Yahoo Finance PROCEPT BioRobotics Corporation (NASDAQ:PRCT) Q1 2024 Earnings Call Transcript
PROCEPT BioRobotics Corporation (NASDAQ:PRCT) Q1 2024 Earnings Call Transcript May 1, 2024
PROCEPT BioRobotics Corporation beats earnings expectations. Reported EPS is $-0.51, expectations were $-0.55. PRCT isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to PROCEPT BioRobotics First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. We'll 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 Basco, Vice President, Investor Relations for a few introductory comments.
Matt Basco: Good morning and thank you for joining PROCEPT BioRobotics first quarter 2024 earnings conference call. Presenting on today's call are Reza Zadno, Chief Executive Officer, Sham Shiblaq, Chief Commercial 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 or 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 in PROCEPT BioRobotics filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place under reliance on these forward-looking statements, which speak only as of today's date, May 1st, 2024, except as required by law PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. During the call, we also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent 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 opening comments and a general business update followed by Sham, who will go into detail on a few key commercial initiatives. Kevin will then provide additional detail regarding our financial performance and updated 2024 guidance before opening the call to Q&A. We are pleased to report another strong quarter with total revenue for the first quarter of 2024 of $44.5 million representing growth up 83% compared to the first quarter of 2023. Growth in the quarter was driven by strong US system sales, increased utilization from our expanded US install base, and record international revenues. US monthly utilization increase approximately 7% compared to the prior year period, which is significant given an 84% increase in our install base.
We exited the first quarter of 2024 with a US install base of 354 systems out of target market of 2,700 total hospitals that performed BPH surgeries. The significant increase in new accounts in conjunction with our ability to move accounts up to utilization care further demonstrates not only our team's consistent commercial execution but growing customer and patient demand for Aquablation therapy. As we highlighted earlier this year, there are multiple factors trending in the right direction, which will allow us to continue to execute against our long-term growth plan, while being disciplined ensuring a path to profitability. We believe these underlying fundamentals reflect the technology that is laying the foundation to become the BPH surgical standard of care and a business that will be a leading urology franchise globally.
Starting with the hospital CapEx environment, we continue to believe the market is stable to improving compared to the previous nine to 12 months. Specifically, we are having more proactive conversations with the hospital CFOs and IDN network partners who just a few quarters ago were exercising more caution in pursuing general CapEx investment given lingering macro headwinds. With a growing and increasingly educated patient population along with motivated urologists, we are seeing hospitals prioritize investment in our AQUABEAM Robotics system to ensure they stay competitive and not lose patients to other area hospitals. Given the disruptive nature of our technology and that patient outcomes are independent of surgeon skill or experience, every BPH hospital can now build a robust BPH practice with Aquablation therapy and not have to refer patients out to area specialists.
Given this market dynamics, we are still very early in our adoption curve with a long runway in front of us selling to BPH hospitals. Additionally, in the first quarter, we launched a pilot program at our first ambulatory surgery center in the United States with one of our most experienced Aquablation surgeons. To be clear, we sold 38 systems in the first quarter but placed 39. The 39th is the affirmation ASC and is included in our US-installed base of 354. Our primary commercial strategy remains focused on penetrating BPH hospitals and partnering with the thousands of urologists who perform resective surgeries. For Aquablation therapy to be the market leader, we first need to convert the majority of TURP and laser procedures, which are primarily performed in the hospital setting before making a meaningful transition to ASC.
Our objective in placing systems at ASCs is to ultimately expand the surgical market long-term and increase overall surgical patient volumes that were previously either on medication or failed medication. To note, there's established Medicare reimbursement for acquisition therapy in the ASC at approximately $6,200 per procedure. We are encouraged with early utilization metrics at this center and will provide additional updates when it makes sense in the future. Turning to our commercial organization, we entered 2024 with approximately 40 capital sales reps of which 10 were added in the third and fourth quarter of 2023. As a reminder, we believe the productivity curve for capital reps is approximately six months. Over these six months period, they are responsible for building out their respective pipelines.
Thus, we do not expect the capital reps added in the fourth quarter of 2023 to start meaningfully contributing to US system sales until the second half of 2024, which is factored into our 2024 guidance. Additionally, we hired a new strategic account team, which is not included in the 40 capital reps. Sham will provide further detail on this team's early impact in the first quarter. Next, touching on our utilization team. Given our strong commercial momentum and expanding pipeline, 2023 was an investment year to meaningfully increase headcount and add capacity to support future growth. Similar to our capital sales rep team, we entered 2024 with the most experienced utilization team in the company's history. While we will continue to increase headcount in 2024, it'll be at the slower pace compared to 2023.
Our goal in 2024 will be 40 reps to continue to identify and train new surgeons at the existing and new accounts to increase utilization. With respect to international performance in the first quarter, we generated $4.3 million of international revenue in the first quarter of 2024, representing growth of 65% compared to the prior year period. Growth in the first quarter was once again driven primarily by strong sales momentum in the United Kingdom. Given the accelerating interest from UK surgeons and strong unit economics on handpiece and system average selling prices, we plan to make further investments in 2024 in the UK to accelerate growth and expand patient awareness. Additionally, following our post-market survey in Japan, we have generated significant interest from Japanese surgeons.
We are currently in the final stages of signing sales contracts with some of the most reputable urology practices in Japan, and we plan to launch a population therapy program later this year. While we are excited about these early placements, it'll take time to build our pipeline and launch accounts to start generating meaningful procedure volumes and revenue. Like the US and the United Kingdom, our strategy is to lead with clinical data and key opinion leader adoption to support a more robust and sustainable commercial launch. Lastly, I want to touch on prostate cancer. A few weeks ago we announced we will be hosting an investor event and surgeon panel at the 2024 American Urological Association Conference in San Antonio on Friday, May 3rd at 8:00 AM Central, a webcast option will be available on our IR website for those who cannot attend in person.
The agenda for Friday's event will be to highlight six months follow-up data of patients treated for prostate cancer with Aquablation therapy. Additionally, one of our panelists will share a specific prostate cancer case and how the patient was treated? Lastly, we will conduct a fireside chat with Dr. Inderbir Gill, Founding Executive Director of USC, Urology and Chairman of Urological Cancer Surgery at Keck School of Medicine of USC. The fireside chat will focus on limitations of current prostate cancer treatment options and why Aquablation therapy has the potential to be a great option for patients and ultimately surgeons who want to recommend a treatment that is effective and reduces rates of unnecessary harm. We look forward to seeing many of you this Friday in person.
To conclude my prepared remarks, every key metrics we track continues to move in the right direction. To summarize, our pipeline and sales funnel continue to grow nicely in what we currently believe is a stable to improving macro environment. On average, the longer an account has been active, the more procedures they do. We are launching new accounts with more surgeons while sustaining retention rates consistently above 90%. Our commercial organization is the largest and most tenured in the company's history, which we believe will lead to increased productivity. And lastly, we will continue to enroll patients in both prostate cancer studies to support Aquablation therapies, clinical value in this therapeutic area to expand our footprint in the larger urology market.
Given this positive momentum, we believe Aquablation therapy is laying the foundation to become the BPH surgical standard of care and PROCEPT is emerging as a leading global urology company. With that, I will turn the call over to Sham.
Sham Shiblaq: Thanks, Reza. I appreciate the opportunity to speak today as this is my first time participating in our quarterly earnings calls. While I've met a number of you at various investor events and bus tours, my name is Sham Shiblaq and I am PROCEPT’s Chief Commercial Officer and have been with the company since March, 2019. Having been at PROCEPT for over five years now is very fulfilling to look back at what we have collectively been able to accomplish in a relatively short period of time. While our recent history has been exciting, we believe our future will be transformational. To build off Reza’s section, I want to provide additional context on a few key areas, starting with an update on our strategic accounts team and relationships with IDNs. As Reza mentioned, we successfully hired a strategic accounts team who joined PROCEPT with decades of experience selling capital equipment and building successful robotic programs and large IDNs. The role of this team will be to focus on partnering with strategic IDN networks across the country to improve our sales efficiencies in both the capital selling process and improve utilization at targeted IDNs. As a reminder, we successfully established sales and legal contracts with the majority of large strategic IDNs in 2023, which allowed this new team to hit the ground running in the first quarter.
Our IDN strategy is initially focused on the top 17 strategic IDNs that account for 29% of BPH hospitals Regarding system sales in the first quarter, we saw several sales to these strategic IDNs and prior quarters’ hospitals, and these IDNs would access regional or local funds to purchase the AQUABEAM system. In the first quarter of this year, multiple strategic IDNs used corporate funds to complete AQUABEAM purchases. This is a positive shift demonstrating the support of Aquablation therapy at the corporate level of strategic IDNs. The systems purchased by these IDNs in the first quarter were already in our targeted sales pipeline and well-progressed in our sales process, so they did not add to our forecast incrementally. Nevertheless, the strategic account team played a crucial role in utilizing corporate funds to deploy aqua beam systems in hospitals where we already have an existing surgeon champion.
Given an improving hospital CapEx environment and this team's early contributions in a quarter, that is typically seasonally difficult I not only have a high degree of confidence, but high expectations for what they can accomplish in future quarters. Turning to surgeon interest and patient awareness, as we have communicated to investors over the last few years, our primary focus is for Aquablation therapy to become the standard of care for BPH surgery. And to achieve this goal, we have prioritized surgeon engagement, patient outcomes, and training. Regarding surgeon engagement in the first quarter, we held numerous peer-to-peer medical education events, which included participation from hundreds of urologists who were introduced to Aquablation therapy for the first time.
Given the growth we have experienced over the last few years, our medical education events have been a great way to highlight our technology and for customers to share their positive experiences with Aquablation to prospective physicians. This allows our participant surgeons to engage more effectively with the respective hospital CFOs to eventually acquire an AQUABEAM Robotic system. Regarding first quarter procedure volumes, the primary drivers of procedure volume continue to be active surgeon in growth, and adding new surgeons at both existing and new accounts. Additionally, our ability to maintain surgeon retention rates above 90% demonstrates the clear patient and surgeon benefits of our technology, which ultimately leads to increased utilization.
As a company, we benefit greatly from this high level of surgeon retention as our commercial team can focus on adding new surgeons. And with that, I'll turn the call over to Kevin.
Kevin Waters : Thanks, Jim. Total revenue for the first quarter of 2024 with $44.5 million, representing growth of 83% compared to the first quarter of 2023. US revenue for the quarter was $40.2 million, representing growth of 85% compared to the prior year period. In the first quarter, we sold 38 AQUABEAM Robotics Systems with average selling prices of $373,000 generating total US system revenue of $14.2 million, representing system revenue growth of 62% compared to the first quarter of 2023. As Reza indicated, we sold 38 systems in the first quarter, but placed in additional system at an ASC. While we may consider additional ASC placements in 2024, these placements are not factored into our system revenue guidance for 2024.
US handpiece and consumable revenue for the first quarter of 2024 was $23.6 million representing growth of approximately 101% compared to the first quarter of 2023. Handpiece growth was driven by an increase in the install base of AQUABEAM Robotic Systems, which has grown 84% from the first quarter of 2023. Additionally, monthly utilization of 6.8 handpieces per account increased approximately 7% compared to the first quarter of 2023. Utilization in the first quarter exceeded our initial guidance and as expected was down sequentially given normal elective procedure seasonality compared to the calendar fourth quarter. Overall, we continue to see increased utilization across all cohorts, which is a direct reflection of strong commercial execution, training new surgeons and surgeons taking the next step to adopt Aquablation therapy as their treatment of choice for all respective procedures.
We shipped 6,811 handpieces in the US in the first quarter, representing unit growth of a 100% compared to the first quarter of 2023. First quarter handpiece average selling prices were approximately $3,200. We also recorded $1.8 million of other consumable revenue in the first quarter of 2024. International revenue for the first quarter was $4.3 million, representing growth of approximately 65%. Gross margin for the first quarter of 2024 was 56.2%, representing an all-time high and the 120 basis points above the high end of our first quarter guidance we provided in February. Gross margin expansion in the first quarter was due to strong execution from our operations team and our ability to absorb overhead expenses along with revenue over achievement.
Moving down the income statement. Total operating expenses in the first quarter of 2024 were $52.7 million compared to $40.9 million in the same period of the prior year, and $50.8 million in the fourth quarter of 2023. The increase was driven by increased sales and marketing expenses, primarily to expand the commercial organization and increased research and development expenses and general and administrative expenses. When comparing revenue growth to operating expense growth, we grew revenues 83% in the first quarter on 29% operating expense growth, which is a favorable ratio of 2.9 times. Total interest in other income was $1.7 million. Quarterly interest expense from our $52 million term loan was offset by favorable interest income from our cash balances.
Net loss was $26 million for the first quarter of 2024 compared to $28.5 million in the same period of the prior year. Adjusted EBITDA was a loss of $20.4 million compared to a loss of $23.9 million in the first quarter of 2023. Our cash and cash equivalence balance as of March 31st was $229 million. We believe our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business. Moving to our 2024 financial guidance, we now expect full-year 2024 total revenue to be approximately $213.5 million, representing growth of approximately 57% compared to 2023. Starting with US systems, we continue to expect approximately 45% of system sales to be in the first half of 2024, which we attribute to normal seasonality and our expanded sales force becoming more productive in the second half of 2024.
This exhibits a similar cadence to what we experienced in 2023. We also anticipate system average selling prices in 2024 to be approximately $370,000. Turning to US Handpieces, we continue to expect to sell approximately 33,000 handpieces for the full year with average selling prices of approximately $3,200. We also expect other consumables revenue to be approximately $9 million for the full year. Regarding quarterly cadence, we expect utilization to modestly increase sequentially throughout the year. Additionally, we expect US service revenue to be approximately $12 million. Lastly, on international revenue, given another strong quarter and positive momentum in the United Kingdom, we now expect full-year international revenue to be approximately $18.5 million, representing growth of approximately 56%.
Moving down the income statement, we now expect full-year 2024 growth margins to be approximately 58% to 59% an increase from our previously issued guidance of 57 to 58%. Regarding quarterly cadence, we expect gross margins to increase sequentially throughout the year with the second quarter being approximately 57%. Turning to operating expenses, we continue to expect full-year 2024 operating expenses to be approximately $231.5 million, representing growth of 29%. In terms of quarterly cadence, we expect the second and third quarter operating expense growth to be in the low 30% range compared to the prior year period. Given current interest rates, we expect to generate net interest income of approximately $7 million in 2024. Given the increase in revenue and gross margin, we now expect full-year 2024 adjusted EBITDA loss to be approximately $70 million, an improvement from a loss of $73 million from our previous guidance.
Lastly, we expect our cash burn to approximate, our adjusted EBITDA, and improve sequentially throughout the year. 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 standard of care for BPH. We will continue to leverage our commercial and clinical investment to execute on our long-term strategy. Have a great day, and I look forward to seeing many of you at our AUA investor event on May 3rd at 8:00 AM Central time in San Antonio, Texas. At this point, we will take questions. Operator?
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