PRCT是一个价值陷阱；除非发生结构性变化，否则应避免持有，因为其多次未达指引且利润率持续恶化。

Procept BioRobotics, razor and blade business model, 65% gross margins, Medicare coverage in all 50 states, and a procedure that's basically second only to TURP among resective treatments for an enlarged prostate.

The stock is down roughly about 80% from its highs in 2025, and this is an episode about a product that clearly works, attached to a business that has never generated positive cash flow, and that has revised guidance downward a number of times over the last year.

On the right of this slide, you see Procept Biorobotics' answer to this, the Hydro system. This is their newest system. They have a device that uses aquablation therapy to reduce the size or cut down the tissue using non-heat, water therapy to reduce these symptoms for patients.

This is an excerpt from one of the SEC filings for Procept. They put the total addressable market around 40 million US men. And the reason that they can say that large number with such high confidence is most men have this happen to them as they age.

So there's two systems that they have. They have the original Aquabeam, and now they have the Hydros, which was cleared in August 2024 by the FDA. Both deliver this Aquablation therapy. It has real-time ultrasound imaging so that they can visualize the prostate and then cut down that tissue as they designed in the treatment plan. Heat-free water jet that removes the tissues, heat or thermal energy is what can damage the nerves controlling continence or sexual function.

Aquablation currently is about 10% of penetration. I find that to be kind of an interesting choice of words in this context, but anyway, that's where they're at, 10% penetration, in this market.

Every Aquablation procedure burns one single-use handpiece. As of this quarter, the handpiece sells for around $3,550 per handpiece. So let's say 400,000 procedures is $1.4 billion a year. Now, that's if Procept was doing 100% of all BPH surgeries in the United States. That's just on the consumable sides, and obviously they're not doing 100% of procedures.

The hardware system on the other hand is their new system, Hydros. That's selling for around $495,000, almost half a million dollars per device in this most recent quarter. So how many would you need to get? Procept has 816 systems in the US right now. They're guiding around 54,000 to 56,000 procedures this year in 2026. So if they had to do 100% of these procedures, that would require about 67 procedures per system per year. At that rate, they would need to have around 6,000 systems.

At the current revenue rate, Procept is going to be doing around 350 million at the midpoint in US revenue this year. The goal for this year's revenue is around 400 million, so they're making up already about a fifth to a sixth of this hypothetical 100% market share. Ultimately this pool is a low single digits billion dollar market share, not tens of billions of dollars, and Procept is already taking a decent chunk of it.

In this chart, you can see that the system sales is in orange, the consumables is in green, and the service revenue is in blue. Consumables at this point are around 58% of revenue and service is another 7% of revenue. So two of those items recurring revenue, and that's why the gross margins run around 65%. That's great. We like that.

Number of procedures, that is in green. Blue is the install base, and that single orange bar that you see over there in Q4 2025 is the one quarter that Procept disclosed handpieces sold as a unit number. But in that quarter, they had around 12,000 procedures, 9,400 handpieces sold. Of course, you can't do a procedure without a handpiece, so about, let's say, 2,800 of those cases came off of handpieces that were already sitting on hospital stock shelves.

To dig a little bit deeper into that, here's back in Q4 2025 when they were giving their full year 2026 financial guidance. Handpiece unit sales exceeded procedure volumes by around eight to 16%, but going forward, they expected that these numbers would closely align. So for a number of years, they were selling eight to 16% more handpieces than procedures performed, and as I said, that just means all of those handpieces were going to stock rooms and not getting utilized. But in Q4 2025, they eliminated the end of quarter purchasing incentives and reduced inventory. So handpieces after that quarter fell to around 77% of procedures, and then they started to come back to commensurate with actual procedures by now in Q2 2026. Handpieces to procedures was about 98%.

So historically, maybe the handpieces were a bit overstated, and there is a class action lawsuit filed over this just this month. I don't have any additional thoughts on this. They're unproven allegations at this point, and we're not gonna treat this as a meaningful finding. But just something to be aware of, of what's going on and how to look at this.

According to this chart, aquablation is one of the only ones that's actually growing significantly, taking share away from some of these other therapies. But this one is excluding the TURP. And that's important because TURP, meaning transurethral resection of the prostate. This is one of the oldest procedures in urology. It's a shaving procedure done entirely through the urethra, and it's typically for glands in the 30 to 80 milliliter range, which is the same range that most of the procedures are done with Proceps BioRobotics as well.

Most of Aquablation's share is taking from UroLift, GreenLight, not new patients entering surgery. And TURP, that's the thing it's positioned to replace, honestly hasn't moved much. This is a tried and true method that the vast majority of surgeons are still using successfully.

With Procept, they get paid by hospital systems. Hospital systems purchase these Hydros or Aquabeam systems for BPH, for urologists or surgeons to use. And Medicare does cover aquablation surgeries. Hospitals pay Procept for this device and the consumables, but a different factor is how the hospital gets paid. That's set about by the Medicare and other commercial payer systems. And remember, each procedure has at least a thirty-five hundred dollar disposable, as well as the fact that they have to amortize a system that's nearly half a million dollars, and the surgeon has to get paid out of that as well.

One other item to think about is this, on the bottom right of this chart, it says they switched to a Category 1 code. They moved from Category 3 to Category 1, and the reason this matters is you have to prove to the American Medical Association that the procedure has FDA clearance, it's documented that there is efficacy in peer-reviewed literature, and widespread national use for your product. That moves you to a Category 1. CMS then assigns a standardized predictable payment for that procedure, and it moves billing out of the emerging technology bucket where commercial insurers routinely get denied or get buried without prior authorization. However, it's important to remember that a Category 1 does not force any commercial insurer to cover anything. Coverage is still the insurer's call, but it does standardize the billing and strips off that experimental label.

If TURP is essentially reimbursed at the same cost, that makes hospitals and surgeons ask some hard questions. Do we really need this product?

Procept has actually filed a letter to CMS, Centers for Medicare and Medicaid Services, to move that code from ambulatory payment classification. They said that the current assignment creates a financial barrier for hospitals that impedes the use of the technology and disproportionately affects community and rural facilities. So that's the company telling the government that hospital reimbursement is an obstacle for them.

I've been focusing a lot on this BPH indication, and I'm not going to focus a ton on the potential for using this system to care for folks with prostate cancer. That is a study that's happening right now. You can see that in this. It's called the Water4 study. This is ongoing. I think we can't bake any of that into any future growth at this point, but be aware that they are working on this.

I'm gonna go through one flag with two parts, that I think is important to call out about patents. This is something I always look at when I'm looking at a biotech or med tech company, is what I found in this 2025 10-K, and it's a little unusual for my taste. Procept doesn't own its foundational IP outright. It licensed it from two parties owned by the inventor and Procept co-founder. So this first one is Aquabeam LLC, which you may recall, that's their first product, Aquabeam. But there's this other company, the LLC, Aquabeam, that actually owns the patents that then Procept licenses back from them. In September 2019, the two signed an amended and restated license. Aquabeam grants Procept a worldwide exclusive sub-licensable royalty-free license in the field of urology, exclusive even as to Aquabeam. So they have the patents. They can use them for urology. If the patent holder of Aquabeam wants to license his product or his patents out to another indication, It could be perhaps in gynecological procedures or even in tendon procedures. He could technically do that since it's not in urology.

And here is the second one. This is an exclusive patent license with HydroCision. They gave them a one-time payment of 2.5 million in 2019. HydroCision carries the maintenance cost of these patents, runs until the last patent expires, so this is not until 2039. This is for the FluidJet technology that they use in the aquablation systems.

So what matters to me in both of these things is control. Procept doesn't own the thing that the entire company is built on. This isn't necessarily a thesis killer, but maybe this is something that you would want to think about. You're getting a tech company without actually owning the flagship tech. It would be like if Apple licensed the iPhone to a separate holding company that was owned by Steve Jobs.

Procept manufactures the handpiece and the systems and accessories in San Jose, California. Components come from numerous global suppliers. Every system ships with a third-party ultrasound system, which is apparently from BK Medical, which is a subsidiary of GE Healthcare. And then logistics in the US and Netherlands, large well-known logistics provider. Could be Medline, could be somebody else. I'm not sure. I'm totally guessing on that, but seems like it could be a possibility. But wanted to call out that the imaging from the ultrasound is from a third-party provider, which is key to the system as well. That's one of the biggest components of this Hydro system or Aquabeam system, is having that ultrasound probe on there, and again, not their tech.

Taking a look back at this slide again, this is from Q4 2025 sharing the full year 2026 guidance. At this point, they had dropped the revenue guidance a bit to $400 million at the midpoint for 2026. Procedure growth, they said 39% to 48% at that time.

Let's take a look at what this most recent quarter showed. Q2 2026, they reiterated the revenue guidance, but they expected that the procedure growth to be down to 25% to 29% growth year over year. Continued adjusted EBITDA loss. So halfway through the year, they held the revenue number and the margin number, cut the volume assumption by about a fifth, and widened that expected loss.

I would be cautious a little bit because they held the revenue number, which is one of the biggest things that the market watches, but they decreased that procedure volume again, and that is definitely an issue.

Briefly going back to this end of year slide from last year, operating expenses for full year 2026 expected to be about $350 million. So if you put that against the revenue guide, $400 million at the midpoint, 65% gross margin, that's about $260 million gross profit against $350 million in operating expenses. So that's a planned operating loss of about $90 million, in this supposedly year of turnaround.

Let's take a look at their margins. This is operating margin and EBITDA margin. Annually, this looks like progress. Net margin around 41% in 2024, negative 31% in 2025, and then this year's guidance implies about negative 23%. So it seems like things are getting better.

Compare this to the first half using their reported numbers. First half of 2025, the revenue was about $150 million, net loss $44 million, which means a negative operating margin of 30%. And then in the first half of 2026, revenue has come in around $178 million, loss $58 million, so negative 33%. Same quarters one year apart, and the margin has actually gone backward.

Adjusted EBITDA tells us the same story. You would expect this to be much better on an EBITDA basis, but that's not the case. And one more thing I'll point out on this chart, the EBITDA line sits right on top of the operating line, so depreciation and amortization here are almost nothing. EBITDA is not doing the work that most would expect it to do.

This is essentially a sales organization for equipment manufactured, but tech not fully owned or controlled. The guide is adjusted EBITDA loss, 30 to 35 million, guided net loss, 91 to 96 million. There's a gap of about 60 million per year. Most of that is non-cash equity compensation or stock-based comp. So when management says positive adjusted EBITDA in the fourth quarter, know what it does and what it doesn't mean. What it does mean is the operating business roughly covers its cash costs, excluding equity comp. It does not mean that it's cash flow positive, and it does not mean that shareholders stop paying.

A bit of a bright point here in the balance sheet, 231 million cash on balance at the end of Q2. Long-term debt, 52 million. In October 2027, they have that payment due for that long-term loan of 52 million. They're definitely not in trouble here on the balance sheet. They have plenty of cash at this point, but they do need that profit inflection to happen rather soon.

I don't say it's a secular growth trend. I know that there's an aging population, but demographics only count as a tailwind if they show up in the numbers, and TURP has been flat for about six years. So I would say, at least at this point, it does not pass my definition of a secular growth trend.

For sales cycle, I think this is a long sales cycle, potential for recurring consumables. I gave that a pass. It's definitely a niche company serving a very specific group of people.

Who pays the company? I put a yellow flag on this one because hospitals pay Procept, and they said themselves that is an issue, that CMS especially is an issue, a barrier to entry, and a barrier to getting paid. And we mentioned those RVUs, not much more than a traditional TURP procedure. So I gave that a yellow flag, and I gave a yellow flag on the patents, as we discussed.

So moving on to the quantitative side, revenue growth, they had 19% in the quarter. That's above other med tech companies. Operating margin is definitely a fail for me. Free cash flow, negative, gets a red X. Per share profit growth, also an X. And balance sheet, gave it a pass. So four passes, two flags, four fails.

We need to do our reverse DCF. This is how I did this one. Because the company is not earnings per share or free cash flow positive, I did a little bit of a pretend. I made up free cash flow per share. So midpoint of revenue guidance was $400 million. I used the pretend the company's profitable metric today, which I said was 20% free cash flow margin, which is our threshold for a quality business. That would put us at $80 million divided by about 57.25 million shares. That leads us to $1.40 per share. Then I tried to figure out what the market is pricing in at a 10% discount rate over the next three years with a 4% terminal rate. And this is what I got, about 1%. That's all.

There's a couple ways you can look at it. The generous way to look at it is that this stock is cheap. You're not paying for growth, and actually everything above that 1% growth is appreciating stock price. But the big caveat for that is the company has to make actual progress towards being robustly profitable for that to actually work. Remember, this is a pretend scenario.

The way I would lean to look at this more is that a 20% free cash flow margin the company has never approached, that would be about $115 million swing from where the adjusted EBITDA is currently guided. $60 million in stock comp has to disappear or cease to dilute. And if that was to happen, then the model would stay roughly at fair value. So neither of those scenarios exactly makes for a cheap stock. In fact, it could potentially be a value trap instead.

Management said on the earnings call that more patients are asking about their product by name, and they've got direct-to-patient pilots running. I believe they said that their website traffic is up. But to be perfectly honest, I'm a little skeptical about how this translates. Patients ultimately, they do have a say in their care, and it's great that they're bringing this up, but ultimately, they do not choose the actual modality for their procedure. Surgeons do, and that's inside hospitals constrained by what the facility gets paid and what equipment is already in the room, what is already available.

So Procept BioRobotics has great technology, real clinical evidence, and pricing power, at least at this point, a model that should theoretically work with those consumables, but they've missed their guidance, revised down multiple times, and are posting worse first half margins this year than last.

It's not a permanent no for us at CSI, but at this point, doesn't deserve a place in our portfolio unless there's some structural changes here.