Good afternoon, and welcome to PROCEPT BioRobotics Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. I would now like to turn it over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments.

Good afternoon, and thank you for joining PROCEPT BioRobotics third quarter 2025 earnings conference call. Presenting on today's call are Larry Wood, Chief Executive Officer; and Kevin Waters, Chief Financial Officer. Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in PROCEPT BioRobotics filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, November 4, 2025. Except as required by law, PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. During the call, we will also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent are included in our earnings release. With that, I'd like to turn the call over to Larry.

Thanks, Matt. I'm excited to be on the call today to discuss our third quarter results and share some early insights from my first couple of months in the role. First, let's talk about the quarter. We demonstrated strong execution and results with total revenue for the third quarter of 2025 of $83.3 million. Strength in the quarter was driven primarily by U.S. capital systems shipped, which totaled 58 in the quarter. Although we have begun to see some large hospital systems more carefully scrutinize capital spending due to evolving macroeconomic conditions, we delivered a strong capital quarter. Capital pricing has remained stable, and importantly, we continue to maintain solid visibility into our pipeline and remain confident in our ability to finish 2025 on a strong note. Regarding procedures, my handpiece sales were roughly in line with expectations. Procedure utilization is an area we are highly focused on improving moving forward and is key to unlocking long-term value. As part of this increased focus, we're implementing several organizational changes and launching multiple initiatives aimed at improving our commercial execution. One example is increasing our focus on the speed of new account launches. While HYDROS launches consistently deliver strong procedure adoption post-launch, the timing from sale to first procedure is highly variable. This situation presents two challenges: it delays the realization of utilization benefits from newly installed systems, and hospitals are holding excess HYDROS handpieces that were purchased at the time of the capital sale. To address this, we launched an initiative with clear goals and metrics aimed at achieving procedural targets in the shortest possible time after a sale. Early results have been highly encouraging, and we plan to expand this program in the fourth quarter and fully implement it in 2026. Reflecting on my first few months, I've had the opportunity to observe procedures and speak with several key opinion leaders across the field. What I've seen has only deepened my conviction in this opportunity and validated the reasons I chose to join PROCEPT. When I think about our long-term potential, it really starts with the fundamentals. BPH is massively undertreated. Many patients fear the side effects of drugs or surgery and avoid therapy altogether. What they don't realize is that delaying therapy can significantly impact their quality of life and lead to more serious health issues. Simultaneously, many patients are still unfamiliar with Aquablation therapy and the life-changing benefits it can offer. Our clinical value proposition is strong. The Aquablation procedure and the supporting clinical evidence are highly compelling, particularly regarding the outcomes that matter most to patients. I believe the team has done an excellent job driving early adoption and supporting clinical users. However, if we want to expand our impact, we must do more foundational work to increase therapy awareness and drive patient activation, which is something I have a lot of experience with from my time at Edwards. This will be a core part of our near and midterm commercial strategy. We are also sharpening our focus internationally, seeing strong opportunities in markets that value transformational therapies and are willing to support access for patients. Accordingly, we will increase investment and organizational support in these regions. Additionally, to support our core initiatives, we've made several organizational changes. Pooja Sharma has joined us as Chief Marketing and Strategy Officer. She brings deep experience from Edwards Lifesciences, where she led marketing and strategy for the transcatheter heart valve business. Her background in driving category leadership and therapy development is exactly what we need at this stage. Also, Stephen McGill has been promoted to Senior Vice President, General Manager, International, and will now report directly to me. Stephen has done an outstanding job leading our international business, and with added investment and focus, I'm excited to have him on the leadership team. This also allows our incoming commercial leader to focus exclusively on North America. While organizational change and an influx of new talent can create some short-term disruption, my primary responsibility is to ensure we have the right people and the right objectives to drive long-term success. Overall, procedure volumes have been solid year-to-date. However, given the size of the BPH market in the United States, we are still only scratching the surface and have tremendous opportunity to further accelerate procedure growth. Looking ahead, Aquablation is a highly differentiated solution for BPH patients. Even though our current evidence is already strong, we will continue to invest in building a robust clinical foundation and ensuring patients are aware of Aquablation therapy. We also see long-term opportunities beyond BPH, specifically believing Aquablation has the potential to be a compelling therapy for prostate cancer. This area is actively being studied in the WATER IV clinical trial. High-quality evidence generation will be foundational for our expansion strategy in this space. In closing, I'm energized by the opportunity ahead. The leadership team has been incredibly supportive, and we are committed to advancing this therapy for the patients that need it. We will build a world-class marketing organization to activate patients and accelerate utilization. We will invest meaningfully to expand market awareness, accelerate new account launches, and drive international growth with a focused market-specific approach. With that, I'll hand it over to Kevin to walk through the financials for the quarter.

Thanks, Larry. Total revenue for the third quarter of 2025 was $83.3 million, representing growth of 43% compared to the third quarter of 2024. U.S. revenue for the third quarter was $73.9 million, representing growth of 42% compared to the prior year period. Turning to U.S. procedures. Handpiece and other consumable revenue for the third quarter of 2025 was $44.4 million, representing growth of 50% compared to the third quarter of 2024. We also recorded approximately $2.4 million of other consumable revenue in the third quarter of 2025. In the third quarter, we sold approximately 13,225 handpieces, reflecting 51% year-over-year unit growth. While we navigated a period of commercial leadership transition, our team continued to deliver solid performance and momentum. Turning to U.S. robot placements. We generated total U.S. system revenue of $24.7 million, representing system revenue growth of 26% compared to the third quarter of 2024. In the third quarter, we sold 57 new HYDROS systems. The pricing for our systems was at an average selling price of approximately $435,000. Additionally, we placed 1 HYDROS system under an operating lease model. As a result, we exited the third quarter of 2025 with a U.S. installed base of 653 systems, representing an increase of 47% compared to the prior year period. Lastly, international revenue in the third quarter of 2025 was $9.4 million, representing growth of 53% compared to the prior year period. Moving down the income statement. Gross margin for the third quarter of 2025 was 64.8%, representing an increase of 160 basis points year-over-year. The year-over-year margin expansion was driven primarily by greater organizational effectiveness. Total operating expenses for the third quarter of 2025 amounted to $77.2 million compared to $59.3 million during the same period in the prior year. Net loss was $21.4 million for the third quarter of 2025 compared to $21 million in the same period of the prior year. Adjusted EBITDA was a loss of $7.4 million compared to a loss of $12.4 million in the third quarter of 2024. Our cash, cash equivalents and restricted cash balances as of September 30 were approximately $297 million. Moving to our 2025 financial guidance. We continue to expect full year 2025 total revenue to be approximately $325.5 million, representing growth of approximately 45% compared to 2024. We now expect to sell approximately 213 new robotic systems in the United States in 2025. As a result, we anticipate system sales in the fourth quarter to total approximately 65 systems. Turning to U.S. handpieces. For the full year, we now expect sales of approximately 52,000 handpieces, representing a 61% increase in unit volume compared to 2024. The reduction in fourth quarter handpiece sales guidance reflects modest headwinds related to the optimization of field inventory resulting from the variable launch timing of recent HYDROS placements. We are maintaining handpiece average selling prices to be approximately $3,200 and other consumable revenue expectations to be approximately $9.5 million for the full year. Additionally, we expect U.S. service and other revenue to now be approximately $17.5 million for the full year. Lastly, on international revenue, given strong positive momentum, we now expect full year international revenue to be approximately $37.5 million, representing annual growth of 56%. Turning to gross margins. We now expect full year 2025 gross margin to be in the range of 64% to 64.5%. This would imply a fourth quarter gross margin of approximately 63%, which includes approximately $2 million of tariff expense. Turning to operating expenses. We continue to expect full year 2025 operating expenses to total $302 million, representing a 29% increase compared to 2024. After considering all relevant factors, we continue to expect a full year 2025 adjusted EBITDA loss of approximately $35 million. I would now like to pass it back to Larry for closing comments.

Thanks, Kevin. Before we open the line for questions, I'd like to take a moment to provide perspective on fiscal 2026 to give investors early visibility into how we are approaching the year ahead. For fiscal 2026, we are currently anticipating total revenue in the range of $410 million to $430 million. The outlook reflects our current momentum in capital sales even in an uncertain macro environment and incorporates our expectation of modest procedural headwinds in the first half of 2026 when we make targeted strategic investments to enhance our commercial capabilities and operational excellence. These initiatives are designed to drive sustained long-term utilization growth and position us for durable profitability. We will continue to invest in our strategic priorities to drive long-term growth and do not expect these investments to impede our progress toward achieving profitability. Lastly, in late February 2026, we plan to host a formal analyst day in New York City, where we will outline multiyear revenue guidance and provide updates on our marketing priorities, R&D initiatives, prostate cancer trial, and profitability targets. We look forward to providing a more robust long-term view. With that, we are happy to take questions.

Our first question is from Matthew O'Brien from Piper Sandler.

Great. And Larry, I hope things are going well here early in your tenure as CEO. Would love if either you or Kevin would talk about the capital environment because that number in the quarter was quite strong, clear acceleration. I know some people were worried coming out of Q2 about the capital environment. So can you just talk about the strength that you saw there, especially in an environment that you say is weakening a little bit? Is it really HYDROS that's starting to see an inflection or maybe build some of the backlog even further? Maybe just talk a little bit more about what you're seeing there. And then I do have a follow-up.

Yes. Maybe I'll start, Matt. This is Kevin. I appreciate your question. So as you observed, we're really pleased with the capital team's performance in the third quarter. I think if you recall, in the second quarter, we said that we had some variability in timing, particularly with some of our IDN partners, and that still continues to be the case. So when we highlight perhaps some future weakness in capital, it's really more around timing and capital allocation with our customers as opposed to any worsening of the macro environment. And the team executed very well in the third quarter, and we feel good about that momentum heading into the fourth quarter where we're expecting somewhere in the mid-60 range of systems, but feel good about the team, the capital environment, and performance.

And then, Larry, a question directly for you. Two months on the job now, I would love to hear a little bit more about what you've seen in your seat, maybe low-hanging fruit, some longer-term things that you can focus on and forgive the long-winded question. But the near-term changes on the org side probably make people a little bit nervous, especially as you're guiding for next year. So why the confidence in even providing that 2026 revenue guidance, which basically brackets where the Street is at? Can you just talk a little bit about your confidence there?

Thanks for the question, Matthew. My first eight weeks here have been remarkable. I've really enjoyed working with the management team and getting out into the field to engage with several of our KOLs. For those familiar with my prior experience at Edwards, where I spent 40 years, leaving was unexpected. However, my time on the board with PROCEPT revealed a fantastic chance to make a significant impact on medicine once again. My experience so far has reinforced this belief as I've connected with KOLs, observed procedures, and understood what we can provide for patients. The challenges ahead are significant; I believe we haven't fully communicated our message to clinicians or reached out effectively to patients. Reflecting on my journey at Edwards, while we achieved initial success with transcatheter heart valves, we later encountered obstacles after the early adopters. We had to focus heavily on therapy awareness and patient engagement, which is part of why Pooja was drawn to join us—we have an opportunity to redefine medicine again. With a differentiated procedure that isn't yet fully recognized, we see a tremendous opportunity to influence medical practice. I’m genuinely excited about this potential. We wanted to offer guidance for next year because I know many expect a new CEO to be cautious, which can create uncertainty. Thus, we aimed to provide a range—we are confident in our future and optimistic about the direction we’re heading. We've started several initiatives and positive pilot programs, which has encouraged me. I'm looking forward to sharing more insights with you in February once I’ve gained additional experience in this role. Pooja starts tomorrow, giving her some time to outline her plans too. We are eager to share our long-term vision then.

Our next question is from Brandon Vazquez from William Blair.

First, I just wanted to focus a little bit on the quarter specifically and some of the updates and then maybe a follow-up on a broader question. But you talked about this dynamic in the quarter of HYDROS placement seeing a little bit of a slower ramp. It sounds like that probably impacted utilization. I have you on my initial update of the model here at low single digits increase in utilization. One, is that right? And then two, just talk about this dynamic. Is this something specific to HYDROS? And then what kind of changes did you guys make that are already showing improvements? And how do we think about that utilization number ticking back up to the normal kind of high single, low double-digit range that you've historically been seeing as you tackle this dynamic?

Thank you, Brandon. Let me address the mathematics here. You are correct. When examining the year-over-year growth in utilization for the third quarter, it is in the low single digits, which aligns with our expectations and guidance for the latter half of the year. For the fourth quarter, we expect utilization to increase significantly, similar to what we observed in Q2. This situation with HYDROS arises from a considerable number of systems sold over the past two quarters, combined with a lengthy launch schedule, which has led to the low single-digit utilization. These are the initiatives we are concentrating on as a company.

Yes. I would like to add that in our natural capital cycle, many of our instrument placements occur late in the quarter when we finalize those sales. This is also true for most capital organizations. Consequently, we do not realize the benefits of the units sold during that quarter right away; those benefits come later. There is significant variability in newly installed systems from the time of sale to when they become operational and start providing real utilization. This presents a substantial opportunity for us to improve, which has been a key area of focus. I am committed to emphasizing utilization. We must ensure that we deliver effectively on the capital side, but enhancing utilization is my top priority, as it also supports future capital growth. I view these aspects as interconnected. There is considerable work ahead to boost utilization, and we are optimistic about our early initiatives. We have made organizational changes to promote this, and we will continue these efforts over the coming months. It is crucial for us to install systems and have them operational, achieving our utilization targets sooner for long-term success.

Okay. As a follow-up, Larry mentioned your experience in developing the TAVR market, particularly regarding patient activation and some other insights. You talked about moving past early adopters and towards broader adoption. Could you discuss what that process involved in TAVR? What do you believe is lacking in the PROCEPT approach? Based on your experience, what steps need to be taken within the PROCEPT narrative? It seems like the next phase for PROCEPT, as you suggested, is to transform this great technology, backed by solid clinical evidence, into something widely accessible.

Yes. No, it's a great question. I think one of the things that we saw in TAVR is if patients just were referred and they walked into a surgeon's office and they had aortic stenosis, the surgeon would just recommend surgery because that's the procedure that they can do. And frankly, it's a procedure that had a great contribution margin for the hospital, and they were happy to just keep doing that. And so when a patient walked in indifferent to the procedure that they're going to get, then the doctor might do what's easiest for them or what's most profitable for them and go down that road. I think bringing the patient's voice into that equation is really important. And I think also we generated a lot of evidence in the TAVR space to show why TAVR was a good procedure for these patients and in many cases, why it was a better procedure than surgery. And I think we need to spend more time focused on the evidence with the clinical community, so they understand these procedures aren't all created equal, and we can deliver differentiated results for patients. And at the same time, we need patients to be educated on what questions should they be asking their doctor to the degree that things like I only want to have one procedure, so I want the most complete outcome. There's just a lot of things that we need to do from an educational standpoint. But I think it's a complete game changer when a patient walks in and says, I've watched an Aquablation procedure and then the doctor has to try to change them to another procedure versus a patient just coming in and saying, what do you think I should have, whatever you recommend is what I'll go with. And there's just a lot of work there that we have to do, both with the medical community and patients. And then I think the other thing is we need to keep focusing on the evidence. We need to keep creating the evidence, and we need to keep amplifying that message so that people feel great about the procedure they're performing. They know they can deliver these great outcomes for patients. And I think that's really what our system can do in a very differentiated way. And right now, I think the doctors view a lot of these procedures as being very similar in terms of outcomes. And I don't think that's representative of what the data reflects, but that's on us to tell that story.

Our next question is from Richard Newitter from Truist Securities.

I wanted to start off with the 2026 outlook. Thank you for sharing a high-level revenue number. I would appreciate it if you could provide some insights into the components. There are likely many ways to reach that number, so could you comment on where you see consensus, any capital procedures, and whether anything needs to be adjusted? Do you feel confident with the current composition? Additionally, you mentioned that in the first half of next year, procedures or utilization might face some challenges. Can you explain why that is?

Yes, Rich. So there's a lot of puts and takes to the model, so I appreciate the question. And I'll start by saying we plan to provide a lot of color, obviously, in February when we introduce guidance. And I don't think there was anything out there we see modeling that is grossly misrepresented at this time, and our guidance essentially brackets where consensus stands today. I think the one thing I will say to maybe help frame is just with the international business, you see that's somewhere in the $45 million to $50 million range, and then you can kind of work the model backwards from there. But at this time, we're not going to get into the different components. We want to finish the year. We're focused on driving procedures in the business in the fourth quarter, and we'll provide an update in February.

I want to emphasize that while we anticipate some challenges in the first half, we recognize the substantial organizational changes we've implemented. My commitment is to establish the right long-term structure that will support our future growth. We understand this is a transitional phase, which may create some headwinds. However, I have great confidence in our team; everyone is aligned and dedicated to executing these changes and advancing the business. We believe we're heading in the right direction, but we acknowledge that the changes are significant for many people in a short timeframe. This is all taken into account in our guidance, which we are comfortable with. We will continue to push the business as hard as we can.

Okay. Can you discuss profitability? It's been two consecutive quarters where your performance has exceeded expectations. Kevin, could you share where you are on the path to profitability? And Larry, should we anticipate any necessary reinvestment now that you've had some time to assess the business? What should we consider regarding the profit trajectory and your previous comments before the leadership change?

Yes. I can start with this, and then Kevin can add if I overlook anything. We will be making strategic investments, but this will involve redirecting some of our spending to new activities instead of only increasing our expenditures. However, I don't believe anything will hinder our path to profitability. I want to clarify that if I see an investment necessary for our long-term growth that may delay profitability by a quarter, we would proceed with that investment. I am focused on building something sustainable for the long term, aiming to enhance long-term growth and value. I don't want to become overly focused on profitability to the point where we miss essential investments, even if they take two to four quarters to pay off. We are committed to making those investments while remaining responsible with our spending, prioritizing our strategic goals that will contribute to our long-term value.

Our next question is from Patrick Wood of Morgan Stanley.

Amazing. I'll keep it to one, but basically around the commercial activities and utilization side of things. I guess, correct me if I'm wrong, but there's basically two componentry here. There's a, as soon as the system is placed, getting faster off the blocks and getting some of that utilization right out the gate, but presumably, b, it's getting eventual total utilization higher. You mentioned you were putting some commercial activities in place. I'm just really curious, when you're addressing those two factors, can you give us some specific flesh on the bones to sort of think about the changes that are being made? Is it just who's running what? Or is it incentive structure? Just any more details there would be amazing.

Thank you for your question. There are a few points to consider. First, as I mentioned earlier, we want to enhance the time from sale to reaching our utilization targets. It's important to minimize the variable time involved. To be frank, I believe the transition between our capital sales team and the utilization team could be improved. This has become a primary focus for us, and I expect it will enhance our initial utilization. This involves not just the time to the first procedures, but also the time it takes to complete enough procedures for a system to be fully launched. Additionally, we have assessed our organizational structure to optimize our field resources. We've recognized that our field team does more than just participate in cases; they also support physicians, which is crucial for ensuring exceptional patient outcomes. However, their role extends beyond that. We need them to engage in market-building activities, drive cases, and spend time in offices with referrers, ensuring they are up to date with the latest evidence so that our procedures become the preferred option for BPH. This requires our team to adopt different approaches than what they have historically done. It is essential for improving our utilization over time. This situation resembles the transition we experienced at Edwards. Initially, our focus was solely on case support, expecting that if we provided it, demand would follow. However, we reached a turning point where we needed to engage with doctors who perform multiple procedures or those who are not early adopters. Eventually, we will also need to connect with established physicians who are comfortable with their current practices and may be resistant to new technology. Each of these groups requires a different mindset and method of interaction with customers. We are now moving into the next phase, and while our team has accomplished much with early adopters, we must do things differently as we progress.

Our next question is from Ryan Zimmerman, BTIG.

Larry, the utilization talk is music to my ears. I appreciate you harping on that. One of the questions I have, though, is there are some new PFS rates that just came out, and you guys got a Category I code. It's down in line with kind of the other procedures, about 550, if I'm not mistaken, on the code. But my question is just in light of that, how do you think that impacts utilization? And what underpins your confidence on procedure adoption given those dynamics, especially for '26?

Thank you for your question, Ryan. I believe the fees came in roughly as we anticipated, and everything is consistent with our expectations. However, that's only a small part of the overall economics. The procedural reimbursement plays a much more significant role, and we are still awaiting its final outcome. We remain cautiously optimistic that it will settle positively. Additionally, while economics matter when technology seems similar, I believe that when technology is clearly differentiated, people may prioritize superior procedures over better economics. Many of you followed Edwards in the early days of TAVR, and there were discussions about how the contribution margin from open heart surgery was likely more than double that of TAVR. Many thought that would pose a significant challenge, yet we saw a different outcome due to our unique technology. The focus shifted from contribution margins to the procedure's effectiveness and the positive patient outcomes we achieved. Therefore, it's crucial to communicate how distinct our procedure is. The economics of our procedure certainly align with the enhanced and increased utilization we expect to generate.

Okay. I got a lot of other questions. I'm going to just stick with one more, and then I'll save it for the follow-up for you guys. But as you think about guidance, Larry, I mean, the company has had a philosophy around guidance. I think the beats have been fairly formulaic relative to maybe expectations or kind of what the guidance has been. Do you have a different view on this in terms of how you're approaching? You talked about, obviously, your thought process for the '26 guide. But I guess, more in the context of how you think about it relative to the expectations or how you perform or maybe what your internal guidance is, et cetera. Just curious if you want to speak to that.

Yes. I don't know that I'd give you a very satisfying answer to be frank about it. I think my approach to guidance is we need to create a range that we're going to achieve. And I think we need to be accurate about it. And I think we need to have upside potential, but we also need to reflect realities and not everything may go exactly like we want. But to the degree that there's expectations out there, I'm not probably a big believer in moving guidance around in relation to expectations. I'm more a believer in driving the execution of the company and putting out good guidance and achieving or exceeding our guidance through improved execution. So that's kind of where I'm going to land on things, and we'll go. But I think it'd be unrealistic to think that I know everything about the business. Obviously, Kevin and Matt have been here a long time, and I rely heavily on them. I'm in my eighth week, and I suspect when we get to February, we can probably have a lot more fulsome discussions around guidance and how we see the long term and maybe some of the models that we have.

Our next question is from Christopher Pasquale, Nephron Research.

Larry, this is a market where you have a lot of patients on the sidelines deferring care. You talked about the need to educate those patients. You talked about the company not really having told its story yet. I put all that together, and it sounds like an argument for an investment in DTC advertising, which some other companies in the sector have spent a lot of money on in recent years. Is that something that you're contemplating? And maybe talk about how you balance that drive toward profitability with maybe some spending priorities or some areas where the company may not have been investing enough historically.

Thanks, Chris. Well, I think there's a lot of different channels that you can use. And obviously, if we want to do a Super Bowl commercial, that gets very expensive. But I don't think you have to do that to go deliver your message to patients. I think, there's social media. There's a lot of other things that we can do that are pretty cost-effective ways to do things, and we did a lot of these things at Edwards. So I think these are all things that we're going to be focused on, but we do have to take our message to the patients. And we do have to get that out there to them so that they understand. I think one of the other things, and I know you followed Edwards, Chris, that there were a lot of patients that just believed that aortic stenosis was just all about symptoms tolerance. And there was not an understanding of the damage that was being done while they sat in that symptomatic phase until it became intolerable. I think the same is true of BPH. I think a lot of patients are sitting on the sidelines, and they're just saying, well, it's just about whether I can tolerate these symptoms or not, but there's not a good understanding of the damage that they're doing to the bladder and the long-term complications that can lead to that point to a need for earlier therapy. And so again, I don't think any work has been done in that area to really tell that story or make that clear to patients. I think it's all just been focused purely on this procedure versus that procedure and a lot of early data. So when I say we got to tell our story, it's not just to the patient, some of it's to the clinicians, but there is going to be a direct-to-patient element of this that we will be investing in. But again, I don't think it fundamentally changes our path to profitability. I think that remains intact. And we'll just have to make responsible investments along the way.

That's helpful. I wanted to focus on your comment about hospitals being more cautious with their purchases. You had a strong quarter for capital, and many other companies discussing this matter have reported that things remain healthy. Are you noticing anything new that you want to highlight, as it could affect future outcomes? Or are you referring to the overall challenges of the year in the broader economic landscape, while you continue to perform well despite it?

Thanks. I don't think it fundamentally changes our projections for capital. We've noticed that the purchasing process is taking longer. There were systems we expected to close in Q2, but they got pushed into Q3 due to additional steps being implemented and some macro concerns, which led to delays. We generally expect systems to materialize, and we saw that happen this quarter. However, it seems that more steps have been added to the process, causing things to move a bit slower. We just wanted to be transparent about that.

The next question is from Suraj Kalia from Oppenheimer & Company.

Larry, congrats on your new role. It's a pleasure to be working with you again. Hopefully, you can hear me all right.

I can.

Perfect. So Larry, I understand your point about TAVR and the similarities involved. If I could elaborate on Chris' earlier question, Larry. TAVR proved to be an effective solution for a high-acuity condition, and we observed significant share shifts from SAVR. Specifically regarding BPH, do you believe the long-term plan will concentrate on attracting new patients, either through direct-to-consumer strategies or other methods? Or do you see this more as a pathway to gaining market share from TURP, nucleation, and similar procedures?

Thank you for your question, it’s great to hear from you. I believe the biggest opportunity we have is encouraging people to take action. In my previous experience in cardiac surgery, I encountered many patients who felt that the potential downsides of treatment were worse than living with their condition. As a result, they often avoided necessary surgeries even when they faced serious health risks. We see a similar situation in the BPH space where individuals are so concerned about the possible complications, like incontinence or sexual dysfunction, that they prefer to tolerate their symptoms rather than seek treatment. Our challenge is to demonstrate that our rates of incontinence and sexual dysfunction are extremely low, almost negligible. By addressing their conditions, patients can significantly enhance their quality of life. Therefore, the individuals who are hesitant and remain on the sidelines present the most substantial opportunity for us. As we expand the market, ensuring we capture a fair share is important, but I believe that expanding the market and fostering growth holds even greater value than merely shifting a small percentage from TURP to Aquablation.

For my follow-up, Larry, BPH is clearly more fragmented compared to severe symptomatic AS. How should we consider the price elasticity of demand? Should we use the same strategy with the SAPIEN and SAPIEN 3 Ultra, applying premium pricing in comparison to the rest of the market for Aquablation? Or do you believe a more flexible approach is needed due to the varying price elasticity of demand in BPH and its fragmented nature? Congratulations again.

Well, to the degree that you want to draw parallels with SAPIEN, I think I waited 15 years before I did a price increase. So I don't think price increases were a huge part of our development strategy. And I don't know that price increases are going to be a huge part of our strategy here either. It's funny when people say the aortic stenosis market was not very fragmented. I think that's a view today. That was not a view 15, 18, 20 years ago when we started working on it. I think it was highly fragmented, and you looked at high-risk people and intermediate-risk people and low-risk people, and now we talked about asymptomatic. So again, it's not a perfect analogy by any means, but I do believe that there are a lot of parallels. And I do think the journey is going to be similar. Now to your point, we're going to continue to develop our platform. We're going to continue to innovate, and we're going to continue to make sure that we have the best therapy and the best technology, and it's also backed by the best evidence. And I think those are things that are just going to be hallmarks of what we do. But it's really going to be about getting patients off the sidelines and improving our utilization rates.

Our next question comes from Nathan Treybeck from Wells Fargo.

Kevin, I think you disclosed one system placement under an operating lease. Can you talk about why this was done? And do you expect operating leases to become a bigger part of your system placements going forward and then just modeling considerations there?

Yes. This was not a change in our business practice, but we felt it was necessary to explain that our installed base increased by 58 while we sold 57. I would view this robot more as a unique case where we cannot recognize revenue immediately. It will be paid for over time. However, we do not have any immediate plans to significantly change our business model. As we have mentioned before, our top priority is to get robots installed, generate procedures, and treat patients. We will continue to explore various alternatives as they make sense for the business.

Okay. And just for my follow-up. So just based on my forecast, I guess, over 70% of your installed base next year will be with accounts that have been doing Aquablation procedures for over a year. So it seems to me that new accounts should be less of a drag on utilization growth. I guess how does this play out for your utilization outlook next year?

Yes. Look, I think a drag is a bit harsh, but I think our focus on launching accounts in a more timely and robust manner and the focus there should allow those new accounts to come up the curve faster and start contributing more meaningful to utilization sooner in 2026. So that's point one. And then point two, the other area of focus is driving utilization in our existing accounts. And as you pointed out now with the age of our installed base, that's a huge opportunity for us to drive procedure volumes and procedure revenue is focusing not only on new accounts but on existing accounts doing more procedures as well. And we also are working on numerous initiatives to help that metric as well, so it's twofold.

Our next question is from Mason Carrico from Stephens Inc.

On the variability in timing from system sales to first surgery beyond that initial delay, is there any meaningful difference in utilization once fully ramped in the accounts where there was a longer delay prior to the first surgery versus accounts that made the transition quickly? And then second, for the accounts that did have a longer delay, are there any commonalities between those accounts fundamentally? I mean, does that tend to be concentrated in low-volume hospitals, high-volume hospitals, academic centers, community hospitals, I guess, any additional detail you can give there?

Thank you for the question. Each account is unique, so I prefer not to make broad statements. However, I believe we haven't historically focused enough on what happens immediately after the system sale. In our recent launch pilots, we've been concentrating on the initial day and creating a plan that not only targets the first case but aims to complete the first 15 or 20 cases efficiently, establishing a regular rhythm for these procedures. This renewed emphasis and energy are crucial for driving success. I have a strong belief that if we install a system and quickly maintain a high volume of cases, we'll achieve better long-term utilization than if we wait for usage to develop naturally. Our goal is to actively promote the system and encourage adoption of the procedures far more assertively than we've done in the past, where we tended to let doctors use the system at their discretion without a concrete launch strategy for each new system.

Our next question is from Joshua Jennings, TD Cowen.

It's great to be on the earnings call with you again, Larry. I wanted to ask about the situation with concomitant BPH and localized prostate cancer. I believe this presents a significant case volume opportunity. Over the past year and a half, some doctors have mentioned using Aquablation for these patients. Has that begun to impact utilization levels at some centers, or even more than a few? Additionally, is there a chance to gather real-world data from those cases if they're being performed frequently enough?

Thank you, Josh, it’s great to hear your voice. We are really focusing on the BPH opportunity, which remains undertreated, and I want to avoid drawing attention away from it with discussions about cancer. That said, I see cancer as a natural extension for us. I've had discussions with several of our key opinion leaders, and there is significant excitement about the potential to transform treatment for prostate cancer, but we need to finish the trial first. WATER IV is currently in progress, and we plan to give a comprehensive update on it at the Analyst Day in February of next year, where we'll share more details. I see cancer as an additional aspect rather than the main focus. Currently, our strategy to grow the business revolves around BPH, with prostate cancer as an added component.

Our next question is from Mike Kratky from Leerink Partners.

This is Brett standing in for Mike. Congratulations on the quarter. I would like to revisit the average selling price, particularly regarding consumables. How should we consider the contribution of HYDROS to the $3,200 we've observed over the past few quarters, especially in 2026? Is there a point at which the mix reaches a level that allows for some growth?

Yes. So if you look at our installed base today and when we launched HYDROS, essentially every system sold since Q3 of '24 has been the HYDROS system. And we said HYDROS does carry the consumable component higher ASP than AquaBeam, I think somewhere in the low single digits. And our guide in '26, perhaps for your model, I'd be relatively conservative on price. We will get some upside as the mix shifts more heavily to HYDROS, but we're also not reliant on price increases to get to the guide that is in the model. But naturally, over time, you should see low single-digit price increases as the mix becomes more towards HYDROS.

Our next question is from Michael Sarcone from Jefferies.

Maybe one for Kevin. You talked about Q4 gross margin guide of around 63%. And I think you did call out $2 million from tariffs, but just wanted to know if there were any other factors that you would call out in terms of what's impacting gross margin for Q4?

No. You said it. Our guide does incorporate about $2 million in tariff-related expense. That's about 200 basis points alone for Q4. So outside of tariffs, you'd be looking at somewhere in the mid-60s. And I'll just say our margins at this point, they'll continue to trend upwards. But at this stage of the company, even at 65% margins, this isn't a headwind or a hindrance to the company being profitable. And we feel that even at these levels with outsized revenue growth and manageable OpEx, that path to profitability still remains clear, and we're not dependent on margin expansion at this point to get there, but we're continuing to work at it obviously.

This will be our last question. And this question is from Travis Steed from BofA Securities.

This is Stephanie Piazzola on for Travis. Just wanted to ask about the Q4 implied guidance. You beat Q3, but maintained the full year 2025 guide. And you talked about some of the recent trends and changes, but I just wanted to follow up on the Q4 guide and the key drivers of that lowered outlook in Q4.

Yes. So if you look at what our guide entails compared to previous guidance, we essentially have lowered the overall handpieces sold number by about 1,000 systems. And really, we mentioned destocking. We mentioned inventory optimization and a focus on launching accounts. And it's really that dynamic flushing through via handpieces sold in the fourth quarter. And we do look forward to giving our investors an update on the procedure side of the business in February '26. And we believe when you look at that metric, you'll find that there's not really a slowdown in the business, but we felt we needed to call out the handpiece dynamic that both Larry and I referred to in our script.

Yes. Just to add to what Kevin said, and I think this is just a little bit of a business maturity issue as we get larger is we haven't really been managing customer inventory by establishing par levels for each customer. So we have some customers that are probably not carrying enough inventory, and we certainly never want a customer to not be able to do a case because they don't have adequate inventory. But at the same time, we have other customers that are probably carrying too much inventory. And our initial look at this probably says there's probably more inventory in the field than what's needed. And so as we optimize those par levels, we may see a little bit of destocking. But we're focused on procedure growth, and that's what's going to drive the long-term health of the business. And I'm expecting that we're going to have a good procedure quarter in Q4, and that's going to be our focus on a go-forward basis.

Thank you. This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.