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spk06: We would not be increasing our revenue guidance, which Kevin will provide details on shortly, if we felt pressure associated with the capital equipment environment. Now turning to quarterly business updates, starting with our commercial organization. We have successfully hired a highly efficient commercial team of experienced medical device sales professionals. We implemented an effective training and onboarding program to put us in position to execute our 2022 commercial growth plan. While we approximately doubled our field-based commercial team at the end of 2021, the number of RET has been relatively unchanged for six months. Given the commercial momentum, excellent real-world clinical outcomes, and increased demand our technology has been able to generate, we plan to meaningfully expand our field-based commercial team in the third and fourth quarter of 2022 to further penetrate the market and expand our sales presence in the U.S. This increase is captured in our updated operating expense guidance. Even with a tight labor market, we continue to see strong interest from high-quality candidates, which gives us additional confidence in meeting our hiring and growth objectives heading into 2023. Next, I would like to comment on utilization and procedure trends, which we have seen in the last 12 months. We continue to believe the majority of aquabulation procedure volumes are converted TURP cases, which is the most commonly performed surgical procedure for BPH. We also believe we are taking resected procedures from other modalities, like simple prostatectomies and laser procedures of the prostate. On hospital utilization, we are seeing meaningful annual increases in utilization from our customers. We believe, based on our clinical data, the increase in utilization is attributable to the following factors. Given the predictability, reproducibility, and low learning curve associated with the AquaBeam robotic system, we are generally seeing an increasing number of surgeons using our system each quarter at our account. As a result, we believe an increasing number of accounts are beginning to standardize their respective procedure protocol in favor of aqua ablation therapy. Additionally, since our clinical data support outcomes that 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 from January 2021 to June 2022, we found the most prevalent size range treated fell between 60 to 80 milliliters. Given the size range of prostates treated over the last 18 months, we believe surgeons are beginning to standardize their procedures to aqua ablation given the limitation of surgical alternatives. Turning to clinical updates. In May, we announced four-year Water 2 study data at the American Urological Association Conference in New Orleans. As a reminder, Water 2 was a prospective FDA study with an objective performance criterion for both efficacy and safety in large prostates ranging in size from 80 to 150 milliliters. The four-year data were consistent with the previously reported primary endpoint. with no change to safety results. The efficacy result, as measured by change in IPSS and QMAX, also consistent at four years. Lastly, durability remains strong with only 3% of patients requiring surgical retreatment at any time up to year four. More recently, in early July, we attended the European Association of Urology Conference in Amsterdam. This was the first in-person European event since the pandemic and was well attended with more than 7,000 registrants. A key talking point among surgeons and key opinion leaders was our five-year water data, published in February 2022. As a reminder, our five-year water data are the only prospective randomized double-blind multicenter FDA pivotal study comparing the safety and efficacy of aquabulation therapy to TURF. The study proves aqua ablation superior safety due to low irreversible complication and superior symptom relief for prostate ranging from 50 to 80 milliliters. Aqua ablation at five years exhibited durability that was two times lower risk for retreatment due to recurrent EPA symptoms when compared to TURP. This is measured by patients going back to meds or requiring surgical retreatment which is represented by an approximate 1% annual retreatment rate. In Europe specifically, surgeons are enthusiastic about strong clinical data, which is driving them to learn more about aqua ablation therapy. Given this backdrop, we believe five-year water and four-year water tube data will be a significant differentiator for our customers when choosing to replace their historical BPH surgical modalities with aqua ablation. Lastly, touching on recent payer coverage policy updates. In the second quarter, we received numerous insurance coverage updates, adding to the already strong list of payer for aqua ablation therapy. In April, Aetna published its updated policy noting aqua ablation therapy as a covered surgical alternative for BPH, providing coverage for their roughly 21 million commercial members in the U.S. Additionally, in the second quarter, numerous Blue Cross Blue Shield Association healthcare plans also issued positive coverage as well as medical mutual. In aggregate, these policies along with existing coverage policies provide coverage for approximately 180 million members. As it relates to the impact of coverage on our business, there is both 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. Additionally, in mid-July, CMS published its 2023 proposed rule for hospital outpatient prospective payment system. The level six APC code for aqua ablation has a proposed payment that would provide the hospital approximately $8,700 for each aqua ablation procedure, which is an approximate 3.5% increase over the 2022 rates and in line with our expectations. The final rule is estimated to be published in November. In summary, we are pleased with our performance here today and continue to execute our strategic growth plan of penetrating high-value hospitals. increasing utilization by treating the full range of prostate sizes and shapes, and expanding private payer coverage. Given this positive momentum and the announcement of our long-term clinical data highlighting durability, we believe aqua ablation therapy will truly revolutionize the treatment of BPH. With that, I will turn the call over to Kevin.
spk09: Thanks, Raza. As Reza highlighted, our revenue for the second quarter of 2022 was $16.7 million, representing growth of 97% compared to the second quarter of 2021. The increase was primarily driven by U.S. revenues, including both system sales to new hospital customers and increased handpiece revenue. In the second quarter, we generated total U.S. system revenue of $8.5 million, representing growth of 79% compared to the second quarter of 2021. In the U.S., we sold 23 AquaBeam robotic systems with an average selling price of approximately $370,000. Average selling price increased approximately 6% sequentially and 10% compared to the prior year second quarter. Our ending second quarter U.S. install base was 114 AquaBeam robotic systems. Second quarter, 2022 U.S. handpiece and consumable revenue was $5.7 million representing growth of approximately 246% compared to the second quarter of 2021. Handpiece average selling prices in the quarter were approximately $3,000. We shipped approximately 1,740 handpieces in the U.S. in the second quarter, representing annual unit growth of 176%. International revenue for the second quarter was $1.9 million, which was roughly flat compared to the prior year period and increased 15% sequentially. International revenues in the second quarter of 2021 benefited from a meaningful number of rescheduled procedures and the deferral of capital sales from a severely impacted first quarter of 2021 due to COVID. Our strategy in Europe continues to be to increase brand awareness and market development activities. On a year-to-date basis, international revenue has increased approximately 23% from prior year and is in line with our expectations. Growth margin for the second quarter of 2022 was approximately 51%, an increase from 42% in the second quarter of 2021. The increase in growth margin was driven by a variety of factors, including higher U.S. sales, increased average selling prices, and higher production volume as we spread the fixed portion of manufacturing overhead costs across a larger number of units produced. Total operating expenses in the second quarter of 2022 were $26.4 million, compared to $16.8 million in the first quarter of 2022. Net loss was $19.2 million for the second quarter of 2022 compared to $14.6 million in the same period of the prior year. Adjusted EBITDA was a loss of $14.6 million compared to the loss of $11.6 million in the second quarter of 2021. Our cash and cash equivalents balance as of June 30th was $270 million, while our long-term borrowings totaled $50 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 financial guidance. Given our strong start to the year and continued underlying momentum in the business, we are increasing our full year 2022 total revenue guidance to be in the range of $66 to $68 million. Although utilization trends in the third and fourth quarter are expected to be down relative to first half levels, our updated revenue guidance assumes sequential growth in handpieces sold per quarter. As explained previously, as our install base increases throughout the year, this will provide a natural headwind to average utilization rates as new accounts are added. Regarding handpiece average selling prices, we expect pricing to be in the $3,000 range for the remainder of 2022, which is in line with year-to-date actuals. Turning to AquaBeam robotic system sales, We continue to expect modest sequential increases to the number of systems sold throughout the year with average selling prices now expected to be in the range of $360,000 for the second half of 2022. Lastly, on revenues, we expect 2022 international revenue growth of approximately 30% compared to 2021. Moving down the income statement, we now expect growth margins to be in the range of 50 to 51% which is an increase from our previously issued range of 47 to 49%. Turning to operating expenses, we now forecast expenses to be approximately $110 million. As Reza mentioned previously, the majority of the incremental spend will be allocated towards expanding our commercial team and initiatives in the back half of 2022 to put us in a favorable position to execute on our long-term growth plan. Lastly, we continue to expect Full-year adjusted EBITDA to be in the range of negative $63 to $60 million, although we are trending more towards the high end of the range. At this point, I'd like to turn the call back to Reza for closing comments.
spk06: 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 meeting many of you at upcoming investor conferences. At this point, we will take questions. Operator?
spk03: As a reminder, to ask a question, please press star 1-1. Our first question comes from Joshua Jennings with Cohen. Your line is open.
spk00: Hi, good afternoon. Thanks for taking the questions, and congratulations on another strong quarter. I was hoping to start with just ask about the raise of the revenue guidance range, and it suggests that sales funnel continues to fill against a backdrop of tightening capital budgets in the U.S., but hospital budgets. Can you talk about the sales pipeline for AquaBeam and how Procept is navigating through this soft capital spending environment?
spk06: Yeah, thanks, Josh. We feel very good about our updated guidance and expect unit sales to increase sequentially in Q3 and Q4. Yes, there is some discussion about macroenvironment, but we are in a unique competitive position in the sense that we are early in our adoption curve, and there are a number of factors helping with adoption and utilization, and that starts with the clinical outcomes and real-world outcomes that physicians are seeing with our procedure. Hospitals and surgeons are using our procedure for all prostate size and shapes. And in fact, we are seeing in some hospitals standardization of the procedure and also with the broad coverage. Now we have full Medicare coverage. Many commercial payers are covering And more importantly, patients are now seeking more durable, safe, and effective procedure. All these factors are driving for better adoption and utilization. And I think, Kevin, do you want to add anything on utilization here?
spk09: Yeah, great. Josh, just to frame the guidance raise, you know, Reza gave a lot of background on the capital pipeline, but the high end of our guidance raise essentially is about $3 million Raise on capital and 3M on hand. So it's both penetration and utilization that's driving the increase in the revenue range.
spk00: Thanks for that and then just to follow up wanted to ask about the. Proposed rule that you cited maintaining operation procedures at a level ABC 6 ABC code and that's, I think 3 and a half percent. Pick up and reimbursement. I think everyone, you guys have been clear that the transitional pass-through payment is going away next year, but maybe you could help us understand relative to other resective procedures, you know, the profitability of this proposed level that CMS just issued, and then also just touch on the reimbursement premiums that the occupation procedures are receiving from private payers. Thanks for taking the questions, guys.
spk06: Thanks, Josh. So related to APC Level 6, this was expected, and we obtained the APC Level 6, and we believe our customer, we are confident they will be satisfied with the APC Level 6. As far as the transitional pass-through is concerned, this is not new. It's not a surprise, and quite frankly, not a concern in the sense that transitional pass-through was transitional, and if you look a year ago, we compare the coverage that we have today, compare where we are compared to last year. We have many private payers covering that's on top of the Medicare. And we believe that addition based on that conversation with hospitals, these additions of this private payer outweighs the transitional pass through going to where, and again, this is an information that we have been communicating with all customers and they were aware and we believe this is not a material issue.
spk05: Great. Thanks again.
spk04: Our next question comes from Craig Bijoux with Bank of America. Your line is open.
spk08: Great. Thanks for taking the questions, and congrats on another strong quarter. I wanted to ask first on utilization and maybe a little bit more about what you're seeing from individual doctors. Reza, I appreciate your comments that hospitals are – you're starting to see hospitals bring on new urologists to the system. But maybe if you can talk a little bit about the trends – the individual utilization trends once a urologist decides to adopt. You know, you guys have been in the market now for a number of quarters, so maybe you can touch on maybe where the early adopters, where their utilization is now. Does it continue to grow within their own practice?
spk06: Yeah, thanks for this question. I mean, utilization increase is driven by multiple factors. As I mentioned, it starts with clinical outcomes. And physicians and hospitals are using on a broad range of prostate. In fact, in the last 18 months, when we look at where the majority of these cases are done, it's on the prostate in the 60 to 80 milliliter range. And they are using, again, on all prostate size and prostate shapes. And in fact, they are standardizing resected procedure, many accounts to R, and some accounts have converted all their resected procedures to aquabulation. And these are the driving factors for utilization. And I don't know, Kevin, do you want to add on the most? Definitely accounts which have been with us
spk09: for many quarters, we see sequential growth of utilization, those accounts, and Kevin can... Yeah, no, to Reza's point, I mean, we still recognize that the largest or highest utilized group are the customers that have been with us the longest. And the utilization dynamic is still one that we're keeping a close eye on. And it's important to remember that Our install base is growing significantly. It grew roughly 40% in the first half of the year. By the time we get to the end of the year, we're going to have an install base that is up 100% over the end of 2021. So as we get additional cohort each quarter, Craig, we'll be able to provide more specificity around utilization metrics. But for now, it's fair to say that our oldest customers have our highest utilization. And then on top of that, we are also seeing even in those customers that have been with us for multiple quarters, they're still adding new positions to those accounts today, which is helping the utilization rate.
spk08: Got it. That's helpful, guys. And on the sales reps, the ads that you expect in the second half, I'm not sure if I missed it or not, but did you say whether they were going to be capital or accumulation reps, maybe both? And then maybe if you could go into a little bit of detail on the strategy for adding those reps. You guys have obviously been doing extremely well thus far. So maybe the strategy there, whether they're targeting certain geographies or you just need more feet on the street in current geographies.
spk09: Kevin, let me start with the strategy. We've been very clear on this, that we would increase the size of our sales force when we felt it wouldn't jeopardize the excellent real-world commercial outcomes that we expect. And we're at that point now where we feel comfortable with our clinical data and commercial performance that we will increase the size of the field team. So that's the strategy. In terms of the bifurcation, we're going to continue to add at this time probably a fair equal number of both capital and aquablation sales reps We're nowhere near penetrated in every U.S. territory where we need to be. We have capital reps right now with some fairly large territory that we want to take a look at. But my point being is we have a long runway in front of us in terms of adding commercial headcount to the business. And we'll continue to do that. The other point I want to make on our reps is our guidance in the back half of 2022 doesn't imply really any meaningful contribution from these new folks. What we do want to do, however, though, is make sure they get on board. We get them trained. They learn the protocol such that they can be productive as we enter 2023. But again, back to the strategy, we felt now is the right time given what we're seeing in the real world with both outcome, physician, and patient interest.
spk05: Great.
spk08: Thanks for taking the questions, guys.
spk05: Thanks, Greg.
spk03: Our next question comes from Ahmed Hazan with Goldman Sachs. Your line is open.
spk01: Thanks. Hey, good afternoon, guys. I wanted to maybe start with a couple of the macro questions that have been on other earnings calls in the sector and just get your take on it. One is just on hospital staffing shortages and whether you all are seeing an impact from that at all that you would call out? Is it making it hard to get into case observations, training done, installations, anything like that that you would call out that's impactful to you?
spk06: Thanks, Ahmed, for the question. It has not impacted us. We are hearing that, but we have been able to achieve our forecast, so it has not been a material event for us.
spk01: Okay. And I know kind of you're, you're small and growing very fast, but do you have a sense of where we are in the BPH market overall in terms of just underlying market conditions is the percent of, you know, kind of where we were in 2019, the health of the BPH market, if you will, and, and how it's recovering. And maybe inside of that question, we'd just love to hear you know, if you saw any change in trend during the quarter, whether, you know, procedures, that same kind of high level, I know for you, they improve a lot because you're growing, but overall procedures, did you get a sense that your customers saw improvement at all during the quarter and exiting into 3Q at a high level for the BPH segment?
spk09: Yeah, good question to me. This is Kevin, and we definitely believe that 2019 is the last, I would say, macro year that we can look at respective surgical numbers and consider that a normal operating environment. We would suggest that 2020 and 2021 were impacted by COVID. Therefore, frankly, we're not paying much attention to the procedures in those years. And when I think about the macro environment, we're in a bit of a unique position that, as you mentioned, we're still at relatively low volumes. I mean, our current average utilization is around five and a half procedures per account per month. And if you look at the customers we're targeting, on average, even in 2019, those customers were doing approximately 17 procedures a month. So we're still just very focused on increasing utilization with the accounts we've penetrated, which shields us a bit from some of the macro factors. And frankly, it's not terribly relevant to our growth in the near term if the market is growing 10% or decreasing 10%. But I would definitely agree with you that 2020 and 2021 have been on the macro level impacted, but that hasn't really impacted our ability to grow.
spk01: Great. Just one last quick one for me is on the system side. Can you share how many systems that you sold were new accounts versus evals and if there were any retirements in the quarter?
spk09: Yeah, so no retirements, and we're now through the eval and demo pool. So moving forward, every new sale is a Greenfield sale, and we may periodically put a rental out with a customer, but right now our model is pretty much we're going to sell and not offer a demo program.
spk05: Okay. Thanks very much.
spk03: Our next question comes from Matthew Michon with KeyBank. Your line is open.
spk07: Hey, good afternoon, and thank you for taking the question. Just first, it does seem like you're maintaining price as inflation goes, especially around the systems. So why would gross margin decline in the second half versus the first half? I don't know.
spk09: Yes, it's a good question. Our guidance, by the way, welcome, Matt, to your first call with us. So if you look at our guidance, the high end of the margin range does imply approximately 50% growth margins in the back half of the year. And you're recognizing that we just came off the second quarter where we recorded 51%. I'd point out a few things. The first being that we are still at relatively modest revenue levels and gross margin percentages, they're going to fluctuate and they can fluctuate fairly significantly on pretty low dollar volumes. Just to put that in context, a $300,000 cost equates to a full two percentage points on margins. So that relatively modest revenue with a high degree of fixed costs tends to have gross margin metrics that will be variable here in the near term. trending in the right direction. That'd be point one. Point two is we are increasing staffing levels in our operations group in anticipation of future growth. These are in areas like supply chain and production. This does create some additional expense. However, I would point out there's nothing unusual. There's nothing infrequent in our margins that's implied in our second half guidance. And if we supply chain, and production, this does create some additional expense. However, I would point out there's nothing unusual. There's nothing infrequent in our margins that's implied in our second half guidance. And we still do believe that at scale, this business does have the potential for significant margin expansion over the long term. But there's going to be some variability in the near term. There's nothing unusual, again, in the second half. It's just a multitude of factors. Excellent. Unusual, again, in the second half. It's a multitude of factors.
spk07: Okay. Excellent. And then it does seem like you're controlling almost the pace at which you're installing these systems by the pace at which you're expanding your sales force. Just what makes you comfortable with a sales rep or a doctor or a system that you're placing these with? that you're going to get the outcome from that new placement you expect.
spk06: Yeah, so this is just definitely we are very disciplined in targeting our accounts. We are, in the U.S., those high volume hospitals that are doing on average more than 200 respective procedures per year, we are targeting those. And even before talking to the administrators in the hospital, we make sure we have a physician champion And because of this discipline approach, we have not seen pushback and we have had high success rates in pricing our robots. And we are aware that we have an extra capital equipment and this discipline approach has allowed us to be successful. And that is the reason that you're talking.
spk05: Thank you very much.
spk03: Our next question comes from Neil Chatterjee with B. Riley. Your line is open.
spk02: Hey, guys. Thanks for taking the questions. Just maybe circling back on the commercial team ads for the second half, just wondering if you could just talk about kind of the expected like maybe quarterly cadence of that, if you expect that to be weighted more towards third quarter or fourth quarter. And then if you could just maybe remind us on, you know, kind of the expected productivity ramp, you know, is that, you know, before you start to see, you know, meaningful impact, is that, you know, three to six months or if you could just add some color there.
spk09: Yeah, by the way, welcome as well, Neil. I appreciate you having me covering the company now. In terms of cadence, I'll just talk about our OPEX spend of $110 million. So that does imply about a $60 million spend in the back half of the year. and that expense cadence is relevant to how we're going to build a sales team where the fourth quarter should be larger than the third quarter and sequentially q3 should be up about two to three million from q2 so that suggests that you know the ads will be primarily mid to late q3 by the time we have folks on board and that that manifests itself in office expense um guidance that was on office what was your second question am i repeating
spk05: I mean, I think that was pretty much it. You asked about the productivity, sorry.
spk09: Yes, exactly. Generally, you know, it's three to six months for a rep to become fully productive. And again, that depends if you're going into new territories, which some of these reps will be doing, or we'll be looking at perhaps splitting larger territories, which, you know, we may also have to do as we continue to grow. But on average, it's a three to six month ramp.
spk02: Got it. And if I could just add a follow-up question here, just kind of circling back on the international front, you talked about it last quarter with the Asia-Pacific regulatory approvals for Korea and Japan. I'm just kind of curious if there's any updates there in terms of adoption in Korea and kind of the reimburses halfway in Japan. And then secondly, if you could talk about maybe your strategy for China and any expectations for the market there.
spk09: Yeah, so just in terms of, I'll take each of those separately. So in Korea, as mentioned on the last call, we expected very modest contribution in 2022, really no greater than a million is how I phrased that last quarter. We did sell another robot in Korea in the second quarter, so that's in the number there. So again, continued penetration, but relatively modest revenue contributions moving forward. Japan, we're continuing to work through the reimbursement pathway there. We do not anticipate any Japan revenue in 2022. The next time we'll probably give a meaningful update on Japan would be when we introduce 2023 guidance. And then, flipping to China, we have started the regulatory process there, but that could be a fairly lengthy process. We are not expecting any meaningful contribution in China in the short term.
spk05: Great. Thanks.
spk03: There's no further questions at this time. I'd like to turn the call back over to Reza.
spk06: Thanks, everyone, for attending our earnings call. We look forward to seeing you in the future investment meetings. Have a nice day.
spk03: This concludes the program. You may now disconnect.
spk04: Goodbye.
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