PROCEPT BioRobotics Corporation

Good day and thank you for standing by. Welcome to the Q4 2023 Procept Biorobotics Earnings Conference Call. At this time, all participants are in a 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 that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Matt Basko, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining Procept Biorobotics' fourth 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 to Form 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. These risks and uncertainties are disclosed in more detail in Procept by Robotics filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place under-reliance on these forward-looking statements, which speak only as of today's date, February 27, 2024. Except as required by law, Procept by Our Robotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances, 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 non-GAAP financial measures, as well as reconciliations of these measures to their nearest GAAP equivalent are included in our arranged release. With that, I'll turn the call over to Reza.

Good afternoon, and thank you for joining us. For today's call, I will provide opening comments and a business update followed by Kevin. We'll provide additional details regarding our financial performance and initial 2024 guidance before opening the call to Q&A, starting with our quarterly revenue results. we are pleased to report another strong quarter with total revenue for the fourth quarter of 2023 of $43.6 million, representing growth of 83% compared to the fourth quarter of 2022. On a full-year basis, total revenue was $136.2 million, representing growth of 82%. We increased average monthly utilization in the U.S. by approximately 10%. an exceptional feat, especially considering the substantial 89% increase in our U.S. install base. The significant increase in new accounts in conjunction with our ability to get these accounts of the utilization care faster further amplifies my pride in our team's accomplishment throughout the year. Given the strong underlying demand for aquablation therapy, we were able to deliver average utilization of approximately 6.6% hand pieces per account per month in 2023 and a record 7.3 hand pieces per account in our fiscal quarter. As a reminder, our initial 2023 guidance had assumed utilization of approximately 6.0 hand pieces per month. Due to this rapid rate of than ever in our company's ability to become the standard of care for BPH patients. As we enter 2024, we believe there are several positive factors which will allow us to continue to execute against our long-term growth plan while being disciplined in showing a path to profitability. We believe these underlying fundamentals reflect the technology that is laying the foundation to become the BPH surgical standard of care and a business that will be a leading urology franchise globally, starting with the current urology market in the United States. We are very fortunate to operate in a large market where the number one reason men see urologies are symptoms associated with BPH. Given the shortcomings of current surgical alternatives, an aging population that continues to increase, and the millions of men who currently forego treatment, we believe underlying market growth will be attractive for many years to come. We also believe urology patient volumes at our accounts continue to grow nicely. In fact, some urologists have indicated that in addition to normal patient activities, an increasing number of men who have failed medication are now seeking to schedule a population therapy procedure as it pertains to hospital capital spending. 2023 was a challenging year for most hospitals due to accelerating inflation pressure to lengthen the average recovery from the pandemic. Through these persistent headwinds, we were able to achieve our 2023 sales goals. However, we believe the market is more stable now compared to the previous six to nine months. With a growing and increasingly educated patient population, along with motivated urologists, We are seeing hospitals continue to prioritize investment 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 the BPA surgical space. We also exited the fourth quarter of 2020. While our initial commercial strategy was to target the most influential KOLs at the 860 high-volume hospitals, we have also been successful selling aqua inflation therapy programs to remaining 1,800 low-volume hospitals. It is important to point out that the low-volume BPH hospital does not mean it is small. A significant number of low-volume BPH hospitals are large surgery centers. who historically did not perform resective surgeries. Given the disruptive nature of our technology and that patient outcomes are independent of surgeon skill or experience, low volume centers can build a robust EPH practice with aqua ablation therapy and not have to refer patients out to area specialists. Given this market dynamics, we are still very early in our adoption curve with a long runway in front of us. In terms of our pipeline, the number of opportunities continue to grow meaningfully as we expand into new greenfield territories and add to our capital sales team. Compared to a year ago, we currently have more than double the opportunity to have cleared the stage where we assigned a high level of confidence to close. Kevin will discuss later, our guidance philosophy continues to be informed by what we are seeing in our pipeline, how opportunities progress, what customers are telling us, and overall close rates. Turning to commercial organization. As mentioned on previous earnings call, our plan was to further expand our field-based commercial team in 2023. Speaking specifically about our capital sales personnel, of which 10 were added in the third and fourth quarter of 2023. As a reminder, we believe the productivity curve of capital reps is approximately six months. Over this six-month period, they are responsible for building out their respective pipelines. Thus, we do not expect the capital reps added in the fourth quarter of 2023 to start meaningfully contributing to U.S. system sales until the second half of 2024. which is factored into our 2024 guidance. However, we entered 2024 with the highest percentage of capital reps to have been with Procept for more than 12 months. This is an important metric we track closely since continuity within territories correlates strongly to increase confidence of future deals closing. Additionally, we hired a new strategic account team reps mentioned previously. The role of our strategic accounts team will be focused exclusively on partnering with strategic IDN networks across the country to improve our sales efficiency in both the capital selling process and improve utilization at targeted IDNs. As a reminder, we were successful in establishing sales and legal contracts with the majority of large strategic IDNs in 2023. Despite not receiving any corporate IDN bulk buys in 2023, we believe we are making progress building these relationships, which could be a tailwind in our initial 2024 revenue guidance. Next, touching on our utilization team. Given our strong commercial momentum and expanding pipeline, 2023 was an investment year to meaningfully increase headcount and add capacity to support future growth. similar to our capital rep team. We entered 2024 with the most experienced utilization team in the company's history. While we will continue to increase headcount in 2024, it will be at a much slower pace compared to 2023. Our goal in 2024 will be for these reps to continue identifying, training, and educating new surgeons existing and new accounts to increase utilization. Turning to surgeon interest and patient awareness. As we have communicated to investors over the last 12 months our primary focus is for our population therapy to become the standard of care for BPH surgery and to achieve this goal we have prioritized surgeon engagement, patient outcomes and training. Surgeon interest and has increased meaningfully, resulting in active surgeon growth of approximately 70% compared to 2022 levels. While the primary driver of procedure volume continues to be active surgeon growth, our ability to also sustain surgeon retention rates above 90% border to border demonstrates the clear patient and surgeon benefits of our technology, which ultimately leads to increased utilization. As a company, we benefit greatly from this high level of surgeon retention as our commercial team can focus on adding new surgeons. As it relates to specific aquabulation therapy patient interest, we have also seen a meaningful uptake in our surge activity. Hospital customers continue to drive a significant amount of direct patient advertising and have reported that are seeking out aquablation therapy. Our current strategy will continue to be focused on surgeon engagement and awareness. However, we believe patients actively researching aquablation therapy and following through to see a surgeon is another positive indicator for our expanding product awareness and presence in the marketplace. Next, I want to touch on reimbursement and private pay coverage. fourth quarter of 2023, CMS finalized its 2024 Hospital Outpatient Prospective Payment System. The Level 6 APC code for our procedure will provide the hospital approximately $8,800 for each aquabulation procedure, which is roughly 2.5% increase over the 2023 trades. Following the addition of UnitedHealthcare, June, we now estimate roughly 95% of men in the U.S. have access to aquablation therapy, which is an increase from approximately 75% in January of 2023. With respect to the international market development activities, we generated $3.3 million of international revenue in the fourth quarter of 2023, presenting growth of 64% compared to the prior year period. Growth in the fourth quarter was driven primarily by strong sales momentum in the United Kingdom. Since NICE granted its strongest endorsement, the standard arrangement, recommendation for acquisition therapy in October, our pipeline of large NHS hospitals has increased meaningfully. With respect to market development activities in the UK, we are very pleased with the initial momentum we have generated. Given the accelerating 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 December, we completed enrollment of our post-market survey in Japan to treat 100 patients with aqua lesion therapy. While we view Japan as a very attractive market long term, going to take some time to build our pipeline and launch accounts to start generating meaningful procedure volume. Like the US and United Kingdom, our strategy is to lead with clinical data to support a more robust and sustainable commercial launch. Lastly, we continue to make progress in enrolling patients in both prostate cancer studies. In fact, Since we announced our prostate cancer initiative in September, we have received numerous inquiries from urologists all around the world who are not only interested in BPH, but also very enthusiastic about the potential to treat prostate cancer. As we continue to make progress on the clinical front, we will disclose information when appropriate. In summary, as I look back over the last 12 months, I'm extremely macro environment. Despite this macro advent, we generated significant revenue growth by selling capital and increasing utilization at active accounts. Additionally, we moved into a new and larger facility and hired a significant number of commercial team members, which presented its own execution challenges that the team was able to successfully navigate. These investments were necessary as essential for our future growth. Moving into 2024, I have a higher degree of confidence in our ability to achieve our long-term growth plan. Every metric we track is moving in the right direction. And to summarize these catalysts, our pipeline and sales funnel continue to grow nicely in what we currently believe is a more stable macro environment. On average, the longer an account has been active, the more procedures they do. We are launching new accounts with more surgeons while sustaining retention rates consistently above 90%. Our commercial organization is the largest and most tenured in the company's history, which we believe will lead to increased productivity. And lastly, we will continue to enroll patients in both prostate cancer studies to support aqua ablation therapy's clinical value in this therapeutic area to expand our footprint in the larger urology market. Given this positive momentum, we believe aqua ablation therapy is laying the foundation to become the BPH surgical standard of care and Procept is emerging as a leading global urology company. With that, I will turn the call over to Kevin.