The accompanying notes are an integral part of these condensed consolidated financial statements.
8
PROCEPT BioRobotics Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization
Description of Business
PROCEPT BioRobotics Corporation, or the Company, is a surgical robotics company focused on advancing patient care by developing transformative solutions in urology. It develops, manufactures and sells robotic systems, including the AquaBeam Robotic System and HYDROS Robotic System, which are advanced, image-guided, surgical robotic systems 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 Company’s robotic systems employ 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 received U.S. Food and Drug Administration, or FDA, clearance in December 2017 to market its first generation robot system, the AquaBeam Robotic System, pursuant to a de novo classification. On August 30, 2023, the Company received 510(k) clearance from the FDA to remove the contraindication from its labeling that restricted Aquablation therapy from treating BPH in patients that also have an active diagnosis of prostate cancer. On August 20, 2024, the Company received 510(k) clearance from the FDA for its next generation robot system, HYDROS 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, or U.S. GAAP, and pursuant to the rules and regulations of the United States Securities and Exchange Commission 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 September 30, 2024, the statements of operations and comprehensive loss and cash flows for the three and nine months ended September 30, 2024 and 2023, and the statements of stockholders’ equity as of September 30, 2024 and 2023, are unaudited. The financial data and other information disclosed in these notes to the financial statements related to September 30, 2024, and the three and nine months ended September 30, 2024 and 2023, are also unaudited. The accompanying balance sheet as of December 31, 2023 has 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 September 30, 2024, and the results of its operations and cash flows for the three and nine months ended September 30, 2024 and 2023. The results for the three and nine months ended September 30, 2024, are not necessarily indicative of results to be expected for the year ending December 31, 2024, 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
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) $90.0 million or (ii) all of its non-operating cash and allow the Company to maintain cash or cash equivalents in excess of that amount with other financial institutions.
7. Stock-Based Compensation
Total stock-based compensation recognized, before taxes, are as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Cost of sales
$
1,893
$
660
$
4,891
$
1,730
Research and development
2,146
1,375
5,446
3,506
Sales, general and administrative
5,521
3,922
15,250
10,509
Stock-based compensation capitalized in inventory
(1,048)
(631)
(2,832)
(1,592)
Total stock-based compensation
$
8,512
$
5,326
$
22,755
$
14,153
Stock Options
The Company had 6.8 million shares available for grant as of September 30, 2024 under the 2021 Equity Incentive Award Plan or the 2021 Plan.
A summary of the Company’s stock option activity and related information are as follows (options in thousands):
During the nine months ended September 30, 2024, the Company awarded approximately 61,000 PSU shares with both a performance and service condition. A certain performance condition will be defined at a later date. Per ASC 718 – Compensation, Stock Compensation, these grants have not met the definition of having a grant date, and therefore, no expense has been recognized for these PSUs. Expense will be recognized when the performance condition becomes defined.
During the nine months ended September 30, 2024, the Company awarded approximately 20,000 PSU shares with both a market and service condition.
No PSU shares were forfeited or released during the three and nine months ended September 30, 2024. As of September 30, 2024, unrecognized compensation expense related to PSUs was not material.
12
Employee Stock Purchase Plan
As of September 30, 2024, there was approximately $1.2 million of unrecognized cost related to the Employee Stock Purchase Plan or ESPP. This cost is expected to be recognized over a weighted average period of 0.6 years. As of September 30, 2024, a total of 1.5 million shares were available for issuance under the ESPP.
The fair value of the options granted to employees was estimated as of the grant date using the Black-Scholes model assuming the weighted-average assumptions listed in the following table:
Nine Months Ended September 30,
2024
2023
Expected life (years)
0.8
0.8
Expected volatility
53
%
55
%
Risk-free interest rate
5.3
%
5.0
%
Expected dividend rate
—
%
—
%
Weighted-average fair value
$
22.10
$
11.28
8. Net Loss Per Share
Net loss per share was determined as follows (in thousands, except per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net loss
$
(20,974)
$
(24,622)
$
(72,557)
$
(78,393)
Weighted-average common stock outstanding
52,011
48,310
51,550
46,131
Net loss per share, basic and diluted
$
(0.40)
$
(0.51)
$
(1.41)
$
(1.70)
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):
September 30,
2024
2023
Stock options
4,342
5,414
Restricted and performance stock units
2,013
1,518
Employee stock purchase plan
52
177
Total
6,407
7,109
13
9. Revenue
The following table presents revenue disaggregated by type and geography (in thousands):
该试验被称为WATER IV PCa，是一项全球多中心、前瞻性、随机临床研究，评估Aquablation治疗与根治性前列腺切除术在1到3级局限性前列腺癌男性中的安全性和有效性。研究还设定了一个基于发病率的共同主要终点，评估将在六个月的随访中进行。一个关键的次要终点是测量Aquablation治疗组中等级组进展的比率，该评估将在十二个月的随访中进行。此研究将招募多达280名患者，分布在多达50个中心，并随访他们达10年。患者将以3:1的比例随机分配，其中210名患者接受Aquablation治疗，70名患者接受根治性前列腺切除术。长期随访重点关注治疗相关损害和肿瘤事件的减少。
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 and enhance existing products and technologies, though it may fluctuate from quarter to quarter. However, over time, we expect our R&D expenses to decrease as a percentage of revenue.
21
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, Net
Interest Expense
Interest expense consists primarily of interest expense from our long-term debt.
Interest and Other Income, 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.
运营结果
以下表格显示了我们在所列期间的运营结果：
三个月已结束 九月三十日
改变
2024
2023
$
%
（以千计，百分比除外）
收入
$
58,370
$
35,102
$
23,268
66
%
销售成本
21,459
16,228
5,231
32
毛利润
36,911
18,874
18,037
96
毛利率
63
%
54
%
运营费用：
研究和开发
16,647
11,600
5,047
44
销售、一般和管理
42,691
32,883
9,808
30
运营费用总额
59,338
44,483
14,855
33
运营损失
(22,427)
(25,609)
3,182
12
利息支出
(1,140)
(1,019)
(121)
(12)
利息和其他收入，净额
2,593
2,006
587
29
净亏损
$
(20,974)
$
(24,622)
$
3,648
15
22
截至9月30日的九个月
改变
2024
2023
$
%
（以千计，百分比除外）
收入
$
156,262
$
92,610
$
63,652
69
%
销售成本
62,835
42,816
20,019
47
毛利润
93,427
49,794
43,633
88
毛利率
60
%
54
%
运营费用：
研究和开发
47,232
33,950
13,282
39
销售、一般和管理
123,099
95,457
27,642
29
运营费用总额
170,331
129,407
40,924
32
运营损失
(76,904)
(79,613)
2,709
3
利息支出
(3,215)
(2,870)
(345)
(12)
利息和其他收入，净额
7,562
4,090
3,472
85
净亏损
$
(72,557)
$
(78,393)
$
5,836
7
Comparison of Three and Nine Months Ended September 30, 2024 and 2023
Revenue
Three Months Ended September 30,
Change
2024
2023
$
%
(in thousands, except percentages)
System sales and rentals
$
22,798
$
14,295
$
8,503
59
%
Handpieces and other consumables
32,236
18,698
13,538
72
Service
3,336
2,109
1,227
58
Total revenue
$
58,370
$
35,102
$
23,268
66
Nine Months Ended September 30,
Change
2024
2023
$
%
(in thousands, except percentages)
System sales and rentals
$
58,952
$
40,961
$
17,991
44
%
Handpieces and other consumables
88,447
46,244
42,203
91
Service
8,863
5,405
3,458
64
Total revenue
$
156,262
$
92,610
$
63,652
69
Revenue increased $23.3 million, or 66%, to $58.4 million during the three months ended September 30, 2024, compared to $35.1 million during the three months ended September 30, 2023, and increased $63.7 million, or 69%, to $156.3 million during the nine months ended September 30, 2024, compared to $92.6 million during the nine months ended September 30, 2023. The growth in revenue was primarily attributable to an increase of $19.9 million and $56.1 million in revenue derived from the United States for the three and nine months ended September 30, 2024, respectively. The increase was due to higher sales volumes of system sales, handpieces, other consumables,
23
and service contracts, and to a lesser extent, an increase in average selling prices on our system sales and handpieces.
Cost of Sales and Gross Margin
Cost of sales increased $5.2 million, or 32%, to $21.5 million during the three months ended September 30, 2024, compared to $16.2 million during the three months ended September 30, 2023, and increased $20.0 million, or 47%, to $62.8 million during the nine months ended September 30, 2024, compared to $42.8 million for the nine months ended September 30, 2023. The increase in cost of sales was primarily attributable to the growth in the number of units sold.
Gross margin increased to 63% during the three months ended September 30, 2024, compared to 54% for the three months ended September 30, 2023, and increased to 60% during the nine months ended September 30, 2024, compared to 54% during the nine months ended September 30, 2023. The increase in gross margin was primarily attributable to the growth in unit sales, which allowed us to spread the fixed portion of our manufacturing overhead costs over more production units, and to a lesser extent, an increase in average selling prices on both our system sales and handpieces.
Research and Development Expenses
R&D expenses increased $5.0 million, or 44%, to $16.6 million during the three months ended September 30, 2024, compared to $11.6 million during the three months ended September 30, 2023, and increased $13.3 million, or 39%, to $47.2 million during the nine months ended September 30, 2024, compared to $34.0 million for the nine months ended September 30, 2023. The increase in R&D expenses was primarily due to employee-related expenses of our R&D organization such as salaries and wages, along with an increase in consultant expenses and tooling. These expenses support ongoing product improvements and the development of our next generation robotic system.
Selling, General and Administrative Expenses
SG&A expenses increased $9.8 million, or 30%, to $42.7 million during the three months ended September 30, 2024, compared to $32.9 million during the three months ended September 30, 2023, and increased $27.6 million or 29%, to $123.1 million for the nine months ended September 30, 2024 compared to $95.5 million for the nine months ended September 30, 2023. 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 increase was not material during the three months ended September 30, 2024, compared to the prior period.
Interest expense increased $0.3 million, or 12%, to $3.2 million during the nine months ended September 30, 2024, compared to $2.9 million during the nine months ended September 30, 2023. The increase in interest expense was primarily due to an increase in the interest rate as compared to the prior period.
Interest and Other Income, Net
Interest and other income, net, increased $0.6 million and $3.5 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023. The increase was primarily due to an increase in interest income, which was due to our increase cash balance with increases in interest rates.
24
Liquidity and Capital Resources
Overview
As of September 30, 2024, we had cash and cash equivalents of $196.8 million, an accumulated deficit of $527.1 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. 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 a 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 included in the Quarterly Report on Form 10-Q. 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 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 financial covenants or 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 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.
25
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) $90.0 million or (ii) all of our non-operating cash and allow us to maintain cash or cash equivalents in excess of that amount with other financial institutions.
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 we are not required to meet such financial covenants.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Nine Months Ended September 30,
2024
2023
(in thousands)
Net cash (used in) provided by:
Operating activities
$
(66,822)
$
(83,210)
Investing activities
(3,235)
(16,491)
Financing activities
9,597
164,929
Net increase (decrease) in cash, cash equivalents and restricted cash
$
(60,460)
$
65,228
Net Cash Used in Operating Activities
During the nine months ended September 30, 2024, net cash used in operating activities was $66.8 million, consisting primarily of a net loss of $72.6 million and an increase in net operating assets of $22.4 million, partially offset by non-cash charges of $28.1 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 activities resulted in an increase in accounts receivable, inventory, and accounts payable, partially offset by reimbursements for leasehold improvements made related to our San Jose, California corporate
26
headquarters and increases to other liabilities and deferred revenue. Non-cash charges consisted primarily of stock-based compensation, non-cash lease expense, and depreciation.
During the nine months ended September 30, 2023, net cash used in operating activities was $83.2 million, consisting primarily of a net loss of $78.4 million and an increase in net operating assets of $22.7 million, partially offset by non-cash charges of $17.8 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, partially offset by reimbursements for leasehold improvements made related to our San Jose, California corporate headquarters, and increases to other liabilities and deferred revenue. Non-cash charges consisted primarily of stock-based compensation, non-cash lease expense and depreciation.
Net Cash Used in by Investing Activities
During the nine months ended September 30, 2024, net cash used in investing activities was $3.2 million, consisting of purchases of property and equipment. During the nine months ended September 30, 2023, net cash used in investing activities was $16.5 million, consisting of purchases of property and equipment.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2024, net cash provided by financing activities was $9.6 million, consisting of proceeds from exercises of stock options and proceeds from the issuance of common stock under the ESPP. During the nine months ended September 30, 2023, net cash provided by financing activities was $164.9 million, consisting of proceeds from exercises of stock options, proceeds from the issuance of common stock under the ESPP, and net proceeds from the issuance of common stock from our August 2023 public offering.
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, 2023, and the notes thereto, which are included in our Annual Report on Form 10-K dated February 28, 2024, 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 September 30, 2024.
27
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 $196.8 million as of September 30, 2024, 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 financial institutions in the United States, and our current deposits are in excess of insured limits. We have reviewed the financial statements of these institutions and believe they have sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.
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 September 30, 2024 and December 31, 2023. 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)
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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 September 30, 2024, 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 September 30, 2024 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, 2023, filed with the SEC on February 28, 2024. 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. The risk factors set forth below updates, and should be read together with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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.
Natural or man-made disasters and other similar catastrophic events outside of our control may significantly disrupt our business, and negatively impact our business, financial condition and results of operations.
Natural or man-made disasters, including earthquakes, wildfires, floods, hurricanes, nuclear disasters, riots, acts of terrorism or other criminal activities, public health emergencies such as infectious disease outbreaks, power outages and other infrastructure failures may impact our facilities or operations or the facilities or operations of our suppliers, customers, and other business partners (including their suppliers and business partners), which could the result in a disruption in our business and operations or increase costs to operate our business. For example, following a natural disaster, and during the related recovery, our customers may limit the number of surgical procedures or elective procedures performed at their facilities due to disruptions to hospital operations or supply constraints, or patients may choose to cancel or delay such procedures even if the hospital is able to perform it. As a result, customers may reduce the number of products ordered during the disruption, including disposable handpieces, and we may experience material and adverse impacts to our business, financial condition and results of operations, even if such supply constraints would not directly impact our procedure.
Furthermore, a significant portion of our employee base, and our primary operating facility and infrastructure are centralized in Northern California. Our facility may be harmed or rendered inoperable by any such natural or catastrophic disasters, which may render it difficult or impossible for us to operate our business for some period of time. Our facilities would likely be costly to repair or replace, and any business continuity or repair efforts would likely require substantial time. Any disruptions in our operations could adversely affect our business and results of operations and harm our reputation. Moreover, although we have disaster recovery plans, they may prove inadequate. We may not carry sufficient business insurance to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business and results of operations. In addition, the facilities of our suppliers and manufacturers may be harmed or rendered inoperable by such natural or man-made
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disasters, which may cause disruptions, difficulties or otherwise materially and adversely affect our business, financial condition and results of operations.
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
During the quarter ended September 30, 2024, no director or officer of the Company informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K), except as follows:
On August 8, 2024, Reza Zadno, the Company’s Chief Executive Officer, adopted a pre-arranged written stock sale plan in accordance with Rule 10b5-1 (the “Zadno Rule 10b5-1 Plan”) under the Exchange Act, for the sale of shares of the Company’s common in the Company’s securities and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act stock. The Zadno Rule 10b5-1 Plan was entered into during an open trading window in accordance with the Company’s policies regarding transactions. The Zadno Rule 10b5-1 Plan provides for the potential sale of up to 105,683 shares of the Company’s common stock during various specified trading periods through December 4, 2024.
On September 3, 2024, Alaleh Nouri, the Company’s Chief Legal Officer, adopted a pre-arranged written stock sale plan in accordance with Rule 10b5-1 (the “Nouri Rule 10b5-1 Plan”) under the Exchange Act, for the sale of shares of the Company’s common stock. The Nouri Rule 10b5-1 Plan was entered into during an open trading window in accordance with the Company’s policies regarding transactions in the Company’s securities and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Nouri Rule 10b5-1 Plan provides for the potential sale of up to 56,185 shares of the Company’s common stock during various specified trading periods through December 31, 2025.
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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.
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.
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.