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DATE
Aug. 6, 2025, 8:30 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Reza Zadno
Incoming Chief Executive Officer — Larry Wood
Chief Financial Officer — Kevin Waters
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RISKS
Kevin Waters reported an expected full-year 2025 adjusted EBITDA loss of approximately $35,000,000, with the path to breakeven dependent on fourth-quarter performance.
Reza Zadno acknowledged a roughly 25% reduction in physician fee payments for all resective procedures, including those performed with the company's technology.
Kevin Waters projected a modest gross margin decline in the second half of 2025, driven by ongoing tariff headwinds of approximately $1,000,000 to $2,000,000.
Total operating expenses for 2025 are expected to increase by 29% to approximately $302,000,000, which includes one-time CEO transition costs.
TAKEAWAYS
Total Revenue-- $79,200,000 year to date, reflecting 48% growth compared to the same period in 2024.
U.S. Revenue-- $69,600,000 in U.S. revenue for Q2 2025, representing 46% growth compared to Q2 2024.
Handpiece and Consumable U.S. Revenue-- $43,100,000 for handpiece and other consumables in 2025, reflecting 58% growth compared to 2024; This total includes approximately $2,200,000 in other consumables for 2025.
Handpiece Units Sold-- 12,750 handpieces sold in Q2 2025, up 59% year over year.
Surgeon Engagement-- Over 1,300 surgeons performed aquablation therapy procedures during 2025.
U.S. Robotic System Revenue-- $22,100,000 year to date, representing 24% growth compared to the same period in 2024.
Robotic Systems Sold-- 48 new Hydro’s systems sold in Q2 2025. The average selling price for greenfield placements was approximately $455,000 in 2025.
International Revenue-- $9,600,000 year to date, representing 69% growth compared to the same period in 2024, mainly driven by the United Kingdom, with additional momentum in Japan and Korea.
Gross Margin-- Gross margin was 65.4% for 2025, an increase of 640 basis points from the prior year. This was supported by operational improvements and higher average selling prices in 2025.
Net Loss-- Net loss totaled $19,600,000 for 2025, down from $25,600,000 in 2024.
Adjusted EBITDA-- Adjusted EBITDA loss of $8,000,000 year to date, an improvement from a loss of $18,000,000 in the same period in 2024.
Year-End Cash-- $306,000,000 in cash, cash equivalents, and restricted cash as of June 30, 2025.
Raised 2025 Guidance-- Kevin Waters raised full-year 2025 total revenue guidance to $325,500,000 (45% growth) and increased handpiece volume guidance to approximately 53,000 units (64% unit growth) for full-year 2025.
System Sales Outlook-- U.S. placement guidance was maintained at 210 systems for full-year 2025. The average selling price is expected to be approximately $440,000 per system for Q3 and Q4 2025.
International Revenue Guidance-- International revenue guidance was raised to $36,000,000, implying 50% growth for full-year 2025.
Gross Margin Guidance-- Full-year 2025 gross margin is forecasted at approximately 64.5%, despite $1,000,000 to $2,000,000 in anticipated tariff costs.
Operating Expense Guidance-- Operating expenses for 2025 are expected to be $302,000,000, a 29% increase compared to 2024.
Adjusted EBITDA Guidance-- Full-year 2025 adjusted EBITDA loss is expected to be $35,000,000, with fourth-quarter adjusted EBITDA results expected to approach breakeven.
Organizational Update-- Chief Commercial Officer position eliminated; company seeking SVP of Sales and SVP of Marketing, both reporting directly to the CEO.
Hydros Platform Launch-- Recent launch with positive initial customer feedback on features, including reduced setup time and AI assist.
Medicare Reimbursement-- 2026 proposed OPPS sets facility reimbursement at $9,705 for hospital-based coagulation therapy, a 5.6% increase from 2025 under the 2026 Medicare proposed hospital outpatient prospective payment system.
Waterfort Clinical Trial-- Enrollment progressing on schedule with full enrollment targeted for 2026; recent cases demonstrate feasibility of same-day prostate cancer procedures in ASC settings.
Tariff Exposure-- Tariff-related cost headwinds lowered to $1,000,000–$2,000,000 for 2025 from an earlier estimate of $5,000,000 due to reduced Chinese tariff rates.
IDN Progress-- Strategic account relationships with most of the largest 17 integrated delivery networks established, targeting continued market penetration in those hospital systems.
SUMMARY
The leadership transition to incoming CEO Larry Wood was announced alongside a restructuring of the commercial organization, with two new senior roles introduced to replace the Chief Commercial Officer position.PROCEPT BioRobotics(PRCT 0.69%) reported continued international expansion, particularly in the United Kingdom, and noted that approximately 70% of international sales now originate from the United Kingdom, Japan, and Korea. The company outlined progress in its Waterfort prostate cancer trial, stating that all physician user groups are participating, with an initial set of successful same-day cancer procedures already completed. Management detailed the impact and mitigation of tariffs on the supply chain, confirming efforts to potentially onshore ultrasound components and noting no anticipated supply disruptions. System placements for the current quarter shifted slightly into Q3 2025, attributed to sales cycle timing rather than macroeconomic headwinds, with the capital environment described as stable.
Kevin Waters said, "We have full confidence in the team we have in the field." addressing questions on potential operational disruption during executive transitions.
Kevin Waters stated that account launches now involve multiple surgeons per site, designed to drive earlier and more substantial procedural utilization.
Reza Zadno confirmed that aquablation therapy has become the standard of care in multiple accounts but noted that procedural market share remains only 20% in the hospital segment as of 2025.
Handpiece-to-procedure utilization rates have remained consistent quarter over quarter, with management noting direct visibility into every performed procedure and confirming that the differential between procedures and handpieces has been relatively stable throughout their time as a public company.
The company expects replacement system sales to become a more significant growth driver starting in 2026. This aligns with the five-to-seven-year useful life of systems initially deployed after Medicare coverage was established in 2021.
Medicare physician fees for all resective procedures, including PROCEPT's, were "modestly higher than the other resective procedures" (as discussed on the Q2 2025 earnings call) and reductions are not expected to materially change physician behavior, according to management.
Flexible purchasing and third-party leasing options are available to hospital customers, but the capital sales model remains otherwise unchanged.
INDUSTRY GLOSSARY
Hydros: PROCEPT's next-generation robotic surgical system featuring streamlined setup, single-use components, and AI-assisted functions.
OPPS (Outpatient Prospective Payment System): U.S. Medicare's reimbursement framework for outpatient hospital services, determining facility fee levels by procedure.
APC Level Six: A Medicare OPPS Ambulatory Payment Classification group associated with higher-complexity urologic and surgical procedures.
IDN (Integrated Delivery Network): A network of hospitals and healthcare providers aligned to deliver comprehensive care and negotiate purchasing collectively.
ASC (Ambulatory Surgery Center): Medical facilities specializing in same-day surgical procedures outside of traditional hospital in-patient settings.
WATERFORT Trial: PROCEPT's clinical study evaluating the use of aquablation therapy for prostate cancer patients, including both hospital and ASC treatment settings.
Full Conference Call Transcript
Matt Bacso: Presenting on today's call are Reza Zadno, Chief Executive Officer, Larry Wood, incoming 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 of events or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. 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 Corporation's 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, 08/06/2025. Except as required by law, PROCEPT BioRobotics Corporation 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 would like to now turn the call over to Reza.
Reza Zadno: Good afternoon. Before we review our second quarter results and provide an update on our outlook for 2025, I'd like to share a few brief remarks on our progress and welcome Larry Wood to 2025 with an estimated installed base of 715 systems with only 20% procedural share in the hospital market, highlighting significant room for expansion. The recent launch of Hydros, our next-generation robotic platform, will serve as a foundation for continued innovation. Enrollment in the WATERFORT trial is progressing well, positioning us to enter the highly synergistic prostate cancer market. Financially, the company is well-capitalized with gross margins expanding into the mid-sixties range, establishing a clearer path to profitability.
None of this momentum would be possible without the strong team executing at a high level. PROCEPT BioRobotics Corporation will continue to evolve and scale, investing in strategic capabilities while developing and strengthening leadership to support future growth. A great example of that evolution is the succession process that has yielded Larry Wood as our next CEO. While many of you know Larry from his time building the TAVR business at Edwards, we are excited to have him here today to make a few comments before he officially starts on September 2. Larry?
Larry Wood: Good afternoon. As my official start date at PROCEPT BioRobotics Corporation is only a few weeks away, I won't be commenting on the quarter or taking any questions. But I am appreciative of the opportunity to speak with all of you today. Before looking ahead, I would like to reflect with gratitude. I had the privilege of spending forty years at Edwards Lifesciences working alongside extraordinary individuals to build and scale a leading global TAVR business. For those of you who know me from Edwards, you know what excites me is the opportunity to change the standard of care and improve patients' lives in a meaningful way.
In many ways, I see the opportunity at PROCEPT BioRobotics Corporation with many parallels to the same goals and mission. We will focus on evidence, purposeful innovation, and always striving to provide transformational therapies for patients who need it. It is an incredible honor to step into the role of CEO of PROCEPT BioRobotics Corporation. I am both humbled and energized by the opportunity to lead such a talented, mission-driven, and forward-thinking team. As I begin this new chapter, I want to emphasize how deeply I believe in PROCEPT BioRobotics Corporation's potential to become a global leader in urology.
Having served on the board of directors and audit committee this past year, I've had a unique vantage point to assess the company's strengths and future growth prospects, and I can say confidently I would not be here today if I did not believe that the future is extraordinarily bright. I also want to thank Reza and the team for laying such a strong foundation. Their vision and leadership have positioned the company well for the road ahead. As a team, I know we can achieve great things, to innovate, grow, and build a culture rooted in trust, collaboration, and performance. I look forward to sharing more about my vision as I transition into the CEO role.
Change is inevitable, but our direction remains clear. I approach this new chapter with a deep sense of responsibility and commitment to our employees, customers, patients, and shareholders. Thank you. And I cannot wait to officially be in the role in early September. With that, I will pass it back to Reza for the quarterly business updates.
Reza Zadno: Thanks, Larry. Beginning with our quarterly revenue results, we delivered another strong quarter with results exceeding expectations across key performance indicators. The Hydro sales funnel remains healthy and well-positioned for conversion with average selling prices above the prior quarter. Procedure volumes outperformed expectations, reflecting both increased utilization and strong surgeon adoption. We delivered record international revenue performance. Gross margin impact from tariffs has been effectively mitigated through disciplined execution and a more favorable environment. These results support our confidence in continuing to execute at a high level. Next, I want to provide an update on the recent 2026 proposed Medicare physician fee schedule. In mid-July, CMS announced a coagulation therapy was assigned a category one code effective 01/01/2026.
The new CPT category one code was assigned a 2026 National Medicare Physician proposed payment of 16.14 total RBUs. Under the 2026 proposed Medicare physician fee schedule, by comparison, TERP was assigned 15.82. The urology community and the patients we serve are growing in adoption of coagulation therapy, reinforcing its role as the surgical standard of care. We believe the category one designation will support broader adoption and expand patient access to our population therapy. The category one code will reduce administrative burdens and ensure consistent reimbursement for both surgeons and hospitals.
While overall professional fees have declined across the BPH resective procedure category, they continue to be collectively higher than national averages for non-resective BPH and kidney stone and bladder stone procedures, which are high-volume procedures performed by urologists in the hospital and ASC settings. Additionally, the 2026 Medicare proposed hospital outpatient prospective payment system or OPPS continues to recognize anticoagulation therapies hospital facility fee at APC level six. The 2026 OPPS proposal establishes hospital-based coagulation therapy reimbursement at $9,705, an increase of 5.6% from $9,247 in 2025. As we have communicated previously, the more important variable driving coagulation adoption is a stable facility reimbursement rate that supports investment in the hydro system.
Turning to the global macro environment, specifically our exposure to tariffs. As a reminder, with greater than 95% of the direct material cost for a single-use handpiece sourced in the United States, our primary tariff exposure lies with our ultrasound system associated components sourced from China. Back in April, based on a 1045% Chinese tariff rate, we estimated the potential cost of goods sold headwinds of approximately $5,000,000. Given that Chinese tariff rates have declined to approximately 55%, we estimate our cost of goods sold headwinds in 2025 to now be approximately $1,000,000 to $2,000,000. During this period, we have been actively pursuing operational strategies to materially mitigate this exposure.
We remain confident that the current tariff environment does not compromise our path to achieving our long-term profitability and gross margin objectives. Next, I want to provide a brief update on Waterford enrollment. As a reminder, we initiated enrollment in 2025 and activity is progressing to our expectations. As with all large clinical studies, the first phase is site selection and activation. Once activated, enrollment starts to accelerate. At our current pace, we continue to expect full enrollment by 2026. In connection with the Waterford trial, Dr. Rahul Mihan successfully completed three same-day surgery prostate cancer procedures in an ISC in Arizona. While the vast majority of patients in the WATERFORT trial will be treated in the hospital setting, Dr.
Meehan has elected to treat a population of patients in the ASC. Although still early, this announcement is exciting for two key reasons. First, we have demonstrated that localized prostate cancer can be treated and patients discharged the same day. Second, as highlighted during our AUA Analyst Day in April, the procedure involves removing nearly twice as much tissue as in BPH cases. Despite this, Dr. Meehan was able to safely and successfully treat these patients and discharge them the same day. Last, I'd like to share an important organizational update. Building on our strong performance, we have made the decision to strengthen our commercial execution in support of our long-term objective to become the BPH surgical standard of care.
To advance this goal, we are eliminating the role of the chief commercial officer and searching for two new leadership positions: Senior Vice President of Sales and Senior Vice President of Marketing, both reporting directly to the CEO. As a result of this change, Sham Shiblaq will no longer serve as CCO effective September 1. We appreciate Sham's leadership and contributions to the company's growth over the last six years and wish him all the best. With that, I will turn the call over to Kevin to provide more detail on second-quarter performance and our financial outlook.
Kevin Waters: Thanks, Reza. Total revenue for 2025 was $79,200,000, representing growth of 48% compared to 2024. US revenue for the second quarter was $69,600,000, representing growth of 46% compared to the prior year period. Turning to US procedures, handpiece and other consumable revenue for 2025 was $43,100,000, representing growth of 58% compared to 2024. We also recorded approximately $2,200,000 of other consumable revenue in 2025. In the second quarter, we sold approximately 12,750 handpieces, representing year-over-year unit growth of 59%. As noted during our first-quarter earnings call, we exited March with strong procedural momentum that was sustained throughout the second quarter.
With the sailing disruption now behind us, the second quarter represented one of the most stable operating periods we've seen in the past six months. This is particularly noteworthy as it signals a clear return to the procedural momentum that was disrupted in 2024. In 2025, over 1,300 surgeons performed an aquablation therapy procedure, reflecting strong engagement across our surgeon community. Given this large and growing number of surgeons, our commercial team is highly focused on identifying high-potential surgeons and driving increased utilization. Turning to US robot placements, we generated total US system revenue of $22,100,000, representing system revenue growth of 24% compared to 2024. In the second quarter, we sold 48 new Hydro's robotic systems replacement systems.
The pricing for our greenfield systems was at an average selling price of approximately $455,000. As we have previously communicated, the timing of deal closures can vary quarter to quarter, and we continue to take confidence in the fact that once opportunities reach the later stages of our sales funnel, it is more a matter of when they close, not if. Additionally, momentum with our IDN customers during the second quarter continues to progress nicely and reinforces our confidence heading into 2025. Furthermore, adoption of the hydro system by BPH hospitals is steadily increasing, reinforcing our confidence in the opportunity to penetrate the remaining high-volume BPH hospitals and expand in the medium and lower-volume hospitals.
International revenue in 2025 was $9,600,000, representing growth of 69% compared to the prior year period. Growth in the second quarter was driven primarily by strong sales momentum in The United Kingdom, Japan, and Korea. Moving down the income statement, gross margin for 2025 was 65.4%, representing an increase of 640 basis points year over year. The year-over-year margin expansion was driven primarily by improved operational efficiencies and higher average selling prices compared to 2024. Total operating expenses for 2025 amounted to $74,000,000 compared to $58,300,000 during the same period in the prior year. We believe our path to profitability is becoming increasingly clear as reflected in our recent performance.
This clarity is driven by our gross margin expansion into the mid-sixty percent range, which is a direct result of our ability to leverage existing overhead at higher revenue levels, along with increased average selling prices for both systems and handpieces. Net loss was $19,600,000 for 2025 compared to $25,600,000 in the same period of the prior year. Adjusted EBITDA was a loss of $8,000,000 compared to a loss of $18,000,000 in 2024. Our cash, cash equivalents, and restricted cash balances as of June 30 were approximately $306,000,000. Moving to our 2025 financial guidance, we now expect full-year 2025 total revenue to be approximately $325,500,000, representing growth of approximately 45% compared to 2024.
We continue to expect to sell approximately 210 new robotic systems in The United States in 2025. The quarterly volume has shifted slightly due to the timing of certain sales that moved from June into the third quarter. As a result, we now anticipate greenfield system sales in the third quarter to total approximately 52 units, with average selling prices expected to be approximately $440,000 per system. Our primary commercial focus in 2025 remains capitalizing on the significant opportunity to expand Hydro's adoption in greenfield accounts. As such, we have revised our expectations for replacement system sales in the third and fourth quarters, which we now expect to be immaterial.
We continue to believe that replacement sales represent a meaningful long-term growth driver for the business. However, given our current position early in the adoption curve, we anticipate this opportunity to begin contributing more substantially starting in 2026. Taking all of this into account, we now expect full-year US system revenue to total approximately $93,500,000. Turning to US handpieces, for the full year, we now expect sales of approximately 53,000 handpieces, representing a 64% increase in unit volume compared to 2024. We remain confident in our visibility into new account launches and quarterly procedure volumes, which contributed to our outperformance in the second quarter.
In terms of quarterly cadence, we expect to sell approximately 13,350 US handpieces in the third quarter. We are maintaining handpiece average selling prices to be approximately $3,200 and other consumables revenue expectations to be approximately $9,000,000 for the full year. Additionally, we expect US service and other revenue to now be approximately $17,000,000 for the full year. Given strong positive momentum, we now expect full-year international revenue to be approximately $36,000,000, representing annual growth of 50%. Turning to gross margins, the current tariff landscape remains highly fluid. That said, we believe we are well-positioned to manage both gross margins and overall profitability in this environment.
As Reza noted, at current tariff rates, we estimate a potential gross margin headwind of approximately $1,000,000 to $2,000,000 in 2025, which is expected to result in a modest decline in gross margin during the second half of the year compared to the first half. Taking these impacts into consideration, we are now expecting a full-year gross margin of approximately 64.5%, which is at the high end of our previously issued gross margin guidance. Although we are not yet providing guidance for 2026, we remain confident that the current tariff environment does not compromise our path to achieving our long-term profitability objectives.
Turning to operating expenses, we now expect full-year 2025 operating expenses to total approximately $302,000,000, representing a 29% increase compared to 2024. For 2025, our operating expense guidance reflects anticipated spending of approximately $79,000,000, inclusive of certain one-time expenses associated with the CEO transition. In addition, based on current interest rates and our cash position, we project full-year interest and other income to be approximately $9,000,000. After considering all relevant factors, we continue to expect a full-year 2025 adjusted EBITDA loss of approximately $35,000,000, with fourth-quarter results approaching breakeven. With that, I will turn the call over to Reza for final comments.
Reza Zadno: Thanks, Kevin. To reiterate, PROCEPT BioRobotics Corporation is strategically well-positioned to achieve our long-term goal of becoming a global leader in urology. We are building the leadership team and the capabilities necessary to scale the business effectively to reach our goals. I'm confident Larry and his team will do just that. As for me, serving as CEO of this incredible company has been the greatest honor of my professional career. I'm immensely proud of what we have accomplished together, the milestones we have reached, the challenges we have overcome, and the culture of performance, integrity, and innovation we have built.
To our employees, I want to thank each and every one of you for your hard work, dedication, and trust over the years. At this point, we will take questions. Operator?
Operator: Certainly. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. And our first question will come from Matt O'Brien of Piper Sandler. Your line is open, Matthew.
Matt O'Brien: Great. Thanks so much for taking the questions. Reza, best of luck in retirement. And Larry, welcome to the new role. Thought maybe we could start with guidance. You know, just the confidence level that you guys have in the guidance here, especially with, you know, the system number in the quarter maybe coming in a little lighter than some folks had maybe expected. Just the confidence you have there, some of the puts and takes as you think about the guide for the back half of the year. And then I do have a follow-up.
Kevin Waters: Yes. Thanks, Scott. Let me take that in two parts. Let me first make sure you're clear on what the actual guidance is because I did hear you say we maintain guidance, but we actually did slightly increase guidance. Let me just walk through the guidance, then I'll separately go through what gives us confidence and how we formulated that guidance. Just starting with the full-year guidance, we did affirm our full-year system greenfield guide of 210, although we did note that we had a few systems that moved into the back half of the year purely due to timing. But our overall number remains unchanged.
And at the same time, we've actually increased the average selling price as we now expect in the third and fourth quarter to $440,000 per system based on what we see in the pipeline. When you look at handpiece sales, we're actually really pleased with the trends in the business. And we essentially raised the full-year guidance by the Q2 beat, which kind of gets us to that 53,000 number. And then some other items on service, we increased that guide by about a million dollars as a function of renewing service contracts.
And then, also, we did increase again international revenue by about a million and a half given the trends we're seeing in The UK, Korea, and Japan to get to a full-year number of 36. So those are the numbers. And kind of to your second part of your question around kind of confidence and formulation, our guidance is always based on the trends we see currently in the business. And we went through a normal process in formulating guidance. And we do appreciate that, you know, in times of change, execution can be difficult. But it's important to remember we have hundreds of people in the field on our Salesforce. These are dedicated professionals.
Many have been doing this for twenty-plus years. And we have a high degree of confidence in that team and the ability to execute from a pure people perspective. And we've continuously said ever since you've known us, Matt, that we think we have the best Salesforce out there in medical devices, and we're going to leverage them over the next six months during this period of change. And then when you actually look through the details, remember, our capital sales cycle is six to nine months, and, therefore, we have a ton of visibility into deals currently in the funnel. And that sales team is out there executing on that.
Matt O'Brien: And when you look at procedures, we have strong visibility over the next thirty to sixty days. These are elective procedures. They're typically booked months in advance. We're in every case, and that provides some relative level of stability to our forecast. So long-winded way of saying we have a ton of confidence in the team and in our guidance. And feel good about executing in the back half of the year. Appreciate that. And then as the follow-up, and I think you're kind of touching on some of those points there, Kevin. You know, with Reza leaving now, with Sham and getting that update on this call, he's leaving, there is quite a bit of disruption.
So, you know, historically, when investors see this level of disruption, you get a little worried that there's going to be some loss of focus among sales reps or other folks in the organization. Can you just kind of touch on how you're going to minimize the potential for that level of disruption, you know, as we think about the growth of the business over the rest of this year and into '26?
Kevin Waters: Thanks. Yeah. I mean, I'm going to apologize. It might be somewhat repetitive, but I'm going to say it again. We have full confidence in the team we have in the field. This is not a company with 20 or 30 reps now. I mean, we have hundreds of people in the field. We go through a very methodical process internally to formulate guidance. And those people are committed to executing in the back half of the year. And again, we appreciate times of change. Execution can be difficult. We have confidence in the team and process, and we're moving forward.
Matt O'Brien: Understood. Thank you.
Operator: And our next question will be coming from Brandon Fesquet of William Blair. Your line is open, Brandon.
Brandon Vazquez: Hi, everyone. Thanks for taking the question. Maybe first, just talk to us a little bit more about why now was the right time to split up the CCO role and kind of expectations for what the organization will look like differently, what can you do more efficiently with two roles instead of one, again, why now is the right time to do that?
Reza Zadno: Yeah. Thanks, Brandon. As I said in the prepared remarks, this was really a result of our decision to further strengthen our commercial execution to support our long-term objective of becoming a leading global radiology company. And with this decision, eliminating the CCO role, we have the opportunity of bringing two executives for one in the SVP of sales and one for marketing.
Brandon Vazquez: Okay. Maybe separately, you know, we've talked a lot about in the past how one of the gate or not the gating factors, but the predictors of utilization growth is simply time in your accounts. Right? As you look now and we're getting deeper and deeper into accounts and more tenure, as you look at some of your oldest accounts, do you guys feel like pretty uniformly the more time you give accounts, the closer they get to Acrobation being standard of care in those accounts? Maybe just curious if you can talk to us as we're looking forward from here. How many of these accounts?
You probably can't put a number on it, but how many of your accounts are really getting predominantly most of their BPH volumes are being done with aquablation and becoming a workforce solution. To give us a better sense of how this can trend in the future?
Reza Zadno: I'm not going to put an exact number on it as you alluded to, but I do think your characterization is fair. That's the longer you are in an account, the more augmentation procedures you do. And we do have multiple examples where aquablation therapy is the standard of care within that hospital practice. But we have a long way to go. If you looked at where we're at, we're planning to exit the year at only twenty percent of the US respective market share. And we feel that we're just scratching the surface of the potential here. But we definitely have multiple examples of us being the standard of care within our given customers.
Operator: And one moment for our next question. Our next question will be coming from Richard Newitter of Truist Securities. Your line is open.
Richard Newitter: Hi, thanks for taking the questions. Maybe the first one for me is on the recent physician fee schedule reduction within urology procedures, especially including yours. I'm just what gives you the confidence, or what are you hearing, if anything, that physician behavior won't change? On, you know, their treatment algorithm or whether they do a resective procedure versus something else that maybe minimally invasive procedure that potentially saw some lift to the economic remuneration. I'd love to just hear your thoughts there. Got a follow-up.
Reza Zadno: Yeah. Thanks for the question. As you mentioned, all resective procedures payments went down by about 25%. We were modestly higher than the other resective procedures. I think we should focus always on the clinical outcomes. And adoption and utilization of our system from a hospital point of view is mostly by the APC level six that was not modified and 50% of the physicians we work with are salaried in this hospital. But again, adoption and utilization are primarily on clinical outcomes. So we believe these outcomes we are providing.
Richard Newitter: Okay. Thanks. And then just on the system placement. So I guess the only real change that I'm seeing on the placement side, maybe two systems got pushed into 4Q, but it sounds like you have good visibility there. Out of 3Q. And then just more of a kind of a de minimis replacement assumption this year. I guess, what changed there, and why would replacements just start picking up next year, or is there just yeah. Just maybe elaborate on that a little bit. Thanks.
Kevin Waters: Yeah. I think you're characterizing that correctly, Rich, where the system absolute revenue number has increased since the beginning of the year primarily due to ASPs, and our overall guide of 210 remains the same. But compared to our last quarter guide of $95,000,000, we've reduced that to 93.5. And that is solely, as you pointed out, the fact that we do not think we're going to execute on the number of replacements that we felt we were going to do at the beginning of the year. And this is really focus.
And we do feel with the amount of greenfield deals we have in the funnel, the opportunity there, the fact that we're still 20% penetrated into the total hospital environment, we feel that's where the focus needs to be in the near term. Reps are not incentivized on replacements, and it's just not a focus. I'd also point out why do we think in the future this will become more robust is if you look at the useful life of our system, our capital is a bit unique in that we peg the useful life somewhere in the five to seven-year range.
And if you start to look at when we really started to garner a significant number of placements, that really started in earnest in 2021 post receiving full Medicare coverage. And with that is why I made the comment that I think 2026 could be the year where you start to see a more robust replacement cycle that coincides with the useful life of the system, not 2025.
Richard Newitter: Very helpful. Thank you. That's it.
Operator: One moment for our next question. Our next question will be coming from Chris of Nephron Research. Your line is open, Chris.
Chris Pasquale: Thanks. I thought the statistic around thirteen hundred surgeons performing at least one case in the quarter was interesting. It implies about ten per physician. I'm curious how that utilization curve looks. Do you have a significant number of doctors who are still only doing one or two cases kind of dabbling, or is it more tightly bunched around that run rate of maybe three or four months?
Kevin Waters: It's fairly consistent in the trajectory. With surgeons where we've said it typically takes our average surgeon three to four quarters to start performing at the corporate average. And that remains consistent. On average, we have about two to three surgeons per account. That remains consistent. But where we put in a lot of effort, and I think it's starting to bear fruit in the numbers here, is how we launch accounts. And we're now launching accounts with multiple surgeons and asking those surgeons, encouraging those surgeons to schedule multiple patients. It's very inefficient for us as a company, inefficient for the surgeon and his or her patients to treat one patient a day.
And I think that's starting to manifest itself a little bit now, and you're seeing it in the numbers.
Chris Pasquale: Okay. And then could you just talk a little bit more about the international strength? You know, that continues to kind of run ahead of expectations. And in the past, you said most of that is The UK. Is that still true, or are other regions starting to be more meaningful?
Kevin Waters: Yes. So consistent with previous quarters, the upside we're seeing is primarily related to UK demand. However, while still relatively minor, we are starting to see some good progress in both Japan and Korea. We're really looking to build those markets for the long term. And we're starting to see kind of some good traction there. To put it in perspective, between those three markets I just mentioned, The UK, Japan, and Korea, that would represent about 70% of all international sales.
Chris Pasquale: That's helpful. Thanks.
Kevin Waters: Thank you.
Operator: And our next question will be coming from Josh Jennings of TD Cowen. Your line is open, Josh.
Joshua Jennings: Hi, this is Eric on for Josh. Thank you for taking the question. Wanted to ask about the Hydros rollout. Now that you're a few quarters into that launch, wondering if you could talk a little bit about the value proposition of that system and how it's being received by customers. And maybe more specifically, if there's any metrics, like utilization, where maybe you're seeing more procedures take place with the folks who have that. Just wondering if there's anything to call out there.
Kevin Waters: Yeah. Let me take the utilization metric first. It's too early. It's the answer on utilization. What we're seeing are good anecdotes with accounts launching with multiple surgeons with multiple patients per day, as I just mentioned. In 2025, it's early. If you go back to our Hydro installations, they really began in earnest. And given the fact that it does take three to four quarters for an account to ramp, you know, I think we'll have a lot more to say at the conclusion of 2025 with how we see that ramp. But the general receptivity has been fantastic in terms of the features that Hydros offers.
Reza Zadno: Yeah. And I can add to that, you know, definitely as we had set up time, it is simpler. The fact that we have the single-use that reduces the one more step of sterilization that's cheaper for the hospital. And, of course, the first AI assist, these are all the features that still are the value proposition for Hydros.
Joshua Jennings: Understood. That makes sense. And then maybe on the capital sales team, wondering if you could share how you're feeling about the size of that team currently and how you're thinking about the pace of repetitions over the next twelve months or so.
Kevin Waters: Yeah. Look. We feel good about the size. You know, we provided that we have about 40 quota-carrying reps, but more importantly, we're adding strategically around those reps based on the needs of the business. And, you know, we've talked about ads in different areas there. I'm not getting into specifics, but, you know, directionally, the pipeline's strong. The rep productivity is performing to our expectations, and we'll continue to add to that group heading into 2026. So we feel good about how that team's performing and the productivity around that group.
Joshua Jennings: Okay. That makes sense. Thank you for taking the questions.
Kevin Waters: Thank you.
Operator: Our next question will be coming from Patrick Wood of Morgan Stanley. Patrick, your line is open.
Patrick Wood: Awesome. Thanks, guys. Just two for me quickly. One, you touched on the Cat one code shift at the start, but like are you having conversations with surgeons to get a sense of that faster flow from them? You know, any uptake in terms of volumes just from the ease of quality of life from the coding side on there? And any sort of anecdotes around what that could do for volumes, if anything?
Reza Zadno: So the question is on Cat one. So definitely, we are very excited about moving to CAT one. As you know, that's considered the established procedure versus when you are in category three or considered experimental. It standardizes the billing, removes all the operational barriers, and the clinicals from. And at the end of the day, it's just the clinical outcomes which will drive utilization.
Kevin Waters: Patrick, this is Kevin as well. I mean, to your question about physician feedback, the reality is this is not going to be implemented until January 2026. So in terms of surgeon experience, there is none today. And I don't think we have heard anecdotes from our customers that the payment is going to be a barrier to adoption. They are still excited about the clinical benefits that our procedure offers and standardization to their practice. And the early feedback, I'd say it's been fairly neutral is how I would characterize it. Surgeon feedback.
Patrick Wood: Classic. They've got better things to worry about. I mean, the other one is, you know, you touched on it in relation to the IDNs. But, you know, looking for the distribution of new placements and particularly some of the lower volume facilities, how you're feeling about that? How about mix could hit going forward rather than just the high volume facilities? How are you feeling about the lower volume?
Kevin Waters: Yes. We feel good. And I think it's important to since you brought it up here, to remind folks that these large IDNs in The US account for about 30% of all resective procedures being performed in the hospital. And there's about 17 of these IDNs, and we're very fortunate to be able to have relationships and contracts with most all of them. And, you know, we started to see some of those deals come through in 2025. I would suggest it's going to be a big part of our growth strategy as we exit the year and head into 2026. We are starting to form great relationships at the top.
We've hired a handful of folks to run a strategic account team led by very accomplished and experienced individuals. And where historically, we've always worked deals from the bottom up, which we continue to do, this group really allows us to work from the top down, and we feel good about the pipeline and the deals and the progress that we see with IDNs.
Patrick Wood: Appreciate the color. Thanks, guys.
Kevin Waters: Thanks, Patrick.
Operator: And our next question will be coming from Nathan Traybeck of Wells Fargo. Nathan, your line is open.
Nathan Treybeck: Great, thanks. Reza, congratulations. It was a pleasure working with you. And, Larry, looking forward to working with you as well. I just wanted to touch on the capital environment. I guess, in light of recent macro concerns, can you confirm you're not hearing from about any slowing or pausing of capital spending?
Kevin Waters: Yeah. I could confirm that. We believe the environment is relatively stable. You know, I said in our prepared remarks, you know, the deals that moved from Q2 to Q3, I would not characterize as due to any type of macro headwinds. These are more due to individual hospital discussions, IDN budgets, and when those come to fruition. But we believe we're operating in a very stable environment. And I'd also point out, and we've said this numerous times given the macro backdrop we've been through over the last three years, our robotic offering and op ablation therapy provide a unique benefit to hospitals even in challenging macro times. It allows hospitals to recruit and retain surgeons.
It allows them to now standardize their practice and treat more patients than they otherwise were treating. So when I have conversations with hospital CFOs, they get excited about that much more than any type of macro headwinds that could be perceived in the environment today. We're not seeing it, Nathan.
Nathan Treybeck: Thanks, Kevin. And just for my follow-up, has there been any, I guess, evolution in your outlook or strategy for entering the 90% of the resective procedures that are done in the hospital?
Reza Zadno: We had a pilot program, and that's going well. But really our primary focus is hospital-based, and also in the Waterford, as you heard, one of our physicians did the cases at ASC. So that's something for the future we look at, but our primary focus stream is.
Nathan Treybeck: Thanks.
Operator: And one moment for our next question. Our next question is going to be coming from Ryan Zimmerman of BTIG. Ryan, your line is open.
Ryan Zimmerman: Thanks for taking our questions. Reza, you're a young guy. My question is why you're retiring now.
Reza Zadno: No. I'm kidding. I'm twenty. I was a job. Older than that.
Ryan Zimmerman: Okay. No. That's I wish you the best on your retirement. Maybe I want to ask a couple of things. So, you know, number one, you know, the tariff impacts have gotten arguably a little bit better. Right? And the gross margins, I understand they're going to be impacted in the back half of the year. But your gross margin guidance is unchanged. Despite the tariff dynamics coming down. And so maybe, Kevin, you can elaborate on what's driving that.
Kevin Waters: Yeah. So our gross margin guidance on the previous call, we actually had guided to a range to account for a $5,000,000 impact. And that range was 63 to 64 and a half percent on our last call. And what we've potentially done with this guide, Ryan, is lower the exposure from 5,000,000 to a million to 2,000,000, and that puts margins now at 64 and a half percent. So while we did increase the range, we also chopped off the bottom end, and we're guiding to the high range. And just overall tariffs aside, we feel really good about kind of our ability to continue to expand margins here with operational efficiencies and higher volumes.
Ryan Zimmerman: Yeah. Okay. Let's talk about utilization for a minute if we could. You know, if I heard you, Kevin, search 13,350 is the handpiece number for Q3. I think it was 13,500 last time. I could be wrong. But it does arguably at 52 units imply about a mid-single-digit kind of growth rate versus last year on utilization. It shifts back, you know, the utilization uptick to the fourth quarter to make that 53,000. I know there's some nuances in kind of how everyone calculates utilization. But just, you know, simple math, that's what it's coming out at. There anything to read into here with how that utilization is shifting on the systems?
Kevin Waters: No. There's nothing to read into. And let me walk you through kind of that year-over-year comparison. So our Q3 year-over-year utilization at 13,350 would assume about 4% year-over-year growth. We just grew in Q1 and Q2 on average right around 5%. Right? So I view those numbers as relatively comparable, and nothing should be read into it. I think the bigger question is, how can Q4 grow 25% if we're at single digits in the first half of the year? And that's a relatively easy answer for us. If you go back to '24, with saline, and our commentary around 2,000 lost procedures in Q4.
And if you take those and add them back to the '24 number, that's more of an apples-to-apples comparison. And that would actually put the Q4 growth required at a number very comparable to the first nine months. So I don't feel like we're sitting here today relying on a huge hockey stick of growth in the fourth quarter to meet our targets. If anything, I think you'll find the fourth-quarter guide might even be slightly less than the first nine months. So we feel good about the setup for the rest of the year.
Ryan Zimmerman: But, Kevin, just to push a little, I mean, the guidance originally was for linear growth, in terms of, you know, growth improving through the year, throughout the year, if I'm not mistaken, when you originally guided 2025. Right?
Kevin Waters: Yeah. And I we're just probably going to talk semantics here, Ryan, because four, five, 6%, I mean, that's I mean, you could do the math on how many procedures that is. I feel good about the setup for Q3. I'll just say that.
Ryan Zimmerman: Okay. Alright. I'll leave it at that. Thank you.
Kevin Waters: Thanks, Ryan.
Operator: And our next question will be coming from Michael Sercone of Jefferies. Michael, your line is open.
Michael Sercone: Hey, good afternoon, and thanks for taking the questions. Reza, congrats on the retirement, and Larry, looking forward to working with you here. I guess first question for me, just, you know, maybe, Kevin, any comments you could give us on second-half revenue phasing? I know you've got, you know, a few systems that got deferred into 3Q. Just wanted to know if that or if there's anything else you'd call out as we think about the revenue phasing in the back half.
Kevin Waters: Yeah. I tried to give you guys enough to get there, but let me tell you what we said. I think you're going to find what comes out on the other end pretty mathematical. So we guided to 52 systems in the third quarter. That would put the Q4 number around 67 at a 440 ASP. We guided to 13,350 handpieces in the third quarter. What we did guide to, however, which I think I'm going to help you out here, was international revenue. And if you look at revenue, the third quarter, as we all know, with seasonality, is typically a step down from the second quarter.
And, you know, typically for us, it's about a half million dollars to a million-dollar step down sequentially. I think if you plug all of those into your model, you can come out with a number. But we did not guide that specific revenue number in Q3 and Q4.
Michael Sercone: Understood. That's helpful. And maybe understanding that expected tariff impacts have eased a bunch, just wanted to know if you've made any progress or how you're thinking about the sole source ultrasound supplier based in China.
Kevin Waters: Yeah. We're working very closely with that partner. You know, we do think we can onshore that ultrasound longer term to mitigate any longer-term tariff impact. I think the primary takeaway for me there is that we have very good relationships with the supplier, and the continuity of supply is unquestioned. But given this environment and that it seems to be, again, fairly fluid, I think we're looking at strategies longer term to not only mitigate that but look at other parts as well that we could start to bring in-house or work with someone in a domestic fashion.
Michael Sercone: Got it. Thank you.
Kevin Waters: Thank you.
Operator: And our next question will be coming from Mike Kratky of Leerink Partners. Your line is open, Mike.
Michael Kratky: This is Sam on for Mike. For taking our questions. Can you just kind of provide any additional color on the degree of penetration that you're seeing today? And low to medium volume hospitals and how their case volume typically evolves adopting aquablation, specifically how long it may take them to become, you know, kind of more high-volume hospitals following adoption?
Kevin Waters: Yeah. Look. It's a pretty specific question. I think the constituency of our sales between high volume and low and medium volume hospitals remains consistent. There's nothing really to point out there. We'd also suggest that our low-hanging fruit in the near term is continuing to penetrate high-volume hospitals. And even with kind of the ramp we've had over the last two to three years, we still feel there's a significant opportunity to penetrate the 860 high-volume hospitals that are out there in The US.
And at the same time, we also recognize, given the value proposition, that we can turn, to your point, these smaller hospitals into larger hospitals, but it's too early to kind of get into the details as to where the procedures are being driven or where those can ultimately go.
Michael Kratky: Got it. Understood. Then just kind of following commentary from last quarter, what commercial impact have you guys seen from the recent LCD updates from Medicare administrative contractors? And have any additional contractors updated their LCDs or expressed interest to remove restrictions on aquablation?
Kevin Waters: It's too early. So most of those LTDs that we do not become active until the fall. So we'll have to see. At the same time, I don't think the expectation is that should be immediate. These things take time to phase in. It takes time to get everybody up to speed. And, you know, if there were going to be any impact, I would suggest that wouldn't occur until 2026.
Michael Kratky: Got it. Understood. Thanks.
Operator: And one moment for our next question. Be coming from Suraj Kalia of Oppenheimer and Company. Your line is open.
Suraj Kalia: Gentlemen, thank you for taking my questions. Reza, congrats on your retirement. Larry, looking forward to working with you again. So, Kevin, you provided a lot of additional color on guidance, handpieces, units. Maybe if I could come at it from a little different angle, how should we think about the ratio of handpieces shipped versus actually used in the quarter? I guess what I'm just trying to get my arms around is, you know, the 2,000 or so cases that got pushed from Q4 into presumably this year. Utilization numbers, you know, we went back and forth in 6% up or year over year.
Maybe if you could tie all of this together and tell us how should we think about shipments versus actual utilization.
Kevin Waters: Yeah. Look. We monitor this metric closely. We have the advantage here at PROCEPT BioRobotics Corporation of having visibility into when all our procedures are being done. And we also do not typically utilize distributors in The US. And that differential between procedures and handpieces has remained relatively consistent throughout our time as a public company.
Suraj Kalia: Got it. And, Reza, for Waterford, how should we think about the Venn diagram in between urologists who are using aquablation to treat BPH and you're also pretty proficient with robotic radical prostatectomies. Is there a lot of overlap, or you would say, you know, these guys are relatively segregated? Gentlemen, thank you for taking my questions.
Reza Zadno: Thank you. We are working with all of them. And so they're all included in this study.
Operator: One moment for our next question. Our next question will be coming from Mason Currico of Stephens Inc. Mason, your line is open.
Mason Currico: Hey, guys. Thanks for the questions here. Realizing you've guided handpiece ASP this year, are you willing to give any color on how we should be thinking about ASP into 2026 increasing mix to Hydros as well?
Kevin Waters: Yeah. I believe we're not going to comment on '26, but let me tell you what we've said. Historically, regarding Hydros. As we start to sell more Hydros, the mix of handpieces between Hydros and aquablation will begin to increase, therefore, you should start to see low single-digit increases in Hydro's handpieces as we move forward. But in terms of kind of building a model, that's where we're going here, I would be relatively conservative on handpiece price as we move forward into 2026.
Mason Currico: Got it. Okay. Some placements request. Are you implementing any flexible purchasing options to help close deals? And if so, are you seeing an increasing mix of hospitals starting to utilize that option if, like I said, it is?
Kevin Waters: Yeah. Look. We're obviously aware of kind of what goes on in the capital environment. And, you know, we definitely understand flexible purchasing options are important to customers. And so with that in mind, we do work with third-party leasing companies if one of our customers would like to seek financing for their hydro system. So continue to work with those folks. And at the same time, you know, we have done some flexible purchasing deals internally, but the ability to sell capital in the near term, that model is unchanged.
Mason Currico: Awesome. Thanks. Appreciate it.
Operator: And I'm showing no further questions in the queue. Thank you for joining, and the call is now concluded. Thank you.