Q2 2025 Procept Biorobotics Corp Earnings Call
Good afternoon and welcome to the PROCEPT BioRobotics second quarter 2025 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.
Good afternoon and thank you for joining prosit by robotics. Second quarter 2025 earnings conference call presenting on today's call our Risa zno Chief Executive Officer, Larry Wood, incoming chief executive officer and Kevin Waters. Chief Financial Officer. Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events or performance are forward-looking statements is 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 these risks and uncertainties are disclosed in more detail and proceed by robotics filings with the Securities and Exchange Commission. All of which are available online at www.sec.gov, listeners are cautious, not to place under Reliance on these forward-looking statements, which speak only as of, today's date. August 6th 2025, except as required by law, proceed by robotics undertakes, no, obligation to up.
Date or revise, any forward-looking statements, to reflect new information, circumstances or unanticipated events, that may arise during the call. We will also reference certain Financial measures that are not prepared in accordance with gaap more information about how we use these non-gaap Financial measures as well as reconciliations of these measures to their nearest Gap. Equivalent our included in our earnings release with that. I would like to now turn the call over to Reza.
Good afternoon before we review our second quarter results and provide an update on our outlook for 2025, I'd like to share a few brief remarks on our progress and welcome Larry Wood to process.
As we mark this leadership transition we do. So from a position of strength supported by several sustainable growth drivers, we expect to exit 2025 with an estimated install base of 715 systems with the only 20% procedural share in the hospital Market highlighting significant room for expansion.
The recent launch of hydrous are Next Generation robotic platform that will serve as a foundation for continued innovation.
Enrollment in the water for trial is progressing. Well, positioning us to enter the highly synergistic prostate cancer Market.
And finally the companies well capitalized with gross margins expanding into the mid-60s range establishing, a clearer path to profitability.
None of this momentum would be possible without the strong team, executing at the high level.
Process will continue to evolve and scale investing strategic capabilities, while developing and strengthening leadership to support future growth.
A great example of that evolution is the succession process that has yielded Larry Wood as our next CEO.
While many of you know, what many of, you know, Larry from his time building the Tabor business at Edwards, we are excited to have him here today, to make a few comments before he officially starts on September 2.
Good afternoon.
As my official, start date of procept is only a few weeks away, I won't be commenting on the quarter or taking any questions, but I am appreciative of the opportunity to speak with all of you today.
Purposeful Innovation and always striving to provide transformational therapies for patients who need it.
Is an incredible honor to step in the role of CEO of prosep, Bio robotics, I am both humbled and energized by the opportunity, to lead such a talented mission-driven and forward-thinking team.
As I begin, this new chapter, I want to emphasize how deeply I believe in process potential to become a global leader in neurology.
Having served on the board of directors and audit committee. This past year, I've had a unique vantage point to assess, the company's strengths and future growth prospects. And I can say, confidently, I would not be here today. If I did not believe in the that the future is extraordinarily bright. I also want to thank Risa and the team for laying such a strong Foundation, their vision and Leadership have positioned the company well for the road ahead,
As a team, I know we can achieve great things to innovate grow and build a culture rooted in trust collaboration and performance. I look forward to sharing more about my vision as I transition into the CEO role. While changing the inevitable, our Direction remains clear. I approached this new chapter with a deep sense of responsibility and commitment to our employees, customers patients and shareholders. Thank you. And I cannot wait to officially be in the role in early September with that. I will pass it back to Risa for the quarterly business update.
Thanks Larry. Beginning with our quarterly Revenue results. We delivered another strong quarter with results. Exceeding expectations, across key performance indicators.
The hydro sales funnel remains healthy and well, positioned for conversion with average selling prices above the prior quarter.
Procedure volumes outperformed, expectations reflecting both increased utilization and strong surge in adoption.
We delivered record International Revenue. Performance, cross marketing. Impact from tariffs has been effectively mitigated through discipline execution and the more favorable environment.
These results support our confidence in continuing to execute at a high level.
Next, I want to provide an update on the recent 2026 proposed. Medicare physician fee schedule in which July, CMS announced a population therapy was assigned a category, 1 code effective January, 1 2026.
The new CPT category 1 code was assigned at 2026 National Medicare physician proposed payment of 16.14, total rvus under the 2026 proposed. Medicare physician fee schedule by comparison terp was assigned, 15.82 total rvus, securing a category, 1 CPT code marks, a significant milestone for process, the Urology community, and the patients, we serve,
This transition acknowledges the clinical value and growing adoption of aquablation therapy, reinforcing its role in the treatment of BPH. As we work towards establishing it as the surgical standard of care.
We believe the category 1 designation will support broader support adoption and expand patient access to our population therapy. Most importantly, the category 1 code. We reduce administrative burdens and ensure consistent reimbursement for both surgeons and hospitals. While overall professional fees have declined across the BPH. Respective procedure category, they continue to be collectively higher than National averages for non-reflective, BPH and kidney, stone and bladder stone procedures.
Which are high volume procedures performed by urologists in the hospital and ASC settings.
Additionally, the 2026. Medicare proposed Hospital outpatient. Prospective payment system or Opps continues to recognize aquablation therapies Hospital facility fee. At APC. Level 6.
The 2026, call PPS, proposal establishes Hospital.
Based aquablation therapy reimbursement at 9,765 and increase of 5.6% from 9,247 in 2025.
As we have communicated previously, the more important variable driving acylation adoption is a stable, facility, reimbursement rate that supports investment for the hydro system.
Turning to the Global Micro environments specifically, our exposure to tariffs as a reminder with greater than 95% of the direct material cost for a single-use handpiece source in the United States. Our primary tariff, exposure lies with our ultrasound system and Associated components sourced from China.
Back in April based.
55%, we estimate our cost of goods, sold headwinds in the second half of 2025 to now be approximately 1 to 2 million dollars.
During this period, we have been actively pursuing operational strategies to material and mitigate this exposure. We remain confident that the current tariff. Environment does not compromise. Our path to achieving our long-term profitability, and gross margin objectives.
Next, I want to provide a brief update on water for enrollment.
As a reminder, we initiated enrollment in the first quarter of 2025, and activities are progressing to our expectations. As with all large clinical studies, the first phase involves selection and activation.
Once activated enrollment starts to accelerate.
At our current pace, we continue to expect full enrollment by the second half of 2026 in connection with the Waterfall trial. Dr. Rahul Mihan successfully completed three same-day surgery prostate cancer procedures at an ASC in Arizona.
While the vast majority of patients in the water for trial will be treated in the hospital setting. Dr. Mihan has elected to treat a population patients in the ASC.
Although still early, this announcement is exciting for 2 key reasons. First we have demonstrated that localized prostate cancer can be treated and patient discharged the same day, second as highlighted during our AUA analyst day. In April, the procedure involves removing nearly twice as much tissue as, in BPH cases, despite this Dr. Mian was able to safely and successfully treat these patients and discharge them the same day.
Last. I'd like to share an important organizational update building on our strong performance. We have made the decision to strengthen. Our commercial execution. In support of our long-term objective, to become the BPH, surgical standard of care.
To advance this call, we are eliminating the role of the Chief Commercial Officer and searching for two new leadership positions: Senior Vice President of Sales and Senior Vice President of Marketing, both reporting directly to the CEO.
As a result of this change shamshi, black will no longer serve as CCO, effective, September 1.
We appreciate Shams leadership and contributions to the company's growth over the last 6 years and wish him all the best. With that, I will turn the call over to Kevin to provide more detail on second quarter performance and our financial upload.
Thanks, Rosa.
Total revenue for the second quarter of 2025 with 79.2 million representing growth of 48%. Compared to the second quarter of 2024 us revenue for the second quarter was 69.6 billion, representing growth of 46% compared to the prior year period.
Turning the US procedures.
Handpiece and other consumable revenue for the second quarter of 2025 with 43.1 million representing growth of 58% compared to the second quarter of 2024.
We also recorded approximately 2.2 million of other consumable Revenue in the second quarter of 2025.
In the second quarter, we sold the approximately 122,750 hand pieces. Representing a year-over-year unit. Growth of 59%.
As noted during our first quarter earnings call, we exited march with strong procedural. Momentum. That was sustained throughout the second quarter.
With the sailing disruption now behind us, the second quarter represented one of the most stable operating periods we've seen in the past six months.
This is particularly noteworthy as it signals, a clear return to the procedural momentum. That was disrupted in the fourth quarter of 2024.
In the second quarter of 2025 over 1300 surgeons performed, an aquablation therapy, procedure reflecting strong engagement across our surgeon community.
Given this large and growing number of Surgeons are commercial. Team is highly focused on identifying high potential surgeons and driving increased utilization.
Turning the US, robot placements.
We generated total us system. Revenue of 22.1 million representing system, Revenue growth of 24% compared to the second quarter of 2024.
In the second quarter, we sold 48 new hydros, robotic systems and systems.
The pricing for our Green Field systems was at an average selling price of approximately 400555000.
Funnel. It is more a matter of when they close, not if
Additionally, the momentum with our idn customers during the second quarter continues to progress nicely and reinforces our confidence heading into the second half of 2025.
Furthermore, adoption of the hydro system by BPH hospitals. Is steadily increasing reinforcing our confidence in the opportunity, to penetrate the remaining high volume, BPH hospitals, and expand in the medium and lower volume hospitals.
International Revenue in the second quarter of 2025 was 9.6 million. Representing growth of 69% compared to the prior year period.
Growth in the second quarter was driven, primarily by strong sales momentum in the United Kingdom. Japan and Korea.
Moving down the income statement.
Gross margin for the second quarter of 2025 with 65.4% representing an increase of 640 basis points year-over-year.
In expansion, was driven, primarily by improved operational efficiencies and higher average selling prices compared to the second quarter of 2024.
Total operating expenses for the second quarter of 2025 amounted to $74 million compared to $58.3 million.
We believe our path to profitability is becoming increasingly clear as reflected in our recent performance.
This Clarity is driven by our growth margin expansion into the mid 60% range, which is a direct result of our ability to leverage existing overhead at higher Revenue levels, along with increased average selling prices for both systems and hand pieces.
Since 19.6 million for the second quarter of 2025 compared to 25.6 million in the same period of the prior year.
Adjusted evida was a loss of 8 million dollars compared to a loss of 18 million dollars in the second quarter of 2024.
Our cash cash equivalents and restricted cash, balances as of June 30th were approximately 306 million.
Moving to our 2025 Financial guidance.
We now expect full year, 2025 total revenue to be approximately 325.55 million representing growth of approximately 45% compared to 2024.
We continue to expect to sell approximately 210 new robotic systems in the United States in 2025.
The quarterly Vol has shifted slightly due to the timing of certain sales that move from June into the third quarter.
As a result. We now anticipate Greenfield system sales in the third quarter to Total approximately 52 units, with average selling prices expected to be approximately 440,000 per system.
Our primary commercial focus in 2025 remains capitalizing on the significant opportunity to expand Hydro adoption in Greenfield accounts.
As such we have revised our expectations for replacement system sales and the third and fourth quarters, which we now expect to be a material.
We continue to believe that replacement sales represent a meaningful long-term growth driver for the business.
However, given our current position early in the adoption curve. We anticipate this opportunity to begin contributing more substantially starting in 2026.
Taking all of this into account. We now expect full year us system Revenue total approximately 93.5 million
Turning the US hand pieces for the full year. We now, expect sales of approximately 53,000, hand pieces, representing a 64% increase in unit volume compared to 2024.
We remain confident in our visibility into new account launches and quarterly procedure volumes which contributed to our outperformance in the second quarter.
In terms of quarterly, Cadence we expect to sell approximately. 13,350 us hand pieces in the third quarter.
We are maintaining handpiece average selling prices to be approximately 3,200 and other consumables Revenue. Expectations to be approximately 9 million for the full year.
Additionally, we expect us service and other Revenue to now be approximately 17 million dollars for the full year.
Given strong positive momentum. We now expect full year International Revenue to be approximately 36 million representing annual growth of 50%,
turning to gross margins.
That said, we believe we are well positioned to manage both growth margins and overall profitability in this environment.
As resident noted at current tariff rates, we estimate a potential, gross margin headwind.
Approximately 1 to 2 million dollars in 2025, which is expected to result in a modest decline, in gross margin during the second half of the year compared to the first half.
Taking these impacts into consideration. We are now expecting a full year. Growth margin of approximately 64.5%.
Which is at the high end of our previously, issued gross margin guidance.
Although we are not yet providing guidance for 2026, we remain confident that the current tariff environment does not compromise our path to achieving our long-term profitability objectives.
Turning to operating expenses.
We now expect full year 2025 operating expenses to Total approximately 300 and 2 million representing a 29% increase compared to 2024
Or the third quarter of 2025. Our operating expense guidance, reflects anticipated, spending of approximately 79 million inclusive of certain 1-time expenses associated with the CEO transition.
in addition based on current interest rates in our cash position, we project full year interest in other income, to be $9 million,
After considering our relevant factors, we continue to expect a full year 2025 adjusted debit. All loss of approximately 35 million with fourth quarter results. Approaching break even
With that, I will turn the call over to Rosa for final comments.
Thanks Kevin to reiterate prospective strategically. Well, positioned to achieve our long-term goal of becoming a global leader. In neurology, we are building
The leadership team at the capabilities necessary to scale the business effectively to reach our goals and confident Larry. And his team will do just that as for me, serving as CEO of this incredible company has the integration honor of my professional career. I'm immensely proud of what we have completed together. The Milestone, we have reached the challenges, we have overcome, and the cultural performance integrity and Innovation. We have built to our employees. I want to thank each and every 1 of you for your hard work, dedication and Trust over the years. At this point, we will take questions, operator.
Certainly, as a reminder to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please, press star 1 1, again please, stand by while we compile our Q&A roster.
And our first question will come from Matthew O'Brien of Piper, Sandler. Your line is open. Matthew.
Great. Uh, thanks so much for taking the questions Risa best of luck in retirement and Larry. Wait, welcome to the, uh, to the new role. Um, I thought maybe we could start with guidance. Um, you know, just a confidence level that you guys have in maintaining the guidance here especially with you know the system number um in the quarter. Maybe coming in a little later than some folks that that may be expected. Um just the confidence you have there. Some of the puts and takes as you think about about guys for the the back half of the year and then I do have a follow-up.
Yeah, thanks. But let me take that in 2 parts. Let me first. Make sure you're clear on on what the actual guidance is. Because I, I did hear you say, we maintain guidance, but we actually did slightly increased guidance. Let me just walk through the guidance. And then I'll separately kind of go through, you know, kind of what gives us confidence and and how we formulated that guy. And so just just starting with the full year guidance, we did a firm our full year system Greenfield guide of 210. Although we did note that we had a few systems that move into the back, half of the Year purely due to timing but our overall, our overall number remains unchanged and at the same time, we've actually increased the average selling price as we now expect
in the third and fourth quarter to 440,000 per system, based on what we see in the pipeline,
When you look at handpiece sales, we're actually really pleased with the trends in the business. And we essentially raised the full year guidance by the q2b, which kind of gets us to that 53,000 number. And then some other items on service we we increase that guide by about a million dollars which is a function of renewing service contracts.
Appreciate that, you know, in times of change execution can be difficult, but it's important to remember. We have hundreds of people in the field on our sales force. These are dedicated professionals many have been doing this for 20 plus years and we have a high degree of confidence in that team and the ability to execute from a pure people perspective. And we we've continuously said ever since you've known us Matt that we think we have the best sales force out there in medical device and uh we're going to leverage them over the next 6 months during this period of change. And then when you actually look through the details, remember our Capital sales cycle is 6 to 9 months and therefore we have a ton of visibility into deals, currently in the funnel and that sales team is out there, executing on that. And when you look at procedures,
We have strong visibility over the next 30 to 60 days. These are elective procedures, typically booked months in advance. We're in every case, and that provides some relative level of stability to our forecasts. So, in a long-winded way of saying, we have a ton of confidence in the team and in our guidance, and feel good about executing in the back half of the year.
Appreciate that and then as the follow-up and I think you're you're kind of touching on some of those points there. Kevin um you know with Risa leaving now with Sham and getting that update on this call but he's leaving there is quite a bit of disruption. So you know historically when when investors see this level of disruption you get a little worried that there's going to be some loss of focus among sales reps, um, or other folks in the organization, can you just kind of touch on?
On how you're going to minimize the potential for that level of disruption. Um you know as we think about the the growth of the business over the rest of this year and into 26, thanks.
Yeah, I mean I would apologize. This might be somewhat repetitive but I'm going to say it again. We we have full confidence in the team, we have in the field. This this is not a company with a 20 or 30 reps. Now I mean we we have hundreds of people in the field. Uh, we go through a very methodical process internally to formulate guidance and those people are committed to executing in the back half of the year. And again, we appreciate times, have changed execution. Can be difficult, we have confidence in the team and process and, and we're moving forward.
I understood. Thank you.
And our next question will be coming from Brandon Vasquez of William Blair. Your line is open, Brandon.
Hey everyone. Thanks for taking the question. Um, maybe first just talk to us a little bit more about why now was the right time to, uh, split up the CCO role, uh, and kind of expectations for what the organization might look like, differently. What can you do more efficiently with 2 rolls of 1? And again, why why? Now is the right time to do that.
Yeah. Thanks Brandon. As I said in the preferred in the prepared remarks, this was really a result of our decision to further strengthen our commercial execution, to support our long-term objective of becoming a leading Global biology company. And with this decision eliminating, the CCO role we have the opportunity of bringing to Executives for 1 in the SVP of sales, and once free for marketing.
Okay, uh, maybe separately, uh, you know, we've talked a lot about in the past, how 1 of the gate or not the gating factors, but the predictors of utilization growth is simply time in your accounts, right? Uh, as you look now and we're getting deeper deeper in into accounts and more tenure. As you look at some of your oldest accounts. Uh, do you guys feel like pretty uniformly? The more time you give accounts the closer, they get to aquib being standard of care in those accounts, maybe just curious. If you can talk to us, as we're looking forward from here, how many of these accounts you probably can't put a number on it, but how many of your accounts are are really getting predominantly? Uh, most of their, their BPH volumes are being done, a aquablation and becoming a Workhorse solution. Just to give us a better sense of, um, how how this can Trend in the future.
So I'm not going to put an exact number on it as you alluded to, but I, I do think your characterization is fair that the longer you, you are an account, the more aquablation procedures you do. And we do have multiple examples, where aquablation therapy is the standard of care within that hospital practice. But we have a we have a long ways to go. If if you look at where we're at we're planning to exit the year at only 20% of the US respective market share. And we feel that uh we're just scratching the surface of of kind of the potential here. But we definitely have multiple examples of us being the standard of care within our given customers.
And 1 moment for our next question.
Our next question will be coming from Richard. Neww of truist, Securities, your line is open.
Recent physician fee schedule reductions within urology procedures, especially including yours. Um, I'm just.
Confidence or what are you hearing, if anything, um, that, you know, physician behavior won't change, um, on on on, you know, their treatment algorithm or, or whether they do a, a receptive procedure versus something else that maybe, uh, minimally invasive procedure that potentially saw some, um, some lift to the, the economic renumeration would love to just hear your thoughts there.
Yeah, thanks. Thanks for the question. As you mentioned, all these active procedure payments went down by about 25%. We were modestly higher than the other reactive procedures. I think we should always focus on the clinical outcomes, and the adoption and utilization of our system, from a hospital point of view, is mostly about the APC Level 6 that was not modified. Fifty percent of the physicians we work with are salaried in this hospital. But again, adoption and utilization are primarily based on clinical outcomes. So we believe these surgeons will continue doing the pH procedures, and they are happy with the clinical outcomes we are providing.
Okay, thanks and then just on the uh, uh the system placement. So I guess. Um, the only real change that that I'm seeing uh, on the, on the placement side. Maybe 2 systems got pushed into 4 Cube. It sounds like you have good visibility there at a 3 q. And then just more of a kind of a diminishment, uh, assumption this year, I guess, um, what James there and why, why would the replacements just start picking up next year? Or is there just
Yeah, just just maybe elaborate on that a little bit. Thanks. Yeah I I think your characterizing that correctly Rich where
The system. Absolutely Revenue. Number has increased since the beginning of the year, primarily due to asps and our overall guide of 210 Remains the Same. But compared to our last quarter guide of 95 million, we've reduced that to 93.5 and that is solely as you pointed out. The fact that we do not think we're going to
Execute on the number of Replacements that we felt. We were going to do at the beginning of the year and this is really focused. And we do feel with the amount of Green Field deals we have on the funnel the opportunity. There. The fact that we're still 20% penetrated into the total Hospital environment.
We feel that's where the focus needs to be in the near term. Reps are not incentivized on Replacements and it's just not a focus.
I'd also point out. Why do we think in the future? This will become more robust is if you look at the useful life of our system,
Our capital is a bit unique and that we we Peg, the useful life somewhere in the 5 to 7 year range. And if you start to look at, when we really started to Garner significant number of placements that really started in Earnest in 2021, post receiving full Medicare coverage. And with that is why I made the comment that I think 2026 could be the year where you start to see a more robust replacement cycle that coincides with the useful life of the system, not 2025.
Very helpful. Thank you.
1 moment for our next question.
Our next question will be coming from Chris. Pascal of nefron research. Your line is open. Chris
Thanks. Uh, I thought the statistic around 1300 surgeons performing at least 1 case in the quarter was interesting. It implies about 10 uh, per physician. I'm curious how that utilization curve looks. Do you have a significant number of doctors who are still only doing 1 or 2 cases kind of dabbling? Uh or is it more tightly bunched around that run rate of maybe 3 or 4 months?
Hey it's it's fairly consistent in in the trajectory with surgeons where we've said it typically takes our average Surgeon 3 to 4 quarters to start performing at the corporate average and and that that remains consistent on average. We have about 2 to 3 surgeons per account that remains consistent, but where we put in a lot of effort and I think it's starting to bear fruit in the numbers. Here is how we launched accounts. And we're now launching accounts with multiple surgeons and asking those surgeons encouraging those surgeons to schedule multiple patients. It's very inefficient for us as a company inefficient for the surgeon and his or her patients to treat 1 patient a day. And I I think that's starting to manifest itself a little bit now and you're seeing it in the numbers.
Okay. Um, and then can you talk a little bit more about the
Yeah, so consistent with previous quarters. The, the upside we're seeing is primarily related to UK demand.
However, while still relatively minor, we did, we are starting to see some good progress in both, uh, Japan and Korea. We're really looking to build those markets for the long term. And we're starting to see kind of some good traction there to put in perspective, between those 3 markets, I just mentioned the UK, Japan and Korea that would represent about 70% of all International sales.
That's helpful, thanks.
Thank you. Thank you.
And our next question.
Will be coming from Josh Jennings of. TD coin, your line is open. Josh
Hi, this is Eric on for Josh. Thank you for taking the question. I wanted to ask you about the Hydros rollout. Now that you're a few quarters into that launch, I was wondering if you could talk a little bit about the value proposition of that system and how it's being received by customers. More specifically, are there any metrics, like utilization, where maybe you're seeing more procedures take place with the folks who have that? I'm just wondering if there's anything to call out there.
Yeah, let me take the utilization metric. First it. It's, it's too early. It is
To answer our utilization while we're seeing good anecdotes with accounts launching with multiple surgeons with multiple.
Patients per day. As I just mentioned, it's early. If you go back to our Hydro installations they really begin in Earnest in the first quarter of 25 and given the fact that it does take 3 to 4 quarters for an account to ramp. Um, you know, I think we'll have a lot more to say at the conclusion of 25 with, with how we see that ramp, but the general receptivity that's been fantastic in in terms of the features, that hydros offers. Yeah. And uh, I can add to that, you know, definitely, as we had set up, time is simpler. The fact that the we have the single-use reduces the uh, 1 more step of restoration, that's cheaper for the hospital. And of course, the first AI assist. These are the all the features that still are the value proposition for hydros.
Understood that makes sense. And then maybe on the capital sales team, I was wondering if you could share, how you're feeling about the size of that team currently, and maybe how you're thinking about the pace of repetitions over the next 12 months or so.
Yeah, look, we we feel good about the size. Um, you know the we provided that we have about 40 C of carrying reps. But more importantly, we're adding strategically around those reps based on the needs of the business. And, you know, we we've talked about ads in different areas. There, I'm not going to get into specifics but, you know, directionally the, the pipeline's, strong, the rep. Productivity is performing our
Expectations and and we'll continue to add to that group heading into 2026. But you know, we we feel good about how that teams performing and the productivity around that group.
Okay, that makes sense. Thank you for taking the questions.
Thank you.
Our next question will be coming from Patrick Wood of Morgan Stanley. Patrick, your line is open.
Awesome. Uh thanks guys. Uh just 2 for me quickly uh 1 you touched on the Cat 1 code shift uh at the start. But like have you had conversations with surgeons to get a sense of that faster flow from them? You know, any uptake in terms of, you know, volumes just from the ease of quality of life from the coding side on there and any sort of like anecdotes around uh, what that could do for volumes of anything.
So, so the questions on Cap 1?
So definitely we are very excited about moving to cap 1. As you know, that's considered the established procedure versus when you are in Category 3, you are considered experimental HD. It's standardized is the billing, uh, removes all the operational barriers and the clinicals of some sort. And at the end of the day, it's just the clinical outcomes, which will drive utilization.
Patrick. This is Kevin as well. I mean to your to your question about physician feedback, um, the reality is this is not going to be implemented until January 2026. So in in terms of surgeon experience there, there is none to today. And I don't think we have heard anecdotes from our customers that the payment is going to be a
Barrier to adoption. They are still excited about the clinical benefits that are procedure offers and standardization to their practice and the the early feedback I I'd say it's been fairly neutral. It's it's how I would characterize it, um, with surgeon feedback.
Classic, they've got better things to worry about. Um I mean the other 1 is um you know you touched on it in relation to the idns but you know looking for the distribution of new placements and particularly some of the lower volume facilities. How you're feeling about that? You know how about mix could hit going forward rather than just the high volume facilities? How you're feeling about the lower volume?
Good. Um, and I think it's important to since you brought it up here to, to remind folks that these large idns in in the US account for about 30% of all respective procedures being performed in the hospital and there's about 17 of these idns and we're very fortunate to be able to have relationships and contracts with most all of them. And you know we started to see some of those deals come through in. The first half of 25. I would suggest it's going to be a big part of our growth strategy as we exit the year and head into 2026. We are starting to form great relationships at the top. Uh We've hired a handful of folks to run a strategic accounts team led by very accomplished and experienced individuals. And where, historically, we've always worked deals from the bottom up, which we continue to do this group, really allows us to work from the top down, and we feel good about the pipeline and the deals, and the progress that we see with idms,
I appreciate the caller. Thanks guys.
Thank you. Thanks. Patrick
And our next question will be coming from Nathan Trebek of Wells, Fargo, Nathan, your line is open.
Great, thanks. Uh, rather. Congratulations, it was a pleasure working with you and Larry looking forward to working with you as well. Um, I just want to touch on the capitol environment, I guess in light of, you know, a recent macro concerns, can you confirm you're not hearing from hospitals about any slowing or pausing of capital spending?
Yeah. I I could confirm that we we believe the environment is is relatively stable. Um, you know I said in our prepared remarks, you know the the deals that moved from Q2 to Q3 I would not characterize as due to any type of macro. Headwinds, these are more due to individual Hospital discussions, ID, and budgets. And when those come to fruition, but we believe we're operating in a very stable environment, and I'd also point out, and we've said this numerous times, given the macro backdrop, we've been through over the last 3 years,
Our robotic offering and aquablation therapy provides a unique benefit to hospitals, even in challenging macro times, it allows hospitals to recruit and retain surgeons, that allows them to now standardized their practice and treat more patients than there are, otherwise we're treating. So, when I have conversations with Hospital CFOs
they get excited about that much more than any type of a macro headwinds that could be perceived in the environment today, but we're not seeing it, Nathan,
Thanks Kevin um and just for my follow-up. Has there been any I guess evolution in in your, you know, Outlook or strategy for entering the asc's and and that was a commercial organization changes. It is this something you're going to be looking at a little more closely
Thanks. So yeah, thanks for the question. You know, as we have said, our primary focus is Hospital base and uh, we still have a long Runway Runway over there. 90% of the reactive procedures are done at the in the hospital. We, we had a, uh, pilot program and that's going well, but really, our primary focus is hospital-based and also in the water for as you heard 1 of our positions is, uh, cases at ASC. So, that's something for the future. We we look, uh, at
What our primary focus stream is.
Thanks.
And 1 moment for our next question.
Our next question is going to be coming from Ryan. Zimmerman of btig, Ryan. Your line is open. Oh, thanks. Uh, for taking our questions. Reza, you're a young guy. My questions while you're retiring now.
Um, no, I'm just kidding. I looked 20 but I'm older than 20.
Okay, no, that's I wish you the best on your retirement. Um, May, maybe I want to, I want to ask a couple things. So, um, you know, number 1, you know, the Tariff impacts got an arguably a little bit better, right? And the gross margins. I, I understand they're going to be impacted in the back half of the year, but your gross margin. Guidance is unchanged, despite the Tariff Dynamics coming down. Um, and so maybe Kevin, you can elaborate on what's driving? That
Yeah, so our gross margin guidance. On the previous call, we had actually had guided to a range to account for 5 million impact. And that range was 63 to 64.5% on our last call, and what we've essentially done with this guide. Ryan is
Higher volumes.
Yeah, okay. Um, let's talk about utilization for a minute. If we could um, you know, if I heard you Kevin 13,350 is the handpiece number for Q3. Um, I think it was 13,500. Last time I could be wrong, but it, it does arguably at 52 units. Imply about a mid single digit, kind of growth rate versus last year on utilization. It shifts back. You know, the utilization uptick to the fourth quarter to make that 53,000. I I know there's some nuances in kind of how everyone calculates utilization but just you know simple math. That's what it's coming out at. Is there anything to read into here with with how that utilization is shifting on the systems?
I can read into and I let me
Walk through kind of.
Our Q3 year-over-year utilization at 13,350 would assume about 4% year-over-year growth. We just threw and keep 1 in Q2 on average right around 5%. Right. Um so I I I view those numbers as relatively comparable and nothing should be read into it. I think the bigger question is, how can Q4 grow 25%? If we're mid single digits of the first half of the Year? And that that's a, that's a relatively easy answer for us. If you go back to Q4 of 24, with saline and our commentary around 2,000 loss procedures,
In Q4. And if you take those and add them back to the 24 number,
4 of an apple.
Comparison. And that would actually put the Q4.
Growth required at a number very comparable to the first 9 months. So I don't feel like we're sitting here today relying on a huge hockey stick of growth in the fourth quarter to meet our targets. If anything, I think you'll find the fourth quarter, guide might even be slightly less in the first 9 months. So we we feel good about the setup for the rest of the year.
But but Kevin just to push a little. I mean, the the guidance originally was for linear growth in terms of, you know, growth improving through the year throughout the year. Um, if I'm not mistaken, when you originally guided 2025, right?
yeah, and and I we're just probably going to talk semantics here, Ryan, because 4 5, 6 percent,
I mean, that's
I mean, you could do the math on how many procedures that is. Um, I I feel good about the setup for Q3, I'll just say that.
Okay. All right. I'll leave it at that. Thank you.
Thanks Ryan.
And our next question will be coming from Michael Cerrone of Jeffrey's Michael. Your line is open.
Hey, good afternoon, and thanks for taking the questions and, uh, Reza. Congrats on the retirement and Larry looking forward to working with you here. Um, I guess first question for me, um, just, you know, maybe Kevin, any, any comments you could give us on second half. Um, Revenue, phasing. I know you've got, you know, a few systems that got deferred into 3Q, just wanted to know if, if that, or if there's anything else you'd call out, as we think about the revenue phasing in the back half.
Yeah, I I I tried to give you guys enough to get there, but let me, let me tell you what we said. I think you're going to find what comes out on the other end, uh, pretty mathematical. So we, we got into 52 systems in the third quarter. That would put the Q4 number around 67 at a 440 asp.
We guided the 13,350 hand pieces in the third quarter.
what we did guide to however, which
I think I'm going to help you out here was International Revenue. And if you look at International Revenue, the third quarter, as we all know with seasonality is typically a step down from the second quarter. And, you know, typically for us, that's about a half million dollars, that million dollar step down sequentially. And I, I think if you, you plug all of those into your model, you can come out with a number. But we did not guide us specific Revenue number in Q3 and Q4
Understood, that's helpful. Thanks. And, you know, maybe understanding that the expected tariff impacts have have eased, a bunch. Um, just wanted to know if you've made any progress or, or how you're thinking about um, the sole source, ultrasound supplier uh, based in China
Yeah, we're we're working very closely with that partner. Um you know, we we do think, you know, we can
Onshore that ultrasound long longer term to mitigate any longer term tariff impact. I think the the primary takeaway for me there is that we have very good relationships with the supplier and the continuity of Supply is unquestioned, but given this environment and that it seems to be again fairly fluid. I I think we're looking at strategies longer term to not only mitigate that, but look at other parts as well that we could start to bring in-house or work with someone in a domestic fashion.
Got it. Thank you.
And our next question.
Will be coming from Mike, Kate of Lee, Rick Partners, your line is open mic.
Hi everyone. This is Sam on for Mike, thanks for taking our questions. Um, you know, can you just kind of provide any additional color on the degree of penetration that you're seeing today in low to medium, volume hospitals, and how their case volume typically evolves? After adopting aquablation, um, specifically how long it may take them to become you know kind of more high volume hospitals following adoption, then I have a follow-up.
Yeah, it's a pretty specific question. I think the
Constituency of our sales between High volumes and low and medium, volume, hospitals, remains consistent there. There's nothing really to point out there. Um,
we'd also suggests that our low-hanging fruit in the near term is continuing to penetrate high, volume hospitals and even with kind of the, the ramp we've had over the last
2 to 3 years, we still feel. There's a significant opportunity to penetrate the 860 high volume hospitals that are out there in the US. And at the same time, we also recognize given the value proposition that we can turn to your point. These smaller hospitals into into larger hospitals, but it's, it's too early to kind of get into the details as to, where the the procedures are being driven or where those can ultimately go.
Got it understood. Um, and then, you know, just kind of following commentary from from last quarter. You know, what commercial impact? Have you guys seen from the recent LCD updates from Medicare administrative contractors and have any additional contractors updated their LCDs or express interest to remove restrictions on aquablation?
It's it's it's too early. So most of those LCDs that we mentioned do not become active until the fall. Um, so so we'll have to see at the same time. I don't think the expectation is that should be a medium. Um the these things take time to phase in. It takes time to get everybody up to speed and you know, if there were going to be any impact, I would suggest that wouldn't occur until 2026.
Got it understood. Thanks.
And 1 moment for our next question, will be coming from Saj Kalia of Oppenheimer and Company. Your line is open.
Uh gentlemen, thank you for taking my questions Risa congrats and your retirement. Larry looking forward to working with you again.
Um, so Kevin you provided a lot of uh, additional color on guidance hand pieces units. Maybe if I could come at it from a little different angle, how should we think about the ratio?
Of hand pieces shipped versus actually used in the quarter. I guess what I'm just trying to get on my arms around is, you know, the the 2000 or so cases that got pushed
from Q4 into presumably this year. Um, utilization numbers, you know, we went back and forth and 4 or 5 or 6% up or a year-over-year. Maybe if you could tie all of this together and tell us how should we think about shipments versus actual utilization?
Yeah, like we we monitored a spectrum closely. We have the advantage here at procept of having visibility into when all our procedures are being done. And we also do not typically utilize distributors in the US, and that differential between procedures and hand pieces has remained relatively consistent throughout our time as a public company.
Got it and reserved for water 4.
Uh, how should we think about the VIN diagram?
In uh, between urologists.
Who are, uh, using aquablation to treat BPH and you also pretty proficient with robotic, uh, radical prostatectomy.
Is there a lot of overlap or you would say? You know these guys are relatively segregated gentlemen, thank you for taking my questions.
Thank you. We we are working with all of them and, uh,
So they're all included in this in this study.
1 moment for our next question.
Our next question will be coming from Mason carrico of Stevens, Inc. Mason your line is open.
Hey guys. Um thanks for the question here. Um realizing you've got it hand piece, ASP this year, you willing to give any color on how we should be thinking about, ASP into 2026 to increasing, mix to hydros as well.
population, would begin to increase and therefore, you should start to see
Low single digit increases with hydros hand pieces as we move forward but in in terms of kind of building a model, if that's where we're going here. I would be relatively conservative on hand piece price.
As we move forward into 2026.
Okay. Um,
Are you implementing any flexible purchasing options to help close deals? And if so, are you seeing an increasing mix?
Hospital starting to utilize that option. If, like I said, if
Yeah, look we're we're obviously aware of kind of what goes on in the capital environment and you know, we definitely understand. Flexible, purchasing purchasing options are important to customers. And so with that in mind we do work with third-party leasing companies. If 1 of our customers would like to see financing for their Hydro systems so we continue to work with those folks and at the same time you know we have done some flexible purchasing deals internally but
The ability to sell capital in the near term that that model is is unchanged.
Awesome. Thanks. Appreciate it.
And I'm showing no further questions in the queue. Thank you for joining and the call is now concluded. Thank you.