UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40797

PROCEPT BioRobotics Corporation

(Exact name of registrant as specified in its charter)


Delaware			26-0199180
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

900 Island Drive	Redwood City	CA	94065
(Address of Principal Executive Offices)			(Zip Code)

(650) 232-7200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.00001 par value per share	PRCT	Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting ~~company”, and “emerging growth~~ company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding ~~45,049,157~~45,278,945 shares of common stock as of ~~April 28,~~July 24, 2023.

PROCEPT BioRobotics Corporation

Form 10-Q – QUARTERLY REPORT

For the Quarter Ended ~~March 31,~~June 30, 2023

TABLE OF CONTENTS


		Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	78
	Notes to Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	2427
Item 4.	Controls and Procedures	2528

Part II. Other Information
Item 1.	Legal Proceedings	2629
Item 1A.	Risk Factors	2629
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2629
Item 3.	Defaults Upon Senior Securities	2629
Item 4.	Mine Safety Disclosures	2629
Item 5.	Other Information	2629
Item 6.	Exhibits	2730
	Signatures

__________________

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “can”, “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical facts contained in this Quarterly Report, including without limitation statements regarding our business model and strategic plans for our products, technologies and business, including our implementation thereof, the timing of and our ability to obtain and maintain regulatory approvals, our commercialization, marketing and manufacturing capabilities and strategy, our expectations about the commercial success and market acceptance of our products, the sufficiency of our cash, cash equivalents and short-term investments, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon these forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

PROCEPT BioRobotics Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)


		March 31,		December 31,			June 30,		December 31,
		2023		2022			2023		2022

Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	180,972	$	221,859	Cash and cash equivalents	$	149,691	$	221,859
Restricted cash, current	Restricted cash, current	777		777		Restricted cash, current	777		777
Accounts receivable, net	Accounts receivable, net	20,642		15,272		Accounts receivable, net	33,173		15,272
Inventory	Inventory	38,926		28,543		Inventory	42,636		28,543
Prepaid expenses and other current assets	Prepaid expenses and other current assets	4,263		6,175		Prepaid expenses and other current assets	3,739		6,175
Total current assets	Total current assets	245,580		272,626		Total current assets	230,016		272,626
Restricted cash, non-current		3,038		3,038
Restricted cash						Restricted cash	3,038		3,038
Property and equipment, net	Property and equipment, net	11,934		8,656		Property and equipment, net	16,357		8,656
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	22,446		23,481		Operating lease right-of-use assets, net	21,563		23,481
Intangible assets, net	Intangible assets, net	1,409		1,477		Intangible assets, net	1,341		1,477
Other assets	Other assets	51		51		Other assets	131		51

Total assets	Total assets	$	284,458	$	309,329	Total assets	$	272,446	$	309,329
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	10,341	$	9,391	Accounts payable	$	10,036	$	9,391
Accrued compensation	Accrued compensation	7,408		13,447		Accrued compensation	9,949		13,447
Deferred revenue		3,943		2,855
Deferred revenue, current						Deferred revenue, current	4,717		2,855

Operating lease, current	Operating lease, current	2,998		2,129		Operating lease, current	2,354		2,129

Other current liabilities	Other current liabilities	7,814		7,468		Other current liabilities	8,889		7,468
Total current liabilities	Total current liabilities	32,504		35,290		Total current liabilities	35,945		35,290
Long-term debt	Long-term debt	51,241		51,213		Long-term debt	51,275		51,213
Operating lease, non-current	Operating lease, non-current	25,782		23,975		Operating lease, non-current	27,135		23,975
Loan facility derivative liability	Loan facility derivative liability	1,805		1,779		Loan facility derivative liability	1,832		1,779

Deferred revenue, non-current						Deferred revenue, non-current	357		—
Total liabilities	Total liabilities	111,332		112,257		Total liabilities	116,544		112,257
Commitments and contingencies (see Note 11)	Commitments and contingencies (see Note 11)					Commitments and contingencies (see Note 11)

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.00001 par value;	Preferred stock, $0.00001 par value;					Preferred stock, $0.00001 par value;
Authorized shares: 10,000 at March 31, 2023 and December 31, 2022
Issued and outstanding shares: none at March 31, 2023 and December 31, 2022		—		—
Authorized shares: 10,000 at June 30, 2023 and December 31, 2022						Authorized shares: 10,000 at June 30, 2023 and December 31, 2022
Issued and outstanding shares: none at June 30, 2023 and December 31, 2022						Issued and outstanding shares: none at June 30, 2023 and December 31, 2022	—		—
Common stock, $0.00001 par value;	Common stock, $0.00001 par value;					Common stock, $0.00001 par value;
Authorized shares: 300,000 at March 31, 2023 and December 31, 2022
Issued and outstanding shares: 45,009 and 44,828 at March 31, 2023 and December 31, 2022, respectively		—		—
Authorized shares: 300,000 at June 30, 2023 and December 31, 2022						Authorized shares: 300,000 at June 30, 2023 and December 31, 2022
Issued and outstanding shares: 45,271 and 44,828 at June 30, 2023 and December 31, 2022, respectively						Issued and outstanding shares: 45,271 and 44,828 at June 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	Additional paid-in capital	550,270		545,753		Additional paid-in capital	558,352		545,753
Accumulated other comprehensive loss	Accumulated other comprehensive loss	15		(6)		Accumulated other comprehensive loss	(6)		(6)
Accumulated deficit	Accumulated deficit	(377,159)		(348,675)		Accumulated deficit	(402,444)		(348,675)
Total stockholders’ equity	Total stockholders’ equity	173,126		197,072		Total stockholders’ equity	155,902		197,072
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	284,458	$	309,329	Total liabilities and stockholders’ equity	$	272,446	$	309,329

The accompanying notes are an integral part of these condensed consolidated financial statements.

PROCEPT BioRobotics Corporation

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022

Revenue	Revenue	$	24,404	$	14,197		Revenue	$	33,104	$	16,691	$	57,508	$	30,888
Cost of sales	Cost of sales	11,913		6,505			Cost of sales	14,675		8,205		26,588		14,710
Gross profit	Gross profit	12,491		7,692			Gross profit	18,429		8,486		30,920		16,178
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	10,737		5,011			Research and development	11,613		6,706		22,350		11,717
Selling, general and administrative	Selling, general and administrative	30,131		18,385			Selling, general and administrative	32,441		19,655		62,574		38,040
Total operating expenses	Total operating expenses	40,868		23,396			Total operating expenses	44,054		26,361		84,924		49,757
Loss from operations	Loss from operations	(28,377)		(15,704)			Loss from operations	(25,625)		(17,875)		(54,004)		(33,579)
Interest expense	Interest expense	(886)		(1,421)			Interest expense	(965)		(1,441)		(1,851)		(2,862)
Interest and other income (expense), net		779		(60)
Interest and other income, net							Interest and other income, net	1,305		132		2,084		72
Net loss	Net loss	$	(28,484)	$	(17,185)		Net loss	$	(25,285)	$	(19,184)	$	(53,771)	$	(36,369)
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.63)	$	(0.39)		Net loss per share, basic and diluted	$	(0.56)	$	(0.43)	$	(1.19)	$	(0.82)
Weighted-average common shares used to	Weighted-average common shares used to						Weighted-average common shares used to
compute net loss per share attributable to	compute net loss per share attributable to						compute net loss per share attributable to
common shareholders, basic and diluted	common shareholders, basic and diluted	45,066		43,855			common shareholders, basic and diluted	45,160		44,324		45,023		44,091
Other comprehensive loss:	Other comprehensive loss:						Other comprehensive loss:
Unrealized gain on cash equivalents		21		1
Unrealized gain (loss) on cash equivalents							Unrealized gain (loss) on cash equivalents	(21)		85		—		87
Comprehensive loss	Comprehensive loss	$	(28,463)	$	(17,184)		Comprehensive loss	$	(25,306)	$	(19,099)	$	(53,771)	$	(36,282)

The accompanying notes are an integral part of these condensed consolidated financial statements.

PROCEPT BioRobotics Corporation

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Gain (Loss)			Accumulated Deficit				Total Stockholders' Equity (Deficit)				Common Stock						Additional Paid-in Capital				Accumulated Other Comprehensive Gain (Loss)				Accumulated Deficit				Total Stockholders' Equity
		Shares	Amount								Shares								Amount
Balance at December 31, 2022	Balance at December 31, 2022	44,828	$	—			$	545,753						$	(6)			$	(348,675)		$	197,072	Balance at December 31, 2022		44,828			$	—			$	545,753			$	(6)			$	(348,675)	$	197,072
Issuance of common stock under stock plans	Issuance of common stock under stock plans	181	—		380				—			—				380			Issuance of common stock under stock plans	181			—				380				—				—				380
Stock-based compensation expense	Stock-based compensation expense	—	—		4,137				—			—				4,137			Stock-based compensation expense	—			—			4,137				—				—				4,137
Unrealized gain on cash equivalents		—	—		—				21			—				21
Unrealized gain (loss) on cash equivalents																			Unrealized gain (loss) on cash equivalents	—			—			—				21				—				21
Net loss	Net loss	—	—		—				—			(28,484)				(28,484)			Net loss	—			—			—				—				(28,484)				(28,484)
Balance at March 31, 2023		45,009	$	—	$	550,270			$	15		$	(377,159)			$	173,126

Balance at December 31, 2021		43,676	$	—	$	528,666			$	(54)		$	(261,521)			$	267,091

Balance at March 31, 2023																			Balance at March 31, 2023	45,009			—			550,270				15				(377,159)				173,126
Issuance of common stock under stock plans	Issuance of common stock under stock plans	401	—		1,291				—			—				1,291			Issuance of common stock under stock plans	262			—			2,430				—				—				2,430
Stock-based compensation expense	Stock-based compensation expense	—	—		1,552				—			—				1,552			Stock-based compensation expense	—			—			5,652				—				—				5,652
Unrealized gain on cash equivalents		—	—		—				1			—				1
Unrealized gain (loss) on cash equivalents																			Unrealized gain (loss) on cash equivalents	—			—			—				(21)				—				(21)
Net loss	Net loss	—	—		—				—			(17,185)				(17,185)			Net loss	—			—			—				—				(25,285)				(25,285)
Balance at March 31, 2022		44,077	$	—	$	531,509			$	(53)		$	(278,706)			$	252,750
Balance at June 30, 2023																			Balance at June 30, 2023	45,271			$	—		$	558,352			$	(6)			$	(402,444)			$	155,902

The accompanying notes are an integral part of these condensed consolidated financial statements.

PROCEPT BioRobotics Corporation

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2021	43,676	$	—	$	528,666	$	(54)	$	(261,521)	$	267,091
Issuance of common stock under stock plans	401	—		1,291		—		—		1,291
Stock-based compensation expense	—	—		1,552		—		—		1,552
Unrealized gain on cash equivalents	—	—		—		1		—		1
Net loss	—	—		—		—		(17,185)		(17,185)




Balance at March 31, 2022	44,077	—		531,509		(53)		(278,706)		252,750
Issuance of common stock under stock plans	461	—		2,861		—		—		2,861
Stock-based compensation expense	—	—		2,676		—		—		2,676
Unrealized gain on cash equivalents	—	—		—		85		—		85
Net loss	—	—		—		—		(19,184)		(19,184)
Balance at June 30, 2022	44,538	$	—	$	537,046	$	32	$	(297,890)	$	239,188

The accompanying notes are an integral part of these condensed consolidated financial statements.

PROCEPT BioRobotics Corporation

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Three Months Ended March 31,				Six Months Ended June 30,
		2023		2022				2023		2022

Cash flows from operating activities:	Cash flows from operating activities:						Cash flows from operating activities:
Net loss	Net loss	$	(28,484)	$	(17,185)		Net loss	$	(53,771)	$	(36,369)
Adjustments to reconcile net loss to cash used in operating activities:	Adjustments to reconcile net loss to cash used in operating activities:						Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	793		758			Depreciation and amortization	1,435		1,475
Stock-based compensation expense	Stock-based compensation expense	3,724		1,552			Stock-based compensation expense	8,827		4,228
Change in fair value of derivative liability		26		37
Change in fair value in derivative liability							Change in fair value in derivative liability	53		74
Non-cash lease adjustment	Non-cash lease adjustment	495		(97)			Non-cash lease adjustment	315		(193)

Inventory write-down	Inventory write-down	228		—			Inventory write-down	414		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(5,370)		(2,529)			Accounts receivable, net	(17,901)		(6,430)
Inventory	Inventory	(10,136)		517			Inventory	(13,422)		(684)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,931		177			Prepaid expenses and other current assets	2,435		471
Other assets							Other assets	(81)		(302)
Accounts payable	Accounts payable	2,225		448			Accounts payable	2,234		947
Accrued compensation	Accrued compensation	(6,039)		(1,889)			Accrued compensation	(3,497)		431
Accrued interest expense	Accrued interest expense	28		250			Accrued interest expense	61		503
Deferred revenue	Deferred revenue	1,088		343			Deferred revenue	2,219		838
Reimbursements for leasehold improvements from operating leases	Reimbursements for leasehold improvements from operating leases	3,217		—			Reimbursements for leasehold improvements from operating leases	4,989		—

Other liabilities	Other liabilities	346		(613)			Other liabilities	1,423		(346)
Net cash used in operating activities	Net cash used in operating activities	(35,928)		(18,231)			Net cash used in operating activities	(64,267)		(35,357)
Cash flows from investing activities:	Cash flows from investing activities:						Cash flows from investing activities:

Purchases of property and equipment	Purchases of property and equipment	(5,339)		(55)			Purchases of property and equipment	(10,711)		(273)
Net cash used in investing activities	Net cash used in investing activities	(5,339)		(55)			Net cash used in investing activities	(10,711)		(273)
Cash flows from financing activities:	Cash flows from financing activities:						Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock purchase plan							Proceeds from issuance of common stock under employee stock purchase plan	1,717		1,289
Proceeds from issuance of common stock from the exercise of stock options	Proceeds from issuance of common stock from the exercise of stock options	380		1,291			Proceeds from issuance of common stock from the exercise of stock options	1,093		2,864

Net cash provided by financing activities	Net cash provided by financing activities	380		1,291			Net cash provided by financing activities	2,810		4,153
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(40,887)		(16,995)			Net decrease in cash, cash equivalents and restricted cash	(72,168)		(31,477)
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash						Cash, cash equivalents and restricted cash	—
Beginning of the period	Beginning of the period	225,674		305,097			Beginning of the period	225,674		305,097
End of the period	End of the period	$	184,787	$	288,102		End of the period	$	153,506	$	273,620
Reconciliation of cash, cash equivalents and restricted cash to balance sheets:	Reconciliation of cash, cash equivalents and restricted cash to balance sheets:						Reconciliation of cash, cash equivalents and restricted cash to balance sheets:
Cash and cash equivalents	Cash and cash equivalents	$	180,972	$	284,288		Cash and cash equivalents	$	149,691	$	269,806
Restricted cash	Restricted cash	3,815		3,814			Restricted cash	3,815		3,814
Cash, cash equivalents and restricted cash in balance sheets	Cash, cash equivalents and restricted cash in balance sheets	$	184,787	$	288,102		Cash, cash equivalents and restricted cash in balance sheets	$	153,506	$	273,620
Supplemental cash flow information	Supplemental cash flow information						Supplemental cash flow information
Interest paid	Interest paid	$	1,121	$	1,171		Interest paid	$	2,064	$	2,369
Non-cash investing and financing activities	Non-cash investing and financing activities						Non-cash investing and financing activities

Transfer of evaluation units from inventory to property and equipment, net	Transfer of evaluation units from inventory to property and equipment, net	$	(62)	$	—		Transfer of evaluation units from inventory to property and equipment, net	$	(123)	$	53
Property and equipment included in accounts payable and accrued expenses		$	2,269	$	351
Property and equipment included in accounts payable and other current liabilities							Property and equipment included in accounts payable and other current liabilities	$	1,956	$	566

The accompanying notes are an integral part of these condensed consolidated financial statements.

PROCEPT BioRobotics Corporation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization

Description of Business

PROCEPT BioRobotics Corporation (the “Company”) is a surgical robotics company focused on advancing patient care by developing transformative solutions in urology. It develops, manufactures and sells the AquaBeam Robotic System, an advanced, image-guided, surgical robotic system for use in minimally invasive urologic surgery, with an initial focus on treating benign prostatic hyperplasia, or BPH. BPH is the most common prostate disease and impacts approximately 40 million men in the United States. The AquaBeam Robotic System employs a single-use disposable handpiece to deliver the Company’s proprietary Aquablation therapy, which combines real-time, multi-dimensional imaging, personalized treatment planning, automated robotics and heat-free waterjet ablation for targeted and rapid removal of prostate tissue. The Company ~~designed its AquaBeam Robotic System to enable consistent and reproducible BPH surgery outcomes. The Company~~ received U.S. Food and Drug Administration clearance in December 2017 to market its AquaBeam Robotic ~~System.~~System pursuant to a de novo classification.

2. Summary of Significant Accounting Policies

Basis of ~~Preparation~~Presentation

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, (“or U.S. ~~GAAP”)~~GAAP, and pursuant to the rules and regulations of the United States Securities and Exchange Commission, ~~(“SEC”).~~or SEC. These condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Unaudited Interim Financial Statements

The accompanying balance sheet as of ~~March 31,~~June 30, 2023, the statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, and cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, and the statements of stockholders’ equity as of ~~March 31,~~June 30, 2023 and 2022, are unaudited. The financial data and other information disclosed in these notes to the financial statements related to ~~March 31,~~June 30, 2023, and the three and six months ended ~~March 31,~~June 30, 2023 and 2022, are also unaudited. The accompanying balance sheet as of December 31, 2022 have been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission.

The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to a fair statement of the Company’s financial position as of ~~March 31,~~June 30, 2023, and the results of its operations and cash flows for the three and six months ended ~~March 31,~~June 30, 2023 and 2022. The results for the three and six months ended ~~March 31,~~June 30, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any other interim period or for any future year and should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed consolidated financial statements. Management uses significant judgment when making estimates related to its stock-based compensation expense, right-of-use lease asset, lease liability, loan facility derivative liability, as well as certain accrued liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

~~Recent~~Recently Issued Accounting Pronouncements

No new accounting pronouncements recently issued are expected to have a material impact on the condensed consolidated financial statements.

3. Fair Value ~~Measurement~~Measurements

The following is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):


		March 31, 2023								December 31, 2022								June 30, 2023
		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total

Cash and cash equivalents:	Cash and cash equivalents:																		Cash and cash equivalents:
Cash	Cash	$	2,639	$	—	$	—	$	2,639	$	8,870	$	—	$	—	$	8,870		Cash	$	3,935	$	—	$	—	$	3,935
Cash equivalents	Cash equivalents	178,333		—		—		178,333		212,989		—		—		212,989			Cash equivalents	145,756		—		—		$	145,756
Total cash and cash equivalents	Total cash and cash equivalents	$	180,972	$	—	$	—	$	180,972	$	221,859	$	—	$	—	$	221,859		Total cash and cash equivalents	$	149,691	$	—	$	—	$	149,691

Loan facility derivative liability	Loan facility derivative liability	$	—	$	—	$	1,805	$	1,805	$	—	$	—	$	1,779	$	1,779		Loan facility derivative liability	$	—	$	—	$	1,832	$	1,832


	December 31, 2022
	Level 1		Level 2		Level 3		Total

Cash and cash equivalents:
Cash	$	8,870	$	—	$	—	$	8,870
Cash equivalents	212,989		—		—		212,989
Total cash and cash equivalents	$	221,859	$	—	$	—	$	221,859


Loan facility derivative liability	$	—	$	—	$	1,779	$	1,779

Cash equivalents consist primarily of money market deposit funds.

There were no transfers in and out of Level 3 during the three and six months ended ~~March 31,~~June 30, 2023 and year ended December 31, 2022.

The following table sets forth a summary of the changes in the estimated fair value of the Company’s loan facility derivative liability, classified as Level 3 (in thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022

Beginning of the period	Beginning of the period	$	1,779	$	1,496		Beginning of the period	$	1,805	$	1,533	$	1,779	$	1,496
Change in fair value	Change in fair value	26		37			Change in fair value	27		37		53		74
End of the period	End of the period	$	1,805	$	1,533		End of the period	$	1,832	$	1,570	$	1,832	$	1,570

4. Inventory

Inventory consists of the following (in thousands):


		March 31,		December 31,
		2023		2022			June 30,		December 31,
							2023		2022
Raw materials	Raw materials	$	15,663	$	12,417	Raw materials	$	16,826	$	12,417
Work-in-process	Work-in-process	2,846		1,738		Work-in-process	2,072		1,738
Finished goods	Finished goods	20,417		14,388		Finished goods	23,738		14,388
Total inventory	Total inventory	$	38,926	$	28,543	Total inventory	$	42,636	$	28,543

5. Fixed Assets

Fixed assets consists of the following (in thousands):


	June 30,		December 31,
	2023		2022

Laboratory, manufacturing and computer equipment, and furniture and fixtures	$	7,992	$	3,260
Rental equipment	1,202		1,313
Leasehold improvements	5,243		4,941
Evaluation units	2,475		2,475
Construction in progress	9,664		5,671
Total property and equipment	26,576		17,660
Less: accumulated depreciation and amortization	(10,219)		(9,004)
Total property and equipment, net	$	16,357	$	8,656

March 31, December 31,
2023 2022
Laboratory, manufacturing and computer equipment, and furniture and fixtures $ 6,247 $ 3,260
Rental equipment $ 1,238 1,313
Leasehold improvements 5,243 4,941
Evaluation units 2,475 2,475
Construction in progress 6,446 5,671
Total property and equipment 21,649 17,660
Less: accumulated depreciation and amortization (9,715) (9,004)
Total property and equipment, net $ 11,934 $ 8,656

6. Long-Term Debt

In October 2022, the Company entered into a loan and security agreement (“the Loan Agreement”) with Canadian Imperial Bank of Commerce, or CIBC. The Agreement provides for a senior secured term loan facility in the aggregate principal amount of $52.0 million (the "Term Loan Facility") which was borrowed in full.

Proceeds from the Term Loan Facility were used to repay and terminate the Company's previous loan facility, transaction fees, and related expenses.

The Term Loan Facility is scheduled to mature on the fifth anniversary of the closing date (the “Maturity Date”). The Agreement provides for interest-only payments on the Term Loan Facility for the first thirty-six months following the Maturity Date (the “Initial Interest-Only Period”). The Initial Interest-Only Period will be extended to an additional twelve months if the Company achieves either (i) $200.0 million or greater in revenue in any twelve-month period or (ii) $0 or greater in EBITDA (as defined in the Loan Agreement) in any six-month period. Thereafter, amortization payments on the Term Loan Facility will be payable monthly until the Maturity Date in monthly installments equal to 20% of the then outstanding principal amount of the Term Loan Facility divided by 12 plus any accrued and unpaid interest. The Company has the option to prepay the Term Loan Facility without any prepayment charge or fee.

The loan borrowed under the Term Loan Facility bears interest at an annual rate equal to the secured overnight financing rate ~~(“SOFR”)~~or SOFR (calculated based on an adjustment of .10%, .15% and .25%, respectively, for one-month, three-month or six-month term SOFR as of a specified date, subject to a floor of 1.5%) plus an applicable margin of 2.25%.

The obligations under the Loan Agreement are secured by substantially all of the Company's assets, including its intellectual property and by a pledge all of the Company's equity interests in its U.S. subsidiaries and 65% of the Company's equity interests in its non-U.S. subsidiaries that are directly owned by the Company. The Company is obligated to maintain in deposit accounts held at the lender the lesser of (i) ~~$150.0~~$90.0 million or (ii) ~~all of its non-operating cash.~~deposits that are demand deposits or money market accounts.

7. Stock-Based Compensation

Stock Options

The Company had ~~5.5~~5.4 million shares available for grant as of ~~March 31,~~June 30, 2023 under the 2021 Equity Incentive Award Plan.

A summary of the Company’s stock option activity and related information are as follows ~~(options~~(shares in thousands):


		Three Months Ended				Six Months Ended
		March 31, 2023			June 30, 2023

		Options	Weighted-Average Exercise Price					Number of Shares	Weighted-Average Exercise Price
Outstanding, beginning of period	Outstanding, beginning of period	5,353	$	6.93			Outstanding, beginning of period	5,353	$	6.93
Granted	Granted	359	37.02				Granted	398	36.83
Exercised	Exercised	(80)	4.73				Exercised	(236)	4.62
Forfeited	Forfeited	(6)	5.12				Forfeited	(10)	13.75
Outstanding, end of period	Outstanding, end of period	5,626	8.89				Outstanding, end of period	5,505	9.18
Vested and expected to vest	Vested and expected to vest	5,626	8.89				Vested and expected to vest	5,505	9.18
Exercisable	Exercisable	3,585	5.52				Exercisable	3,764	6.23

As of ~~March 31,~~June 30, 2023 and December 31, 2022, the aggregate pre-tax intrinsic value of options outstanding and exercisable was ~~$84.6~~$112.2 million and $126.3 million, respectively, and the aggregate pre-tax intrinsic value of options outstanding were ~~$115.0~~$144.9 million and $185.3 million, respectively. The aggregate pre-tax intrinsic value of options exercised was ~~$2.3~~$6.4 million and ~~$8.7~~$21.7 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, respectively.

As of ~~March 31,~~June 30, 2023, there was a total of ~~$14.9~~$14.0 million of unrecognized stock-based compensation expense related to stock options.

The fair value of the options granted to employees or directors was estimated as of the grant date using the Black-Scholes model assuming the weighted-average assumptions listed in the following table:


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
		2023			2022					2023			2022			2023			2022

Expected life (years)	Expected life (years)	6.0			6.0				Expected life (years)	5.5			5.8			5.9			5.9
Expected volatility	Expected volatility	57		%	64		%		Expected volatility	58		%	56		%	57		%	55		%
Risk-free interest rate	Risk-free interest rate	4.0		%	2.4		%		Risk-free interest rate	3.9		%	2.9		%	4.0		%	2.5		%
Expected dividend rate	Expected dividend rate	—		%	—		%		Expected dividend rate	—		%	—		%	—		%	—		%
Weighted-average fair value	Weighted-average fair value	$	21.18		$	20.87			Weighted-average fair value	$	19.48		$	20.07		$	21.02		$	19.15

Restricted Stock Units

A summary of the Company’s restricted stock unit ~~(“RSU”)~~or RSU activity and related information are as follows ~~(restricted stock units~~(shares in thousands):

Three Months Ended
March 31, 2023
Options Weighted-Average Fair Value
Outstanding, beginning of period 742 $ 36.35
Awarded 753 37.75
Forfeited (23) 31.88
Vested (101) 33.78
Outstanding, end of period 1,371 37.38


	Six Months Ended
	June 30, 2023

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding, beginning of period	742	$	36.35
Awarded	910	36.81

Forfeited	(140)	34.73
Vested	(51)	34.97
Outstanding, end of period	1,461	36.84

As of ~~March 31,~~June 30, 2023, there was a total of ~~$48.0~~$48.4 million of unrecognized stock-based compensation expense related to RSUs.

Employee Stock Purchase Plan

~~During the period ended March 31, 2023, there were no stock purchases made under the Employee Stock Purchase Plan (“ESPP”).~~ As of ~~March 31,~~June 30, 2023, there was approximately ~~$0.9~~$1.8 million of unrecognized cost related to the Company’s Employee Stock Purchase Plan, or ESPP. This cost is expected to be recognized over a weighted average period of 0.6 years. As of ~~March 31,~~June 30, 2023, a total of ~~1.2~~1.1 million shares were available for issuance under the ESPP.

The fair value of the awards granted under the ESPP for the six months ended June 30, 2023 to employees was estimated as of the grant date using the Black-Scholes model assuming the weighted-average assumptions listed in the following table:


	Six Months Ended June 30,
	2023

Expected life (years)	0.8
Expected volatility	55		%
Risk-free interest rate	5.0		%
Expected dividend rate	—		%
Weighted-average fair value	$	11.28

Total stock-based compensation recognized, before taxes, are as follows (in thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022

Cost of sales	Cost of sales	$	461	$	124		Cost of sales	$	609	252		$	1,070	375
Research and development	Research and development	887		299			Research and development	1,245		553		2,132		853
Sales, general and administrative	Sales, general and administrative	2,789		1,129			Sales, general and administrative	3,798		1,871		6,587		3,000
Stock-based compensation capitalized in inventory							Stock-based compensation capitalized in inventory	(548)		—		(962)		—
Total stock-based compensation	Total stock-based compensation	$	4,137	$	1,552		Total stock-based compensation	$	5,104	$	2,676	$	8,827	$	4,228

~~Total stock-based compensation cost capitalized in inventory was $0.4 million and $0.1 million as of March 31, 2023 and 2022, respectively.~~

8. Net Loss Per Share

Net loss per share was determined as follows (in ~~thousands, except per share amounts)~~thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022

Net loss	Net loss	$	(28,484)	$	(17,185)		Net loss	$	(25,285)	$	(19,184)	$	(53,771)	$	(36,369)
Weighted-average common stock outstanding	Weighted-average common stock outstanding	45,066		43,855			Weighted-average common stock outstanding	45,160		44,324		45,023		44,091
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.63)	$	(0.39)		Net loss per share, basic and diluted	$	(0.56)	$	(0.43)	$	(1.19)	$	(0.82)

The following potentially dilutive securities outstanding have been excluded from the computations of weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares, in thousands):


		March 31,
		2023	2022			As of June 30,
				2023		2022

Common stock options	Common stock options	5,626	6,023		Common stock options	5,505	5,666
Restricted stock units	Restricted stock units	1,371	198		Restricted stock units	1,461	559
Employee stock purchase plan	Employee stock purchase plan	100	193		Employee stock purchase plan	177	61
Total	Total	7,097	6,414		Total	7,143	6,286

9. Revenue

The following table presents revenue disaggregated by type and geography (in thousands):


		Three Months Ended March 31,
		2023		2022				Three Months Ended June 30,				Six Months Ended June 30,
						2023		2022		2023		2022
U.S.	U.S.						U.S.
System sales and rentals	System sales and rentals	$	8,770	$	7,754		System sales and rentals	$	14,828	$	8,516	$	23,598	$	16,270
Handpieces and other consumables	Handpieces and other consumables	11,770		4,444			Handpieces and other consumables	13,601		5,723		25,371		10,167
Service	Service	1,235		359			Service	1,499		567		2,734		929
Total U.S. revenue	Total U.S. revenue	21,775		12,557			Total U.S. revenue	29,928		14,806		51,703		27,366
Outside of U.S.	Outside of U.S.						Outside of U.S.
System sales and rentals	System sales and rentals	1,469		742			System sales and rentals	1,599		869		3,068		1,610
Handpieces and other consumables	Handpieces and other consumables	906		745			Handpieces and other consumables	1,269		832		2,175		1,578
Service	Service	254		153			Service	308		184		562		334
Total outside of U.S. revenue	Total outside of U.S. revenue	2,629		1,640			Total outside of U.S. revenue	3,176		1,885		5,805		3,522
Total revenue	Total revenue	$	24,404	$	14,197		Total revenue	$	33,104	$	16,691	$	57,508	$	30,888

1315

10. Segment, Geographical, and Customer Concentration

The Company operates as a single operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, reviews financial information on an aggregate basis for the purposes of allocating resources and evaluating financial performance. The Company’s long-lived assets are primarily based in the United States.

No customers accounted for more than 10% of revenue during the three and six months ended ~~March 31,~~June 30, 2023 and 2022.

No ~~customer~~customers accounted for more than 10% of accounts receivable at ~~March 31,~~June 30, 2023 and December 31, 2022.

The ~~following table presents~~Company’s revenue by ~~significant~~ geographical ~~locations for the periods indicated:~~location is as follows:

Three Months Ended March 31,
2023 2022
United States 89 % 88 %
Outside the United States 11 % 12 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

U.S.	90	%	89	%	90	%	89	%
Outside the U.S.	10	%	11	%	10	%	11	%

11. Commitments and Contingencies

Guarantees and Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any material claims or been required to defend any action related to its indemnification obligations. As of ~~March 31,~~June 30, 2023 and December 31, 2022, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

Facility Lease

In July 2013, the Company entered into a lease agreement for its current facility located in Redwood City, California. In 2018, the Company expanded the lease space and extended the lease agreement through October 2023. In January 2023, the Company entered into an amendment to this lease that provided that the lease of 19,807 square feet of office space ~~terminated~~would terminate on October 29, 2023, and lease of the remaining 23,638 square feet is extended to terminate no later than January 31, ~~2024.~~2024 unless the Company provides notice it will not utilize such extension.

In December 2021, the Company entered into a lease for two existing buildings, comprising approximately 158,221 square feet of space, located in San Jose, California. The lease commenced in July 2022, and will continue for 122 months following thereafter, with two five ~~year~~years options to extend the term of the lease.

Rent expense recognized under ~~both leases,~~the lease, including additional rent charges for utilities, parking, maintenance, and real estate taxes, was ~~$2.0~~$1.9 million and $0.7 million for the three months ended ~~March 31,~~June 30, 2023 and ~~2022.~~2022, respectively, and $4.0 million and $1.4 million for the six months ended June 30, 2023 and 2022, respectively.

~~Future minimum annual operating lease and debt repayments are as follows (in thousands):~~

As of March 31, 2023 Minimum Lease Payments Debt Repayments Total
2023 $ 4,615 $ — $ 4,615
2024 4,183 — 4,183
2025 4,297 4,333 8,630
2026 4,426 26,000 30,426
2027 4,808 21,667 26,475
Thereafter 27,250 — 27,250
Total minimum payments 49,579 52,000 101,579
Less: amount representing interest/unamortized debt discount (20,799) (759) (21,558)
Present value of future payments 28,780 51,241 80,021
Less: current portion (2,998) — (2,998)
Non-current portion $ 25,782 $ 51,241 $ 77,023
,


As of June 30, 2023	Minimum Lease Payments		Debt Repayments		Total
2023	$	2,945	$	—	$	2,945
2024	4,183		—		4,183
2025	4,297		4,333		8,630
2026	4,426		26,000		30,426
2027	4,808		21,667		26,475
Thereafter	27,250		—		27,250


Total minimum payments	47,909		52,000		99,909
Less: amount representing interest/unamortized debt discount	(18,420)		(725)		(19,145)
Present value of future payments	29,489		51,275		80,764
Less: current portion	(2,354)		—		(2,354)
Non-current portion	$	27,135	$	51,275	$	78,410

As of ~~March 31,~~June 30, 2023 and December 31, 2022, the Company’s security ~~deposits~~deposit is in the form of, and recorded as, restricted cash.

12. Defined Contribution Plan

The Company has a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan allows eligible employees to defer a portion of their annual compensation on a pre-tax basis. Employer contributions were ~~$0.5~~$0.4 million and $0 for the three months ended ~~March 31,~~three months ended June 30, 2023 and 2022, and $0.9 million and $0 for the six months ended June 30, 2023 and 2022.

1517

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many ~~factors.~~factors, including those discussed in the section titled “Risk Factors” and elsewhere in this report. Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.”

Overview

We are a surgical robotics company focused on advancing patient care by developing transformative solutions in urology. We develop, manufacture and sell the AquaBeam Robotic System, an advanced, image-guided, surgical robotic system for use in minimally invasive urologic surgery, with an initial focus on treating benign prostatic hyperplasia, or BPH. BPH is the most common prostate disease and impacts approximately 40 million men in the United States. By 2060, it is expected that the number of men over 65 years old in the United States will double and include a corresponding increase in the number of men with enlarged prostates. The AquaBeam Robotic System employs a single-use disposable handpiece to deliver our proprietary Aquablation therapy, which combines real-time, multi-dimensional imaging, personalized treatment planning, automated robotics and heat-free waterjet ablation for targeted and rapid removal of prostate tissue. ~~We designed our AquaBeam Robotic System to enable consistent and reproducible BPH surgery outcomes.~~ We believe that Aquablation therapy represents a paradigm shift in the surgical treatment of BPH by addressing compromises associated with alternative surgical interventions. We designed Aquablation therapy to deliver effective, safe and durable outcomes for males suffering from lower urinary tract symptoms, or LUTS, due to BPH that are independent of prostate size and ~~shape, and delivers resection independent of surgeon experience.~~shape. We have developed a significant and growing body of clinical evidence, which includes approximately 150 peer-reviewed publications, supporting the benefits and clinical advantages of Aquablation therapy. As of ~~March 31,~~June 30, 2023, we had an install base of ~~275~~322 AquaBeam Robotic Systems globally, including ~~192~~233 in the United States.

Our U.S. pivotal trial, the WATER study, is the only FDA pivotal study randomized against transurethral resection of prostate, or TURP, which is the historical standard of care for the surgical treatment of BPH. In this study, Aquablation therapy demonstrated superior safety and non-inferior efficacy compared to TURP across prostate sizes between 30 ml and 80 ml, and superior efficacy in a subset of patients with prostates larger than 50 ml. We have established strong relationships with key opinion leaders, or KOLs, within the urology community and collaborated with key urological societies in global markets. This support has been instrumental in facilitating broader acceptance and adoption of Aquablation therapy. As a result of our strong KOL network and our compelling clinical evidence, Aquablation therapy has been added to clinical guidelines of various professional associations, including the American Urological Association.

In the United States, we sell our products to hospitals. We are initially targeting 860 high-volume hospitals that perform, on average, more than 200 resective procedures annually and account for approximately 70% of all hospital-based resective procedures. Additionally, there are approximately 1,840 U.S. hospitals that perform the remaining 30% of resective BPH procedures we are also targeting. ~~Over time, we expect to gradually expand our focus to also include mid- and low-volume hospitals.~~ These ~~customers~~hospitals in turn bill various third-party payors, such as commercial payors and government agencies, for treatment payment of each patient. Effective in 2021, all local Medicare Administrative Contractors, or MACs, which represent 100% of eligible Medicare patients, issued final positive local coverage determinations to provide Medicare beneficiaries with access to Aquablation therapy in all 50 states. We also have favorable coverage decisions from ~~many~~most large commercial payors. Outside of the United States, we have ongoing efforts in key markets to expand established coverage and improve payment which we believe will expand patient access to Aquablation therapy.

We manufacture the AquaBeam Robotic System, the handpiece, integrated scope and other accessories primarily at our facility in Redwood City, California. This includes supporting the supply chain distribution and logistics of the various components. Components, sub-assemblies and services required to manufacture our products are purchased from numerous global suppliers. Each AquaBeam Robotic System is shipped to our customers with a ~~third-party~~

1618

third-party manufactured ultrasound system and probe. We utilize a well-known third-party logistics provider located in the United States and the Netherlands to ship our products to our ~~customers~~key markets globally.

We generated revenue of ~~$24.4~~$57.5 million and incurred a net loss of ~~$28.5~~$53.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to revenue of ~~$14.2~~$30.9 million and a net loss of ~~$17.2~~$36.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022. As of ~~March 31,~~June 30, 2023, we had cash and cash equivalents of ~~$181.0~~$149.7 million and an accumulated deficit of ~~$377.2~~$402.4 million.

Factors Affecting Our Performance

We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations for the foreseeable future. While these factors may present significant opportunities for us, they also pose significant risks and challenges that we must address. See the section titled “Risk Factors” for more information. These factors include:

•Grow our install base of AquaBeam Robotic Systems: As of ~~March 31,~~June 30, 2023, we had an install base of ~~275~~322 AquaBeam Robotic Systems globally, including ~~192~~233 in the United ~~States. In~~States.In the United States, we are initially focused on driving adoption of Aquablation therapy among urologists that perform hospital-based resective BPH surgery. We are initially targeting 860 high-volume hospitals that we estimate perform, on average, more than 200 resective procedures annually and account for approximately 70% of all hospital-based resective procedures. To penetrate these hospitals, we will continue to increase our direct team of capital sales representatives, who are focused on driving system placement within hospitals by engaging with key surgeons and decision makers to educate them about the compelling value proposition of Aquablation therapy. As we increase our install base of AquaBeam Robotic systems our revenue will increase as a result of the system sale and resulting utilization.

•Increase system utilization: Our revenue is significantly impacted by the utilization of our AquaBeam robotic system. Once we place a system within a hospital our objective is to establish Aquablation therapy as the surgical treatment of choice for BPH. Within each hospital we are initially focused on targeting urologists who perform medium-to-high volumes of resective procedures and converting their resective cases to Aquablation therapy. To accomplish this, we will continue expanding our team of highly trained Aquablation representatives and clinical specialists who are focused on driving system utilization within the hospital, providing education and training support and ensuring excellent user experiences. As urologists gain experience with Aquablation therapy we will leverage their experiences to capture more surgical volumes and establish Aquablation therapy as the surgical standard of care.

•Reimbursement and coverage decisions by third-party payors. Healthcare providers in the United States generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to cover all or part of the cost of procedures using our AquaBeam Robotic System. The revenue we are able to generate from sales of our products depends in large part on the availability of sufficient reimbursement from such payors. Effective in 2021, all local MACs, representing 100% of eligible Medicare patients, issued final positive local coverage determinations to provide Medicare beneficiaries with access to Aquablation therapy in all 50 states. We believe that these favorable coverage decisions have been a catalyst for hospital adoption of our AquaBeam Robotic System. We believe our strong body of clinical evidence and support from key societies, supplemented by the momentum from Medicare coverage, have led to favorable coverage decisions from most large commercial payors. Outside of the United States, we have ongoing efforts in key markets to expand established coverage and further improve patient access to Aquablation therapy. In July 2023, the Centers for Medicare & Medicaid Services published its 2024 proposed rule for the Hospital Outpatient Prospective Payment System. The Level 6 APC code for Aquablation has a proposed payment that would provide the hospital $8,847 for each Aquablation procedure, which is an approximate 3% increase over the 2023 rates. The final rule is expected to be published in November 2023.

•Cost of sales. The results of our operations will depend, in part, on our ability to increase our gross margins by more effectively managing our costs to produce our AquaBeam Robotic System and single-use

disposable handpieces, and to scale our manufacturing operations efficiently. We anticipate that as we expand our sales and marketing efforts and drive further sales growth, our purchasing costs on a per unit basis may decrease, and in turn improve our gross margin. As our commercial operations continue to grow, we expect to continue to realize operating leverage through increased scale efficiencies.

•Investment in research and development to drive continuous improvements and innovation. We are currently developing additional and next generation technologies to support and improve Aquablation therapy to further satisfy the evolving needs of surgeons and their patients, as well as to further enhance the usability and scalability of the AquaBeam Robotic System. We also plan to leverage our treatment data and software development capabilities to integrate artificial intelligence and machine learning to enable computer-assisted anatomy recognition and improved treatment planning and personalization. Our future growth is dependent on these continuous improvements which require significant resources and investment.

Components of Our Results of Operations

Revenue

We generate our revenue primarily from the capital portion of our business, which includes sales and rentals of our AquaBeam Robotic System, and from the recurring revenue associated with sales of our single-use disposable handpieces that are used during each surgery performed with our system. Other revenue is derived primarily from service and repair and extended service contracts with our existing customers. We expect our revenue to increase in absolute dollars for the foreseeable future as we continue to focus on driving adoption of Aquablation therapy, and increased system utilization, though it may fluctuate from quarter to quarter.

The following table presents revenue by significant geographical locations for the periods indicated:

Three Months Ended March 31,
2023 2022
United States 89 % 88 %
Outside the United States 11 % 12 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

U.S.	90	%	89	%	90	%	89	%
Outside the U.S.	10	%	11	%	10	%	11	%

We expect that both our U.S. and international revenue will increase in the near term as we continue to expand the install base of AquaBeam Robotic Systems and increase the units sold of our single-use disposable handpieces. We expect our increase in revenues in absolute dollars to be larger in the United States.

Cost of Sales and Gross Margin

Cost of sales consists primarily of manufacturing overhead costs, material costs, warranty and service costs, direct labor, scrap and other direct costs such as shipping costs. A significant portion of our cost of sales currently consists of manufacturing overhead costs. These overhead costs include compensation for personnel, including stock-based compensation, facilities, equipment and operations supervision, quality assurance and material procurement. We expect our cost of sales to increase in absolute dollars for the foreseeable future primarily as, and to the extent, our revenue grows, or we make additional investments in our manufacturing capabilities, though it may fluctuate from period to period.

We calculate gross margin percentage as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily, product and geographic mix and the resulting average selling prices, production volumes, manufacturing costs and product yields, and to a lesser extent the implementation of cost reduction strategies. We expect our gross margin to increase over the long term as our production volume increases and as we spread the fixed portion of our manufacturing overhead costs over a larger number of units produced, thereby significantly reducing our per unit manufacturing costs, though it may fluctuate from quarter to quarter. Our gross margins can fluctuate due to geographic mix. To the extent we sell more systems and handpieces in the United States, we expect our margins will increase due to the higher average selling prices as compared to sales outside of the United States.

Operating Expenses

Research and Development

Research and development, or R&D, expenses consist primarily of engineering, product development, regulatory affairs, consulting services, materials, depreciation and other costs associated with products and

technologies being developed. These expenses include employee and non-employee compensation, including stock-based compensation, supplies, materials, quality assurance expenses, consulting, related travel expenses and facilities expenses. We expect our R&D expenses to increase in absolute dollars for the foreseeable future as we make strategic investments in R&D, continue to develop, enhance and commercialize new products and technologies, though it may fluctuate from quarter to quarter. However, we expect our R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts.

Selling, General and Administrative

Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling, marketing, clinical affairs, professional education, finance, information technology, and human resource functions. SG&A expenses also include commissions, training, travel expenses, promotional activities, conferences, trade shows, professional services fees, audit fees, legal fees, insurance costs and general corporate expenses including allocated facilities-related expenses. ~~Post-market~~Clinical study expenses include trial design, site reimbursement, data management and travel expenses. We expect our SG&A expenses to increase in absolute dollars for the foreseeable future as we expand our commercial infrastructure in order for us to execute on our long-term growth plan, though it may fluctuate from quarter to quarter. However, over time, we expect our SG&A expenses to decrease as a percentage of revenue.

Interest and Other Income, ~~(Expense),~~ Net

Interest Expense

Interest expense consists primarily of interest expense from our long-term debt.

Interest and Other Income, ~~(Expense),~~ Net

Interest and other income, net, consists primarily of interest income from our cash and cash equivalents balances, and fair value adjustments from our loan facility derivative liability.

Results of Operations

The following tables show our results of operations for the ~~periods indicated:~~three and six months ended June 30, 2023 and 2022:

Three Months Ended
March 31, Change
2023 2022 $ %
(in thousands, except percentages)
Revenue $ 24,404 $ 14,197 $ 10,207 72 %
Cost of sales 11,913 6,505 5,408 83
Gross profit 12,491 7,692 4,799 62
Gross margin 51 % 54 %
Operating expenses:
Research and development 10,737 5,011 5,726 114
Selling, general and administrative 30,131 18,385 11,746 64
Total operating expenses 40,868 23,396 17,472 75
Loss from operations (28,377) (15,704) (12,673) (81)
Interest expense (886) (1,421) 535 38
Interest and other income (expense), net 779 (60) 839 N/M
Net loss $ (28,484) $ (17,185) $ (11,299) (66)

~~N/M - Not meaningful.~~


	Three Months Ended June 30,						Change
	2023			2022			$		%
	(in thousands, except percentages)

Revenue	$	33,104		$	16,691		$	16,413	98	%
Cost of sales	14,675			8,205			6,470		79
Gross profit	18,429			8,486			9,943		117
Gross margin	56		%	51		%

Operating expenses:
Research and development	11,613			6,706			4,907		73
Selling, general and administrative	32,441			19,655			12,786		65
Total operating expenses	44,054			26,361			17,693		67
Loss from operations	(25,625)			(17,875)			(7,750)		(43)
Interest expense	(965)			(1,441)			476		33
Interest and other income, net	1,305			132			1,173		889
Net loss	$	(25,285)		$	(19,184)		$	(6,101)	(32)


	Six Months Ended June 30,						Change
	2023			2022			$		%
	(in thousands, except percentages)

Revenue	$	57,508		$	30,888		$	26,620	86	%
Cost of sales	26,588			14,710			11,878		81
Gross profit	30,920			16,178			14,742		91
Gross margin	54		%	52		%

Operating expenses:
Research and development	22,350			11,717			10,633		91
Selling, general and administrative	62,574			38,040			24,534		64
Total operating expenses	84,924			49,757			35,167		71
Loss from operations	(54,004)			(33,579)			(20,425)		(61)
Interest expense	(1,851)			(2,862)			1,011		35
Interest and other income, net	2,084			72			2,012		2794
Net loss	$	(53,771)		$	(36,369)		$	(17,402)	(48)

Comparison of Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022

Revenue


		Three Months Ended March 31,				Change					Three Months Ended June 30,				Change
		2023		2022		$		%			2023		2022		$		%
		(in thousands, except percentages)									(in thousands, except percentages)

System sales and rentals	System sales and rentals	$	10,239	$	8,496	$	1,743	21	%	System sales and rentals	$	16,427	$	9,385	$	7,042	75	%
Handpieces and other consumables	Handpieces and other consumables	12,676		5,189		7,487		144		Handpieces and other consumables	14,870		6,555		8,315		127
Service	Service	1,489		512		977		191		Service	1,807		751		1,056		141
Total revenue	Total revenue	$	24,404	$	14,197	$	10,207	72		Total revenue	$	33,104	$	16,691	$	16,413	98


	Six Months Ended June 30,				Change
	2023		2022		$		%
	(in thousands, except percentages)

System sales and rentals	$	26,666	$	17,880	$	8,786	49	%
Handpieces and other consumables	27,546		11,745		15,801		135
Service	3,296		1,263		2,033		161
Total revenue	$	57,508	$	30,888	$	26,620	86

Revenue increased ~~$10.2~~$16.4 million, or ~~72%~~98%, to ~~$24.4~~$33.1 million during the three months ended ~~March 31,~~June 30, 2023, compared to ~~$14.2~~$16.7 million during the three months ended ~~March 31,~~June 30, 2022, and increased $26.6 million or 86%, to $57.5 million during the six months ended June 30, 2023, compared to $30.9 million during the six months ended June 30, 2022. The growth in revenue was primarily attributable to an increase of ~~$9.2~~$15.1 million and $24.3 million in revenues derived from the United ~~States.~~States for the three and six months ended June 30, 2023, respectively. The increase was due to higher sales volumes of system sales, handpieces, and service contracts.

Cost of Sales and Gross Margin

Cost of sales increased ~~$5.4~~$6.5 million, or ~~83%~~79%, to ~~$11.9~~$14.7 million during the three months ended ~~March 31,~~June 30, 2023, compared to ~~$6.5~~$8.2 million during the three months ended ~~March 31,~~June 30, 2022, and increased $11.9 million or 81%, to $26.6 million during the six months ended June 30, 2023, compared to $14.7 million during the six months ended June 30, 2022. The increase in cost of sales was primarily attributable to the growth in the number of units sold.

Gross margin ~~decreased~~increased to ~~51%~~56% during the three months ended ~~March 31,~~June 30, 2023, compared to ~~54%~~51% for the three months ended ~~March 31,~~June 30, 2022, and increased to 54% during the six months ended June 30, 2023 compared to 52% during the six months ended June 30, 2022. The ~~decrease~~increase in gross margin was primarily attributable to ~~an increase~~the growth in ~~personnel in operations~~unit sales, which allowed us to ~~meet anticipated future growth.~~spread the fixed portion of our manufacturing overhead costs over more production units.

Research and Development Expenses

R&D expenses increased ~~$5.7~~$4.9 million, or ~~114%~~73%, to ~~$10.7~~$11.6 million during the three months ended ~~March 31,~~June 30, 2023, compared to ~~$5.0~~$6.7 million during the three months ended ~~March 31,~~June 30, 2022, and increased $10.6 million, or 91%, to $22.4 million during the six months ended June 30, 2023, compared to $11.7 million during the six months ended June 30, 2022. The increase in R&D expenses was primarily due to employee-related expenses of our R&D ~~organization such as salaries and wages and stock-based compensation expense, along with an increase in consultant expenses.~~organization. These expenses support ongoing product improvements and the development of additional and next generation technologies.

Selling, General and Administrative Expenses

SG&A expenses increased ~~$11.7~~$12.8 million, or ~~64%~~65%, to ~~$30.1~~$32.4 million during the three months ended ~~March 31,~~June 30, 2023, compared to ~~$18.4~~$19.7 million during the three months ended ~~March 31, 2022.~~June 30, 2022, and increased $24.5 million or 64%, to $62.6 million during the six months ended June 30, 2023, compared to $38.0 million. The increase in SG&A

expenses was primarily due to employee-related expenses of our sales and marketing organization ~~such~~and administrative organizations as ~~salaries and wages and stock-based compensation expense, primarily to expand the commercial organization, and employee-related expenses of~~we expanded our ~~administrative organization such as salaries and wages and stock-based compensation expense,~~infrastructure to drive and support our growth in revenue.

Interest Expense

Interest expense decreased ~~0.5~~$0.5 million ~~or 38% to $0.9~~and $1.0 million during the three and six months ended ~~March 31,~~June 30, 2023, respectively, compared to ~~$1.4 million during~~ the three and six months ended ~~March 31, 2022. The decrease in interest expense was primarily~~June 30, 2022, due to entering into a new loan agreement with a lower interest rate compared to our ~~refinancing of our debt in the fourth quarter of 2022, which resulted in a reduced interest rate.~~previous loan agreement.

Interest and Other Income, ~~(Expense),~~ Net

Interest and other income, ~~(expense),~~ net, increased ~~$0.8~~$1.2 million ~~for~~and $2.0 million during the three and six months ended ~~March 31, 2023. The increase was primarily~~June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to ~~an increase in~~ interest income ~~which was due to increasing interest rates.~~earned on cash and cash equivalents.

Liquidity and Capital Resources

Overview

As of ~~March 31,~~June 30, 2023, we had cash and cash equivalents of ~~$181.0~~$149.7 million, an accumulated deficit of ~~$377.2~~$402.4 million, and ~~$52.0~~$52 million principal outstanding on our loan facility. We expect our expenses will increase for the foreseeable future, in particular as we continue to make substantial investments in sales and marketing, operations and research and development. Moreover, we expect to incur additional expenses as a result of operating as a public company, including legal, accounting, insurance, compliance with the rules and regulations of the SEC and those of any stock exchange on which our securities are traded, investor relations, and other administrative and professional services expenses. Our future funding requirements will depend on many factors, including:

•the degree and rate of market acceptance of our products and Aquablation therapy;

•the scope and timing of investment in our sales force and expansion of our commercial organization;

•the scope, rate of progress and cost of our current or future clinical trials and registries;

•the cost of our research and development activities;

•the cost and timing of additional regulatory clearances or approvals;

•the costs associated with any product recall that may occur;

•the costs associated with any regulatory or government action or other litigation;

•the costs associated with the manufacturing of our products at increased production levels;

•the costs of attaining, defending and enforcing our intellectual property rights;

•whether we acquire third-party companies, products or technologies;

•the terms and timing of any other collaborative, licensing and other arrangements that we may establish;

•the emergence of competing technologies or other adverse market developments; and

•the rate at which we expand internationally.

Based on our operating plan, we currently believe that our existing cash and cash equivalents and anticipated revenue will be sufficient to meet our capital requirements and fund our operations through at least the next twelve months from the issuance date of the financial statements. We have based this estimate on assumptions that may prove to be wrong, and we may need to utilize additional available capital resources. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional ~~public~~ equity or debt securities or obtain an additional credit facility. We may also consider raising additional capital to expand our business, to pursue strategic

investments, to take advantage of financing opportunities or for other reasons. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or in amounts or on terms unacceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products. Additionally, we maintain cash balances with financial institutions in excess of insured limits.

Indebtedness

In October 2022, we entered into a loan and security agreement with a new lender, Canadian Imperial Bank of Commerce. The agreement provides for a senior secured term loan facility in the aggregate principal amount of $52.0 million, which was borrowed in full. Proceeds from the term loan facility were used to repay and terminate our previous loan facility, and to pay transaction fees, and related expenses.

The term loan facility is scheduled to mature on October 6, 2027, the fifth anniversary of the closing date (the “Maturity Date”). The loan and security agreement provides for interest-only payments on the term loan facility for the first thirty-six months following the closing date (the “Initial Interest-Only Period”). The Initial Interest-Only Period will be extended to an additional twelve months if we achieve either (i) $200.0 million or greater in revenue in any twelve-month period or (ii) $0 or greater in EBITDA (as defined in the loan and security agreement) in any six-month period. Thereafter, amortization payments on the loan facility will be payable monthly until the Maturity Date in monthly installments equal to 20% of the then outstanding principal amount of the loan facility divided by 12 plus any accrued and unpaid interest. We have the option to prepay the loan facility without any prepayment charge or fee.

The loan borrowed under the loan facility bears interest at an annual rate equal to the secured overnight financing rate (“SOFR”) (calculated based on an adjustment of 0.10%, 0.15% and 0.25%, respectively, for one-month, three-month or six-month term SOFR as of a specified date, subject to a floor of 1.5%) plus an applicable margin of 2.25%.

The obligations under the loan and security agreement are secured by substantially all of our assets, including its intellectual property and by a pledge all of our equity interests in its U.S. subsidiaries and 65% of our equity interests in its non-U.S. subsidiaries that are directly owned by us. We are obligated to maintain in deposit accounts held at the lender equal to at least the lesser of (i) ~~$150.0~~$90.0 million or (ii) ~~all of our non-operating cash.~~deposits that are demand deposits or money market accounts.

The loan and security agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default. Under the loan and security agreement, if we maintain less than $100.0 million in available cash, then we are required to meet either one of two financial covenants: a minimum unrestricted cash covenant or a minimum revenue and growth covenant. The minimum unrestricted cash covenant requires that

we to maintain cash reserve not less than the greater of (i) $20.0 million, (ii) the absolute value of EBITDA losses (if any) for the most recent consecutive four-month period then ended or (iii) the aggregate outstanding principal amount of $52.0 million. The minimum revenue and growth covenant requires our revenue, for the consecutive twelve-month period as of each measurement date, of not less than $50.0 million and of at least 115% as of the last day of the consecutive twelve-month period of the immediately preceding year. If we maintain at least $100.0 million in available cash, then ~~it is~~we are not required to meet such financial covenants.

Cash Flows

The following table summarizes our cash flows for the periods presented:


		Three Months Ended March 31,					Six Months Ended June 30,
		2023		2022					2023		2022
		(in thousands)				(in thousands)

Net cash (used in) provided by:	Net cash (used in) provided by:							Net cash (used in) provided by:
Operating activities	Operating activities	$	(35,928)	$	(18,231)			Operating activities	$	(64,267)	$	(35,357)
Investing activities	Investing activities	(5,339)		(55)				Investing activities	(10,711)		(273)
Financing activities	Financing activities	380		1,291				Financing activities	2,810		4,153
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	$	(40,887)	$	(16,995)			Net decrease in cash, cash equivalents and restricted cash	$	(72,168)	$	(31,477)

Net Cash Used in Operating Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, net cash used in operating activities was ~~$35.9~~$64.3 million, consisting primarily of a net loss of ~~$28.5~~$53.8 million and an increase in net operating assets of ~~$12.7~~$21.5 million, partially offset by non-cash charges of $5.3 million. The cash used in operations was primarily due to our net loss due to the increase in operating expenses to support our commercialization and development activities. The expansion of our commercialization resulted in an increase in accounts receivable, inventory, and accounts payable, partially offset by a decrease in accrued compensation, due to timing of payments, and reimbursements for leasehold improvements made related to our new San Jose, California corporate headquarters. Non-cash charges consisted primarily of stock-based compensation, non-cash lease expense, and depreciation.

During the three months ended March 31, 2022, net cash used in operating activities was $18.2 million, consisting primarily of a net loss of $17.2 million and an increase in net operating assets of $3.3 million, partially offset by non-cash charges of $2.3$11.0 million. The cash used in operations was primarily due to our net loss due to the increase in operating expenses to support our commercialization and development activities. The expansion of our commercialization resulted in an increase in accounts receivable and ~~accounts payable,~~inventory, partially offset by ~~a decrease~~an increase in ~~accrued compensation due to timing of payments.~~accounts payable. Non-cash charges consisted primarily of depreciation and stock-based compensation.

During the six months ended June 30, 2022, net cash used in operating activities was $35.4 million, consisting primarily of a net loss of $36.4 million and an increase in net operating assets of $4.6 million, partially offset by non-cash charges of $5.6 million. The cash used in operations was primarily due to our net loss due to the increase in operating expenses to support our commercialization and development activities. The expansion of our commercialization resulted in an increase in accounts receivable and inventory. Non-cash charges consisted primarily of stock-based compensation and depreciation.

Net Cash Used in by Investing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, net cash used in investing activities was ~~$5.3~~$10.7 million, consisting of purchases of property and equipment. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, net cash used in investing activities was ~~less than $0.1~~$0.3 million, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, net cash provided by financing activities was ~~$0.4~~$2.8 million, consisting of proceeds from exercises of stock ~~options.~~options and proceeds from the issuance of common stock under our employee stock purchase plan. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, net cash provided by financing activities was ~~$1.3~~$4.2 million, consisting of proceeds from exercises of stock ~~options.~~options and proceeds from the issuance of common stock under our employee stock purchase plan.

Contractual Commitments and Contingencies

The information included in Note 11 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have any off-balance sheet arrangements, such as structured finance, special purpose entities or variable interest entities.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in our audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in our Annual Report on Form 10-K dated February 28, 2023, or Annual Report, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report. ~~There~~with the exception of the accounting policy change described in Part I, Item I, Note 2, there have been no material changes to our significant accounting policies during the three months ended ~~March 31,~~June 30, 2023.

Recent Accounting Pronouncements

The information included in Note 2 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Cash and cash equivalents of ~~$181.0~~$149.7 million as of ~~March 31,~~June 30, 2023, consisted of securities carried at quoted market prices with an original maturity of three months or less and therefore there is minimal risk associated with fluctuating interest rates. We do not currently use or plan to use financial derivatives in our investment portfolio.

In addition, as described above under the subsection titled “Indebtedness,” amounts outstanding under our loan facility bears interest at an annual rate equal to the secured overnight financing rate ~~("SOFR")~~or SOFR (calculated based on an adjustment of .10%, .15% and .25%, respectively, for one-month, three-month or six-month term SOFR as of a specified date, subject to a floor of 1.5%) plus an applicable margin of 2.25%. As a result, we are exposed to risks from changes in interest rates. We do not believe that a hypothetical 100 basis point increase or decrease in interest rates or 30-day SOFR would have had a material impact on our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Credit Risk

We maintain our cash and cash equivalents with ~~multiple~~ financial institutions in the United States, and our current deposits are in excess of insured limits. ~~Risks associated~~We have reviewed the financial statements of these institutions and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with ~~cash, cash equivalents and restricted cash are mitigated by banking with creditworthy institutions.~~little or no credit risk to us.

Our accounts receivable primarily relate to revenue from the sale or rental of our products. No ~~customer~~customers accounted for ~~greater~~more than 10% of accounts receivable at ~~March 31,~~June 30, 2023 and December 31, 2022. We believe that credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms and diversity of our customer base.

Foreign Currency Risk

A portion of our net sales and expenses are denominated in foreign currencies, most notably the Euro. Future fluctuations in the value of the U.S. Dollar may affect the price competitiveness of our products outside the United States. For direct sales outside the United States, we sell in both U.S. Dollars and local currencies, which could

expose us to additional foreign currency risks, including changes in currency exchange rates. Our operating expenses in countries outside the United States, are payable in foreign currencies and therefore expose us to currency risk. We do not believe that a hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have had a material impact on our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe that inflation had a material effect on our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of ~~March 31,~~June 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~March 31,~~June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceeding

We are not subject to any material legal proceedings.

Item 1A. Risk Factors

Our business, financial condition and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry as well as risks that affect businesses in general. In addition to the information set forth in this Quarterly Report on Form 10-Q, you should consider carefully the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023. The risks and uncertainties disclosed in such Annual Report and in this Quarterly Report could materially adversely affect our business, financial condition, cash flows or results of operations and thus our stock price. During the three months ended ~~March 31,~~June 30, 2023, there were no material changes to our previously disclosed risk factors. Besides risk factors disclosed in the Annual Report and this Quarterly Report, additional risks and uncertainties not currently known or we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.

These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report. Because of such risk factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~During the fiscal quarter ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).

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Item 6. Exhibits

The following exhibits are filed or furnished as a part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.


Exhibit No.						Exhibit Description
3.1						Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on September 21, 2021)

3.2						Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed on September 21, 2021)

10.18*						~~Offer Letter, by and between the Registrant and Alaleh Nouri, dated as of May 15, 2018~~

10.19*						~~Amended and Restated Change of Control Agreement, by and between the Registrant Alaleh Nouri, dated September 17, 2021~~



















31.1**						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover Page Interactive Data File (embedded within the Inline XBRL document)

__________________

*Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: ~~May 4,~~July 28, 2023


						PROCEPT BIOROBOTICS CORPORATION
						~~(Registrant)~~



						/s/ Reza Zadno
						Reza Zadno, Ph.D.
						President and Chief Executive Officer
						(principal executive officer)

						/s/ Kevin Waters
						Kevin Waters
						EVP, Chief Financial Officer
						(principal financial and accounting officer)

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As of March 31, 2023	Minimum Lease Payments		Debt Repayments		Total
2023	$	4,615	$	—	$	4,615
2024	4,183		—		4,183
2025	4,297		4,333		8,630
2026	4,426		26,000		30,426
2027	4,808		21,667		26,475
Thereafter	27,250		—		27,250
Total minimum payments	49,579		52,000		101,579
Less: amount representing interest/unamortized debt discount	(20,799)		(759)		(21,558)
Present value of future payments	28,780		51,241		80,021
Less: current portion	(2,998)		—		(2,998)
Non-current portion	$	25,782	$	51,241	$	77,023