PROCEPT BioRobotics Corp Q4 FY2025 Earnings Call

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

Good afternoon, and thank you for joining PROCEPT BioRobotics Fourth 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 in 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, February 24, 2026. 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. Before discussing our fourth quarter results, I want to share context on progress since joining the company as CEO. When I joined PROCEPT, I outlined an immediate near-term plan for the organization that I believe was critical to positioning the company for its next chapter. It was essential to move with a clear vision, a strong sense of urgency and a culture grounded in discipline and accountability. Historically, PROCEPT executed effectively in its first chapter of growth. That work created the foundation the company benefits from today. However, as the company evolves, so do the requirements for success. The next stage of PROCEPT's development requires shifting the operational focus towards increasing procedure volume, expanding margins and achieving profitability and gaining market share. At the same time, we must deliberately build an organization that supports both near-term performance and long-term sustainable growth. We recently made two changes to our commercial organization that we believe are strategically important for long-term performance. First, we have realigned our commercial team into an integrated regional structure where our clinical and sales functions now report to a common regional leader. The new structure creates a single point of accountability at the regional level to ensure clinical and commercial activities are coordinated around customer success and procedure growth. Second, we formed a dedicated launch team by reassigning a small number of our top performers to focus specifically on new system placements. The intent is to drive more consistent launches, reduce variability in activation and accelerate time to value for customers because we see launches as a key lever to improving downstream utilization and performance. In the near term, the sales realignment and formulation of the launch team create some short-term disruption. Certain account coverage has changed and temporarily, we have fewer tenured resources in the field as we stand up the launch team. We view this as a normal transition period as teams ramp, establish account relationships and standardize new operating processes. Importantly, we believe these changes better position us for sustained high growth through clear leadership, better alignment and more repeatable launches. We will continue to manage through this transition thoughtfully, and we expect the benefits to build as the organization settles into the new model. Now turning to fourth quarter results. In the fourth quarter, we completed 12,200 procedures, reflecting approximately 69% annual growth. On the third quarter earnings call, we reduced our previously issued Q4 guidance by 1,000 handpiece units as we reestablish customer inventory targets that we felt were appropriate based on usage volume. Separate from establishing inventory targets, it became clear as the quarter progressed that accounts have become accustomed to purchasing large quantities of handpieces and receiving bulk discounts in the final weeks of the quarter. I've always believed pricing discipline is foundational for long-term success. At PROCEPT, I have been focused on implementation of handpiece price discipline. And as part of that, we eliminated the historical practice of providing discounts on bulk purchases, particularly at the end of the quarter. Despite customer requests, we remain disciplined and did not allow bulk purchases at a discount. As a result, handpiece unit sales were approximately 80% of procedures in the fourth quarter and for the first time, procedures exceeded handpieces sold. While this resulted in lower-than-expected revenue, it delivered a significant improvement in handpiece selling price. Average fourth quarter selling price was $3,340, or up $140 or approximately 5% sequentially from the third quarter. Historically, handpiece unit sales exceeded procedure volumes by approximately 8% to 16%. Based on the last several months, we now expect handpiece unit sales and procedure volumes to be in close alignment on a go-forward basis with sustained improvement in handpiece average selling prices. These business practice changes resulted in a reduction of our projected 2026 handpiece revenue. The revenue impact is meaningfully offset by the increase in handpiece average selling prices. Based on the combination of these factors with the short-term disruption associated with the sales force realignment, we are now resetting 2026 guidance to $390 million to $410 million, representing annual growth of 27% to 33%. Before I turn it over to Kevin to walk through the financials, I want to close by previewing what to expect at our Investor Day tomorrow morning. For the first time since the IPO nearly 5 years ago, we will provide a more detailed multiyear look at our financial guidance, including more details on '26 and '27, our path to profitability and an update on the Water IV Prostate Cancer trial, as well as a vision for our future. I hope to see everyone there. With that, I'll hand it over to Kevin to walk through the financials for the quarter.

Thanks, Larry. Total revenue for the fourth quarter of 2025 was $76.4 million, representing 12% year-over-year growth. U.S. revenue for the quarter was $66.6 million, reflecting 10% growth compared to the prior year period. Turning to U.S. procedures. As noted by Larry, we completed approximately 12,200 U.S. procedures in the fourth quarter of 2025, representing approximately 69% year-over-year growth. Handpieces sold totaled 9,400 units at an average selling price of approximately $3,340 during the quarter, reflecting a 5% price increase compared to the third quarter of 2025. Other consumable revenue totaled $2.3 million in the fourth quarter. As a result, total U.S. handpiece and other consumable revenue was $34 million in the fourth quarter of 2025, representing 16% growth compared to the fourth quarter of 2024. Turning to U.S. robot placements. In the fourth quarter, we sold 65 new HYDRO systems. At the end of 2025, we had an installed base of 718 systems, representing a 42% increase compared to year-end 2024. Total U.S. system revenue was $27.6 million in the fourth quarter, comparable to the prior year period, with systems sold at an average selling price of approximately $425,000. International revenue in the fourth quarter of 2025 was $9.8 million, representing year-over-year growth of 25%. Moving down the income statement. Gross margin for the fourth quarter of 2025 was 60.6% compared to 64% in the fourth quarter of 2024. The approximate 450 basis point shortfall compared to fourth quarter guidance was driven primarily by lower-than-expected U.S. consumable revenue, as well as a one-time voluntary field action that contributed approximately 240 basis points of pressure. On a full-year basis, 2025 gross margin was 63.7% compared to 61.1% in 2024. Total operating expenses for the fourth quarter of 2025 were $77.4 million compared to $63.4 million in the prior year period. The increase reflects continued investment to support commercial expansion, continued innovation across our BPH platform technology, and increased funding for our Water IV Prostate Cancer trial, positioning us to drive long-term growth and expand our clinical and technology leadership. Net loss for the fourth quarter of 2025 was $29.8 million compared to a net loss of $18.9 million in the fourth quarter of 2024. Adjusted EBITDA was a loss of $19 million in the fourth quarter of 2025 compared to a loss of $10.3 million in the prior year period. Cash, cash equivalents, and restricted cash totaled $285 million as of December 31, 2025, providing a strong balance sheet to support our strategic priorities. Moving to our 2026 financial guidance. We now expect full-year 2026 total revenue to be in the range of approximately $390 million to $410 million, representing growth of approximately 27% to 33% compared to 2025. This guidance range assumes international revenue to be in the range of $50 million to $51 million. Additionally, we now expect 2026 total U.S. procedures to be in the range of 60,000 to 64,000, representing growth of approximately 39% to 48%. As Larry noted, the adjustment to our 2026 revenue guidance is driven by a few factors. As a result of our business practice changes, we now expect handpiece unit sales to be closely aligned with procedure volumes, which results in a reduction in 2026 handpiece revenue. This revenue reduction is meaningfully offset by the increase in U.S. handpiece average selling prices, which we now estimate to be $3,500 in 2026. Our updated guidance incorporates both factors above in addition to the short-term disruption of our sales organization, as discussed by Larry. Importantly, our 2026 outlook does not change our confidence in the company's long-term growth and profitability trajectory through 2026 and 2027. Turning to gross margins. We expect full-year 2026 gross margin to be approximately 65%, which includes $5 million to $6 million of tariff expense compared to $1.3 million in fiscal 2025, which is an approximate 100 basis point headwind to 2026. Turning to operating expenses. We expect full-year 2026 operating expenses to total $350 million, representing a 17% increase compared to 2025. After considering all relevant factors, we expect full-year 2026 adjusted EBITDA loss to be in the range of $30 million to $17 million. Our revised revenue guidance reflects positive EBITDA in the fourth quarter of 2026 at both the low and high end of the revenue range. For the first quarter, we expect total U.S. procedures to be in the range of 12,000 to 12,800, representing growth of 29% to 37%. This anticipates the implementation of multiple commercial initiatives designed to drive more durable and sustainable procedure growth. As these initiatives take hold, we expect procedures to accelerate, reaching growth of over 50% in the second half of the year compared to fiscal 2025. We expect total revenues for the first quarter of 2026 of $79 million to $82 million, representing growth of 14% to 19%. Included in our total first quarter revenue guidance is U.S. system revenue of approximately $20 million and $10 million of international revenue. I would now like to pass it back to Larry for closing comments.

Thanks, Kevin. While financial performance in the fourth quarter was lower than anticipated, the changes we have made are critical to driving sustainable high growth and paving a clear path to profitability. We are very excited to share more details on 2026 and beyond at our investor conference tomorrow morning at 8:00 a.m. Eastern. With that, we are happy to take questions. Operator? Our first question comes from Matthew O'Brien with Piper Sandler.

I think we can ask two questions. The first one is, Larry, everyone expected the quarter to be weaker in terms of handpieces, but the extent of this weakness was not anticipated. Could you provide more insight into what happened in Q4? Specifically, did you reduce about 4,000 handpieces in inventory during that quarter? I also have a follow-up question.

Yes. Thanks, Matt. Well, first, I'd just say we're dealing with two distinctly different dynamics. The first was we had signaled on the Q3 call that we expect there to be some destocking, but that was really about establishing part levels for accounts based on their usage. And I think directionally, that number was still pretty sound. The thing that came to light later in the quarter was how much our business practices of allowing bulk purchases at a discount was influencing customer purchase behavior. And when we did a deep review of that, I just didn't think it made sense for us on a go forward to be running that practice and discounting that way. I think without that incentive, customers no longer did the bulk purchasing, and that's obviously what contributed to the revenue mix. I think the big thing is it had two positive structural effects for us. The first one was the obvious one of ASP. We saw our ASP increase to about $3,340 in the quarter. But the other thing is it's going to improve our quality and predictability of revenue by aligning shipments more closely with underlying procedure volumes. And the health of our business was never going to be defined on customer stocking patterns or bulk purchases. It's always going to be about our procedure growth. And so that's really what we focused on. And so yes, there was a lot more reduction in inventory. I think our handpiece sales were about, I think, I don't know, 77% of procedure volume. So I think you can do the math on that and get to the number of units that came out. But I think the big thing for us is, as we look at 2026, we're now modeling those being at about a 1:1 ratio, and we're modeling an ASP of about $3,500, which is about a 9% improvement over where we were in 2025. And these are the structural foundational fundamental things that I just feel we have to do to really to ensure our path to profitability in the time frames that we want to be.

I appreciate that. Regarding the guidance for 2026, it appears to be weighted toward the latter part of the year. Looking at the first quarter commentary, it remains the most challenging comparison of the year in terms of handpieces, but the impact seems modest. It appears that the effects from the commercial reorganization will still be felt in the first quarter. I'm curious about the confidence in seeing benefits in the latter half of the year, as I hope we won't need to lower our expectations for the entire year again.

Yes, I appreciate your question. We provided a range to guide our expectations for Q1, which typically starts off slow after the holidays. This is something we have experienced before in past companies. Additionally, as our sales force adjusts to the new structure and rebuilds customer relationships with people covering different accounts, it will take some time for this to fully develop. However, we believe this restructuring will yield positive results. Having team members focused solely on procedure growth in their areas, without distractions from product launches, along with dedicated launch teams, is expected to bring benefits. These results are likely to emerge more in the latter half of the year than in the first half. We will provide more detailed information tomorrow, including a thorough walkthrough of our procedures, ensuring transparency. While we've discussed focusing on handpiece revenue, tomorrow's session will cover all relevant components in detail, which should help you assess our plan with greater confidence.

I just want to follow on to Larry here, Matt, this is Kevin. And we're going to go through this, as Larry mentioned tomorrow, to give a full cohort analysis. And to your concern or question around the low end of the range, we're going to provide everybody with comfort that at the low end of the range, we are only expecting very modest utilization growth in our legacy installed base. We're actually going to show you that tomorrow to directly answer your concern that you just brought up.

Our next question comes from the line of Chris Pasquale from Nephron Research.

It looks like handpiece sales exceeded procedure volumes by a little over 10,000 units over the past 3 years, including this quarter's drawdown. So what gives you confidence that the ratio is going to be 1:1 in '26? Why shouldn't the rest of that gap need to be closed?

Yes. Thanks for your question. I think there's a couple of things here. When we look at the history here, handpiece sales have been about 108% to 115% of procedure volume, and now we're modeling that at 1:1. But we're modeling it 1:1 even though that we're going to increase our installed base by a couple of hundred systems that are all going to have to take inventory and take stocking orders and do all those things as we expand our installed base. So even with that, we're modeling at a 1:1. Based on all of our analysis and assessments, I think there's probably more upside to that number than downside. But I think 1:1 is where we're modeling it at. And that's a significant change from how we've done all of our previous modeling. And that actually is probably the biggest impact to the reduction in guidance. If we would have modeled handpiece sales at 110% even of procedures like we historically had, then that would have been worth a little over $20 million, probably $20 million, $22 million. And we're able to offset a lot of that with the price increase. But again, I think the long-term health of our business is going to be focusing on procedure growth and having steady, stable revenue. The other thing I can say is we made this change in the fourth quarter of pretty much the last month. So we have about 8 or 9 weeks of runway under this new business practice. And we continue to see now handpiece sales and procedures pretty much flying in formation. And I think that's what gives us confidence that that's that the 1:1 ratio is going to be appropriate for 2026.

Okay. And then, Kevin, you talked about the gross margin impact of a field action in the quarter. Could you just give us some details around what that was and if that impact is contained to the fourth quarter?

Yes. I'll start with the field action. And here's what it was. It was a one-time nonrecurring field action. There were no patient safety issues. There were no concerns. It had to do with compatibility between the handpiece and between the system itself. And what we did was we were just able to go to a field upgrade that just took that issue off the table for us. And so we've upgraded our systems and made the appropriate changes. So that was contained in the fourth quarter. Kevin, if you can walk through the math on it.

Yes. It was approximately $1.5 million, which was 240 basis points of pressure is the math. But as Larry said, onetime, and it will not impact us moving forward.

Our next question comes from Josh Jennings of TD Cowen.

I would like to understand the dynamics of the fourth quarter and the outlook moving forward regarding the recent end of bulk purchase deals. Are you noticing any customer dissatisfaction? Also, do you expect that high-volume, medium-volume, and low-volume centers will reduce their utilization in the short term as they adjust to the higher handpiece prices?

Yes, thank you, Josh. We do not expect any dissatisfaction from customers, and we have not observed any signs of it. In December, some customers may have been hesitant, waiting to see if we would reinstate incentives before the quarter's end, which we did not. However, we have noticed consistent ordering patterns, especially in Q1 and even toward the end of last year, where customers needed to reorder to support their cases. This has not influenced our utilization or case volume, and we have not received any feedback to suggest otherwise. Our main focus remains on maintaining discipline in this area. As we progress through Q1, I believe we are not affected by this situation. There was a perception within the company that offering more handpieces might increase utilization, but I do not see a connection there. We will continue to prioritize our procedure growth, which is a significant focus for us. This is why we made adjustments to our sales team. We will remain disciplined regarding handpiece pricing and system pricing as well.

Understood. Larry, you mentioned some disruption in the commercial work or the commercial restructuring. I wanted to inquire about the stability of the sales force and your top clinical specialists and capital reps. Is the situation relatively stable? Are you experiencing any attrition? And do you plan to expand the team as you progress into 2026 and later?

Thanks, Josh. Yes, our team has been stable, and we haven't experienced any higher attrition. When I talk about disruption, I'm not referring to losing team members. To provide a bit more context, we created launch teams by moving some of our most experienced people to ensure successful launches. From my experience at Edwards, I learned that when we launched TAVR sites successfully with a consistent approach, these became healthy programs. Conversely, poor launches took time to reach the expected volume. We want to prioritize these launches to guarantee they go well, ensuring that the teams receive the necessary support to achieve excellent outcomes for patients, particularly during the initial procedures. However, forming these launch teams meant reallocating some of our best individuals from the utilization team to support procedures. While we have filled those positions, it necessitates rebuilding relationships with our customers, which can take time, especially if the previous individuals had established rapport. We have also realigned territories to enhance customer service and drive growth, which means our team must reestablish connections. This is a typical phase we go through whenever we adjust the network, as having new team members engage with existing accounts naturally takes time for relationship building. I view this as a temporary situation. We executed a more significant shift all at once compared to the usual gradual process of splitting territories. Nevertheless, I believe we have excellent people in suitable positions, and it's just a matter of allowing time for them to develop their relationships in the new territories they now cover.

Our next question comes from the line of Richard Newitter of Truist Securities.

I have two questions. First, regarding the systems, you mentioned a blended ASP of $425,000 and that you sold 65 systems. Can you clarify what the greenfield contributions were? Were there any operating leases or trade-ins included? For 2026, I didn't hear a specific placement number, but I believe the consensus is around 220 for the year. Based on that, it seems like you are suggesting something similar. Can you confirm that? I have a follow-up question as well.

Yes. I'll start with the pricing. Our capital pricing varies a little bit quarter-to-quarter, and it really has to do with our customer mix, whether we're selling into some of the big IDNs or whether their individual systems are being placed. So the $425,000 doesn't reflect any softness in the capital. I think what we're modeling next year is we expect ASP for systems to be flat to up compared to what we saw this year. And so that's kind of where we are. And I think in terms of systems, I think we're modeling Greenfields to be very similar to this year. We're going to shed more light on that tomorrow. But Kevin, do you have anything to add?

No, we're going to walk through the different components, Rich, of guidance tomorrow, but your observation around roughly flat system sales with a slight increase in ASP is a fair assumption.

Okay. Larry, starting from the first quarter or even the fourth quarter of last year, I know this predates you. There were some seemingly temporary external factors, such as the hurricane and its impact on solutions. Additionally, there were one-time factors throughout the year. On your last call, you prepared us for the destocking component and the efforts to manage that. It appears there was some discounting. Regarding where we stand today and the outlook for the business, can you provide insight into the actual underlying demand for procedures? Are there any issues related to reimbursement changes or doctor usage patterns? Are these challenges mainly self-inflicted, affecting the drawdown or lower forecasting for consumables? There has been considerable noise surrounding procedures, and now we're entering a phase with some internal self-help factors. How can you instill confidence in your visibility and ability to execute at this new, seemingly reset level, ensuring there are no deeper issues with demand or market penetration that you are facing?

Thank you for your question. I appreciate your perspective. Historically, we've reported only on handpiece revenue, but we will now also include procedure data to enhance transparency. Our procedure growth this quarter was nearly 70% year-over-year, indicating strong demand. We aim to exceed this growth further. The revenue shortfall we experienced was not due to procedures but rather the ordering behavior of our customers. Many have become accustomed to discounts, which has led to uneven sales patterns, particularly with stockpiling at quarter-end and depletion in the following quarter. We reevaluated this approach and decided it wasn’t beneficial for us. Going forward, we expect to see advantages from the average selling price we anticipate for next year. We are balancing the cycle of discounted orders with a focus on steady revenue that aligns with procedure growth. These foundational changes are crucial, and I am confident that we have moved past these challenges. We have also restructured our sales team to enhance our execution in growing procedures. Tomorrow, we will present our value proposition for Aquablation to the clinical community, sharing insights we haven't disclosed before. We believe in our solid strategy, which starts with addressing these fundamental issues, particularly pricing, as it heavily influences our margins and path to profitability. The steps we've taken will drive us toward the success and profitability we are all striving for.

Our next question comes from Brandon Vazquez from William Blair.

Larry, in a situation like this, our goal is to move past it quickly, similar to ripping off a Band-Aid in one quarter. Investors often find it challenging because significant changes on the commercial side or major inventory shifts usually take more than just one quarter. However, it seems you have the confidence that you can continue growing throughout the year, despite the disruptions and external factors mentioned by Rich that have been affecting the business for a while. Could you elaborate a bit more on the new initiatives you've been implementing over the past couple of weeks? Are there any early metrics that indicate progress and reassure us that this issue is resolved without needing further changes going forward?

Thanks for the question. I'll start with the alignment of procedure matching to handpiece revenue. We implemented changes last December, and we now have several weeks of data showing that these two figures are closely aligned. This gives us confidence that we have moved past that issue. This year, we plan to increase our installed base by a few hundred instruments, all of which will require inventory to operate. Even if there is a slight amount of destocking occurring in our current inventory, which I have no evidence to suggest, the new systems will still create a demand for inventory. Therefore, I believe there's likely more potential for growth than for decline. Our main focus is strictly on growing procedures, as the health of our business relies on our execution in the field and our increasing procedure volumes, rather than on customer ordering or stocking patterns. This is why we made changes to our sales organization all at once, enabling us to move forward effectively. We have realigned our team under a common regional leader to enhance focus and accountability, which will drive our growth in the most critical areas, specifically procedure growth. While I understand the comments and concerns, these changes were necessary to direct the organization properly. I'm planning for the long term, not just the next quarter. We needed to address issues that were negatively impacting our margins and encouraging undesirable customer behaviors. I'm confident that the inventory challenges are behind us, and I believe the new sales organization will yield positive results in the future. However, such a significant organizational change takes time for relationships to be restored, and all of that is factored into our guidance for 2026.

Okay. And switching gears a little bit, just because this will probably start to come up a lot in investor conversations going into the quarter, of course, I'm sure you guys have heard that a lot of noise around PAE given the reimbursement there and a lot of experts doing or a lot of urologists doing more PAE cases these days. You gave the procedure numbers, which is super helpful. But maybe talk to us a little bit what you're seeing in the field and help us bridge like you called 10 urologists and 9 out of 10 of them are doing more PAE, your procedures are still growing. Kind of give us the lay of the land of how you're seeing Aquablation and PAE playing out in the field.

Yes. No, thank you. We're going to provide more detail on procedure trends at the investor conference tomorrow, but we're still very early in penetrating a market with more than 400,000 surgical BPH procedures annually. So our primary opportunity improving commercial execution is going to be consistently taking share. From a competitive standpoint, we continue to think that we offer a very strong value proposition, particularly related to term. Specific to with respect to PAE, while the site and service economics can be attractive, we're seeing continued variability in clinical durability. And we've also seen more variability in payer coverage. And our current market intelligence suggests that coverage may be more selective over time rather than broader. And as a result, we don't see changing the long-term competitive dynamic for patients who are appropriate for resective therapy. But we're going to show some data tomorrow, and we're going to walk through what we think our value proposition is and why we think we're going to be successful making inroads from a share perspective in this patient population.

Our next question comes from Suraj Kalia from Oppenheimer & Co.

Larry, can you hear me all right?

I can hear you fine.

So Larry, I want to follow up on Chris' question. Obviously, the math is the math in terms of inventory in the field. I guess if I could comment it from a different angle, Larry, look, the Board signed off, the Audit Committee had to sign off on the previous sales process, right? Now a completely new process has been instituted. My question, Larry, would be, why now? Why couldn't this be staged? And what specific thing has triggered the Audit Committee, everyone to say, okay, we bless this. This is the path to go and now is the time to do this?

One of the things we've discussed, and we'll provide more details tomorrow, is that over the past four to five years, handpiece revenue consistently exceeded our procedure volume. During this time, pricing remained relatively stable. Last year, I indicated that inventory levels in the field were higher than necessary, which is why we aimed to reduce those levels. It wasn't until later in the quarter that we realized how much customer stocking behavior was influenced by incentives. Price management is challenging, and improving margins is tough. I see a significant opportunity in reaching a $3,500 price point in our 2026 plan, which is a meaningful upside. However, this won't yield immediate benefits; rather, it will be advantageous in the coming years as we work towards profitability and better margins. Attempting to gradually reduce these levels over several quarters would have been counterproductive and a topic we would need to continually address. If we had chosen that route, we wouldn't have seen the benefits to our average selling price. So, we made a conscious decision. We understand that this led to a revenue shortfall, but the impact on our average selling price next year is considerable. Building these foundational elements for the long term is essential. We aimed to reassure our customers that those practices are in the past and that they can order based on their procedure usage moving forward. None of the changes we implemented affect our future growth or our route to profitability. These were the right decisions to make. I recognize your concern about potentially bleeding this process over time, but that would only confuse our customers with the incentive plans. We wanted to move forward and leave that behind us.

Fair enough. Larry, my second question is about customer behavior, which you mentioned a couple of times. I assume this refers to customers wanting end-of-quarter discounts. Their behavior seems to have been influenced by PROCEPT's sales practices over multiple years. Have you conducted a sensitivity analysis on your existing customer base to determine how the changes you're implementing will affect customer behavior immediately?

Yes. Thank you. We have dealt with this issue for several weeks now. We implemented changes last December and have had a good period to evaluate their effects. We don't see any negative impacts from these changes, and I don’t expect any in the future. I recognize the notion of customer conditioning, and we contributed to this through incentives and discounts that customers utilized. However, I believe this approach was not sustainable for us in the long term. It's more advantageous for us to focus on the impact on average selling price while maintaining a stable ordering pattern and revenue stream. These adjustments are necessary structural changes, and I believe they will benefit us in the long run.

Our next question comes from Michael Sarcone from Jefferies.

I guess just first one for me. I know you're going to give more detail at the Investor Day tomorrow, but you carved out this team that's focused on the launch process. Can you maybe just help crystallize that, give us 1 or 2 examples of what you're attempting to change in the launch process now that will kind of position you for success?

Certainly. In the previous organizational structure, our team consisted of a single field team that focused on procedures alongside a capital team. The old process involved the capital team selling the instrument and notifying the procedure team afterward. Besides supporting the existing installations, the procedure team had to manage how to launch the new system, the training needs of doctors, and how to implement that training, which often pulled them in various directions. The capital team aimed to drive capital sales, while the procedure team—comprising sales and clinical personnel—reported to different leaders with their own incentives, plans, and objectives that weren't always aligned. With the creation of a launch team under the capital organization, we can coordinate training for clinicians as the capital team approaches closing an order. We've assigned some of our most experienced personnel to this team to ensure excellent support and care for every new system launch. We are measuring our success through the time taken for purchase orders and the completion of initial cases, striving for repeated excellence and predictable launches using a standardized playbook, which was lacking in the past. Previously, different people approached these tasks in varied ways, often balancing support for existing accounts with new system launches, sometimes with less experienced staff handling critical activities. Now, we have our most qualified individuals managing these responsibilities. While we need to rebuild positions on the procedure team and strengthen relationships, we believe this will yield significant benefits. In a pilot program during the fourth quarter, we observed about a 50% reduction in the time to complete initial cases under the launch team model, which we anticipate will greatly benefit us moving forward. We will provide further details on this at our Investor Day tomorrow, but these changes are foundational, and we aim to have everyone adopting the launch team model by the end of the year.

Very helpful, Larry. And I guess the second one from me is I'll echo the sentiment from other folks here, 70% procedure growth is pretty impressive. I mean, can you give us any color on how that's split out between maybe older cohorts of existing customers versus newer cohorts?

Yes. Thanks. Yes, while the growth number was pretty good, I will tell you, we have much more ambitious goals than that, and that's again why we made some of these changes because we want to drive and accelerate that. In terms of where the growth comes from, I will tell you, it's highly variable. And we'll provide a little bit more color on some of our insights tomorrow, but there's just not an easy one answer. It's not to say that every customer is a snowflake, but there's not as much commonality as maybe one would think. But we're going to talk about that tomorrow. And again, we're going to be really transparent tomorrow walking people through our strategy through the changes we've made, why we believe they're going to benefit us and what we're going to do differently on a go forward that hopefully will give people confidence in our strategy and our long-term outlook.

Our next question comes from the line of Mason Carrico from Stephens Inc.

This is Ben filling in for Mason. In light of the recent changes you've mentioned today, could you provide an update on your IDNs level strategy? Are you planning to focus more on these negotiations in 2026? Additionally, is there a chance for some bulk system placements in the 2026 guidance?

I don't think much is going to change from last year to this year. Our focus remains on IDNs, and we have teams dedicated to new greenfield placements. We plan to discuss our capital strategy tomorrow and provide more insights, but I don't anticipate any significant changes from last year to this year.

Okay. Great. You mentioned before that the benefits of Aquablation may not be fully recognized by patients at this time. Are there any initiatives planned for 2026 to help communicate this message to patients?

If you're interested in that, you'll definitely want to tune in tomorrow. We have a specific plan and strategy for communicating the value proposition of Aquablation to both patients and clinicians. It's important to emphasize that when people hear about patient activation, they often think it's simply about encouraging people to take action. However, about 400,000 individuals undergo invasive procedures for their BPH each year, and we have only captured about 10% of that market by 2025. This shows there is significant potential to gain market share from those already receiving treatment. Beyond that, there is also a large group of individuals currently on medication that we will discuss tomorrow. In the near term, our focus will be on gaining market share, but patient and physician education will be vital components of our strategy. Additionally, when people hear about patient activation, they often think of large-scale advertising campaigns, but that's not our approach. We're prioritizing our path to profitability and our programs will not require that level of expenditure. The good news is that targeting and identifying men with BPH is straightforward for us, unlike my previous experience where we looked for a small percentage of individuals over 80 with valvular heart disease. We know exactly who these patients are, allowing us to implement more targeted education programs that will have a meaningful impact.

Our next question comes from Stephanie Piazzola from Bank of America.

I'm sure we'll get more detail tomorrow, but if there's anything you could share now on how to think about that step-up to 62,000 U.S. procedures in 2026 versus the Q4 run rate was a little under $50,000. And then also I just wanted to clarify on the ASP uplift that you expect this year. Is that just a result of the change in the customer ordering practices or something else, too?

Yes. Thanks. I'll take your second question first. Yes, the ASP pickup is just by not offering incentives or discounts for end of the quarter purchases. And by eliminating that practice, we've already seen the impact on our ASP, and we expect that to continue. On the procedure walk, we are going to go into detail on that tomorrow, but it's going to be a combination. I think the biggest drivers of it, frankly, are going to be the new systems that we're adding, the benefits of the launch team, the growth that we're going to get from that. We don't have massive uptick in our installed base. There's obviously going to be some growth that comes there, but we know it's going to take a little bit of time for some of our programs to take hold. But we're going to go on a detailed walk tomorrow to walk through kind of the puts and takes on how we take our procedure total from what we had in 2025 to what we had in 2026.

Got it. And then just on the sales force realignment and some of the potential disruption there, how do we think about where you are in that process and how much is left to go? And how do we think about the disruption turning to a benefit and when that happens?

All of the organizational changes have been completed and implemented. We introduced these changes at our sales meeting in January, so everything is in place. Everyone now has their account targets, quotas, and revised incentive plans. The next step is for people to adjust to their new roles, learn their accounts, build relationships, and fulfill their responsibilities. However, not every customer was assigned a new representative, as many elements were retained from the previous structure during the territory realignment. While there were some adjustments made, such as pulling some individuals onto the launch team, it did not involve a significant percentage of our field force. These changes will have some effects and present challenges, but I believe that as the organization evolves, having a dedicated team focused on optimizing the utilization of our installed base will yield positive results. Additionally, aligning incentives between the commercial, sales, and clinical teams under a common leader in each region will enhance focus, accountability, and ultimately improve our execution and performance.

Our next question comes from the line of Danielle Antalffy from UBS.

I imagine we are going to get this more for this tomorrow. But Larry, I'm just curious, in the 6 months or so that you've been there, how much of a heavy lift do you think the market development component is here? I appreciate you've talked a lot about the sales force realignment and adjustments there. But just from a pure market education perspective, what's the plan? I mean, as much as you feel like saying on this call versus tomorrow? And how much of that is going to be part of this procedure volume bridge and the long-term plan?

Thank you, Danielle. Here's my response. Historically, the company has concentrated on installing systems and ensuring that the personnel who took on these systems understood the procedures and achieved positive outcomes. I believe the team has excelled in this area. However, when it comes to marketing initiatives and raising awareness about our value proposition, I must be honest: little progress has been made. If I were a patient trying to find information on BPH therapy, I wouldn’t even come across Aquablation on WebMD using typical search methods. There are fundamental tasks that have not been accomplished that fail to present our value proposition to patients effectively. We need to enhance our presence on platforms like WebMD and social media, highlighting how our procedure compares in terms of outcomes and durability—factors that truly matter to patients. This is a gradual process, not an overnight change. For instance, the TAVR journey at Edwards required consistent effort over time. There are many essential tasks that can be executed quickly to create a significant impact. We plan to devote considerable time to this topic at the investor conference tomorrow, and I encourage you to attend. When you see the initiatives we’re implementing and the value we bring, I believe we will present a compelling case to both clinicians and patients.

Okay. That's helpful. And again, I don't want to front-run tomorrow, but one thing we heard in our diligence and speaking to docs was some level of appetite to have the ability to do this in the ASC. I know you guys aren't ready for that yet. But just from a capacity perspective, is that something that could be part of the long-term plan? Anything you can say about that?

Yes. Thanks, Danielle. Certainly, for the long-term plan, that's going to be something that's going to become part of our story as we go through time. So I think that, that's very fair. I don't think it's something that's so much of a near-term thing for us. The other thing, and I'll just address it and we're going to talk about it tomorrow is we have people saying, like, are you going to cover cases forever because that's been our model we've done historically. And we'll provide an update on that as well on how we think these things evolve over time, and that can improve our efficiency and again, improve our ability to execute.

Our next question comes from Mike Kratky from Leerink Partners.

I wanted to revisit Chris' earlier question. If handpieces sold have consistently outnumbered procedure volumes every quarter for the last three years, except for the fourth quarter, don't your customers still have a significant stock of handpieces to work through? Regarding the 1:1 ratio, can you clarify why you are confident that this will hold true? Also, did anything in the voluntary field action affect this situation?

I'll begin with the second part. The field action did not affect this situation at all; it was a completely separate event. Regarding the handpieces, customers still need to maintain their inventory. No one is keeping just one handpiece on the shelf, so they must continue to manage their inventory levels. It really depends on the specific levels they choose to carry. In the past, customers would stock up on more inventory than necessary due to incentive plans, leading to an initial spike in inventory followed by a reduction in the first couple of months of the quarter, after which they would reorder to take advantage of the incentives. We have addressed this issue, and now customers are consistently maintaining inventory levels that align with their usage and inventory policies. We projected a 1:1 ratio for next year, and that aligns with what we’ve observed over the past few weeks since our policy changes. This gives us confidence moving forward. Additionally, we plan to install several hundred systems next year, which will also require stocking orders and inventory levels, and we still anticipate maintaining that 1:1 ratio. These factors provide us with confidence that this ratio will hold.

Got it. And then maybe just the last one on my side, but can you provide any additional color on the cadence of OpEx and your sales force expansion or SG&A throughout the year?

Yes. On the cadence of OpEx, maybe I'll just point to what our EBITDA guidance implies. So we had said at both the low and the high end of guidance will be EBITDA positive in the fourth quarter. We're forecasting an EBITDA loss in Q1 of somewhere in the $20 million range, which would put OpEx somewhere between $85 million to $88 million in the first quarter and then build from there. And again, we're going to go through kind of that walk tomorrow as well.

Our last question comes from Nathan Treybeck from Wells Fargo.

So it sounds like handpiece sales have exceeded procedure volumes by wide margin for a long time. I guess, can you talk about what this implies for actual utilization levels at your accounts? And I guess, how would you put that into context the monthly utilization numbers that the company gave in the past for other BPH surgical procedures?

Yes. Utilization is highly variable. And I think, again, what we're focused on is procedure growth. I probably can't go as deep on the history here. I don't know, Kevin, do you have anything you want to add?

I think if you look at it, it's been relatively consistent over the last 3 years. And just to maybe put a number that's been thrown around a few times to highlight, I think it is correct. If we're at a 1:1 ratio, you would see about 11,000 units out in the field. But remember, we're adding over 200 systems in 2026, which would put given current procedure trends, average customer inventory just a little over a month to 7 weeks, which we feel really comfortable with.

Okay. And so on your capital funnel, I think last time you mentioned there might have been more scrutiny of budgets. It sounds like you're expecting flattish system placements in '26. I guess talk about the level of price sensitivity you're seeing in the accounts that you're pursuing now and I guess, the willingness to place an Aquablation system with just a BPH indication.

We had a very strong quarter for capital in Q4, with 65 systems sold, which is a record for us. This indicates that demand remains strong. Typically, the fourth quarter is our most significant time for capital sales each year. We are projecting a similar number of placements in 2026 as we had in 2025, and we will share more details on that later. We also expect the average selling price to remain stable or increase in 2026 compared to 2025. Overall, we see healthy demand and do not anticipate any major changes that would hinder our execution of the plan from 2025 to 2026.

At this time, that does conclude the question-and-answer session. I would now like to turn it back to Matt Bacso, CEO, for closing remarks.

Thanks, operator. I appreciate everyone's time today going through Q&A, listening to the Q4 call. I just want to remind everybody that we are hosting our Analyst Day tomorrow in New York at 8:00 a.m. Eastern, and please show up a little early. There will be breakfast provided, but we will start promptly at 8:00 a.m. Hope to see you there. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.