Profound Medical Corp.

Good day and thank you for standing by. Welcome to the Profound Medical fourth quarter and full year 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Kilmore, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements within the meaning of applicable securities laws in the United States and Canada. All forward-looking statements are based on profound current beliefs, assumptions, and expectations. and relate to, among other things, expectations regarding the efficacy of the company's treatment technologies, results of future clinical trials, the ability to obtain coding and or reimbursement from third-party payers, anticipated financial performance, business prospects, strategies, regulatory developments, market acceptance, and future commitments. Such statements involve known and unknown risks and surgeries and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Profound undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, other than as required by law. For the benefit of those who are new to the Profound story, I would also like to take a moment to summarize our business. Profound develops and markets customizable and fission-free therapies for the ablation of diseased tissues. We are currently commercializing Tulsa Pro, a technology that combines real-time MRI, robotically driven transurethral ultrasound, and closed-loop temperature feedback control. The technology is designed to provide customizable and predictable radiation-free ablation of a surgeon-defined prostate volume, while actively protecting the urethra and rectum to help preserve the patient's natural functional abilities. Tulsa Pro is CMART, healthcare approved, and 510K cleared by the FDA. In the U.S., we employ a pure recurring revenue model for Tulsa Pro, whereby we charge customers on a per-procedure basis for Tulsa Pro consumables, leaves of medical devices, and services associated with extended warranties. Outside of the United States, we primarily deploy a capital and consumable sales and service model separately as the situation warrants that. We are also commercializing Sonalese, an innovative therapeutic platform that is the mark for the treatment of uterine fibroids and palliative pain treatment of bone metastases. Sondleaf is also being approved by the China National Medical Products Administration for the non-invasive treatment of uterine fibroids and has recently obtained FDA approval under a humanitarian device extension for the treatment of osteoid osteoma. The business model for Sondleaf Systems is currently a one-time sale of capital equipment. On the call today representing the company are Dr. Arun Manawath, Profound's Chief Executive Officer and Chairman, and Rashed Zulan, the company's Chief Financial Officer. With that said, I'll now turn the call over to Rashed.

Good afternoon, everyone, and welcome to our fourth quarter 1-22 conference call. On behalf of the management team and everyone at Profound, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support. I will turn the call over to Arun in a few moments for an update on our commercial activities. However, before I do, I would like to provide a brief update on our fourth quarter 2022 financial results. To streamline things, all of the numbers we'll refer to have been rounded, so they are approximate. The three-month period ended December 31, 2022. The company recorded revenue of $1.3 million, with the full amount coming from recurring revenues. fourth quarter 2022 revenue increased 26% from $1 million from the same period in 2021, which also did not include any capital revenue. That said, our capital project pipeline in markets outside U.S. is strong, and we do expect to have capital revenue in the future period. As previously stated, we only sell capital in the OUS market. Gross margin for the three months and year ended December 31, 2022 were 44% and 45%, respectively, compared to 50% and 43% for the same period of 2021. While our gross margin is good at this early stage, as the recurring revenue increases, we expect the margin will improve from the current level. Long term, we expect our gross margin to be better than 75% as recurring revenue outpaces capital revenue. Total operating expenses in the 2022 fourth quarter, which consists of R&D, G&A, and selling and distribution expenses were $9.4 million, a decrease of 8% compared with $10.2 million in the fourth quarter of 2021, primarily due to decreased non-cash share-based compensation expenses. We expect our net cash barn related to operation to be in the $5 to $6 million range, same as financial year 2022. Breaking that down further, Expenditures for R&D decreased 34% on a year-over-year basis to $3.1 million. G&A expenses decreased by 35% to $2.1 million. And selling and distribution expenses decreased by 27% to $1.7 million, partially offsetting the decreases in R&D DNA and selling and distribution expenses, we recognize a non-cash impairment of approximately $2.5 million in the fourth quarter of 2022, representing all the goodwill associated with the Sonali business as the return to business in China continues to be delayed due to COVID-19. Net finance costs for the 2022 fourth quarter was half a million dollars consistent with the same three-month period of 2021. Overall, the company recorded a fourth quarter 2022 net loss of $9.5 million or 46 cents per common share compared with a net loss of $10.2 million or 49 cents per common share for the same three-month period in 2021. As at December 31, 2022, Profound had cash of $46.5 million. Based on the company's current bond rate, we believe that its current cash position is sufficient to fund its operations into Q1 2025. With that, I will now turn the call over to Aruv.

Thank you, Rashad.

Beginning with our financial performance, our recurring revenue continues to meet expectations and was the sole driver of this quarter's revenue increase compared to Q4 2021. We reported no capital equipment sales for the quarter, largely due to continued COVID-19 related headwinds in select markets such as Japan and China. While we do not believe this is representative of the future, we cannot predict when international capital sales will resume at or above the rate we have reported in previous quarters. Regardless, our main task is about driving utilization of TELSA in the United States. As you know, it is a game-changing technology and the hurdles that we have faced mostly relate to the changes required to instill the new practice of a substantive new technology. We believe that the flywheel of adoption of our technology is finally turning and it will gain speed in 2023. By the end of Q4 2022, the utilization of TELSA began to grow at the rate of about 5% per month. And now, with the installed base of 35 systems, we believe that growth rate is sustainable and will likely increase as our urologists continue to gain more experience. Now, that we have done over 3,000 cases. We have also analyzed what type of cases are being done commercially, as that is a critical early indicator of the potential of the adoption of our technology. From the very beginning, we have indicated that our technology has the potential to treat a significant part of the prostate cancer patient population. And now, our commercial patient treatment data is proving it. Over 50% of patients being treated with Tulsa have prostates larger than 40 cc, and we have treated prostates as large as 250 cc in size, covering the full range of the potential patient population. As for the stage of the disease treated, approximately half of the patients we have treated are those with mid-stage disease. But I'm particularly pleased to see that over 30% of patients being treated belong to higher risk categories from grade group three up to five or very high risk patients. And we have even treated many palliative patients. About 60% of our patients treated received whole gland ablation. About 35% received greater than 50% prostate ablation, but less than whole gland. And about 15% received focal ablation, which is less than 50% of the prostate. All the data put together clearly indicates that TELSA can be used to treat a vast majority of the prostate cancer patient population. Bottom line, we believe that the precision of TELSA which enables our clinicians to treat cases with confidence, the flexibility of TELSA which allows them to use it for a variety of patient population, and our compelling clinical data are all factors that continue to give us confidence in driving widespread adoption of TELSA. 2022 was also an unusual year in certain sense. Dr. Scianti, our first commercial user, hardly did any cases in the year as he was busy switching from his old practice to becoming the chief urology officer at HaloDx. Now that he's there, he's looking to start using Tulsa again for majority of his cases. He's also training his colleague at four sites to make Tulsa their first-line treatment option for prostate cancer. In another situation, our RedNet site which was slow to start, finally finished their first 50 patients. Pleased with their outcomes, they have opened their second site in Arizona, which is off to a very good start. Similarly, a number of sites that were cautious when they started have now completed their first 30 to 50 cases and have confirmed that their clinical outcomes are as good as that in the TAC trial or better as they have the flexibility to customize treatment in commercial settings. Generally speaking, these sites are now looking to increase utilization and are open to treating a wider variety of patients. Another growth driver that we are seeing is that the number of teaching sites continue to increase and the teaching sites that have done about 50 cases are adding at least one more urologist to use the technology, which has the potential to increase the overall site usage at that site. Summarizing, on the usage of TELSA in the U.S. No doubt it has been tough, but as I mentioned before, the flywheel of adoption is turning in the right direction. As our physicians gain more experience and the number of sites continue to increase, we believe that the adoption rates will increase. The other key main driver of adoption, as you know, is reimbursement. At least 12 of the hospital systems began to use the temporary C code approximately in 2022. These sites are also getting payments in the range that they are satisfied with. Our goal is to continue to educate the sites on the proper use of the code, and we find that the sites that are using it have a backlog of patients in the approximate range of three to four months. As for the permanent code, the CPT Category 1 code, the next AMA CPT committee meeting is scheduled to be in Chicago from May 4th to May 6th and consideration of the unique TELSA code is on the agenda. According to this agenda, the summary of the results and actions of this meeting will be published on or before June 2nd. You might recall last year, we pulled back as the utilization data that was submitted reflected only 2021 data, but this year, 2022 data is included, and we believe that it is substantially higher and sufficient to get over the utilization threshold. Another difference this year is that the application is completely sponsored by the relevant societies and Profound is not a co-sponsor, which may give more credence to the application and the process. We are now less than two months away from this milestone and a potential major inflection point, and we're looking forward to discussing it further on the Q1 analyst call in early May. In addition to the progress we have made in driving utilization of TELSA in U.S. and on the revised filing of the CPT code application, we've also made progress on the clinical front. We expect at least three additional substantive publications this year in peer-reviewed journals, as well as at least eight podium presentations at relevant conferences, including the AUA. Four podium presentations regarding TELSA took place earlier this week at the Society of Interventional Radiology annual meeting. Our kept-in-trial recruitment continues, and we remain confident that preliminary results from this prospective randomized comparative trial with radical prostatectomy can be announced in early 2025, which will coincide with the effectiveness of the permanent CPT code if approved. Increasing utilization of TELSA in US. Achieving approval of the permanent CPT code. and continued recruitment in Captain Trial remain the main agenda of our company. I'm also pleased to tell you that we have submitted our first TELSA AI software to the FDA for clearance. I encourage you to visit our website that describes this product in our updated corporate presentation that was posted a few minutes ago. I know that AI has become a big buzzword in the recent past. Our program is more than two years old and it is designed to have the specific purpose of improving health care treatment planning times as well as making it a continuous learning system. As I mentioned before, we have a significant amount of image-based patient data. We have fed over 54 million parameters from over 7,000 images into our AI engine, along with validated 1,300 treatment plans that were manually produced by our expert physicians to treat their patients. The TELSA AI is now an add-on software module that can be added to TELSA Pro, and the module has the ability to produce suggested treatment design based upon its learning from the database. The suggested design is primarily about saving treatment planning time. But given that it is based upon prior successful treatments, it also gives our urologist additional confidence in the automated plan. We have reviewed the module with the FDA and have received clear guidelines as to what it will take to achieve clearance, which include testing for alignment of the suggested design with physician treatment plan on a prospective basis. We believe this is doable by summer this year, at which point we will submit the final data sets to the FDA for approval. We're very excited about the first AI product as this internally developed capability will serve us to make Tulsa a continuous learning system as we automate various aspects of the Tulsa Pro system as well as the patient care continuum. Summarizing, we believe that the flywheel of Tulsa Pro adoption is accelerating at the rate of 5% per month growth and will likely further gain steam in the second half of the year. We also believe that achieving an install base of 55 systems in the United States by end of 2023 is very possible. We look forward to reporting on the progress of the application of the Category 1 CPT code, which we believe will be a major inflection point for our company. We expect that the CAPTN trial, which is already recruiting at a pace faster than any other comparative trial in prostate cancer, will continue to recruit at a good pace to enable preliminary results in early 2025. And finally, we are excited about our TELSA AI initiative. If cleared by the FDA later this year, it has the potential to not only significantly reduce treatment planning time, but also give our clinicians substantial added confidence, further driving adoption. This ends our prepared remarks for today. With that, Rashed and I are happy to take any questions you might have. Operator.

Thank you. As a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again.

Please stand by while we compile the Q&A roster.

Our first question comes from Michael Sarconi with Jefferies. Your line is open.

Hey, good afternoon and thanks for taking my questions.

Good afternoon.

First question, you had talked about exiting 2022 with utilization growth at about 5% per month. Can you just talk about how that's been tracking through the first two months of the year and how you expect that to ramp over the course of the year?

Yeah, Michael, that's a simple question, a simple answer. We are definitely tracking at that 5% per month right now.

Okay, thank you.

Yeah.

Sorry, do you have more?

No, I think that's fairly straightforward. I think that some of the new install base, as they begin to get more experience, I think they will continue to increase also, which is why we're guesstimating right now that second half we can do better, but 5% is definitely there.

Understood. Thank you. And then just one more. How do you think about the pace of system placements through the year in the U.S.?

Sure. Michael, our pipeline is definitely very strong. And I think that, as I said in the prepared remarks, getting to 50 by end of this year is, we think, is very feasible. And I think continuing to increase that number substantially in 2024, you know, in the range of maybe 75 is doable. So I think what our anticipation here is that the current sites will continue to increase utilization and the number of sites will also continue to increase.

Okay, thank you.

Thank you.

One moment for our next question. Our next question comes from Rahul Sarugasar from Raymond James. Your line is open.

Good afternoon, Arun and Rashid. Thanks so much for taking our questions. So congratulations on having the CPC application included in the AMA May meeting. Recognizing that since you opted last year to withdraw the application primarily based on number of patients, you've now referred to more than 3,000 patients. You've referred to several conferences and publications over the last year. Maybe could you give us a little bit more color in terms of how these are the key criteria in terms of de-risking the application and if there was anything else that was in the application that helped to de-risk it?

Sure. No, it's a good question. I mean, that is one of the big, big milestones that we need to achieve this year. And I think some of the things I can certainly share, the number of patients that were treated in 2022 with TELSA is higher than the number of patients that were included in prior filings of other technologies in prostate cancer that were approved. So I think that on that basis, we have crossed the utilization hurdle, which was the main issue last time. But I do think that one of the things that we witnessed as we were communicating with the societies is that the enthusiasm of the societies also has continued to increase. And for that reason, the society basically said, we've got this, you don't need to even, you know, if you choose not to want to sponsor it, you know, they will take it from here. And I think, to be honest, that is a very good sign because majority of the applications that do get sponsored by the society go through, get through. So, you know, I know it's not a guarantee in anything, but I do think that the clinical data is there, the society support is there, the utilization is there. I think that we are sort of in the mainstream. I am most certainly much more enthusiastic and optimistic about it than I was last year. And, you know, there's always a backup plan in our company. And if for some reason a new issue does come up, you know, we do have September meeting this year. So I think that there is no issue that I know of at the moment. But if a new issue does come up, I think we have the opportunity to go back in September, and that will still keep the effectiveness date to January 25. Great.

That's really helpful. Thank you. Thanks, Arun. So my next question is on the CAPTN trial. You indicated that you're looking at potential preliminary data in early 25. And, of course, you've been balancing the resourcing of the trial and, of course, your commercial efforts. Could you give us a little bit more color in terms of how recruitment is going and sort of any other milestones that we might be able to count on or look to before early 2025?

Sure. You know, as I said in the prepared remarks, we are recruiting at a pretty good pace. We're about 25% done in the trial. And our number of sites has now increased to 13 as compared to eight about six months ago. I think there are probably another two or three sites that have expressed interest in participating, so probably we'll go to maybe 15 or 16 within the next 90 days or so. We have, you know, we have a really good team that is following up on recruitment and And so the number of patients being recruited even in the first two months of 2023 is higher than what we were doing in 2022. So I do feel pretty optimistic that we will be able to complete recruitment sometime in, you know, first half of 2024. And that means that we should be able to produce, you know, six to nine-month data by Q1 2025. And, you know, if you look at the tact trial data, what we find is that once you cross the six-month mark, there is high level of predictability of where that patient is going. in the future. And so that, I think, will serve us well, that history will serve us well. To your other question in terms of the other clinical publications, we do expect five-year data to be coming out this year. which is the final data set that urology community looks for. I don't anticipate any significant differences given the trend that we've seen in the first four years, but that will be certainly another data set that will come out. There is a European trial that was also a comparative trial, which we sort of patterned our captain trial behind that trial, they will start announcing their numbers starting this upcoming AUA meeting in May. So I think that will also start to serve as some early indicators of the comparative study.

Great. That's actually very helpful. Thank you very much. And if you'll indulge one quick last question. It's great to see that you're looking at AI enabling of the program. You talked about potential completion of the prospective patients by the summer. So would it be reasonable to assume that the 510K would go in by the fall and be looking at a response in the FDA early 2024?

Yes, I think, well, that is the plan. You know, obviously you have to show the FDA, but that is certainly the plan that we will be able to get this product in the market in early 2024. And I think the only other color I can give you is every urologist that we have presented this to has given amazingly positive feedback. So that is where... I don't use the word excited very often, but this is something I'm very, very excited about. I think it is the first of a family that will be coming out. And I think the continuous learning process, the continuous learning of this technology, I believe has that potential to actually continue to improve clinical outcomes. And I think that's the part that is most exciting to me. There are some videos that are being placed on our website. including the TELSA AI videos, and you will actually be able to see it. So you'll be able to see, for example, there's a click. The automatic treatment plan shows up on the screen, and then you'll see the pen will show up, and the urologist just makes the modifications where they see fit, and then they go to the next one. So you'll actually be able to see how well this technology works.

Great. Thanks again, Arun, and thanks for taking our questions. We'll get back in the queue.

Thank you.

We have a question from Ben Hainor from Alliance. Your line is open.

Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, on the CPT-1 code, you know, nice that the societies are sponsoring it and you guys don't need to sponsor it yourselves as well. But I was curious if you guys or the societies or, you know, any consultants you deal with on that have any data dealing with the hit rate when it's, you know, sponsored by only the societies versus, you know, sponsored by the societies and the company and so on and so forth?

Yeah, statistically it's hard to find it. I think there are two things then that we're sort of relying on a little bit. One is that When we submitted the application last year, really the only issue that had come up was the utilization rate of 2021. And now there's 2022 data. And as I said, we think that it's better than what the AMA approved for other products. So I think that probably is a good way to think about it. The other thing is that the societies certainly are saying that they generally get their approvals. So I think they certainly seem to be confident. I cannot tell you statistically. I don't think I have any data like that, Ben.

Okay. I was just curious because I've never seen it happen across any of the companies. Yeah, I haven't.

Yeah.

Okay, that's fair enough. And then Tulsa AI was pretty exciting. Obviously, you had the discussions with the FDA. Can you share how many cases that you expect to do to be able to submit the data that the FDA is looking for?

Yes, most certainly. So we've done 115 that we did share with the FDA. We think we will do another 20 to 30 additional ones. And there are actually three subsets that they have requested, three types of data that they requested. None of them actually will require live patients anymore. These are more comparison simulations or a core lab where a urologist or radiologist will draw there and they will look for comparison to the automated plan. So I think that We have about 80% of what the FDA is looking for. We will get the rest of it done in the next couple of months. And we feel that given that what we've already done meets the criteria that we should be able to, you know, submit that and we should be in decent space there.

Okay.

That's helpful, isn't it? You mentioned how the folks that you've presented it to so far have been universally positive. I mean, I'm looking at the presentation here, and you've got the handful of modules that you're initially talking about. Is that the contouring assistance, the thermal boost, the procedure optimization. Is that all going in with this FDA submission? And then on top of that, I mean, is there anything specifically that gets these folks more excited than on one feature or another within the AI?

So, Ben, first of all, these are two separate applications. One of them is for the contouring assistant. The second one is for the boost. And I think, to be honest, the feedback we're getting is very positive for both of them. The first one, I think, as I mentioned, there is a psychological shift that is taking place. As you know, this is so game-changing as a technology that when we first talked about that, hey, you need to use an MRI to do this, there's this little hesitation that first shows up, oh, I've never used an MRI before. And that is now shifting to, hey, I am going to look at MRI images from the perspective of treating that patient and I'm looking at the biopsy data and I'm looking at now how I'm going to design the treatment. And that is a very different perspective than the perspective of a radiologist who is designing, who is actually diagnosing and they're looking at the cellular structure from the MRI and they're not thinking about designing a treatment plan so these are two very different things that they have to do and I think that the urologists are now who have done this are getting to that stage saying okay I'm using these images for a different purpose and so when we present it to them the idea of automated treatment planning using this knowledge And then being able to simulate what that means to them in terms of not just time, but the confidence that the treatment design is based upon the knowledge of several patients who have been treated successfully in the past. That's the key point. The feedback we're getting is, to be honest, unbelievable. So, you know, as usual, I want to be cautious and careful. and, you know, make sure we deliver on this. But we feel, you know, this is a project we started over two years ago, and we have an amazing AI team in the company. We've built the capability, and I think this is the beginning of, you know, putting AI into our product.

Okay, so just a point of clarification. So the contouring assistant is what's going on in this initial FDA submission, and there's other things beyond that that'll come behind it?

That's correct. The contouring will be the first one and then we'll produce other things and we'll, you know, bring you up to speed as we do other things. But at the moment there are two applications. One is the contouring system. The second one is the thermal boost that there are in FDA considerations.

Okay. Got it. And then you got a pretty busy year coming up here in terms of, you know, both clinical publications and podium presentations. If I recall correctly, the FARP study data, or at least some of it, is likely to be presented at the European Association of Urologists coming up here in, you know, not too long. Yes. Yeah. Do you get a sense that they'll delineate between HIFU and Tulsa when the data comes out, or is that something that you just don't know or? Um, unclear at this point.

Um, you know, we're, we're not in day to day touch and they're obviously because the publication they're doing all of the analysis. So my information is not a hundred percent, um, accurate probably, but my best guess is because these are different technologies that they will have to delineate them.

Okay. Okay, I'll be staying tuned for that.

The first publication that the first podium presentation at the AUA, I think will be interesting in May.

That they're going to do. Yeah.

But we got that and the EU and

The CPT-1 code is coming up in the next couple few months here, so lots going on.

Yeah, the next two months are very eventful months. You're right.

Good deal. Well, thanks for taking the questions, and congrats on all the progress.

Thank you. Thank you so much, Ben.

Thank you. And our next question comes from Frank Takinan with Lake Street. Your line is open.

Hey, thanks for taking my questions. I wanted to start with asking about, you mentioned some of your latest new users starting to build a three to four month backlog. Great to hear the patient funnel being built out on those. I was wondering if you could talk a little bit more about those and maybe talk to some of the bottlenecks they're facing to getting those patients through the funnel.

Sure. Frank, I think it's just like any other thing. It's an entirely new technology. Yes, we had tagged clinical data that looked good, but all of that was initially sort of the market entry that this sort of said to them, this is a technology that we want to evaluate or try. And I think, as you've seen, you know, many of these sites that started a couple of years ago have now done, you know, 50, 100, or maybe even 30 cases. And they have now done their evaluations. And based upon those evaluations, they're saying this is a technology here for the future, and they want to start increasing its usage. And so... to just provide a little bit more color in what you're asking is that as they increase, they're looking at, you know, what's my backlog and how many of the physicians of my practice need to be Tulsa users? How much MR time do I need to allocate for my pipeline of patients and so on? So I think what we are seeing is, is they get to a couple of two, three-month backlog, and then they're saying, I've got to increase my capacity. And in that capacity, it might be adding a urologist, adding some more MR time, or training another technician, and so on. That's how they're sort of slowly but surely getting to it. I hope I've answered your question, Frank.

No, that's perfect. That's helpful, Culler. And then I wanted to just ask one more on Dr. Ciante's evaluation process. I understand he's always been an early user of Profound's technology, but when he switched over to Halo DX, did he run an extensive evaluation process to evaluate some of the other alternative prostate cancer treatment options, or was he pretty dead set on implementing Tulsa across all the sites?

So, Frank, based on what he told us, and this was sort of in last fall, early winter time, is that he and Halo, as he was joining, they evaluated multiple technologies. And one of the primary criteria that they used was that they felt that TELSA was the most standardized way of treating the patient and was all of these alternative technologies that they looked at, it was the most scalable technology. also. And so their goal is they did not want to standardize on something that could be very user, you know, urology skill-based, but they wanted to have a technology that they could sort of grow over to many, many practices. And that was a very large part of his criteria.

Okay, great. I'll stop there. Thanks for taking the questions.

Sounds great. Thanks, Frank.

One moment. Our next question comes from Brian Gagnon from Gagnon Securities. Your line is open.

Hi, guys. A couple of questions for you. First, congrats on the CPT AMA meeting. That's terrific. Is there any ability to use the C code in an outpatient setting in the interim? And what do you guys think about that?

Yeah, that's a good question. So the C code right now is not on the ASC, which is the outpatient setting list. And as part of this, as a separate conversation, we have actually made the request to the CMS directly that they should consider that. And It basically involves safety and it involves, you know, whether or not patients who are being treated today are daytime patients or not. And we do have really very strong data that our patients go home the same day. And with respect to safety, you know, we don't even create an incision. So, you know, it's hard to say whether they will accept this criteria or not, but certainly that is a possibility, Brian.

Okay. That would be important to continue to drive adoption between now and when you get a full CPT code. I don't want to be short-sighted because that's not the way I think, but can you give us an idea of how installs are going in this quarter And have you really got, and the bigger picture question is, have you gotten past the bottlenecks for installs that you've discussed in the past?

I think we, you know, we are a very data-oriented company. We have data from the time we start, we get a contract to the time we treat the first patient. And when I look at that information, certainly during the deep COVID period, I think those times were running as long as six to eight months. And you saw that because the install base sort of was delayed, and it's only the last three, four months where we're finally getting up the install base curve. So if I look at the latest data, I think we have been able to cut it down from six to at least three months now. And I do think that as time goes and things in the hospital begin to get to more normal, which we are certainly seeing, that we will be able to cut it down to our target, which is about 60 days.

Okay. That would be much more manageable and give you a little more clarity. Another bigger picture question. Are you seeing docs switching any of their days from prostatectomy to Tulsa?

Well, that's a very good question, actually. It's something that I actually watch very closely in terms of who is switching to Tulsa in general. And generally... To be honest, these are actually robotic surgeons who are switching to Telsa. And I mean, to be honest, not only that, I'm watching, we're watching, and we have many of them who are. I actually explicitly, I kind of asked them, why are you doing Tulsa? And why did you switch this case from a robotic, prostatectomy to Tulsa. And I'm getting, to be honest, really, really comments that that is why, you know, my confidence level is increasing. And I'm happy to share, in fact, some of these comments with you. I mean, one of the sites that had done 30 cases, for example, they were very slowly doing cases. And then I actually talked with them. And I said, well, you guys started by saying we're going to do 30 to 40 per year. You've taken longer to get there. you know, they kind of confirmed that what they were really doing is they wanted to do at least 30 cases and see how their patients were doing before they really increased their usage. And so they basically said, look, we have done these cases. We have now confirmed that our own outcomes are similar to the tact clinical trial outcomes. That is what they were looking for. And they said, now that we've confirmed the clinical trial outcomes, we think that Tulsa is going to be, to be honest, to give you his words, he said, this is going to be one of the big three. It's going to be Tulsa, it's going to be robotic prostatectomy, it's going to be radiation. I said, okay, at this early stage, I'll take that. over time, we'll think about who is the number one in that space. And, you know, I'll, I'm happy to share, like, I'll share one anecdotal example with you, which is, which really had an impact on me actually. So I attended a case with one of our urologists. And for some reason, robotic post-attack knee actually came up as a conversation. And he said that he was doing a robotic case a week prior to this and that he actually lost, the robotic arm lost a needle. It took him about 30 minutes to find it and everything was good and no problem. But what he said was, he said, while he was looking for that needle, He said, this would have never happened with Tulsa. He said, you guys don't realize how inherently safer this technology is. So, and it really had an impact on me, is that we talk about safety, we talk about clinical outcomes, and these urologists are now seeing it in real world. So yes, it's taking longer, but I'm finding that the reasons that they're giving are really, really legitimate. And quite frankly, I'm happy about that. I want them to test our technology and see the soundness.

Terrific. I'm going to ask a couple of more because I think I'm at the end of your line. You talked about this 5% per month without Cianti. Can you talk about I think you said Halo was going to be a multi-center group and he's training additional urologists and he will actually come online, I think, this month. Where are these additional centers going to be? And, you know, do you think you get into all the NFL cities throughout the balance of this year?

So, first of all, you're right. So, Cianti, and I mean, it's also another interesting example of how it just takes longer to be involved, is that he was actually originally going to start by end of last year, but because of some approvals that were needed in the state of Florida, We had nothing to do with MR or our technology. It was related to the site that it just took another 90 days to get going. So he's definitely slated to start in the next couple of weeks. But to answer your question, so there are two of these sites are Florida sites. One is certainly his original site, which is Sarasota. And there's another site, which is Jacksonville, Florida. also. And then there are two sites in California. So those are the first four sites. We have talked about adding sites there at a relatively good pace. But again, the same model is let's get these sites going. Let's get all of the different things that can cause delays or recruitment and so on. Let's create an efficient process and then most certainly the idea is that we will go and build additional sites.

Great. RadNet, they've got two open. They've got Dr. Hong running the one here in Arizona. Where are the additional sites going to be for them and do you think you can grow that into the 10 plus that you had hoped for when you originally signed the contract over time?

Yes, I think so. I think that, again, they did something similar. They did their first 50 cases, analyzed it, and then decided, yep, they want to go. They have been very supportive of the CPT application. They have helped educate some of the society members there because that is you know their primary customer is a is reimbursed they're not a very big cash site now in arizona it's actually all cash and they're doing very well but their their message is they have identified the next two sites already they are actually purchased new MRIs for these sites. And we think certainly later this year, they'll be operational. And I think once we have certainty on the CPT code, and if we do get approval to be able to use the C code in these then I think you will see faster adoption. But certainly those two things need to happen for them to go beyond the four that we're talking about.

Great. Two last questions. This one's easy. TAC-2, are you close to completion on that?

Yes, I think we're a couple of patients away. and we'll get to about 140 or 150 patients, I think 150, and we'll close it out. And it'll have five-year data next year, and then we'll continue to add those newer patients, and you'll start to see the impact of that in the final outcomes.

Okay. Last question for me. Does this shift from ultrasound biopsy to MRI in-bore biopsy help with this shift to the inboard Tulsa procedure?

Yes. So this is sort of a long-term dialogue, Brian. And I think over the next couple of years, certainly we will be talking about it because I think right now we're so focused on our short-term getting these sites going and getting the CPT code going. But you're thinking the way that we're kind of thinking is that What Tulsa does is that it, for the first time, enables a very MR-centric strategy from screening the patient to diagnosing the patient to an MR-centric biopsy to then Tulsa treatment and then follow-up. And that all of a sudden becomes a continuum of care from beginning to the end. And there is a lot of dialogue in the urology community about this. And I think that it has, to some extent, it is going from, okay, I have never used an MRI before, so now I can see it outside. Now, as I said in the preparatory remarks, that I can think about MRI from the perspective of treatment design rather than diagnosis to, you know, I probably should own my own MRI. And so I think that shift is, you know, again, it's not going to happen in one day, but I definitely can tell you that there are a number of urologists who are thinking that way already.

Terrific. I'll get back in line. Thank you so much.

Thank you, Ryan.

Thank you. One moment for our next question. We have a question from Scott. McAuley from Paradigm Capital, your line is open.

Thanks, gentlemen, and I'll keep it quick. Just wanted to follow up on the AI software. Down the road, is that something you see as being kind of default that's packaged in with um the the kind of per per procedure cost um that's kind of currently you're currently charging or is that something you see as a potential add-on or upgrade to that subscription once that's approved and commercialized

Yeah, Scott, good question. So the way we are structuring this is Tulsa Pro is one cost per patient. And there is going to be a value proposition for each of the modules that we provide through the hospital or the urology practice. And our plan is that there will be some kind of remuneration to our company for those modules. So it is not a free add-on. It will have its own value proposition and it will either have a additional price associated with it or it will have certain other commitments associated with it. But most certainly it is an increase in the value proposition of our company.

Absolutely. Makes sense. And then I think I just missed it, but off the top you're saying there's kind of $5 to $6 million range that's kind of expected for some of the expenses. And I think I may have just missed what that was, if you can reiterate that. And that's it for me.

I think that's a reset question. I think that's the burden that he was talking about. Yeah. So, Reset, do you have anything to add to that or feel good?

No, so basically what we're saying, Scott, is we are expecting to hold farm on our barn rates in order to maximize our runway. And that's how we're getting the confidence that the cash that we have on hand will give us the runway to go to all the way to Q1 2025. And we'll make sure that we adjust the levers in between to make sure we invest in the right areas like the sales and marketing areas and we'll adjust the cost in the other places to keep their farm rate stable.

Got it. Thank you, General.

Thank you.

One moment.

We have a follow-up from Brian Gagnon from Gagnon. Securities, your line is open.

All right. So, Rashad opened the door. Talk about the Salesforce growth, if you would. I think you have four now. Where are you going to be investing in the Salesforce this year? Clinical reps, genius, feet on the street, hunter-farmer. What are you guys thinking about?

Yeah. So, Brian, we are aggressively adding to our sales team right now, given the pipeline and the larger install base. And in some reform, the answer is all of the above. We are adding new hunters because of the demand, the pipeline that is growing. We need to close those deals. We're definitely hiring some really, really good farmers who can take the sites that have already treated, for example, 50 cases and so on. demand in terms of our presence is lost, a lot less than what it would be for the newer sites. And then for the newer sites that we're bringing on, we are adding Genius Services so that we can continue to support them like we did the earlier guys. So the answer to that is absolutely all three of them. We're adding aggressively right now.

Great. Thank you.

Thank you. And I'm showing no other questions. I'd like to turn the call back to Dr. Menawat for closing remarks.

So thank you so much. I think there is definitely a lot going on. As someone said in the call, the next couple of months will be very interesting. And I really appreciate the questions because we are, you know, we are doing something that is very unique. And there are so many dimensions to it that I'm happy to answer the questions. And thank you for everything. And I look forward very much to the Q1 call. Thank you again.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Everyone, have a great day.

The conference will begin shortly.

To raise and lower your hand during Q&A, you can dial star 1 1. you Thank you. you

Bye. Thank you.

Good day, and thank you for standing by. Welcome to the Profound Medical fourth quarter and full year 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you need to press star 11 on your telephone. You will then hear an automated message advising you 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 today, Stephen Kilmore, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements within the meaning of applicable securities laws in the United States and Canada. All forward-looking statements are based on profound current beliefs, assumptions, and expectations. and relate to, among other things, expectations regarding the efficacy of the company's treatment technologies, results of future clinical trials, the ability to obtain coding and or reimbursement from third-party payers, anticipated financial performance, business prospects, strategies, regulatory developments, market acceptance, and future commitments. Such statements involve known and unknown risks and surgeries and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Profound undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, other than as required by law. For the benefit of those who are new to the Profound story, I would also like to take a moment to summarize our business. Profound develops and markets customizable and fission-free therapies for the ablation of diseased tissues. We are currently commercializing Tulsa Pro, a technology that combines real-time MRI, robotically driven transurethral ultrasound, and closed-loop temperature feedback control. The technology is designed to provide customizable and predictable radiation-free ablation of a surgeon-defined prostate volume, while actively protecting the urethra and rectum to help preserve the patient's natural functional abilities. Tulsa Pro is CMART, healthcare approved, and 510K cleared by the FDA. In the U.S., we employ a pure recurring revenue model for Tulsa Pro, whereby we charge customers on a per-procedure basis for Tulsa Pro consumables, leaves of medical devices, and services associated with extended warranties. Outside of the United States, we primarily deploy a capital and consumable sales and service model separately as the situation warrants that. We are also commercializing Sonalese, an innovative therapeutic platform that is the mark for the treatment of uterine fibroids and palliative pain treatment of bone metastases. Sondleaf is also being approved by the China National Medical Products Administration for the non-invasive treatment of uterine fibroids and has recently obtained FDA approval under a humanitarian device extension for the treatment of osteoid osteoma. The business model for Sondleaf Systems is currently a one-time sale of capital equipment. On the call today representing the company are Dr. Arun Manawath, Profound's Chief Executive Officer and Chairman, and Rashed Zulan, the company's Chief Financial Officer. With that said, I'll now turn the call over to Rashed.

Good afternoon, everyone, and welcome to our fourth quarter 1-22 conference call. On behalf of the management team and everyone at Profound, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support. I will turn the call over to Arun in a few moments for an update on our commercial activities. However, before I do, I would like to provide a brief update on our fourth quarter 2022 financial results. To streamline things, all of the numbers we'll refer to have been rounded, so they are approximate. The three-month period ended December 31, 2022. The company recorded revenue of $1.3 million, with the full amount coming from recurring revenues. fourth quarter 2022 revenue increased 26% from $1 million from the same period in 2021, which also did not include any capital revenue. That said, our capital project pipeline in markets outside U.S. is strong, and we do expect to have capital revenue in the future period. As previously stated, we only sell capital in the OUS market. Gross margin for the three months and year ended December 31, 2022 were 44% and 45%, respectively, compared to 50% and 43% for the same period of 2021. While our gross margin is good at this early stage, as the recurring revenue increases, we expect the margin will improve from the current level. Long term, we expect our gross margin to be better than 75% as recurring revenue outpaces capital revenue. Total operating expenses in the 2022 fourth quarter, which consists of R&D, G&A, and selling and distribution expenses were $9.4 million, a decrease of 8% compared with $10.2 million in the fourth quarter of 2021, primarily due to decreased non-cash share-based compensation expenses. We expect our net cash barn related to operation to be in the $5 to $6 million range, same as financial year 2022. Breaking that down further, expenditures for R&D decreased 34% on a year-over-year basis to $3.1 million. G&A expenses decreased by 35% to $2.1 million. And selling and distribution expenses decreased by 27% to $1.7 million, partially offsetting the decreases in R&D DNA and selling and distribution expenses, we recognize a non-cash impairment of approximately $2.5 million in the fourth quarter of 2022, representing all the goodwill associated with the Sonali business as the return to business in China continues to be delayed due to COVID-19. Net finance costs for the 2022 fourth quarter was half a million dollars consistent with the same three-month period of 2021. Overall, the company recorded a fourth quarter 2022 net loss of $9.5 million or 46 cents per common share compared with a net loss of $10.2 million or 49 cents per common share for the same three-month period in 2021. As at December 31, 2022, Profound had cash of $46.5 million. Based on the company's current bond rate, we believe that its current cash position is sufficient to fund its operations into Q1 2025. With that, I will now turn the call over to Aruv.

Thank you, Rashad.

Beginning with our financial performance, our recurring revenue continues to meet expectations and was the sole driver of this quarter's revenue increase compared to Q4 2021. We reported no capital equipment sales for the quarter, largely due to continued COVID-19 related headwinds in select markets such as Japan and China. While we do not believe this is representative of the future, we cannot predict when international capital sales will resume at or above the rate we have reported in previous quarters. Regardless, our main task is about driving utilization of TELSA in the United States. As you know, it is a game-changing technology and the hurdles that we have faced mostly relate to the changes required to instill the new practice of a substantive new technology. We believe that the flywheel of adoption of our technology is finally turning and it will gain speed in 2023. By the end of Q4 2022, the utilization of TELSA began to grow at the rate of about 5% per month. And now, with the installed base of 35 systems, we believe that growth rate is sustainable and will likely increase as our urologists continue to gain more experience. Now, that we have done over 3,000 cases. We have also analyzed what type of cases are being done commercially, as that is a critical early indicator of the potential of the adoption of our technology. From the very beginning, we have indicated that our technology has the potential to treat a significant part of the prostate cancer patient population. And now, our commercial patient treatment data is proving it. Over 50% of patients being treated with Tulsa have prostates larger than 40 cc, and we have treated prostates as large as 250 cc in size, covering the full range of the potential patient population. As for the stage of the disease treated, approximately half of the patients we have treated are those with mid-stage disease. But I'm particularly pleased to see that over 30% of patients being treated belong to higher risk categories from grade group three up to five or very high risk patients. And we have even treated many palliative patients. About 60% of our patients treated received whole gland ablation. About 35% received greater than 50% prostate ablation, but less than whole gland. And about 15% received focal ablation, which is less than 50% of the prostate. All the data put together clearly indicates that TELSA can be used to treat a vast majority of the prostate cancer patient population. Bottom line, we believe that the precision of TELSA, which enables our clinicians to treat cases with confidence, the flexibility of TELSA, which allows them to use it for a variety of patient population, and our compelling clinical data are all factors that continue to give us confidence in driving widespread adoption of TELSA. 2022 was also an unusual year in certain sense. Dr. Scianti, our first commercial user, hardly did any cases in the year as he was busy switching from his old practice to becoming the chief urology officer at HaloDx. Now that he is there, he is looking to start using Tulsa again for majority of his cases. He's also training his colleague at four sites to make Tulsa their first-line treatment option for prostate cancer. In another situation, our RedNet site which was slow to start, finally finished their first 50 patients. Pleased with their outcomes, they have opened their second site in Arizona, which is off to a very good start. Similarly, a number of sites that were cautious when they started have now completed their first 30 to 50 cases and have confirmed that their clinical outcomes are as good as that in the TAC trial or better as they have the flexibility to customize treatment in commercial settings. Generally speaking, these sites are now looking to increase utilization and are open to treating a wider variety of patients. Another growth driver that we are seeing is that the number of teaching sites continue to increase and the teaching sites that have done about 50 cases are adding at least one more urologist to use the technology, which has the potential to increase the overall site usage at that site. Summarizing, on the usage of TELSA in the U.S. No doubt it has been tough, but as I mentioned before, the flywheel of adoption is turning in the right direction. As our physicians gain more experience and the number of sites continue to increase, we believe that the adoption rates will increase. The other key main driver of adoption, as you know, is reimbursement. At least 12 of the hospital systems began to use the temporary C code approximately in 2022. These sites are also getting payments in the range that they are satisfied with. Our goal is to continue to educate the sites on the proper use of the code, and we find that the sites that are using it have a backlog of patients in the approximate range of three to four months. As for the permanent code, the CPT Category 1 code, the next AMA CPT committee meeting is scheduled to be in Chicago from May 4th to May 6th and consideration of the unique TELSA code is on the agenda. According to this agenda, the summary of the results and actions of this meeting will be published on or before June 2nd. You might recall last year, we pulled back as the utilization data that was submitted reflected only 2021 data, but this year, 2022 data is included, and we believe that it is substantially higher and sufficient to get over the utilization threshold. Another difference this year is that the application is completely sponsored by the relevant societies and Profound is not a co-sponsor, which may give more credence to the application and the process. We are now less than two months away from this milestone and a potential major inflection point, and we're looking forward to discussing it further on the Q1 analyst call in early May. In addition to the progress we have made in driving utilization of TELSA in U.S. and on the revised filing of the CPT code application, we've also made progress on the clinical front. We expect at least three additional substantive publications this year in peer-reviewed journals, as well as at least eight podium presentations at relevant conferences, including the AUA. Four podium presentations regarding TELSA took place earlier this week at the Society of Interventional Radiology annual meeting. Our kept-in-trial recruitment continues and we remain confident that preliminary results from this prospective randomized comparative trial with radical prostatectomy can be announced in early 2025, which will coincide with the effectiveness of the permanent CPT code if approved. Increasing utilization of TELSA in US. Achieving approval of the permanent CPT code. and continued recruitment in Captain Trial remain the main agenda of our company. I'm also pleased to tell you that we have submitted our first TELSA AI software to the FDA for clearance. I encourage you to visit our website that describes this product in our updated corporate presentation that was posted a few minutes ago. I know that AI has become a big buzzword in the recent past. Our program is more than two years old and it is designed to have the specific purpose of improving health care treatment planning times as well as making it a continuous learning system. As I mentioned before, we have a significant amount of image-based patient data. We have fed over 54 million parameters from over 7,000 images into our AI engine, along with validated 1,300 treatment plans that were manually produced by our expert physicians to treat their patients. The TELSA AI is now an add-on software module that can be added to TELSA Pro, and the module has the ability to produce suggested treatment design based upon its learning from the database. The suggested design is primarily about saving treatment planning time. But given that it is based upon prior successful treatments, it also gives our urologist additional confidence in the automated plan. We have reviewed the module with the FDA and have received clear guidelines as to what it will take to achieve clearance, which include testing for alignment of the suggested design with physician treatment plan on a prospective basis. We believe this is doable by summer this year, at which point we will submit the final data sets to the FDA for approval. We're very excited about the first AI product as this internally developed capability will serve us to make Tulsa a continuous learning system as we automate various aspects of the Tulsa Pro system as well as the patient care continuum. Summarizing, we believe that the flywheel of Tulsa Pro adoption is accelerating at the rate of 5% per month growth and will likely further gain steam in the second half of the year. We also believe that achieving an install base of 55 systems in the United States by end of 2023 is very possible. We look forward to reporting on the progress of the application of the Category 1 CPT code, which we believe will be a major inflection point for our company. We expect that the CAPTN trial, which is already recruiting at a pace faster than any other comparative trial in prostate cancer, will continue to recruit at a good pace to enable preliminary results in early 2025. And finally, we are excited about our TELSA AI initiative. If cleared by the FDA later this year, it has the potential to not only significantly reduce treatment planning time, but also give our clinicians substantial added confidence, further driving adoption. This ends our prepared remarks for today. With that, Rashed and I are happy to take any questions you might have. Operator.

Thank you. As a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again.

Please stand by while we compile the Q&A roster. Our first question comes from Michael Sarconi with Jefferies.

Your line is open.

Hey, good afternoon and thanks for taking my questions.

Good afternoon.

First question, you had talked about exiting 2022 with utilization growth at about 5% per month. Can you just talk about how that's been tracking through the first two months of the year and how you expect that to ramp over the course of the year?

Yeah, Michael, that's a simple question, a simple answer. We are definitely tracking at that 5% per month right now.

Okay, thank you. Yeah. Sorry, do you have more?

No, I think that's fairly straightforward. I think that some of the new install base, as they begin to get more experience, I think they will continue to increase also, which is why we're guesstimating right now that second half we can do better, but 5% is definitely there.

Understood. Thank you. And then just one more. How do you think about the pace of system placements through the year in the U.S.?

Sure. Michael, Our pipeline is definitely very strong. And I think that, as I said in the prepared remarks, getting to 50 by end of this year is, we think, is very feasible. And I think continuing to increase that number substantially in 2024, you know, in the range of maybe 75 is doable. So I think What our anticipation here is that the current sites will continue to increase utilization and the number of sites will also continue to increase.

Okay, thank you.

Thank you.

One moment for our next question. Our next question comes from Rahul Sarugasar from Raymond James. Your line is open.

Good afternoon, Arun and Rashid. Thanks so much for taking our questions. So congratulations on having the CPC application included in the AMA May meeting. Recognizing that you opted last year to withdraw the application primarily based on number of patients, you've now referred to more than 3,000 patients. You've referred to several conferences and publications over the last year. Maybe could you give us a little bit more color in terms of how these are the key criteria in terms of de-risking the application and if there was anything else that was in the application that helped to de-risk it?

Sure. No, it's a good question. I mean, that is one of the big, big milestones that we need to achieve this year. And I think some of the things I can certainly share, the number of patients that were treated in 2022 with TELSA is higher than the number of patients that were included in prior filings of other technologies in prostate cancer that were approved. So I think that on that basis, we have crossed the utilization hurdle, which was the main issue last time. But I do think that one of the things that we witnessed as we were communicating with the societies is that the enthusiasm of the societies also has continued to increase. And for that reason, the society basically said we've got this you don't need to even you know if you choose not to even want to sponsor it you know they will take it from here and i think to be honest that is a very good sign because majority of the applications that do get sponsored by the society go through, get through. So, you know, I know it's not a guarantee in anything, but I do think that the clinical data is there, the society support is there, the utilization is there. I think that we are sort of in the mainstream. I am most certainly much more enthusiastic and optimistic about it than I was last year. And, you know, there's always a backup plan in our company. And if for some reason a new issue does come up, you know, we do have September meeting this year. So I think that there is no issue that I know of at the moment. But if a new issue does come up, I think we have the opportunity to go back in September, and that will still keep the effectiveness date to January 25. Great.

That's really helpful. Thank you. Thanks, Arun. So my next question is on the CAPTN trial. You indicated that you're looking at potential preliminary data in early 25. And, of course, you've been balancing the resourcing of the trial and, of course, your commercial efforts. Could you give us a little bit more color in terms of how recruitment is going and sort of any other milestones that we might be able to count on or look to before early 2025?

Sure. You know, as I said in the prepared remarks, we are recruiting at a pretty good pace. We're about 25% done in the trial. And our number of sites has now increased to 13 as compared to eight about six months ago. I think there are probably another two or three sites that have expressed interest in participating, so probably we'll go to maybe 15 or 16 within the next 90 days or so. We have a really good team that is following up on recruitment. And so the number of patients being recruited even in the first two months of 2023 is higher than what we were doing in 2022. So I do feel pretty optimistic that we will be able to complete recruitment sometime in, you know, first half of 2024. And that means that we should be able to produce, you know, six to nine-month data by Q1 2025. And, you know, if you look at the tax trial data, what we find is that once you cross the six-month mark, there is high level of predictability of where that patient is going in the future. And so that, I think, will serve us well. That history will serve us well. To your other question in terms of the other clinical publications, We do expect five-year data to be coming out this year, which is the final data set that urology community looks for. I don't anticipate any significant differences given the trend that we've seen in the first four years, but that will be certainly another data set that will come out. There is a European trial that will start, that was also a comparative trial, which we sort of patterned our captain trial behind that trial. They will start announcing their numbers starting this upcoming AUA meeting in May. So I think that will also start to serve as some early indicators of, you know, the comparative study.

Great. That's actually very helpful. Thank you very much. And if you'll indulge one quick last question. It's great to see that you're looking at AI enabling of the program. You talked about potential completion of the prospective patients by the summer. So would it be reasonable to assume that the 510K would go in by the fall and be looking at a response in the FDA early 2024?

Yes, I think. Well, that is the plan. You know, obviously, you have to show the FDA, but that is certainly the plan that we will be able to get this product in the market in early 2024. And I think the only other color I can give you is every urologist that we have presented this to has given amazingly positive feedback. So that is where, you know, I don't use the word excited very often, but this is something I'm very, very excited about. I think It is the first of a family that will be coming out. And I think the continuous learning process, the continuous learning of this technology, I believe, has that potential to actually continue to improve clinical outcomes. And I think that's the part that is most exciting to me. There are some videos that are being placed on our website. including the TELSA AI videos, and you will actually be able to see it. So you'll be able to see, for example, there's a click. The automatic treatment plan shows up on the screen, and then you'll see the pen will show up, and the urologist just makes the modifications where they see fit, and then they go to the next one. So you'll actually be able to see how well this technology works.

Great. Thanks again, Arun, and thanks for taking our questions. We'll get back in the queue.

Thank you.

We have a question from Ben Hainor from Alliance. Your line is open.

Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, on the CPT-1 code, you know, nice that the societies are sponsoring it and you guys don't need to sponsor it yourselves as well. But I was curious if you guys or the societies or, you know, any consultants you deal with on that have any data dealing with the hit rate when it's, you know, sponsored by only the societies versus, you know, sponsored by the societies and the company and so on and so forth?

Yeah, statistically it's hard to find it. I think there are two things then that we're sort of relying on a little bit. One is that when we submitted the application last year, really the only issue that had come up was the utilization rate of 2021. And now there's 2022 data. And as I said, we think that it's better than what the AMA approved for other products. So I think that probably the a good way to think about it. The other thing is that the societies certainly are saying that they generally get their approvals. So I think they certainly seem to be confident. I cannot tell you statistically. I don't think I have any data like that then.

Okay, I was just curious because I've never seen it happen across any of these companies.

Yeah.

Okay, that's fair enough. And then, you know, the Tulsa AI was pretty exciting. You know, obviously you had the discussions with the FDA. Can you share, you know, how many cases that you expect to do to be able to submit the data that the FDA is looking for?

Yes, most certainly. So we've done 115 that we did share with the FDA. We think we will do another 20 to 30 additional ones. And there are actually three subsets that they have requested, three types of data that they requested. None of them actually will require live patients anymore. These are more comparison simulations or a core lab where a urologist or radiologist will draw there and they will look for comparison to the automated plan. So I think that We have about 80% of what the FDA is looking for. We will get the rest of it done in the next couple of months. And we feel that given that what we've already done meets the criteria that we should be able to submit that and we should be in decent space there.

Okay, that's helpful. You mentioned how the folks that you've presented it to so far have been universally positive. I'm looking at the presentation here, and you've got the handful of modules that you're initially talking about. Is that the contouring assistance, the thermal boost, the procedure optimization? Is that all going in with this FDA submission? And then on top of that, is there anything specifically that gets these folks more excited than on one feature or another? within the AI?

So, Ben, first of all, these are two separate applications. One of them is for the contouring assistant. The second one is for the boost. And I think, to be honest, the feedback we're getting is very positive for both of them. The first one, I think, as I mentioned, there is a psychological shift that is taking place. As you know, this is so game-changing as a technology that when we first talked about that, hey, you need to use an MRI to do this, there's this little hesitation that first shows up, oh, I've never used an MRI before. And that is now shifting to, hey, I am going to look at MRI images from the perspective of treating that patient and I'm looking at the biopsy data and I'm looking at now how I'm going to design the treatment. And that is a very different perspective than the perspective of a radiologist who is designing, who is actually diagnosing and they're looking at the cellular structure from the MRI and they're not thinking about designing a treatment plan. So these are two very different things that they have to do. And I think that the urologists are now who have done this are getting to that stage saying, okay, I'm using these images for a different purpose. And so when we present it to them, the idea of automated treatment planning, using this knowledge, And then being able to simulate what that means to them in terms of not just time, but the confidence that the treatment design is based upon the knowledge of several patients who have been treated successfully in the past. That's the key point. The feedback we're getting is, to be honest, unbelievable. So, you know, as usual, I want to be cautious and careful. and, you know, make sure we deliver on this. But we feel, you know, this is a project we started over two years ago, and we have an amazing AI team in the company. We've built the capability, and I think this is the beginning of, you know, putting AI into our products.

Okay, so just a point of clarification. So the contouring assistant is what's going on in this initial FDA submission, and there's other things beyond that that'll come behind it?

That's correct. The contouring will be the first one and then we'll produce other things and we'll, you know, bring you up to speed as we do other things. But at the moment there are two applications. One is the contouring system. The second one is the thermal boost that there are in FDA considerations.

Okay. Got it. And then sounds like you got a pretty busy year coming up here in terms of, you know, both clinical publications and podium presentations. If I recall correctly, the FARP study data, or at least some of it, is likely to be presented at the European Association of Urologists coming up here in, you know, not too long. Yeah, do you get a sense that they'll delineate between HIFU and Tulsa when the data comes out, or is that something that you just don't know, or? Um, unclear at this point.

Um, you know, we're, we're not in day to day touch and they're obviously because the publication they're doing all of the analysis. So my information is not a hundred percent, um, accurate probably, but my best guess is because these are different technologies that they will have to delineate them.

Okay.

okay i'll be uh staying tuned for that and uh the first publication that the first podium presentation at the aua i think will be interesting in may that they're going to do yeah but we got that and the eu and the cpt1 code coming up in

the next couple of few months here. So what's going on?

Yeah, the next two months are very eventful months. You're right.

Good deal. Well, thanks for taking the questions and congrats on all the progress.

Thank you. Thank you so much.

Thank you. And our next question comes from Frank Takinan with Lake Street. Your line is open.

Hey, thanks for taking my questions. Wanted to start with asking about, you mentioned some of your latest new users starting to build a three to four month backlog. Great to hear the patient funnel being built out on those. I was wondering if you could talk a little bit more about those and maybe talk to some of the bottlenecks they're facing to getting those patients through the funnel.

Sure. Frank, I think it's just like any other thing. It's an entirely new technology. Yes, we attacked clinical data that looked good, but all of that was initially sort of the market entry that this sort of said to them, this is a technology that we want to evaluate or try. I think, as you've seen, you know, many of these sites that started a couple of years ago have now done, you know, 50, 100, or maybe even 30 cases. And they have now done their evaluations. And based upon those evaluations, they're saying this is a technology here for the future, and they want to start increasing its usage. And so, to just provide a little bit more color in what you're asking is that as they increase, they're looking at, you know, what's my backlog and how many of the physicians of my practice need to be Tulsa users? How much MR time do I need to allocate for my pipeline of patients and so on? So I think what we are seeing is, is they get to a couple of two, three-month backlog, and then they're saying, I've got to increase my capacity. And in that capacity, it might be adding a urologist, adding some more MR time, or training another technician, and so on. That's how they're sort of slowly but surely getting to it. I hope I've answered your question, Frank.

No, that's perfect. That's helpful, Culler. And then wanted to just ask one more on Dr. Cianti's evaluation process. I understand he's always been an early user of Profound's technology, but when he switched over to Halo DX, did he run an extensive evaluation process to evaluate some of the other alternative prostate cancer treatment options, or was he pretty dead set on implementing Tulsa across all the sites?

So, Frank, based on what he told us, and this was sort of in last fall, early winter time, is that he and Halo, as he was joining, they evaluated multiple technologies. And one of the primary criteria that they used was that they felt that TELSA was the most standardized way of treating the patient and was all of these alternative technologies that they looked at It was the most scalable technology also. And so their goal is they did not want to standardize on something that could be very user urology skill-based, but they wanted to have a technology that they could sort of grow over to many, many practices. And that was a very large part of his criteria.

Okay, great. I'll stop there. Thanks for taking the questions.

Sounds great. Thanks, Frank.

One moment. Our next question comes from Brian Gagnon from Gagnon Securities. Your line is open.

Hi, guys. A couple of questions for you. First, congrats on the CPT AMA meeting. That's terrific. Is there any ability to use the C code in an outpatient setting? in the interim? And what do you guys think about that?

Yeah, that's a good question. So the C code right now is not on the ASC, which is the outpatient settings list. And as part of this as a separate conversation, we have actually made the request to the CMS directly that they should consider that. And it basically involves safety and it involves, you know, whether or not patients who are being treated today are daytime patients or not. And we do have really very strong data that our patients go home the same day. And with respect to safety, you know, we don't even create an incision. So, you know, it's hard to say whether they will accept this criteria or not, but certainly that is a possibility, Brian.

Okay. That would be important to continue to drive adoption between now and when you get A full CPT code. I don't want to be short-sighted because that's not the way I think, but can you give us an idea of how installs are going in this quarter? And the bigger picture question is, have you gotten past the bottlenecks for installs that you've discussed in the past?

I think we... we are very data-oriented company. We have data from the time we start, we get a contract to the time we treat the first patient. And when I look at that information, Certainly during the deep COVID period, I think those times were running as long as six to eight months. And you saw that because the install base sort of was delayed and it's only the last three, four months where we're finally getting up the install base curve. So if I look at the latest data, I think we have been able to cut it down from six to at least three months now. And I do think that as time goes and things in the hospital begin to get to more normal, which we are certainly seeing, that we will be able to cut it down to our target, which is about 60 days.

Okay. That would be much more manageable and give you a little more clarity. Another bigger picture question. Are you seeing docs switching any of their days from prostatectomy to Tulsa?

Well, that's a very good question, actually. It's something that I actually watch very closely in terms of who is switching to Tulsa in general. And generally, To be honest, these are actually robotic surgeons who are switching to TELSA. And I mean, to be honest, not only that I'm watching, we're watching, and we have many of them who are. I actually explicitly kind of asked them, you know, like, why are you doing Tulsa? And why did you switch this case from a robotic prostatectomy to Tulsa? And I'm getting, to be honest, really, really comments that that is why, you know, my confidence level is increasing. And I'm happy to share, in fact, some of these comments with you. I mean, you know, one of the sites that had done, you know, 30 cases, for example, they were like very slowly doing cases. And then I actually talked with them and I said, well, you know, you guys started by saying we're going to do you know, 30 to 40 per year, you've taken longer to get there. And they, you know, they kind of confirmed that what they were really doing is they wanted to do at least 30 cases and see how their patients were doing before they really increased their usage. And so they basically said, look, we have done these cases. We have now confirmed that our own outcomes are similar to the tact clinical trial outcomes. That is what they were looking for. And they said, now that we've confirmed the clinical trial outcomes, we think that Tulsa is going to be, to be honest, to give you his words, he said, this is going to be one of the big three. It's going to be Tulsa, it's going to be robotic prostatectomy, it's going to be radiation. I said, okay, at this early stage, I'll take that. over time we'll think about who is the number one in that space and you know i'll i'm happy to share like i'll share one an anecdotal example with you which is which really had an impact on me actually so I attended a case with one of our urologists. And for some reason, robotic post-attack knee actually came up as a conversation. And he said that he was doing a robotic case a week prior to this and that he actually lost, the robotic arm lost a needle. It took him about 30 minutes to find it and everything was good and no problem. But what he said was, he said, while he was looking for that needle, He said, this would have never happened with Tulsa. He said, you guys don't realize how inherently safer this technology is. So, and it really had an impact on me, is that we talk about safety, we talk about clinical outcomes, and these urologists are now seeing it in real world. So yes, it's taking longer, but I'm finding that the reasons that they're giving are really, really legitimate. And quite frankly, I'm happy about that. I want them to test our technology and see the soundness.

Terrific. I'm going to ask a couple of more because I think I'm at the end of your line. You talked about this 5% per month without Cianti. Can you talk about I think you said Halo was going to be a multi-center group and he's training additional urologists and he will actually come online, I think this month. Where are these additional centers going to be? And, you know, do you think you'd get into all the NFL cities throughout the balance of this year?

So, first of all, you're right. So, Cianti, and I mean, it's also another interesting example of how it just takes longer to be involved, is that he was actually originally going to start by end of last year, but because of some approvals that were needed in the state of Florida, We had nothing to do with MR or our technology. It was related to the site that it just took another 90 days to get going. So he's definitely slated to start in the next couple of weeks. But to answer your question, so there are two of these sites are Florida sites. One is certainly his original site, which is Sarasota. And there's another site, which is Jacksonville, Florida. also. And then there are two sites in California. So those are the first four sites. We have talked about adding sites there at a relatively good pace. But again, the same model is let's get these sites going. Let's get all of the different things that can cause delays or recruitment and so on. Let's create an efficient process and then most certainly the idea is that we will grow and build additional sites.

Great. RadNet, they've got two open. They've got Dr. Hong running the one here in Arizona. Where are the additional sites going to be for them and do you think you can grow that into the 10 plus that you had hoped for when you originally signed the contract over time?

Yes, I think so. I think that, again, they did something similar. They did their first 50 cases, analyzed it, and then decided, yep, they want to go. They have been very supportive of the CPT application. They have helped educate some of the society members there because that is you know their primary customer is a is reimbursed they're not a very big cash site now in arizona it's actually all cash and they're doing very well but their their message is they have identified the next two sites already they are actually purchased new MRIs for these sites. And we think certainly later this year, they'll be operational. And I think once we have certainty on the CPT code, and if we do get approval to be able to use the C code in these ASCs, then I think you will see faster adoption. But certainly those two things need to happen for them to go beyond the four that we're talking about.

Great. Two last questions. This one's easy. TAC-2, are you close to completion on that?

Yes. I think we're a couple of patients away. and we'll get to about 140 or 150 patients, I think 150, and we'll close it out. And it'll have five-year data next year, and then we'll continue to add those newer patients, and you'll start to see the impact of that in the final outcomes.

Okay. Last question for me. Does this shift from ultrasound biopsy to MRI in-bore biopsy help with this shift to the inboard Tulsa procedure?

Yes. So this is sort of a long-term dialogue, Brian. And I think over the next couple of years, certainly we will be talking about it because I think right now we're so focused on our short-term getting these sites going and getting the CPT code going. But you're thinking the way that we're kind of thinking is that What Tulsa does is that it, for the first time, enables a very MR-centric strategy from screening the patient to diagnosing the patient to an MR-centric biopsy to then Tulsa treatment and then follow-up. And that all of a sudden becomes a continuum of care from beginning to the end. And there is a lot of dialogue in the urology community about this. And I think that it has, to some extent, it is going from, okay, I have never used an MRI before, so now I can see it outside. Now, as I said in the preparatory remarks, that I can think about MRI from the perspective of treatment design rather than diagnosis to, you know, I probably should own my own MRI. And so I think that shift is, you know, again, it's not going to happen in one day, but I definitely can tell you that there are a number of urologists who are thinking that way already.

Terrific. I'll get back in line. Thank you so much.

Thank you, Ryan.

Thank you. One moment for our next question. We have a question from Scott. McAuley from Paradigm Capital, your line is open.

Thanks, gentlemen, and I'll keep it quick. Just wanted to follow up on the AI software. Down the road, is that something you see as being kind of default that's packaged in with the kind of per procedure cost that's kind of currently, you're currently charging? Or is that something you see as an essential add-on or upgrade to that subscription once that's approved and commercialized?

Yeah, Scott, good question. So the way we are structuring this is Tulsa Pro is one cost per patient. And there is going to be a value proposition for each of the modules that we provide through the hospital or the urology practice. And our plan is that there will be some kind of remuneration to our company for those modules. So it is not a free add-on. It will have its own value proposition, and it will either have a additional price associated with it, or it will have certain other commitments associated with it. But most certainly, it is an increase in the value proposition of our company.

Absolutely. That makes sense. And then I think I just missed it, but off the top you were saying there's kind of a $5 million to $6 million range that's kind of expected for some of the expenses. And I think I may have just missed what that was, if you can reiterate that. And that's it for me.

I think that's a reset question. I think that's the burden that he was talking about. Yeah.

So, Reset, do you have anything to add to that or feel good?

No, so basically what we're saying, Scott, is we are expecting to hold farm on our barn rates in order to maximize our runway. And that's how we're getting the confidence that the cash that we have on hand will give us the runway to go to all the way to Q1 2025. And we'll make sure that we adjust the levers in between to make sure we invest in the right areas like the sales and marketing areas and we'll adjust the cost in the other places to keep their farm rate stable.

Got it. Thank you, General.

Thank you.

One moment.

We have a follow-up from Brian Gagnon from Gagnon. Securities, your line is open.

All right. So, Rashad opened the door. Talk about the Salesforce growth, if you would. I think you have four now. Where are you going to be investing in the Salesforce this year? Clinical reps, genius, feet on the street, hunter-farmer. What are you guys thinking about?

Yeah. So, Brian, we are aggressively adding to our sales team right now, given the pipeline and the larger install base. And in some reform, the answer is all of the above. We are adding new hunters because of the demand, the pipeline that is growing. We need to close those deals. We're definitely hiring some really, really good farmers who can take the sites that have already treated, for example, 50 cases and so on, that they are demand in terms of our presence is lost, a lot less than what it would be for the newer sites. And then for the newer sites that we're bringing on, we are adding Genius Services so that we can continue to support them like we did the earlier guys. So the answer to that is absolutely all three of them. We're adding aggressively right now.

Great. Thank you.

Thank you. And I'm showing no other questions. I'd like to turn the call back to Dr. Menawat for closing remarks.

So thank you so much. I think there is definitely a lot going on. As someone said in the call, the next couple of months will be very interesting. And I really appreciate the questions because we are, you know, we are doing something that is very unique, and there are so many dimensions to it that I'm happy to answer the questions, and thank you for everything, and I look forward very much to the Q1 call. Thank you again.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.