Executive Summary / Key Takeaways

• PROCEPT BioRobotics is establishing its differentiated Aquablation therapy as a potential standard of care for BPH, leveraging its advanced robotic systems (AquaBeam and HYDROS) and a growing body of clinical evidence demonstrating superior safety and comparable efficacy to traditional methods.
• The successful launch and strong market reception of the next-generation HYDROS Robotic System, featuring AI assistance and improved workflow, are driving robust system sales and contributing to expanding gross margins.
• Recent financial performance highlights significant revenue growth (55% year-over-year in Q1 2025), expanding gross margins (64.0% in Q1 2025), and improved operating expense leverage, signaling a clearer trajectory towards profitability.
• Strategic expansion into the localized prostate cancer market, supported by FDA Breakthrough Device Designation and a pivotal randomized trial (WATER IV PCa) against radical prostatectomy, represents a significant long-term growth opportunity beyond BPH.
• Despite near-term operational challenges like the recent saline shortage and potential tariff headwinds, management's reiterated FY 2025 guidance (revenue ~$323M, Adjusted EBITDA loss ~$35M) reflects confidence in mitigating these impacts through operational efficiencies and continued commercial momentum.

The Precision Play: Setting the Stage in Urology Robotics

PROCEPT BioRobotics Corporation is carving out a distinct niche in the surgical robotics landscape, focusing on transformative solutions within urology. Founded in 2007 and gaining initial traction with the 2017 FDA clearance of its AquaBeam Robotic System for benign prostatic hyperplasia (BPH), the company's core mission is to elevate patient care and establish its proprietary Aquablation therapy as the global standard of care for BPH. This ambition is grounded in a unique technological approach that combines real-time, multi-dimensional imaging, personalized treatment planning, automated robotics, and heat-free waterjet ablation for precise and rapid removal of prostate tissue.

The company's journey gained significant momentum following full Medicare coverage in 2021, which catalyzed U.S. commercial operations. Strategic responses to early challenges, such as de-risking the supply chain during the pandemic by increasing domestic sourcing and maintaining robust inventory levels for critical components like the ultrasound system (primarily sourced from China), underscore a proactive operational posture. This foundational period of clinical validation, regulatory clearance, and initial commercial build-out has set the stage for PROCEPT's current growth phase and strategic expansion.

The Technological Edge: Aquablation's Differentiated Approach

At the heart of PROCEPT's investment thesis lies its differentiated Aquablation therapy and the robotic platforms that deliver it. Unlike traditional resective BPH procedures such as Transurethral Resection of the Prostate (TURP) or laser-based methods, Aquablation utilizes a heat-free waterjet, guided by real-time imaging and automated robotics. This approach is designed to offer significant advantages:

• Precision and Reproducibility: The robotic automation and image guidance aim for consistent tissue removal, independent of prostate size, shape, or surgeon experience. Clinical evidence, including the U.S. pivotal WATER study comparing Aquablation to TURP, demonstrated superior safety (specifically, lower rates of complications like ejaculatory dysfunction and incontinence) and non-inferior efficacy for prostates 30-80ml, with superior efficacy shown in prostates larger than 50ml. The recent WATER III trial further reinforced these benefits against laser enucleation in larger prostates (80-180ml), notably reporting a 0% transfusion rate and significantly lower rates of ejaculatory dysfunction and incontinence (0% stress incontinence) at three months.
• Efficiency: The automated nature of the resection phase can contribute to procedural efficiency.
• Reduced Thermal Injury: The heat-free waterjet minimizes the risk of thermal damage to surrounding tissue, potentially contributing to the favorable safety profile, particularly regarding sexual function.

The evolution of this technology is embodied in the next-generation HYDROS Robotic System, cleared by the FDA in August 2024. HYDROS integrates an advanced ultrasound system and a single-use digital cystoscope, streamlining the operating room setup and eliminating the need for scope reprocessing. A key innovation is FirstAssist AI, which combines ultrasound imaging with planning software to aid surgeons in identifying anatomical landmarks and suggesting optimal treatment plans. While initially about 10% more costly to manufacture than the AquaBeam system, HYDROS's advanced features and workflow benefits have been well-received, contributing to higher average selling prices compared to its predecessor.

PROCEPT's R&D efforts are focused on continuous improvements and leveraging treatment data to integrate AI/machine learning for enhanced planning and personalization. These technological advancements are crucial to PROCEPT's competitive moat, supporting higher average selling prices, improving operational efficiency for hospitals, and strengthening the clinical value proposition, which in turn drives adoption and utilization.

The Competitive Arena: Challenging Established Players

PROCEPT operates within the broader surgical robotics and urology device markets, facing competition from both large, diversified medical device companies and smaller, specialized players. Key publicly traded competitors offering robotic-assisted surgical systems with urology applications include Intuitive Surgical (ISRG), Medtronic (MDT), and Stryker Corporation (SYK).

Intuitive Surgical, with its dominant da Vinci platform, represents the primary benchmark in robotic surgery. While da Vinci is used for various urologic procedures, including some BPH cases, PROCEPT's Aquablation therapy is specifically designed and optimized for BPH tissue removal. Financially, ISRG operates at a significantly larger scale with robust profitability (gross margins typically 65-70%, positive operating margins, strong cash flow), reflecting its established market leadership and extensive installed base. PROCEPT, while demonstrating rapid revenue growth from a smaller base (55% in Q1 2025), is still pre-profitability (Adjusted EBITDA loss of $15.8M in Q1 2025) and has lower gross margins (64.0% in Q1 2025), though these are expanding. PROCEPT's technological edge lies in its BPH-specific precision and safety profile, which differentiates it from ISRG's broader, multi-specialty platform.

Medtronic and Stryker also compete in the robotic surgery space with their Hugo and Mako systems, respectively, and have broad urology portfolios. These companies offer scale, global distribution, and integrated solutions. Financially, they operate with solid profitability and cash flow, though typically with lower growth rates than PROCEPT. PROCEPT's challenge is to leverage its technological differentiation and clinical evidence to capture market share against these diversified giants, who can offer hospitals bundled solutions and have established relationships.

Indirect competitors in the BPH market include companies offering traditional surgical methods (like TURP or laser therapies, often less costly upfront but potentially with different safety/efficacy profiles) and non-resective procedures (like Prostate Artery Embolization - PAE, which PROCEPT views as having durability issues with a reported 20% retreatment rate at one year). PROCEPT's strategy is to position Aquablation therapy as a superior alternative to these methods, offering a balance of efficacy, safety, and reproducibility that justifies the investment in its robotic system.

PROCEPT's competitive positioning is strengthened by its focus on building a dedicated commercial infrastructure, including direct sales teams and clinical specialists, and its increasing engagement with large strategic IDNs interested in standardizing Aquablation therapy. While still lagging competitors in overall scale and financial maturity, PROCEPT's targeted innovation and growing clinical validation provide a foundation for challenging established treatment paradigms and capturing market share, particularly from TURP and GreenLight procedures.

Building Momentum: Commercial Strategy and Operational Performance

PROCEPT's commercial strategy is centered on expanding its installed base of robotic systems and driving utilization within those accounts. The U.S. market, targeting approximately 2700 hospitals performing resective BPH surgery, is the primary focus. This involves a direct capital sales team focused on system placement and a team of Aquablation representatives and clinical specialists dedicated to driving utilization, providing training, and ensuring positive user experiences.

The launch of the HYDROS system has been a significant catalyst. Market reception has exceeded expectations, contributing to a robust capital pipeline. In Q1 2025, the company sold 43 robotic systems, contributing to a U.S. installed base of 547 systems, representing 55% year-over-year growth. Notably, approximately 45% of Q1 2025 system sales were associated with IDN bulk buys, indicating increasing traction with larger hospital networks seeking to standardize care. Placements were split roughly equally between high-volume and low/medium-volume BPH hospitals, suggesting broad resonance across different account types.

Handpiece and other consumable sales are the key drivers of recurring revenue and reflect system utilization. In Q1 2025, handpiece and consumable revenue grew 64% year-over-year to $42.488 million, with 11,235 handpieces sold (65% unit growth). While the saline shortage in late 2024 and early 2025 presented a temporary headwind, impacting procedure volumes in Q4 2024 (estimated delay/cancellation of up to 2,000 procedures) and lingering into January 2025, management reported a return to normalized levels in February and strong growth in March, expressing confidence that the issue is now behind them. The company's proactive efforts to reschedule cases and demonstrate the efficiency of stacking multiple Aquablation procedures in a single OR day are operational responses aimed at mitigating such disruptions and driving future utilization.

International expansion is also contributing to growth, albeit from a smaller base. International revenue grew 104% year-over-year in Q1 2025 to $8.868 million, primarily driven by strong momentum in the United Kingdom, where increasing utilization is becoming a meaningful tailwind. Initial system sales in Japan also signal progress in new markets. The international commercialization approach mirrors the U.S. strategy, focusing on building direct teams and leveraging clinical evidence.

Financially, PROCEPT's performance reflects this operational momentum. Total revenue in Q1 2025 was $69.162 million, a 55% increase from $44.539 million in Q1 2024. Gross profit grew 76% to $44.161 million, resulting in a gross margin of 64.0%, up significantly from 56.0% in the prior year period. This margin expansion is primarily attributed to increased unit sales allowing for better absorption of fixed manufacturing overhead and, to a lesser extent, higher average selling prices. Operating expenses increased 36% to $71.599 million, reflecting continued investment in R&D (up 25% to $16.402M) and SGA (up 39% to $55.197M) to support product development and commercial expansion. Despite increased operating expenses, the net loss narrowed slightly to $24.737 million from $25.957 million, and the Adjusted EBITDA loss improved to $15.8 million from $20.4 million, demonstrating operating expense leverage as revenue grows faster than expenses.

Gross margins are projected to expand to approximately 64.5% for the full year, a significant improvement from 2024, driven by increased volume and operational efficiencies.

As of March 31, 2025, the company held $316.207 million in cash and cash equivalents. Net cash used in operating activities in Q1 2025 was $16.980 million, a notable improvement from $32.286 million in Q1 2024, driven by a smaller net loss and favorable changes in working capital.

The company's liquidity position is deemed sufficient to fund operations through at least the next twelve months from the May 2, 2025 filing date, based on its operating plan and anticipated revenue. The company remains in compliance with its debt covenants.

Expanding Horizons: The Prostate Cancer Opportunity

Beyond BPH, PROCEPT is strategically positioning Aquablation therapy for the treatment of localized prostate cancer, an initiative that gained significant traction in 2024. The company demonstrated that Aquablation therapy does not spread cancer cells during resection, leading the FDA to lift the contraindication for BPH patients with an active prostate cancer diagnosis.

More significantly, the company received FDA-IDE approval and Breakthrough Device Designation for WATER IV PCa, a pivotal randomized clinical study comparing Aquablation therapy to radical prostatectomy in men with Grade Group 1-3 localized prostate cancer. This trial, enrolling up to 280 patients across up to 50 centers (mostly in the U.S.) with 10-year follow-up, is the first of its kind comparing a novel localized prostate cancer treatment against radical prostatectomy in a randomized setting. The study's endpoints focus on harm reduction (incontinence and erectile dysfunction at 6 months) and efficacy (grade group progression at 12 months).

This initiative represents a potential expansion into a massively underserved market. Millions of men with localized prostate cancer currently face treatment decisions involving significant side effects that impact quality of life. PROCEPT believes Aquablation therapy's safety profile, particularly its potential to preserve functional outcomes, could make it a compelling first-line surgical treatment option. While the company is not currently promoting Aquablation for cancer treatment and its guidance does not include revenue from this indication, the WATER IV PCa trial is a critical step towards potentially obtaining a specific prostate cancer indication and expanding the market beyond BPH. The company plans to share more details on its prostate cancer commercial strategy over the next 12-18 months.

Outlook and Risks

PROCEPT's management has provided clear guidance for the full year 2025, reflecting confidence in continued strong growth and progress towards profitability. Total revenue is expected to be approximately $323 million, representing 44% growth over 2024. This guidance is supported by expectations to sell around 210 new U.S. robotic systems at an average price of $430,000-$440,000, plus approximately $3 million in replacement system revenue. U.S. handpiece sales are projected at 52,500 units (63% unit growth) at an ASP of ~$3,200, complemented by $9 million in other consumables and $16 million in service revenue. International revenue is expected to grow 44% to $34.5 million.

Gross margins are projected to expand to approximately 64.5% for the full year, a significant improvement from 2024, driven by increased volume and operational efficiencies. Operating expenses are guided at approximately $300 million (28% growth), reflecting continued investment in commercial expansion and R&D, including accelerating the WATER IV trial enrollment. Despite these investments, the Adjusted EBITDA loss is expected to be approximately $35 million, reiterated from previous guidance, implying that potential headwinds are expected to be largely mitigated through operational efficiencies.

Key risks to monitor include the potential impact of tariffs on components sourced from China, which could present a gross margin headwind (estimated at $5 million or 150 basis points in 2025 if elevated rates persist), although the company believes this is manageable in 2025 due to inventory and mitigation efforts. While the saline shortage impact is believed to be largely resolved, future supply chain disruptions remain a general risk. Ongoing RAC audits and payor policies, particularly regarding prostate size limitations, require continued engagement, though management indicates minimal impact on overall utilization targets thus far. The success and timeline of the WATER IV PCa trial are also critical for the long-term prostate cancer opportunity.

Conclusion

PROCEPT BioRobotics is executing a focused strategy to revolutionize BPH treatment with its differentiated Aquablation therapy and robotic systems. The successful launch of the HYDROS system, coupled with expanding clinical evidence and a growing commercial footprint, is driving robust revenue growth and significant gross margin expansion. While still investing heavily for future growth and navigating operational challenges, the company's improving operating expense leverage and reiterated profitability guidance signal a clearer path towards financial sustainability.

The strategic entry into the localized prostate cancer market, backed by a pivotal randomized trial and Breakthrough Device Designation, represents a compelling long-term growth vector that could significantly expand the addressable market. Against a backdrop of larger, diversified competitors, PROCEPT's strength lies in its targeted technological innovation and clinical validation. For investors, PROCEPT represents a high-growth medical robotics company with a unique technology, a clear market opportunity in BPH, and significant potential in prostate cancer, balanced against the risks inherent in scaling a pre-profitability business and competing with established industry giants. The trajectory of installed base growth, utilization rates, margin expansion, and progress in the WATER IV PCa trial will be critical indicators to watch.