over a larger number of units produced. Total operating expenses in the first quarter of 2022 were $23.4 million compared to $14.9 million in the same period of the prior year and $21.3 million in the fourth quarter of 2021. The increase was primarily driven by increased selling, marketing, and general and administrative expenses to expand our sales organization and increase expenses associated with supporting a public company. Net loss was $17.2 million for the first quarter of 2022 compared to $12.8 million in the same period of the prior year. Adjusted EBITDA was a loss of $13.5 million compared to a loss of $9.8 million in the first quarter of 2021. Our cash and cash equivalents balance as of March 31st was $284.3 million, while our long-term borrowings totaled $50 million. We believe the capital raised during the IPO and our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business. Moving to our financial guidance. Given our strong first quarter and continued underlying momentum in the business, we are increasing our full year 2022 total revenue guidance to be in the range of $58 to $62 million. As our install base grows, we expect the absolute number of hand pieces sold per quarter to increase sequentially throughout the year. While pleased with the first quarter improvement utilization, our updated revenue guidance assumes quarterly utilization trends to be slightly down sequentially as we progress through the year. Full year 2022 utilization rates are expected to be up modestly from 2021. As explained on our prior earnings call, we expect our install base to increase meaningfully by year end, which will decrease initial utilization rates as new accounts are added. Regarding handpiece average selling prices, we now expect pricing to be in the $3,000 range for the full year, which is in line with our first quarter actuals. Turning to AquaBeam system sales. We expect very modest sequential increases to the number of systems sold throughout the year following a robust first quarter. And lastly on revenues, we continue to expect international revenue to be approximately 12 to 13% of total revenue. Moving down the income statement, we now expect gross margins to be at the higher end of our previously issued range of 47 to 49% and operating expenses to be approximately $106 million given higher revenue levels. Lastly, we continue to expect full-year adjusted EBITDA to be in the range of negative 63 to $60 million. At this point, I'd like to turn the call back to Reza for closing comments.