PROCEPT BioRobotics Corporation

conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Boxo, Vice President of Investor Relations, for a few introductory comments.

Good afternoon, and thank you for joining Procept Biorobotics' second quarter 2024 earnings conference call. Presenting on today's call are Reza Zadno, Chief Executive Officer, and Kevin Waters, Chief Financial Officer. Also present is Sham Shablack, Chief Commercial Officer, who will participate in the Q&A session. 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 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. These risks and uncertainties are disclosed in more detail in ProCED Biorobotics 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, August 1st, 2024. 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 gap equivalent are included in our earnings 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 general business update followed by Kevin, who will then provide additional detail regarding our financial performance and updated 2024 guidance. Starting with our quarterly revenue results, we are pleased to report another strong quarter with total revenue for the second quarter of 2024 of $53.4 million, representing growth of 61% compared to the second quarter of 2023. Growth in the quarter was driven by strong U.S. system sales, increased utilization from expanded U.S. install base, and record international revenues. We exited the second quarter of 2024 with a U.S. install base of 400 systems, representing growth of 72% compared to the prior year period. Despite 42% of our U.S. install base being active for less than 12 months, U.S. monthly utilization increased approximately 15% compared to the prior year period. The significant increase in new accounts in conjunction with our ability to move accounts faster up the utilization curve demonstrates both our team's consistent commercial execution and growing customer and patient demand for aquabulation therapy. Multiple factors continue to trend positively, allowing us to execute against our 2024 revenue objectives. Additionally, we continue to make progress expanding gross margins and maintaining good operating expense control. 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 global urology company. Regarding the hospital CapEx environment and Procepts Capital rep team, we continue to believe the market is stable to improving compared to the previous 12 months. Specifically, we are having more proactive conversations with hospital CFOs who just a few quarters ago were exercising more caution in pursuing general CapEx investment given lingering macro headwinds. With a growing and increasingly educated patient population, along with motivated urologists, we are seeing hospitals prioritizing investment in our robotic system to ensure they stay competitive and not lose patients to other area hospitals. Given the disruptive nature of our technology and that achieving consistent resection outcomes are independent of surgeon skill or experience, we believe every BPH hospital can now build a robust BPH practice with aqua ablation therapy and not have to refer patients out to specialists. As we turn to our capital pipeline, we remain excited about the opportunity. The number of robot placement opportunities continue to grow nicely, which has been driven by the addition of new capital reps. We entered 2024 with approximately 40 capital sales reps, of which 10 were added in the fourth quarter of 2023. With a productivity ramp of six to nine months, we expect the capital reps added in the fourth quarter of 2023 to start contributing meaningfully to US system sales in the second half of 2024. Even with our recent success, we are still very early in our adoption curve with a long runway in front of us selling to BPH hospitals. Next, touching on utilization and surgeon activity. U.S. hand fees and other consumable revenues growth increased 101 percent compared to the second quarter of 2023. When analyzing our accounts, we remain pleased with overall utilization trend. In the past 12 months, our U.S. install base has grown 72 percent compared to the second quarter of 2023. These new accounts take time to ramp to the levels of mature accounts. We are encouraged by what we are seeing on account-specific utilization, and we believe we have multiple proof points where aquablation therapy is viewed as the respective standard of care within a given hospital. In addition to adding new accounts, a primary driver of procedure growth continues to be active surgeon growth, which is a combination of new surgeons performing procedures and active surgeon retention rates exceeding 90%. As a company, We benefit greatly from this high level of surgeon retention as our commercial team can focus on training new surgeons. Regarding surgeon interest, in early May, the 2024 American Neurological Association Conference, or AUA, was held in San Antonio. Given our recent growth, AUI 2024 was particularly exciting for Procept, as it marked the first year we could clearly see and feel growing market acceptance and awareness of aqua volation therapy. Specifically, there was a BPH session of poster presentation that was not sponsored by industry, where a significant number of aqua volation therapy papers were presented. The presenters highlighted real-world outcomes that were consistent with the company's clinical trials. This rapid increase in real-world aqua ablation therapy publications continues to provide more confidence for future adopters of the technology. Throughout the weekend, we also held educational and training sessions where over 100 new surgeons participated. Our expansion into prostate cancer garnered noticeable attention at the AUA, with a growing number of urologists requesting more information on how a coalition therapy could treat prostate cancer. Since prostate cancer is a very slow-moving disease, with a low mortality rate, it is no secret that in many low and intermediate risk cases, legacy treatments cause unnecessary harm at the request of patients who demand the cancer be removed from their body. These decisions can lead to a significant decrease in a patient's quality of life. Given this backdrop, many surgeons at the EUA were very interested in learning more about aquabulation therapy's potential efficacy, knowing that the safety profile demonstrated in the BPH is so attractive. Furthering our expansion into prostate cancer. In April, we initiated enrollment of PRCT002, PROSEP's first IDE studying men with localized prostate cancer. As a reminder, PRCT002 is an FDA-approved single-arm study of 20 patients with grade group 1 and 2 prostate cancer. I'm excited to announce enrollment is progressing nicely and that we expect to complete enrollment in third quarter. We look forward to tracking these patients in the coming months and plan to provide additional information when it becomes available. Turning to recent reimbursement and payer coverage updates. Between late March and June, we received positive coverage policies from Blue Cross Blue Shield of Arkansas and Blue Cross Blue Shield of Louisiana. Combined, both plans account for roughly 1.5 million covered lives. While relatively insipid given our existing 95% payer coverage, we do believe the addition of these Blue Cross Blue Shield plans will have a positive incremental impact on utilization locally, considering we have numerous systems in those states. Additionally, in mid-July, CMS published its 2025 proposed rule for the hospital outpatient prospective payment system. The level 6 APC code for aqua ablation has a proposed payment that would provide the hospital $9,209 and the ASC setting $6,666 for each aqua ablation procedure, which is a 5% and 7% increase respectively over the 2024 rates. The final rule is expected to be published in November. Also, as a reminder, in mid-June, we announced that the American Medical Association established a new Current Procedural Terminology, or CPT, Category 1 code for aquabulation therapy to treat BPH. The Category 1 CPT code will replace the existing Category 3 CPT code starting January 1, 2026. With respect to international market development activities, we generated $5.7 million of international revenue in the second quarter of 2024, representing growth of 79% compared to the prior year period. Growth in the second quarter was once again driven primarily by strong sales momentum in the United Kingdom. Additionally, we sold our first two systems to Japanese hospitals in the second quarter. Following the completion of the post-market study earlier this year, our Japanese pipeline has increased nicely. Positive ASPs in the market and historical acceptance of new technologies gives us confidence in our future investments and our ability to accelerate the penetration of the Japanese market in 2025. Similarly to the excitement we generated at the AUA conference in the United States, we also had the sizable presence at the British Association of Urological Surgeons in Birmingham, England. This was the first conference since NICE granted its standard arrangement recommendation for aqua ablation therapy, and the interest from surgeons reinforced our confidence in penetrating the UK market. Lastly, I want to comment on new changes made to our board of directors. In mid-April, we welcomed Larry Wood to our board of directors. Larry joins Procept with over 35 years of medical device experience, most notably at Edwards Lab Sciences, where he is currently group president of its TABOR and surgical structural heart business. Additionally, in mid-July, we welcome Tom Prescott as our new chairman of the board. Tom joins Procept with decades of medical device experience, most notably as president and CEO of Align Technology from 2002 to 2015. Specifically, under Tom's leadership, Align transformed the orthodontic dental market, growing revenue from $75 million to near $1 billion when he retired. We believe Larry and Tom's experience and leadership in strategic areas related to commercialization operations clinical and regulatory efforts will help Procept efficiently scale in the coming years. We are also pleased that Dr. Fred Mull, who has served as our chairman since 2021, will continue to serve on our board of directors as well. To conclude my prepared remarks, every key metric we track continues to move in the right direction. In summary, our pipeline and sales funnel continue to grow nicely in what we currently believe is a stable to improving macro environment. On average, the longer an account has been active, the more procedures it performs. We are launching new accounts with more surgeons while sustaining excellent retention rates. Our international business continues to exceed expectations. 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 have continued to exceed our guidance around profitability metrics, primarily with the expansion of gross margins throughout 2024. Given this positive momentum, we believe aquabulation therapy is laying the foundation to become the BPH surgical standard of care, and Procept is emerging as a leading global urology company. And with that, I will turn the call over to Kevin.