PROCEPT BioRobotics Corp. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022; financial statements are unaudited. Comparisons are with the three and nine months ended September 30, 2021, and balance-sheet figures are compared with December 31, 2021.
Business context
PROCEPT develops, manufactures and sells the AquaBeam Robotic System for Aquablation therapy, initially targeting benign prostatic hyperplasia (BPH). At quarter-end, the company reported 208 systems installed globally, including 139 in the United States. Revenue includes system sales and rentals, disposable handpieces and other consumables, and service.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $20.3 million | $8.7 million | $51.2 million | $24.3 million |
| Gross profit / margin | $10.2 million / 50% | $4.2 million / 49% | $26.4 million / 52% | $11.3 million / 47% |
| Operating expenses | $32.3 million | $17.0 million | $82.1 million | $48.7 million |
| Operating loss | $22.1 million | $12.8 million | $55.7 million | $37.3 million |
| Net loss | $22.6 million | $14.1 million | $59.0 million | $41.5 million |
| Net loss per share, basic and diluted | $0.51 | $1.22 | $1.33 | $5.64 |
Revenue grew 135% in Q3 and 111% in the first nine months. Growth was driven chiefly by higher U.S. system and handpiece sales, increased average selling prices, expanded insurance coverage and a larger commercial organization. Q3 system sales and rentals were $10.6 million and handpieces and other consumables were $8.8 million. Management attributed improved gross margin mainly to higher unit volumes spreading fixed manufacturing overhead and higher U.S. selling prices. The company remained loss-making; operating expenses rose substantially, particularly selling, general and administrative costs.
Cash flow: Net cash used in operating activities was $55.2 million for the first nine months, versus $40.9 million a year earlier. Investing activities used $1.8 million; financing activities provided $4.9 million, compared with $261.5 million in 2021, which included IPO and preferred-stock proceeds. Cash, cash equivalents and restricted cash declined by $52.1 million during the 2022 period.
Liquidity and balance sheet: At September 30, cash and cash equivalents were $249.2 million, restricted cash was $3.8 million, current assets were $288.9 million and current liabilities were $27.4 million. Total liabilities were $103.3 million and stockholders’ equity was $220.8 million. The company reported an accumulated deficit of $320.5 million. Management said available cash, cash equivalents and anticipated revenue were expected to fund operations for at least 12 months from issuance of the statements.
Material changes and unusual items
- Compared with the first nine months of 2021, revenue more than doubled, but net loss increased by $17.5 million. R&D and SG&A expenses increased 39% and 81%, respectively.
- Year-over-year loss-per-share comparisons are affected by the September 2021 IPO and conversion of preferred shares: weighted-average common shares for Q3 were 44.6 million in 2022 versus 11.6 million in 2021.
- In October 2022, after quarter-end, the company borrowed $52.0 million under a new CIBC senior secured term loan and used it to repay and terminate its previous facility. The new loan has a five-year maturity, an initial 36-month interest-only period, and a floating rate based on SOFR plus 2.25%. It is secured by substantially all assets, including intellectual property, and includes covenants and a cash-deposit requirement. The company was assessing the accounting impact at filing.
- A San Jose lease commenced in July 2022 for approximately 158,221 square feet, with a 10.4-year remaining lease term reported at quarter-end. The company recorded a $22.7 million right-of-use asset and lease liability; disclosed aggregate base rent is $49.2 million over the initial term, with a landlord allowance of up to $7.9 million for tenant improvements.
Outlook, commentary and risks
No specific revenue, earnings or margin guidance was provided. Management expected revenue and expenses to increase as it expands system placements, utilization, sales and marketing, operations, and R&D; it anticipated gross-margin improvement over the longer term from scale, while noting quarterly variability. Continued losses and negative operating cash flow are expected for the foreseeable future.
Key uncertainties include adoption and utilization of the system, reimbursement and coverage decisions, competition, manufacturing scale and supplier availability, and the effects of COVID-19 on elective procedures, hospital budgets, staffing and training. Management said the duration and business impact of pandemic-related disruption remained uncertain. The CIBC facility adds secured-debt, covenant and liquidity constraints; a covenant breach could permit acceleration of repayment. The company also disclosed exposure to foreign-currency movements and uninsured bank deposits, but did not consider hypothetical currency or interest-rate changes material to the reported statements. No material legal proceedings or material indemnification claims were reported.
Important facts for investors to verify
- Whether system placements and handpiece utilization continue to support revenue growth and improved gross margins.
- Whether commercial reimbursement expansion translates into sustained procedure volume and adoption.
- Cash burn and the timing of any need for additional financing, in light of the stated 12-month liquidity expectation.
- The CIBC loan’s final terms, covenant compliance, cash-deposit requirement and impact of its floating interest rate.
- Execution and costs associated with the San Jose facility lease and planned operating expansion.
- Potential dilution from equity compensation: 5.4 million stock options and 636,000 restricted stock units were outstanding at quarter-end.