PROCEPT BioRobotics Corporation (PRCT) Earnings Call Transcript & Summary

Good morning, and welcome to PROCEPT BioRobotics First Quarter 2025 Earnings Conference Call. [Operator Instructions]. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I will now like to turn the call over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments.

Good morning, and thank you for joining PROCEPT BioRobotics First Quarter 2025 Earnings Conference Call. Presenting on today's call are Reza Zadno, Chief Executive Officer; Kevin Waters, Chief Financial Officer; and Sham Shiblaq, Chief Commercial 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 risk 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 24, 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 Reza.

Good morning, and thank you for joining us. For today's call, I will provide opening comments and the general business update, followed by Sham who will provide the commercial overview. Lastly, Kevin will provide additional details regarding our financial performance and updated 2025 financial guidance. Beginning with our quarterly revenue results. Total revenue for the first quarter of 2025 was $69.2 million, representing growth of 55% compared to the first quarter of 2024. Growth in the quarter was driven by increased U.S. systems and hand pieces sold as well as record international revenues. We exited the first quarter of 2025 with a U.S. installed base of 547 systems, representing growth of 55% compared to the prior year period. We sold a total of 43 robotic system in the first quarter of 2025. Turning to the global macro environment, specifically our exposure to tariffs. As a reminder, following the establishment of full Medicare coverage in 2021, we initiated U.S. commercial operations in earnest at the time when the pandemic has exposed significant vulnerabilities in the global supply chain. In response, we took proactive steps to derisk our supply chain by sourcing the majority of our strategic components in the U.S., For components that could not be sourced within the U.S., we took deliberate steps to maintain significant inventory levels. This approach not only mitigated the risk of supply disruption but also helped reduce our exposure to potential tariff escalations. For example, greater than 95% of the direct material cost of our single-use handpiece is sourced in the United States. Regarding our robotic system, our primary exposure to China lies in the ultrasound system. However, we have typically maintained a robust supply of inventory for this critical component. Kevin will provide additional detail in the guidance section. However, given our strong inventory position of ultrasound units and the fact that all products are assembled in California, we currently anticipate only a modest impact to 2025 gross margin. That said, we have taken a conservative approach to our 2025 gross margin outlook, and we'll continue to closely monitor potential headwinds that could affect fiscal 2026. Turning to clinical updates. In March, at the 40th Annual European Association of Urology Congress in Marid, primary endpoint results from the WATER III randomized-controlled trial were presented. WATER III is an international prospective multi-stem cell study comparing Aquablation therapy for laser enucleation in prostate sizes 80 to 180 milliliters. This study treated 186 men and reported 3 months primary safety and efficacy end points. WATER III will also follow patients up to 5 years. At 3 months, Aquablation therapy delivered similar symptom relief to laser enucleation while demonstrating a 0% transfusion rate and significantly lower rates of ejaculatory dysfunction and incontinence. Notably, the rate of stress incontinence was 0% among Aquablation patients. These results add to our growing body of clinical evidence and support that Aquablation therapy is highly reproducible in treating prostates of all size with a low learning curve. Aside from the clinical outcomes, we believe the WATER III results will be instrumental in helping modify global urology guidelines in the future for larger prostates. Next, I want to provide a positive update regarding U.S. Medicare coverage. Effective April 6, 2025, First Coast and Novitas, 2 of the largest regional Medicare administrative contractors positively updated 2 key Local Coverage Determinations or LCDs. We estimate First Coast and Novitas account for approximately 30% of all Medicare patients in the United States. Regarding the LCD changes, First Coast and Novitas removed 3 key limitations. Age-based restrictions for men cover 80, voided volume thresholds that impacted patients in retention and the requirement to measure prostate size via transrectal ultrasound. These changes significantly streamlined the pre-procedure workup and should expand access to Aquablation therapy for a broader patient population. With that, I will turn the call over to Sham to provide more detail on first quarter commercial performance.

Thanks, Reza. Starting with U.S. procedures. In the first quarter, we sold 11,235 handpieces, representing year-over-year unit growth of 65%. As we noted during our fourth quarter earnings call, we experienced some residual impact from the saline shortage in January. However, volumes returned to more normalized levels in February, with March demonstrating strong growth compared to the prior month. As of the end of the March, we believe the saline issue is behind us. The first quarter of 2025 was an incredibly important quarter for the company to execute our plan given the macro factors from the fourth quarter. In addition to strong handpiece quarter, we saw a greater number of accounts launched our Aquablation program in the first quarter compared to any previous quarter. As I look back over the last quarter, there are 3 key takeaways regarding the HYDROS account launches. First, internally, we prove we can execute supporting a large number of new accounts on accelerated timelines. Second, hospital customers are very motivated to launch and promote their HYDROS System. And finally, given the number of accounts that were launched in the first quarter and the daily procedure normalization post saline, we have a high degree of confidence we will continue our procedural and system momentum as we progress through 2025. Turning to HYDROS. With the launch of HYDROS last year, we've seen a noticeable increase in engagement with large strategic IDNs and based on the feedback we have received, we believe momentum is being enhanced by a few key factors. First, with the size of our installed base and the growth across hospitals and procedures, many of these new hospitals now view PROCEPT as being on par with the most well-established med tech companies in the U.S. Second, they see HYDROS as a potentially game-changing technology, bringing advanced capabilities to a large established surgical category that has been stagnant for years. And third, we're hearing a strong desire to standardize Aquablation therapy across their hospital networks, driven by the consistent reproducible outcomes and the operational efficiency it brings. Many of these IDNs have also expressed a strong interest in growing patient volumes and view HYDROS as an enabling technology to support that goal. Of the 43 systems sold in the first quarter, approximately 45% were associated with IDN qualified execute at the corporate level. Furthermore, approximately half of HYDROS placements went to high-volume BPH hospitals with the other half being low or medium volume BPH hospitals. Given this dynamic, we believe HYDROS is resonating with large strategic IDNs and in all hospitals, regardless of historical BPH volume. Regarding the broader capital equipment environment. While market uncertainties present challenges, we have demonstrated a strong track record of selling capital at incrementally higher prices driven by the underlying value of Aquablation therapy to the patient and hospital customers. Based on a daily conversations with prospective customers in our pipeline, we do not sense any material shift in overall sentiment. We believe PROCEPT is in a strong position to continue to grow the installed base for the foreseeable future. Many hospitals associate robotic surgery as a long-term strategic priority to grow revenue and market share and thus are less likely to cut investment in this area even if macro conditions moderately worsen. Second, we are in the early innings of a new product launch that is gaining traction. The number of low and medium volume BPH hospitals acquiring HYDROS Systems continues to increase, giving us confidence in our ability to expand into these hospital segments and continue on our path to becoming the BPH standard of care. Lastly, I want to touch briefly on our international performance. International revenue in the first quarter of 2025 was $8.9 million, representing growth of 104% compared to the prior year period. While our international business remains primarily driven by capital sales, we're beginning to see meaningful revenue tailwinds from procedural volumes, particularly in the United Kingdom, where increasing utilization is becoming a meaningful driver of the overall business. This is very encouraging as we now have many examples across the U.K. of launching robust and durable Aquablation programs in both the NHS and private sector. These real-world examples are critical as we continue to sell throughout the U.K. With that, I will turn the call over to Kevin.

Thanks, Sham. Total revenue for the first quarter of 2025 was $69.2 million, representing growth of 55% compared to the first quarter of 2024. U.S. revenue for the first quarter was $60.3 million representing growth of 50% compared to the prior year period. We generated total U.S. system revenue of $18.7 million, representing system revenue growth of 32% compared to the first quarter of 2024. In the first quarter, we sold 43 robotic systems at a blended average selling price of approximately $435,000. Looking ahead, we expect a small percentage of HYDROS placements to come from legacy AquaBeam System replacement. In these cases, particularly with established customers, we anticipate pricing to be largely consistent with that of a new system. Notably, during the quarter, one customer replaced our AquaBeam for HYDROS. As a result, while 43 systems were sold, the U.S. installed base grew by 42 units, reaching a total of 547 systems. This reflects continued momentum in system adoption and the value customers place on our next-generation technology. Turning to U.S. handpiece and consumable revenue. Revenue for the first quarter of 2025 was $38 million, representing growth of 61% compared to the first quarter of 2024. The 11,235 handpieces sold in the United States were at average selling prices of approximately $3,200, representing unit growth of 65% compared to the first quarter of 2024. We also recorded approximately $2.1 million of other consumable revenue in the first quarter of 2025. International revenue in the first quarter of 2025 was $8.9 million representing growth of 104% compared to the prior year period. Growth in the first quarter was once again driven primarily by strong sales momentum in the United Kingdom. Gross margin for the first quarter of 2025 was 63.9%, consistent with the fourth quarter of 2024 and up 750 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 first quarter of 2024. Moving down to income statement. Total operating expenses for the first quarter of 2025 amounted to $71.6 million compared to $52.7 million during the 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 systems and handpieces. Net loss was $24.7 million for the first quarter of 2025 compared to $26 million in the same period of the prior year. Adjusted EBITDA was a loss of $15.8 million compared to a loss of $20.4 million in the first quarter of 2024. Our cash, cash equivalents and restricted cash balances as of March 31 were approximately $319 million. Moving to our 2025 financial guidance. We now expect full year 2025 total revenue to be approximately $323 million, representing growth of approximately 44% compared to 2024. We continue to expect to sell approximately 210 new robotic systems in the United States, with pricing in the range $430,000 to $440,000. Our primary focus in 2025 remains on the substantial opportunity to sell HYDROS and greenfield accounts. However, we are also seeing interest from existing customers who are looking to either replace their current AquaBeam system or acquire a second system, which would be HYDROS. Therefore, we are guiding to total full year U.S. system revenue of approximately $95 million, which includes greenfield sales and to a lesser extent, replacement system. We continue to believe that the replacement opportunity will serve as a significant long-term driver for the business, although we are still in the early stages of the adoption curve. Turning to the U.S. handpieces. For the full year, we continue to expect sales of approximately 52,500 handpieces, representing a 63% 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 first quarter. We are maintaining handpiece average selling prices to be approximately $3,200 and are increasing other consumable revenue expectations to be approximately $9 million for the full year. Additionally, we expect U.S. service revenue to now be approximately $16 million for the full year. Lastly, on international revenue. Given strong positive momentum in the United Kingdom, we now expect full year international revenue to be approximately $34.5 million, representing annual growth of 44%. 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. To clarify our exposure, tariffs primarily impact our ultrasound system and associated components sourced from China. Should current rates remain elevated at 145%, we estimate a potential gross margin headwind of approximately $5 million in 2025 which would equate to a 150 basis point reduction from our guidance of 64.5%, with the majority of the impact expected in the second half of the year. While we believe there is a reasonable likelihood that tariffs could moderate over time, we felt it important to outline the potential downside scenario should rates remain changed. Although we are not yet providing guidance for 2026, we are actively evaluating operational mitigation strategies that could reduce future exposure. Importantly, we remain confident that the current tariff environment does not compromise our path to achieving our long-term profitability objectives. We will continue to closely monitor developments and provide timely updates as needed. Turning to operating expenses. We continue to expect full year 2025 operating expenses to be approximately $300 million, representing growth of 28% over 2024. In the second quarter of 2025, our operating expense guidance assumes spend of approximately $75 million. Additionally, given current interest rates and cash balances, we expect full year interest and other income of approximately $9.4 million. Taking all relevant factors into account, we continue to anticipate a full year 2025 adjusted EBITDA loss of approximately $35 million. We believe potential tariff-related headwinds can be largely mitigated through operational efficiencies identified across the organization. At this point, I'd like to turn the call back to Reza for closing comments.

Thanks, Kevin. In closing, I want to provide a brief preview of AUA. We are currently in Las Vegas for the 2025 AUA conference, and it is also PROCEPT'S fourth consecutive AUA analyst day. Tomorrow, we will be video webcasting the event live starting at 8 a.m. Pacific, 11:00 a.m. Eastern. From a logistics point of view, it is very important to note that the location of our event has been moved to the Aria Hotel in conference rooms, Joshua, 9 and 10. If you are planning to attend in person, please update your meeting location to the Aria Hotel. Tomorrow will be an exciting event for PROCEPT as this will be the first year we present prostate cancer results for Aquablation from a combination of both of our trials, PRCT001 and PRCT002. The data we plan to present will include procedural, anatomical capabilities and safety functional outcomes with respect to the incontinence and erectile function and oncologic control. Given the reproducible nature of our procedure and its safety profile seen during the treatment of BPH, we believe tomorrow's Analyst Day will provide a glimpse into the future as to how low and intermediate risk prostate cancer patients could be treated. Furthermore, we are the first company ever to receive IDE approval from the FDA to enroll a randomized trial comparing surgical therapy against radical prostatectomy for prostate cancer. We view this as the first crucial step in pursuing a specific prostate cancer treatment indication, which no other treatment has today. Given the amount of Level 1 clinical evidence we will be gathering over the next few years, along with our breakthrough device designation to fast track approval, we believe we will be in an advantageous position to drive rapid change in a massively underserved market. To conclude my prepared remarks, we are seeing multiple factors continue to trend positively, allowing us to execute our long-term strategic plan. In summary, the U.S. HYDROS launch is gaining momentum with our pipeline and sales funnel growing nicely. We launched significantly more greenfield accounts in the first quarter compared to any other quarter. We exited March with very strong procedural momentum and view the saline disruption to be behind us. We feel very confident in delivering another year of strong procedure growth. Our international business continues to build momentum in the U.K. We are the first company ever to receive IDE approval from the FDA to enroll a randomized trial comparing a surgical therapy against radical prostatectomy for prostate cancer. Lastly, based on current inventory levels and limited exposure to foreign suppliers, we believe the impact of tariffs on 2025 gross margins to be very manageable, and we have reiterated our adjusted EBITDA guidance for fiscal 2025. We believe these underlying fundamentals reflect the technology that is laying the foundation to become the BPH surgical standard of care and a business that will be a leading global urology company. 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 take questions. Operator?

[Operator Instructions] Our first question will come from the line of Matthew O'Brien from Piper Sandler.

For starters, just would love to hear, and I think Sham kind of started to address it a little bit, but just love to hear a little bit more about the CapEx environment. It's coming up in every conversation I think everybody is having at this point in terms of the environment potentially slowing with Medicaid cuts, et cetera, but you just had your best greenfield quarter ever. So maybe just talk a little bit about what you're seeing in the market in terms of buyer interest in the system and then conversion rates versus what you were kind of expecting if anybody is kind of slowing things down, just given the environment or even canceling converting over? Just a bigger discussion on what you're seeing on the CapEx side because, again, I think it's getting quite a bit of attention. And then I do have one follow-up.

Matt, it's Sham. Thanks for the question. So I would start by saying we haven't seen an impact when it comes to our capital interest and the hospital interest in acquiring HYDROS. We have daily conversations. Our pipeline is at an all-time high when we look at opportunities that have now entered the buying process for HYDROS. And so we haven't seen any material shift in the sentiment as far as the excitement around acquiring our technology. The one thing I think we are different, I mean, we're in a unique position. We're still early innings when it comes to the opportunity we have with the number of hospitals that still remain. And we're talking about thousands of hospitals that still haven't acquired AquaBeam or HYDROS at this point. And we're continuing to build the pipeline. The other thing is due to the disruptive nature of this technology, due to the adoption with procedures, we now have patients demanding the technology. Surgeons, hospitals don't want to lose those patients. And we're in a unique position right now to continue to grow that pipeline, and the reimbursement supports the procedure as well. So there's a lot of things going in our favor even in this environment. And the last thing I'd mention is the relationship with IDNs continue to strengthen. We talk about this routinely. We're at a point now where we're being invited to corporate environments where we have the key executives at large IDNs talking to us about long-term strategy. All those things play into our favor over the course of this year and the future.

Got it. Appreciate that feedback. And then the second one is really on the handpiece side. That was really strong in the quarter. And I know there was probably some deferral of cases in Q4, and that's difficult to figure this out. But how many of those may have gotten pushed from Q4 into Q1? Or are there other dynamics underlying this that are just even stronger in terms of maybe market share in certain geographies that are looking above what you had initially anticipated, again, given how strong the handpiece number was in Q1?

Yes. Thanks, Matt. This is Kevin. So you are correct. We did see some impact from deferrals in the fourth quarter, but those were largely offset by the saline impact that still lingered into January and February. So I would characterize that dynamic as net neutral for procedures in Q1, which really means the Q1 procedures are just driven by the strength of the business as opposed to backlog coming into Q1, which was offset by the continued weakness into January and lingering into February.

Our next question will come from the line of Craig Bijou from Bank of America Securities.

Congrats on the strong start to the year. I wanted to follow up on Matt's question on handpieces and maybe ask in a slightly different way, but I know you called out March as kind of getting back to normal. And I wanted to see if maybe you could provide a little bit more color on what the procedure volume growth was in March, at least directionally versus some of the other quarters and maybe how we should think about utilization in March and how that carries forward for the rest of the year?

Yes, I'll start, and maybe I'll let Sham come in. But we were really pleased with kind of return to normalcy in March coming out of the January and February lingering impact from saline. Moving forward, our guidance in Q2 and Q3, it assumed very similar utilization rates to the first quarter. And then you get into the fourth quarter and you're looking at utilization, that would be up over 20%, which would imply a full year 10% utilization growth, which we think is fairly healthy, keeping in mind how many new accounts that we're adding to the business in 2025, which we've consistently said it's a natural headwind to utilization and it takes about 3 -- 2 to 3 quarters, excuse me, for our accounts to get up to the corporate average. But we're really pleased directionally with where utilization is trending.

I would just add, Matt -- I'm sorry, Craig, it's Sham, that we continue to have great insight into daily procedures, number of new surgeons, surgeon retention rates. And exiting March into April, we were on track to where we want to be as far as launching new accounts and hitting the surgeon retention rates and adding new surgeons at the rate we need to be to hit our forecast. Saline is behind us. I think March is the first month where we felt confident that the dynamic that's now gone, and we're now back in full swing as far as daily procedure rates.

Great. That's helpful. And I know you guys have talked a lot on this call about the multisystem orders for the IDNs. And you have been talking about it for a number of years now, and it seems like maybe there was an acceleration. And I know you guys -- I heard you guys mention HYDROS as one of the drivers. But I mean, anything else that's changed there? Like it's great to see. And I'm just curious as to what those discussions look like now versus where you guys were a year ago? And how should we think about that impact in years going forward?

Yes, it's Sham. I'll start by just really mentioning the kind of the current environment has adjusted or changed kind of to your question simply because hospital systems now can look back at existing programs they've had for years. And versus it being kind of a vision of establishing an Aquablation program, they can go back and look at the data and say, is this working? And so the fact that they can now look at their own hospitals, they can see what the reimbursement looks like. They can see how patient volumes are growing at the hospital. They can see that they're adding new surgeons because of this technology. All of those reasons are the reasons why they want to now have more strategic or corporate conversations. I will tell you that we've been having IDN purchases all along. This is now just becoming more of a partnership versus just taking one hospital at a time through the IDN. So the ability now to have those conversations will serve us really well over the coming years. That's the partnership I think we have with IDNs. Whether it's a bulk buy or one purchase at a time, this is more about the corporate level supporting their local hospitals. And that's kind of the evolution of the conversation that's happened.

Our next question will come from the line of Patrick Wood from Morgan Stanley.

I'd love to start actually this time on OUS. Obviously, any time nice support of technology. Being the most stingy organization of all time, it always gets a lot of attention that way. So great result there. I'm really curious how you're thinking about resourcing OUS, growing there. Because obviously, it's a massive opportunity and it's still incredibly early stage. So I'm just trying to work out there's a lot to go in the U.S. as well, but how do you balance those? How should we think about the OUS ramp over the next 3, 5 years, whatever?

Patrick, it's Sham. Thanks for the question. We are very excited about the international opportunity globally. The one thing that we've spoken about in the past and I'll just reiterate is we want to do things the right way. And when we go to a market, we want to make sure we win in a big way. And we're early as a company. We've got a lot of opportunity, and we're going to be very disciplined in making sure that when we go to the country, that all the boxes are checked. There's a lot of boxes that need to be checked to have a winning technology in many of these markets. So we've made the decision via a lot of efforts we've made on getting good reimbursement, good support from NICE, as you mentioned, to focus on the U.K. as the next big market of ours. We've now continued to build the team there, and we have -- we see some great growth. We also believe the formula we're using in the U.S. can be reproducible. And so we're following a very similar structure and growth format that we have in the U.S. We've now taken that to the U.K. The next market we'll go through is Japan. And outside of those 3 markets, we continue to do a lot of market development activities. We've got interest from well over 20 countries, significantly more than 20 countries that we decided not to go into right now because we want to support the markets we're in and win in those markets. But that does serve very well for us in the years to come.

Beautiful. And then very quickly as a follow-up, the U.S. side of things, we're obviously moving to a permanent code. We thought there was some noise in the quarter around the physician fee. Any sort of updated thoughts on how you're thinking about the pro fee and then the cat change on the code side of things for this year?

Yes. So the [ drop ] process for the Category 1 is complete. So the proposed ruling, we expect to come out this summer. We feel very good about the physician payment because this procedure is very similar to other resective procedures. So we anticipate this to be similar to other resective procedures. What's important is this does not impact APC Level 6, which is ultimately the [ ROI out ] to the hospital, that remains at 90 to 100.

Our next question will come from the line of Richard Newitter from Truist.

I just want to talk about kind of the concept of high-volume, low-volume or low- to mid-volume hospitals. You mentioned, I think, that the proportion going into low to mid was about 50% and going into high volume, it was about 50%. Can you just remind us kind of what that ratio has looked like over the last 1 to 2 years so we can get a sense for whether you're at a point where maybe you're more reliant on medium- to low-volume accounts to drive higher utilization? And if that's a consideration that we should be thinking about, is it harder to get incremental utilization per account from here on or just kind of steady as she goes is what you've been doing?

Yes. Rich, it's Sham. I think we think very differently when you think about utilization and when you think about the size of hospitals. The one thing that we've proven up to this point is if a hospital has a low- or medium-volume BPH volume, when they acquire Aquablation technology, we've seen significant increases in utilization, in fact, in many cases, turning them into high-volume BPH hospitals. And so we're going to talk more about this tomorrow on our Investor Day, but this is something that actually has been very supportive for our hospitals to show they can move surgeons, they can move market share. This is what -- when you look back historically over the last 25 years and you see the most successful robotic surgery companies, this is what they've done. The most successful companies have been able to move market share by hospitals establishing robotic programs. This has been a great success of ours. And we have over 2,000 hospitals that are low- and medium-volume BPH hospitals that we're just getting started in. As far as your question on the shift, we used to be about 70% of our hospitals were high-volume hospitals. And now we are starting to see a shift down in that because of the addition of low- and medium-volume hospitals. So very exciting times for us, and we continue to validate that this technology is adopted by all.

Great. And maybe just for Kevin on the tariff, a follow-up here. Is the message that you could potentially see up to 150 basis point gross margin headwind, obviously, if everything stays the way it is right now but you offset that in the P&L such -- further down the P&L such that the message is you absorb more tariff headwind should it approach 150 basis points? Or there is a potential 150 basis points risk to your reiterated EBITDA guide?

Yes. I'll go through that, Rich, in detail here. So the impact we discussed today, it does assume that the tariff rate for imports from China stay at the 145% level. And this expense of $5 million MAC exposure would be weighted towards the second half of the year. Obviously, this is a very dynamic situation. I mean we heard recent commentary yesterday that, that would be positive around this rate. But specific to your question, the $5 million impact would be 150 basis point reduction to our 64.5% margin guidance if nothing else changed here moving forward. With that said and to the second part of your question, even with this headwind, we are affirming our EBITDA guidance if margins trend even towards the low end. But the reason being is we have identified offsets in our operating expenses to mitigate a $5 million impact. So margins would be reduced, but the overall profitability of the company would be unchanged. At the end of the day, a $5 million impact is approximately 2% of our operating expenses. And we think as a management team, we could go find that to support continued EBITDA. And then lastly, I think and it's important, we don't believe the current tariff environment would materially impact our pathway to profitability in the future here. We're working on a lot of things as we head into '26.

Our next question will come from the line of Brandon Vazquez from William Blair.

I wanted to go back to the IDNs first and maybe ask a question in a slightly different way. I'm kind of curious, what does the utilization in these accounts look like? And in part, I'm asking because it sounds like this is an effort that you historically used to go in, find one KOL, put yourself in the accounts and expand from there. But now you're having from the top, the corporate organization pushed this. Is there a difference in the rate of utilization? Is there a difference in the peak utilization or the just raw number of procedures that are coming out of these accounts? Curious on any dynamics you can talk about there.

Brandon, it's Sham. So I think that this is something that, over time, we'll be able to hopefully give a lot more detail on. But I'll tell you that initially, it's still driven the same way, and I'll tell you why we think that there could be favorability to it in the future. Right now, it's driven by surgeons. Surgeons drive this technology. They get excited about it, and they come in from the physician office level finding patients and bringing them to the hospital, and patients find those surgeons that are doing Aquablation. However, we do have IDNs that have patient navigation programs. These are employed employees of the hospital network that work to educate the referring physicians on new technologies the hospitals offer, and that helps to drive this funnel of patients to drive more patients for Aquablation. We have IDNs currently that are very interested in PROCEPT, educating those nurse navigators, educating that pathway. And those are opportunities that exist from the corporate level. That's an example of something I think can help utilization and will. There are other areas that we're talking to strategically also. But at the end of the day, these decisions are surgeon decisions. But anything that IDNs can do to educate and raise awareness is always helpful for utilization.

Okay. And maybe as a follow-up to that, I'll throw two here because one is a follow-up to that question is basically maybe the more blunt way to ask the question I was trying to ask is, it looks like the goal of robotics often, Sham, from your experience in Intuitive and then now what you want to do in PROCEPT is standardized, right? You want to standardize to a certain care pathway. Do the IDNs, the increasing adoption of IDNs that more bluntly may give you a clearer pathway to standardizing on PROCEPT? And then a separate unrelated question. Now that you guys have a second randomized controlled trial with WATER III, can you just spend a couple of minutes on what's the game plan here in terms of using this potentially for societies, change guidelines and then maybe open some new international markets?

Yes. Brandon, I'll take the utilization question, and I'll pass it over to Reza. So I think that what we're seeing on the IDN level is absolutely an interest in doing more on the utilization front. So I'll tell you that tomorrow, we'll talk more about it at our Investor Day. But these are all things that I believe ultimately will help Aquablation become the standard of care. They do want to standardize. At the end of the day, these are certain decisions, but anything that the hospitals can do to help with training, to help with education is going to help standardize the procedure. And those are the conversations we're having right now. We're making a big investment in the strategic accounts team to be able to support the hospitals. And that is definitely something that's on their mind is how do they get more Aquablation procedures in the hospitals.

Related to your second part of the question, WATER III data were presented a few weeks ago in Madrid. As early as it is, but the initial response has been very positive. This was a randomized study against enucleation and multicenter, multi-country that was shown with the 0% transfusion with similar efficacy results but better safety outcomes. So this will definitely will be in the future get into the international guidelines, and this further strengthens our clinical benefits population. So definitely, as you said, and it will get -- the goal is to get into the guidelines.

Our next question will come from line of Josh Jennings from TD Cowen.

I was hoping to just ask about PRCT001, 002, those results coming out. I think you'll have 12-month results on 002 and maybe 001 as well. But help us understand the plan just in terms of filing and WATER IV is going to generate Level 1 evidence. But in front of Level 1 evidence, will PROCEPT move forward with filing for a general use tools claim for localized prostate cancer?

Yes. Thanks, Josh. This is Reza. So we are very excited about the event tomorrow. I think more importantly is hopefully, tomorrow, we will answer recently questions about do we spread cancer? Can we treat the lesion in different locations of the prostate? Can we treat in the peripheral zone or the transitional zone? And why is this randomized against prostatectomy? So tomorrow, data, 70 patients, PRCT001, 002 with 3 months and the 6 months data and 50 patients will be presented. Yes, we can potentially obtain a tool claim, but we know ultimately, in order to -- our goal is to expand the market of prostate cancer. And that's why we have started WATER IV randomized study against prostatectomy so that we can generate Level 1 data in order to get to guidelines.

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

I wanted to follow up on tomorrow first and a follow-up on reimbursement. You talked previously about some potential investment options you're evaluating to try and speed up the time line for WATER IV. Not to get ahead of ourselves on what we're going to see tomorrow, but what are your latest thoughts on the enrollment time line for that study?

Yes. We can -- we'll provide a lot more detail tomorrow. But we've been consistent in stating that kind of unencumbered, this would be approximately a 24-month enrollment. I think we think a good result is to try and shorten that by 6 months, and that's the additional investments we're talking about. But we're going to give an update tomorrow kind of on time line, but you should think of this as an 18- to 24-month enrollment.

Okay. That's helpful. And then could you just talk about the practical implications of the LCD changes and what you think that does to your market opportunity within geographies represented by First Coast and Novitas?

So the -- as I mentioned in the prepared remarks, removing some of those obstacles definitely streamlines the patient pre-workup. The age removal, the minimum void impacting patients with retention and the measurement of the prostate side, these are all the obstacles that are removed. And definitely, age is now removed on all MACs, but the other 2, we believe this could be a precedent for the other MACs to remove the way they have to measure the prostate using transrectal ultrasound. All of this we'll facilitate using the technology on patients.

Chris, I'd just add that I'm not sure everybody understands that not every urologist owns a transrectal ultrasound in their office setting. And so that -- their ability to use transrectal ultrasound is not in question, but their ability to have access to it can be a challenge. So that's a big one. And then Reza touched on the other one. This is the more -- these are all smaller wins in a sense of like one at a time, but when you add all these small wins together becomes a big win because then these surgeons don't think of this as a workup nightmare, so to speak. It becomes very easy to schedule patients.

Our next question will come from the line of Mike Kratky from Leerink Partners.

Have you seen any shift in the typical prostate size where Aquablation is being used as physicians get more and more familiar with the system or as they've incorporated it into their practice broadly, whereas HYDROS has started to roll out? And then maybe just a follow-up. Can you share any feedback that you hear from your customers on surgeons' perceived value proposition of Aquablation across different prostate sizes in BPH?

Yes. So the distribution curve that we have been showing in the last couple of years remains similar. So it's -- and the majority of the prostate that are treated are below 100 milliliters. So that distribution curve has not changed. Sham, do you want to talk about the value proposition?

Yes. One of the big benefits of Aquablation is you don't always know what size of prostate is going to be when you go into surgery. I think that surgeons are consistently doing their best to gauge what they're dealing with, what you get in the operating room and many times they're surprised by what they're dealing with. And the Aquablation therapy technology allows you to treat prostates of all sizes consistently, efficiently and with consistent outcomes that we just saw with the randomized study with WATER III. And so I think what you're going to see now is many surgeons who felt like they needed to refer out large prostate, many surgeons who felt like they maybe needed to go get trained on a technique for large prostate, surgeons that were doing prostatectomies, et cetera. Those are patients that I believe they now have the data. They now have the support to show consistent results with Aquablation therapy. We've had this data for a long time. There's over 150 peer-viewed journals, but this WATER III study continues to validate that the randomized data we're investing in is very consistent across the board. So I think we'll see this continue to be a big benefit for us long term.

Our next question will come from the line of Nathan Treybeck from Wells Fargo.

Kevin, I just wanted to clarify something you said earlier on the ASP. I mean I think going into the year, you expected about $3 million from system replacements. Can you just clarify like the ASP differential between replacements and greenfield?

Yes. So it's an interesting dynamic, and it's going to vary based on the age of the system. So for example, we did have one replacement in the first quarter. But given the age of that AquaBeam system, the pricing wasn't terribly different than to a new greenfield account in the quarter, which is why we didn't separately call it out. And that dynamic, I think, is fair. If your AquaBeam is, I'll call it, 3-plus years old, and then we obviously are offering some type of trade-in discount. But we haven't been specific on what that is. This is going to vary from customer to customer. It's also why we incorporated a full year system revenue number into guidance to kind of help everyone back into what a replacement can look like.

Okay. That's helpful. And then on the prior just deferred procedures, exiting -- I think in Q4, you had 2,000 procedures that were deferred. You talked about some lingering impact in January and February. I guess where does the deferrals stand today? And over what time frame can you recapture these procedures?

It's really difficult to say with absolute certainty. At the end of the day, the 2,000 procedures, that 2,000 procedure maximum that we felt were deferred in the fourth quarter, they're a small part of the 52,500 procedures we're going to do here in 2025. But we would expect these to kind of be coming back throughout the year. I mean BPH is an elective procedure and, therefore, backlog procedures are probably just likely to filter in evenly throughout the year.

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

Just a follow-up on the capital equipment environment. Can you maybe give us an update on where you stand in terms of duration of a typical sales cycle these days? It doesn't sound like you're seeing any changes, but would love an update there. And then maybe comment on what kind of visibility you have into the funnel?

Michael, it's Sham. So to answer your question, no changes as far as the sales cycle 6, to 9 months continuous to be a typical sales cycle. You will see some things move faster. You'll see some things go a little bit longer depending on budgetary kind of constraints. But 6 to 9 months is a fair kind of thought as far as when you think about our pipeline and how quickly we can move through. I apologize, what was the second part of your question?

I can take it, but just kind of visibility into the funnel. And I mean, specifically, we haven't seen any change in conversion rates. We haven't seen any change in fallout, and it's been very consistent over the last 12 to 24 months.

Got it. And then just for the follow-up, maybe just give us an update on the competitive environment in BPH and what you're seeing, where are you taking share? Maybe any commentary on what your -- the latest and greatest on the prostate artery embolization front?

Yes. So I'll address the PAE first. PAE has been around for more than 25 years and typically done by radiologists. Efficacy is similar to nonresective, but the issue over there mostly on durability, and the data show that they have about 20% retreatment at 1 year. So these are obvious barriers, so we don't see that as a competition. As far as where we take market share when we ask the question, the answer we typically get is definitely we have said in the past, it is TURP, GreenLight and for larger prostates, definitely, embolization. New technologies that are coming on board, what we see, mostly they are various form of nonresective procedures. So this is what we are seeing. On the resective side, we are not aware of anybody coming up with a technology or running a clinical study on the resective side.

Our next question will come from the line of Ryan Zimmerman from BTIG.

Just a clarification on the capital sales, Kevin. I think last quarter, and correct me if I'm wrong, the 210-unit guide was separate, the $95 million, specifically was separate from the $3 million replacement. And is the $3 million now included in the $95 million? I just want to be clear because at 210 at $435,000 a piece, I mean you're coming in at like $91 million and change.

Yes. So it's correct. And so the $3 million would be incremental to the 210 to get you to the $95 million system guide.

But was that the case last quarter, Kevin? Because I know as I interpreted it, it was, and I may be mistaken.

Yes. Sorry, it was same last quarter, but we did not guide a total revenue number. And we just -- we wanted to clarify that on this call, but nothing has changed in terms of our expectations.

Okay. And then just to be clear, I think this was asked, but again, I apologize, I'm just trying to get some clarification questions. The 2,000 procedures that were deferred, you're not assuming or you are assuming that those were fully recouped in the first quarter?

No, we are not assuming that. What we're saying is we would suggest that any deferrals from Q4 to Q1 were largely offset by the saline impact that we saw in January and February. So we would consider that impact negligible in the first quarter. And if they were to come back, we feel that they're going to come back throughout the year, not in any one given quarter.

I'm not showing any further questions at this time. I would now like to turn the call back over to Reza Zadno, CEO, for any closing remarks.

Yes. Thanks for attending this meeting. I hope to see you tomorrow at our event and see you in the future conferences. Thank you very much. Have a nice day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.