PROCEPT BioRobotics Corporation

Good day and thank you for standing by. Welcome to the Q3 2022 Procept Biorobotics Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Fasco, Vice President of Investor Relations. Please go ahead.

Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me are Reza Zadno, CEO, and Kevin Waters, CFO. Earlier today, Procept released financial results for the quarter ended September 30, 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 relating to our sales and operating trends and future financial performance, expense management, expectations for hiring or growth, market opportunity, revenue guidance, commercial expansion, 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 any reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 22nd, 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 November 3rd, 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'll turn the call over to Reza.

Good afternoon, and thank you for joining us. I want to take this opportunity to formally welcome Matt Baxwell as our new Vice President of Investment Relations. For today's call, I will provide opening comments and a business update, followed by Kevin, who will provide additional details regarding our financial performance and updated 2022 financial guidance before opening the call to Q&A. Starting with our quarterly revenue results, we are pleased to report another strong quarter where our customers and patients continue to realize the significant clinical benefits of aquabulation therapy. Total revenue for the third quarter of 2022 was $20.3 million, representing growth of 135% compared to the third quarter of 2021. Growth in the quarter was once again driven primarily by robotic system sales and increased utilization from our install base. We believe the combination of positive long-term clinical data, increased private payer coverage, and outstanding real-world patient outcomes continue to drive surgeon interest and hospital adoption of our AquaBeam robotic system. Before providing a business update, let me briefly address the current macro environment, specifically supply chain and hospital capital equipment spending. Similar to previous quarters, we have not experienced material product constraints to meet customer demand. Furthermore, we continue to increase manufacturing personnel and remain close to vendors and suppliers to mitigate any potential supply issues. As we move into 2023, we remain focused on ensuring we can supply our customers with what they need in a way that is high quality and timely. As it pertains to hospital capital spending, we remain uniquely positioned for continued momentum around our AquaBeam robotic system sales due to a multitude of positive factors around our technology, and our early stage of market penetration. First, BPH is the number one reason men visit a urologist, with many men seeking a durable surgical treatment option at high volume hospitals. Additionally, many of these men forego treatment due to the inferior safety profile of current surgical alternatives. With a growing and increasing educated patient population, hospitals are motivated to invest in cutting-edge technologies to ensure they stay competitive and not lose patients to other area hospitals. We believe our AquaBeam robotic system allows hospitals to offer a cutting-edge technology in BPH surgical space. Next, we exited the third quarter of 2022 with an installed base of 139 US systems with approximately 2,700 total hospitals performing BPH surgeries, of which 860 are high volume targets, we are still very early in our adoption curve with a long runway in front of us. It is also an important reminder that the high volume BPH hospitals we target generally have adequate liquidity and have historically prioritized novel technologies to optimize their patient treatment offerings. We believe both of these factors mitigate some of the risks associated with an uncertain macroenvironment. Lastly, given AquaBeam's unique ability to treat all shapes and sizes of prostate, hospitals are now more than ever standardizing their BPH treatment algorithm. This standardization, along with our increased insurance coverage, make aqua ablation a logical choice. In summary, we continue to monitor all aspects of the macroenvironment and the impact on our business. However, we would not be increasing our revenue guidance once again if we were not comfortable with our forecast. Now turning to quarterly business updates, starting with our commercial organization. As mentioned on our second quarter earnings call, our plan was to further expand our field-based commercial team in the third and fourth quarter of 2022, which we are on track to complete. Even with a tight labor market, we continue to see strong interest from high-quality candidates, which gives us confidence in meeting our hiring and growth objectives. As a reminder, our field-based team consists of capital sales reps, aqua ablation reps, and clinical support specialists. Capital sales reps function is to sell our system to increase market penetration, while aqua ablation reps focus on educating and training new surgeons to drive increased utilization. Lastly, our clinical support staff function is to support cases and ensure an excellent surgical experience and patient outcome. Given our strong commercial momentum, excellent real-world clinical outcome, and robust pipeline, we plan to continue field-based hiring in 2023 to further penetrate the market and expand our sales footprint into new U.S. geographic regions beyond what we currently have today. Our goal in 2023 will be for aquablation reps to continue identifying, training, and educating new surgeons at existing and new accounts, while expanding our clinical support staff to facilitate case coverage across our install base. Also given our relatively low market penetration, we will continue to add capital sales reps to the commercial team. We expect to provide further detail when we discuss our 2023 outlook on our next earnings call in late February. However, we are confident that the team we have exiting 2022 will allow for continued robust growth in 2023. Additionally, in September, we also announced a multi-system national contract with Providence, a nonprofit health system with 52 hospitals across seven US states. We are honored to partner with leading health systems such as Providence, who are committed to advancing patient care through next generation innovation and look forward to supporting their growing programs. In addition to Providence, we now have multiple contracts in place with other large integrated hospital networks. As a company, we remain focused on engaging with large IDMs as they provide access to large hospital networks and accelerate the sales process. Next, I would like to comment on utilization and procedure trends we have seen here today. We continue to believe the majority of aquabulation procedure volumes are converted TURP and PVP cases, which are the most commonly performed resected procedures for BPH. On hospital utilization, we are seeing meaningful sequential increases in utilization from our customers. We believe the increase in utilization is attributable to the following factors. Given the predictability, reproducibility, and low learning curve associated with aqua beam robotic system, we are generally seeing an increasing number of surgeons using our system each quarter at our accounts. As a result, we believe an increasing number of accounts are beginning to standardize their respective procedure algorithm in favor of aqua ablation therapy. Additionally, since our clinical data and commercial experience 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 patients that are from January 2021 to September 2022, the most prevalent size range treated falls between 60 to 80 milliliters. Since TURP and PVP are typically performed in prostate, less than 80 milliliters, we believe surgeons are beginning to standardize their procedures to aquabulation due to the limitations of surgical alternatives. Next, I wanted to provide a few details around our facilities and operations. On July 1st, we commenced our list on a new 160,000 square foot facility in San Jose, California. From a timing standpoint, we expect all departments to move into our new San Jose location by the third quarter of 2023. Given the growth and momentum we are experiencing at this stage in our adoption curve, we plan to also maintain production capacity at our current location through the fourth quarter of 2023 to ensure a smooth transition. While this could temporarily limit gross margin expansion, the investment we are making to expand operational capacity and efficiency are critical to our long-term success. We are extremely excited to complete our move to San Jose next year as it will expand our manufacturing and clean room footprint by approximately five times what we have today and house a much more robust R&D lab. With the goal of becoming the standard of care for BPH surgical procedures, we anticipate this target footprint will give us enough space for the foreseeable future. Lastly, touching on recent payer coverage policy updates. In the third quarter, we received additional payer coverage from Horizon and other Blue Cross Blue Shield plans. In aggregate, we estimate private payers and Medicare provide aquabulation coverage for a significant percentage of our target patient population. Additionally, on November 1st, CMS finalized its 2023 Hospital Outpatient Prospective Payment System. The level six APC code for aquabulation will provide the hospital approximately $8,558 for each aquabulation procedure, which is an approximate 1.5% increase over the 2022 rates. In summary, we are pleased with our performance here today and continue to execute our strategic growth plan of penetrating high-volume BPH hospitals, increasing utilization by treating their full range of prostate sizes and shapes, and expanding private payer coverage. Given this positive momentum and 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.