Procept Biorobotics Corp (PRCT) 2021 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to PROCEPT BioRobotics fourth-quarter 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 from Gilmartin Group for a few introductory comments. Please go ahead.

Thanks, operator. Good morning and thank you for participating in today's call. Joining me from PROCEPT BioRobotics are Reza Zadno, CEO; and Kevin Waters, CFO. Earlier today, PROCEPT released financial results for the quarter ended December 31, 2021. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meanings of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including without limitations those related to our sales and operating trends and future financial performance, expense management expectations for hiring or growth, market opportunity, revenue guidance, commercial expansion, the impact of COVID-19 on our business, and future product development and approvals, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements.

Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 5, 2021, and available on EDGAR and in our other public reports filed periodically with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast, March 8, 2022. PROCEPT BioRobotics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise.

And with that, I will now turn the call over to Reza.

Thanks, Matt. Good morning and thank you for joining us. For today's call, I will provide opening comments and a business update, followed by Kevin, who will provide additional details regarding our quarterly results and initial 2022 guidance before opening the call to Q&A.

Before moving to our quarterly results, I want to recognize the outstanding performance of the PROCEPT team. Revenue for the full year was $34.5 million, which is almost a 350% increase over 2020 and was ahead of our expectations coming into the year. 2021 was also a milestone year for PROCEPT as we became a public company, providing us with the capital to better serve our patients and continue on our mission of becoming the standard of care in the surgical BPH market, all of this accomplished under circumstances that have been unprecedented in my career. These achievements would not be possible without contributions across the board from our employees, our shareholders, and importantly our customers. I am truly humbled and just want to thank each and every one of you.

Now turning to our quarterly revenue results. Consistent with our preannouncement on January 11, total revenue for the fourth quarter of 2021 was $10.1 million, which came in the high end of the preannounced range and above our Q4 revenue guidance of $8.7 million to $9 million. In the fourth quarter, US AquaBeam system revenue was $5 million. US handpiece and consumable revenue was $3.4 million, and total international revenue was $1.4 million. Despite some COVID headwinds later in the quarter, we continued to see strong physician interest as we trained more surgeons at the existing accounts, resulting in increased utilization.

While we are still very early in our commercial launch, we believe our robust clinical data, outstanding real-world patient outcomes, supported by our recently published five-year data and rapid early adoption, indicate that hospitals, surgeons and patients see the benefits of our robotics system and that we are on the right path and our strategy is working. One key factor contributing to our ability to implement our commercial strategy has been our success in hiring talented and experienced field-based sales personnel. Specifically entering 2022, we have approximately doubled our field-based commercial team compared to 2021. Even the number of high-quality employees hired in the back half of 2021, we believe our strong commercial momentum will carry through in 2022, especially as we ended the year with what we believe is a robust pipeline of new targeted accounts.

Let me first start by addressing two topics that have had a broad scale impact across the medical device industry. First, being COVID. While we recognize the macro impact of elective procedures due to increased COVID cases and staffing shortages in the United States, we saw a negligible amount of customers and patients affected in the fourth quarter, primarily in the month of December. As a result, our ability to exceed our plan was relatively unaffected, both on the handpiece and system revenue.

Exiting December, we did see incremental headwinds in January associated with the Omicron variant and its impact on procedure volume. We have seen in the past 40 days a return to more normalized operating environment. In the absence of new strain or some unforeseen situation, we remain optimistic that COVID-related disruption to our business for the balance of 2022 will not be significant. This said, we continue to monitor our accounts very closely and are pleased with the momentum we are seeing on both utilization and system sales quarter to date.

Second is the disruption associated with the global supply chain. As we indicated in our Q3 earnings call, we made a decision to increase our inventory levels and believe we have sufficient material on hand to meet our current demand. We are also actively working with our manufacturing partners to ensure adequate product on hand in order to meet our robust growth forecast. While we do not expect supply chain issues to have an impact on our ability to meet our revenue plans, we continue to increase inventory levels for certain components to mitigate any future risks and are working closely with our suppliers.

Now turning to quarterly business updates. Our goal was to double our commercial team by the end of 2021 to put us in position to execute our 2022 commercial growth plan. And we have been successful here. Even with the tight labor market, we continue to see a strong interest from highly experienced medical device sales professionals, which gives us additional confidence in meeting our hiring and growth objectives in 2022.

As we continue to expand our commercial footprint and educate hospital systems on Aquablation therapy's superior clinical data, we have partnered with various integrated delivery networks or IDNs. Specifically, we announced on January 19 that Atlanta's prestigious Northside Healthcare System had five AquaBeam systems installed in every one of their state-of-the-art surgical facilities. We continue to be encouraged by our ongoing discussions with large IDNs across the country and are excited about the future opportunity to partner with them.

Additionally, a few weeks ago, we received a positive coverage policy decision from CareFirst, an independent licensee of the Blue Cross and Blue Shield Association, which increases Aquablation covered lives by roughly 3.5 million. As a reminder, as of January 2021, Aquablation therapy have positive coverage policies from all seven Medicare administrative contractors, making Aquablation available for Medicare patients nationally, which we estimate to present about half of all hospital-based resective procedures. We also have positive private payer coverage from Anthem Blue Cross Blue Shield, Humana, Health Care Service Corporation, Blue Cross of Massachusetts, Emblem, and Cigna. In 2021, we have seen significant momentum in AquaBeam robotic sales, and we believe that is directly related to increase coverage and our core strategy of targeting high-volume hospitals.

Next, I would like to provide some color on our recently announced positive five-year WATER data. As a reminder, WATER is the only prospective randomized, double-blind, multi-center, FDA pivotal study comparing the safety and efficacy of Aquablation therapy to TURP. This study proves Aquablation's superior safety due to low irreversible complications and also superior symptom relief for prostates in the range of 50 to 80 milliliters.

Diving into the data, at five years, IPSS score improved by 15.1 points in the Aquablation group compared to 13.2 points in the TURP group. However, in a prespecified analysis for men with larger prostates between 50 to 80 milliliters, IPSS reduction was 3.5 points greater across all follow-up visits in the Aquablation group compared to the TURP group, demonstrating statistically significant superiority. Improvement in peak urinary flow rate was 125% and 89% compared to baseline for Aquablation and TURP, respectively. Lastly, the recovery treatment defined as returning to BPH medication or requiring a surgical intervention was approximately 1% per year for Aquablation, which compared favorably to TURP arm where the risk was approximately double.

Based on our five-year WATER data and real-world experience, we believe Aquablation therapy is poised to become the treatment of choice for BPH and believe it does not require compromise between safety and efficacy. This study reinforces the durability of Aquablation therapy, and we believe this data set further differentiates Aquablation from alternative therapies and will allow our salesforce to better educate and train our surgeons on Aquablation therapy. We also anticipate the five-year WATER data will be well received by payer community. Many of the large payer policies have used five-year published data to establish coverage for other BPH surgical approaches introduced in the market in recent years. Our five-year data have already been submitted to several of large national and regional plan, and we believe this could be impactful as they update their coverage policies.

Due to difficulty in predicting timing of additional coverage, our 2022 revenue guidance does not assume incremental coverage in 2022. However, we remain committed to making Aquablation therapy available to all men in the United States. While we do not assume incremental coverage from large commercial payers in 2022, I would like to comment on utilization and procedure trends we have seen in 2021.

First, we believe the majority of Aquablation procedure volumes are converted TURP cases. From an account level standpoint, we are seeing quarterly sequential increase in utilization from our accounts as we believe surgeons are becoming more comfortable with not only the technology but being able to treat a broader range of prostate sizes and shapes. This is a trend we expect to continue in 2022. Lastly, while still early, we do believe patients that were on the sidelines for going surgical intervention are being introduced to Aquablation therapy as they see the benefit of a solution that our studies show is durable, safe and effective.

Before I hand it to Kevin, I wanted to also inform everyone that PROCEPT will be hosting an investor event in May at the American Urological Association conference in New Orleans. We feel this will be a great opportunity to feature some top Aquablation surgeons to speak about their experience and take questions from investors. In April, we will provide more detail around the event.

With that, I will turn the call over to Kevin.

Thanks, Reza. As Reza highlighted, PROCEPT's revenue for the fourth quarter of 2021 was $10.1 million. The increase is primarily driven by US revenues, including both system sales to new hospital customers and increased handpiece revenue. In the US, we sold 14 AquaBeam systems of which 10 were to new customers. AquaBeam system average selling prices were slightly above $350,000, which is flat sequentially and in line with our expectations. Our ending fourth-quarter US installed base was 78 AquaBeam systems.

Prior to obtaining Medicare coverage in January 2021, we did place numerous AquaBeam systems under our evaluation agreement as compared to a direct sale. Of the 78 systems in our installed base, we still have approximately 10 systems under these evaluation arrangements, which is down from 20 as of September 30, 2021.

We are encouraged that roughly 70% of system sales in the fourth quarter were to new accounts that previously did not have an evaluation unit. We expect new accounts to comprise the majority of system sales moving forward and expect to be near zero systems under our evaluation agreement by the end of March 2022 in the US.

Turning to handpiece revenue. US handpiece revenue was $3.4 million compared to $2.2 million in the third quarter of 2021. Handpiece revenue growth was driven primarily by increases in monthly utilization measured by handpieces sold per account and increased average selling prices. We shipped approximately 1,200 handpieces in the US in the fourth quarter, with monthly utilization greater than five handpieces sold per account.

International revenue for the fourth quarter was $1.4 million. Gross margin for the fourth quarter of 2021 was 44.5%. I also want to highlight that at current procedure volumes, handpiece gross margins are slightly lower than capital equipment growth margins.

Total operating expenses in the fourth quarter of 2021 were $21.3 million, compared to $13.7 million in the same period of the prior year, and $17 million in the third quarter of 2021. This is primarily driven by increased selling, marketing, and general and administrative expenses to expand our sales organization and increased expenses associated to supporting a larger, growing public company.

Net loss was $18.3 million for the fourth quarter of 2021 compared to $15.3 million in the fourth quarter of 2020. Our cash and short-term investments balance as of December 31 was $304.3 million while our long-term borrowings totaled $50 million. We believe the capital raised during the IPO and our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business.

Moving to our financial guidance. We expect first-quarter 2022 total revenue to be in the range of $12 million to $12.5 million. Going into more detail, we expect a meaningful increase of AquaBeam Robotic System sales in the US compared to the fourth quarter of 2021, of which approximately 80% will be to new accounts. As mentioned previously, we expect the number of US demo units to be near zero by March 31.

The total number of handpieces sold in the first quarter of 2022 is anticipated to increase modestly compared to the fourth quarter of 2021 due to a larger installed base. Due to our success in rapidly expanding our installed base with new accounts, we expect utilization to be down modestly compared to the fourth quarter of 2021. As Reza mentioned, new account utilization increases over time.

On an annualized basis, we expect full-year 2022 total revenue to be in the range of $54 million to $58 million. As our commercial team scales and matures, we expect the number of AquaBeam units sold to increase sequentially throughout the year.

Regarding system average selling price trends, we expect pricing to be in the $345,000 to $355,000 range. While we realize the nice utilization uptick in the fourth quarter of 2021, we expect full-year 2022 utilization rates to be up modestly from 2021 levels as we expand our US installed base with new accounts throughout the calendar year. Our 2022 guidance also does not assume any benefit from incremental private insurance coverage. Regarding handpiece average selling prices, we expect pricing to be in the $2,800 range for 2022, which is slightly above fourth quarter of 2021 pricing of $2,700.

Lastly on revenues, we expect international revenue to be approximately 12% to 13% of total revenues. Moving down the income statement, we expect gross margins to be in the range of 47% to 49% and operating expenses to be approximately $105 million, of which approximately $12.5 million is stock-based compensation expense. Lastly, we expect full-year 2022 adjusted EBITDA to be in the range of approximately negative $63 million to $60 million.

At this point, I'd like to turn the call back to Reza for closing comments.

Thanks, Kevin. In closing, I just want to again thank our employees, customers and shareholders for what we accomplished in 2021. We have made tremendous strides since the pricing of our IPO, and I'm confident the best is yet to come. It's just a privilege to be a part of a technology that can positively impact the lives of millions of men throughout the world.

We look forward to continued growth in 2022. Have a great day. And at this point, we will take questions. Operator?

(Operator Instructions) Craig Bijou, Bank of America.

Congrats on the great quarter, great finish to the year, and guidance that is above expectations. It's tough in the current environment. So congrats on that. I wanted to start with the system placement expectations for 2022 and appreciate your comments about the sequential improvement, but maybe wanted to dive a little bit deeper into what you're seeing from the pipeline and kind of the confidence that you have that you can grow system placement sequentially, especially with a focus on the new accounts.

Yeah, thanks for the comments, Craig. This is Kevin. So given we are fairly far through the first quarter, we are seeing a high degree of confidence in our ability to execute on the sequential increase in capital in the first quarter to the fourth quarter. And importantly, it is that pipeline that we feel very good about with new accounts. Our sales team is highly focused on the over 850 high-volume hospitals in the US, and we're seeing a significant number of those in our funnel. And again, given with where were at in the first quarter, we have a high degree of confidence about a meaningful increase of AquaBeam Robotic sales in the first quarter compared to the fourth. And as I said in the guidance, we do expect that to grow sequentially throughout the year as that sales force doubling that Reza mentioned really comes to fruition in the back half of the year.

And then maybe following up on just some of the insurance coverage comments and the five-year data. So I wanted to ask specifically, you have two big payers that are still out there. Wanted to see if there's any color on any discussions with them, if you expect them potentially to come on board in 2022. And then really just ask a little bit longer term how much of an accelerator to the business are -- would it be to add United and Aetna?

This is Reza. Yes, it's correct. We do not have coverage from United and Aetna. But as we mentioned in our comments for 2022 guidance, we do not assume that coverage to be in place in 2022. Like many carriers, United did not physically indicate the policy and what they were waiting for. We believe the only information left is the five-year data that you have seen we published, we submitted.

So as you know, United is about 45 million covered lives, Aetna is about 22 million covered lives. So from a percentage point of view, as you know, we have said the high-volume hospitals grew about 200 cases per year or 17 per month. So today, with primarily Medicare patients, we have access to roughly half of those. Out of 17, 8.5. So by bringing United and Aetna, we will have very close to all those -- we will have access to all of those 17 per month per account.

Amit Hazan, Goldman Sachs.

This is Phil on for Amit. Was hoping we could circle back to the utilization comments around handpieces. Appreciate such a strong quarter. I'm hoping, Kevin, maybe you can parse out the amount of dilution that's coming from these new systems that are coming on versus what's going on at an underlying level for existing accounts. If you could kind of talk to the sort of assumptions that you've made around where existing accounts versus new added accounts from the year are going to end up shaking out.

Yeah, it's a good question. And right now, obviously we have a limited history of sales to accounts. But if you look at our fourth-quarter results, you see that the average number of handpieces sold per account in our fourth quarter was north of five. And I would say that if you look at the vintage of sales for PROCEPT, the accounts that purchased prior to 2021 and even the accounts that purchased in Q1 of 2021, those accounts are already doing north of five on average. So they're obviously pulling up the average.

And as we bring in all new accounts to our installed base, it does take time for those accounts to get to those utilization levels. That could be anywhere from four to five quarters is our expectation right now. But the primary factor in utilization only being up modestly is that significant expansion to our installed base and those accounts just building utilization over time.

Would you say that there was some level of prebuying that happened in 4Q for accounts? It seems like even on average that the numbers should shake out to a little bit more than what average utilization was on the quarter.

Yeah, our procedures track fairly closely to handpieces sold. I wouldn't call out any large stocking orders in the fourth quarter that drove up the number of handpieces sold.

And the last one, I'm wondering if the evaluation units have been something of an impediment from a time and investment standpoint for you all. And as we think about kind of the environment post these evaluation systems that there might be a bit of a lift just in terms of allocation of resources. Is that a fair comment?

Yeah, I mean, look, the evaluation program had its time and place prior to us having Medicare coverage. And as we've said, the last few quarters, we're no longer offering this program. And we do believe that by selling a system, we have the full buy-in of the physician, the reimbursement team, the hospital administration. And we do see utilization in accounts where we sell a robot significantly greater than when we had a demo unit. And therefore, I wouldn't call it a drive on the organization, but I definitely believe that our selling model moving forward as a straight sale is going to be our preferred method that's resonating with our customers.

Chris Pasquale, Guggenheim.

Congrats on a nice finish to the year, guys. Was wondering if you can give an update on how many reps you exited the year with across the robotic and Aquablation groups in the US and where you'd like to be at the end of this year.

Yeah. So Chris, we had said I think preliminary in our S-1, we had 10 robotic reps and 10 Aquablation reps. And Reza's comments indicated a doubling of that salesforce, so that would be an appropriate number to use for where we are entering fiscal 2022. But the other thing I would point out is our OpEx guide of $105 million does assume that we have the ability to add both incremental robotic and Aquablation sales reps in the back half of the year. We are not going to comment today specifically on those numbers, but we do have an increase built into our plan to add reps in the back half of the year, such that we can hit the ground in 2023 with a salesforce that's ready to go and capitalize on all the happenings that we expect this year.

Okay. And then you mentioned that physicians are getting more comfortable over time using the system on a broader range of prostates. Do you have any visibility today into which your average prostate size is in the case that you guys are involved in, or maybe another way just to say would be the percentage of cases where physicians are reaching for Aquablation because they don't think other approaches available to them are really appropriate for the patient versus really using it as a true replacement in patients where TURP would also be an acceptable option.

So this is Reza. So I want to mention that a few of our accounts have converted most of their resective procedures to Aquablation. And as they use the product, they become more comfortable. When they start, they use it in a -- start with maybe about 70 milliliter or above. But as they become more comfortable with the procedure and the technology, they use it in all cases. In fact, we have seen some accounts that standardized their resective BPH protocol, and that's what's driving our utilization. Again, we have a range of accounts that are using most of their resective procedure. If I have to guess, it would be maybe average 70 milliliters. But again, we have it all over the map because the outcomes are the same.

So the accounts, if -- where they use the technology is mostly converted TURP procedure. But because the outcomes as we showed in our FDA trial, whether it is for large prostate or small prostate, the outcomes are the same. They start using in all sizes.

Danielle Antalffy, SVB Leerink.

This is Erin on for Danielle. I was just hoping that you could maybe talk about the IDN agreement in Atlanta. Is this something -- I think you guys mentioned that you're going to continue to focus on that. I was just wondering if you guys could talk about how you've seen the utilization in the IDN system.

Yeah, this is Kevin. I'll take that. So Northside Atlanta has been a great customer for us. They placed their first system over a year ago and now have installed four additional robots across their state-of-the-art facilities, as Reza mentioned. And it's a good account. I wouldn't suggest that their utilization is anything different than any other high-volume hospital in terms of utilization. But to speak around IDNs, we are working with multiple IDNs. Our guidance in 2022, it's not dependent on a material number of these IDNs being executed.

With that said, there are a fair number of IDNs that fall within these 850 high-volume resective hospitals that we are targeting. And I would also point out that on IDNs, our ability to sign contracts, that provides us with access to these hospitals. And what it really does is it makes the sales process much more efficient and much more predictable on the capital side. So it's not as if you sign and IDN and then all of a sudden, you're going to sell 10 robots within that system. But what it does do, it allows our sales team access to the account and again, for that process to be much quicker and get through the administration quicker. And really, that's what we are focused on in 2022.

And then I guess just to follow up on that a little bit. Have you guys noticed any trend with the COVID surges and staffing shortages? Have you guys seen any impact in capital sales? I mean, obviously you guys had a strong quarter, but wanted to see if you guys have noticed kind of any issues of access or anything like that.

So definitely, we recognize the macro impact of COVID and staff shortage on elective procedures, but that impact in our case was negligible and we were able to exceed our plan. But we have seen that COVID did not have impact on our capital sale. Ending the year around December, we saw some headwind from COVID and through maybe January. But really in the last 40 days, we are seeing it back to more normal operation mode. So absent of any new variant, we do not believe this will have meaningful impact for us going forward if there's no new variant coming in.

(Operator Instructions) And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Reza Zadno for any closing remarks.

So I want to thank everyone for listening to our earnings call and thanks for the questions. And we look forward to providing more information in the future. Have a nice day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.