Q4 2023 PROCEPT BioRobotics Corp Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Procept Biorobotics Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to the Q4 2023 receptor by Robotics earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you wouldn't hear an automated.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message that your hand is raised.

That's what you'd find in your hand, it's raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Matt Baskerville, Vice President of Investor Relations. Please go ahead.

Yeah.

Good afternoon, and thank you for joining process by Robotics fourth quarter 2023 earnings conference call presenting on today's call are 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 or performance.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Matt Basco, Vice President of Investor Relations. Please go ahead.

Statements as defined under the private Securities Litigation Reform Act.

While these forward looking statements are based on management's current expectations or beliefs.

Matt Basco: Good afternoon and thank you for joining Procept Biorobotics fourth quarter 2020, and Chris Pasquale, Ryan Zimmerman, Procept and Chris Pasquale, Ryan Zimmerman, Procept, Biorobotics, and Securities and Exchange Commission, all of which are available online at www.sec.gov. Procept 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. For more information about how non-GAAP financial measures, as well as reconciliations of these measures to their nearest GAAP equivalent, are included in our earnings release. With that, I'll turn the call over to Reza. Good afternoon, and thank you for joining us.

Subject to several risks uncertainties assumptions and other factors that could cause results to differ materially expectations expressed on this conference call. These risks and uncertainties are disclosed or detail and pushed up our box filings with securities and Exchange Commission.

Which are available online at Www SEC.

Dot Gov listeners are cautioned.

Cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date February 27th 2024, except as required by law Prosopyle robotics undertakes no obligation to update or revise any forward looking statements to reflect new information circumstances 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 he uses these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent are included in our earnings release with that I will turn the call over to arrest.

Good afternoon, and thank you for joining us for today's call I will provide opening comments on our business.

Reza: For today's call, I will provide opening comments and a business update, followed by Kevin to provide additional detail regarding our financial performance and initial 2024 guidance before opening the call to Q&A. Starting with our quarterly revenue results, we are pleased to report another strong quarter of total revenue for the fourth quarter of 2023 of $43.6 million, representing growth of 83% compared to the fourth quarter of 2022. On a full year basis, total revenue was $136.2 million, representing growth of 82%, and average monthly utilization in the U.S. by approximately 10%, an exceptional feat, especially considering the substantial 89% increase in our U.S. installed base. The significant increase in new accounts in conjunction with our ability to get these accounts up to utilization care faster further amplifies my pride in our team's accomplishments throughout the year, despite the strong underlying demand for We were able to deliver average utilization of approximately 6.6 handpieces per account per month in 2023 and a record 7.3 handpieces per account in our fiscal quarter.

Eight followed by Kevin.

That's just all details regarding our financial performance and initial 'twenty 'twenty four guidance before opening the call to Q&A.

Starting with our quarterly revenue results.

We used to report another strong quarter.

For the fourth quarter up 23, $43.6 million, representing growth of 83% compared to the fourth quarter up one she's got Youtube.

On a full year basis total revenue was $136 $2 million representing growth of 82%.

Increased average spot.

In the U S by approximately 10% an exceptional feat, especially considering the substantial 89% increase in our U S installed base.

The significant increase in new accounts in conjunction with our ability to get these accounts these funds.

Patient care faster or that I'm surprised Mike right and our team's accomplishments throughout the year.

Given the strong underlying demand.

Therapy.

You weren't able to Delaware Avenue.

Not by approximately $6 six and pieces per account per month in 2023, and a record seven three hand pieces per head count in our fiscal fourth quarter.

Reza: As a reminder, our initial 2023 guidance assumed utilization of approximately 6.0 handpieces per month. With this rapid rate of adoption and support for acupressure therapy, I am more confident than ever in our company's ability to become the standard of care for BPS patients. As we enter 2024, we believe there are several positive factors that will allow us to continue to execute against our long-term growth plan while being disciplined in showing a path to profitability. We believe these underlying fundamentals reflect the technology that is laying the foundation to become the BPH surgical standard of care and a business that will be a leading neurology franchise globally, starting with the current urology market in the United States. We are very fortunate to operate in a large market where the number one reason men see urologists are symptoms associated with BPH.

As a reminder, our initial 2023 guidance.

Assume utilization of approximate six zero and pieces per month.

At this rapid rate of adoption and supports our activation therapy I have more confidence than ever.

Companies I believe.

I ended up yet or BPH patients.

As we enter 'twenty 'twenty four we believe there are several positive factors, which will allow us to continue to execute against our long term growth.

While being disciplined and showing your path to profitability.

We believe these underlying fundamentals like the technology that is laying the foundation to keep them there.

Surgical standard of care in a business, that's going to be a beating urology franchise.

Starting with the current urology market in the United States.

We are very fortunate to operate in a large market, but the number one <unk> been seeing urologists are symptoms associated with BPH.

Reza: Even the shortcomings of current surgical alternatives, an aging population that continues to increase, and the millions of men who currently forego treatment, we believe underlying market growth will be attractive for many years to come. We also believe urology patient volumes at our accounts continue to grow nicely. In fact, some urologists have indicated that in addition to normal patient activity, an increasing number of men who have failed medication are now seeking to schedule a coagulation therapy procedure as it relates to hospital capital spend.

The shortcomings of current surgical alternatives and aging population that continues to increase and the millions of men.

We believe underlying market growth will be attractive for many years to come.

We also believe urology patients.

Our accounts continued to grow nicely.

In fact, some urologists have indicated that in addition to normal patient activity.

An increasing number of men who have failed education are now seeking to schedule that correlation therapy procedure.

As it pertains to the hospital capital spending.

Reza: 2023 was a challenging year for most hospitals due to accelerating inflation pressure, which lengthened the average recovery from the pandemic. Despite these persistent headwinds, we were able to achieve our 2023 sales goals. However, we believe the market is more stable now compared to the previous six to nine months. With a growing and increasingly educated patient population, along with motivated urologists, we are seeing hospitals continue to prioritize investment in cutting-edge technologies to ensure they stay competitive and not lose patients to other area hospitals. We believe our AquaBeam robotic system allows hospitals to operate cutting-edge technology in the BPH surgical space.

123 was a challenging year for most hospitals due to accelerating inflation pressure.

And the average recovery from the pandemic.

Through these persistent headwinds we were able to achieve our 2023 sales goals. However, we believe the market is more stable now compared to the previous six to nine months.

Okay growing and increasingly educated patient population along with multibank urology.

<unk> hospitals continue to prioritize investment.

You guys technologies to ensure they stay competitive not lose patience to other area hospitals.

We believe our Aqua beam robotic system allows us to cost cutting edge technology in the PPA surgery space.

Reza: We also exited the fourth quarter of 2020. The U.S. installed a base of 315 systems out of a target market of 2,700 total hospitals that perform BPA surgery, while our initial commercial strategy was to target the most influential KOLs at 860 high-volume hospitals. We have also been successful selling Aqualation Therapy programs to the remaining 1,800 low-volume hospitals.

We also exited the fourth quarter of 2023 U S installed base of 315 system out of a target market.

700 hotels hospitals that perform BPA surgeries.

While our initial commercial strategy was to target the most influential kols at the 860 high volume hospitals.

We have also been successful in selling well.

ERP programs, two remaining 1800 <unk> hospitals.

Reza: It is important to point out that the low-volume PPH hospital does not mean a significant number of low-volume BPH hospitals or large surgery centers who historically did not perform resective surgery. Even the disruptive nature of our technology and that patient outcomes are independent of surgeon skill or experience, low-volume centers can build a robust practice with aquablation therapy and not have to refer out to area specialists. Given this market dynamics, we are still very early in our adoption curve with a long runway in front of us. In terms of our pipeline, the number of opportunities continues to grow meaningfully as we expand into new greenfield territories and add to our capital sales. Compared to a year ago, we currently have more than double the opportunity to have cleared the stage where we assigned a high level of confidence to close. Also, a significant percentage of our pipeline consists of low-volume hospitals. Kevin will discuss later, our guidance philosophy continues to be informed by what we are seeing in our pipeline, how opportunities progress, what customers are telling us, and overall close rates. Learning to Commercial Organizations

It is important to point out that the low volume BPH Hospital does not mean small a significant number of low volume BPH hospitals are large surgery centers.

Well historically.

Detective surgeries.

Given the disruptive nature of our technology and that patient outcomes are and about the surgeon's skill our experienced global centers can build a robust <unk>.

With a combination therapy and not have to retire our.

Specialist.

Given these market dynamics are still very early in the adoption curve with a long runway in front of us.

In terms of our pipeline a number of opportunities continue to grow meaningfully as we expand into a new greenfield territories and add to our capital sales team.

Compared to a year ago.

More than double opportunity, perhaps clear at this stage, where we assigned a high level of confidence to close.

Also a significant percentage of our pipeline.

Low volume hospitals.

Kevin will discuss later our guidance philosophy continues to be informed by what we are seeing in our pipeline how opportunities progress.

Customers are telling us and overall close rates.

Turning to commercial organization.

Reza: As mentioned in the previous earnings call, our plan was to further expand our field-based commercial team in 2022. Speaking specifically about our capital sales personnel, we entered 2024 with approximately 40 capital sales reps, of which 10 were added in the third and fourth quarter of 2021. As a reminder, the productivity curve of capital reps is approximately six months.

As mentioned on previous earnings call. Our plan was to further expand our field based commercial team in 2023.

Speaking specifically about our capital sales personnel. We entered 2024, approximately 40 capital sales reps of which 10 were added in the third and fourth quarter of 2023.

As a reminder, we believe the productivity care about capital reps approximately six months.

Reza: Over this six-month period, they are responsible for building out their respective pipelines. Thus, we do not expect the capital reps added in the fourth quarter of 2023 to start meaningfully contributing to U.S. system sales until the second half of 2024, which is factored into our 2024 guidance. However, we entered 2024 with the highest percentage of capital reps to have been with Procept for more than 12 months. This is an important metric we track closely, since continuity within territories correlates strongly to increased confidence in future deals.

Over the six months period.

Responsible for building out their respective pipelines.

We do not expect the capital reps added in the fourth quarter of 2023 to start meaningfully contributing to U S system sales until the second half up budgets about anymore.

Is factored into our 2020 for guidance.

However, we entered 2024 with the highest percentage of capital reps have been with process for more than 12 months. This is an important metric we track closely since continuity within territory.

Correlates strongly to increased confidence up future deals closing.

Reza: Additionally, we hired a new strategic account team, which is not included in the 40 capital reps mentioned previously. The role of our strategic accounts team will be focused on partnering with strategic IDN networks across the country to improve our sales efficiency in both the capital selling process and improve utilization at targeted IDNs. As a reminder, we were successful in establishing sales and legal contracts with the majority of large strategic IDNs in 2020, despite not receiving any corporate IDN ballpipes in 2020. We believe we are making progress building these relationships, which could be a tailwind in our initial 2020 for Revenue Biden. Next, touching on our utilization. Given our strong commercial momentum and expanding pipeline, 2023 was an investment year to meaningfully increase headcount and add capacity to support future growth. Similar to our capital, we entered 2024 with the most experienced utilization team in the company's history. While we will continue to increase headcount in 2024, it will be at a much slower pace compared to 2023. Our goal in 2024 will be for these reps to continue identifying, training, and educating new surgeons on existing and new accounts to increase utilization. Learning to Surgeon Interest and Patient Awareness

Additionally, we hired a new strategic account team, which is not included in our fourth capital reps mentioned previously.

All of our strategic accounts team will be focused exclusively on partnering with strategic idea networks across the country to improve our sales efficiency in both the capital selling process and improve utilization at target.

As a reminder, we were successful in establishing sales and legal contracts with the majority of large strategic ideas in 2023.

Despite not receiving any corporate IGN bulk buys in 2023, we believe we are making progress building piece relationships, which could be a tailwind in our initial 2020 for revenue guidance.

Next touching on our utilization.

Given our strong commercial momentum and expanding pipeline.

<unk> three was an investment year to meaningfully increase head count and add capacity to support future growth.

Similar to our capital Rep team.

We entered 2024 with the most experienced repossession.

Company's history.

While we will continue to increase head count in 2024, it will be at a much slower pace compared to 2023.

Our goal in 2024 will be for these traps to continue identifying training and educating new search engine I think existing and new accounts to increase utilization.

Turning to surgeon interest and patient awareness.

Reza: As we have communicated to investors over the last 12 months, our primary focus is for our coagulation therapy to become the standard of care for BPH surgeons. To achieve this goal, we have prioritized surgeon engagement, patient outcomes, and training. Surgeon interest has increased meaningfully, resulting in active surgeon growth of approximately 70% compared to 2022 levels. While the primary driver of procedure volume continues to be active surgeon growth, our ability to also sustain surgeon retention rates above 90% from order to order demonstrates the clear patient and surgeon benefits of our technology, ultimately leading to increased utilization. As a company, we benefit greatly from this high level of surgeon retention as our commercial team can focus on adding new surgeons. As it relates to specific populations, therapy, and patient interest, we have also seen a meaningful uptick in our search activity. Hospital customers continue to drive a significant amount of direct patient advertising and have reported attracting many new patients to their hospitals that are seeking out acupuncture therapy.

As we have communicated to investors over the last 12 months. Our primary focus is for a combination therapy.

Standard of care or PPA surgery.

To achieve this goal, we have prioritized search and engagement patient outcomes and training.

Surgeon interest has increased meaningfully resulting in active surgeon growth of approximately 17% compared to 2022 levels.

While the primary driver of procedure volume continues to be active surgeon growth our ability to also size same search on retention rates above 90% quarter to quarter demonstrates the clear <unk> Chen at search and benefits of our technology, which ultimately leads to increased utilization as the <unk>.

Company, we benefit greatly from this high level of surgeon and yet as our commercial team can focus on adding new surgeons.

As it relates to specific ablation therapy patient interest.

<unk> also seen a meaningful uptick in our search activity post.

Hospital customers continued to drive a significant amount of direct patient advertisers and have reported attracting many new patients to their hospital that are seeking out Apple ablation therapy.

Reza: Our current strategy will continue to be focused on surgeon engagement and awareness. However, we believe patients actively researching acquisition therapy and following CS Surgeon is another positive indicator for expanding product awareness and presence in the marketplace. Next, I want to touch on reimbursement and private pay coverage. School quarter of 2020.

Our current strategy will continue to be focused on surgeon engagement and awareness.

However, we believe patients actively researching Appalachian therapy following through search and is another positive.

For our expanding product awareness and presents in the marketplace.

Next I want to touch under enforcement at private pay coverage.

The fourth quarter of 2023, CMS finalized its 2020 for hospital outpatient prospective payment system.

Reza: CMS finalized its 2024 Hospital Outpatient Prospective Payments. The Level 6 APC code for our procedure will provide the hospital approximately $8,800 for each accobulation procedure, which is roughly a 2.5% increase over the 2023 rate. Following the addition of UnitedHealthcare in June, we now estimate roughly 95% of men in the U.S. have access to accolation therapy, which is an increase from approximately 75% in January of 2023. With respect to the International Market Development Act, we generated $3.3 million of international revenue in the fourth quarter of 2023, presenting growth of 64% compared to the prior year period. Growth in the fourth quarter was driven primarily by strong sales momentum. Since NICE granted its strongest endorsement, the standard arrangement, recommendation for acquisition therapy in October, our pipeline of large NHS hospitals has increased meaningfully.

Level six APC code for our CGM can provide the hospital approximately $8800 or each aqua ablation procedure, which is roughly two 5% increase over the 2023 trades.

Following that.

Healthcare in June we now estimate just a 95% now many of the U S access to Appalachian therapy, which is an increase from approximately 75% in January of 2023.

With respect to the international market development activities.

We generated $3 $3 million of international revenue in the fourth quarter of 2023, presenting growth up 64% compared to the prior year period.

In the fourth quarter was driven primarily by strong sales momentum in the United Kingdom.

Since nice granted strongest endorsement expanded IH been compensation for acquisition in therapy in October our pipeline of large NHS hospital has increased meaningfully.

Reza: With respect to market development activities in the UK, we are very pleased with the momentum we have generated, even the accelerating interest from UK surgeons and strong unit economics on handpiece and system average selling prices. We plan to make further investment over the next 12 months in the UK to accelerate growth and expand patient awareness. Additionally, in December, we completed enrollment in our post-market survey in Japan to treat 100 patients with Aqualation Therapy.

With respect to market development activities in the U K. We are very pleased with the momentum we have generated given the accelerating interest from UK search engine and strong unit economics on Handpiece and system average selling prices.

To make further investment over the next 12 months in the U K to accelerate growth and expand patient awareness.

Additionally in December we completed enrollment of our post market surveillance, Japan achieved 100 patients with activation therapy.

Reza: While we view Japan as a very attractive market long term, it's going to take some time to build our pipeline and launch accounts to start generating meaningful procedure volume. Like the U.S. and United Kingdom, our strategy is to lead with clinical data to support a more robust and sustainable commercial bond. Lastly, we continue to make progress enrolling patients in both prostate cancer studies. In fact, since we announced our prostate cancer initiative in September, we have received numerous inquiries from urologists all around the world who are not only interested in BPH but also very enthusiastic about its potential to treat prostate cancer.

While we view, Japan as a very attractive market long term, it's going to take some time to build our pipeline and launch accounts to start generating meaningful procedure volume.

U S and the United Kingdom, our strategy is to lead with.

Clinical data to support a more robust and sustainable commercial launch.

Lastly, we continue to make progress enrolling patients in both prostate cancer studies.

Since we announced our prostate cancer.

In September we have received numerous inquiries from urologists all around the world who are not only interested in BPH, but also very enthusiastic about the potential to treat prostate cancer.

Reza: As we continue to make progress on the clinical front, we will disclose information when appropriate. In summary, as I look back over the last 12 months, I'm extremely proud of what our company was able to accomplish in a challenging macro environment. Despite this macro advantage, we generated significant revenue growth by selling capital and increasing utilization of active accounts. Additionally, we moved into a new and larger facility and hired a significant number of commercial team members, which presented its own execution challenge that the team was able to successfully navigate.

As we continue to make progress on the client upfront.

Disclose information when appropriate.

In summary, as I look back over the last 12 months I'm extremely proud of what our company was able to accomplish in a challenging macro environment. Despite these macro headwinds.

Our significant revenue growth by selling capital and increasing utilization of active accounts.

Additionally, we moved into a new and larger facility and hired a significant number of commercial team members, which presented its own execution challenges that the team was able to successfully navigate.

Reza: These investments were necessary and essential for our future growth, moving into 2024. I have a higher 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,

These investments were necessary is essential for our future growth.

Going into 2024.

I have a higher 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.

Reza: Our pipeline and sales funnel continue to grow nicely in what we currently believe is a more stable macroenvironment. On average, the longer an account has been active, the more procedures fail. We are launching new accounts with more surgeons while sustaining retention rates consistently above the nation. Our commercial organization is the largest and most tenured in the company's history, which we believe will lead to increased productivity. And lastly, we will continue to enroll patients in both prostate cancer studies to support aquablation therapy's clinical value in this therapeutic area and expand our footprint in the larger urology market. Given this positive momentum, we believe Acquablation Therapy is laying the foundation to become the BPH surgical center of care, and Procept is... a leading global urology company. With that, I will turn the call over to Kevin. Thanks, Reza.

Our pipeline and sales funnel continued to grow nicely and what's been currently believe is a more stable macro environment.

On average the longer an account has been active in more procedures pager.

We are launching new accounts with more surgeons, while sustaining retention rates consistently above 90%.

Our commercial organization is the largest and most tenured in the company's history, which we believe will lead to increased productivity.

And lastly.

We will continue to enroll patients in both prostate cancer studies to support Aqua ablation therapies clinical value in this therapeutic area to expand our footprint in the larger urology market.

This positive momentum, we believe Aqua ablation therapies laying the foundation to become maybe potential cost ended up care and process is emerging as a leading global urology.

With that I will turn the call over to Kevin.

Kevin: Total revenue for the fourth quarter of 2023 was $43.6 million, representing growth of 83% compared to the fourth quarter of 2022. U.S. revenue for the quarter was $40.3 million, representing growth of 85% compared to the prior year period. In the fourth quarter, we sold 44 AquaBeam robotic systems at average selling prices of $376,000, generating total U.S. system revenue of $16.6 million, representing system revenue growth of 59% compared to the fourth quarter of 2022.

Thanks Rhonda.

Total revenue for the fourth quarter of 2023 of $43 $6 million, representing growth of 83% compared to the fourth quarter of 2022.

U S revenue for the quarter was $40 3 million representing growth of 85% compared to the prior year period.

In the fourth quarter, we sold 44, Aqua beam robotic system with average selling prices of $376000 generating total U S system revenue of $16 $6 million.

Representing system revenue growth.

<unk>, 9% compared to the fourth quarter of 2022.

Kevin: U.S. handpiece and consumable revenue for the fourth quarter of 2023 was $21.6 million, representing growth of approximately 109% compared to the fourth quarter of 2022, and Peace Growth was driven by an increase in the installed phase of AquaBeam robotic systems, which has grown 89% from the fourth quarter of 2022. Additionally, we have seen an increase in utilization from our installed base. Monthly utilization per account, 7.3, increased approximately 13% compared to the fourth quarter of 2022. Utilization outperformance in the fourth quarter was due to normal fourth quarter seasonal strength from elective procedure volumes, a direct reflection of strong commercial execution, and surgeons taking the next step to adopt aquavolation therapy as their treatment of choice for all resective procedures.

U S handpiece in consumable revenue for the fourth quarter of 2023 with $21 6 million.

Representing growth of approximately 109% prior to the fourth quarter of 2022.

<unk> growth was driven by an increase in the installed base of Aqua and robotic system, which has grown 89% from the fourth quarter of 2022.

Additionally, we have seen an increase in utilization from our installed base.

Monthly utilization per account seven three increased approximately 13% compared to the fourth quarter of 2022.

Utilization outperformance in the fourth quarter was due to normal fourth quarter seasonal strength from elective procedure volume the direct reflection of strong commercial execution and surgeons, taking the next step adopt alkylation therapy as a treatment of choice for all respective procedures.

Kevin: We continue to see increased account level utilization over time as we train new surgeons and increase utilization of our existing surgeon base. We shipped approximately 6,400 handpieces in the United States in the fourth quarter, representing unit growth of 116% compared to the fourth quarter of 2022 with a stable average selling price. We also recorded $1.6 million of other consumable revenue in the fourth quarter of 2023. International revenue for the fourth quarter was $3.3 million, representing growth of approximately 64%. Gross margin for the fourth quarter of 2023 was 49%, which was negatively impacted by approximately $2.5 million of items primarily associated with the relocation of our corporate headquarters in September 2023. We'll provide more detail on this $2.5 million impact. First, we recorded year-end inventory adjustments, which were mainly due to certain write-offs primarily attributable to our move.

We continue to see increased account level utilization over time, as we train new surgeons and increased utilization of our existing surgeon base.

We shipped approximately 6400 acres in the United States for the fourth quarter, representing unit growth of 116% compared to the fourth quarter of 2022 with stable average selling prices.

We also recorded $1 6 million of other consumable revenue for the fourth quarter of 2023.

International revenue for the fourth quarter was $3 3 million representing.

Representing growth of approximately 64%.

Gross margin for the fourth quarter of 2023, with 49%, which was negatively impacted by approximately $2 $5 million of items, primarily associated with the relocation of our corporate headquarters September 2023.

I'll provide more detail on this $2 5 billion impact.

We recorded year end inventory adjustments, which were mainly due to certain write offs primarily attributable to our move.

Second we produced fewer units than anticipated in the back half of 2023, thus increasing the average cost of inventory sold due to unabsorbed overhead expense.

Kevin: Second, we produced fewer units than anticipated in the back half of 2023, thus increasing the average cost of inventory sold due to unabsorbed overhead expense. Lastly, we incurred an approximate 35% increase in scrap when producing units compared to the third quarter of 2023. We have addressed these factors and are already seeing improvements in the first quarter of 2024. I will discuss guidance shortly, where we will see margin levels return to the mid-50% range in the first quarter. Audio is muted due to copyright conditions, so editing is very noisy on the Peabody 24-inch monitor.

Lastly, we incurred an approximate 35% increase in scrap when producing units compared to the third quarter of 2023.

We have addressed these factors and are already seeing improvements in the first quarter of 2024.

I will discuss guidance shortly where we will see margin levels returned to the mid 50% range in the first quarter.

<unk> increased throughout 2024.

Moving down the income statement.

Operating expenses in the fourth quarter of 2023 were $50 8 million compared.

Compared to $35 7 million.

Same period of the prior year.

$44 5 million for third quarter of 2023.

Although operating expenses sequentially increased $6 million when comparing revenue growth to operating expense growth. We grew revenues, 83% in the fourth quarter and 42% operating expense growth.

Kevin: Changing interfaces is noisy on the Popapin Monte, and the time signature is loud. Moving down the income statement, total operating expenses in the fourth quarter of 2023 were $50.8 million, compared to $35.7 million in the same period of the prior year. $44.5 million in the third quarter of 2023. Although operating expenses sequentially increased $6 million, when comparing revenue growth to operating expense growth, we grew revenues 83% in the fourth quarter on 42% operating expense growth. In the fourth quarter, operating expenses exceeded our guidance as we pulled forward investments to expand our commercial organization and accelerate R&D investments ahead of 2024. Total interest and other income of $2 million as quarterly interest expense from our $52 million term loan was offset by favorable interest income from our cash balance, which was significantly increased with our recent equity financing in August 2023. The net loss was $27.5 million for the fourth quarter of 2023, compared to $28.2 million in the same period of the previous year. Justin Iveda had a loss of $23.3 million compared to a loss of $21.7 million in the fourth quarter of 2022. Our cash and cash equivalents balance as of December 31st was $257 million.

In the fourth quarter operating expenses exceeded our guidance as we pulled forward investment to expand our commercial organization and accelerated R&D investments ahead of 2024.

Total interest and other income of $2 million as 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 August 2023.

Net loss was $27 5 million for the fourth quarter of 2023 compared to $28 $2 million in the same period of prior year.

Adjusted EBITDA was a loss of $23 3 million compared to a loss of $21 7 million.

Fourth quarter of 2022.

Our cash and cash equivalents balance as of December 31 was $257 million.

We believe our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business.

Moving to our 2024 financial guidance.

We expect full year 2020 for a total revenue to be approximately $210 million representing growth of approximately 54% compared to 2023.

Starting with U S systems we.

We expect full year system sales exhibit a similar cadence to 2023 or roughly 45% of our system sales were in the first half of the year, which we attribute to normal seasonality and our expanded sales force, becoming more productive in the second half of 2024.

We also anticipate stable average selling prices in 2024 compared to 2023.

Turning to U S adhesives.

We expect to sell approximately 33000 hand pieces for the full year with average selling prices of approximately $3150.

We also expect other consumables revenue to be approximately $9 million for the full year.

Kevin: We believe our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business. We also anticipate stable average selling prices in 2024 compared to 2023. Turning to U.S. anti- We also expect other consumables revenue to be approximately $9 million for the full year.

Regarding quarterly cadence.

<unk> 2023 seasonal trends, we expect first quarter 2024 utilization sequentially declined compared to the fourth quarter of 2023.

Additionally, we expect U S service revenue to be approximately 11 5 billion.

Lastly on the international revenue.

Kevin: Similar to 2023 seasonal trends, we expect first quarter 2024 utilization to sequentially decline compared to the fourth quarter of 2023. Additionally, we expect U.S. service revenue to be approximately $11.5 billion. Given another strong quarter and positive momentum in the United Kingdom, we expect full-year international revenue to be approximately $18 million, representing growth of approximately 60%. Moving down the income statement. Based on what we are seeing quarter to date, we expect first quarter gross margins to be in the 53 to 55 percent range and increasing sequentially throughout the year, regarding 2024 gross margin. First, we are now firmly in our new facility and are operating with stability and have refined our manufacturing processes to reduce production-related expenses, such as scrap. Second, the pace of hiring production personnel will slow in 2024.

Given another strong quarter and positive momentum in the United Kingdom, We expect full year international revenue to be approximately $18 million representing growth of approximately 60%.

Moving down the income statement.

We expect full year 2020 for gross margins to be approximately 57% to 59%.

Based on what we are seeing quarter to date, we expect first quarter gross margins to be in the 53% to 55% range and increasing sequentially throughout the year.

Regarding 2020 for gross margins.

We believe 2023 was a transition year with temporary headwinds associated with moving into a larger facility and investments to support future growth.

It provides us contact to demonstrate why 2024 will begin to show a meaningful margin expansion.

First we are now firmly in our new facility and are operating with stability and have refined our manufacturing processes to reduce production related expenses such as scrap.

Second the pace of hiring production personnel will slow from 2024.

Kevin: Third and most importantly, the largest cost component of our disposable hand... Our fixed overhead expenses, which have forecasted production levels and expenditure in 2024, provide us with increased confidence that we will begin to more fully absorb these expenses, which we believe will allow us to show consistent growth margin expansion. Turning to operating expenses, When comparing our revenue growth guidance to operating expenses, we expected to deliver leverage of 1.9 times, which is an improvement compared to 2023 at 1.5 times. This increase in operating expenses is associated with strategic investments in R&D, commercial team expansion, and underlying general and administrative costs to support the business and put us in a favorable position to execute on our long-term growth plan. Given current interest rates, we expect to generate net interest income of approximately $7 million in 2024. We expect the full-year 2024 adjusted EBITDA loss to be approximately $73 million.

Third and most importantly, the largest cost component of our disposable hand pieces, our fixed overhead expenses, which had forecasted production levels and spend in 2020 or provide us with increased confidence that we will begin to more fully absorb these expenses.

Which we believe will allow us to show consistent gross margin expansion.

Turning to operating expenses we.

We expect full year 2020 for operating expenses to be approximately $231 $5 million representing growth of 29%.

When comparing our revenue growth guidance to operating expenses, we expect to deliver leverage of one nine times, which is an improvement compared to 2023 at one five times.

This increase in operating expense is associated with strategic investments in R&D commercial team expansion in underlying general and administrative costs to support the business and put us in a favorable position to execute on our long term growth plan.

Given current interest rates, we expect to generate net interest income of approximately $7 million in 2024.

We expect full year 2024, adjusted EBITDA loss to be approximately $73 million.

Kevin: Lastly, given our move to San Jose is complete, we expect 2024 CapEx spend to be more normalized at approximately $6 to $8 million, down significantly from $25.2 million in 2023. 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 for all their support to help us along our journey to becoming the standard of care for BPH. We will continue to leverage our commercial and clinical investments to execute on our long-term strategy. Have a great day, and I look forward to meeting many of you at upcoming investor conferences. At this point, we will take questions. Operator. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Lastly, given our move to San Jose is complete we expect 2020 for capex spend to be more normalized and approximately $6 million to $8 million down significantly from $25 2 million in.

In 2023.

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 for all their support to help us along our journey to becoming the standard of care for BPH, We will continue to leverage our commercial and clinical investments to execute on our long term strategy.

Great day, and I look forward to meeting many of you at upcoming Investor conferences in Europe at this point, we will take questions.

Greater.

Okay.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please standby will be compiled the Q&A roster one moment for your first question.

Operator: Please stand by while we compile the Q&A roster. One moment for our first question, and our first question will come from Craig Bijou of Bank of America. Your line is open.

Yes.

And our first question comes from Craig <unk> of Bank of America. Your line is open.

Craig William Bijou: Good afternoon, guys. Thanks for taking the question and congratulations on a strong finish to the year. I wanted to start, you know, Kevin and Reza, you guys always talk about your comfort level with street estimates, and the REV Guide kind of came in about five million or so above the street, and I know you gave a little bit of color on some of the specific categories or expectations for the categories, but just wanted to kind of ask specifically your confidence in putting out a number that was a little bit higher than the street and maybe, I think systems, Yeah, thanks, Craig. It's good to speak with you.

Good afternoon, guys. Thanks for taking the question.

And congrats on a strong finish to the year.

I wanted to start Kevin.

You guys always.

You talk about your comfort level with Street estimates.

The Rev Guide.

Came in about $5 million or so above the street and I know you gave a little bit of color on when some of the specific categories or expectations for the categories, but just wanted to kind of.

Specifically your confidence confidence in putting out a number that was a little bit higher than the street.

And maybe I think systems.

Was the number that you didn't didn't gave so maybe just talk about how you.

The Street estimates for systems, and how that compares to what you guys are thinking.

Yes, Thanks, Craig.

Kevin: So if you look at where consensus was, I mean, that was really set after Q3, right? And the reality is, we did see outperformance in the fourth quarter, primarily around utilization. Our guidance, as I said in my prepared remarks, is really informed by what we're seeing in the market. And when we look at utilization, we had a fantastic fourth quarter. We see that carrying into 2024.

Speak with you. So if you look at where consensus was that was really set in and after Q3 right and the reality is we did see outperformance in the fourth quarter primarily around utilization.

Our guidance as I said in my prepared remarks is really informed by what we're seeing in the market and we look at utilization, we had a fantastic fourth quarter, we see that carrying in 2020 forward and really the res.

Kevin: And really, the raise... primarily in part due to the utilization overachievement we saw in the fourth quarter. On top of that, we also increased the international expectation, so we're seeing a lot of good things coming out of the UK. We're now guiding to $18 million of international revenue. I think the street was probably somewhere in the $15 to $16 million range, so that was another part of the guide.

Primarily in part to the utilization over achievement, we saw in the fourth quarter on top of that we also increased the international expectations. We're seeing a lot of good things coming out of the UK. We're now guiding to $18 million of international revenue I think the street was probably somewhere in the 15% to $16 million range.

Another part of the guide and then you are correct in observing that we did not guide in absolute number of systems sold I think as our business shifts to a more predictable recurring revenue model you do feel that all of the other metrics, we provided around ASP international rapidly to utilization.

Kevin: And then you are correct in observing that we did not guide an absolute number of systems sold. I think as our business shifts to a more predictable recurring revenue model, we do feel that all of the other metrics we provided around ASP, international revenue, and utilization give the street an opportunity to back into the number of systems. And I think you'll find that our implied guidance for system sales encompasses current street consensus as well. Got it.

Street and opportunity to back into the number of systems and I think you'll find that our implied guidance for system sales encompasses current street consensus as well.

Got it that's helpful. Thanks, Kevin.

Craig William Bijou: That's helpful. Thanks, Kevin. And that number came in a little bit higher than expected. So, I wanted to specifically ask, "where's that increase coming from?" You did mention that there was some pull forward of R&D expense in Q4. So is it going to be a higher R&D expense? Is it higher SG&A?

Wanted to follow up on Opex and that number came in a little bit higher than expected.

So.

I wanted to ask specifically where is that increase coming from you did mention that there was some pull forward of R&D expense in Q4. So is it going to be a higher R&D expense and higher SG&A and then maybe just more broadly I recognize that the ratio of Rev growth to opex growth is improve.

Kevin: And then maybe just, you know, more broadly, I recognize that the ratio of REV growth to OPEX growth is improving, but is there potential for even more leverage in Q4? And then should we expect that ratio to continue to increase as we get into Q25 and beyond?

Blake.

Is there potential for even more leverage.

In 'twenty four and then should we expect that ratio to continue to.

Increase as we get into 'twenty five and beyond.

Yes.

You are correct when we got into full year operating expenses of $231 5 billion, which does represent growth of 29%, but as Steve pointed out our revenue guidance is 54%. When you look at that on a leverage basis, it's almost two times.

Kevin: We got into full-year operating expenses of $231.5 million, which does represent growth of 29%. But, as you've pointed out, our revenue guidance is 54%. When you look at that on a leverage basis, it's almost two times, as in growing revenue almost twice the rate of OPEX growth, which is an improvement from 23%, where we were right around 1.5 and 1.6 times. And we do believe this kind of ratio is a very good indicator of our ability to become a profitable company with margin expansion. And I don't think 1.9 is as good as it gets, to answer your question, kind of forward-looking.

Growing revenue almost twice the rate of Opex growth, which is an improvement from 23, where we are right around one 5% one six times and we do believe this kind of ratio is a very good indicator of our ability to become a profitable company with margin expansion.

I don't think one nine is as good as it gets to answer your question kind of forward looking at this time, we're not prepared to kind of.

Comment on what 25% to 26 would look like but I don't I can see it's improving from one nine times, but I've looked about the scalability of the business and then to the last question to the specific around what are those expenses you are correct.

The increase above street consensus our strategic investments in R&D, primarily we have added an incremental $2 million to support our prostate cancer studies.

Added some muscled, our commercial team around the ability to cover cases in key accounts to take advantage of our IGN relationships.

Operator: At this time, we're not prepared to comment on what 25 or 26 would look like, but I can see us improving from 1.9 times when I look at the scalability of the business. And then to the last question, to the specific around what those expenses are, you're correct. Most of the increase above street consensus is strategic investments in R&D primarily. We have added an incremental $2 million to support our prostate cancer studies. We've also added some muscle to our commercial team around the ability to cover cases and key accounts to take advantage of our IDN relationships. Those factors are what are driving the incremental OPEX to street consensus in 24. But again, we still feel very good about the leverage we're demonstrating in the business on OPEX and our guidance. Great, thanks for taking the questions, guys. Thank you, Chris.

Factors are what are driving the incremental opex that street consensus in 'twenty, four but again, we still feel very good about the leverage we're demonstrating in the business on opex in our guidance.

Great. Thanks for taking the questions guys.

Thanks, Craig.

And one moment for our next question.

Okay.

Our next question will be coming from Joshua Jennings of TD Cohen Joshua Your line is open.

Thanks, a lot it's great to see the strong finish to the year wanted to ask a two part question just on patient and surgeon demand I think Rajiv you talked I think in your prepared remarks, you're sure related.

Assuming urologist youre seeing more patients feeling medical therapy seeking out.

Completion is hoping that you could build on that comment that is also.

Just help us understand.

There have been any impact on utilization rates since September when the comps during the contra indication localized prostate cancer was removed from the label really just have one follow up.

Operator: And one moment for our next question. Our next question will be coming from Joshua Jennings of T.D. Cohen.

Thanks.

Joshua Jennings: Joshua, your line is open. Thanks a lot, and it's great to see the strong finish to the year. I wanted to ask a two-part question just on patient and surgeon demand. I think, Reza, you talked about, and I think my remarks are related, that some urologists are seeing more patients failing medical therapy seeking out alkylprolation. I was hoping that you could build on that comment and also just help us understand if there's been any impact on utilization rates since September when the contraindication localized prostate cancer was removed from the label.

Thanks, Josh So utilization as Kevin mentioned was in Q4 and multiple factors contributing to that search as retention was very strong new surgeons added in Q4.

And there was some contribution from United.

And we did a great job of launching new accounts definitely.

As an indicator of saw and <unk> volume centers coming on board and that is an indicator of interest from surgeons not only at these high volume accounts, but low and medium volume accounts that in the past they would refer those patients to other hospitals now they are treating.

Treating those patients that do not take for those patients to other centers, but.

Reza: Thanks Josh. So utilization, as Kevin mentioned, was high in Q4, and multiple factors contributed to that. For example, surgeon retention was very strong.

Anecdotally, we see some some accounts as a mentioned that they are.

Using our <unk> our treatment for all of their resectable or majority of their respective procedures and that is because as we said in the past they are using one algorithm.

Reza: New surgeons were added in Q4, and there was some contribution from United, and we did a great job of launching new accounts. Definitely, you see an indicator of low and medium volume centers coming on board, and that is an indicator of interest from surgeons, not only at these high volume accounts but low and medium volume accounts that, in the past, they would refer those patients to other hospitals. Now, they and other centers, but anecdotally, we see some accounts, as mentioned, that they are using our treatment for all of their receptive or majority of their receptive procedures, and that is because, as we said in the past, they are using one algorithm. All prostates, shapes, and sizes, and A.

All prostate shapes and sizes.

And.

Second part of the country.

If the country indication.

It's very hard for us too.

Assess that but thats one less.

Step that they need to go through when they are checking to schedule that patients, it's very hard to assess whether how much that contributed.

But it's just one less debt.

Thanks, Brian.

A follow up on <unk>.

The capital pipeline.

You and Kevin you both mentioned.

Some of that confidence in guidance based on the pipeline I was hoping to just.

Can you provide any more detail on because the mix of the pipeline here entering early days of <unk> 24 versus early days of <unk> 23 of your it sounds like Youre seeing more.

Reza: Have you got your person here, please? Your second guest part. I think that I, The contraindication, it's very hard for us to assess that, but that's one less step that they need to go through when they are checking to schedule a patient. It's very hard to assess whether almost any contraindication, but it's just one last step.

Lower volume respective centers.

In the mix here and maybe some.

Robotic.

Programs that.

Maybe in the mix as well and any details you can share just on where the capital pipeline stands today versus a year ago would be great. Thanks.

Anthony Thanks for the question definitely what we see is the capital environment is kind of the capital is more stable.

Joshua Jennings: And then just to follow up on just the capital pipeline, and I think Rezi, you and Kevin both mentioned some of the confidence in guidance based on the pipeline. I was hoping to just... Can you provide any more detail on the, I guess, the mix of the pipeline here entering early days of 24 versus early days of 23, it sounds like you're seeing more lower volume receptive centers in the mix here and maybe some robotic programs that may be in the mix as well. But any details you can share just on where the capital pipeline stands today versus a year ago would be great. Thanks.

A year ago.

23 was a fairly difficult environment, However, I'm very happy to say that the environment, we were able to deliver and <unk>.

Exceed our guidance.

We see that our customers continue prioritizing.

Total investment based on where they see great.

Roy and increased patient flow definitely when you talk to some of our accounts they see a patient.

Patient flow.

And.

Also there continues to produce favorable outcomes.

From in terms of pipeline.

You see that.

A number of potential robot placement continued to growth, but the environment is more stable and.

Accounts continue.

Interest and also as I mentioned, the low volume that volume centers. There also.

Coming on board.

Reza: Definitely, thanks for the question. Definitely, what we see is the capital environment; current capital is more stable than a year ago. 2023 was a fairly difficult environment.

Great. Thanks, a lot.

Thanks, Jeff.

Our next question.

Okay.

Our next question will be coming from Matthew O'brien of Piper Sandler Your line is open.

Afternoon. Thanks, so much for taking the questions just maybe starting on the robot side I'm getting something like 185 systems for this year domestically is that about right and.

Reza: However, I'm very happy to say that in this environment, we were able to deliver and exceed our guidance. We see that our customers continue prioritizing. Capital Investment based on where they see great ROI, increased patient flow. Definitely, when we talk to some of our customers, they see patients, patient flow, and also that continues to produce favorable clinical outcomes. And in terms of pipeline, we see the number of potential robot placements continue to grow, but the environment is more stable, and accounts continue to be interested. And also, as I mentioned, in low-volume and volume centers, they are also developing. Page 4. Let's go!

What does the IBM investments bring to the table.

Are those going to be some some more bulk purchases potentially some of these systems is there going to be some AFP discounting thats required to do that how do we think about the contribution there because I think Kevin you said thats actually not even in guidance. So anything that you get there is all upside for this year is that fair.

So I'll take the IGN and Kevin.

Comment on the numbers quite frankly is difficult to predict the ibms. The short answer is no.

However, we continue to a positive conversation with nationalized gains and we maintain them.

Most relationship 12 months ago, we saw benefits from a office the mortar versus didn't happen as we move into 2024.

Reza: One moment for our next question. Our next question will be coming from Matthew O'Brien of Piper Sandler. Your line is open. Afternoon, thanks so much for taking the questions. Just maybe starting on the robot side. I'm getting something like 185 systems for this year domestically.

You see continued interest from surgeons at these Ips and I'll, let Kevin talk about the number yes, Matt good to hear from me in here.

Ballpark right.

You take all of the metrics you've given in your back into 185 systems, which is kind of around consensus you are in the range of kind of how we're thinking about capital sales for 2024 and as Reza mentioned. This is an important point on IBM. So we've been very fortunate.

Matthew O'brien: Is that about right? And what does the IDN investment bring to the table? You know, are those going to be some more bulk purchases potentially than some of these systems? Is there going to be, you know, some ASP discounting that's required to do that? How do we think about the contribution there? Because I think Kevin, you said that's actually not even in guidance? So anything that you get there is all upside to this year. Is that fair?

Most all of the large IDM contract signed and we haven't been dependent on any bulk buys and while our guidance doesn't rely on any bulk buys. It does continue to rely on our strong relationships and purchasing being done at the local level, but we're not dependent in 2024.

Reza: So I'll take the IDN and, Kevin, comment on the numbers. Quite frankly, it's difficult to predict with the IDNs. The short answer is no.

Reza: However, we continue to have positive conversations with national IDNs, and we maintain a very close relationship. Twelve months ago, we thought we would benefit from a multisystem order. Of course, this didn't happen.

On large bulk buys from any large strategic ideas to meet the capital number that we put out there.

Got it that's very helpful. And then I think the other thing Thats tripping up folks.

Kevin: As we move into 2024, of Service, 2019-20? And we haven't been dependent on any bulk buys, and while our guidance doesn't rely on any bulk buys, it does continue to rely on our strong relationships and purchasing being done at the local level, but we're not dependent in 2024 on large bulk buys from any large strategic IDNs to meet the capital numbers that we put out there. Got it. That's really helpful. And then I think the other thing that's tripping up folks.

I think the folks here is really on the gross margin and Opex side of things and so the gross margin number is lifting nicely, but maybe a little bit below expectation is that a mix issue.

Then one Nymex leverage I think is really good and acceleration versus 'twenty three.

Yes.

And that's in the face of a lot of investments. So maybe just talk a little bit about some of the different investments from the IBM.

Syed R&D side et cetera that you are making even international.

That's incremental debt.

Matthew O'brien: The other thing that's tripping up folks here is really on the gross margin and op-ex side of things. And so the gross margin number is rising nicely, but maybe a little bit below expectations. Is that a mix issue?

<unk> been weighing on the improvement that youre seeing on the on the margin side of things. Thank you.

Yes, So let me comment on our 24 gross margin guidance and now I'll turn it over to resident perhaps provide a little more color on our R&D initiatives.

Kevin: And then 1.9x leverage, I think is really good in acceleration versus 23, but that's in the face of a lot of investments. So maybe just talk a little bit about some of these different investments from the IDN side, R&D side, et cetera, that you're making even internationally that's incremental, that's even weighing on the improvement that you're seeing on the margin side of things. Thank you. Yeah, so let me comment on our 24 gross margin guidance, and I'll turn it over to Reza to perhaps provide a little more color on our R&D initiatives. You know, when we look at gross margins, we do feel that 2024 is a year for us with increasing revenue, slower hiring, and the ability to absorb overhead really gives us conviction around this being the year where we're going to be able to show consistent margin expansion throughout the year.

When we look at gross margins, we do feel that 2020 for the year for us with increasing revenue slower hiring ability to absorb overhead.

It gives us conviction around this being the year, where we're going to be able to show a consistent margin expansion throughout the year.

Historically, we've bounced around a bit quarter to quarter and somewhat unpredictable and that is just due to the rapid growth in the business coupled with our move to 2024 is really the year, where I think we're going to start to see margin expansion starting in the first quarter and the 53% to 55% range and I think what's important is.

While our guide is 57% to 59, which I would say, it's kind of at the midpoint of how the street is thinking about it that's going to imply a margin.

Exit velocity, that's going to have to be north of 60%, which then I think.

It's strictly an exciting.

Event for this business of this company as you couple that margin expansion with the one nine times leverage you can see your way to profitability at higher revenue levels, just with what's inherent in our model. So that's some backstory on the margins.

Kevin: If you look historically we've bounced around a bit quarter to quarter and somewhat unpredictable and that is just due to the rapid growth in the business coupled with our move and 2024 is really the year where I think we're going to start to see margin expansion starting in the first quarter in the 53 to 55 percent range and I think what's important is while our guide is 57 to 59 which I would say is kind of at the midpoint of how the street is thinking about it that's going to imply a margin, Velocity that's going to have to be north of 60 percent, which then I think, frankly, an exciting, for this business and this company is you couple that margin expansion with the 1.9 times leverage, you can see your way to profitability at higher revenue levels just with what's inherent in our model. So that's the back story on the margins.

Have correctly pointed out in operating expenses that will continue to invest in the business. Another rather spend a little time talking about those investments in R&D, because as I said to Craig earlier that is the main driver of us being.

Over consensus in 2024, so yes, it's Kevin so.

That's a very good question as in robotic company.

We are committed to innovation and these innovations are critical for our long term strategy strategy.

The ultimate goal is to deliver superior value products last quarter, we decided to accelerate some of our R&D initiatives.

These are the internal milestone that behalf I'm sure I forgot.

<unk> discussion of R&D initiatives are sensitive that's all economic competitive external has also caused some disruption.

Kevin: You have correctly pointed out in operating expenses that we continue to invest in the business. I'm going to let Reza spend a little time talking about those investments in R&D because, as I said to Craig earlier, that is the main driver of us being over consensus in 2024. So go ahead, Reza.

Market.

Thank you.

Okay.

Yeah.

Okay.

Nothing.

Operators there.

Everyone there.

Yes, Sir our next question or comment comes from the line of Chris Pascal from your from research Mr. Pascal. Your line is now open.

Comments about hospitals that have historically not done much receptive BPH work now adopting aqua ablation.

Reza: Thanks, Kevin. So it's a very good question. As a robotic company, we are committed to innovation, and these innovations are critical for our long-term strategy. The ultimate goal is to deliver superior-value products. Last quarter, we decided to accelerate some of our current initiatives. These are internal voices from which we have I'm sure. I hope you appreciate that discussion of R&D initiatives is sensitive not only from a competitive nature but also to minimize potential disruption. I don't hear anything. Operators

We started off thinking about a receptive market of about 300000 procedures that you were going to penetrate it.

At 18, five last year, so you've got a long way to go but if you then layer in the idea that youre actually expanding the market.

By bringing in new hospitals, it implies even more runway so we'd love to get your thoughts on.

How much turf cannibalization versus market expansion has really driven your growth to date in.

That 300000 number where do you think it could actually be in a few years as you expand the pool of centers that are providing treatment.

Operator: Yes, sir. Our next question or comment comes from the line of Chris Pasquale from Nefron Research. Mr. Pasquale, your line is now open, comments about hospitals that have historically not done much receptive BPH work now adopting aqua blaze. You know, we started off thinking about a receptive market of about 300,000 procedures that you were going to penetrate. You did 18.5 last year, so you've got a long way to go.

So definitely they are hospitals.

His question.

Definitely the hospital that you mentioned are low volume hospitals.

In the past that we're not doing that menu second procedures, and where we have seen.

Those hospitals they remedies.

The high volume centers, so they are not.

Again, as we said in the past Bill volume hospital are not small hospitals. These hospitals see these patients that they have the patients in the past they were deferring them to other hospitals now they keep them.

Chris Pasquale: But if you then layer in the idea that you're actually expanding the market by bringing in new hospitals, it implies even more runways. So we'd love to get your thoughts on how much terp cannibalization versus market expansion has really driven your growth to date. That 300,000 number, where do you think it could actually be in a few years as you expand the pool of centers that are providing treatment? So definitely the hospitals, thanks for this question, definitely the hospitals that you mentioned are low-volume hospitals that, in the past, were not doing many recycling procedures.

At this point.

We're still early in this process based on the number of.

Cases that we did last year or in 2024, we believe the market will expand but at this point we are still.

Cannibalizing <unk>.

Procedures when we asked these questions from our surgeons, where they were.

Reza: And what we have seen, those hospitals, the ramp, for high-volume centers, so they are not. Again, as we said in the past, low-volume hospitals are not small hospitals. Hospitals see these patients, and in the past, they had the patients; in the past, they were deferring them to other hospitals; now they keep them. At this point, we are still early in this process, but based on the number of cases that we did last year or in 2024, we believe the markets will expand, but at this point, we are still cannibalizing current resective procedures. When we ask this question from our surgeons, where, if they were not using our product, what other they would use, the common answer we get is TURP and green light, and that is where God leads.

Not seeing our product.

Yes.

Common asset we get.

Turf and Green light.

That is where.

Kathleen.

Let me just talk a little bit about the Tam.

We're in an enviable position, where we're in a market where as you pointed out we agree with you. We think the market given the 12 million men being actively managed for BPH and the lack of good surgical alternatives available today, we definitely think that market could grow but our growth isn't reliant on that market expansion in the near term, which again, it's just a great.

Physician for us to ban.

It's early innings as you pointed out with US doing 33000 procedures next year, but we definitely think there's millions of men that are waiting on the sidelines that with a treatment like aqua place in therapy for <unk>.

Kevin: Let me just talk a little bit about the TAM. I mean, we're in an enviable position where we're in a market where, as you pointed out, we agree with you. We think the market, given the 12 million men being actively managed for BPH and the lack of good surgical alternatives available today, definitely think that market could grow. But our growth isn't reliant on that market expansion in the near term, which, again, is just a great position for us to be in. And it's early innings, as you pointed out, with us doing 33,000 procedures next year. But we definitely think there are millions of men that are waiting on the sidelines that, with a treatment like aquablation therapy, are great candidates. And it's great to see those men already coming into the funnel. But, as Reza pointed out, he would suggest the majority of our procedures today are cannibalized from turpentine greenlight.

Candidates and it's great to see those men already coming into the funnel, but it's rather pointed out he would suggest the majority of our procedures today are cannibalized from interpreted greenlight.

Okay. That's helpful and then Kevin how are you thinking about the sales force expansion from here.

Up until now you've been adding reps kind of in bunches every few quarters, which leads to.

So kind of stop start dynamics in terms of their productivity does that continue or do you shift into kind of a steadier cadence of just doing sort of a couple of every quarter.

It's I think it's the latter we're at a point now where case coverage utilization those has become much more of a steady cadence as we see the salesforce expand we've added a few <unk>.

Layers to our team.

As I mentioned one of them in his remarks that the key account team. We've also added some junior capital reps to the sales team to help support the business. So as we move forward it becomes a much more steady cadence with not the big bulky adds that you've seen in the past at the same time I do think we're going to have additional capital rep out in the back half of 'twenty.

Chris Pasquale: Okay, that's helpful. And then Kevin, how are you thinking about the Salesforce expansion from here? Up until now, you've been adding reps kind of in bunches every few quarters, which leads to some kind of stop-start dynamics in terms of their productivity. Does that continue? Or do you shift into kind of a steadier cadence of just doing sort of a couple every quarter?

For that's factored into our guidance.

Thanks.

Thank you.

Thank you. Our next question or comment comes from the line of Rich New Winter from Trust Securities. Mr. <unk>. Your line is now open.

Hi, Kim.

Yes, we can hear you.

Kevin: It's I think it's the latter. We're going to, we're at a point now where case coverage, utilization, those ads will become much more of a steady cadence as we see the sales force expand. We've added a few different layers to our team. I mentioned one of them in his remarks, but the key account team, and we've also added some junior capital reps to the sales team to help support the business. So as we move forward, it becomes a much more steady cadence with not the big, bulky ads that you've seen in the past. But at the same time, I do think we're going to have additional capital rep ads in the back half of 24 that's factored into our guidance. Thanks. Thank you. Thank you. Our next question or comment comes from the line of Rich Neuwirter from Trust Securities. Mr. Neuwirter, your line is now open. Hi, can you hear me? Yes, we can hear you.

Great. Thanks.

Good evening.

Thank you for taking my question.

One more thing.

<unk> Q1 substantial profit improvement.

The lines this year.

I'm trying to make more progress.

Yes, yes.

We're having a little bit of a hard time hearing.

Hearing you, but at this time, we're not providing long term financial target for when the business will be profitable.

That said, we've been very consistent in stating that we do believe this business today.

<unk> cash on the balance sheet to reach profitability, given the pace at which our revenue is growing and our plans to support the business cannot be operating expense increase.

We are showing EBITDA improvement in 'twenty, four and I do think as we've characterized in the past in this business flips to profitability given the recurring nature of the revenue given the margin profile, given our opex leverage it flips pretty quickly and at significant levels of scale, but we're not prepared today to give a long term.

Rich Neuwirter: Right. This is a link to which. Thank you for taking the question. So I'm wondering when you think you will be in a position to commit to more substantial profit improvement? They had a thing like this year would be on track to make more progress.

In our financial target for when that will be and again I would just reiterate with our capital rate, we're very comfortable with our cash position and our ability to get there.

Great.

Also.

Could you provide some.

Color.

Thank you.

Yes.

Kevin: Yeah, we're having a little bit of a hard time hearing you, but at this time, we're not providing a long-term financial target for when the business will be profitable. With that said, we've been very consistent in stating that we do believe this business today has sufficient cash on the balance sheet to reach profitability, given the pace at which our revenue is growing and our plans to support the business, including the operating expense increase. We are showing EBITDA improvement in 24, and I do think, as we've characterized in the past, when this business flips to profitability, given the recurring nature of the revenue, given the margin profile, given our op-ex leverage, it flips pretty quickly and at significant levels of scale, but we're not prepared today to give a long-term kind of financial target for when that will be. And again, I would just reiterate, with Great And also, could you provide some color on your system cadence throughout the year?

Asps are cadence I'm, sorry, again, im having a hard time understanding.

I'll give them both to you how about that.

Okay.

Alright. Thank.

Yes.

Yes, So I said in my prepared remarks, we're not guiding to a specific number but at the same time I did suggest that our system. So the cadence we very similar 2023 were approximately 45% of all of our systems were in the first half and 55%.

We're in the second half.

Regarding pricing that was in there you also said that we expect asps.

To be relatively stable to 2023 somewhere in that 365 to $370000 range.

Okay.

Thank you. Our next question or comment comes from the line of Brandon Vazquez from William Blair. Mr. <unk>. Your line is now open.

Hi, everyone can you hear me okay.

Perfect Yes.

Alright, great.

Thanks for taking my question I guess first on the Opex side.

I can try to ask it slightly different I know, we won't get a timeline on maybe when you turn profitable.

Or maybe more specific timelines on like when it gets more meaningfully positive but can.

Rich Neuwirter: ASPs are cadence. I'm sorry. Again, I'm having a hard time understanding. I'll give them both to you.

Can you just talk about what are some like milestones or catalysts within <unk>.

Kevin: How about that? Okay. All right. Yeah, so I said in my prepared remarks that we're not guiding to a specific number, but at the same time, I did suggest that our system sales will be the cadence will be very similar to 2023, where approximately 45% of all of our systems were in the first half, and 55% were in the second half. And regarding pricing, if that was in there, we also said that we expect ASPs to be relatively stable to 2023, somewhere in that $365,000 to $370,000 range. Thank you. Our next question or comment comes from the line of Brandon Vasquez from William Blair. Mr. Vasquez, your line is now open. Hey everyone, can you hear me OK?

The P&L over the coming years that I think might slip. So you guys have a highly recurring business. Good margins like what are the milestones or catalysts that need to happen to see more meaningful P&L leverage.

Coming years.

I think for US it's gross margin expansion is the meaningful.

Metric as we look towards.

Being able to have a proof point to be a profitable business.

<unk> revenue as you pointed out now it's slightly north of 60% in 2024, which is a good place to be now will continue to improve as we get more systems installed and become more even greater than that with recurring revenue or <unk>.

Really I think the exit velocity that we're planning to show in 2024 on gross margins that is going to be the proof point I would think.

Regarding a very clear pathway to profitability at the same time, just being disciplined around operating expenses.

Brandon Vasquez: Yes. All right, great. Thanks for taking the question. I guess, first on the OPEX side, if I can try to ask it slightly differently. I know we won't get a timeline on maybe when you turn profitable or maybe more specific timelines on like when it gets more meaningfully positive, but can you just talk about what are some like milestones or catalysts within the P&L over the coming years that I think might flip this? You guys have a highly recurring business, good margins. What are the milestones or catalysts that need to happen to see more meaningful P&L leverage in the coming I think for us, gross margin expansion is the meaningful metric as we look towards being able to have a proof point. Engineering, Inc.

In 2023, we revised Opex guidance, a few times throughout the year and our cadence Angola. This share of the business is to not do that as we move throughout the year, which I also think it will be a proof point for investors to show that we are a business with a high degree of recurring revenue, great operating expense leverage and expanding gross margins.

That will demonstrate a pathway to profitability.

Okay, and then maybe as a follow up on one two questions together here, but can you talk a little bit about what youre seeing in terms of utilization and some of your oldest cohorts of system placements.

Compare that to what kind of the newer levels Theyre doing and then.

Quick follow up is with GPT kind of expiring now in 24 kind of a couple of months into the year here any changes youre seeing in ordering patterns any impact can you call out.

Kevin: The Recurring Revenue is slightly north of 60% in 2024, which is a good place to be. That will continue to improve as we get more systems installed, and it will become even greater than that with recurring revenue. Really, I think the exit velocity that we're planning to show in 2024 on gross margins is going to be the sweet point, I would think, regarding a very clear pathway to profitability, at the same time just being disciplined around operating expenses. You know, we, in 2023, we revised OPEX guidance a few times throughout the year, and our cadence and goal this year as a business is to not do that as we move throughout the year, which I also think will be a proof point for investors to show that we have a business with a high degree of recurring revenue, great operating expense leverage, and expanding gross margins that will demonstrate a pathway to profitability.

From that TVT exploration thanks, guys.

So related to utilization what the C is the longer the accounts with us their utilization continue.

To increase.

And related to GPT no, we do not see an impact utilization that we have delivered is.

Driven by the clinical outcome customers are up by that.

Does that have a short term benefit from team to team.

Now with approximately 95% access even in.

Coverage that is not an issue.

Yes.

Rather we continue to see new accounts that we are installing systems out today.

Ramping up the utilization curve faster than accounts that one to two years ago and <unk>.

Obviously attribute that to just normal market adoption and awareness, but it's also very purposeful and it's related to our increase in opex quite frankly.

Kevin: Okay, and then maybe as a follow-up, I'll lump two questions together here, but can you talk a little bit about what you're seeing in terms of utilization in some of your oldest cohorts of system placements, you know, compare that to what kind of the newer levels are doing, and then the quick little follow-up is, with TPT kind of expiring now in 24, kind of a couple months into the year here, any changes Thanks, guys. So, related to utilization, what we see is the longer the accounts have been with us, utilization continues to increase, and this is related to TPP. No, we do not see an impact.

We made investments in this utilization came in those utilization specialists are manifesting themselves in higher utilization of higher ramp. So again. We think these are investments that are going to pay off longer term.

On the TVT I just want to be definitive here, we're seeing zero impact in the first quarter with the TPG going away now that we're almost two months through.

Thank you our next question or comment comes from the line of.

Nathan trade back from Wells Fargo. Mr. Trade back your line is now open.

No question.

So I'm estimating.

Implied in your guide that utilization is about seven months, which would be about 5% growth year over year.

Your utilization grew 10% in 'twenty, three and given your comments on just positive surgeon adoption trends and Youre active surgeon growth trends is there conservatism into the guidance.

Reza: The digitalization that we have delivered, really driven by the clinical outcome, customers are not buying because of a short-term benefit from... Now with up to 95% access payment and coverage, that is not that easy. Yeah, just to follow up, DeRoza, you know, we continue to see new accounts that we are installing systems at today. They are ramping up the utilization curve faster than accounts did one to two years ago, and we obviously attribute that to just normal market awareness, but it's also very purposeful, and it's related to our increase in OPEX, quite frankly. We've made investments in this utilization team, and those utilization specialists are manifesting themselves in higher utilization, a higher ramp. So again, we think these are investments that are going to pay off in the longer term. On the TPT, I just want to be definitive here. We're seeing zero impact in the first quarter with the TPT going away now that we're almost two months through.

So as far as utilization.

What we see is typical seasonality trends.

We see other med Tech companies Q4, generally is a very strong Q1 is the lowest overall, we feel very good about the underlying trends of our business and see strong momentum in our accounts. So we believe following yet or multiple points of seasonality in Q1.

Innovation will continue to increase throughout the year.

Your question around conservative versus aggressive I mean, I think if you just look at the history that we've <unk>.

Over the last two years I mean philosophically.

<unk>.

And to be conservative based on what we're seeing in the market.

I think last year, one of the things that.

When a bid not according to plan in the first quarter was that our system Guide was we felt like we were playing catch up all year and therefore this year I think if youre going to characterize our utilization guidance given the commentary. We've made I think conservative is an appropriate way to classify it and at the same time.

Kevin: Thank you. Our next question or comment comes from the line of Nathan Trabeck from Wells Fargo. Mr. Trabeck, your line is now open. So, I'm estimating, you know, implied in your guide that utilization is about 7 a month, which would be about 5% growth year over year. I mean, your utilization just grew 10% in 23 and given your comments on just positive surgeon adoption trends and your active surgeon growth trends, is there conservatism in this guide? As far as utilization is concerned, what we see is typical seasonality trends, trends that we see in other combat tech companies. Q4 generally is very strong; Q1 is the lowest.

Hope that our track record over the last nine quarters 10 quarters at the public company as a proof point for you on that.

Okay. Thanks for that.

In terms of timing for your for your prostate cancer trial data I think previously you've talked about early 2024 and people were assuming it would be way.

Is there any update you can provide.

So we continue making progress on those studies and in fact, since we announced the initiation of the study is the numerous inquiries probably urologists throughout the world.

Nathan Trabeck: Overall, we feel very good about the underlying trends of our business and see strong momentum in our accounts. So we believe following the normal low point of seasonality in Q1, utilization will continue in Q3, throughout the year, as shown over the last two years. I mean, philosophically, we... I tend to be conservative based on what we're seeing in the market.

Are both interested in our cancer Dth, so as we continue making progress we will disclose information by the chip as appropriate.

On.

We are more likely.

We have done in the last few years, we will have an investor event, obviously, we recognize the importance to prostate cancer not only our company, but within the urology community and so we can't promise you Nathan as to what we're going to present, but we will definitely at a minimum educate the market as to kind of where we see ourselves playing.

Reza: You know, I think last year, one of the things that went a bit not according to plan in the first quarter was that our system guide was. We felt like we were playing catch-up all year, and therefore, this year, I think if you're going to characterize our utilization guidance given the commentary we've made, I think conservative is an appropriate way to classify it, and at the same time, I would hope that our track record over the last Okay, thanks for that. In terms of timing for your prostate cancer trial data, I think previously you talked about early 2024, and people were assuming it would be an AUA. Is there any update you could provide?

<unk>.

Why we believe we have an ability to treat so things like that we haven't fully flushed out the agenda, but I think it's fair to say, you'll definitely hear from the management team and key opinion leaders at.

Okay. Thanks.

Thank you. Our next question or comment comes from the line of Mike Kratky from Leerink partners. Mr. Kratky. Your line is now open.

Hi, everyone. Thanks for taking our questions.

Qualitatively to what extent are you expecting additional penetration within the 860 high volume hospitals in 2024 compared to the penetration growth you saw between 2022 and 2023.

Yes, so we've been seeing pretty consistent numbers, there were roughly 20% to 30% of that both our pipeline and our installed base are the low and medium volume hospitals.

Kevin: Thanks. We continue making progress on those studies. In fact, since we announced the initiation of those studies, we've seen numerous inquiries from urologists around the world who are both interested in our cancer and DTH. So as we continue making progress, we will disclose information when it's possible. And on AUA, we are more likely, like we've done in the last few years, we'll have an investor event.

Mean that 70% to 80% of our pipeline and installed base are the 860 hospitals that you have referenced.

Got it understood and then just as a follow up.

Taking a step back you talked a little bit about seeing signals of an underlying shift in the overall BPH market. Just in terms of the portion of patients that are ultimately seeking treatment from surgical intervention are there any factors you've kind of highlight that you think could really help accelerate the growth in this market given its.

Kevin: Obviously, we recognize the importance of prostate cancer, not only to our company but within the urology community at AUA. So we can't promise you, Nathan, as to what we're going to present, but we will definitely, at a minimum, educate the market as to kind of where we see ourselves playing, you know, why we believe we have an ability to treat, things like that. We haven't fully flushed out the agenda, but I think it's fair to say you'll definitely hear from the management team and key opinion leaders at AUA.

So large but remained so underpenetrated.

I mean that definitely as.

<unk>.

Our accounts are.

Right to consumer where.

Where we don't have direct to consumer advertising, but our accounts advertise four day robots. So there is increased awareness among patients patients who come or treatment.

Nathan Trabeck: Okay, thanks. Thank you. Our next question or comment comes from the line of Mike Kratke from Lyric Partners. Mr. Kratke, your line is now open. Hi, everyone. Thanks for taking our questions. So qualitatively, to what extent are you expecting additional penetration within the 860 high-volume hospitals in 2024 compared to the penetration growth you saw between 2022 and 2023? So, we've been seeing pretty consistent numbers there, where roughly 20 to 30 percent of both our pipeline and our installed base are low and medium volume hospitals, and that would mean that 70 to 80 percent of our pipeline and installed base are the 860 hospitals that you have referenced.

Or there is.

Are there even if they come and ask for another treatment many times.

Our population is a better option towards them.

But as we see in low volume accounts.

And mid volume accounts.

Whereas with our technology they keep their update if those patients that they treat them. So.

As Kevin mentioned in the near future, we do not rely on expansion of this market we are still.

Early in our in our process up.

Tapping into the current receptive market, but definitely there is it was 12 million men will have seen a doctor at either a medication or have failed to mitigation all is to capture those patients.

Got it thanks very much.

Thanks.

Thank you I'm showing no additional questions in the comments in the queue. At this time I would like to turn the conference back over to management for any closing remarks.

Mike Kratke: Got it, understood. And then, just as a follow-up, you know, taking a step back, you talked a little bit about seeing signals of an underlying shift in the overall BPH market, just in terms of the portion of patients that are ultimately seeking treatment from surgical intervention. Are there any factors you'd kind of highlight that you think could really help accelerate the growth of this market, given it's, you know, so large but remains so underpenetrated? I mean, definitely. Our accounts are direct-to-consumer, where we don't have direct-to-consumer advertising, but our accounts advertise for their robots, so there is increased awareness among patients, patients who come for treatment or various other... they come and ask for another treatment, many times a coblation is a better option for them. But as we see in low-volume accounts and Mid-Volume Accounts. That is where, with our technology, they keep those patients, and they treat them. As Kevin mentioned, in the near future, we do not rely on the expansion of this market.

Yes, I want to thank everyone for attending this.

Our first call and I hope to see many of you end up cutting costs.

You very much and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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Reza: We are still early in our process of tapping into the current reproductive market, but definitely, there are those 12 million men who have seen a doctor and either are on medication or have failed to respond to medication. The goal is to capture those patients. Got it. Thanks very much. Thanks. Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks. Yeah, I want to thank everyone for attending this conference call, and I hope to see many of you at the upcoming conferences.

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Management: Thank you very much. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.

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Operator: Everyone have a wonderful day. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other.

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Operator: This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other.

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Story Narration: This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other.

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Story Narration: This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other. This is a story about a man and a woman who met in the middle of the road and fell in love with each other.

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