Good morning. My name is Craig Bijou, one of the med tech research analysts here at B of A. And want to introduce, and it's a pleasure to have PROCEPT BioRobotics with us today. And from the company, Reza Zadno, CEO; Kevin Waters, CFO; and Matt Bacso, VP of IR and Business Operations. So, thanks for coming, guys. Thanks for having us. Thank you. Maybe want to start, you know, we're not too far removed from Q1 results. You saw, obviously, a very strong Q1, another revenue beat and raise, as I think you've done, I believe, each quarter since going public. System placements were strong. Utilization is expected to increase sequentially. You're taking price on systems and handpieces. So, you know, maybe just talk about some of that momentum, what you're hearing from the actual, you know, urology community, and, you know, kind of on your path towards, you know, standard of care to resective BPH procedures. Yeah, thanks, Craig. Thanks for inviting us. Really pleasure being here. We are very grateful for the working relationship we have with Bank of America. Again, thanks. It's great to be here. It has been a great start to the year with the announcement we had and results we presented on Q1. As you pointed out, we are seeing durable momentum underlying in our business. As for your question about the clinicians, we are very happy. All the indicators point in the right directions. When we look at the Net Promoter Score, we have the world-class Net Promoter Score. When you look at the retention rates are very high. With the utilization, all of those point in the right direction, that the surgeons who buy our technology, they like it, and all of that is truly because of the clinical outcomes. So all of those point in the right direction. As far as the progress we have made on the, for example, pricing, we saw an increase in Q1 of 2024 on the robot, compared to the Q1 of 2023. And we were also able to slightly increase the price of the handpiece in January of 2024. As you mentioned, we have been very clear that our long-term goal is to become the standard of care for the resective treatment of BPH. But as the guidance shows for 2024, we are talking about 33,000 cases in 2024, and that is still very early, so we have a long ways over there. But the momentum we have built, we are very happy about it, and I believe we are on our journey to fulfill our vision. Great. Thanks. Thanks for that, Reza. And, I mean, maybe talking specifically about utilization. So utilization in the quarter grew 7% year-over-year. I think, Kevin, you've said utilization's going to go up sequentially throughout the year, which, you know, does imply some year-over-year growth, but maybe it's a little bit of a step down when you kind of look at what utilization was the prior year. So, you know, maybe starting there, and, I'll get into a little bit more detail, but, you know, starting from that point, you know, is that just conservatism, or how should we think about kind of the metrics that you've laid out for guidance and what that means for, for utilization? Yeah, yeah, fair question. And look, I, I think our history, as Reza alluded to, would suggest that, you know, we've been able to beat and raise essentially every quarter as a public company. And when you look at our utilization guidance, it is, it is a very sensitive metric, as you're aware of. And when we look at it at a 30,000 ft level around surgeon engagement, surgeon retention, new accounts coming up the utilization curve faster than previous accounts, we feel good directionally about where that is going. With that said, I think you're alluding to kind of the year-over-year utilization growth being lower on a full- year basis as compared to Q1 and Q2. And when we look at that, it, it's really indicative of Q4 of 2023 being so strong. The fact that that was the largest utilization quarter in the company's history, you know, I didn't think it was prudent to base kind of guidance off of the highest run rate ever in the company's history. But we feel good about the metrics. We feel good about our ability to get to the 33,000+ procedures in 2024. Got it. I know you track utilization pretty closely. I get a lot of investor questions on what the utilization is in the specific cohorts- Right ... of when they're placed. So, you know, maybe if you can just kind of frame what you're seeing from utilization on some of the older systems. You know, where—how far are they above kind of the average? And then, you know, when you think about adding a new system today, what's the utilization uptake, and how does that compare to maybe what you did a couple years ago? Yeah, so let's just think of the cohorts, and we look at it the same way when we forecast internally, 'cause the longer you've been in an account, the more procedures you do. So without getting into specifics of each quarterly cohort, maybe in general, what I'll say is, at the end of 2022, we had approximately 170 systems in the U.S. To put that in perspective, we plan to exit this year north of 500. And when we look at those 167 accounts that were installed at the end of 2022, their utilization is significantly above the corporate average of kind of six to seven, right? So that's a proof point where we're growing utilization over time, both on the surgeon level and then still adding new surgeons to that account at that account level to drive utilization. So we definitely see that trend being up and to the right. When we look at new accounts, you know, those new accounts today are following a very similar pattern, but we'd suggest it's somewhat accelerated compared to accounts that we installed earlier in our commercial adoption. A lot of that's just due to general awareness, surgeon awareness. Typically, when we first launched this product, we would be happy to have one surgeon perform Aquablation when we launch an account. Now, we will not even launch an account typically with only one surgeon. So there, there's interest from multiple surgeons within a hospital, and we are still seeing that it takes about three to four quarters for a new account to get up the utilization curve and get to that corporate average. Keeping in mind that first quarter we sell a system, they may do zero procedures, 'cause it does take 30-60 days to launch an account as well. Got it. Thanks for that, Kevin. And then, maybe last one on utilization. You know, what, what's the ceiling for you? You guys talked about the high-volume hospitals. They do about 18 procedures per month. I know you're going into the high volume, but you're also going into, you know, the lower- Yeah ... volume BPH centers. But it's a question, you know, investors have, you know, what is that? You know, if you want to be standard of care, can you get to that 18? Yeah. Is that too much to expect, and where, where should we think about, you know, what portion of that you can get? Yeah, so 18 is the national average. Some accounts are higher than 18, some accounts are lower. So we have granular data on hospital by hospital, what those numbers are. As you mentioned, low volume hospital, historically, we're not doing that 18 per month. But what we have seen, although about 30% roughly of our accounts are low and mid-volume, their ramp is similar to high-volume centers. So we see their utilization is increasing beyond what they were doing in the past. When hospitals purchase our robot, their goal is to increase the number of patients they bring to the, to their account. We partner with them. We don't do direct to consumer ourselves, but we partner with our hospitals so that they can increase the patient flow. Ultimately, you know, in 2019, there were 300,000 resective procedures done. Ultimately, our goal is to bring those 1.1 million patients who have failed to medication or 6+ million patients who are on medication. That is our ultimate goal, to expand beyond these 18. Yeah, and then we're not prepared to give any guidance past 2024 today, but just on utilization, what I do wanna point to is where consensus is in 2026. It assumes roughly eight procedures per month. And I think what's nice for us is that we already have multiple proof points and multiple accounts of physicians and accounts doing well north of expectations. So we're at a point now where we feel with our commercial team, we can go replicate the success we've had in the hospitals. And, you know, theoretically, it's hard to predict what that ceiling could be, but I think our ability to continue to have this outsized growth isn't dependent on us doing 17 a month in each account with having, again, multiple proof points of where folks expect us to be in two years. Got it. And I will get to capital, but maybe jumping around a little bit, but I want to talk about profitability and what you guys saw in the quarter, 'cause it was pretty impressive. So, let's just start with the gross margin improvement in the quarter. It was 56%, you know, 500 basis points above last year. You raised guidance by a point on the low end. So obviously, it came in, you know, it sounds like it was better than your expectations. So maybe just talk about some of the efficiencies that you saw on the gross margin line in the quarter. Yeah. So for us, our primary efficiency is absorbing our fixed costs. So one of the things we're very proud of at PROCEPT is we've built this business to become the standard of care. And to do that, you make investments, particularly around operations. You think of the last few years with supply chain challenges, many companies were disrupted by that. We were fortunate to bring in kind of a great leader in our operations team from a large robotic company, who's spearheading our efforts there. And we've built a base to support not just 30,000 procedures, but 100,000+ procedures. And to do that costs money, and I think what we're seeing in the first quarter now for the first time, is us really leveraging those fixed costs over a much larger revenue base. The fact that is the primary driver for us to improve margins makes that journey more predictable because it's solely based on the volume we produce. We're not reliant on cost reductions. We're not reliant on outsourcing manufacturing to get to longer term margin expansion. That's point one, and then point two, if I look back at 2023, in addition to kind of building that infrastructure, we also moved facilities. So we moved to a facility that was four times larger than our current facility. And while there was disruption there, it's a very hard thing to do, to move facilities, and I think we managed it very well, but there was some disruption. You saw that in the fourth quarter. We told investors that was gonna be a one-time, and I think Q1 again is a proof point that was one time, and we feel good now moving forward. Got it. And maybe on gross margin, maybe just think about, you know, help us think about what the ultimate gross margin is for the company. You know, what's peak margin or peak gross margin? Yeah, so we've talked about this business, we think, can get to 70%+ margins. We haven't given a timeframe around that. But again, if you look at kind of what our guidance implies for 2024, it does imply to be in the high 50s. It implies that you need to be exiting the year north of 60%. So I think exiting this year is gonna be a critical moment for the company to show that very clear pathway to profitability. And while 70% margins is the goal, I actually don't think that's necessary to get to profitability. I think this business at 65%+ you could support a business that could be profitable. And again, for us, it's all about our revenue expansion as opposed to any type of specific cost reduction initiatives. Just remind us, systems versus handpiece gross margin. You know, how do we think about the differences? Yeah, so for us, handpiece margins, they're modestly higher relative to systems, but and longer term, handpiece margins will be much higher at scale, but kind of 5-10 percentage points higher. We actually have some very nice margins on our capital, and our capital is not a significant drag on margins. And at the same time, our disposable is a fairly complex disposable. This isn't a disposable that's 95%+ margins. There's some complexity there just in terms of manufacturing and what we're providing to the customer. So for us, the biggest driver of margins, again, is overhead absorption, as opposed to shifting to more consumables versus capitals. That helps, but I would say that's a secondary lever, not primary. Got it. And I wanted to quickly ask on operating margin. Just, you know, I think you made a commitment to keep operating expenses relatively in line. You raised revenue guidance, but operating expenses stayed the same this year. So maybe just talk about your path to. You did mention profitability, but talk about path from operating expense and where you can see some leverage. Yeah. So, we feel really good, I'll say today, growing revenue at 2x the rate we're growing operating expenses. So I actually feel if we kept that leverage in perpetuity, we'd have a very successful, profitable company. With that said, longer term, I actually see additional leverage points in the business, and it's around two areas primarily. So first is R&D. R&D today as a percent of sales is somewhere in the 28%-30% range. That's high. We recognize that, but we also recognize that we wanna continue to innovate. We're a robotic company, and therefore, we're comfortable with those investments in 2024. But over time, R&D should settle into the low- to mid-teens. We're never gonna be kind of a 5%-10% R&D of sales, but think of us more in the 12%-15%, and that's a huge leverage point as we move forward. The other leverage point is our sales and marketing team. As utilization increases, as our case coverage diminishes, you're gonna see the investments that we need to make in sales and marketing to drive incremental revenue, particularly around procedures. That'll be another leverage point for the business. With all of that said, if 2024 was the worst leverage ratio, I still think carrying that forward gets this business to profitability. Got it. Just on the R&D pipeline, can I get you to tell us anything on what- Yeah- You're doing? I mean, is it- I mean, no- It's software, hardware? Like, no, no is the short answer, right? I mean, we do spend quite a bit of money on R&D. We've been very intentional, not discussing plans for obvious reasons related to commercial disruption. I'll say this: 99% of our R&D spend is focused on our current system in BPH, improving that system around workflow, improving that system around assisted planning. We're very much aware that our system today is a first-generation system. With that said, if we made zero improvements to the clinical outcome of our system, I still think we have a very clear pathway to become a standard of care. So this is all about workflow improvements and platform improvements to allow us to continue to innovate. Think of Tesla, where we can push updates to the customer routinely, so they feel like they're continually getting value. I think a next type of system would focus on those types of improvements. Got it. Wanna shift to capital, and, you know, I thought it was interesting on your call, you talked about an improving hospital CapEx market, which obviously is a—I read as a bullish sign. But, you know, what specifically have you seen within the market that gives you that confidence that, you know, one, that you're gonna see an improving hospital capital environment? Yes, always challenging to talk about capital because there's no data that I could provide to support my statement. But what we see is more the tone and sense of urgency during those conversation and discussions that we are having with the administrators of a hospital. We are seeing improvement over there. And also in Q1, we saw large IDNs funding capital purchases. That did not happen in the entire 2023. These are the indicators that give us confidence about an environment that's improving, and why we believe this environment is improving. Got it. And you know, Reza, you mentioned the IDN, and it seems like you guys are leaning into the IDN strategy. You added a strategic account team. And I guess when did that kind of team really get started? And you know, from a higher level, what does a strategic account team get you, and if we think about it relative to what you had in the past and- Yeah ... you know, going forward versus what you had in the past? Yes, so the IDN team started in the latter part of 2023. In Q4, we already saw the results of some of their work in the Q1 of 2023. The IDN team, their approach is top-down versus a traditional capital rep, whose goal is to identify the surgeon champion. So it's important that these two work well together from top down and bottom up, so that you do not have... I mean, ideally, ultimate goal is to increase utilization. What you don't, this is a holistic approach that you sell the robot in multiple from the surgeon all the way from the top.... What you don't want to happen is, for example, sell 10 robots, and you haven't identified which surgeons are there to use it. So their goal is to start from top down. Yeah. And I thought. I think it's interesting that you talked about improving utilization within those accounts, too and that that's part of the, you know, the, what this account team, the strategic- Yes account, account team can do. So I guess from an incremental perspective or incremental contribution, maybe, you know, a little bit of color on what that adds. You know, does it add more systems? And then how are they improving utilization within the IDN? So when you are dealing directly with IDNs, again, it's important that you have the funding available from the corporate. So that's the job of the IDN executive to obtain that. But at the same time, you want to sell the entire program and have the surgeon champion ready to use the robot on a broad range of prostate sizes. So this working together is what we have been working on, so that when these multiple bulk buys happened, there were surgeons ready to use them. So this is what we mean by optimizing the utilization. Okay. And we are seeing that in every account we go, we start with 2-3 surgeons, and their ramp is faster than what we had seen prior year, and that's all the bottom-up approach, while the IDN executive is working top-down. That's helpful. Thank you, Reza. We have about 10 minutes left. With the rest of the talk, really want to talk about your market expansion, your TAM expansion opportunities, and I think you have several. So let's start with the ASC expansion. You announced a pilot program. One system was placed in the first quarter. So maybe just talk about the strategy there and how quickly, you know, we can see or how quickly are you guys trying to pursue that opportunity? Yeah. I'll take ASC because I'm sure cancer's coming next. Yes. Yeah. So, first off, to be clear, I mean, the move at ASC is not a change in strategy at all. Our near-term strategy is still continuing to sell to BPH hospitals and cannibalize the 300,000 resective procedures that are done with many different modalities. And in fact, today, our reps aren't even incentivized to look at ASCs. So when we think about an ASC, this is a pilot program to see if a high-volume surgeon in a hospital can still produce the same amount of procedures in the hospital, but we would see in the ASC market expansion. So this is all about taking those millions of men that currently aren't getting treated, and we do believe some of those men are not getting treated because of the site of service, and we think in a more comfortable environment, perhaps a physician-owned, physician-driven, the physicians could be more incentivized to move that patient to the ASC. We think this could be a nice market expansion for us, and it's early. We're only a quarter behind with one account, but in that one account, you know, we're seeing volumes in the ASC that look like a typical ramp of a new hospital. So that would suggest that we do have some market expansion there. But again, this is early. We're going to continue to pilot. I think over... You'll see us perhaps one or two a quarter here moving forward, where we would consider additional ASCs. But our primary strategy, our primary growth driver in the next one to two years is all about the hospital. Maybe talk about the, you know, the doctor pull, whether it's for same-day surgery, you know, which obviously ASC would enable. But, you know, the doctor pull on the strategy to kind of move it to that setting. Yeah, the honest answer is that's why we're piloting the program, is just to kind of see what that looks like. But what we do know is, and we hear it, we hear it from multiple companies larger than PROCEPT as well, that, you know, folks, physician-owned, primarily ASCs, that there is a shift where it's an attractive site for elective procedures that are known to be safe. And we think with our clinical results, particularly around same-day discharge, around postoperative hemostasis, we feel great about where we're at as a company to now consider this. This isn't a program four to five years ago we would have considered with where we were. But I think given the clinical outcomes and given the comfort we're seeing, given the fact that we're having multiple physicians now discharge patients the same day, the timing felt right to do this pilot. Urologists, how are they in terms of, you know, owning an ASC? Are urologists—I know docs obviously own ASCs, but as a group, are urologists big owners of ASCs? Yeah, I think we do see that, and I think if you look at the economics of an ASC, I actually think the reimbursement today, it's around $6,600 to an ASC. You know, that's compared to roughly $2,500 for a TURP. So I think the economic proposition is already there for physicians to move into an ASC. But at the same time, there are a subset of patients, these resective procedures, where we do not see those shifting to the ASC. We don't see a future five to 10 years down the road where every BPH resective procedure is done in an ASC. Not at all. The hospital environment is still going to be material, but we do think this could be nice market expansion for PROCEPT and grow our TAM, as you referenced. Great. Now let's move over to cancer. I mean, yeah, you guys obviously talked about it at the AUA meeting that you held. But just talk about the opportunity for cancer, you know, maybe when we can see some data on that, and when will it actually be a contributor to revenue, to the business? Yes. So the cancer, as we mentioned, when we had FDA approval, cancer was a contraindication for the treatment of BPH. In order to remove that contraindication, we had to do some studies to show when we cut the tissue, we are not spreading cancer. We did those studies outside the U.S., and showed that that was not the case. We along with some literature data, we submitted to the FDA, and that contraindication was removed. So today, if a patient has BPH and cancer, one can treat patient's BPH. When we did those patients, we saw some good signals about the treatment of the cancer in those patients, and we presented the results of those at the AUA that, in those patients, none of them moved from the grade group they were into a... They didn't move after six months, and they had very favorable side effects. No, no side effects on those incontinence and erectile dysfunction. So from there, we, we started two studies. One is the PRCT001, that are 120 patients who have BPH and cancer, and then PRCT002, that patients who only—the patients who have cancer may or may not have BPH. The reason we... First of all, the reason we announced those was because the information was becoming available on the FDA website, and that is because what we do not want to happen is a distraction on the BPH. BPH is still such a massive opportunity in front of us that our growth for the foreseeable future comes from BPH. So we have time to do this study correctly, because in the United States, there are millions of men with prostate cancer who are on the sidelines, and only under only a few hundred thousand, under 200,000, go for either focal therapy or prostatectomy, and because they are concerned with the side effects of these treatments. So we believe if we can replicate the incontinence and erectile dysfunction results that we had in our WATER Study, this would be an attractive option for patients. So from a indication point of view, these other treatments, currently, they do not have a cancer claim, which is similar to what we have today, which is not a cancer claim. You can go cut the tissue. As a company, our goal has always been to provide clinical data so that physicians know what protocol they have to use to treat cancer patients. As far as we believe, hopefully by next AUA, middle of next year, we would have data on these studies. These studies will also help us formulate what kind of follow-up studies we want to do with the FDA. Is it possible that you can use that data to then market to get on the market? Well, I mean, you're obviously on the market, but to get No, these, these studies will not give us a claim of a cancer treatment. These studies will provide us data, what kind of a safety or efficacy we see in this patient. But it, it will help. If you want to get to the guidelines, which today, none of these other procedures and guidelines, you have to run a randomized study and get in the guidelines. The advantage of getting in the guidelines is then you separate yourself from other technologies, and then physicians know exactly what procedures to use. So this is more to give us data and also formulate, if we want to go for a larger study, what kind of a study we should design. And just to add to that, 'cause you asked about timing. We're very fortunate that we're not reliant on incremental revenue from cancer in the near term to where I think we, as Reza mentioned, can lay the groundwork, get a claim which nobody else has, and do this right, where longer term, we could generate a significant amount of value, particularly leveraging the installed base we expect to have over the next two to three years. I mean, this would be all incremental for a robot that we think has the capacity within a given hospital to do these procedures, drive incremental revenue with very insignificant cost. In fact, I, I'd argue that the cost for us to get the claim that Reza's referencing will be absorbed into the overall run rate of the business. Mm-hmm. Got it. We only have a minute. Just to follow up on that, just, you know, the path to market. I guess I'm just trying to understand, you know, you have a path to market 'cause nobody else has the indication. So is that the path you're going to go down, or you are going to go for a cancer indication and get on the guidelines? Our goal is to generate enough data to, so that at least we can provide guidance, what kind of a treatment should be used, and we would like to run a study to get in the guidelines. Okay. Well, thank you, guys. We're just about out of time. Thank you. So appreciate- Thank you very much. Thanks, Craig. Appreciate it.