Q3 2024 PROCEPT BioRobotics Corp Earnings Call
Speaker Change: Good morning and welcome to Prof. Biorebotic 3rd quarter 2020 for earnings conference call at this time of the dispense on of the Sonony Mode. We will be facilitating a question and answer session towards the end of today's call. As our mind is called, being recorded for replay purposes.
Speaker Change: I would not like to send a call over to Matt Baxo by President of Investor Relations for a few introductory comments.
Matt Baxo: Good morning and thank you for joining Proceded Barrow Box 3rd Quarter 2020 for Irving's Conference Call. Presenting on today's call, a Reza Zadno, Chief Executive Officer, Kevin Waters, Chief Financial Officer, and Shambshiblaq Chief Commercial Officer.
Matt Baxo: Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans events performance.
Matt Baxo: are forward-looking statements that define under the private security and litigation reform act of 1995. While these forward-looking statements are based on management's current expectations and beliefs,
Matt Baxo: These statements are subject to several risks and uncertainty as assumptions and other factors that could cause results to different materialies from the expectations expressed on this conference call. These risks and third-teas are disclosed in more detail and press at Barovato's Filings with Securities and Exchange Commission, all of which are available online at www.scc.gov.
Matt Baxo: [inaudible]
Matt Baxo: and the Secretary of State of the United States, except as a requirement law for the virus that no obligation to update or revise any form of the constable to reflect new information circumstances.
Matt Baxo: or uninticipated events that may arise.
Matt Baxo: During the call, we will also reference certain financial measures that are not prepared in accordance with gap. More information about how we use these non-gap financial measures, as well as the reconciliation of these measures to their nearest gap equivalent are included in our earnings release. With that, I'll turn the call over to Reza.
Reza Zadno: Good morning and thank you for joining us. For today's call I will provide open comments and a general business update followed by Sham who is provide an overview of the Hydro-Srobotic Systems Commercial Launch.
Reza Zadno: Lastly, Kevin will provide additional detail regarding our financial performance and updated 2020-4 guidance.
Speaker Change: Starting with our quarterly revenue results.
Speaker Change: We are pleased to report another quarter of strong financial performance with total revenue for the third quarter of 2024 of 58.4 million dollars. Representing growth of 66% compared to the third quarter of 2023.
Speaker Change: Growth in the quarter was driven by strong demand and higher average selling prices for a robotic system increase utilization from our expanded U.S. install base and record international revenues.
Speaker Change: We exited the third quarter of 2024 with a US installed base of 445 systems representing growth of 64% compared to the prior year period.
Speaker Change: Additionally, we exceeded our utilization per account expectations for the quarter despite substantial growth in our US install base. And the temporary removal of sales representatives from the field as we began training our sales team on the hydro system.
Speaker Change: We knew following our high-dress announcement that the third quarter was going to represent unique challenges for our company given we were launching and Eurobotic systems midway through the quarter But I'm incredibly proud of the entire project team for their collective efforts
Speaker Change: During the third quarter, successfully converted the capital pipeline, manufacturer sufficient quantities of commercial product, reported record gross margins of 60 to 3.2%.
Speaker Change: began training our field-based teams while mitigating downside pressure on procedures and effectively manage the market during this transition.
Speaker Change: As a result, we delivered a very strong order that reflects the team's dedication and city commercial execution.
Speaker Change: Turning to International Market Development Activities.
Speaker Change: We generated $6.2 million of international revenue in the third quarter of 2024, representing growth of 86% compared to the prior year period.
Speaker Change: Growth in the third quarter was once again driven primarily by strong sales momentum in the United Kingdom.
Speaker Change: are international pipeline continues to increase nicely.
Speaker Change: giving us further confidence as we enter 2025. With that, I will turn the call over to Shab to provide a more detailed on our Hydros launch.
Shab: Thanks Reza. First I want to reiterate Reza's comments and the team's exceptional performance in a quarter that requires flawless execution and dedication from every part of the organization.
Shab: Turning to the hydros launch itself, once we received FDA clearance in Med August, the capital sales team immediately shifted their focus to educating hospitals and surgeons on the benefits of the hydros system and converting the immediate aqua being pipeline to hydros.
Shab: Awareness and excitement around launch, particularly with certainly played indoor favor allowing for a fairly smooth transition and resulted in an outstanding capital quarter.
Shab: and it shall be back in customers as very encouraging, aside from Hidosis fully integrated and sleek design, surgeons were very impressed with the new First Assist AI feature.
Shab: As a reminder, first assist AI supports the surgeon and interpreting the live ultrasound image for key in its own landmarks and suggests an optimal treatment plan for each patient.
Shab: The addition of AI to our precise robotic assisted resection has the potential to enable all urologists to improve outcomes for their patients. This is a very appealing to both surgeons and administrators.
Shab: Other feedback we received, particularly from hospitals, supports staff, is how improved the served-in staff experience is that every stage of the occupation therapy procedure.
Shab: Specifically with a single footprint and improved user interface, the integrated tower facilitates efficient operating room setup for seasonal workflow and operating room turnover.
Shab: Additionally, hospital CFOs were happy to see that the new Hydros hand piece utilized a single use digital scope that eliminates the need for scope we're processing and further streamlined setup which saves time and money.
Shab: with a third quarter in the initial launch phase behind us. We feel very good about the underlying trends we are seeing today, particularly around system-advered selling prices, customer demand, and high-dose user sentiment.
Shab: Additionally, Hidois has certainly energized the capital sales team, which has translated into a robust pipeline where we expect a fairly record number of new systems in the fourth quarter of 2024.
Shab: Speaking briefly on utilization trends, as a reminder, we began sales team training sessions on the hydro system in September. We plan to continue training sessions throughout the fourth quarter, which will remove perhaps from their respective territory for a period of time.
Shab: Given this dynamic, this will modestly impact volumes due to the reduced case coverage. As we can communicate in the middle, I guess properly training our sales team, this critical to our commercial and procedural success of the transition into 2025.
Shab: While please with the team's execution of third quarter, we realize there is a much bigger opportunity to have for build-to-robot systems sales and expand the utilization of time.
Shab: As we enter the next phase of our commercial growth, I believe this launch will be a significant milestone in our journey, driving widespread adoption and making it profound difference in the lives of our patients. With that, I will turn the call back over to Reza.
Reza Zadno: Thanks, Shiblaq. Before I pass it, over to Kevin, I want to discuss our recent announcement to initiate our new randomised conco study for prostate cancer.
Reza Zadno: On October 7th, we announced that the FDA granted breakthrough device designation to investigate the use of our coalition therapy for a private cancer and approved a pivotal investigation of device exemption, clinical trial, comparing our coalition therapy to radical prosthetic.
Reza Zadno: The receiving breakthrough devices' ignition is particularly exciting as it expedites the review process of technologies that the FDA considers innovative and that can improve the lives of people with live threatening or irreversibly debilitating diseases or conditions.
Reza Zadno: The trial we will be involving known as the water for PCA is a global multi-centre perspective around the musculine cost study, assessing the safety and efficacy of our coalition therapy compared to radical prosthectomy in men with great group 1 to 3 localized prosthetic cancer.
Reza Zadno: The study will enroll up to 280 patients at up to 50 centers, most of which are in the United States.
Reza Zadno: The FDA agreed to a six-month call primary endpoint based on morbidity, specifically rates up in confidence and direct valve dysfunction.
Reza Zadno: Additionally, the FDA agreed to include a 12-month secondary efficacy endpoint, measuring the rate of grade group progression.
Reza Zadno: Patients will be followed up to 10 years with annual secondary endpoint evaluation, focusing on both the reduction in treatment related to harm and oncological events.
Reza Zadno: Water 4 PCA is a unique trial design that will focus on harm reduction when using a co-blation therapy as a first line treatment in comparison to radical prosthectomy.
Reza Zadno: It's successful, we believe our population therapy has the potential to significantly alter the weight, the role of these proposed localized prostate cancer for millions of men.
Reza Zadno: Today's process is the only company sponsor to ever receive an ID for the randomized clinical trial comparing novel localized prostate cancer treatment to a standard of care.
Reza Zadno: The significant opportunity exists to improve safety and quality of light outcomes for men needing treatment for prostate cancer, and we believe that the population therapy has the ability to become the first line treatment for localized prostate cancer.
Reza Zadno: Initiating a random martial arts trial against radical prospectomy is the first big step in pursuing a prostate cancer specific indication, which no other treatment has today.
Reza Zadno: Lastly, we completed enrollment of PRCT-002 in September and planned to share six months for all of that in April 2025 at the American Urological Association Conference in Las Vegas.
Reza Zadno: Furthermore, over the next 12-18 months, we would likely share more details regarding our broader positive cancer commercial strategy.
Reza Zadno: To conclude, my prepared remarks, multiple factors continue to turn positively, allowing us to execute our long-term strategic plan. In summary, the US Hydro-Slaunch is off to a great start and customers are thrilled with the improved features.
Reza Zadno: Our pipeline and sales funnel continue to grow nicely at average selling prices of high-dotes that are trending higher than our previous aqua bean system.
Reza Zadno: Our international business continues to build momentum in the UK and Japan.
Reza Zadno: Our commercial organization is the largest and most in the company's history which we believe will lead to increased productivity.
Reza Zadno: We are the first company ever to receive idea approval from the FCA to enroll in the Randhama Shrive against the Radko press to accept me for prostate cancer.
Reza Zadno: We've used this as the first big step in pursuing the prostate cancer specific indication which no other treatment has today.
Reza Zadno: And lastly, we have continued to exceed our guidance around profitability metrics. Primarily, with the expansion of gross margins throughout 2024.
Reza Zadno: We believe these underlying fundamentals reflect the technology that is laying the foundation to become the PPH surgical standard of care and the business that will be a leading global neurologic company.
Speaker Change: and with that I will turn the call over to Kevin.
Kevin Waters: Thanks for the total revenue for the third quarter of 2024 with $58.4 million. Representing growth of 66% compared to the third quarter of 2023.
Kevin Waters: U.S. revenue for the quarter was $52.2 million representing growth of 62% compared to the prior year period.
Kevin Waters: In the third quarter, we sold 45 robotic systems with blended average selling prices of approximately $432,000.
Kevin Waters: and these 45 systems approximately 80% were high drugs.
Kevin Waters: Our hydro sails were primarily green field accounts, although we did have a few sails included in the 45 systems that are second systems at existing accounts.
Kevin Waters: Additionally, we recorded approximately $200,000 of incremental system revenue for a few off-of-beam system sales executed in previous quarters that were exchanged for high drugs in the third quarter.
Kevin Waters: We do not view these as true replacement as this is a limited offering for customers who recently purchased our op-of-beam system.
Kevin Waters: To be clear, these exchange systems are not included in the reported number of 45 systems sold and thus did not impact the install base.
Kevin Waters: When accounting for all of these variables, we generated total U.S. system revenue, $19.6 million, representing system revenue growth of 46% compared to the third quarter from 2020-23.
Kevin Waters: U.S. handpiece and consumable revenue for the third quarter of 2024 was $29.6 million, representing growth of 74% compared to the third quarter of 2023.
Kevin Waters: Handpiece Gros was driven by an increase in the install base of robotic systems.
Kevin Waters: Additionally, monthly utilization per account increase approximately 7% compared to the third quarter of 2023.
Kevin Waters: We ship approximately 8,740 hand pieces in the U.S. and the third quarter, representing unit growth of 79 percent compared to the third quarter of 2023.
Kevin Waters: Third quarter average selling prices were approximately $3,200.
Kevin Waters: We also recorded approximately $1.8 million of other consumable revenue in the third quarter of 2024.
Kevin Waters: International revenue for the third quarter was $6.2 million, representing growth of approximately 121%.
Kevin Waters: Gross margin for the third quarter of 2024 was 63.2% representing an all-time high. Gross margin expansion in the third quarter was primarily due to strong execution from our operations team and significantly higher high-growth system average selling prices.
Kevin Waters: It is important to note that following a full quarter of manufacturing our new hydro system It is roughly 10% more costly than Aqua Beam today. Over time with scale we expect material cost to come down. However, this headwind is being more than offset by increased average selling prices.
Kevin Waters: Moving down the income statement, total operating expenses in the third quarter of 2024, or $59.3 million, compared to $44.5 million in the same period of the prior year, and $58.3 million in the second quarter of 2024.
Kevin Waters: The year over your increase was driven primarily by increased sales and marketing expenses.
Kevin Waters: Mostly to expand the commercial organization.
Kevin Waters: and increased general and administrative expenses, offset by lower sequential research and development expenses, following the significant effort around hydrostabellament in the second quarter of 2024.
Kevin Waters: We are very pleased with the operating expense leverage we have demonstrated year-to-day. When comparing revenue growth to operating expense growth, revenues increased 69% in the first nine months of 2024 on 32% operating expense growth.
Kevin Waters: Net loss was $21 million for the third quarter of 2024, compared to $24.6 million in the same period of the prior year.
Kevin Waters: adjusted even off was a loss of $12.4 million compared to a loss of $19.4 million in the third quarter of 2023.
Kevin Waters: Our cash, cash equivalent and restricted cash balances as up to 10 or 30 if we're $200 million and we reported a cash usage in the quarter of $17.3 million.
Kevin Waters: Moving to our 2024 financial guidance.
Kevin Waters: We now expect, full year 2024 total revenue to be in the range of $222.5 million to $223 million. Representing growth of approximately 63 to 64% compared to 2023.
Kevin Waters: Starting with U.S. systems, we continue to expect to sell approximately 186 robotic systems in 2024, which is approximately 56 new systems in the fourth quarter.
Kevin Waters: While pleased with the direction of new system pricing in that third quarter, we want to maintain pricing flexibility at this point in the highest launch as we work through our fourth quarter pipeline.
Kevin Waters: Thus, our updated guidance assumes new system pricing in the fourth quarter to be in the range of 420 to 430,000 dollars.
Kevin Waters: Turning to you as San Jesus.
Kevin Waters: We expect to sell approximately 9,950 hand pieces in the fourth quarter, which would equate to four-year hand pieces, or approximately 33,500, representing 80% unit growth compared to 2023.
Kevin Waters: We expect fourth quarter of handpiece average selling prices comparable to the third quarter.
Kevin Waters: We also expect other consumables revenue to be approximately $7.3 million for the full year. Additionally, we now expect U.S. service revenue to be approximately $11 million for the full year.
Kevin Waters: Lastly, on International Rubenil, give another strong quarter and positive momentum in the United Kingdom. We now expect full-year international revenue to be approximately $22.4 million, representing annual growth of 88%.
Kevin Waters: Moving down to the income statement.
Kevin Waters: We now expect fully year 2024 growth margins to be approximately 51% and increase from our previously issued guidance of 59%.
Kevin Waters: Turning to operating expenses, we continue to expect full year 2020-24 operating expenses to be approximately 231.5 million dollars representing growth of 29%.
Kevin Waters: Given current interest rates we expect to generate net interest income of $5.5 million in 2024.
Kevin Waters: Given the increase in revenue and growth margin, along with our continued view on operating expenses, we now expect full year, 2024, adjusted EBITDA law to be approximately $60 million, which is an increase of almost $13 million from our initial guidance provided in February.
Speaker Change: At this point I'd like to turn the call back to Reza 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 center of care for BPH.
Reza Zadno: 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 upcoming investor conferences. At this point, we will take questions, operator.
Speaker Change: Thank you. Please send Jalman to ask a question you wanted to press star 1-100 telephone and wait for your name to be announced. So we draw your questions simply for us star 1-1 again. Please stand by when we compile the K&R roster.
Speaker Change: Now first question coming from the lineup, correct visual with thank-up America Security, see you on a soapman.
Speaker Change: Good morning guys, thanks for taking questions and congrats on another very strong quarter. I want to start with high-grows.
Speaker Change: So it seems like high-growth ASP can come back in the numbers and somewhere around 450,000
Speaker Change: and Kevin, I understand your comments on you wanted to be a conservative now with the with ASP to start.
Speaker Change: You know, how should we think about your ability to get price there? And then maybe if you just give a little bit more color on the customer reaction, the high gross, it sounds like it was pretty strong.
Speaker Change: But more specifically, did you see new customers either purchase or get in the pipeline that may have been hesitant or reluctant before?
Speaker Change: Hi, Greg, thanks for the question. I'm going to give some general comments about Hydros. The reaction has been extremely positive. Surgeons are excited about the AI assist.
Speaker Change: the Jital Scope, the Dual Screen. The staff is excited about the ease of setup and faster setup. And of course, the...
Speaker Change: Hospital saves time for sterilization, so overall the reaction has been fantastic.
Speaker Change: Shisham Shiblaq, Reza Zadno, I did anything. Yeah, I did morning, good night.
Speaker Change: I think that the immediate positive reaction by our customers showed in our results.
Speaker Change: the Belody for us to flip a pipeline.
Speaker Change: and just over a month with many processes that are required from a hospital's perspective to purchase capital.
Speaker Change: shows the excitement of our surgeons to drive administrators to make that happen. So we're very excited about the touch on the features. You know, when you think about First Assist AI, this is something that is not something that routinely gets approved nowadays in the surgical environment.
Speaker Change: and so we've been able to really really capture a lot of excitement. The ease of use from the staff to set up the inter-procedure that take down the efficiency of the OR. We're just beginning to launch these programs or we're seeing immediate excitement from our surgeons.
Speaker Change: and Mayald disclose a loop on your hydrosansp question Craig. So we are very pleased with what we saw in the quarter given hydrosansp compared to previous
Speaker Change: Today we're not going to comment specifically on kind of where we can see this number going, but we definitely feel good about the launch. We feel good about current ASPs.
Speaker Change: At the end of the day we want hydrochines, minihands, customers hands as possible and we just want to continue to make tanks and flexibility there which is why we provided that range in the fourth quarter, 420 to 430.
Speaker Change: God, thanks guys, and I did want to ask on utilization and I think Kevin correct me if I'm wrong but I think
Speaker Change: Impleasured utilization Q4 might be
Speaker Change: Step down your over year, I know you had a pretty strong quarter, but...
Speaker Change: Maybe if let me know if that's correct but then if...
Speaker Change: When you think about the impact or disruption to utilization during Q3.
Speaker Change: I don't know if you'd be going like.
Speaker Change: and Kwanify that. And then if that would be higher lower in Q4, just maybe a little bit more color on the impact that you're seeing. And even if that leads into 25, that all. Thanks.
Speaker Change: Let me start with Q3 and then on all the drugs Q4 and I'll hand it off to Shem at the end here to talk about some of those dynamics So yeah, I can't specifically dollarize what that impact was in the third quarter of taking wraps out of the field
Speaker Change: But what we will say is we moved throughout the quarter we definitely saw a strong September in procedures even with our reps
Speaker Change: coming out of the field. So it was...
Speaker Change: Definitely a headwind, but the procedure environment itself in September felt really strong for us. And as we head into the fourth quarter now transitioning, I'll first say that we do believe our 2024 results reflect a very strong
Speaker Change: Underlined Business, that continues to gain share and momentum from all other perspective procedures out there. But specifically your key for utilization is a fair one and it does suggest that year over year on a per account base as utilization would be down which by the way was the same.
Speaker Change: Dynamic that has always been implied in our guidance that we have been providing for the full year, but specifically we do expect reps to continue to be removed from the field.
Speaker Change: with Hydros for training in the fourth quarter. I'm going to have Shab talk a little bit about that at the end. And that is going to have an impact on procedures.
Speaker Change: Art guidance also correct does allow for some of these macro factors that we're all hearing about, particularly some of the things we saw in October.
Speaker Change: A rather hurricane incident in the southeast. We have obviously been somewhat impacted by the saline shortages, but all of those macro factors are...
Speaker Change: Considered an RQ for a guy as well and maybe I'll turn it over to Shambut to close the... The one part I guess I'll let it on is the rep training since we've talked about in the past.
Speaker Change: So coming off of the hydro-supprovole as a pro-septeen we felt.
Speaker Change: prepared, fully prepared to help our customers convert their purchases over to Hydros, get them trained and ready to go. So we were ready on our end, we just didn't have visibility to how quickly customers could complete the acquisition process and then how quickly surgeons and staff could get ready for the training aspect of it. So even though we did begin our training process in September with our field team, what we're going to see is the majority of these launches for Hydros that were purchased in Q3 will now become November and December launches. So those rep trainings in the staff trainings and the surgeon trainings, you want to time those so that they're trained before the launch, not in months before launch. So we'll see that begin to really start to pick up here in October and November as a real excited about those launches happening for the other quarter.
Speaker Change: Great thanks guys.
Speaker Change: Thank you.
Speaker Change: and our next question coming from the line-out, Brendan Vasquez with William Blair, Yelena Salpin.
Speaker Change: Morning everyone, thanks for taking the question and congrats on the nice quarter here. I'll just start with maybe keeping on the train of the last question here.
Brendan Vasquez: I'll ask you slightly different, are you guys able to disclose at this point what percent of your sales reps have been trained already so we can get a better understanding of how many reps are left.
Brendan Vasquez: to be trained as if we go into Q4 and then piggybacking on that. Are you guys getting the sense that when the rep is pulled, you lose that procedure to another therapy, or are they waiting for that rep to come back and perform that procedure with oscillation?
Speaker Change: A-brainer is Shemma. I'll take that question. So we're not going to come on to specific percentage of reps, but I will tell you the vast majority of launches will happen in the fourth quarter. Many of them are now scheduled for November and December launches.
Speaker Change: So I think that you can kind of do the maps on.
Speaker Change: on the impact of the Salesforce coming out of the field.
Speaker Change: We have a very thorough process. We feel very good that what we're doing is the right thing for the business to ensure that we have great outcomes from day one with a high-dose launch. That's going to help us long-term. Have a great business and our patients will be happier and our service will be happier as well. Regarding
Speaker Change: The loss of cases, I don't any time believe we're losing cases by taking us out of the field, are we delaying procedures we are by having surgeons believe their practices to go get trained by having hospitals put a procedure on further in the quarter. So we don't believe we're losing cases, we're just delaying them to make sure we have a proper launch in great outcomes.
Speaker Change: Okay
Speaker Change: and maybe go on a little higher level in terms of you guys may come into about placing some additional second.
Speaker Change: Unit Systems, this quarter. I know this is not something that you guys had really contemplated in your original analysis of the market opportunity or the TAM. So can you guys just talk a little bit about where what is it that's kind of driving the second unit systems, any update you can give us on the number of accounts with second units and what that might mean for kind of your long-term opportunity here. Thank you. Yeah, so I'll take the near-term and low-term here, Brandon. So our specific RQ for guidance and what it implies.
Speaker Change: So the 56 units that were guiding to in the fourth quarter, those are primarily green fields.
Speaker Change: We may have a big of less than a handful of second systems, but we still believe the biggest driver of our business today is
Speaker Change: Greenfield Opportunities, although we did see in the third quarter some...
Speaker Change: K-T-K-Ls that bought a second system and therefore they kept their aqua-been system and they also bought a hydro system
Speaker Change: So that's the near term and we look longer term when we think of a replacement cycle. We definitely see that the demand is there, but as we communicated in mid-August, our primary strategy for the remainder of 24 is the cell hydro systems to new accounts.
Speaker Change: It's what we're focused on, and how the Salesforce has compensated, and we believe we're still have a huge market to penetrate on greenfield. So only a few months in, it's too early to talk really about a replacement cycle, but this will probably come in connection with our 2025 guidance on our next call.
Speaker Change: same
Speaker Change: Thank you.
Speaker Change: And our next question coming from the lineup, Richard Newitor with Truist Security, Ceylon is open.
Richard Newitor: Excuse me. Hi, thanks for taking the questions. Congrats on the quarter, maybe just.
Richard Newitor: On the replacement and trade-in aspect here, Kevin, what...
Richard Newitor: what you
Richard Newitor: What was the cutoff for trade-ins for the third quarter, the Hansel, or how many did you say there were that had purchased recent enough that you allowed them to swap out? Was there any true-up?
Richard Newitor: kind of associated with that and what's the ballpark? And then how should we think about your strategy and or cut off thresholds for timing of purchases, like if you've made a purchase in the last 12 months?
Richard Newitor: on a rolling basis. Are they eligible potentially for some sort of deal because they were recent enough in their last purchase? So, that's my first question and I'll have a follow-up. Thanks.
Speaker Change: brought forth today and a true replacement cycle. So, in connection with our launch, we always were aware of customers that had recently purchased AquaBeam, think in the last two quarters, where perhaps the system hadn't even been installed yet, the account hadn't been launched. So, therefore, we were always
Speaker Change: allowing for and had a program in place
Speaker Change: opposed to, or compare those to replacements.
Speaker Change: And those are the few that I mentioned in my script that contributed a nominal amount of revenue. It was a couple hundred thousand dollars.
Speaker Change: And that could persist into the fourth quarter, but I wouldn't view that as a material aspect of how we're thinking about the HYDROS launch now that we've kind of gotten...
Speaker Change: gotten past those initial accounts.
Speaker Change: As we communicated in mid-August, we have many accounts that purchased AquaBeam 3, 4, or 5 years ago that we think are going to be ripe for replacement, and frankly, the ASPs of those shouldn't be terribly different than a greenfield system.
Speaker Change: Rich, only I'll add to this is, you know, we have such a massive opportunity that remains with Greenfield Hospitals You know, we're talking about thousands of hospitals that we believe are our potential opportunities to acquire a system
Speaker Change: The sales force has zero incentive right now to trade a system. They're hyper focused the rest of this year on adding new hospitals, new accounts to ensure that we do everything we can to get these up and going. So in 2025, we'll comment more on the trade and replacements. But for now, we're going to be hyper focused on launching new hospitals.
Speaker Change: Okay, that's helpful. Thanks. And just, you know, I know you're not giving 25 guidance today, but, you know, we all have models that are going to have some flow-through consequences to the backhash updated information here, particularly ASPs on the system side.
Speaker Change: If we even, you know, don't think about additional revenue streams from replacements, of which it sounds like there will be some, you know,
Speaker Change: If we just take your fourth quarter jump-off point for ASP, you know, you get to something north of 10% upside to street numbers right out of the gate, I guess.
Speaker Change: Help us think through any early commentary as we adjust our models for how to think about next year. Put some of the takes, don't limit it to the revenue, and particularly if you can comment on what should happen with system ASPs directionally. Thank you.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Yeah, so, thanks.
Speaker Change: As we've commented, we feel great about the launch and our ability to continue to capture robust average selling prices.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question coming from the line of Josh Jennings with TD Kauanielan is open.
Speaker Change: Hi, good morning. Thanks a lot and congrats on another very strong quarter. I wanted to just ask about the
Speaker Change: incompetent BPH and localized prostate cancer opportunity. I think there have been some citations that in the U.S. there's maybe over 400,000 cases that need to be intervened upon annually.
Speaker Change: We're hoping if you guys could just review your outlook on the size of that opportunity in terms of the number of procedures and then also
Speaker Change: and just check the box. It's our understanding that all those cases that are being done are reimbursed and then if you've seen any uptick in utilization over the first nine months of this year since that prostate cancer update was put on the, or prostate cancer warning was removed from the label.
Speaker Change: Yes, thanks. So, yes, as we have said previously, there are about 3 million men in the United States with prostate cancer and there are about 300,000 new cases.
Speaker Change: What we want to accomplish with our clinical study is really generate level 1 data so that we get in the guidelines. Our goal from the beginning, we have said, our goal is to expand the market because out of those 3 million men.
Speaker Change: who have prostate cancer.
Speaker Change: vast majority of them sit on the sidelines because of the side effects of current treatments. With our randomized study our goal is to show one the safety of the product and efficacy and then expand the market.
Speaker Change: As we gather more information in the future, we can provide more color into the commercialization strategy.
Speaker Change: Hey Josh.
Speaker Change: So, on the concomitant use, meaning a BPH patient that also has localized prostate cancer.
Speaker Change: You know, I think surgeons have been using BPH technologies, are effective surgeries for many years and feel confident in the safety of treating BPH patients with prostate cancer.
Speaker Change: We don't specifically know, for years, what's been happening with occupation. It's always a surgeon's decision as to how to treat their patients.
Speaker Change: But I do believe that, you know, the reason we wanted to prove that the safety of it, the FDA removed that contraindication.
Speaker Change: to also show that the safety was there. It's very similar to other receptive procedures. So to answer your question specifically, we don't have an answer, other than we do believe that surgeons have always felt safe treating cancer patients that have, localized cancer patients that have BPH.
Speaker Change: And I will be with you. I will be with you. And I will be with you.
Speaker Change: Thanks for that. I appreciate it. I just wanted to, I may have missed it on the call, but I was hoping to hear an update on the ASC channel and the pilot program and any updated outlook on that opportunity as we think about 2025. Thanks.
Speaker Change: Yeah, so I'll take that one as well. So we continue to have a lot of success as we've begun that pilot program.
Speaker Change: and get very excited about the opportunity in the ASC setting. Right now, there's one center out of Canada that's published great data showing the ability to get patients through an ASC setting same day with high success rates.
Speaker Change: We have the One Center in the U.S., which has been our pilot. We do expect to expand that pilot in 2025 to a limited number of sites, I think a handful of sites in 2025, and that is very deliberate. Once again, kind of going back to what I said a few minutes ago, we have thousands of hospitals that still need to acquire a system for aquablation therapy. We'll remain hyper-focused on that, and then we expect the ASC opportunity to be an accelerator for us in years to come.
Speaker Change: Thank you. And our next question coming from the line of Matthew O'Brien with Viper Sandler. Your line is open.
Speaker Change: Good morning, this is Samantha on Fermat. Congrats on a great quarter and thank you for taking our question. I'd like to start with the competitive dynamics in BPH. What are you seeing in terms of share shift and maybe are you seeing this accelerate from Terp and Laser in Q3?
Speaker Change: So from a competitive, on the receptive side, we do not see new technologies coming.
Speaker Change: As we had said previously, when we talk to our surgeons,
Speaker Change: Thank you.
Speaker Change: The vast majority of the cases that we are performing come from TURB and Greenlight.
Speaker Change: And at the same time, anecdotally, when we are asking the question, do they see the market expansion? The majority of them say yes, the number of cases they are doing is more than what they were doing a year or two years ago.
Speaker Change: Okay, thank you. And then, I guess, second, we were wondering if you could provide any more color on profitability expectations, maybe both in the short term, thinking about our models in next year, and then also in the longer term.
Speaker Change: Yeah, thanks for the question, this is Kevin. We're not going to provide kind of any specificity around dates But you know what we would suggest is you know the results that we've demonstrated
Speaker Change: in 2024 show that we are a company that has a very clear pathway to profitability. You know, we've always said with our revenue growth, it really comes down to our ability to control operating expenses, which I think we've demonstrated.
Speaker Change: quite well this year by raising our revenue guidance now.
Speaker Change: every quarter while keeping operating expenses flat. And at the same time, our gross margin expansion...
Speaker Change: is really a nice jumping off point here in the third quarter at a record level, over 63%. Our guidance does suggest another sequential improvement into 2024, ending the year at 61%. I think we'll show that
Speaker Change: for a business that has our revenue growth, it's just a matter of time for profitability, but at this point, we still think it's prudent to be focused on making investments in the business to continue to grow our top line at outsized amounts. So therefore, we're not gonna give any specificity around dates.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question, coming from the lineup, Chris Pascal, Whitney, from Research Newland, is open.
Speaker Change: Thanks, congrats on getting the Water 4 study approved.
Speaker Change: Can you talk a little bit about the thought process and the decision to actually go for specific labeling here? I know initially that was something you were
Speaker Change: kind of on the fence about how important you think that is to broad adoption long-term. And then just curious, is there a pre-specified radiation component to the treatment regimen just to make sure that that piece is balanced between the two arms?
Speaker Change: Thanks. So the thought process, as you mentioned, was to generate level one clinical data so that with a randomized study, if successful, we could get into the guidelines. And the goal is to expand the market.
Speaker Change: Thank you.
Speaker Change: Harm reduction is an important
Speaker Change: benefit that FDA sees for patients because current treatments have high incidence of incontinence and erectile dysfunction so the primary
Speaker Change: end point six months as we have mentioned these two.
Speaker Change: reduce statistically significant incontinence and erectile dysfunction.
Speaker Change: And of course, the efficacy on the secondary endpoint shows the benefit, and that is defined as progression to the progression of cancer. So that is how efficacy is defined.
Speaker Change: Chris, can you restate your question on radiation?
Speaker Change: I'm just curious, are these patients going to be getting radiation and is there sort of a pre-specified protocol there to make sure that there's not an imbalance between the two arms?
Speaker Change: So yeah, this is a randomized study that we're looking at with alkylation specific to prostatectomy
Speaker Change: And so the radiation component, it's obviously different when you think about moving to definitive surgery for prostate cancer, you know, obviously many times prostatectomy and radiation are their options for patients. We're looking at localized disease, which would either be a prostatectomy patient or an alkylation patient.
Speaker Change: Okay, so they're not going to be getting any radiation.
Speaker Change: And then just wanted to clarify the comments around the saline shortage and the impact of the hurricanes and what you guys are seeing there. Have you seen procedures delayed because of that? And can you just remind us
Speaker Change: What the fluid utilization looks like in a typical aquablation procedure and is the water jet itself comprised of clinical grade saline?
Speaker Change: It doesn't, it hasn't impacted, but depending on the accounts...
Speaker Change: Yes, there has been some impact, but broadly, no.
Speaker Change: I don't know, Kevin, you and I. Yeah, no, just regarding guidance specifically, our guidance, we did see...
Speaker Change: Procedures canceled in October. You could think in the hundreds, not the thousands, if that helps kind of quantify how we're thinking about it. In October...
Speaker Change: and our guidance does allow for that.
Speaker Change: Sailing in particular to continue to persist somewhat into November, but it also suggests that the current environment doesn't get worse, right? I think
Speaker Change: You know, our guidance would assume the worst is behind us, obviously, with weather and with the sailing shortage, but we, again, feel very good about the underlying trajectory of the business coming off a very strong September from a procedure standpoint.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of Ryan Zimmerman with BTIT, your line is open.
Speaker Change: Hey guys, good morning and congrats on the quarter.
Speaker Change: What I ask, we've been picking up some
Speaker Change: a comment from the field from urologists about a number of dynamics related to reimbursement.
Speaker Change: I think I've spoken with Barry about this previously, but there's been more chatter about things such as Medicare audits, specifically with RAC auditors, and the risk of clawbacks with AquaBeam cases.
Speaker Change: as well as some pushback from Cigna and Humana on, you know, what they're covering for AquaBeam.
Speaker Change: And so I'm just wondering if you can speak to that, you know, whether that's impactful, whether it's small, just maybe put that to bed if you can.
Speaker Change: Thank you.
Speaker Change: Yes, thanks Ryan. So related to RAC Audit, as you know, this is a
Speaker Change: a common procedure in health care that's done for us. It started in about October of 2023 in the last.
Speaker Change: 12 months and happy to say we have been able to execute despite that audit it
Speaker Change: FDA when we received FDA approval there was no size restriction but with some of these these are specific to Medicare by the way
Speaker Change: There is a size restriction.
Speaker Change: and we are working with surgeons and payers to remove this restriction. For example, we have been able, in other cases, that there were some age restrictions with some Medicare carriers to remove that.
Speaker Change: It's just a matter of time. It is not an obstacle for our growth. This is something that we have to resolve. We are working with them. As far as Cigna that you mentioned, what Cigna mentioned was they retired as of September their policy.
Speaker Change: When a carrier retires a policy, basically what that means is the surgeon can recommend a coabulation. In other words, there is no restriction. So that is the definition of retirement.
Speaker Change: I'll add a little bit on the on the RAC audit of Medicare, Ryan. So specifically with with oncoblation, we know that Medicare has an outsized proportion of patients we treat due to the demographic of patients that have BPH and are getting treated.
Speaker Change: The RAC audits are specifically focused on traditional Medicare. And so when you think about 25% of the market,
Speaker Change: 25% of the market being traditional Medicare.
Speaker Change: Less than 10% of occupational procedures are less than 150 grams, which is a restriction currently with Medicare.
Speaker Change: This size limitation has had a minimal impact on our ability to expand and achieve our utilization targets due to the size range limitation and then the traditional Medicare number of patients we're treating.
Speaker Change: Also, you mentioned Humana. Humana is the only major private payer to have to have a size limit restriction 150 grams It's a very small percentage of our patients we treat And once again when you look at the major payers, we don't have restrictions on most of them other than Humana's 150 gram limitation
Speaker Change: Okay, very, very helpful. And then, you know, just Kevin, in terms of the guidance philosophy,
Speaker Change: I can appreciate, you know, there's some macro dynamics with IV solutions and, you know, reps are out of the field for training, but seasonally, I mean, even if that were the case, why wouldn't, you know, fourth quarter kind of follow a similar
Speaker Change: Quarter-to-quarter step up, if you will, you know, particularly for systems In the fourth quarter as it did, you know, maybe last year
Speaker Change: Thank you.
Speaker Change: Well, we are, so I'll address systems first. I mean, we are guiding to a number of 56 systems.
Speaker Change: which is up significantly. It's up 27% compared to prior year, you know up 11 incremental units compared to the third quarter.
Speaker Change: And we'll represent an all-time high for PROCEP by a significant margin. I think our all-time high number of systems in any quarter previously was 47. So, we feel a ton of momentum around systems. When we think of the utilization dynamic,
Speaker Change: I do think it's important, Sham has referenced this a few times,
Speaker Change: and what that requires from a time to installation.
Speaker Change: It has elongated somewhat when we install these accounts to make sure that we do it the right way.
Speaker Change: We sell close to a hundred systems.
Speaker Change: In the back half of the year, which would roughly be almost 20% of the total installed base as we exited June. So we're just going to be very methodical about our launch. Does that mean we sacrifice some procedures in the fourth quarter? It does, absolutely. But we feel it's the best opportunity to set us up for 2025 moving forward to become the standard of care here.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question, coming from the line of Mike Radke with Leering Partners. The line is open.
Speaker Change: Hey, good morning, guys. This is Brett, on for Mike. Congrats on another great quarter and a successful Hydros rollout.
Speaker Change: I just want to go back to the ASP guide in 4Q, obviously there's a little bit of flexibility there with what's been going on with the rollout, but how should we be thinking about if there's any discounting on legacy AquaBeam, or if there's any dynamics we should be thinking about that's driving that, that may persist into 2025?
Speaker Change: I don't see anything unusual here. As we've mentioned, the majority of our sales implied in our Q4 guide, they are greenfields and perhaps a handful of sales.
Speaker Change: second systems to existing accounts so you know I I think
Speaker Change: It's
Speaker Change: Better on an AST front than we are expecting initially and again, we want to just get through a full quarter of launch
Speaker Change: where we have Hydros now to sell for a full quarter prior to getting too aggressive on guiding the 2025 ASPs. But there's no unusual dynamics in the fourth quarter regarding replacements or exchanges or trade-ins. These are all primarily Greenfield accounts.
Speaker Change: Understood. And then just a follow-up there I guess on the...
Speaker Change: profitability side primarily in the COG side.
Speaker Change: You know obviously 10% higher at this point and that's going to scale down over time but how should we be thinking about just kind of the base level cogs versus legacy aqua beam long term and I know you're not commenting on cadence but just overall how we should be thinking about that level.
Speaker Change: Yeah, maybe I'll just talk about overall growth margins in general. I did mention and we wanted to update the investment community that hydros
Speaker Change: is currently costing about 10% more than AquaBeam.
Speaker Change: to clarify some, I would say, misinformation that was out there in August regarding the cost being the same. With that said, we do think the ASP of hydros is going to more than offset what we're seeing with the increase in cost. We do think over time, hydros becomes much more comparable to where AquaBeam was.
Speaker Change: And over a greater period of time, I would expect it to cost less than AquaBeam longer term. And, you know, we continue to have a lot of operational efficiencies in manufacturing. The single biggest lever in manufacturing for us to expand margins really is producing more product.
Speaker Change: and scale and and we're seeing that
Speaker Change: And while not commenting on profitability or margins, you know, we do think the third quarter is a jumping off point for our business now at 63%. And we should expand from here and feel very good about our margin profile as we head into 2025. Not only around production, but we talked in the fourth quarter last year about things like
Speaker Change: product quality, scrap, yield, all of these metrics that we're focusing on as a business continue to improve and give us a ton of conviction that this, again, is a business that has a very clear pathway to profitability.
Speaker Change: Makes sense, thanks guys. Thank you.
Speaker Change: Thank you.
Speaker Change: And I'm showing no further questions in the queue at this time. I will now send the call back over to Reza Zadno for final comments.
Reza Zadno: I want to thank everyone for joining our earnings call. I hope to see many of you at the upcoming conferences, and I wish all of you a happy, very good day. Thank you.
Reza Zadno: Thank you. Thank you.
Speaker Change: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and you may now disconnect.