Procept Biorobotics at Leerink Conference: Strategic Growth and Challenges

On Tuesday, 11 March 2025, Procept Biorobotics (NASDAQ: PRCT) presented at the Leerink Global Healthcare Conference 2025, detailing their strategic initiatives and outlook for the year. Despite facing challenges such as saline shortages that impacted their Q4 2024 performance, the company is optimistic about its growth trajectory, driven by new product launches and international expansion.

Key Takeaways

• Procept Biorobotics experienced a shortfall of up to 2,000 procedures in Q4 2024 due to saline shortages but expects a full recovery by mid-March.
• The company aims for a 40% year-over-year revenue growth in 2025, with plans to place 210 systems in the US.
• Gross margins are expected to improve, reaching 65% to 66% by the end of 2025.
• Procept is expanding into the prostate cancer market, with ongoing trials and potential FDA discussions in 2027.
• International expansion is a key focus, particularly in the UK and Japan.

Financial Results

• Saline Shortage Impact: The company estimated a shortfall of up to 2,000 procedures in Q4 2024 due to saline shortages, with recovery seen in February.
• 2025 Guidance: Procept plans to place 210 systems in the US, expecting a 40% revenue growth year-over-year, and aims to exit 2025 with over 700 systems installed.
• Gross Margins: Ending Q4 2024 at 64%, Procept anticipates margins of 65% to 66% by the end of 2025, with annual improvements of 100 to 200 basis points.
• R&D Spending: R&D is projected at about 25% of sales in 2025, with an additional $10 to $15 million allocated for prostate cancer initiatives.

Operational Updates

• System Placements: Procept ended 2024 with 500 installed systems and targets 2,700 hospitals in the US for receptive BPH surgery.
• Hydro System Feedback: Over 95% of Hydros procedures utilize the FirstAssist AI feature, offering potential ROI due to the single-use scope.
• ASC Pilot Program: Consists of one ASC in the US and one in Canada, both showing positive volume and clinical outcomes.
• International Expansion: The UK accounted for over 50% of international business in 2024, with continued focus on Japan.

Future Outlook

• Market Expansion: Procept aims to expand beyond receptive surgery into other urological indications, including prostate cancer.
• ASC Expansion: Increasing numbers of hospital customers are sending patients home the same day, creating more ASC opportunities.
• Margin Improvement: Long-term gross margin targets are set at 70%.
• Manufacturing: The company is exploring offshore manufacturing alternatives in the future.
• Commercial Strategy: Evaluating the need for a sales representative in every case.

Q&A Highlights

• Saline Shortage: The CFO provided a quantitative analysis of the procedure shortfall due to saline shortages.
• Competitive Landscape: Procept focuses on transitioning existing surgeries dominated by TURP and Greenlight laser.
• FDA Approval Pathway: The WATER 4 trial is FDA approved and pivotal, potentially leading to discussions in 2027.

Procept Biorobotics’ detailed strategic plans and ongoing trials underscore its commitment to growth and innovation. For a more in-depth understanding, readers are encouraged to refer to the full conference call transcript.

Full transcript - Leerink Global Healthcare Conference 2025:

Mike Kraki, Senior Med Tech Analyst, Leerink: Alright. We can kick things off. Awesome.

Alright. Well, thank you all for joining. My name is Mike Kraki, and I’m the senior med tech analyst here at Leerink. Today, I’m really pleased to be joined by Procep CFO, Kevin Waters. Kevin, thanks for joining.

Kevin Waters, CFO, ProcepT: Good. Thanks for having us. Appreciate it, Mike. Awesome.

Mike Kraki, Senior Med Tech Analyst, Leerink: So I mean, we can just jump right into questions. But probably a good place to start is on the fourth quarter. You reported 4Q a few weeks back, some largely expected pressure from the impact of the saline shortages. Would love if you could just revisit that and some of the other key drivers for the quarter’s performance in more detail and how 1Q performance has progressed versus your initial expectations so far?

Kevin Waters, CFO, ProcepT: Yeah. So we did spend quite a bit of time on our call going through the Saline impact in the fourth quarter. We did estimate up to a 2,000 procedure shortfall due to the Saline shortage. We provide a range, 1,000 to 2,000 procedures. And we did a very thorough analysis at the end of the quarter, both qualitatively.

We surveyed accounts. We surveyed our reps. Remember, we’re in every case. So we do have a high degree of visibility in the in the loss procedures just through that metric. But we also did want to look at it quantitatively.

So we did an analysis as to what our q four normal ordering patterns would be. We understand seasonality a certain impact, and that is where we saw up to 2,000 procedures. And the third part of that equation, this is important, is we lost growth from not launching as many accounts in the fourth quarter as we typically would. For example, the sales we made in the third quarter of our robotic systems, the majority of those were not even installed in the fourth quarter due to sales and chores. So we lost some growth there as well.

Regarding q one, and and this is where where the news turns a little bit, we did see the impact linger into January, and January was impacted. However, we had a very strong February. And not only do we have a strong February, but it feels like we’re back to normal sitting here now in in mid March. We have a high degree of visibility into our our procedures. Procedures look strong on a per account basis.

We’re also launching a record number of accounts in the first quarter. And this is really gonna be the first quarter that I think we’re going to get to see the momentum from launching our new robotic system in the first quarter

Mike Kraki, Senior Med Tech Analyst, Leerink: here. Fantastic. So after another solid year of 30% placement growth with 190 systems, can you provide a sense of where the growth is coming from in terms of is AQUA ablation capturing disproportionate market share from certain alternative surgical procedures? Or is the underlying market growing enough to support growth across multiple surgical procedure types?

Kevin Waters, CFO, ProcepT: Yeah. So we’re we’re really generating growth from both aspects of our business in in ’25. I mean, first is capital. And, we’re ending 2024 with an installed base of 500 systems. We plan to sell another two ten, two hundred plus systems here in ’25.

And that growth is being driven by both existing high volume, receptive BPH hospitals, which is fantastic to see. But we’re also seeing low and medium volume hospitals that previously were not doing a lot of receptive surgery, adopting our technology, contributing to growth. The nice aspect with those low and medium volume hospitals is we’re not seeing really any differences in utilization on those systems. In fact, they’re very similar to the profile of a high volume account. So we’re definitely seeing growth there on capital.

Regarding procedural market shifts, that’s been very consistent. I mean, we continue to see 70% of our procedures being performed on prostates, a hundred grams or less. The other 30% are procedures where there’s just not great alternatives. You get over a hundred grams, the treatment modalities available in BPH have some very serious adverse safety profile consequences. And therefore, we’re we’re the obvious choice there.

Regarding future market dynamics, we do believe we are positioned to become the standard of care in the resectus space and ultimately expand the market.

Mike Kraki, Senior Med Tech Analyst, Leerink: Great. Yeah, super helpful. Maybe just sticking with the competitive landscape on that side, it sounds like one of your competitors recently announced their intention to separate their urology business alongside a challenging four key print. Any thoughts on how this could impact the market dynamics and provide incremental opportunities for you to take share?

Kevin Waters, CFO, ProcepT: Yeah. I mean, I’m not going to comment specifically on kind of any competitive companies and and and what they’re doing internally. Our our focus remains on cannibalizing existing receptive surgeries, and and those are dominated by TIRP and and the Greenlight laser. And for the next twelve to twenty four months, our strategy is to make significant inroads there on a competitive standpoint.

Mike Kraki, Senior Med Tech Analyst, Leerink: Understood. And going back to utilization, one thing that I know we and others have tried to parse out a little bit is just the evolution of the low versus what you characterized as the high volume centers historically. So how do you think about growth from here in terms of driving adoption and utilization among those different types of accounts?

Kevin Waters, CFO, ProcepT: Yeah. I mean, we believe with what we’re seeing that the 2,700 hospitals in The US that do receptive BPH surgery are are great targets to launch an aqua ablation program. And back to my earlier comment, we’re really not seeing any differences in procedures or procedure growth in these low and medium volume hospitals. The reality is these low and medium volume resect of hospitals, you shouldn’t think of them as small hospitals. The reality is they just didn’t have a great option to treat their BPH patients, and therefore, they were referring out their BPH patients.

And with Acoablation, this is a great way to retain those patients and to retain surgeons that perhaps would have went and practice somewhere

Mike Kraki, Senior Med Tech Analyst, Leerink: else. Understood. So maybe turning to the 2025 guidance, you’re guiding to two ten systems in The US with 40% revenue growth year over year in 2025. How should we be thinking about the building blocks of growth within that, particularly around the price of the hydro system and the handpiece revenue as that flows through to the premium versus the legacy Okabeam?

Kevin Waters, CFO, ProcepT: Yeah. So regarding growth drivers, our business is pretty simple. We sell capital, we launch accounts, we train surgeons, and we drive utilization. And each one of those has different levers that we think we can help influence the outcome. And when you think of capital, our guide does imply 10% unit growth in 2025.

This would suggest us exiting The US market north of 700 systems installed. But that is a 42% increase in our installed base year over year. And it’s that growth in our installed base that really gives us a lot of conviction in our ability to drive procedures. So new accounts have an outsized impact to procedure growth, and that’s gonna continue for the foreseeable future, which is why it’s so important to continue to focus on greenfield opportunities given how underpenetrated we still are in The US. To your question regarding capital pricing, it definitely is up modestly since we launched Hydros.

We have two quarters now where ASP has been in the $4.40 to $4.60 range. Our guidance does imply something in the $4.30 to $4.40 range for 2025. And that is not reflective of any shift we see in customer ordering patterns. It’s really just sticking with our philosophy of being conservative on price, making sure that we don’t limit ourselves and our ability to sell systems because of ASPs. Because at the end of the day, it’s much more important to get the system placed in a timely manner than to get another $10,000 to $20,000 on ASP.

But directionally, we still feel very good about Hydros average selling prices.

Mike Kraki, Senior Med Tech Analyst, Leerink: Understood. So why don’t we jump in on Hydros then? So 2025, full first year of launch, important year as you continue your rollout. For those new to the story, can you just provide a high level overview or what you’ve heard so far in terms of your account feedback on the differentiation that Hydros brings to the table versus AquaBeam?

Kevin Waters, CFO, ProcepT: Yeah. So it’s early, and it’s important to remember the majority of procedures performed to date commercially are still on our AquaBeam legacy system. Now it’ll start to shift as we launch more Hydros accounts in the first and second quarter. With that said, the initial feedback on Hydros from customers has been very encouraging, I’d say particularly around the first Assist AI feature. So previously, the the treatment algorithm did not have any ability to help the surgeon interpret ultrasound and help plan a procedure.

We now see over ninety five percent of our Hydros procedures commercially using the the FirstAssist AI feature, which is great. I think that would be the number one positive point of feedback that we’re getting from surgeons there. But we’re also getting other feedback from folks within the hospital system. You know, both hospital staff, when you think of nursing staff and setting up our system and the workflow around Hydros, that is much more intuitive than the current system. So you’re you’re seeing now hospitals that perhaps that have dedicated aqua ablation nursing staff being able to parse that out to to other folks within the hospital, which ultimately should drive more procedures.

Now we’ll we’ll have to wait and see. We don’t have any evidence of that yet, but instinctively, you would think that would drive more procedures. And that’s great feedback from the staff. When you talk to a hospital CFO, I think the the ROI on Hydros, even though it’s at a higher price, it now comes with a single use scope that says we’re processing costs. It’s anywhere from a hundred to $200 per procedure.

And I think Hydros also has the ability to attract multiple surgeons within a hospital where AquaBeam, given it was a first generation device, was never meant to be the robotic platform for mass adoption. And I think the hospital administration is now viewing Hydros as that product.

Mike Kraki, Senior Med Tech Analyst, Leerink: Got it. Maybe to jump back to that quickly. So I mean, you mentioned the price range that your guidance implies. In terms of what that means for purchasing patterns or as you are have optionality in some of the larger IDN customers, how are you thinking about how that could play into your longer term pricing strategy or even just your ASP for this year?

Kevin Waters, CFO, ProcepT: Yeah. So just to remind everyone, our primary goal is to maintain flexibility to sell capital to ultimately do procedures. And we want to get a fair price for Hydros, but we we just want to maintain that flexibility, which is one of the reasons we guided to four thirty to to four forty on on the system. And that that’s gonna continue to be variable quarter to quarter. I don’t think the large IDN dynamic has material downward pricing pressure.

And I think there’s definitely more room over time to go up than down on the Hydros robotic system, particularly as we think about adding new features and continuing to innovate on that platform. Regarding Hydros handpiece average selling prices, to get to the second point of your question, they are higher than the current AquaBeam price. But remember, we’re launching the majority of Hydros accounts in ’twenty five. And while 100% or 95 plus percent of our account sales in ’twenty five will be Hydros, Eighty percent of our procedures will still be on the legacy system. So even though we are getting a uplift with pricing, we’re not really gonna see that manifest itself to higher average selling prices on the consumable really until 2026, and think of that increase in the in the low single digits.

Mike Kraki, Senior Med Tech Analyst, Leerink: And is that that low single digit increase, is that for 2026 on kind of the apples to apples basis, or is that for this year maybe a low single digit?

Kevin Waters, CFO, ProcepT: No. I I would suggest that that’s more of a ’26. We guided a relatively flat ASPs on our handpiece pricing in ’25.

Mike Kraki, Senior Med Tech Analyst, Leerink: Understood. Super helpful. Maybe just from a manufacturing and CapEx standpoint, are there any gating factors to fulfilling Hydro’s demand fully? Or are you pretty well set up in terms of scale and manufacturing availability?

Kevin Waters, CFO, ProcepT: Yeah. Just in terms of capacity, we have no constraints. We have plenty of capacity to build robots and handpieces. Remember, we moved into a new facility in the fourth quarter of twenty twenty three. That facility is roughly four times the size of our previous facility.

So so no capacity constraints there and really no capacity constraints to help expand margins as well. I think longer term, we’ll start thinking of alternatives, whether that’s offshoring manufacturing or things of that nature. But our near term ability to achieve profitability to expand margins is not reliant on any capacity changes or any changes in how we produce the product

Mike Kraki, Senior Med Tech Analyst, Leerink: today. Got it. A few more on the commercial strategy. So you mentioned some of the areas of differentiation for Hydros. In terms of having a sales rep in every case today, how do you think about the evolution of that strategy going forward and your ability to to wean reps out of those cases?

Kevin Waters, CFO, ProcepT: Yeah. I wanna start by saying, our reps being in every case is not a gating item to profitability. So if in perpetuity we were to choose to be in every case, that still would not impact our pathway to profitability. If you look at our operating expense leverage today, while we’re in every case, it’s it’s actually pretty good where we’re growing revenue at about two times the rate of operating expense growth. And as of right now, we’re committed to being in every case.

And we’re seeing nice productivity from our utilization team. And I personally think it’d be a mistake to remove ourselves at this stage in the growth curve. However, if if you think about Hydros and and with that launch, I definitely think that system architecture lends itself to surgeon independence in a much more meaningful manner than than AquaBeam. And there are accounts, I think think the latter half of twenty five, we’ll we’ll start to to test this to to a certain extent. We have a great European business where we’re we’re currently not in every case there.

We have great key opinion leaders that we know are are very comfortable doing this procedure, independent. So long term, to be the standard of care, to be the market share leader, it’s impractical for us to be in every case. And we understand that, but we also don’t think doing that sudden or doing it right away would be the right decision. So we’re gonna continue to evaluate it. Our guidance in ’25 assumes we’re in every case.

And again, we’re going to start to look at this towards the back half of the year.

Mike Kraki, Senior Med Tech Analyst, Leerink: Understood. And when you’re thinking about the placements for 2025 and beyond, how are you identifying the centers where you think there’s the highest value, whether it be centers of interest or accounts where they could be particularly well set up to need one of your systems? How do you identify those accounts?

Kevin Waters, CFO, ProcepT: Yeah. So the 2,700 hospitals that do surgery in The US, we we have bifurcated that market into higher volume hospitals. And we spent the beginning part of this call talking about our success in low and medium volume hospitals. But at the same time, we’re still not fully penetrated in the 860 high volume hospitals in The US. I think we have a long way to go there.

Those that is still the low hanging fruit. The low hanging fruit is the hospital that’s currently doing over 200 resected procedures a year. They’re they’re doing a lot of cases. They probably have multiple surgeons offering multiple modalities. That that is still our target and our focus in 2025.

But at the same time, we are picking up these low and medium volume hospitals. I think another great target for us are our IDN relationships. You know, IDNs represent a significant portion of those high volume hospitals. Over the last three to four years, we’ve done a great job of working with IDNs at the local level. And where we have surgeon support, they’re using local funds.

But what we’re seeing now is we’re getting the attention of corporate. So corporate is seeing those hospitals perform. They’re seeing what AquaBlation is bringing to their program. And we have now implemented a strategic accounts team to really start working both from the bottoms up, but also now more from the tops down with our with our idea and strategy.

Mike Kraki, Senior Med Tech Analyst, Leerink: Got it. Maybe beyond that, I’d love to hear your latest thoughts on understanding the ASC pilot program. Any learnings from that? And how do you think about that opportunity moving forward?

Kevin Waters, CFO, ProcepT: It’s early. I’ll I’ll start by saying that, the pilot program consists of one ASC in The US and and one in Canada. So it’s it’s not a a vast, trial we’re doing here. I will say both are performing very well from both the volume and a clinical outcome standpoint. Obviously, in an ASC environment, the patient needs to go home the same day.

You know, we felt comfortable enough with some of the data we’re seeing from from our hospital physicians sending patients home the same day to start to pilot that, in the ASC. But again, back to our strategy in 2025, it remains on penetrating the hospital side of service. We’re we’re we’re very pleased with the growth that we’ve demonstrated over the last three years, But we also realize we’re this is early innings in terms of kind of where we’re at with penetration, our ability to continue to grow. And the the focus is gonna remain on the near term hospital opportunity, but I I can see us placing another handful of ASCs sprinkled out here and there throughout 2025 to continue to evaluate this program.

Mike Kraki, Senior Med Tech Analyst, Leerink: And I think on a longer term basis, based on your initial learnings, is that something that you still have confidence in? Or is it, you know, early innings and a little bit tough to say?

Kevin Waters, CFO, ProcepT: Well, it’s early innings, but I think we have confidence. Right? I mean, I I definitely back to same day surgery, we are we are seeing a larger percentage of our hospital customers now sending their patients on the same day. I think as Hydros gets rolled out and with the first Assist AI feature, you start to have even greater reproducible and predictable outcomes that could lend itself, more meaningfully than ASC environment. And just, you know, over time, we do think this could be a procedure that could shift to an ASC to expand the market.

There is always gonna be resected procedures done in the hospital. There’s 300,000 resected procedures done. Our thought about going into the ASC is not to cannibalize those procedures and move them to an ASC. It’s to get the patients that perhaps would feel more comfortable in an ASC environment to go to an ASC environment. Perhaps it’s surgeons that would be more incentivized to do a procedure, take men off drugs in a in a sooner manner if they had a different operating environment.

That’s how we’re thinking about the ASC as a market expansion strategy versus cannibalizing the hospital resected market. Got

Mike Kraki, Senior Med Tech Analyst, Leerink: it. Another part of the story, you know, again, probably early innings, but has been your OUS business. So how should investors be thinking about that as a potential growth driver moving forward? And what are some of the inflection opportunities that you have moving forward there?

Kevin Waters, CFO, ProcepT: Yes. So the near term opportunity for us internationally continues to be The UK. UK represented over 50% of our international business in 2024. I think that holds again in 2025. We’re seeing great momentum there with both selling robots at great average selling prices, and we’re seeing good procedure growth as well.

We’re also direct in The UK with a direct sales force. So near term driver for us internationally will be primarily The UK. We’re also though in 2025 gonna start to make some inroads in Japan. So we’ve placed our first few systems in Japan in the back half of twenty four. We’ve invested in both the clinical and direct sales team there.

That’s a market that, like The UK, I think we could get great average selling prices. I think Japan is a market, in my experience, always relies on on great clinical data, which we have, and, high quality, which we have. So I I think Japan is gonna be a market that we’re gonna do very well in. And in the near term, I continue to think about international as about 10% of our business, which on an absolute dollar basis is great given how fast we’re growing in The US.

Mike Kraki, Senior Med Tech Analyst, Leerink: Understood. Maybe beyond that, it seems like the next opportunity on the horizon that more of our investor discussions have started to call out have been on the prostate cancer side of the world. So would love to hear how you’re thinking about that broadly and any expectations ahead of the upcoming AUA conference.

Kevin Waters, CFO, ProcepT: Yeah. So let me let me talk a little bit about what we we plan to do here at AUA. And that’s gonna be an exciting event for ProcepT as this will be the first year we actually present cancer data results from AQUA BLASION. So we we have two trials that we have currently been running, which are PRCT001 and PRCT002. We are gonna present data at AUA showing our seventy patients in both of those cohorts.

We’re going to present safety data, so data around incontinence and sexual dysfunction, particularly erectile dysfunction. And we’re also going to show efficacy data and what that looks like. And on top of that, I still think there’s healthy skepticism out in the market given how new we are, given what a new entrant we are into the prostate cancer market, about our ability to treat. And whether that’s in the transitional zone or the peripheral zone, we constantly hear from investors who get feedback from clinicians that they don’t think aqua ablation could be a viable option to treat prostate cancer. And I think that’s normal and healthy, and it’s just early.

And we’re going to spend some time at AUA walking investors through why we think we are going to be a great option for prostate cancer. At the end of the day, Procep would not have embarked on this journey if we didn’t have a high degree of confidence that we had a viable alternative to treat prostate cancer.

Mike Kraki, Senior Med Tech Analyst, Leerink: I appreciate that and looking forward to that conference. In terms of the timeline for your next key data readouts or potential label expansion prostate cancer from your pivotal study, can you help us understand that a little bit more?

Kevin Waters, CFO, ProcepT: Yeah. So I would suggest under normal circumstances and let let me clarify what we’re we’re I’m gonna speak to here. So this is our WATER four trial, which is a randomized trial against radical prostatectomy, aqua ablation versus radical prostatectomy, two hundred and eighty patients. In a kind of a normal operating environment to enroll one of these trials would take around twenty four months. And if you use that timeline and think about what that means for approval, given we started enrolling patients in Q1, that would suggest enrollment should be complete at the end of twenty six.

We have a six month safety endpoint with FDA, which would assume we could be talking to the FDA kind of in a very collaborative fashion throughout 2027. And perhaps that could lead to some type of indication in the back half of twenty seven or early twenty eight. And to be clear, the indication that Procep would be seeking would be a specific indication to treat prostate cancer, which no other modality has today. The modalities that companies have today are what are known as a tool claim, which is a claim to resect prostate tissue, not to treat prostate cancer. And we think given our relationship with the FDA, given their support of Water four, given given the FDA, given us breakthrough device designation, we think there is definitely a recognition of the unmet clinical need, out there for prostate cancer, but that would be the timeline under our normal environment.

At Procep, what we’re trying to do is influence that to the best of our ability. And we do think with some additional investments, we could perhaps pull that timeline forward twelve six to twelve months, somewhere in that range, and you could just work backwards from there.

Mike Kraki, Senior Med Tech Analyst, Leerink: Okay. Yeah. That’s super helpful. And maybe just to clarify quickly there, did the agency give you the green light on that as a pivotal design? You know, they’re supportive of that study design being, you know, enough or sufficient for an FDA label?

Kevin Waters, CFO, ProcepT: Correct. So the the this is just to be clear, there there’s a there’s trials out there today that are randomized trials, but I believe we’re currently the only FDA approved trial right now in in prostate cancer comparing us to radical prostatectomy.

Mike Kraki, Senior Med Tech Analyst, Leerink: Got it. Okay. Well, looking forward to stay tuned on that. Maybe moving to the profitability side, historically, I think you’ve alluded to 65% gross margins being kind of a relevant threshold that you could think about for turning the corner on profitability. Maybe just kind of highlight where you left the year this year, what you’re thinking about the exit rate for 2025, and maybe how you’re thinking about how gross margins could evolve from here?

Kevin Waters, CFO, ProcepT: Yes, 24% for us was transformative. And we ended Q4 at 64% and really 24% for us was the proof point to show that we can expand gross margins in such a manner that with increased revenues, with continued operating expense leverage, this could become a profitable business. With that said, we’re not happy with 64%. Our guidance in in ’twenty five suggests we’re going to exit the year somewhere in the 65% to 66% range. And and I would view kind of the margin improvements over the next twelve to twenty four months as more the 100 to 200 basis points annually as opposed to kind of the significant shift we saw in 2024.

And to be fair, we’ve talked about getting to margins, this business today, margins to 70%. But I think if you run any type of longer term model, you’ll find that this business could be highly profitable at 65 plus percent margins. And then when we think longer term, there are things we think we can do, and whether that’s handpiece design, whether that’s offshore manufacturing, to continue to improve on on margins. But at the same time, I I’d suggest margin expansion is no longer the gating item to profitability. It’s discontinued revenue growth.

Mike Kraki, Senior Med Tech Analyst, Leerink: Got it. Super helpful. You know, you mentioned the the higher prices. Is there anything else beyond that in terms of specific initiatives to lower the cost of manufacturing that you think are gonna come into play in a more meaningful way moving forward?

Kevin Waters, CFO, ProcepT: Nothing we’re, like, willing to to share at this time. We’re definitely always looking at it at improvements, particularly on the disposable side. The the capital margins kind of they are what they are at this point. There’s not a lot of, I would say, r and d work that can go into our system to lower the cost there. But on the handpiece itself, it’s it’s a very complex disposable.

And, you know, we’re definitely looking at how we can simplify that over time. But again, these aren’t things that are necessary to get us to profitability at all.

Mike Kraki, Senior Med Tech Analyst, Leerink: Got it. You mentioned R and D. Can you talk a little bit about how investors should be thinking about the trajectory of both R and D and SG and A from here and your degree of being able to get more operating leverage? Yes. So I’ll speak first just in totality.

And again, our operating expense growth moving forward here, the right way

Kevin Waters, CFO, ProcepT: to look at it is about half the rate of growth in revenues. I think that’s something that’s very achievable at this point in our commercial trajectory and something that we could hold ourselves accountable to here in the near term, the next two to three years. Look, some years it may be 2.2, another year maybe 1.8. But in general, you know, think about our business as having a two to one operating expense leverage ratio. And what that would mean for r and d would mean that r and d as a percent of sales would need to come down over time.

I mean, our ’25 guidance implies r and d at about 25% of sales. That does include an incremental 10 to $15,000,000 for the the prostate cancer initiative and and getting folks enrolled and staffing that up. And over time, for a business that continues to be innovative, that continues to want to be at the forefront being a robotic technology, we should settle somewhere in the mid teens, three, four years down the road, r and d as a percent of sales.

Mike Kraki, Senior Med Tech Analyst, Leerink: Got it. And really helpful. And maybe just in terms of the adjusted EBITDA margin expansion part of the story. I mean, all those things taken together, how do you think about where this business could land moving forward?

Kevin Waters, CFO, ProcepT: Yes. It’s probably too early to promise an EBITDA margin. What I will say around EBITDA is when you look at current consensus estimates, the expectations for this business to be right around EBITDA breakeven in the fourth quarter. And we haven’t guided any quarter in particular, but I think those models would be consistent with our remarks of cadence of profitability throughout the year. And this is not a business that at scale is gonna struggle to be profitable.

It’s not a business that once we turn the corner, we’re gonna hover around EBITDA breakeven or or, you know, bounce back and forth from year to year. And that’s just due to we have a great margin profile, we have great average selling prices, and we’re already demonstrating significant operating expense leverage. And when you when you put that together in a revenue growth business north of 40%, you could generate, I would say, some outsized EBITDA comparables. I think our challenge is gonna be, where do we wanna continue to invest that EBITDA growth in the business to continue to drive revenue growth. And then that’s a balancing act, and we’ll be cognizant and thoughtful as we move forward.

Mike Kraki, Senior Med Tech Analyst, Leerink: Understood. So I know we’re down to under two minutes. So maybe just penultimate question here. Any other catalyst that you think investors should be particularly cognizant of beyond AUA this year? You know, what’s going to be the most, you know, something to keep an eye on for investors?

Kevin Waters, CFO, ProcepT: Again, back to our business and the simplicity, it’s it’s selling capital and it’s it’s doing procedures. And I think those are the two things, you know, that that are critical. And we we we don’t lose sight of that. Again, we’ve had we’ve had a ton of success, but you’re only as good as your last quarter. And and we we we know that.

And we’re highly focused on making sure that we capitalize on the large opportunity in front of us. And, you know, the management team, we talk about it every day, making sure that we continue to sell capital, making sure we continue to expand utilization in our existing accounts. There’s just so much room for growth still here that we’re we’re not happy. You know, we’re not here to become the standard of care in the receptive surgical space. That to me, that that should be a given With the the technology we have, we’re really here to expand the market, pull men off the sidelines, expand into other indications, and really become a global player in urology.

I mean, that that’s the end goal here.

Mike Kraki, Senior Med Tech Analyst, Leerink: Perfect. Well, Kevin, this has been incredibly helpful. So really appreciate the time today. Thanks so much for joining us, and thanks everyone for tuning in.

Kevin Waters, CFO, ProcepT: Great. Thanks, Mike. Appreciate you.

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