PRCT - The Prognosis For Procept BioRobotics

2023-11-30 06:55:44 ET

Summary

• Today, we take a deeper look at PROCEPT BioRobotics, which is a surgical robotics company focused on developing solutions in urology.
• The company's primary product is the AquaBeam Robotic System, used in minimally invasive urologic surgery for treating benign prostatic hyperplasia.
• PROCEPT reported strong Q3 results earlier this month, with revenues rising over 72% YoY and a slight increase in FY2023 sales guidance.
• The company has several avenues for substantial sales growth in the coming years. An analysis follows in the paragraphs below.

"Even the most base schemes of human beings are preferable to the most exalted tropisms of machines ."? Philip K. Dick

Today, we put PROCEPT BioRobotics Corporation (PRCT) in the spotlight for the first time. The company came public in the summer of 2021. And unlike so many others that were debuted on the markets during IPO/SPAC craze of 2020/2021, the stock has held its own and now crushed shareholder value. The small cap concern reported its latest quarterly results at the start of this month. An analysis follows below.

Company Overview:

This surgical robotics company is based just outside of San Francisco in Redwood City, CA. PROCEPT is focused on developing transformative solutions in urology. Its primary product is the AquaBeam Robotic System. This is an image-guided, surgical robotic system for use in minimally invasive urologic surgery with a focus on treating benign prostatic hyperplasia or BPH. The stock currently trades right at $35.00 a share and sports an approximate market capitalization of $1.75 billion. The company came public via an IPO in September of 2021, raising just over $125 million in the process.

The company's main customers are hospitals who in turn charge various third-party payers for each service rendered.

The company has a razor and razor blade business model. PROCEPT sells or leases the AquaBeam Robotic System as well as the consumables used in each procedure, maintenance services as well ancillary products. Each system sells for an average of just over $350,000. Almost all the company's revenues come from the United States, but the company is in the early innings of establishing beachheads in the United Kingdom and Japan.

BPH is a significant market and will continue to grow with the aging of the population. The company is targeting hospitals that do a high volume of BPH surgical procedures.

The AquaBeam Robotic System has been well-accepted in the market since being rolled out and has been used in over 30,000 procedures to date.

The company is going through the developmental/testing process to get this system approved to be utilized in prostate cancer procedures which could potentially open up a large new market. It also would be a strategic fit with the company's current sales force and processes. To be noted, the company just received IDE approval to investigate the safety and efficacy of their system specifically for prostate cancer in September of this year after some initial encouraging results from a small test in 2022.

Third Quarter Results:

The company posted its Q3 numbers on the first day of November. PROCEPT BioRobotics had a GAAP loss for the quarter of 51 cents a share. Revenues rose just over 72% on a year-over-year basis to $35.1 million, slightly above expectations. The company sold 38 AquaBeam Robotic Systems in the quarter, which was up 46% from the same period a year ago. The company's total installed base is now a bit over 270 systems.

U.S. handpiece and consumables revenue rose 113% to $17 million from 3Q2022. U.S. Robotic system sales and rental revenue was $13.5 million, up 37% from the same period a year ago. Management bumped up its FY2023 sales guidance slightly from $131 million to $133 million and expects gross margins to be in the range of 54% to 55%. Gross margin was 54% in the third quarter, up from 50% in 3Q2022.

Analyst Commentary & Balance Sheet:

The analyst community is generally bullish around the prospects of the company. Since third quarter earnings came across the wires, a half dozen analyst firms including Piper Sandler and Leerink Partners have reissued Buy ratings on the stock. Price targets proffered range from $37 to $55 a share. BTIG maintained its Hold rating on the equity.

Approximately 12% of the outstanding float in the share are currently held short. Several insiders have been frequent sellers of the shares so far in 2023, disposing of just over $5 million collectively year to date. The company ended the third quarter of this year with just over $285 million in cash and marketable securities on its balance sheet against just over $50 million of long-term debt. PROCEPT had a net loss of $24.6 million for the quarter. The company last did a capital raise in early August where it garnered approximately $150 million worth of proceeds via a secondary offering .

Verdict:

PROCEPT BioRobotics lost $1.96 a share on $75 million worth of revenue in FY2022. The current analyst firm consensus has that loss expanding a bit in FY2023 to $2.13 a share even as sales soar to just north of $133 million. In FY2024, they project losses of $1.84 a share on sales of $204 million.

The company's revenue growth is quite impressive and is likely to remain so for many years. The challenge is that profitability is far out on the horizon. With the recent capital raise, the company has plenty of funding in place to accelerate growth in foreign markets while continue to expand in the United States.

At just over 12 times forward sales, the stock has become too rich for my blood even as I like PROCEPT's longer term prospects. If the stock comes back to the mid $20s, where it was before Q3 results posted in the next overall market pullback, I will probably pick up a ' watch item ' position in PRCT at that time.

One basic law of the universe dictates that robots must learn to make fast food before they can get driver's licenses. "? Leland McKnight

For further details see: