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PROCEPT BioRobotics Corp - Quarter Report: 2023 March (Form 10-Q)


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, 2023
OR
☐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)
Delaware26-0199180
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
900 Island DriveRedwood CityCA94065
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.00001 par value per sharePRCTNasdaq 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”, “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 shares of common stock as of April 28, 2023.


PROCEPT BioRobotics Corporation
Form 10-Q – QUARTERLY REPORT
For the Quarter Ended March 31, 2023
TABLE OF CONTENTS
Page
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2

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”).

3



PROCEPT BioRobotics Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
March 31,December 31,
20232022
Assets
Current assets:
Cash and cash equivalents$180,972 $221,859 
Restricted cash, current777 777 
Accounts receivable, net20,642 15,272 
Inventory38,926 28,543 
Prepaid expenses and other current assets4,263 6,175 
Total current assets245,580 272,626 
Restricted cash, non-current3,038 3,038 
Property and equipment, net11,934 8,656 
Operating lease right-of-use assets, net22,446 23,481 
Intangible assets, net1,409 1,477 
Other assets51 51 
Total assets$284,458 $309,329 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$10,341 $9,391 
Accrued compensation7,408 13,447 
Deferred revenue3,943 2,855 
Operating lease, current2,998 2,129 
Other current liabilities7,814 7,468 
Total current liabilities32,504 35,290 
Long-term debt51,241 51,213 
Operating lease, non-current25,782 23,975 
Loan facility derivative liability1,805 1,779 
Total liabilities111,332 112,257 
Commitments and contingencies (see Note 11)
Stockholders’ equity:
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
— — 
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
— — 
Additional paid-in capital550,270 545,753 
Accumulated other comprehensive loss15 (6)
Accumulated deficit(377,159)(348,675)
Total stockholders’ equity173,126 197,072 
Total liabilities and stockholders’ equity$284,458 $309,329 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

PROCEPT BioRobotics Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
20232022
Revenue$24,404 $14,197 
Cost of sales11,913 6,505 
Gross profit12,491 7,692 
Operating expenses:
Research and development10,737 5,011 
Selling, general and administrative30,131 18,385 
Total operating expenses40,868 23,396 
Loss from operations(28,377)(15,704)
Interest expense(886)(1,421)
Interest and other income (expense), net
779 (60)
Net loss$(28,484)$(17,185)
Net loss per share, basic and diluted$(0.63)$(0.39)
Weighted-average common shares used to
compute net loss per share attributable to
common shareholders, basic and diluted45,066 43,855 
Other comprehensive loss:
Unrealized gain on cash equivalents21 1 
Comprehensive loss$(28,463)$(17,184)
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

PROCEPT BioRobotics Corporation
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive Gain (Loss)		Accumulated
Deficit		Total
Stockholders'
Equity
(Deficit)
SharesAmount
Balance at December 31, 202244,828 $— $545,753 $(6)$(348,675)$197,072 
Issuance of common stock under stock plans181 — 380 — — 380 
Stock-based compensation expense— — 4,137 — — 4,137 
Unrealized gain on cash equivalents— — — 21 — 21 
Net loss— — — — (28,484)(28,484)
Balance at March 31, 202345,009 $— $550,270 $15 $(377,159)$173,126 
Balance at December 31, 202143,676 $— $528,666 $(54)$(261,521)$267,091 
Issuance of common stock under stock plans401 — 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, 202244,077 $— $531,509 $(53)$(278,706)$252,750 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

PROCEPT BioRobotics Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net loss$(28,484)$(17,185)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization793 758 
Stock-based compensation expense3,724 1,552 
Change in fair value of derivative liability26 37 
Non-cash lease adjustment495 (97)
Inventory write-down228 — 
Changes in operating assets and liabilities:
Accounts receivable, net(5,370)(2,529)
Inventory(10,136)517 
Prepaid expenses and other current assets1,931 177 
Accounts payable2,225 448 
Accrued compensation(6,039)(1,889)
Accrued interest expense28 250 
Deferred revenue1,088 343 
Reimbursements for leasehold improvements from operating leases3,217 — 
Other liabilities346 (613)
Net cash used in operating activities(35,928)(18,231)
Cash flows from investing activities:
Purchases of property and equipment(5,339)(55)
Net cash used in investing activities(5,339)(55)
Cash flows from financing activities:
Proceeds from issuance of common stock from the exercise of stock options380 1,291 
Net cash provided by financing activities380 1,291 
Net decrease in cash, cash equivalents and restricted cash(40,887)(16,995)
Cash, cash equivalents and restricted cash
Beginning of the period225,674 305,097 
End of the period$184,787 $288,102 
Reconciliation of cash, cash equivalents and restricted cash to balance sheets:
Cash and cash equivalents$180,972 $284,288 
Restricted cash3,815 3,814 
Cash, cash equivalents and restricted cash in balance sheets$184,787 $288,102 
Supplemental cash flow information
Interest paid$1,121 $1,171 
Non-cash investing and financing activities
Transfer of evaluation units from inventory to property and equipment, net$(62)$— 
Property and equipment included in accounts payable and accrued expenses$2,269 $351 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

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.
2.    Summary of Significant Accounting Policies
Basis of Preparation
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“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, 2023, the statements of operations and comprehensive loss and cash flows for the three months ended March 31, 2023 and 2022, and the statements of stockholders’ equity as of March 31, 2023 and 2022, are unaudited. The financial data and other information disclosed in these notes to the financial statements related to March 31, 2023, and the three months ended March 31, 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, 2023, and the results of its operations and cash flows for the three months ended March 31, 2023 and 2022. The results for the three months ended March 31, 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.
8

Recent 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
The following is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):
March 31, 2023December 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash and cash equivalents:
Cash$2,639 $— $— $2,639 $8,870 $— $— $8,870 
Cash equivalents178,333 — — 178,333 212,989 — — 212,989 
Total cash and cash equivalents$180,972 $— $— $180,972 $221,859 $— $— $221,859 
Loan facility derivative liability$— $— $1,805 $1,805 $— $— $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 months ended March 31, 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,
20232022
Beginning of the period$1,779 $1,496 
Change in fair value26 37 
End of the period$1,805 $1,533 
4.    Inventory
Inventory consists of the following (in thousands):
March 31,December 31,
20232022
Raw materials$15,663 $12,417 
Work-in-process2,846 1,738 
Finished goods20,417 14,388 
Total inventory$38,926 $28,543 

5.    Fixed Assets
Fixed assets consists of the following (in thousands):
9

March 31,December 31,
20232022
Laboratory, manufacturing and computer equipment, and furniture and fixtures
$6,247 $3,260 
Rental equipment$1,238 1,313 
Leasehold improvements5,243 4,941 
Evaluation units2,475 2,475 
Construction in progress
6,446 5,671 
Total property and equipment21,649 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”) (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 million or (ii) all of its non-operating cash.
7.    Stock-Based Compensation
Stock Options
The Company had 5.5 million shares available for grant as of March 31, 2023 under the 2021 Equity Incentive Award Plan.
10

A summary of the Company’s stock option activity and related information are as follows (options in thousands):
Three Months Ended
March 31, 2023
OptionsWeighted-Average Exercise Price
Outstanding, beginning of period5,353 $6.93 
Granted359 37.02 
Exercised(80)4.73 
Forfeited(6)5.12 
Outstanding, end of period5,626 8.89 
Vested and expected to vest5,626 8.89 
Exercisable3,585 5.52 
As of March 31, 2023 and December 31, 2022, the aggregate pre-tax intrinsic value of options outstanding and exercisable was $84.6 million and $126.3 million, respectively, and the aggregate pre-tax intrinsic value of options outstanding were $115.0 million and $185.3 million, respectively. The aggregate pre-tax intrinsic value of options exercised was $2.3 million and $8.7 million during the three months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023, there was a total of $14.9 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,
20232022
Expected life (years)6.06.0
Expected volatility 57 %64 %
Risk-free interest rate 4.0 %2.4 %
Expected dividend rate — %— %
Weighted-average fair value$21.18 $20.87 
Restricted Stock Units
A summary of the Company’s restricted stock unit (“RSU”) activity and related information are as follows (restricted stock units in thousands):
Three Months Ended
March 31, 2023
OptionsWeighted-Average Fair Value
Outstanding, beginning of period742 $36.35 
Awarded753 37.75 
Forfeited(23)31.88 
Vested(101)33.78 
Outstanding, end of period1,371 37.38 
As of March 31, 2023, there was a total of $48.0 million of unrecognized stock-based compensation expense related to RSUs.
11

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, 2023, there was approximately $0.9 million of unrecognized cost related to the ESPP. This cost is expected to be recognized over a weighted average period of 0.6 years. As of March 31, 2023, a total of 1.2 million shares were available for issuance under the ESPP.
Total stock-based compensation recognized, before taxes, are as follows (in thousands):
Three Months Ended March 31,
20232022
Cost of sales$461 $124 
Research and development887 299 
Sales, general and administrative2,789 1,129 
Total stock-based compensation$4,137 $1,552 
Total stock-based compensation cost capitalized in inventory was $0.4 million and $0.1 million as of March 31, 2023 and 2022, respectively.
8.    Net Loss Per Share
Net loss per share was determined as follows (in thousands, except per share amounts):
Three Months Ended March 31,
20232022
Net loss$(28,484)$(17,185)
Weighted-average common stock outstanding45,066 43,855 
Net loss per share, basic and diluted$(0.63)$(0.39)
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,
20232022
Common stock options5,626 6,023 
Restricted stock units1,371 198 
Employee stock purchase plan100 193 
Total7,097 6,414 
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9.    Revenue
The following table presents revenue disaggregated by type and geography (in thousands):
Three Months Ended March 31,
20232022
U.S.
System sales and rentals$8,770 $7,754 
Handpieces and other consumables11,770 4,444 
Service1,235 359 
Total U.S. revenue21,775 12,557 
Outside of U.S.
System sales and rentals1,469 742 
Handpieces and other consumables906 745 
Service254 153 
Total outside of U.S. revenue2,629 1,640 
Total revenue$24,404 $14,197 
13

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 assets are primarily based in the United States.
No customers accounted for more than 10% of revenue during the three months ended March 31, 2023 and 2022.
No customer accounted for more than 10% of accounts receivable at March 31, 2023 and December 31, 2022.
The following table presents revenue by significant geographical locations for the periods indicated:
Three Months Ended March 31,
20232022
United States89 %88 %
Outside the United States11 %12 %
11.    Commitments
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 claims or been required to defend any action related to its indemnification obligations. As of March 31, 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 lease of 19,807 square feet of office space terminated on October 29, 2023, and lease of remaining 23,638 square feet is extended to terminate no later than January 31, 2024.
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 options to extend the term of the lease.
Rent expense recognized under both leases, including additional rent charges for utilities, parking, maintenance, and real estate taxes, was $2.0 million and $0.7 million for the three months ended March 31, 2023 and 2022.
Future minimum annual operating lease and debt repayments are as follows (in thousands):
As of March 31, 2023
Minimum Lease PaymentsDebt RepaymentsTotal
2023$4,615 $— $4,615 
20244,183 — 4,183 
20254,297 4,333 8,630 
20264,426 26,000 30,426 
20274,808 21,667 26,475 
Thereafter27,250 — 27,250 
Total minimum payments49,579 52,000 101,579 
Less: amount representing interest/unamortized debt discount(20,799)(759)(21,558)
Present value of future payments28,780 51,241 80,021 
Less: current portion(2,998)— (2,998)
Non-current portion$25,782 $51,241 $77,023 
,
As of March 31, 2023 and December 31, 2022, the Company’s security deposits is in the form of, and recorded as, restricted cash.
12.    Defined Contribution Plan
14

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 million and $0 for the three months ended March 31, 2023 and 2022.
15

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. 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. 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. We have developed a significant and growing body of clinical evidence, which includes 150 peer-reviewed publications, supporting the benefits and clinical advantages of Aquablation therapy. As of March 31, 2023, we had an install base of 275 AquaBeam Robotic Systems globally, including 192 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 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 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 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
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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 globally.
We generated revenue of $24.4 million and incurred a net loss of $28.5 million for the three months ended March 31, 2023, compared to revenue of $14.2 million and a net loss of $17.2 million for the three months ended March 31, 2022. As of March 31, 2023, we had cash and cash equivalents of $181.0 million and an accumulated deficit of $377.2 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, 2023, we had an install base of 275 AquaBeam Robotic Systems globally, including 192 in the United 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.
•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.
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•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,
20232022
United States89 %88 %
Outside the United States11 %12 %
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 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
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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 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.
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Results of Operations
The following tables show our results of operations for the periods indicated:
Three Months Ended
March 31,		Change
20232022$%
(in thousands, except percentages)
Revenue$24,404 $14,197 $10,207 72 %
Cost of sales11,913 6,505 5,408 83 
Gross profit12,491 7,692 4,799 62 
Gross margin51 %54 %
Operating expenses:
Research and development 10,737 5,011 5,726 114 
Selling, general and administrative 30,131 18,385 11,746 64 
Total operating expenses40,868 23,396 17,472 75 
Loss from operations(28,377)(15,704)(12,673)(81)
Interest expense(886)(1,421)535 38 
Interest and other income (expense), net779 (60)839 N/M
Net loss$(28,484)$(17,185)$(11,299)(66)
N/M - Not meaningful.

Comparison of Three Months Ended March 31, 2023 and 2022
Revenue
Three Months Ended
March 31,		Change
20232022$%
(in thousands, except percentages)
System sales and rentals$10,239 $8,496 $1,743 21 %
Handpieces and other consumables12,676 5,189 7,487 144 
Service1,489 512 977 191 
Total revenue$24,404 $14,197 $10,207 72 
Revenue increased $10.2 million, or 72%, to $24.4 million during the three months ended March 31, 2023, compared to $14.2 million during the three months ended March 31, 2022. The growth in revenue was primarily attributable to an increase of $9.2 million in revenues derived from the United States. 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 million, or 83%, to $11.9 million during the three months ended March 31, 2023, compared to $6.5 million during the three months ended March 31, 2022. The increase in cost of sales was primarily attributable to the growth in the number of units sold.
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Gross margin decreased to 51% during the three months ended March 31, 2023, compared to 54% for the three months ended March 31, 2022. The decrease in gross margin was primarily attributable to an increase in personnel in operations to meet anticipated future growth.
Research and Development Expenses
R&D expenses increased $5.7 million, or 114%, to $10.7 million during the three months ended March 31, 2023, compared to $5.0 million during the three months ended March 31, 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. 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 million, or 64%, to $30.1 million during the three months ended March 31, 2023, compared to $18.4 million during the three months ended March 31, 2022. The increase in SG&A expenses was primarily due to employee-related expenses of our sales and marketing organization such as salaries and wages and stock-based compensation expense, primarily to expand the commercial organization, and employee-related expenses of our administrative organization such as salaries and wages and stock-based compensation expense, to drive and support our growth in revenue.
Interest Expense
Interest expense decreased 0.5 million, or 38% to $0.9 million during the three months ended March 31, 2023, compared to $1.4 million during the three months ended March 31, 2022. The decrease in interest expense was primarily due to our refinancing of our debt in the fourth quarter of 2022, which resulted in a reduced interest rate.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, increased $0.8 million for the three months ended March 31, 2023. The increase was primarily due to an increase in interest income, which was due to increasing interest rates.
Liquidity and Capital Resources
Overview
As of March 31, 2023, we had cash and cash equivalents of $181.0 million, an accumulated deficit of $377.2 million, and $52.0 million 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 the manufacturing of our products at increased production levels;
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•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 million or (ii) all of our non-operating cash.
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
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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 $100.0 million in available cash, then it is not required to meet such financial covenants.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended
March 31,
20232022
(in thousands)
Net cash (used in) provided by:
Operating activities$(35,928)$(18,231)
Investing activities(5,339)(55)
Financing activities380 1,291 
Net decrease in cash, cash equivalents and restricted cash$(40,887)$(16,995)
Net Cash Used in Operating Activities
During the three months ended March 31, 2023, net cash used in operating activities was $35.9 million, consisting primarily of a net loss of $28.5 million and an increase in net operating assets of $12.7 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 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, partially offset by a decrease in accrued compensation due to timing of payments. Non-cash charges consisted primarily of depreciation and stock-based compensation.
Net Cash Used in by Investing Activities
During the three months ended March 31, 2023, net cash used in investing activities was $5.3 million, consisting of purchases of property and equipment. During the three months ended March 31, 2022, net cash used in investing activities was less than $0.1 million, consisting of purchases of property and equipment.
Net Cash Provided by Financing Activities
During the three months ended March 31, 2023, net cash provided by financing activities was $0.4 million, consisting of proceeds from exercises of stock options. During the three months ended March 31, 2022, net cash provided by financing activities was $1.3 million, consisting of proceeds from exercises of stock options.
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.
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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 have been no material changes to our significant accounting policies during the three months ended March 31, 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 million as of March 31, 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") (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 with cash, cash equivalents and restricted cash are mitigated by banking with creditworthy institutions.
Our accounts receivable primarily relate to revenue from the sale or rental of our products. No customer accounted for greater than 10% of accounts receivable at March 31, 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.
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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, 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, 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.
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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*
10.19*
31.1*
31.2*
32.1**
32.2**
101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline 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, 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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