Good morning, everybody. Thanks for joining us. Matt O'Brien, one of the med tech analysts here at Piper. Extremely excited and lucky to have PROCEPT here joining us. From the company, we have Larry, who's the CEO, and then Kevin, who's the CFO of the company. Matt's down in the front row here, making sure I don't say anything I shouldn't. No guarantees there. But, but, Jen, thanks so much for coming out.
Oh, thanks for having us.
You bet. Larry, maybe talk a little bit about the utilization commentary from Q3. I think you said it's not a procedure problem, but it's more of an inventory kind of workdown, you know, situation. Can you just maybe clarify that a little bit more or just give us a little bit more commentary about what that means?
Sure. Happy to. I think historically people have looked at HP sales as a proxy for procedures. When you place as many systems as we do every quarter, you have people taking stocking orders. Depending on how long it takes a system to come online, sometimes that inventory sits for a while. I think the other thing too is we've never really established PAR values for any of our sites based on their utilization. You know, from my time at Edwards, we lived in a consignment world, and PAR values are everything. You always want to make sure you have inventory right-sized in the field. For us, you know, my focus is always on procedure volume. The stocking orders are always going to just sort of be noise in the system.
We feel really good about where procedures are going and where procedure growth is. That is really our focus and where all of our energy's going. I think, you know, we talked about having an analyst day in February, and I think that's where we're gonna really shift probably a lot of our commentary more towards procedures than just HP sales. People will have more insight in, I think, how the overall health of the business and how those things are going. You know, none of our commentary about the guidance reflected weakness in procedure volumes. It was just more a matter of trying to right-size this inventory. When we did the analysis, it looks like we probably had more people carrying too much inventory than people not carrying enough. We made adjustments for that. We built into our guidance.
From a procedure standpoint, we remain, you know, pleased with, with the adoption of the therapy.
Got it. Okay. Can I recommend Costa Rica or, you know, someplace very warm in February versus here in New York?
Something like that.
Yeah. I'll stick to my day job. Sorry about that, everyone. Just maybe, maybe to that point, can you maybe illuminate a little bit when you talk about the procedural growth? I mean, can you just tell us what, what did procedure growth look like? 'Cause you, you look at like, you know, okay, we're down from 53,000 HP to 52, but you're saying utilization's good and procedure growth is good. It's like, that doesn't quite reconcile. How does the underlying procedure growth look?
I think a lot of some of the things that, you know, that we talked about that we're trying to focus on is that when, you know, we'd have these stocking orders, and then a lot of times our capital team would sell an instrument, but it wasn't necessarily ready to be installed. Even when it did get installed, you know, maybe they didn't have cases lined up or a lot of those things happened, weren't going as smoothly as they could have. We didn't have those warm handoffs. You would just have inventory just sitting in accounts that wasn't necessarily being utilized. Every new system you're placing out is taking that stocking order and doing that.
I think the other thing too is if you do not establish PAR levels for places, then you might have somebody carrying three or four months' worth of inventory, and you do not want that. You know, what you really want is people carrying probably six to eight weeks' worth of inventory. You want them to manage two months, but it is just exposure for you having more inventory out in the field than what you want. I just come from running a big commercial organization where, you know, I think when I left it was about $4.5 billion, and you just would not want to have inventory not being right-sized based on true account utilization. Those are just the things that I think I just, from running a big commercial business, those are just things I bring to the table.
What's, you know, for those of you who followed me at Edwards, I never talked about the stocking orders when we launched TAVR. I never talked about it because all of that stocking is gonna have to come back out of the system at some point. Everything that I always talked about was procedure growth, procedure volume, and, you know, how many centers are we adding and, and how much volume we're actually seeing in terms of, in terms of cases. The other thing that I will say is when we focus on the procedure growth, some of the things that we really have focused on is trying to make sure that we launch quickly and efficiently. One of the things that I learned from, from when we launched transcatheter sites was before we would train a center, we would make them send us five screened cases.
When we would take their stocking order, we would show up within a matter of days, literally, and they would have five cases ready to go, and we'd train them. That's the way you get through the learning curve. That's the way you build up your referral cadence. That's how all of those things sort of happen. We just did not have a very mature process in terms of how we did that at PROCEPT. We ran a pilot program on that. We created a launch team, and we started launching instruments following that process. We just saw a lot of benefits from doing that. That's just going to be something that we expand, you know, certainly as we go into next year.
Does that drive better utilization then for those accounts? Pretty quickly?
It drives better utilization. It drives better inventory utilization. It just makes the business healthier. I think the other thing is my experience at Edwards is when we launch a site and they do really well and they get into that steady cadence, they tend to do well. I think if you launch a site and, you know, my experience was that they did one case and then they waited two weeks and they did another case and they waited two weeks to do another case, they take forever to get through the learning curve. They do not develop that referral cadence, and they do not even set aside the block time to get into that standard thing. I think how a, you know, I learned how a site launches was one of the powerful predictors for how they were gonna do longer term.
It's just something that I just, you know, brought a lot of focus to when I joined.
Got it. Is that something that's been in place now for several months or even longer?
I've only been in place for a couple of months.
Oh, so you started it then.
You know, so.
Okay.
Yeah. This is something that I think when I got with the management team, it's one of the things we looked at. I think the management team had looked at it, but we had people chasing a lot of different things.
Yeah.
You know, we were asking our field people to do a lot. We were asking them to, you know, try to drive procedure growth, obviously, but we were asking them to train. We were asking them to cover every case. We were asking them to train new surgeons. Then a new instrument would show up, and they'd have to go launch that new instrument, which takes a lot of energy and would pull them away from maybe some of their existing accounts. I think by asking people to do less and specialize a little bit more, we can have a dedicated launch team that will focus just on launching. That also frees up the remaining folks to focus on kind of what I call that same store sale, making sure that we do not lose any momentum, that we continue to train the new physicians.
It's just asking people to do less, but what we're asking them to do, asking them to do it better.
Got it. Beyond that, what else, you know, have you seen or what did you bring from Edwards you think you can implement at PROCEPT to help on the utilization?
I think the team at PROCEPT did an amazing job at making sure they launched this brand new therapy, and they delivered really high-quality clinical outcomes. I think that's really one of the most fundamental things. I think we've all have examples where some device or therapy looked really good in the clinical trial, and then they got in the commercial setting, and it all fell apart because they didn't invest in training or they didn't screen patients properly or all those things. I think the team's done an amazing job at making sure that that happened. I think to some degree, we almost never got out of that mode.
We were just always sort of felt like we were the new kids on the block, even though we have probably more level 1 evidence than anyone on our procedure, on the safety profile, and on the things that we can deliver on. We just need to enter that next phase of our business where, you know, we get our share for all the patients that are being treated today. There is a huge opportunity to get patients off the sideline. You know, again, I hate referring back to Edwards all the time, but the first tranche of patients we went after were either inoperable patients or patients that were high risk that we were converting from surgery over to TAVR. Where the real growth of the business came is when we started getting people off the sidelines.
People that said, you know, "I would rather die than have open-heart surgery." And now all of a sudden we offered a procedure where they didn't have to have a sternotomy, and we doubled the number of people that were getting treatment.
Right.
You know, we have to make sure we get our fair share first. The second thing is how do we pull people off the sideline?
Okay. I was gonna ask that question later, but let's just get to it now.
Sure.
How do you get guys off the sideline? Guys are knuckleheads. They don't wanna do this stuff. There is still complication risk. There is. How do you get people to go and to get this procedure done, something they don't really wanna admit anyway?
I mean, I mean, I'd argue, you know, we dealt with the same things with aortic stenosis and transcatheter valves. I think what people would say was, "When the cure feels worse than the disease, you'll live with the disease.
Yeah.
You know, I think probably one of the funnier things, the learnings that I've had is, you know, I came from structural heart, and I come into urology, and I'm like, you know, "I don't know anything I'm gonna have to learn." But fluid dynamics is fluid dynamics. What you look at what's happening to the heart when you have aortic stenosis, your ventricle's trying to beat harder to overcome this narrowing of the valve, and it can do that for a period of time until it can't, and then you start doing long-term damage to your heart. We just told people, "Just live with your symptoms. If you, if you as long as you can tolerate your symptoms, you're okay." We tell the same people that who have BPH.
The reality of it is what's happening is your urethra is getting narrower.
Yeah.
Your bladder has to build up more pressure to overcome that narrowing. Your bladder can do that to a point and overcome those symptoms until it cannot anymore. By leaving that untreated, you are doing long-term damage to your bladder that can lead to long-term incontinence and bladder control issues and all these other things. We have not done, we have spent zero time talking about the damage that you are doing to your bladder during that latency period, during that period of time. I think the other thing about it is when men look at it, I mean, most men, I will just speak for myself before I joined, you sit here and you say, you know, "If I get a procedure done on my prostate, I have a risk of incontinence, and certainly I am gonna have sexual dysfunction." Yeah.
Like, that's just a given. Like, given that that's the choice, I'm gonna live with my symptoms no matter how bad they get. That's just not the reality of our procedure. We can go in and we can do an excellent procedure. It's completely restorative, really, when we get right down to it. Our risk and incontinence are insanely low, and our risk of sexual dysfunction is really, really low. We haven't really spent the time telling that story yet. We spent more time talking about the AI part of it or that it's a robot or that it uses water more than the outcomes that we can deliver for the patients.
I think, you know, one of the great things is I was able to, Pooja Sharma, who ran strategy and marketing for me at Edwards, she's joined PROCEPT, and she's run this whole playbook for me for 20 years when we were at Edwards. We know how to do this. Is it easy? No. Is it super fast? Is it a light switch? No. You can absolutely get people off the sidelines if you have a compelling clinical case to make. We need to lead with our evidence. We need to continue to generate more evidence, but we need to tell our story. We haven't really, we haven't even really gotten started on that, to be frank.
There's a lot of clinical evidence around, around aquablation. Can you use that existing evidence on the clinical side, or do you need to go run a study to show the?
We have tremendous existing evidence.
Yeah.
We have tremendous existing evidence that takes out, we can show the durability of our procedure. I think, you know, we live in this sweet spot where, you know, you have these non-receptive procedures, and people view them as being like a little less invasive, but they're not as effective, and they don't really lead to a durable outcome. That is why we've seen a lot of non-receptive procedures kind of come and go. You have the receptive procedures that are very effective, but they leave you with a lot of complications and a lot of risk. We live sort of in this Goldilocks space where we can deliver those receptive outcomes, but really almost with a complication profile of the non-receptive procedures. I think that's the most powerful part of the story that we need to tell.
Yeah. Okay. And then, you know, just sticking on the utilization side, you know, we've seen, you know, UroLift get to 20% penetration. We've seen a lot of other, you know, therapies get to 20% penetration and kind of peter out. What gives you the confidence that this can get to 20, 30, 40, 50%? I mean, to me, as a guy, like, this is the one I would pick.
Yeah.
I'm saying that because you guys are sitting here maybe kissing up a little bit, but, like, literally, like, this is the one I would probably pick.
We have referral programs available. I think the non-receptive procedures always look sexy early, but they start to fall apart when you start seeing the durability data. When they do not prove to be a durable procedure, that is one of the things. I think that is one of the other narratives that we really need to change when I think you have doctors that look at this a little bit as a hierarchy of, "I'm gonna start with a non-receptive procedure, and then I'm gonna work my way down to a receptive procedure because the perception is the non-receptive procedure is less invasive." You know, once a device goes through your urethra that is the same size, one procedure I do not think is any less invasive than another procedure.
Sure.
You know, the invasiveness to the patient. And when we do patient-centric research, the first thing they want is relief of their symptoms. The second thing they want is a one-and-done procedure. Nobody wants to have this done a second time. The third thing they want is to be able to preserve their sexual function and their bladder control. I mean, those, those are the three things. When you look at the world through a patient lens, I don't think anything competes with aquablation in terms of the outcomes we can deliver and the safety profile we can deliver. I think that's the case we have to make. You know, it's fine for the urologist to say, "I'm gonna do this procedure, and if that doesn't work, I'm gonna do that procedure.
If that doesn't work, then I'm gonna do that procedure," and run down that hierarchy. I don't think that's fine for a patient. I mean, I couldn't imagine being in structural heart and having a surgeon say, "I'm gonna do a sternotomy and repair the valve. If that doesn't work in a year, then I'll come back and I'll replace the valve, you know, and just do another sternotomy." I view repair as being less invasive than replacement. For the patient getting the sternotomy, the invasiveness is the same. For a patient having a fairly large bore device going through their urethra, the invasiveness is the same. What we need to do is do one procedure, give the person a complete outcome with the best safety profile possible. That's what we need to go explain to people.
We can give them the relief of their symptoms. We can preserve their sexual function and their bladder control, and we can do it in a really high-quality way.
Got it. Got it. Yep. And I've seen a couple of UroLift cases live, and they're very invasive. Larry, I'd like to switch over to everybody's all focused on the utilization being a little soft in Q3 versus expectations. The capital number in Q3 was excellent. Can you just talk about what drove the strength there and just the backlog and the outlook for capital placements?
I think it's primarily a strength of our value proposition and the execution of the capital team, which I think did a good job. You know, I probably, you know, I tend to be a very transparent person. I think in an effort to be transparent, I might have made people nervous unnecessarily. One of the things I said on the call was that, you know, we see people scrutinizing capital a little bit more closely. And so what you have is just, you know, normally we run a capital process, and we, you know, the team's been doing this for a long time. You know, they kind of know the blocking and tackling. They go through the process.
All of a sudden, there's some additional committee review that has to be done or some additional person that all of a sudden is in the process that did not exist before. We had, you know, units that we thought we would close in Q1 that did not actually close until Q3, units that were in Q2 that did not actually close until Q3. I do not think anything fell out of the system. We did not lose any capital sales. It just took a little longer to execute on some of these. I just nodded to that in an effort to be transparent on the call. We have really good visibility into our pipeline. I think our value proposition remains really strong.
I believe, you know, if you look at our history, we've always delivered on our capital number, and we've done it in a high-quality way. I think we'll continue to do so. Could it get a little bit more lumpy with just a little bit more of this extra scrutiny on stuff? Maybe. Everybody I talked to that sells capital is saying really the same thing. We had a really strong capital quarter even in that environment. I think I was trying to give a nod to the team on their excellent performance. Every discussion I had after that was like, "Oh God, the bottom's falling out of capital." I'm like, you know, I don't.
That's really nice.
You know, my bad.
Okay. Okay. Kevin, question for you. The replacement cycle, right? You've got HYDROS new system, really cool. You know, some, some clear feature benefits to that. There's about 500 AquaBeam systems out in the field today, 78 of those, as I calculate them, are gonna be five years old next year. How do we think about the replacement cycle for those or trade-ins or any kind of, you know, just sorry to stay on the economic side, but just economic benefit you could get?
Yeah. Alluding to February, the investor data that Larry referenced, I think we're gonna do a pretty deep dive on the replacement cycle and the opportunity. I, we do believe that 2026 is the year, given the age of our systems and the useful life of around five years for an AquaBeam robot, where replacements will start to be a meaningful part of the business. That is important. More importantly is when you look at what HYDROS offers to both the patient and the physician, that is why the replacement cycle is important. It's not to generate additional revenue. It's really to give the patient the best outcome, to foster surgeon independence to a greater degree where we don't need to be in every case. If you look at our R&D pipeline, every innovation is focused on HYDROS.
When you think about next indication with prostate cancer, think of advanced imaging, all of that will be done on the Hydro system. We wanna get the Hydro system in as many customers' hands as quickly as possible. That will start in 2026.
Got it. Okay.
I think too, I think there's been questions we've gotten on replacement. I think the team was 100% focused on greenfield sales. I don't think we focused on replacement strategy. We didn't have any sort of real strategy around it, no trade-in policy, no upgrade policy. We didn't really have any of those things. We're just actually starting that process now of really developing, you know, a cohesive replacement strategy. I think that that's gonna drive it. Kevin's exactly right. It's not about the revenue we'll generate from replacements. It's about how do we make the procedure better and how does that up procedure growth and procedure volumes and how does it set us up for cancer down the road?
Got it. Okay. I mean, you guys are growing so quickly. It's tough to focus on everything, you know.
You hit the nail on the head when you're growing fast and when you have the greenfield opportunities that we have, it's harder to get excited about a replacement strategy. For me, I think we need to be able to do both. We need to be able to continue to focus on greenfield sales. We are reaching the time, as Kevin said, with the age of the instruments in the field. Also, you know, we spend a lot of time doing upgrades and adding new features and doing those things. That's 100% focused on HYDROS. We spend no time trying to figure out how to upgrade AquaBeam. Those centers are just gonna fall further and further behind.
This is why we need to get them upgraded because it's just not gonna lead to the same outcomes or efficiencies for patients.
Got it. Okay. so maybe let's talk a little bit about guidance for next year 'cause you guys did provide that. You know, Larry, you've been CEO for two months. I know you're on the board. Why not just hammer that number next year and be like, 390, 400, and, you know, and, and just, just set it crazy low? Why not just go ahead and do that?
I don't know. I just, it's probably just not who I am as a human. I think the idea that the first thing I would do is come in and just destroy all the guidance and destroy everything that had been done before. You know, it's sort of a bus run at previous administrations and doing all that and then trying to set up some ridiculous beat and raise. I thought, I think math also has to be coherent. I'll say the guidance we put out, we feel good about that buying guidance. We put everything into it. At the same time, you know, that guidance, I think, reflects largely business as usual and a lot of status quo.
You know, our ability to implement a lot of these initiatives, whether it's, you know, the high, a higher percentage of robots that we can launch and/or a better replacement, you know, strategy or accelerating any of those things, I think those all represent meaningful opportunities to the plan. We feel good about the guidance, but I, you know, I'm not gonna be, I'm not gonna be excited if we just meet our guidance.
Okay. What gets you to the high end of the guidance?
I think just better commercial execution. I think it's better commercial execution on, on things we've talked about on procedure growth. You know, some of that's gonna be same store, but some of it's gonna be more efficient launches of, of new systems. And then I think to the degree that we can replace legacy AquaBeam systems, I think we can relaunch those systems with HYDROS. I think people will see the benefits, and I think that's gonna help us drive, you know, some share capture. And I think as people have better outcomes and we do better with the referral base, I think we can, you know, we can do a better job getting people off the sidelines. Those things all take time. If it takes less time, it puts us at the high end of the guidance.
I think if they take more time, then, you know, you're probably close to the midpoint. But, you know, achieving the high end of our guidance, I, you know, I want to do better than that. I, you know, I'm never going to be satisfied with just, with just doing that.
Okay. And then maybe Kevin, talk a little bit about the reimbursement updates. Is that something your field team is starting to hear about? Like, "Hey, you know, we understand these are coming down. I know they're still above TURP and GreenLight," but can you maybe just frame up what's happened and what you're hearing and if it could have any impact on the business?
Yeah. I mean, I think the first thing is the facility payment to the hospital has gone up 5% year- over- year. We're now reimbursed two times what you would be reimbursed to do a TURP or a GreenLight, which are other resective procedures. The economics in the hospital remain very, very favorable to offer a nice ROI on our robot. Again, that's gone up 5%. I think what you're probably alluding to is the Category I physician fee, which while it did decrease year- over- year, it still is reimbursed comparative to the other resective procedures. From a physician standpoint, physicians are adopting aquablation therapy not because of the economics in the hospital. They're adopting it because it's a one-and-done. The outcomes are reproducible. It's a simpler procedure. It's safer. It's effective.
To answer your question directly, we're not hearing much from our surgeon community around the reduction in the category I and do not really expect that to be a headwind to the business.
Got it.
Yeah. I think sometimes we get too caught up in the economics on this stuff. I've never met a patient who said, "You're not gonna believe the economics my hospital got on my procedure.
Yeah.
You know, and doctors are really trying to do things to improve outcomes for patients. I think we may need to make our clinical value story. I think the economics then sort of fall in line after that. You know, I mean, for years, people told me the economics on surgery versus TAVR was gonna be a massive headwind for us because hospitals made twice as much doing surgery as they did TAVR. It's like, that's the wrong equation because, you know, the idea that you're gonna make $20,000 on surgery or $10,000 on TAVR, so I'm gonna do surgery, it's the wrong math. You're gonna get $10,000 for doing a TAVR, you're gonna get zero because patients aren't gonna be agnostic to the procedure they have.
This is where we need to do more work educating the referral community, but also more work educating patients so that they're coming in and they're asking for the procedure by name. If a patient came in and asked for TAVR and the doctor said, "I'm gonna do surgery on you," they say, "Thank you very much," and they go down the road. I think as people start having that equation play out, I think the economics take it even a further backseat.
Do you have to, oh, I'm almost out of time here. Do you have to do DTC to really get that message across or, or no?
It is not, I mean, we are not gonna do a Super Bowl ad. We are not gonna, you know, we are not gonna pour millions and millions of dollars into this sort of thing. I think there are things that we can do with social media. There are things that we can do with the referral community that we did at Edwards that I think are just sort of no-brainer things that we can do to get our message out.
Got it. Okay. I think we're all out of time. I'll have to cap it there. Thanks so much for all the feedback. Really do appreciate it.
Thanks. Thanks.
Thank you.
Thanks for having us.