Q2 2024 PROCEPT BioRobotics Corp Earnings Call

Operator: Good afternoon, and welcome to Procept Biorobotics' second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Bacso, Vice President of Investor Relations, for a few introductory comments.

Matt Bacso: Good afternoon, and thank you for joining Procept Biorobotics' second quarter 2024 earnings conference call. Presenting on today's call are Reza Zadno, Chief Executive Officer, and Kevin Waters, Chief Financial Officer. Also present is Hisham Shiblaq, Chief Commercial Officer, who will participate in the Q&A session.

Speaker Change: Good afternoon, and thank you for joining process by Robotics second quarter 2024 earnings conference call presenting on today's call are resins had no chief Executive Officer, and Kevin Waters, Chief Financial Officer also present ashamed Black Chief commercial officer, who will participate in the Q&A session.

Matt Bacso: Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events, or performance, or forward-looking statements, are defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions, and other factors that could cause results to differ materially from the expectations expressed on this conference call.

Speaker Change: To begin I'd like to remind listeners that statements made on this conference call that relate to future plans events or performance are forward looking statements as defined under private Securities Litigation Reform Act of 1995, while these forward looking statements are based on management's current expectations and beliefs. These statements are subject to several risks uncertainties assumptions and other factors that could cause results to differ materially.

Speaker Change: <unk> from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in prostate by robotics filings with Securities and Exchange Commission all of which are available online at Www Dot FCC Dot Gov listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date August <unk> two.

Matt Bacso: These risks and uncertainties are disclosed in more detail in Procept Biorobotics' filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place too much reliance on these forward-looking statements, which speak only as of today's date, August 1st, 2024. Except as required by law, Procept Biorobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances, or unanticipated events that may arise.

Speaker Change: 24, except as required by law of cross up our robotics undertakes no obligation to update or revise any forward looking statements to reflect new information circumstances or unanticipated events that may arise during the call. We will also reference certain financial measures that are not prepared in accordance with GAAP more information about how we use these.

Matt Bacso: During the call, we will also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures, as well as reconciliations of these measures to their nearest GAAP equivalent, is included in our earnings release. With that, I'll turn the call over to Reza.

Speaker Change: 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 Reza.

Reza Zadno: Good afternoon, and thank you for joining us. For today's call, I will provide opening comments and a general business update, followed by Kevin, who will then provide additional detail regarding our financial performance and updated 2024 guidance, starting with our quarterly revenue results. We are pleased to report another strong quarter, with total revenue for the second quarter of 2024 of $53.4 million, representing growth of 61% compared to the second quarter of 2023.

Reza: Good afternoon, and thank you for joining us for today's call I will provide opening comments.

Reza: And a general business update followed by Kevin who will then provide additional detail regarding our financial performance and updated 2020 for guidance.

Kevin: Starting with our quarterly revenue results. We are pleased to report another strong quarter with total revenue for the second quarter of 2024 up $53 4 million representing growth of 61% compared to the second quarter of 2023.

Reza Zadno: Growth in the quarter was driven by strong U.S. system sales, increased utilization from an expanded U.S. installed base, and record international revenues. We exited the second quarter of 2024 with a U.S. installed base of 400 systems, representing growth of 72 percent compared to the prior year period. Despite 42% of our U.S. install base being active for less than 12 months, U.S. monthly utilization increased approximately 15% compared to the prior year period. The significant increase in new accounts, in conjunction with our ability to move accounts faster up the utilization curve, demonstrates both our team's consistent commercial execution and growing customer and patient demand for aquablation therapy.

Kevin: Growth in the quarter was driven by strong U S system sales increased utilization from expanded U S installed base and record international revenues we.

Kevin: We exited the second quarter of 2024 with a U S installed base of 400 systems, representing growth of 72% compared to the prior year period.

Kevin: Despite 42% of our U S installed base being active toward less than 12 months U S monthly utilization increased approximately 15% compared to the prior year period.

Kevin: The significant increase in new accounts in conjunction with our ability to move accounts faster update utilization care demonstrates both our team's consistent commercial execution and growing customer and patient demand for Aqua ablation therapy.

Reza Zadno: Multiple factors continue to trend positively, allowing us to execute against our 2024 revenue objectives. Additionally, we continue to make progress, expanding gross margins and maintaining good operating expense control. 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 global urology company. Regarding the hospital CAPEX environment and Procepts Capital Rep team, we continue to believe the market is stable to improving compared to the previous 12 months.

Kevin: Multiple factors continued to trend positively, allowing us to execute against our 2024 have any objectives.

Kevin: Additionally, we continued to make progress expanding gross margins and maintaining good operating expense control.

Kevin: We believe these underlying fundamentals reflect the technology that is laying the foundation to become the BPA surgical standard of care and the business that will be a leading global urology company.

Speaker Change: Regarding the hospital Capex environment and process capital Rep team.

Speaker Change: We continue to believe the market is stable to improving compared to the previous 12 months, specifically, we are having more proactive conversations with hospital Cfos, who just a few quarters ago, we're exercising more caution and pursuing general capex investment given lingering macro headwinds.

Reza Zadno: Specifically, we are having more proactive conversations with hospital CFOs who, just a few quarters ago, were exercising more caution in pursuing general CapEx investment given lingering macro headwinds. With a growing and increasingly educated patient population, along with motivated urologists, we are seeing hospitals prioritizing investment in our robotic system to ensure they stay competitive and not lose patients to other area hospitals. Given the disruptive nature of our technology and that achieving consistent resection outcomes is independent of surgeon skill or experience, we believe every BPH hospital can now build a robust BPH practice with aquaculation therapy and not have to refer patients out to specialists.

Speaker Change: With a growing and increasingly educated patient population along with motivated urology, we're seeing hospitals prioritizing investment in a robotic system to ensure they stay competitive and not lose patients to other area hospitals.

Speaker Change: Given the disruptive nature of our technology and that achieving consistent resection outcomes are independent of surgeon's skill or experience. We believe every BPH hospital can now build a robust BPH practice with our cooperation therapy and not have to repair patients out to specialists.

Reza Zadno: As we turn to our capital pipeline, we remain excited about the opportunity. The number of robot placement opportunities continues to grow nicely, which has been driven by the addition of new capital reps. We entered 2024 with approximately 40 capital sales reps, of which 10 were added in the fourth quarter of 2023.

Speaker Change: As we turn to our capital pipeline, we remain excited about the opportunity.

Speaker Change: The number of robot placement opportunities continue to grow nicely, which has been driven by the addition of new capital reps. We enter 2024 with approximately 40 capital sales reps of which 10 were added in the fourth quarter of 2023.

Reza Zadno: With a productivity ramp of six to nine months, we expect the capital reps added in the fourth quarter of 2023 to start contributing meaningfully to US system sales in the second half of 2024. Even with our recent success, we are still very early in our adoption curve with a long runway in front of us selling to BPH hospitals. Next, Touching on Utilization and Surgeon Activity. U.S. hand fees and other consumable revenues growth increased 101% compared to the second quarter of 2022.

With the productivity ramp up six to nine months, we expect the capital reps added in the fourth quarter of 2023 to start contributing meaningfully to U S system sales in the second half of 2024.

Even with our recent success, we are still very early in our adoption curve with a long runway in front of us selling to BPH hospitals.

Speaker Change: Next touching on utilization and surgeon activity.

Speaker Change: Handpiece and other consumable revenues increased 101% compared to the second quarter of 2023.

Reza Zadno: When analyzing our accounts, we remain pleased with overall utilization. In the past 12 months, our U.S. install base has grown 72% compared to the second quarter of 2023. However, these new accounts take time to ramp up to the levels of mature accounts.

Speaker Change: When analyzing our accounts, we remain pleased with overall utilization trends.

Speaker Change: In the past 12 months, our U S installed base has grown 72% compared to the second quarter of 2023.

Speaker Change: These new accounts take time to ramp to the levels of mature accounts.

Reza Zadno: We are encouraged by what we are seeing in account-specific utilization, and we believe we have multiple proof points where acquisition therapy is viewed as the receptive standard of care within a given hospital. In addition to adding new accounts, a primary driver of procedure growth continues to be active surgeon growth, which is a combination of new surgeons performing procedures and active surgeon retention rates exceeding 90 percent. As a company, we benefit greatly from this high level of surgeon retention as our commercial team can focus on training new surgeons. Regarding surgeon interest in early May, The 2024 American Neurological Association Conference, or AUA, was held in San Antonio.

We are encouraged by what we are seeing an account specific utilization and we believe we have multiple proof points, where a coalition of therapy is viewed as the respective standard of care within a given hospital.

Speaker Change: In addition to adding new accounts a primary driver of procedure growth continues to be active surgeon growth, which is a combination of new surgeons performing procedures and active search and retention rates exceeding 90%.

Speaker Change: As a company we benefit greatly from this high level of surgeon retention as our commercial team can focus on training new surgeons.

Speaker Change: Regarding surgeon interest in early May.

Speaker Change: 2020 for American Urological Association conference or was.

Speaker Change: It was held in San Antonio.

Reza Zadno: Given our recent growth, AUI 2024 was particularly exciting for Procept, as it marked the first year we could clearly see and feel growing market acceptance and awareness of aquavolation therapy. Specifically, there was a BPH session of poster presentations that was not sponsored by industry, where a significant number of aquablation therapy papers were presented. The presenters highlighted real-world outcomes that were consistent with the company's clinical trials. This rapid increase in aquaculation therapy publications continues to provide more confidence for future adopters of the technology.

Speaker Change: Given our recent growth.

Speaker Change: 2024 was particular exciting for a process as it marked the first year, we can clearly see and feel growing market acceptance and awareness of our correlation therapy.

Speaker Change: Specifically there was a BPA session a poster presentation that was not sponsored by industry, where a significant number of Aqua ablation therapy papers were presented.

Speaker Change: The presenters highlighted real world outcomes consistent with the Companys clinical trials. This rapid increase in real World ACA ablation therapy publications continues to provide more confidence for future of adopters of the technology.

Reza Zadno: Throughout the weekend, we also held educational and training sessions where over 100 new surgeons participated. Additionally, our expansion into prostate cancer garnered noticeable attention at the AUA, with a growing number of urologists requesting more information on how a coalition therapy could treat prostate cancer. Since prostate cancer is a very slow moving disease with a low mortality rate, it is no secret that in many low and intermediate risk cases, legacy treatments cause unnecessary harm at the request of patients who demand the cancer be removed from their bodies. These decisions can lead to a significant decrease in a patient's quality of life.

Speaker Change: Throughout the weekend, we also held educational and training sessions were over 100, new surgeons participated.

Speaker Change: Additionally, our expansion into prostate cancer Gardner not small attention at <unk> with a growing number of urologists requesting more information on hard coalition therapy to treat prostate cancer.

Speaker Change: Since prostate cancer is a very slow moving disease with a low mortality rate. It is no secret that in many low and intermediate risk cases legacy treatment cause unnecessary harm at the request of patients with demand that can be removed from their body.

Speaker Change: These decisions can lead to a significant decrease in the patient's quality of life given.

Reza Zadno: Given this backdrop, many surgeons at the EUA were very interested in learning more about acupuncture therapy's potential efficacy, knowing that the safety profile demonstrated in the BPH is so attractive, furthering our expansion into prostate cancer. In April, we initiated enrollment of PRCT002, Procept's first IDE studying men with localized prostate cancer. As a reminder, PRCT002 is an FDA-approved single-arm study of 20 patients with grade group 1 and 2 prostate cancer. I'm excited to announce enrollment is progressing nicely and that we expect to complete enrollment in the third quarter.

Speaker Change: Given this backdrop many surgeons at AUO.

Speaker Change: We're very interested in learning more about Appalachian therapies potential efficacy knowing that the safety profile demonstrated in the BPH is so attractive.

Speaker Change: Furthering our expansion into prostate cancer in April we initiated enrollment of <unk> zero zero to process first IV study in men with localized prostate cancer.

Speaker Change: As a reminder, PRC T 002 is an FDA approved single arm study of 20 patients with Great group, one and two prostate cancer.

Speaker Change: I'm excited to announce enrollment is progressing nicely and that we expect to complete enrollment in third quarter. We look forward to tracking these patients in.

Speaker Change: In the coming months and plan to provide additional information when it becomes available.

Reza Zadno: We look forward to tracking these patients in the coming months and plan to provide additional information when it becomes available. Turning to recent reimbursement and payer coverage updates, between late March and June, we received positive coverage policies from Blue Cross Blue Shield of Arkansas and Blue Cross Blue Shield of Louisiana. Combined, both plans account for roughly 1.5 million covered lives.

Speaker Change: Turning to recent reimbursement and payer coverage updates.

Speaker Change: Between late March and June we received positive coverage policies from Blue Cross Blue Shield of Arkansas, and Blue Cross Blue Shield of Louisiana.

Speaker Change: Bind both plans account for roughly $1 5 million covered lives.

Reza Zadno: While relatively insignificant given our existing 95% payer coverage, we do believe the addition of these Blue Cross Blue Shield plans will have a positive incremental impact on utilization locally considering we have numerous systems in those. Additionally, in mid-July, CMS published its 2025 Proposed Rule for the Hospital Outpatient Prospective Payment System. The Level 6 APC code for aquavolation has a proposed payment that would provide the hospital $9,209 and the ASC setting $6,666 for each aquavolation procedure, which is a 5% and 7% increase, respectively, over the 2024 rate. The final rule is expected to be published in November.

Speaker Change: Wild relatively incipient Ken given our.

Speaker Change: Existing 95% payer coverage, we do believe the addition of these Blue Cross Blue Shield plans will have a positive incremental impact on utilization locally considering we have numerous systems in those states.

Speaker Change: Additionally, in mid July CMS published its 2025 proposed rule for the hospital outpatient prospective payment system.

Speaker Change: The level six APC code for our population has a proposed payment that would provide the hospital $9209 and the ASC setting $6666 four each ACA ablation procedure, which is a 5% and 7% increase respectively.

Speaker Change: Over the 2020 for rates.

Speaker Change: The final rule is expected to be published in November.

Reza Zadno: Also, as a reminder, in mid-June, we announced that the American Medical Association established a new current procedural terminology, or CPT Category 1 code, for activation therapy to treat DPA. The Category 1 CPT code will replace the existing Category 3 CPT code starting January 1, 2026, with respect to international market development activity. We generated $5.7 million of international revenue in the second quarter of 2024, representing growth of 79 percent compared to the prior year period. Growth in the second quarter was once again driven primarily by strong sales momentum in the United Kingdom. Additionally, we sold our first two systems to Japanese hospitals in the second quarter.

Speaker Change: Also as a reminder, in mid June we announced that the American Medical Association established a new current procedural terminology or CPT category, one code for a correlation therapy to treat BPH.

Speaker Change: Category, one CPT code will replace the existing category III CPT code starting January one 2026.

Speaker Change: With respect to international market development activities, we generated $5 $7 million of international revenue in the second quarter of 2024, representing growth of 79% compared to the prior year period.

Speaker Change: Growth in the second quarter was once again, driven primarily by strong sales momentum in the United Kingdom.

Speaker Change: Additionally, we sold our first two systems to Japanese hospitals in the second quarter.

Reza Zadno: Following the completion of the post-market study earlier this year, our Japanese pipeline has increased nicely. Positive ASPs in the market and historical acceptance of new technologies give us confidence in our future investments and our ability to accelerate the penetration of the Japanese market in 2025. Similarly to the excitement we generated at the AUA conference in the United States, we also had a sizable presence at the British Association of Urological Surgeons in Birmingham, England. This was the first conference since NICE granted its Standard Arrangement Recommendation for Acquabulation Therapy, and the interest from surgeons reinforced our confidence in penetrating the UK market.

Speaker Change: Following the completion of the post market study earlier this year, our Japanese pipeline has increased nicely.

Speaker Change: Positive asps in the market and historical acceptance of new technologies gives us confidence in our future investments and our ability to accelerate the penetration of the Japanese market in 2025.

Speaker Change: Similarly to the excitement we generated at the Ada conference in the United States. We also had a sizable presence at the British Association of neurological Surgeons in Birmingham, England.

Speaker Change: This was the first conference since nice granted expanded orange vendor Commendation for ACA ablation therapy, and the interest from surgeons reinforced our confidence in penetrating the U K market.

Reza Zadno: Lastly, I want to comment on new changes made to our board of directors. In mid-April, we welcomed Larry Wood to our board of directors. Larry joins Procept with over 35 years of medical device experience, most notably at Edwards Lab Sciences, where he is currently co-president of its Stavr and Surgical Structural Heart divisions. Additionally, in mid-July, we welcome Tom Prescott as our new chairman of the board. Tom joins Procept with decades of medical device experience, most notably as president and CEO of Alliant Technology from 2002 to 2015.

Speaker Change: Lastly, I want to comment on new changes made to our board of directors.

Speaker Change: In mid April we welcome Larry Wood to our board of Directors, Larry joins process with over 35 years of medical device experience, most notably at Edwards Lifesciences, where he is currently co president of <unk> and surgical structural heart business.

Reza Zadno: Specifically, under Tom's leadership, Align transformed the orthodontic dental market, growing revenue from $75 million to near $1 billion when he retired. We believe Larry and Tom's experience and leadership in strategic areas related to commercialization, operations, clinical, and regulatory affairs will help Procept efficiently scale in the coming years. We are also pleased that Dr. Credmo, who has served as our chairman since 2021, will continue to serve on our board of directors as well.

Speaker Change: Additionally, in mid July we welcome Tom Prescott as our new chairman of the board.

Speaker Change: Tom joins process with decades of medical device experience, most notably as president and CEO of Allied technology from 2002 to 2015, specifically under Tom's leadership aligned transform the orthodontic dental market growing revenue from $75 million to near 1 billion.

Speaker Change: When he retired.

Speaker Change: We believe Larry and Tom's experience and leadership in strategic areas related to commercialization operations clinical and regulatory efforts to help process efficiently scale in the coming years. We are also pleased that Dr. Fred Moll, who has served as our chairman since 2021.

Speaker Change: We will continue to serve on our board of directors as well.

Reza Zadno: To conclude my prepared remarks, every key metric we track continues to move in the right direction. In summary, our pipeline and sales funnel continue to grow nicely in what we currently believe is a stable to improving macro environment. On average, the longer an account has been active, the more procedures it performs.

Speaker Change: To conclude my prepared remarks every key metric we track continues to move in the right direction in summary, our pipeline and sales funnel continued to grow nicely in what we currently believe is a stable to improving macro environment.

Speaker Change: On average the longer an account has been active in more procedures. It performs.

Reza Zadno: We are launching new accounts with more surgeons while sustaining excellent retention rates. Our international business continues to exceed expectations. 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 have continued to exceed. Our guidance around profitability metrics, primarily the expansion of gross margins throughout 2020. Given this positive momentum, we believe aquaculation therapy is laying the foundation to become the BPH surgical standard of care, and Procept is emerging as a leading global virology company. And with that, I will turn the call over to Kevin.

Speaker Change: We are launching new accounts with more surgeons, while sustaining excellent retention rates.

Speaker Change: Our international business continues to exceed expectations.

Speaker Change: Our commercial organization is the largest and most of the near in the company's history, which we believe will lead to increased productivity and.

Speaker Change: And lastly, we have continued to exceed.

Speaker Change: Our guidance around profitability metrics, primarily with the expansion of gross margins throughout 2024.

Speaker Change: Given this positive momentum we believe a correlation therapy is laying the foundation to become the PPA surgical standard of care and process is emerging as a leading global urology company.

Speaker Change: And with that I will turn the call over to Kevin.

Kevin Waters: Reza, total revenue for the second quarter of 2024 was $53.4 million, representing growth of 61% compared to the second quarter of 2023. U.S. revenue for the quarter was $47.7 million, representing growth of 59% compared to the prior year period. In the second quarter, we sold 47 AquaBeam robotic systems with average selling prices of $378,000, generating total U.S. system revenue of $17.8 million, representing system revenue growth of 20% compared to the second quarter of 2023.

Kevin: Thanks, Rob the.

Kevin: Total revenue for the second quarter of 2024, with $53 4 million representing growth of 61% compared to the second quarter of 2023.

Kevin: U S revenue for the quarter was $47 $7 million representing.

Kevin: Representing growth of 59% compared to the prior year period.

Speaker Change: In the second quarter, we sold 47, Aqua beam robotic systems with average selling prices of $378000 generating total U S system revenue of $17 $8 million.

Speaker Change: Representing system revenue growth of 20% compared to the second quarter of 2023.

Kevin Waters: Also, we did not place any units at an ASC in the U.S. in the second quarter of 2024. U.S. handpiece and consumable revenue for the second quarter of 2024 was $27.3 million, representing growth of approximately 101% compared to the second quarter of 2023. Handpiece growth was driven by an increase in the installed base of Aquabeam robotic systems.

Speaker Change: Also we did not place any units at an ASC in the U S in the second quarter.

Speaker Change: U S. Handpiece in consumable revenue for the second quarter of 2024 was $27 3 million representing growth of approximately 101% compared to the second quarter 2023.

Speaker Change: <unk> growth was driven by an increase in the installed base of Aqua beam robotic systems.

Kevin Waters: Additionally, monthly utilization of 7.1 handpieces per account increased approximately 15% compared to the second quarter of 2023. Utilization in the second quarter exceeded our expectations and represents a 4% sequential increase from the first quarter. Overall, we continue to see increased utilization across cohorts, which is a direct reflection of strong commercial execution, which includes training new surgeons, high surgeon retention, and opening new accounts in a timely manner. We shipped approximately 8,000 handpieces in the US in the second quarter, representing unit growth of 105% compared to the second quarter of 2023. Second quarter handpiece average selling prices were approximately $3,200.

Speaker Change: Additionally, monthly utilization of seven one hand pieces per account increased approximately 15% compared to the second quarter of 2023.

Speaker Change: Utilization in the second quarter exceeded our expectations and represents a 4% sequential increase from the first quarter.

Speaker Change: Overall, we continue to see increased utilization across cohorts, which is a direct reflection of strong commercial execution, which includes training new surgeons high surgeon retention and opening new accounts in a timely manner.

Speaker Change: We shipped approximately 8000 hand pieces in the U S. In the second quarter, representing unit growth of 105% compared to the second quarter of 2023.

Speaker Change: Second quarter Handpiece average selling prices were approximately $3200. We also recorded $1 7 million of other consumable revenue in the second quarter of 2024.

Kevin Waters: We also recorded $1.7 million of other consumable revenue in the second quarter of 2024. International revenue for the second quarter of 2024 was $5.7 million, representing growth of approximately 79%. Gross margin for the second quarter of 2024 was 59%, representing an all-time high and 200 basis points above our second quarter guidance we provided in May. Gross margin expansion in the second quarter was once again due to strong execution from our operations team and our ability to absorb overhead expenses along with revenue overachievement.

Speaker Change: International revenue for the second quarter was $5 $7 million.

Speaker Change: Representing growth of approximately 79%.

Speaker Change: Gross margin for the second quarter of 2024, with 59% representing an all time high and 200 basis points above our second quarter guidance, we provided in may.

Speaker Change: Margin expansion in the second quarter was once again due to strong execution from our operations team and our ability to absorb overhead expenses along with revenue over achievement.

Speaker Change: Moving down the income statement.

Kevin Waters: Total operating expenses in the second quarter of 2024 were $58.3 million compared to $44.1 million in the same period of the prior year and $52.7 million in the first quarter of 2024. The increase was driven primarily by increased sales and marketing expenses, mostly to expand the commercial organization and increase research and development expenses.

Speaker Change: Total operating expenses in the second quarter of 2024 were $58 3 million.

Speaker Change: Compared to $44 1 million in the same period of the prior year and $52 $7 million in the first quarter of 2024.

Speaker Change: The increase was driven primarily by increased sales and marketing expenses, mostly the expanded commercial organization and increased research and development expenses were.

Kevin Waters: We are very pleased with the operating expense leverage we have demonstrated in the first half of 2024. Total interest and other income was $1.2 million, as quarterly interest expense from our $52 million term loan plus $300,000 of foreign currency losses was offset by favorable interest income from our cash balance. Adjusted EBITDA was a loss of $18 million compared to a loss of $19.9 million in the second quarter of 2023. Our cash and cash equivalents balance as of June 30th was $217 million. We reported cash usage in the quarter of $11.5 million, which is a significant improvement from the $31.6 million usage in the first quarter of 2024. Most of this progress was driven by improvements in working capital.

Speaker Change: We are very pleased with the operating expense leverage we have demonstrated in the first half of 2024.

Speaker Change: When comparing revenue growth to operating expense growth revenues increased 70% in the first six months of 2024 on 31% operating expense growth.

Speaker Change: Total interest and other income was $1 $2 million as quarterly interest expense from our $52 million term loan plus $300000 of foreign currency losses was offset by favorable interest income from our cash balances.

Speaker Change: Net loss was $25 6 million for the second quarter of 2024 compared to $25 3 million in the same period of the prior year.

Speaker Change: Adjusted EBITDA was a loss of $18 million compared to a loss of $19 $9 million in the second quarter of 2023.

Speaker Change: Our cash and cash equivalents balance as of June 30 was $217 million, we reported a cash usage in the quarter of $11 $5 million, which is a significant improvement from the $31 6 million usage in the first quarter of 2024.

Speaker Change: Most of this progress was driven by improvements in working capital.

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

Speaker Change: Moving to our 2024 financial guidance.

Kevin Waters: We now expect full year 2024 total revenue to be approximately $217 million, representing growth of approximately 59% compared to 2023, starting with the U.S. system. We continue to expect to sell approximately 185 systems in 2024. In terms of cadence, we expect third-quarter system sales to be in the low 40s, with fourth-quarter system sales being our strongest quarter of the year. We also anticipate system average selling prices in the second half of 2024 to be approximately $380,000. Turning to U.S. hand pieces.

Speaker Change: We now expect full year 2024, total revenue to be approximately $217 million representing growth of approximately 59% compared to 2023.

Speaker Change: Starting with U S systems.

Speaker Change: We continued to expect to sell approximately 185 systems in 2024.

Speaker Change: In terms of cadence, we expect third quarter systems sales to be in the low forties with fourth quarter system sales being our strongest quarter of the year.

Speaker Change: We also anticipate system average selling prices in the second half of 2024 to be approximately $380000.

Speaker Change: Turning to use hand pieces we.

Speaker Change: We expect to sell approximately 33350 hand pieces for the full year with average selling prices of approximately $3200.

Kevin Waters: We also expect other consumables revenue to be approximately $7.8 million for the full year. Regarding quarterly cadence, and given the strength we saw in the second quarter, we expect third quarter utilization to be down slightly compared to the second quarter, with fourth quarter utilization increasing sequentially due to normal seasonal strength and an aging installed base. Additionally, we now expect U.S. service revenue to be approximately $11.7 million. Moving down the income statement, we now expect full year 2024 growth margins to be approximately 59 percent, an increase from our previously issued guidance of 58 to 59 percent.

Speaker Change: We also expect other consumables revenue to be approximately $7 8 million for the full year.

Speaker Change: Regarding quarterly cadence and given the strength we saw in the second quarter, we expect third quarter utilization to be down slightly compared to the second quarter with fourth quarter utilization, increasing sequentially due to normal seasonal strength and an aging installed base.

Speaker Change: Additionally, we now expect U S service revenue to be approximately $11 7 million.

Speaker Change: Lastly on international revenue, given another strong quarter and positive momentum in the United Kingdom. We now expect full year international revenue to be approximately $25 million representing annual growth of approximately 73%.

Speaker Change: Moving down the income statement, we now expect full year 2020 for gross margins to be approximately 59% an increase from our previously issued guidance of 58% 59%.

Kevin Waters: Regarding quarterly cadence, we continue to expect gross margins to modestly increase sequentially in the second half of the year. Turning to operating expenses, We continue to expect full year 2024 operating expenses to be approximately $231.5 million, representing growth of 29%. In terms of quarterly cadence, we expect the third quarter operating expenses to be approximately $59 million. Given current interest rates, we expect to generate net interest income of approximately $6.1 million in 2024.

Speaker Change: Regarding quarterly cadence, we continue to expect gross margins to modestly increase sequentially in the second half of the year.

Speaker Change: Turning to operating expenses, we continue to expect full year 2020 for operating expenses to be approximately $231 $5 million representing growth of 29%.

Speaker Change: In terms of quarterly cadence, we expect the third quarter operating expense to be approximately $59 million.

Speaker Change: Given current interest rates, we expect to generate net interest income of approximately $6 $1 million in 2024.

Kevin Waters: Given the increase in revenue and gross margin, along with our continued view on operating expenses, we now expect full-year 2024 adjusted EBITDA losses to be approximately $67.5 million, an improvement from a loss of $70 million from our previous guidance and up almost $6 million from our initial guidance provided in February. At this point, I'd like to turn the call back to Reza for closing comments.

Speaker Change: Given the increase in revenue and gross margin along with our continued view on operating expenses. We now expect full year 2024, adjusted EBITDA loss to be approximately $67 5 million an improvement from a loss of $71 million from our previous guidance and up almost <unk>.

Speaker Change: <unk> million dollars from our initial guidance provided in February.

Speaker Change: At this point I'd like to turn the call back to Roger for closing comments.

Reza Zadno: 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 seeing many of you at upcoming investor conferences. At this point, we will take questions. Operator, and things like that.

Roger: 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 seeing many of.

Speaker Change: Are you at upcoming Investor comprehensive at this point, we will take questions operator.

Operator: And thank you. 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. Please stand by. We've compiled a Q&A roster, and we ask that you limit yourself to one question and one follow-up. Again, that's one question and one follow-up. And one moment for our first question, and our first question comes from Craig Bijou from Bank of America Securities. Your line is now open.

Speaker Change: And thank you <unk>.

Speaker Change: 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 we compile the Q&A roster and we ask that you limit yourself to one question one follow up again Thats. One question, one follow up and one moment if our first question.

Speaker Change: And our first question comes from Craig Bijou from Bank of America Securities. Your line is now open.

Craig Bijou: Good afternoon, guys. Thanks for taking the questions, and congratulations on another strong quarter. So, I want to start, or I want to ask about two things, but firstly, on the expense side, obviously, really stood out. Your cash burn getting lower was clearly impressive, and, you know, the gross margin coming in better than, you know, what you guys had said it was going to be last quarter. So, maybe just big picture, Kevin, if you could just kind of talk about, you know, your ability to leverage the business on the gross margin line, on the OPEX line, and then how we should think about kind of the cadence, not just this year, but kind of looking ahead and where those, you know, margins can go, and how to think about your cash burn.

Craig Bijou: Good afternoon, guys. Thanks for taking the questions and congrats on another strong quarter.

Craig Bijou: So I wanted to start I wanted to ask about.

Speaker Change: Two things, but firstly.

Speaker Change: The expense side.

Speaker Change: Obviously really stood out your cash burn.

Speaker Change: Getting lower.

Speaker Change: <unk> was clearly impressive and.

Speaker Change: Gross margin coming in better than what you guys had said it was going to be last quarter. So maybe just big picture. Kevin If you can just kind of talked about.

Speaker Change: <unk> ability to leverage the business on the gross margin line on the Opex line.

Speaker Change: And then how we should think about cadence.

Speaker Change: Not just this year, but looking ahead and where can those.

Speaker Change: Margins go and how to think about your cash burn going forward too.

Kevin Waters: Yeah, thanks, Greg, for the question. And to address this first, what occurred this quarter and kind of 2024 gross margins, we've been consistent in saying that the biggest contributor to gross margin expansion for us is our ability to leverage the fixed costs that we built into the business and absorb related overhead on increased revenues. That's really what you saw come to fruition in our second quarter, and what's implied is going to continue in our future guidance.

Kevin: Yes, Thanks, Craig for the question then.

Speaker Change: Address first what occurred this quarter and into 2024 gross margins, we've been consistent in saying that the biggest contributor for gross margin expansion for us is our ability to leverage the fixed cost that we built into the business and absorb the related overhead on increased revenues and Thats really what you saw come to fruition.

Speaker Change: In our second quarter, and what's implied with May continue and our future guidance and on top of that we did talk at the end of 2023 about a few operational things around moving gardening facility around things like first pass yield and scrap and warranty.

Kevin Waters: And on top of that, we talked at the end of 2023 about a few operational things around moving to our new facility, around things like first pass yield and scrap and warranty. We've put a lot of focus on those areas in the first six months of 2024. That really has helped. Unknown Attendee, Nathan Treybeck, Kevin Waters, Reza Zadno, Hisham Shiblaq, Brian Helfand, [inau

Speaker Change: Put a lot of focus in those areas in the first six months of 2020 or not really has helped.

Speaker Change: Expand gross margins of 59%.

Speaker Change: On the second quarter regarding cadence throughout the rest of the year. We continue to expect this number to expand in the third quarter I think somewhere in the 59, 5%, 60% range and then exiting the year north of 60% to get to the full year guide, 59%, which is I think a tremendous achievement from last year when we.

Speaker Change: We are ending the.

Speaker Change: Full year at 52, so good margin improvement there.

Ron: Kind of leads then to your last question just kind of longer term potential of the business. While on this call. We're not prepared to talk about 2025 on this call I do think given the trajectory Ron with margins, particularly exiting the year in the low forties, Kevin our operating expense leverage ratio. It just gives us increased confidence with this.

Ron: Margin profile with our growth longer term for us that it can be a highly profitable business. That's really good to see come to fruition here in the first six months of 'twenty four.

Craig Bijou: Thanks, Kevin. And maybe on the comments about international business and the record quarter you guys had, I do think that we don't talk enough about the international expansion opportunities that you guys have. So maybe just talk about what you've seen thus far in the UK. And then, obviously, Japan is something to look forward to that's really going to start ramping up soon. So maybe talk about how the size of those opportunities is relevant.

Speaker Change: Got it thanks, Kevin just following up.

Ron: Maybe on the comments on the international business and a record quarter you guys had.

Speaker Change: Yes, I do think that we don't talk enough about the international expansion opportunities that you guys do have so maybe just talk about what you've seen thus far in the U K and then obviously, Japan is continue to look forward to what's really going to start ramping soon so maybe talk about how those.

Speaker Change: The size of those opportunities relative to.

Speaker Change: Your current U S opportunity.

Reza Zadno: Thanks, Craig. Yes, we are very happy with the strong second quarter international performance, driven primarily by the UK. As we have previously said, the NICE endorsement was a great rival for this, always similar to the U.S. starting with the clinical data. And now we are starting to have a good installed base in the UK so that we can have Unknown Attendee, Nathan Treybeck, Kevin Waters, Reza Zadno, Hisham Shiblaq, Brian Helfand, [inaudible]

Speaker Change: Thanks, Craig.

Speaker Change: As we are very happy with that.

Speaker Change: Second quarter International Chicken, primarily with U K as we have previously said that.

Speaker Change: Nice endorsement, what's a great driver of Cortez.

Speaker Change: Always.

Speaker Change: And you start to get the clinical data.

Speaker Change: And now we are starting to install.

Speaker Change: Installed base in U K, so that will become more.

Speaker Change: More predictable of utilization and I'm happy to say that we also placed two robots in Japan.

Speaker Change: Net debt.

Speaker Change: We would expect that yes.

Speaker Change: We're going to stay.

Speaker Change: Start with you about our cadence on the international.

Speaker Change: <unk> International was about 18 months ago, our sites on the 2024 was the first full year on the international but we have.

Speaker Change: And two is yes.

Speaker Change: Practices more efficient.

Speaker Change: I'm going to ask Shan wants to add anything to.

Kevin Waters: Yeah, Craig, I would just add that the process that we're using to commercialize in the U.K. and Japan is very similar to the process that we've used in the U.S. So when you think about the structure of the team, you think about onboarding, you think about building the funnel, we've got a lot of great data over the years in the U.S. that we've been able to use to build our business, provide predictability, and be able to forecast, and we feel the same way about our U.K. business now that we've had a nice start to the business there.

Shan: Yeah, Craig I would add I would just add that the process that we're using to commercialize.

Shan: K in Japan is very similar to the process that we've used in the U S. So when you think about the structure of the team do you think about Onboarding and think about building. The funnel we have a lot of great data over the years in the U S. We've been able to use to build our business provide predictability of our forecast and we felt the same way about our U K business now that we've had a nice start.

Kevin Waters: And then, as you mentioned, we're really excited about Japan as well, and so we look at 2025 as being a great year for Japan. This is going to be our first full year in the U.K., with our business and our teams starting to get ramped up, and so we're excited to finish out the year and then provide some great visibility in the future years in the U.K. as well.

Speaker Change: The business there and then as you mentioned, we're really excited about Japan as well and so we look at 2025, it's been a great year for Japan is going to be our first full year in the UK.

Shan: With our business and our teams are starting to get ramped up. So we're excited to finish out the year and then provide some greater visibility into future years in the UK as well.

Craig Bijou: Thanks and congrats again.

Thanks, and congrats again.

Speaker Change: Okay. Thank you.

Speaker Change: And thank you and one moment for our next question.

Shan: And our next question comes from Matthew O'brien from Piper Sandler Your line is now open.

Matthew O'brien: Alright, thanks for taking the questions, maybe just starting with the back half.

Shan: Guide, what's implied anyway.

Speaker Change: Look the last couple of years, you've generated $58, 59% of sales in the back half of the year at this time you are here.

Speaker Change: <unk> to more like 54% kind of implies a little bit of a slowdown and given what we've seen on the handpiece side, especially and then.

Shan: All of those new reps on the <unk>.

Speaker Change: Commercial side I'm, just not sure why there is a disconnect. So just anything we should be mindful of in terms of why there might be a slight acceleration in the back half versus what you've done here in the first half.

Shan: Thanks, Bob This is Kevin as you pointed out we haven't really I'll start with utilization, we did have a very strong stronger than expected even internally.

Speaker Change: Second quarter on utilization, increasing 15% sequentially and if you look at kind of what.

Speaker Change: Q2 of 'twenty three that utilization is actually down so our first half I would argue it is.

Is much stronger than our historical trends and I wouldn't read anything into kind of the back half versus first half.

Shan: Implied in our back half guide, we still do feel it's prudent to manage expectations, just given how sensitive monthly utilization can be quarter to quarter.

Shan: Put that perspective, we planned.

Speaker Change: Almost 100, new accounts in the back half of the year, which is almost 25% of our total installed base and we've been very consistent saying that it takes six to nine months for an account to ramp up but at the same alright. So we've been able to overcome that with launching accounts with multiple surgeons and growing utilization quicker than we did historically.

unknown: With launching accounts with multiple surgeons and growing utilization quicker than we did historically, so there is a little bit.

Speaker Change: There is a little bit.

unknown: There's a lot of expectation management in the back half. I wouldn't read anything into that, thinking there's a slowdown in utilization at all. And then on capital, I'll flip to capital. Our guidance does assume a number in the low 40s in the third quarter, which puts the fourth quarter somewhere in the high 50s, I think somewhere in the 57 to 59 range. And if you look at the productivity of our sales force, that actually assumes that we have the same productivity on a per rep basis in the fourth quarter of 24 than in the fourth quarter of 23. So, no slowdown there, and no real change in what we're seeing with how deals progress through the funnel at all.

Shan: Expectation management in the back half I wouldn't read in anything into that the thinking there is a slowdown in utilization at all.

Speaker Change: And with capital what the capital our guidance does assume some number in the low forties in the third quarter, which puts the fourth quarter somewhere in the high fifty's. Thanks somewhere in the 57% to 59 range.

Speaker Change: If you look at the productivity of our sales force.

Speaker Change: Actually assumes that we have the same productivity on a per rep basis in the fourth quarter of <unk> 24 in the fourth quarter of 2000, and so no slowdown there.

Speaker Change: No real change in what we're seeing with our deals progressing the funnel at all.

resin: Got it and then sorry to leave you out resin, but I did have a question for Sam it's really on the commercial team.

Speaker Change: Just curious how how the commercial team, especially on the capital side is trending because when you expand the sales force I know, it's smaller numbers, but still 30% that can get a little unwieldy and maybe not as much as product productive as you want it.

Speaker Change: Curious, how that's trending as far as your expectations and then just any updates on the Ibms and the team there and how things are trending with that group. Thank you.

unknown: You know, the one thing I would say at the Capitol.

Sam: Thanks, Matt.

Speaker Change: The one thing I would say on the capital team is can we do continue to expand but when you look at the numbers.

Speaker Change: Some they're not drastically different than prior years. So the team has gotten bigger and the processes are well well.

Well in place now to onboard new employees, we're training them.

Speaker Change: Dave.

Dave: We've talked about before we are thrilled with the level of talent, we bring it in at the Rep level at the management level, we are bringing in some really experienced managers and the capital environment many of them robotics.

Speaker Change: To provide a capital managers that helps to onboard and helps to get us up to speed quickly and we fully expect that team will be very productive in the back half of this year as Kevin mentioned regarding strategic accounts. So the big difference for us in 2024 versus 2023, and we specifically hired a strategic account team and it also added a junior capital Rep team, what's the intent.

Speaker Change: Not only built our pipelines and be able to bring these deals to us.

Speaker Change: What we see in strategic strategic account that it may be slightly different than that.

Speaker Change: Standalone Hospital is when you start to have multiple multiple systems start to bubble up to the purchase space. The corporate accounts team will work with the ibms to ensure that they acquire the technology the best way possible for them. When the numbers were smaller and whatnot is important because you do a local or regional funding the numbers get larger.

Speaker Change: The National accounts team was very very important to us so very happy with the progress. So far this year and I think those will just be better as time goes on.

Speaker Change: Very helpful. Thank you.

Operator: And thank you. And please wait one moment for our next question.

Speaker Change: I appreciate it and thank you and one moment for our next question.

Speaker Change: And our next question comes from Richard <unk> from <unk> Securities. Your line is now open.

Speaker Change: Hi, Thanks for taking my questions and congrats on the strong quarter.

Richard <unk>: First question.

Richard: Just on the system ASP.

Richard: 380000 above trend.

Speaker Change: Trend what we modeled.

Speaker Change: <unk> been and Thats, what youre kind of the year.

Richard: Can you just comment on.

Richard: On that end.

Speaker Change: And just the capital outlook in the funnel broadly we have a follow up.

Brett: Yeah. Thanks, Brett.

Speaker Change: And then our guidance based on what we see in the funnel and we have very good line of sight.

Speaker Change: Of the deals that are in the pipeline today and given this we felt comfortable kind of raising that asps for the back half of the year.

Speaker Change: <unk> coming off of a 378 ASP in the second quarter, we continue to have very productive conversations, but hospital CFO and administrators about the ROI on our system the ability for them.

Speaker Change: <unk> patients that otherwise would have had a referred out ability to standardize the treatment algorithm and all of those things are leading asps start to creep higher on systems, which is good to see.

Speaker Change: That's really helpful. Thank you maybe just just one other one.

Speaker Change: I know over the last year, there's been rack audits by Medicare.

Brett: Out there.

Brett: With respect to.

Brett: Just looking at prostate size and things like that needing to get.

Brett: Preauthorization extra.

Brett: Optimization steps to get the surgery.

Speaker Change: I'm just curious obviously it hasnt impacted your utilization or your numbers at all but I'm just curious if.

Speaker Change: If you've seen that at all how you deal with it out in the field and just on the insurance backed out if there's anything else that's worth calling out thanks.

Hisham Shiblaq: I'm going to turn it over to Hisham. Hisham can probably answer that one better. Yeah, I'm happy to take the question. So we're very aware of the...

Brett: Amen.

Brett: I'll just turn it over to Sam Let me answer that one for sure.

Sam: Are you taking the question. So we're very aware of the rack audits.

Sam: I'll give a slight small background rack audits and then talk about process and your customers and how we are assisting them as they go through that process rack audits have been around for a long time, they're very common across healthcare Medicare started doing about 15 years ago regarding our customers. We started to see this late summer of 'twenty three now.

Brett: Shouldnt, we ought to know that during the Covid yours Medicare was not doing audits for years.

Brett: Again last year.

Speaker Change: And despite the last nine to 12 months as you mentioned, we've been able to execute increased utilization nicely.

Speaker Change: To write some more context on this is Medicare specific and Medicare currently doesn't have a prostate size limitation of 150 grams. As you mentioned so our FDA label for FDA labeling doesn't match that just a clearer now.

Speaker Change: I don't have a size limitation. So we have begun working with our surgeons and Medicare have this happens restriction or move.

Speaker Change: I would also point out that we recently have been successful with five of the seven Medicare contractors and removing the age restriction. So we first of all my first receive our Medicare coverage. There was a restriction of 80 years and Thats been removed now 5% to seven contractors. So we feel confident over time, we'll be able to get the size restrictions removed as well.

Speaker Change: Regarding the numbers. So you can think about how to put it.

Speaker Change: How does this impact the business and we estimate that half of our patients have BPH are comprised of traditional Medicare and Medicare advantage. It's also important to note that rack audits are only focused on traditional Medicare.

Speaker Change: So that means that about a quarter of the BPH barcoding traditional Medicare and then you think about the size less than 10% of our procedures are over 150 grams. So this limitation. It does have a minimal impact on our ability to expand and achieve our acquisition targets. So we continue work closely with our accounts to ensure their compliance and.

Speaker Change: Even been more proactive in recent quarters, helping them out that's worked out well in our accounts are appreciative of the partnership.

Speaker Change: Thank you.

Speaker Change: Thanks Rich.

Speaker Change: And thank you and one moment our next question.

Speaker Change: And our next question comes from Brandon Basquez William Blair. Your line is now open.

Brandon Basquez: Hey, everyone. Thanks for taking the question Roger you had made a comment.

Brandon Basquez: About 42% of your active installed base in the U S is less than 12 months at this point.

Brandon Basquez: Despite that obviously you guys had a nice utilization quarter, what can you talk a little bit about the difference in utilization from maybe those 42% of accounts that.

Speaker Change: Our column less than 12 months and then those that are longer than 12 months anything you can tell us like are those under 12 months on average are accretive to the total utilization you guys are seeing or is that still to come so any any commentary around there.

Speaker Change: Yes, yes. Thanks.

Speaker Change: You had said in the past it takes about three to four quarters for that account to get to about <unk>.

Speaker Change: Seven.

Speaker Change: So the longer the account stay with us a higher intent utilization. So we continue to see that in our accounts and for the.

Speaker Change: Does that mean.

Speaker Change: Mentioned standardizing the procedure allows.

Kevin: Attracting suggested that hospital and I don't know, Kevin do you want to add anything about.

Matt Cassel: Matt Cassel.

Kevin: I guess I could be a little I'll provide some specificity to the numbers just in how we see that cohort buildings over time, maybe to get to the heart of your question I think it's important to remember.

Speaker Change: First quarter, even when we sell a robot the majority of those accounts are not doing procedures in that given quarter, we may sell a handful of hand pieces.

Speaker Change: Average five but in general procedures on occurring until the following quarter. So therefore, you have very low utilization in the first quarter Watson too.

unknown: And then in the second quarter, they start to ramp up, but they do so less than the corporate average. And our corporate average in this quarter was seven. So they're doing less than seven. Then, as Reza mentioned, by the time they get to the third quarter, they're doing roughly the corporate average. And then you really start to see them shine, so to speak, in quarters four, five, and six, where they're typically doing north of the corporate average.

Kevin: In the second quarter, they start to ramp up.

Speaker Change: <unk> less than the corporate average and our corporate average.

Speaker Change: This quarter was seven so they are doing less than seven then as Reza mentioned by the time, they get to the third quarter Theyre doing roughly the corporate average and then you really start to see them shine so to speak and quarters, four five and six where they're typically doing north of the corporate average and that trend has been very consistent.

unknown: And that trend's been very consistent. One nuance that we have seen, which is a positive thing, is that RAMP appears to be moving faster with newer cohorts, given our focus on... launching accounts with multiple cases in mobile.

Speaker Change: Nuance that we have seen which is a positive thing is that ramp appears to be moving faster with newer cohorts given our focus on launching accounts with multiple cases of multiple surgeons.

unknown: Great. Thank you. That's very helpful. And then there was also a comment in the prepared remarks about how surgeons are already coming to you guys and asking about how to treat prostate cancer with oculation. Just kind of curious if you guys are seeing that interest kind of creep into some early treatment of prostate cancer already among patients today, or are they just kind of inquiring information, but you're not really seeing patients treated yet? Thanks.

Speaker Change: Great. Thank you that's very helpful. And then there was also a comment in the prepared remarks about how surgeons are already coming to you guys and asking about how to treat prostate cancer with occultation just kind of curious if you guys are seeing that interest.

Speaker Change: Creep into some early treatment of prostate cancer already have patients today or are they just kind of enquiring information, but youre not really seeing the patients patients treated yet thanks.

unknown: Thanks, so I mean we saw some of that enthusiasm at AUA; that's where we saw clearly growing market acceptance and awareness of our coalition. Surgeon Panel Discussion on Both BPH and Cancer. Cancer definitely has some halo effect enthusiasm among surgeons for the potential future of our technology.

Speaker Change: So I mean, we saw some of that enthusiasm.

Speaker Change: That's where we saw.

Speaker Change: Clearly growing market acceptance and awareness of our coordination, but at the same time.

Speaker Change: Again.

Speaker Change: As you remember on the first day, we had decision discussion on both BPH and cancer.

Speaker Change: Cancer is definitely has some halo effect.

Speaker Change: Yes.

Speaker Change: Sorry, just for the potential future of our technology of.

Speaker Change: Of cancer.

Speaker Change: At the.

Speaker Change: Same day, we're asking question about.

Speaker Change: Either progression at the NSS as I've mentioned in our prepared.

Mark: As you Mark.

Speaker Change: We are expecting.

Speaker Change: Florida to finish that easier too.

Speaker Change: Steady.

Speaker Change: Alright, thanks, guys.

Speaker Change: And thank you and one moment our next question.

Speaker Change: And our next question comes from Josh Jennings from TD Cowen. Your line is now open.

Josh Jennings: Hi, good evening, thanks for taking the questions and great to see such a strong first half of the year I wanted to just ask I know we've talked about this.

Josh Jennings: In the past, but just the.

Speaker Change: Is it replacement cycle.

Speaker Change: Just an update on your thoughts there.

Speaker Change: And I may have even asked this on the last call I can't remember, but but just any any plans for the next generation operating system and if not divulging anything when could we hear about the enhancements that are being developed today.

Speaker Change: Yes. Thanks, Josh This is Kevin look I think if you look at our R&D spend sequentially. It's.

Kevin: It's fair to say that we are working on some exciting projects internally and we do believe will be transformative for <unk> to continue to allow us to maintain this.

unknown: and Clinical and Technological Advantage that we've been able to establish in the market. We're not prepared today to talk about timing, but, you know, our spend has crept up recently, which would suggest that, you know, we're accelerating things internally. You know, we talked about things like ease of use, workflow, artificial intelligence, assisted planning, given all the data we have. And those are things we continue to work on. And, you know, Reza and I, Hisham, we all feel very good about that progress.

Speaker Change: Clinical and technological advantage that we've enabled us stablish and the market, we're not prepared today to talk about timing, but.

Kevin: And as crept up recently, which would suggest that we're accelerating things internally, we've talked around things ease of use workflow artificial intelligence assistant planning given all the data we have and those are things. We continue to work on and we randomized sham we all feel very good about that progress and hopefully.

Speaker Change: There'll be some time not too distant future, we'll be able to talk with more specificity about timing.

unknown: Great, and sorry to ask a repeat of Brandon's question, but

Josh Jennings: Great and sorry to ask a repeat of brandon's question, but.

Speaker Change: We've been hearing since EUA.

Speaker Change: About physicians being more willing currently to treat patients with can comment BPH and localized prostate cancer.

Speaker Change: Utilization was strong I'm sure. There's some contribution I don't know if theres any way to quantify that.

Josh Jennings: For one and then two sorry, two tiered question.

Speaker Change: <unk> also talked to some da Vinci surgeons, who told us they are acquiring offer being specifically for this indication.

Speaker Change: I just wanted to know if that's a trend as well thanks for taking the questions.

Speaker Change: So.

Speaker Change: As you know easily most day as a country indication for the treatment.

Speaker Change: H.

Speaker Change: Sure.

Speaker Change: Got it.

Speaker Change: It's not a significant increase in the market.

Speaker Change: We are not promoting our products for the treatment of cancer in that state.

Speaker Change: <unk>.

Speaker Change: All we have presented.

Speaker Change: Let me now.

Speaker Change: Have you had from outside the United States, which were presented at <unk>.

Speaker Change: We're.

Speaker Change: Surgeons and are excited.

Speaker Change: Very strong safety profile of the product.

Speaker Change: Great.

Speaker Change: Specifically on two continents.

Speaker Change: Function and Thats what patients are SBS.

Bob: Bob patient schools.

Bob: Okay.

Bob: And so without having the side effects that split.

unknown: (inaudible) that there are millions of men in the United States who are avoiding these treatments because of these side effects. But we are not promoting these treatments today because

Speaker Change: And he ends up men in the United States on the sidelines.

Bob: They are.

Bob: Avoiding these treatments because these sidelines.

Speaker Change: But we are not promoting today for the <unk>.

Bob: So treatments, we are guiding to studies regarding hey, Josh Chan regarding the patients that.

Bob: And that are being treated for BPH with ablation, but also have on the.

Bob: The form of prostate cancer are lower intermediate disease that is currently under active surveillance or watchful waiting many of those patients are treated for BPH with our system and some of that data has already been presented.

Bob: You saw some of that data and we continue to be pretty excited about the opportunity to treat BPH and those patients also having having great results long term, but other ways as well and I think thats an opportunity.

Bob: Urologists are very excited to watch us we're very keen to report on that data in the future. So we think thats going to be an opportunity, but at this point, obviously, we're focused on BPH patients and many of them have cancer. So it does kind of go hand in hand, we'll be treating patients with cancer because of the PVH indication.

Speaker Change: Okay. If I could just sneak a quick follow up and is this a tam expanding indication or do you guys include this in terms of the number of BPH.

Bob: Surgeries.

Tim: Tim historically thanks.

unknown: Currently, the current market includes those patients that have cancer, and so when we think about TAM expansion, that would be just cancer treatment itself. So I don't see this as an expansion for the BPH indication. Great, thanks a lot.

Speaker Change: So I mean currently the current market include those patients that have cancer and so when we think about Tam expansion our cancer treatment itself. So I don't see this as a as an expansion, but the BPH indication.

Speaker Change: Great. Thanks, a lot.

Josh: Thanks, Josh.

Speaker Change: And thank you and one moment for our next question.

Nathan <unk>: And our next question comes from Nathan <unk> from Wells Fargo. Your line is now open.

Nathan: Hi, This is data lines concrete Nathan trademark congratulations on.

Nathan: On the strong quarter.

Nathan: And replacements for Q2, it looks like one system came out of the installed base alongside the 47 placements could you talk about why the system came out of the total installed base.

Speaker Change: Yes, great.

Speaker Change: Great observation Ed system did not come out of that installed base actually so.

Speaker Change: To break this down it fell 47 systems in the quarter, but the installed base went up 46, which is I think what you are alluding to and this goes back to Q2 of 2023 and if you recall, we placed our system in the second quarter of 'twenty three under an operating lease.

Speaker Change: Was the first operating lease that the company had executed this system actually converted to a sale this quarter at a very reasonable average selling price. So we included it in our sale number but it was already in the installed base when we have to.

unknown: Unknown Attendee, Nathan Treybeck, Kevin Waters, Reza Zadno, Hisham Shiblaq, Brian Helfand, and the rest of our sales team. So it was really good to see.

Speaker Change: Put that system under lease in Q2, we said this was going to occur and it was good to see this account commit that purchase.

Speaker Change: At this point we're not.

Speaker Change: Thinking kind of changing obviously, our sales mechanism and how we sell but it was good to see our first operating lease we've done convert to a sale at an ASP that was not materially different to the rest of our sales so really good shape.

Speaker Change: Got it that's very helpful and can you also talk about your expectations for multi center multi system purchases.

Speaker Change: At the corporate level in 2024 and are they necessary to reach above your guidance of 185 placements.

Speaker Change: Thank you.

Speaker Change: It's not as black and white as the question may appear on the surface.

Speaker Change: To be direct we are not relying on multi system IGN orders to meet the guidance that we put forward with that said what we've seen over the last few quarters is multi system orders get executed at the corporate level that were already in our funnel that we're planning to be executed at the local level, but now are being used by corporate funds.

Speaker Change: I would suggest that we do expect that to continue to happen, but we are not reliant on an unexpected multi system order from a large IDM to meet the guidance that we provided for our systems in 2024.

Speaker Change: Thank you.

Operator: Welcome. Thank you. One moment for our next question.

Speaker Change: Welcome.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from Ryan Zimmerman from <unk>. Your line is now open.

Ryan Zimmerman: Hey, guys. Thanks for taking our questions can you hear me okay.

unknown: Okay, good. Just a couple for me this evening. So one, Hisham, you were over in the UK. We were over there maybe a month ago. The NHS had a big cyber attack. And we talked to a few urologists who said that there might have been some trickle down to the procedure level. I just was curious if you're seeing any of that impact. And just remind us how much of your OUS or your total sales are related to the UK at this point. And then I have a follow-up question about March.

Ryan Zimmerman: Perfect.

Speaker Change: Okay. Good.

Ryan Zimmerman: Just a couple for me.

Speaker Change: This evening, so one sham you were over in the UK.

Speaker Change: We're over there maybe a month ago, the NHS had a big cyber attack.

Speaker Change: We've talked to a few urologists, who had said that there might have been some trickle down to the procedure level. I. Just was curious if youre seeing any of that impact and just remind us how much of your <unk> or your total sales is related to the U K at this point and then I have a follow up question on margins.

Speaker Change: Sure.

Speaker Change: So we are fully aware of the cyber attack that happened it actually wasn't widespread in NHS.

Speaker Change: Had one hospital that dealt with it and actually they created protocols to go around cyber security, there's many surgeries that visit.

Speaker Change: Costco large hospital in London had been shut down.

Ryan Zimmerman: Operation was an impact that they actually created a protocol to allow them to continue doing a question due to the safety of the procedure.

Ryan Zimmerman: Processes needed. So we felt pretty good about our ability to be able to work around that issue. The other companies are dealing with right now.

Speaker Change: Regarding Kevin you want to take the yes. So.

Kevin: So to your question.

Speaker Change: Rough numbers I mean, we haven't we're not going to provide a level of specificity, but approximately 50% just ballpark. It for you Ryan of our international sales are derived from the UK and I will say that the primary driver of us raising international guidance now on our last two calls has been the momentum we're seeing in the U.

Speaker Change: So we're seeing great momentum, we werent impacted by the cyber taxes, the sham referenced in.

Speaker Change: You didn't ask one let's say anyway. The asp's are seeing in the UK with the nice endorsement are actually very comparable to the U S, which is contributing as well to our improved margins.

Mark: I'll turn it back over to you I think you said you had another question on Mark.

Speaker Change: No that's good to hear guys.

Kevin: On margins, Kevin So I know youre not going to give the 25 guide on margins, but as I think about just the margin trajectory and.

Speaker Change: The proportion of sales that are capital today versus consumable.

Kevin: What first remind us kind of if you are comfortable on the margin.

Speaker Change: Around capital and just as you as you move away from capital sales more and more what kind of leverage do you think you can get from your hand pieces in terms of your margin trajectory.

Speaker Change: If youre going to do 59%. This year you had a nice step up certainly this quarter with the good utilization, but I'm just wondering kind of what your ability is beyond this two to continue to drive your margins higher because you've talked I mean again, you talked about leverage, particularly on the operating expense side, but I'm curious more on the gross margin line. Thanks for take.

Speaker Change: The question Greg.

Greg: Great question, Ryan I'll suggest this and again I'm not going to provide.

Speaker Change: Guidance for 2025, but hopefully of a 30000 foot level I can answer some of your questions.

Speaker Change: The biggest driver for our margin expansion.

Speaker Change: Total revenue as opposed to the actual mix between consumable and capital.

Speaker Change: Longer term I would suggest that mix becomes more important but thats, even beyond 2025, Ryan right now our overhead absorption.

Ryan Zimmerman: The single biggest driver.

Ryan Zimmerman: Equally allocated amongst both our capital and disposable so the expansion and 24 that were seeing is more reflective of absorbing total overhead some operational efficiencies as opposed to the mix.

Ryan Zimmerman: 60% now of our business being consumables that will help our longer term.

Speaker Change: Then just to talk about longer term, but we're really pleased with the margin expansion we've seen in 'twenty four.

Speaker Change: We feel we have a business cost structure that allows this improvement to continue and we've talked about.

Ryan Zimmerman: Seeing comparative margin improvements as we move throughout the next few years and we can do that just by volume alone, but longer term as a management team. We're really excited about looking at other products or projects excuse me around cost reduction initiatives and things of that nature, particularly on the disposal, but that really doesn't start to manifest itself.

Ryan Zimmerman: Our income statement until probably later 2000 22027.

Ryan Zimmerman: And Kevin just to follow up the margin profile of capital relative to consumable or you're comfortable sharing that.

Kevin So: What I would say is the capital is not a drag on our overall margins to the extent of maybe first of all.

Speaker Change: Thank you.

Speaker Change: And thank you one moment for our next question.

Mike <unk>: And our next question comes from Mike <unk> from Leerink Partners. Your line is now open.

unknown: Hey guys, this is Brett on from Mike. Thanks for taking the questions and congrats on another great quarter. So I do want to hit on margins again.

Ryan Zimmerman: Hey, guys. This is Brad on for Mike Thanks for taking the questions and congrats on another great quarter.

Speaker Change: So do you want to hit on margins again.

Speaker Change: <unk> you raised the EBITDA guide by a couple of million two 5 million.

Ryan Zimmerman: The revenue guide by about three five so obviously that that's implying a pretty decent incremental margin.

Speaker Change: Pretty high versus what you've shown historically just wanted to get a sense for your confidence in the durability of that incremental margin going forward and what are some of the key toggles that we can see that can you give a flex that up or down going forward.

Speaker Change: I apologize if I sound like a broken record here, but again I think it's durable because the single biggest driver of margin improvement as increased revenues, it's not as if we're reliant on offshoring manufacturing or significant cost reductions in our product.

unknown: The single biggest driver of margin improvement is increased revenues. It's not as if we're reliant on offshoring manufacturing or significant cost reductions in our product to get margin expansion in the near term. Again, when I was answering Ryan's question, I think those really start to play a role.

Speaker Change: Margin expansion in the near term again, when I was answering Ryan's question I think those really start to impact the business beyond 2025 that gives us a high level of confidence with where we're at today that we have.

Speaker Change: Very high fixed cost structure that we think is highly leverage able as we grow revenue and we have been telling investors since we went public.

Speaker Change: We're building this business to support a 500 million plus business.

Speaker Change: With that you have to create a certain structure of overhead that was detrimental or hurtful to margins in our early years, but we're starting to now see that leverage come to fruition given that it is just leverage we feel very good about our ability moving forward here expand margins I would also just lastly pointed out.

Speaker Change: The operations team here.

Speaker Change: <unk> improved things around first pass yield around warranty and a lot of that is attributable to us now fully being in our new facility, we moved facilities last year.

Speaker Change: The facility Thats four times the size, we were previously in and we've had a few speed bumps that we hit in that transition that are now fully behind us we feel really confident.

Speaker Change: Got it no that's super helpful. And then just as a follow up going back to that 90% retention rate on the existing surgeons that you have is obviously very strong but.

Speaker Change #102: Of that 10% that do fall off is there anything any feedback you received that kind of impacts your commercial strategy and the go to market.

Speaker Change: Anything there that just.

Speaker Change: You could call out that helps it there.

Speaker Change: I wanted to I am going to turn it over to chairman Raj I wanted to see.

Raj: We're on the metric and what that actually means so when we say 90% retention.

Speaker Change: <unk> for the second quarter.

Speaker Change #100: 90% of the surgeons that did a procedure in Q1 also did a procedure in Q2, what it doesn't account for our surgeons that.

Raj: Our dabbler set perhaps did a procedure in Q4 did not do a procedure in Q1, and then came back in Q2. So the actual retention is actually much higher than 90% and I'll turn it over to shift and maybe discuss why you would have any fallout at all.

unknown: I would just add that you have to take a step back and remember that BPH is a very commonly treated procedure. There are over 12,000 urologists that do at least one BPH procedure a year. So with that number in mind, we are going to have low volume BPH surgeons do aquablation, and we love it because our technology has a low learning curve. It works very, very predictably, and so you have the ability to standardize treatment across different sizes of prostates and shapes.

Speaker Change #104: Just add you have to take a step back and remember that the ph is a very commonly traded procedures over 12000 urologists.

Speaker Change: Least one BPH procedure a year so with that number in mind, we are going to have low volume BPH surgeons do alkylation, and we love it because our technology at a low learning curve.

Speaker Change: It works very very.

Speaker Change: Predictably and so you have.

Speaker Change: The ability of standardized treatment across different size of the prostate and shapes. So you have a low volume in ph surgeons, who will use our technology, but maybe don't do a lot of PPA surgery. So when you think about that surgeon not somebody who is necessarily fallen out. It's just somebody who does doesn't do cases consistently and then we're in the operating room base Ortho surgeons.

unknown: So you have low volume BPH surgeons who will use our technology but maybe don't do a lot of BPH surgeries. So when you think about that surgeon, not somebody who's necessarily fallen out, it's just somebody who doesn't do cases consistently. And then we're in the operating room supporting those surgeons, they have a great experience, and we rarely lose surgeons, but not every surgeon does a case every quarter.

Speaker Change: Have a great experience and we rarely lose surgeons, but not a research about the case every quarter.

Speaker Change: And thank you.

Speaker Change: Okay.

Speaker Change: And I'm showing no further questions I would now like to turn the call back over to Reza <unk> CEO for closing remarks.

unknown: Thank you everyone for attending our second quarter earnings call. We hope to see you at future conferences and have a nice day.

Reza: Thank you everyone for attending our second quarter earnings call, we hope to see you in the future comprehensive and.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: Have a nice day.

Speaker Change #104: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].