PROCEPT BioRobotics (PRCT) - 2024 Q3 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited condensed consolidated financial statements show significant revenue growth and gross margin improvement for the three and nine months ended September 30, 2024, compared to the prior year, with a narrowing net loss, a decrease in cash, and an increase in total liabilities Condensed Consolidated Balance Sheets As of September 30, 2024, the company's balance sheet shows a decrease in total assets to $374.1 million from $404.7 million at year-end 2023, primarily due to a reduction in cash and cash equivalents, while total liabilities increased to $132.9 million and stockholders' equity declined to $241.2 million Balance Sheet Summary (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $196,762 | $257,222 | | Total current assets | $322,981 | $350,500 | | Total assets | $374,142 | $404,700 | | Total current liabilities | $53,646 | $45,900 | | Total liabilities | $132,924 | $123,900 | | Total stockholders' equity | $241,218 | $280,700 | Condensed Consolidated Statements of Operations and Comprehensive Loss For Q3 2024, revenue grew 66% year-over-year to $58.4 million with gross margin expanding to 63%, and net loss narrowed to $21.0 million, while for the nine-month period, revenue increased 69% to $156.3 million and net loss improved to $72.6 million Q3 2024 vs Q3 2023 Performance (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $58,370 | $35,102 | +66% | | Gross Profit | $36,911 | $18,874 | +96% | | Gross Margin | 63.2% | 53.8% | +9.4pp | | Loss from operations | $(22,427) | $(25,609) | +12% | | Net loss | $(20,974) | $(24,622) | +15% | | Net loss per share | $(0.40) | $(0.51) | +21.6% | Nine Months 2024 vs 2023 Performance (in thousands, except per share data) | Metric | Nine Months 2024 | Nine Months 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $156,262 | $92,610 | +69% | | Gross Profit | $93,427 | $49,794 | +88% | | Gross Margin | 59.8% | 53.8% | +6.0pp | | Loss from operations | $(76,904) | $(79,613) | +3% | | Net loss | $(72,557) | $(78,393) | +7% | | Net loss per share | $(1.41) | $(1.70) | +17.1% | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operating activities improved to $66.8 million, net cash used in investing activities decreased to $3.2 million, and net cash provided by financing activities was $9.6 million, primarily from stock option exercises Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(66,822) | $(83,210) | | Net cash used in investing activities | $(3,235) | $(16,491) | | Net cash provided by financing activities | $9,597 | $164,929 | | Net (decrease) increase in cash | $(60,460) | $65,228 | Notes to Condensed Consolidated Financial Statements Key notes detail the company's business as a surgical robotics firm focused on urology, particularly BPH treatment, with revenue primarily driven by system sales and recurring handpiece consumables, and the U.S. market accounting for approximately 90% of total revenue - The company develops, manufactures, and sells robotic systems for minimally invasive urologic surgery, with an initial focus on benign prostatic hyperplasia (BPH), and received FDA 510(k) clearance for its next-generation HYDROS Robotic System on August 20, 2024[17] Revenue by Type and Geography (Nine Months Ended Sep 30, in thousands) | Revenue Source | U.S. | Outside U.S. | Total | | :--- | :--- | :--- | :--- | | System sales and rentals | $50,978 | $7,974 | $58,952 | | Handpieces and other consumables | $81,217 | $7,230 | $88,447 | | Service | $7,888 | $975 | $8,863 | | Total Revenue | $140,083 | $16,179 | $156,262 | - The company operates as a single operating segment, with the United States accounting for 90% of revenue for the nine months ended September 30, 2024, compared to 91% in the prior year period[53][54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong revenue growth to increased adoption and utilization of its Aquablation therapy in the U.S., driven by a growing install base and favorable reimbursement coverage, with improved gross margins due to manufacturing scale efficiencies and higher average selling prices, while operating expenses rose to support commercial expansion and R&D for the new HYDROS system Overview and Recent Developments The company is a surgical robotics firm focused on urology, with an installed base of 572 robotic systems globally as of September 30, 2024, and recently received FDA 510(k) clearance for its next-generation HYDROS Robotic System and approval for a pivotal clinical trial for Aquablation therapy in localized prostate cancer - As of September 30, 2024, the company had an installed base of 572 robotic systems for Aquablation therapy globally, with 445 located in the United States[63] - On August 20, 2024, the company received FDA 510(k) clearance for its next-generation HYDROS Robotic System, which includes enhancements like the FirstAssist AI feature[67] - The company received FDA approval for a pivotal IDE clinical trial to compare Aquablation therapy to radical prostatectomy for localized prostate cancer, and also received Breakthrough Device Designation for this indication[71] Results of Operations Revenue for the nine months ended September 30, 2024, increased by 69% to $156.3 million, primarily driven by higher sales volumes of systems and handpieces in the U.S., with gross margin improving to 60% from 54% due to increased production volume and higher average selling prices, while R&D expenses grew 39% and SG&A expenses increased 29% - Revenue for the nine months ended Sep 30, 2024, increased by $63.7 million (69%), primarily due to a $56.1 million increase in U.S. revenue from higher sales volumes and, to a lesser extent, increased average selling prices[93] - Gross margin for the nine-month period increased to 60% from 54% year-over-year, attributed to spreading fixed manufacturing overhead over more units and higher average selling prices[96] - Operating expenses for the nine-month period increased by 32% to $170.3 million, driven by higher R&D costs for product development and increased SG&A expenses from expanding the commercial and administrative organizations[91][97][98] Liquidity and Capital Resources As of September 30, 2024, the company had $196.8 million in cash and cash equivalents and $52.0 million in outstanding debt, with management believing existing cash and anticipated revenue will be sufficient to fund operations for at least the next twelve months - The company had cash and cash equivalents of $196.8 million and an accumulated deficit of $527.1 million as of September 30, 2024[101] - Management believes existing cash and cash equivalents, along with anticipated revenue, will be sufficient to meet capital requirements and fund operations for at least the next twelve months[102] - The company has a $52.0 million senior secured term loan facility, which was fully drawn in October 2022 and matures in October 2027[103][104] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company is exposed to market risks, including interest rate risk from its SOFR-based variable rate debt, credit risk from customer accounts receivable, and foreign currency risk from sales and expenses denominated in currencies like the Euro, though management does not believe these risks would have a material impact and does not currently use hedging instruments - The company is exposed to interest rate risk due to its loan facility bearing interest at a variable rate based on SOFR, and a hypothetical 100 basis point change is not expected to have a material impact[121] - Foreign currency risk exists as a portion of net sales and expenses are denominated in foreign currencies, primarily the Euro, and the company does not currently hedge this exposure[124] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2024, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[127] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[129] Part II. Other Information Item 1. Legal Proceedings The company reports that it is not currently subject to any material legal proceedings - The company is not subject to any material legal proceedings[131] Item 1A. Risk Factors This section updates the risk factors from the company's Annual Report on Form 10-K, highlighting a specific risk related to natural or man-made disasters, noting that the company's primary operations and a significant portion of its employee base are centralized in Northern California, making it vulnerable to such events - The report references the risk factors in the Annual Report on Form 10-K and adds a specific risk concerning the potential negative impact of natural or man-made disasters on business operations[132][134] - A significant portion of the employee base and the primary operating facility are centralized in Northern California, posing a concentration risk from catastrophic events[136] Item 5. Other Information The company disclosed the adoption of pre-arranged stock trading plans under Rule 10b5-1 by two executive officers during Q3 2024, with CEO Reza Zadno adopting a plan for up to 105,683 shares and CLO Alaleh Nouri for up to 56,185 shares - On August 8, 2024, CEO Reza Zadno adopted a Rule 10b5-1 trading plan for the potential sale of up to 105,683 shares of common stock through December 4, 2024[139] - On September 3, 2024, Chief Legal Officer Alaleh Nouri adopted a Rule 10b5-1 trading plan for the potential sale of up to 56,185 shares of common stock through December 31, 2025[140]