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 to those relating 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 5th, 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 8th, 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 was 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'm truly humbled and just want to thank each and every one of you. Now turning to our quarterly revenue results. Consistent with our pre-announcement on January 11th, total revenue for the fourth quarter of 2021 was $10.1 million, which came in at the high end of the pre-announced range and above our Q4 revenue guidance of $8.7 million to $9 million. In the fourth quarter, U.S. AquaBeam system revenue was $5 million. U.S. 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 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 hospital surgeons and patients see the benefits of our robotic 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. Given 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 expectations was relatively unaffected by both handpiece and system revenue. Exiting December, we did see incremental headwinds in January associated with the Omicron Variant and its impact on procedure volumes. However, we have seen a return to a more normalized operating environment in the past 40 days. In the absence of a 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. Instead, we continue to monitor our accounts very closely and are pleased with the momentum we are seeing on both utilization and systems sales quarter-to-date. The second topic is the disruption associated with the global supply chain. As we indicated in our Q3 earnings call, we made the decision to increase our inventory level 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 availability to meet our robust growth forecast. While we do not expect supply chain issues to impact our ability to meet our revenue plans, we continue to increase inventory levels for certain components to mitigate any future risk 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 a position to execute our 2022 commercial growth plan, and we have been successful in this endeavor. Even with a tight labor market, we continue to see 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 19th 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 has positive coverage policies from all seven Medicare administrative contractors, making Aquablation available for Medicare patients nationally, which we estimate represents about half of all hospital-based respective 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 observed significant momentum in AquaBeam Robotic sales, which we believe is directly related to increased 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 clinical 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 prostate sizes in the range of 50 milliliters to 80 milliliters. Diving into the data, at five years, the IPSS score improved by 15.1 points in the Aquablation group compared to 13.2 points in the TURP group. However, in a pre-specified analysis for men with larger prostates between 50 milliliters 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. An improvement in peak urinary flow rate was 125% and 89% compared to baseline for Aquablation and TURP respectively. Lastly, the risk of retreatment defined as returning to BPH medication or requiring a surgical intervention was approximately 1% per year for Aquablation, which compared favorably to the 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 we believe it does not require compromise between safety and efficacy. This study reinforces the durability of Aquablation therapy. We believe this data set further differentiates Aquablation from alternative therapies, and will allow our sales force to better educate and train our surgeons on Aquablation therapy. We also anticipate the five-year WATER data will be well received by the payer community. Many of the large payer policies have used five-year published data to establish coverage for other BPH surgical approaches introduced in recent years. Our five-year data have already been submitted to several large national and regional plans, and we believe this could be impactful as they update their coverage policies. Due to difficulty in predicting the 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 at an account level. We are seeing quarterly sequential increases 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 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.

Thanks, Reza. As Reza highlighted, PROCEPT's revenue for the fourth quarter of 2021 was $10.1 million. The increase was primarily driven by U.S. revenues, including both systems sales to new hospital customers and increased handpiece revenue. In the U.S., we sold 14 AquaBeam Systems, of which 10 were 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 U.S. installed base was 78 AquaBeam Systems. Prior to obtaining Medicare coverage in January 2021, we placed numerous AquaBeam Systems under evaluation agreements compared to direct sales. 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 30th, 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 agreements by the end of March 2022 in the U.S. Turning to handpiece revenue, U.S. 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 U.S. in the fourth quarter, with monthly utilization greater than five handpieces sold per account. International revenue for the fourth quarter was $1.4 million, and gross margin for the fourth quarter of 2021 was 44.5%. I also want to highlight that our current procedure volumes and handpiece gross margins are slightly lower than capital equipment gross 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 was primarily driven by increased selling, marketing, and general and administrative expenses related to expanding our sales organization and increased expenses associated with 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 31st, was $304.3 million, while our long-term borrowings total $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 in AquaBeam Robotic system sales in the U.S. compared to the fourth quarter of 2021, of which approximately 80% will be to new accounts. As mentioned previously, we expect the number of U.S. demo units to be near zero by March 31st. 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 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 realized a 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 U.S. 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 will be 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.

Ladies and gentlemen, if you'd like to ask a question at this time, please follow the operator's instructions. In consideration of time, we ask that you please limit yourself to one question and one follow-up. Please standby while we compile the Q&A roster. Our first question is coming from the line of Craig Bijou with Bank of America. Your line is open.

Good morning, guys. Thanks for taking the questions. Congrats on the great quarter, great finish to the year, and guidance that is above expectations. It's tough in the current environment, congrats on that. I wanted to start with the system placement expectations for '22, and I appreciate your comments about the sequential improvement. But maybe I wanted to dive a little bit deeper into what you're seeing from the pipeline and the confidence that you have that you can grow system placements sequentially, especially with the focus on the new accounts.

Yeah. Thanks for the comments, Craig. This is Kevin. Given we are fairly far through the first quarter, we are seeing a high degree of confidence in our ability to execute on a sequential increase in capital sales in the first quarter compared 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 U.S., and we're seeing a significant number of those in our funnel. And again, given where we're at in the first quarter, we have a high degree of confidence about a meaningful increase in 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.

Thanks for that, Kevin. And then maybe following up on 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. I wanted to see if there's any color on any discussions with them, if you expect them potentially to come onboard in '22. And then just to ask, a little bit longer-term, how much of an accelerator to the business would it be to add United and Aetna?

Yes, thanks. This is Reza. To clarify, we cannot 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 specifically indicate their policy and what they were waiting for. We believe the only information left is that five-year data that we have published and submitted. So as you know, United has about 45 million covered lives, while Aetna has about 22 million covered lives. From a percentage point of view, we have mentioned that the high-volume hospitals grow by about 200 cases per year, or 17 per month. So today, primarily with Medicare patients, we have access to roughly half of that number, which is around 8.5. But by bringing United and Aetna onboard, we will have very close to all those resources.

Great. Thanks for taking the questions. I'll hop back in queue.

Thanks, Craig.

Our next question is coming from the line of Amit Hazan with Goldman Sachs. Your line is open.

Thanks so much. This is Phil Ames for Amit. I was hoping we could circle back to the utilization comments around handpieces. I appreciate that such a strong quarter, and I'm hoping Kevin, maybe you can clarify 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 parcel the assumptions that you've made around where existing accounts versus new added accounts from the year are going to end up shaking out.

It's a good question and right now, obviously, we have a limited history of sales 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 5. I would say that if you look at the vintage of sales for PROCEPT, the accounts that purchased prior to 2021 and even those accounts that purchased in Q1 of 2021, those accounts were already doing north of 5 on average. So they’re obviously pulling up the average. As we bring in all new accounts to our installed base, it takes time for those accounts to reach those utilization levels. This can take anywhere from 4 to 5 quarters is our expectation right now. 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.

Okay. That's very helpful. Would you say that there was some level of pre-buying that happened in anticipation of Q4? It seems like even on average, that the numbers should shake out to a little bit more than what average utilization was in the quarter.

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

That's really helpful. Thanks for that. 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. As we think about kind of the environment post these evaluations, 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. As we've said the last few quarters, we're no longer offering this program. We believe that by selling a system, we have the full buy-in of the physician, the reimbursement team, and the hospital administration. We see utilization in accounts where we sell a robot to be significantly greater than when we had a demo unit. Therefore, I wouldn't call it a drag on the organization, but I believe that our selling model moving forward as a straight sale will be our preferred method and is resonating well with our customers. Thanks, Phil.

And our next question is coming from the line of Chris Pasquale with Guggenheim. Your line is open.

Thanks and congrats on a nice finish to the year, guys. I was wondering if you could give an update on how many reps you exited the year with across the robotic and Aquablation groups in the U.S., and where you'd like to be at the end of this year?

Yes. So Chris, we've mentioned previously that at the end of the year, we had 10 robotic reps and 10 Aquablation reps. Reza's comments indicate a doubling of that sales force, so that would be the appropriate number to use for where we're entering fiscal 2022. Additionally, our operating expense guidance of $105 million assumes that we have the ability to add both incremental robotic and Aquablation sales reps in the back half of the year. We're 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 so that we can hit the ground running in 2023 with a sales force that's ready to capitalize on all the happenings we expect this year.

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

Thanks. I want to mention that accounts have converted most of their resective procedures to Aquablation. As they use the product, they become more comfortable. They start using it in larger prostates, typically above 70 milliliters. As they become more comfortable with the procedure and the technology, they use it in all cases. In fact, some accounts have standardized their resective BPH protocols, which is driving our utilization. We have a range of accounts using most of their respective procedures. If I had to guess, the average would be around 70 milliliters. Again, we need to follow up on this because the outcomes are the same. In accounts where they use the technology, it is mostly converted TURP procedures, but the outcomes, as we demonstrated in our FDA trial, whether for larger or smaller prostates, the outcomes are the same. They are starting to use it for all sizes.

Great, thanks.

And our next question is coming from the line of Danielle Antalffy with SVB Leerink. Your line is open.

Hello, this is Anne filling in for Danielle. Thank you for taking our question. I was wondering if you could discuss the IDN agreement in Atlanta. I believe you mentioned that you will continue to focus on it, so could you explain how you have observed utilization within that IDN system?

Yeah. This is Kevin, I'll take that. 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. It's a good account, and I would suggest that their utilization is not different from any other high-volume hospital in terms of utilization. However, we are working with multiple IDNs. Our guidance in 2022 is not dependent on a material number of these IDNs being executed. That said, there are a fair number of IDNs that fall within the 850 high-volume resective hospitals that we're targeting. I would also point out that when we sign contracts with IDNs, it provides us access to these hospitals. It makes the sales process more efficient and predictable on the capital side. Signing an IDN does not mean we're going to sell ten robots within that system. However, it does allow our sales team access to the account and makes that process quicker.

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

Thanks. We've definitely recognized the macro impact of COVID and staffing shortages on elective procedures. However, that impact in our case was negligible, and we were able to exceed our plan. What we observed was that COVID did not have an impact on our capital sales. Ending the year around December, we saw some headwinds from COVID extending into January. However, in the last 40 days, we have returned to a more normal operating mode. So, in the absence of any new variants, we do not believe this will have meaningful impact for us going forward if no new variant emerges.

Okay. Great, thanks so much.

If you have any questions, please feel free to ask. I see there are no further questions at this time. I would now like to turn the call back to Mr. Reza Zadno for any closing remarks.

Well, I want to thank everyone for listening to our earnings call and thanks for the questions. 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.