Q3 2023 PROCEPT BioRobotics Corp Earnings Call
Good day and welcome to the pros that bio robotics third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
We will be facilitating a question and answer session towards the.
End of today's call.
This call is being recorded for replay purposes.
I would now like to turn the call over to men's basketball, Vice President Investor Relations.
You introductory comments.
Good afternoon, and thank you for joining process by Robotics third quarter 2023 earnings conference call.
On today's call are resins that notes.
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 or performance are forward looking statements.
The Securities Litigation Reform Act of 90 to 95, while these forward looking statements are based on management's current expectations and beliefs. These statements are subject.
Several risks uncertainties assumptions and other factors that could cause results to differ materially.
Vacations expressed on this conference call.
Uncertainties are disclosed in more detail about robotics filings with Securities Exchange Commission, all of which are available online at www.
C Dot Gov.
Mirrors are cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date November <unk> 2023.
That is required by law are set by robotics undertakes no obligation to update or revise any forward looking statements to reflect new information circumstances or unanticipated events that may arise during the call. We will also reference certain financial measures that are not prepared in accordance with GAAP.
More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalents are included in our earnings release.
Like to turn the call over to Reza.
Good afternoon, and thank you for joining us for today's call I will provide.
Followed by Kevin who will provide additional details regarding our financial performance.
2023 items before opening the call right.
Starting with our quarterly revenue results.
I'm pleased to report another record quarter.
Increased customer utilization and strong system placements.
Total revenue for the third quarter of 2023 was $35 $1 million does that mean growth up 72% compared to the third quarter of 2022.
Well in the quarter was driven by a strong U S system sales.
Utilization from our expanding installed base.
International revenues.
As we have previously discussed our strategy of focusing on outstanding bonds.
Gaining reimbursement coverage.
The top performing field team.
Net to our system.
Automation and therapy.
And third quarter, we sold 38 robots in the U S and presenting unit growth.
46% compared to the prior year.
The number of robot placements.
It was driven by growing awareness of our completion at our peak.
Mission of yield capital reps and Greenfield territories.
As a reminder.
And new capital reps in late Q4 two.
2022, which expanded sales capacity by 50%.
As expected the capital reps added in the fourth quarter of 2022.
Our stripes as a typical productivity ramp is six to nine months.
While we recognize and monitor the challenges of the macro environment very closely.
The fourth quarter of 2023 robust capital pipeline continues to grow meaningfully.
Given the current hospital capital spending environment now, having the largest and most and your capital sales force in the company's history.
You need to feel very good about continuing our strong commercial execution.
Quarter of 2020.
Touching on quarterly utilization.
Whereas <unk> is a.
Consumable revenue was 113% compared to the third quarter of 'twenty budgets.
When analyzing our accounts continued to be extremely pleased with overall utilization trends.
Our U S installed base in nine months has grown 62% compared to the end of 2022.
And while new accounts to take time to ramp is delivered monthly.
Six four and pieces per account in the third quarter.
We are encouraged by what we are seeing an account specific utilization.
Multiple proof points.
<unk> is viewed as very receptive and direct care within any given hospital.
The primary drivers up procedure growth continues to be active surgeon.
Which is a combination of new surgeons performing procedures and active search engine and churn rates greater than 90% for the first nine months of 2020.
We define active search engine pension as any search engine performs in case in both the current and previous quarter.
As a company we benefit greatly from his high level of surgeon retention as our commercial team.
On training new surgeons.
Given our strong underlying momentum.
<unk> across our installed base. The addition of United healthcare coverage.
And seasonal tail winds from elective procedure volumes you remain confident in our ability to deliver sequential increases monthly utilization in the fourth quarter.
Our revenue guidance as Kevin will go through shortly continues to be informed by what we are seeing our pipeline.
Opportunities progress what customers are telling us regarding their outstanding field world experienced.
Productivity ramp of new capital reps and overall close rates.
All these indicators continued to trend positive.
Awareness population therapy cost, which gives us confidence.
In our 2020 threep growth targets.
Turning to clinical updates.
Since the inception of Appalachia therapy, many of our key opinion leaders have been encouraging us to pursue a prostate cancer treatment option.
Having now treated greater.
<unk> thousand BPH patients.
Failed investigating the merits of Aqua ablation therapy.
Prostate cancer was a logical next step.
In the second half of 2022, we initiated a small easy ability prostate cancer study at treated men, who have both BPH and localized prostate cancer.
Opus of assessing safety population therapy.
The results were encouraging.
It gives us confidence.
Further in his clinical area.
Specifically, we will be expanding enrollment to include up to 125 patients across seven sites globally.
The study will include Amendment BPH.
Also great.
Or less prostate cancer.
Furthermore, when combining legacy EPA startup along with data from our feasibility study.
We were able to provide support for the FDA to be more across eight countries.
<unk> put a correlation therapy for men with BPH in September 2023.
In September 2023, we also announced the idea of cobalt.
Instigate the safety and efficacy of that population therapies, which people need for prostate cancer.
<unk> allows us to initiate a single arm study in the United States and all 20, Great group, one and two patients or localized prostate cancer at three of the most prestigious U S cancer centers.
I want to stress that we are still very early in our research of prostate cancer and that we remain in the evaluation phase.
Given the traction we are experiencing today in BPH relationships developing for <unk> globally, and the desire of those urologists to pursue this research is a correlation of therapy can deliver effective and safe outcomes relative to the carrier prostate cancer alternatives is good.
We have significant future opportunity for cross sell.
With respect to international market development activities.
Last month, we announced that in the United Kingdom Nice granted its strongest endorsement standard arrangements recommendation or a combination therapy.
With this strong clinical recommendation our pipeline of large NHS hospitals has grown meaningfully.
Given the accelerating interest from UK searches and strong unit economics.
The Handpiece system average selling prices you plan to make additional investments over the next 12 months in the U K to accelerate growth.
Turning to Japan, we are.
More than halfway to enrolling patients in our post market survey and expect to complete enrollment fourth quarter of 2023.
While we do not expect meaningful revenue contribution from Japan, 2023, <unk>, Japan is a very attractive market long term.
The U S and the United Kingdom, our strategy clinical.
Clinical data support and more robust and sustainable commercial launch.
Lastly in early August we successfully completed an equity follow on offering raising an additional $162 million net.
Net proceeds.
The primary goal of the financing was to fortify the balance sheet from a position of strength to allow us to continue to execute on our long term strategy to become the standard of care treating men with BPH.
As of September 30th you had approximately $287 million of cash on the balance sheet, which we believe will allow the company cash.
Cash flow breakeven without additional financing.
We also officially moved our corporate headquarters to San Jose.
September which is four times the size of our CBS facility.
This new facility, we will have more than enough space to meet our future growth goals.
Closing, while we are not providing 2024 financial guidance at this point.
Unknown Attendee: Good day and welcome to Procept Bio Robotics' third quarter, 2023 earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.
A high degree of confidence in our ability to achieve our long term growth plan.
Every metric we track is moving in the right direction and to summarize these catalysts.
Our pipeline and sales funnel continue to consistently grow driven by an experienced capital sales team and growing awareness of our formulation therapy.
Matthew Bacso: I would now like to turn the call over to Matt Bacso, Vice President and Best of Relations for a few introductory comments. Good afternoon, thank you for joining Procept Bio Robotics' third quarter, 2023 earnings conference call.
Utilization accelerated sequentially.
And continues to reinforce the growth of our business and strong relationship with surgeons.
With the addition of United Healthcare in 2023, we can now offer ablation therapy, roughly 95% of augment in the United States.
Unknown Attendee: Presenting on today's call are Reza Zadno, 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 and events or performance or for-looking statements is defined under the Private Security's litigation and the Form Act of 1995. While these four-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks of uncertainties, assumptions, and other factors that can cause results to differ materially from the expectations expressed on this conference call.
Unknown Attendee: These risks and uncertainties are disclosed in more detail to Procept Bio Robotics' filing of the Securities Exchange Commission, all of which are available online at www.suc.gov. These mirrors are cautioned not to place under reliance on these four-looking statements, which speak only as of today's date of November 1, 2023. Sent as required by law, Procept Bio Robotics undertakes no obligation to update or revise any four-looking statements to reflect new information circumstances or unanticipated events that may arise. During the call, we will also reference certain financial measures that are not prepared in accordance with GAP.
We demonstrated prudent cost control in Q3 and successfully completed an equity financing.
Our balance sheet, which we believe will take us to profitability.
And lastly, we receive idea who walk investigate that coalition therapy for prostate cancer.
We remain excited about the progress we have made since becoming a public company and our ability to execute on our plans each quarter.
With that being said our opportunity remains vast.
Well relation therapy currently Egypt presents only 6% of <unk> respective ppas procedures in the United States.
Also we expect to exit 2023, with greater than 310 hospital customers, which only account for 11% of the 2700 hospitals performing <unk> surgery.
Unknown Attendee: More information about how we use these non-GAP financial measures as well as reconciliation of these measures to their nearest GAP equivalent are included in our earnings release.
With that I will turn the call over to Kevin.
Thanks Rhonda.
Total revenue for the third quarter of 2023, $35 1 million representing growth of 72% compared to the third quarter of 2022.
U S revenue for the quarter was $32 3 million representing growth of 73% compared to the prior year period.
Reza Zadno: That, I would like to turn the call over to Resa. Good afternoon and thank you for attending us. For today's calls, I will provide opening comments and a business update followed by Kevin. We provide additional details regarding our financial performance.
U S handpiece and consumable revenue for the third quarter, a $17 million representing growth of 113%.
Third to the third quarter of 2022.
Reza Zadno: On update of 2023 items before opening the call to donate. Starting with our quarterly revenue results. Now please to report another record order. We both increased customer utilization and strong system placements. Total revenue for the third quarter of 2023 was $35.1 million, presenting growth of 72% compared to the third quarter of 2022. Rotating the quarter was driven by strong U.S, system sales, US utilization, from our expanded install base and increasing the national revenues.
Use handpiece revenue growth was driven by an increase in installed base of robotic systems.
Although utilization per account of $6 four increased sequentially by 5% compared to the second quarter of 2023.
Use handpiece revenue growth in the third quarter was driven by both strong surgeon interest that new account with most program launches having multiple surgeons.
Additionally, we continue to see increased account level utilization over time as we continue to train new surgeons and increased utilization of our existing surgeon base.
<unk> 4873 hand pieces and the U S. In the third quarter, representing unit growth of 112% compared to the third quarter of 2022 with average selling prices of approximately $3140.
Reza Zadno: As we have previously discussed, we leave our strategy of focusing on outstanding long-term clinical data, meaning reimbursement coverage and using a top-performing field team have led to consistent growth of the use of high-publication therapy. The third quarter we sold $38.1 million to the U.S, and presenting units growth of 46% compared to the prior year. Number of robot placements, the tree was driven by a growing awareness of our population therapy, the addition of new child photographs in Greenfield Territory.
In the third quarter, we sold 38 robotic system generating total U S system revenue of $13 5 million.
An increase of 37% compared to the third quarter of 2022.
Our U S installed base at the end of the third quarter now at 271 system, which is an increase of 95% compared to the third quarter of 2022.
Reza Zadno: As a reminder, we added 10 new capital reps in late 2020-22, each expanded sales capacity by 50%. As expected, the capital reps added in the fourth quarter of 2022 have hit their strides as a typical productivity route to six to nine months. While we recognize and monitor the challenges of the macro environment very closely, we enter the fourth quarter of 2023 with the robust capital pipeline that continues to grow meaningfully. Even the current hospital capital spending environment, now having the largest and most engineered capital sales force in the company's history, we continue to feel very good about continuing our strong commercial execution in the fourth quarter of 2023.
Third quarter system average selling prices were $353000.
And within our expected range given quarterly variability.
International revenue for the third quarter with $2 8 million representing growth of 62%.
Gross margin for the third quarter of 2023 was 54% compared to 50% in the prior year period.
Gross margin expansion in Q3 was primarily due to the increase in revenues.
To absorb overhead expenses over a larger number of units produced.
Moving down the income statement.
Total operating expenses in the third quarter of 2023, or $44 5 million compared to $32 3 million in the same period of the prior year.
When compared to the second quarter of 2023 total operating expenses increased by only $400000.
Reza Zadno: Next, touching on quarterly utilization. Westhand piece and consumable revenue is 113%, and 13%, compared to the third quarter of 2020. When analyzing our accounts, we continue to be extremely pleased with overall utilization trends. Our U.S, install base in nine months has grown 62% compared to the end of 2022. And while new accounts take time to run, we delivered monthlyization of 6.4 and pieces per account in the third quarter. We are encouraged by what we are seeing on account-specific utilization and have multiple proof points where our population therapy is viewed as the effective standard of care within a given hospital.
This is the lowest sequential increase over the previous two years.
The increase was driven by increased sales and marketing expenses, primarily to expand the commercial organization and variable compensation expense.
Increased research and development expenses and general and administrative expenses.
Total interest and other income were $1 million at quarterly.
Quarterly interest expense from our $52 million term loan was offset by favorable interest income from our cash balances.
We're significantly increased with our recent equity financing in early August.
Net loss was $24 6 million for the third quarter of 2020 compared to $22 6 million.
Period of the prior year.
Reza Zadno: The primary drivers of procedure growth continues to be active surgeon growth, which is a combination of new surgeon performing procedures and active surgeon retention rates greater than 90% for the first nine months of 2023. We define active surgeon retention as any surgeon who performs the case in both the current and previous quarter. As a company, you benefit greatly from this high level of surgeon retention as our commercial team can focus on training new surgeons.
Adjusted EBITDA with a loss of $19 4 million compared to a loss of $18 3 million in the third quarter of 2022.
Our cash and cash equivalents balance as of September 30 was approximately $287 million, which includes the $162 million of net proceeds grades in our equity offering in August.
Moving to our 2023 financial outlook.
We are increasing our full year 2023, total revenue guidance to approximately $133 $5 million representing.
Reza Zadno: Even our strong underlying momentum utilization across our install base, the addition of United Healthcare coverage and seasonal tailwinds from elective procedure volumes. You remain confident in our ability to reverse sequential increases in monthly utilization in the fourth quarter. Our revenue guidance as Kevin will go through shortly continues to be informed by what we are seeing in our pipeline. Our opportunities progress, what customers are telling us regarding their outstanding real world experience for the activity ramp of new capital rest and overall those range. All these indicators continue to trend positive as awareness around population therapy growth, which gives us confidence in achieving our 2023 growth targets.
Representing growth of 78%.
Reza Zadno: Turning to clinical updates. Instance section of population therapy, many of our key opinion leaders have been encouraging us to pursue the prostate cancer treatment option. I think now treated greater than 30,000 PPH patients, we felt investigating the merits of Appropriation Therapy, which was a logical next step. In the second half of 2022, we initiated a small PGBC study that treated men who have both PPH and localized prostate cancer, the purpose of assessing safety of Appropriation Therapy.
There was another strong quarter and positive momentum, we now expect or your international revenue to be approximately $11.5 million.
Moving down the income statement, we now expect for year 2023 gross margins in the range of 54% to 55%.
Continue to expect operating expenses be approximately $174 million.
Given our recent capital rates and subsequently larger cash balance we expect Q for net interest income to be 2.1 million.
Reza Zadno: The results were encouraging, which gave us confidence to invest further in this clinical area. Specifically, you will be expanding enrollment to respond to 125 patients across seven size globally. The study will include men with PPH who also have great, good, three or less prostate cancer. Furthermore, when combining legacy PPH data along with data from our feasibility study, we were able to provide support to the FTA to remove the prostate cancer contraindication for Appropriation Therapy for men with PPH in September 2023.
Resulting in full year net interest income of $3.3 million.
Lastly, we expect adjusted EBITDA B, a lot $76.9 million.
With that I will turn the call back to read the closing comments.
Thanks, Kevin in closing I want to thank our employees customers and shareholders for all their support to help us along our journey to becoming just had their own care or B P. H.
Continue to leverage our commercial lines like all investments and cute on our long term strategy have a great day and I look forward to seeing many of you.
Yeah. Some conferences at this point you will take questions operator.
Reza Zadno: In September 2023, we also announced the idea of approval to investigate the safety and efficacy of Appropriation Therapy, specifically for prostate cancer. The idea approval allows us to initiate a single-arm study in the United States, an end-old 20-grade group one and two patients who are localized prostate cancer at three of the most prestigious US cancer centers. I want to stress that we are still very early in our research of prostate cancer, and that we remain in evaluation phase.
Thank you.
To ask a question. Please press star one one on your phone can wait for yearning to be announced to withdraw. Your question. Please can I saw one one again please.
So you stand by as you compile the Q&A roster.
One moment, please while first question.
First question will come from Craig's dishes.
Bank of America. Your line is open.
[noise] great. Good afternoon, guys. Thanks for taking the questions and congrats on on a very strong quarter Wanna start with utilization as I, usually do and it seems.
Reza Zadno: That said, even the traction we are experiencing today in DPH, the relationships we are developing with neurologists globally, and the desire of those neurologists to pursue this research, if a population therapy can deliver effective and safe outcomes relative to the care of prostate cancer alternatives, this would be a significant future opportunity for process.
Pretty important to you guys.
<unk> I appreciate your comments on trends of.
Previous cohorts, but would love to hear kind of <unk>.
<unk> a number of new systems have those system utilization the newer systems how'd, they ramp and.
Reza Zadno: With respect to international market development activities. Last month, we announced that in the United Kingdom, nice granted its strongest endorsement, the standard arrangement recommendation for Appropriation Therapy. With this strong clinical recommendation, our pipeline of large NHS hospitals has grown meaningfully. Given the accelerating interest from UK surgeons and strong unit economics on the handpiece and system average selling prices, you plan to make additional investment over the next 12 months in the UK to accelerate growth.
And.
Just a little bit more color there.
Okay, We're gonna give us one second here, we just had a fire alarm golfing building, it's just turned off.
<unk> everyone here can can you. Please repeat your question and we're going to resend here. Thank you very much back sorry about that [laughter].
[laughter] no.
No problem.
Alright.
[noise] so utilization so I I guess the question just comes down to it I wanted to know how you guys are seen utilization with some of the new systems that bedroom, adding I appreciate <unk> comments that the <unk> the older cohorts are still.
Reza Zadno: Turning to Japan, we are more than halfway through enrolling patients in our post-market survey and expect to complete enrollment for quarter of 2023. While we do not expect meaningful revenue contributions from Japan, in 2023, we review Japan at the very attractive market long-term. Like the US and the United Kingdom, our strategy is to meet the clinical bad-off, to support and more robust and sustainable commercial.
Still increasing but wanted to understand you when you place new system, how you're seeing that ramp.
Yeah. Thanks, Thanks, Craig sorry for the disruption.
We're very happy with the utilization.
And to me.
Some of the underlying trends I Wanna talk about those historical me Q3 is it a flat we saw.
This quarter, we saw an increase in that quest number one our existing.
Reza Zadno: Raj.
Reza Zadno: Lastly, in early August, you successfully completed an equity follow-on offering, raising an additional $162 million of net proceeds. The primary goal of the financing was to fortify the balance sheet from a positional strength to allow us to continue to execute on our long-term strategy to become the standard of care treating men with BPH. As of September 30th, we had approximately $287 million of cash on the balance sheet, which we believe will allow the company to reach cash flow rate even without additional financing.
Surgeons generally the case.
Surgeons.
<unk>, we saw an increase in our existing surgeon and also had the largest number of use surgeons in this quarter and entered and contributed to this increasing utilization and also their intention. So these are the three factors at let.
That includes utilization.
And then Kevin to add.
A good summary, and Craig when we look at new accounts I mean, we are seeing today and I think it's a testament to our focus on are awkward license sales rep payments and focusing on utilization. So when we launch new account today, we typically two to three surgeons in that account and again a lot of that is due to our sales team for a lot of it is due to general <unk>.
Reza Zadno: We also officially moved our corporate headquarters to San Jose in mid-September, which is four times the size of our previous facility. In this new facility, we will have more than enough space to meet our future protocols.
Growing awareness and market acceptance of awkward like if I go back two years pretty IPO. Most accounts with launched one circuit and now we're seeing two to three on top of that were saying many program launches within the third quarter. So it was it was a really nice quarter.
Reza Zadno: Closing, while we are not providing 2020-24 financial guidance at this point, have a high degree of confidence and our ability to achieve our long-term growth plan. Every metric we track is moving in the right direction, and to summarize these catalysts, our pipeline and sales funnel continue to consistently grow driven by an experienced capital sales team and growing awareness of our population therapy. Monthly utilization accelerated sequentially in two-three and continues to reinforce the growth of our business and strong relationship with surgeons.
For new account launches.
We are also hearing are so just telling us that the patients are asking.
Amongst patients.
Has increased and they're asking for the street.
Oh great.
That's helpful and I wanted to ask also about the the sales funnel you guys you track that rather closely.
You know I. Appreciate you guys expect a sequential pick up and systems in queue for versus what you saw on Q3.
Reza Zadno: With the addition of United Healthcare in mid-2023, we can now offer our population therapy to roughly 95% of all men in the United States. We demonstrated within cost control in Q-3 and successfully completed an equity financing to bolster our balance sheet, which we believe will take us to profitability.
Just wanted to see <unk>.
Any changes in the conviction or the confidence that you have in in in your visibility and any lengthening of sales cycles or or anything else from you then maybe capital market or capital purchasing impacted.
Reza Zadno: And lastly, we received idea approval to investigate our population therapy process and cancer. We remain excited about the progress we have made since becoming a public company and our ability to execute on our plans each quarter. With that being said, our opportunities remain fast. Our population therapy currently represents only six percent of annual receptivity case procedures in the United States. Also, we expect pleasant 2023 with greater than 310 hospital customers, which only account for 11% of the 2700 hospitals performing receptivity case surgery.
How about I'll answer the.
First part of your question.
The man is driven by surgeons.
As we have said in the past once we identify surgeon champion.
If you can call to lose at at Yale.
And generally goes to the finish line and there is a demand by searches for our technology and we have also increased our sales force. This year is about 50% larger and at the same time last year.
Awareness among the charges.
Yeah.
How much is driving toward the capsule that that's what gives us confidence.
Kevin Waters: That, I will turn to call over to Kevin. Thanks, Robert. Total revenue for the third quarter of 2023 is $35.1 million dollars representing growth of 72% or to the third quarter of 2022. US revenue for the quarter was $32.3 million dollars representing growth of 73% compared to the prior year period. US handpiece and consumable revenue for the third quarter is $17 million dollars representing growth of 113% compared to the third quarter of 2022.
Yeah, I think specifically Craig over to your question I think we have a higher degree of confidence and conviction today and our capital pipeline and we did when we entered the year I mean, our guidance still suggested 55 per cent of all of our sales are gonna come in the back half of the year and now that we're kind of only one quarter left to go into your Robinson felt much better about.
Our ability to achieve that number is given that time's gone by and I. Just think the second 0.2 is this is the first year, where we had such a large addition park capital team and we were really dependent on those folks being productive in the back half of the year and that was an unknown at the beginning of the year and I think now we see in our pipeline.
Kevin Waters: US handpiece revenue growth is driven by an increase in the install base of robotic systems. Only utilization per account of 6.4 increased sequentially by 5% compared to the second quarter of 2023. U.S. Hampey's revenue growth in the third quarter was driven by both strong surgeon interests that new account, as most program launches having multiple surgeons. Additionally, we continue to see increase the count level utilization over time as we continue to train new surgeon and increase utilization of our existing surgeon base.
These perhaps being productive deals coming into the final.
<unk> the same sales cycle. So we don't see any lengthening and we see similar clothes right. So I think all of those things give us more confidence today than when we entered 2023.
Thanks for taking my questions.
Thanks, Craig I'm, sorry, sorry forget about the the heck up there at the beginning.
Thank you.
Kevin Waters: We ship 4,873 hampeas in the U.S, in the third quarter, representing unit growth of 112% in the third quarter of 2022 with average selling prices of approximately $3,140. In the third quarter, we sell 38 robotic systems generating total U.S, system revenue of $13.25 million, and increase of 37% in the third quarter of 2022. Our U.S, install base at the end of the third quarter is now a 271 system, which is an increase of 95% compared to the third quarter of 2022.
One moment please for our next question.
Our next question will come from Joshua Jennings a T D Cowan.
Your line is open.
Hi, good afternoon, thanks for taking the questions and congratulations on another strong quarter.
I wanted to follow up on on Craig's questionnaires and Kevin and just.
Thinking about 2024, and the streets, just north of 200 million pounds 50.
50 per cent plus revenue growth. Thank you <unk>.
We have some of the key drivers of strong revenue growth in 2024 90 between guidance was hoping you could just take us through some some of those key drivers and how we should be thinking that is weird.
Kevin Waters: Third quarter system average selling prices was $353,000 and remained within our expected range given quarterly variability. International revenue for the third quarter was $2.8 million, representing growth of 62%. Growth margin for the third quarter of 2023 was 54% compared to 50% in the prior year period. Growth margin expansion in Q3 is primarily due to the increase in revenues in our ability to absorb overhead expenses over a larger number of units produced.
Hitting our models and forecasts for 2024.
Thanks, Josh.
Not providing financial guidance, but as I summarized.
Mark's.
There you can give us a business going forward and every metric is moving in the right direction.
Tailwinds Eh.
Strong pipeline Sunday excuse utilization.
United coming on board found 95 per cent.
Access to this therapy among patients.
Kevin Waters: Moving down the income statement, total operating expenses in the third quarter of 2023 were $44.5 million compared to $32.3 million in the same period of the prior year. When compared to the second quarter of 2023, total operating expenses increased by only $400,000, which is the lowest sequential increase over the previous two years. The increase was driven by increased sales and margin expenses, primarily to expand the commercial organization's variable compensation expense. Increased research and development expenses in general and administrative expenses.
Demonstrate also include them cost control and with the reset financing the strength of the balance sheet combination of peaceful a customer profitability I also want to mention that you are a day early.
Whether it sounds utilization or a robot placement. So these are all those <unk> gives us confidence going to 2024 seven.
Okay. The drivers specifically about your reference.
Cause this is fairly simple we sell capital <unk> capital is used through what we measure its utilization alright, and those drivers don't change in 2024, I do think you see a business, though that shifts more heavily weighted obviously to disposable as we grow our installed base. So that's 0.1 0.2 are obviously aware of the management team.
Kevin Waters: Total interest and other income were $1 million at the quarterly interest expense from our $52 million term loan was offset by favorable interest income from our cash balances, which were significantly increased with our recent equity financing in early August. Net loss was $24.6 million for the third quarter of 2023 compared to $22.6 million in the same period of the prior year. Adjust an EBITDA with a loss of 19.4 million dollars compared to a loss of 18.3 million dollars in the third quarter of 2022. Our cash and cash equivalence balance as of September 30th was approximately $287 million, which includes the $162 million of net proceeds raised in our equity offering in August.
As a company street expectations and if you look at utilization expected of the company in 2024, it's roughly equivalent to what we're guiding too in Q4 of 23, which I would suggest is approved point that what expectations are are not terribly ahead of even where we're at today. So that's 0.1 utilization.
And then 0.2, we still believe our ability to sell capital is directly correlated to the number of Capitol reps that we have in the field that are productive.
We're gonna exit the year, probably close to the 35 to 40 range of capital rats, which we think if you just take average productivity I mean, you could do the math yourself and back into kind of what our system number would look like for 2024, but the rest of his comment we're very early in our penetration and therefore, we don't expect diminishing return as we have capital reps.
Kevin Waters: Moving to our 2023 financial outlook, we are increasing our full year 2023 total revenue guidance to approximately $133.5 million, representing growth of 78% compared to 2022. We are increasing our revenue guidance based on the following factors. Starting with U.S, systems, we now expect full-year system sales to be 145 systems. Given normal seasonality and a more experienced capital sales game, we expect fourth quarter system sales to increase relative to the third quarter.
So I appreciate we're not answering your question directly on 2024, but as far as I mentioned the growth drivers of the business are in place to allow this business to continue to grow it I'd say rates that far exceed up most other med device companies.
No that was that was very helpful. Thank you.
Just a follow up.
You know as you as you're seeing now could being system not going to be releasing treatment being adopted it centers.
And deeply penetrating those accounts, becoming standard characters centers I was just hoping to get a feel for what's being displaced are there is there is there a low hanging fruit and the respective either reproach or technology market, you know TERP haul up Green light.
Kevin Waters: Turning to U.S, handpiece revenue, we continue to expect full-year utilization to be approximately in the mid-sixth as measured by weighted average handpiece of sole per account per month, which implies approximately 6.75 handpiece of sole per account in the fourth quarter. Given normal fourth quarter procedure seasonality, we believe this will more than offset the expanding install base not allowing utilization to continue to increase sequentially. Additionally, we expect handpiece average selling price to be comparable to the third quarter and our other consumables revenue to be $1.9 million.
Prostatectomy as it really broadbased.
I guess replacement of those approaches really wanted to ask that and just here also got just the conversion hall upsurge isn't that right to date in the United States. Thanks for taking the questions.
Thanks, Josh So when you ask this question from our search is definitely Ah turf and green lines are the ones that yeah.
Kevin Waters: Lastly, on revenue, given another strong quarter in positive momentum, we now expect full-year international revenue to be approximately $1.5 million. Moving down the income statement, we now expect full-year 2023 gross margins to be in the range of 54% to 55%, continue to expect operating expenses to be approximately $174 million. Given our recent capital rates and subsequently larger cash balance, we expect Q4 net interest income to be $2.1 million, resulting in full-year net interest income of $3.3 million. Lastly, we expect the Justin Evidot to be a lot of $76.9 million.
Ask them she didn't use our technology what else you could use the majority of the cases are from syrup and things like that that's because.
Again with the data we have still it was the largest protective.
And as far as the larger Prostates indefinitely.
This shows use our product or larger prostates.
Vantage.
Compared to other therapies.
Short term therapy times faster.
Faster recovery and also it is not that much and then surgeon's skill. So these are definitely for larger prostates vantage behalf is in those areas.
Reza Zadno: With that, I will turn the call back to Rosa for closing comments. Thanks, Kevin.
I would also just add specific your question on hold up I mean, you look at the respective market Josh Hall, it's about 10% of the respective surgical market, maybe something slightly less of that and the reality of that procedure. It's.
Reza Zadno: In closing, I want to thank our employees, customers and shareholders for all their support to help us along our journey to becoming the standard out-care for BPHs. 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 how coming in your two conferences.
Sorry long procedure is difficult to perform highly specialized I don't think anybody would suggest that hold up and have the ability to become the standard of care over time. So it's rather mentioned it primarily as chirping Greenlight I'm sure. We're getting some holub cases, but there's also I would say many bullet loyalists at our growth is not dependent on cannibalizing in the near term.
Unknown Attendee: At this point, you will take questions. Operator? Thank you. To ask a question, please press star 111 on your phone and wait for your name to be announced. To withdraw your questions, please press star 111 again. Please stand by as we compiled the Q&A roster. One moment please for our first question.
Great. Thanks again.
Thank you.
One moment please for our next question.
[noise] Oh next question will come from Matthew O'brien with Piper Sandler Your line is open.
Craig Dichy: Our first question will come from Craig Dichy of Bank of America. Your line is open. Great. Good afternoon, guys. Thanks for taking the questions and congrats on a very strong quarter. I want to start with utilization, as I usually do, and it seems pretty important to you guys. Rosa, I appreciate your comments on trends of previous cohorts, but we'd love to hear Azure adding a number of new systems, how those system utilization, the newer systems, how they ramp.
Afternoon, Thanks for taking my questions and I'll I'll refrain from trying to make a joke about the smoke alarm going off because your business is on fire, but.
Craig Dichy: Just a little bit more color there. We're going to give us one second here. We just had a fire alarm go off in the building. It's can you please repeat your question and we're going to reset here. Thank you very much. Sorry about that. No problem. All right. So utilization. So I guess the question just comes down to. I wanted to know how you guys are seeing utilization with some of the new systems that that you're adding.
We appreciate it.
And the new facility here, but it was interesting we're good.
Got it so I'm a utilization side I'm I'm, just curious about the performance they're beaten again in Q4, and we're expecting a pretty big step up as far as utilization goes for the existing systems eager 5% sequentially in what's typically a seasonally slow corner. So can you just talk about some of the momentum you're seeing again.
Kennedy Craig's question across the cohorts are some of the people that have been using it for awhile at 10 cases per month on average.
And then you know what kind of benefit of your banking and for United and coupons specifically.
Yeah. So I think all of your questions points that kind of our comfort around our ability to expand utilization the fourth quarter right. I mean, that's that's really what it comes down to N. R. Q for guidance imply utilization of about six and three quarter 6.8.
Procedures per month per account in the fourth quarter and when you look at that metric.
Regarding cohort.
Craig Dichy: You know, appreciate Rosa's comments that the older cohorts are still increasing, but wanted to understand when you place a new system, how you're seeing that ramp. Thanks Craig, sorry for the disruption. We are very happy with the utilization. We saw 2-3 and some of the underlying trends. I want to talk about those. Historically, Q-3 is a flat but we saw in this quarter we saw an increase and that was number one, our existing surgeons, generally the cases and surgeons is flat.
Achieve that in the fourth quarter, we do not need any accounts that purchase systems and 2000 twenty-three the P at corporate level and.
That means by definition that the accounts that have been with us. Prior to 2023 are are doing north of $6 and in many cases as you pointed out well north of $6 eight and that is what is expanding utilization in the fourth quarter. I'd also suggest that an BPH procedures. It as an elective procedure, we do expect something.
Normal seasonal tailwinds from our existing surgeons in queue for it they do more procedures.
They did in the private previous quarter, then I guess is the last point around kind of how we are comfortable with expanding utilization are historical growth in 2022.
Craig Dichy: We saw an increase in our existing surgeon. We also had the warrantous number of new surgeons in this quarter that entered and that contributed to this increase in utilization and also their retention. So these are the 3 factors that led to a very good utilization in Q-3. And I'm not letting Kevin to add to this. Yeah, that's a good summary. Craig, when we look at new accounts, I mean, we are seeing today and I think it's a testament to our focus on our Aqoblation sales rep team and focusing on utilization.
That the growth, we experienced last year and our fourth quarter guidance, we're giving today is very comparable to that sequential growth, it's about 5% to 6% sequential increase in utilization in queue for 23, which would be very comparable to what we did in queue for 22 as well. So the multitude of factors that get a comfortable that we can continue to expand.
<unk>, even with a.
Greatly expanding installed based on the fourth quarter.
Craig Dichy: So when we launch new accounts today, we typically have 2-3 surgeons in that account. And again, a lot of that's due to our sales team, but a lot of it's due to general growing awareness and market acceptance of Aqoblation. If I go back two years pre-IPO, I mean, most accounts would launch with one surgeon. And now we're seeing 2-3 on top of that, we're seeing many program launches within the third quarter.
Got it appreciate that feedback and then Kevin another one for you just more on the margin side of things gross margin status and a little bit not the end of the world Love to hear what happened there. But then also it looks like the cash burn came down quite a bit and I know that's an area investors have been you know focused on so can you just talk about some of the levers that you're <unk>.
Going on on the on the operating margin side of things in the Casper and side of things. Thank you.
Craig Dichy: So it was a really nice quarter for new account launches. And we are also hearing our surgeons telling us that the patients are asking awareness amongst patients has increased and they are asking for the treatment. Great, that's helpful. And I want to ask also about the sales funnel. You guys, you know, track that rather closely. You know, I appreciate you guys expect the sequential pickup and systems in Q-4 versus what you saw in Q-3.
I'll I'll just spell the first margins gross margins they were around our expectations, but as you pointed out down sequentially.
Main contributor four margin being.
Being down sequentially, it's really the impact of our system as P as in.
Packed about an overall gross margins if we add capital pricing similar Q2 are gross margins in fact would've been roughly 180 basis points higher which would have translated into 56% versus 54%, but as we have continually said on previous call. We do expect quarter to quarter variability on system pricing and we actually see.
Craig Dichy: So just wanted to see, you know, any changes in, you know, kind of the conviction or the confidence that you have in your visibility and any lengthening of sales cycles or anything else from, you know, that maybe, you know, capital market or capital purchasing impacted. So, I want to answer the first part of your question, you know, the man is treated driven by surgeons. As we have said in the past, once we identify the surgeon champion, it's very difficult to lose that, that deal generally goes to the finish line.
Rebounding back to 378 and coupons. So we we think that's kind of a temporary situation.
I'd also point out well not as material is pricing.
Did produces accompany relatively fewer units in the third quarter and therefore, our average costs were marginally higher but now that we're fully and our new facility. We do expect production volumes to return to more historical levels and this will negatively impact margins in the future, but we feel good although I appreciate those quoted according variability.
But the trend over time, it up into the right with gross margins.
Your second question I'm glad you asked.
Cash this was as you pointed out from an operating cash flow point significantly improved over the previous two quarters, we were in the.
Craig Dichy: And there is a demand by surgeons for our technology. And we have also increased our sales force this year is about 60% larger and the same time last year. And awareness among the surgeons will increase or the financial driving for the capital. That's what keeps us confidence and we have a drive. Yeah, I think specifically Craig, I mean, your question, I think we have a higher degree of confidence and conviction today in our capital pipeline.
$35 million in Q1 28 million in Q2, when he saw that number dropped below $20 million in the third quarter and.
This is purposeful by the by the company, particularly given our recent equity right now we feel that as a business. We're definitely investing in the long term for investing in our commercial team, but at the same time, we're being prudent with our cash. So we understand in this environment that a pathway to profitability and having opex discipline.
Craig Dichy: And we did when we entered the year. I mean, our guidance still suggests that 55% of all of our sales are going to come in the back half of the year. And now that we're kind of only one quarter left to go in the year, obviously so much better about our ability to achieve that number is given that time gone by. And I just think the second point too is, you know, this is the first year where we had such a large addition part capital team.
Is important it's always important but particularly in this environment.
We believe that we need to show investors that we can grow the top line demonstrate leverage on the bottom line in it that that's what we feel we did in the third quarter and our guidance suggests an object. That's gonna continue on the fourth quarter with relatively flat operating expenses.
Craig Dichy: And we were really dependent on those folks being productive in the back half of the year. And that was an unknown at the beginning of the year. And I think now we see in our pipeline these reps being productive, we see deals coming into the funnel. We see the same sales cycle so we don't see any lengthening and we see similar close rates. So I think all of those things give us more confidence today than when we entered 2023. Thanks for taking the questions, guys. Thanks, Craig. Sorry I get about the hiccup there at the beginning. Thank you.
Very helpful. Thank you.
Thank you.
Unknown Attendee: One moment please for our next question.
One moment please around next question.
Next question will come from Richard New Winter.
<unk> Securities Your line is open.
Hi, Thanks for taking my questions. Congrats on the quarter Uhm just a couple from me you mentioned I think Kevin productivity for your capital reps.
In the past I think you said you target that getting north of four to five you know system's per wrap if you're heading into next year with 35 to 40.
Joshua Jennings: Our next question will come from Joshua Jennings of TD Cowan. Your line is open. Hi, good afternoon.
I mean is that that the right kind of rule of thumb thumb to just be thinking about broad strokes.
That's a good rule of thumb I would remind you that chief said to get to that productivity. It does take a rep on average six to nine months, but we believe that productivity instead the ballpark correct.
Joshua Jennings: Thanks for taking the questions and congratulations on another strong quarter. I wanted to follow up on Craig's question, Reza and Kevin, and just thinking about 2024 in the streets, just north of 200 million applies 50% plus revenue growth. I think you probably had some of the key drivers of strong revenue growth in 2024, not issuing guidance. I was hoping you could just take us through some of those key drivers and how we should be thinking as we're updating our models and forecasts for 2024.
Okay, and then can you comment at all on on the percent of IGN, either orders or you know I know you said that you're at the highest level of ITN contracting exiting two Q or entering 2023, maybe that was the comment you just talk about those percentages and you know.
<unk>, what what what percent of you at and where do you expect to be as you exit the year in terms of our D. N as a percentage of total orders and then two how if at all does that impact.
Joshua Jennings: Thanks, Josh. I'm not providing financial guidance, but as I summarized in my feedback marks, we feel very good about the business going forward and every metric is moving in the right direction. These are the tailwinds that have a strong pipeline, so they increase utilization, the United coming on board, 95% access to this therapy among patients. The demonstrator also included cost control and with the Reza financing with strength and our balance sheet, confidential fee schools across the profitability.
Pricing do those do those results do goes reflect <unk>.
Multi system orders and or is there any any anything you can give us in terms of I D and orders and where they fall on me kind of a range of aspie that you've done.
Delineated in the past between 350 and 400000. Thank you.
Yeah. Thanks rights, let me start with pricing so our idea in relationships do not impact our system asp's negatively so I'll just start with that.
Joshua Jennings: I also want to mention that we are very early still in this round, whether it's on utilization or robot placement. These are all those parameters that he's just confident is going to 2024. Kevin, do you want to? Yeah, Josh, I mean, the drivers specifically, not your reference. I mean, none of the drivers is fairly simple. We sell capital and the capital is used through what we measure as utilization. Those drivers don't change.
That's the quarter to quarter variability around system pricing is not a reflection of IGN deals so let's start with that one.
So your broader question on IGN, we do continue to partner with <unk> affiliated hospitals as we've mentioned we do believe we're on track to have the majority of all large IGN under contract by the end of 2023, which for a business at our stage of commercialization with something we're really frankly.
Joshua Jennings: In 2024, I do think you see a business, though, that ships more heavily weighted, obviously, to disposable as we grow our install base. That's 0.1. 0.2, we're obviously aware of the management team as a company, the street expectations. If you look at utilization, expected of the company in 2024, it's roughly equivalent to what we're guiding to in Q4 of 23, which I would suggest is a proof point that what expectations are, are not terribly ahead of even where we're at today, because that's 0.1 on utilization.
Proud of.
Management team here.
Think it's a great Testament to the technology.
With that said I think you're hearing from other companies that sell capital and we're not any different we're not seeing large bulk buys from our idea and partners in 2023, and our guidance, it's not dependent on any improvement in this environment and and Q4 I think when we enter the year why we said we weren't.
And then a large <unk>.
I think we were thinking we had the possibility to get a few this year, but those are going to be pushed into 2024, and if anything I think we've your ITN relationship with a future tailwind for us because we are able to meet our 2023 capital expectations really without any book by that's been kind of <unk>.
Joshua Jennings: And then 0.2, we still believe our ability to sell capital is directly correlated to the number of capital reps that we have in the field that are productive. And we're going to exit the year probably close to the 35 to 40 range of capital reps, which we think if you just take average productivity, I mean, you could do the math yourself and back in to kind of what a system number would look like for 2024.
Negotiating with.
Individual hospitals under their RFP process as opposed to any type of large coke by so none in our current sales.
Joshua Jennings: But the rest of the comment were very early in our penetration. And therefore, we don't expect diminishing return as we have capital reps. So I appreciate we're not answering your question directly on 2024. But as I mentioned, the growth drivers of the business are in place to allow this business to continue to grow it. I'd say rates that far exceed up, most other minimize, of this. No, that was very helpful. Thank you.
Sales in the first half or in the first nine months of 2023, but hopefully we continue to work on and how it works.
Working on deepening those relationships daily.
Okay. Thank you very much.
Thank you.
Mmm one moment please for our next question.
Joshua Jennings: And just to follow up, you know, as you're, as you're seeing now, it could be in system, it could be in relation to treatment being adopted at centers. And deeply penetrating those accounts, becoming centers of care at those centers, I was just hoping to get a feel for what's being displaced. Are there, is there a low hanging fruit in the receptive, either of approach or technology bucket, you know, turf, haul-up green light, prosthetic mirrors that really broad-based, I guess, replacement of those approaches.
Our next question will come from Neil Kennedy.
Riley to your line is open.
Pardon me Neil <unk>.
Your line is open.
<unk>, please I need your lines.
Using a headset please put on your headphones.
The next mhm. Thank you.
Joshua Jennings: I really wanted to ask that and just hear also not just the conversion of haul-up surgeons in that rate to date in the United States. Thanks for taking the questions. Thanks, Josh. So when we ask this question from our surgeon, definitely, turf and green light are the ones that you asked them if you didn't use our technology, what else could use the majority of the cases are from dirt and tree light.
One moment.
And again, one moment next question.
The next question will come from Brandon Vasquez of William Blue Your line is open.
Hi, Thanks for taking the call one maybe a quick clarification question in a little bit about future plans on the Capitol Rep side I think he had just mentioned you exit this year with somewhere between 35 to 40 are you able to show us up on where you are today and then as you look to next year.
Joshua Jennings: And that's because turf, again, with the data we have still is what the largest defective treatment. And as far as the larger prostate, I mean, definitely we are patients use our product for larger prostate. The advantage compared to other therapies is the shorter therapy time faster, faster recovery and also not that much dependent on surgeon's skill. So these are definitely for larger prostate. The advantage we have is in those areas. I don't know if this is a specific question, hold up.
You've discussed before that there's room for further expansion as you look to 24 do you hire a cohort.
Four 2024, as we go into the year or do you hire that cohort in 24 any.
Updated thoughts are on that.
We're probably regards the case, we're about halfway to be fair to where we want them to think of around 35 sitting here today, which means we have another class probably five.
Joshua Jennings: I mean, if you look at the resective market, Josh, hold up to about 10% of the resective surgical market. Maybe something slightly less of that. And the reality of that procedure, it's a very long procedure. It's difficult to perform. It's highly specialized. I don't think anybody would suggest that hold up or have the ability to become the standard of care over time. So as Rose mentioned, it primarily is turf and green light.
And here in the next two months.
It also suggests that in 2024 the plan isn't to stop but at the same time I don't think we're in a position to call out the exact number of Apple folks we're gonna add.
The business gets more complicated when we get into more accounts, it's not just gonna be capital recipe higher we're looking at things like strategic account managers were looking at key accounts for looking at IGN relationship. So I think it becomes a little messy or so to speak in 2024, but we definitely continue to plan to invest in that business.
Joshua Jennings: I'm sure we're getting some hold up cases, but there's also, I would say, many hold up loyalists that our growth is not dependent on cannibalizing in the air turf. Great. Thanks again. Thank you. One moment, please, for our next question.
But we still want to make sure we're investing responsibly, making sure we're not sacrificing outcomes, making sure we're not moving to bath being very methodical about how we ask people organization.
Matthew O'brien: Our next question will come from Matthew O'Brien with Piper Sandler. Your line is open. Afternoon. Thanks, sir. Pick them up questions. I'll refrain from trying to make a joke about the smoke alarm going off because your business is on fire. But we appreciate the first call in the hand facility here, but not. It was interesting. We're good. Got it.
Okay. Thanks, and then internationally I mean, you guys have had a couple of nice wins, especially in the UK you've mentioned that you might step up investments in the U K through 24 can you talk a little bit about what those investments are when that can accelerate I mean, you have good reimbursement there you have endorsements.
Matthew O'brien: So on the utilization side, I'm just curious about the performance there because again, in Q4, we're expecting a pretty big step up as far as utilization goes for the existing systems. You grew 5% sequentially and what's typically a seasonally slow quarter. So can you just talk about some of the momentum you're seeing and again, kind of the crash question across the cohorts are some of the people that have been using you for a while at 10 cases per month on average.
You're making some investments is there any reason that UK opportunity can't Dear high growth area or as high of a growth of an area that we're seeing in the U S.
Definitely we are very pleased with the other solid quarter, we had from international or international strategy has always been to market.
Development and.
What can be kols and increase awareness.
As you mentioned recent announcement by nice having this.
Matthew O'brien: And then, you know, what kind of benefit are you baking in for United and Q4? of specific points. Yeah, so I think all of your questions point to kind of our comfort around our ability to expand utilization in the fourth quarter, right? I mean, that's really what it comes down to. And our Q4 guidance implies utilization of about six and three quarters, six point eight procedures per month per account in the fourth quarter.
Arrangement is a great driver at capitalist or our.
Our products in the UK forward that we will.
He's our sales infrastructure and U as in UK and international definitely Japan.
Staying focused on UK are immediate.
Matthew O'brien: And when you look at that metric, regarding cohorts, so to achieve that in the fourth quarter, we do not need any accounts that purchase systems in 2023 to be at that corporate level. And that means by definition, that that accounts that have been with us prior to 2023 are doing north of six point eight. And in many cases, as you pointed out, you know, well north of six point eight. And that is what is expanding utilization in the fourth quarter.
<unk> will be increasingly infrastructure.
Kevin.
Just like the Lonely pointed out to read this comment is I don't believe our commentary around investing more in the in the U K is going to change the opex leverage of the business. So I think we're investing in the UK, but it'll be absorbed into the run rate of the company as opposed to anything materially incremental what you're thinking.
About it from an Opex standpoint.
Opportunity point of view of international we are targeted.
Matthew O'brien: I'd also suggest that in BPH procedures, it isn't elected procedure. We do expect some normal seasonal tailwind from our existing surgeons and Q4s. They do more procedures, than they did in the private previous quarter. And I guess it's the last point around kind of how we are comfortable with expanding utilization. Our historical growth in 2022 with that that the growth we experienced last year in our fourth quarter, the guidance we're giving today is very comparable.
Geography.
Right markets to see international is a great opportunity.
Moving quickly.
Nuclear and making sure we have to.
<unk> and K O L an awareness in place.
Got it thanks, a lot for taking the questions.
Yeah.
Thank you.
One moment next question.
Matthew O'brien: That's a sequential growth. It's about five to six percent, the quenchal increase in utilization in Q4 23, which would be very comparable to what we did in Q4 22 as well. So the multitude of factors that get us comfortable that we could continue to expand utilization, even with a greatly expanding install base in the fourth quarter. Got it. Appreciate that feedback.
Next question will come from Neil Kennedy of the Riley Your line is open.
Neil Kennedy.
Your line it will fit in the old separate now why don't we why don't we keep moving here, Okay, I think neil's, having some technical issues and.
We'll try and let's put them at the end and see what happens.
Kevin Waters: And then Kevin, another one for you. Just more on the margin side of things. First margins to down just a little bit. Not the other world. Love to hear what happened there, but then also it looks like the cash burn came down quite a bit. And I know that's an area. Investors have been, you know, focused on so can you just talk about some of the levers that you're pulling on on the operating margin side of things and the cash burn side of things.
Okay.
Thank you.
One moment please for our next question.
The next question will come from Nathan <unk> Ah Wells Fargo. Your line is open.
Hi, guys, congrats on where a quarter I just wanted to can you just clicked on the drivers of system is P variability quarter over quarter I think generally they were expectation that aspie will be down <unk>.
Kevin Waters: Thank you. Yes, I'll just most of the first margins those gross margins. They were around our expectations, but as you pointed out down sequentially that the main contributor for margin. Being down sequentially is really the impact of our system as peas and the impact of that on overall gross margins. If we had capital pricing similar to Q2 or growth margins, in fact would have been roughly 180 base point higher, which would have translated a 56% for 54%.
<unk> Q1, and then kind of stable Q2 through Q4, so maybe if you could just touch on <unk>, what's driving the variability. Thanks.
Yes, thanks, Nathan so like we've mentioned this on previous calls and we have talked about our overall mission.
Partner with our hospital customers drive procedure growth in gain market share and we do have internal limit or so to speak on pricing, but at the same time, we are willing to negotiate on capital and if that means we can get a system in sooner. If we are committed surge that we know it's going to do a lot of volume we will be willing to negotiate.
Kevin Waters: But as we've continually said on previous calls, we do expect quarter to quarter variability on system pricing. And we actually see that rebounding back to 370 in Q4. So we think that's kind of a temporary situation. I'd also point out while not as material is pricing, we did produce of a company relatively fewer units in the third quarter. And therefore our average costs were marginally higher. But now that we're fully into our new facility, we do expect production volumes to return to more historical levels and this one negatively impact margins in the future.
On pricing and.
I think you are going to start to see in our business some seasonality not only in systems sold but also in system ASPD.
And it appears to US that you know Q1, and Q3 appear to be I would say a week or capital quarter, where we've seen Isps now.
Kevin Waters: But we feel good, although I appreciate this quarter to quarter variability, but the trend over time up into the right that's gross margins. Your second question I'm glad you asked on cash. This was as you pointed out from an operating cash slowpoint significantly improved over the previous two quarters. We were in the 35 million in Q1 28 million in Q2 and you saw that number drop below 20 million in the third quarter.
Roughly in the 350 to 355 range, but we saw Q2 as you pointed out at 370 and when we look at the following Q4, we see an increase in Q3. So I do think there's gotta be some quarter to quarter variability, but at the same time when we make the decision on price. It's always in light of the bigger opportunity and how fast cannot hospital.
Kevin Waters: And this is purposeful by the company, particularly given our recent equity rates. Now, we feel that as a business, we're definitely investing in the long term, we're investing in our commercial team. But at the same time, we're being prudent with our cash and we understand in this environment that a pathway to profitability and having object discipline is important. It's always important, but particularly in this environment, you know, we believe that we need to show investors that we can grow the top line and demonstrate leverage on the bottom line. And that's that's what we feel we did in the third quarter. And our guidance suggests on object is that's going to continue in the fourth quarter with relatively flat operating. Thank you. One moment, please.
Oblation standard of care center, so to speak and that's a tradeoff we're willing to make an individual negotiations for each hospital, but we don't have as a management team any concerns kind of about our long-term capital pricing and our ability to get a fair price and a fair margin for our system.
Unknown Attendee: We're all next questions.
Okay. Thanks for that.
Then in terms of just system sales outside the U S. They they were down pretty meaningfully quarter over quarter can can you just talk about <unk> and I guess your outlook for Q4, and then maybe it's a 2024.
Yeah, it's timing Nathan to be honest I mean at these volumes if you pick up your European customers, particularly in capital I mean, I think the seasonality in Q3 is even more pronounced than.
Then the U S quite frankly, we did see strong utilization overseas, even without seasonal factor, but when we look at the pipeline we have some very robust queue to talk.
Richard Newitter: Our next question will come from Richard Newitter of two securities. Your line is open. Hi. Thanks for taking the questions. Congrats on the quarter. Just couple for me. You mentioned, I think Kevin, you know, a productivity for your capital revenue. In the past, I think you said you target that getting north of four to five, you know, systems per rep. If you're heading into next year with 35 to 40. I mean, is that that the right kind of rule of thumb, thumb to just be thinking about broad strokes. Good rule of thumb. I would remind you that you said to get to that productivity. It does take a rep on average six to nine months, but you believe that productivity is the ballpark. Correct.
Talking about relatively few units as well right and you see a good bundle in queue for and I would expect capital to rebound in queue for based on what we see in the pipeline, but we're not reading into anything other than the timing on Capitol internationally.
Great. Thanks.
Thank you very much.
Thank you.
And one moment for our next question.
Uhm next question will come from my Kratky of Leerink Partners. Your line is open.
Hi, Thanks for taking a question.
Can you provide a little black color on next steps for occupation in prostate cancer and how you think about the overall size of that market opportunity and just your level of confidence that that could be an effective treatment options for patients.
Kevin Waters: Okay. And then can you comment at all on the percent of IDN, either orders or, you know, I know you said that you're at the highest level of IDN contracting, exiting to Q or entering 2023. Maybe that was the comment to just talk about those percentages and, you know, one, what, what, what percentage you add and where do you expect to be as you exit the year in terms of IDN as percentage total orders.
Yeah. Thank you for the question.
Excited about the cancer opportunity.
This is a early and the reason the sorts of is that he has we mentioned from the very beginning of the coffees.
We're asking us to enter this segments and because this is the same and Anthony same procedure and the same surgery and it makes sense considering some of the.
Kevin Waters: And then to how if at all, does that impact, you know, pricing, do those, do those results, do those reflect multi, multi system orders and, or is there any, any, anything you can give us in terms of IDN orders and where they fall on the kind of the range of ASP that you delineated in the past between 350 and 400,000. Thank you. Yeah. Thanks. Right. Let me start with pricing. So our IDN relationships do not impact our system ASP's negatively saw all the start with that.
Had gathered in R. S J trial on the.
The procedure is.
If we can't show similar visa.
Resolves into cancer treatments is.
Could get great opportunity for millions of men bus ticket under five nine but the game. This is very early this is a great opportunity very early it makes perfect sense for us to have that is our next indication.
Kevin Waters: That's the quarter to quarter variability around system pricing is not a reflection of IDN deals. So let's start with that one. So your broader question on IDN, we do continue to partner with IDN affiliated hospitals. As we mentioned, we do believe we're on track to have the majority of all large IDN under contract by the end of 2023, which were a business at our stage of commercialization to something, you know, we're really frankly proud of as a management team here.
I'm Gonna add even though you did not I think the beauty of this indications for prozac.
Is the project currently doesn't require any material increases.
Our R&D span R&D group. This is purely a clinical effort over the next one to two years, which is nice.
We get to move forward and make a lot of progress, but keep 99% of the organizations resources and focus on our opportunity and BPH. So we're really excited about it.
Kevin Waters: And I think it's a great testament to the technology with that said, I think you're hearing from other companies that sell capital and we're not any different. We are not seeing large both buys from our IDN partners in 2023. And our guidance, it's not dependent on any improvement in this environment in to four. I think when we enter the year, why we said we weren't dependent on large both buys. I think we were thinking, you know, we had the possibility to get a few this year, but those just are going to be pushed into 2024.
Understood. Thanks.
[noise] welcome glad to have you on board.
Thank you very much.
Thank you.
<unk> and how can a session on the call I would now like to turn the conference back to the C E O.
Is that now how closing remarks.
Or attending earnings call. We look forward to seeing you in speaking with you in the future conferences have a very nice day.
Kevin Waters: And if anything, I think we view our IDN relationship with the future tailwind for us, because we're able to meet our 2023 capital expectations really without any bulk buy. We've been kind of wanting to do these negotiating with individual hospitals under their RFP process as opposed to any type of large quote buy. So none in our current sales in the first half or the first nine months of 2023, but something we continue to work on and working on deepening those relationships daily.
This concludes today's conference call. Thank you all for <unk>.
[noise] participating me now disconnect and have a pleasant day.
[music].
Unknown Attendee: Okay, thank you very much. Thank you. One moment please for our next question. Our next question If your phone is on mute, please unmute your line. If you're using a headset, please put on your headphones. Mr. Neal, go to the next one. Thank you. One moment. And again, one moment for our next question. The next question will come from Brandon Vazquez of William Blair.
Brandon Vazquez: Your line is open.
Brandon Vazquez: Hi, everyone. Thanks for taking the call.
Brandon Vazquez: One, maybe a quick clarification question and a little bit about future plans on the capital rep side. I think you had just mentioned you exit this year with somewhere between 35 to 40. Are you able to shore us up on where you are today? And then as you look to next year, I think you've discussed before that there's room for further expansion.
Reza Zadno: As you look to 24, do you hire a cohort for 2024 as we go into the year, or do you hire that cohort in 24 any updated doctor on that? We're probably regards to Kay and for about halfway to be fair and for where we want to be. So think of around 35 sitting here today, which may have another class probably five coming in here in the next two months. I'd also suggest that in 2024, you know, the plan isn't to stop, but at the same time, I don't think we're in a position to call out the exact number of capital folks we're going to add.
Reza Zadno: You know, as the business gets more complicated and we get into more accounts, it's not just going to be capital reps. We hire, we're looking at things like strategic account managers, we're looking at key accounts, we're looking at IDN relationship. So I think it becomes a little messier, so to speak in 2024, but we definitely continue to plan and invest in that business. We still want to make sure we're investing responsibly, making sure we're not sacrificing outcomes, making sure we're not moving too fast, being very methodical about how we have people organization.
Kevin Waters: Okay, thanks.
Reza Zadno: So then internationally, I mean, you guys have had a couple of nice wins, especially in the UK, you've mentioned that you might step up investments in the UK through 24. Can you talk a little bit about what those investments are, when that can accelerate? I mean, you have good reimbursement there, you have endorsements, you're making some investments. Is there any reason that UK opportunity can't be a high growth area or a high growth in the area that we're seeing in the US?
Reza Zadno: Definitely, we are very pleased with the other solid quarter we have from international international strategy has always been to market development and working with KRLs and increase awareness. As you mentioned, recent announcement by Nice, having this third arrangement is a great driver and catalyst for our product in the UK. For that, we will increase our sales infrastructure in the US, in the UK, and international dependencies, Japan, the same more focused on UK, our immediate action will be increasing infrastructure.
Reza Zadno: But I'm willing to Kevin. I just think the only point I'd add to runs this comment is, I don't believe our commentary around investing more in the UK is going to change kind of the object leverage of the business. So I think we're investing in the UK, but it'll be absorbed into the run rate of the company as opposed to anything materially incremental if you're thinking about it from an object, from an opportunity point of view international, we are targeting those geographies that is a great market to see international as a great opportunity, but we are moving very metaphorically and making food. We have to endorsement and KOL and awareness in place.
Brandon Vazquez: Got it. Thanks for taking the questions.
Unknown Attendee: Thank you.
Neil Chatterjee: One moment for our next question. Next question.
Unknown Attendee: Welcome from Neil Chatterjee of Be Riley. Your line is open. Neil Chatterjee.
Nathan Treybeck: We will send Neil a separate note. Why don't we keep moving here? I think Neil's having technical issues and we'll try and let's put it at the end and see what happens. Thank you. One moment please for our next question. The next question will come from Nathan Treybeck of Well Fargo. Your line is open. Hi, guys. Congrats on the great quarter. I just want to, can you just clutch on the drivers of system ASP variability quarter recorder.
Nathan Treybeck: I think generally there were expectations that ASP will be down sequentially in Q1 and then kind of stable Q2 through Q4. So maybe if you could just clutch on what was driving the variability. Thanks. Thanks Nathan. So look, we've mentioned this on previous calls and we have talked kind of about our overall mission. The partner with our hospital customers drive procedure growth and gain market share and you know, we do have internal limit or sort of speak on pricing.
Nathan Treybeck: But at the same time, we are willing to negotiate on capital. And if that means we can get a system in sooner, if we have a committed surgeon that we know is going to do a lot of volume, we will be willing to negotiate on pricing. And I think you are going to start to see in our business some seasonality, not only in systems sold but also in system ASP. And it appears to us that you know Q1 and Q3 appear to be, I would say a weaker capital quarter where, you know, we've seen ASPs now, you roughly in the 350 to 350 five range.
Nathan Treybeck: But we saw Q2 as you point out at 370 and when we look at the funnel and Q4, we see it increase in Q3. So I do think there's just going to be some quarter to quarter variability. But at the same time, when we make the decision on price, it's always in light of the bigger opportunity and how fast can that hospital become an occupation standard of care center, so to speak.
Nathan Treybeck: And that's a trade off, you know, we're willing to make in its individual negotiations with each hospital, but we don't have a demand team, any concerns kind of about our long term capital pricing and our ability to get a fair price and a fair margin for our system. Okay, thanks for that. And then in terms of just system sales outside the US, they were down pretty meaningfully quarter recorder. Can you just talk about what drove this and I guess your outlook for Q4 and then maybe it's a 2024.
Nathan Treybeck: This timing, they said to be honest, I mean, at these volumes, if you think of European customers, particularly in capables, I mean, I think the seasonality in Q3 is even more pronounced than the US, quite frankly, we did see strong utilization overseas, even with that seasonal factor, but when we look at the pipeline, we had some very robust Q2 where you're talking about relatively few units as well, right? And we see a good funnel in Q4, and I would expect capital to rebound in Q4 based on what we see in the pipeline, but we're not reading anything other than timing on capital internationally. Great. Thanks. Thank you very much. Thank you. And one moment for our next question.
Michael Kratky: Our next question will come from Mike Kratky of Learing Partners. Showline is open. Hi, everyone. Thanks for taking our question. Can you provide a little bit of color on next steps for aquablation in prostate cancer? How are you thinking about the overall size of that market opportunity and just your level of confidence that that could be an effective treatment option for patients? Thank you for the question.
Reza Zadno: You're very excited about the cancer opportunities, but this is very early. And the reason we started this study as we mentioned from the very beginning of the company. We're asking us to enter this segment, and because this is the same anatomy, same procedure and the same surgery. And it makes sense considering some of the data we have gathered in our FG trial on the procedure. If we can show similar results in the cancer treatment, this could be a great opportunity for millions of men who are sitting on the pipeline.
Reza Zadno: But again, this is very early. This is a great opportunity. Very early. It makes perfect sense for us to have that as our next indication. I'm going to add, even though you did not, I think the beauty of this indication for process is the project currently doesn't require any material increases or R&D spend or R&D group. This is purely a clinical effort over the next one to two years, which is nice.
Reza Zadno: As we get to move forward and make a lot of progress, we keep 99% of the organization's resources and focus on our opportunity and BPH. So we're really excited about it. Understood. Thanks. Welcome. Glad to have you on board. Thank you very much. Thank you.
Unknown Attendee: This will end our Q&A session on the call.
Reza Zadno: I would now like to turn the conference back to the CEO for the Zadno for closing remarks. We're attending our earnings call. We look forward to seeing you and speaking with you in the future conferences.
Unknown Attendee: Have a very nice day.
Unknown Attendee: This concludes today's conference call. Thank you all for watching. I'm going to participate in you now disconnect and have a pleasant day.