Earnings Call Transcript - PRCT Q2 2022

Operator, Operator

Good afternoon, and welcome to PROCEPT BioRobotics Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Bacso from the Gilmartin Group for a few introductory comments.

Matt Bacso, Gilmartin Group

Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from PROCEPT BioRobotics are Reza Zadno, CEO; and Kevin Waters, CFO. Earlier today, PROCEPT released financial results for the quarter ended June 30, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those related to our sales and operating trends and future financial performance, expense management, expectations for hiring or growth, market opportunity, revenue guidance, commercial expansion and future product development and approvals are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2022, and available on EDGAR and in our other public reports filed periodically with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on August 4, 2022. PROCEPT BioRobotics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. And with that, I will now turn the call over to Reza.

Reza Zadno, CEO

Thanks, Matt. Good afternoon, and thank you for joining us. For today's call, I will provide opening comments and a business update, followed by Kevin, who will provide additional details regarding our financial performance and updated 2022 financial guidance before opening the call to Q&A. Starting with our quarterly revenue results. Total revenue for the second quarter of 2022 was $16.7 million, representing growth of 97%, compared to the second quarter of 2021, and 18% sequential growth compared to the first quarter of 2022. U.S. revenue for the quarter was $14.8 million, representing growth of 126%, compared to the prior year period. In the second quarter, we sold 23 AquaBeam Robotic Systems, generating total U.S. revenue of $8.5 million, representing growth of 79%, compared to the second quarter of 2021. AquaBeam Robotic Systems continues to be primarily driven by sales at high-volume BPH hospitals. U.S. handpiece and consumables revenue was $5.7 million, representing growth of approximately 246%, compared to the second quarter of 2021, and this growth was driven by an increase in the installed base of AquaBeam Robotic Systems, which has grown 56% from the second quarter of 2021. Additionally, we have seen an increase in utilization from our installed base as measured by handpieces sold per account. Utilization per account increased approximately 90%, compared to the second quarter of 2021. We believe the combination of releasing positive long-term clinical data, increased private payer coverage, and outstanding real-world patient outcomes continues to drive interest and hospital adoption of our AquaBeam Robotic Systems. Before providing a business update, let me briefly address the current macro environment, specifically supply chain and hospital capital equipment spending. First, I want to highlight we have not experienced material product constraints in our ability to meet customer demand, nor has inflation been a concerning issue to date. While we continue to take the challenges associated with this global supply chain seriously, we have been able to navigate this disruption period well, having successfully increased inventory levels for key components. As we progress through the year, we are focused on ensuring we can supply our customers with what they need in a high-quality and timely manner. As it pertains to hospital capital spending, we believe we are uniquely positioned for continued momentum around our AquaBeam Robotic Systems sales in the back half of the year, due to a multitude of positive factors surrounding our technology and our early-stage market penetration. First, BPH is the No. 1 reason men visit urologists, with many men seeking durable surgical treatment options at high-volume hospitals. Additionally, many of these men forgo treatment due to the inferior safety profile of current surgical alternatives. With a growing and increasingly educated patient population, hospital systems are motivated to invest in cutting-edge technologies to ensure they stay competitive and do not lose patients to other area hospitals. We believe our AquaBeam Robotic System allows hospitals to offer a cutting-edge technology in the BPH surgical space. Next, we exited the second quarter of 2022 with an installed base of 114 U.S. systems. With approximately 2,700 total hospitals performing surgeries, of which 860 are high-volume targets, we are still very early in our adoption curve with a long runway in front of us. It is also important to note that the high-volume BPH hospitals we target are well-funded, with ample liquidity, which we believe mitigates some of the risks associated with an uncertain macro environment. Additionally, since the approval process for the purchase of AquaBeam Robotic Systems is typically managed at the local hospital level and can routinely be authorized by the hospital CEO and CFO, this streamlines the more complex approval process that may be required for other higher-priced capital equipment. Lastly, given AquaBeam's unique ability to treat all shapes and sizes of prostates, hospitals are now more than ever standardizing their BPH surgical protocol. This standardization, along with our increased insurance coverage, makes Aquablation a logical choice. In summary, we continue to monitor all aspects of the macro environment and its impact on our business. We would not be increasing our revenue guidance, which Kevin will provide details on shortly, if we felt pressure associated with the capital equipment environment. Now, turning to quarterly business updates, starting with our commercial organization. We have successfully hired a highly efficient commercial team of experienced medical device sales professionals. We implemented an attractive training and onboarding program to put us in a position to execute our 2022 commercial growth plan. While we approximately doubled our field-based commercial team at the end of 2021, the number of representatives has been relatively unchanged for six months. Given the commercial momentum, excellent real-world clinical outcomes, and increased demand our technology has been able to generate, we plan to meaningfully expand our field-based commercial team in the third and fourth quarter of 2022 to further penetrate the market and expand our sales presence in the U.S. This increase is captured in our updated operating expense guidance. Even with the tight labor market, we continue to see strong interest from high-quality candidates, which gives us additional confidence in meeting our hiring and growth objectives as we head into 2023. Next, I would like to comment on utilization and procedure trends that we have seen in the last 12 months. We continue to believe the majority of Aquablation procedure volumes are being converted to cases, which is the most commonly performed surgical procedure for BPH. We also believe we are taking resective procedures from other modalities like simple prostatectomy and laser procedures of the prostate. Regarding hospital utilization, we are seeing meaningful annual increases in utilization from our customers. We believe, based on our clinical data, that the increase in utilization is due to several factors. Given the predictability, reproducibility, and low learning curve associated with the AquaBeam Robotic System, we are seeing an increasing number of surgeons using our system each quarter at our accounts. As a result, we believe an increasing number of accounts are beginning to standardize their effective procedure protocol in favor of Aquablation therapy. Additionally, since our clinical data support outcomes that are independent of prostate size and shape, surgeons are using Aquablation therapy in a broader range of prostate sizes. Specifically, when analyzing patient data from January 2021 to June 2022, we found that the most prevalent size range treated fell between 60 milliliters to 80 milliliters. Given the size range of prostates treated over the last 18 months, we believe surgeons are beginning to standardize their procedures to Aquablation given the limitation of surgical alternatives. Turning to clinical updates. In May, we announced 4-year WATER II Study Data at the American Urological Association Conference in New Orleans. As a reminder, WATER II was a prospective FDA study with an objective performance criterion for both efficacy and safety in large prostates ranging in size from 80 milliliters to 150 milliliters. The four-year data were consistent with the previously reported primary endpoints, with no change to safety results. The efficacy results, as measured by changes in IPSS and Qmax, were also consistent at four years. Lastly, durability remains strong with only 30% of patients requiring surgical retreatment at any time up to year four. More recently, in early July, we attended the European Association of Urology Conference in Amsterdam. This was the first in-person European event since the pandemic and was well attended with more than 7,000 registrants. A key talking point among surgeons and key opinion leaders was our 5-year WATER data published in February 2022. As a reminder, our 5-year WATER data are the only prospective randomized double-blind multicenter FDA clinical study comparing the safety and efficacy of Aquablation therapy to TURP. This study proves Aquablation's superior safety due to low irreversible complications and superior symptom relief for prostates ranging from 50 milliliters to 80 milliliters. Aquablation at five years exhibited durability with a 2x lower risk for retreatment due to recurrent BPH symptoms when compared to TURP. This is measured by patients going back to medication or requiring surgical retreatment, which is represented by an approximate 1% annual retreatment rate. In Europe specifically, surgeons are enthusiastic about strong clinical data, which is driving them to learn more about Aquablation therapy. Given this backdrop, we believe the 5-year WATER and 4-year WATER II data will be a significant differentiator for our customers when choosing to replace their historical BPH surgical modalities with Aquablation. Lastly, touching on recent payer coverage policy updates. In the second quarter, we received numerous insurance coverage updates, adding to the already strong list of payers for Aquablation therapy. In April, Aetna published its updated policy, noting Aquablation therapy as a covered surgical alternative for BPH, providing coverage for their roughly 21 million commercial members in the U.S. Additionally, in the second quarter, numerous Blue Cross Blue Shield Association healthcare plans issued positive coverage, as well as Medical Mutual. In aggregate, these policies, along with existing coverage policies, provide coverage for approximately 180 million members. As it relates to the impact of coverage on our business, there is both a long-term benefit and a short-term benefit. The obvious long-term benefit is increased utilization, which will take time as we penetrate the surgical market. The more important short-term benefit is the increased value proposition of our technology and the lowering of barriers to sell capital equipment to targeted high-volume BPH hospitals. Additionally, in mid-July, CMS published its 2023 proposal for hospital outpatient prospective payment system. The Level 6 APC code for Aquablation has a proposed payment that would provide the hospital approximately $8,700 for each Aquablation procedure, which is an approximate 3.5% increase over the 2022 rates and in-line with our expectations. The final rule is estimated to be published in November. In summary, we are pleased with our performance year-to-date and continue to execute our strategic growth plan of penetrating high-volume hospitals, increasing utilization by treating the full range of prostate sizes and shapes, and expanding private payer coverage. Given this positive momentum and the announcement of our long-term clinical data, highlighting durability, we believe Aquablation therapy will truly revolutionize the treatment of BPH. With that, I will turn the call over to Kevin.

Kevin Waters, CFO

Thanks, Reza. As Reza highlighted, our revenue for the second quarter of 2022 was $16.7 million, representing growth of 97%, compared to the second quarter of 2021. The increase was primarily driven by U.S. revenues, including both system sales to new hospital customers and increased handpiece revenue. In the second quarter, we generated total U.S. system revenue of $8.5 million, representing growth of 79%, compared to the second quarter of 2021. In the U.S., we sold 23 AquaBeam Robotic Systems with an average selling price of approximately $370,000. The average selling price increased approximately 6% sequentially and 10% compared to the prior year second quarter. Our ending second quarter U.S. installed base was 114 AquaBeam Robotic Systems. Second quarter 2022 U.S. handpiece and consumable revenue was $5.7 million, representing growth of approximately 246%, compared to the second quarter of 2021. Handpiece average selling prices in the quarter were approximately $3,000. We shipped approximately 1,740 handpieces in the U.S. in the second quarter, representing annual unit growth of 176%. International revenue for the second quarter was $1.9 million, which was roughly flat compared to the prior year period and increased 15% sequentially. International revenues in the second quarter of 2021 benefited from a meaningful number of rescheduled procedures and the deferral of capital sales from a severely impacted first quarter of 2021, due to COVID. Our strategy in Europe continues to be to increase brand awareness and market development activities. On a year-to-date basis, international revenue has increased approximately 23% from the prior year and is in-line with our expectations. Gross margin for the second quarter of 2022 was approximately 51%, an increase from 42% in the second quarter of 2021. The increase in gross margin was driven by a variety of factors, including higher U.S. sales, increased average selling prices, and higher production volume as we spread the fixed portion of manufacturing overhead costs across a larger number of units produced. Total operating expenses in the second quarter of 2022 were $26.4 million, compared to $16.8 million in the prior year period and $23.4 million in the first quarter of 2022. The increase in net loss was $19.2 million for the second quarter of 2022, compared to $14.6 million in the same period of the prior year. Adjusted EBITDA was a loss of $14.6 million, compared to a loss of $11.6 million in the second quarter of 2021. Our cash and cash equivalents balance as of June 30 was $270 million, while our long-term borrowings totaled $50 million. We believe our strong balance sheet will provide the liquidity and capital resources needed to support and grow our current business. Moving to our financial guidance. Given our strong start to the year and continued underlying momentum in the business, we are increasing our full-year 2022 total revenue guidance to be in the range of $66 million to $68 million. Although utilization trends in the third and fourth quarter are expected to be down relative to first half levels, our updated revenue guidance assumes sequential growth in handpieces sold per quarter. As explained previously, as our installed base increases throughout the year, this will provide a natural headwind to average utilization rates as new accounts are added. Regarding handpiece average selling prices, we expect pricing to be in the $3,000 range for the remainder of 2022, which is in-line with year-to-date actuals. Turning to AquaBeam Robotic Systems sales. We continue to expect modest sequential increases in the number of systems sold throughout the year with average selling prices now expected to be in the range of $360,000 for the second half of 2022. Lastly, on revenues, we expect 2022 international revenue growth of approximately 30%, compared to 2021. Moving down the income statement, we now expect gross margins to be in the range of 50% to 51%, which is an increase from our previously issued range of 47% to 49%. Turning to operating expenses. We now forecast expenses to be approximately $110 million. As Reza mentioned previously, the majority of the incremental spend will be allocated towards expanding our commercial team and initiatives in the back half of 2022 to put us in a favorable position to execute on our long-term growth plan. Lastly, we continue to expect full-year adjusted EBITDA to be in the range of negative $63 million to $60 million, although we are trending more toward the high end of the range. At this point, I'd like to turn the call back to Reza for closing comments.

Reza Zadno, CEO

Thanks, Kevin. In closing, I want to thank our employees, customers and shareholders for all their support to help us along our journey to becoming the standard of care for BPH. We will continue to leverage our commercial and clinical investments to execute on our long-term strategy. Have a great day, and I look forward to meeting many of you at upcoming investor conferences. At this point, we will take questions.

Operator, Operator

Our first question comes from Joshua Jennings with Cowen. Your line is open.

Joshua Jennings, Analyst

Hi, good afternoon. Thanks for taking my questions, and congratulations on another strong quarter. I was hoping to start with just asking about the raise of the revenue guidance range, and it suggests that the sales funnel continues to fill against a backdrop of tightening capital budgets in the U.S. hospital budgets. But can you talk about the sales pipeline for AquaBeam and how PROCEPT is navigating through the soft capital spending environment?

Reza Zadno, CEO

Yeah. Thanks, Josh. We feel very good about our updated guidance and expect unit sales to increase sequentially in Q3 and Q4. Yes, there is some discussion about the macro environment, but we are in a unique competitive position in the sense that we are early in our adoption curve. And there are a number of factors helping with adoption and utilization, starting with the clinical outcomes and real-world outcomes that physicians are seeing with our procedure. Hospitals and surgeons are using our procedure for all prostate sizes and shapes. In fact, we are seeing in some hospitals standardization of the procedure. Also, with the broad coverage, we now have full Medicare coverage. Many commercial payers are covering, and more importantly, patients are now seeking more durable, safe and effective procedures. All these factors are driving better adoption and utilization. And I think, Kevin, do you want to add anything on utilization here?

Kevin Waters, CFO

Yeah. Great. Josh, just to frame the guidance raise, Reza provided a lot of background on the capital pipeline, but the high end of our guidance raise essentially is about a $3 million raise on capital, $3 million on handpiece. So, it's both penetration and utilization that's driving the increase in the revenue range.

Joshua Jennings, Analyst

Thanks for that. And then just a follow-up. I wanted to ask about the proposed rule that you cited, maintaining Aquablation procedures at Level 6 APC code and that's, I think, a 3.5% tick-up in reimbursement. I think everyone – you guys have been clear that the transitional pass-through payment is going away next year, but maybe you could help us understand relative to other resective procedures the profitability of this proposed level that CMS just issued. And then also just touch on the reimbursement premiums that Aquablation procedures are receiving from private payers? Thanks for taking the questions, guys.

Reza Zadno, CEO

Yes. Thanks, Josh. So, related to APC Level 6, this was expected, and we obtained the APC Level 6. And we believe our customers will be satisfied with the APC Level 6. As far as the transitional pass-through is concerned, this is not new, it's not a surprise, and quite frankly, not a concern in the sense that the transitional pass-through was transitional, and if you look a year ago, we compare the coverage that we have today, compared to where we were last year, we have many private payers covering that on top of Medicare. We believe that, based on conversations with hospitals, the addition of these private payers outweighs the transitional pass-through going away. This is information that we have been communicating with all customers, and they were aware that this is not a material issue.

Joshua Jennings, Analyst

Great. Thanks again.

Operator, Operator

Our next question comes from Craig Bijou with Bank of America. Your line is open.

Craig Bijou, Analyst

Great. Thanks for taking the questions, and congrats on another strong quarter. I wanted to ask first on utilization and maybe a little bit more about what you're seeing from individual doctors? Reza, I appreciate your comments that hospitals are starting to see hospitals bring on new urologists to the system. But can you talk a little bit about the trends, the individual utilization trends once a urologist decides to adopt? You guys have been in the market now for a number of quarters, so maybe you can touch on where the early adopters, where their utilization is now, does it continue to grow within their own practice?

Reza Zadno, CEO

Yes. Thanks for this question. Utilization increase is driven by multiple factors. As I mentioned, it starts with clinical outcomes. Physicians and hospitals are using AquaBeam on a broad range of prostates. In fact, in the last 18 months, when we look at where the majority of these cases are done, it's on prostates in the 60 to 80 milliliter range. They are using it on all prostate sizes and shapes. In fact, they are standardizing resective procedures to Aquablation, and some accounts have converted all their resective procedures to Aquablation. These are the driving factors for utilization. Kevin, do you want to add anything?

Kevin Waters, CFO

Yeah. No. To Reza's point, we still recognize that the largest or highest utilized group are the customers that have been with us the longest. The utilization dynamic is something we are keeping a close eye on. It's important to remember that our installed base is growing significantly. It grew roughly 40% in the first half of the year. By the time we reach the end of the year, we will have an installed base that is up 100% over the end of 2021. So, as we add additional cohorts each quarter, Craig, we will be able to provide more specificity around utilization metrics. For now, it is fair to say that our oldest customers have the highest utilization. We are also seeing even in those customers that have been with us for multiple quarters, they're still adding new physicians, which is helping the utilization rate.

Craig Bijou, Analyst

Got it. That's helpful, guys. And on the sales reps, the adds that you expect in the second half, I'm not sure if I missed it or not, but did you say whether they were going to be capital or AquaBeam reps, maybe both? And then maybe if you could go into a little bit of detail on the strategy for adding those reps?

Kevin Waters, CFO

Yeah, this is Kevin. Let me start with the strategy. We've been very clear on this that we would increase the size of our sales force when we felt it wouldn't jeopardize the excellent real-world commercial outcomes that we expect. We are at that point now where we feel comfortable with our clinical data and commercial performance, and we will increase the size of the field team. So, that's the strategy. In terms of the bifurcation, we will continue to add an equal number of both capital and AquaBeam sales reps. We're nowhere near penetrated in every U.S. territory where we need to be. We have capital reps in some fairly large territories that we want to take a closer look at. My point being is, we have a long runway in front of us in terms of adding commercial headcount to the business. The other point I want to make on our reps is that our guidance in the back half of 2022 doesn't imply any meaningful contributions from these new folks. What we do want is to make sure they get on board, we train them, and they learn the protocol so they could be productive as we enter 2023. To reiterate, given what we are seeing in the real world, we feel now is the right time to hire both outcome physicians and patient interests.

Craig Bijou, Analyst

Great. Thanks for taking the questions, guys.

Operator, Operator

Our next question comes from Amit Hazan with Goldman Sachs. Your line is open.

Amit Hazan, Analyst

Hello, thanks. Hey, good afternoon, guys. I wanted to maybe start with a couple of macro questions that have been on other earnings calls in the sector and just get your take on it. One is just on hospital staffing shortages and whether you are seeing an impact from that at all. Is it making it hard to get into case observations, training done, installations? Anything like that that you would call out that's impactful to you?

Reza Zadno, CEO

Thanks, Amit, for the question. So, it has not impacted us. We are hearing that, but we have been able to achieve our forecast. So, it has not been a material event for us.

Amit Hazan, Analyst

Okay. And I know, kind of you're small and growing very fast, but do you have a sense of where we are in the BPH market overall in terms of just underlying market conditions as a percent of, kind of where we were in 2019? The health of the BPH market, if you will, and how it's recovering? And maybe inside of that question, did you see any change in trend during the quarter, whether procedures were improved at all during the quarter and exiting into Q3 at a high level for the BPH segment?

Kevin Waters, CFO

Yeah. Good question, Amit. This is Kevin. Look, we definitely believe that 2019 is the last, I would say, macro year that we can look at resective surgical numbers and consider that a normal operating environment. We would suggest that 2020 and 2021 were impacted by COVID. Therefore, frankly, we're not paying much attention to the procedures in those years. When I think about the macro environment, we're in a unique position that, as you mentioned, we're still at relatively low volumes. Our current average utilization is around 5.5 procedures per account per month. And if you look at the customers we're targeting, on average, even in 2019, those customers were doing approximately 17 procedures a month. So, we're focused on increasing utilization with the accounts we penetrated, which shields us from some of the macro factors. It's not terribly relevant to our growth in the near term if the market is growing 10% or decreasing 10%, but I would agree that 2020 and 2021 have both been impacted at the macro level, but that hasn't affected our ability to grow.

Amit Hazan, Analyst

Great. Just one last quick one for me is on the system side. Can you share how many systems that you sold were new accounts versus evaluations and if there were any retirements in the quarter?

Kevin Waters, CFO

Yeah. So, no retirements. We're now through the eval and demo pool, so moving forward, every new sale is a greenfield sale. We may periodically put a rental out with a customer, but right now, our model is pretty much we will sell and not offer a demo program.

Amit Hazan, Analyst

Okay. Thanks very much.

Operator, Operator

Our next question comes from Matthew Mishan with KeyBanc. Your line is open.

Matthew Mishan, Analyst

Hey, good afternoon, and thank you for taking the questions. Just first, it does seem like you are maintaining price as inflation goes, especially around the systems. Why would gross margin decline in the second half versus the first half of the guidance?

Kevin Waters, CFO

Yes, it's a good question. Our guidance – by the way, welcome, Matt, it's your first call with us. Glad you're on board. If you look at our guidance, the high end of the margin range does imply approximately 50% gross margins in the back half of the year. You're recognizing that we just came off the second quarter where we recorded 51%. I'd point out a few things. The first being that we are still at relatively modest revenue level. Gross margin percentages fluctuate and can significantly vary on low dollar volume. Just to put that in context, a $300,000 cost equates to a full 2 percentage points on margins. So, that relatively modest revenue with high fixed costs tends to have variable gross margin metrics in the near-term, but trending positively. Point two is, we are increasing staffing levels in our operations group in anticipation of future growth. These are in areas like supply chain and production. This does create some additional expense. However, I would point out, there's nothing unusual or infrequent in our margins that are implied in our second half guidance. We still believe that at scale, this business does have a significant margin expansion potential over the long term. There will be some variability in the near term. Again, there's nothing unusual in the second half. Just a multitude of factors.

Matthew Mishan, Analyst

Okay. Excellent. And then just, it does seem like you're controlling almost the pace at which you're installing these systems, the pace at which expanding your sales force, just what makes you comfortable with the sales rep or a doctor or a system that you're placing will yield the outcome you expect?

Reza Zadno, CEO

Yes. We are very disciplined in targeting our accounts. In the U.S., we target high-volume hospitals that are doing, on average, more than 200 resective procedures per year. We ensure we have a physician champion before starting discussions with hospital administrators. Because of this disciplined approach, we have not seen pushback, and we have had a high success rate in placing our robots. We are aware that we have a competitive capital equipment offering, and this disciplined approach has allowed us to be successful.

Matthew Mishan, Analyst

Thank you very much.

Operator, Operator

Our next question comes from Neil Chatterji with B. Riley. Your line is open.

Neil Chatterji, Analyst

Hey, guys, thanks for taking the questions. Just circling back on the commercial team adds for the second half. Just wondering if you could talk about the expected quarterly cadence of that. Do you expect that to be weighted more towards the third quarter or fourth quarter? And then if you could remind us on the expected productivity ramp, is that before you start to see meaningful impact of that three to six months or could you clarify there?

Kevin Waters, CFO

Yeah. By the way, welcome as well, Neil. I appreciate you covering the company now. In terms of cadence, I'll just talk about our OpEx spend of $110 million. That implies about a $60 million spend in the back half of the year. The expense cadence is relevant to how we're going to build the sales team, where the fourth quarter should be larger than the third quarter. Sequentially, Q3 should be up about $2 million to $3 million from Q2. This implies the increase will primarily occur in mid to late Q3 by the time we have folks onboard, which is reflected in our OpEx expense guidance. What was your second question?

Neil Chatterji, Analyst

I think that was pretty much...

Kevin Waters, CFO

You asked about the productivity ramp, sorry. Generally, it takes three to six months for a rep to become fully productive. That depends on whether they're going into new territories or splitting larger territories, which some reps will do as we continue to grow. But on average, it's a three to six-month ramp.

Neil Chatterji, Analyst

Got it. And if I could just add a follow-up question here. Just circling back on the international front, you talked about it last quarter with the Asia Pacific regulatory approvals for Korea and Japan. Just curious if there are any updates in terms of adoption in Korea and the reimbursement pathway in Japan? And your strategy for China and any expectations for the market there?

Kevin Waters, CFO

Yeah. In Korea, as mentioned on the last call, we expected very modest contribution in 2022, really no greater than $1 million, as I phrased that last quarter. We did sell another robot in Korea in the second quarter, so that's included in the numbers. Continued penetration, but relative to modest revenue contributions moving forward. Regarding Japan, we're continuing to work through the reimbursement pathway there. We do not anticipate any Japan revenue in 2022. The next meaningful update on Japan will likely be when we introduce our 2023 guidance. As for China, we have started the regulatory process there, but this could be a lengthy process. We are not expecting any meaningful contributions in China in the short term.

Neil Chatterji, Analyst

Great. That's all for me. Thanks.

Operator, Operator

There's no further questions at this time. I'd like to turn the call back over to Reza.

Reza Zadno, CEO

Yes. Thanks, everyone, for attending our earnings call. We look forward to seeing you in future investment meetings. Have a nice day.

Operator, Operator

This concludes the program. You may now disconnect. Good-bye.