PRCT - NASDAQ

Morning, and welcome to PROCEPT BioRobotics Corporation's first 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 hand it over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments.

Good morning, and thank you for joining PROCEPT BioRobotics Corporation's first quarter 2025 Earnings Conference Call. Presenting on today's call are Reza

And a general business update followed by Sham, who will provide the commercial overview. Lastly, Kevin will provide additional detail regarding our financial performance and updated 2025 financial guidance. Beginning with our quarterly revenue results, total revenue for the first quarter of 2025 was $69.2 million, representing growth of 55% compared to the first quarter of 2024. Growth in the quarter was driven by increased US systems and handpieces sold, as well as record international revenues. We exited the first quarter of 2025 with a US installed base of 547 systems, representing growth of 55% compared to the prior year period. We sold a total of 43 robotic systems in the first quarter of 2025. Turning to the global macro environment, specifically our exposure to tariffs. As a reminder, following the establishment of full Medicare coverage in 2021, we initiated US commercial operations in earnest at the time when the pandemic exposed significant vulnerabilities in the global supply chain. In response, we took proactive steps to de-risk our supply chain by sourcing the majority of our strategic components in the US. For components that could not be sourced within the US, we took deliberate steps to maintain significant inventory levels. This approach not only mitigated the risk of supply disruption but also helped reduce our exposure to potential tariff escalations. For example, greater than 95% of the direct material cost of our single-use handpiece is sourced in the United States. Regarding our robotic system, our primary exposure to China lies in the ultrasound system. However, we have typically maintained a robust supply of inventory for this critical component. Kevin will provide additional detail in the guidance section. However, given our strong inventory position of ultrasound units, and the fact that all products are assembled in California, we currently anticipate only a modest impact on 2025 gross margin. That said, we have taken a conservative approach to our 2025 gross margin outlook and will continue to closely monitor potential headwinds that could affect fiscal 2026. Turning to clinical updates. In March, at the 40th Annual European Association of Urology Congress in Madrid, primary endpoint results from the WATER III randomized controlled trial were presented. WATER III is an international prospective multicenter study comparing aquablation therapy to laser enucleation in prostate sizes 80 to 180 milliliters. This study treated 186 men and reported three months primary safety and efficacy endpoints. WATER III will also follow patients up to five years. At three months, aquablation therapy delivers similar symptom relief to laser enucleation while demonstrating a 0% transfusion rate and significantly lower rates of ejaculatory dysfunction and incontinence. Notably, the rate of stress incontinence was 0% among aquablation patients. These results add to our growing body of clinical evidence and support that aquablation therapy is highly reproducible in treating prostates of all sizes with a low learning curve. Aside from the clinical outcomes, we believe the WATER III results will be instrumental in helping modify global urology guidelines in the future for larger prostates. Next, I want to provide a positive update regarding US Medicare coverage. Effective 04/06/2025, First Coast and Novitas, two of the largest regional Medicare administrative contractors, positively updated two key local coverage determinations, or LCDs. We estimate First Coast and Novitas account for approximately 30% of all Medicare patients in the United States. Regarding the LCD changes, First Coast and Novitas removed three key limitations: age-based restrictions for men over 80, voided volume thresholds that impacted patients in retention, and the requirement to measure prostate size via transrectal ultrasound. These changes significantly streamline the pre-procedure workup and should expand access to our aquablation therapy for a broader patient population. With that, I will turn the call over to Sham to provide more detail on first-quarter commercial performance.

Thanks, Reza. Starting with US procedures. In the first quarter, we sold 11,235 handpieces, representing year-over-year unit growth of 65%. As we noted during our fourth-quarter earnings call, we experienced some residual impact from the saline shortage in January. However, volumes returned to more normalized levels in February, with March demonstrating strong growth compared to the prior month. As of March, we believe the saline issue is behind us. The first quarter of 2025 was an incredibly important quarter for the company to execute our plan given the macro factors from the fourth quarter. In addition to a strong handpiece quarter, we saw a greater number of accounts launch their aquablation program in the first quarter compared to any previous quarter. As I look back over the last quarter, there are three key takeaways regarding the Hydro's account launches. First, internally, we proved we can execute supporting a large number of new accounts on accelerated timelines. Second, hospital customers are very motivated to launch and promote their Hydro system. And finally, given the number of accounts that were launched in the first quarter, and the daily procedure normalization post-saline, we have a high degree of confidence we will continue our procedural and system momentum as we progress through 2025. Turning to Hydro's. With the launch of Hydro's last year, we've seen a noticeable increase in engagement with large strategic IDNs. And based on the feedback we have received, we believe momentum is being enhanced by a few key factors. First, with the size of our installed base and the growth across hospitals and procedures, many of these new hospitals now view PROCEPT as being on par with the most well-established med tech companies in the US. Second, they see Hydro as a potentially game-changing technology, bringing advanced capabilities to a large established surgical category that's been stagnant for years. And third, we're hearing a strong desire to standardize aquablation therapy across their hospital networks driven by the consistent reproducible outcome and the operational efficiency that brings. Many of these IDNs have also expressed a strong interest in growing patient volume and view Hydro's as an enabling technology to support that goal. Of the 43 systems sold in the first quarter, approximately 45% were associated with IDN bulk buys executed at the corporate level. Furthermore, approximately half of Hydro's placements went to high-volume BPH hospitals, with the other half being low or medium-volume BPH hospitals. Given this dynamic, we believe Hydro is resonating with large strategic IDNs and all hospitals, regardless of historical BPH volume. Regarding the broader capital equipment environment, while market uncertainties present challenges, we have demonstrated a strong track record of selling capital at incrementally higher prices driven by the underlying value of aquablation therapy to the patient and hospital customers. Based on daily conversations with prospective customers in our pipeline, we do not sense any material shift in overall sentiment. We believe PROCEPT is in a strong position to continue to grow the install base for the foreseeable future. Many hospitals associate robotic surgery as a long-term strategic priority to grow revenue and market share and thus are less likely to cut investment in this area, even if macro conditions moderately worsen. Second, we are in the early innings of a new product launch that is gaining traction. The number of low and medium-volume BPH hospitals acquiring Hydro systems continues to increase, giving us confidence in our ability to expand into these hospital segments and continue on our path to becoming the BPH standard of care. Lastly, I want to touch briefly on our international performance. International revenue in the first quarter of 2025 was $8.9 million, representing growth of 104% compared to the prior year period. While our international business remains primarily driven by capital sales, we are beginning to see meaningful revenue tailwinds from procedural volumes, particularly in the United Kingdom. Where increasing utilization is becoming a meaningful driver of the overall business. This is very encouraging as we now have many examples across the UK of launching robust and durable aquablation programs in both the NHS and private sector. These real-world examples are critical as we continue to sell throughout the UK. With that, I will turn the call over to Kevin.

Thanks, Sham. Total revenue for the first quarter of 2025 was $69.2 million, representing growth of 55% compared to the first quarter of 2024. US revenue for the first quarter was $60.3 million, representing growth of 50% compared to the prior year period. We generated total US system revenue of $18.7 million, representing system revenue growth of 32% compared to the first quarter of 2024. In the first quarter, we sold 43 robotic systems, at a blended average selling price of approximately $435,000. Looking ahead, we expect a small percentage of Hydro's placements to come from legacy AquaBeam system replacements. In these cases, particularly with established customers, we anticipate pricing to be largely consistent with that of a new system. Notably, during the quarter, one customer replaced our AquaBeam for Hydro's. As a result, while 43 systems were sold, the US installed base grew by 42 units, reaching a total of 547 systems. This reflects continued momentum in system adoption and the value customers place on our next-generation technology. Turning to US handpiece and consumable revenue. Revenue for the first quarter of 2025 was $38 million, representing growth of 61% compared to the first quarter of 2024. The 11,235 handpieces sold in the United States were at average selling prices of approximately $3,200, representing unit growth of 65% compared to the first quarter of 2024. We also recorded approximately $2.1 million of other consumable revenue in the first quarter of 2025. International revenue in the first quarter of 2025 was $8.9 million, representing growth of 104% compared to the prior year period. Growth in the first quarter was once again driven primarily by strong sales momentum in the United Kingdom. Gross margin for the first quarter of 2025 was 63.9%, consistent with the fourth quarter of 2024 and up 750 basis points year over year. The year-over-year margin expansion was driven primarily by improved operational efficiencies and higher average selling prices compared to the first quarter of 2024. Moving down the income statement. Total operating expenses for the first quarter of 2025 amounted to $71.6 million compared to $52.7 million during the same period in the prior year. We believe our path to profitability is becoming increasingly clear as reflected in our recent performance. This clarity is driven by our gross 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 systems and handpieces. Net loss was $24.7 million for the first quarter of 2025 compared to $26 million in the same period of the prior year. Adjusted EBITDA was a loss of $15.8 million compared to a loss of $20.4 million in the first quarter of 2024. Our cash, cash equivalents, and restricted cash balances as of March 31 were approximately $319 million. Moving to our 2025 financial guidance. We now expect full-year 2025 total revenue to be approximately $323 million, representing growth of approximately 44% compared to 2024. We continue to expect to sell approximately 210 new robotic systems in the United States with pricing in the range of $430,000 to $440,000. Our primary focus in 2025 remains on the substantial opportunity to sell Hydro's in greenfield accounts. However, we are also seeing interest from existing customers who are looking to either replace their current AquaBeam system or acquire a second system, which would be Hydro's. Therefore, we are guiding the total full-year US system revenue of approximately $95 million, which includes greenfield sales and, to a lesser extent, replacement systems. We continue to believe that the replacement opportunity will serve as a significant long-term driver for the business, although we are still in the early stages of the adoption curve. Turning to US handpieces. For the full year, we continue to expect sales of approximately 52,500 handpieces, representing a 63% 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 first quarter. We are maintaining handpiece average selling prices to be approximately $3,200 and are increasing other consumable revenue expectations to be approximately $9 million for the full year. Additionally, we expect US service revenue to now be approximately $16 million for the full year. Lastly, on international revenue, given strong positive momentum in the United Kingdom, we now expect full-year international revenue to be $34.5 million, representing annual growth of 44%. Turning to gross margins. The current tariff landscape remains highly fluid. That said, we believe we are well-positioned to manage both gross margins and overall profitability in this environment. To clarify our exposure, tariffs primarily impact our ultrasound system and associated components sourced from China. Should current rates remain elevated at 145%, we estimate a potential gross margin headwind of approximately $5 million in 2025, which would equate to a 150 basis point reduction from our guidance of 64.5%. With the majority of the impact expected in the second half of the year, while we believe there's a reasonable likelihood that tariffs could moderate over time, we felt it important to outline the potential downside scenario if rates remain unchanged. Although we are not yet providing guidance for 2026, we are actively evaluating operational mitigation strategies that could reduce future exposure. Importantly, we remain confident that the current tariff environment does not compromise our path to achieving our long-term profitability objectives. We will continue to closely monitor developments and provide timely updates as needed. Turning to operating expenses. We continue to expect full-year 2025 operating expenses to be approximately $300 million, representing growth of 28% over 2024. In the second quarter of 2025, our operating expense guidance assumes a spend of approximately $75 million. Additionally, given current interest rates and cash balances, we expect full-year interest and other income of approximately $9.4 million. Taking all relevant factors into account, we continue to anticipate a full-year 2025 adjusted EBITDA loss of approximately $35 million. We believe potential tariff-related headwinds can be largely mitigated through operational efficiencies identified across the organization. At this point, I'd like to turn the call back to Reza for closing comments.

Thanks, Kevin. In closing, I want to provide a brief preview of AUA. We are currently in Las Vegas for the 2025 AUA conference, and it is also PROCEPT's fourth consecutive AUA Analyst Day. Tomorrow, we will be video webcasting the event live starting at 8 AM Pacific, 11 AM Eastern. From a logistics point of view, it is very important to note that the location of our event has been moved to the ARIA hotel, in Conference Room Joshua 9 and 10. If you are planning to attend in person, please update your meeting location to the ARIA hotel. Tomorrow will be an exciting event for PROCEPT as this will be the first year we present prostate cancer results for aquablation from a combination of both of our trials, PRCT 001 and PRCT 002. The data we plan to present will include procedural anatomical capabilities and safety, functional outcomes with respect to incontinence and erectile function, and oncologic control. Given the reproducible nature of our procedure and its safety profile seen during the treatment of BPH, we believe tomorrow's Analyst Day will provide a glimpse into the future as to how low and intermediate-risk prostate cancer patients could be treated. Furthermore, we are the first company ever to receive IDE approval from the FDA to enroll a randomized trial comparing surgical therapy against radical prostatectomy for prostate cancer. We view this as the first crucial step in pursuing a specific prostate cancer treatment indication, which no other treatment has today. Given the amount of level one clinical evidence we will be gathering over the next few years, along with our breakthrough device designation to fast-track approval, we believe we will be in an advantageous position to drive rapid change in a massively underserved market. To conclude my prepared remarks, we are seeing multiple factors continue to trend positively, allowing us to execute our long-term strategic plan. In summary, the US Hydro's launch is gaining momentum with our pipeline and sales funnel growing nicely. We launched significantly more greenfield accounts in the first quarter compared to any other quarter. We exited March with very strong procedural momentum and viewed the saline issue to be behind us. We feel very confident delivering another year of strong procedure growth. Our international business continues to build momentum in the UK. We are the first company ever to receive IDE approval from the FDA to enroll a randomized trial comparing surgical therapy against radical prostatectomy for prostate cancer. Lastly, based on current inventory levels and limited exposure to foreign suppliers, we believe the impact of tariffs on 2025 gross margins to be very manageable, and we have reiterated our adjusted EBITDA guidance for fiscal 2025. We believe these underlying fundamentals, the technology that is laying the foundation to become the BPH surgical standard of care, and a business that will be a leading global urology company. 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. At this point, we will take questions. Operator?

Thank you. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Matthew O'Brien from Piper Sandler. Your line is open.

Good morning, Brian. Can you guys hear me okay? Good, man. Oh, good. Excellent. Thanks for the questions. For starters, just would love to hear, and I think Sham kind of started to address it a little bit, but just love to hear a little bit more about the CapEx environment. It's coming up in every conversation I think everybody's having at this point in terms of the environment potentially slowing with Medicaid cuts, etcetera, but you just had your best greenfield quarter ever. So maybe just talk a little bit about what you're seeing in the market in terms of buyer interest in the system, and then conversion rates versus what you were kind of expecting if anybody is kind of slowing things down just given the environment or even canceling, you know, converting over. Just a bigger discussion on what you're seeing on the CapEx side because, again, I think it's getting quite a bit of attention. And then I do have one more question.

Hey. Hi, Matt. It's Sham. Thanks for the question. So I would start by saying, we haven't seen an impact when it comes to our capital interest in the hospital interest in acquiring Hydro's. We have daily conversations. Our pipeline is at an all-time high when we look at opportunities that have now entered the buying process for Hydro's. And so we haven't seen any material shift in the sentiment as far as the excitement around acquiring our technology. But one thing I think we're different. I mean, we're in a unique position. We're still early innings when it comes to the opportunity we have with a number of hospitals that still remain. We're talking about thousands of hospitals that still haven't acquired AquaBeam or Hydro's at this point. And we're continuing to build the pipeline. The other thing is due to the disruptive nature of this technology, due to the adoption with procedures, we now have patients demanding the technology. Surgeons, hospitals don't want to lose those patients. And we're in a unique position right now to continue to grow that pipeline. And the reimbursement supports the procedure as well. So there's a lot of things going in our favor, even in this environment. Last thing I'd mention is the relationship with IDNs continues to strengthen. We talk about this routinely. We're at a point now where we're being invited to corporate environments where we have the key executives at large IDNs talking to us about long-term strategy. All those things play into our favor over the course of this year and the future.

Got it. Appreciate that feedback. And then the second one is really on the handpiece side. That was really strong in the quarter. And I know there was probably some deferral of cases in Q4, and that's been difficult to figure this out. But how many of those may have gotten pushed from Q4 into Q1? Or are there other dynamics underlying this that are just even stronger in terms of maybe market share in certain geographies that are looking above what you had initially anticipated, again, given how strong the number was in Q3?

Thanks, Matt. This is Kevin. So you are correct. We did see some impact from deferrals in the fourth quarter, but those were largely offset by the saline impact that still lingered into January and February. So I would characterize that dynamic as net neutral for procedures in Q1, which really means the Q1 procedures are just driven by the strength of the business as opposed to backlog coming into Q1, which was offset by continued weakness into January and lingering into February. Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Craig Bijou from Bank of America Securities. Your line is open.

Good morning, guys. Thanks for taking the questions and congrats on the strong start to the year. I wanted to follow up on Matt's question on handpieces. And maybe ask in a slightly different way, but when I know you called out March as kind of getting back to normal, and I wanted to see if maybe you could provide a little bit more color on what the procedure volume growth was in March at least directionally versus some of the other quarters? And maybe how we should think about utilization in March and how that carries forward for the rest of the year.

Yeah. I'll start. Maybe I'll let Sham come in. But we were really pleased with kind of return to normalcy in March coming out of the January and February lingering impacts from saline. Moving forward, our guidance in Q2 and Q3 assumes very similar utilization rates to the first quarter, and then you get into the fourth quarter and you're looking at utilization that would be up over 20%, which would imply a full-year 10% utilization growth, which we think is fairly healthy keeping in mind how many new accounts that we're adding to the business in 2025, which we've consistently said is just a natural headwind to utilization.

I would just add, Craig, it's Sham that, you know, we continue to have great insight into daily procedures, number of new surgeons, surgeon retention rates, and exiting March into April, we're on track to where we want to be as far as launching new accounts, hitting the surgeon retention rates, and adding new surgeons at the rate we need to be to hit our forecast. Saline is behind us. I think March is the first month where we felt confident that that's a dynamic that's now gone, and we're now back in full swing as far as daily procedure rates.

Great. That's helpful. And I know you guys have talked a lot on this call about the multisystem orders for the IDNs, and you have been talking about it for a number of years now, and it seems like maybe there was an acceleration. And I know you guys I heard you guys mention Hydro's is one of the drivers, but I mean, anything else that's changed there? Like, it's great to see and I'm just curious as to what those discussions look like now versus where you guys were a year ago. And how should we think about that impact going in years going forward?

Yeah. I'll start by just really mentioning the kind of the current environment as adjusted or changed to kind of your question simply because hospital systems now can look back at existing programs they've had for years and versus it being kind of a vision of establishing an aquablation program. They can go back and look at the data and say, is this working? And so the fact that they can now look at their own hospitals, they can see what the reimbursement looks like. They can see how patient volumes are growing at the hospital. They can see that they're adding new surgeons because of this technology. All of those reasons are the reasons why they want to now have more strategic or corporate conversations. I will tell you that, you know, we've been having IDN purchases all along. It's now just becoming more of a partnership versus just taking one hospital at a time through the IDN. So the ability now to have those conversations will serve us really well over the coming years. That's the partnership I think we have with IDNs. You know, whether it's a bulk buy or one purchase at a time, this is more about the corporate level supporting their local hospitals, and that's kind of the evolution of the conversation that's happened.

Great. Thanks, guys.

Thanks, Craig.

Thank you. One moment for our next question. Next question will come from the line of Patrick Wood from Morgan Stanley. Your line is open.

Beautiful. Thanks, guys. I'd love to start actually this time on OUS. Obviously, anytime NICE supports a technology, the most stingy organization of all time, it always gets a lot of attention that way. And so, you know, great result there. I'm really curious, how you're thinking about resourcing OUS growing there because, obviously, it's a massive opportunity, and it's still incredibly early stage. So I'm just trying to work out, you know, there's a lot to go in the US as well, but how do you balance those? How do we think about the OUS ramp over the next three, five years, whatever?

Hey, Patrick. It's Sham. Thanks for the question. You know, we are very excited about the international opportunity globally. The one thing that we've spoken about in the past, and I'll just reiterate, is we want to do things the right way. And when we go to a market, we want to make sure we win in a big way. And we're early as a company. We've got a lot of opportunities. We want to be very disciplined in making sure that when we go to the country that all the boxes are checked. There's a lot of boxes that need to be checked to have a winning technology in many of these markets. So we've made the decision, via a lot of efforts we've made on getting good reimbursement, good support from NICE, as you mentioned, to focus on the UK as the next big market of ours. We've now continued to build the team there. And we have seen some great growth. We also believe the formula we're using in the US can be reproducible. So we're following a very similar structure and growth format that we had in the US. We've now taken that to the UK. The next market we'll go to is Japan. And outside of those three markets, we continue to do a lot of market development activities. We've got interest from well over 20 countries, significantly more than 20 countries, we decided not to go into right now because we want to support the markets we're in and win those markets. But that does serve very well for us in the years to come.

Beautiful. And then very quickly as a follow-up, the US side of things, obviously moving to, you know, a permanent code. We've got, you know, there was some noise this quarter around the physician fee. Any sort of updated thoughts on how you're thinking about the pro fee and then the cap change on the code side of things for this year?

Yes. So the rough process for the category one is complete. So the proposed ruling, we expect to come out this summer. We feel very good about our physician payment because this procedure is very similar to other resective procedures. So we anticipate this to be similar to other resective procedures. What's important is this does not impact APC level six, which is the, ultimately, the ROI to the hospital that remains at $9,200.

Love it. Thank you so much.

Thank you. One moment for our next question.

Our next question comes from the line of Richard Newitter from Truist. Your line is open.

Hi. Thanks for taking the questions. Just want to talk about kind of the concept of high volume, low volume or low to mid-volume hospitals? You mentioned, I think, that the proportion going into low to mid was about 50% and going into high volume was about 50%. You just remind us kind of what that ratio has looked like over the last one to two years so we can get a sense for whether you're at a point where maybe you're more reliant on medium to low volume accounts to drive higher utilization. And if that's a consideration that we should be thinking about, is it harder to get incremental utilization per account from here on? Or just kind of steady she goes is what you've been doing?

Yeah. Hey, Rich. It's Sham. Yeah. I think we think very differently when you think about utilization and when you think about the size of hospitals. The one thing that we've proven up to this point is if a hospital has a low or medium volume BPH volume, they acquire aquablation technology, we've seen significant increases in utilization. In fact, in many cases, turning them into high-volume BPH hospitals. And so, we're gonna talk more about this tomorrow, on our investor day, but this is something that actually has been very, very, very supportive for our hospitals to show they can move surgeons. They can move market share. This is what, you know, when you look back historically over the last twenty-five years and you see the most successful robotic surgery companies, this is what they've done. Most successful companies have been able to move market share by hospitals establishing robotic programs. This has been a great success of ours, and we have over 2,000 hospitals that are low and medium volume BPH hospitals. We're just getting started in. As far as your question on the shift, you know, it used to be about 70% of our hospitals were high-volume hospitals. Now we are starting to see a shift down in that because of the addition of low and medium volume hospitals. So, very exciting times for us, and we continue to validate that this technology is adopted by all.

Great. And just for Kevin on the tariff, a follow-up here. Is the message that you could potentially see up to 150 basis point gross margin headwind obviously if everything stays the way it is right now, but you offset that in the P&L such that further down the P&L such that, you know, the message is you absorb tariff headwind should it approach 150 basis points, or there is a potential 150 basis points risk to your reiterated EBITDA guide?

Yeah. I'll go through that, Rich, in detail here. So the impact we discussed today, it does assume that the tariff rate for imports from China stays at the 45% level. And this expense of $5 million max exposure would be weighted towards the second half of the year. Obviously, this is a very dynamic situation. I mean, we heard recent commentary yesterday that would be positive around this rate. But specific to your question, the $5 million impact would be a 150 basis point reduction from our 64.5% margin guidance if nothing else changed here moving forward. With that said, and to the second part of your question, even with this headwind, we are affirming our EBITDA guidance if margins trend even towards the low end. But the reason being is we have identified offsets in our operating expenses to mitigate a $5 million impact. So margins would be reduced, but the overall profitability of the company would be unchanged. At the end of the day, a $5 million impact is approximately 2% of our operating expenses. And we think as a management team, we could go find that to support continued EBITDA. And then lastly, I think, and it's important, we don't believe the current tariff environment would materially impact our pathway to profitability in the future here. We're working on a lot of things as we head into '26.

Okay. Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Brandon Vazquez from William Blair. Your line is open.

Hi, everyone. Thanks for taking the question. I wanted to go back to the IDNs first. And maybe ask a question a slightly different way. I'm kind of curious. What does the utilization in these accounts look like? And in part, I'm asking because it sounds like this is an effort that you historically used to go in, find one KOL, put yourself in the account, and expand from there. But now you're having from the top the corporate organization push this. Is there a difference in the rate of utilization? Is there a difference in the peak utilization or the just raw number of procedures that are coming out of these accounts? Curious on any dynamics you can talk about there.

Yep. Hey, Brandon. It's Sham. So I think that this is something that over time, we'll be able to hopefully give a lot more detail on. But I'll tell you that initially, it's still driven the same way, and I'll tell you why we think that there could be favorability to it in the future. Right now, it's driven by surgeons. Surgeons drive this technology. They get excited about it, and they come in from the physician office level finding patients and bringing them to the hospital. And patients find those surgeons that are doing aquablation. However, we do have IDNs that have patient navigation programs. These are employed, employees of the hospital network that work to educate the referring physicians on new technologies the hospitals offer. And that helps to drive this funnel of patients to drive more patients for aquablation. We have IDNs currently that are very interested in PROCEPT educating those nurse navigators, educating that pathway. And those are opportunities that exist from the corporate level. Exactly. That's an example of something I think can help utilization. There are other areas that we're talking to strategically also. But at the end of the day, you know, these decisions are surgeons' decisions. But anything that IDNs can do to educate and raise awareness is always helpful for utilization.

Okay. And as a follow-up to that, I'll throw two here because one's a follow-up to that question is basically, maybe the more blunt way to ask the question I was trying to ask is it looks like the goal of robotics often from your experience, in Intuitive, and then now what you want to do in PROCEPT is standardize. Right? You want to standardize to a certain care pathway. Do the IDNs, the increasing adoption of IDNs, to ask you more bluntly, may give you a clearer pathway to standardizing on process? And then separate unrelated question. Now that you guys have a second randomized control trial with WATER III, can you just spend a couple of minutes on what's the game plan here in terms of using this potentially for societies? Change guidelines, and then maybe open some new international markets? Thanks, guys.

Sure. Yeah. Hey, Brandon. I'll take the utilization question. I'll pass it over to Reza. So, you know, I think that, you know, what we're seeing on the IDN level is absolutely, you know, an interest in doing more on the utilization front. So, you know, I'll tell you that, you know, tomorrow, we'll talk more about it at our investor day. But these are all things that I believe ultimately will help aquablation become the standard of care. They do want to standardize at the end of the day, these are surgeons' decisions, but anything that the hospitals can do to help with training, help with education is going to help standardize the procedure. And those are the conversations we're having right now. We're making a big investment in the strategic accounts team to be able to support the hospitals. And that is definitely something that's on their mind is how do they get more aquablation procedures in their hospitals.

Related to your second part of the question, WATER III data were presented a few weeks ago in Madrid. As early as it is, but the initial response has been very positive. This was a randomized study against enucleation. And multicenter, multicountry net was shown with the 0% transfusion with similar efficacy results, but better safety outcomes. So this will definitely, will be in the future, get into the international guidelines and this further strengthens our clinical benefit to the population. So, definitely, as you said, and it will get the goal is to get into the guidelines.

Thank you. One moment for our next question. Our next question comes from the line of Josh Jennings from TD Cowen. Your line is open.

Hi. Good morning. Thanks for taking the questions. I was hoping to just ask about PRCT001002. Those results coming out I think you'll have twelve-month results on 002. And maybe 001 as well. But help us understand the plan just in terms of filing. I mean, WATER IV is gonna generate level one evidence. But in front of level one evidence, will PROCEPT move forward with filing for a general use tools claim for localized prostate cancer?

Yeah. Thanks, Josh. This is Reza. So we are very excited about the event tomorrow. I think more importantly is hopefully, tomorrow, we will answer recent questions about do we spread cancer, can we treat the lesion in different locations of the prostate, or can we treat in the peripheral zone or the transitional zone. And, why is this randomized against prostatectomy? So tomorrow, data, seventy patients, PRCT 001, 002 with three months, and six months data and fifty patients will be presented. Yes. We can potentially obtain a tool claim, but we know ultimately in order to our goal is to expand the market of prostate cancer. And that's why we have started WATER IV randomized study to against prostatectomy so that we can generate level one data in order to get to guidelines.

Thank you. One moment for our next question. Next question will come from the line of Chris Pasquale from Nephron Research. Your line is open.

Thanks. Wanted to follow up on tomorrow first and on reimbursement. You talked previously about some potential investment options you're evaluating to try and speed up the timeline for WATER IV, not to get ahead of ourselves and what we're gonna see tomorrow. But what are your latest thoughts on the enrollment timeline for that study?

Yeah. We can provide a lot more detail tomorrow, but we've been consistent in stating that, you know, kind of unencumbered, you know, this would be any approximately a twenty-four-month enrollment. I think we think a good result is to try and, you know, shorten that by six months, and that's the we're talking about. But we're gonna give an update tomorrow kind of on timeline. But you should think of this as an eighteen to twenty-four-month enrollment.

Okay. That's helpful. And then could you just talk about the practical implications of the LCD changes and what you think that does to your market opportunity within geographies represented by First Coast and Novitas?

So as I mentioned, the prepared remarks, you know, removing some of those obstacles definitely streamlines the patient pre-workup, you know, the removal of age, the minimum void, impacting patients with retention. And the measurement of the prostate size. These are all the obstacles that are removed. And definitely, age is now removed on all MACs. But the other two, we believe this could be a precedent for the other MACs to remove that the way they have to measure the prostate using transrectal ultrasound. All of this will facilitate the using the technology on patients.

I just Chris, I just add that I'm not sure everybody understands that not every urologist owns a transrectal ultrasound in their office setting. And so their ability to use transrectal ultrasound is not in question, but their ability to have access to it can be a challenge. So that's a big one. And then Reza touched on the other one, this is, you know, the more these are all smaller wins, in the sense of, like, one at a time. But when you add all these small wins together, it becomes a big win because then these surgeons don't think of this as a, you know, workup nightmare, so to speak. It becomes way easier to schedule patients.

That's helpful. Thanks.

Thank you. One moment for our next question. Our next question will come from the line of Mike Kratky from Leerink Partners. Your line is open.

Hi, everyone. Thanks for taking our questions. Have you seen any shift in the typical prostate size where aquablation is being used as physicians get more and more familiar with the system or as they've incorporated it into their practice broadly? Whereas Hydro's has started to roll out. And then maybe just a follow-up. Can you share any feedback that you hear from your customers on surgeons' perceived value proposition of aquablation across different prostate sizes in BPH?

Yes. So the distribution curve that we have been showing in the last couple of years remains similar. So it's and the majority of our prostates that are treated are below a hundred milliliters, so that distribution curve has not changed. Do you want to talk about the value proposition?

Yeah. One of the big benefits of aquablation is, you know, you don't always know what size the prostate is gonna be when you go into surgery. I think that surgeons are consistently doing their best to gauge what they're dealing with. But you get in the Operating Room, and many times, they're surprised by what they're dealing with. And the aquablation therapy technology allows you to treat prostates of all sizes, consistently, efficiently, and with good consistent outcomes that we just saw. We just saw with a randomized study with WATER III. So I think what you're gonna see now is many surgeons who felt like they needed to refer out large prostates. Many surgeons who felt like they maybe needed to go get trained on a technique for large prostates, surgeons that were doing prostatectomies, etcetera. Those are patients that I believe they now have the data. They now have the support. To show consistent results with aquablation therapy. We've had this data for a long time. There's over 50 peer-reviewed journals, but this WATER III study continues to validate the randomized data we're investing in is very consistent across the board. So I think we'll see this continue to be a big benefit for us long term.

Super helpful. Thanks very much.

Thank you. One moment for our next question. Next question will come from the line of Nathan Treybeck from Wells Fargo. Your line is open.

Hi. Thanks for taking the question. Hey, Kevin. I just wanted to clarify something you said earlier on the ASP. I mean, I think going into the year, you expected about $3 million from system replacements. Can you just clarify like, the ASP differential between replacements and greenfield? Thanks.

Yeah. So it's an interesting dynamic, and it's gonna vary based on the age of the system. So for example, we did have one replacement in the first quarter. But given the age of that AquaBeam system, the pricing wasn't terribly different than to a new greenfield account in the quarter, which is why we didn't separately call it out. And that dynamic, I think, is fair if your AquaBeam is, I'll call it, three plus years old, and then we obviously are offering some type of trade-in discount. But we haven't been specific on what that is. This is gonna vary from customer to customer. It's also why we incorporated a full-year system revenue number into guidance to kind of help everyone back into what a replacement could look like.

Okay. That's helpful. And then on the prior just deferred procedures, exiting, I think in Q4 you had 2,000 procedures that were deferred. You talked about some lingering impact in January and February. I guess where does the deferral stand today? And over what time frame can you recapture these procedures?

Yeah. It's really difficult to say with absolute certainty. At the end of the day, the 2,000 procedures that 2,000 procedure maximum that we felt were deferred in the fourth quarter, they're a small part of the 52,500 procedures we're gonna do here in 2025, but we would expect these to kind of be coming back throughout the year. I mean, BPH is an elective procedure. And therefore, backlog procedures are probably just likely to filter in evenly throughout the year.

Thanks.

Thank you. One moment for our next question. The next question comes from the line of Michael Sarcone from Jefferies. Your line is open.

Good morning, all, and thanks for taking the questions. Just a follow-up on the capital equipment environment. Can you maybe give us an update on where you stand in terms of the duration of a typical sales cycle these days? It doesn't sound like you're seeing any changes, but would love an update there. And then maybe comment on what kind of visibility you have into the funnel?

Yeah. Hey, Michael. It's Sham. So no changes as far as the sales cycle, six to nine months. Continues to be a typical sales cycle. You will see some things move faster. You'll see some things go, you know, a little bit longer depending on budgetary kind of constraints. But six to nine months is a fair thought as far as when you think about our pipeline and how quickly we can move through. I apologize. What was the second part of your question?

It's the I could take it. Just kind of visibility into the funnel and I mean, specifically, we haven't seen any change in conversion rates. We haven't seen any change in fallout, and it's been very consistent over the last twelve to twenty-four months.

Got it. Thank you. And then just for the follow-up, maybe just give us an update on the competitive environment in BPH and what you're seeing, you know, where are you taking share? Maybe any commentary on what your, you know, the latest and greatest on the prostate artery embolization front.

Yes. So I'll address the PAE first, you know, PAE has been around for more than twenty-five years and typically done by radiologists. Efficacy is similar to non-resective, but the issue over there mostly on durability, and the data show that have about twenty percent retreatment at one year. So these are obvious barriers, so we don't see that as a competition. As far as new where we take market share when we ask the question, you know, the answer we typically get is definitely we have said in the past, is TURP, green light, and for larger prostates, definitely enucleation. New technologies that are coming onboard what we see, mostly, are various forms of non-resective procedures. So this is what we are seeing. On the resective side, we are not aware of anybody coming up with a technology or running a clinical study on the resective side.

Great. Thank you.

One moment for our next question. Our next question will come from the line of Ryan

Morning. Thanks for taking the questions. Just a clarification on the capital sales, Kevin. I think last quarter, and correct me if I'm wrong, the 210 unit guide was separate, the $95 million specifically. Was separate from the $3 million replacements. And is the $3 million now included in the $95 million? I just want to be clear because at $210 at $435,000 apiece, I mean, you're coming in at, like, $91 million and change.

Yeah. So it's correct. And so the $3 million would be incremental to the 210 to get you to the $95 million system guide. Yep.

But was that the case last quarter, Kevin? Because I know Yeah. Yeah. As I interpreted it, it wasn't. I may be mistaken.

Yeah. Sorry. It was the same last quarter, but we did not guide a total revenue number. We just wanted to clarify that on this call, but nothing has changed in terms of our expectations.

Okay. And then just to be clear, I think this was asked, but, again, I apologize. I'm just trying to get some clarification questions. The 2,000 procedures that were deferred, you're not assuming or you are assuming that those were fully recouped in the first quarter?

No. We are not assuming that. What we're saying is we would suggest that any deferrals from Q4 into Q1 were largely offset by the saline impact that we saw in January and February. So we would consider that impact negligible in the first quarter. And if they were to come back, we feel that they're gonna come back throughout the year. Not in any one given quarter.

Okay. Very clear. Thank you for the clarification.

Thanks, Ryan.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Reza

Yeah. Thanks for attending this meeting. Hope to see you tomorrow at our event and see you in the future conferences. Thank you very much. Have a nice day.