Q3 2022 Procept Biorobotics Corp Earnings Call
Good day, and thank you for standing by and welcome to the Q3 2022 pro steps bio REIT bought bio <unk> Robotics earnings 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 this session you will need to press star one one on your telephone well then hearing automated message advising your hand is Reyes. Please.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Matt Pasco, Vice President of Investor Relations.
Please go ahead.
Thanks, operator, good afternoon, and thank you for participating in today's call. Joining me are resins that no CEO and Kevin waters CFO earlier today <unk> released financial results for the quarter ended September 32022, a copy of the press release is available on the company's website before we begin I would like to remind you that management will make statements. During this call that include forward looking.
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 or performance are forward looking statements all forward looking statements, including without limitation those relating to our sales and operating trends in.
Future financial performance expense management expectations for hiring or growth market opportunity revenue guidance commercial expansion 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.
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 annual report on Form 10-K filed with the Securities and Exchange Commission on March 22022, and available on Edgar and in our other public reports filed periodically.
<unk> with the SEC. This conference call contains time sensitive information and is accurate only as of the live broadcast on November three 2022 pro set by robotics disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
With that I'll turn the call over to Reza.
Good afternoon, and thank you for joining us.
Want to take this opportunity to formally welcome Matt back so as our new Vice President of Investor Relations for <unk>.
Today's call I will provide opening comments and a business update followed by Kevin who will provide additional details regarding our financial performance and updated 2022 financial guidance before opening the call up to Q&A.
Starting with our quarterly revenue results. We are pleased to report another strong quarter with our customers and patients continue to realize the significant clinical benefits of our cooperation therapy.
Total revenue for the third quarter of 2022 was $23 million.
Resenting growth up 135% compared to the third quarter of 2021.
Growth in the quarter was once again, driven primarily by robotics system sales and increased utilization from our installed base.
We believe the combination of positive long term clinical data increased private payer coverage and outstanding real world patient outcomes continue to drive surgeon interest in hospital adoption of our <unk> robotic system.
Before providing a business update let me briefly address the current macro environment, specifically supply chain in hospital capital equipment spending.
Similar to previous quarters, we have not experienced material product constraints to meet customer demand.
Furthermore, we continued to increase manufacturing personnel and remained close to vendors and suppliers to mitigate any potential supply issues.
As we move into 2023, we remain focused on ensuring we can supply our customers with what they need in a way that is high quality and timely.
Many of these men forego treatment due to the inferior safety profile of current surgical alternatives.
With a growing and increasing educated patient population hospitals are motivated to invest in cutting edge technologies to ensure they stay competitive and not lose patients to other area hospitals.
Believe aqua robotic system allows hospitals to offer a cutting edge technology in bph's surgical space.
Next we exited the third quarter of 2022 with an installed base of $139 U S systems.
With approximately 2700 total hospitals performing BPH surgeries.
<unk> 860 or high volume targets, we are still very early in our adoption curve with the long run right in front of us.
It is also an important reminder, that the high volume BPH hospitals with target generally have adequate liquidity and have historically prioritize novel technologies to optimize their patient treatment offerings.
We believe both of these factors mitigate some of the risks associated with an uncertain macro environment.
Lastly, given aqua beans unique ability to achieve all shapes and sizes across state hospitals are now more than ever standardizing therapy ph treatment algorithm.
This standardization along with our increase insurance coverage make our population and logical choice.
In summary, we continue to monitor all aspects of the macro environment and the impact on our business. However, we would not be increasing our revenue guidance. Once again, if we were not comfortable with our forecast.
Now turning to quarterly business update starting with our commercial organization.
As mentioned on our second quarter earnings call. Our plan was to further expand our field based commercial team in the third and fourth quarter of 2022.
Which we are on track to complete.
Even with a tight labor market, we continue to see strong interest from high quality candidates, which gives us confidence in meeting our hiring and growth objectives.
As a reminder are field based team consists of capital sales reps are population rates and clinical support specialist.
Capital sales reps function is to sell our system to increase market penetration.
While a corporation that focus on educating and training new surges to drive increased utilization.
Lastly, our clinic or support staff function is to support cases, and ensure an excellent surgical experience and patient outcome.
Given our strong commercial momentum excellent <unk> awards clinical outcome and robust pipeline. We plan to continue field based hiring in 2000 2003 to further penetrate the market and expand ourselves footprint into new use geographic reaches beyond what we currently have today.
Our goals 2023 will be for a corporation reps to continue identifying training and educating new sergent at the existing and new accounts, while expanding our clinical support staff to facilitate case coverage across our installed base.
Also given a relatively low market penetration, we will continue to add capital sales reps to the commercial team.
We expect to provide further detail when we discussed at 2023 outlook on our next earnings call. In late February . However, we are confident that the team we have existing 2200 to two will allow for continued robust growth in 2000 2003.
Additionally in September we also announced a multi system national contracts with Providence.
Nonprofit health system with 52 hospitals across seven Us states.
We are honored to partner with leading health system, such as Providence, who are committed to advancing patient care through next generation innovation and look forward to supporting their growing programs.
In addition to Providence, we now have multiple contracts in place with other large integrated hospital networks.
As a company we remained focused on engaging with large IGN.
As they provide access to lodge hospital networks and accelerate the sales process.
Next I would like to comment on utilization in procedure trends, we have seen here today.
We continue to believe the majority of our population procedure volumes are converted chirp and Pvp cases, which are the most commonly performed respective procedures for BPH.
On hospital utilization, we are seeing meaningful sequential increases in utilization from our customers.
We believe the increasing utilization is attributable to the following factors given the predictability reproduce ability and low learning curve associated with equipment robotic system. We are generally seeing an increasing number of surgeons using our system each quarter at our accounts.
As a result, we believe an increasing number of accounts are beginning to standardize their respective procedure algorithm in favor of actual ablation therapy.
Additionally, since our clinical data and commercial experienced support outcomes data.
Independent across the size and shape surgeons are using a coalition therapy in a broader range of prostate sizes.
Specifically when analysand patients data from January 2021 to September 2000, 2000 to the most prevalent side strange <unk> between 62 18 millimeters.
Since the term in Pvp are typically perform and crossed states less than 80 millimeters. We believe surgeons are beginning to standardize their procedures to our corporation due to the limitations of surgical alternatives.
Next I wanted to provide a few detail around our facilities and operations.
On July 1st we commenced our list on the new 160000 square foot facility in San Jose, California from a timing standpoint, we expect all departments to move into our new San Jose location by the third quarter of 2023.
Given the growth and momentum we are experiencing at this stage in our adoption curve. We plan to also maintain production capacity at our current location through the fourth quarter of 2023 to ensure a smooth transition.
While this with him currently limit gross margin expansion. The investment we are making to expand operational capacity and efficiency are critical to our long term success.
We are extremely excited to complete our move to San Jose next year as it will expand our manufacturing and cleaned drone footprints by approximately five times what.
What we have today and house and much more robust R&D lamp.
With the goal of becoming the standard of care for Bph's surgical procedures. We anticipate these targets footprint will give us enough space for the foreseeable future.
Lastly, touching on recent payout coverage policy updates.
In the third quarter, we received additional coverage from Verizon the other Blue Cross Blue Shield plans.
In aggregate, we estimate private payers and Medicare provides our population coverage for a significant percentage of our target patient population.
Additionally on November 1st.
MS finalized, it's 2023 hospital outpatient prospective payment system.
The level six APC called for a corporation will provide the hospital approximately $8558 for each echo ablation procedure, which is an approximate 1.5% increase over the 2000 to 2002 rates.
In summary, we are pleased with our performance year to date and continued to execute our strategic growth plan, a penetrating high volume BPH hospital, increasing utilization by treating their programs are processed sizes and shapes and expanding private payer coverage.
Given this positive momentum and our long term clinical data highlighting durability, we believe approbation therapy will truly revolutionise the treatment or BPH with that I will turn the call over to Kevin.
Thanks for all of US as Reza highlighted a revenue for the third quarter of 2022 $23 million representing growth of 135% compared to the third quarter of 2021.
U S revenue for the quarter was $18.6 million representing growth of 152% compared to the prior year period and.
In the third quarter, we sold 26 acre being robotic systems generating total U S system revenue of $9 $8 million, representing system revenue growth of 95% compared to the third quarter of 2021.
Aqua being robotic system growth continues to be primarily driven by sales at high volume BPH hospitals.
USA and peace and consumable revenue was $8 million representing growth of approximately 267% compared to the third quarter of 2021.
<unk> growth was driven by an increase in the installed base of Aqua being robotic system, which has grown 85% in the third quarter of 2021.
Additionally, we have seen an increase in utilization from our installed base as measured by hand piece of salt per account.
Utilization per account increased approximately 60% compared to the third quarter of 2021.
And police average selling price in the quarter was approximately $3100. We shipped approximately 2300 hand pieces in the U S. In the third quarter, representing unit growth of 174% compared to the third quarter of 2021.
International revenue for the third quarter was $1.7 million representing growth of approximately 34%.
Gross margin for the third quarter of 2022 is approximately 50% the.
The increase in gross margin was driven by higher U S sales increased average selling prices and higher production volume. This was partially offset by increased investments and operations to expand capacity for future growth.
Total operating expenses in the third quarter of 2022 or $32.3 million compared to $17 million in the same period of the prior year and $26 $4 million in the second quarter of 2022.
The increase was primarily driven by expenses to expand the sales organization <unk>.
Increased variable compensation expenses increased R&D expenses and increased expenses associated with being a public company for a full quarter.
Net loss was $22.6 million for the third quarter of 2022 compared to 14.1 million of them.
Same period of the prior year.
Adjusted EBITDA was the loss of $18.3 million compared to a loss of $10.9 million in the third quarter of 2021.
Our cash and cash equivalents balance as of September 30th with $249 $2 million, while our long term borrowings totaled $50 million.
I also want to highlight that on October can we entered into a new five year 52 million dollar loan agreement of which net proceeds were used to retire our existing 50 million dollar debt facility.
This agreement provides additional financial flexibility to execute our long term growth plan by delaying any principal payments at least two fiscal 2025 and reduces annual interest expense by approximately $2.8 million.
We believe are strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business.
Moving to our financial guidance.
Given the strong underlying momentum in the business, we are increasing our full year 2022, total revenue guidance to be approximately $72.5 million representing growth of 110% compared to 2021.
Are updated revenue guidance assumes a modest sequential increase to the number of occupants systems salt in the fourth quarter with average selling price is expected to be approximately $370000 for the fourth quarter.
Regarding fourthquarter Handpiece average selling price.
Pricing to be in line with third quarter actual.
Lastly, we now expect full year international revenue to comprise approximately 10% of total revenues.
Moving down the income statement, we continue to expect full year 2022 gross margins to be approximately 50% to 51%.
Given our 2022 revenue guidance of $72.5 million and 25% to 34% higher than our initial guidance range of March we now forecast full year 2022 operating expenses to be approximately $115 million.
The majority of the incremental spend due to expanding our commercial team, which puts us in a favourable position to execute on our long term growth plan.
Additionally, operating expenses increased due to incremental variable compensation expenses.
Lastly, we now expect full year adjusted EBITDA to be approximately negative $65 million at these revise revenue and expense levels.
At this point I would like to turn the call back to Reza for closing comment.
Thanks, given in closing I want to thank our employees customers and shareholders for all their support to help us along our journey to becoming just standard of care for BPH.
We will continue to leverage our commercial and clinical investments to execute on our long term strategy have a great day and I look forward to meeting many of you at the upcoming Investor confidence is at this point, we will take questions operator.
And thank you at this time I would like to conduct a question and answer session. As a reminder to ask a question you will need to press Star One line on your telephone and wait for your name to be announced please stand by while we compiled the Q&A roster.
Our first question comes from the line as Craig Biggio at B of a security. Your line is now open.
Good afternoon, guys and congrats on another strong quarter.
When did you start maybe start on the system pipeline and tunnel.
And I know you guys started the year pretty confident with your visibility.
Into system placements in.
You guys are tracking.
Basically towards you guys said, so looking at next year.
I wanted to see if you think about how confident you are in your visibility five quarters out and are you guys comfortable with the growth that the street is expected and then also are you seeing any trends within the funnel positive or negative so our deals getting closed faster than.
You would have expected faster than they were previously.
Are you seeing any any talk or mention of capital budget constraints.
Thanks, Craig This is Kevin I'll take that.
There was a few parts of your question first off and just address our thoughts around the funnel and how we feel about that and just to reiterate 2022 really hasn't been a good year for prozac on the capital side in this environment, we've been able to raise revenue guidance now this will be our third time and what we're seeing is that hospitals really our priority.
Tithing and investing today and innovative technologies, even in a challenging environment and this does give us a lot of confidence as we head into 2023, we're not going to comment directly on 2023 numbers, but I think our performance over the last three quarters, our visibility into Q4.
Which we do have a very robust pipeline, we expect exiting 2022.
Again give us a lot of confidence that the momentum that we're seeing in the latter half of 2022 really should continue into 2023.
The last points us on that is.
To remind folks the market, we're competing and it's a large market and even with all the early success. We've had we're very early in our adoption curve. So the penetration levels that were exiting the you're with.
We see no reason why that should slowdown it as we head into fiscal 2023. So we feel confident about that and then your last question just on trend I think there is two factors that are giving us more visibility and predictability and into the funnel today than say nine to 12 months ago. The first is the tenure of our sales reps is.
Now much along dated compared to where it was 99 months ago for those folks now are fully up to speed are comfortable with our process and have a high degree of visibility and predictability that'd be one and then two Reza mentioned in his prepared remarks, our relationships with IGN that is now much more robust and it was nine months ago.
And that gives us a greater level of confidence and visibility into the final. So long story short we feel really good about our final and our sales team and our ability to continue to execute on our growth plan on the capital side.
Kind of in one quick follow up on.
The utilization comments attributed resident I appreciate those.
And I understand that you're taking.
You think you're still taking most of the volume from from Terror procedures, but just wanted to hear from you. If if you are getting into.
It would have otherwise been non receptive or maybe just bringing in patients from for medical therapy.
Thanks, Craig that's a quick question.
Last.
Sure when we look at the.
Prostate size and patients that they are being treated.
More than 70% of our patients were below 100, milliliter or Graham in fact, if you look at the Bell curve. The majority of those patients are in the 60 to 80 million Tears. These are generally in the hospital setting are looking for options like sharp or Pvp and those are the patients we are taking and the reason.
We are talking about standardization is.
Our procedure was on all cost state whether it is 30 gram or above 100 underground pizza books on all of them and to help comes out the same.
So we are.
Because of the.
Safety ethics.
<unk>, but more importantly, durability patients who are looking for those options those are the patients Patrick.
Thanks, guys.
Thanks I appreciate it.
Thank you please stand by for our next question.
Our next question comes from the line of Nathan Tray back of Wells Fargo. Your line is now open.
Hey, Thanks, Congrats on a great quarter.
Just just sticking to 2023, you mentioned your new San Jose facility.
You plan to keep your current location through the fourth quarter of $23.
You're probably gonna have some redundancies, how should we think about gross margins in a year.
Okay.
Great question Nice to hear from me Nathan So again, we're not going to provide specifics on 2023, but I will speak at a high level to kind of trends, we're seeing and gross margins and just.
At a 30000 foot level from a product standpoint.
Our our customers they've really exceeded our original utilization assumptions and 2022, and that's really caused us to think about being able to deliver product and a high quality and timely manner and in that spirit.
We have proactively made and we are going to continue to make really the necessary investments to expand operations capacity and what you are seeing in the fourth quarter and what I would suggest is going to continue into Q1 and Q2 is these investments rolling out to cost of sales over the next two to three quarters, where we would not expect.
Robust margin expansion in the near term with that said this in no way limits, our belief that at scale, our margins are going to be significantly above where they are today.
The San Jose facility, specifically will be an expense in 2023 that will be duplicative now we will not continue into 2024, but what gives us a lot of confidence when you just look at our product and look at isolating material and labor.
Both on our hand peace in our capital those margins on their own are well above our consolidated gross margins and that's really going to be a tailwind of the business as we start to scale and get a lot of leverage over our overhead groups for right. Now again, just to summarize we feel making the unnecessary investments, particularly in the supply chain environment is the right thing to do to make sure we can make.
Customer demand.
Great Thanks for that.
Terms of the United.
To not cover off inflation this quarter.
Can you comment on what drove that decision and what steps are you taking <unk>.
To get coverage from them is it reasonable to expect that in 2023, and you know as a follow up to that just with the risk that other payers what will follow United.
Thanks for the question.
As a reminder, as you know we have significant coverage with full Medicare coverage and many of the private payers.
We already have that coverage and given this.
Range of coverage or growth over the next few years. We don't believe is impacted by lack of coverage from United but our strategy remains unchanged. We will continue to highlight are strong clinical data.
Or drive water too far.
Follow up data on that and we are committed to combining.
Information on data and submitting to.
Payers like United, but if you look at other payers, we already have many of their commercial payors and.
All the Medicare coverage.
So we will continues submitting it's very hard.
Hard to put the specific date, but it won't impact or.
<unk>.
I just want to follow up visits Kevin just the last point on your question the company's view.
On United We don't believe impacts.
Other private carriers at all this isn't as if United had a positive coverage and then they moved a non coverage. This is just United hasn't come to the table yet and therefore, we don't believe this impacts any other private carriers in any way.
Okay. Thanks, Congrats again.
Thanks, Thank you.
Thank you stand by while we got our next question.
Our next question comes from the line of Richard newer their actual security. Your line is now open.
Hi, Thanks for taking my questions. Congrats on a good quarter just a couple for me maybe just starting off I know you guys were really early and your adoption curve here, but we've heard feedback from different companies on the hospital staffing trends.
Some saying, it's getting a little better some say, it's just not getting worse.
I know it probably wouldn't impact you directly but.
What can you comment on the trend, they're moving through the quarter and if there is hospital staffing impact would your numbers, maybe I'd been otherwise you can hire if not.
[noise] yeah. Thanks, Richard.
So again, given the relative number off the procedures that we are performing per month, we have not been exposed to staffing shortage challenges that the hospitals are.
You hear most of our procedures are performed on a specific day.
Every month and overall, we are giving the impression that the hospitals are doing a remarkable job of managing.
The risk more than.
Now that we have been more than two years into the pandemic. So we have not been impacted and given where we are in our penance.
Penetration.
[noise]. Okay. Thanks, maybe it's a second on the utilization nice growth. There I'm just curious if you just break down a little bit looks like about six per month on average up 60% year over year.
Could you talk a little bit about the stratification there in the different cohorts.
Account maturity.
What was more mature accounts, you are doing and what the range looks like across those in the newer ones.
Yeah, I think a good question.
The answer is there is a high degree of variability rich across the ranges, but the one consistent theme is it six is the average it's fair to assume that accounts that have been with US three to four quarters are definitely above average in accounts that are newer or below the average, but again with an installed base of 139 accounts is high.
The variable, but over time, we are definitely seeing an increase in utilization at our customers due to one current physician is doing more procedures and two we're still seeing accounts even we.
We played two years ago, adding new positions that contribute to the account level utilization increasing.
Got it and maybe just one last one little longer term I know <unk> that are in a focus for you know.
But but the first part of the question is my understanding as you do have AFC reimbursement it's just.
It's not something that's being done commonly and it's not an area that you're focused on targeting for some time. So what do you think it will take for you to eventually work your way into that segment and.
What are the limiting factors there and what should we be on the lookout for overtime.
That will eventually get you there and if you could also just again.
Well I'll stop me if I'm right on the assuming that you do have adequate reimbursement in that setting.
Thanks for this question.
You have to say.
There are 2700 hospitals, and only 10% and they do majority of the reset the procedures only 10% of these resected procedures are done at the Asc's. So in the foreseeable future. We will focus on these high volume hospitals and at this point it is <unk>.
A strategy because we still have a long ways in this hospital as to what we are only 139 of 2700.
Okay. Thanks Richard.
Please stand by for our next question.
Our next question comes from the line of Ryan Zimmerman, a B T. I G. Your line is now open.
Hey, Thanks for taking my questions and excited to be on the call today.
While I follow up on a couple of questions that have been asked already but we've heard from some of the other companies in a space about just broader.
Weakness in Urologic visits to the office and I was wondering if you can kind of comment on the state of the office dynamics, and neurology and and kind of how you are expecting those to maybe recover or lack thereof.
End of the fourth quarter and then in the 23.
Thanks.
As you know we are if we don't do our procedures as to amounts in office procedures into hospital.
And we are we are seeing good penetration adoption at these high volume hospitals and.
And that is really the underlying.
D as we mentioned.
BPH as a number one reason patients cause CA geologist and.
What is <unk>.
Helping us with adoption is the technology on the clinical outcome and that is what we believe surgeons are two drivers of our technology.
And with the clinical outcome reimbursement and the fact that this <unk>.
<unk> the full range of prostate and shape. It takes the size shape surgeon experience out of the picture and that allows.
Hospitals, Standardising and using these on all procedures so.
The that means.
Again, we are not in the office and.
It did.
Adoption, where we are we have not be seeing any back.
Tie that backed our guidance and how we thought about the year.
We go back to March the company's original projections were around four procedures per month per account and.
Our results now in our current guidance, implying somewhere north of five and a half on a full year basis.
For us it just suggests that if there are macro issues out there regarding facing patient visits that the physician interest in new physicians for us are definitely outweigh those headwinds that perhaps other companies are experiencing but we're not seeing it.
Oh, that's good Kevin Thank you and I appreciate the additional color there and then just to follow up on et.
You said earlier riser about the conversion of Turpan.
Pvp.
So you're thinking about the respective market and the non resected market.
A pivot point at which.
Think about you know focusing beyond those conversions of turbine Pvp.
Given the fact that you are doing a bulk of the Prostates and a 60 to 80 millimeter range.
Just that there is opportunity beyond those conversions and so is there a penetration level or a point at which I think you know it's time to put your foot on the gas and pushed beyond just this core segment. Thanks for taking the questions.
Yeah. Thanks, a very good question. We have previously mentioned are short term strategies addressing the effective at this high volume hospitals of course, our midterms strategies converting patience, while on medication and half of those patients are under the care of tissue allergies. So in.
Accounts that we are working with your allergies, we will provide information and to.
Address those patients who are on medication and the long term strategy is again half of those patients on litigation or under the care of the general practitioner. So.
Yes, initially we are taking.
Market share from turf, but as physicians are initially restarted product champagne. They use it on broader range of Prostates and at the same hospital other physicians come onboard we increased utilization in the same hospital for that midterm legal climate.
To.
Target those patients while on medication at the same urology centres.
Thank you thanks for taking my questions.
Right.
One moment for our next question.
Our next question comes from the line of Neil <unk> be Riley. Your line is now open.
Hi, guys. Thanks for taking the questions.
Maybe you just kind of following up on that chairman. Thanks Bye.
Sub segments.
Relating to kind of clinical evidence build I was just curious if there's any update on that.
The water three study.
Bach relation versus nucleation, a larger prostates.
And then if that's what your thoughts on even needing that given that it seems like you are taking share conversions.
Nucleation site.
It.
Just shut that thank you. Thanks for the question that studies happening outside the U S. A randomized study the enrollment is is ongoing and.
It provides.
As you know we performed the only randomized study in the United States against the turf.
And then we ran another perspective single arm steady for Prostates above 80, Gram and two two strength in depth clinical study. We are running this randomized study outside the U S for.
Larger phosphates is just.
They are committed to generating clinical data and that's what we are doing.
So just to follow up on that too right when we've talked about this.
I think our ability to treat large prostates.
What are the obvious choice there.
Water three study is really to support improved reimbursement and market access primarily in Europe , it's really not going to be impact with our commercialization efforts in the U S.
If anything it could potentially help with some of the reimbursement in countries outside the U S that they ask for randomized study.
Alright, great thanks for that.
Just one quick follow up just going back to the wall.
Discussion on kind of the IBM.
Announced system strategies.
Nice when the provenance just kind of curious I think you alluded to maybe some other some other.
Opportunities that you had in the third quarter if.
If you could elaborate on that strategy and kind of what you're seeing now.
Definitely.
We have been working with these ibms and.
It shows the hospitals.
Are prioritized.
Prioritizing and investing in.
Latest technologies and again this is manifested by.
Getting into Sacrament Providence, they have 50 hospitals, we are in seven of them and we we are working with many of them. So so we will continue this strategy going and that that's one of the reasons gives us confidence that hospitals are investing in innovative technologies.
Want to maintain patients and not refer them to other hospitals.
Thank you and standby for our next question.
Our next question comes from the line of Matthew Mashona Keybanc. Your line is now okay.
Thank you good afternoon, and thank you for taking the questions.
Just a little bit of help if you can around sort of in the mix and the and the fourth quarter of what you were expecting between system sales and hand pieces and consume both I believe I heard you say something what you assumed like a modest level of of new ads are are new installs and I guess it's.
Early in the adoption of this but.
The fourth quarter would typically seasonally b, a quarter, where you'd see a lot of a lot more procedural volumes than you would necessarily.
Three Q and third quarters. So just if you cancel it sort of pieces around that.
Yeah. So.
Thanks for taking my call Matt.
Do expect that as I said in the prepared remarks, a modest increase in system sales.
Compared to the third quarter, so that would be sequentially.
A modest increase and you are pointing out something that we do expect which is the absolute number of hand pieces sold in the fourth quarter.
Will be.
Be larger than the third quarter, but it's important to remember that utilization for us when you add so many large.
Numbers of accounts in any quarter nisl on a previous question that it takes time to ramp utilization levels.
This is why you could see from an absolute utilization of sequential decrease in utilization, but an absolute increase in the number of happy control.
Again, we're going to have to see how seasonality impact the business here as we move forward.
I tend to think that given at our stage of commercialization that you won't see the significant impacts.
And this this year or even on perhaps even heading into next year that you would expect for a more mature organization.
Okay excellent so far.
Follow up if I'm, if I'm oddly it right it looks like SG&A and other is going to be fairly flat <unk> versus versus three Q have you already done the majority of the hiring of the.
The Salesforce and you got that done and and three Q.
Yeah, So I'll I'll point out I had set my prepared remarks, we did increase for your operating expense guidance.
115 million that is about 10% above our original guidance, but our current revenue guidance exceeds the original operating expense parameters by 34%. So even with the increase we are seeing leverage in the business to answer. Your question. Specifically, we are almost threw hiring all of the rats.
We had expected and they will begin to be productive in 2023.
R Q4, Opex guidance implies about an approximate $1 million step up upfront from the third quarter numbers as well.
Excellent. Thank you very much.
I guess.
And by far next question.
Our next question comes from the line of <unk> Coover at Goldman Sachs. Your line is now open.
Hey, good afternoon. Thanks for taking my questions wanted to to follow up on that last question they're.
Ask a little bit more about the commercial organization. The first half of the question. It's just to remind us sort of kind of broadly speaking.
What level of sort of hospital exposure per rescue guys kind of target within that 860, I guess, what I'm trying to get to is sort of where are we today. What did you add in in the back half of this year and sort of broadly speaking what are we looking for in terms of percentage edition in 2023.
Yeah. Thanks fell so we're not providing specifics, but what I will say when looking at 2023, and given kind of our commercial success and momentum.
Where you would expect a higher or salesforce at a much more constant cadence than we did in 2022.
To give that broad scale coverage to the 860 hospitals that your preference and we're going to continue hiring across all three strata of our reps, it's still important that our aqua oblations reps identify an advocate new surgeon, but.
But the one area in the company with our increase in utilization that I would suggest we are going to expand more meaningfully as our clinical support staff and this is really to facilitate case coverage across our installed base and to make sure that we're not bogging down our quota carrying our population wraps with being in cases, and therefore, we're going to expand that clinical support staff.
At the same time, given our penetration we're nowhere near the number of robotic sales reps that.
That will be kind of a full strength will continue to add it will be at a constant cadence all in the spirit of making sure that we can continue to demonstrate comparable leverage and the revenue versus Opex line as we head into 2023.
Okay. That's helpful. Just any idea or kind of semblance of scaled it we're thinking about what happened in the back half of this year and what we should expect an twenty-three on any one of those three segments.
Yes.
If you look at Opex overall again without getting into specifics on 2023 I think.
The leverage that we saw in 2022 the ratio of revenue to Opex is something that I would expect and really your three of our commercialization debate to be very comparable next year, as well, which will allow us to continue to hire reps at constant cadence I referenced.
Okay, Alright, that's fair enough very helpful. Thanks.
A little bit more nuanced, but.
If I do the math on the Handpiece aside.
At 30, 120, 300 hand pieces sold $3100 on average there it seems like there's some other component that's in there could you clarify if there is any kind of what scale that other component is expected to be it looks like is at least a few hundred dollars per case on average in the quarter.
Is this a good observation. So we do have a line you'll see this in our 10-Q when it's filed called other consumables that's about $800000 in the third quarter. So that's why your math.
Doesn't payout directly to the 8 million Handpiece revenue that revenue is for other types of accessories and when we have seen our increase in utilization, we're seeing accounts that need to order more scopes. They order more ultrasound probes and that increase in revenues a direct correlation to our increase in utilization.
I think to be fair, that's a run rate that we would expect now kind of moving forward quarter to quarter as our physicians and our accounts start doing many more cases in any given day they are going to need more of that peripheral equipment. So that's what you see there.
Sorry, just on that last bit so it's not fair to think of that other revenue scaling with with case counts or is it what what was the run rate comment that you made there at the end.
Yeah, but the run rate was I think 800000, a quarter is probably a fair way to be looking at it in the near term if it becomes more material will provide more details at that time, but right now I think eight <unk> quarters, a good way to think about it.
Okay. Thanks, Thanks for all the feedback.
No protocol.
Hey, My moments our next question.
Our next question comes from the line of Joshua Jennings of calling your line is now open.
Hi, good evening.
Taking the question.
On that another strong quarter I wanted to.
Just ask one question sphere of repeating someone else's earlier, but just on the reimbursement front, we get a number of questions are consistent questions. Just on the profitability of an awkward pollution treatment versus turf or other respective.
Procedure and just wanted to see to better understand I think it's clear the Medicare rates, but it was really wanted to ask about the commercial coverage and reimbursement levels for Aqua ablution versus some of the other.
Approaches respectively approaches.
I'll just keep it at that thanks for taking it.
Thanks for the question, Josh So specific to your question on private pay reimbursement verse Medicare reimbursement.
We are for Medicare IPC level, six which pays facility approximately two X what they would be reimbursed for a turbo or Pvp procedure, which we believe it is beneficial with private pay and being early and commercialization you do see rates that are generally anywhere from 20% to 30%.
Higher than Medicare, but right now depending on your state depending on your local geographic area, depending on your carrier that's a highly variable rate.
We've seen rates significantly higher than 30%, but on average, we think about private pay being 20% to 30% higher than Medicare in general.
And we think that allows the hospitals.
The purchase or piece of capital equipment have a very palatable Roy we've had some customers that oppose it can be a short of six months on average we peg it kind of in the.
Two year timeframe, where you could pay back your capital equipment in reimbursement for us it hasn't been an issue with us being able to penetrate hospitals.
Oh wait a second I was looking for Thanksgiving.
Thanks.
Okay. At this time I'm showing no further questions right now like to turn the call back to <unk>, President and CEO for closing remarks.
Thanks, everyone for attending our earnings call I look forward to seeing many of your upcoming conferences and have a nice vacation.
And your participation in today's conference does that conclude the program you may now disconnect.
Goodbye.
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