Earnings Call Transcript - PRCT Q1 2026

Operator, Operator

Good afternoon, and welcome to PROCEPT BioRobotics First Quarter 2026 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments.

Matthew Bacso, Vice President, Investor Relations

Good afternoon, and thank you for joining PROCEPT BioRobotics First Quarter 2026 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, April 29, 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.

Larry Wood, Chief Executive Officer

Good afternoon, and thank you for joining us. Over the past six months, we have taken decisive actions to reset the organization. We have sharpened our focus on operational excellence, accountability and commercial discipline. Our first quarter performance reflects the early impact of these efforts. We are encouraged by our Q1 results and the momentum we are building, having reported total revenue of $83.1 million, representing an annual growth of 20%. Starting with procedures. We completed approximately 12,200 U.S. procedures in the first quarter of 2026. While our commercial realignment initiatives modestly affected Q1 procedure growth, performance was largely in line with expectations. The team is adapting well, and we expect the full benefit of these changes to materialize in the second half of 2026. Regarding handpieces, we believe field inventory levels and customer purchasing behavior have normalized with handpieces sold representing approximately 95% of procedures in the first quarter. On a weighted average basis, we continue to expect approximately a 1:1 ratio of handpieces to procedures for the full year. Turning to U.S. systems. We sold 49 Hydros systems, which included two replacement systems. We remain confident in our full year system plan and are encouraged by the early positive customer response to the AQUABEAM replacement program. With regards to pricing, as we emphasized in our last earnings call, establishing price discipline remains fundamental to long-term value creation. In the first quarter of 2026, U.S. Hydros system average selling price was approximately $485,000. This represents an all-time high and a 14% increase compared to the fourth quarter of 2025 despite what is typically a seasonally challenging quarter for capital. Given our increased pricing discipline across the organization and strong first quarter pricing, we now expect full year 2026 system pricing to be modestly above our initial guidance range. Additionally, U.S. handpiece average selling price was approximately $3,500, representing a 5% increase compared to the fourth quarter of 2025 and a 10% increase year-over-year. Now I'll provide an update on our commercial organization. We previously described two key changes that we believe are strategically important for long-term performance. First, we 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 are continuing to advance our dedicated launch team to drive more consistent launches, reduce variability in activation and accelerate procedure volume ramp for customers. We view launches as a key lever for improving downstream utilization and overall performance. The realignment of the commercial organization and implementation of the launch team was finalized in early Q1 and, as expected, resulted in some short-term disruption in the first quarter. We view this as a normal transition period as teams ramp, establish account relationships and standardize new operating processes. Most important, we believe these changes, along with our marketing programs, better position us for sustained high growth. We will continue to manage through the transition thoughtfully, and we expect the benefits to build as the organization settles into the new model. Now let's look at gross margins and how we are progressing towards profitability. In the fourth quarter of 2025, we reported gross margins of 61% and indicated this level was temporary. We guided to full year 2026 gross margins of approximately 65%, reflecting expected improvement. Driven by increased price discipline and better leverage of our cost structure, we delivered first quarter gross margins of 65%. With this strong start, we expect gross margins to increase modestly on a sequential basis throughout the year. We will also continue to manage operating expenses as we work toward achieving positive adjusted EBITDA in the fourth quarter of 2026. Turning to regulatory and clinical updates. In March, at the 41st Annual European Association of Urology Congress in London, the EAU updated clinical guidelines to give Aquablation therapy a strong recommendation as a surgical treatment for men with BPH and moderate to severe LUTS, reflecting the high quality of evidence and favorable patient outcomes. The therapy is now recommended as an alternative to TURP, especially for patients seeking to preserve ejaculatory function. This upgrade for prostates 30 to 80 milliliters and the additional notes for treating prostates greater than 80 milliliters is supported by multiple clinical trials, including WATER and WATER 2, all of which demonstrated durable improvements in urinary symptoms, preservation of ejaculatory and urinary function and effectiveness across a wide range of prostate anatomies. A strong recommendation from one of the most respected global guideline bodies reflects the strength of the clinical evidence supporting Aquablation therapy and reinforces its role as a modern surgical option for physicians seeking to deliver durable symptom relief while preserving quality of life outcomes that matter most to patients. At EAU, we also announced the first international launch of Hydros in the U.K. This milestone marks the beginning of a broader global expansion. Specifically, in the first quarter, we sold seven new Hydros systems in the United Kingdom at an average selling price of over USD 400,000. Building on the recent approval and strong clinical momentum, including the rapid adoption at high-volume NHS hospitals, our U.K. capital pipeline continues to grow nicely. We have also received FDA clearance on our second-generation FirstAssist AI software, an advancement in personalized image-guided planning for Aquablation therapy. This milestone further strengthens the capability of the Hydros robotic system and enables more precise identification of prostate anatomy and more complete treatment planning to help surgeons plan with greater confidence and consistency. We remain deeply committed to advancing the standard of care in urology through our continued innovation for the millions of men affected by BPH. Lastly, we are approaching the completion of patient enrollment in the WATER IV study and based on current trends, expect to be fully enrolled by the end of May. We have been very pleased with the pace of enrollment, which is on track to be completed in less than 18 months. For a clinical trial of WATER IV size and complexity, the speed of enrollment highlights strong surgical interest and a patient willingness to participate, factors we believe will ultimately translate into broader market adoption post approval. Based on current timelines, we expect to present the WATER IV primary endpoint at AUA in the spring of 2027. With that, I will turn the call over to Kevin.

Kevin Waters, Chief Financial Officer

Thanks, Larry. Total revenue for the first quarter of 2026 was $83.1 million, representing 20% year-over-year growth. U.S. revenue for the quarter was $72 million, reflecting 19% growth compared to the prior year period. Turning to U.S. procedures. We completed approximately 12,200 U.S. procedures in the first quarter of 2026, representing approximately 30% year-over-year growth. The percentage of handpieces sold to procedure volume was approximately 95% with handpiece average selling price of approximately $3,500. As a result, total U.S. handpiece and other consumable revenue was $43 million in the first quarter of 2026, representing 13% growth compared to the first quarter of 2025. Turning to U.S. systems. Total U.S. system revenue was $23.4 million in the first quarter, representing 25% year-over-year growth. We sold 49 Hydros systems at an average selling price of approximately $485,000 for new U.S. systems. Additionally, the 49 systems include two replacement systems, representing the early stages of what we expect to become a growing replacement cycle. We exited the first quarter of 2026 with a U.S. installed base of 765 systems. International revenue in the first quarter of 2026 was $11.1 million, representing year-over-year growth of 25%. Moving down the income statement. Gross margin for the first quarter of 2026 was 65% compared to 64% in the first quarter of 2025 and 61% in the fourth quarter of 2025. The improvement was driven by increased pricing, cost discipline and favorable product mix. Total operating expenses for the first quarter of 2026 were $86.6 million compared to $71.6 million in the prior year period. The increase reflects continued investment to support commercial expansion, ongoing 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 first quarter of 2026 was $31.6 million compared to a net loss of $24.7 million in the first quarter of 2025. Adjusted EBITDA was a loss of $18.1 million in the first quarter of 2026 compared to a loss of $15.8 million in the prior year period. Cash, cash equivalents and restricted cash totaled $249 million as of March 31, 2026, providing a strong balance sheet to support our strategic priorities. We expect cash usage to improve throughout the year, driven by greater operating leverage and improvements in working capital. Moving to our 2026 financial guidance. We continue to 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 continues to assume international revenue to be in the range of $50 million to $51 million. Additionally, we continue to expect 2026 total U.S. procedures to be in the range of 60,000 to 64,000, representing growth of approximately 39% to 48%. With respect to new U.S. system pricing, we now expect pricing to range between $450,000 and $460,000 for the remainder of the year, depending on customer mix between individual accounts and large IDNs. While first quarter U.S. system revenue and pricing exceeded expectations, and we remain encouraged by both pricing and sales momentum, our focus is on ensuring this performance is sustainable. Based on current trends, we have strong confidence in our full year total revenue guidance. We will provide further detail on these metrics as the year progresses. Turning to gross margins. We continue to expect full year 2026 gross margin to be approximately 65%. This includes $5 million to $6 million of tariff expense compared to $1.3 million in fiscal 2025. Our gross margin guidance does not reflect any potential benefit from previously paid tariff refunds, which could provide upside to 2026 gross margins. We continue to expect full year 2026 adjusted EBITDA loss to be in the range of $30 million to $17 million. This guidance reflects positive EBITDA in the fourth quarter of 2026 at both the low and high end of the revenue range. In the second quarter of 2026, we expect total revenue to be in the range of $91 million to $95 million, representing growth of 15% to 20%. I would now like to pass it back to Larry for closing comments.

Larry Wood, Chief Executive Officer

Thanks, Kevin. In closing, while we have undergone significant change over the past six months, we believe these steps are essential to driving sustainable, high growth and to establishing a clear path to profitability. In summary, while we are mostly complete with our U.S. commercial realignment initiatives and expect more consistent commercial execution over the course of the second quarter as reflected in our total revenue guidance. We have established pricing discipline across the organization, which we believe is critical to our long-term success. The U.S. capital pipeline continues to build, increasing our confidence in the sustainability of higher average selling pricing and the conversion of this pipeline into sales. Lastly, WATER IV enrollment is ahead of schedule, and we expect to complete enrollment in May. 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. At this point, we will be happy to take questions. Operator?

Operator, Operator

And our first question comes from Matthew O'Brien of Piper Sandler.

Matthew O'Brien, Analyst, Piper Sandler

The first one is just a broader question kind of on the puts and takes that we saw here in Q1, the strength on the capital side. I'd love just to hear about where that originated plus the ASP benefit that you're getting. And then on the handpiece side, Larry, is there a way to frame up some of the disruption that you saw this quarter and then how long it should linger and when we should be past that? And then I do have a follow-up.

Larry Wood, Chief Executive Officer

Yes. Thanks, Matt. I think the capital quarter was pretty broad-based. We didn't really have a lot of large IDN orders or anything like that. So it was pretty broad-based. And I think that also contributed to the ASP upside. But we did certainly implement pricing discipline; much like what we did with handpieces, we implemented that on capital as well. And so that's just an important part of our journey toward profitability. On the handpieces, the realignment of the sales force has been completed. We're in a natural transition phase where we're reestablishing account relationships and backfilling some of the key positions for people that have moved over to the launch teams. But we expect the momentum on procedures to build throughout the year. We remain on track related to our guidance. We're not where we want to be yet, but I think we've made the changes we need to make and we're building. The team will continue to grow into these roles, and I'm excited about what the future looks like.

Matthew O'Brien, Analyst, Piper Sandler

Okay, I appreciate that. That's very helpful. On my second question, on the guide side, if I'm looking at the roughly $93 million midpoint of the range for Q2, and considering the ASP benefit you're going to get on the system side, can you talk about your confidence in the plan? It seems like the back half is a bit more loaded than normal to reach the midpoint of that range. How confident are you about reaching the midpoint or even exceeding it, given the ASP benefit you mentioned on the system side?

Kevin Waters, Chief Financial Officer

Yes, Matt, I'll take that. So regarding Q2, in our prepared remarks, we did say that we are guiding to new systems in the $450,000 to $460,000 range even with the strength that we saw in the first quarter. I would definitely suggest our confidence in executing within our guidance range this year has increased with our Q1 performance. But we did just feel it's prudent to maintain current expectations as we continue to emerge from the recent commercial realignment. We feel good about the full year across all metrics. As I said in my prepared remarks, it will probably be the end of Q2 where we start to formally update some metrics around pricing and volume given what we've seen in the first six months here.

Operator, Operator

And our next question comes from Nathan Treybeck of Wells Fargo.

Nathan Treybeck, Analyst, Wells Fargo

So procedures were flat quarter-over-quarter. Is there any way to quantify how much of this is driven by disruption from the commercial or changes in the inventory destocking? And I guess, have you seen any underlying softening in demand or referral funnels?

Larry Wood, Chief Executive Officer

No. I think what we saw in Q1 was just some normal seasonality that we see when we start the year, and that's not uncommon for us. It's hard to quantify the sales force part of it in terms of people growing into their new roles and just the normal seasonality we see in Q1. But we're going to continue to drive procedures throughout the course of the year. We had strong system placements and, in combination with our launch teams, we think the launch team is going to be a contributor to procedures as we get deeper in the year, we have more launch team systems in the field, and we think that's going to help us.

Nathan Treybeck, Analyst, Wells Fargo

Great. And for my follow-up, handpiece sales were below your target of 1:1 procedures. You mentioned inventory rightsizing is completed, but can you help us understand how much residual destocking impact there was in Q1? And could handpieces fall below procedures in upcoming quarters?

Larry Wood, Chief Executive Officer

Yes. We tried to guide that for the full year, we're going to be 1:1 on handpieces, and we still remain very confident that's going to be the case. If we're 95%, I'm not going to apologize for it. If we're 105%, we're not going to brag about it. Handpiece sales are always going to fluctuate a little bit based on the number of systems we launch and other factors. It's normalized. The number we're focused on is procedures because eventually procedures and handpiece sales have to equalize over time. It's not going to be about how much inventory people carry; it's going to be how many procedures we drive. So we feel that is largely normalized now, and we remain confident in the 1:1 full year ratio that we provided at our investor conference.

Operator, Operator

And our next question comes from Mike Kratky of Leerink Partners.

Michael Kratky, Analyst, Leerink Partners

Maybe just one quick one. You mentioned the $450,000 to $460,000. Was that the full year average? Or was that for the remainder of the year?

Kevin Waters, Chief Financial Officer

I would classify that as for the remainder of the year. You could put in — that puts the full year average more towards the upper end, probably around $460,000 when you average that out, Mike.

Larry Wood, Chief Executive Officer

And just to add to that, part of our thinking on this is we didn't have a lot of big IDN orders in Q1. When we get larger IDN orders, that can sometimes have a bit more effect on price. But we don't want to get out over our skis on ASP commitments because there are certain places where we want to maintain some flexibility. We are driving price discipline across the organization, and we'll continue to do that.

Michael Kratky, Analyst, Leerink Partners

Understood. And maybe just as a quick follow-up. Kevin, totally appreciate your comments on the prudence and maybe some conservatism for now given it's early in the year, but you're reiterating your U.S. systems revenue guidance in the backdrop of the higher ASPs. Is there anything fundamental from a number of units sold perspective that is maybe changing? Or is this really just as usual?

Kevin Waters, Chief Financial Officer

I don't think it's changing, but the Q1 performance gives us greater conviction and confidence around achieving our full year guide. That should be implied with our performance. At the same time, we're just coming off a Q4 shortfall and a commercial realignment, and we want to make sure we maintain current expectations and not get out over our skis. Our confidence in executing the full year on systems, particularly with the Q1 performance, is higher today than when we gave guidance in February.

Operator, Operator

And our next question comes from Richard Newitter of Truist.

Richard Newitter, Analyst, Truist

Maybe just to start, I'm trying to get a sense for the new initiatives or the way you're approaching the market and the selling organization that you outlined. Can you highlight where you're seeing or where we should expect to see the proof points or the benefits show up fastest? There were three main ones that you had. Where are you seeing the improvements show up most meaningfully and soonest? I get that you're pointing more to the back half, but where is it most evident in the first half?

Larry Wood, Chief Executive Officer

We have a lot of confidence in our launch teams. We moved some of our more senior people over there with a lot of experience. The key is the more systems we put in the field under the launch team model, which will build throughout the year, the more we will see the benefit. We have patient awareness activities, and we're running multiple pilots on that. When those pilots read out, it will help us prioritize what things are most effective and what we should be driving. There is always a lag between driving patient awareness and a patient getting a procedure. Patients need to schedule appointments and complete workups; many systems schedule people a month out or so. There's a natural lag between some of these initiatives and actually seeing patients treated. We're encouraged by all of these efforts. We spend a lot of time with the sales team, and people have conviction about the changes and new roles. It takes time for people to reestablish account relationships and to train new people to backfill some of the launch teams. These are natural things that will contribute more in the back half of the year than in the early part of the year.

Richard Newitter, Analyst, Truist

Got it. That's really helpful. And then just — this is now the first quarter that you've been able to see how physicians react to reimbursement changes that affect respective procedures going down, including yours. What are you hearing and seeing out there? Do you feel better, worse, or unchanged versus the way you were talking to us before these changes were in place?

Larry Wood, Chief Executive Officer

We had pretty much factored those things in when we spoke in February. I don't think anything has remarkably changed. The economics for these procedures are what they are. It's really about driving the clinical benefit and ensuring patients understand how differentiated our procedure is versus competitive procedures. When physicians and patients understand that, that drives therapy adoption and taking share from competitive procedures. I don't think anything has meaningfully changed on that front.

Operator, Operator

And our next question comes from Josh Jennings of TD Cowen.

Joshua Jennings, Analyst, TD Cowen

Nice to see the solid start to the year. I wanted to start off and just follow up on the reimbursement question. Is there any way you could help us frame up the potential for an Aquablation procedure to move up in the APC level as we go through proposed rules and final rules over the next couple of months?

Larry Wood, Chief Executive Officer

We haven't built that into our modeling. One important thing to remember is that when codes change, they collect actual costs. Medicare pays for resource consumption. If you make our economics the primary part of the story, you're always chasing that. We're focused on, at current reimbursement levels, how this is an economically solid procedure for hospitals and how we drive patients in. We also focus on helping hospitals be efficient with the procedure, procedure time, discharge and avoiding complications. When we do that, the economics work well. We haven't factored any changing APC levels into our guidance. If that happened, it would be upside to reimbursement.

Joshua Jennings, Analyst, TD Cowen

Follow-up: sounds like there was more positive reception than anticipated for replacement Hydros systems. Any new outlook in terms of how replacements factor into the rest of 2026? And remind us why you expect replacements to pick up next year.

Larry Wood, Chief Executive Officer

Given a typical capital cycle and the fact we launched our replacement program at the beginning of the year, getting two replacements already in was encouraging. Customers realize they can get a trade-in value for their legacy system, which helps with a replacement strategy. We feel replacements will be something we hone this year and will be a much bigger part of our story in 2027. We're encouraged with our early start and will continue to drive execution on that.

Operator, Operator

And our next question comes from Chris Pasquale of Nephron Research.

Christopher Pasquale, Analyst, Nephron Research

Besides all the moving pieces you had going on, there was also quite a bit of severe weather during the quarter. These cases are reschedulable if the need arises. Did you see procedures getting pushed from Q1 into Q2 because of that? Or was all of that disruption contained within February and March?

Larry Wood, Chief Executive Officer

There was some severe weather and some case cancellations. How many of those cases came back on the schedule and how many patients got something else is difficult to say. Most of that likely cleared because most of it happened early in the quarter. I don't think it materially impacted our quarter. We don't attribute anything to weather; our numbers have to stand alone. If there is severe weather and cases get canceled, it's our team's job to reschedule and get them done. We don't make allowances for that and keep people focused on execution we control.

Christopher Pasquale, Analyst, Nephron Research

Fair enough. I'd love to hear more about the U.K. opportunity and what that looks like. International is a small part of the business today but has been a consistent outperformer. Can you talk about the denominator for that market and other areas you're excited about internationally?

Larry Wood, Chief Executive Officer

When I stepped into the role, I saw opportunities in international but it's not homogeneous. Some countries have solid reimbursement and capital opportunities, so we focus on those places. The U.K. is our biggest place in Europe, and we were excited to launch Hydros. We had a great showing at EAU and the latest guidelines supported momentum. We continue to evaluate other European markets but won't be everywhere. Over time, international will become a bigger part of our story, but it will take time to develop.

Operator, Operator

And our next question comes from Stephanie Elghazi of Bank of America Securities.

Stephanie Elghazi, Analyst, Bank of America Securities

I wanted to ask: Q1 procedures were a little light of the Street and grew 31%, and you're still expecting a ramp in procedures to 50% growth in the second half. Can you remind us what's driving that acceleration and your confidence in that?

Larry Wood, Chief Executive Officer

We always expected the first half of the year to be slower than the second half and to see seasonality in Q1, which we did and it was at expected levels. We implemented our organizational changes in the sales force early in the year; people are maturing into roles and reestablishing account management. The launch teams started launching systems under the launch team model in the quarter, but it takes time for those to build and contribute. In the back half of the year we'll see more benefit from patient activation activities and the contribution of newly launched systems. The more systems you place under that model and the better they do, the more that builds for the back half of the year. That's what's driving the expected acceleration.

Stephanie Elghazi, Analyst, Bank of America Securities

Got it. And on the Q2 guidance, the midpoint of $93 million is a little below the Street at $95 million. Can you help us understand that? Has your view of Q2 changed? Is there more lingering disruption from the commercial organization changes than you thought or anything else?

Kevin Waters, Chief Financial Officer

Nothing has really changed in our thinking. If anything, we feel more positive about our initial guide today than when we provided it a few months ago. We're sticking with the philosophy that it's prudent to keep expectations reasonable and give us a chance to outperform rather than get out ahead of ourselves. There's nothing unique or different in Q2; we continue to feel good about the trajectory on systems, procedures and our international business.

Operator, Operator

And our next question comes from Suraj Kalia of Oppenheimer.

Suraj Kalia, Analyst, Oppenheimer

Larry, Kevin, congrats on a good start to the year. Of the 49 Hydros systems, our rough math suggests around 17-ish procedures per site per quarter. Maybe talk to what you're seeing in utilization at your sites. Where do you think your share capture is within those sites? Is this the bogey we should think about as we map out the year and new store same-store sales?

Larry Wood, Chief Executive Officer

Our sites are highly variable, so creating averages for utilization is difficult, especially with a mix of AQUABEAM and Hydros and launch team systems. I understand why people want averages since it's easy to plug into a formula, but focus on our pure procedure growth. We provided procedure numbers, ASP numbers and system numbers for the year, and that's what we have to drive to. We map out every system in the country and identify the biggest opportunities, under-usage, share shifts and motivated people. That's our focus. I'm not asking the team to focus on bringing the lowest utilization places to the mean; we're focused on driving procedure growth quarter-over-quarter.

Suraj Kalia, Analyst, Oppenheimer

Fair enough. One follow-up on WATER IV. If we assume a positive readout in spring '27, there would be collateral pull-through on both BPH and prostate cancer sides. Should we expect a symmetric payoff, or could there be asymmetry? For example, if the data shows superiority, could it impact BPH? How are you thinking about that?

Larry Wood, Chief Executive Officer

I don't know the WATER IV data yet. Nobody does. I don't want to speculate about the data. Broadly, the more positive the data, the more disruptive the potential for patients with prostate cancer. Centers with trained systems could adapt quickly to treating those patients, and we would facilitate that. The strength of the data and how doctors interpret it will matter for how it fits in treating prostate cancer. It's a perfect adjacency for us: the same system, same handpiece and largely the same users give us leverage across our sales force. We're focused on running a great trial and presenting the data at AUA next year. We're cautiously optimistic, but we'll be more granular once the data is public.

Operator, Operator

And our next question comes from David Rescott of R.W. Baird.

David Rescott, Analyst, R.W. Baird

At the Analyst Day, you called out different levels of procedure contribution from systems sold pre-2025, sold in 2025, and expected to be sold in 2026. Curious on the progress you've seen so far in Q1, how that contribution from different groups has stacked up relative to initial expectations, and what you expect through the rest of the year from that segmentation perspective to get to the lower, midpoint or upper end of the procedure guide?

Larry Wood, Chief Executive Officer

We're still early in the launch model, and the contribution of those systems to our overall totals is limited at this point. We remain extremely confident in the launch team model; the pilot readout we shared at the investor conference supports that. The goal is to start systems off well because when they start off well, they tend to stay well and become core therapies within accounts. It's too early to declare victory on any programs; we're laser-focused on tracking metrics and driving procedures.

David Rescott, Analyst, R.W. Baird

Okay. On system ASP in the U.S. that you delivered in the quarter and the subsequent guide for the remainder of the year: you called out pricing discipline as a factor for higher ASPs in Q1, but there is appetite from centers for higher prices. Why does the guide for the remainder of the year assume an ASP below what you delivered in Q1? Is there potential for Q1 levels to be more realistic for the year?

Larry Wood, Chief Executive Officer

A bit of it comes down to customer mix. In Q4 we had more IDN sales which took ASP down; in Q1 we had less IDN mix. We'll continue to drive price discipline and get the highest ASP we can because our value proposition is strong, but we don't want to react to one quarter and get out over our skis. That's why Kevin and I suggested modeling $450,000 to $460,000 for the remainder of the year. We'll update that quarterly. Depending on how future quarters land, we'll have more confidence in ASP durability. I'm pleased with our operational discipline; for example, we guided handpieces at $3,500 and achieved that in Q1. We'll drive the same transition on systems but be measured.

Operator, Operator

And our next question comes from Mason Carrico of Stephens.

Mason Carrico, Analyst, Stephens

Could you characterize what percentage of the sales funnel today is being driven more by bottoms-up surgeon champions versus top-down administration for larger systems? Are you seeing the new launch team attract more surgeon champions to deals that are sourced top-down today versus where you were six months ago?

Larry Wood, Chief Executive Officer

One core point is we don't want to sell a system if there isn't a surgeon champion established. We want surgeons ready when the system arrives, with the launch team prepared and patients prescreened to drive the system quickly. Historically, we were looser on that process, selling systems without a champion in place. Now we have a much more integrated approach to ensure a home for the system and a champion ready to go. We bring the launch team in to drive case excellence from the first cases and aim to establish the system as a core therapy within the urology program. We're building that muscle and believe it will differentiate organizational performance over time.

Kevin Waters, Chief Financial Officer

I'll add that it's a misconception to think we only have bottoms-up support. We are seeing great relationships top-down with large IDNs while also having bottoms-up surgeon support within those networks. Historically we only had surgeon support; now we're being viewed as viable across broader hospital networks. Our Q1 results did not have any large IDN sales, which is another factor that gives us confidence in the full year system guidance.

Operator, Operator

And our next question comes from Brandon Vazquez of William Blair. Max is on for Brandon.

Max Kruszeski, Analyst, William Blair

First quarter gross margin was 65% and you reiterated the full year expectation of about 65%. Can you walk us through some of the puts and takes given revenue mix and ASP dynamics on the year and how that relates to gross margin and cadence for the rest of the year?

Kevin Waters, Chief Financial Officer

Good question. In Q1 we delivered 65% gross margin driven sequentially by higher handpiece and system pricing and better leverage of overhead. As we move through the year, Q2 and Q3 should see very modest expansion, somewhere in the 10 to 20 basis point range over the next two quarters. In the fourth quarter, multiple factors come together: favorable revenue mix skewing to higher-margin handpieces, improved overhead absorption and higher total revenues. We should exit the year in the 66-plus percent range, which translates to a full year margin around 65%. Coming off Q1 at 65% gives us greater comfort in our full year margin guidance.

Operator, Operator

Thank you. This concludes our question-and-answer session and also today's conference call. Thank you for participating, and you may now disconnect.