PROCEPT BioRobotics Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. PROCEPT develops and sells the AquaBeam robotic system and related products for Aquablation therapy, initially targeting benign prostatic hyperplasia (BPH). The global installed base was 369 systems, including 271 in the United States.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $35.1 million | $20.3 million | $92.6 million | $51.2 million |
| Gross profit / margin | $18.9 million / 54% | $10.2 million / 50% | $49.8 million / 54% | $26.4 million / 52% |
| Operating loss | $25.6 million | $22.1 million | $79.6 million | $55.7 million |
| Net loss | $24.6 million | $22.6 million | $78.4 million | $59.0 million |
| Net loss per share | $0.51 | $0.51 | $1.70 | $1.33 |
Revenue mix: Q3 system sales and rentals were $14.3 million; handpieces and other consumables were $18.7 million; service was $2.1 million. U.S. revenue represented 92% of Q3 revenue.
Cash flow and liquidity: Operating cash use was $83.2 million for the first nine months, compared with $55.2 million a year earlier. Investing cash use was $16.5 million, primarily for property and equipment and new-headquarters leasehold improvements. Financing provided $164.9 million, including $161.7 million net proceeds from an August share offering. At September 30, cash and cash equivalents were $287.1 million; current assets were $368.7 million and current liabilities $41.4 million.
Debt: $52.0 million principal was outstanding under a senior secured term loan; its balance-sheet carrying amount was $51.3 million. The facility bears interest at SOFR plus 2.25%, is secured by substantially all company assets, and matures in October 2027.
Changes versus comparable periods
- Q3 revenue grew 72%; nine-month revenue grew 81%. Management attributed growth primarily to higher system, handpiece, and service sales, with most dollar growth coming from the United States.
- Handpieces and other consumables grew 112% in Q3 and 125% year to date, compared with system sales and rentals growth of 35% and 44%, respectively.
- Gross margin expanded to 54% from 50% in Q3 and to 54% from 52% year to date, which management attributed to higher unit volumes spreading fixed manufacturing overhead.
- Operating expenses increased 38% in Q3 and 58% year to date, reflecting higher R&D and sales, marketing, and administrative costs. Consequently, the nine-month net loss increased by $19.4 million.
- Cash and cash equivalents rose from $221.9 million at December 31, 2022, in part due to the August equity offering. The offering issued approximately 5.1 million shares and generated $161.7 million net proceeds.
Outlook, risks, and unusual items
- Management expects revenue to increase in absolute dollars in the foreseeable future as it expands system placements and utilization, with U.S. growth expected to be larger. It also expects continued investment in R&D and commercial infrastructure; expenses may fluctuate.
- Management believes cash, cash equivalents, and anticipated revenue will fund operations for at least 12 months from the financial statement issuance date. This assessment depends on assumptions; additional financing may be needed, and may be unavailable or dilutive.
- Key execution factors include market adoption and system utilization, reimbursement, manufacturing scale and margins, product development, and international expansion. The 2024 Medicare outpatient payment rule was still proposed at filing: $8,847 per Aquablation procedure, approximately 3% above 2023 rates; the final rule was expected in November 2023.
- The loan agreement requires financial covenant compliance if available cash falls below $100 million; the company reported cash and cash equivalents of $287.1 million at quarter-end. The loan also requires specified deposits at the lender.
- Other exposures include variable-rate debt, cash balances above insured limits, foreign-currency exposure without hedging, and possible dilution from equity financing and stock-based compensation. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no material indemnification claims.
Important facts for investors to verify
- Whether system placements and utilization continue to drive recurring handpiece revenue and sustain revenue growth.
- Whether gross-margin improvement persists as production scales and product/geographic mix changes.
- Cash burn and the timing of any need for additional capital, including the effects of the secured loan terms and covenant triggers.
- Final Medicare payment rates and continued commercial and international reimbursement coverage.
- Share dilution from the public offering and outstanding equity awards; the filing reports 50.5 million common shares outstanding as of October 27, 2023.