管理層發言
Good day, and thank you for standing by. Welcome to Q2 2026 PROCEPT BioRobotics Earnings Conference Call. Operator instructions: Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Webb Campbell, Investor Relations.
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 4, 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 will 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 equivalents 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 robotics 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'm 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 count 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 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, and we expect replacement activity to remain an important part of our commercial strategy. These upgrades can create modest near-term disruption of accounts transition between platforms. However, based on the utilization we are seeing from HYDROS accounts, we believe upgrading our legacy installed base will improve count, productivity and support stronger, more durable procedure growth over time. AMP sales represented approximately 98% of procedures this quarter and we continue to expect an approximate 1:1 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 United States. This included 50 greenfield systems, 14 replacement systems and 1 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. Further results remain encouraging with new launch 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, and 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 2025.
Hospital capital investment at that magnitude validates a commitment to building and expanding our 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 we had expected, the shortfall was driven primarily by softer procedures across our legacy AQUABEAM accounts. Despite these challenges with our legacy AQUABEAM accounts, we made meaningful progress during the first half of the year. Most importantly, we demonstrated the durability of demand for the high-dose platform through strong capital placements, accelerated system adoption with 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 ability and commercial purpose. Beginning in June, procedure case coverage transitioned to our clinical organization allowing our sales representatives to spend their time in physician processes, driving therapy adoption, referrals and expanding utilization. We have also launched several direct-to-patient pilots and we are now active across 18 markets in the United States with television, radio, digital and social media campaigns, and we are actively gathering data to assess which channels and messages are most effective in 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 that the changes we have made established the right foundation for durable, high-quality growth in the years ahead. It is also the right foundation for healthy gross 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 Urology 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. To date, 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 AF, which will evaluate Aquablation against active surveillance in certain prostate cancer disease groups 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. AMP 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.
Net loss for the second quarter of 2026 was $26.9 million compared to a net loss of $19.6 million in the second quarter of 2025. Adjusted EBITDA was a loss of $11.3 million compared to a loss of $8 million in the prior year period. Cash, cash equivalents and restricted cash totaled $231 million as of June 30, 2026, providing us with a strong balance sheet to support our strategic priorities. Looking ahead, we continue to expect improvements in both cash usage and adjusted EBITDA in the second half of the year driven by higher revenue, increased operating leverage and continued improvements in working capital. Moving to our 2026 financial outlook. We continue to expect full year 2026 total revenue to be in the range of approximately $390 million to $410 million, representing growth of approximately 27% to 33% compared to 2025. We also continue to expect international revenue of $50 million to $51 million.
Turning to procedure guidance. We now expect 2026 U.S. procedures to be in the range of 54,000 to 56,000, representing growth of approximately 25% to 29% compared to the prior year. With respect to new U.S. system pricing, we expect average selling prices of approximately $480,000 to $490,000 during the second half of the year. In addition, reflecting the strength of our replacement cycle, we now expect to complete approximately 40 replacement sales at the midpoint of our full year revenue guidance with an average selling price of approximately $300,000 to $325,000. Turning to gross margins. We continue to expect full year 2026 gross margin of approximately 65%. We now expect full year 2026 operating expenses to be in the range of $355 million to $360 million, reflecting a disciplined increase in commercial investments aligned with our objective of accelerating procedure growth. We now expect adjusted EBITDA loss to be in the range of $35 million to $30 million, while continuing to expect positive adjusted EBITDA in the fourth quarter of 2026 across both the low and high end of our full year revenue guidance. With that, I will turn the call back to Larry for some closing remarks.
Thanks, Kevin. To close, we remain confident in the trajectory of the business. HYDROS continues to perform well with a sequential improvement in utilization and accounting for the majority of our procedure volume for the first time this quarter. With our commercial reorganization behind us, our launch team model continuing to scale and a replacement cycle gaining momentum, we believe the business has become stronger and more durable. Combined with record system pricing and a growing installed base, we are well positioned to drive sustainable long-term growth. We remain excited about where PROCEPT is headed, and I want to thank our team for their continued execution and our shareholders for their support. And with that, I'd like to open it up for questions.
分析師問答
Operator instructions: Our first question is from Matthew O'Brien of Piper Sandler.
Either Larry or Kevin, on the system side of things for starters, it looks like when you back out the replacements that you're about flat on the system side for '26 versus '25. Is that right? And then how quickly do you think you can get through this replacement cycle and get your legacy Aquablation systems converted over as many as possible over to HYDROS? And then I have a follow-up.
Yes. Thanks, Matt. I'll start with your first question, and then I'll pass the replacement question to Larry. So our system expectations are somewhere in the $210 million to $220 million range is what our guidance implies, which for greenfield systems is really unchanged from our thought process going into the full year. So there's really been no change to our system guidance, except updating the average selling prices now that we have two quarters under our goal.
Yes. Thanks, Matt. As it relates to our replacement strategy, in Q1, we just launched our first pilot. And I think one of the things that we said was 2026, we really wanted to refine the playbook, and it is just going to be sort of a build. I think we've been really pleased with the demand we've seen from customers and the attractiveness of the upgrade system or the upgrade process that we're running, and literally doing 14 in Q2 was above what we would have modeled at the beginning of the year. So we think that's going to continue to remain attractive for customers. I think Kevin said at the midpoint of our guidance, that would imply about 40 systems for the full year. And so that's kind of where we're tracking. But I think this is going to be a big part of 2027 as well. And I think as we think about procedures, the more that we can upgrade our systems from AQUABEAM to HYDROS and at the same time, relaunch them under a launch team model, I think it's going to be something that flips utilization over time.
Got it. Appreciate that. And then the follow-up on the guide for the year, and I've fiddled with the model as quickly as possible, but I'm — you're taking out what — about $23 million, $24 million of handpiece revenue, offsetting it somewhat with replacement revenue. I'm having a hard time getting the model to the mid or upper point of your range. So I don't know, not sure if there's something I'm missing there? Or I guess, why not just take the full year total revenue guidance down somewhat just given the procedure reduction that we've seen here?
Yes. So if you look at pricing and the variables we've included, it will put total system revenue, Matt, somewhere in kind of the $115 million to $122 million range, if you assume the midpoint of the replacement range and updating for system average selling prices. We also said that on a full year basis, we expect handpieces sold to be at a 1:1 ratio to procedures, which would mean there is an expectation in the third and fourth quarter that handpieces sold will probably be anywhere from 1% to 3% of total procedures, which puts total handpiece revenue somewhere in the $200 million to $215 million range. And when you look at international of $50 million to $51 million, that essentially gets you to the range of $390 million to $410 million.
Our next question comes from Brandon Vazquez of William Blair.
Maybe first a little bit of a high level. Larry, can you kind of reflect back a quarter ago on the prior guidance versus today, in the past three months, what has changed? What's been more difficult than you would have anticipated in terms of ramping utilization and getting to that full year procedure number, just to kind of understand a little bit more of the moving pieces of what's going on in the business?
Yes. Thanks for the question, Brandon. Yes, I think the biggest thing is that we've just seen more softness with our legacy AQUABEAM accounts than what we anticipated. HYDROS continues to perform well and perform in line with expectations. And so it's pretty much that. I think we continue to drive the reorganization and realignment of our sales force. I think that is complete now, and that's largely overall behind us. And we were able to get reps into more of a selling mode starting in June, where they're not doing daily case coverage anymore, they only do that on an exception basis. So I think we've gotten those things completed. That might have taken a little bit longer than what we wanted, but we needed to make sure we had worked out the coverage model before we pulled our sales reps out of cases. So I think it's those two things, but the primary thing is we've just seen a softening in our legacy AQUABEAM accounts, and that's what has driven most of the change.
Okay. And maybe as my follow-up on that last piece, historically, when HYDROS first came out, this was, of course, a great upgrade and there were a lot of features for it. But it was never really portrayed as like HYDROS was meaningfully doing more procedures. I know we maybe heard some anecdotal that the improved efficiencies would help people do a couple of more procedures here or there. But it kind of sounds like that's changing now. And I'm kind of curious if you can spend a little bit of time on why that might be the case, why the legacy AQUABEAM system seems to be performing so much worse? Is it accounts? Or is it the systems? And do you guys have a good sense of what that is as you go forward?
Yes. I don't know that we fully understand what's driving all those dynamics. I think there's been some speculation and we've gotten some anecdotal feedback from the team. I think in some situations where we have doctors who practice at multiple hospitals, if they can move their patients over to HYDROS just because it's more efficient and the imaging is better and the AI is certainly better, they'll preferentially do that. But I don't think we fully unpack that yet. Previously AQUABEAM had been pretty stable, and so the declines are fairly recent, so we're still digging into it. At the same time, HYDROS has been very resilient. It's been very robust, and we've been pleased with the utilization of HYDROS. I think we probably have also spent more time from a marketing standpoint and from a sales standpoint, focusing on the features and benefits of HYDROS. And I think that's one of the reasons that system is doing well. And I think that's also reflected in the desire for people to upgrade their systems from our legacy systems to HYDROS, which a year ago, we weren't really seeing that sort of pull-through. I think it's a combination of our go-to-market strategy and really focusing on the features and benefits and the improvements that the HYDROS system offers that's driving that.
Our next question is from Nathan Treybeck of Wells Fargo.
Larry, are you hearing anything from your commercial organization on any potential impact from the change in physician RVUs or the growth in competitive procedures like PAE?
Well, certainly, on the RVU changes we did hear some feedback from our customers, but I think whatever RVU changes occur or whenever there are items like that, you're always going to hear some noise. But I don't think that's been a meaningful headwind for us. And again, if that was really the underlying issue, I would expect to see that across both of our commercial platforms rather than just the AQUABEAM platform. So I don't really think that's it. As it relates to PAE, I know there's been a lot made about the CMS rules. But if you look at the hospital outpatient facility, all of us sort of went up by similar amounts. So that hasn't really changed a lot. We know that PAE has been growing, but I think a lot of that is pulling patients off the sidelines who aren't ready for a surgical procedure. And we know that the procedure is simply not very durable. I spent time in the field and talked to customers and for a lot of folks, a significant part of their practice now is doing a second procedure after a failed PAE, and we've also gotten that feedback from patients as well.
So I don't think it's a lingering headwind, and I don't think it's the same basic patient population. Certainly, there's some overlap, but I don't think it's really the issue. I think we need to continue to execute on the clinical superiority of our procedure, especially compared to other surgical approaches and continue to drive that. That's where our biggest opportunity resides.
Okay. Great. Can you say what percent of your installed base today is AQUABEAM?
I think it's fairly close to 50-50 right now. And so HYDROS is doing more cases, but I think it's fairly close to 50-50.
Our next question is from Vijay Kumar of Evercore.
Larry, one on the procedure utilization. I know it's been a key metric for you, procedure growth. The comment you made on legacy versus new account dynamics rate. How much of this is a function of the sales force for your — is there any comp metric changes that's driving this? And how do you rectify that rate? Related to that, if utilization is coming down, why are hospitals buying systems? You guys seem really bullish on systems, right? I'm hard-pressed to see hospitals paying $0.5 million for new systems if they're not going to use these systems. So can you address this utilization bear case, please?
I don't think you need to be buying a $0.5 million system to put on the shelf and not use it. Hospitals understand the importance of having Aquablation in their facilities. The case we make for the high-dose platform is strong. We've seen that in both greenfield and replacements. Again, the performance we're seeing out of HYDROS is very much in line with our expectations. AQUABEAM is an older system now; it doesn't offer all the features and benefits of HYDROS. Again, we don't fully understand why we've seen the decline there because they've been stable historically, but that doesn't distract from how well HYDROS is performing. So that just drives our strategy for encouraging replacements. But if we were seeing softness in capital, that would be a different concern, and we're not seeing that — we're selling capital at levels that we're very pleased with, and we're doing it at our highest ever pricing. We also see very good pricing on our handpieces, and I think that reflects the clinical value that we bring to the table.
That's helpful, Larry. Kevin, one for you. I know the procedure guidance has updated and you reiterated gross margins. But when I look at the Analyst Day and the long-range plan, you laid out procedure growth of 25% to 30%. Given fiscal '26 is now 25% to 29%, are the LRP targets still intact for both procedures and gross margins? With the gross margins came down ex tariff refunds and given the mix change, perhaps it's prudent for the Street not to be modeling with your Analyst Day outlook?
Yes. Let me take both of those. On this call, we've reiterated our '26 numbers. We believe the ranges for 2027 revenue guidance are still in the ballpark. As we get closer to year-end, we'll formalize our 2027 guidance within our normal cadence. What we put forth at Investor Day is still in the ballpark. Regarding other areas, whether it be procedures or profitability, we will update our 2027 guidance on our normal cadence. With that said, we do feel good about the underlying trends that supported our long-range plan, and there's really nothing to update right now given the performance in the first two quarters where we thought we needed to make an adjustment.
Thank you. Our next question is Michael Sarcone of Jefferies. Michael, are you available? Please stand by while I compile the next question. The next question is from the line of Stephanie Algazi of Bank of America.
I just wanted to follow up on the procedure guidance for the year, which I think you're lowering by about 7,000 at the midpoint. So I was hoping if you could just explain a bit what the underlying assumptions are there in terms of what you're assuming for the AQUABEAM softness that you saw in Q2 as well as HYDROS and then also just from a commercial reorganization benefits ramping that you had expected as well as competition?
Yes. Thanks, Stephanie. I think the biggest thing is the guidance that we've laid out assumes no improvement in the AQUABEAM sites. Frankly, at the lower end of the range, it doesn't assume any real improvement in the HYDROS performance as well; these things remain pretty consistent. As we think about the cadence of the year, we still expect to see an incremental pickup from Q2 to Q3, but we always see some seasonality in Q3 with vacations in the summer months. We typically have our strongest quarter in Q4. All of those things are baked into the model. So the lower end of our range essentially sees very little improvement from how we're performing today. The higher end of our range assumes some of our initiatives start to take hold and we start seeing improvement, and that's how we came up with that range.
No, I think Larry was spot on there, nothing to add.
And then just on the EBITDA guidance, you're expecting more spend now than you were previously. What are the main drivers of that? And what are the increased areas of commercial investments that you mentioned?
Yes. So that increase is primarily around our commercial organization. We did mention we've launched a pilot now in 18 markets on DTC and patient activation. But we are doing this thoughtfully. While we increased our OpEx guidance, we have looked at other areas in the organization where perhaps we don't need to spend as much and have made those decisions internally such that our Q4 guidance still suggests even at the low end of revenue that we will be EBITDA positive exiting the year.
Our next question is from Richard Newitter of Truist Securities.
Maybe the first one on the procedure comment, Larry, that you just made. I guess you said that there's seasonality in the third quarter, but you expect a sequential uptick in procedures. I guess that puts a little less burden on the fourth quarter, but there's still an implied step-up in utilization of some level in the back half. So one, calibrate us on exactly how we should model procedures between Q3 and Q4. And then the second part of that question: what's driving that improvement as we move through the year if legacy AQUABEAM doesn't improve? Is it you're no longer seeing the disruption from the sales rep changes, and those are actually going to start yielding the hoped-for utilization improvement? Or what's ultimately going to drive the improvement as we move through the year?
A couple of things. First, we continue to launch new systems. In Q1, about 20% of our systems were launched under the launch team, we got that up to about 40% in Q2, and we expect to see a solid step-up in Q3 as we scale the launch team. As we launch those new systems under the launch team model, those things will contribute to growth. Some of the leading indicators from our direct-to-patient programs are encouraging and will help drive patients into the system, which should support utilization as we replace legacy systems. At the low end of the range, the model assumes very little improvement; at the high end, some of these things start to play in. The step-up from Q2 to Q3 should be modest due to seasonality, but we expect a significant step up in Q4, which has been a historical pattern.
Okay. And if I could ask one more on the DTC step-up or the increased spending related to activation of patients. Are you reliant on that as you head into 2027 to drive incremental adoption into the opportunity? Or do you still have enough runway as it is today with people in the channel?
Our primary near-term opportunity is converting competitive surgical cases; that's our immediate focus. There are many patients on the sideline that may seek a better solution, and activating them is a longer-term play. From an expense standpoint, we're focused on making these investments in DTC while still hitting our bottom line financial goals. We believe we've reached a critical mass in most functions that will drive leverage as we make incremental commercial investments.
We do believe that 2027 is a year where we could demonstrate greater operating leverage than we did in 2026, even with increased investments around patient activation. Our R&D spend as a percent of sales is expected to come down over time—the big bolus of spend was primarily related to WATER IV over the last 18 months—and we'll start to see those expenses decline along with other internal efficiencies in G&A. We will be able to demonstrate greater operating leverage moving forward such that the pathway to profitability is maintained even with increased patient activation. This is a game of trade-offs, not just incremental spend.
Our next question is from Mason Carrico of Stephens.
This is Ben on for Mason. I'll probably just keep it to one here. Could you characterize the mix of Q2 placements between single-site deals and any multisystem IDN orders? And then how should we think about IDN orders, those bulk orders relative to the full year guide? Is there a certain level of multisystem contribution baked into that number? Or would any incremental IDN activity represent upside from here?
Q2 was similar to Q1 where we were not reliant on any large multisystem IDN deal. We did have multiple deals with hospitals affiliated with IDNs, but nothing I would consider a bulk purchase. Our guide for the remainder of the year is not reliant on any bulk purchase. We did provide a range for average selling prices that would reflect a downside if we were to get any large IDN orders, but our guidance does not assume any one large hospital network executing a large order.
Our next question is from David Rescott of Baird.
I appreciate the comments you provided so far around the HYDROS utilization. I wanted to ask for more color on how you're proactively accelerating that change over there. What's contemplated in the guide for 2026 and how should we think about that as you exit the year? Also, can you remind us of the moving pieces around how the updated guide accounts for some of the moving parts on gross margin?
A few things. We're continually upgrading HYDROS systems with software and capabilities and advancing the AI, which keeps the system fresh for customers. We're driving a replacement strategy, which will lift utilization over time. Lastly, our launch teams—systems launched under the launch team model—tend to have a durable increase in utilization. The more of those in our installed base, the more utilization should improve.
On gross margin, the standard cost of both disposables and capital varies quarter-to-quarter given production levels and inventory variability, but for the full year, we feel comfortable with our guide of approximately 65%. Even with a lower ASP on replacement sales, which can be margin dilutive, we expect that to be made up over time by the increase in procedures those HYDROS systems produce compared to AQUABEAM. We remain confident in the margin guide and committed to fourth quarter adjusted EBITDA positive as we head into 2027.
Our next question is from Mike Kratky of Leerink Partners.
Just one follow-up on the HYDROS utilization trends you're seeing. In terms of factoring that in to turn overall utilization growth positive in the U.S., is that something we should expect to see in the fourth quarter of this year or sometime in 2027? How do you think about the full year 2027 at this point?
Directionally, at the higher end of our guidance, you should model in some modest improvement in utilization. At the low end, utilization stays largely the same. It's a continued area of focus. As we replace systems and upgrade people to HYDROS and as the installed base increases with systems launched under our launch team, that should lift utilization. Longer-term, direct-to-patient activation will also bring more patients into the system and increase treatment rates.
Understood. And maybe just a follow-up: in terms of the difference in utilization you're seeing for HYDROS systems placed under the launch team versus not, can you help quantify what that difference looks like and what's driving that success?
We're not going to be specific on exact numbers, but we do see more surgeons being trained on the system, a shorter time from system sold to first procedure, and a higher number of cases initially for systems launched under the launch team. These metrics are why we've invested in this team. By year-end, we expect to be able to launch 100% of our accounts under the launch team; we were around 40% exiting the second quarter. We still have half of our systems we want to get under the launch team by year-end, which should drive overall procedure growth in 2026 and 2027.
Yes. That is the big thing. Our plan is that virtually all systems will be launched under the launch team next year, including greenfield and replacements. We think that will provide a durable uptick in utilization over time.
Our next question is from Suraj Kalia of Oppenheimer.
Can you hear me all right?
Yes.
Larry, for either one of you, obviously, the procedures for this year have been lower. As you look at your base, I'm trying to conceptualize it as a bell curve for procedures. Do you sense the curve is skewing a bit more or flattening? I'm trying to understand what's going on within these centers and how we should think about the emerging distribution.
There has always been a lot of variability between our sites, across both AQUABEAM and HYDROS. The procedure trends are clear when you compare the two platforms. We still have opportunity to accelerate procedures, and that's where we're investing. Increasing the percentage of the installed base to HYDROS and using the launch team plays a role in that. Our focus is on improving historical levels of performance.
Got it. Historically, you said measure us based on utilization and sales changes. Given utilization seems to be trending off, is utilization still the metric you would advise us to gauge all initiatives? Or would you hybridize it with other metrics?
To be frank, I'm focused on sequential growth quarter-over-quarter—how much we're growing procedures, driving utilization and penetrating the existing surgical market. Longer term, it's about how many patients we can get off the sideline. I'm more focused on sequential growth than on instrument utilization alone, since sequential growth is something we can action more definitively.
Our next question is from Josh Jennings of TD Cowen.
On the direct-to-patient pilot programs you mentioned, Larry, in 18 markets, encouraged by leading indicators — how should we think about assessing the success of DTC? Should we expect some benefits in 2027? Any precedent or experience you can share for returns on DTC investments and timing when we should expect leading indicators to translate into higher volumes?
The pilots are recent and intended to identify which channels and messages provide the best return. We're active with television, radio and digital. We've had patients calling for information, patients showing up at accounts, more digital engagement on the website; people are staying longer and engaging with clinical resources. To convert that into procedures, there's often a waiting list at hospitals, so it can take two to four months for a patient to get scheduled. Activating patients is a no-regrets move, but centers need to adapt to treat increased volume. We're pleased with the leading indicators and are making thoughtful investments while managing overall expenses.
One follow-up: on driving more awareness in the urology community — TURP has been resilient. What dynamics are helping TURP volumes not fall more dramatically and what can PROCEPT do on the physician side to increase awareness and adoption?
TURP has been resilient because it's been performed for a long time and surgeons feel comfortable with it. We offer significant advantages compared to TURP in patient outcomes and system efficiency, especially for larger glands. We need to make that case and also educate patients. When patients request Aquablation by name, that will drive physician behavior change.
And our last question will be from Ryan Zimmerman of BTIG.
U.S. Bancorp BTIG actually. A question on systems, Kevin and Larry. When I think about that system number, the $210M to $220M, if you look at the first half new systems, it implies a lower new system composition in the back half. Kevin, was there any pull forward in the 51 units sold this quarter? Historically, we've thought new systems are higher in the second half. Is that still the case?
You might be including the 14 replacements. We sold 97 greenfield systems in the first half of the year. The $210 million to $220 million range does not include the 40 replacements assumed in the guide. So you should expect the normal step-up in Q3 and Q4. Greenfield sales to reach $210 million are higher in the back half than the first half; the first half had 97 greenfield placements.
We don't pull systems forward. We're disciplined: every system we sell should have a home and be installed within a reasonable period so it starts generating procedures. We're more disciplined about installations than historically, and that discipline is reflected in our higher system ASPs.
Follow-up: when you think about potential customers, historically we've looked at high-, medium- and low-volume sites. What's your sense of who you sold into this quarter on a greenfield basis and what's the runway in terms of that characterization? If you're selling into lower-volume sites, are they dragging down utilization?
No, I don't think that's the case. A medium-volume center can be a great target because they may not have an active BPH program and this can create a new program generating interest. The biggest change in utilization we see is when systems are launched under the launch team with strong clinical execution; centers stack cases and do multiple cases in a day at a much higher frequency than historically. That effect seems agnostic to center size; launch team execution is key.
This now concludes our question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.