Q4 2021 Procept Biorobotics Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to per caps via robotic fourth quarter earnings Conference call. At this time, all participants are in a listen only mode.
We will be facilitating question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Matt back So from Gilmartin group for a few introductory comments. Please go ahead.
Thanks, operator, good morning, and thank you for participating in today's call joining me from pro step by robotics or rather is that now CEO and Kevin waters CFO earlier today <unk> released financial results for the quarter ended December 31 2021.
The press release is available on the company's website before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 any statements contained in this call that relate to expectations or predictions of future events results.
Our performance are forward looking statements all forward looking statements, including without limitation those related to our sales and operating trends and future financial performance expense management expectations for hiring or growth market opportunity revenue guidance commercial expansion and the impact of COVID-19 on our business and future product development and approvals are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent quarterly report on Form 10-Q filed with the Securities and exchange <unk>.
Emission on November five 2021, and available on Edgar and in our and in our other public reports filed periodically with the SEC. This conference call contains time sensitive information and is accurate only as of the live broadcast March eight 2022 gross debt by robotics disclaims any intention or obligation except as required by law to update or revise any.
Financial projections are forward looking statements, whether because of new information future events or otherwise and with that I'll now turn the call over to Reza.
Thanks, Matt Good morning, and thank you for joining us for today's call I will provide opening comments and a business update followed by Kevin who will provide additional details regarding our quarterly results and initial 2022 guidance before opening the call to Q&A.
Before moving to our quarterly results I want to recognize the outstanding performance of the <unk> <unk>.
For the full year was $34 $5 million, which is almost at 350% increase over 2020 and was ahead of our expectations coming into the year.
21 was also a milestone year for pros as we became a public company, providing us with the capital to better serve our patients and continue on our mission of becoming the standard of care and the surgical BPH market. All of this accomplished under circumstances that have been unprecedented in my carrier.
These achievements would not be possible without contributions across the board from our employees, our shareholders and importantly, our customers I am truly humbled and just want to thank each and every one of you.
Now turning to our quarterly revenue results.
Consistent with our pre announcement on January 11, total revenue for the fourth quarter of 2021 was $10 $1 million, which came in the high end of the pre announced range and above our Q4 revenue guidance of $8 $7 million to $9 million.
In the fourth quarter U S pack, what beam system revenue was $5 million U S. Handpiece and consumer revenue was $3 4 million and total international revenue was $1 $4 million.
Despite some COVID-19 headwinds later in the quarter, we continued to see strong positions interest as we trained more surgeons at the existing accounts, resulting in increased utilization.
While we are still very early in our commercial launch we believe our robust clinical data outstanding real world patient outcomes supported by our recently published five year data and rapid early adoption indicate that the hospitals surgeons and patients see the benefits of a robotic system.
And that we are on the right path and our strategy is working.
One key factor contributing to our ability to implement our commercial strategy has been our success in hiring talented and experienced field based sales personnel.
Specifically entering 2022, we have approximately doubled our field based commercial team compared to 'twenty to 'twenty one.
Given the number of high quality employees hired in the back half of 2021, we believe our strong commercial momentum will carry through in 2022.
Especially as we ended the year with what we believe is a robust pipeline of new targeted accounts.
Let me first start by addressing two topics that have had a broad scale impact across the medical device industry.
Firstly in Covid.
While we recognize the macro impact of elective procedures due to increased Kobe cases, and staffing shortages in the United States, we saw negligible amount of customers and patients affected in the fourth quarter, primarily in the month of December as a result, our ability to exceed our plan was relatively unaffected.
On the Handpiece and system revenue.
Exiting December we did see incremental headwinds in January associated with the omicron barium and its impact on procedure volume we.
We have seen in the past 40 days has returned to more normalized operating environment.
In the absence of new strain or some unforeseen situation, we remain optimistic that the COVID-19 related disruption to our business for the balance of 2022 will not be significant.
He said we continue to monitor our accounts very closely and are pleased with the momentum we're seeing on both utilization and system sales quarter to date.
Second is the disruption associated with the global supply chain.
As we indicated in our Q3 earnings call. We made the decision to increase our inventory levels and believe we have sufficient material on hand to meet our current demand.
We are also actively working with our manufacturing partners to ensure adequate product on hand in order to meet our robust growth forecasts.
While we do not expect supply chain issues to have an impact on our ability to meet our revenue plans. We continue to increase inventory levels for certain components to mitigate any future risk and are working closely with our suppliers.
Now turning to quarterly business updates.
Our goal was to double our commercial team by the end of 2021 to put us in position to execute our 2022 commercial growth plan and we have been successful here.
Even with the tight labor market, we continued to see strong interest from highly experienced medical device sales professionals, which gives us additional confidence in meeting our hiring and growth objectives in 2022.
As we continue to expand our commercial footprint and educate the hospital systems on Aqua ablation therapy superior clinical data, we have partner with various integrated delivery networks or idms.
Specifically, we announced on January 19th that Atlanta's prestigious North side health care system at five Aqua beam systems installed in every one of their state of the art surgical facilities.
We continue to be encouraged by our ongoing discussions with large IBM across the country and are excited about the future opportunity to partner with them.
Additionally, a few weeks ago, we received a positive coverage policy decision from Carefirst and independent licensee of the Bluecross and Blueshield Association, which increases our correlation covered lives by roughly $3 5 million.
As a reminder, as of January 2021, Echo ablation therapy has positive coverage policies from all seven Medicare administrative contractors, making a correlation available for Medicare patients nationally.
Which we estimate represents about half of all hospital based resected procedures.
We also have positive private payer coverage from anthem Blue Cross Blue Shield Humana Health Care Service Corporation, Blue Cross sell, Massachusetts emblem and Cigna.
In 2021, we have seen significant momentum in our core being robotic sales and we believe that is directly related to increased coverage and our core strategy of targeting high volume hospitals.
Next I would like to provide some color on our recently announced positive five year water data.
As a reminder, water is the only prospective randomized double blind multicenter pivotal study comparing the safety and efficacy of a correlation therapy to term.
This study proves our correlations superior safety due to low irreversible complications and also superior symptom relief for prostate in the range of 50% to 80 milliliters.
Diving into the data at.
At five years Ips's score improved by 15, one points in that population group compared to $13 two points in the turf group. However in a pre specified analysis for men with larger prostates between 50% to 80 millimeters PSS reduction was $3.
Five points greater across all follow up visit in Dhaka ablation group compared to the third group demonstrating statistically significant superiority.
Improvement in peak urine flow rate was 125% and 89% compared to baseline for our cooperation and term respectively.
Lastly, the discovery treatment defined as returning to BPH medication or requiring a surgical intervention was approximately 1% per year for a correlation which compared favorably to TERP arm, where the risks was approximately double.
Based on our five year water data and real World experience, we believe Aqua ablation therapy is poised to become the treatment of choice for BPH and believe.
It does not require compromise between safety and efficacy.
This study reinforces the durability of Aqua ablation therapy, and we believe this data set further differentiates our correlation from alternative therapies and will allow our sales force to better educate and train our surgeons on actual ablation therapy.
We also anticipate the five year water that will be well received by payer community.
Many of the large payer policies have used five year published data to establish coverage for other BPH surgical approaches introducing the market in recent years.
Our five year data have already been submitted to several of large national and regional plans and we believe this could be impactful as they update their coverage policies.
Due to difficulty in predicting timing of additional coverage our 2022 revenue guidance does not assume incremental coverage in 2022. However, we remain committed to making a coalition therapy available to all men in the United States.
While we do not assume incremental coverage from large commercial payers in 2022, I would like to comment on utilization and procedure trends, we have seen in 2021.
First we believe the majority of Aqua ablation procedure volumes are converted tariff cases.
From an account level standpoint, we are seeing quarterly sequential increase in utilization from our accounts.
As we believe surgeons are becoming more comfortable with not only the technology, but being able to treat a broader range of prostate sizes and shapes.
This is a trend we expect to continue in 2022.
Lastly, while still early we do believe patients that were on the sidelines foregoing surgical interventions are being introduced to our cooperation therapy as they see the benefit of a solution that our studies show is durable safe and effective.
Before I hand, it to Kevin I wanted to also inform everyone that <unk> will be hosting an investor event in may.
American Urological Association conference in New Orleans.
We feel this will be a great opportunity to feature some topical ablation surgeons to speak about their experience and take questions from investors.
In April we will provide more detail around veeva with that I will turn the call over to Kevin.
Thanks Roger.
As Roger highlighted pro subs revenue for the fourth quarter of 2021 was $10 $1 million.
The increase was primarily driven by U S revenues, including both system sales to new hospital customers and increased Handpiece revenue.
In the U S. We sold 14, Aqua beam systems of which 10 were to new customers.
<unk> system average selling prices were slightly above $350000, which is flat sequentially and in line with our expectations.
Our ending fourth quarter U S installed base was 78 Aqua beam systems.
Prior to obtaining Medicare coverage in January 2021, we did place numerous aqua beam systems under evaluation agreement as compared to direct sale.
Of the 78 systems in our installed base, we still have approximately 10 systems under these evaluation arrangements, which is down from 20 as of September 32021.
We are encouraged that roughly 70% of system sales in the fourth quarter were to new accounts that previously did not have an evaluation unit.
We expect new accounts to comprise the majority of system sales moving forward and expect to be near zero systems under evaluation agreements by the end of March 2022 in the U S.
Turning to Handpiece revenue U.
U S. Handpiece revenue was $3 4 million compared to $2 2 million in the third quarter of 2021.
<unk> revenue growth was driven primarily by increases in monthly utilization measured by hand pieces sold per account and increased average selling prices.
We shipped approximately 200 hand pieces in the U S. In the fourth quarter with monthly utilization greater than 5% and pieces sold per account.
International revenue for the fourth quarter was $1 4 million.
Gross margin for the fourth quarter of 2021 was 44, 5%.
Also want to highlight that our current procedure volumes Handpiece gross margins are slightly lower than capital equipment gross margins.
Total operating expenses in the fourth quarter of 2021 were $21 3 million compared to $13 $7 million in the same period of the prior year and $17 million in the third quarter of 2021.
This was primarily driven by increased selling marketing and general and administrative expenses to expand our sales organization and increased expenses associated with supporting a larger growing public company.
Net loss was $18 3 million for the fourth quarter of 2021 compared to $15 3 million in the fourth quarter of 2020.
Our cash and short term investments balance as of December 31.
$304 3 million, while our long term borrowings totaled $50 million.
We believe the capital raised during the IPO and our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business.
Moving to our financial guidance.
We expect first quarter 2022 total revenue to be in the range of 12 to $12 5 million.
Going into more detail, we expect a meaningful increase of Aqua beam robotic systems sales in the U S compared to the fourth quarter of 2021 of which approximately 80% will be to new accounts.
As mentioned previously we expect the number of U S demo units to be near zero by March 31.
The total number of hand pieces sold in the first quarter of 2022 is anticipated to increase modestly compared to the fourth quarter of 2021 due to a larger installed base.
Due to our success in rapidly expanding our installed base with new accounts, we expect utilization to be down modestly compared to the fourth quarter of 2021.
As Reza mentioned, new account utilization increases over time.
On an annualized basis, we expect full year 2022 total revenue to be in the range of $54 million to $58 million.
As our commercial teams scales and matures, we expect the number of Aqua beam units sold to increase sequentially throughout the year.
Regarding system average selling price trends, we expect pricing to be in the 345 to $355000 range.
While we realized a nice utilization uptick in the fourth quarter of 2021, we expect full year 2022 utilization rates to be up modestly from 2021 levels as we expand our U S installed base with new accounts throughout the calendar year.
Our 2022 guidance also does not assume any benefit from incremental private insurance coverage.
Regarding handpiece average selling prices, we expect pricing to be in the $2800 range for 2022, which is slightly above fourth quarter of 2021 pricing of $2700.
Lastly on revenues, we expect international revenue to be approximately 12% to 13% of total revenues.
Moving down the income statement, we expect gross margins to be in the range of 47% to 49% and operating expenses to be approximately $105 million.
Of which approximately $12 5 million stock based compensation expense.
Lastly, we expect full year 2022, adjusted EBITDA to be in the range of approximately negative $63 million to $60 million.
At this point I'd like to turn the call back to Reza for closing comments.
Thanks, Kevin in closing I, just want to again, thank our employees customers and shareholders for what we accomplished in 2021, we have made tremendous strides since the pricing of our IPO and I am confident the best is yet to come.
It's just a privilege to be a part of a technology that can positively impact the lives of millions of men throughout the world. We look forward to continued growth in 2022 have a great day and at this point, we will take questions operator.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the one key on your Touchtone telephone.
And in consideration of time, we ask that you. Please limit yourself to one question and one follow up please standby will be compile the Q&A lifestyle.
Our first question coming from the line of Greg <unk> with Bank of America. Your line is open.
Good morning, guys. Thanks for taking the questions congrats on a great quarter, great finish to the year.
Guidance that is above expectation so.
Costs in the current environment.
Congrats on that I wanted to start with the system placement.
Expectations for 'twenty, two and I appreciate your comments about the sequential improvement.
But maybe you wanted to dive a little bit deeper into what youre seeing from from the pipeline and kind of the confidence that you have.
That you can grow.
System placements sequentially.
Especially with a focus on the new accounts.
Yes, thanks for the comments Craig This is Kevin so given we are fairly far through the first quarter.
We are seeing a high degree of confidence in our ability to execute on a sequential increase in capital in the first quarter to the fourth quarter and importantly, it is the pipeline that we feel very good about with new accounts. Our sales team is highly focused on the over 850 high volume hospitals.
In the U S and we're seeing a significant number of those.
Our funnel and again, given with where we're at in the first quarter. We have a high degree of confidence about a meaningful increase of Aqua beam robotic sales in the first quarter compared to the fourth and as I said in our guidance, we do expect that to grow sequentially throughout the year as that sales force doubling that Reza mentioned really comes to fruition in the back half of the year.
Got it thanks for that Kevin.
Maybe following up on just some of the insurance coverage comments.
And the five year data. So I wanted to ask specifically you have two big players that are still out there wanted to see if theres any color on any discussions.
Within if you expect potential.
Potentially to come onboard in 'twenty, two and then really just asking a little bit longer term, how much of an accelerator to the gauge needles or would it be to add United and Aetna.
Yes. Thanks.
This is <unk>, yes, it's correct.
Do not have coverage from United and Aetna.
But as we mentioned in our comments for 2022 guidance, we do not assume desk coverage to be.
In place in 2022 like many carriers.
That did not the fiscal indicate.
<unk>.
Policy and what they were waiting for we believe the only information left is the five year data that you will have seen we published we submitted.
As you know United is about 45 million covered lives.
It's about 22 million covered lives so from a.
<unk>.
Percentage point of view as you know, we have said to high volume.
Hospitals through about 200 cases per year or <unk> 17 per month, so today with primarily Medicare patients we have access to.
Roughly half of those out of 17, <unk>, but by bringing United and Aetna, We will have.
Very close to all of those we will have access to all those 17 third month.
Accounts.
Great. Thanks for taking the questions I'll hop back in queue.
Thanks Kirk.
And our next question coming from the line of Hassan with Goldman Sachs. Your line is open.
Thanks, So much this is Phil on for me.
I was hoping we could circle back to the utilization comments around hand pieces.
I appreciate that such a strong quarter.
Hoping Kevin maybe you can parse out the amount of dilution that's coming from these new systems that are coming on versus what's going on at an underlying level for existing accounts, if you could kind of.
Talk to the sort of assumptions that you've made around where existing accounts versus new added accounts from the year are going to end up shaking out.
Yes, it's a good question and right now obviously, we have a limited limited history of sales to accounts, but if you look at our fourth quarter results you see that the average number of hand pieces sold per account in our fourth quarter was north of 5%.
And I would say that if you look at the vintage of sales for process. The accounts that purchased prior to 'twenty to 'twenty, one and even though accounts that purchased in Q1 of 2021. Those accounts are already doing north of five on average so they're obviously pulling up the.
Average and as we bring in.
All new accounts start installed base. It does take time for those accounts to get to those utilization levels that could be anywhere from 4% to five quarters is our expectation right now but.
The primary factor in utilization only being up modestly is that significant expansion to our installed base and those accounts just building utilization over time.
Okay. That's very helpful. There was would you say that there was some level of pre buying that happened in <unk> per accounts. It seems like even on average that the numbers should shake out to a little bit more than what <unk>.
Average utilization was in the quarter.
Our procedures track fairly closely to Anthony to solve.
One call out any of the large stocking orders in the fourth quarter that drove up the number of hand pieces. So okay.
Okay. That's really helpful. Thanks for that and then the last one.
I'm wondering if the evaluation units had been something of an impediment from a time an investment standpoint for you all as we think about kind of the environment post these evaluation to some so there might be a bit of a lift just in terms of allocation of resources is that a fair comment.
Yes.
Look the evaluation program had its time in place prior to us having.
Medicare coverage and as we've said the last few quarters, we're no longer offering this program and we do believe that by selling a system.
We have the full buy in of the physician the reimbursement team to hospital administration, and we do see utilization in accounts, where we sell a robot significantly greater than when we had a demo unit and therefore I wouldn't call. It a drag on the organization, but I definitely believe that our selling model moving forward.
As a straight sale is going to be our preferred method, that's resonating with our customers.
That's helpful. Thanks, Thanks on both accounts.
Thanks, Paul.
And our next question coming from the line of Chris, Wisconsin with Guggenheim. Your line is open.
Thanks, and congrats on a nice finish to the year guys.
I was wondering if you could give an update on how many reps you exited the year with across the robotic and Aqua ablation groups in the U S and where you'd like to be at the end of this year.
Yes, so Chris we have said I think preliminary in our S. One we had 10 robotic reps and 10, Aqua ablation reps and resin comments indicated a doubling of that sales force.
Appropriate number to use for where we are entering fiscal 2022, but the other thing I would point out is our Opex guide of $105 million does assume that we have the ability to add both incremental robotic and aqua ablation sales reps in the back half of the year, we're not going to comment today, specifically on those numbers.
But we do have an increase built into our plan to add reps in the back half of the year such that we can hit the ground in 2023 with the sales force that's ready to go and capitalize on all the happenings we expect this year.
Okay, and then you mentioned that physicians are getting more comfortable over time using the system on a broader range of Prostates Disney visibility today into what your average prostate size is in the case that you guys are involved in.
Or maybe another way just.
To say it would be the percentage of cases, where physicians are reaching for aqua ablation, because they don't think other.
Our approach is available to them are really appropriate for the <unk>.
Patient versus really using as a true replacement.
In patients, where <unk> would also be an acceptable option.
Yes. Thanks. So this is Matt.
I wanted to mentioned that few of our accounts have converted most update resected procedures talk population.
And as they use the product they become more comfortable when they start they use it in stock.
With the above 17 liter or.
Above, but as they become comfortable with the procedure and the technology. They use it in all cases in fact, we have seen some accounts that the standardized their respective BPH protocols and thats whats driving our utilization.
So it is again, we have a range of accounts that are using most updated receptor procedure. If I had to guess it would be maybe average 17 17 millimeters, but again, we have all over the map because the outcomes at the same so the accounts.
Where they use it technology is.
Mostly converted procedure, but because the outcomes as we showed in our FDA trial, whether it is for large prostate or small prostate outcomes out of the same they start using and all.
<unk> sizes.
Great. Thanks.
And our next question coming from the line of Danielle <unk> with SBB Leerink. Your line is open.
Hey, this is Daniel thanks, so much for taking our question.
I was just hoping that you could maybe talk about.
About the IV and anchoring that.
And Atlanta.
Is this something I think you guys mentioned that youre going to continue to focus on that I was just wondering if you guys could talk about how you've seen the utilization.
And that and the IV.
Yes. This is Kevin I'll take that so north side of Atlanta has been a great customer for us they placed their first system over a year ago and now have installed four additional robots across their state of the art facilities as Robert mentioned and its a good account.
<unk> suggests that their utilization is there anything different than any other high volume hospital in terms of utilization, but to speak around and we are working with multiple IV ends.
Our guidance in 2022, it's not dependent on a material number of these idms being executed with that said there are a fair number of idms that fall within the 850 high volume respective hospitals that were targeting.
I would also point out that on Ibms <unk>.
Our ability to sign contracts that provides us with access to these hospitals and what it really does is it makes the sales process much more efficient and much more predictable on the capital side. So it's not as if you sign in.
And then all of a sudden you're going to sell 10 robots within that system, but what it does do it allows our sales team access to the account and again for that process to be much quicker and get through the administration quicker and really that's what we're focused on in 2022.
Okay, Great and then I guess just to follow up on that a little bit.
Have you guys noticed any trends and with that the commentary again and staffing shortages have you guys seen.
Any impact.
In capital sales I mean, obviously you know you guys had a strong quarter, but wanted to see if you guys had noticed kind of.
Any issues with access or anything like that.
Yes, thanks, so definitely we recognize the macro impact of.
Covid and staff shortage on elective procedures, but that's impacting our case was negligible and we weren't able to.
Z dollars.
Our plan.
But we have seen the COVID-19 did not have impact on our capital sale.
Indeed, a year around December we saw some headwinds from Covid.
And.
Through maybe January but really in the last 40 days.
We are seeing is back to a more normal.
Operation mode. So absent of any new variance, we do not believe this will have a meaningful impact for us going forward. If there is no one knew about him coming in.
Okay, great. Thanks.
And as a reminder, if you'd like to ask a question.
And I'm showing no further questions at this time I would now like to turn the call back over to Mr. <unk> Zhang for any closing remarks.
I want to thank everyone for that.
Listening to our earnings call and thanks for the questions and we look forward to providing more information in the future.
Have a nice day.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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