PROCEPT BioRobotics Corporation (PRCT) Earnings Call Transcript & Summary

Good morning and welcome to PROCEPT BioRobotics Business Update 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. Please go ahead.

Good morning and thank you for joining our call introducing PROCEPT BioRobotics' second-generation robotic system, HYDROS. Presenting on today's call are Reza Zadno, Chief Executive Officer, Sham Shiblaq, Chief Commercial Officer; and Kevin Waters, Chief Financial Officer. Also present is Barry Templin, Executive Vice President, Technology and Clinical Development, who will participate in the Q&A session. 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, 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. Before I turn the call over to Reza, we would first like to show a short video highlighting the new HYDROS Robotic System. Operator, can you please run the video? Thank you. [Presentation]

Good morning and thank you for joining us on short notice. I hope everyone enjoyed our HYDROS video. Before we spoke, we wanted to make sure the audience had an opportunity to see the product we are all so excited about. In terms of agenda, I will provide opening comments followed by Sham who will go through HYDROS unique features and our commercial launch strategy. Lastly, Kevin will provide commentary on how the HYDROS launch would impact our financials in the third and fourth quarter of 2024. However, our overall financial guidance is unchanged from what was provided on our last quarterly earnings call. To begin, I would like to remind everyone PROCEPT's vision is to become a leading global urology company. This vision is not just a statement, it's our guiding principle that shapes all our decisions. With patients at the heart of everything we do, we believe collaborating with surgeons and listening to their needs allows us to introduce new and novel therapies backed by high-quality research and clinical data. To achieve our goal, we are committed to investing in innovative cutting-edge technologies that keep us ahead of the competition. We believe our innovation engine will strengthen surgeon relationships, improve patient outcomes and increase efficiencies for the broader health care system. As we frequently discuss, in the United States, there are currently approximately 40 million men who suffer from BPH, yet there remains a significant unmet need as only 1% of men agree to a surgical treatment that offers durable symptom relief. This underserved market is one of the reasons we are excited to have received FDA clearance for our second-generation surgical robot, the HYDROS Robotic System. This is a pivotal moment for PROCEPT as HYDROS represents the first significant technological advancement compared to the current platform. After years of research and development and customer feedback we believe HYDROS offers significant innovative improvements compared to our current AquaBeam system. Having treated over 50,000 men for BPH globally since the original FDA approval, HYDROS was specifically designed for mass market adoption with advanced artificial intelligence features to improve surgeon accuracy and enhance the care teams' usability experience. With that, I will turn the call over to Sham.

Thanks, Reza. As you just saw in our video, HYDROS is an integrated system with artificial intelligence that delivers Aquablation therapy. HYDROS also includes numerous design and innovative enhancements that we believe will accelerate capital sales and drive future Aquablation therapy procedures. First, the current Aquablation therapy procedure is executed by our automated surgical robot that follows the treatment plan created by the surgeon using ultrasound interpretation. With the HYDROS platform, we are introducing the FirstAssist AI feature. This will assist the surgeon in interpreting the ultrasound image for key anatomical landmarks. We tested this feature with various levels of surgeon experience and across the board, the AI assistance improved the accuracy of identifying key landmarks. Second, the system is now fully integrated with an advanced ultrasound system in a new digital cystoscope, providing the ability to improve visualization and make setup more streamlined. Third, our handpiece will now come preassembled with a single-use digital scope, eliminating the need for scope reprocessing. Regarding our commercial launch strategy, the HYDROS Robotic System will be immediately available to our customers in the U.S. That said, investors should expect our third quarter will be a mix of legacy AquaBeam systems along with the new HYDROS systems. To facilitate a smooth transition for our immediate pipeline, we will work the current AquaBeam pipeline to transition quotes currently for an AquaBeam system to a purchase of the HYDROS system. Regarding sales team training, we are currently holding sales team training sessions on the HYDROS platform, which will remove reps from their respective territories for a very limited time period. While this may temporarily impact procedure volumes in September and early October due to reduced case coverage and planning for new system launches, we believe this is critical to our commercial and procedural success as we transition into 2025. I am incredibly excited about the launch of the HYDROS system as we have designed the next-generation system with key customer feedback in mind. As we enter the next phase of our commercial growth, I believe this launch will be a significant milestone in our journey, driving widespread adoption and making a profound difference in the lives of our patients. With that, I will turn the call over to Kevin.

Thanks, Sham and good morning, everyone. I will now provide additional details regarding the expected financial impact of the HYDROS Robotics System launch. Please note that on this call, we are confirming our 2024 financial guidance provided in our second quarter earnings call on August 1, 2024. We do believe that third quarter utilization could temporarily be impacted as groups of utilization reps will be removed from the field for our HYDROS sales training and education throughout the remainder of August and September. However, this temporary headwind is factored into our current guidance and we remain comfortable with our full year guidance for 2024 of 33,350 handpieces sold. Given the timing of the HYDROS announcement, we continue to expect U.S. system sales to be in the low 40s for the third quarter, with fourth quarter system sales being our strongest of the year. We are also confirming our full year 2024 U.S. system guidance of approximately 185 systems. The third quarter could represent a mix of both legacy and HYDROS system. Although we have a strategy to quickly convert our pipeline to HYDROS systems, we recognize time lines can shift when launching a new product late in the quarter. Nevertheless, we are highly confident that if a deal does not close in the third quarter, it is not lost. Concerning expected system average selling prices, we are not yet ready to provide specific details due to the various factors involved such as trade-ins, replacements and new hospital placements. However, investors should assume pricing long term for our new HYDROS system should be higher than that of our first-generation system. However, during this period of transition, we are comfortable with our current system average selling price guidance of $380,000 for system sales in the back half of 2024. Although we will be going through a short transitional period of training reps and executing our launch strategy, we have a high degree of confidence in our full year 2024 guidance, especially coming off a very strong second quarter where we continue to see strong underlying momentum across the business. At this point, I'd like to turn the call back to Reza for closing comments.

Thanks, Kevin. In closing, I want to express special thanks to our research and development team and technical engineers across the organization for their tireless efforts in meeting very tight deadlines to allow the commercial team to launch HYDROS ahead of our seasonally strongest capital quarter. At this point, we will take questions. Operator?

[Operator Instructions] And the first question comes from Craig Bijou with Bank of America.

And obviously, congrats on getting HYDROS approved. I wanted to start with just the product itself and it sounds like there -- it sounds like you're integrating some of the technologies that might have been "outside the AquaBeam system before". So just wanted you guys to -- want to see if you guys could expand a little bit on what's getting integrated, what that means? And then on the AI side and just your outcomes -- outcome data is pretty good already. So maybe explain how the AI can even help with outcomes and the workflow?

Craig, thanks for the question. Before I answer your question, I just want to say how excited and thrilled we are about the FDA clearance and the launch of HYDROS. This is really a testament to our commitment to innovation and improving patient care. As far as the main features of the product, as you outlined, it is the next-generation robot with -- it features AI-powered treatment planning, allows to identify rapidly the anatomical landmarks and it has the digital cystoscope, the ultrasound imaging has -- it integrates the next-generation ultrasound imaging and has a digital cystoscope and a -- as well, high-definition touchscreen. It's really -- it's also designed to improve the surgeon and staff experience because of the integration of those components, it really is specifically designed for mass market adoption. So from an integration point of view, it makes the workflow easier. The ultrasound is in the system and the cystoscope is also in the handpiece. And as far as AI is concerned, we have created AI from a very large library of database. As you know, we have done, as we mentioned, thousands and thousands of cases. We have used that information to build -- used that database for the AI, it will help the surgeons rapidly identify data, as we call landmarks and also proposes a control planning, that will make the procedure easier.

Thanks, Reza. I'll add a little bit to that, Craig, on the mass market kind of application of HYDROS and how we see this system being integrated in the future. As you think about any technology when it's integrated into a new market, as we have with our first platform over the past 5 years, we're really hyper-focused on innovators and early adopters as any successful technology does and we've been really successful. And that's really about 10% of the market as we go after, when you think about early adopters and innovators. The whole premise behind HYDROS was to take this technology to the next level. And those are the features that Reza touched on. When you think about early adopters, it's over 1/3 of the market, fits this early adopter category. And what we're trying to do now is to introduce the technology, which introduces practicality, advancements in technology that we don't have in our first generation system with AI, advanced imaging, other features that we'll touch on. And so this is really all about getting to that next level of surgeon that is not of that mentality of early adopter innovator and beginning to expand this market way beyond the 50,000 procedures we started with.

Got it. Great. That's helpful, guys. And then maybe for Kevin on guidance. Obviously, you guys reaffirmed for '24 -- wanted to maybe dive a little bit deeper there. And it sounds like you assumed the high gross margin in your -- into your guidance on your Q2 call. But just wanted to get a little bit more color there. And I appreciate your comments on the ASP but why shouldn't expect a higher ASP in Q4? And then maybe just any early thoughts on what -- how to think about this in '25?

Thanks, Craig. So you're correct. When we gave guidance 3 weeks ago, our base case did assume HYDROS approval during Q3 and we did expect this would have an impact on utilization, given we are taking some folks out of the field for sales training. And frankly, we just don't want to get too far out of our skis with guidance at the time. This launch, it's super critical to get right for our long-term success, for all the reasons that Sham and Reza just went through. And hopefully, this announcement today does help connect the dots for our stakeholders, also one of the reasons we were so cautious in communicating around utilization on our last call. And just frankly, how we've been cautious the full year. I mean if I look at our performance, even after Q1, we have been anticipating HYDROS in the back half of the year. So we've been very cognizant to not raise procedure guidance throughout the year. Regarding ASPs, as I mentioned in my prepared remarks, that shareholders, customers, they should assume pricing for a new HYDROS system will be higher than our first-generation system. However, this is a period of transition over the next 5 months in 2024 and we feel good today about confirming that $380,000 for system sales in the back half of the year. And we feel good about the ability to get more pricing as we head into 2025 on a HYDROS system. But we're not going to provide color today on what those ASPs are going to look like in '25.

The next question comes from Richard Newitter with Truist.

Congrats on the launch. So a couple for me. Maybe, in the -- Reza, in the opening remarks, you mentioned, I think, a platform technology that will have potential to open up the new procedures over time. So I was wondering if you could elaborate a little bit on where -- I would imagine there's going to be software updates and upgrades to this platform system over time, all the functionality that's going to come eventually won't be here on day 1. So maybe you can give us a little bit of insight on where you're headed? What kind of procedures or areas that could open up for you that you're not in today and also with an eye towards the ASC, which is an area you've forgot to talk about this year?

Yes. Thanks for the question. So as we mentioned, this new system will be a platform that all our future evolutions will be based on this platform, mostly software and even if there are hardware, will be on this platform. We are initially continue to be highly focused on BPH. So that's our initial focus. And of course, this will, in the future, when we start our cancer studies, will be also used in that study. So these are, again, highly on BPH and future in cancer. This is our focus.

So I'll just add on the ASC front, additionally to Reza's comments. I mean we have an outstanding platform that we've now proven with well over 150 peer-reviewed journals with consistent outcomes for years and over 1,000 surgeons trained. We believe our current platform, the first platform is going to continue to provide outstanding experiences for our patients and we will continue to use that platform throughout future studies. With the addition of HYDROS, all we're doing is, elevating the experience and elevating the ability to advance the technology in ways that the current platform can. So I think your assumptions are fair. And the reality is, is that we're going to advance this technology in the future and we're excited about that. On the ASC front, we continue to feel very confident, it's an opportunity for us to expand the market. When we think about the 400,000 surgical procedures that exist, we will continue to stay hyperfocused on that. HYDROS is a great opportunity for us to expand the user base and to capture those 400,000 procedures. The ASC strategy will be in parallel and we're not going to really comment right now on the platform we're going to use in the ASC but we do obviously get very excited about that opportunity in the future.

Great. And then just one for Kevin. So thinking a little bit more on the gross margin impact, what Craig was asking, even beyond -- well, talk about the second half, what are the -- on the expense side, of the equation, how will this impact gross margin? When and how quickly can you scale the manufacturing for the new system? Will there be a difference in gross margin and for how long? And then also on thinking about upgrades and trade-ins, how will that; a, be reported? Will you provide that information to us on a quarterly basis? And then; b, how will that get reflected in the P&L?

Yes. So I'll take the replacement question first. So our immediate strategy for the remainder of 2024 is to be mostly greenfield opportunities that are currently in our pipeline and that replacement dynamic we believe really won't be more prevalent until, starting in 2025. And we do recognize opportunity here. If you look at our installed base at the end of 2022, we had 167 systems out there. And we've always said we believe our capital offers a great ROI. With the new system, we do believe we will have a replacement cycle that will be starting but that will be really in 2025 as the team in the field today is highly focused on converting all of the greenfield opportunities we have in our pipeline to HYDROS. So that's our immediate focus for the remainder of this year. Regarding costs, there is not a material difference in the cost to manufacture HYDROS compared to our Gen 1 robot. And I'd even suggest at scale, this will be cheaper as we continue to absorb overhead. So we don't believe this has any impact on our ability to continue to expand gross margins and meet the targets that we put forth in the third and fourth quarter of this year and to continue on kind of the gross margin expansion trajectory that we promised our shareholders we are going to be on in 2025. And then just lastly, on OpEx, you did see in the second quarter a big step-up in R&D from Q1 to Q2. We had to kind of talk around that a little bit on the call but that was primarily related to meeting HYDROS time lines with the FDA submission and the internal testing required to meet these deadlines. In our full year OpEx guidance we gave 3 weeks ago, it's unchanged and that would suggest a slight step down in R&D spend in Q3 and Q4 as we communicated. And then just -- sorry, Craig -- Rich, in terms of just what we'll report in the future for 2025, obviously, the business dynamics are changing a bit with an upgrade cycle and the replacement cycle. We're cognizant of that. We continue our commitment to be transparent with our shareholders but the exact metrics that we'll be providing in 2025, we're not prepared today to go through that.

And the next question comes from Josh Jennings with TD Cowen.

Echo the congratulations on the HYDROS clearance. I wanted to ask just about -- I'm sorry if I missed this, but any assumed efficiencies in workflow just from a timing standpoint. It seems like the AI integration can save some time for the team on the intra OR treatment plan step, maybe with the integrated cystoscope you save some time during the procedure. But anyway, any way to quantify this procedural efficiency that you'll gain -- these centers will gain with HYDROS?

Josh, it's Sham. So what I would say is we haven't been able to measure the efficiency simply because we haven't rolled out the product yet. We intend to obviously keep track of data as time goes on and the initial feedback to the process has been very, very positive in regards to efficiencies and usability from all stakeholders, whether it's surgeons or surgical staff, everything from set up to the surgical procedure to take down has been simplified at numerous levels. And we truly feel like this is going to be a procedure where more and more surgeons who have maybe still on the sidelines will now come into the game. And so that's going to be really exciting because of all those additions that we've made to the technology to make it simpler to adopt and also make it easier for room turnover. We've done things like taking parts of the technology, which required sterilization and no longer require that. So there are things that are done beyond just the -- that you'll see at face level. And so we're really excited about that and the efficiencies that it will provide to the customers.

Excellent. You talked about ASPs for the systems increasing over time with the integration of the digital cystoscope, single-use. Should we be thinking about handpiece ASP increases? And I just have one last one.

Yes. Josh, it's Kevin, I will take that. So we're not going to comment on expected HYDROS handpiece ASPs. We are confirming though the second half guidance we gave of $3,200 on a handpiece. But in general, the expectation is, HYDROS will be at a higher price. But remember, the majority of our second half handpieces are [ P1 ] and the HYDROS handpiece is a separate handpiece from the first generation. So as we move forward here, the majority, even in 2025, of handpieces sold will be on our legacy AquaBeam system. And we'll provide more color on those ASPs in 2025 when we take into account all of the factors that impact price. But as we've said continuously, we feel very comfortable around the pricing of our consumables moving forward. And with the reimbursement being confirmed here in the fourth quarter at APC Level 6, a 3% to 4% increase, we do think there's more room to go up than down on the consumable price.

And just wanted to ask about localized prostate cancer indication. I mean, with the evolution of the system and getting HYDROS cleared, I guess really what I'm trying to ask is, does this make the localized prostate cancer indication more -- is it more applicable? Is there anything in this upgrade that will make that -- the Aquablation procedure for localized prostate cancer more -- potentially more efficacious?

So our current system, our first platform -- our cancer studies were done on the current platform. As we mentioned, with HYDROS, any future upgrades and -- are easier but both systems can be used for cancer. If, I don't know, Barry, do you want to add something to this?

Yes. Just one thing to add. The new platform allows us a platform to build upon in the future, things like computing power, advanced imaging. So it definitely sets the stage for us to grow into these new indications. But it's not a requirement right now as you're well aware of the clinical setting that we're conducting in the market.

And the next question comes from Brandon Vazquez with William Blair.

And I will echo on the congrats as well. I'll ask 2 upfront, just kind of some clarification around potential disruptions as you launch the new HYDROS system. The first is, just can you -- maybe talk a little bit about where you expect the procedure disruption to come from? I guess, is the disruption coming from the fact that you're pulling the reps and so these surgeons are not going to be allowed to perform procedures? Or is the rep not being there just kind of slowing down growth while they're not present? And then kind of the follow-up question I'll ask with it is, if your reps need to be trained on the new system, even though it's probably very similar, should we expect, as we go into next year, if accounts are upgrading to this new system, do some of these high-volume users take a little bit of time to train on the new [indiscernible]? And do we see even some procedure headwinds into '25?

You want to start, Kevin?

Sorry, we're talking over each other. Let me just take the first part and then you can talk about the strategy. And again, as I said previously on utilization, we do think -- remembering, we're in every case today in the U.S. So really, that dynamic is what we believe is driving our cautious comments around third quarter utilization. I think it's more of our internal process than external, just making sure, again, that we -- the launch is super critical to get right for our long-term success. And with that, I'll turn it over to Sham to maybe talk a little bit on more of the nuance there. Go ahead, Sham.

Yes. I mean we've really prided ourselves on having outstanding surgical experiences and that means our surgeons feel very confident. I think when you look back at everything we have done up to this point, we have tried not to skip steps and that means our clinical team are experts in the technology, that means our surgeons feel like the first case they do is not their first case. In fact, I would look at FirstAssist AI, that addition to the HYDROS system as we get surgeons and surgeons more comfortable with the technology, their first case for a new surgeon should feel like they're -- they've done 1,000 cases before it. And that's really the advancements that we're thinking about with the additions of technology added to a great platform that we've already had in [ P1 ] . And so I guess I would just answer the question simply by saying, training has never been something we've compromised on. And we believe that it's one of those situations where you move slow to move fast and we believe it's the right thing to do for our patients and our customers.

Thanks, Sham. Just back to -- this is Kevin here, Brandon. And again, I want to address your last part of the question. We don't believe that this is any headwind for 2025. We believe this is purely limited to the third and fourth quarter 2024, which again was factored into our thinking when we gave guidance 3 weeks ago.

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

A couple of questions. Just start -- I just want to understand, is the plan to completely replace AquaBeam in the U.S. or to have a tiered offering going forward? And how are you thinking about international availability?

I'll take the first part on the U.S. and maybe turn over to Sham. Our strategy and our plan is, this is a hard cutover where -- as both Sham and I mentioned, we could see a mix in the third quarter just given the timing of both our current AquaBeam system and HYDROS. But the expectation moving forward, starting in Q4 that every new greenfield in the U.S. moving forward will be HYDROS and the current offering will no longer be sold. On the international, I'll turn it over to Sham to talk about our strategy there.

Yes. We're going to stay hyperfocused on the U.S. and really execute flawlessly over the next year. We will continue to expand our offerings globally as well and we need to work through the regulatory processes that each region requires. There is different testing required in markets like Europe. So we'll begin that process. We've already begun obviously evaluating the process. We needed to get through the FDA process, which kicks off the next step for different markets. So we'll provide more guidance on that or more clarity on that as we make progress in the future.

Okay. Great. And then is the AI algorithm static? Or is there a feedback loop that will incorporate future learnings from new cases over time? And I don't know how much really sort of surgeon preferences come into the procedure given how standardized it is? But is there an opportunity to personalize settings and treatment planning and procedure guidance for the individual surgeon preferences?

Yes. That's a good question. This is Barry. So the -- on the machines, the algorithm is static. It can only be updated by a software release from us, the manufacturer. All the AI that's generated and suggestions put on the screen, a surgeon is allowed to make modifications to them and can override them. So as we learn more as future cases go on, we can amend our AI algorithm but right now, the machines are all independent and they don't learn real time.

Chris, I would add that -- think of this FirstAssist AI feature as a virtual ultrasound expert that's side-by-side with the surgeon. We've tested this feature with various levels of surgeon experience from novice users to experienced Aquablation users. And across the board, AI assistance has improved the accuracy of identifying key landmarks and that's obviously a critical part of automated surgery. The surgeons are telling the robot what to preserve, what to resect. And so identifying these key landmarks is really the first big step in performing the procedure. And we believe, once again, this is going to be something that's going to advance this procedure in a great way moving forward.

Great. And that really kind of leads into my last question, which is just any ability to document or publish on the improvements that you're seeing with the system? Or do you plan to do any case series going forward to try and quantify that better?

Well, I would just lean back on everything we've done historically. We've been a company that's really prided ourselves in excellent clinical data and we definitely intend to continue to do that. There's no official study needs to happen with the HYDROS system but we'll continue to gather data. We've got great real-world data and we intend to continue to show the improvements that we make over time with additional utilization.

Okay. And our next question comes from Nathan Treybeck with Wells Fargo.

Congrats. I just wanted to touch based on -- your press release noted that the HYDROS is a game changer for new surgeons. And you talked about the concept of mass market adoption. I guess, can you help us understand how many of the high volume and low and medium volume BPH hospitals, do you think will purchase a HYDROS that would not have bought an AquaBeam?

Yes. That's a great question, Nathan. What I would say is that when you look at the thousands of hospitals that currently do BPH surgery that we believe are real targets for us, we've told -- we've already told the market that we're in about 400 -- just over 400 hospitals right now. And many of those 400 hospitals historically have not done large volumes of BPH but they've started to adopt BPH because of Aquablation therapy. And so when we think about it, the game changer for new surgeons, this really has to do with the mindset of a user regardless of the type of technology, not everybody is going to be first. And so when you think about that mindset, when you think about somebody who's been super interested and then sitting on the sidelines, we think the practicality that comes along with the HYDROS system, the efficiencies, all the features we've talked about, are going to bring many of these surgeons off the sidelines. And so this is really intended to be the next phase of our growth. It's not a surprise when we're doing it now. We're doing it now because we all intend to roll this out to the market when it made the most sense and that's the next phase we're going to. When we think about making sense, it's really moving beyond the early adopters and moving into the early majority of surgeons. We have a lot of opportunity to penetrate this market ahead of us and we think this will be the next great addition to that portfolio for the next few years.

Okay. Can you just give a little more color on the data enhancements for HYDROS? Like what are the specific enhancements and how it maybe improves usability for urologists?

Yes. So I can answer that one. This is Barry. So the enhancements are -- so now are -- the way our handpiece works today is, in the operating room, one of the techs have to load a fiberscope and then conduct the procedure. So the way the system will work today, out of the box, there is a single-use digital scope. They will open the package. It's ready to go. They'll plug it into the tower. And so now we have onboard cystoscopy, whereas prior to this, we would have to plug into the OR system stack. So there's that efficiency as well as the improved visibility with the digital scope that we've moved to now versus our current fiber scope.

[Operator Instructions] Our next question comes from Mike Kratky with Leerink Partners.

Congrats again. I know your initial focus is going to be on greenfield opportunities. But what do you expect the demand to ultimately be for the system among those 400-or-so centers with an existing system? And what do you think their level of urgency is really going to start to be? And maybe just kind of the main factors driving that?

I'll start. This is Kevin. Just to kind of go through what our installed base looks like today, maybe I'll turn it over to Sham for some closing remarks there. And we do have a strategy internally to accelerate a replacement cycle but it is too early to get into details on kind of what that's going to look like in the near term. But as I said, the ROI on our capital is much shorter than other large capital equipment systems, the pricing is lower and that installed base exiting 2022, of close to 170 systems, we do believe are prime candidates to go back to and get a replacement. And I'd suggest, given all of the features that we've gone through today, there could be a high sense of urgency from our customers around a replacement cycle with high growth. Sham, do you want to provide any kind of further details?

The only thing I would add, Kevin, is we anticipate we will get inbound demand or requests from customers that want to go down that pathway from existing customers. We'll engage in the conversation but we just want to make sure we're crystal clear. Our strategy is to focus on greenfield customers to continue to expand the installed base. That is what our sales team has got the mission to do and that's what they're focused on and that's where they're compensated. This is going to continue to be a greenfield strategy for us for years to come. And when customers request to replace their system, we'll definitely engage in the conversation. But as Kevin mentioned, we really expect this to be a bigger part of our strategy in 2025.

And the next question comes from Ryan Zimmerman with BTIG.

This is actually [indiscernible] on for Ryan. Can you hear me okay?

If you could speak up slightly, that would be appreciated.

All right. Hopefully, this is a little bit better. So just a quick clarification on my end. Heard your comments about the operational efficiencies that come with the new system. But are there any clinical benefits that you're seeing so far or any differences between the AquaBeam and HYDROS on the clinical side?

So I think right now, we're -- as we said, we're getting ready to launch the system. We've not conducted clinical studies with this. The anticipation is a more reproducible interpretation of ultrasound. They can further relate to clinical benefit but that's what we're going to wait to see as this product rolls out into the market. Sham, is there anything you'd like to add?

Yes. I mean the early feedback has been extremely positive from the surgeons, they've been part of our testing and they've been a part of early access to giving us feedback on the system. Like Barry mentioned, we will continue to gather more data and provide that when it's publicly available. So at this time, this is really going to address the need to expand to that next stage of the early majority of the market. Many users don't adopt first generation technology and we know that and that's the reason we came out with this system.

Understood. And then just one other clarification for me. Not sure if I heard you correctly earlier but is the new handpiece getting rolled out with the new systems? Or is that handpiece transition occurring later in the cycle?

Yes. So the HYDROS -- this is Kevin. The HYDROS handpiece is a separate handpiece that will be used for every HYDROS procedure. The current AquaBeam system, we use a different handpiece. So they're being rolled out, this HYDROS handpiece at the same time in the system to allow customers to do procedures.

Just a clarification. You cannot mix products and pieces, [indiscernible] products, et cetera, between the AquaBeam Robotic System and the HYDROS Robotic System.

I show no further questions at this time. I would like now to turn the call back to Reza for closing remarks.

Yes, I want to thank everyone for joining this call on a short notice. We hope to see you soon in upcoming conferences. Have a nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.