PROCEPT BioRobotics Aktie

Hello. Good afternoon, everybody. My name is Brandon Vasquez. I'm a research analyst at William Blair, covering medical devices and some animal health names. I am required to inform you that for a complete list of disclosures and potential conflicts of interest, you can go to williamblair.com for more information. Excited to have with us here PROCEPT BioRobotics and we have the CEO of PROCEPT, Larry Wood, who is going to give us a corporate presentation. And then after that, we are going to JennyA for our breakout session after this. So with that, I'll turn it over to Larry.

Thank you. Well, thank you. Thank you guys for spending your lunch with us. This is our safe harbor statement, and I want to say I've seen a lot of these, and I think this is the best-in-class safe harbor statement that exists in our industry. So I know you'll all have a chance to read that. And non-GAAP financial information. I know you'll read through that diligently. So I'll talk a little bit about the opportunity and just kind of give an overview of our company and what we're excited about and how we see the opportunity playing out.

Right now, there's about 400,000 people men a year who undergo procedures for BPH. And we're only about 10% penetrated into that space last year. It's a very undertreated disease. You have about 8 million men above the 400,000 who are on drug therapy for BPH symptoms and some of them on dual drug therapy. But there's about 1.1 million men a year that actually stopped their drug therapy because they're either unhappy with the side effects or they're unhappy with the results of their therapy. And if you go beyond that, there's about 40 million men that are sitting there with the disease.

So we think this not only is there a near-term opportunity in terms of the men that are having alternative procedures, but we think there's a rich opportunity beyond that. And delay getting therapy because in many cases, the cure feels worse than the disease. And what people don't talk about is the delay in seeking therapy actually has long-term repercussions. It has long-term repercussions for bladder health. It has long-term repercussions for potential for incontinence and other sort of complications.

So our technology, we believe, is an absolute game changer as it relates to this space. And when we think about what we've been doing, we've been building a deep clinical base. And this is an area that I think in the urology space that we need to up our game as it relates to the quality and the significance of the data that we have. And I'll talk about that a little bit more in a bit as we move to speaking about prostate cancer.

But really, our pathway right now and kind of what our goals for our company is from a financial side is, one, the #1 thing on our play right now is we want to advance and accelerate procedure growth. We're underpenetrated in this space, and this is a huge area of focus for us. Next is we want to drive to a path to profitability. We've signaled that in Q4 of this year, we'll be EBITDA profitable. And so that's another important part of our corporate journey. And then we want to continue to add to our evidence base and look at some of the adjacencies and be the leading therapy in this space.

So we have been growing procedures, and we've been growing our installed base. So we've now treated over 125,000 patients worldwide. Our global base is approaching 1,000 systems. And in the beginning of this year, we got Category 1 reimbursement. So this is no longer like a new-to-the-game procedure. We've established reimbursement. We've established a procedure, and we think it's time for us to really advance the therapy now and really truly become the standard of care.

When we look at the procedures and we look at the competitive space and for the modern BPH procedures, you can see that most of these procedures have been sort of flat or have been declining. And you can see we've seen tremendous growth in Aquablation over the same period of time. And by the end of this year, we expect to be the leading modern surgical BPH treatment. If you look at adding TURP to this, TURP remains a procedure that has remained very resilient for several different reasons. But this is the next opportunity for us to really convert patients.

Patients that are having TURPs today, we believe our procedure offers significant clinical quality of life advantages over TURP, and this is where we believe the big conversion opportunity is for us on a go-forward basis. But we expect this year to be second only to TURP in the surgical treatment of BPH. So why is this -- and this is really the journey that exists for men. When you have men, and this is true of all prostate sizes, they sort of have 2 options.

One is having a resective procedure. And the problem with a resective procedure is they tend to be very durable and they tend to be long-lasting and they can tend to be a one-and-done procedure. But they have significant complications as it relates to quality of life as it relates to sexual function as it relates to urinary function. So the other alternative is they can have alternative nonresective procedures and that will preserve their sexual function and will preserve their urinary function.

The problem with that is the symptom relief is much, much less, and they typically are going to need a repeat procedure because these procedures don't offer a lot of durability. Aquablation actually sits in this perfect space where we can offer the advantages of a resective procedure in terms of symptom relief, but we can offer the quality of life advantages of a nonresective procedure. And that makes us unique in this space, and this is really what gives us the opportunity to be the procedure of choice because of our best-in-class outcomes.

One of the things that we don't talk about enough is what matters most to patients. And when we do the patient-centric research and we say, what are the things that impact patients the most, here's the things that they continually say. Risk of bladder control issues after surgery. That is the #1 thing. People don't want to wear depends. They don't want to wear those things, and that's the #1 thing. The second thing on their list is minimizing the need for a second procedure.

Third is magnitude of symptom relief, which makes sense, then we worry about their recovery time. They worry about the risk of erectile dysfunction. So it's this urinary function, it's sexual function and it's not needing another procedure or the things that are really huge to them. But when we talk to clinicians, that's not always how clinicians see the world. Clinicians will often say, well, we'll start with drugs, which probably makes sense. But from drugs, maybe we'll move to a nonresective procedure. And if that doesn't work, maybe will you do another nonresective procedure. And if that doesn't work, maybe we'll try something else.

And only then will we proceed to a resective procedure. And in their mind, they're saying we're going to do something less invasive, nonresective as we move to something more invasive with resective. Here's the problem with that. All of these procedures require a 24 French device to go through your urethra. Once a 24 French device goes through your urethra, tell me how one procedure feels less invasive than another.

I think the number of times that a man should have a 24-French device to the urethra is between 0 and 1. Show of hands for any of the men in the room would disagree with me. And so if that's the case, patients deserve to have a procedure that prioritize what matters most to them, which is having a procedure that gives them the highest likelihood of maximum symptom relief, preserving their urinary and sexual function and not needing a secondary procedure.

And so this is a case that we need to take to clinicians, and it's a case we need to make to patients. And I know people will talk a lot about the profitability of this procedure versus the profitability of that procedure. And I will tell you, for those of you who followed Edwards Life Sciences in my career there, I heard the same sorts of things when people were talking about heart valves because I had the most expensive heart valve on the market.

And I will say this, in my 40 years at Edwards Life Sciences and working in the heart valve space, I never met a single patient that said, you're not going to believe the margin my hospital got on my heart valve. It is not what matters to patients. What patients want is the best solution for them. And what we need to make sure is that we're leading with our data, we're leading with the science, but we're also holding the physicians accountable for doing what is best for their patients in terms of what matters to the patient most.

And part of this is we need to take our case to the patients themselves so that they're aware of the latest data and they're aware of the latest evidence, so they know what to go ask their physician and they know what to go request in terms of the procedure they want. But we also have to hold that lens up to the physicians themselves and remind them of their obligation that they have to their patient, which is not maximizing the margin for their hospital or even their margin for themselves. It's maximizing the benefits of the procedure that their patient is going to get and the things that matter to them most.

When we talk about the durability of the procedure, you can see where Aquablation lands. And TURP is pretty much the reference standard, and you can see in terms of people only wanting to have one procedure done, you can see we perform very, very well. And again, you can have a simple prostatectomy, but you're going to have quality of life penalties that you simply don't have with aquablation. There's a lot of discussion that happens with PAE, and you can see the durability of PAE right here. And PAE doesn't work, and it doesn't work very well and it doesn't work very quickly.

So that may be a procedure that's very lucrative for the clinicians, but it's certainly not a procedure that's very lucrative for a patient. And again, this is where we need to hold the medical community accountable and focus on the things that matter most to patients. So we need to unlock the growth. We have this amazing technology. We now have over 125,000 patients treated. Frankly, we should be the standard of care, and we're not. And so one of the things that are going to take for us to be able to drive this. And some of this was just our own ability to execute at a high level.

And one of the things that we did when we came in was when I came in and I looked at the organization, we had people that were very specialized. So we had a clinical support group that kind of reported up to our clinical function. We had sales support, and we had a capital team. And all of these people were kind of working for their own goals and their own objectives, all reporting up to different leaders. And what that just meant is, organizationally, we weren't always aligned.

You'd have a capital team and their job was to make sure they sold the capital. But once they sold the capital, then all of a sudden, it was almost a grenade over a wall to the utilization team and they'd have to pick it up and figure out how to drive it. And that didn't happen in all cases. Sometimes it was integrated, but it was more by happenstance rather than by design. And even having the clinical specialists who covered cases and the sales reps, because they didn't report it for the same leaders, sometimes they might show up at the same case to do the same effort and energy, which dilutes our resources.

So what we've done is we've realigned. So for the utilization team, -- we now have the procedure team. And whether you're in sales support or clinical procedure support, everybody reports up to a common region director. That means the region director is like a mini GM for that area of the country, and they have all the resources available to them to where they can direct them. But we eliminate all of the overlap, we eliminate any of the inconsistencies. And now everybody has a shared goal, which is making sure that we are driving procedure growth, but we're also delivering that with clinical excellence.

Now we report up through the same management structure. We've massively simplified the compensation plan. Everybody runs under the same compensation plan, and it is all based on procedure growth now rather than some of the other things that I will say were in the comp plan that were sort of behavioral. I think when you ask people to do a lot of different things and they're pulling a lot of different directions, they forget what matters most. And so we try to simplify this plan and make it much more consistent.

The other thing though that we did was we actually created a launch team concept. And what we did is we took some of our most experienced people, some of our most experienced utilization people, and we said we want to create a launch team, and they're integrated with the capital team now. And the reason for that is the capital team knows when we're most likely to close the PO for a new system placement. So what happens is when they know they're getting within about a month of that process, we turn the launch team loose.

We say, who's going to be the physician champion at this site? Are they lining up patients? Are they going to be ready to be trained? Are they going to be ready to go and show up? Where is the robot going to go? Do they have the power requirements? Do they have all the things they need to be able to integrate this? Where are they going to store it? All of those things all get done so that when we actually close on that PO, we actually can get that robot installed and we can make it productive very, very quickly. It wasn't uncommon in our old world.

Sometimes a robot would get sold and it would get placed immediately. But sometimes we'd sell the robot, and it would sit for a quarter or sometimes 2 quarters waiting for the facility to get upgraded or figuring out who the physician champion was going to be and all of that work. Now all of it is happening under a parallel process under the launch team. What we saw when we ran a pilot on this late last year was we saw a 50% reduction from the time of the PO until the time of what we consider to be appropriate utilization.

And we think that, that just adds a big benefit. The other thing that I think makes this so important is when you start a program well and it does well from the beginning, those programs tend to stay healthy. One of the things that happens is if you launch a robot and then people just paid $500,000 for it, they're going to have their shoulder behind it. They're going to get lab time, they're going to get technician resources. They're going to get all the things they need. And they start doing 5 cases a week and doing that, and that just becomes routine. 3 months later, -- that's just they've carved out their boundaries, they've carved out their space, they've carved out their time and their resources.

If they start and they do one case every 2 weeks, and that goes on for 3 months. Now 3 months later, well, that's the time allowed that they have, and that's the resources that have been allocated to them. My experience is, and this is true whether I was in structural heart, and I think it's going to be true here as well, is if somebody starts slowly, now you need to go compete for those resources, it's much harder than starting somebody correctly.

So having the launch teams, I don't want to have to go back and rehabilitate centers. I want to have all these centers launch with excellence. We're building that process up this year. We're scaling it. We launched about 20% of our systems under the launch team model in Q1. I think that will probably be closer to 40% in Q2. And by the end of the year, we'll be capable of launching all of our systems under a launch team model. So going into 2027, that will just be the way that every new system launches.

So greenfield placements remain the overwhelming part of our strategy, and so that's what we're driving to. If you look at what happened in Q1, in Q1, we sold more systems than I think what consensus anticipated, but we also did at our highest ASP, indicating a continued strong demand for capital. I think in Q4, our system ASP was around $425,000. In Q1, I think it was about $485,000. So we saw a significant step-up in the pricing of capital while we still saw strong demand for capital. Now we didn't have any IDNs in Q1, and so that can obviously impact our pricing. So we don't anybody modeling 45,000. I think we told people to model like 450 to 460.

That's not because we'll be less disciplined. It's just going to be because the customer mix can change. But I think we're going to be much more disciplined about how we do this on a go forward. We also introduced a replacement strategy. I think historically, we thought that people would just be inclined to upgrade from a legacy AquaBeam system to a newer hydro system because it's such a better system and it's so feature-rich.

I think the struggle with that is for a hospital that has a working robot for them to upgrade to a new robot, especially if that one wasn't completely depreciated off the books, it just didn't really work for them. The other thing is it probably doesn't work very well for us. We need to sunset AquaBeam at some point and get everybody converted over to Hydros. So if somebody just buys another robot, I don't know that, that really helps me because the legacy system is still out there.

What we really need people to do is to trade in their AquaBeam system and get a Hydros system so we can retire some of these legacy systems. So we did that. We offered trade-in value. And I think it completely changed the discussion around replacements, and it gave us an opportunity to talk to customers and really try to be a good partner. And so if the system -- the old system isn't completely depreciated off the books or there's some other challenge there, they get value for the replacement. We can take that AquaBeam back. We can use it for spare parts. We can do other things with it, but it's an opportunity for them to upgrade.

It's also an opportunity for us to relaunch these systems. We see a higher utilization typically with Hydros versus AquaBeam. For every system that we upgrade, we want to make sure we have a launch team involved so that we can relaunch it and reestablish this as a therapy of choice. We are exploring some leasing alternatives. There's just some hospital systems that just simply historically are never going to pay for capital. We want to make sure some of these systems have access to this therapy for their patients.

So we are exploring some of those models. I don't think that's going to be a big part of 2026, but we want to make sure we have a playbook about that. So if the capital markets ever did change or if we ran into more systems that simply aren't going to purchase capital, we want to make sure we have an alternative for them that we validated so that people can have access to our system.

The next big frontier for us is prostate cancer. This is obviously a natural adjacency. And I will say it's rare that you can have an adjacency that creates as much leverage as this does. It's largely the same customer base. We can leverage our same exact system, and we can leverage our sales force. So there's a lot of leverage opportunity here. We think that this has the opportunity to be a great therapy because prostate cancer is not a focal disease. Most patients have cancer and it's in different places and not all of it is visible on MRI.

So we think you need a whole gland treatment to be able to completely eradicate the prostate cancer, and that's what we can offer with Aquablation. So we designed the WATER IV trial. The WATER IV trial is probably one of the highest quality trials that's ever been done in the urology space. It's a 280-patient study. It is a randomized study, and it is comparing Aquablation versus the current standard of care, which is radical prostatectomy. This trial is fully enrolled. It enrolled faster than we anticipated it to, and I've always felt that clinical trial enrollment was a good marker for how much patient interest there is, but also how much physician interest there is.

So we have a 6-month endpoint on this. We also have a 12-month secondary endpoint on this. But importantly, we also have 10-year follow-up on these patients. But I believe we have the opportunity here to remove the cancer from the patient, but at the same time, protect their urinary function and protect their sexual function. And if we can do that, we think this will be a really, really attractive therapy option for patients.

Now that being said, the #1 treatment option that patients are choosing today for prostate cancer is actually active surveillance. It's watchful waiting. And I don't think that's because men want to live with cancer in their body and pray that they're a slow progressor. It's because when they look at the cure, the cure feels worse than the disease. And what I mean by that is when I was in the structural heart space, patients didn't want to have open heart surgery, but it was a bit irrational because patients actually do tend to recover pretty well from a sternotomy.

But there's nothing irrational about a man not wanting a radical prostatectomy. There's a 25% to 33% incontinence rates after a radical prostectomy and the overwhelming majority of men have severe erectile dysfunction. When you're talking about men in their 50s and 60s and they're faced with having to wear depends or alternatively and having no sexual function anymore or severe debilitated sexual function, that's not an attractive option.

So a lot of men will just choose to just wait and undergo active surveillance. And so this is an area that I think we need to continue to focus on. And one of the things that we just did was we added a new trial that is going to be about active surveillance. And what we're going to do in this active surveillance trial is we're going to compare patients to having an aquablation versus watchful waiting. Again, this is going to have a 10-year endpoint because we fundamentally don't believe waiting is benign.

We believe damage is being done not just to bladder health, but we also believe some of these patients are not going to be slow progressors. And that's the problem with all of these diseases. You can sit here and say, for the majority of men, prostate cancer is a slow progression. The problem is nobody knows who's who. And for men that are fast progressors, there are real penalty risk of waiting.

Now if the risk of treatment is, I'm going to lose all my sexual function and there's a third -- 1 in 3 chance I'm going to need to wear depends, then maybe I'm going to wait and see whether I'm going to be a slow progressor or not. But if we can show and we can prove that we can preserve your sexual function and we can produce your urinary function and we can remove the cancer for your body, I think that's going to be a very compelling case.

The combination of these 2 data sets, I think, is going to be the definitive story around cancer. For men that are absolutely ready to undergo a therapy, and they're deciding between a radical prostateomy and Aquablation, we will have a data set that will tell them what the risks and benefits of both of those procedures are. For men who are saying, "I'm not ready to undergo a procedure yet, I don't think. I'm just going to watch for wait. We'll be able to tell them what watchful waiting looks like versus Aquablation.

So these combined data sets, I think, is going to provide the definitive picture for us. And I think this is just an area again where we have to be better about informing the clinical community of what the current standards of care, what the options are for the patients and what the true quality of life and complication rates are for these procedures. So our financial outlook, we have a strong track record of revenue growth and expanding margins. We continue to grow our gross margins. In Q1, we were at 65%, which is what we've modeled for this year, and we continue to drive down our EBITDA loss. And by Q4 this year, we expect to be EBITDA positive.

This is sort of our revenue profile. We expect to land in this range from the $390 million to $410 million for this year. And next year, we expect to -- in 2027, we expect to be about 25% to 30% growth and continue to grow our installed base. We have a lot of initiatives that we're really trying to drive hard to improve the quality of our business. I will say the actions that we've taken around pricing, the actions that we've taken around just bringing more discipline to the organization, more discipline around the spending, I think are some of the things that have absolutely derisked our path to clear profitability.

And this is one of these things that when we cross that path to profitability, the line is never perfectly straight, perfectly linear, but I don't have any plan to just purpose around the profitability line. I think we need to cross that line and keep going and do it in a very definitive way. So we have the ability to achieve a 68% to 70% margin by 2027. And so I think that margin expansion is really important. As we move more to a disposable company from a capital company, we get better margins on that as we continue to grow, that will be big.

We still believe that the capital market is going to be robust, and we're going to continue to sell capital similar to what we've been able to do. And we've had a good tariff mitigation strategy, and I think we've been working on those things. And so I feel really good about our long-term financial picture. And even beyond 2027, that's when I think things like cancer, assuming those trials are successful, those where those things can actually be real adjacencies and real continued growth drivers for us over the long term. So in 2027, we're expected to be $25 million to $30 million EBITDA positive. We expect to get a lot of leverage out of our sheet.

We expect to see leverage for SG&A, but we also expect to see leverage out of R&D. And it's not because we're going to reduce R&D spending. I think if R&D spending can stay about the rate that it currently is, even if it grows a little bit, it's not going to grow anywhere near the rate of sales. And all of these things are going to generate leverage for us over time.

So with that, that's pretty much our story. That's what we're doing. I'm very excited to be here after 40 years at Edwards Life Sciences. I probably thought I would -- in my career there, I don't think anybody had me labeled as the fight risk. But when I had the opportunity to be on the Board and I had the opportunity to see this technology and the potential of it to change men's lives in such a dramatic way, it just became something that I really want to be a part of. And so I'm excited every day to be here. I'm excited for what our future holds. So thank you very much.

Stephanie Piazzola, I cover medical devices at BofA. And next up, we have PROCEPT BioRobotics. We have Larry Wood, CEO; and Kevin Waters, CFO.

So thanks both for being here today.

Maybe we can start with Q1, you just reported revenue which beat by 3%. Systems were a little better and procedures were a little light versus the Street. So maybe you can just start high level with an overview and drivers of Q1 results.

Sure. Thanks for being here. Yes. I think coming out of Q4, there were a lot of questions that a lot of people had. We obviously had the big inventory reset. And I think there were a lot of concerns about systems being a little soft and pricing being a little soft.

And so, I think there were a lot of things that people had a lot of questions on. And what we really try to do is put a high-quality quarter on the board in Q1. I think we guided to the inventory issue being behind us, and we thought we'd be 1:1 on procedures for the full year. We were at 95% in Q1, which I think bodes really well for us being a 1:1 full year.

System placements, we're very pleased. We did 47 greenfield placements, and we did at our highest price point that we've ever done, which I think represents the strength in capital, which I think people were concerning was starting to weaken. And -- but our ASP in Q1 was $483,000 per system, which was by far our hardest ever.

We guided that we were going to be, handpiece ASPs at $3,500 for the full year. We already achieved that in Q1. We talked about margin improvement. We were at 61% in Q4, and we were at 65% already, which is what our full year guide was. So I think a lot of the things that people were worried about or concerned about and rightfully so, I think we're able to take those off.

The one thing is procedure growth. We guided to 12,000 to 12,083. We ended up a little bit lighter than where we want to be at 12,200. But we have our guidance of 60,000 to 64,000 cases for the year. We haven't changed our guidance there. And so we need to have a big step-up in Q2 and continue to step up for the rest of the year.

But I think when you look at our financial guidance of $390 million to $410 million, the steps that we've taken on pricing and margin and all those other sorts of things, we continue to feel very good about the guidance that we provided and hopefully having some upside to that.

And then you just touched on some of these, but just overall guidance for the year was maintained at $390 million to $410 million. So yes, there's any other puts and takes that you would call out on the full year following Q1?

I don't think so. I think, again, we need to continue to deliver on the ASP. And we did guide that we think ASP is going to be higher than what we guided to at the Investor Day. But -- we often -- we didn't have any IDN placements in Q1 to speak of. And so when you get large IDN orders, that can affect your ASP a little bit because we provide a little bit of discounting there. But overall, we really feel strong with where those things are. I don't know any comments on guidance, Kevin?

Yes. No, I think we just wanted to continue to take a conservative approach. I mean, Larry and I have both said it multiple times on the call, we feel great about pricing, but there's really no need to get out over our skis. Let's get another quarter under our belt and then we'll more formally update those metrics, but feel great to get about the guidance range.

And then you mentioned the procedure guide implies a ramp to growth in the back half of the year to 50% versus the 31% growth you did in Q1. So maybe you can just talk about what gives you the confidence in maintaining that procedure guide and also in the ramp?

Well, I think as we scale the launch teams and we get more capability to launch more system in the launch team, I think that's one area of benefit that we'll see. I think getting our core utilization team under the new work structure, more focused on their installed base, I think that helps.

I think every system we replace is another opportunity to relaunch a system, and I think that those are going to benefit us. And so I think those are all things we got to do, but it starts in Q2. We need to see a sequential step-up from Q1 to Q2. We're going to use the 1,500, 2,000 units from what we did in Q1.

And I think if we start to see that incremental pickup, then it's easy to plot out what the rest of the year is. And that's our goal, and that's really the area of focus we have. We have to continue to deliver on capital and deliver on those other things, but we have an intense focus on procedure growth.

Got it. And then on the system ASP, you mentioned this, but just to understand it a bit more, the Q1 ASP level was a bit higher than what you were expecting. But for the rest of the year, you expect that to be in the $450,000 to $460,000 range. So maybe you can just explain that a bit more, like what was that dynamic in Q1 unique versus the other quarters?

Yes. Well, it doesn't imply we're going to get less disciplined again. We're going to maintain our discipline. It's just if you have a -- we didn't have a lot of IDN orders in Q1, I don't think we had really any, and they were all single placements, which I think again speaks to the strength of capital. It wasn't driven by some big order or a couple of big orders. And so I think that that's really good.

I think some of the IDNs, we have contractual pricing with them. We have other things with them that is going to be below that $483,000 number. But I feel really good about where we are on pricing. We guided to the $450,000 to $460,000 range. Frankly, I think there's more upside opportunity than there is downside risk for that.

But as Kevin said, there's -- one quarter doesn't make a trend. We don't want to get out in front of ourselves on any of these things. We want to deliver. We want to tell you guys numbers, and we want to go hit or exceed them and just keep our head down and -- execution is what's going to take us where we want to go, and we just want to keep the focus there.

Got it. And then on the commercial realignment, those initiatives modestly affected the Q1 procedure growth. Just curious how that trended relative to your expectations? You made 2 main changes where you realigned the commercial team and also created a dedicated launch team. So what was the main source of disruption?

I continue to feel good about all the changes we've made. And I don't think anybody is disagreeing with the changes. I think it's just people have new roles and they have new responsibilities and new expectations. I mean we were just in one of the breakouts and the simple analogy I have is if everybody in this room covers urology and tomorrow, your boss came in and said, I want you to cover cardiovascular, you might be really excited about it. It's an exciting thing and you might be really have to do it.

You're going to walk into that job and you're going to have to build new relationships, you're going to have new expectations. You're going to have new companies you follow, you're going to have all those things. I don't know that I'd call it disruption. It's just maturing into whatever the new job is and going through that learning curve.

We're asking our core utilization team to drive really same-store sales and to grow their existing base. That's something we haven't really asked them to do historically. Historically, they could live off just new systems coming into their region and live off that growth. And we were a little bit farmers in some ways that our customer would call us on Friday and say, here's the cases I have next week, and we'd say, okay. Now we're looking -- every single system we have has a growth plan associated with it. And that means somebody -- if we have a busy doctor, but they're doing 50% of their cases on our system, we need to figure out how to get them to 80% or 90%.

If we have somebody that's doing 100% of their cases, but they're just not a high-volume person, we have to figure out how to get another high-volume surgeon to come, adopt the technology and make that their standard of care. So every account that we have has a different growth model or different growth expectation. But now there's a plan for every single account that people need to go execute on. And they don't get the same priority. They don't get the same focus. but that's what we need to drive to.

And then you mentioned the commercial realignment contributing in the back half is one of the things that gives you confidence in the procedure ramp. So I guess just what have you seen in terms of improvement exiting Q1 into Q2?

I've been really, really pleased that I think people are embracing the change. Even things that you would think externally that would be controversy. When I went to the sales team and said we're going to put pricing floors in and we're going to eliminate this discounting. We're going to eliminate a lot of these things. I expect that at some level, there would be pushback from the team, like I'm taking away their flexibility. I'm taking away tools that they had.

And the reaction has just been the opposite. People want guidance. They want guidelines. People are excited now about like not discounting at the end of the quarter and being able to just tell customers, the price is the price, let's talk about procedures, let's talk about other things. And they're not distracted by managing all the supply chain and managing inventory and managing all that. But it is still new expectations for people, and it is new relationships with people.

A lot of people got new [ boxes ], some people got new accounts. And they just have to grow into what those new responsibilities are. But there's -- I'll say this, there's no decision that we've reversed. There's no decision that we said that in retrospect, that was a bad decision. I think all of these things are playing out the way we do it. It just takes time.

And I used the analogy earlier, you throw all the ingredients in the cake and you throw it in the oven, you can't open the door every 2 minutes and see how it's going. At some point, you have to make all your changes, you have to let it sit and let the leadership do their job, and that's kind of a little bit of the boat that we're in now.

But we have now dashboards. We have analytics that we look at every day, the entire leadership team looks at every day. We're not going to get to the end of the quarter and find out there was a problem some place and it's the first we've heard of it. And so I feel like we can significantly improve just our day-to-day execution on things, and that's what we have everybody focused on.

Look, it's not easy. It's not easy to grow procedures sequentially quarter-over-quarter. It's not easier to change the standard of care. It's not easy to do any of these things. But all of these foundational steps we've taken are all the things that are necessary to be able to take us where we want to go.

Got it. And then maybe just digging a bit deeper into that on the new structure for clinical and sales functions reporting to a common regional leader. Maybe you could just talk a bit more about how that helps drive procedure growth more effectively?

Yes. Well, I think in the old structure, we had people that only covered cases and they were just clinically based, and they reported up to one leader. And that leader's goals would have just been make sure we do good cases. Like no other goal associated with it. They weren't tied to growth. They weren't tied to execution, they weren't tied to anything.

And then you had salespeople over here, and they were tied to a quota and they were tied to growth. But even that, there were other things in their plan that I will call just behavioral science issues that weren't really just tied directly to financial performance and quota driven. But that would mean that sometimes we might have a clinical specialist in a case and he might have the sales rep there, too, because he wants to meet with a doctor and talk about growing the practice.

Now I know I don't even have that 200% case coverage because I have 2 people. And by having people go into a common leader, now we can eliminate all of that. If the case is being covered by a clinical person greater than the rep, they have a different set of jobs that they've got to go out to do today to go build the practice to go build a program and do the things that they need to do.

And it just allows us to be much more efficient. And the goal that I want is I want the region leader to be the CEO of that region. And I want them to have all the resources available to figure out how to grow their business. And I want them to act like an owner. I want them to act like a CEO. I want them to figure out if I have these 12 people, how do I maximize these 12 people to be able to further the goal for the region. And they just didn't have the capability to do that before because of the way the organization was bifurcated.

And then I think our comp plan wasn't necessarily doing as many favors either. Now everybody carries a number. Everybody carries a growth target. And that doesn't mean that we're walking away at all from patient excellence because you can't grow anything if you don't deliver great outcomes for patients. So we don't walk away from that at all. But to say we want to deliver great outcomes for patients and we want to grow, those 2 are not incoherent. Those are there.

And for as much as I think the company always had a patient-centric culture, I think the way that they thought about being patient-centric is not how I think about being patient-centric. I think the company thought being patient-centric was every case that came to you, you make sure that patient had a great outcome. And that is certainly important and it's certainly part of it.

But when I was in the TAVR space, being patient-centric to me meant every single patient got the best therapy for them. And if we have patients that are getting TURP instead of getting Aquablation, we're not patient-centric. We have the best outcomes in BPH, and I don't think anything competes with us clinically.

And so any patient -- almost any patient getting a TURP or any patient getting some of these competing procedures, they're not being well served by getting these things. So being patient-centric means we should be getting all of the patients that benefit most from having an Aquablation procedure. And that would clearly put us in a market leadership position. And right now, we're, I don't know, 10% to 12% of the BPH space, and that's just an unacceptable number. So being patient-centric is a lot more than just doing good cases for the patients that come to us.

And then on the -- you created dedicated launch teams as well. And you talked about a 50% reduction in time from the PO to doc completing their first 10 cases in the pilot rollout. I guess any other positive anecdotes that you would share? And do you think this sort of result can hold up when it's launched more broadly?

Well, I think it speaks broader to -- everybody wants to focus on like the utilization number, and we talk about it all the time. And I don't like the number, everybody else wants the number. And I know why everybody loves it because it fits very cleanly into a spreadsheet. You put in a number of cases, number of systems, divide do the math, and you get to your utilization number.

The problem with it is it creates -- trying to sit here and say, we have 800 systems and we want to grow them all 0.3% or 0.3 cases for the quarter. I don't know how you do that. I don't know how you communicate that in terms of the strategy. So I always feel like we have to approach it in segments. And the first segment that we went in intact was new systems.

And the -- every new system now, we track time from PO to first case, but we track time from PO to the utilization target. So now every system we place, we place with a utilization target that they're expected to hit very early in their life cycle, and that's the utilization target is well above our corporate average. And it varies by site depending on whether there's one surgeon champion or whether there's 2 or 3, but we put a utilization target in there.

And we've been able to show that we can achieve those utilization targets and we can do it in a lot less time. Now this is a capability we have to build. So I think in Q1, 20% of our systems launched under the launch team model. I think we want to be 40%, 50% in Q2. By the end of the year, we want to be launching everyone at -- we want 100% to be launched, but that's the capability. But it's just no regret to me.

The best time to get somebody's attention is during that initial honeymoon period. Somebody just paid $500,000 or $600,000 for a robot. They -- that's the time that you have their attention and everybody wants to see what it can do. So if they block out all day Tuesday, they do 5 cases every Tuesday, you're going to wake up 6 months from now and Tuesday is just the process day. And we can do whatever we want in that day because that day is blocked out, staffing knows, everybody knows about it.

I think one of the challenges that we've seen in trying to lift some of our legacy systems that the system has been limping along doing, I'll making up 3 cases a month for 3 years. And now you come in and you say, we want you to do 6 or we want you to add a day. Well, the lab is full. The lab is being utilized. Staff is fully used.

So now how do you grow the system that's been on this legacy system because your allotment is 2 hours every Tuesday, and that's fact the only time that you have set aside. So we need to maximize that honeymoon period and make sure we get every system performing above that average. So that's the first segment. And that -- and we'll attack that. We have replacements.

Every system that we replace is an opportunity to relaunch that system and create an economic argument for upgrading to Hydros. And so we'll go attack that segment. Then we have legacy Hydro systems. How do we go attack those? And frankly, legacy AquaBeam systems, I'd rather just upgrade them. But we need to attack every segment with its own unique strategy, with its own unique tactics because that's the only thing that's going to work.

And if you look at that versus going out and telling everybody do one more case every quarter on each instrument. There's no strategy there. There's no tactic there. They're just going out and begging for a case, and that's -- that's just not going to get us where we need to go. And frankly, I think that's why utilization has been a little bit stagnant. And so I think we have a really good strategy. I think we have a good plan. We have to execute on it. People have to grow into their new roles. They have to mature into it. But overall, I just think these are all no regret decisions.

Okay. Maybe shifting gears a little bit to competition. PAE has been topical given the share it's gaining among some docs. So what's your view of the competitive landscape currently? And does that change as you try to expand the types of patients that you're targeting to treat?

I don't think PAE is a headwind for us at all, honestly. I think PAE is a big red herring. It's a procedure that really doesn't get performed in any volume in Europe. And the reason it doesn't get performed is because it doesn't get paid for because it's not a very good procedure.

If reimbursement -- if PAE had to compete just on a level playing field for reimbursement. I don't believe anybody would do PAE. It doesn't show any durability for its patients, and it's not a great procedure. But the reason I don't see it as a big headwind for us is I don't believe the patients that are getting PAE are patients that impact us, and I'll explain.

And again, I don't have data to back this up. I can't point to a study. I can't point to a thing. It's just my own interpretation from going out and talking to clinicians and understanding the market. If a patient has very mild symptoms, low to mild symptoms, I think a doctor will say, we can do PAE and maybe we can stop your prostate from growing and maybe we can head off you going down this road.

Okay, that patient is not going to come and get a resective procedure with anybody's technology. I think that there's another group of patients that had moderate to severe symptoms and they do PAE and it doesn't work. And those patients show back up in a month, and they have the exact same symptoms they had before, and now they're going to be looking for some other procedure for some other thing that's going to work for them.

And it's the minority of cases again, there's I don't know, 30,000, 35,000 PAEs that are done. We have 200,000 TURPs that are being performed every year that are done in hospital that we have better outcomes and that have very -- I think we have advantageous economics versus what I like talked about that. But I think that's the target for us to go after. And I think PAE could just be a big distraction.

Got it. And then maybe we can just touch on some of the patient activation activities. Since you mentioned that that's a driver of procedure growth. Can you elaborate on what these activities are? And if they're geared towards a more specific patient population?

Yes, sure. We -- I think when the company was founded, it was founded on kind of the clinical excellence model. And I think there was a little bit of a if you build it they will come sort of model. And they just dependent on the clinicians to build their own practices based on the clinical excellence that we delivered on it.

But when we went out and surveyed patients, only 1% to 2% of patients with BPH had ever heard about Aquablation. And for those of you nonmarketing people in the room, that's a very low number. And not something that we were excited about. And so I think part of it is we need to build that awareness. We want people to come in and be asking for Aquablation by name.

We want people to understand what the therapy has to offer. And so there's just a huge educational lift that we have to do, and we can't depend on clinicians to do that. We have to depend on patients to do it. But it's also an opportunity to talk about procedures through a patient-centric lens. And this is where I think things have really gotten missed, which is how a clinician might view a patient's journey versus what a patient actually wants.

And I think clinicians view the journey as, hey, maybe we'll start with few drugs, which makes perfect sense. Everybody would rather take a drug than have a procedure given the choice. And the drugs are effectively fine. But if the drugs don't work, they say, well, maybe we'll try PAE. If that doesn't work, then maybe we'll try a green light or maybe we'll try a UroLift. And if that doesn't work, then maybe we'll try a resective procedure, then maybe we'll try an Aquablation, we'll try something else.

But that's not what a patient wants. When you talk to patients and you survey them, the #1 thing on their list is they want relief from their symptoms. Number two thing on their list is they do not want to have a second procedure. Number three on their list is preservation of urinary function and #4 on their list is preservation of sexual function. But those 4 things are all tightly grouped together.

And this idea that one of these procedures is less invasive than another, once a 24-French device goes through urethra tell me how one procedure feels less invasive than another. And I used to say when I was in the cardiovascular space, I think every patient should get between 0 and 1 sternotomy in their lifetime. I believe every patient should get between 0 and 1 24-French devices through their urethra.

And when you put it through that lens and you say, what is going to give you maximum relief of your symptoms? What is going to be a one-and-done procedure? What is going to preserve your urinary function? And what is going to preserve your sexual function? Nothing, nothing competes with PROCEPT through that lens. And what we need to do is make sure everybody is looking through that lens. I mean even the guidelines that came out and said, PROCEPT is a good alternative for TURP, especially for men who want to preserve their erectile function. Doesn't everybody -- like is anybody looking for a procedure that destroys that? I don't think so.

So even the guidelines, I think, are acknowledging that now, but we have to make sure that patients understand what their choices are. And I believe when patients understand their choice, some of these other things that people focus on, when the doctor says, I could do this in office or it might require an overnight stay, if you think those things are equal, then you might take an office. But if the question is, I can do this in office, it's not going to work very well and you're going to be back here within a year and need to do the procedure or we can do a procedure, you'll be one and done and you'll go home tomorrow and you won't have these symptoms in 5 years, there's a 92% freedom from [indiscernible]. That's a completely different question to ask a patient and let the patient make that.

But we need to educate the patient on what questions they need to be asking their clinician, but also grading what is important to the patient and having the patient reiterate that to the clinician. And I think when they do that and especially when they do it with a physician that's familiar with PROCEPT and Aquablation, I think the choice becomes super easy. But we have to -- that doesn't just happen. That doesn't just organically happen. It doesn't just happen through Facebook chats. You have to be very intentional about it. So those are some of the work that we're doing on education, and we're running a number of pilots now in regions.

Everybody worries about is this going to get really expensive? We're not doing Super Bowl ads. We're not going out and doing that. We can do very targeted programs and the advantage we have in doing direct to patient in this space, unlike what I dealt with in cardiovascular. In cardiovascular, I had to go after everybody who's over the age of 70.

And most patients who have severe aortic stenosis, they walk into the hospital with shortness of breath. And so you're more likely to get an inhaler than you are to get an order for an echo and you had to educate people, shortness of breath means you might have a heart problem. It also might mean you have 10 other things.

Every person who has BPH knows they have BPH. Every person taking Flomax is taking Flomax for a reason. We can go target people very deliberately and people don't want to be taking these medications and the medications aren't very effective. So if you can offer them a truly one-and-done definitive solution with great durability and great symptom relief and preserving all the things that matter to them, I think it's a very attractive procedure.

So that's the work that we need to go do. But it's a build from scratch. None of this work had been done 6 months ago, and now we're building it out. But that's why we've added Pooja, Hisham to the team. You guys are at the Investor Day, and she did this for me at Edwards, and I'm very confident she can do it for us here.

Makes sense. Maybe turning to the P&L. Gross margins this year, I'm expecting them to be 65% versus 61% last year. So maybe you can just talk about the drivers of gross margin expansion and how sustainable that is?

Yes. As Larry said earlier, we're really pleased with Q1 coming in at 65%, which is our full year guide. And consistent with pricing, we feel good about the trajectory of margins. We didn't want to get out over our skis. We expect improvements throughout the year, exiting probably somewhere around 66% or slightly north of 66%.

And the primary driver for us really today is selling more procedures in the consumable side of the business. We're at a point now where we have a good, solid operations team. We're going to leverage that base. But as we shift to a more consumable type of business, that's the primary driver of margins. And feel good still about, obviously, the 65%. But importantly, we gave guidance back in February for 2027 of 68% to 70%. I think we're well on our way to achieving that objective.

And then on EBITDA, you've guided to positive adjusted EBITDA in Q4. Maybe you can just similarly talk about the drivers of the improvement through the year.

Yes. The first thing I want to say is the growth opportunity, as Larry has alluded to, is still huge, and we're still going to invest in this business to drive growth. And that's still priority #1. But right behind that is we understand we have a responsibility to get this business to profitability. And I think we have guided to that in the fourth quarter at a decent amount.

And again, looking forward to '27, we still feel really good about the EBITDA range we gave of $25 million to $30 million. And the drivers there on the P&L are primarily leveraging the existing base that we have. So when we look at things like R&D, R&D today is kind of mid-20% of revenue. That ends up being somewhere in the mid-teens of scale. Our sales force, as people grow into their new roles and responsibilities, we will expect the procedure rep today is going to do more per rep in '27 than they're doing today, and we'll get a lot of leverage there. And when you get gross margins north of 65%, you find a business that has the potential to generate a significant amount of profit.

And then at the Analyst Day, I think you also talked about moving to a hybrid support model as a margin driver. So I guess what's the plan for rolling that out?

I'm going to let Larry speak to that, but that was I don't want anybody to think we are doing that or that is a primary lever to get to profitability. If we are in every case in perpetuity, we can still have a profitable business. But with that, maybe to hand off to Larry to speak to you.

The going to a hybrid support model is really not about trying to drive leverage out of the P&L. What it's really about is trying to drive procedure growth. And what I worry about is that we could be losing procedures here and there because a doctor sits there on a Thursday and says, I got 2 more cases tomorrow, I could do Aquablation, but I don't want to call the rep or maybe the restaurant going to be available. I know he doesn't like -- he's always in [ Missou ] on Friday.

And what I don't want to do is ever lose any cases because we can't get somebody there. I want our team routinely visiting with our customers. I want them routinely making sure the system setup is being done properly. There's a lot of turnover of staff in hospitals, and there's a setup element to the robot, and we want to make sure that people are doing that right and doing it correctly.

So I always want our people in that. There's never going to be something where we don't see a customer for 3 months and they're just written off cases. And I think there's actually -- at some level, there's a risk to the business that you quit pay attention to your customer and you just open the door for other people to come in. So we're always going to be there doing that.

I just don't want somebody dependent on us. I don't want somebody saying, if a rep can't get there, if a rep is sick tomorrow, I can't do cases and thus I'm going to have to convert them to something else. So I just see this as a lever for us to be able to continue to drive case growth more than I see it as an operational lever. Now the byproduct of it is if we can cover -- if we can double the number of cases and we can keep our sales footprint the same or grow slightly, obviously, that drives tremendous leverage for us. But it's a byproduct, it's not the reason.

Okay. And then maybe in the last 2 minutes here, can you touch on the prostate cancer opportunity. It sounds like the WATER IV enrollment is going well. Maybe just high level, how you're thinking about the opportunity and path to commercializing that?

Well, I think it's a perfect adjacency for us. It leverages our system. It leverages our handpiece. It's largely the same procedure. We're a little bit more aggressive about how we do the procedure. But we're excited. It's going to be just a year from now that the WATER IV data will be presented at AUA is our expectation.

And I think if this does what we expect it to do, I think it could be transformational for patients with prostate cancer. The fastest-growing segment of prostate cancer patients right now is WATER IV waiting. And that's not because people want to have cancer in their body. It's the reality of -- I used to say when a patient was averse to getting a sternotomy, that was a little bit irrational fear because people recover from it very well. And in a year, they do completely fine.

But a man not wanting to have a radical prostatectomy, there's nothing irrational about it. The overwhelming majority of men end up with severe erectile dysfunction and 25% to 33% end up with incontinence. And when faced with those choices, men in their 50s and 60s are like, I'd rather live with the cancer in my body and hope on a slow progressor. But that's a terrible thing.

And then you add on to it, patients that already have much, they have symptoms from BPH because they have an enlarged prostate, they already had a terrible quality of life. And that's probably a lot of the men that are willing to undergo the procedure. I think if we have a procedure, we can relieve their BPH symptoms. We can -- our incontinence rate in our feasibility work was virtually 0, and our sexual function rate was maintained.

I think if we can offer people a great cancer treatment and preserve all the things that are important to them I think it's going to be a very attractive procedure, especially for all these men that are sitting on the sideline waiting with their cancers. I don't believe anybody wants to live with cancer in their body. So we're excited about the opportunity. But it all starts with the data. We need to put a great WATER IV data set on the board. And once we have that data set and depending on the strength of that data, that's what opens the doors up for us to really maximize that opportunity.

Okay. Great. Well, I think we're just about out of time, but thank you both for being here.

Thank you for having us.

Thank you.

Good afternoon, and welcome to PROCEPT BioRobotics First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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.

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.

Good afternoon, and thank you for joining us. Over the past 6 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 2 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 prices of 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 prices were 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 2 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 7 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 time lines, 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.

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 2 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.

Thanks, Kevin. In closing, while we have undergone significant change over the past 6 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 Instructions] And our first question comes from Matthew O'Brien of 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, I don't know, Larry, if there's a way to kind of frame up some of the disruption that you saw this quarter and then kind of how long it should linger and when we should be past that? And then I do have a follow-up.

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 complete. And I think we're just in a very just 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 quarter -- sorry, throughout the year. And we remain, I believe, on track related to our guidance, and those are certainly our goals.

So 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. And I think the team is going to continue to grow into these roles, and I'm excited about what the future looks like.

Okay. I appreciate that. That's very helpful. And then on the second question on the guide side. Just if I'm looking at the roughly -- I think it was $93 million midpoint of the range for Q2. Just talk about plus all the -- again, the ASP benefit you're going to get on the system side. Just talk about the confidence in the -- especially the back half, it seems like it's a little bit more loaded than normal to get to the midpoint of that range and just the confidence there getting to the midpoint or even higher just again, given the ASP benefit that you're talking about on the system side?

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. And 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. But look, we feel good about the full year across all metrics. And 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 6 months here.

And our next question comes from Nathan Treybeck of 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?

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

Great. And for my follow-up, so 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?

Yes. No, 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 that's going to be the case. And I think the bottom line is we have -- if we're 95%, I'm not going to really apologize for it. And if we're 105%, we're not going to brag about it. I think handpiece sales are always going to fluctuate a little bit based on the number of systems we launch and all these other sorts of things.

So I think that it's normalized. The number that we're focused on are procedures because eventually, procedures and handpiece sales have to equalize out 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 like that is largely normalized now, but we remain confident in the 1:1 full year ratio that we provided at our investor conference.

And our next question comes from Mike Kratky of 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?

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.

Yes. 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. And when we get larger IDN orders, that can sometimes have a little bit more effect on price. But I think even broader than that, 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. But we are driving price discipline across the organization, and we're going to continue to do that.

Understood. And maybe just as a quick follow-up. But 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?

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

And our next question comes from Richard Newitter of Truist.

Maybe just to start, I'm trying to get a sense for -- of the new initiatives or the kind of 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? Like are there -- I think there were 3 main ones that you had. Like where are you seeing the improvements show up most meaningfully and soonest? And I get that you're pointing more to the back half, but I'm just curious where it's most evident that the progress is going the way you want it to be going in the first half?

Well, I think we have a lot of confidence in our launch teams. I think we moved some of our more senior people over there with a lot of experience. And I think the key thing there is the more systems we put in the field that we do under the launch team model, which is going to build throughout the year that we will continue to see benefit of that. And I think that's one that we have great confidence in. The patient awareness activities, we're running multiple pilots on that. And when those pilots read out, it will help us really prioritize what things are most effective and what things we should be driving. And I think that's just a prudent way to approach some of these new marketing programs.

But I think it's also really important for people to understand that there's always just going to be a lag between driving patient awareness and a patient getting a procedure. It's not that patient gets new information, they get an e-mail, they see something on social media or maybe they hear a radio ad and they show up at a doctor and they get treated the next day. They have to come in, they have to schedule their appointment, they have to go to work up. I think most systems in the country probably schedule people a month out or so. So there's always going to be a natural lag between some of these initiatives and actually seeing the patients get treated. But we're encouraged by all of the things.

I think we spend a lot of time with the sales team, and I think people have good conviction about the changes we've made and the new roles that we have for people. But it still just takes time for people to reestablish account relationships and to get some of the new people trained to backfill some of the launch teams. But I think these are all very natural things. They're not like -- they're not things that we think are going to be a struggle, but that's why we've always modeled, and we tried to be really clear about this at the investor conference. These things are going to contribute more in the back half of the year than they are in the early part of the year.

Got it. That's really helpful. And then just -- this is now the first quarter or the first few months that you've been able to really see how physicians would react to kind of the physician fee payment changes that happen to all respective procedures going down, including yours. I guess what are you hearing and seeing out there? Do you feel better or worse unchanged versus kind of the way you were talking to us before we obviously have these changes in place.

I think we had pretty much factored those things in, in February when we spoke before. And I don't think anything has remarkably changed from what we talked about in February. I think the economics for all these procedures are what they are. It is really about driving the clinical benefit and making sure patients understand how differentiated our procedure is versus competitive procedures. And I think when physicians understand that as well and patients understand it, I think that's what drives therapy adoption and taking share from competitive procedures. But I don't think anything has meaningfully changed on that.

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

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

Yes. We haven't built that into our modeling. And I think one of the important things to remember, Josh, is that even when these codes change, they always collect actual costs. Medicare doesn't pay for value, they pay for resource consumption. And so that's just not -- I think if you make our economics the primary part of the story here, you're always going to be sort of chasing those ghost. So what we're focused on is at the current levels of reimbursement exists, how is this an economically solid procedure for hospitals and then how do we drive patients in.

And I think the other part about it is how do we help hospitals be efficient with the procedure? How do we help them be efficient with procedure time? How do we help them be efficient with discharge, be efficient in avoiding complications. And when we do that, I think the economics for this procedure work well. But we haven't factored anything into our guidance about changing APC levels. If that happened, it would be certainly an upside to reimbursement.

And then just a follow-up. Sorry if I missed this in the earlier remarks, but sounds like there was more positive reception than anticipated for replacement systems, Hydros replacements. Any new outlook just in terms of how replacements kind of factor into -- through the rest of 2026? And maybe just remind us why you expect replacements to pick up next year.

Yes. Thanks, Josh. Yes, I think just in simplest terms, given a typical capital cycle, and we just really launched our replacement program kind of at the beginning of the year, the fact that we got 2 replacements already in, I think we were very encouraged by. And I think we've had a lot of customers now that they realize they can get a trade-in value for their legacy system, which helps them with a replacement strategy. I think we just probably feel confident that replacements are going to be something that we're going to really hone the program in this year. And I think it's going to be a much bigger part of our story in 2027. But we're encouraged with our early start, and we just got to continue to drive execution on that.

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

Besides all the moving pieces you guys 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 1Q into 2Q because of that? Or was all of that disruption sort of contained within February and March?

Yes. Thanks. Chris, I mean certainly, there were some severe weather in the year, and we know that there are some case cancellations and whatnot. How many of those cases came back on the schedule and how many of those patients got something else. I think it would be really difficult for us to say. I think most of that's probably out of the system at this point because most of that happened early in the quarter.

I don't think it materially impacted our quarter. And I'm sort of just not really inclined to attribute anything to weather or weather-related issues. Our numbers are our numbers. They have to stand alone. If there's severe weather and cases get canceled, it's our team job to make sure that they get rescheduled and they get done. So we just don't really make any allowances for that here and just keep people focused on the execution that we control.

Yes. Fair enough. I'd love to hear a little bit more about the U.K. opportunity and what that looks like. International, small part of the business today has been a consistent outperformer. Can you talk a little bit about sort of what you think the denominator is for that particular market? And are there other areas that you're excited about in terms of next steps internationally?

Yes. When I stepped into the role, I really felt there's opportunities in international. But international isn't a very homogeneous place. There's a lot of variation, obviously. And so some countries have really solid reimbursement and the capital opportunities there are solid. And so we focus on those places and the U.K. is certainly our biggest place in Europe.

We were excited to launch Hydros. I think we had a great showing at the AUA and combined with the latest guidelines, I think it was an overall very positive meeting for us. We continue to evaluate what other markets in Europe that we should be looking at as opportunities, but it's not going to be everywhere. But I think over time, it's Europe and international is going to become a bigger and bigger part of our story, but that's going to just take time to develop.

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

I wanted to ask on 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. So can you remind us what's driving that acceleration and your confidence in that?

Yes. Thanks for the question. I think we always expected the first half of the year to be slower than the second half of the year. And we always expect to see a little bit of seasonality in Q1, and we certainly did see that, but it was pretty much at expected levels. We implemented all of our organization changes in the sales force early in the year. And so people are growing into those roles and they're reestablishing account management. The launch teams are starting to launch systems under the launch team model. They started in the quarter. But it takes time for those to build and for those to contribute.

So I think it is a combination of people maturing the roles, reestablishing these account relationships. I think in the back half of the year, we start seeing more benefit from some of our patient activation activities. And I think we get the full benefit of all of our newly launched systems this year and those contributing at a higher level than what we've seen historically. But the more systems you place under that model and the better they do, the more that builds for the back half of the year. So that's what's driving that.

Got it. And then on the Q2 guidance, the midpoint of $93 million is a little below the Street at $95 million. So maybe could you help us understand that? I'm just curious what's changed on your view of Q2, maybe it's some of what you had just talked about, but is there more lingering disruption from the commercial organization changes than you thought or anything else?

No, this is Kevin. Nothing has really changed in our thinking. If anything, as I said earlier, I think we feel more positive in our initial guide today than we did when we provided that a few months ago. And we have never provided Q2 guidance as part of Investor Day. So this is really the first time and really just sticking with the philosophy right now that we think it's prudent to keep expectations reasonable and give us a chance to outperform as opposed to getting out ahead of ourselves. But there's nothing unique or different in Q2, and we continue to feel good about the trajectory on both systems, procedures and our international business.

And our next question comes from Suraj Kalia of Oppenheimer.

Larry, Kevin, congrats on a good start to the year. So Larry, a lot of commentary on handpieces and procedures. Maybe if I could ask one question slightly differently. So of the 47 (sic) [ 49 ] Hydros systems, right, you've given your site numbers in the U.S. Our rough math, Larry, is suggesting it's around the 17-ish number of procedures per site per quarter, roughly in that ballpark. Maybe if you could talk to what are you seeing in utilization in your sites? Where do you think your share capture is within those sites? And is this the bogey that we should be thinking about as we map out the year and new store same-store sales?

Yes. Thanks for the question. We talked about this a little bit at the investor conference. Our sites are highly variable. And so trying to create averages and trying to create average utilization, especially when we have a mix of AQUABEAM and a mix of Hydros. And going forward, we're going to have a mix of kind of our launch team launch systems and some of our legacy systems. I just think it's hard to be able to create an average. And I appreciate why everybody wants to do that because it's easy to just plug into a formula. But I think what people should be focused on is just our pure procedure growth. We put our procedure numbers that we expect to do this year. We put our ASP numbers, we put our system numbers on the board, and that's what we just have to go drive to.

So the key for us is showing growth quarter-over-quarter on our procedure growth. And that's what we're going to be driving to. And I think I'm certainly not focusing the team on -- go to our lowest utilization places and trying to bring into the mean. We map out literally every system in the country and say, where are the biggest opportunities, where are their under-usage, where are there share shifts, where are there motivated people. And so that's just our focus. But I would just continue to focus on procedure growth quarter-over-quarter.

Fair enough. And Larry, one follow-up question on WATER IV. So you'll have a readout in spring '27. Let's assume it's positive, right? Logic tells you there would be a collateral pull-through both on the BPH side and on the prostate cancer side, right? But Larry, should we think about, is it going to be a symmetric payoff? Or do you envision there could be some level of asymmetricity? In other words, let's say, superiority, there is some kink somewhere. Does it impact BPH? So how are you all thinking about that?

Yes. That question may be about my education level. I'll say like I don't know the WATER IV data. Nobody knows the WATER IV data at this point. And I don't want to speculate about data. But I think just broadly speaking, the more positive that data is, the more disruptive it has the potential for being -- for patients with prostate cancer. And obviously, anybody that already has a system that's already trained would be able to adapt quickly to treating those patients, and we would certainly do everything we could to facilitate that.

But I think it's just going to matter most of the strength of the data and how doctors interpret that as it relates to where this fits in treating patients with prostate cancer. All of those things being said, we think it's a perfect adjacency for us. It's rare that you can get this kind of leverage out of the same exact system, the same exact handpiece and largely the same users, and that gives us leverage all of our sales force as well. So we're just focused on running a great trial and then presenting that data when it comes out at AUA next year. And we're all cautiously optimistic it's going to be positive. But we'll have a lot more view once the data is public and we can talk about it and be more granular.

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

I wanted to ask on procedure utilization. I think at the -- I recall at the Analyst Day, you had called out different levels of procedure contribution from that class of systems sold pre-'25, those sold in '25 and those expected to be sold in 2026. And so just curious on the progress you've seen so far in Q1, maybe how that level of contribution from the different groups have stacked up relative to your initial expectations? And then what your expectations are through the rest of the year from that segmentation perspective to get to the lower end, the midpoint or upper end of the procedure guide for the year?

Yes. I'll just say that we're still early in the launch model and the ability of those systems to contribute significantly to our overall total number is just very limited at this point. I will say we remain extremely confident in the launch team model. And I think when we saw the readout from our pilot that we shared at the investor conference, and I think we -- for all the same reasons, we continue to believe that, that's going to be a very important part of our story.

And it really just comes down to making sure as many systems we sell as possible start off great because our view is when they start off great, they tend to stay great. And they tend to get established and they become a huge part of how BPH gets treated in those accounts. But we don't want to get too far ahead of ourselves, and I think it's too early to declare victory on any of our programs yet. We just remain laser-focused on all of them and making sure we're tracking the metrics. We're tracking the progress that we're making, and we're driving our procedure numbers and doing that to the very best of our ability. So that's our focus now. We're just sort of head down and trying to drive the organizational excellence that we need to get where we need to go.

Okay. And then maybe on this system ASP in the U.S. that you delivered in the quarter and then the subsequent guide through the remainder of the year. You called out this pricing discipline maybe as being a factor for the higher ASPs you saw in the first quarter, but obviously also shows that there clearly is an appetite maybe at least from the centers' perspective of paying a higher price for some of these systems. So maybe can you help reconcile why the guide for the second half of the year -- or sorry, for the remainder of the year would assume an ASP below what you delivered in the first quarter? And is there a potential for what you saw in Q1 to maybe be a more realistic number as you go through the year from a system ASP perspective?

Yes. I think as Kevin said earlier, a little bit of it comes down to customer mix. We talked about it a little bit in our Q4 number. We had probably more IDN sales in Q4. And so that took our ASP down a little bit from what we've seen earlier in the year last year, and we had less IDNs in Q1. We are going to continue to drive price discipline, and we're going to continue to try to get the highest ASP that we can, and we think our value proposition is very strong.

But we don't want to react to one quarter and get out over our skis for what the whole year ASP is going to be. So what we're just trying to do is be measured about that. And that's why Kevin covered that we're now thinking that you can model at $450,000 to $460,000 for the remainder of the year, and we think that that's a good modeling number. We'll certainly update that quarter or next quarter where we land. And depending on how that quarter lands, I think it will give us a lot more confidence in how durable the pricing ASP is going to be.

But I'm very pleased overall with the operational discipline that we're showing. We guided -- if you go back and look at handpieces, we guided handpieces this year that you should model in $3,500. We were able to achieve that in Q1. And so I think that bodes well for us for the rest of the year. We're going to continue to drive that same sort of transition on systems. But as Kevin and I both said, we just don't want to get out ahead of ourselves.

And our next question comes from Mason Carrico of Stephens.

I'll keep it to one. Could you characterize, I guess, what percentage of the sales funnel today is being driven more by bottoms-up surgeon champion versus top-down admin of these larger systems? Are you seeing the new launch team attract more surgeon champions to deals that are sourced top down today versus, I guess, where you guys were 6 months ago?

Well, yes, I'll start and then maybe I'll ask Kevin to add a little bit of color because he's very deep on our capital cycle and for some of those things. One of the things that is core to what we're doing on the capital side, though, is we don't want to sell a system to anybody, frankly, if there's not a surgeon champion who's established. We want people to always be standing on the dock waiting for the system. We want to have our launch team ready to go. We want to have patients prescreened and we want to drive that system very, very quickly.

And I think historically, we just were much looser on that process. If somebody wanted to buy a robot and we haven't identified a champion yet, it showed up on the dock, then the team would start working on that process. And now we just have a much more integrated approach on that, of making sure like when we sell a system that there's a home for it and there's a champion who's ready to go, and then we bring the launch team in and we try to drive case excellence from the very first cases we do with that system and try to establish it as a core therapy within their urology program.

And I just think we're just so much tighter about that now organizationally, and we're still building that muscle that that's going to be what I think really differentiates the organizational performance as we move through time.

I'll ask if Kevin wants to add anything on customer mix or some of these other things.

Yes. I'll just add a follow-up point that I think it is a common misconception where we have said and we are seeing great relationships now with the top down with large IDNs. But at the same time, that does not mean we don't have the bottoms-up surgeon support within that IDN network. But historically, we only had the surgeon support, whereas now we're definitely being viewed as a viable technology across a much broader hospital network. And that is what we're seeing. But to remind you, our Q1 results did not have any of those large IDN sales. So that's just another factor as well that gives us confidence in the full year system guidance.

Yes. I guess just to finish the thought, it's really both. If you have top-level administrative support, you don't have a surgeon champion, you can get the capital sale, but you're not going to get the pull-through on procedures that you want. If you have a surgeon champion that you don't have the administration that's supporting, bringing a new therapy in, then you're going to struggle with the capital sale and that cycle is going to go a lot longer. And I think what we're just really trying to do is just be super integrated about that and drive to where we have both pieces of those puzzles because when those 2 things come together really strongly, I think that's where we really drive utilization to where we want it to be.

And our next question comes from Brandon Vazquez of William Blair.

It's Max on for Brandon. I'll just do one quick one as well. First quarter gross margin was 65%. You guys reiterated the full year expectation of about 65%. Can you just walk us through some of the puts and takes given some of the revenue mix and ASP dynamics on the year and how that relates to gross margin and how we should be thinking about cadence for the rest of the year?

Yes, I can walk you through the year. Good question. So you pointed out in Q1, we did deliver 65% gross margin. That was driven sequentially by higher handpiece and system pricing and just our overall ability to leverage our overhead expenses. And as we move throughout the year, Q2 and Q3, you should think of very modest expansion in the next 2 quarters, somewhere in the 10 to 20 basis point range over the next 2 quarters.

But when you get to the fourth quarter, you have a multitude of factors. You have favorable revenue mix towards higher-margin handpieces. We have improved overhead absorption. And then just in general, we have total revenues, and we should be exiting the year in the 66-plus percent range, but that will still translate to a full year margin at 65%. And definitely coming off of Q1, landing at our full year guide in Q1 at 65% gives us a greater degree of comfort with our full year margin guidance.

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

[Audio Gap] devices research team, and we are in the last session of the first morning of the 46th Annual TD Cowen Healthcare Conference. And we are fortunate to have executives from PROCEPT BioRobotics CEO, Larry Wood, to my right, your left; and CFO, Kevin Waters.

Gentlemen, thanks for joining us today. It was a busy week last week for you guys at earnings and you had Investor Day, and you guys laid out a lot of -- gave provided a lot of intel on fourth quarter dynamics and 2026 guidance, which we thought was very helpful. And so I think the thrust of this conversation, I want to focus on the go-forward.

And I think some of the -- just maybe to start with some of the questions that we've gotten from investors just around 1Q guidance and then 2026 guidance and the back half weighting. And maybe to start on 1Q. Just on the procedure volume expectation, you kind of already run through this last week, but just to give it one more review. Maybe just talk about why the procedure volume guidance is the right place for Q1 and any intra-quarter trends you're willing to share so far?

Yes. Well, we're not going to talk a lot about stuff inter-quarter as I think you guys would expect. But we certainly expect the procedures to build through the course of the year. And we talked about in Q4 that -- or on the call rather, that we made a lot of changes to our sales force. We think these are just really foundational, no regrets decisions to make in terms of really getting a launch team focus, which meant we redirected some of our more tenured people on to launch teams. And we also reorganized where we have a region leader, over all the regions now and all the clinical resources and sales resources reported for that common leader.

But it meant that people have new territories, they have new accounts that they're calling on. And so it just takes a little time for those relationships to build, and we have to backfill for our more tenured people. But the benefits to that are going to be -- we think we're going to drive a lot more effective launches. The pilots that we ran last year, we saw the pilots go -- or the launches go from the metric of PO to first 10 cases, that went in half. And so if we can make our new system placements more productive faster and pull all those forward, we think that's just a big benefit for us.

The other thing is now the utilization team is only focused on their same-store sales, and they're only focused on their existing accounts and not distracted by launches. But that does create near-term headwinds, and we factored that all in the guidance, but we expect it to pay dividends for us in the back half of the year.

Great. And just on the handpiece inventory optimization that occurred in the fourth quarter and where you guys stand today, I think you were historically running around past couple of years around 115% on inventory versus procedure volumes, and are closer to 1:1 now. Any more details you can share just on where that stands in Q1?

And my understanding is it's very close to 1:1 and then how that should be maintained over the course of the year? I know that's what you've guided to in the procedure volume forecast, but maybe just share with us some of the nuances of the dynamics as we move through the year on inventory versus procedure volumes.

Well, one of the things that we saw historically is because the incentives were all built into the last quarter of the month, people tend to drive their inventory very high and then they would consume it the first 2 months of the next quarter. So our sales were always softest in the first 2 months and then they would pick up again when people -- the stocking dynamic would play itself back out.

What we've seen to date now is because of -- in fourth quarter, handpiece sales were only 77% of procedures. What we've seen in the first 2 months now is we're seeing handpiece sales and procedures flying much more closely in formation, which supports that we think people have kind of reached that inventory equilibrium and now they're just ordering to replace their supply. And there's no -- there's nothing in the system, no incentive to do anything other than just replenish your supply.

But even with that, I think there's a lot of people like, what if there was some more destocking? What would that look like? But here's what everybody needs to remember is we're modeling at a 1:1. But we're still going to place 200-plus new systems into the installed base this year. And all of those systems are going to have to take inventory. So as people have really reached their inventory equilibrium and we add those 200 systems and they all come with inventory, then we'd have to be above the 1:1 ratio just to account for all that inventory. So the guidance that we provided would still allow for some additional destocking, but I think there's more upside to that revenue number right now than there is the downside.

Understood. And just on the topic of just inventory in the field that's remaining and procedure volume, I guess, tracking? I mean my understanding, correct me if I'm wrong, but every procedure that's done on a HYDROS or AquaBeam system that kind of gets registered, it's -- those data going up to the cloud and you have information on every single procedure. And then on the inventory side, I mean, is there some buffer? I mean, do you guys have kind of exact numbers on inventory at each account? Or how does that all work, the mechanics behind it?

Yes. Well, we have a person in every case today. So -- and that won't be something we'll do forever, but it is something we have today. So because we have a person in every case, we have perfect metrics. Our HYDROS system does have connectivity capabilities to it. So as those get all connected to the cloud, then we'll be able to collect procedure volume that way. But we will, over time, move to more of a hybrid support model where we'll still support a number of cases. And certainly, if somebody would like us to be there for a difficult case, we want to provide great support and make sure patients get great outcomes. But we also want sites to be able to perform cases independently. If a case comes up on a random day and they want to be able to do it, we don't want them trying to track us down, or worse, flip the patient to some other procedure. So we'll do all those things.

We generally have the -- we know how much inventory is at every account. And there was a time when we thought that inventory level was probably high, this whole discounting issue aside, completely separate issue. And on the Q3 call, we were like, hey, we want to establish par levels for our sites and maybe just sort of rightsize that inventory, and that's where that 1,000 unit came from that we talked about. And I still think directionally, that was right in terms of -- and we were trying to target people to around 12 weeks' worth of inventory.

What we saw was centers' natural inventory equilibrium was much lower if there wasn't some incentive for them to carry more inventory, and that's the impact that we saw in Q4. But I think that's largely rightsized now, and I think it's supported by the first 2 months of this year, and that's what's built into our guidance.

Okay. And you mentioned the launch team structure that's been established last week and prior on the third quarter call and publicly. Maybe just review how much -- how many handpieces are typically bought with -- at the time of installation or in the relative period around purchase and installation of a HYDROS?

And then the signals that -- you've shared some of the signals on -- positive signals about the launch team, as you mentioned earlier, just getting those first 10 cases and 50% reduction of the time it takes to get there. Anything just to share how is that been ongoing? And how has that evolved since you started the launch team? Has that metric improved on the course? And how confident are you that this launch team strategy is going to help reduce the dilution of [ Nuc placements ] to overall system utilization?

Yes. So the amount of handpiece that somebody takes a stocking order is highly variable. Some hospital systems take more, some hospital systems take less. And the capital purchase process is completely separate from the consumable purchase process. So we're dealing with two different groups. And so sometimes they can be pretty disconnected.

One of the things, just one of the benefits we get from the launch team, the capital team has really good insight to when the PO is going to close. Because they'll be working on these deals for months at a time. So when we get where we're like 4 or 6 weeks away from the PO closing, that's when we can start working on the PO for the handpieces, however many they want to take. But it's also where we start working with whoever the surgeon is going to be, make sure there's a surgeon champion, somebody ready to take the instrument. Where is it going to go in the hospital? Where is it going to be stored? Where is it -- is the power right for the room? All those sort of logistical things to get done.

But then let's make sure we have cases ready to go. Let's make sure we have patients screened. Let's make sure we get in a steady cadence. So we come and do the training, we engage the learning curve as quickly as possible. So those are all things that the launch team does. And I would say, in the early days of the company, when they were selling a robot, there was probably already a surgeon champion who was sitting there yelling at administration all the time, sign a PO, I want the robot. I can't wait to have it. And so the launches sort of took care of themselves, and it really wasn't much of a thing that we had to do.

As the company has matured and you're going out into a different installed base, if you're working with a big IDN, they might just be sitting here saying, hey, you know what, we want 3 more robots. These are centers we want to offer the therapy to. So just go put it out there. But there may not even be a surgeon champion identified. And there were times that we would close a PO and we call the utilization team and they're like, we didn't even know a robot was coming. And it's -- that would be the start of the process to identify the champion and get a train. So we would -- I mean, there were times that robots would sit for a quarter, sometimes 2 quarters before they would even get installed and get utilized because there wasn't a playbook in place. And some of our systems launched great, but there wasn't a playbook and there wasn't a standardization to it.

When I launched TAVR in the U.S., we ran a very standardized playbook. We screened 5 cases. We had a proctor teed up ready to go. We did 2 cases. We came back the next week. We did 2 cases. And we just got in that steady cadence. And my history was always, if you launch somebody well, and they started out well, they had great experience and they did that, they tended to stay well, and they tend to stay healthy. If somebody launched poorly, then at some point, you almost had to come back and do a reboot at a restart from scratch. And so I really prioritized the launch teams because I want to make sure every new system we place launches well, launches healthy, stays healthy. And then we can start going back and working on some of the systems that are underperforming and get those back up to speed.

Great. And is there anything left in this initiative to put a launch team in place, or just the commercial restructuring, I guess, of the strategy? And just -- has it all been like launched throughout every region in the United States? Or is there still more work to go? I guess the question really trying to get the gist of this, I think you implied that most of the work is done, or in Q1. You guys are kind of ramping with this new strategy, but just curious if there's more work to do.

Well, strategically, we lined up on the strategy and that part is done. We rolled out the new org structures and all the new roles and responsibilities at the sales meeting in January. So all of that work is done. We couldn't go from having no launch teams to launching 200 systems all at the same time. And so I think our goal this year is that half, or a little more than half launch under our launch team model for this year. But by the end of the year, we're fully capable that everything on a go forward would be under launch team.

Now that's what we've modeled. I will say we're putting a lot of pressure on the launch teams to figure out how to accelerate this. We think it's such a value driver for us. Part of it is just having enough tenured people that can do this. And if we don't have good experienced people doing the launches, then we're just going to get more of the same that we had before. So it really is about launch excellence, but we are building out and expanding those capabilities as we go. But we just started launching them last month. And so far, I'm super impressed with the launch team. I'm really impressed with how far that's gone. And I think we're all committed that this is the right structure on a go forward.

And can you talk -- I think you referenced this and maybe given details on it, but just the changes to the incentive plans for the capital and clinical teams, how that you think is going to help just have increase the intensity of focus on procedure volume growth as we move through '26 and get into the out years?

Yes. I think the capital team, other than the launch aspect of it, the capital team is -- it hasn't changed all that much. And I think our capital process was pretty well refined actually. I think that's not where we had our biggest challenges. Our bigger challenge is on the utilization team. And part of it was, they were responsible for trying to drive same-store sales, but they were also responsible for the new launches. And one of the things that we dissected out of that is, if you got a couple of new systems launched in your territory, you could just live off the growth of those systems and you didn't really have to grow your existing base, and you could hit your quota and you could hit your plan. Now by moving those out and moving them to the launch team, the only way that the core procedure team can make their numbers is by growing same-store sales and driving that.

The other thing is we cleaned up the comp plan. There were just some things in there that were more behavioral-based stacking cases, making us more efficient in doing that. And we just sort of simplified it and ripped all that out. And it's just now based on productivity, not behaviors. And so are you driving the number that you need to do? And if you are, then you're going to get paid. And if you don't, then you won't. And I think that simplification will drive the level of performance that we want.

And how has the internal feedback been from the sales team? Just are they enthusiastic about these changes? Are they on board? Has there been any disruption? I think you've already stated last week that the attrition levels have been really stable, but love to get an update there, too.

Yes. We haven't seen a lot of attrition. I will say, look, at the sales meeting, there was a tremendous amount of enthusiasm. I think the idea of having a regional director that has all the resources reported, it just solves a lot of organizational disconnects and it solves a lot of problems. But it's everybody -- it's easy for her to be excited at the sales meeting, but now we have to go execute. And we are asking people to do different things.

There were people in our team that they pretty much what they did was focused on being in the OR, supporting cases and spending their time with the clinician. We're now asking them build a relationship with the scheduler. Make sure you know what patients are coming into the funnel. What other surgeons are doing procedures at this hospital, and should they need to be trained on the system? And these are just a lot of different skill sets.

And we're going to coach people up, and we're going to do everything we can to make sure that they have the tools and the things that they need. But there's always some people that don't want to come to the new world. And if they don't want to come to the new world, then that's fine. But they can't stay. And that's not our goal, but we're going to have a very high accountability culture, and that's just the way. So, so far, everybody has been really excited. We haven't seen any attrition, but now we have to execute and people have to deliver.

And can you share some of the feedback from your high-volume centers that were relying, or you're just taking advantage of the end of quarter bulk discounts? I mean it sounds like they're all relatively content at least with just the sale price going away, and they've already -- they've always digested the ASP that is now fully in play. But has there been any friction at all? Or is it just -- there's some level of friction, but it sounds like it's just been minor to date?

Yes. I mean here's the dynamic. We didn't raise anybody's price. Everybody had a contracted price. And if their price was $3,500 in their contract, that's what they're expected to pay. That's what's built in their budget. That's our contracted price. So what we were doing is going in where they were coming to us and saying, hey, if I bought 30 handpieces, can I get 7% off? Can I get a deal? And somebody would say, yes, sure. And I think a little bit of the mindset was if they're taking all these procedures, maybe they're planning on utilization spiking. And so like let's put these things in here, if we do that at a discount.

I mean, volume-based discounts are something that exists in every business at one level or another. I think if it would have been driving procedure growth, then we probably wouldn't have discontinued the practice. But I don't think it was driving procedure growth. I think it was driving inventory patterns, and that's not going to drive the overall health of our business. So we eliminated that, but nobody is paying a higher price. They're just not getting a discount. So they're just back to their contracted price.

We didn't have to go renegotiate anybody's contract. We didn't have to redo anything. We're just holding people accountable to the price that they agreed to pay in the first place. So that's very different than you know me well from Edwards, but when we launched our S3UR platform, we put a $1,500 price increase out there. We had to go recontract everybody. We had to sell them on the value of the system. We had to do all that. We didn't do any of that in this case. People are just back to their contracted price.

Okay. I wanted to touch on some reimbursement dynamics. But, I mean, firstly, I think on one of the slides in your Investor Day referenced this reimbursement support as part of the new commercial strategy. I mean you guys have had reimbursement support in play historically. But is there anything new that you guys are offering?

And just -- and on top of that, just with the Category 1 code now in place and just, I guess, removing any concerns around denied reimbursement, or just improved confidence. Is that part of the -- is there any part of that, that's been incorporated into the reimbursement strategy support strategy, excuse me?

It's not anything new, Josh, but we've always supported our customers with reimbursement. But the big event this year was moving from Category 3 to Category 1. And with that, we just want to make sure that coding is being done properly. We want to make sure that the reimbursement that our physicians are expecting, they're getting. So it's more in that vein.

The blocking and tackling though, has been handled. I mean, in terms of now having a Category 1 code, our APC level went up another 5% this year. So really no issues there. But it's just making sure that customers are doing things appropriately to avoid any issues on the back end.

Okay. I would love to touch on just some capital trends. Guys, capital revenue, system revenue, $95 million to $100 million for 2026. It's record quarter in system placements in Q4. Just help us review what's baked in some of the assumptions to get you to this range? And kind of flattish system placements, I mean -- I think you reviewed this last week, but just to help us fully understand.

We modeled system placements to be about the same in '26 as they were in '25 for our greenfield placements. And we think that's a right number for us to land on. We think pricing is going to be in line, or maybe a little bit up from what we had in 2025.

The other two things that we're laying on this is the first one is we're going to start a process for developing a replacement strategy. And I think historically, the company thought that customers would just reach a natural replacement time point where they want to upgrade to the new system, and they'd want to do those things. And we didn't really see that happen organically. So I think we're going to have to be much more purposeful about it. And this is where I think we can offer customers trade-in credits for their existing system. We can upgrade them to HYDROS. It's our latest technology. It's much more feature-rich. And I think it also gives them a much cleaner pathway to kind of this hybrid support model where we don't have to be in every case.

So we're going to start that. I don't think it's going to be a lot of systems, but there will be some systems to be placed under this model. And I think the revenue that we get from those will probably be, with the trading credit, probably about 70% of the revenue we get for a greenfield placement. So we'll model that out. I don't think that's going to be a big part of our '26 story. But I think as you get to '27 and '28, we do need to have a strategy to upgrade all of the AquaBeam systems to HYDROS because at some point, we're going to have to sunset support over the AquaBeam system. So if I take these in and trade and I can use them for spares, I can do some refurbishment stuff with them, but -- so we can get some value out of them as well. But that's really the plan.

And then the third element is we are going to explore some operational leases. And I don't think it's going to be a big part of our plan in '26, but we really want to get this process played out to where we can work out financial arrangements for a hospital that can't make the capital purchase, or doesn't want to make the capital purchase, but wants the system and wants the technology available. How do we create a lease structure that financially works for them, but more importantly, financially works for us. And then we can pull that volume through at places that maybe otherwise wouldn't have the technology available. So those are things we're going to explore.

Again, these are things that are -- this is largely a build year for us this year, building some of these capabilities, but I think there are going to be things that are going to be much more important to us in '27 and '28. But we don't want to wait until those things are critical. We want to be able to pilot them now and get them right, so that when they do become more important that we have a well-run system for doing it.

I mean is there a time line just in terms of the AquaBeam system lifespan? I mean, when could it fully become dysfunctional, or there's any, maybe, technology kind of obsolescence on your side, or parts or service where you just don't -- you can't service them anymore. Can they last out to 10 years? Or is it more this 5- to 7-year typical capital lifespan?

They definitely have a useful life that could go greater than the 5 years that we would forecast with an account. And ultimately, we will have an end-of-life strategy for AquaBeam, but that's not in the near term.

If you look at the installed base of AquaBeam, there are about 200 systems out there at the end of 2022. When we run pro formas with our hospital customers, they're thinking of that system somewhere in the 5-year useful life. And that is, when Larry alludes to '27 and '28, it really does line up nicely with when we had a bolus of AquaBeams being installed. And '26 is all about building that muscle so we could capitalize in '27 and '28.

And I'm assuming part of the strategy of, kind of, catalyzing that replacement cycle kicking in just trumpeting the merits of HYDROS over AquaBeam, and the advancements and enhancements.

No that's a big part of the replacement strategy, though, in addition to the revenue that we get from that, but it is upgrading people, but it gives us an opportunity to relaunch all of these accounts. And so by '27, we're launching everything under our launch model, it gives us a chance to take a much more feature-rich system in, but do it under the launch model. And we think that that's going to pay dividends for us as well.

And just thinking about HYDROS, have you seen increased utilization per system with HYDROS versus AquaBeam? And what's driving that? I think some of the procedural efficiencies are baked in preoperative planning, et cetera?

Yes. We do see higher utilization on HYDROS than we do with our legacy AquaBeam systems. And utilization is -- there's a wide spectrum of utilization there. But if you just average it all out, we do see higher utilization with HYDROS. And I think it's just such an easier system to use. It's an all integrated system. And so I just think it just drives more procedures.

We heard about -- during the IPO process from the management team prior to your tenure, Larry, about this opportunity to bring patients off the sidelines or patients that are failing meds, or just suffering in silence. It sounds like you have some renewed enthusiasm -- or I mean it's not renewed, but you have some enthusiasm around ultimately allowing patients to access a BPH intervention that's safe and durable, a great safety profile and durability.

But maybe just, how are you thinking about it? You discussed this again last week, but how should we think about the time lines in terms of PROCEPT's efforts to really see that impact BPH procedure volumes?

Sure. Well, first of all, the #1 thing that we're focused on is converting competitive procedures to our procedure in the space. We're -- there's about 400,000 patients a year that get a procedure, and we're only about 10% penetrated in that in 2025. So we -- the first thing we need to do is convert all those other procedures over to our procedures. And that's what's going to drive our growth over the next couple of years.

But there's -- ahead of that 400,000 funnel, there's 8 million men that are taking drug therapy for BPH and about 1.1 million men a year stop taking their drug therapy because it's not effective or they don't like the side effects. And so those are patients that we think would be ripe for having a procedure done because they've obviously stopped therapy. And so that's -- the next tranche of patients to go after would be that 1.1 million who stopped taking their drug medication. And I think those are people that we should be able to get into the procedure.

But the problem that we have right now is just perception of men of what having a procedure on their prostate means. Most men go immediately to, if I have this procedure, it's going to mess with my erectile function? It's going to mess with my incontinence, and I don't want to lose urinary control. I certainly don't want to lose spectral function. And we're not talking about people who are elderly. We're talking about men in their 50s and 60s, and these are obviously critically important to them.

I think we have so much work to do from a marketing side, and this is for all the segments, that says we can offer you a procedure with virtually no incontinence rate and very low ED rates. And incredibly low, better than any other procedure that you can have done, and we can give you complete relief of your symptoms that will be durable. And so the first order of business that we have to do is making sure men with this condition understand what their true options are.

And right now, if you look their choice is have a resective procedure that will solve my symptoms, but it's going to leave me with very high rates of side effects and complications I don't want. Or I can have a procedure that will preserve those things, but it doesn't work very well. I'll need another procedure in a year, 2 years, 3 years. And that's just not a very attractive option for patients. And so we need to make our case for that, but it really is in all the segments. It's not just getting people off the sidelines.

Understood. Understood. I wanted to touch on indication expansion in localized prostate cancer, the 001 trial. You showed 3- and 6-month results for the majority of the patients enrolled. Looks compelling to us. And when can we see full results? And could that be as early as this year?

Yes. No, the big trial for us is the randomized trial, WATER IV. And WATER IV will complete enrollment about the middle of this year, has a 6-month endpoint. And so we would expect that data to be presented at AUA, I think it's in May next year. And so that will be the place we see the data.

But I don't want to get people focused on prostate cancer because I think whenever we talk about it, we run the risk that people think we're only focused on that because the BPH train has ended in. And that's not even close to true. We're only 10% penetrated. But the reason the cancer opportunity is so exciting is for what it can do for patients.

The data that was presented, we talked about it at our Analyst Day, but men who undergo a radical prostectomy for prostate cancer have -- it's almost assured you're going to have severe ED, but it's also about a 25% to 30% chance you're going to have incontinence. And so the fastest-growing segment of prostate cancer treatment is watchful waiting. It's just men who have been diagnosed. They have cancer in their system, and they just would rather do nothing than live with those complications. And their view is, I just pray every day that I'm a slow progressor, which many men are slow progressors, and so that will be okay, but there's men who are not as well.

I think if men had a chance to get a procedure that had a zero rate of incontinence and erectile dysfunction actually numerically in the feasibility trial improved, and they could get the cancer out of their body, I think that's a hugely compelling case. I think the other thing that's very rare in our space is it's rare to have an opportunity that's as significant as prostate cancer that 100% leverage is exactly what we have. It uses the same exact robot. It uses the same exact handpiece, and uses our same channel to an overwhelmingly large degree, probably 95%. We might have to add some oncology practices we don't call on today. But you never get that kind of opportunity with this kind of leverage. It's very rare. And so that's another thing that just makes it really attractive to us.

Outside of the prostate cancer indication, going back to resective BPH and just the penetration -- surgeon penetration so far, I believe there's roughly 1,300 Aquablation urologists out there, maybe 10% penetrated just in terms of urologists, not all urologists do resective BPH.

But how do you -- what's the plan to -- I think you do have a plan, but maybe some more details around it to just increase awareness of the clinical data, the durability, the safety event profile to the urologists that are non-adopters today?

Yes. Well, there's the non-adopters, but there's even the people that have it available. And I think there's a hierarchy that a lot of clinicians have in their mind, which is least invasive to per se more invasive. And so they'll start with, okay, I'll start with drugs. And I think we all get that. I'd take a pill before I go have a surgical procedure. So I think everybody gets that. But then it's like, okay, the medicines aren't working, so now I need to have a procedure. And they're like, well, a non-resective procedure is less invasive in my mind than a resective procedure.

So maybe I'll start with a UroLift, or I'll start with one of these other procedures or maybe even they'll do a second UroLift. And if that doesn't work and the patient comes back after a year, 2 years, 3 years, then maybe then I'll move to an Aquablation, or I'll do something like this. And it makes perfect sense to a doctor that I might do 4 or 5 procedures in this patient, and that's fine. It makes no sense to a patient. And when we do the patient-centric research, patients -- the #1 thing is they want to maintain their urinary control. The #2 thing is they want a one-and-done procedure. They want to minimize the risk of having another procedure and then it's preserving their sexual function and then it's recovery time and doing all those sorts of things. And those are sort of the 4 things on their hierarchy. And it's less invasive, more invasive thing.

Once a 24 French device go through urethra, tell me how one procedure feels less invasive than another procedure when you're doing the same access? And so it just doesn't make any sense from a patient lens. And when we presented that, we had a meeting with all of our -- a lot of our key opinion leaders. They were shocked by the patient-centered research. They've never seen it before. They just assumed what they were doing was in line with what a patient wanted. But I think the number of times that anybody should have a 24 French device go through their urethra is zero to 1. And if you're going to have it done, you need to know that, that's going to be a durable procedure and you don't have to have anything else done again. And that's just not the lens that patients are getting treated through today, and we need to make our case for that.

But from a marketing standpoint, all the success that the company has had, and they had tremendous success before I got here. But all the success they had was just putting instruments in places and having physicians adopt it into their practice and driving procedures. That's what's driven all of this. There was no marketing program. We survey patients with BPH and between 1% and 2% of patients had ever heard of Aquablation. So patients aren't coming into hospitals. They're not asking for this by name. They're not doing any of these sorts of things.

And in the early days of TAVR, we struggled with this. Patients would show up at a hospital and they'd say and the doctor would just say, let me tell you about open heart surgery, and they would just go and they didn't even know the TAVR even existed. Even today, there's a lot of patients that don't know that it exists as an option for them, and they don't pursue therapy because they don't want to have a sternotomy.

So I think there's a huge opportunity for us to do just patient awareness and education for patients that are already committed to having a procedure. Remember, we're only 10% penetrated in 400,000 patients that are already committed to having a procedure that are willing to undergo a surgical intervention. That's the first place we got to go and convert people to what's going to be ultimately a much better procedure for them.

Well, it sounds like it's going to be an exciting year. We're looking forward to tracking along and procedure growth trends are going to be a main focus. And it sounds like you guys are on track to deliver. So thank you guys for spending time with us today. Good luck on the rest of your meetings this afternoon, and great to see you.

Thank you.

All right. Thanks, everybody, for joining today. I'd like to welcome you guys to the 2026 PROCEPT BioRobotics Analyst Day. Appreciate everybody's flexibility on being here today. I know that there were some challenges with weather on the East Coast and having to shift things around. So I appreciate everybody for being here. And also those that are on the webcast, thank you as well.

We'll be making forward-looking statements today, so please refer to those disclosures in the front of the presentation and also we'll be referencing non-GAAP measures, which will -- there are some appendices in the back that everyone can reference as well.

With that, I'll like to bring Larry Wood on stage, PROCEPT BioRobotics CEO.

Thanks, Matt. All right. Well, thank you, first of all. I appreciate everybody being here. Obviously, we announced earnings last night. And so I'm glad that we can be in front of you that we can walk through everything. I'm going to talk a little bit about the past, but then I'm really going to try to shift and focus about the future and let you know why we remain excited about our opportunity, why we are excited about what our future looks like, and we think it's really bright.

So it starts with the market opportunity. So when you look at where we are, there's about 400,000 patients a year that have actually a procedure done on their prostate. We're only about 10% into that space. And so we have a lot of headroom to grab share without activating any patients, without getting anybody off the sideline, we have the ability to grow and grow significantly. Beyond that, though, there's 8 million men who are seeking therapy for their BPH. They're on drugs. They're seeking therapy. They're not happy with their condition and they're looking for relief from their symptoms. Over 1 million men stop taking their drugs each year because they're either not effective or they don't like the side effects that their drugs give them. So that's another rich opportunity beyond the 400,000 patients that are seeking treatment today. Beyond that, there's about 40 million people that are getting -- that have the condition as well that's going to continue to feed the funnel as they continue to progress with the disease. So it's a large untreated population. And the reason why so much of it is untreated is, frankly, people are concerned about the procedure as much, if not more as they are their condition.

So where do we stand in this armamentarium? And what is our strategy? We have a game-changing technology. We have a technology that can absolutely change the course of the disease for these patients. We have all the clinical evidence that we need. We're no longer this brand-new procedure. Our focus for the next chapter is going to be accelerating procedure growth. And I think that's something that we're all aligned on. What everybody needs to see from us is that we can execute in the field, we can drive share shift and then we can grow our procedure volume. We have to become profitable. We have to have a clear path to profitability, and that's a key area of focus for us. And then we continue to advance the evidence and look for additional treatment that we can do, and I'll talk more about that as we go.

So, in terms of where we are, we've treated more than 125,000 patients worldwide. Our global installed base is over 900 instruments. So, again, we have a good installed base. We continue to add to that installed base. One of the big things this year is January 1, Category I reimbursement, which is a big milestone for us. It solidifies this. When we were Category III, there was more questions about reimbursement now, and those things have been removed from the narrative. And so we're really excited about what that is.

But I'm going to talk a little bit about the changes that we've made to the organization. They obviously impacted the Q4 revenue, but I want to talk about why we made those changes and the impact of those and why I believe those are going to benefit us long term and they are foundational things for us to do. So if you look at handpiece pricing over the years, you can see where the handpiece pricing was, and it was very consistent. We were very flat over the time. When you look at where we were for the first three quarters, we actually saw a little bit of an uptick in pricing. That was pretty much driven by the increased mix of HYDROS versus AquaBeam. But our pricing was very stable when you looked at it quarter-over-quarter, and you saw where we were. But you also look at the handpiece volume compared to procedures. And we'd always been averaging about 115% to 120%, and we were consistently within that range.

What we did in Q4 is when I reviewed the practice that we were doing of offering into the quarter volume discounts and incentives for people to stock. As our installed base continued to grow, that just became a bigger and bigger thing and customers were very conditioned to just wait until the end of the quarter, negotiate an incentive or be offered an incentive, they would stock up and they'd order a lot of inventory and then they'd spend the next few months depleting that inventory down and repeating the cycle over and over again. So it was causing very lumpy revenue, and we were doing things at a discount. When I reviewed that practice, I believed strongly that we were just discounting a product today that somebody would have paid full price for two weeks ago, their actual contracted price. So we eliminated that practice. We just said we're not going to do that anymore. We're not offering these sorts of end-of-quarter rebates, and we completely eradicated that.

When we did that, it had a much bigger impact on customer ordering behaviors. If you remember on the Q3 call, I talked about inventory levels. I talked about target inventory levels. And my opinion was that there was more inventory in the field than needed to be there. And that was just related to establishing par levels and people carrying the right amount of inventory. In my old world, I live in a consignment world, every account had a par level.

When I came to PROCEPT, no accounts had par levels and every customer was just managing their inventory on their own. So we established those par levels for sites, and we thought that would result in a reduction of about 1,000 units, which is what we signaled in Q3. This is a completely separate issue. This was an issue that was driving customer behavior because of the incentives that were being offered, but it was coming at a cost to our ASP.

When I look at our path to profitability and when I look at the long-term health of the business, price matters. Our margins matter. That's going to be the critical thing that's going to drive our long-term profitability. So we eliminated that practice. And when we did that, we saw an immediate boost to our ASP, but we saw a change to ordering patterns where people said, hey, if I'm not incentivized to overstock, I'm not going to overstock. And they took their inventories down to whatever their targeted inventory level was.

When we look at that for 2026, we're now anticipating that handpiece sales and procedures are going to pretty much fly in formation. Those numbers are going to mirror each other. And the our ASP is going to go up to about $3,500. So about a $300 price increase from historical to where we're going to go this year, which is very meaningful for us, and I think it bodes well for, again, for our long-term health.

There were a lot of questions about this 1:1. And there's a lot of questions where people are like, yes, but is there still inventory? Could there still be a drawdown? Are you sure this is all behind you? And here's what I can tell you. What I can tell you is when we look back over the last multiple weeks since we instituted these changes in December, we've seen procedures and handpiece sales pretty much mirroring each other and flying in formation. So if there was more inventory to draw down once the incentives were to be removed, I think we would have seen that over the last six, eight weeks, and we haven't seen that, which gives us confidence that we're on that.

Even beyond that, though, we are saying that inventory is going to be flat in the field, but we're still going to add 200-plus systems into the field next year. And all of those systems are going to have to take a stocking order and they're going to have to take inventory. So if people are at their proper inventory level now, and we added those 200 systems, inventory levels would have to go up in the field. This 100% ratio wouldn't actually work. It would have to be higher than that. But there's no value in us right now modeling something higher than that. So we've modeled that at a 1:1, which we think is a conservative way to model it, but I believe there's probably more upside than downside to that. But given everything that's happened, I don't think there's any point in us being aggressive about that or modeling anything higher than that.

This is the biggest factor in the change of our guidance year-over-year. If we would have modeled handpiece sales to remain at 110% or 115% of procedure volumes in 2026 like it's been historically, that was worth between $20 million and $30 million. And so when we adjust the guidance, that's the biggest factor that changes our year-over-year guidance. Now we offset a chunk of that, a big chunk of it with our pricing increase, but we don't offset all of it of our pricing increase. And so that's the biggest change that we have in guidance.

So the other thing that we've talked about is our change to our sales organization and the process of that and why we made these changes. So I'll talk through historically what we had. Historically, what we had was basically three groups. We had our clinical procedure support group, we had our sales support group and we had our capital team. All of these groups were led by separate management. They all had their own incentives. They all had their own goals, and they were all sort of ran independently. And what that meant was they weren't necessarily integrated and they weren't necessarily aligned and they didn't share a common goal set. And I think that led to some disconnects in our business that didn't optimize our performance. And so when we looked at that, we said, hey, the first thing that we got to go after is the clinical support team and the sales support team.

We had people going out supporting cases, doing training, then we had salespeople that were trying to move share and try to do those things, but they weren't doing it in a coordinated effort. We went out and said, not the best way to do that. We integrated these now to where we have a single regional letter leader, the clinical resources and the sales resources all we support after that common person.

Now that regional leader can direct all of the resources in that region to optimize. So if there's a site that needs more training, they can do that. If there's a site that says, hey, we need some help with the referral patterns and making sure that our referrals are educated so that we can get more patients in and we can get them to Aquablation. We have our sales support team that can do that, but we can optimize those teams and make sure they're directed. So that's some of the biggest changes that we've made.

We also made changes on the capital team as it relates to launches. So here's what used to happen. We had our procedure utilization team, and that was the clinical group and we had the sales group. But when a new system would come into a region, the utilization team had the dual focus of they had to manage their installed base, but then they also had to accommodate these new system launches. So they were sort of pulled in two different directions. Managing an installed base and trying to grow it is a very different skill set than launching a brand-new system and making sure people are trained, making sure people understand how to do the procedure.

The other thing about it is the capital team's job is to sell capital. When they would close a PO, oftentimes, the utilization team didn't even know that an instrument was sold that it was coming, and that's when the process would start. I would say in the early days of the company, there was probably already somebody waiting on the other side of this. But as the company has grown and we're in big IDNs and other things, a lot of times an IDN will just say, hey, we want another system. We want another couple of systems to put in our network so we can offer this therapy. But there needs to be a champion at that hospital. There needs to be somebody to catch it. So we've moved launch teams under our capital team. The capital team has a relationship with the hospital. The capital team has the most visibility into when that PO is going to close. And so when we get close to that PO, they're the ones that can say, who's going to be the champion at that site, who's going to be accepting this and start the screening process. Let's get some patients lined up, let's getting procedures lined up. We ran a pilot on this late last year. And when we ran that pilot, we saw significant benefits from this new model.

When I look at it now, what we're going to be able to do is in the old world that we had, capital drove procedures. We would install capital and we would look for that to drive new procedures. In the new world, I think it's going to change. I think procedures are what's going to drive capital. But now rather than have this be these handoffs, we have actually an integrated system. When we ran the pilot last year, we saw a 50% reduction in time from the PO to them completing their first 10 cases. And that's the metric that we operate in. It's not time to first case.

I think we had a lot of examples where somebody would get a new robot, somebody would do one case, they take a picture, they post on LinkedIn, but it might be weeks before they do their next case. That is not a strategy. And this is something I learned deeply when I was at Edwards and we were doing the TAVR launch. Many of you followed Edwards, many of you followed the TAVR program. One of the things that we learned is when we launched a center, and they got into an immediate cadence of doing two cases a week. They got through the learning curve very quickly. They got their patient referrals, and they became a very healthy center, and they tended to stay healthy. If we had a center that launched poorly, they did one case. They went two or three weeks before they did their next case. They were slower through the learning curve. They tended to have more complications and they tended to be a slower program that almost had to be relaunched at some point in the future. I don't want to be in the business of relaunching programs. I want to be in the business of launching things, launching them with excellence and having them work well.

Now the challenge with that is we took some of our most tenured people, some of our most experienced trainers, some of our most experienced clinical people, and we moved them from the procedure team over to the launch team under capital so that they can make sure every new system we launch launches with excellence and they launch in great health. The challenge with that is now we have to go backfill those resources on our procedure team.

The other thing is by doing this realignment to the regional system, not everybody is covering the same accounts they used to cover. So there's new relationships that have to be established and new things that have to be done. These are not unusual. They are transient things. They are things that I dealt with throughout my career. As TAVR grew at Edwards, we were continually splitting territories. That meant people were getting new representatives, maybe new clinical specialists, they had to rebuild those relationships and start those. It's nothing unusual, but it is something that does cause disruption. And when you're doing it just onesies and twosies here and there, it's not very disruptive, and it kind of gets buried in the big numbers. But we made a massive shift this time. We realigned all of our territories. We have a lot of people that have new managers, and we have a lot of people that have new accounts. And that is just going to take a little bit of time for it to mature. But it's not a structural challenge thing. It's not going to be a forever headwind. It's just something that's going to be a headwind. We signaled that in Q1. But in the back half of the year, we expect this to pay major benefits to us and drive this.

So, as it relates to the capital side, the overwhelming majority of our systems are going to be greenfield placements. I think we plan to do about the same number of greenfield placements in 2026 as we did in 2025. What's new though is we're going to go for a more targeted replacement strategy. So, historically, I think -- and I think the company talked about replacements prior to me joining in this role. But I think there was just sort of a sense that replacements would happen organically. People would just say, hey, we want to upgrade our AquaBeam and we just want to move to HYDROS. It's better technology. We just want to do that. And we didn't really see that happening as people hadn't fully depreciated their systems, the AquaBeam system still is fully functional. People are using it. It just wasn't something that people were just organically going to go do. We have to be much more purposeful about how we do that. And the way that we're going to do that is we're going to work closely with our customers. And one of the things we'll do is based on the age of their system, we will offer them a trading credit.

We'll offer them a trading credit, which will be an incentive for them to upgrade. And as these systems get older and they're depreciated off the books, we think there's going to be an attractive replacement cycle that we're going to be able to work closely with our customers and incentivize them. We do believe that as customers upgrade to a HYDROS system, we have data on this that says our utilization is better with HYDROS than it is on AquaBeam. And so we think that's going to be a benefit to us.

The other thing is, at some point, we will sunset the original legacy AquaBeam system, and we want to make sure we convert that installed base over to HYDROS before we end up sunsetting that platform. So that's a lot of the work that we're going to do. And then the last thing is we're going to start exploring leasing pilot programs. I don't think that's going to be a big part of our 2026, but there are some customers that just don't want to make the capital expenditure. And if we can improve our installed base by creating leasing programs that are still very favorable for us and they work for us economically, we think that's another opportunity for us to drive procedure growth.

But we want to make sure we pilot those things well. We want to make sure we understand how they work, and we want to make sure they're delivering on the economics that we need and the procedure growth that we need. And so those are some things that we have to work out. So again, overwhelmingly, it's going to be greenfield placements, but we are going to begin doing replacements, and we are going to explore the leasing, and that's where we're headed strategically.

So what it really comes down to is the clinical case for Aquablation versus the competitive therapies. And I will say we have more evidence on our technology than anybody else has in our space. We have best-in-class evidence. We spent more money probably on research and high-quality trials and registries to understand how our technology works. If you look at how we've been performing against other modern surgical treatments for BPH, you can see how much we've grown and you can see the other procedures are more or less declining, and we're taking share, and we are growing, and we really expect to be the leading procedure amongst these modern therapies in 2026.

Our next opportunity is really going to be going after TURP. TURP is literally a 100-year-old procedure. It hasn't really changed that much. It's been out there for a very long time. We believe that we have a meaningful advancement over TURP. We have a lot more precision that we can bring to the table. We have a lot more repeatability that we can bring to the table, and this is the place that we need to go move share. Again, we're only about 10% penetrated into this space. And so converting share from TURP is a huge opportunity for us.

But here's what it really comes down to when I talk about making the clinical case. And we talk about all these patients on the sideline that are pursuing therapy and why is that? Well, here's the choice that patients have. They can say, I'm going to do one of these resective procedures. And you know what, I can get a lot of symptom relief.

But I'm going to deal with a lot of complications. I'm going to be dealing and complications that are very meaningful for men, incontinence and erectile dysfunction. Those are two things that men absolutely do not want. And in some cases, men feel the cure is worse than the disease they have, and they're going to sit on the sideline and wait. They're going to try everything they can to delay that therapy. So that's the problem if they go with a resective procedure. If they do a nonresective procedure, they can preserve their sexual function, their urinary function, but the procedure doesn't work very well. And it's not very durable and they don't get much symptom relief. So they're sort of left with, do I have something that doesn't really solve my problem very well? Or do I have something that solves my problem, but leaves me with side effects and complications that I absolutely don't want. And this is where we're unique.

We can offer the protection of urinary and sexual function of a non-resective procedure with the symptom relief of a resective procedure. And this is the case that we need to take the patients and we need to take clinicians and that we have to make. And this is something, quite frankly, we have not done. And I will say when I joined the company, if I impersonated a BPH patient and I went online and I wanted to see how easy was it for me to get directed to Aquablation as a therapy, the answer was it was virtually impossible. We didn't appear on WebMD. And unless I typed into Aquablation specifically, it was hard to get to patient resources for our procedure.

And so all the growth that we have had has pretty much been organic growth by just installing systems and having physicians like the therapy and then drive patients to the therapy. It hasn't been driven by patients or by awareness or by any of these other things, and that's the case that we have to make. And Pooja Sharma is going to talk in a little bit. super excited for you guys to hear what she has to say. She was with me for 20 years at Edwards and was a key part of the growth that we did in TAVR and all of the work that we did there. And so we're excited for what we can do to inform patients in the medical community.

So here's the struggle that I think patients have and the mindset that clinicians bring to the table when they're treating BPH. And this is really a fundamental issue. They're going to start with medical management. They're going to start with drug therapy. And I think that makes sense. If you could take a pill and solve your problem, everybody would rather do that than have some invasive procedure. So I think that makes sense.

The struggle is what the next step is. And in the clinician's mind, they almost have this hierarchy of less invasive to more invasive in their mind. And so they say, hey, the least invasive thing I can do would be a nonresective procedure. So maybe I'll do a UroLift or I'll do some other procedure. And then if that doesn't work or it turns out not to be very durable, then maybe I'll move to a resective procedure. But they're perfectly comfortable with this concept of a patient having multiple procedures over their treatment course.

That might work really, really well for the physician, but it's actually not what matters most to the patient. So when you do patient-centric research and you look at what matters most to patients, here's what matters most. The #1 thing is they want to protect their urinary function. That is the most critical thing to them, and I think that makes sense. The number two thing, minimizing the need for a second procedure. Patients do not want to have a second procedure. And so this is where what patients want runs in direct conflict with the physician treatment algorithm that they're running today. And after that, they want symptom relief and they want to protect their sexual function. It all makes perfect sense from a patient lens, but they want to have one procedure and they want it to solve it. And this whole idea of less invasive versus more invasive, I ask everybody in the room.

Once a 24-French device goes through your urethra, tell me how one procedure feels less invasive than another. In the world that I live in cardiac surgery it'd be like saying mitral valve repair is less invasive than mitral valve replacement. To a patient, once you have the sternotomy, the invasiveness feels exactly the same. I think the number of times that a patient should have a 24-French device go through their urethra is zero or one. And patients deserve to have the best procedure that's going to give them the most opportunity to solve their problem and solve it the very first time. And that is not the hierarchy that's being run today for the majority of these patients that are coming through.

And I know, look, there's -- we have a plenty of time for Q&A today, and there's going to be a lot of challenges about our ability to grow procedures and do these sorts of things. And I totally get it, especially after we announced earnings yesterday and people are running their procedure models and all of those things. But this is the case that we have to make, and we have to take this to patients and clinicians.

We do not have a fundamental problem in this business. We do not have a foundational problem in this business. When you go out and survey doctors, if doctors were telling you, I don't think Aquablation is a very good procedure for my patients. I don't think I get good results with this, and this is why I'm moving to other procedures or doing something different. I don't believe that's what you're hearing, and it's certainly not what I'm hearing. What I hear is the economics of this procedure are better or I can do this procedure in office or this procedure is cheaper for me to do or something like that. Those are things that do not matter to patients.

In my entire 40-year career at Edwards, I never met one single patient that said, you're not going to believe the deal my hospital got on my heart valve. We have to make sure that patients are getting treated by what matters to them most. And I will tell you, many of you wrote notes on TAVR back in the day. And one of the things that got in everybody's notes was TAVR is going to have a headwind because the economics of cardiac surgery are better than the economics of TAVR. Hospitals make twice as much money doing open heart surgery as they do doing TAVR. They're going to use TAVR as a loss leader and they're going to convert all their patients to open heart surgery. Remember those notes.

Well, the choice for hospitals wasn't whether they going to make $20,000 or whether they were going to make $10,000. The choice for hospitals became are you going to make $10,000 or are you going to make zero because patients weren't indifferent to getting cardiac surgery versus getting TAVR. And if they went to a hospital and the hospital said, yes, we don't want to do TAVR on you. We want to do surgery. The patient said, thank you very much. They got it and left and went to another hospital to find a place that they could get TAVR. We need to create that same dynamic for Aquablation in the treatment of BPH. And that's our job. That's what we have to go do.

But when you look at what matters most to patients in that value proposition, it isn't about having it done in office, and they do not care what the economics are for the clinician. They want their problem solved. They want it solved the first time. They want maximum relief of their symptoms, and they want to make sure their urinary and sexual function is preserved. And when you look at the world through that lens, nothing competes with our technology. You look at the durability of our procedure, this one-and-done aspect, here's the data.

I know there's a lot of questions about PAE. PAE, the economics may be great. The durability of the procedure is not. When you look at the other competitive therapies that we have, the reason a lot of the therapies kind of show up with a lot of fanfare and they kind of drift away over time, it's because they do not fulfill their durability promise. I will tell you a significant number of procedures we do are redos for patients that have had a UroLift procedure. I've been in those cases. And yes, we can redo them, but having a UroLift before getting an Aquablation does not make the Aquablation procedure easier, okay? We can do them. It's not a problem. People know how to do them, but it would have been much better for the majority of these patients that they would have had an Aquablation first, and that's the case that we need to make.

Our innovation portfolio, like we are continuing to invest in evidence and continuing to invest in the technology. Our system is highly differentiated. We use AI to map the prostate. We create an overlay of what the procedure should be. The doctor can customize that overlay to do exactly the procedure that he wants to do. And then the robot delivers the precision to ensure that, that procedure is done exactly as the clinician designed it with precision and repeatability that the other procedures simply do not offer. And when people are trained on this properly and they use our technology, it delivers differentiated outcomes very, very safely.

When you look at what we have ahead of us, we expect HYDROS this year to become the majority of our installed base. So we'll cross that this year. We're starting a global expansion. We're going to spend a little bit more time thinking OUS than we've done historically. And we have launched HYDROS already in the U.K., and we'll continue to launch HYDROS outside the U.S. this year. And we continue to invest in new indications and other things that we think are going to be very meaningful. But I do think international is a bit of an untapped opportunity for us that I don't think it's a huge part of our story in terms of 2026, but I think in 2027 and beyond, international will play a larger and larger role in our study.

So the next frontier for us, cancer. I will say it is very rare to have an opportunity that we have that's as large as prostate cancer that's an adjacency for us that is done at almost 100% leverage. It leverages our exact system. It leverages our exact handpiece. It leverages our training and it leverages our channel. And it's a whole new opportunity that really bolts on to everything that we've done.

And as it relates to prostate cancer, again, it feels very familiar to me than what I dealt with when I was doing TAVR. You had patients that had heart disease. They had severe aortic stenosis. But the procedure was open heart surgery. And even though that that's an excellent procedure, if you go to a good hospital and you have aortic valve replaced and you're a low-risk patient, you have about a 99% chance of having a really great outcome. But the collateral damage that gets done to the body during that procedure was something that made people not want. And so people would delay that therapy as long as possible. They wait until their symptoms got severe and then eventually, they would have the procedure done. But nobody wanted to have open heart surgery.

When we developed a catheter-based therapy and people could have the procedure, we didn't do all that collateral damage. It was an absolute game changer in the treatment of valvular heart disease. And the last trial that I ran before I left Edwards was for asymptomatic patients. So we're actually treating patients now before they even develop symptoms and getting ahead of their disease.

When we look at prostate cancer, the fastest-growing treatment that patients are taking for prostate cancer is watchful waiting. It is the fastest-growing segment. So a person is diagnosed with prostate cancer. They have cancer in their body. But when faced with the treatment options that exist for them today, they'd rather do nothing than have the procedure and they just hope and pray every day that they're a slow progressor because that is the option that is front of them. Nobody wants to have cancer in their body. People would rather have it taken out.

I will say in open heart surgery, it's actually a little bit of a irrational fear when you look at the data because great outcomes. Here, it's not an irrational fear. For men who have radical prostatectomy for the treatment of prostate cancer, the majority of men, the majority end up with severe erectile dysfunction and 25% to 33% end up with urinary incontinence in a year. These are serious complications that no one wants. And so they would rather live with the cancer in their body and just keep an eye on it than have this therapy with those kinds of outcomes. And the thing about it is 60% of them are going to end up getting a radical prostatectomy anyway. So this is where we believe we can change the treatment modality here and we can make a huge difference.

We have Barry here today. He's the sun king as it relates to all things technology and the WATER trial and what we're doing in cancer. He's going to bring that to life for everybody, and you're going to see what the opportunity really looks like and why we're so bullish on our therapy being able to play a meaningful role in the treatment of prostate cancer.

So we have multiple initiatives. We have a lot of opportunities to grow. It all comes down to our ability to execute. We're only about 10% penetrated into the patient population today that is already seeking a therapy. We believe we can make a meaningful difference there, and there's a group of patients above that. The first group that we go after that is the 1.1 million men who have given up on their drug therapy, but they've already sought therapy for their BPH. We believe that's another group of patients that we can go after.

We have to educate patients. We have to create the value proposition for them to where they're coming in and they know what procedure they want and they understand why our procedure is the best procedure for them for the things that matter most to them. And beyond that, we have the opportunity with prostate cancer that I think could provide meaningful growth for us as the data comes out from the WATER IV trial, assuming, of course, that it's a successful trial. So those are the things. That's our strategy. That's what we're trying to do and what we're committed to doing in terms of trying to enter this company into the next chapter and to grow and deliver on the expectations that we have for ourselves.

So, with that, I really want to bring to life how we're going to do that. And so with that, I'd like to invite my good friend, Pooja Sharma to the stage.

Thank you so much, Larry. It's a pleasure to be here. Larry and I are good friends indeed. We have known each other, as he said, for almost 20 years. I was with Edwards for almost 20 years within the transcatheter heart valve business unit and had the opportunity to sit on Larry's spectacular leadership team there as we work to transform care for structural heart patients. I joined PROCEPT three months ago. I am very energized to be here and for the opportunity to transform care in the urology space.

What I'm going to do is you heard a lot from Larry on our three critical pillars for the next chapter, what are our big strategic focus areas. One is accelerating procedure growth; two is driving our path to profitability; and the third is around advancing evidence and I'm going to get into a little bit more detail around from a marketing perspective, specifically as we talk about accelerating procedure growth, how do we want to go after share capture, specifically with our strong clinical differentiation as well as I know a topic many of you have been interested in around how are we planning to approach targeted and disciplined patient education and engagement. So I'll cover both of those things.

And this is an important time to invest in these marketing initiatives because the therapy of Aquablation is now established. We have over 125,000 patients that have been treated worldwide with Aquablation, over 900 robotic systems in our installed base. And as of only 45 days ago, we have Category I reimbursement. The technology and the therapy is also backed by a large maturing clinical body of evidence, and I'm going to talk a lot about that.

But it really starts before we get into targeted and disciplined patient education and engagement, it really starts with making sure that we're intentionally building belief of care teams as it relates to Aquablation. And this reflects a lot of lessons that Larry and I learned in TAVR around sequencing. First, you have to establish the therapy, and that's the amazing work that the team at PROCEPT has done to establish Aquablation as a therapy. Then you need to drive that therapy as to the procedure of choice. And then targeted patient education efforts have done strategically, they act as an accelerant. But patients need to encounter physicians and care teams that believe in that differentiation of Aquablation.

So let's start with the immediate opportunity, which is around share. You've heard a lot, we're 10% penetrated as of the end of 2025. We're 10% penetrated into a 400,000 patient surgical market, both resective and nonresective procedures. But when you look through the lens of what patients want and you're grounded in the lens of what patients want from their therapy, Aquablation really delivers a complete solution. And again, that is supported by a maturing body of evidence. Our job from a marketing perspective is to position the technology clearly, succinctly and in a compelling way and educate care teams as well as patients around what that positioning and what that narrative looks like.

So here's what we're really standardizing as a narrative. Number one, Aquablation delivers complete symptom relief. I'm going to talk a little bit about the most contemporary data in that area. Number two, patients want preserved sexual and urinary function. So we're going to look at what the latest data is in that area. And number three, they want one procedure only. So durability is a big deal, especially in this space. And so again, from a marketing perspective, our positioning is now around Aquablation as a complete solution for BPH patients through the lens of what patients truly want.

So let's look at the data itself. As it relates to symptom relief, whether you look across a randomized controlled trial, real-world evidence, meta-analysis, you see consistency in those outcomes. Significant symptom reduction, of course, as measured by the IPSS score. But there's another area here that many of you may be familiar with, but we're going to continue to amplify, which is around post-void residual results. PVR is essentially a measurement of the amount of urine that's left in the bladder after voiding. And BPH, in particular, creates this chronic obstruction that forces the bladder to work harder and harder over time and over a long period of time, can impair bladder function. So what PVR matters because lower rates of PVR mean better bladder emptying and reduce stress on the bladder, reduce risk of infection.

Aquablation as a resective treatment, obviously, it removes the obstruction. And this is an area where around symptom relief for IPSS as well as PVR that we are going to continue to educate care teams on the most contemporary data, but patients don't often understand the correlation between their obstruction as well as what's happening with the bladder. So this is an area that we will focus as we talk about our message on complete symptom relief.

The unique thing about Aquablation, though, is that symptom relief is not specific to a size of a prostate. So there is now data that, that symptom relief is sustained, first of all, over time, but also you deliver that symptom relief regardless of prostate size and regardless of prostate shape. So that's very compelling.

Now patients want that symptom relief, but they want it without the trade-off. They want it without the compromise. So we see a less than 1% rate of incontinence and a less than 1% rate of ED with Aquablation. And based on this data across 70,000 patients real-world evidence that was just recently published, we have a less than 1% transfusion rate. That is even lower than the reference gold standard, legacy gold standard of term. So we're delivering the symptom relief, and we're doing it without the compromise.

And then the third key area in this complete solution is around durability. So, first of all, we now have two studies out to five years that demonstrate a 1% -- approximately 1% annual retreatment rate with Aquablation. So just Aquablation as it stands on its own, we now have five-year data with a 1% rate of retreatment annually out to five years. But we also now have contemporary data that compares the therapies. And you can obviously see here that Aquablation delivers durability that is very comparable to the reference standard TURP.

And Larry had mentioned this, but many contemporary BPH procedures have really struggled to maintain momentum in the market because they may deliver on one out of three of the areas around complete symptom relief or maybe two complete symptom relief preserved sexual and urinary function and durability, but none of them deliver on all three, which is why our positioning of Aquablation as a complete solution becomes important.

The other piece is that, in particular, history shows that therapies that don't have strong long-term durability tend to plateau in the market. So durability is an area where we will be amplifying our message and our narrative around. And we feel really confident, especially because the data supports the positioning.

So, then the question is, okay, if the clinical differentiation is so good, why is Aquablation penetration into the surgical market 10%? And I asked the same question before I joined just a few months ago. And from a marketing perspective, there are a couple of barriers that we need to address. One is that there is a misalignment in the assumption of what physicians think patients want out of their BPH therapy and what patients want. And this has been continuously now highlighted in the research that there is a misalignment between those two things. And then the second piece, obviously, is surgeons have comfort with legacy procedures, particularly TURP, and we have a really strong opportunity to differentiate against TURP in particular. So we actually see both of these as opportunities, but also responsibility to educate care teams as well as, of course, patients around.

So I talked to you through the data around Aquablation. Now we're going to be much bolder about how we position Aquablation therapy against other competitive procedures, both resective and nonresective. But as Larry mentioned, we have a strong opportunity against TURP. We are -- first of all, there's a lot of headroom with regards to share capture with TURP being such a long-term legacy procedure. And we also have strong clinical differentiation in TURP, especially across sexual function.

When you combine our clinical differentiation with the precision and personalization through AI-guided ultrasound that is under the surgeon's control, they get better OR efficiency, better throughput, reduced variability across procedures. And you combine that with the Category I reimbursement that we now have as of 45 days ago, there's both a clinical value proposition and an economic value patients win, clinicians win and the health care system wins as well.

So, the first piece that we are focused on right now is standardizing that narrative, being clear with that positioning, being clear about what the clinical differentiation is and standardizing that narrative. The other piece that's very important, and we've learned these lessons through our previous life is to be able to operationalize that message. So we are investing much more in clear selling tools, clear competitive selling tools, clear educational tools for the care teams. We've packaged some of these research insights, a glimpse of what you got today during Larry's presentation around what do patients want. It really helps open the door for educational conversations with as well as care teams on the whole. And we are investing in much stronger peer-to-peer education programs, really activating the KOLs that believe so deeply in this therapy, how do we incorporate them into the training pathway on a local level through case observation, but also through broader webinars and broader educational events.

So beyond the misalignment between the assumptions of what physicians think patients want and what patients want, plus surgeon comfort with legacy procedures, there's a third barrier here that we have the opportunity to address from a marketing perspective, which is low patient awareness of Aquablation. So, our research also tells us that right now, the unaided awareness for a BPH patient of Aquablation therapy is 1% to 2% for obvious reasons because PROCEPT has not historically invested in this area. But we want to invest in the area in a very targeted and very disciplined way. And it starts with patients who are at the bottom of the funnel. It starts with patients who are actually trying to make a decision between surgical therapies. And that's where we start.

First of all, it's really important that those patients encounter care teams that believe in the differentiation of Aquablation, but we also want to be very targeted and disciplined about our efforts of how do we go educate patients. So it starts at that bottom of the funnel. And our approach right now is to actually build programs around with in-practice education tools, treatment comparison guides, videos for consult rooms. Patient testimonials is something that is very effective in health care. They want to hear from other patients. That's very important, especially as you're trying to balance and make these decisions between surgical therapies. And so again, our disciplined approach to patient education starts at the bottom of the funnel.

Now of course, there is a lot of opportunity mid-funnel. There are over 8 million men who are currently managed or have been managed on medication. The unfortunate thing is that over 1 million of them actually discontinue medication and start watchful waiting. And it's not surprising because the medications for BPH are not necessarily benign. So when you have these categories of alpha blockers or 5-ARIs, they have near-term side effects, fatigue, dizziness, sexual function, that sexual function side effects, they sometimes increase over the long term. And a lot of these patients are actually on combination therapies. And what happens in the data with combination therapies is you get the best of both side effects, right? And a lot of these patients, unfortunately, the medication, one is not effective, so they do, do combo therapies.

There's also some contemporary -- excuse me, there's also some contemporary literature and studies that are suggesting now that long-term use of BPH medications also can negatively affect mental and psychological effects, dementia, depression. And so the drugs are not benign. And there are a lot of patients who are incredibly frustrated with being on BPH medication who are actively searching for solutions, but they're in that exploration phase. And that's an important target of the population that we do need to address.

And so when we're looking at that mid-funnel opportunity, this is about educating those patients that are probably already frustrated with their medication, and they're under existing urologic care. And in that area, our approach becomes digital engagement does play a big and effective role in this area, social media, search engine optimization, educational e-mails, but being thoughtful about how we target geographically those types of programs. So we don't need to go do broad national spend. It's really about targeting those types of programs and making sure we educate patients who are at that point in the journey.

And one of the reasons why this is -- we believe this is going to be effective is that, of course, increasingly, patients take a strong role in health care. But in urology, in particular, and with BPH actually, in particular, the research actually supports that they take a particularly strong role in their care. We see that over 20% -- well over 20% of patients will actually request a specific BPH procedure by name. And again, for BPH in particular, over 70% of urologists, self-reported by urologists in the research actually say that they will strongly consider patient requests if they believe that the therapy offers the right efficacy. So we do believe that this is an important part that we need to begin investing in. And again, we're going to do it in a very targeted and very disciplined way.

Now long term, after our conversion pathways are proven, then of course, we can go much more broadly and address these 40 million men as a whole. And that looks like broader national awareness campaigns, but that's much further down the road. Right now, we want to focus on the patients that are at the bottom of the funnel and then move systematically through that. So, again, Larry has shown our strategy is really near term around driving procedure growth through improved execution.

From a marketing perspective, we're standardizing our narrative now. We're being very clear about how we are positioning the therapy. We are operationalizing that narrative through the field, but we're also starting with some really targeted patient education efforts, specifically for those patients who are trying to balance and figure out which surgical therapy to select and are down funnel. And as I mentioned, we have a strong opportunity to really educate patients mid-funnel that waiting is not winning and figure out how do we do that again in a really targeted way. And there's a lot of efforts that we have going on to make sure that we do that effectively. And then, of course, expanding the applications around prostate cancer. And this engine that we think we can build from a marketing perspective and the infrastructure around BPH, that engine is going to be important because along with Larry's comments around leveraging technology and the commercial sales channel, we can also leverage some of this marketing infrastructure as we expand applications potentially to prostate cancer in the future.

So I know that was a glimpse into our efforts. Again, I'm very excited to be here. I'm excited about our opportunity in the future. And with that, I have the pleasure of introducing my new good friend, Barry Templin, who's the Chief Technology Officer, and he'll talk to you a little bit more about prostate cancer.

All right. Thank you, Pooja. All right. Good morning. My name is Barry Templin. I came to PROCEPT 10 years ago. So I've got a little bit of time on both Larry and Pooja. And so I'm excited to share a little bit of a glimpse into the future here around prostate cancer and where it's going to fit in our program as we move forward. So there was a critical decision that we had to make as we embarked on this a little over four years ago, which was we had two doors, door #1, whole gland treatment; door #2, focal treatment where you aim for the disease, hemi-gland ablation.

And why does this matter? First, you have to understand the disease. So there was a study done at UCLA that was published a number of years ago. They went back and they looked at the radical prostatectomy population, and they filtered it out as if their baseline condition would set them up for what today you would choose for focal therapy. So, smaller glands, less than 60, PSA less than 20, unilateral disease. So the disease is only confirmed on one side of the gland, both with MRI and biopsy. They then looked at the host radical information, meaning after you do a radical, they take the gland out, they do a home out. And under a microscope, they look to see, is there any other disease in that gland. And what they found was that over 40% of those men had contralateral, meaning disease on the other side that was not seen by MRI and it was missed by biopsy.

So with this information out there, we have chosen to be a whole gland treatment because the patient cares that they don't want cancer in their body anymore. They don't care like, oh, you can see it on a lesion, but what about the disease that you can't see. So this has embarked our clinical program and our path as we've gone forward. So door #1, whole gland, door #2, focal. We, as a company, are using our technology for whole gland treatment because we want to treat the cancer as broadly as we can, which is why radical prostatectomy is the gold standard as to efficacy.

Okay. So, for four years, we have done a number -- maybe I should move over here. We have done a number of clinical studies, efforts as we compile this information and lead up to our pivotal study called WATER IV, which I'm going to touch on here at the end of the presentation.

So where we started first? You have to study safety. So, four years ago, we looked at grade group 1 and 2 patients, and we measured circulating tumor cells. This information was published last year. Probably the #1 question when we started was, are you going to spray prostate cancer cells all over the body? The answer is no. We measured circulating tumor cells before the procedure, right after the procedure, day 2 and day 7. By day 2 and day 7, it looked just like it did at baseline. So that's been published. We've checked that box.

There was another study going on at Endeavor Health in Chicago. Part of this initiative was to go against our Medicare policy for BPH, which there was an exclusion for men with known prostate cancer. However, you could be on active surveillance and still have lots and you need to deobstruct the prostate. So they went back and they looked at their data series. I'm going to talk about this a little bit later as to what they saw from an oncologic benefit out for five years there.

Then we did the 02 study. This is a smaller study, safety study feasibility. This was a precursor to the WATER IV study. I'm not going to talk about the details today because it did its job. It showed procedural safety and it set us up with FDA to do the WATER IV study. Then we've done a retrospective study with a group of surgeons, which is does Aquablation take off the table if a patient needs to undergo a radical prostatectomy, whether that Aquablation is being done for BPH reasons or whether that Aquablation is being done for cancer reasons. So, in 14 patients, the point here is that radical prostatectomy is a very feasible procedure following Aquablation therapy. So we don't want to remove options for these patients, but we want to be able to treat them as a frontline treatment. PRCT001, you see dot-B or version B. We expanded that original protocol to go up to 125 patients. And this is the data series that I'm going to talk more in depth later on in the presentation and then WATER IV, we just touched on.

So, first, let me talk about the procedure and how it's different than BPH. So BPH, you guys have -- we've stood up here for years. We've shown videos. You start in a sagittal view, meaning your bladder on the left. You kind of see this cross-sectional view of the prostate, and then we plan in transverse, meaning this an axial view of the prostate, you can see us doing angle planning there.

What does this look like? Before on the left, on the right, you see this unobstructed channel that has now been created. This is the goal of BPH, which is how do you get those durable results? How do you get the dramatic reduction of symptoms? It's because we're removing obstructive tissue. If you look at this in the axial view, again, the green lines show the border or the capsule of the prostate and the inner green line where the dark is, which is representing fluid, this is a deobstructive prostate. This is the goal when a patient comes in and they're retaining fluid in their bladder, they're getting up 4 or 5x at night. This is how you fix that. This is also when you ask a urologist who is not part of our clinical development program, how do you think Aquablation is going to do with prostate cancer and neck. They only treat the transition zone. And most of the cancer is in the peripheral zone. This is why one would draw those conclusions.

Now let me walk you through how we do a prostate cancer treatment. So this is kind of the pre-op view. Up at the top, you see a 3D rendering of MRI. This is just for kind of understanding. You can see the green. It looks like an M&M there. That is an MRI visible lesion. There's your prostate, both sagittal and transverse. This is what we see. Again, same view, same system, same approach, what we do. Our approach, though, and our conclusion as to what we get is much different. You see the images on the right now. All you see is a thin layer of a capsule that remains. There is no longer the tissue that's left behind. We're not just deobstructing the prostate. You can see it in transverse and you can see it in sagittal as well. Very different procedure. Instead of a couple of waterjet passes, it could be three, four, five waterjet passes. Do we leave the remnant tissue behind to let it slip off? No. We make sure that, that is removed at the end of the case. Our surgical goals and aims are different when we're treating prostate. Remember, I started at the beginning, which is, are we going to do a whole gland treatment? We are doing a whole gland treatment.

This is what excites surgeons about the capability of this procedure. And just to kind of put them side by side, the image on the left here, we're deobstructing. We're helping people's urinary symptoms. This is for BPH. The image on the right is we are going after the whole gland so that we can get all the cancer, whether you can see it or not. And just to confirm what we see at six months, does that cavity remain? This is a six-month MRI of the patient that I just showed. And here, you can see in two different views of MRI, that same void removal of tissue remains.

Now let me jump into the data. So we've talked about the 01 feasibility study, if you will. We did this in 2022. As of last month, we have now completed the whole series here. So I'm going to walk into this data and kind of our first interim analysis for that data set. But first, I'm going to talk about the Endeavor Health series that I mentioned at the beginning.

So what this group did was they looked at their Grade Group 1, so low-grade disease, active surveillance group. They parsed that information. They said, of that group, which one underwent an Aquablation for BPH. And let's compare it to the active surveillance group only. And let's look at their oncologic, their cancer progression over the course of five years. And what they found was the group that underwent Aquablation for their BPH, which was the original procedure protocol I showed, 44% of them -- there were 44% fewer upgrades at five years compared to active surveillance alone. Again, it's another clinical evidence point of can Aquablation alter the progression of cancer over time. So this was published last month. Again, it's online and available. So very promising results.

Now you get into the 01 study. So we completed 124 procedures. You can see 90 of them have reached their 6-month follow-up visit and 37 of them have reached their 12-month visit. So what does this mean? So as time goes on, this data will mature, and we will have patients at all of these time points going out to one year. But we're going to share the data that we have today. 2/3 of the patients had Grade Group 2 or Grade Group 3 disease and 2/3 of these patients had disease in the peripheral zone. This represents a very normal prostate cancer population. This isn't a transition zone only. This isn't just low-grade disease. This is a very typical profile of a patient.

Okay. Going to what Larry and Pooja have touched on, which is, okay, radical prostatectomy, whole gland treatment. It's a very good procedure. Why is active surveillance growing as the #1 treatment choice to start with when somebody is diagnosed with prostate cancer. This is the reason. So SHIM score is a 5-question questionnaire that a patient will fill out that identifies how severe your erectile function is. The PROTECT study, the AFU study, very credible studies that have been done, very published or very well published in journals today. And here, you can see a higher score, better erectile function, a lower score, below 7, severe ED. You can see in both of these studies, relatively good erectile function, age, low 60s to mid-60s. You can see after the procedure at one year, you're seeing in the severe ED category. There is no return for this over time. This is a permanent condition. If you have this at one year, this is where it's going to stay for one year. When you look at our data, so this is the first time we've shown our one-year data. You see a stable number from baseline to 6 months to 12 months of the same survey tool of a SHIM score. So, again, our ability is can we break off the balance between a whole gland treatment and the side effect risk that comes with this. So this addresses the erectile function side of things.

Now when you look at pad use incontinence, again, you see this rise up, approximately 50% of patients at six months following a radical prostatectomy, but you get some recovery at 12 months. So this is where you get the 25% to 35% risk at one year. When you've looked at our data from this series that we're talking about today from the 01 trial, you can see a very low rise of incontinence here at three months. So we'll continue to monitor this -- or excuse me, at six months, we'll continue to monitor this out to one year.

Another benefit of removing this much tissue. This population in this trial, you can see a baseline IPSS score of 17. So they do have lots. So there's -- many men have both prostate cancer and BPH symptoms. And you can see here, we started with a group of moderate score of 17. And then over time, this gets below 6, which again, is right in line with when we do our BPH studies. These are the typical results that you see.

And lastly, how do you measure efficacy? Efficacy is measured of do you need another treatment for your cancer because you either missed it at the treatment onset PSA starts to rise, additional imaging, additional biopsy. Here is radical prostatectomy. 6% to 7% of patients at one year will need additional therapy. And it comes in the form of additional radiation therapy, hormone therapy, but these are very good results. If you compare this to what have we observed in this study to date, you can see about a 7% risk of needing something else after their Aquablation procedure. So very comparable to the radical prostatectomy results that have shown in these studies.

Now I've just shown you a lot of data. It's gone out to one year. However, in order to change kind of the approach in this field, you have to do a randomized study. That study is not going to be enough on its own. So we've talked about this for the last year, 1.5 years that we've launched the WATER IV study. I'm not going to spend a lot of time going into this, 280 patients randomized against radical prostatectomy for grade group 1 to 3 patients, and it will follow patients out to 10 years. The first primary endpoint is at six months and then annually thereafter for 10 years.

As we exited last year, one year to the day yesterday was the first patient we treated in this trial. So it's one year and one day, our aim to enroll and randomize 280 patients. As we exited last year, we had 31 global centers. You can see the little dots on the screen. There, we are averaging less than 60 days from consent of patient to treatment in the OR. Where we're at today, we are on track to finish procedures in this entire study by the middle part of this year, so this summer. So just over 15 months from the day we started, we will have concluded our 280 patients. That's what will set the time frame for primary endpoint, secondary endpoint and so on. So we've been very pleased. We've been very -- great collaboration with surgeons. There's a strong surgeon desire to enter into a randomized clinical study because of the potential of what Aquablation can offer in this field.

Now you get into technology. How do we enable this? So a little bit of going back. So, AquaBeam on the backs of AquaBeam, we use that for a little over 10 years, well over 100,000 procedures done on that platform. You can see it was two systems, if you will, a stand-alone ultrasound machine tethered to our robotic platform of AquaBeam. 18 months ago, we launched HYDROS. There's one tower. This is the world of integration. So we've now integrated a number of things. Not only do we do things for the surgeon, meaning AI-assisted ultrasound interpretation, excuse me, the staff. The staff is important for setup, turnover, efficiency in a hospital. This system allows for that. The system is also a platform that we could build upon. So, late last year, we got a clearance from FDA on our second generation of AI. We continue to build on our AI, our ability to be better, have higher predictability with ultrasound, AI reads faster, and we have a platform that we can continue to build on this. And then as I touched on earlier, expanding patient applications and indications, clearly, prostate cancer is the next one that we're going after.

So, in conclusion, if there was three things you're going to remember from my talk. Prostate cancer is a multifocal disease requiring a whole gland treatment. Aquablation therapy in a prostate cancer sense is fully capable of doing a whole gland treatment and our growing body of evidence puts us in a position to be considered a frontline treatment for prostate cancer.

So, with that, I will turn it over to our CFO, Kevin Waters.

Thanks, Barry. I'm going to be the odd guy that stands behind the podium, I guess, to give my talk. I have four goals that I'm going to go through here today. First, I want to give everyone a brief overview of our 2026 financials. I want to give a walk on our '26 guidance. Larry and I took a lot of questions last night about our ability to achieve our guidance, particularly around procedures given the growth implied in the second half. So I want to do a procedure walk for the group here on a cohort analysis. I would like to discuss our 2027 financials. This is going to be the first time PROCEPT has put a multiyear plan in place. And then lastly, I'm going to hit on just overall profitability, our cash generation, and we'd like to put to bed any concern around our ability to operate the business profitability with the cash we have on hand.

So, with that, flipping to just a little bit of our history. You could see here our revenue growth over the last four years has been robust. What is interesting, though, is the mix. And Larry alluded to this, we are really turning into a procedure business. If you go back in time in 2021, over 50% of our revenue was generated by systems. That number in '26 is going to be less than 25%. So this is really moved to a procedure-based business. And with that, you see the expansion in gross margins, which is a nice tailwind when you do more procedures, which are at a higher standard margin. That's also going to be reflected in our 2026 and 2027 guidance. When you look at EBITDA, we've had a significant EBITDA improvement each year. Our '26 guide, while still negative, does assume our EBITDA positive in the fourth quarter, and we're going to show significant improvement in 2027, which I'll get to here in a few slides.

So, here's just a procedure walk, how our procedures have trended over time. You can see 60% growth in our installed base exiting 2025 with over 718 systems. Our guidance implies in '26 north of 900 systems in the U.S. And then when you get to the end of 2027, we're not going to guide to an absolute number, but you could be assured that we'll be well north of 1,000 systems in the U.S. And when you think about prostate cancer and the timing around that, particularly around 2028, that's when we'll be able to leverage that installed base to do prostate cancer procedures.

So, financial outlook and going through our revenue in both 2026 and 2027 and what that's going to look like. We guided yesterday to $390 million to $410 million. That represents the growth of 27% to 33%. I think we've gone through many of the factors earlier today around ASP, around some of the destocking that impacted the change from the previous guide. But importantly, this is not a business that at our growth, we expect to slow in the near term. So we do expect the growth in 2027 to still be in the 25% to 30% range. That will be a business that's north of $500 million in revenue. You're going to see in a second here. That's going to be a profitable business. And we feel good about our ability, given the procedure nature of the business, given how early we are in the market penetration to continue to have above-market growth rates even at revenue amounts greater than $500 million. So really pleased with that.

And when you switch to gross margins and what gross margins looks like, we guided to 65% gross margins in 2026. But in 2027, we could see this number getting as high as 70%. And that's due to a few factors. The biggest being the shift to the procedure-based business and procedures being a much greater portion of our company. And over time, we've done, I would say, very quietly behind the scenes, a very nice job getting the cost of our procedure down to levels that will support company margins at 70% when we really start to be a majority-based procedure business.

And how does that translate to EBITDA? You saw our EBITDA guide yesterday, which was a loss of $30 million to $17 million. However, we see up to a $60 million EBITDA improvement in 2027, meaning that when we go positive in Q4 of '26, this isn't a business that's going to bounce around profitability. We see profitability at some pretty substantial amounts in 2027. And I would just remind everybody, Barry just went through kind of a wonderful summary of prostate cancer, none of the financial metrics up here assume any contribution yet from prostate cancer as well, which was another factor why we think the growth rate moving past 2027 is very sustainable.

So, what drives this revenue growth? And what is our focus over the next year here? It's all about same facility procedure growth. We are going to focus on growing procedures within our existing accounts, and that is the job of our utilization team. And we're going to do that. We're going to focus on it. We've now bifurcated the launch teams to focus on launches to take that burden off of that team, and we could focus on growing procedures within our existing accounts. Handpiece pricing discipline. Larry has alluded to this. We're guiding to a $3,500 ASP here in 2026. That's up significantly. That's close to a $20 million tailwind. And we are not seeing customer pushback.

Larry and I took numerous calls last evening about kind of customer receptivity around this price increase. And I think it's important to remember that we didn't go to customers and raise their price. All we're doing is holding our customers and ourselves accountable to our list price or the price that has been agreed with our customers. Will we still work with customers with volume rebates and pricing and large IDN networks? Of course. That's being a good partner to our customers, and we're going to continue to do that. But the days of giving quarter-end discounts to drive volume are behind us, and that's now being reflected in our ASP.

And then operating lease pilots, Larry alluded to this. Obviously, I think in capital equipment, we're all familiar with companies that use this strategy to place systems. I don't think we're anywhere near in our kind of market penetration where these companies are, where this will represent a majority or a large portion of our placements. But there's definitely hospital networks out there that have patients to treat, and we're not accessible to those patients under our current model. And given our strong balance sheet, given the fact that we're marching towards profitability, we can now offer this. Three, four years ago, when we had to raise money, when we did not see profitability on the horizon, this was not an option that was available to the company. So we're now going to leverage our balance sheet to get our technology in the hands of more patients and customers through operating leases starting in 2026.

This is a guide walk in terms -- and it's in your slide deck, excuse me, I won't belabor each point. But this is kind of the contribution amongst the different lines in our 2026 guidance. On system revenue, I want to talk about that and how we're going to report system revenue moving forward. We will be reporting our installed base. We will be reporting total system revenue. It's -- the business now is much more complex than it was five years ago. We're going to have replacements. We're going to have second systems. We have relationships with all large 17 IDNs in the United States. The days of just multiplying the number of systems we sold by an average ASP, and that is judging the health of the business. I think we need to think differently. And so we're going to try and reflect that in our guidance here moving forward. And we're going to guide to a total revenue number and installed base. So everybody will be able to back into an average selling price to the if it differs from what we've put forth or what expectations are, of course, we're going to talk about it. Our goal is to be more transparent, not less.

I just want everybody to be crystal clear with how we're going to talk about the business. And that started with how we're guiding to procedures. You now see we're giving procedure guidance as well. That's reflected here is 60,000 to 64,000 procedures next year. And as Larry said, our handpiece sales will more closely align with procedures, but there's probably more room for upside than downside in that metric as we move forward and think of customer inventory and what that needs to look like.

This is the historical walk on the right here as to what procedures are going to be compared to the 115% to 108% over the previous years.

And the next slide here that we're going to talk about -- I'm going to spend some time on this slide. And this is the walk to how would we get to the low end of our procedure guidance. Again, I think a big concern of our shareholders, analysts yesterday were given where Q4 was trending and what our Q1 guide implied, how big is it a stretch to get to the low end of guidance? We're not naive. You don't want to lower guidance twice. We get it. We just lowered guidance. So when we went through the setting the bar of the low end of guidance, we wanted to set a floor that we had a high degree of conviction we weren't going to need to revisit later in the year.

And when you look at what this slide implies, these are procedures on the right for 2026, 60,000 would represent the low end of our procedures, 43,000 would represent what we did in 2025. And I'm going to take the blue bar at the bottom. Our 500-plus accounts that were installed prior to 2025 contributed 36,000 procedures in our 2025 results.

Pooja and Larry just spent an hour telling you how we're going to drive utilization in that group, why we could be better, how we're going to drive patient awareness, how we're going to drive same-store sales. Our low end of guidance assumes none of those initiatives really take hold. We're expecting those accounts to go from 36,000 to 38,000. That would be less than 0.3 per month per account in our installed base. So the low end of our guidance would suggest that the initiatives that we're implementing really don't bear any fruit in 2026.

And then on top of that, when you look at the next segment of customers, those 7,000, those are procedures from accounts we installed in '25. All we're assuming is that the low end of guidance, their run rate stays the same. They do the same number of procedures, and now they have a full year of procedures, and therefore, they're going to do 14,000, which is 2x what they did in 2025.

And then when you move forward with the new accounts in '26, we're essentially expecting those accounts to do 8,000 procedures, which is about the same number as our new accounts did in 2025. Yet we just spent time going through launch teams and focus and launching accounts. We showed data about time to first cases, and that's improving. But the low end of our guidance assumes the status quo. And then obviously, at the high end of the guidance, that would be 4,000 more procedures. Even at the high end of our guidance, if you took that bottom bar, that would assume that each account would have to do about half more procedures in any given month in '26 as compared to '25.

So I appreciate growth. I appreciate when you look at procedure growth on the surface at the back half is north of 50%. We recognize that, but we also recognize that we're not asking for every initiative that we're launching to bear fruit immediately to hit the numbers. And these are not the numbers the management team at PROCEPT is aspiring to in 2026 either. But we wanted to put guidance out there coming off of Q4 that we felt was achievable and we wouldn't have to reset.

A few other factors as to kind of what is the low end and the high end of our guidance imply and why do we have a range? So the low end is essentially the status quo, as I mentioned. But the high end does assume some organic procedure growth in legacy accounts. We do start to initiate a replacement cycle, and that replacement cycle of the $100 million, you're probably looking at a 5% to 10% contribution from the replacement cycle to put it in dollars for the group as to what we're expecting in '26. We really don't start to really get some momentum in the replacement cycle until our 2027. And that makes sense. If you look at the age of our AquaBeam systems, most hospitals will look at our equipment as a 5-year useful life. We really started to accelerate placements in '21 and '22, which would suggest that the replacement cycle really shouldn't start in earnest until the back half of '26 or '27.

We are forecasting ASPs now of $3,500. We feel good about that. We're two months into the quarter. And I'm not going to talk a lot about the first quarter, given we're right in the middle of the quarter, but I'll just say that the pricing that we've seen over the last 60 days has informed us as to the guidance that we've put forth here around $3,500.

And then again, going to 2027, how are we going to continue to have the sustained growth north of 25%. The growing installed base is definitely a tailwind to procedures. We're going to increase replacement revenue. We see relatively stable handpiece pricing and also relatively stable system pricing. We made some commentary at the end of our third quarter about the capital environment. I think a lot of people took those comments and ran with it, so to speak, that we were trying to signal the capital environment was weak or we were seeing pricing pressure. Capital environment, we feel is stable. We see pricing is stable. The decrease in system ASPs in the fourth quarter were more due to type of customer sales. We had a lot of large IDN sales. They typically get a larger discount than a one-off hospital. That was reflected in the $425. We see that moving back up to the $440 to $450 range in 2026 and feel very good about the funnel.

When we think about profitability and longer-term EBITDA expansion and how we're going to get there. We do believe we're going to have operational efficiencies. And I'm going to focus here on R&D and our sales and marketing group in the next few slides.

Let's first, before we get there, talk about gross margins. Gross margins going from 65% to 70%. I would say we did not feel two, three years ago that 70% of $500 million, that was going to be a heavy lift, but we've done a good job with operational efficiencies, the cost of our product, the handpiece component of our business and that tailwind to margins is really going to be reflected in 2027.

Tariffs, that is an ever-changing topic. I'm sure we could wake up tomorrow morning and the news will be different. But what is factored into our guide today is no impact from what was recently announced, I think it was 48 hours ago. We're obviously aware of that, but we have put into our guide a tariff expense of around $5 million to $6 million in '26 that would assume nothing changes with our exposure. And our exposure to remind everybody, is primarily to our ultrasound supplier in China. But we feel good about our pathway here on margins. And this is, again, going to be -- it's a long pole in the tent for us for profitability because when you get to other areas of the business, we do start to demonstrate significant leverage.

Our R&D spend has been heavily influenced in the last 24 months for the WATER IV trial. The majority of that spend really ceases in 2026, where R&D spend in absolute dollars is going to be relatively consistent. But what that does as a percent of revenue is it really gets us down to more of a mid-teens level, which is more reflective of a more mature medical device company. We're innovative. We're robotic. I never see this business being in the 8% to 10%. I think that's too low for a business like ours, but settling somewhere in the mid-teens is something I think folks should expect in perpetuity and will give us plenty of resources as our revenue grows to continue to innovate and do a lot of exciting things in R&D. But that will be a huge source of leverage for us here as we move forward.

And how does that translate to adjusted EBITDA? So you have our '26 guide. We're now guiding to 2027 EBITDA in the $25 million to $30 million range positive. So that is a positive $25 million to $30 million, that is a $60 million improvement over 2025 at the high end. And it's the factors we just went through. It's high procedure growth, 68% to 70% gross margins, leveraging R&D and then beginning to leverage our sales force. One thing Larry had mentioned on the call yesterday, we are starting to pilot a hybrid sales model where we will longer term, not be required to be in every case. We're still going to be great partners to our customers. We're still going to support our customers. This does not mean our reps disappear from our accounts. We're a high-touch model. We'll still be there. But at the same time, we do not feel, given kind of where we're at with the clinical results of the product, we need to be in every case, and that's going to be a tremendous source of leverage for us as we move forward.

Lastly here on the balance sheet and kind of what does the balance sheet look like? Cash, let's just address it. We never expect our cash to go below $175 million. We are -- we think we're going to be cash flow positive in the fourth quarter of '27, perhaps earlier, perhaps a quarter later, but it's somewhere around the end of 2027 where this business becomes cash flow positive.

Working capital, accounts receivable, inventory, we think we have room for improvement there, and we're going to continue to improve on that. And that's going to be a driver to us becoming a cash flow positive company. As a reminder, we require little CapEx. Working capital is the driver of this business. And therefore, as our revenue grows, there's not a lot of CapEx required in this business. We're in a facility that has more than enough capacity for the foreseeable future. And even if we were to consider alternatives in the near term, that would not be a significant outlay for PROCEPT to go do that ourselves. So very small CapEx. And when you translate that to the fourth quarter of '27, that cash flow positive is important because we do have $52 million of debt that becomes mature in '27. We have no plans to refinance that debt. If you look at the terms of that debt, it's probably one of the more favorable debt instruments outstanding right now. We have a great partner. We have no covenants. And we feel good about when that debt were to be maturing in Q4 '27, we'll have many options.

And in summary, we're very excited about the trajectory of the business. I, myself, like Barry, have been here. I'm one of the old timers, but now becoming friend with Pooja and Larry as well. And I'll just say it is -- I can't monetize this, but I do believe with the leadership team we brought on board here, while Q4 may be frustrating for folks in the room and investors are frustrating for myself, I've never been more excited about the future and direction of PROCEPT. So, I thank everyone for being here and coming on this journey with us.

At this time, I'd like to invite up the management team. We're going to start the moderated Q&A. Matt is going to come up to the podium. So just give us 30 seconds here to get situated, everyone on the web. Thank you.

Okay. So we're going to start Q&A now, but we will be prioritizing those that are in the room. I do have an iPad in front of me right now to monitor the chat. So if you do have questions, please send those through, but we are going to be prioritizing those in the room.

So, Chris, go ahead. Is that on? There we go.

Chris Pasquale, Nephron. One question on the cancer opportunity and then I want to follow up on something for Kevin. So, on cancer, what is the key to unlocking that opportunity? Is it specific FDA labeling? Is it publication of a certain length of follow-up? Would just love to sort of level set at what point as you're following these patients for 10 years, when do you think you have what you need to really go out and commercialize for that indication?

Yes. I think the first thing is we have to complete the trial and see the data. For those of you that follow the journey at Edwards, we have great confidence when we start these trials. I think Barry and the team have done a great job designing the trial, but we have to see the trial results and the trial results are going to inform where exactly this resides in the treatment of cancer. I think we're going to present those results at AUA in 2027. Right now, we don't have a contraindication against treating patients today. So patients -- doctors wanted to treat patients, there wouldn't be any obstruction to that.

What we do with the labeling and how we approach that with FDA is going to probably depend a lot on the strength of the data, and that's probably going to inform our reimbursement strategy as well. So we'll have to wait to see the data before we'll actually answer that.

But I think there's a lot of people that go out and talk to folks and say, and people are a little bit bearish on the role that Aquablation can play in cancer. And so we tried to really bring that to light. But I think part of the disconnect there is people are saying, do I think Aquablation is going to be better than a radical prostatectomy for the treatment of cancer. And I think that's just an absolutely wrong question to ask. That would be like saying is TAVR going to be better than open heart surgery. When you have a procedure that's going to preserve the quality of life in the way that our procedure does, similar to what TAVR was able to do for aortic stenosis patients, the biggest growing segment is watchful waiting.

The big thing we have to do is provide a meaningful option for those patients who would rather do nothing and give them an option to treat their cancer. Even we don't know what the data is going to say, I haven't seen the data, I have no idea what it's going to look like. But if we're anywhere comparable to a radical prostatectomy and we can protect people's quality of life, their urinary function and their sexual function, to me, it's just a home run opportunity for these patients because the patients that are sitting the sideline, I don't believe they're sitting on the sideline because they want to have cancer in their body. They're sitting on the sideline because they're unwilling to live with the complications that treatment involves. And if we can provide an answer for them that doesn't have those complications, I don't know why anybody wouldn't choose having that procedure done versus waiting. And that's why I think cancer is such an exciting opportunity for us.

But again, it starts with -- we designed a very good clinical trial. The clinical trials in urology coming from a different space are typically registries, the follow-up is a little spotty. They tend to be really small trials. The trial that Barry designed, and he grew up in the cardiovascular space. So we designed a very cardiovascular-like trial. It's randomized, it's very high quality. We've really run that trial very, very carefully, and I really commend the team. And all that work was done before I got here, so I don't get any credit for it, but I can certainly admire it. And they've done a great job with that. I think this is a very robust trial. It's going to be Level 1 evidence that's going to perform this. And we walked through the reasons why we're in that trial. But again, it is also what the patients are doing today and why I believe this is going to be a strong option for patients, assuming the trial is successful.

And then Kevin, you talked about how the drivers of revenue growth are shifting from what was historically more of a capital-driven model to now disposables being the primary driver of growth. Your '26 guidance assumes flat system placements, which is a bit of a change from the company. That number has ticked up over time. On one of your slides, you said you're about 25% penetrated, I think, into the installed base opportunity.

Would love to just first confirm, is that where you think you are at the end of '25? Or was that projecting out to '27? And what goes into that? Are you guys still interested in the ASC as an alternative site of care that something could expand your kind of system placement TAM? Or is this just a reflection of some of the priorities that Larry has around really optimizing utilization versus trying to maximize placements?

I'll maybe start on that and then Kevin can certainly weigh in. I think our capital plan for greenfields, I think, is right now the best place for us to make sure that we're preserving price discipline, and we're adding to our installed base in a responsible way. And remember, the other part of that is when you add to the installed base, you have to train them, you have to launch them, you have to get them up to speed. So it's not just the capital team side of it, it's also the utilization team side of it in terms of being able to support these centers. And so we think that is a sweet spot.

But remember, the other things that we're adding on to the capital team. In addition to the launch program, we're also adding on introduction of a replacement strategy that we think is going to be a bigger part of our story. It's a small part of our story in '26, but it will be a bigger part in '27. And then we're also going to explore some leases.

As it relates to ASCs, like I think that's going to absolutely be part of our future. Right now, though, we feel like there's still a great opportunity in greenfields. And one of the things with ASCs that we have to make sure that we're doing is that we're not just shifting volume. If we install in one of those systems and all somebody does is take their volume from that they're doing in the hospital and move it over to an ASC, that's not going to grow our total procedure volume.

So what we have to make sure is any place we go that, that's going to drive incremental volume that we wouldn't have otherwise got and not just shifting from one site of care to another. And so that's the area that I'm really focused on. The metric that drives us, that drives me that I track more closely is what is driving our procedure growth. And that's absolute procedure growth quarter-over-quarter. And I think that's what we need to do. That's what we need to execute on. And I frankly think that's what you guys need to see. That's what our investors need to see to get confidence in our long-term growth thesis, and that's what we're focused on.

The second part of your question on the 25% answer directly, Chris. That's then of 25%. So that would assume there's roughly 2,800 hospitals in the U.S. that do BPH. And then just last on the kind of flat year-over-year on greenfields. We've always known, and I've been in the fourth capital equipment company, procedures drive capital. We get it. But when we first started, we didn't have any procedures. So therefore, we had to sell capital. And I would suggest that as procedure initiatives take hold, that will fuel capital growth year-over-year. Capital growth will be fueled by procedures. We see accounts today that are high volume that want and need second systems. We're starting to see that. We obviously are planning down the road to have another indication that would drive that.

So I wouldn't view '26 is how we're viewing the business in perpetuity. We also have a lot of innovation going on that should drive capital in the future. But for '26, for all the reasons we've gone through, it is flat, but I wouldn't suggest that's how we're viewing the business every year for the next five years.

Nathan Treybeck, Wells Fargo. Thank you for putting this together. Kevin, I just wanted to talk about the cohort analysis you put together. If my math is right, it shows kind of the legacy accounts monthly utilization is around six, '25 cohort is about 5.5 and the '26 is going to be less than one. My question is, is the six per month kind of where you max out? And then why does the '25 cohort gather so quickly? And then is most of the upside or most of the upside to the high end of your '26 guidance on the '26 cohort?

Yes. I'll start with that and just what we try to do is just really simplify the procedure walk because I think people are looking at 43,000 to 60,000 plus and saying that seems like a lot of procedure growth. So we want to be really clear where the procedure growth coming from. I know that from an Excel standpoint, looking at utilization per instrument is just a really easy way to model things out. I don't think it's a particularly useful metric because we -- there's just a huge amount of variability in our installed base between what the utilization numbers are across. And so taking an average and applying it just really isn't representative of anything because the spread is so wide. What we're focused on is how are we going to grow procedures quarter-over-quarter on an absolute number.

The walk is really just trying to explain how we get to the bottom of the guidance, which is basically saying our installed base is going to do a tiny bit more than what they've been doing, but you're talking about our installed base of 718 systems in the U.S. adding 2,000 cases in total. So not very aspirational. And that would suggest that it's taking longer for a lot of our programs to get traction and do.

Now is that our plan? No, that is not our plan is to get traction on those much faster and see more utilization growth there. But that's what's in our model. Then you say and say, okay, our new systems last year that if you just average it out, would have been available for about half the year, they did about 7,000 cases. We'll have a full year of them, but they just kept doing exactly what they were doing, nothing more, that gets you to 14,000. And then on top of that, you say, okay, we're going to install about the same number of systems this year. They did 7,000 cases last year. We have launch teams this year. So we think we'll get a little bit more of those. We'll get 8,000. And that's the walk, and that's how you get from 43,000 to 60,000. And so it's not about trying to move the utilization number by 0.2% per site or any of that sort of stuff. I think it's about us going out and attacking those centers that we think have the best opportunity for growth and driving those and driving to those absolute procedure numbers.

One follow-up. One of the charts you showed, it shows simple prostatectomy and nucleation are actually trending up. I would have thought maybe flat or down with -- that was the Aquablation value proposition that it was going to move a lot of the procedures to Aquablation. I guess what is driving the growth in simple prostatectomy and in enucleation at this point?

Barry, do you want to take that?

Yes. So I think a couple of reasons. I think you got to think about the size of the glands that have happened over the last 20 to 25 years. When patients are put on medical therapy, or a nonresective procedure, it is allowing these prostates to get larger and larger. You get down to it, a prostate over the size of 80 almost is untreatable from a TURP. The older days, they would stage a TURP. You go for one procedure, they would do the left lateral lobe, go home, come back a few months later and do the right side.

So you look at simple prostatectomy and nucleation are tools that can be used in large prostate sizes along with Aquablation. And I think that's where you're seeing a lot of the growth, which is the prostate size market. It used to be small. If you look at publications from 20 years ago, the average prostate size was 50. Our global average is 90. And that's because people are delaying resective procedures because of the advent of medical therapy and nonresective procedures.

Suraj Kalia from Oppenheimer. Larry, Kevin, thank you for providing all the information. Three questions, if I could. Larry, for you, I appreciate your commentary about TAVR, but BPH is not life-threatening per se. It's a quality of life issue. And you all are making a certain stance in terms of end-of-quarter purchases and totally appreciate that. What does game theory suggest to you? If you guys do this, what are others going to do? Have you all factored that into your calculus? If they continue their current practices or change, how does that impact you all?

Yes. Well, I mean, there's a lot that goes into it. First of all, there's a lot of people walking around with aortic stenosis that don't believe it's a deadly disease either. And I'm not saying that BPH is a deadly disease, but it really is about symptom tolerance. And I think when you talk to men who have BPH, their quality of life is deteriorating, it's deteriorating significantly. That's why people are banding drugs. They don't like the side effects and the other challenges with that, but the treatment option seems so severe that they're unwilling to do that.

In terms of game theory, I'll say one of the things that was surprising me when I joined the company is I was used to competing in the TAVR space with Medtronic, who spent the same amount I did or more, Boston Scientific, who was aggressively trying to enter the space, Abbott, who was aggressively try to enter the space. We don't have anybody -- who are the big strategics that you're going to sit in their meetings where they're spending their whole time talking about BPH. I suspect it's nobody. I mean you look at where UroLift is today, it's been declining year-over-year. I think they just got packaged into some other deal and got sold. But there's nobody really behind TURP. People sell a general use instrument that people are using for this procedure. There's nobody marketing. There's no marketing campaign going on for TURP or any of these other sorts of things.

So I don't have all these established competitors all sitting around us that are outspending us that are trying to drive new evidence that are trying to drive anything. It's basically just us. And we have to go execute against historical norms. Look, changing the practice of care is hard. People do what they're used to doing. They're doing what they were trying to do. Every urologist that came through school, learn how to do TURP and they're just used to doing that. We have to change their standard of care, and we have to change their practice. But it's not like I have some competitor on the other side inundating them with brochures on TURP.

So where do you -- you spend your time in all over the industry. How many people do you go sit in front of who are sitting here telling you, let me tell you about my game-changing BPH strategy who says, I got a war chest of money that I'm going to go spend to go drive it.

Got it. Kevin, one for you. I appreciate the math you presented step up from 43,000 to 60,000 stratified by sites. To Nathan's question, if I could just turn it a little around, how should we think about these different buckets how many of these sites are in high-volume, medium and low-volume sites and that is -- the math is the math. I get the math. But it is also going to be influenced by where these sites stack up within these high, medium, low volume and then do the sensitivity analysis. Does it really work for these low and medium volume sites to ramp up to this level?

Look, it's a difficult question to answer. I'm not being evasive. There's many types of customers. We have high volume, low volume, medium volume that have all been contemplated. I think what we would like to stress and a big part of the presentation today, Nate, that's how you approached the first question, we don't feel we're nowhere near where we have the right to be even within our high-volume accounts today given the size of the market. That's how we're looking at it.

So we don't spend a lot of time looking at accounts that and say, oh, they're doing three to five, they're medium volume, we treat them this way. We view every account as high potential given the market. I mean what we're trying to cannibalize, and that's what we're doing in the near term here, that's table stakes. I mean you look at the slides that we went through today, the 8 million men, the 40 million men, the capacity in the OR, it is there. That's what we're focused on. So, I'm not being evasive, but it's just not how we're managing the business.

Fair enough.

No, I mean it's just along the same lines, a lot of the partners that became giant TAVR partners for us were in giant surgical programs. And so people adopt new therapies if they think it fits in their armamentarium. And I think the fact is because our procedure is much less technique dependent and expertise dependent, we can use the precision of the robot and the mapping of the prostate. We can take this into places that probably wouldn't be that excited about having a large TURP program or we're really excited about having some of these other complicated programs.

So, again, I think it's us making our case and driving that. But they're still -- you look at last year, 360,000 patients got a procedure that wasn't ours. And that's the first opportunity that we have to go execute in is moving share from those alternative procedures and moving it to ours. And that's our #1 job.

So some of our highest volume users, if you look at their historical TURP volumes, it's not 1:1 that those were the largest TURP volume users and they convert to Aquablation, they're our highest users. We have many high-volume users that didn't do a lot of BPH prior to having Aquablation because they didn't want to offer the alternatives that were available.

Got it. And very quickly, how much is bleeding and post-op hemostasis needed an issue in terms of patient acceptance or the conversation as far as Aquablation is concerned?

No, good question. As Pooja noted with the 70,000 patient publication that's come out, it's really become a nonissue. To a patient, it's in our research, it doesn't come up. From the surgical protocol that is reproducible and repeatable that we have dialed in, it's just part of the protocol now. And four years, five years ago, yes, it was the talk. We had different protocols going on. Some are having great success, others were confused. We have moved to a world where we have a number of surgeons that are sending patients home the same day. That would not be possible if we hadn't dialed in the hemostasis protocol. So today, it's a nonissue.

I think it's important to understand the history of this. When Aquablation first started, correct me if I have this wrong because you obviously buries the history in here. But people were just doing an Aquablation and they weren't doing any bladder neck cauterization. And when they were doing that, there was more bleeding. And I think that was a lot of the narrative when the technology first came out. Once we protocolize the bladder neck cauterization, then the bleeding issues largely went away once that was standardized and it's really a nonissue.

And you look at what the TURP procedure is, I think their transfusion rate is about 3x higher than a modern Aquablation procedure. So there's still a little bit of this lagging narrative that you hear out there. But in terms of fact and in terms of clinical data, it's just not supported by the clinical data with a modern Aquablation procedure in our protocols today. Is that fair, Barry?

Very fair.

Brandon Vazquez from William Blair. I want to focus one on a little bit of near term and then maybe a longer one longer term as a follow-up. On the near term, the procedure disclosures you guys gave were very helpful because you can kind of build from here to understand the visibility that you guys have in the business and where we -- how we get to the '26 guidance. What's harder for us to know, and I hope you talk a little bit about is like what is the reception in the first couple of months? Are the procedure numbers historically going to meaningfully change because you've meaningfully changed the pricing and how the end of quarter pricing promos.

So, I guess, again, the question is like, can you talk a little bit about what you have seen so far in the first two months of the quarter as a reaction to this? And then two, what's the visibility you have into the first quarter so far to give a little comfort that like we know that those procedure numbers we can build off for 2026?

So I'll talk a little bit about what we've seen so far. And I think this is a really, really important dynamic. Normally, when somebody is driving this level of ASP increase, it's because they went to their customers and they said, here's -- we're implementing a 10% price increase, your price went from X to Y, and now you got to pay this new price. I launched S3UR in the U.S., and I did a $1,500 price increase. We had to go contract with every single site. They had to sign a new contract. They had to put it on the shelf. They had to do all that. That is a process that's a challenge because shockingly, and I don't mean to surprise anybody, customers don't tend to like price all that much.

We didn't really roll out a price increase here. Customers had a contracted price that they were buying our product for. What was happening is we would do like at the end of the quarter, we'd say, hey, we're in a special incentive. Do you want to -- if you bought more than 50 handpieces, we'll give you this discount and do that sort of stuff. So people are like, oh, sure, great. I'll do that discount. I'll stock, I'll do all the sort of stuff. But they were doing something and getting something for less than their contracted price. All we're doing now is saying, yes, we're not running those sorts of promotions anymore. We're not running those incentives anymore.

So everybody just goes back to the regular price that they've always paid. And so there was no argument about it because it wasn't like we had to recontract anybody. We didn't have to renegotiate with anybody. We just held them to our pre-agreed upon pricing structure that they had. So it's not like rolling out a big price increase. We just discontinued a discount they were getting that, frankly, we probably should have never been getting people. We were discounting a product today that people would have paid their regular contracted price for two weeks from and it was causing people to take advantage of that. They would run their inventory very, very high, then they spend the next 2.5 months depleting that inventory and then they just repeat the process all over again. So it's causing our revenue to follow that model.

And I just -- I'm sorry, I just don't think that's a good way to run a business. And we're just going to discontinue those things. I think ASP is critically important to us. Kevin talked a lot about our path to profitability. Look, I think there's two things that you guys want to see and that our investors want to see. You want to see that we can very durably and consistently grow our procedure volumes, and you want to see that we have a clear path to profitability. And if cancer turns out to be a real adjacency, then it's a whole other leg and it's a whole another growth driver for us. And I think those are the things that drive our future and the driver valuation. And to the degree that you see the world that way, that's exactly how we see the world, and that's what we're going to go try to deliver on.

I don't want to talk too much about being in the middle of a quarter, but we try to be thoughtful about this. We gave you guidance for Q1 that factored in all of the factors, all the sales force changes, all the things that we've rolled out, and we try to give you a guide for Q1. But obviously, we're planning to see a procedure growth acceleration, especially in the back half of the year. But again, this is why we try to be very transparent about the walk, where the procedures are coming from, what you have to believe to get to the bottom end of our guidance.

And I will just say, on a go forward, we're just going to bring a different level of transparency to this. I think one of the challenges that we're dealing with right now is there wasn't great visibility to actual procedures performed. And so people were making assumptions in their model. And even though it's talked about, it's in our filings, I don't know that everybody always understood the delta between handpiece sales and procedures.

All of that stuff is going to be exposed now. You were going to get every quarter, you're going to get what our procedure volume was and you're going to get our handpiece revenue. So those things will be transparent. Everything will be exposed, and you guys will be able to evaluate the health of our business. But for all the drama about the revenue in Q4, the health of our business was never going to be defined by customer ordering patterns. It never is. What is going to define the health of our business is going to be our procedure volume and handpiece revenue is going to follow that, and it's going to track that.

So I think it's important for everybody to understand that reimbursement has gone up to the hospital as well to be able to support these higher prices. And Barry can hold me accountable here, but I think it's close to now $10,000 at the hospital level to where the hospital is actually still getting a little bit more money than we're actually passing on to them in terms of price.

That's helpful. Pooja, maybe one for you. I think this is the first time in PROCEPT's history as a public company, we've gotten a look under the hood of kind of the commercial or the patient generation side. So maybe spend a minute, a lot of good information there. How much of this is new? My understanding was there was some level of DTC happening before, clearly not the level maybe needed. So like what is going to be incrementally new that's coming out in 2026 plus versus what was not being done before?

Yes. It's a great question. So there were some basic fundamental things that were done. I mean, for example, we have a website aquablation.com. I think the -- what we're really trying to do is a couple of things. One is to be very clear about what is the value proposition and what is that narrative. I think there's a lot of variability both in our assets, but also across how we're talking to customers around that and standardizing that narrative, and I talked a little bit about it today is important.

The other piece is that in my experience, you have to build a bit of an ecosystem. Just because you have a website, it doesn't mean that people actually know it's there. And so that is also the incremental new for us is really building a much more integrated ecosystem where we're nurturing these journey. If they are at the bottom of the funnel and they're trying to decide between therapies, they're having those conversations with the care team at the center. And so making sure the care team has the right educational materials to be able to engage with those patients, making sure they have things they can take home and think about, and then, of course, as we get into that medically managed population, meeting them where they are.

A lot of these people are searching online. A lot of them are getting information through social media. They talk to their peers. Facebook is a pretty powerful peer-to-peer tool for patients. And so while the -- there was some basic content that PROCEPT has invested in, and I give the company a lot of credit for that, I think building a real ecosystem around it and a real infrastructure and doing that in a very strategic way where we're targeting the right markets, that's what we're going to do differently moving forward.

I think the biggest thing for me, and I promise I'm going to stop talking about my experience at Edwards because I don't care. But when we were launching transcatheter heart valves, every surgeon said, we don't need a transcatheter heart valve. We treat everybody with surgery and sternotomies don't hurt. And I was like giving them or getting them. And I think the biggest disconnect we have right now is the physician's lens of what he thinks matters to a patient versus what actually truly matters to a patient. And I think this issue about procedure durability and being able to get one procedure and get complete relief and not needing another procedure is not top of mind for the clinicians that are providing these therapies.

And we have to make it top of mind for them, and we have to make it top of for the patients as well and make sure they understand when somebody says, would you like to have this procedure, I can do it in the office and you go home today? Or would you like to have this procedure, but you might require an overnight stay, that's the wrong question. Would you like to have a procedure done in the office that probably means you're going to have another procedure done in the next couple of years? Or would you like to come in, stay one night in the hospital and get a procedure and probably never have to come back and have complete relief of your symptoms and no meaningful side effects for the things that matter most to you? That's a very different question. And we have to make sure that physicians are asking patients the right question and they're looking -- seeing the world through the patient lens, not through the economic lens or through their convenience lens.

Josh Jennings from TD Cowen. I appreciate the Investor Day here and all the downloads. As we're sitting here late February, just thinking about how you guys described the dynamics in the fourth quarter call and just some of the accounts that were relying on bulk purchasing and those discounts at the end of the fourth quarter, assuming the last month, we're heading into the last month of 1Q. Is there anything you can share just in terms of how that phenomenon or that dynamic doesn't repeat itself in 1Q? I know you guys have worked through the inventory so these customers don't have the inventory that they did at the end of 4Q. But is it just the procedure queues? Or any dynamics you can share that gets you guys to that comfort zone for the procedure volume guidance you issued and maybe the revenue growth for -- or revenue contributions for 1Q?

Yes. I mean I think if I don't answer the right question, then please let me know. But I think a lot of the question people have is how do you know the inventory thing really behind you? How have you changed the dynamics? And how do you know it's really behind you in this? We're not going to be sitting around having this conversation again in another quarter or two about more destocking.

If you look historically, we've been in that 115% of handpieces to procedures. We're modeling for next year that it's going to be 1:1. If I look at -- since we made the changes in late Q4, and we look at handpiece sales and procedure volumes to current, those two numbers are about flying formation. So I would think if there was more inventory that people are going to take down, there's not any discounting. There's no perverse incentive for somebody to be buying unless they're just doing it to support their procedures. So that's one of the reasons we think that this is largely behind us because we have enough several weeks now where they're flying information.

Even beyond that, though, we're saying that if people really have rightsized their inventory, then it would mean there would naturally have to be an upside to the revenue plan that we've modeled because we're going to install 200-plus new systems, and they're all going to require inventory and stocking and everything else. So this assumes that inventory in the field stays flat to procedures year-over-year.

And that's, again, what creates the revenue delta between our original guidance and between the guidance where it lands today is we're just not modeling at that 110% or 115%. We're modeling at a 1:1. But frankly, I think it's behove of us to put a conservative model out there. I think it's behove of us to leave ourselves some headroom if there is any more of this, that it's going to be more than absorbed with the 200 additional systems and the inventory they take. And like Kevin said, we had to reset guidance. That's never a comfortable thing to do. We certainly don't want to do it again.

Understood. And I wanted to just follow up on some of the comments, Matt, you just referenced the reimbursement changes in 2026. There are many concerns about the physician fee coming down for this year, last year and -- but the facility fee has gone up. Can you just talk about how that has played out? I mean, is it status quo? Is it an overall positive where the physician fee reduction is being trumped by the facility fee increase? And then just the second part, just thinking about 2027 and reimbursement kind of forecast you guys have, any chance for APC 6 to move to APC 7?

Well, we always look for whether there's opportunities to drive enhanced reimbursement from where we are, and we'll continue to explore those. I think you have it right. The physician payment went down a little bit, but it went down across the board. So it's not like it went down for our procedure and it went up for everybody else and created some dynamic there.

Look, physicians are never happy when the payment goes down. But like I said, it wasn't something that was differential for us. It's something that applied sort of equally across the board. Hospital payment actually went up, and it went up in a pretty meaningfully way. For doctors that are employees of the hospital, they get paid on RVUs. The additional hospital payment, the physician payment doesn't really matter to them because it all gets frozen. So when hospitals can net out the two of those numbers, it's a net positive for them. For the physicians that only get the payment side of it, yes, it's a negative for them, but it's not like the alternative procedures got some benefit for it. So I think it's a negative, but it's not a differentiating negative.

We factored all of it into our guidance. All of it is factored into our guidance, all of that, all of the intelligence that we have on that. And again, I think the hospital payment ultimately is more beneficial to us than what the physician payment is. But again, we monitor all those things. I live this in the TAVR world as well. As TAVR got better and better, the reimbursement came down, but we were able to protect pricing because we continue to add great economic value for the procedures that we're doing. And I think that's the case we have to make here is the efficiency of a program, the amount of the time and the precision that it takes to do our procedure, the low rates of complications, those sorts of things. We need to continue to make that case for why this is the best procedure for people's patients and why it is a good procedure for them economically.

All right. We're -- I'm getting a flashing red light, but Stephanie, you can be the last.

Stephanie Piazzola from Bank of America. Thanks for putting this together today. Just wanted to follow up on the 2027 guidance that you laid out of the 25% to 30% growth. I think that's a little above what the Street is modeling. And I appreciate the growth drivers that you laid out. But just curious how you're thinking about this being the right level of growth to set up now for 2027 and the breakout you provided for 2026 was helpful with the different cohorts. So any high-level comments of how we can think about that in 2027? What comes from the existing business versus benefit from new initiatives?

Yes. We obviously guided to the total revenue growth and didn't get into the details between systems and replacement disposables. But what I'd suggest is that 25% to 30% growth on the system side does assume we have a more robust replacement cycle. So I'll start with that. It assumes stable pricing.

On the procedure business, it is some benefit to the initiatives that we're putting in place in '26 around the launch team, but nowhere near kind of a best case optimized scenario where if everything we do with launch teams and marketing initiatives and patient awareness, I mean, I don't know if -- the slide that Pooja showed where we have 1% to 2% patient awareness, frankly, it was shocking to me when I saw that a month ago. And if we could move the needle there, I wouldn't suggest that 25% to 30% is upper limit. It's informed on what we know today and what we think is achievable, not hoping everything that we're putting in place is a home run.

I'd say '26 is it's a little bit of a build year us. We have to build out these marketing programs. We've established the teams. We're starting to run the replacement pilots and learning about that process, and we're exploring some operational leases and doing those sorts of things. These are all things that we have to sort out that we have to have in place that we have to really create the structure around in 2026. But these are things that are going to be a much bigger part of our story come 2027. And that's also when I think some of the marketing programs, some of our awareness programs really are -- we're going to get a lot more benefit from those programs that we're going to see there.

So, I will tell you, internally, we're much more aspirational on 2027, but we want to put guidance out there that I think the biggest thing that I don't want to have in people's minds is that we're going to continue to be on this declining growth curve as we're doing it off a larger base. We see the opportunity in front of us. And again, none of those numbers have factored in cancer at all. So none of that is built into the '27 number or any anybody has modeled beyond that. And that's very intentional for us. We want to set ourselves up for success on a go forward. And I think that's our responsibility now to go execute and go make that story a reality.

And then sorry if there's time for just one quick follow-up on the margin side of things. The EBITDA margin expansion that you're expecting longer term. Just how do you think about the SG&A leverage within that since you're making some increased investments. So if you could just give a little bit more detail of where the leverage is coming from. And then you talked about moving away from the high-touch model with reps and having a rep in every case. So any expectations for the plan there and when we could see that?

So, one of the things I want to be really clear on, and I think Pooja tried to make this point, but the programs that we're doing on marketing, one of the things that's unique about the space compared to sort of my previous world. My previous world is something like 5%, 7% of people over the age of 80 have aortic stenosis, but you have no idea who's who. So you have to go cast this wide net and try to find who those 7% of the people are and treat them. And when you're in the 70-year-olds, it's a much lower percentage. So you have to cast this wide net and kind of go everywhere and then try to talk to people about symptoms and try to filter it out.

And we don't have that problem in BPH. The 400,000 people that are getting treated today know they have BPH and they're actually getting a surgical procedure for it. And then there's 1.1 million men above that who have failed drug therapy for. They know they have it. They're looking for relief of their I don't have to go market to the whole world. I can just go target those people, and we know who those people are, and it's not difficult to find in this modern era. So we can be very targeted about these programs. So it doesn't drive this massive SG&A spend. I don't have to do things like we're doing at like target AS or preview or those things. We have a much more targeted market here that we're going to go attack and address.

I think we talked about the hybrid support model, and this really is about getting our hospitals, once they're trained and they have the hydro system and their experience with that, we just don't simply need to be there in every case. And we're not walking away from our clinical support model. If a physician wants us there, we're happy to be there. We're going to be in some percentage of cases always on a go forward because we want to make sure that the machine is set up properly and that as nurses are doing it or staff is doing it, that we don't have any degradation or any of those sorts of things. So we'll be there. But if somebody wants to throw a couple of cases on a Friday, I want them to have the capability to do that without having to call and make sure their reps available or any of those sorts of things. And that's why we're going to move to that hybrid model.

So I think what we're going to try to do is obviously drive our top line growth. And even on a dollar basis, is SG&A and R&D going to go up? Yes. But on a percent of sales basis, we're going to get leverage out of those and those are going to come down, and that's what's going to drive our margin improvement. But we expect to get leverage out of our sales force, which is the biggest part of our SG&A spend by a sizable amount. And then we'll get it on the R&D side, too. And if we can settle into a 15% to 17% R&D spend as a percent of sales, and we get our SG&A to have the reasonable levers, I think we'll have a really healthy business.

All right. I just want to thank everybody for attending in-person and also being on the webcast. If you guys have any questions, please e-mail me. Kevin and I and Larry will be available, but we will be at Cowen next week and then I believe Leerink the following week after that to meet with all investors.

I just -- lastly, I appreciate everybody coming today. I know we move the day because of the weather and the other things. I appreciate your interest in this. We're not where we want to be right now, but we're doing all of the things fundamentally to get us in a place where I think we can drive that differentiated long-term success that everybody wants to see from us. But make no mistake, it is on us to go execute our plan and earn your trust and your confidence, and that's what we're going to go out and go through. Thank you.

Good afternoon, and welcome to the PROCEPT BioRobotics Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments. Please go ahead.

Good afternoon, and thank you for joining PROCEPT BioRobotics Fourth Quarter 2025 Earnings Conference Call. Presenting on today's call are Larry Wood, Chief Executive Officer; and Kevin Waters, Chief Financial Officer.

Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events or performance are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in PROCEPT BioRobotics' filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, February 24, 2026, except as required by law, PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise.

During the call, we will also reference certain financial measures that are not prepared in accordance with GAAP. A more information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their narrowest GAAP equivalent are included in our earnings release.

With that, I would like to turn the call over to Larry.

Thanks, Matt. Before discussing our fourth quarter results, I want to share context on progress since joining the company as CEO. When I joined PROCEPT, I outlined an immediate near-term plan for the organization that I believe was critical to positioning the company for its next chapter. It was essential to move with a clear vision, a strong sense of urgency and a culture grounded in discipline and accountability. Historically, PROCEPT executed effectively in its first chapter of growth. That work created the foundation the company benefits from today. However, as the company evolves, so do the requirements for success. The next stage of process development requires shifting the operational focus towards increasing procedure volume, expanding margins and achieving profitability and gaining market share. At the same time, we must deliberately build an organization that supports both near-term performance and long-term sustainable growth.

We recently made two changes to our commercial organization that we believe are strategically important for long-term performance. First, we have realigned our commercial team into an integrated regional structure where our clinical and sales functions now report to a common regional leader. The new structure creates a single point of accountability at the regional level to ensure clinical and commercial activities are coordinated around customer success and procedure growth.

Second, we formed a dedicated launch team by reassigning a small number of our top performers to focus specifically on new system placements. The intent is to drive more consistent launches, reduce variability and activation and accelerate time to value for customers because we see launches as a key lever to improving downstream utilization and performance.

In the near term, the sales realignment and formulation of the launch team creates some short-term disruption. Certain account coverage has changed, and temporarily, we have fewer tenured resources in the field as we stand up the launch team. We view this as a normal transition period as teams ramp, establish account relationships and standardize new operating processes. Importantly, we believe these changes better position us for sustained high growth through clear leadership, better alignment and more repeatable launches. We will continue to manage through this transition thoughtfully, and we expect the benefits to build as the organization settles into the new model.

Now turning to fourth quarter results. In the fourth quarter, we completed 12,200 procedures, reflecting approximately 69% annual growth. On the third quarter earnings call, we reduced our previously issued Q4 guidance by 1,000 handpiece units as we reestablish customer inventory targets that we felt were appropriate based on usage volume. Separate from establishing inventory targets, it became clear as the quarter progressed that accounts have become accustomed to purchasing large quantities of handpieces and receiving bulk discounts in the final weeks of the quarter.

I've always believed pricing discipline is foundational to long-term success. At PROCEPT, I've been focused on implementation of handpiece price discipline. And as part of that, we eliminated the historical practice of providing discounts on bulk purchases, particularly at the end of the quarter. Despite customer requests, we remain disciplined and do not allow bulk purchases at a discount. As a result, handpiece unit sales were approximately 80% of procedures in the fourth quarter, and for the first time, procedures exceeded handpiece to sold.

While this resulted in lower-than-expected revenue, it delivered a significant improvement in handpiece selling price, average fourth quarter selling price was $3,340, or up $140 or approximately 5% sequentially from the third quarter. Historically, handpiece unit sales exceeded procedure volumes by approximately 8% to 16%. Based on the last several months, we now expect handpiece unit sales and procedure volumes to be in close alignment on a go-forward basis with sustained improvement in handpiece average selling prices.

These business practice changes resulted in a reduction of our projected 2026 handpiece revenue. The revenue impact is meaningfully offset by the increase in handpiece average selling prices. Based on the combination of these factors, with the short-term disruption associated with the sales force realignment, we are now resetting 2026 guidance to $390 million to $410 million, representing annual growth of 27% to 33%.

Before I turn it over to Kevin to walk through the financials, I want to close by previewing what to expect at our Investor Day tomorrow morning. For the first time since the IPO nearly 5 years ago, we will provide a more detailed multiyear look at our financial guidance, including more details on '26 and '27, our path to profitability and an update on the Water IV Prostate Cancer trial as well as a vision for our future. I hope to see everyone there.

With that, I'll hand it over to Kevin to walk through the financials for the quarter. Kevin?

Thanks, Larry. Total revenue for the fourth quarter of 2025 was $76.4 million, representing 12% year-over-year growth. U.S. revenue for the quarter was $66.6 million, reflecting 10% growth compared to the prior year period.

Turning to U.S. procedures. As noted by Larry, we completed approximately 12,200 U.S. procedures in the fourth quarter of 2025, representing approximately 69% year-over-year growth handpieces sold totaled 9,400 units at an average selling price of approximately $3,340 during the quarter, reflecting a 5% price increase compared to the third quarter of 2025.

Other consumable revenue totaled $2.3 million in the fourth quarter. As a result, total U.S. handpiece and other consumable revenue was $34 million in the fourth quarter of 2025, representing 16% growth compared to the fourth quarter of 2024.

Turning to U.S. robot placements. In the fourth quarter, we sold 65 new HYDROS systems, at the end of 2025, we had an installed base of 718 systems, representing a 42% increase compared to year-end 2024. Total U.S. system revenue was $27.6 million in the fourth quarter comparable to the prior year period, with systems sold at an average selling price of approximately $425,000. International revenue in the fourth quarter of 2025 was $9.8 million, representing year-over-year growth of 25%.

Moving down the income statement. Gross margin for the fourth quarter of 2025 was 60.6% compared to 64% in the fourth quarter of 2024. The approximate 450 basis point shortfall compared to fourth quarter guidance, was driven primarily by lower-than-expected U.S. consumable revenue as well as a onetime voluntary field action that contributed approximately 240 basis points of pressure. On a full year basis, 2025 gross margin was 63.7% compared to 61.1% in 2024.

Total operating expenses for the fourth quarter of 2025 were $77.4 million, compared to $63.4 million in the prior year period. The increase reflects continued investment to support commercial expansion, continued innovation across our BPH platform technology and increased funding for our Water IV Prostate Cancer trial, positioning us to drive long-term growth and expand our clinical and technology leadership.

Net loss for the fourth quarter of 2025 was $29.8 million compared to a net loss of $18.9 million in the fourth quarter of 2024. Adjusted EBITDA was a loss of $19 million in the fourth quarter of 2025 compared to a loss of $10.3 million in the prior year period. Cash, cash equivalents and restricted cash totaled $285 million as of December 31, 2025, providing a strong balance sheet to support our strategic priorities.

Moving to our 2026 financial guidance. We now expect full year 2026 total revenue to be in the range of approximately $390 million to $410 million, representing growth of approximately 27% to 33% compared to 2025. This guidance range assumes international revenue to be in the range of $50 million to $51 million. Additionally, we now expect 2026 total U.S. procedures to be in the range of 60,000 to 64,000 representing growth of approximately 39% to 48%. As Larry noted, the adjustment to our 2026 revenue guidance is driven by a few factors.

As a result of our business practice changes, we now expect handpiece unit sales to be closely aligned with procedure volumes, which results in a reduction in 2026 handpiece revenue. This revenue reduction is meaningfully offset by the increase in U.S. handpiece average selling prices, which we now estimate to be $3,500 in 2026. Our updated guidance incorporates both factors above in addition to the short-term disruption of our sales organization as discussed by Larry. Importantly, our 2026 outlook does not change our confidence in the company's long-term growth and profitability trajectory through 2026 and 2027.

Turning to gross margins. We expect full year 2026 gross margins to be approximately 65%, which includes $5 million to $6 million of tariff expense compared to $1.3 million in fiscal 2025, which is an approximate 100 basis point headwind to 2026.

Turning to operating expenses. We expect full year 2026 operating expenses to total $350 million, representing a 17% increase compared to 2025. After considering all relevant factors, we expect full year 2026 adjusted EBITDA loss to be in the range of $30 million to $17 million. Our revised revenue guidance reflects positive EBITDA in the fourth quarter of 2026 at both the low and high end of the revenue range.

For the first quarter, we expect total U.S. procedures to be in the range of 12,000 to 12,800, representing growth of 29% to 37%. This anticipates the implementation of multiple commercial initiatives designed to drive more durable and sustainable procedure growth. As these initiatives take hold, we expect procedures to accelerate reaching growth of over 50% in the second half of the year compared to fiscal 2025. We expect total revenues for the first quarter of 2026 of $79 million to $82 million representing growth of 14% to 19%. Included in our total first quarter revenue guidance is U.S. system revenue of approximately $20 million and $10 million of international revenue.

I would now like to pass it back to Larry for closing comments.

Thanks, Kevin. While financial performance in the fourth quarter was lower than anticipated, the changes we have made are critical to driving sustainable high growth and paving a clear path to profitability. We are very excited to share more details on 2026 and beyond at our investor conference tomorrow morning at 8:00 a.m. Eastern.

With that, we are happy to take questions. Operator?

[Operator Instructions] Our first question comes from Matthew O'Brien with Piper Sandler.

I think we can ask two. But the first one up front here is -- just I think, Larry, everybody knew that the quarter was going to be soft on the handpiece side, but the level of softness here just wasn't anticipated. So maybe just talk a little bit more about what unfolded in Q4? And specifically, did you flush just looking at some of the math, did you flush about 4,000 handpieces in Q4 on the inventory side? And then maybe I have a follow-up.

Yes. Thanks, Matt. Well, first, I'd just say, we're dealing with two distinctly different dynamics. The first was we had signaled on the Q3 call that we expect there to be some destocking, but that was really about establishing part levels for accounts based on their usage. And I think directionally, that number was still pretty sound.

The thing that came to light later in the quarter is how much are business practices of allowing bulk purchases at a discount was influencing customer purchase behavior. And we did a deep review of that. I just didn't think it made sense for us on a go-forward to be running that practice and discounting that way. I think without that incentive, customers no longer did the bulk purchasing, and that's obviously what contributed to the revenue mix.

I think the big thing is it had two positive structural effects for us. The first one was the, obvious one of ASP. We saw our ASP increase to about $3,340 in the quarter. But the other thing it's going to improve our quality and predictability of revenue by landing shipments more closely with underlying procedure volumes. And the health of our business was never going to be defined on customer stocking patterns or bulk purchases. It's always going to be about our procedure growth. And so that's really what we focused on. And so yes, there was a lot more reduction in inventory. I think our sales were about, I think, I don't know, 77% of procedure volume. So I think you can do the math on that and get to the number of units that came out.

But I think the big thing for us is as we look at 2026, we're not modeling those being at about a 1:1 ratio. And we're modeling an ASP of about $3,500, which is about a 9% improvement over where we were in 2025. And these are the structural foundational fundamental things that I just feel we have to do to really ensure our path to profitability in the time frames that we want to be.

Okay. I appreciate that. And then as far as the guide goes for '26, it's obviously back-end loaded. As I'm looking at the Q1 commentary, it's just -- it's still -- it's the toughest comp of the year as far as handpiece goes, but it's pretty modest. So it would just seem like the impact on the commercial reorg is still going to be influenced in Q1. I guess, why such confidence that you're going to see this benefit towards the back half of the year, because I just don't -- I'm just hoping we don't have to cut the expectation for the full year again.

Yes. No, thanks, Matt. And I understand your question completely. We put up a range in try to give guidance on where we think we're going to be in Q1. And I think Q1 always starts a little bit slow coming out of the holidays. That's always something that we have. And I think I've seen that in previous companies as well.

I think the other thing, though, is we did just signal that as the sales force matures into the new alignment and they rebuild relationships with customers, we have people covering different accounts. We just wanted to signal that there's -- that's going to take a little bit of time for it to mature. But we do think these are going to pay dividends to us. We do think having people that are just dedicated solely from procedure growth in their territories, and they're no longer distracted by launches and then having dedicated launch teams we do feel that, that's going to pay benefits. But those are going to show up more in the back half of the year rather than the front half of the year.

And we're going to provide a lot more detail tomorrow. We're going to walk across the procedure walk. And we're going to be completely transparent about it. I know we've talked before about moving procedure volumes, we focused on handpiece revenue. But we're going to walk through all of that in detail and I think give you all the components of it. And I think you'll be able to make informed decisions about how profit you could be in our plan.

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

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

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

Yes. Thanks for your question. I think there's a couple of things here. When we look at the history here, handpiece sales have been about 108% to 115% of procedure volume and now we're modeling that at 1:1. But we're modeling it on 1:1, even though that we're going to increase our installed base by a couple of hundred systems that are all going to have to take inventory and take stocking orders and do all those things as we expand our installed base. So even with that, we're modeling it on 1:1. Based on all of our analysis and assessments, I think there's probably more upside to that number than downside. But I think 1:1 is where we're modeling it at.

And that's a significant change from how we've done all of our previous modeling. And that actually is probably the biggest impact to the reduction in guidance. If we would have modeled handpiece sales at 110% even of procedures like we historically had then that would have been worth a little over $20 million, probably $20 million, $22 million and great to offset a lot of that with the price increase. But again, I think the long-term health of our business is going to be focusing on procedure growth and having steady, stable revenue.

The other thing I could say is we made this change in the fourth quarter pretty much the last month. So we have about 8 or 9 weeks of runway under this new business practice. And we continue to see now handpiece sales and procedures pretty much flying information. And I think that's what gives us confidence that, that the 1:1 ratio is going to be appropriate for 2026.

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

Yes. I'll start with the field back and here's what it was. It was a onetime nonrecurring field action. There were no patient safety issues. There were no concerns. It ended to do with compatibility between the handpiece and between the system itself. And what we did was we were just able to go to a field upgrade that just took that issue off the table for us. And so we've upgraded our systems and made the appropriate changes. So that was contained in the fourth quarter.

Kevin, do you want to go back on it.

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

Our next question comes from Josh Jennings of TD Cowen.

I was hoping to just get a better understanding of the fourth quarter dynamics and the go-forward outlook just on ending these bulk -- end-of-quarter bulk purchase deals that were offered previously. Are you seeing any customer dissatisfaction? And do you anticipate that some high-volume or medium-volume or low-volume centers will decrease their utilization at least in the short term until these higher handpiece prices are digested?

Yes. Thanks, Josh. We don't anticipate that, and we haven't seen that. I think there were some customers, frankly, in December that we're waiting us out to see if we would bring back these incentives before the end of the quarter, and we didn't. But we've seen the ordering patterns and certainly in Q1 and even last year, people were having to reorder to support the cases that we're doing. And I don't think it has a utilization or our case volume, and we haven't heard anything about that.

We're just, again, really focused on being disciplined about this. And again, we're fairly deep in Q1, and I just don't think that's impacted us. I think there was a little bit of a mindset in the company that as we -- if people took these orders and we -- and the idea of bulk discounts is unique to protect or anything else. I think people thought like they have much more handpieces, maybe that would be an incentive for utilization. And I just don't think the tumor related at all.

So we're going to continue to drive our procedure growth, and that's going to be our key area of focus. That's why we made the changes to the sales force. But we're going to be very disciplined about handpiece pricing and we're going to very disciplined about system pricing as well.

Understood. And you took -- you made some comments, Larry, just on the -- some disruption just in the commercial work or the commercial restructuring. Just wanted to hear about the stability of the sales force and some of your all-star clinical specialists and reps on the capital side as well. I mean, is it relatively stable? Are you seeing any attrition and you're planning on adding to the team as you move forward in 2026 and beyond.

Yes. Thanks, Josh. Yes. No, I think our team has been stable. We haven't seen any higher attrition. When I talk about the disruption, it's not about losing people. And I'll just provide a little bit more color on this, and we'll talk about it [indiscernible]. But what we did to create the launch teams is we took some of our most tenured people, some of our most seasoned people, and we moved them over to the launch team because we really want launches to go well.

And I learn this in my time at Edwards. When we launched [indiscernible] and they launched and they watched well with steady rebrand steady volume, they just became healthy programs for us. As somebody launched and they launched quarterly it took a long time for them to get up to the projected volumes or where we thought they should be. So we really want to focus on these launches and make sure they go well, make sure teams have all the support and they deliver spectacular outcomes for their patients, especially in those first early procedures.

In creating those launch teams, though, we took some of our best people out of the utilization team, procedure support team. And in doing that, we backfill those positions. We have people in place on those, but they have to rebuild relationships with those customers. You don't have somebody that maybe have a long-standing relationship. And we also realigned territories that we think allow us to better service our customers and drive the growth. whenever you do that, people have to reestablish relationships and do all those things, and that's just what we're going through now.

But this isn't anything that's unique to us when I was in a network and we used to split territories and hire new reps, you have new people calling on, on established accounts, and it takes time for them to build those relationships. So I see this as very, very transient, been very normal. We just did a lot more of it all in one fell swoop rather than the normal course of business, we're just playing territories periodically. But I think we have great people. I think we have people in the right places. It's just going to be a matter of people maturing and settling into their new accounts that they cover.

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

I have two. The first one, just on systems. I think you had said a $425,000 ASP or blended ASP you did 65 systems. So can you just tell us what the kind of the greenfields were? Were there any operating leases in there and trade-ins, et cetera.

And then for 2026 on systems, I don't think you gave an explicit placement number. I think -- the Street at around [ 220-something ] for the year. Doing the math, it would suggest you're basically kind of -- or I think that's what you're backing into. Can you confirm that? And then I have a follow-up.

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

But Kevin, do you have anything to add?

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

Okay. And then Larry, just -- starting from the first quarter or fourth quarter of last year, even -- I know this predates you, there was some seemingly transient or as explained to us this transient [ exinalities ], things like the hurricane, the impact on solution, et cetera. And then in the there were some onetime factors as we move through the year. And then on your last call, obviously, prepared us for this destocking or the stocking component and trying to get that right now? It seems like there was some discounting.

I guess with respect to kind of where we are today and what you see in the business going forward, what can you tell us about the health of the actual underlying demand for procedures? Is there anything with the reimbursement changes, doctor usage patterns. Is it all in fact, self-inflicted type items that are leading to the drawdown here or the lower consumables forecasting. I think there's just been a lot of consecutive kind of noise around procedures and now we're entering a period where there's some internal self-help factors. So how can you get people confident in your visibility, the ability to execute on this new seemingly reset level and that there's nothing underlying on demand side or the penetration curve that's just you're bumping up against the wall.

Yes. Thanks for the question. And I understand we are going with this. And again, one of the things that we never reported on before with actual procedures. We don't always report on handpiece revenue and to provide a new level of transparency, we -- externally, we're going to talk about procedures. And if you look at our procedure growth, it was almost 70% in the quarter. And so compared to year-over-year. So I think the procedure demand, and I'll tell you even at that number, we're trying to accelerate well past that and drive further growth beyond that. But it was pretty healthy procedure growth. The revenue shortfall wasn't really driven on the procedure side. It really was about the customer ordering behavior. And it was being driven much more than probably we appreciated by these discounts that people have become accustomed to, and we were living this cycle of people stocking up at the end of the quarter and then depleting going into the next quarter, which is leading to very lumpy sales.

And again, I reviewed that practice with the team and we just looked at it hard and said, "I don't think this makes any sense for us." And if you look at the ASP that we're modeling for next year, I think that's where we're going to get the benefits from it. And to some degree, I traded off continue this ordering cycling at discounts or having more [indiscernible] and steady revenue that's going to mirror procedures. And I just think these are foundational fundamental things that needed to happen. But I feel very strongly that these things are behind us. We've talked about the sales force reorganization that I expect to improve our execution around procedure growth.

And we're going to talk tomorrow more about what our value proposition is for Aquablation in the clinical community. And I think we have a compelling story to tell. And so if you make the investor conference tomorrow or watch launch online, we're going to provide a lot of detail on that we've never provided before. But I think we have a solid strategy, but it all sorts of these fundamental pieces. And price is just something that's always a huge part of that. And our margins and our path to profitability, those are key areas of focus for us. And there's absolutely [indiscernible] things that I believe are going to drive us to the success and profitability that I think we don't want.

Our next question comes from Brandon Vazquez from William Blair.

Larry, in a story like this, I mean, ideally, we're trying to put this behind us and use the analogy of ripping the band-aid off in 1 quarter. I think what investors often try to grapple with here is that meaningful changes to the commercial side or big inventory changes like this, typically aren't a 1 quarter, one and done, but it feels like you guys have some of the confidence that, in fact, you're going to just continue growing through the year despite some of the noise going on and even some of the externalities that Rich was talking about that have been impacting the business for a little bit.

Maybe you could spend another like a couple of minutes on, you said it's been a couple of weeks that you guys have been doing some of these new initiatives. Any metrics you can give us on what's already being done in the early days that's kind of giving you confidence that this is done, that there's not going to be another thing that we need to change on a go-forward basis.

Sure. Thanks for the question. Well, I'll start with the procedure matching to handpiece revenue, we made those changes in the last month in December of last year. So we have pretty many weeks of run rate now where we're seeing those two numbers pretty much aligned. And so that's one of the things that gives us confidence that, that's behind us. But again, we're going to increase our installed base by a couple of hundred instruments this year. And all of those are going to need inventory to drive. So even if there was a whole bit more destocking in our installed base, which I don't have any evidence that there is. We're still going to have all these new systems coming in that are going to need inventory, which is why I said there's probably a little more upside than downside.

But again, I think our focus is going to just be strictly on procedure growth because the health of our business is never going to be impacted by customer ordering or stocking patterns. It's going to be driven by our execution in the field and by growing procedure volumes. And that's why we made the changes to the sales organization, and we made them all at one time, so we can get behind us. We can get the team moving forward and they can go execute. And we've aligned the team, under a common regional leader now, where we have the focus, and we have the accountability and align finish to go drive our growth on the things that matter the most, which, again, is going to be procedure growth.

So I understand the question, and I understand the comments, but we have to make these changes to drive the organization the way that we need to drive it. And I'm building this thing with a multiyear plan in place, not an individual quarter. And so we just had to stop some of these things that I think were hurting our margins, and I think we're encouraging the wrong customer behavior. And that's what we've done. And I feel very confident that the inventory issue, I feel very confident that it's behind us. And on the sales organization, I'm confident that this will pay dividends to us down the road. But again, it's a big organization change. It does take time for those things to settle in as people establish those relationships, but all of that is factored into our 2026 guidance.

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

Yes. No, thank you. we're going to provide more detail on procedure trends at the investor conference tomorrow, but we're still very early in penetrating a market with more than 400,000 surgical BPH procedures annually. So our primary opportunity improving commercial execution is going to be consistently taking share.

From a competitive standpoint, we continue to think that we offer a very strong value proposition, particularly related to specific to -- with respect to while the sign of service economics can be attractive, we're seeing continued variability in clinical durability. And we've also seen more variability in payer coverage. And our current market intelligence suggests that coverage may be more selective over time rather than broader. And as a result, we don't see changing the long-term competitive dynamic for patients who are appropriate for respective therapy. But we're going to show some data tomorrow and we're going to walk through what we think our value proposition is and why we think we're going to be successful making inroads from a share perspective in this patient population.

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

Larry, can you hear me all right?

I hear you fine.

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

Well, look, one of the things that we've talked about, and we'll show more detail on it tomorrow is that if we look at over the last 4 or 5 years, the handpiece revenue was only higher than our procedure volume. And if we look at what was happening with pricing, pricing was pretty stable during that period of time. But I signal last year that I thought inventory levels in the field were higher than they needed to be, and that's why we signaled that we thought we would take some of that inventory level down. It wasn't until we were deep in the quarter that I think we started to get an appreciation for just how much these incentives were really driving the customer stocking behavior.

And I think when I look at that, price is such a hard thing to do and improving margins is such a challenge. And I just thought there's this huge opportunity here. To be it a $3,500 price point in our 2026 plan, is a really meaningful upside, but that's not going to take dividends just for us in the short term. That's going to pay dividends over the next several years as we think about our path to profitability and improving our margins.

And so the idea that you were trying to like little things down and bleed this thing off over many quarters. It was just going to be a headwind that we frankly would have to keep talking about and just gradually do it. And I think we would not see the ASP benefit if we were trying to lead this off over a long period of time. So we just made the decision.

And look, we understand completely why it created a revenue shortfall right, but the impact of the ASP next year is so significant. To me, again, building these foundational pieces for the long term, it's just critical. And so we just took a step. I think we also wanted to recondition our customers that these practices are behind us. And then we're not going to be doing these things anymore. And so they can just order based on their procedural usage rather than ordering on other things. And none of the changes we made impact our future growth trajectory, and they don't impact our path to profitability.

So I think they were just the right decision for us to make. I understand the point that you're making, and sometimes it may look to thing to try to bleed this up over time. But then I think you just continue to confuse your customers with these incentive plans, and we just wanted to put that behind us and be done with it.

Fair enough. And Larry, my second question, so you mentioned customer behavior a couple of times in your remarks. Presumably, that is referring to wanting end-of-quarter discounts and whatnot. So these customers have been -- their behavior has been primed by PROCEPT's sales practices, and it is over multiple years, right? Have you all done a sensitivity analysis based on your existing customer base where this switch that you are turning on or off, it's going to now change the end customer behavior once again and almost instantaneously?

Yes. We've had multiple weeks of this, where we've been dealing with it again. We did this in December of last year, we made these changes. So I think we've had a decent run now where we've been able to evaluate that. And we don't really see any impact or change there, and I don't expect that we will.

I think the -- I speak of in terms of customer conditioning, but we're a party to that as well. We were offering [indiscernible]. We were offering discounts to customers. We're taking advantage of those. And it just wasn't a good healthy practice for us, I don't believe over the long haul, I think it's far more beneficial for us to see the impact on ASP, but also to have a stable, reliable ordering pattern and revenue stream. And so I think those are just the things that we needed to do and that structural impact of this change, but I think it benefits us over the long term.

Our next question comes from the line of Michael Sarcone from Jefferies.

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

Sure. Well, here's what happened in the previous org structure. On our team -- we just had sort of one field team that was focused on procedures, and then obviously, we have the capital team as well. In the old process, the capital team, they would sell the instrument. And then at some point, the procedure team gets notified of it. And in addition to supporting the installed base, they would have to figure out how to launch this new system, how to provide the support, when doctors want to be traded, and how they wanted to be trained. So they were sort of [indiscernible] different directions.

And when you think about it this way, you have a capital team that's trying to move capital. You have the procedure team, we just made up of salespeople and clinical people that they reported up into different meters and sort of their whole incentives and their own plans and their own objectives. And those weren't a way to live. And so by creating the launch team, it sits under our capital organization. So that when the capital team is close to closing on an order, we're already lining up with the clinicians that need to be trained, what that process is going to be. And then we took some of our most tenured people and put them on the team because we want to make sure for every new system that's placed that they get the best support, the best care so that they have a great launch.

And the metric that we're tracking to is time for PO, the time that they complete like their first 10 cases, it's not just getting 1 case under their belt. So we're really trying to drive that repeated excellence and predictability of launches and really running a very standardized playbook, which we didn't really have historically. You have different people doing it differently. And again, they will be pulled from trying to support a good accounts and also try to launch systems. And in some cases, maybe you're having junior level people through some of these activities.

Now we have our best people in place to do those things. The impact of that is we have to rebuild those positions on the procedure team and rebuild those relationships and do those things. But again, we think that's going to pay dividends for us. We ran a pilot in Q4 when we ran that pilot, we saw about a 50% reduction in times to firsthand cases when we did under the launch team model, which I think is going to have a lot of impact for us on a go forward. And again, we'll talk more about this on tomorrow in more detail on it. But these are the foundational pieces that I think we have to get in place. And our goal is by the end of the year that everybody is launching is in a launch team now.

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

Yes, thanks. Yes, while the growth number was pretty good. I will tell you we have much more ambitious goals from that, and that's again why we made some of these changes because we want to drive and accelerate that.

In terms of where the growth comes from, I will tell you, it's highly variable. And we'll provide a little bit more color on some of our insights tomorrow, but there's just not an easy one answer. It's not to say that every customer is a snowflake, but there's not as much commonality as maybe one would think.

But we're going to talk about that tomorrow. And again, we're going to be really transparent tomorrow, walking people through our strategy through the changes we made, why we believe they're going to benefit us. And what we're going to do differently on the go forward. But hopefully, we'll get people confidence in our strategy and our longterm out.

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

This is Ben on for Mason. Are you -- in light of some of the recent changes that you've discussed today, could you update us on maybe your IDN level strategy? Are you planning to lean more heavily into these negotiations in 2026? And is there any opportunity for maybe some bulk system placements in the 2026 guide?

I don't know that anything really changes year-over-year. We always are focused on -- we have a team that focus really on IDNs. We have teams focusing on new greenfield placements. I don't know that anything really materially is going to change from last year to next year, but we're going to talk broadly about our capital strategy tomorrow. And [indiscernible] said, maybe a little bit more light on that, but I don't think there's any massive changes from last year to this year.

Okay. Great. And then you previously noted that maybe Aquablation improved outcome story -- the Aquablation improved outcome story may not be as widely understood by patients today. Are there any patient activation initiatives you plan to launch in 2026 to maybe help drive this messaging?

Well, if you're in listening that, then you're definitely going to want to tune in tomorrow. We have a very specific plan and strategy are not making the clinical case both the patients and clinicians about the value proposition of Aquablation. But one of the things that I may really want to stress is, I think when some people hear patient activation, they think it's just about getting people off the sideline. There's about 400,000 people a year, they get an invasive procedure for their BPH. And we're only about [ 25% ], about 10% penetrated into that group. So we have a lot of headroom just taking share from the patients that are already being treated. You go beyond that, there's a whole other funnel of people who are on drugs and other things that we will shed light on the model, but our near-term execution is all going to be focused on moving share. And I think certainly, the patient education and the physician education is going to be a key component of that.

I think the other thing that people hear a lot of times is when they are patient activation, they take Super Bowl commercials and millions of dollars of spend. And that's not anywhere in the ballpark that we're in. We're very focused on our path to profitability and the programs that we have are not going to be of that scale. And what's really good about this market for us is it's very easy for us to target and identify men with BPH. It's much simpler than [indiscernible] my old world where you're looking for the 5% of the people age of the that have modular heart disease. We know exactly who these people are, so you don't have to pass this wide net to be able to target the people with BPH. And so we get much more targeted education programs that I think are going to be impactful.

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

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

Yes. I'll take your second question first. Yes, the ASP pickup is just by nonoperating incentives or discounts for end of the quarter purchases. And finally name that practice, we've already seen the impact on our on our ASP, and we expect that to continue. On the procedure walk, we are going to go into detail on that tomorrow, but it's going to be a combination. I think the biggest drivers of it, frankly, are going to be being the new systems that we're adding, the benefits of the launch team, the growth that we're going to get from that, we don't have massive okay, in our installed base, there's obviously going to be some growth that comes there.

But we know it's going to take a little bit of time for some of our programs to take hold. But we're going to go walk the detail a lot tomorrow to walk through kind of the puts and takes on how we take our procedure total from what we had in 2025, when we'll have in 2026.

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

Yes. Thanks. All of the changes structurally the organization have been made. So those are all the made. Those are all in place. We rolled them out our sales meeting in January. And so all of that work has been done. Everybody had their account targets, everybody has their quotas. They ready have their revised incentive plans all of that work has been done. I think it's now just a matter of people maturing into these roles, learning their new accounts, building those relationships and doing things they need to do.

And just, again, I don't want to overstate things. It's not like every single customer, got a new rep. A lot of things did hold over from the old as we realigned territories. And we did pull some people out to the launch team, but it wasn't like 30% of our field force or anything. But all of these things have some impact. They do create some headwinds for us. But I do believe that the organization matures, having a team of people that our only focus is improving utilization in our installed base, I think, is going to pay dividends for us in ensuring that their streamlined incentives between the commercial team, the sales team and the clinical team and having to report to a common leader in that region is going to drive a lot more focus. It's going to drive a lot more accountability and ultimately improve our execution and performance.

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

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

Yes. Thanks, Danielle. Here's what I will say. The company historically has really been focused on placing symptom systems and then working through the people that acquired the systems to make sure that they knew how to do the procedure and they delivered good outcomes with the system. I think the team did a great job on that.

In terms of marketing programs and in terms of awareness and in terms of those things, the value proposition. As I'm just real frank about it, none of that work was done. If I pretended to be a patient that I went out live and try to find information on BPH therapy, I couldn't even find [indiscernible] going through when I think a patient would normally do for search firms or any of those things. So there's just some very basic fundamental work that had never been done that it never really made our value proposition case to patients.

But doing new things and getting our web IND and getting in social media and doing the comparison, how our procedure compares in terms of outcomes and durability and the thing that matter most of the patients, we have to do that work, but this is always a bulb. It's never a light switch. I mean you look at TAVR journey during my entire time at Edwards and it's a continual build that you have to do. But there's just so much basic work that can be done quickly that I think is going to make a difference.

And I think we're going to spend a fair amount of time on that tomorrow during the investor conference, and I hope you're there. Because I think when you see the work that we're doing, you see the value proposition we have, I think we're going to make a component case to clinicians and also in patients.

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

Yes. Thanks, Danielle. Certainly, for the long-term plan, that's going to be something that's going to become part of our story as we go through time. So I think that's very fair. I don't think it's something that's so much of a near-term thing for us.

The other thing, and I'll just address it and we're going to talk about tomorrow is, we have people saying like that you got to cover cases forever because that's been our model that we've done historically. And we'll provide an update on that as well on how we think these things evolve over time, and that can improve our efficiency and again, improve our ability to execute as we go on.

Our next question comes from Mike Kratky from Leerink Partners.

I wanted to follow up on Chris' question again earlier. I mean if handpiece sold have consistently been above procedure volumes every single quarter for the last 3 years outside of the fourth quarter, I mean, wouldn't your customers still have a pretty substantial build-up of handpieces that they have available that they need to work through. When you talk about this 1:1 ratio, can you just help us understand why that is -- you have confidence that, that's going to be the case? And was there anything in the voluntary field action that might have impacted that?

Yes. Well, [indiscernible]. There was nothing in the field action that had any impact on this one way or the other completely separate event that didn't have any impact.

In terms of the handpiece, what I can tell you is customers still need to maintain inventory levels. Nobody is sitting there with one handpiece the shelf. So they need to continue to inventory model. It's just a matter of when inventory levels are going to carry. And I think what was happening with the incentive plans is people would stock way, much -- way more inventory than they wanted and then they reverted down in the first couple of months of the quarter, then they would repeat the process and reorder again and take advantage of these incentives.

I think we've eliminated that, and now what we've seen is a settling into where accounts are just carrying the inventory level that they feel are appropriate based on their usage and based on whatever their inventory policies are. We model next year at 1:1. And that what has been actually happening as we look at the last several weeks since we made these policy changes or practice changes, I guess. And so that's what gives us confidence on a go forward.

But the other thing is, again, we're going to install a couple of hundred systems next year, and they're all going to have to take stocking orders, and they're all going to have to establish inventory levels as well, and we're still modeling it at 1:1. So those are the things that give us confidence next year that 1:1 ratio is going to be in line.

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

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

Our last question comes from Nathan Treybeck from Wells Fargo.

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

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

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

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

Yes. Well, we actually had a very strong capital quarter in Q4. We had 65 systems, which is an all-time high for us. And so I think that supports that we continue to see demand. Now just the natural nature of capital the fourth quarter tends to be our biggest quarter every year, and we are bottling about the same number of placements in 2026 is what we had in 2025, and we'll provide more detail on that. But we're actually modeling ASP to be flat out from 2026 from where they were in 2025. And so we continue to see good demand for. And we think the capital market, I don't want to say it's ever easy, but I don't think there's anything structurally changing from 2025 to 2026 that would impact our ability to execute our plan.

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

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

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

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 is down in the front row here, making sure I don't say anything I shouldn't. No guarantees there. But thanks so much for coming out.

Thanks for having us.

You bet. So 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 work down situation. So can you just maybe clarify that a little bit more, just give us a little bit more commentary about what that means?

Sure. Happy to. I think historically, people have looked at handpiece sales as a proxy for procedures. But when you place as many systems as we do every quarter, you have people taking stocking orders. And 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 never really established par values for any of our sites based on their utilization. And from my time at Edwards, we live in a consignment world and par values are everything. You always want to make sure you have inventory rightsized in the field.

And so for us, my focus is always on procedure volume. The stocking orders are always going to just sort of be noise in the system. So we feel really good about where procedures are going and where procedure growth is, and that's really our focus and where all of our energy is going. And so I think we talked about having an Analyst Day in February, and I think that's where we're going to really shift probably a lot of our commentary more towards procedures than just handpiece sales. So people have more insights and, I think, how the overall health of the business and how those things are going.

But none of our commentary about the guidance reflected weakness in procedure volumes. It was just more a matter of trying to rightsize this inventory. And when we did the analysis, it looks like we probably had more people carrying too much inventory than people not carrying enough. So we made adjustments for that. We built it into our guidance. But from a procedure standpoint, we remain pleased with the adoption of the therapy.

Got it. Okay. And can I recommend Costa Rica or some place very warm in February versus here in New York.

Something like that.

Yes, I'll stick to my day job. Sorry about that, everyone. So just 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 did procedure growth look like? Because you look at like, okay, we're down from 53,000 handpieces to 52,000, but you're saying utilization is good and procedure growth is good. It's like, well, that doesn't quite reconcile. So how does the underlying procedure growth look?

Well, I think some of the things that we talked about that we're trying to focus on is that when 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. And even when it did get installed, maybe they didn't have cases lined up or a lot of those things weren't going as smoothly as they could if we didn't have those warm handoffs. So you would just have inventory just sitting in accounts that wasn't necessarily being utilized, but every new system you're placing out is taking that stocking order and doing that.

I think the other thing, too, is if you don't establish par levels for places, then you might have somebody carrying 3 or 4 months' worth of inventory and you don't want that. What you really want is people carrying probably 6 to 8 weeks' worth of inventory. You want to manage 2 months, but it's just exposure for you having more inventory out in the field than what you want. And so I just come from running a big commercial organization where I think when I left, it was about $4.5 billion, and you just wouldn't want to have inventory not being rightsized based on true account utilization. So 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.

But what's -- for those of you who follow 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 going to have to come back out of the system at some point. Everything that I always talked about was procedure growth, procedure volume and how many centers are we adding and how much volume we're actually seeing 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 I learned from when we launched transcatheter sites was before we would train a center, we would make them send us 5 screened cases. And so then when we would take their stocking order, we would show up within a matter of days literally, and they would have 5 cases ready to go and we train them.

And 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. And we just didn't have a very mature process in terms of how we did that at PROCEPT. And so we ran a pilot program on that. We created a launch team, and we started launching instruments following that process. And we just saw a lot of benefits from doing that. And so that's just going to be something that we expand certainly as we go into next year.

And does that drive better utilization then in those accounts pretty...

It drives better utilization. It drives better inventory utilization. It just makes the business healthier. And I think the other thing is my experience at Edwards is when we launch a site and they do really well and they get in that steady cadence, they tend to do well. I think if you launch a site and my experience is that they did one case and then they waited 2 weeks and then did another case and they waited 2 weeks to do another case, they take forever to get to the learning curve, and they don't develop that referral cadence, and they don't even set aside the block time to get into that standard thing. So I think I learned how a site launches was one of the powerful predictors for how they were going to do longer term. And it's just something that I just brought a lot of focus to when I joined.

Got it. And is that something that's been in place now for several months or even longer?

Well, I've only been in place for a couple of months. Yes. So this is something that I think when I got with the management team, it's one of the things we looked at. And again, I think the management team had looked at it, but we had people chasing a lot of different things. And we were asking our field people to do a lot. We were asking them to 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. and then a new instrument would show up and then 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 don't lose any momentum that we continue to train the new physicians. So it's just asking people to do less, but what we're asking to do is asking them to do it better.

Got it. And so beyond that, what else have you seen or when did you bring from Edwards do you think you can implement at PROCEPT to help on the utilization?

Well, I think the team at PROCEPT did an amazing job at making sure they launch this brand-new therapy, and they delivered really high-quality clinical outcomes. And I think that's really one of the most fundamental things. I think how many -- 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. And I think the team has done an amazing job of making sure that, that happened. But 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.

And so we just need to enter that next phase of our business where we get our share for all the patients that are being treated today, but also there's a huge opportunity to get patients off the sideline. And 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. But where the real growth of the business came is when we started getting people off the sidelines. People that said, 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. And so we have to make sure we get our fair share first. But then the second thing is how do we pull people off the sideline.

Okay. So I was going to ask that question later, but let's just get to it now. How do you get guys off the sideline? Guys are knuckleheads. They don't want to 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 want to admit anyway?

Well, I mean, I'd argue we dealt with the same things with aortic stenosis and transcatheter valves. And I think what people would say was when the cure feels worse than the disease, you'll live with the disease. And I think probably one of the funnier things, the learnings that I've had is I came from structural heart and I come into urology, and I'm like, I don't know anything I'm going to have to learn. But fluid dynamics is fluid dynamics. And when you look at what's happening to the heart when you have aortic stenosis, your ventricle is 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. Well, and we just told people just live with your symptoms. If you go and tolerate your symptoms, you're okay.

And we tell the same people that who have BPH. And the reality of it is what's happening is your urethra is getting narrower. Your bladder has to build up more pressure to overcome that narrowing. And your bladder can do that to a point and overcome those symptoms until it can't anymore. And by leaving that untreated, you're doing long-term damage to your liver that can learn -- lead to long-term incontinence and bladder control issues and all these other things. And we haven't done -- we've spent 0 time talking about the damage that you're doing to your bladder during that latency period, during that period of time. I think the other thing about it is when men looked at it, I mean, most men, I'll just speak for myself before I joined, you sit here and you say, if I get a procedure done on my prostate, I have a risk of incontinence and certainly, I'm going to have sexual dysfunction. Like that's just a given.

And so like given that that's the choice, I'm going to live with my symptoms, no matter how bad they get. And 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. And our risk of incontinence are insanely low and our risk of sexual dysfunction is really, really low. And 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.

And I think 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. And we know how to do this. Is it easy? No. Is it super fast? Is it a light switch? No. But 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. And we haven't really -- we haven't even really gotten started on that, to be frank.

But there's a lot of clinical evidence around Aquablation. Can you use that existing evidence on the clinical side? Or do you need to go run a study to show that.

We have tremendous existing evidence. We have tremendous existing evidence that takes out. We can show the durability of our procedure. I think we live in this sweet spot where you have these nonresective 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. And that's why we've seen a lot of nonresective procedures kind of come and go. Then you have the resective procedures that they're very effective, but they leave you with a lot of complications and a lot of risk. And we live sort of in this Goldilocks space where we can deliver those resective outcomes, but really almost with a complication profile of the nonresective procedures. And I think that's the most powerful part of the story that we need to tell.

Yes. Okay. And then just sticking on the utilization side, we've seen UroLift get to 20% penetration. We've seen a lot of other 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 not saying that because you guys are sitting here, maybe kicking up a little bit. But like this is the one I would probably like...

We have referral programs available. No, it's -- I think the nonresective procedures always look sexy early, but they start to fall apart when you start seeing the durability data. And when they don't prove to be a durable procedure, that's one of the things. I think that's 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 going to start with a nonresective procedure and then I'm going to work my way down to a resective procedure because the perception is that nonresective procedure is less invasive. But once a device goes through your urethra that's the same size, one procedure, I don't think is any less invasive than another procedure, the invasiveness of 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. And the third thing they want is to be able to preserve their sexual function and their bladder control. I mean those are the 3 things. And when you look at the lens 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. And I think that's the case we have to make. But it's fine for the urologist to say I'm going to do this procedure and if that doesn't work, I'm going to do that procedure. And if that doesn't work, then I'm going to 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 going to do a sternotomy and repair the valve. And if that doesn't work in a year, then I'll come back and I'll replace the valve and just do another sternotomy and because 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 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. And 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. Yes. And I've seen a couple of UroLift cases live and they're very invasive. Larry, I'd like to switch over to -- everybody is all focused on the utilization being a little soft in Q3 versus expectations. And -- but the capital number in Q3 was excellent. Can you just talk about what drove the strength there and just with the backlog and the outlook for capital placements?

Well, I think primarily it's the strength of our value proposition and the execution of the capital team, which I think did a good job. I probably -- 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 we see people scrutinizing capital a little bit more closely. And so what you have is just -- normally, we run a capital process, and the team has been doing this for a long time. They kind of know the blocking and tackling, they go through the process. And all of a sudden, there's some additional committee review that has to be done or some additional person that also is in the process that didn't exist before.

And so we had units that we thought we'd close in Q1 but didn't actually close until Q2, units that were in Q2 that didn't actually close until Q3. I don't think anything fell out of the system. We didn't lose any capital sales. It's just -- it took a little longer to execute on some of these. And so I just nodded to that in an effort to be transparent on the call. But we have a really good visibility into our pipeline. I think our value proposition remains really strong. And I believe if you look at our history, we always delivered on our capital number, and we've done it in a high-quality way, and I think we'll continue to do so. But could it get a little bit more lumpy with just a little bit more of this extra scrutiny on stuff? Maybe. But everybody I talk to that sells capital is saying really the same thing. And so we had a really strong capital quarter even in that environment. And I think I was trying to give a nod to the team on their excellent performance. And then every discussion I had after that was like, well, good, the bottom is falling out of capital. I'm like I don't -- my bad.

Okay. Okay. Kevin, a question for you. The replacement cycle, right? You've got high growth, new system, really cool, some clear feature benefits to that. There's about 500 AquaBeams out in the field today. 78 of those, as I calculate them are going to be 5 years old next year. How do we think about the replacement cycle for those or trade-ins or any kind of just start to be in the economics -- economic benefit you could get?

Yes. Well, alluding to February, the Investor Day that Larry referenced, I think we're going to do a pretty deep dive on the replacement cycle and the opportunity. But we do believe that '26 is the year, given the age of our systems and the useful life of around 5 years for an AQUABEAM robot where replacements will start to be a meaningful part of the business. And that's important. But 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. And if you look at our R&D pipeline, every innovation is focused on HYDROS. And when you think about next indication with prostate cancer, think of advanced imaging, all of that will be done on the HYDROS system. So we want to get the HYDROS system in as many customers' hands as quickly as possible, and that'll start in '26.

Got it. Okay.

And 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 our 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. So we're just actually starting that process now of really developing a cohesive replacement strategy. And I think that, that's going to drive it. But Kevin is 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 that hasn't set us up for cancer down the road.

Yes. Okay. I mean you guys are growing so quickly. It's tough to focus on everything.

And 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. But for me, I think we need to be able to do both. We need to be able to continue to focus on greenfield sales, but we are reaching the time, as Kevin said, with the age of the instruments in the field. And also, 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. And so those centers are just going to fall further and further behind. And this is why we need to get them upgrade because it's just not going to 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 because you guys did provide that. Larry, you've been CEO for 2 months. I know you're on the board. Why not just hammer that number next year and be like, yes, 390, 400 and 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 and it's sort of a bus run of previous administrations and doing all that and then trying to set up some ridiculous beat and raise. I think the math also has to be coherent. I would say the guidance we put out, we feel good about that guidance. We put everything into it. But at the same time, that guidance, I think, reflects largely business as usual a lot of status quo. Our ability to implement a lot of these initiatives, whether it's the higher percentage of robots that we can launch or a better replacement strategy or accelerating any of those things, I think those all represent meaningful opportunities to the plan. And so we feel good about the guidance, but I'm not going to be excited if we just meet our guidance.

Okay. We'll get you to the high end of the guidance.

I think just better commercial execution. I think it's better commercial execution on things we talked about on procedure growth. Some of that's going to be same-store, but some of it's going to be more efficient launches 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 going to help us drive some share capture. And I think as people have better outcomes and we do better with the referral base, I think 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. And I think if they take more time, then you're probably closer to the midpoint. But achieving the high end of our guidance, I want to do better than that. I'm never going to be satisfied 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, we understand it's 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?

Yes. 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 2x what you would be reimbursed to do a TURP or a GreenLight, which are other resective procedures. So the economics in the hospital remain very favorable to offer a nice ROI on our robot. And again, that's gone up 5%. I think what you're probably alluding to is the Category 1 physician fee, which while it did decrease year-over-year, it still is reimbursed comparative to the other resective procedures. And 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. And to answer your question directly, we're not hearing much from our surgeon community around the reduction in the Category 1 and don't really expect that to be a headwind to the business.

Got it. Yes.

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 going to believe the economics my hospital got on my procedure. And doctors are really trying to do things to improve outcomes for patients. And I think we need to make our clinical value story. And I think the economics then sort of fall in line after that. But I mean, for years, people told me the economics on surgery versus TAVR was going to be a massive headwind for us because hospitals made twice as much doing surgery as they did TAVR. And it's like -- that's the wrong equation because the idea that you're going to make $20,000 on surgery or $10,000 on TAVR, so I'm going to do surgery, it's the wrong math. You're going to get $10,000 for doing a TAVR, you're going to get 0 because patients aren't going to be agnostic to the procedure they have.

But 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 going to do surgery on you, they say thank you very much and they go down the road. And I think as people start having that equation play out, I think the economics take it even further backseat.

Do you have to -- I'm running out of time here. Do you have to do DTC to really get that message across or no?

But it's not -- and we're not going to do a Super Bowl ad. We're not going to pour millions and millions of dollars into this sort of thing. I think there's things that we can do with social media. There's 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. Well, I think we're all out of time. So I'll have to cap it there. Thanks so much for all the feedback. Really do appreciate it.

Thanks. Thanks for having us.

Good afternoon, and welcome to PROCEPT BioRobotics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn it over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments.

Good afternoon, and thank you for joining PROCEPT BioRobotics third quarter 2025 earnings conference call.

Presenting on today's call are Larry Wood, Chief Executive Officer; and Kevin Waters, Chief Financial Officer.

Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events or performance are forward-looking statements as defined 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, November 4, 2025. Except as required by law, PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. During the call, we will also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent are included in our earnings release.

With that, I'd like to turn the call over to Larry.

Thanks, Matt. I'm excited to be on the call today to discuss our third quarter results and share some early insights from my first couple of months in the role. First, let's talk about the quarter. We demonstrated strong execution and results with total revenue for the third quarter of 2025 of $83.3 million. Strength in the quarter was driven primarily by U.S. capital systems shipped, which totaled 58 in the quarter. While we have begun to see some large hospital systems more carefully scrutinize capital spending in light of evolving macroeconomic conditions, we delivered a strong capital quarter. Capital pricing has remained stable. And importantly, we continue to maintain solid visibility into our pipeline and remain confident in our ability to finish 2025 on a strong note.

On procedures, my handpiece sales were roughly in line with expectations. Procedure utilization is an area we are highly focused on improving moving forward and believe it's a key to unlocking long-term value. As part of this increased focus, we're implementing several organizational changes and launching multiple initiatives aimed at improving our commercial execution. One example is increasing focus on improving our speed of new account launches. While HYDROS launches consistently deliver strong procedure adoption post launch, the timing from sale to first procedure is highly variable. The situation presents 2 challenges. First, it delays the realization of utilization benefits from newly installed systems. And second, hospitals are holding excess HYDROS handpieces that were purchased at the time of the capital sale.

To address this, we launched an initiative with clear goals and metrics aimed at achieving procedural targets in the shortest possible time after a sale. Early results have been highly encouraging, and we plan to expand this program in the fourth quarter and fully implement it in 2026. Reflecting on my first few months, I've had the opportunity to observe procedures and speak with a number of key opinion leaders across the field. What I've seen has only deepened my conviction in this opportunity and validated the reasons I chose to join PROCEPT. When I think about our long-term potential, it really starts with the fundamentals. BPH is massively undertreated. Many patients fear the side effects of drugs or surgery and avoid therapy altogether.

What they don't realize is delaying therapy can significantly affect their quality of life and even lead to more serious health issues. At the same time, many patients are still unfamiliar with Aquablation therapy and the life-changing benefits it can offer. Our clinical value proposition is strong. The Aquablation procedure and the supporting clinical evidence are highly compelling, especially on the outcomes that matter most to patients. I think the team has done an excellent job driving early adoption and supporting clinical users. But if we want to expand our impact, we must do more foundational work to increase therapy awareness and drive patient activation, which is something I have a lot of experience from my time at Edwards. This will in part -- this will be a core part of our near and midterm commercial strategy.

We are also sharpening our focus internationally. We see strong opportunities in markets that value transformational therapies and are willing to support access for patients. We will increase investment and organizational support in these regions accordingly. Additionally, to support our core initiatives, we've made a number of organizational changes. Pooja Sharma has joined us as Chief Marketing and Strategy Officer. She brings deep experience from Edwards Lifesciences, where she led marketing and strategy for the transcatheter heart valve business. Her background in driving category leadership and therapy development is exactly what we need at this stage.

Also, Stephen McGill has been promoted to Senior Vice President, General Manager, International, and will now report directly to me. Stephen has done an outstanding job leading our international business. With added investment and focus, I'm excited to have him on the leadership team. This also enables our incoming commercial leader to focus exclusively on North America. By organizational change and influx of new talent can create some short-term disruption, my primary responsibility is to ensure that we have the right people and the right objectives to drive long-term success.

Overall, procedure volumes have been solid year-to-date. However, given the size of the BPH market in the United States, we are still only scratching the surface and have tremendous opportunity to further accelerate procedure growth. Looking ahead, Aquablation is a highly differentiated solution for BPH patients. While our current evidence is already strong, we will continue to invest in building a robust clinical foundation and ensuring patients are aware of Aquablation therapy. We also see longer opportunities beyond BPH. Specifically, we believe Aquablation has the potential to be a compelling therapy for prostate cancer. This is an area we are actively studying in the WATER IV clinical trial. High-quality evidence generation will be a foundational part of our expansion strategy in this space.

In closing, I'm energized by the opportunity ahead. The leadership team has been incredibly supportive, and we are committed to advancing this therapy for the patients that need it. We will build a world-class marketing organization to activate patients and accelerate utilization. We will invest meaningfully to expand market awareness. We will accelerate new account launches and drive international growth with a focused market-specific approach.

With that, I'll hand it over to Kevin to walk through the financials for the quarter. Kevin?

Thanks, Larry. Total revenue for the third quarter of 2025 was $83.3 million, representing growth of 43% compared to the third quarter of 2024. U.S. revenue for the third quarter was $73.9 million, representing growth of 42% compared to the prior year period.

Turning to U.S. procedures. Handpiece and other consumable revenue for the third quarter of 2025 was $44.4 million, representing growth of 50% compared to the third quarter of 2024. We also recorded approximately $2.4 million of other consumable revenue in the third quarter of 2025. In the third quarter, we sold approximately 13,225 handpieces, reflecting 51% year-over-year unit growth. While we navigated a period of commercial leadership transition, our team continued to deliver solid performance and momentum.

Turning to U.S. robot placements. We generated total U.S. system revenue of $24.7 million, representing system revenue growth of 26% compared to the third quarter of 2024. In the third quarter, we sold 57 new HYDROS systems. The pricing for our systems was at an average selling price of approximately $435,000. Additionally, we placed 1 HYDROS system under an operating lease model. As a result, we exited the third quarter of 2025 with a U.S. installed base of 653 systems, representing an increase of 47% compared to the prior year period. Lastly, international revenue in the third quarter of 2025 was $9.4 million, representing growth of 53% compared to the prior year period.

Moving down the income statement. Gross margin for the third quarter of 2025 was 64.8%, representing an increase of 160 basis points year-over-year. The year-over-year margin expansion was driven primarily by greater organizational effectiveness. Total operating expenses for the third quarter of 2025 amounted to $77.2 million compared to $59.3 million during the same period in the prior year. Net loss was $21.4 million for the third quarter of 2025 compared to $21 million in the same period of the prior year. Adjusted EBITDA was a loss of $7.4 million compared to a loss of $12.4 million in the third quarter of 2024. Our cash, cash equivalents and restricted cash balances as of September 30 were approximately $297 million.

Moving to our 2025 financial guidance. We continue to expect full year 2025 total revenue to be approximately $325.5 million, representing growth of approximately 45% compared to 2024. We now expect to sell approximately 213 new robotic systems in the United States in 2025. As a result, we anticipate system sales in the fourth quarter to total approximately 65 systems.

Turning to U.S. handpieces. For the full year, we now expect sales of approximately 52,000 handpieces, representing a 61% increase in unit volume compared to 2024. The reduction in fourth quarter handpiece sales guidance reflects modest headwinds related to the optimization of field inventory resulting from the variable launch timing of recent HYDROS placements. We are maintaining handpiece average selling prices to be approximately $3,200 and other consumable revenue expectations to be approximately $9.5 million for the full year. Additionally, we expect U.S. service and other revenue to now be approximately $17.5 million for the full year.

Lastly, on international revenue, given strong positive momentum, we now expect full year international revenue to be approximately $37.5 million, representing annual growth of 56%.

Turning to gross margins. We now expect full year 2025 gross margin to be in the range of 64% to 64.5%. This would imply a fourth quarter gross margin of approximately 63%, which includes approximately $2 million of tariff expense. Turning to operating expenses. We continue to expect full year 2025 operating expenses to total $302 million, representing a 29% increase compared to 2024. After considering all relevant factors, we continue to expect a full year 2025 adjusted EBITDA loss of approximately $35 million.

I would now like to pass it back to Larry for closing comments.

Thanks, Kevin. Before we open the line for questions, I'd like to take a moment to provide perspective on fiscal 2026 to give investors early visibility into how we are approaching the year ahead. For fiscal 2026, we are currently anticipating total revenue in the range of $410 million to $430 million. The outlook reflects our current momentum in capital sales even in an uncertain macro environment and incorporates our expectation of modest procedural headwinds in the first half of 2026 when we make targeted strategic investments to enhance our commercial capabilities and operational excellence. These initiatives are designed to drive sustained long-term utilization growth and position us for durable profitability. We will continue to invest in our strategic priorities to drive long-term growth and do not expect these investments to impede our progress toward achieving profitability.

Lastly, in late February 2026, we plan to host a formal Analyst Day in New York City, where we will outline multiyear revenue guidance and provide updates on our marketing priorities, R&D initiatives, prostate cancer trial and profitability targets. We look forward to providing a more robust long-term view.

With that, we are happy to take questions. Operator?

[Operator Instructions] Our first question is from Matthew O'Brien from Piper Sandler.

Great. And Larry, I hope things are going well here early in your tenure as CEO. Would love if either you or Kevin would talk about the capital environment because that number in the quarter was quite strong, clear acceleration. I know some people were worried coming out of Q2 about the capital environment. So can you just talk about the strength that you saw there, especially in an environment that you say is weakening a little bit? Is it really HYDROS that's starting to see an inflection or maybe build some of the backlog even further? Maybe just talk a little bit more about what you're seeing there. And then I do have a follow-up.

Yes. Maybe I'll start, Matt. This is Kevin. I appreciate your question. So as you observed, we're really pleased with the capital team's performance in the third quarter. I think if you recall, in the second quarter, we said that we had some variability in timing, particularly with some of our IDN partners, and that still continues to be the case. So when we highlight perhaps some future weakness in capital, it's really more around timing and capital allocation with our customers as opposed to any worsening of the macro environment. And the team executed very well in the third quarter, and we feel good about that momentum heading into the fourth quarter where we're expecting somewhere in the kind of mid-60 range of systems, but feel good about the team, the capital environment and performance.

And then, Larry, a question directly for you. 2 months on the job now, I would love to hear a little bit more about what you've seen in your seat, maybe low-hanging fruit, some longer-term things that you can focus on and forgive the long-winded question. But the near-term changes on the org side probably make people a little bit nervous, especially as you're guiding for next year. So why the confidence in even providing that 2026 revenue guidance, which basically brackets where the Street is at? Can you just talk a little bit about your confidence there?

Thanks for the question, Matthew. I will say my first 8 weeks have been really incredible here. I've thoroughly enjoyed getting involved with the management team and digging in and I've had the chance to spend some time in the field and talk to a number of our KOLs. And for those of you who know me from my time at Edwards, I spent 40 years at Edwards and probably thought I'd never leave. And -- but spending the time on the Board with PROCEPT, it just felt like such a spectacular opportunity to change medicine again. And my time here, everything is really just validated it, spending time with the KOLs, seeing procedures, seeing what we can deliver for patients. I think the challenges in front of us are -- I don't think we've necessarily told our story yet.

I don't think we've told our story to clinicians, and I certainly don't think we've taken the story to patients. And I lived a lot of this journey when I was at Edwards. We had a lot of early success with transcatheter heart valves. But then we sort of hit a little bit of a wall once we got through the early adopters. And we had to do a lot more with therapy awareness and with patient activation and all of those things. And that was one of the big things that attracted Pooja to come here because we get an opportunity to sort of transform medicine again. But when you start with a procedure that I think is so highly differentiated, but isn't necessarily respected as such, I think it just creates this enormous opportunity that we can change the practice of medicine. And so I'm super energized by it.

We wanted to provide guidance for next year. I know being a new CEO coming in, I'll just be real frank about it, there's a lot of people that just assume somebody is going to be overly conservative with the approach and that creates uncertainty for folks. And so we just wanted to give you a range. We feel great about our future. We feel incredibly optimistic about our future. We have a lot of initiatives that we've already started and some of the pilots that we've run, I feel very encouraged by. So I'm just really excited about the opportunity, and we look forward to sharing more with you in February. I'll have more time in the role. Pooja actually starts tomorrow. So she'll have a little bit of time in the chair to be able to lay out some of her plans. And we're excited to share them with you and give you more long-term view in February.

[Operator Instructions] Our next question is from Brandon Vazquez from William Blair.

First, I just wanted to focus a little bit on the quarter specifically and some of the updates and then maybe a follow-up on a broader question. But you talked about this dynamic in the quarter of HYDROS placement seeing a little bit of a slower ramp. It sounds like that probably impacted utilization. I have you on my initial update of the model here at low single digits increase in utilization. One, is that right? And then two, just talk about this dynamic. Is this something specific to HYDROS? And then what kind of changes did you guys make that are already showing improvements? And how do we think about that utilization number ticking back up to the normal kind of high single, low double-digit range that you've historically been seeing as you tackle this dynamic?

Yes. Thanks, Brandon. Let me take the math part of that equation. And you're correct. So if you look at this pure year-over-year growth in utilization in the third quarter, it is in the low single digits, but frankly, kind of right around our expectations and what our guidance implied heading into the back half of the year. And then you do see utilization in the fourth quarter guide kind of really step back up to more in line with where we're at with Q2. And that dynamic of HYDROS -- first off, a significant number of HYDROS systems we've sold in the last 2 quarters, coupled with an elongated launch time line has contributed to kind of that low single-digit utilization. And that's really the initiatives that we're focused on as a company.

Yes. I'll just add to that. We -- just in our natural capital cycle, a lot of our instrument placements happen late in the quarter when we close those sales. And I think that's true of most capital organizations. And what that means is we don't really get benefit from the units that we sell in that quarter. That benefit comes later. But we see a lot of variability in newly placed systems between the sale and between when they come online and when they start delivering real utilization. And that's just a huge opportunity for us to really tighten up, and that's been an area of focus for us.

But I'm committed to really focusing on utilization. I mean we have to deliver on the capital side of things for sure. But increasing utilization, I think, is our #1 priority, and I think that also fuels future capital. So I see these 2 things as going hand in hand. And again, I think there's tremendous work that we need to do to drive utilization. And again, we have early initiatives on this that we're encouraged by, and we've made organizational changes to try to drive it, and we're going to continue to do that over the next several months. But getting systems placed and getting them active and hitting our utilization targets sooner is going to be really important to us longer term.

Okay. And maybe a higher-level picture as a follow-up. Larry, you had mentioned a little bit that your experience in building the TAVR market, I think you used the phrase of -- sorry, patient activation and some other learnings. And you were talking about moving kind of past the early adopters into the -- crossing the chasm here and going into the broad adoption. Talk a little bit about in TAVR, what did that take? And what isn't being done here in PROCEPT? What do you think within the PROCEPT story in your experience needs to be done? It feels like that's kind of the next step, as you had alluded to for PROCEPT is you've got a great technology, great clinical backing. How do you make this a technology for the masses?

Yes. No, it's a great question. I think one of the things that we saw in TAVR is if patients just were referred and they walked into a surgeon's office and they had aortic stenosis, the surgeon would just recommend surgery because that's the procedure that they can do. And frankly, it's a procedure that had a great contribution margin for the hospital, and they were happy to just keep doing that. And so when a patient walked in indifferent to the procedure that they're going to get, then the doctor might do what's easiest for them or what's most profitable for them and go down that road.

I think bringing the patient's voice into that equation is really important. And I think also we generated a lot of evidence in the TAVR space to show why TAVR was a good procedure for these patients and in many cases, why it was a better procedure than surgery. And I think we need to spend more time focused on the evidence with the clinical community, so they understand these procedures aren't all created equal, and we can deliver differentiated results for patients. And at the same time, we need patients to be educated on what questions should they be asking their doctor to the degree that things like I only want to have one procedure, so I want the most complete outcome. There's just a lot of things that we need to do from an educational standpoint.

But I think it's a complete game changer when a patient walks in and says, I've watched an Aquablation procedure and then the doctor has to try to change them to another procedure versus a patient just coming in and saying, what do you think I should have, whatever you recommend is what I'll go with. And there's just a lot of work there that we have to do, both with the medical community and patients. And then I think the other thing is we need to keep focusing on the evidence. We need to keep creating the evidence, and we need to keep amplifying that message so that people feel great about the procedure they're performing. They know they can deliver these great outcomes for patients. And I think that's really what our system can do in a very differentiated way. And right now, I think the doctors view a lot of these procedures as being very similar in terms of outcomes. And I don't think that's representative of what the data reflects, but that's on us to tell that story.

Our next question is from Richard Newitter from Truist Securities.

I wanted to start off with the '26 outlook. Thank you for providing a high-level revenue number. I was hoping you could provide maybe broad strokes on some level on the components. There's probably a lot of ways you can get to that number. So maybe whether it's commenting relative to where you see consensus, capital procedures, is there anything that needs to be kind of moved around? Or you kind of feel pretty good with the [ sum ] of the components as they are? And then also, if you could just talk about -- you mentioned the first half next year procedure, I think you had said procedures will be -- or utilization will be a little challenged. Is that -- why is that?

Yes, Rich. So there's a lot of puts and takes to the model, so I appreciate the question. And I'll start by saying we plan to provide a lot of color, obviously, in February when we introduce guidance. And I don't think there was anything out there we see modeling that is grossly misrepresented at this time, and our guidance essentially brackets where consensus stands today. I think the one thing I will say to maybe help frame is just with the international business, [ you see ], that's somewhere in the $45 million to $50 million range, and then you can kind of work the model backwards from there. But at this time, we're not going to get into the different components. We want to finish the year. We're focused on driving procedures in the business in the fourth quarter, and we'll provide an update in February.

I'll just add. As we mentioned that there could be some headwinds in the first half, we're not -- we don't want to be blind to the fact that we've made a lot of organizational changes, but I'm really committed to putting the right long-term organization in place that's going to drive our long-term growth and our long-term future. And I appreciate that, that's a transitional period, and we may see a little bit of headwind from that. But I remain super confident in the team and everything that I've seen, everybody is on board, everybody is committed to making these changes and driving the business, and we all think we're going in the right direction. But we just want to be respectful of that it is a lot of change for a lot of people in a short period of time. But that's all reflected in our guidance. And we're very comfortable with the guidance that we provided. And obviously, we're going to try to drive the business as hard as we can.

Okay. And then maybe if I can -- just on profitability. Look, it's 2 quarters in a row here where you guys are coming in above us or better than the Street's thinking. Kevin, can you talk a little bit about where you are on the trajectory to profitability? And then I guess, Larry, just -- should we expect anything in terms of reinvestment that's needed now that you've had some time to look at the business? And what should we be thinking about the profit trajectory and all the comments you provided before this leadership change, if any?

Yes. Maybe I'll start with it, and then I'll let Kevin pile on if there's -- if I miss anything. But there are going to be strategic investments that we make. But to some degree, I think it's going to be redirecting some of our spending to some of the new activities rather than just all incremental spending. But at the same time, I don't think anything is going to disrupt our path to profitability. But I will say this, just so it's clear to everyone. If there's an investment that I feel we need to make that's going to drive our long-term growth and that delayed profitability by a quarter, we would make that investment.

I'm really -- I'm building a house to live in. I'm building a house that I plan on being here for a long time, and I'm really looking at how we build this to try to drive long-term growth and long-term value. And I don't want to become so obsessed with profitability that we miss out on critical investments even if those don't pay off for 2 or 3 quarters or for 4 quarters. So we're going to make those investments. But I don't think anything disrupts the path that we're on to profitability. And I think we're going to be responsible spenders of our money, but we're going to invest in the strategic priorities that are going to drive our long-term value.

Our next question is from Patrick Wood of Morgan Stanley.

Amazing. I'll keep it to one, but basically around the commercial activities and utilization side of things. I guess, correct me if I'm wrong, but there's basically 2 componentry here. There's a, as soon as the system is placed, getting faster off the blocks and getting some of that utilization right out the gate, but presumably, b, it's getting eventual total utilization higher. You mentioned you were putting some commercial activities in place. I'm just really curious, when you're addressing those 2 factors, can you give us some like specific flesh on the bones to sort of think about the changes that are being made? Is it just who's running what? Or is it incentive structure? Just any more details there would be amazing.

Yes. Thanks for your question. I think there's a few things there. I think, one, as I mentioned before, we want to see new systems, the metrics that we're building in is really from time of sale to hitting our utilization targets. And we want to minimize amount at a time [0:30:01.6], which is highly variable. And I just wouldn't say -- I would say, if I'm just real frank about it, that I think sometimes the handoff between our -- the capital sales team and the utilization team could be enhanced. And so that's become a big area of focus, and I think that will improve our utilization out of the gate. And that's not just the time to first procedures, but the time to doing a number of procedures that we would consider a system to be fully launched.

I think the other thing is we've looked at our organization structure to say how do we best utilize our field resources. And I think there's a recognition that it's more than just being in cases. We have a lot of our field team that spends time in cases and they support physicians. And it's an important part of what we do because we want to make sure every patient has a spectacular outcome. But there's more to the role than that. And we need to be building the market and driving the cases and spending time in the office, spending time with referrers and doing all the other work to make sure people are up to date with the latest evidence and those sorts of things so that we're the preferred procedure for BPH.

So it is asking our people to do a lot of things differently than what they've done historically. But I think that's what it's going to take if we're going to drive and improve our utilization over time. And again, it's -- I don't want to keep referring back to it. But this is very much the transition that we went through at Edwards. In the beginning, all we did was go and support cases, and it was sort of a, if you build it, they will come.

Then you reach an inflection point where you have to start getting to the doctors that do multiple procedures or aren't those necessarily early adopters. And eventually, we're going to have to get to those entrenched physicians who are very comfortable doing what they're doing and maybe shy away from new technology. But each one of those tranches takes a different mindset and a different interaction with the customer. And I think we're just moving to the next phase of it. And again, I think the team has done a great job with early adopters, but we're just entering in the next phase, and it's just going to require us to do different things than what we've done historically.

Our next question is from Ryan Zimmerman, BTIG.

Larry, the utilization talk is music to my ears. I appreciate you harping on that. One of the questions I have, though, is there are some new PFS rates that just came out, and you guys got a Category I code. It's down in line with kind of the other procedures, about 550, if I'm not mistaken, on the code. But my question is just in light of that, how do you think that impacts utilization? And what underpins your confidence on procedure adoption given those dynamics, especially for '26?

Yes. Thanks for your question, Ryan. Honestly, I think the fees came in about what we expected them to. I think everything is in line. But that's really the smaller part of the economics. I mean the procedural reimbursement is a much larger part of that, and we're still waiting to see where that falls, but we remain cautiously optimistic that, that's going to land in a solid place. But I think the other thing, too, is economics are important when technology is all viewed as homogeneous. I think when technology is highly differentiated, I don't know that people are going to take better economics over a better procedure. And for those of you who -- I know several of you followed Edwards, in the early days of TAVR, I remember there's a lot of discussions [ which ] the contribution margin from open heart surgery is probably more than double the contribution margin from doing a TAVR.

And there was a lot of people who thought that was going to be a massive headwind, and we've seen how that played out. We had a highly differentiated technology, and it became less about the contribution margin and it became more about the procedure and the efficiency of the procedure and the outcomes that we were driving for patients. So I think we need to make sure that people understand how differentiated our procedure is. But I think the economics behind our procedure certainly support the improved utilization and increased utilization that we expect to drive.

Okay. I got a lot of other questions. I'm going to just stick with one more, and then I'll save it for the follow-up for you guys. But as you think about guidance, Larry, I mean, the company has had a philosophy around guidance. I think the beats have been fairly formulaic relative to maybe expectations or kind of what the guidance has been. Do you have a different view on this in terms of how you're approaching? You talked about, obviously, your thought process for the '26 guide. But I guess, more in the context of how you think about it relative to the expectations or how you perform or maybe what your internal guidance is, et cetera. Just curious if you want to speak to that.

Yes. I don't know that I'd give you a very satisfying answer to be frank about it. I think my approach to guidance is we need to create a range that we're going to achieve. And I think we need to be accurate about it. And I think we need to have upside potential, but we also need to reflect realities and not everything may go exactly like we want. But to the degree that there's expectations out there, I'm not probably a big believer in moving guidance around in relation to expectations. I'm more a believer in driving the execution of the company and putting out good guidance and achieving or exceeding our guidance through improved execution.

So that's kind of where I'm going to land on things, and we'll go. But I think it'd be unrealistic to think that I know everything about the business. Obviously, Kevin and Matt have been here a long time, and I rely heavily on them. I'm in my eighth week, and I suspect when we get to February, we can probably have a lot more fulsome discussions around guidance and how we see the long term and maybe some of the models that we have.

Our next question is from Chris Pasquale, Nephron Research.

Larry, this is a market where you have a lot of patients on the sidelines deferring care. You talked about the need to educate those patients. You talked about the company not really having told its story yet. I put all that together, and it sounds like an argument for an investment in DTC advertising, which some other companies in the sector have spent a lot of money on in recent years. Is that something that you're contemplating? And maybe talk about how you balance that drive toward profitability with maybe some spending priorities or some areas where the company may not have been investing enough historically.

Thanks, Chris. Well, I think there's a lot of different channels that you can use. And obviously, if we want to do a Super Bowl commercial, that gets very expensive. But I don't think you have to do that to go deliver your message to patients. I think, there's social media. There's a lot of other things that we can do that are pretty cost-effective ways to do things, and we did a lot of these things at Edwards. So I think these are all things that we're going to be focused on, but we do have to take our message to the patients. And we do have to get that out there to them so that they understand.

I think one of the other things, and I know you followed Edwards, Chris, that there were a lot of patients that just believed that aortic stenosis was just all about symptoms tolerance. And there was not an understanding of the damage that was being done while they sat in that symptomatic phase until it became intolerable. I think the same is true of BPH. I think a lot of patients are sitting on the sidelines and they're just saying, well, it's just about whether I can tolerate these symptoms or not, but there's not a good understanding of the damage that they're doing to the bladder and the long-term complications that can lead to that point to a need for earlier therapy.

And so again, I don't think any work has been done in that area to really tell that story or make that clear to patients. I think it's all just been focused purely on this procedure versus that procedure and a lot of early data. So when I say we got to tell our story, it's not just to the patient, some of it's to the clinicians, but there is going to be a direct-to-patient element of this that we will be investing in. But again, I don't think it fundamentally changes our path to profitability. I think that remains intact. And we'll just have to make responsible investments along the way.

That's helpful. And then I just -- I wanted to double-click on the comment about hospitals scrutinizing purchases more closely. You guys had a strong quarter for capital. Most of the other companies that get asked about this topic routinely have also said, look, things remain pretty healthy. So is there something new that you're seeing that you wanted to call out and really flag here because it could impact things going forward? Or are you just alluding to the fact that, look, it's been a tough year from a macro perspective in general, and you're continuing to execute despite that?

Yes. Thanks. I don't think it fundamentally changes our projections for capital. I think what we've seen is the purchasing process is taking longer. I think there were systems that we expected to close, for example, in Q2 that just got pushed into Q3 just because it just seemed like a lot of systems have put additional steps in place or they've expressed just some macro concerns and it's just caused things to be delayed. I think we generally expect -- and we saw that this quarter, the systems ended up showing up and they ended up coming through, and we continue to expect that to happen. It just seems like there's a few more steps being added to the process and things have just been moving a little slower. I think we just wanted to be transparent about that.

The next question is from Suraj Kalia from Oppenheimer & Company.

Larry, congrats on your new role. It's a pleasure to be working with you again. Hopefully, you can hear me all right.

I can.

Perfect. So Larry, I totally get your point about TAVR, the parallels there. If I could just expand on Chris' earlier question, Larry. So TAVR was a convincing solution for a high acuity condition, and we saw rapid share shifts, right, from SAVR. Specifically, as you look at BPH, do you think -- and as you lay out the long-term plan, the focus is specifically going to be on pulling in de novo patients, whether through DTC or otherwise? Or you envision this more in terms of share gains from TURP, nucleation, what have you?

Yes. Thanks for your question, and it's good to hear from you. It's nice to hear friendly voices. The -- I think the biggest opportunity we have is getting people off the sidelines. And I think even when I worked back in cardiac surgery, there were a lot of patients that viewed the cure is worse than the disease. And so people would avoid having open heart surgery even though they had a life-threatening condition that was damaging their quality of life. And I think we see that in the BPH space as well. You have people who -- they're so worried about the surgery and its impact on potentially leading to incontinence or potentially leading to sexual dysfunction. So they'd rather live with their symptoms than having cured.

And I think what we need to be able to show people through our evidence is our incontinence rates are incredibly low, almost 0. And our sexual dysfunction rates are also incredibly low. And so you can correct your problem and actually markedly improve your quality of life. So the people suffering on the sidelines are by far and away the biggest opportunity. As we grow the market, we want to absolutely make sure we're getting our fair share. But to the degree that we can expand the market and that we can grow the market, that's more valuable to me than trying to move a share point from TURP over to Aquablation.

And for my follow-up, Larry, obviously, BPH is a lot more fragmented, right, versus severe symptomatic AS. How should we think about -- or what is your view in terms of the price elasticity of demand, i.e., should we think about the same approach where with the SAPIEN and SAPIEN 3 Ultra, you'll adopt it in terms of premium pricing versus rest of the market for Aquablation also? Or you'll think there would be a more flexible approach given the changing price elasticity of demand in BPH and a fragmented market? Congrats again.

Well, to the degree that you want to draw parallels with SAPIEN, I think I waited 15 years before I did a price increase. So I don't think price increases were a huge part of our development strategy. And I don't know that price increases are going to be a huge part of our strategy here either. It's funny when people say the aortic stenosis market was not very fragmented. I think that's a view today. That was not a view 15, 18, 20 years ago when we started working on it. I think it was highly fragmented, and you looked at high-risk people and intermediate risk people and low-risk people, and now we talked about asymptomatic.

So again, it's not a perfect analogy by any means, but I do believe that there are a lot of parallels. And I do think the journey is going to be similar. Now to your point, we're going to continue to develop our platform. We're going to continue to innovate, and we're going to continue to make sure that we have the best therapy and the best technology, and it's also backed by the best evidence. And I think those are things that are just going to be hallmarks of what we do. But it's really going to be about getting patients off the sideline and improving our utilization rates.

[Operator Instructions] Our next question is from Nathan Treybeck from Wells Fargo.

Kevin, I think you disclosed one system placement under an operating lease. Can you talk about why this was done? And do you expect operating leases to become a bigger part of your system placements going forward and then just modeling considerations there?

Yes. Look, this was not an indicative or a shift in our business practice, but we did feel we owed an explanation given our installed base went up by 58 and we sold 57. So this robot is -- I would characterize it more as a one-off where we aren't able to recognize revenue. It's going to be paid for over time. But there is no near-term plan to have a significant shift in our business model. But as we've said in the past, the #1 priority is to get robots installed and to generate procedures and to treat patients, and we'll continue to evaluate various alternatives as they make sense for the business.

Okay. And just for my follow-up. So just based on my forecast, I guess, over 70% of your installed base next year will be with accounts that have been doing Aquablation procedures for over a year. So it seems to me that new accounts should be less of a drag on utilization growth. I guess how does this play out for your utilization outlook next year?

Yes. Look, I think a drag is a bit harsh, but I think our focus on launching accounts in a more timely and robust manner and the focus there should allow those new accounts to come up the curve faster and start contributing more meaningful to utilization sooner in 2026. So that's point one. And then point two, the other area of focus is driving utilization in our existing accounts. And as you pointed out now with the age of our installed base, that's a huge opportunity for us to drive procedure volumes and procedure revenue is focusing not only on new accounts, but on existing accounts doing more procedures as well. And we also are working on numerous initiatives to help that metric as well. So it's twofold.

[Operator Instructions] Our next question is from Mason Carrico from Stephens Inc.

On the variability in timing from system sales to first surgery beyond that initial delay, is there any meaningful difference in utilization once fully ramped in the accounts where there was a longer delay prior to the first surgery versus accounts that made the transition quickly? And then second, for the accounts that did have a longer delay, are there any commonalities between those accounts fundamentally? I mean, does that tend to be concentrated in low-volume hospitals, high-volume hospitals, academic centers, community hospitals, I guess, any additional detail you can give there?

Yes. Thanks for the question. I think every account is a little bit of a snowflake. And so I don't want to speak in gross generalities. I will say I don't think we've had the focus organizationally and what happens the day after the system sale. And I think now what we've done in our launch pilots is we have everybody focused on what happens day 1 and also a plan, not just to get the first case done, but to get the first 15 cases done, to get the first 20 cases done and really get people in a cadence of doing the cases and the routineness of it. And so I think it's just a bunch of renewed focus on that and putting the energy behind it so that we drive that.

I do have a belief that if we get -- and this is a belief that's -- I can't necessarily back it with data, but it's just intuitive to me that if we get a system placed and they immediately start with a high cadence of cases, then we're just going to see better utilization out of that system over time than we will if we just sort of let the game come to us. So it really is just about us driving the system and driving the adoption of the procedure much more aggressively than maybe what we've done historically, where we just kind of let the doctors use the system as they see fit rather than having a real strategic plan for how we launch each system.

Our next question is from Joshua Jennings, TD Cowen.

Nice to be on the earnings call with you again, Larry. I wanted to -- and the rest of the team. I wanted to just ask about the concomitant BPH and localized prostate cancer scenario. And I mean it is a meaningful, I think, case volume opportunity. We've had some docs over the last 12, 18 months talk about using Aquablation for those patients. Has that started to factor into utilization levels at some centers or more than some centers? And is there any opportunity to capture real-world data from those cases if they're being done at a high enough clip?

Yes. Thanks, Josh, and it's good to hear a familiar voice. I will say that we're really focused on the BPH opportunity. BPH is undertreated, and I don't want to get people too distracted with cancer. Now that being said, I think cancer is just a natural adjacency for us. And I've had time with a number of our KOLs, and there's a lot of excitement about how this could transform prostate cancer, but we need to complete the trial. WATER IV is running. I think we're going to provide a full update on that in February of next year at the Analyst Day, and we can provide more insights on that, and it's a natural adjacency. But I look at something -- I look at that as blocks that build on top of our BPH story, not like the whole story. And so I think everything that is in front of us right now to grow this business and drive it is going to be built around BPH with prostate cancer being an add-on.

Our next question is from Mike Kratky from Leerink Partners.

This is Brett on for Mike. Congrats on the quarter. I just want to go back to ASP, primarily on the consumable side, just where -- how should we be thinking about the mix of HYDROS factoring into that $3,200 that we've been seeing in the last few quarters, particularly in '26? Is there any point where there's an inflection where the mix actually gets to a point where you can start to see some growth there?

Yes. So if you look at our installed base today and when we launched HYDROS, essentially every system sold since Q3 of '24 has been the HYDROS system. And we said HYDROS does carry the consumable component higher ASP than AquaBeam, I think somewhere in the low single digits. And our guide in '26, perhaps for your model, I'd be relatively conservative on price. We will get some upside as the mix shifts more heavily to HYDROS, but we're also not reliant on price increases to get to the guide that is in the model. But naturally, over time, you should see low single-digit price increases as the mix becomes more towards HYDROS.

Our next question is from Michael Sarcone from Jefferies.

Maybe one for Kevin. You talked about 4Q gross margin guide of around 63%. And I think you did call out $2 million from tariffs, but just wanted to know if there were any other factors that you would call out in terms of what's impacting gross margin for 4Q?

No. You said it. Our guide does incorporate about $2 million in tariff-related expense. That's about 200 basis points alone for Q4. So outside of tariffs, you'd be looking at somewhere in the mid-60s. And I'll just say our margins at this point, they'll continue to trend upwards. But at this stage of the company, even at 65% margins, this isn't a headwind or a hindrance to the company being profitable. And we feel that even at these levels with outsized revenue growth and manageable OpEx, that path to profitability still remains clear, and we're not dependent on margin expansion at this point to get there, but we're continuing to work at it obviously.

This will be our last question. And this question is from Travis Steed from BoA (sic) [ BofA ] Securities.

This is Stephanie Piazzola on for Travis. Just wanted to ask about the Q4 implied guidance. You beat Q3, but maintained the full year 2025 guide. And you talked about some of the recent trends and changes, but I just wanted to follow up on the Q4 guide and the key drivers of that lowered outlook in Q4.

Yes. So if you look at what our [ Q ] guide entails compared to previous guidance, we essentially have lowered the overall handpieces sold number by about 1,000 systems. And really, we mentioned destocking. We mentioned inventory optimization and a focus on launching accounts. And it's really that dynamic flushing through via handpieces sold in the fourth quarter. And we do look forward to giving our investors an update on the procedure side of the business in February '26. And we believe when you look at that metric, you'll find that there's not really a slowdown in the business, but we felt we needed to call out the handpiece dynamic that both Larry and I referred to in our script.

Yes. Just to add to what Kevin said, and I think this is just a little bit of a business maturity issue as we get larger is we haven't really been managing customer inventory by establishing par levels for each customer. So we have some customers that are probably not carrying enough inventory, and we certainly never want a customer to not be able to do a case because they don't have adequate inventory. But at the same time, we have other customers that are probably carrying too much inventory. And our initial look at this probably says there's probably more inventory in the field than what's needed. And so as we optimize those par levels, we may see a little bit of destocking. But we're focused on procedure growth, and that's what's going to drive the long-term health of the business. And I'm expecting that we're going to have a good procedure quarter in Q4, and that's going to be our focus on a go-forward basis.

Thank you. This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Good afternoon, and welcome to the PROCEPT BioRobotics Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

Good afternoon, and thank you for joining PROCEPT BioRobotics Second Quarter 2025 Earnings Conference Call. 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, events or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. All 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, August 6, 2025. 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 would like to now turn the call over to Reza.

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 PROCEPT. As we mark this leadership transition, we do so from a position of strength, supported by several sustainable growth drivers.

We expect to exit 2025 with an estimated installed base of 715 systems with the only 20% procedural share in the hospital market, highlighting significant room for expansion. The recent launch of HYDROS, our next-generation robotic platform that will serve as a foundation for continued innovation. Enrollment in the WATER IV trial is progressing well, positioning us to enter the highly synergistic prostate cancer market.

And financially, the company is well capitalized with gross margins expanding into the mid-60s range, establishing a clearer path to profitability. None of this momentum would be possible without the strong team executing at a high level. PROCEPT 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?

Good afternoon. As my official start date of PROCEPT 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 the gratitude. I had the privilege of spending 40 years at Edwards Life Sciences, 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 of PROCEPT to have many parallels with 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's an incredible honor to step in the role of CEO of PROCEPT BioRobotics. 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'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. While change is inevitable, 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 update.

Thanks, Larry. Beginning with our quarterly revenue results. We delivered another strong quarter with results exceeding expectations across key performance indicators. The HYDROS 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 Aquablation therapy was assigned a Category I code effective January 1, 2026. The new CPT Category I code was assigned a 2026 National Medicare Physician proposed payment of 16.14 total RVUs under the 2026 proposed Medicare physician fee schedule. By comparison, TURP was assigned 15.82 total RVUs. Securing a Category I CPT code marks a significant milestone for PROCEPT, the urology community and the patients we serve.

This transition acknowledges the clinical value and growing adoption of Aquablation therapy, reinforcing its role in the treatment of BPH as we work towards establishing it as the surgical standard of care. We believe the Category I designation will support broader support adoption and expand patient access to Aquablation therapy. Most importantly, the Category I 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 Aquablation therapy hospital facility fee at APC Level 6. The 2026 OPPS proposed rule establishes hospital-based Aquablation therapy reimbursement at $9,765, an increase of 5.6% from $9,247 in 2025. As we have communicated previously, the more important variable driving Aquablation adoption is a stable facility reimbursement rate that supports investment for the HYDROS 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 our 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 a potential cost of goods sold headwinds of approximately $5 million. Given that Chinese tariff rates have declined to approximately 55%, we estimate our cost of goods sold headwinds in the second half of 2025 to now be approximately $1 million to $2 million. 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 WATER IV enrollment. As a reminder, we initiated enrollment in the first quarter of 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 the second half of 2026.

In connection with the WATER IV trial, Dr. Rahul Mihan successfully completed 3 same-day surgery prostate cancer procedures at an ISC in Arizona. While the vast majority of patients in the WATER IV trial will be treated in the hospital setting, Dr. Mihan has elected to treat Aquablation patients in the ASC.

Although still early, this announcement is exciting for 2 key reasons: first, we have demonstrated that localized prostate cancer can be treated and patient 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. Mihan 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 2 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 6 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.

Thanks, Reza. Total revenue for the second quarter of 2025 was $79.2 million, representing growth of 48% compared to the second quarter of 2024. U.S. revenue for the second quarter was $69.6 million, representing growth of 46% compared to the prior year period.

Turning to U.S. procedures. Handpiece and other consumable revenue for the second quarter of 2025 was $43.1 million, representing growth of 58% compared to the second quarter of 2024. We also recorded approximately $2.2 million of other consumable revenue in the second quarter of 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 saline disruption now behind us, second quarter represented one of the most stable operating periods we've seen in the past 6 months. This is particularly noteworthy as it signals a clear return to the procedural momentum that was disrupted in the fourth quarter of 2024.

In the second quarter of 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 U.S. robot placements. We generated total U.S. system revenue of $22.1 million, representing system revenue growth of 24% compared to the second quarter of 2024. In the second quarter, we sold 48 new HYDROS robotic systems and 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, the momentum with our IDN customers during the second quarter continues to progress nicely and reinforces our confidence heading into the second half of 2025. Furthermore, adoption of the HYDROS system by BPH hospitals is steadily increasing, reinforcing our confidence in the opportunity to penetrate the remaining high-volume BPH hospitals and expand into medium and lower volume hospitals.

International revenue in the second quarter of 2025 was $9.6 million, 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 the second quarter of 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 the second quarter of 2024.

Total operating expenses for the second quarter of 2025 amounted to $74 million compared to $58.3 million 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-60% 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 $19.6 million for the second quarter of 2025 compared to $25.6 million in the same period of the prior year. Adjusted EBITDA was a loss of $8 million compared to a loss of $18 million in the second quarter of 2024.

Our cash, cash equivalents and restricted cash balances as of June 30 were approximately $306 million.

Moving to our 2025 financial guidance. We now expect full year 2025 total revenue to be approximately $325.5 million, 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 move 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 HYDROS 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 U.S. system revenue to total approximately $93.5 million.

Turning to U.S. 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 U.S. 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 million for the full year. Additionally, we expect U.S. service and other revenue to now be approximately $17 million for the full year.

Given strong positive momentum, we now expect full year international revenue to be approximately $36 million, 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 million to $2 million 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 million, representing a 29% increase compared to 2024. For the third quarter of 2025, our operating expense guidance reflects anticipated spending of approximately $79 million, inclusive of certain onetime 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 million. After considering all relevant factors, we continue to expect a full year 2025 adjusted EBITDA loss of approximately $35 million with fourth quarter results approaching breakeven.

With that, I will turn the call over to Reza for final comments.

Thanks, Kevin. To reiterate, PROCEPT 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 Instructions] And our first question will come from Matthew O'Brien of Piper Sandler.

Reza, best of luck in retirement. And Larry, welcome to the new role. I thought maybe we could start with guidance. Just the confidence level that you guys have in maintaining the guidance here, especially with 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 guide for the back half of the year. And then I do have a follow-up.

Yes. Thanks, Matt. Let me take that in 2 parts. Let me first make sure you're clear on what the actual guidance is because I did hear you say we maintained guidance, but we actually did slightly increase our guidance. Let me just walk through the guidance, and then I'll separately kind of go through kind of what gives us confidence in how we formulated that guidance.

So 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 move 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 prices 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 $1 million, which is a function of renewing service contracts. And then also, we did increase again, international revenue by about $1.5 million given the trends we're seeing in the U.K., Korea and Japan to get to a full year number of $36 million. So that -- 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 in times of change, execution can be difficult. But it's important to remember, we have hundreds of people in the field on our sales force. These are dedicated professionals. Many have been doing this for 20-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 noticed, Matt, that we think we have the best sales force out there in medical device, and we're going to leverage them over the next 6 months during this period of change.

And then when you actually look through the details, remember, our capital sales cycle is 6 to 9 months. And therefore, we have a ton of visibility into the deals currently in the funnel, and that sales team is out there executing on that. And when you look at procedures, we have strong visibility over the next 30 to 60 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 a follow-up, and I think you're kind of touching on some of those points there, Kevin. With Reza leaving now with Sham and giving that update on this call that he's leaving, there is quite a bit of disruption. So 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 as we think about the growth of the business over the rest of this year and into '26?

Yes. 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.

And our next question will be coming from Brandon Vazquez of William Blair.

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 might look like differently? What can you do more efficiently with 2 roles instead of 1? And again, why now is the right time to do that?

Yes. 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 urology company. And with this decision, eliminating the CCO role, we have the opportunity of bringing 2 executives for, one, SVP of Sales and one, SVP of Marketing.

Okay. Maybe separately, we've talked a lot about in the past how one of the -- 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 Aquablation 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 on Aquablation and becoming a workforce solution, just to give us a better sense of how this can trend in the future?

So I'm not going to put an exact number on it, as you alluded to, but I do think your characterization is fair that the longer you are an account, the more Aquablation 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 ways to go. If you look at where we're at, we're planning to exit the year at only 20% of the U.S. resective market share. And we feel that we're just scratching the surface of kind of the potential here, but we definitely have multiple examples of us being the standard of care within our given customers.

Our next question will be coming from Richard Newitter of Truist Securities.

Maybe the first one from 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 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. And I have a follow-up.

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 6 that was not modified and 50% of the physicians we work with are salaried in this hospital. But again, adoption and utilization is primarily on clinical outcomes. So we believe the surgeons will continue doing BPH procedures, and they are happy with the clinical outcomes we are providing.

And then just on the system placement. So I guess the only real change that I'm seeing on the placement side, maybe 2 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 -- yes, just maybe elaborate on that a little bit.

Yes. 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 million remains the same. But compared to our last quarter guide of $95 million, we've reduced that to $93.5 million. 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 replacement, 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 5 to 7-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.

Our next question will be coming from Chris Pasquale of Nephron Research.

I thought the statistic around 1,300 surgeons performing at least one case in the quarter was interesting. It implies about 10 per physician. I'm curious how that utilization curve looks. Do you have a significant number of doctors who are still only doing 1 or 2 cases kind of dabbling? Or is it more tightly bunched around that run rate of maybe 3 or 4 months?

It's fairly consistent in the trajectory with surgeons where we've said it typically takes our average surgeon 3 to 4 quarters to start performing at the corporate average, and that remains consistent. On average, we have about 2 to 3 surgeons per account. That remains consistent. But where we've 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.

Okay. And then can you talk a little bit more about the international strength? That continues to kind of run ahead of expectations. And in the past, you said most of that is the U.K. Is that still true? Or are other regions starting to be more meaningful?

Yes. So consistent with previous quarters, the upside we're seeing is primarily related to U.K. 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 3 markets I just mentioned, the U.K., Japan and Korea, that would represent about 70% of all international sales.

And our next question will be coming from Josh Jennings of TD Cowen.

This is Eric on for Josh. I wanted to ask about the HYDROS rollout. Now that you're a few quarters into that launch, I was 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.

Yes. Let me take the utilization metric first. It's too early is the answer on utilization. What we're seeing good anecdotes with accounts launching with multiple surgeons with multiple patients per day, as I just mentioned, it's early. If you go back to our HYDROS installations, they really began in earnest in the first quarter of '25. And given the fact that it does take 3 to 4 quarters for an account to ramp, I think we'll have a lot more to say at the conclusion of '25 with how we see that ramp. But the general receptivity has been fantastic in terms of the features that HYDROS offers.

Yes. And I can add to that. Definitely, as we have said, setup time is simpler. The fact that we have the single use that reduces the one more step of restorization 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.

Understood. That makes sense. And then maybe on the capital sales team, I was wondering if you could share how you're feeling about the size of that team currently and maybe how you're thinking about the pace of rep additions over the next 12 months or so?

Look, we feel good about the size. 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 we've talked about adds in different areas there. I'm not going to get into specifics. But directionally, the pipeline is 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 is performing and the productivity around that group.

Our next question will be coming from Patrick Wood of Morgan Stanley.

Awesome. Just 2 for me quickly. One, you touched on the Cat I code shift at the start. But like have you had conversations with surgeons to get a sense of that faster flow from them? Any uptake in terms of volumes just from the ease of quality of life on the coding side on there? And any sort of like anecdotes around what that could do for volumes, if anything?

So question is on Cat I. So definitely, we are very excited about moving to Cat I. As you know, that's considered an established procedure versus when you are in Category III or considered experimental. It standardizes the billing, it removes all the operational barriers and the clinical outcomes and at the end of the day, it's just the clinical outcomes, which will drive utilization.

Pat, 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 to date. 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 with surgeon feedback.

Classic. They've got better things to worry about. I mean the other one is you touched on it in relation to the IDNs, but looking for the distribution of new placements and particularly some of the lower volume facilities, how you're feeling about that? How that mix could hit going forward rather than just the high-volume facilities, how are you feeling about the lower volume?

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 U.S. 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 we started to see some of those deals come through in the first half of '25. 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 accounts team led by very accomplished and experienced individuals. And where historically, we have 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.

And our next question will be coming from Nathan Treybeck of Wells Fargo.

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 hospitals about any slowing or pausing of capital spending?

Yes, I can confirm that. We believe the environment is relatively stable. I said in our prepared remarks, 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 3 years, our robotic offering and Aquablation therapy provides 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. But we're not seeing it, Nathan.

And just for my follow-up, has there been any, I guess, evolution in your outlook or strategy for entering the ASCs? And now with the commercial organization changes, is this something you're going to be looking at a little more closely?

So yes, thanks for the question. As we have said, our primary focus is hospital-based, and we still have a long runway over there. 90% of the resective procedures are done in the hospital. We had a pilot program, and that's going well. But really, our primary focus is hospital-based. And also in the WATER IV, as you heard, one of our physicians did cases at ASC. So that's something for the future, we look at, but our primary focus remains hospital.

Our next question is going to be coming from Ryan Zimmerman of BTIG.

Reza, you're a young guy. My question is why you're retiring now? No, I'm kidding.

I look 20 but I'm older than 20.

Okay. No, that's -- I wish you to the best on your retirement. Maybe I want to ask a couple of things. So number one, the tariff impact has 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.

Yes. So our gross margin guidance on the previous call, we actually had guided to a range to account for a $5 million impact. And that range was 63% to 64.5% on our last call. And what we've essentially done with this guide, Ryan, is lower the exposure from $5 million to $1 million to $2 million, and that puts margins now at 64.5%. 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.

Yes. Okay. Let's talk about utilization for a minute, if we could. If I heard you, Kevin, 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 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 simple math, that's what it's coming out at. Is there anything to read into here with how that utilization is shifting on the systems?

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 mid-single digits in the first half of the year. And that's a relatively easy answer for us. If you go back to Q4 of '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 9 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 9 months. So we feel good about the setup for the rest of the year.

But Kevin, just to push a little -- I mean, the guidance originally was for linear growth in terms of growth improving through the year, throughout the year, if I'm not mistaken, when you originally guided 2025, right?

Yes. And we're just probably going to talk semantics here, Ryan, because 4%, 5%, 6%, I mean, that's -- I mean, you can do the math on how many procedures that is. I feel good about the setup for Q3. I'll just say that.

And our next question will be coming from Michael Sarcone of Jefferies.

Reza, congrats on the retirement and Larry, looking forward to working with you here. I guess first question from me. Just maybe, Kevin, any comments you could give us on second half revenue phasing? I know you've got 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.

Yes. 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 international revenue, the third quarter, as we all know, with seasonality, is typically a step down from the second quarter. And typically, for us, that's about $0.5 million to $1 million 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 to a specific revenue number in Q3 and Q4.

Understood. That's helpful. And maybe understanding that the expected tariff impacts have eased a bunch. I just wanted to know if you've made any progress or how you're thinking about the sole-source ultrasound supplier based in China.

Yes. We're working very closely with that partner. 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 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.

And our next question will be coming from Mike Kratky of Leerink Partners.

This is Sam on for Mike. Can you just kind of provide any additional color on the degree of penetration that you're seeing today in low to medium volume hospitals and how their case volume typically evolves after adopting Aquablation, specifically how long it may take them to become kind of more high-volume hospitals following adoption? And then I have a follow-up.

Yes. Look, it's a pretty specific question. I think the constituency of our sales between high volumes 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 2 to 3 years, we still feel there's a significant opportunity to penetrate the 860 high-volume hospitals that are out there in the U.S. 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.

Got it. Understood. And 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?

It's too early. So most of those LCDs that we mentioned 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 if there were going to be any impact, I would suggest that wouldn't occur until 2026.

And one moment for our next question will be coming from Suraj Kalia of Oppenheimer & Company.

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 the 2,000 or so cases that got pushed from Q4 into presumably this year, utilization numbers, we went back and forth and 4%, 5% or 6% up year-over-year. Maybe if you could tie all of this together and tell us how should we think about shipments versus actual utilization?

Yes. Look, we monitor this metric closely. We have the advantage here at PROCEPT of having visibility into when all our procedures are being done. And we also do not typically utilize distributors in the U.S. and that differential between procedures and handpieces has remained relatively consistent throughout our time as a public company.

Got it. And Reza, for WATER IV, 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 these guys are relatively segregated.

Thank you. We are working with all of them. And so they're all included in this study.

Our next question will be coming from Mason Carrico of Stephens Inc.

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.

Yes, 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. And therefore, you should start to see low single-digit increases with HYDROS 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.

Got it. Okay. [ indiscernible ] in the U.S. are you [ indiscernible ] 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, like I said [ indiscernible ].

Yes. Look, we're obviously aware of kind of what goes on in the capital environment, and 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 HYDROS system. So we continue to work with those folks. And at the same time, we have done some flexible purchasing deals internally, but the ability to sell capital in the near-term, that model is unchanged.

And I'm showing no further questions in the queue. Thank you for joining, and the call has now concluded. Thank you.