Profound Medical Corp.

and thank you for standing by. Welcome to the Profound Medical Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first 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 current beliefs, assumptions, and expectations. and relate to, among other things, any express or implied statements or guidance regarding current or future financial performance and positions, including the company's 2024 financial outlook and related assumptions, the expectations regarding the efficacy of Profound's technology in the treatment of prostate cancer, BPH, uterine fibroids, palliative pain treatment, and osteoid osteoma, and its future revenues and financial results. 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 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 is required by law. Representing the company today are Dr. Arun Manawat, Profound's Chief Executive Officer, Rashed Dhillon, 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 Rashed.

Good afternoon, everyone, and welcome to our second quarter 2024 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, the CAPTCAN clinical trial, and reimbursement. However, before I do, I would like to provide a brief summary of our second quarter 2024 financial results. To streamline things, all of the numbers I will refer to have been rounded, but they are approximate. For the three-month period ended June 30, 2024, the company recorded revenue of $2.23 million, with $1.46 million coming from recurring revenue, and $773,000 from one-time sale of capital equipment. Second quarter, 2024 revenue increased 39% from $1.6 million from the same period in 2023. Looking forward, for the full year 2024, based on the company's current business planning and budgeting activities, we continue to anticipate revenue to be in the range of $11 million to $12 million. Gross margin in Q2 2024 was 64% compared to 66% in Q2 2023. As we mentioned on our last call, we expect gross margin to vary some quarter over quarter But just as we delivered about 60% margin in 2023, we continue to expect to deliver that or better in 2024. Total operating expenses in 2024 second quarter, which consists of R&D, G&A, and sales and distribution expenses were $9.3 million, an increase of 24% compared to $7.5 million in the second quarter of 2023. Breaking that down further, expenditures for R&D increased 33% on a year-over-year basis to $4.2 million. GNN expenses increased by 1%. to $2.1 million, and sales and distribution expenses increased by 32% to $3 million. Net finance income for 2024 second quarter was $934,000 compared to net finance expense of $884,000 for the same three-month period of 2023. Overall, the company recorded its second quarter 2024 net loss of $6.9 million, or $0.28 per common share, down from a net loss of $7.3 million, or $0.35 per common share, for the same three-month period in 2023. As of June 30, 2024, profound head cash of $34.1 million. With that, I will now turn the call over to Matthew.

Thank you, Rashed, and hello, everyone. In the second quarter, real-world utilization trends from Tulsa providers continue to demonstrate the unique and unrivaled flexibility of the technology to become a mainstream procedure in the treatment of prostate disease. Approximately three quarters or 73% of the procedures were for the primary treatment of proxy cancer. 15% were hybrid patients suffering from both cancer and BPH, 8% were salvage treatments, and 4% were men with BPH only. Half of the procedures were prescribed whole gland treatment plans, 29% subtotal but more than half the gland, and 21% were hemioblations or focal therapies. Prostate cancer patients across all grades of disease were treated, primarily intermediate-risk patients with 84% being grade group 2 and 3, 5% were low-risk grade group 1, and 11% high-risk grade group 4 or 5 cancer. Similarly, patients with all prostate shapes and sizes were treated from less than 20 cc to over 100 cc. This quarter, about one-half, or 51%, had prostate volumes under 40 cc Another 30% had a prostate volume between 40 and 60 cc, and the remaining 19% had prostates over 60 cc. We continue to see TULSA as the only treatment modality which can be used across the entire spectrum of prostate volumes and disease with clinical evidence in patients with cancer or BPH, as well as the only option for hybrid patients who have both prostate cancer and BPH. The workflow step of creating the treatment plans within this spectrum of prostate diseases was recently made faster and easier with the release of Contouring Assistant, Profound's second Tulsa AI module, which received FDA 510K clearance in May. Since its release, early physician feedback in the form of post-treatment surveys has confirmed that prostate segmentation with the Tulsa AI module had excellent accuracy in real-world cases, with decreased treatment planning time. In fact, in nearly all cases, urologists reported that contouring assistance improved the accuracy of their treatment plan, information that we're planning to publish in conference presentations later this year. I would like to now shift focus to reimbursement and highlight some of the key aspects of the new Tulsa Category 1 CPT codes included in the proposed rules issued last month by the U.S. Centers for Medicare and Medicaid Services, or CMS for short. These new codes have been designed to reflect the unique aspects of the Tulsa procedure with respect to location of service, number of physicians performing the procedure, and intensity of post-procedure follow-up visits. First, the Tulsa codes have been approved for use in all locations of service. That means Tulsa can be performed and billed in hospitals, ambulatory surgical centers, or ASCs, and interestingly, within the physician-owned non-facility setting, which includes office-based lab, or OBL, a physician office, a LUGPA office, or an imaging center. The spectrum of location of service provides not only a broad install-based opportunity, but also allows for maximum patient access and physician preference. The proposed rule has established Tulsa as a level six urology APC, with the hospital national average Medicare payment just over $9,200, which is on par with all other comparative prostate cancer procedures. However, with Tulsa's faster intraservice time, the payment rate per hour within a hospital will actually be similar, if not better, to comparable procedures. Additionally, within the ASC environment, the proposed national average Medicare payment for Tulsa of $7,195 has been set significantly higher than the $4,715 assigned to another longer ablative procedure. In the non-facility setting, the proposed equivalent national average Medicare payment for Tulsa is even higher at over $9,400, which creates a unique and interesting opportunity within the physician-owned office setting. Second, the Tulsa codes have been designed to optimize physician time for maximum efficiency. Unlike other comparable procedures, three Tulsa codes enable the procedure to be performed entirely by one physician, or two physicians working together from different or the same specialty. These physicians can share the procedure and bill for their own work performed, optimizing their RVUs per hour. The third key point is the zero-day global assigned to the Tulsa procedure, which is unlike any other comparable prostate procedure that includes a 90-day global period. This allows flexibility for physicians to bill separately any additional services for each patient visit following the Tulsa procedure at the appropriate level based on E&M guidelines. Complex visits can be billed at a higher level, and this mitigates risks of variable or complicated patient follow-up demands that a 90-day global code creates. Following the publication of the proposed rule, CMS is accepting comments until September 9th. They will then issue a final rule, likely in November this year, before the new codes and payment rates go into effect on January 1, 2025. Finally, with the new CPT codes becoming effective in 2025, I wanted to provide an update on our ongoing CAPTEN study, designed to support positive coverage from private payers in the U.S. The CAPTEN trial is the first and only Level 1 study comparing head-to-head and new technology to robotic radical prostatectomy. It is powered to demonstrate non-inferior efficacy with superior quality of life outcomes, such as urinary incontinence, sexual function, and penile length, among others. We continue to see strong interest in joining the study, given the high level of impact it is expected to have in the urology community. In the last quarter, we have onboarded three additional sites, including Stanford and the Mayo Clinic, adding to the top hospitals in the world participating in CAPTED. We are pleased to reaffirm that the rate of recruitment remains well positioned to complete enrollment of the Captain's Study this year. I will now turn the call over to Arun.

Thanks, Matthew, and good afternoon, everyone. Our message remains clear. As we approach 2025, when we will start competing on a level playing field for the first time with respect to reimbursement, Tulsa increasingly has the potential of becoming a mainstream treatment modality across the entire prostate disease spectrum, ranging from low, intermediate, or high-risk prostate cancer to hybrid patients suffering from both prostate cancer and BPH to men with BPH only, and also to patients requiring salvage therapy for radio recurrent localized prostate cancer. There are several reasons driving our confidence, which I would like to highlight. Tulsa is an incision and radiation-free, one-and-done procedure performed in a single session that takes a few hours. Virtually, All prostate shapes and sizes can be safely, effectively, and efficiently treated with TELSA. There is no bleeding associated with the procedure, no hospital stay is required, and most TELSA patients report quick recovery to their normal routine. Also, the TELSA procedure is done with real-time imaging in the mr board for pixel by pixel precision while some thoughts that might pose a unique challenge when we first introduced the technology to the market it is now quickly evolving into one of tulsa's most distinct advantages mr guidance allows for real-time temperature measurements and automated control to preserve prostate disease patients' urinary incontinence and sexual function while killing the targeted prostate tissue via TELSA's precise sound absorption technology that safely and gently heats it to kill temperature between 55 to 57 degrees.

By the way, that's not just what the clinical evidence shows.

It's what Tulsa patients are saying. And as we discussed in the past, Carl's use of MR is steadily growing in urology as clinical evidence continues to point to the benefits of MR imaging from early patient screening to diagnosing and treating with Tulsa. Accordingly, we are now forging even closer relationships with the three major MR companies to go beyond compatibility of our respective technologies and help maximize the tremendous opportunities that we see ahead to further support this modern treatment pathway. In addition, we continue to innovate with two of the main goals of increasing treatment efficacy and improving workflow efficiency. On that front, we are continuing development work on the third planned Tulsa AI module, Tulsa BPH. More details on that will be provided later this year. Finally, as you all know, adequate reimbursement is essential to drive forward physician adoption, Matthew walked you through the proposed CMS rules for Tulsa, so I won't repeat the information. However, I think it's fair and appropriate to highlight a couple of factors that we think should help Tulsa become a mainstream treatment once reimbursement starts next year. First, while Tulsa and Radical prostatectomy will provide similar revenue to hospitals. We believe TELSA will be more profitable for them right away. It's often said that a surgery suite and especially a robotic surgery suite is really the most expensive real estate in the world. It costs on average around $3,000 an hour for a hospital to operate a surgery suite versus around $800 an hour for an MR suite. Also, as I mentioned earlier, Telstop is a stay-in-day procedure that doesn't require a hospital stay for recovery like RP does. So Telstop potentially represents a lot of cost savings for a hospital on that basis alone. Second, unlike TELSA, RP cannot be performed and is not reimbursed in a wide spectrum of treatment settings outside of the hospital, such as ASC, OBL, a physician's office, a laptop office, or an imaging center. So while we are working with our major MR company partners to improve the treatment experience for urologists and their patients to ensuring health care can be readily accessed in the most suitable setting, the same cannot be said for our people. And as we help drive the migration of interventional MR From radiology to the surgical department of hospital, we will be coming to face them while they cannot come to us. To summarize, we continue to believe Telstar has the potential to become a mainstream treatment modality across the entire prostate disease spectrum. Patient enrollment In the Captain Post market study, comparing Tulsa to RP is progressing as planned. We will provide more details on our next Tulsa AI module, Tulsa BPH, later this year. We remain on track to grow our Tulsa Pro install base to 75 systems this year. We look forward to competing with other cancer disease treatment modalities on a level reimbursement playing field for the first time starting in January. This ends our prepared remarks for today. With that, we are happy to take any questions you might have. Operator.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. And our first question comes from Rick Wise with Stifel.

Good evening, Arun. Good evening. Good afternoon. Good afternoon, I guess. Still, yes. Let me start off with reimbursement. Obviously, this is a clear and clearly compelling step forward. I guess a couple of questions, and maybe you'll expand on Matthew's excellent comments and yours. Several things. What kind of reaction are you getting from the physician community, from existing customers, from potential customers? Are they maybe talk us through, is this accelerating discussions already, or are people saying, no, let's talk once the rule is final? Just some color around there. And maybe as well, talk about how you're getting prepared for what clearly will be a meaningfully more compelling reimbursement environment from a sales and marketing environment.

Yeah, those are great questions. So I think since the proposal have come out, we have been talking with our physician community and I can certainly already speak in general terms. So the first thing that they have are all very appreciative of is the flexibility that this treatment can be used, can be done in almost any setting. And so they're kind of now thinking about, okay, do I do this at an imaging center or do I go back to my hospital and have them establish this? Or if I do it, for example, in office setting, have my own equipment, can I now participate both on the physician payment side as well as the technical payment side also on that equation. So I think that flexibility that we talked about, that Matthew and I talked about, has actually been well received. The second part of the message that I think people are starting to grasp onto is the fact that when we look at this from the perspective of you know, dollars per hour or profitability overall, I think that the numbers actually can come out a little bit better for Telcel in those situations. And so I think that a number of them are going through the numbers with us But I think the general feedback is that there are going to be certain situations where there are going to be strong wins. So I can give you a couple of actually good examples. So if we look at a private urology practice, OBL, for example, even the Medicare patient payment there will be $9,800 national average. And if commercial payments are you know, typically 1.5 X of Medicare, you're looking at, you know, 14,700 or close to $15,000. So I think as we look at the, the landscape, there are going to be certain situations where there is going to be a clear win for Tulsa from an economic perspective. So I think that, you know, we're sorting through it. It's a complex thing. We're sorting through it. Most people are prepared to talk at the proposal level and not waiting for the final rule to come out. And we are, you know, our team is out in the market talking with the physicians already. With respect to your second question on how are we preparing for it, I think that these are, you know, as you know, we do things quite methodically. So we are at the moment visiting with our physicians. We have reengaged with the pipeline, which we feel very good about, and that we can now begin to justify the adoption or acquisition of the new device based upon 2025 numbers. and so on. So we are in that process at the moment. We do think that we will need to add more salespeople. So we're starting to figure out exactly how and what locations that we want to do that also. So that part is a little bit earlier stage, but we're absolutely preparing for it.

Gotcha. Thank you for all the detail. Another question, maybe just shorter term. You reiterated your goal of 75 systems by year end. Maybe help us better understand your line of sight. That's a big step up from the kind of, you know, when you think of it as a third, fourth quarter run rate, it's a big step up from the kind of quarterly run rate. And again, why are you so confident?

Yeah. No, I, obviously, we completely get the fact that this is a big step up in the second half of this year for us. But in the second quarter, certainly, and I think, you know, in the earlier presentation this year, I sort of alluded to the fact that this is going to be a unique year for us as we transition. to the reimbursement model as compared to cash pay models. I think that what we did see in the second quarter was people were saying, well, you know, you're only a couple of months away from getting the proposal. Let me see, you know, just to be sure that we're going to be okay. So I think we did see that, but we have not only not lost the pipeline, we are actually seeing them even more engaged now that the proposed rule is out. And so the sales team is pretty confident, and that's the basis that we felt that we should reiterate the guidance.

Gotcha. And just one last one from me. You talked sort of intriguingly, I think it's the first time I'm hearing you say that you're forging closer, even closer, I think, where you're with relationships with the three major MRI companies. Maybe you could just dig deeper a little bit there. What are you hoping for? What should we expect from all that? And is that something that's going to take years, Rowan, or something sooner? Just help us better understand what you're working toward. Thank you.

Yeah. No, I'm happy to, Rick. As I said in the prepared remarks, the fact that we use an MR originally was concerned, you know, are they going to reuse an MR or not? But I think with the clinical data and the fact that a number of physicians have now actually used the procedure, I think they actually see the value of the MR. They see the fact that this gentle heating, the heating tissue only to kill temperature, that continuous ability to monitor the temperature or make adjustments in the treatment plan if needed. And then with the Tulsa AI module that was recently cleared, because we have high-quality MR images, we were able to develop it. I think the first thing that has happened is People now get it. People now think that, okay, this is not a difficulty. This is something that really adds value to treatment and patient care. And I think based upon that, a number of companies are now also developing real-time in-bore biopsy procedures. So there are multiple companies that are saying, hey, we can do in more biopsies and they can be done in a very timely manner as compared to historically where they've taken a lot longer to do so. And so this whole idea that we can, you know, use MR to screen patients, diagnose patients, maybe in more biopsy and then treat patients, it is starting to really catch up, catch on. And so the MR companies, this is very synergistic to the MR companies. And so the MR companies are working with us to really determine what is an interventional MR as compared to a diagnostic MR. And an interventional MR would be, you know, a mid-range magnet rather than a 1.5. It will be a 0.55 Tesla magnet where we can use AI technologies to provide the same high-quality images, but we can also provide practical things where a surgeon can literally walk into the MR and literally put their hand inside and they can actually do intervention. And so Siemens has already announced that product. They're already publicly announced a leasing model for that product. And so I think the synergy is what I'm talking about. And I think you will hear from these companies later this year, I think we will hear about it in RSNA this year, and at our own conference earlier this year, that our product, the biopsies, the diagnostic images, and the treatment is all coming together, and you'll see multiple companies, you know, supporting this effort.

Thank you, everyone. One moment for our next question. And our next question comes from Ben Hainer with Lake Street Capital Markets.

Good day, gentlemen. Thanks for taking the questions. Just maybe following up a little bit on Rick's questions there and the relationships that you're forming with the MRI firms out there, what has kind of been their reaction to the proposed reimbursement? Isn't that something that kind of raises a flag for them?

Yeah, Ben, I mean, generally speaking, I think people expected that if we could level the playing field and the fact that we have a lower cost system in place, that we're going to be in a decent place. And so when these companies are looking at, you know, how do we justify an MR-centric system, prostate care strategy. You know, they're looking at it and they're saying, okay, we already have reimbursement for diagnosis. We already have reimbursement for biopsy. Now there is a level playing field reimbursement for the TELSA procedure. And And so they're basically looking at it and saying this adds to their ability to justify it financially using all of these together. And then the idea is that there are a number of ASCs or OBLs or lug pads that have historically expressed interest in owning MRs. And so when you combine all of this together, I think we can put it across the finish line towards a financial model that can justify it. And so I think that's how these MR companies are looking at it, that this is another reason to be able to justify that MR. And the blood piles and so on are looking at it and saying, well, this is going to add to our ability to have full control of the patient from beginning to the end, which means better care of the patient.

Okay, that's helpful.

And then on the Lugput specifically, do they look at it and say, well, yeah, the Medicare reimbursement, you know, that looks fine to me, but I really need the commercial patients to be able to make this work? Or how do they tend to think about that to the extent that you can share?

Yeah, no, I mean, we've already been, you know, in extensive dialogue. And so I think we will have to come up with an explicit customized model for different situations. And I do think that to the way you're describing it is in the realm of possibilities is that they might want to pick, for example, for insurance patients where the payment is pretty good. And if the AFCs or the lug pies are owned by the physicians where they have the ability to get reimbursement from both sides of the payment equation, that they are likely to take the private payers to those sites and the Medicare patients typically go to the hospitals. So I think you will see as the economic models you know, get developed further, I think you will be able to see that, hey, there are certain types of patients that they will take to one site where it can be more profitable. Another type of patient they can take to another site where that can be profitable also. And I also think that the hospital will want to see adoption because to a hospital, they are losing money on a Medicare patient. So if we can show that, hey, they can actually break even or make some money on a Medicare patient, that's a win for them, in fact, also, right? And they already have, you know, robotics is well, highly utilized. So they already have enough of a patient population to use the robot. And if they make some space for that by using the MR for our procedure, they're actually making money or at least breaking even on the TELSAT procedures, and then they're making money on the other procedures that go on the robot. So I think it's not going to be a simple equation, but I think there's going to be plenty of different ways to be able to demonstrate economic value here. And we're quite excited about that.

Okay, that makes a lot of sense. I appreciate the color there. And then the last one for me, just on the Tulsa AI clearances that you have now, I mean, it seems like both thermal boosts and contour assists are kind of confidence boosters for clinicians. But can you share maybe how much time contour assists will take off of a procedure? I mean, is that 10, 20, 30 minutes? What does that look like? And then anything more that you can share on, you know, the adoption so far of both thermal boost and contour assist amongst the folks that have it available to them?

Yes, Ben, absolutely. The thermal boost, you know, we explicitly talk about the wide variety of patients that are treated, and you heard that from Matthew already. The thermal boost is one of the reasons why we are seeing these later stage patients. treatment now happening with Tulsa because they feel very confident that if there is a little protuberance of the cancer at the outer edge, they can blast that region. Or if they suspect that there is some involvement of the, you know, to the muscle, they are able to blast into that region. So I think the latest statistic, and Matthew, please feel free to chime in on this, I think it's in the order of about 50% of the patients being treated, thermal boost is being used.

Yeah, that's correct. About 50% of the treatments, we see the use of thermal boost at least for a portion of the treatment plan.

Yeah. So that's highly valued. Highly valued. And then on the AI side, majority of our sites now already have the AI. They have many, I would say about a third to maybe more than a third have already used it to treat patients. The initial feedback really is quite positive as we anticipated. There are two things that we're hearing. One is that the treatment designs are very smooth. So they're not, they kind of like the smoothness of the way the treatment designs are proposed. And the confidence that, hey, this is coming from patients who are successfully treated in the past. And then the second thing we're hearing is definitely it is saving time in all these procedures. So I think our goal, we will actually present data as we get statistically significant information where we will present the data. We think the best way to put it is that ultimately, if they're doing two cases in a day, they will be able to do three. If they're doing three in a day, they will be able to do four. If they're doing four, they'll be able to do five. And I think that, to me, is the biggest benefit of this in the sense that in about the same amount of time, they'll actually be able to do more cases, which certainly not only speaks to the pocketbook, it also speaks to their whole workflow, their whole day. So that's what you will see. I think per procedure time, certainly it will be several minutes, but I think procedures per day, you will see an increase, and that's going to be valuable to them.

Okay, got it. That's all I had. Thanks for taking the question, gentlemen.

Thank you, Ben.

One moment for our next question. And our next question comes from Raul Saragasser with Raymond James.

Good afternoon, Arun, Rishad, Matthew. Thanks so much for taking my question. So Rick and Ben did a terrific job asking many of the clarifying questions. So maybe I'll ask something about as you scale. So when you were just talking about docs going from one to two to three to four patients a day, perhaps you could give us a little more clarity in terms of how the three codes can be leveraged for docs to potentially stack procedures and essentially increase the profitability per unit time, either by using residents or just creating efficiency in the system to make it more profitable for them.

Yeah. Raul, I'm happy to. So as I was saying before, the flexibility and the fact that we have multiple codes allows each site to effectively determine what is the best way or the most effective way and efficient way for them to treat the patients. So I'll share a couple of examples. So if I'm a teaching site and I have a resident, I could have the resident do sort of the initial workup of the patient, which will include putting the patient on the MR table, inserting the catheters, attaching the table to the MR suite, being with the patient during the time they're being anesthetized. And that we call sort of medical device management. And a resident could easily do that. And so the primary physician could then come in really at the time when they need to start the treatment planning, which now is AI-based, but they can start to do the treatment planning. Then they can stay for the treatment itself which from beginning to end, even based upon the CMS numbers, is less than 90 minutes total time for the physician. Then they can leave, and then the resident could come back and unhook the patient's table and go with the patient to wake him up and remove the catheters. So it's an efficient process. It's Bring the fifth primary physician only for the core part of the procedure. It would be less than 90 minutes. And if they do that, the resident could be using the medical device code and the physician could be using the the treatment part of the code. And if they did that, I think per hour basis will be almost, I mean, not quite double, but certainly 50 to 70% better on a per hour basis for the physician. Whereas a resident, it will make less money, but in comparison will also do very well. That's just one example. In another setting, you could have a urologist and a radiologist both sharing the procedure. And in that case, they can sort of one person is doing the treatment plan, the other person is planning the next patient. And this is also why we talk about number of patients per day rather than the time per procedure. So I think those are a couple of examples of how they will be able to use these codes to be able to optimize the workflow

that will be most efficient for them.

That's really helpful, Aaron.

Thank you so much for that. And so, perhaps continuing on this theme and broadening into BPH. So, this is a two-part question. One, is there any update on profound aspirations around BPH? And very specifically, are the codes that are currently issued applicable in BPH? And how do you see the BPH strategy playing up, particularly, again, in this stacking, in this procedure stacking scenario?

Sure. Sure. Yeah. So, great questions, Rahul. With respect to BPH, we kind of see ourselves in steps also. So, the starting step for us is to focus on those patients where the prostates are larger than 100 cc and or they have not only bph but they might also have some form of early stage disease and so that patient would particularly benefit from our therapy those that group of patients because if they have you know large very large prostates we can still treat them very quickly. And we can basically ablate the transition zone, in some cases, the medium load if it is needed. And still, we can be a relatively fast procedure for them. And because our prostates shrink, we're shrinking a very large prostate and think that should lead to durability over time. And in those cases where there is some form of early stage disease or even internally we call them hotspots because in these diffusion images of the MRs, these biparametric images, you can actually see zones of the prostate where the cells look unusual. those patients where they see not only the PTH, the problems with the transition zone and the median lobe, but they also see those hot zones, they can actually go ahead and treat them to some extent before they develop into cancer or become bigger. So I think that subset of the market we think is at least about 400,000 patients. And we think that is where we want to start the procedure will automatically have the AI technology right off the gate because it is being developed off of that platform. And so we think that it will also be a lot faster procedure than a typical cancer procedure is. Because we're not ablating the whole prostate, we're typically doing maybe 30% of the prostate, which makes the treatment part also very fast. So AI-based treatment design that will be customized to each prostate and then a much less amount of ablation, we think we can be fairly competitive in the market in terms of the time of the procedure. And then to your second question on the reimbursement, The way our FDA clearance is, it says that the clearance is for ablation of prostate tissue. So it does not specify whether good tissue, bad tissue, causing BPH or causing cancer. And the reimbursement code are against this FDA clearance. So, you know, we will confirm it in the end, but at the moment, we think these codes should be good to go. So I think next year, not only that we have this momentum towards reimbursement-based model, but we also think that we will introduce the BPH module as well.

That's an terrific color.

Thank you so much. And I'll just flip in one quick last question and then get back in the queue. Given all the tailwinds you talked about today, how is the profound team feeling? What is the sentiment in the company?

I mean, you know, the profound team, I think the senior team has really jumped nicely. I think the goals are crystal clear for us. We know what we need to do.

And I think the general mood of the team at pretty much every level is let's go get this done.

That's great.

I feel pretty good about that.

Yeah. That's terrific, Arun. Wishing you the best of luck, and thank you again for taking my questions.

Thank you, Arun.

One moment for our next question. And our next question comes from Michael Sarcone with Jefferies.

Good afternoon, and thanks for taking the question.

Good afternoon, Michael.

Hi, Arun. Just to start, just on the recovering non-capital revenue, it looks like that was down year over year and maybe flat versus the prior quarter. Could you maybe just talk about what you saw in the quarter there and then maybe give us some color on Tulsa utilization or procedure growth for the quarter?

In comparing to the year-over-year, I think we were 39%. The number of patients that we treated in Q1 is higher than the number of patients we treated in Q2 versus Q1. I think, as I've said before, the fluctuation that you see in dollars is in thousands of dollars, and it more relates to shipment of the product to the sites as compared to the number of patients being treated. And as I had sort of alluded to earlier, we do see that capital revenues are coming in this year because more and more hospitals are saying, you know, we do have funds for products like these. And now that the reimbursement picture is becoming more even clearer, I think you will continue to see this mix changing. And so I think that in some of those situations where we do sell the capital, we will reduce the dollars per case for them because today we charge everything in a bundled payment. We will start charging in a unbundled way, so you will see these fluctuations. But I would not read anything beyond that into these detailed numbers.

Understood. That's helpful. Thanks, everyone. And then you added Port Tulsa to the base in the quarter. Can you give us any color on how that broke out between capital sales versus just pure placements?

I think most of these are placements today for now.

I did, you know, as I was saying before, we did see that, you know, we were, I wasn't sure how this year was going to unfold to some extent because of the reimbursement news being, you know, the 800-pound gorilla. And I think in the second quarter, we did see a little bit of that, you know, sort of discussion with the hospital to say, let me just wait until I get at least a proposed rule out before I sign on the bar dotted line. But as I was saying before, I think that is now everybody's back on, which is why we think we have a high bar to climb in the second half, but our team seems to be very confident. about that, but I wouldn't read. I mean, majority of the 2024 will still be placement-based. And I think what you will see over time is that the placements will convert into capital as they start using it and they start to develop the economic models. I think you will start to see them convert so that they can reduce their per capita case costs and they can use other buckets for the capital dollars and service dollars.

Got it. Thank you very much, Arun.

Thank you. Thank you, Michael.

One moment for our next question.

And our next question comes from Scott McCauley with Paradigm Capital.

Good afternoon, Scott.

Hi, everyone. Hey, everybody. Most of the questions have kind of already been asked, but just following up on the last one around the capital revenue, because you did have, I think it was $700,000 plus this quarter in revenue from capital equipment. So is that sales in Europe or elsewhere versus, as you were alluding to before, U.S. capital placement models?

It is a North American sale.

So for Europe or Asia, we would break it out. But this is a North American sale.

Yes, Scott, this is Roshan. So it gives all the details in our segment report. So if you look at our financial statement, it shows under North America.

Got it. Fantastic. Other than that, everything else went out. So thanks, guys.

Wonderful. Thank you. Thank you.

One moment for our next question. Our next question comes from Brian Gagnon with Gagnon Securities.

Hi, guys. Can you hear me okay?

Yes, Brian. Good afternoon.

Afternoon. I know it's not really fair to ask about procedures per day with real reimbursement yet, but your highest level users, maybe your top four or five guys or gals, how many procedures are they doing per day now and where do they think those procedures per day will move to once reimbursement begins?

Very good. Good question, Brian. We are, so we have, Matthew, 8% of the sites are doing four procedures per day already.

Yeah, that's Yep, that's about right.

Right. And I think, Matthew, how many sites, what percent is doing three per day today?

We're seeing about, I'd have to pull up the exact figures here, but we're seeing over 10%, maybe 20% of the sites doing three procedures per day.

That's actually much better than I thought it would be.

Yeah, so about a quarter of the population is in the three to four procedures per day already. We think once this AI is fully in place that pretty much every site we will be able to increase one more patient. And we're going to do our own conference shortly and we will ultimately publish the information on the number of procedures. I think in general, our expectation is that we think we can provide up to a 20% advantage in terms of time against radical profit factors.

That'd be great. On the MRIs and expanding relationships, are the 0.55 Tesla interventional MRIs, are they easier to install and operate? And what does it take for... a facility to install a regular MRI today versus installing one of these interventional MRIs?

So Brian, today's MRIs typically are 1.5 to 3 teslas and they use a lot of helium and so on. And so hospitals typically put them on their main floor or their basement floor because they weigh something in the order of 30,000 pounds. and they will require especially rebuilding the foundation of the floor. And the new ones, the 0.55, have multiple advantages. Number one, they weigh typically about 8,000 pounds. I kind of tell people that you can take a Ford F-250 easily. Actually, you could take a Ford F-150 and tow them from place to the other. But the most important thing is with that less weight, they can actually be placed in basically the room of any operating room, and you can place that system in there. And the magnetism, because they are 0.55 Tesla, normally these hospitals have to provide significant shielding, which costs a million dollars or so per magnet because of these high-strength magnets. versus with this, the shielding, the magnetic strength is typically about five feet from the edge of the MR itself. So literally almost no shielding required, which saves a lot of money in terms of installation cost. And the reality is that physicians can literally stay in the MR suite doing the procedure because there's no issue related to magnetism. So the number of advantages, the one that I talked about before that physicians can literally put their hand in the bore and literally see their hand, see the cancer inside the patient and put the needles in the right places. The fact that they are smaller, they can be moved easily, they can be put in a normal operating room size room. And when you think about all this and then you combine with the fact that TELSA is the only procedure where it will be reimbursed in a doctor's office, that starts to become a pretty compelling proposition The caution obviously is entirely new and it's going to take some time to deliver all of this. But I think this is why we are quite excited about the new MRs that they can literally be placed and they can be operated. They're much simpler to operate. They don't have multiple buttons because they're designed for intervention only. And then combining the economic models that we talked about before, I think that is likely to be a winning combination.

Okay, so this should be a big deal for adoption of these new systems, which in turn will directly benefit this whole continuum of MR prostate diagnosis treatment and post-treatment visualization that you guys have talked about for the last year or two.

That's exactly where we're going. That's exactly right.

All right. Last one for me. Go ahead.

Yeah, no, this is why I think MR companies have invested a lot of money to commercialize this type of a product because they see that whole thing sort of converging towards an MR-centric prostate care strategy.

Okay, last one for me. You mentioned that commercial reimbursement was higher than CMS patients. And I guess the one thing I didn't realize, and maybe you can expand on this, is that Today, radical prostatectomy doing CMS patients is not profitable for a hospital system?

That's right. So in the hospital, doing robotic prostatectomy in a typical hospital does not pay enough to cover the cost of the hospital. So they actually lose money doing it. And we think that with the way our reimbursement is working and the fact that there's lower, the MR suite is far less expensive and the fact that there's no hospital stay, we think we can show them a model that, in the worst case, will break even for even the lower-cost hospitals.

So, at a minimum, you should get a lot of the Medicare patients as your patients in the future, assuming they can figure out this MRI logjam.

That's exactly right. And so we are in dialogue with them to, you know, confirm everything. We want to make sure they can use their own data to see what we are describing to them. But I think based upon the numbers that we see, based upon the robotic prostatectomy data that is in the CMS databases, we think what we are saying makes a lot of sense, and it will make a lot of sense for the hospital to make that. Terrific.

Thank you very much.

Thank you, Brian.

And this does conclude the question and answer session. I would now like to turn it back to Dr. Menawat for closing remarks.

Thank you so much, and thank you for the vibrant questions. And we're really looking forward to providing another significant update at the Q3 call. Thank you.

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