Profound Medical Corp.

Good day and welcome to the Profound Medical fourth quarter and full year 2023 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising 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 Kilmer, 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's 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, uncertainties, 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 to 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. Representing the company today are Dr. Arun Manawat, Profound's Chief Executive Officer, Rashed Duwan, the company's Chief Financial Officer, and Dr. Matthew Burtnick, Profound's Chief Operating Officer. With that said, I'll now turn the call over to Rochette.

Good afternoon, everyone, and welcome to our fourth quarter 2023 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 Matthew in a moment. to provide updates on Tulsa clinical publications, utilization trends, and the Captain clinical trial. However, before I do, I'd like to provide a brief summary of our fourth quarter 2023 financial results. To streamline things, all of the numbers I'll refer to have been rounded, so they are approximate. For the three-month period ended December 31, 2023, The company recorded revenue of $2 million with the full amount coming from recurring revenue. This was at the top of the range we provided when we announced preliminary fourth quarter revenue numbers at beginning of January. Fourth quarter 2023, revenue increased 60% from 1.3 million from the same period in 2022. Operating expenses in the 2023 fourth quarter, which consists of R&D, G&A, and selling and distribution expenses, were $9.8 million, an increase of 5%, compared with $9.4 million in the fourth quarter of 2022. Breaking that down further, expenditures for R&D increased 28%, on a year-over-year basis to $4 million. G&A expenses increased by 41% to $3 million, and selling and distribution expenses increased by 74% to $3 million. Net finance cost for the 2023 fourth quarter was $400,000 compared to $500,000 for the same three-month period of 2022. Overall, the company recorded a fourth quarter 2023 net loss of $8.9 million or 42 cents per common share, compared with a net loss of $9.5 million or 46 cents per common share for the same three-month period in 2022. As of December 31, 2023, Profound had cash of $26.2 million. That amount does not include aggregate gross proceeds from a public offering in the U.S. and a private placement of common shares in Canada completed subsequent to ERN. As a result of this financing, Profound had cash of $45.4 million as of January 31, 2024. With that, I will now turn the call over to Matthew.

Thank you, Rashed, and hello, everyone. In the fourth quarter, there were many poster and podium presentations featuring Tulsa that continue to demonstrate the unique pixel-by-pixel precision of the technology, the flexibility to treat a variety of patients and customize the treatment plan to what is best for the patient, and the durability of efficacy and safety outcomes. I would like to take a few minutes to highlight a few of these. The positive five-year TAC data was presented at some major meetings, including presentations by Dr. Egner from the University of Chicago at the annual meeting of the Society of Urological Oncology in Washington, D.C., UCLA's Dr. Raymond at the Radiological Society of North America, or RSNA, meeting in Chicago, and Dr. Futterer from Radboud University Medical Center in the Netherlands at the European Congress of Radiology meeting in Vienna, Austria. In addition, Dr. Bush gave two presentations in November where he and his colleagues at the Bush Center examined Tulsa outcomes in men with specific prostate cancer characteristics that are known to be challenging with other treatment modalities. One is patients with very large prostate volumes, and the other is those with extreme apical cancers. The first was a poster presentation of a retrospective analysis of Tulsa in men with prostates larger than 90 cc presented at the Frontiers in Oncological Prostate Care and Ablative Local Therapy Meeting in Chicago. 34 men with pre-Tulsa prostate volumes greater or equal to 90 cc were identified, where about half had prostates greater than 120 cc, and the largest prostate included in the analysis was 275 cc. Favorable efficacy and safety outcomes were reported following treatment with Tulsa, including an improvement in urinary quality of life with median IPSS improving 60% from 17, which is moderate LUTs or lower urinary tract symptoms, to six, which is mild LUTs. The second was a podium presentation of another retrospective analysis of Tulsa, but this time in men with prostate cancer lesions at the extreme apex presented at RSNA. Patients with apical lesions are particularly challenging. Because of the proximity to the external urinary sphincter, it is difficult to maintain urinary continence when treating prostate cancer at the extreme prostate apex using robotic surgery, radiation, and focal therapy devices such as HIFU, cryo, and IRE. Further, while limiting apical treatment can minimize morbidity in the focal therapy space, it conversely increases the risk of cancer recurrence. For example, one study by Dr. Boutier et al. in BJU International reported that when a 6-millimeter apical margin was applied with Haisu, 60% of the recurrences were identified at apical sections on biopsy. With Tulsa, the surgeon has the ability to deliver controlled, directional, and precise ultrasound energy in a perpendicular plane from a transurethral device that is positioned in the prostate with submillimeter accuracy based on intra-procedural high-resolution MR imaging. Specifically, the unique combination of urethral cooling and dual frequency capabilities, which allows a higher ultrasound frequency with shorter wavelengths, enable tight margins and treatment right to the apical plane while limiting the amount of sound energy being absorbed in the external urinary sphincter. This retrospective analysis of 42 men with lesions abutting or involving the apical sphincter demonstrated promising safety and efficacy of Tulsa in patients with extreme apical lesions. notably preserving pad-free urinary continence in all patients despite ablation near the external sphincter. Moving to real-world utilization trends, as highlighted in today's press release, we also continue to see Tulsa providers treat an unrivaled variety of prostate disease patients. With respect to indications, approximately 67% were treated for primary prostate cancer, 23% were hybrid patients suffering from both cancer and BPH, 7% were salvage treatments, and 3% were men with BPH only. Further, within the salvage group, roughly one-half of the men were radial recurrent prostate cancer, and about half were salvage treatments after focal therapies such as HIFU and laser. Overall, in 2023, we saw that Tulsa is increasingly being used in patients who are diagnosed with prostate cancer but also have symptoms of BPH. with an approximate doubling as a proportion from utilization trends in 2022. We continue to see TULSA as the only minimally invasive option for such patients. More and more, urologists are starting to include a transition zone in addition to the cancer lesion in such hybrid patients for two reasons. The first is the added benefit to the patient of lower urinary tract symptom relief, which improves their quality of life. And secondly, because in doing so, there's no additional procedural complexity and minimal increase in ablation time. So in a way there is no real downside for the treating physician and provider with a lot of benefits for the patient. Finally, I would like to provide a brief status update on our ongoing CAPTEN post-market study. The CAPTEN randomized trial comparing the Tulsa procedure to radical prostatectomy is the first and only level one study comparing head-to-head and new technology to a standard of care treatment in men with localized prostate cancer. It is designed to demonstrate that the efficacy of the Tulsa procedure is not inferior to radical prostatectomy, while also demonstrating superior quality of life outcomes. We are pleased to report that the rate of recruitment is continuing to increase with investigator experience and onboarding of additional sites. As a result, we believe we remain well-positioned to complete enrollment of the captain study this year, which would allow publication of preliminary data in the first half of 2025, followed by the full one-year primary safety outcomes in early 2026 and three-year primary efficacy outcomes in early 2028. Now, I will turn the call over to Arun.

Thank you, Matthew, and good afternoon, everyone. I'm pleased to report that we successfully executed against key strategic priorities in 2023. The most important of those was to continue laying the groundwork for Tulsa to become one of the three mainstream treatments for prostate cancer alongside radical prostatectomy and radiation therapy. In addition to what Matthew just reviewed, there are three main pillars of that I would like to focus my remarks on today. First is to build a high-quality installed base. I'm pleased to report that we now stand at 50 TELSA Pro sites comprised of early adopters, independent and corporate centers, and top-tier hospitals. While our team has done a really good job with all three, The penetration we have achieved into the latter really stands out as truly exceptional at the stage we're in today. Tulsa Pro is now already installed at or contracted with 10 of the top 20 cancer centers in the United States. These include prestigious institutions such as MD Anderson, Mayo Clinic Rochester, UCLA Medical Center, Brigham and Women's Hospital, Johns Hopkins Hospital, and Cleveland Clinic, among others. Moving forward, we continue to expect our install base to go to 75 by the end of 2024. And we anticipate that Tulsa usage, which is primarily based upon cash pay today, will be transitioning to the payer pay model at the start of 2025. Speaking of that transition, the second pillar is the execution of our US reimbursement strategy for TELSA in record time. As you all know, in mid-2023, the American Medical Association established three new CPT Category 1 codes for TELSA. Following that, as part of the process, the Relative Value Scale Update Committee, or RUC for short, sent questionnaires to TELSA users to determine the physician work relative value units, or RVUs, associated with its TELSA procedure. Based on the user feedback, The Center for Medicare and Medicare Services, or CMS, is working with the societies that sponsored the CPT Category 1 code application to determine the TULSA procedure payment amount that will be attached to the permanent codes. The proposed recommendations are expected to be published in the Federal Register at the end of July and finalized in November and come into effect as of January 2025. The third pillar is to continue to innovate with the overall aim of increasing treatment efficacy, improving workflow efficiency, and expanding technology access to deliver an even better Tulsa treatment experience for urologists and their patients. On that front, we continue to aggressively build the Tulsa AI brand. ThermoBoost, for which we received five 10K clearance from the FDA in Q3 2023, was the first Tulsa AI module. It is now routinely used in about 50% of patients being treated and physicians report increased confidence and shorter time in treatment. We have recently submitted the second AI module, the contouring assistant to the FDA. This TELSA AI module is about automating the treatment design. Contouring Assistant uses past treatment designs and recommends a design and a new procedure based upon that knowledge. As our treatment and outcome database grows, the knowledge of the AI will continue to increase. And as a result, Contouring Assistant's proposed treatment designs will continue to improve, thereby enhancing clinical outcomes while also reducing treatment times. Studies conducted to validate the AI technology have achieved the anticipated endpoint. If the FDA concurs, clearance for the contouring assistant module could be granted this summer. MR imaging is now being used routinely in diagnosing patients for prostate disease. We believe that this trend naturally extends to the use of the MR also for the treatment of prostate. Thereby, we have also begun work to build closer relationships with MR companies to help maximize the tremendous opportunity for our technology that we see ahead. The first such collaboration which we announced last week, was with Siemens Healthineers to work toward bringing a complete therapeutic solution, combining our Telsa Pro system with its Magnetron FreeMax MR scanner to market via Profound's own Salesforce. Not only is this arrangement non-exclusive, but we will also continue to market Tulsa Pro as a standalone offering, providing our customers with the flexibility to use the technology with the MR hardware of their choice. The aim of the collaboration with Siemens Healthineers is to create and market a total diagnostic and interventional MR solution that can streamline workflow, optimize cost of care, and most importantly, help ensure TELSA can be integrated in additional settings such as urology clinics, ASCs, and hospital surgical departments that may not be suitable sites for placing large traditional MR scanners that are relatively expensive, both in terms of acquisition and installation costs and ongoing operating costs. It will also allow Profound to begin adding some U.S. capital sales to our Tulsa revenue mix. We will provide more details closer to when Profound initiates sales of the combined solution in 2025. In the meantime, we also hope to be able to announce additional technology partnerships this year. To summarize, TELSA is not just for focal therapy. There continues to be significant evidence from clinical trials as well as from commercially treated patients that we believe that TELSA is on its way to becoming one of the mainstream technologies for the treatment of prostate cancer. We are eagerly awaiting a positive CMS decision regarding the TELSA reimbursement rate to be made at the end of July. We are thrilled that even at this early stage, when most patients are cash pay patients, adoption continues to increase. We are also excited by increasing use of MR in the care continuum of prostate disease management. Today, hardly any prostate diagnosis is complete without MR imaging. We believe that an MR-centric strategy for prostate management is the future, and we are working with the leading MR manufacturers to further support this modern treatment pathway. And finally, we're delighted with the progress of patient recruitment in the Level 1 clinical trial that compares the TELSA procedure with radical prostatectomy. We believe that the success of this trial has the potential to gain TELSA's inclusion in the society guidelines, which is always a key driver for new technology adoption. This ends our prepared remarks for today. With that, we're happy to take any questions you might have. Operator.

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. Our first question comes from Rick Wise with Stifel. Please proceed with your question.

Good afternoon, Arun, and thanks for taking the question. Just to start off with the CPT code progress, you're being very clear about the timing, and it sounds like the timelines are exactly as you've hoped and expected they might be. Can you just add any color to your perspective? Have you had any interaction with CMS? Have they had any questions? Has your confidence about both the timing and or the potential possible amounts that they might pay. Do you have any incremental color or perspective to offer there?

Sure, Rick. Good afternoon. Yeah, no, I think, Rick, everything has moved along as we anticipated. We've had two meetings with CMS already this year in January. We have been in communication with them on any questions and so on. So I think we are pretty comfortable with the dialogue with CMS. You know, obviously it's hard to predict what their final decisions will be, but I think the logic and the data that is available to us, I think, continues to support the theories that we have that we should be able to have, you know, appropriate reimbursement amounts for this application.

Yeah, and another question around Any comments on the revenue guide or outlook for 24? You know, we, at this point, without, you know, just thinking our own thoughts or thinking about something in the 12 million or so kind of range, and given the numbers you're talking about and your growing installed base and the service associated, et cetera, et cetera, is is that a a a reasonable place or a midpoint of a range or how would you uh you know uh guide us so we can do it yeah no rick i first of all i really do appreciate the question uh and i i think if i look at history

I think our growth rate today is about 60%. And I think if we extrapolate, I think that the fact that the utilization per site is growing the fact that new sites are coming on board. I don't have the ability to provide decent guidance at this point, but I think I can tell you that our team continues to be excited about the growth. There are a couple of pluses and minuses with respect to 2024. The pluses are that the sites are going to be increasing, and we think that based upon reimbursement and the feedback that we're getting, we think we will start to mix some capital revenue with our recurring revenue going forward, which generally, as you know, can actually ramp the top line a little bit faster. So I think directionally, I think we're feeling okay, feeling fairly okay. I think the negative side, because as you know, we're building a game-changing technology and there are always all kinds of different things that go on. And I think the negative side, I guess, is that, you know, majority of our patients today are cash pay patients. And so this is also the year where, you know, certainly in the second half, there will be sites that will be looking to transition to the pair pay model. And if these are hospitals, they will start to really use the temporary code and start to streamline the reimbursement coding and so on. And certainly, you know, once the July happens and they know what the numbers are going to be, I think that the dynamics of how they look at Utilization will change, and so I think that is certainly one of the things we're looking and watching is how is that going to affect it. But I think, generally speaking, you know we're feeling you know fairly comfortable with continuing to increase the the top line in 24.

So you're saying that you just make sure i'm understanding your your your comment so you're saying that hospitals. might slow down as they wait for the code to be installed, and so the second half might be softer? I should make sure I'm understanding your intention there.

Yeah, no, you know. I want to just share everything properly. I think that what it is is that As I said, the majority of the patients are cash pay. So the question is really the concierge practices that are set up for cash pay, I think they will continue. They're not going to change because to them the benefit is they will still charge the same, but the patient will then have the information that the patient will on their own you know, contact their insurance and they'll get paid for that net-net outlay of cash to the patients will be reduced, but the concierge practitioners will continue to make the same amount of money. So I don't envision any issue there. And that, in fact, could be a – will be a positive in 25. where I think that, you know, we'll see how it goes in the hospitals, where they're not necessarily big on cash pay patients, and they might be wondering, well, gee, do I keep advertising or doing this or do I, you know, wait another quarter or two and so on. So, you know, I don't know how big that risk is. I'm not sure if it is any risk there. I just think that it's something that we're cognizant of.

Thank you, Arun.

One moment for our next question. Our next question comes from Raul Sarugasar with Raymond James. Please proceed with your question.

Good afternoon, Arun, Rashad, Matthew, and Matthew, please accept our congratulations on your recent promotion. So my first question is, we see that the sales and marketing costs ramping around. And so could you provide any more color on the expansion of the sales team, specifically the balance between sales folks focused on installing new devices versus those focused on increasing utilization of each site within the existing install base, please?

Sure. So I think, Raul, that's a great question because one of the things that we have been working towards is to build a great sales team. So over the last four months or so, we built the infrastructure, number one. So obviously we have a fantastic VP of sales with Adam. And we have regional managers so that the regions have focus with a manager. We have four regions, and then underneath each of those, we have about, our plan is to be about five with each, so we'll have about 16 to 20 people in each of those regions. We have about four or five open positions at the moment, and I think the expectation is that the ratio is of the hunter versus farmer is about 50-50, so that we will, you know, the farmers are driving the usage and the hunters are looking at, you know, new agreements. And then we think that this structure is a scalable model, and so we will start to scale as the revenues, you know, ramp in each region.

Great. That's really helpful, Collin. Thanks, Jaren. So my second question is, you know, so back on the Siemens collaboration, are you able to share any more color on what you're hearing from current and prospective, you know, ASC and Luxa customers about their needs, specifically how, you know, such a one-stop solution may ease or shorten the sales cycle, both for these ASCs but also potentially for hospitals?

Yes. So Raul, it starts with what we are calling the modern treatment pathway. And the AUA guidelines are now basically saying that MR should be done to properly diagnose the patient. And there are clinical publications and these publications are basically saying that if a cancerous lesion is visible on the MR, it should be treated. And so there is a shift in the sense that historically we've looked at the Gleason scores to determine whether or not it's an early stage and should we wait before we treat these patients and or if it's a Gleason score 9 or higher that we should, you know, perform radical procedures on these patients. The idea that there's a lot of clinical data that is supporting is that perhaps we should even screen patients with MR and most certainly diagnose the patients with MR and then if the lesion is visible on the MR then the patient should be treated and obviously it's a natural progression for them to say well if I'm screening and diagnosing with MR and if I'm particularly looking at lesions that are are MR visible then why would I not treat with Tulsa which uses the same real-time MR so if you put all this together that's one pathway that is emerging at the moment the second thing that is going on is that the mr technology is evolving also so the new mrs that are coming out are are generally considered minimal helium or helium free and helium is a big return because it forces a lot of maintenance costs on mrs and so now the new ones that are coming out particularly one that we signed on for with Siemens is effectively helium-free or minimum helium. It's a closed-loop helium system. And with the software technology and the latest hardware technology, they can actually go to a lower magnetic strength. Tesla is how they measure it, lower magnetic strength. And so the bottom line to all this is the new MRs can give you diagnostic quality images, but they weigh, for example, a third. of the weight of the regular MR. We internally talk about it like it's less than 8,000 pounds, which is like you can use a Ford F-250 to control these devices. And you don't need the kind of foundation. They don't need to be separated from the hospital or an ASC. So if you put all of this together, what you're seeing is that an ASC or even a Lugpa hospital practice and then own the whole thing. They can own an MR that is of this new generation, and they can do screening, diagnosis, they can own the whole patient pathway. And you can imagine how game-changing, how big this has the potential to be. And so this is the beginning of this first relationship we've done with Siemens. This is the beginning of that idea that they can own the patient from the beginning, they can do all of this, They will send the images to the radiologist to do the diagnostic part, but they can make money on the facility payments on all of these procedures. So we think that there's control of the patient, there's smoothing of the workflow. We think that there is an economic model here that's pretty compelling. And so that's what this is all about. And I think as we indicated in the prepared remarks, we think this is the first of more of such things. And we will be talking with you in the public domain about when we expect the first of such site that can perform all of these procedures and be able to provide this new modern treatment pathway. I know that's a little long-winded, but I hope it is helpful.

That's very helpful. Thanks very much. You mentioned that very closely. And if you don't mind, I'll just respond to the last important question. So one of the main questions we get is on what the amount of reimbursement will be. So you've already provided a lot of color on the process with the RUX. And so given that reimbursement of robotic surgery is in the $17,000 range, Based on what you're hearing from the old sites, is there a range of reimbursement that you might be able to say that you're confident that tells you should secure it?

Yeah. So I know Rick was asking something similar to that. So maybe I can elaborate a little bit. So I think the bottom line, I don't envision that there will be a negative impact to the economics, whether it's radical prostatectomy or Tulsa. I think that there is logic and a lot of data that supports that we will be in the same league. And I think that's certainly one of the points. The second point, I think, is that, as we've talked before, there is a temporary code, a C code, and leading hospitals are using that C code. And in 2023, that C code, the payment amount of that C code It changes kind of every year, but in 2023, that C code was paying $12,700. And that amount was based upon the cost analysis that was done by CMS on the patients that were treated with Tulsa. So logic, and I want to underscore the word logic because basically the analysis that the CMS does for the permanent code is fairly similar to the analysis they do for these temporary codes. So the logic is that it should not be very different from where we are in the temporary phase. Now having said that, I want to emphasize explicitly that ultimately CMS can do anything they want, they do. And so I cannot promise you that that's where it's going to be. But I can, this is the best I can provide that I do think that there won't be anything that will be negative as compared to radical prostatectomy. I feel fairly comfortable with that. And I think that the logic, at least, is that we will be in the same range as where the temporary code is.

That's very helpful. Thanks very much, everyone. And I'll get back to you. Thank you.

One moment for our next question. Our next question comes from Michael Sarcone with Jefferies. Please proceed with your question.

Hey, good afternoon, and thanks for taking the questions.

First one was, Michael.

Yeah, I just had a clarification on one of your responses, Arun, to one of Rick's questions. You know, when you were talking about the kind of pluses and minuses for 2024, it sounded like, or I thought I heard you said you might start to see a mix of capital and recurring revenues, which can ramp the top line a little faster, but Then in some of your prepared commentary, I thought you might have mentioned sales of the combined solution with Siemens Healthineers might start in 2025. So just wanted to get a clarification there. Yeah.

No, I think that's a good question. So I think, you know, what we are beginning to hear is Michael, first of all, we have multiple sites that are now increasing their usage, and that was one of the reasons obviously Q4 was in terms of the usage and the revenue was a decent number. But we're starting to certainly hear from a number of sites that they might very well be interested in the more of the standard medical device model where you're paying a certain amount for the upfront system and then you're paying perhaps slightly lower amount for the disposable part of this. And so we have evaluated a number of these models. And so I think that my comment related to the Siemens and my comment related to the capital plus recurring are two separate things. So my point is that I think even in 2024, we're likely to see that we will start to see some capital revenue starting to come in for those hospitals that already budgeted for this and will have budget even in 2024. I think some of those will close this year. that is related primarily to Tulsa business. And then second half of 2025, I think at that point when we get closer to it, we'll sort of describe the business models in more detail. But that's a separate thing.

I see. That's really helpful. Thank you. So I guess just, you know, to stay on that topic, you know, you're expecting to end the year at 75 Tulsa systems. So I mean, could you give us any color, just as we update our models for 2024, right? That's an incremental 25 systems from where you are today. What portion of those systems could be sold under this kind of revised capital sales model? And then any color you could provide on where you think system ASPs might be for some of these new arrangements you're going to have with some of these sites?

yeah Michael for today, I only wanted to give the heads up that you will start to see some capital revenue, I think what our plan is that as that evolves. I think we will try to provide more color every quarter, but I think, all in all. you know, at this point where we're saying we grew 60% last year, we grew about the same the year before that. And I think we're sort of in that league at the moment. And the mix of how we get there could be a little bit different and that if it changes as we get to the quarters, I think we want to. We just don't think that we have enough history to be able to provide that type of guidance just yet, Michael.

Okay. Totally fair. I understand. And then I guess one last one on this topic and That'll be good for me. What are the reasons that some of these systems that you're working with now are saying they'd prefer to pay up front versus the more higher-priced consumable model? What's making them change their tune now?

I think it's just usage. They're finding that they're using it more frequently. They can start to see that once the reimbursement comes in that the usage can increase. So it's more related to, hey, we want to go to more standard models and service agreements, capital allocations for the product. There's nothing unusual. I think it's just hospitals saying, hey, we want to go through a standard model. And our product is much more, you know, it's stabilized in the sense that we're not necessarily updating software every day as compared to when we started. where lots of things were changing, it's pretty stabilized. And I think we are also looking at it from the perspective that when we introduced it, the best way to do so was with a recurring revenue. And as we bring new technologies like Tulsa AI, that we are trying to figure out how do we monetize some of that that innovation. So it's, as I said, at the moment, I just wanted to sort of give you a heads up that it's something that we're evaluating. And so you might see some changes in the mix. But I don't think, Michael, there's anything unusual with respect to, you know, what the hospitals are asking or what we will evolve into.

Okay, got it. Thanks a lot, Aaron.

Super. Thank you.

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

Hi, guys. A couple of questions. I'm going to stick on this capital sale thing. I understand completely as to why it's beneficial because there are capital budgets out there for this. On the disposable side of things, in our minds, should we be thinking about a relatively small discount from where your current disposable prices are?

Yes, I think so, Brian. I think that the other way that would be helpful is we've talked about the fact that our margins are decent even at the low volumes. And I think that what we've talked about the fact that as the volumes increase, our margins will be 70% plus 70 to 75% range. And I think from that perspective, we are still very comfortable that as the volumes increase, that our margins will be in that 70-75% range. So whatever that discount will be, it will not affect the margins of our business.

Great. That's excellent at this point in the game. Can you talk at all about new contract signings for 23, you know, kind of how many did you do? What are you thinking about for 24? You signed some very big ones that are multi-year. And then if you would layer into that, what your pipeline looks like and how you're doing on executing against the pipeline that's there.

Yeah, so I think that we have publicly said we've had multiple corporate agreements, and if we add those up, I think we feel very comfortable with the number 75. But having said that, I think historically it's taken some time to get them installed, and even in some cases, even after they're installed, to getting them going with respect to decent treatment rates has taken six months or longer in some cases. And we've talked about that historically as well. So I would say, again, it's an estimate, a guesstimate that we think that at least half of the 25 will come from the contracts that we already have. and the other half will probably come from the pipeline that we have, which continues to build. That's probably a sort of a reasonable overall estimate. I think that we, you know, I think at least logically as the reimbursement data unfolds, I think it's possible that some of those commercial contracts or the corporate contracts could start to accelerate um it's so i think it is one of those inflection year points where the a lot of the rate of adoption is likely to depend upon the data for at the end of july but i do think that coming into 2024 we're coming in with a pretty good set of contracts that we should be able to you know meet the the target of 75. Okay.

If you would, can you talk a little bit more about your pipeline and how it's looking to you at this point?

I think this year we're primarily focusing on hospitals at this point. Part of it is because a lot of the Medicare patients tend to go to these hospitals and so most of our pipeline at the moment is for I think you will continue to see further adoption in the leading hospitals. Because we've had such a good uptick in the pristine hospitals, I think you will continue to see that trend. But I think this year you will see mid-tier hospitals also adopting the technology. And part of this is that we will continue We'll be talking with ASCs, we'll be talking with LUCAS about the full mortar treatment pathway. and getting their feedback for this year. And if this whole concept makes sense, I think then ASCs and blood paths are more ripe for the 2025 strategy. So 2024, our thought process is more focusing primarily on, you know, continue to focus on hospitals.

Okay. Last question for me. It's always been a good indication for me on a technology if there are multiple installs within an institution? And I think you have multiples at Mayo, RadNet, and Halo. One, confirm that for me. And two, are there others like Cleveland that you could see multiple installations being completed by the end of the year?

Yes, most certainly, I think. Probably by end of this year, we'll probably have five or six, maybe seven institutions where we'll have multiple systems. Terrific. I agree with you. That is something we've been looking at. Also, just to see, I think the Mayo was a very good example where they started a very conservative start at the Florida site, and then it went on to the Rochester site, which is doing very well. And I think Cleveland Clinic, I expect, will happen the same way. I think the Harvard system with both Brigham and Women and Massachusetts General, they're now the same system, so on. So you will absolutely see that. And I agree with you, that is a good early indicator.

Is Cleveland installed and up and running, the first one?

Yeah, Cleveland is installed and up and running, yes.

Terrific. Thank you very much, John. Thank you.

One moment for our next question. Our next question comes from Chris Potter with Northern Border Investments. Please proceed with your question.

Hi, Arun. Are your various sites starting to see a backlog of patients who want or need the procedure but are choosing to wait until 2025 when the permanent code is in effect?

Yes, Chris, that's a very interesting question, actually. I can share two things with you. One is that we are now, this is for the first time, we're seeing patients at multiple sites that are being scheduled 60 to 90 days in advance. So I think that we are starting to see more streamlining of how they bring the patient into the TELSA pathway and then they're scheduling them based upon a fixed schedule. schedule that actually was and has been an issue because we're such a new technology that getting to routine pathways have been one of the things we've had to overcome. The second thing is that if I look at the number of patients that get educated or come to our website from where they get educated on Tulsa, that number is 10 to 20,000 a month. It's a huge number. and yet you can see the number of patients being treated is still very modest. So our belief is definitely that there are a number of patients who are interested but are not able to get the treatment because it is pretty expensive today. And yes, we are hearing because we talk to three, four hundred patients a month. And so we do hear from them is that, hey, I really want Tulsa, but, you know, if it's only Gleason 7, can I wait six to nine months for reimbursement to kick in? So, you know, this is all early stage. This is all indicative data. But, yeah, I think it's a great question, and it is something that gives us more confidence about the future.

Thank you. And just one other. Is there anything else you can say about your instinct about utilization post-January 2025? If I'm doing the math right, I think your systems are averaging 20 to 25 procedures. per year? Could that number be 35 or 40 procedures per year in 2025 when reimbursement is in effect?

Yes. I think that we're not like a drug company, so it's not going to just happen in one day. But I do think that the number of procedures per site will increase in a step change fashion. So we're not out of the realm of possibilities of what you're saying.

Thank you, Arun. Thank you, Chris.

One moment for our next question. Our next question comes from Craig Bereson with UBS. Please proceed with your question.

Good afternoon, and thank you for taking my question. The last gentleman I already asked a few of the questions I was going to ask. So in terms of reimbursement, is there any color, any comments you can make about what physicians or hospital systems are saying to you about what the reimbursement may do to their plans for deploying more systems and serving more patients? Is there any color you can give us on that topic from their side?

I think at the moment my thinking is that we're probably another quarter to two years away from that. I think we will get to that color most likely in the Q2 call. I think we should by that time have some information to be able to give you some, you know, reliable information.

That's fair. I was just curious. The first part about the patient demand and interest in this measure is very helpful. All right.

Thanks very much. You're welcome. Yeah. No, I think to the extent that we hear that a number of sites report that they, you know, many patients are asking for Tulsa by name, I think from that perspective, we're in decent shape.

do it i mean my humble opinion is um i think there this is just one person's opinion that there's potential for some at the time you guys think is right uh additional pr to get the stories out there in the social media what have you on just how effective patient-friendly um payer friendly system friendly the procedures are and so i think i think i think getting the word out i think you're just starting to touch it it's my just one one investor's opinion but i think the story the stories you read are tremendous um in terms of the uh impact on patients lives so that's just more more pr around that i think would be to build up the demand i think you know, agree.

And I think that we are we are most certainly number one on the social media on this. And I do think that more of the, you know, the PR, you know, like, for example, late last year, AARP on their own picked up the story and it really raised awareness. And I think that in 2024, you will see more of the news media picking up more and more of our urologists are also now talking to their local news media and providing the information. But bottom line, you're right. That is more and more likely in 2024.

Awesome. Thank you. All right. Keep the good work. Thanks so much.

Thank you.

One moment for our next question. We have a follow-up from the line of Brian Gagnon with Gagnon Securities. Please proceed with your question.

First off, Matthew, congratulations on your promotion. Very well deserved. My question is kind of a big picture question. So we're talking about the potential with a Siemens kind of full continuum of care and or GE and or Philips at some point where a patient can walk into a urology practice and from finding out a modestly high Gleason score, they could go in, get diagnosed, get a biopsy, and get treated immediately. in a very short period of time, call it days if not weeks, and walk out cancer-free?

That's exactly the plan. That's exactly the idea. And for a urologist to control from the very beginning to the end and for all of the imaging to be in one place so they can see all of the changes going on in the patient, and to be able to follow the patient for a year, two years, five years. That's exactly the vision and that's exactly one of the reasons why Dr. Emberton was one who provided the quote because he's one of the pioneering urologists in the world really who is focused on this strategy.

Can a urology practice keep an MR busy enough on their own to justify the expense?

Yes, so we have done some of the initial economic models and we believe that is very, very likely. And again, part of it is because the fact that they can have revenue stream from every visit of the patient that they don't have today. And part of it is the fact that they will own the patient. So right now the patients come in and some of them will go to radiation and so on. I think they will actually be able to increase that number of patients they can treat with Tulsa. And by the way, there is another revenue stream that we have not really quantified, at least so far, is that if they have an MR, there's no reason why they couldn't use it for other procedures like bladder cancer or cervical cancers and so on. So the answer to your question is most definitely they will be able to utilize that MR and economically justify it with relative ease, quite frankly.

Good. We'll continue to watch and stay interested. Thank you.

Perfect. Thank you so much, Brian.

That concludes the question and answer session. This time I would like to turn the call back to Dr. Minowat for closing remarks.

Thank you so much for listening in the Q&A session, and we're looking forward to updating you at the end of Q1. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.