PROCEPT BioRobotics Corporation Common Stock 2026 Q2 Earnings Call

Good afternoon, and thank you for joining PROCEPT BioRobotics second quarter 2026 earnings conference call. Presenting on today's call are Larry Wood, Chief Executive Officer, and Kevin Waters, Chief Financial 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 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, August fourth, 2026. 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 this call, we'll 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 Larry.

Good afternoon, and thank you for joining us. This was an important quarter for PROCEPT as we continue to execute against the priorities we established at the beginning of the year. Coming into the year, we made several significant changes to our commercial organization, including realigning our regional structure and establishing a dedicated launch team to support the continued rollout of the HYDROS Robotic System. We also initiated patient activation pilots designed to help patients better understand Aquablation as a treatment option and make it easier for those seeking care to connect with participating physicians. Today, we remain focused on execution across the organization, including driving strong HYDROS system sales and procedure volume. I am encouraged by the dedication and effort of our team and the progress we're making, and I remain confident in the significant growth opportunity ahead.

In the second quarter, we delivered total revenue of $94.5 million, growing 19% year-over-year. We completed over 13,100 U.S. procedures, growing 21%, a strong increase, but softer than our expectations. Importantly, the shortfall was not broad-based across our installed base. It was concentrated primarily in the legacy AquaBeam accounts. Our newer HYDROS accounts continue to perform well, with procedures per account significantly exceeding those of our legacy AquaBeam accounts during the second quarter. We believe this performance demonstrates the value of the HYDROS platform. Its enhanced imaging, workflow, and clinical capabilities are helping physicians adopt Aquablation more quickly and utilize the system more consistently. The contrast between the performance of HYDROS and legacy AquaBeam accounts has also made the opportunity in our existing installed base increasingly clear. We are therefore accelerating our efforts to upgrade legacy AquaBeam systems to HYDROS.

We sold 14 replacement systems during the quarter. We expect replacement activity to remain an important part of our commercial strategy. These upgrades can create modest near-term disruption as accounts transition between platforms. However, based on the utilization we are seeing from HYDROS accounts, we believe upgrading the legacy installed base will improve account productivity and support stronger, more durable procedure growth over time. Handpiece sales represented approximately 98% of procedures this quarter, and we continue to expect an approximate 1-to-1 ratio of handpieces to procedures for the full year. Regarding system sales, we saw strong system demand in the quarter, placing 65 HYDROS systems in total in the U.S. This included 50 greenfield systems, 14 replacement systems, and one HYDROS system placed under an operating lease.

Approximately 40% of the HYDROS systems placed during the quarter were launched through our dedicated launch team, up from approximately 20% in the first quarter. We expect another meaningful increase in the third quarter. By year-end, we expect to have the capability to support the launch of all new HYDROS systems while maintaining the flexibility to prioritize dedicated launch resources where they can have the greatest impact. Early results remain encouraging, with newly launched accounts demonstrating shorter time to first case and stronger early utilization than we've historically observed. In addition, our increased focus on the replacement program has also been well received by customers and will enable us to retire legacy AquaBeam systems and relaunch them with HYDROS. Turning to pricing, as I mentioned, pricing discipline remains fundamental to our strategy. Our team executed with that discipline in this quarter.

Our Q2 greenfield HYDROS ASP was the highest to date, reinforcing the value customers place on Aquablation therapy. Overall, our U.S. HYDROS system ASP was approximately $495,000, up from $485,000 we reported in the first quarter and $435,000 for the full year of 2025. Hospital capital investment of that magnitude validates the commitment to building and expanding a long-term Aquablation program. Strong system sales this quarter give us continued confidence in the value of our platform and our customers, as well as the outlook. Before I turn to guideline updates and our regulatory process, I would like to provide some additional context on our second quarter performance. While procedure growth did not accelerate to the degree I had expected, the shortfall was driven primarily by softer procedures across our legacy AquaBeam accounts.

Despite these challenges with our legacy locked AquaBeam accounts, we made meaningful progress during the first half of the year. Most importantly, we demonstrated the durability of demand for the HYDROS platform through strong capital placements, accelerated system adoption within our replacement program, and meaningful improvements in average selling prices for both systems and handpieces. Operationally, we have completed several important initiatives that position the business for long-term success. We substantially completed the U.S. sales force realignment and optimized account coverage across the organization. As part of that effort, at the beginning of the second quarter, we promoted our former head of capital sales, Kyle Kelch, to lead our entire U.S. sales organization, providing greater leadership continuity and commercial focus. Beginning in June, procedure pace coverage transitioned to our clinical organization, allowing our sales representatives to spend their time in physicians' offices driving therapy adoption, referrals, and expanding utilization.

We have also launched several direct-to-patient pilots. We are now active across 18 markets in the United States with television, radio, digital, and social media campaigns. We are actively gathering data to assess which channels and messages are most effective at engaging patients and motivating them to seek care. We're encouraged by the leading indicators we're seeing, including increased website traffic, stronger digital engagement, and greater interaction with our patient education resources. In summary, we believe the deliberate changes we have made establish the right foundation for durable, high-quality growth in the years ahead. It is also the right foundation for healthy growth margin expansion and our path to profitability. Today, we believe we are in a strong position to deliver our 2026 revenue and gross margin guidance, and we believe we are on track to deliver on our expectation for positive adjusted EBITDA in the fourth quarter.

Now I'd like to highlight a few important clinical and regulatory milestones from the quarter. In May, the American Urological Association strengthened its recommendation for Aquablation therapy in its updated BPH treatment guidelines, further recognizing Aquablation as an important surgical treatment option for men with BPH. This follows the European Association of Urology's upgrade of Aquablation to a strong recommendation earlier this year and reflects the continued strength and maturity of our clinical evidence. Today, Aquablation is supported by approximately 250 peer-reviewed publications, making it one of the most extensively studied technologies in BPH. Turning to our cancer initiative, we reached an important milestone in the second quarter by completing enrollment in WATER IV, our first randomized clinical trial evaluating Aquablation therapy versus radical prostatectomy, with all 280 patients enrolled. WATER IV reflects our commitment to building the highest level of clinical evidence.

With a prospective randomized trial, we remain on track to present the primary endpoint results at the AUA annual meeting in the spring of 2027. We also received FDA IDE approval for a second randomized protocol, WATER IV AS, which will evaluate Aquablation against active surveillance in men with grade group 1 and 2 disease, and that will be up to 333 patients globally. Lastly, I'd like to highlight our international progress. We continue to take a disciplined approach to market expansion, prioritizing geographies with attractive reimbursement and capital dynamics. The U.K. remains our largest international market, where we continue to see strong capital pipeline and encouraging adoption. We also remain focused on the opportunity in Japan. With that, I will turn it over to Kevin to walk through our financial results and guidance in more detail.

Thanks, Larry. Total revenue for the second quarter of 2026 was $94.5 million, representing 19% year-over-year growth. U.S. revenue totaled $83.4 million, an increase of 20% compared to the second quarter of 2025. Turning to U.S. procedures, we completed more than 13,100 U.S. procedures during the second quarter of 2026, representing approximately 21% year-over-year growth. Handpiece sales remain closely aligned with procedure volumes, with a handpiece-to-procedure ratio of approximately 98%, while handpiece average selling price increased to approximately $3,550. As a result, U.S. handpiece and other consumable revenue totaled $48.4 million, an increase of 12% compared to the second quarter of 2025. U.S. system revenue totaled $29.1 million in the second quarter, representing 32% year-over-year growth. During the quarter, we placed 65 HYDROS systems at an average selling price of approximately $495,000 for new U.S. system placements, reflecting continued strength in both demand and pricing.

As Larry mentioned, the 65 systems included 14 replacement systems, demonstrating momentum in the early stages of what we expect to become a growing replacement cycle. International revenue in the second quarter of 2026 was $11.1 million, representing year-over-year growth of 15%. Moving down the income statement. Gross margin was 66% in the second quarter, compared to 65% in the prior year period. Gross margin benefited from a $2.9 million tariff recovery recognized during the quarter. Total operating expenses for the second quarter of 2026 were $89.8 million, compared to $73.9 million in the prior year period. The increase reflects continued investment in the business, including targeted initiatives to drive patient activation and market awareness, ongoing innovation across our BPH platform, and increased funding for our WATER IV prostate cancer trial. We believe these investments position us to drive long-term growth while strengthening our clinical and technology leadership.