PROCEPT BioRobotics Corporation

I would now like to turn the call over to Matt Basko, Vice President, Investor Relations, for a few introductory comments.

Good morning, and thank you for joining Procept Biorobotics' second quarter 2023 earnings conference call. Presenting on today's call are Reza Zadno, Chief Executive Officer, and Kevin Waters, 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 are forward-looking statements as 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. The risks and uncertainties are disclosed in more detail in Procept Barrow about expiring with the Securities Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, July 27, 2023. 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 will 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'd like to turn the call over to Reza.

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 financial performance and updated 2023 guidance before opening the call to Q&A. starting with our quarterly revenue results. We are pleased to report a record quarter where our customers and patients continue to realize the significant clinical benefits of aquapolation therapy. Total revenue for the second quarter of 2023 was $33.1 million, representing growth of 98% compared to the second quarter of 2022. Growth in the quarter was driven by strong US system sales and increased utilization from our expanded install base. We believe the combination of positive long-term clinical data, increased private payer coverage, outstanding real-world patient outcomes, and an expanded field-based commercial team continue to drive surge in interest and adoption of our robotic system. We are also starting to generate stronger international sales momentum led by the United Kingdom following the publication of the NICE Medtech Innovation Briefing. In the second quarter, we saw the record 40 robots in the U.S. generating total U.S. system revenue of $14.8 million, representing growth of 74% compared to the prior year. The sequential increase in robotic sales was driven by two key factors. First is the growing and expanded capital sales pipeline. Given the timing of how deals progress once we partner with the Surgeon Champion and how deals are unlikely to fall out of the sales funnel, we had good visibility into our pipeline and confidence to meet our second quarter system sales expectations. Second, as we communicated a handful of deals we plan to complete in Q1 ultimately closed in the second quarter. It is an important reminder that the first quarter is typically a seasonally slow period for capital equipment, which can meaningfully impact quarter-to-quarter volatility. In terms of our pipeline, the number of robot placement opportunities continue to grow meaningfully, which has been driven by the addition of new capital reps in greenfield territories. We ended the first quarter of 2023 with approximately 30 capital sales reps. ten of which were added in the late Q4 2022. With a productivity ramp of six to nine months, we expect the capital reps added in the fourth quarter of 2022 to start contributing to the U.S. system sales in the back half of 2023. Given our system sales outperformance in the first half of the year, our expectations around full-year U.S. system sales have slightly increased. However, we still expect approximately 55% of system sales to be in the second half of 2023. Next, touching on utilization and surgeon activity. U.S. handpiece and consumable revenue increased 138% compared to the second quarter of 2022. When analyzing our accounts, we are extremely pleased with overall utilization trends. Our U.S. installed base in six months has grown 40% compared to the end of 2022, and these new accounts take time to run to the levels of existing accounts. We are encouraged by what we are seeing on account-specific utilization and believe we now have multiple proof points where aquabulation therapy is viewed as the respective standard of care within a given hospital. The primary drivers of procedure growth continued to be active surgeon growth, which is a combination of new surgeons performing procedures and active surgeon retention rates of approximately 90% for the first six months of 2023. We define active surgeon retention as any surgeon who performed a case in both the current and previous quarter. As a company, we benefit greatly from this high level of surgeon retention as our commercial team can focus on training new surgeons. Our revenue guidance, as Kevin will go through shortly, continues to be informed by what we are seeing in our pipeline, how opportunities progress, what customers are telling us, the productivity ramp of new capital reps, and overall close rates. All these indicators continue to trend positive as awareness around aquabulation therapy grows. which gives us confidence in achieving our 2023 growth targets. Next, regarding our progress in the quarter with our IDM partners. In the second quarter, we signed a national sales contract with the largest IDM in the U.S. that secures pricing for system placement and hand pieces sold to the nationwide hospital network. Partnering with IDNs continues to be an important initiative as it will allow our sales team to operate in an expedited and more predictable manner as we partner with aqua operation surgeon champions at these hospitals. Even though we saw the record number of systems in Q2, the results did not include any large multi-system orders from strategic IDNs. We believe there is an opportunity in the future for multi-system orders as our sales team continues to expand the pipeline. While there are many hospital networks in the United States, we categorize strategic IDNs as having greater than or equal to 20 hospitals in network. When analyzing the market, we estimate 17 strategic IDNs account for 26% of the 860 high-volume BPH hospitals and 29% of the total 2,700 BPH hospitals. Thus, the importance of these IDN relationships is meaningful to our ability to penetrate the U.S. market and provide increased visibility and predictability in our pipeline. Turning to recent payer coverage updates. In early April, we announced that UnitedHealthcare updated its policy to include aquablation. This updated policy went into effect on June 1st. As the largest commercial payer in the United States, with approximately 45 million covered lives, UnitedHealthcare's positive coverage policy will greatly improve accessibility of aquabulation therapy for men suffering from BPH. With the addition of UnitedHealthcare, we now estimate roughly 95% of men in the U.S. have access to aquabulation therapy. Regarding UnitedHealthcare coverage, we are not anticipating any short-term benefit in our Q3 utilization rates. However, we do expect to see a modest benefit of UnitedHealthcare's coverage along with normal seasonality to be a driver of expanded utilization in the fourth quarter. Additionally, in mid-July, CMS published its 2024 proposed rule for the hospital outpatient prospective payment system. The level six APC code for aqua ablation has a proposed payment that would provide the hospital $8,847 for each aqua ablation procedure, which is a 3% increase over the 2023 rate. The final rule is estimated to be published in November. With respect to international market development activities, we generated $3.2 million of international revenue in the second quarter of 2023, representing growth of 68% compared to the prior year period. This is the second quarter in a row of outperformance by our international business. Growth in the second quarter was driven primarily by strong sales momentum in the United Kingdom. Since the recent positive BPH guidance update earlier this year for aqua ablation therapy, our pipeline of large NHS hospitals has grown meaningfully. With respect to market development activities in the UK, we are very pleased with the initial momentum we have generated. Given the acceleration interest from UK surgeons and strong unit economics on handpiece and system average selling prices, we plan to make further investment over the next 12 months in the UK to accelerate growth and expand patient awareness. Additionally, in mid-July, we initiated enrollment of our post-market survey in Japan to treat 100 patients with aqua ablation therapy. While we do not expect meaningful revenue contribution from Japan in 2023, we view Japan as a very attractive market long-term. Like the US and United Kingdom, our strategy is to lead with clinical data to support a more robust and sustainable commercial launch. In summary, I'm extremely proud of the entire process team and our collective ability to deliver record order. I'm pleased with our year-to-date performance and believe the tailwinds I highlighted will continue to allow us to execute our strategy growth plan of penetrating BPH hospitals and increasing utilization by treating the full range of prostate sizes and shapes. Given this positive momentum, we believe aqua ablation therapy will truly revolutionize the treatment of BPH. With that, I will turn the call over to Kevin.