PROCEPT BioRobotics Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; financial comparisons are against the three and nine months ended September 30, 2020. Amounts below are in U.S. dollars unless stated otherwise.
Business context
PROCEPT develops and sells the AquaBeam Robotic System, which delivers Aquablation therapy for benign prostatic hyperplasia (BPH). Revenue comes primarily from system sales and rentals and recurring single-use handpieces. At quarter-end, the company reported 125 systems installed globally, including 75 in the United States. All U.S. Medicare Administrative Contractors had issued positive local coverage determinations in 2021; several commercial payors also provided favorable coverage decisions.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $8.7 million | $2.1 million | $24.3 million | $4.5 million |
| Gross profit (loss) | $4.2 million | $(0.03) million | $11.3 million | $(1.7) million |
| Gross margin | 49% | (1)% | 47% | (38)% |
| Operating expenses | $17.0 million | $10.9 million | $48.7 million | $32.9 million |
| Operating loss | $(12.8) million | $(11.0) million | $(37.3) million | $(34.6) million |
| Net loss | $(14.1) million | $(12.0) million | $(41.5) million | $(37.7) million |
| Operating cash flow | Not separately presented | Not separately presented | $(40.9) million | $(34.9) million |
Q3 revenue increased 311%; nine-month revenue increased 441%. Management attributed growth primarily to higher U.S. system and handpiece sales, supported by expanded insurance coverage and a larger sales and marketing organization. Higher sales volumes and a greater U.S. revenue mix improved gross margins. SG&A rose 72% in Q3 and 64% for the nine-month period, primarily reflecting commercial and administrative expansion; R&D increased 26% and 19%, respectively.
At September 30, 2021, cash and cash equivalents were $320.5 million, versus $100.1 million at December 31, 2020; total current assets were $339.5 million and current liabilities $14.2 million. The company reported $50.0 million outstanding under its loan facility, with a carrying value of $49.8 million, and total liabilities of $68.2 million. The loan bears a floating interest rate reported as 9.37% and is secured by substantially all company assets. The company said it was covenant-compliant.
Material changes and financing
- In September 2021, PROCEPT completed its IPO, issuing 7,539,400 shares at $25 per share and receiving approximately $172.4 million net proceeds. The proceeds are intended for sales and marketing hires, product development and R&D, working capital, and general corporate purposes.
- IPO completion automatically converted all outstanding redeemable convertible preferred stock into common stock; $329.5 million was reclassified to additional paid-in capital. Common shares outstanding were 43.5 million at September 30, 2021.
- Net cash from financing activities was $261.5 million for the first nine months of 2021, including IPO proceeds and $84.7 million from Series G preferred stock issued in June. Cash, cash equivalents and restricted cash increased by $220.4 million during that period.
- Capital spending was $0.3 million for the nine months. Operating cash use increased year over year, with management citing losses and growth in accounts receivable and inventory.
Outlook, risks and unusual items
No numerical revenue or earnings guidance was provided. Management expects revenue to increase as it expands system placements and utilization, while operating expenses—particularly sales and marketing, R&D, operations and public-company costs—are expected to rise. It expects longer-term gross-margin improvement from higher production volumes and manufacturing efficiencies, but results may fluctuate. Management stated that cash, anticipated revenue and available debt financing should fund operations for at least the next 12 months from the financial statements’ issuance date; this outlook depends on assumptions and is not a guarantee.
- The company has a history of significant losses, expects continued losses, and had an accumulated deficit of $243.2 million at quarter-end.
- COVID-19 could reduce or delay elective procedures, system placements, physician training, clinical work and supply availability; the duration and effects remained uncertain.
- Growth depends on hospital and surgeon adoption, utilization, reimbursement, competition, and the ability to scale manufacturing. The company relies on third-party and often single-source suppliers and operates its own manufacturing at one Redwood City facility.
- The filing describes voluntary recalls involving limited handpiece lots in 2019 and 2021, related to supply-chain and manufacturing issues. The provision for the recalls was not material.
- Disclosure controls and procedures were deemed ineffective because of a continuing material weakness in IT general controls, including program-change management and user access/segregation of duties. Management reported progress on remediation but said it was not yet remediated. The weakness had not caused a material misstatement in the reported statements.
- Management reported no legal proceedings expected to have a material adverse effect and no material indemnification claims recorded.
Important facts for investors to verify
- Whether system placements and handpiece utilization continue to support revenue growth, particularly in the United States.
- Whether improved gross margins persist as volume and product mix change, and how quickly operating expenses grow relative to revenue.
- Cash burn, cash runway, and compliance with revenue and other covenants under the secured, floating-rate loan facility.
- The status and effectiveness of controls remediation, including completion and testing of segregation-of-duties controls.
- Effects of Medicare and commercial reimbursement policies, COVID-related procedure disruptions, supplier concentration, and the 2021 handpiece recall remediation.