Q1 2023 PROCEPT BioRobotics Corporation Earnings Call

Speaker 1: I'll see you next time.

Speaker 2: Good morning, and welcome to the Procept Bio-Robotics first quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of the call today. As a reminder, this call is being recorded for replay purposes.

Speaker 2: I will now turn the call over to Matt Basco, Vice President of Investment Relations, for a few introductory comments.

Speaker 3: Good morning and thank you for joining Procept Biorobotics first quarter 2023 earnings conference call. Presenting on today's call are Residno, Chief Executive Officer and Kevin Waters, Chief Financial Officer. Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events, and performance.

Speaker 3: are forward-looking statements as defined under the Private Security Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions, and other factors that could cause results to differ materially from the expectations expressed on this conference call.

Speaker 3: These risks and uncertainties are disclosed in more detail in Pro-Set Robotics filings with the Securities Exchange Commission, all of which are available online at www.SEC.gov. Listeners are cautioned to not place undue reliance on these forward-looking statements, which speak only as of today's date, April 27, 2023.

Speaker 3: Except as required by the law, a process by our robotics center takes no obligation to update or revise any board-looking statements or reflect new information, circumstances, or unanticipated events that may arise. With that, I will now turn the call over to Rebo.

Speaker 4: 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 financial performance and 2023 guidance before opening the call to Q&A.

Speaker 4: starting with our quarterly revenue results. We are pleased to report another strong quarter where our customers and patients continue to realize the significant clinical benefits of the population therapy.

Speaker 4: Total revenue for the first quarter of 2023 was $24.4 million, representing growth of 72% compared to the first quarter of 2022. Growth in the quarter was driven primarily by increased utilization from our expanded install base and strong patient volume.

Speaker 4: We believe the combination of positive long-term clinical data, increased private payer coverage, outstanding real-world patient outcomes, and an expanded field-based commercial team continue to drive surgeon interest and adoption of our aqua-beam robotic system.

Speaker 4: As we move through 2023, we believe there are several positive factors which give us a high degree of confidence to achieve our increased full year financial guidance and Kevin will touch on them later.

Speaker 4: Longer term, we believe these underlying fundamentals reflect a business that is laying the foundation to become a BPH surgical standard of care, starting with the recent payer coverage.

Speaker 4: In early April , we announced that UnitedHealthcare updated its policy for prostate surgery and interventions to include equiblation as medically necessary.

Speaker 4: This updated policy will go into effect on June 1, 2023. Being one of the largest commercial payers in the United States, with approximately 45 million covered lives, United's Positive Coverage Policy will greatly improve accessibility of our population therapy.

Speaker 4: obtained a positive coverage policy from Blue Cross Blue Shield of Michigan, which will be effective May 1st. Blue Cross Blue Shield of Michigan is the largest payer in the state of Michigan and covers approximately 5.7 million lives.

Speaker 4: With the addition of UnitedHealthcare and Blue Cross Blue Shield of Michigan, we now estimate roughly 95% of men in the US have access to our population therapy.

Speaker 4: There is both a long-term and a short-term benefit of increasing commercial payer coverage.

Speaker 4: The obvious long-term benefit is increased utilization, which will take time as we penetrate the surgical market.

Speaker 4: The short-term benefit is the increased value proposition of our technology and the lowering of barriers to sell capital equipment to hospitals.

Speaker 4: One benefit is the increased value proposition of our technology and the lowering of barriers to cell capital equipment to hospitals. Certainly to clinical updates.

Speaker 4: This weekend at the American Eological Association conference in Chicago, we will be releasing our five-year water-to-study data.

Speaker 4: As a reminder, WATER-2 was a prospective FDA study with an objective performance criterion for both efficacy and safety in large prostates ranging in size from 80 to 150 milliliters.

Speaker 4: The five-year data were consistent with the previously reported primary endpoints with no change to safety results. The efficacy results, as measured by change in IPSS and Qmax, also remain consistent at five years.

Speaker 4: Additionally, the five-year water study abstract will be presented at AUA comparing efficacy and safety of the Equipulation Therapy versus Turk for treatment of 50 to 80-milliliters or cross bass.

Speaker 4: As a reminder, our five-year water data are the only prospective randomized double-blind multi-centered FDA pivotal study comparing the safety and efficacy of aquablation therapy to TURP for prostate ranging from 30 to 80 milliliters. This abstract proves aquablation therapy's superior safety due to low irreversible complications and superior symptom relief.

Speaker 4: In this abstract, our population therapy at five years exhibited durability that was two times better than compared to dirt. This is measured by patients going back to meds or requiring surgical treatment, which is represented by an approximate one person and you all do 300.

Speaker 4: As a company, we have developed a significant and growing body of clinical evidence, which now includes two five-year FDA durability studies, seven other clinical studies, and over 150 peer-reviewed publications, all supporting the benefits and clinical advantages of aquablation therapy. We believe this backdrop will continue to be a significant differentiator for our customers.

Speaker 4: when choosing to replace the historical VPA surgical modalities with aquablation therapy across all prostate sizes and shapes. Next, I want to touch on our commercial organization. In the first quarter, we saw 25 aqua-beam robotic systems generating total U.S. system revenue of $8.8 million.

Speaker 4: which was at the low end of our Q1 guidance range.

Speaker 4: During our two-four earnings calls in late February , we provided a range of capital sales in Q1 in order to give investors insight into our sales pipeline and the impact timing can play quarter to quarter.

Speaker 4: Our expectations and guidance around Fulgear 2023 system sales has not changed in the last few months, since we issued 2023 guidance, and we still expect approximately 45% of our system sales to be in the first half of 2023.

Speaker 4: In terms of our pipeline, the number of robot placement opportunities continue to grow meaningful, which has been driven by the addition of new capital reps in green field territories. Additionally, the more recent positive catalyst associated with the United Healthcare announcement and full extension of the transitional pastoral payment.

Speaker 4: for all of 2023 strengthen our confidence in our full-year guidance. Speaking specifically about our capital sales personnel, we ended the first quarter of 2023 with approximately 30 capital sales reps, 10 of which were added in late 24 2022.

Speaker 4: As a reminder, the productivity curve for capital rest is approximately six months as they will be responsible for building out their respective pipelines.

Speaker 4: Thus, we do not expect the Capital REFs added in the fourth quarter of 2022 to start meaningfully contributing to US system sales until the second half of 2023.

Speaker 4: Our 2020-20 guidance continues to be informed by what we are seeing in our pipeline. How opportunities progress, what customers are telling us the productivity ramp of new capital risk and overall close rates.

Speaker 4: All of these indicators have maintained positive momentum as awareness of aggloblation therapy continues to grow, which gives us confidence in achieving our 20-23 commercial objectives.

Speaker 4: Next, I want to touch on our progress securing IDN contracts.

Speaker 4: We recently signed a National Sales Contract with the largest IBM that secures pricing for system placement and hand pieces sold to its nationwide hospital network.

Speaker 4: This is a significant milestone for us as it will allow our sales teams to operate in an expedited and more predictable manner as we partner with the Applovelation Surgeon Champions at these contracted hospitals.

Speaker 4: As stated on our Q4 earnings call, we anticipate having the majority of large strategic IDNs in the US under contract by the end of 2023.

Speaker 4: While there are many hospital networks in the United States, he categorized strategic ideas as having greater than or equal 20 hospitals in network.

Speaker 4: When analyzing the market, we estimate 17 strategic ideas account for approximately 26% of the 860 hybrids in the pH hospitals and 29% of the total of 2700 pH hospitals.

Speaker 4: Thus the importance of this contract is meaningful to our ability to penetrate the US market and provide increased observability in our pipeline.

Speaker 4: Turning to the Civilization and Surgeon Activity. We are extremely pleased with Q1 utilization where US handpiece and consumable revenue increase approximately 165 percent compared to the first quarter of 2020.

Speaker 4: While the primary driver of monthly utilization continues to be active surgeon growth, there are two key trends that have emerged over the last two of months that are extremely positive for us.

Speaker 4: The first is active surgeon retention. We define active surgeon retention as any surgeon who performs a case in both the current and previous quarter. In the first quarter of 2023, surgeon retention rates were greater than 90%. As a company, we benefit greatly from this high level of surgeon retention.

Speaker 4: as our commercial team can focus on training news surgeons.

Speaker 4: We believe this demonstrates a population therapist is of use and ability to treat all cross-lead size and shape safely an effective. We believe this is a population therapist is of use and ability to treat all cross-lead size and shape safely an effective.

Speaker 4: The second emerging trend is utilization among low volume BPH hospital accounts.

Speaker 4: While we are primarily focused on the 860 high-volume BPH hospitals, we are also starting to see nice adoption from low-volume accounts, which accounts for roughly 30% of our current install base.

Speaker 4: Many of these hospitals are large surgery centers, however, have historically not performed many BPH surgeries.

Speaker 4: While likely too early to make definitive claims regarding market expansion, we do believe equilibration therapy has allowed low volume accounts to treat patients they otherwise would have referred out.

Speaker 4: Given the expanded awareness of of Appointment Therapy along with positive momentum in peer-to-peer interactions, we believe low-volume hospitals are very valuable targets for our commercial team.

Speaker 4: Lastly, with respect to international market development activities, in early February , Aquablation Therapy received a MedTech Innovation Briefing from the National Institute for Healthcare Excellence, or NICE, for BPH in the United Kingdom.

Speaker 4: Nice has recognized that Acoblation Therapy is effective for the removal of phosphate tissue for BPH patients.

Speaker 4: Clinical experts said that technologies are innovative compared to the standard of geared and offered additional benefits such as increased ability to preserve quality of life.

Speaker 4: Clinical experts associated with the review also stated that the technology had the potential to replace TIRP and would challenge the opium laser in the creation of the phosphate for larger prostates.

Speaker 4: While our presence in the UK is currently small, given this updated guidance from Nice and establishing a motion for Appolition Therapy at similar levels to that of the US, we believe the UK could be an attractive market for our company in the future.

Speaker 4: In March, we also attended the European Association of Urology in Iran. At the conference, we received positive feedback from certain customers and met...

Speaker 4: with hundreds of European and other international urologists who were enthusiastic about our strong clinical data driving them to learn more about aquablation therapy.

Speaker 4: In summary, I feel better about our business today than at any point and have a higher degree of confidence in our ability to achieve our long-term growth plan.

Speaker 4: Every metric we track is moving in the right direction and to summarize, these catalysts, our pipeline and sales funnel continue to grow nicely. We just signed a national contract with the largest IDN and expect to continue to finalize contracts with other large strategic IDNs throughout the year.

Speaker 4: We received a positive coverage policy from UnitedHealthcare, providing approximately 95 percent patient access to our correlation therapy in the U.S. and have full transitional pass-through payment through 2023.

Speaker 4: Utilization continues to exceed our expectations and we have increased our full year guidance around this metric. And lastly, our recent sales rep hires are progressing very nicely as they build our respective greenfield territories.

Speaker 4: Given this positive momentum, we believe aquablation therapy will truly revolutionize the treatment of BPH. With that, I will turn the call over to Kevin.

Speaker 3: Thanks, Rosa. Total revenue for the first quarter of 2023 with $24.4 million, representing growth of 73 percent compared to the first quarter of 2022.

Speaker 3: US revenue for the quarter was $21.8 million dollars representing growth at 74% compared to the prior year period.

Speaker 3: In the first quarter, we sold 25 AquaBeam robotic systems generating total US system revenue of $8.8 million, representing growth of 13% compared to the first quarter of 2022.

Speaker 3: First quarter system average selling prices were $350,000, which was approximately 5% below our expectations. However, we still expect full year system average selling prices based on the deals in our pipeline to be in the $370,000 to $375,000 range.

Speaker 3: US handpiece and consumable revenue for Q1 was $11.8 million, representing growth of approximately 165% compared to the first quarter of 2022. Handpiece revenue growth was driven by an increase in the install base of AquaBeam robotic system, which has grown 106% from the first quarter of 2022.

Speaker 3: Additionally, we have seen an increase in utilization from our install base. Monthly utilization per account of 6.3 increased approximately 14% compared to the first quarter of 2022.

Speaker 3: Utilization outperformance in the first quarter was a reflection of strong commercial execution and surgeons taking the next step to adopt aquablation therapy as their treatment of choice for all resected procedures. We view utilization as the true leading indicator of overall market adoption long term. We shipped approximately 3,400 handpieces in the U.S. in the first quarter.

Speaker 3: representing unit growth of 139% compared to the first quarter of 2022 with average selling crisis of approximately $3,140.

Speaker 3: International revenue for the first quarter was $2.6 million, representing growth of approximately 60%. International revenue in the quarter was driven by both increased system sales and improved utilization.

Speaker 3: Gross margin for the first quarter of 2023 was 51%.

Speaker 3: sequential growth margin expansion in Q1 was due to strong execution from our operations team and our ability to absorb overhead expenses.

Speaker 3: Given our favorable standard margin profile of both our robot and handpiece, we have increased confidence to further absorb overhead expenses and expect to show sequential gross margin expansion throughout 2023. Lastly on margins, we continue to make nice progress with regards to our move to San Jose, California.

Speaker 3: which will increase our footprint by four times to 160,000 square feet. As stated previously, we expect to move into our new San Jose location by the end of the third quarter of 2023.

Speaker 3: Moving down the income statement, total operating expenses in the first quarter of 2023 were $40.9 million compared to $23.4 million in the same period of the prior year and $35.7 million in the fourth quarter of 2022.

Speaker 3: The increase was driven by increased sales and marketing expenses, primarily to expand the commercial organization, increased variable compensation expenses, and increased research and development in general and administrative expenses.

Speaker 3: Total interest and other expense was $107,000 as a quarterly interest expense from our $52 million term loan was offset by favorable interest income.

Speaker 3: was a loss of $23.9 million compared to a loss of $13.5 million in the first quarter of 2022.

Speaker 3: Our cash and cash equivalence balance as of March 31st was $181 million. The decrease in cash in the first quarter compared to the historical cash burn was impacted by two factors that will not impact future quarters in 2023. First, we had our annual company bonus incentive payment, which used roughly $9 million of cash.

Speaker 3: Second, due to both our increased revenue ramp coupled with the move to San Jose in Q3, we have substantially built up our inventory balances in Q1 to meet second half, 2020 free demand and provide safety stock during this transition. A inventory increased by $10.4 million in the first quarter of 2023.

Speaker 3: and should not increase at these levels in subsequent quarters.

Speaker 3: Moving to our 2020 Free Financial Outlook.

Speaker 3: We are increasing our full year 2023 total revenue guidance to $128 million, representing growth of approximately 71% compared to 2022.

Speaker 3: We are increasing our revenue guidance based on the following factors. First, are the strong underlying utilization trends in the business.

Speaker 3: We now expect four-year monthly utilization to be approximately 6.5 across our average install rate for 2023.

Speaker 3: Given the strong ramp we are seeing within our accounts, our updated guidance assumes slight sequential improvements in utilization throughout 2023.

Speaker 3: Second, we have increased confidence and visibility to achieve our implied system sales of 140 units for the full year. We continue to expect approximately 45% of capital sales to occur in the first half of 2023. Thank you.

Speaker 3: Additionally, we expect our new capital reps who are hired in Q4 2022 to become fully productive in the second half of 2023. We also expect US average selling prices to be approximately $370,000 for the full year.

Speaker 3: Lastly, given the strong first quarter and positive momentum, we now expect full year international revenue to be approximately $9.6 million, representing growth of approximately 33% compared to 2022. Additionally, we expect hand-teeth average selling price to be approximately $3,100.

Speaker 3: and for other consumable revenue to be approximately $5.4 million. Moving down the income statement, we now expect full year 2023 growth margin to be approximately 54%, which is a slight increase over our initial guidance of 53%.

Speaker 3: Based on my previous comments and given the current rate of overhead absorption, we expect to exit 2023 with Q4 growth margins in the mid 50% range and should see sequential margin improvement throughout the year. Additionally, we forecast full year 2023 operating expenses to be approximately $167 million.

Speaker 5: growth plan.

Speaker 3: Therefore, given the increase in revenue and improved margin profile, we continue to expect full year 2023 adjusted EVA dots to be approximately negative $70.5 million. At this point, I'd like to turn the call back to Reza for closing comments. Thanks, Kevin. In closing, I want to thank our employees, customers, and shareholders.

Speaker 4: for all their support to help us along our journey to becoming the standard of care for BPAs. 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 seeing many of you at our AUA investor event tomorrow at 8 a.m. Central Time. At this point, we will take questions. Operator?

Speaker 6: Good morning guys, thanks for taking the questions. So I want to start with the system placements in Q1. Kevin, you obviously said you guys still feel comfortable getting to that 140. So maybe I guess, you know, talk about why the system placements.

Speaker 6: your confidence and get into that 140 for the full year.

Speaker 3: Yes, thanks Craig and good morning. So our thoughts really around the full year capital and even the first half of 2023, that cadence hasn't changed since our call in February . In fact, we do have a greater degree of confidence today to achieve our full year system numbers than we did even two months ago.

Speaker 3: I mean, that's primarily based on the pipeline we're seeing and just the numerous catalysts that Rosa mentioned in his prepared remarks. And just specific to Q1, we did have deals that we expected to close in March that we now see a high probability of closing in the second quarter. So there is that timing dynamic.

Speaker 3: which we've been talking about now over the last few quarters, and that is why we gave a range of system sales in the first quarter. And perhaps a point of specificity in the first quarter around system sales and that dynamic around IDNs, is we did see IDNs in the first quarter take a very cautious approach to capital purchases, and therefore we didn't see

Speaker 3: many IDN purchases come through in the first quarter, but we're already seeing here, being through the month of April , those same IDNs releasing funds, being released in Q2, that now will make up Q2 purchases. So when you take all those dynamics together, you know, it still gives us confidence around the first half being about 45%.

Speaker 6: of total system sales, which is consistent with the guides in February , albeit some of that timing shifted to Q2. Got it, thanks. And maybe I'll stick with with systems. So, and just, I guess, two pieces here. One on the ASP, it came in lower than Q1 than what it traditionally has been and what you expect for

Speaker 6: whether it's the contract that was just signed or future contracts you expect to sign, how much of that factors into that 140.

Speaker 3: Yeah, so I'll start with the Calvary ASPs and you are pointing out the fact Q1 system ASPs were about $350,000. That's about 5% below kind of the guidance that we put forth in February . But as mentioned in my prepared remarks, we still do expect full year ASPs in the 370 to 375 range based on all the deals we see in the pipeline. So without getting into specifics...

Speaker 3: We have two levers in the business, right? One being systems and one being utilization. And we are willing, as a business, to be variable and flexible on capital pricing, to ensure that we get that system sold and then to ensure that we get that utilization. And if you look at hand-peat-dabric selling prices, those have actually been remarkably incredibly

Speaker 3: consistent quarter to quarter and increasing. And at the end of the day, we're willing to be slightly flexible on capital. But again, given the visibility we have into the pipeline, we feel very confident the full year ASP being in the 370 to 375 range.

Speaker 4: In the second part of your question, this is related to IDNs, I want to remind us that we already have a few robots at the IDN, but having said that, we have not factored in multi-systems or commitment for 25.3 from this larger, but we already have robots at the IDN. If not, identities need to push away from these, what are they? Okay.

Speaker 4: Second part of your question, this is related to ideas. Wanna remind us, we already have a few robots at the ideas, but having said that, we are not factored in multi-systems or comments from 4253 from this large yet, but we already have robots and do guys some of these ideas. All right, thanks for taking the questions, guys. Thank you.

Speaker 2: Thank you. One moment, please. Our next question comes from the line of Joshua Jennings of Cowen. Your line is open. Hi. Good morning. Thanks for taking the questions. I want to just ask them two topics. The first is just on the low volume accounts.

Speaker 6: representing about 30% of, I believe the install base, you said Reza, but I wanted maybe just help us understand the opportunity there and how this channel could expand the TAM. Are these mostly robotic prostatectomy surgeons that are familiar with robotic platforms and...

Speaker 2: have been compelled to adopt the Aquabene system and the aquablation treatment. And how do you see low-volume accounts contributing to system placements in 2023? And I just have one follow-up. Yes, thanks. Yeah, we are very pleased with the progress we have seen with these accounts. Again, we are very pleased with the progress we have seen

Speaker 4: Just as a reminder, low volume does not necessarily mean a low volume surgery. These are high volume surgeries, but historically they have been doing lower number of BPH surgeries.

Speaker 4: The reason they are growing is they see better patient outcomes, they are standardizing the procedure. They can build their robust BPH practice and also allow them to recruit talented geologists. Yes, these are accounts that they have robots there, but they have not been using it.

Speaker 4: they were not using many BPH, but they are high volume surgery center. As we mentioned, 2700 hospitals in the US, 806 of them were high volume centers, so these other 2000 is a great opportunity for the future and growth of our business. Great, thanks for that. And just the...

Speaker 2: follow-up question. Wanted to better understand how your team is thinking about the replacement cycle as we get into 2024 and 2025. I guess maybe the right way to phrase the question would be, you know, when should we be thinking about AquaBeam 2.0 being commercialized?

Speaker 2: anything you can share about what Aquabeme 2.0 or just the next iteration of Aquabeme or the enhancements that will be incorporated.

Speaker 2: What do you think the replacement cycle period will look like as we move into the out years? Thanks for taking the questions.

Speaker 3: Thanks Josh, this is Kevin. The replacement cycle is many years ahead, north of two, three years. It's not an immediate impact to the business in the near term. With that said, I think you are picking up that we are spending a lot of money in our R&D group. We continue to be...

Speaker 3: focus on our current system and we feel our current system is more than sufficient to penetrate the majority of the high volume hospitals in the near term but at the same time being a robotic company being an innovator we're always going to be working on kind of next generational type of stuff but at this point in time it's not necessary for us to meet our near term targets and therefore we're not providing a lot of color around future platforms.

Speaker 7: Understood. Thanks a lot. Thanks, Austin. Thank you. One moment, please.

Speaker 7: Our next question comes from a lot of Ryan Zimmerman of BTIG. Your line is open. Good morning, guys. Thanks for taking the questions.

Speaker 6: Just want to follow up. I thought it was helpful in terms of the stat you gave on the percentage of low volume hospitals. And I just want to follow up on kind of Josh's line of question in there. Are we doing for just from the math that you're at about 16% penetration and high volume accounts?

Speaker 8: if you just back out the low volume in the US install base, and then kind of help us understand...

Speaker 8: what the expectation is in terms of the rate of penetration you think for that high volume 860 hospitals. Because I think as we look at kind of consensus estimates a few years out I think there's some lofty numbers in terms of high volume penetration. And so it would be helpful to understand kind of your expectations on cadence for that high volume segment. Yeah, thanks Brian .

Speaker 3: He pointed out a few stats that are, that Rosa mentioned in his prepared remarks. The first, the current install base is about 30% in low volume centers, low volume BPA centers. And to your comment, that would assume that for the high volume, we're about 15% penetrated in the 860.

Speaker 3: high volume hospitals in the US. And over the next few years, I mean, we think we're a great option for the majority, if not all of those, high volume 860 BPH centers. So we don't feel that there's anything with our technology or outcomes that would limit us from being fully penetrated in the 860. Now, I appreciate you're never going to get to 100%, but we don't see a reason why every high volume BPH hospital over time.

Speaker 3: would want to have an aqua beam system. So we feel there's a long ramp there. And to rest of the comments, around the low volume hospitals, it's great to see so early in our commercialization that we're seeing these low volume centers that previously had to refer out patients, and perhaps we're losing physicians that are also BPPH, start to adopt the technology.

Speaker 8: and have good utilization of those accounts as well. Got it. Okay. That's very helpful, Kevin. And then the second question, well, I guess two questions for me. One, what is the percentage of the IDNs? I think you called out 17 strategic IDNs.

Speaker 8: that have more than one system today, or you expect to have more than one system right now, I think that'd be helpful to understand. And then the last question, I'll hop back in queue, is just, and Craig asked this, but I'm not clear, why does pricing come back in the second quarter and through the remainder of the year?

Speaker 8: if it were at $350,000, and why not, you know, can you spur more demand maybe at that lower price point than what you had previously? Yeah, so the first question on the 17 strategic IDNs.

Speaker 3: I mean, those represent over 200 hospitals in the US, so you should assume that at these IDNs that we sign with, we will have systems at their various hospital network, but if your question is around multi-systems within the same hospital, that's currently not part of our near-term growth plan, and we don't believe, given the current volume today, that there are no quadrupeds held available from Forest D lip chronically.

Speaker 8: most possible and that necessitate having a second system. Did I answer your question on the idea end? I want to make sure I cover that. Yeah, maybe I'll take that offline. We can take that offline just because I think I was just trying to understand the potential for the 17 strategic ideas. But I'll follow. Yeah, I will say we have very low penetration.

Speaker 3: we can actually see the deals in the pipeline in the next three to nine months. And that is why we feel comfortable talking about full year average selling prices in that $370,000 to $375,000 range based on deals we see in the pipeline. And really we view Q1 as a

Speaker 3: just an anomaly in terms of the variability around pricing and settling at 350. We don't think this is reflective of any future ASP decreases on the capital side of the business.

Speaker 3: just an anomaly in terms of the variability around pricing and settling at 350. We don't think this is reflective of any future ASP decreases on the capital side of the business. OK, thanks for taking my questions.

Speaker 7: Thank you. Thank you. One moment, please. Our next question comes from the line of Chris Pascal of Nephron Research. Your line is open.

Speaker 6: Thanks Kevin, I want to circle back to that last point. I was hoping you could spell out a little bit more clearly what the typical sales cycle for AquaBeam looks like in terms of the time it takes for contracts to be finalized. When you talk about visibility into the pipeline, what pieces need to be in place.

Speaker 9: for you to consider a system placement likely within a certain time frame.

Speaker 3: So when we talk about pipelines, we are identifying for our investors.

Speaker 3: That means the Surgeon Champion has been identified and supports the technology. So we have a funnel that's much larger than our pipeline. But when a deal gets into our pipeline, we have a high degree of certainty of that deal to close. We don't have a lot of deals fall out once a Surgeon Champion has been identified and wants to go to administration.

Speaker 3: to purchase a system. And given that dynamic, we can look forward to six to nine months is the timing for that process from identifying a surgeon champion to selling the system. And that's the funnel and pipeline that we talked about that has been growing and we feel has a high certainty to close. Okay.

Speaker 9: And then, can you talk about the competitive landscapes within BPH? New DaVinci SP approval for the procedure. How do you expect that to impact demand for aquablation? And just anything else you guys are highlighting at the meeting this week with surgeons.

Speaker 4: Yes, thanks. Definitely we see that as an endorsement and confirmation of this large BPH market. We remain very excited about what we do and do not see that competition compared there as an obstacle to our growth. As a reminder, no robotic or usadectomy.

Speaker 4: And there are factors that we mentioned, you know, the United covering the Transitional Pass Through going for another one year. The recent rep hires that we have made, they are making great progress.

Speaker 4: And on the surgeon front, we are seeing increased retention. And these are all the largest idea that we find that these are all the factors that keep us more confident.

Speaker 10: Okay, thanks. Well, actually, on that point, Reza, and it segues into a question I have on reimbursement broadly, but just you mentioned transitional pass-through extension as maybe being an incremental good guy in your discussions and getting capital over the finish line. You know, that's transient. So does that mean that when that goes away on January 26,

Speaker 10: Do you have any sense as to how confident you are that reimbursement stays at the levels that it is, which is right now pretty profitable? Thanks. Thank you.

Speaker 4: Yes, so.

Speaker 4: Transitional pass-through was supposed to go away at the end of 2023, and we had stopped talking about it.

Speaker 4: second half of 2022. So that wasn't an obstacle. Just the extension of that is a plot. We do not see that if it goes away, it's gonna make any headwind because it's... we have stopped talking about it end up 2022.

Speaker 4: 2020 was a COVID year and many companies could not benefit from the transitional pass through normal for three years. So that was extended for one year. As far as reimbursement is concerned, we are at APC level 6 and for the last

Speaker 4: two, three years have stayed there and in fact, if anything, in around the last year for 2023 was a slight uptick on that payment. So we don't anticipate APC level six to change.

Speaker 3: because it's based on the cost of the system. And this is Kevin. This is why, from a pricing standpoint, we're very disciplined about our handpiece pricing. And you can see over the last eight quarters, if anything, handpiece ASPEs.

Speaker 3: are trending upwards, not downwards, and based on that data we have, we would have a strong confidence level given our pricing dynamics of staying at APC level 6.

Speaker 10: Thanks. If I could just squeeze one more in, just on the mix towards lower volume or low to mid volume utilization accounts increasing as a percent of the installed base, just curious, could we be thinking about that ratio going up and…

Speaker 10: you know, if so or even if not, what kind of impact will this have on the utilization kind of growth rate? Does it drag it down?

Speaker 3: Yeah, I don't think I think 30% is the right way to think about it moving forward. I mean, I appreciate I'm not being terribly specific there, but.

Speaker 3: I don't see why in the near term it should change from our historical norms and would be a drag on utilization. In fact, we are seeing many of these low volume accounts start doing utilization at comparative levels. One thing to keep in mind, and Reza said it in his remarks, is a low volume account doesn't mean a low volume account.

Speaker 3: surgery hospital. So these are hospitals that are very used to turning over patients, having a high volume of patients, and having a lot of surgeons. They're just not doing a lot of BPH and they're not doing a lot of BPH because they frankly didn't have a great alternative previously and now they do. So it's not as if we have to convert.

Speaker 3: this hospital into now doing a lot of surgery. They're already doing surgery.

Speaker 4: We remain focused on high volume accounts and these low volume accounts will happen opportunistically and based on the case by case we look at them.

Speaker 11: Thank you.

Speaker 7: One moment please.

Speaker 7: Our next question comes from the line of Nathan Trabec. Wells Fargo, your line is open.

Speaker 6: Hi, thanks for taking the question. I just wanted to circle back to the capital placements in Q1. You mentioned IDNs were taking a cautious approach, and now you're seeing improvement in Q2. Can you give color on why they're being more cautious? Is there...

Speaker 6: macro outlook out there that people were focused on and what has changed now that they are opening up budgets?

Speaker 3: It's hard to tell if it's macro-related or IDN-specific related, but what we did see are many of our large IDNs.

Speaker 3: just not allocating capital funds in the first quarter, and whether that's MACRA or specific to budget allocations that IDN, I'm sure it's a mixed bag, but what we are seeing to my comments is those funds now being released for aquablation in the second quarter. And that is a very primary reason why the ramp Q1 to Q2 we think is very achievable.

Speaker 12: Okay.

Speaker 6: Kind of sticking to that last quarter, you gave a metric around the number of opportunities that you add a high level of confidence will close that it increased 30%. Can you provide an update on on where where the funnel is now relative to the end of end of 22? Thanks.

Speaker 3: Yeah, we didn't pin down a percent, but what we will say is it continues to grow and what we are saying is it will continue to grow and what we are saying is it will continue

Speaker 3: is the new reps that we've hired are having meaningful additions to the funnel and the funnel continues to increase we continue to monitor it and it continues to grow.

Speaker 7: Great. Thanks. Thank you. One moment, please.

Speaker 7: Thanks. Thank you. One moment, please.

Speaker 7: Our next question comes from the line of Matthew Michon of Key. Your line is open.

Speaker 9: Great. Thank you for taking the questions. I'll take the other side.

Speaker 13: this capital question.

Speaker 9: If you were to see

Speaker 13: I don't know how to figure out how I want to kind of raise it. You kind of tend to move in a predictable pace for net system ads. Do you see an opportunity as capital budgets are released and the procedural environment looks good? Do you see an opportunity to still exceed the 140 capital placements for 2023? Or is that a really...

Speaker 3: of capital sales. So it's not as if we are looking to sell 140 systems and we don't have a future market to go attack. So there's much more upside to the 140 in the future given the current opportunities out there. But we feel very good about the 140 and the high degree of conviction around that.

Speaker 13: Okay. And then just on the accounts where you've placed, you've seen utilization, you know, increase on the system, which is a positive. Just how sticky are the procedures once a doc starts to use it? Have you seen any procedures slipping, you know, where somebody uses it and then...

Speaker 13: Not any, but seeing some perceived people use it and then say, yeah, I won't use it as much. Or is it ten or is it, you know.

Speaker 13: people use it and then say, oh I won't use it as much or is it tending to really be sticky.

Speaker 4: So it is, as you mentioned, speaking in the sense that we have more than 90% surgeon retention.

Speaker 4: that's present to support. In fact, we also had mentioned in our last quarter of the meeting that we had a net promoter score of 92%. All of these come together as customer satisfaction. So they are using it both because of clinical outcomes and the support we are giving to them. Thank you. And we have seen sequential utilization growth, and these are all the indicators.

Speaker 7: Thank you. One moment, please. I'm showing no further questions at this time. I'll turn the call back over to Reza Zadno, CEO , for any closing remarks.

Speaker 4: to seeing you in future meetings and tomorrow we have an invested day. Have a nice day.

Speaker 7: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. Our next conferenceanaa lounge is called for Nyland and Marilis T drumras.