Good day and thank you for standing by. Welcome to the Profound Medical Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stephen Kilmer, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements within the meaning of applicable securities laws in the United States and Canada. All forward-looking statements are based on Profound's current beliefs, assumptions and expectations and relate to, among other things, any expressed or implied statements or guidance regarding current or future financial performance and position, including the company's year 2024 financial outlook and related assumptions, the expectations regarding the efficacy of Profound's technology in the treatment of prostate cancer, BPH, uterine fibroids, palliative pain and osteoid osteoma and its future revenues and financial results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Profound undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law. Representing the company today are Dr. Arun Menawat, Profound's Chief Executive Officer; Rashed Dewan, the company's Chief Financial Officer; and Dr. Mathieu Burtnyk, Profound's President. With that said, I'll now turn the call over to Rashed.

Good afternoon, everyone, and welcome to our third quarter 2024 conference call. On behalf of the management team and everyone at Profound, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support. I will turn the call over to Mathieu in a moment to provide updates on TULSA utilization trends, the CAPTAIN clinical trial and reimbursement. However, before I do, I would like to provide a brief summary of our third quarter 2024 financial results. To streamline things, all of the numbers I will refer to have been rounded, so they are approximate. For the 3-month period ended September 30, 2024, the company recorded revenue of $2.83 million with $2.65 million from recurring revenue and $179,000 from onetime sale of capital equipment. Third quarter 2024 revenue increased 64% from $1.73 million from the same period in 2023. Looking forward, for the full year 2024, based on the company's current business planning and budgeting activities, we continue to anticipate revenue to be in the range of $11 million to $12 million. Gross margin in Q3 2024 was 64% compared to 61% in Q3 2023. As we mentioned on previous calls, we expect gross margin to vary some quarter-over-quarter. But just as we delivered about 60% margin in full year 2023, we continue to expect to deliver that or better in 2024. Total operating expenses in 2024 third quarter, which consists of R&D, G&A and sales and distribution expenses were $10.8 million, an increase of 42% compared with $7.6 million in the third quarter of 2023. Breaking that down further, expenditures for R&D increased 22% on a year-over-year basis to $4.2 million. G&A expenses increased by 84% to $3.7 million and sales and distribution expenses increased by 34% to $2.9 million. Net finance expense for the 2024 third quarter was $199,000 compared to net finance income of $1 million for the same 3-month period of 2023. Overall, the company recorded a third quarter 2024 net loss of $9.4 million or $0.38 per common share. compared to a net loss of $5.6 million or $0.26 per common share for the same 3-month period in 2023. As of September 30, 2024, Profound had cash of $27.1 million. With that, I will now turn the call over to Mathieu.

Thank you, Rashed. In the third quarter, Profound held its PRO-TALK Live event in Las Vegas, a peer-to-peer education platform for physicians by physicians. The event was sold out with 70 physicians in attendance to hear from opinion-leading surgeons from the top hospitals in the United States. The message was clear. The TULSA procedure is uniquely positioned to become a mainstream treatment option for men with prostate disease and the shift to an MRI-centric modern treatment pathway for prostate management is happening right now. Physicians describe the TULSA-PRO is the only device that can safely deliver whole gland ablation for diffuse disease and targeted ablation for discrete disease with its ability to treat any region of the prostate, whether posterior or interior at the apex, mid-gland or base, all within any size volume and shape of prostate. Physicians even detailed their streamlined workflow and how they use the precision of intraoperative MRI together with TULSA AI contouring assistant to efficiently delineate the prostate and then apply thermal boost dynamically during treatment to customize the dose delivered to specific areas of the prostate. And this is all with an inside-out energy source, which gently heats the prostate tissue to kill temperature without boiling or toing or disrupting surrounding tissue with no risk of bleeding and as a result, no overnight stay in the hospital or clinic. Multiple physician presentations highlighted the flexibility of the TULSA-PRO in both prostate cancer and BPH. Its applicability in broad patient groups was reviewed, for example, in intermediate risk prostate cancer regardless of tumor burden or prostate size as well as for salvage treatment of read recurrent prostate cancer. Presenters also discussed the advantages of the TULSA-PRO for more specific areas of prostate disease like patients with tumors near the prostate apex who are likely to…

Thanks, Mathieu, and good afternoon, everyone. As you heard from Matthew, the first major PRO-TALK Live event was not only well attended, but also highlighted the capabilities of the TULSA procedure to enable the urologists to perform a wide variety of whole gland or partial gland treatments. Of the 70 physician attendees, about 40 were prospective users. Following up with them after the conference, they have now been successfully added to a continuously growing pipeline for adoption of TULSA in various types of institutions in the United States. As you can tell, we're also delighted to see that CMS recognized the value proposition of the TULSA procedure and placed it in urology APC Level 7. The codes will be applicable in the widest possible range of treatment settings, including hospitals and ASCs, imaging centers and office settings such as large urology practices. In comparison, radical prostatectomy reimbursement codes can only be used in hospitals. Some ASCs may have the robot, though they cannot build Medicare in that setting. In addition, we believe that the economic model of the TULSA procedure will be superior to that of any other prostate disease management procedure. After the publication of the final rule on reimbursement and listening to TULSA urologists at the PRO-TALK Live conference, we are now even more confident about driving the adoption of TULSA to mainstream. I would like to share with you a few strategies that we are planning to use to achieve that goal. First, our introduction of TULSA AI modules have been well received. Thermal Boost is being used routinely in over 50% of TULSA cases and the automated contouring assistant has not only increased urologist confidence in treatment planning, but also reduced the procedure time by several minutes to enable them to do an extra procedure in…

[Operator Instructions] Our first question comes from the line of Benjamin Haynor with Lake Street Capital Markets.

I apologize if I missed this or overlooked it, but just real quickly on the goal that you guys have of getting to 75 installs by year-end. Any update on that goal?

Yes, Ben, we have reaffirmed the revenue guidance for the year on the basis that the pipeline is very strong. In the last quarter, we also began to transition from the cash pay model to the financial justification model or on the basis of reimbursement. So that did raise the question of waiting for the final rule publication at many of our sites. And now that the final rule is even better than the proposed rule, we actually don't see any issue with increasing the installed base. However, because of this sort of this gap in this time, I think getting to 75 is a little bit optimistic for the end of this year, but we will get there pretty soon after the year is over. So, I don't see any issue getting to the 75. I just think that this is a transition year for us. And so, there is a little bit of give and take that I sort of anticipated at the beginning of this year, and it's sort of playing out a little bit. But as I said in the prepared remarks, the pipeline is strong. The financial model is even stronger than we anticipated during the early phase or when the proposed rule came out. And I think many of these hospitals are very engaged with us.

Okay. That's fair enough, and that's helpful. And then just following up kind of on the pipeline, the PRO TALK Live event, obviously, that was quite a fabulous event. Just kind of following up on -- with those folks after the event, what was kind of the response? And then to the extent that you've been able to talk to some of those same folks in the past handful of days following getting bumped up to APC7, how has that changed things? And then I guess I'll leave it there. Maybe I have a follow-up.

Yes. Ben, I think that, as you might expect, the reaction really was very strong from the conference because of the number of users who presented in the caliber of the users that presented. In fact, I've personally had a chance to visit a couple of the people who came to the conference who were prospects and we're moving forward with installs in a number of sites as a result of that. And I think the -- during that time, most of the conversation was related to financial justification at APC Level -- and even that looked pretty good. But I think now that we're at 7, we have actually sent out the updated models to a number of sites already within a week. And I think the best I can tell you so far is certainly the reaction is positive. I would say the key thing is that many, many are ready to talk about the fact that this -- as you know, there have been a number of technologies that have kind of come and gone, and they tend to be more in the focal therapy space or partial ablation space. But given that this is a whole gland treatment with the option that they can also do focal, I think the general feedback that we're getting is certainly this is one of the few technologies that indeed has the opportunity to grow to become mainstream. So, this is why I sort of laid out some of our plans because I think certainly that is what we're shooting for at this point.

[Operator Instructions] Our next question comes from the line of Rick Wise with Stifle. Your line is now open.

Hi everyone and Dean, good afternoon. This is John on for Rick today. Congratulations on the upgraded coding versus the initial expectation. I just wanted to maybe put a finer point on your comments earlier, just in terms of the implication for physician uptake, revenue and procedure growth. You sort of set out a 75-system goal, maybe we'll call it sort of early next year, you were saying. And you've also talked about utilization goals in terms of sort of growing utilization maybe in the mid-teens levels once the installed base starts to ramp. With this higher reimbursement in place, does that impact any of those assumptions in a more positive way at all? And is there any way to sort of think about how it could impact commercial inflection?

I think so, John. Overall, I feel that the stars are sort of getting aligned for our technology, right? We have support from leading physicians. Our existing sites are happy users. We have amazing feedback from patients. We're really pleased with how CMS looked at the reimbursement picture. The clinical data continues to look good and CAPTAIN trial data will come out next year. So, I do think that the stars are aligned. If you look at the recurring revenue in this last quarter, you can see it's the highest recurring revenue we've had so far. So, you can see a precursor to what we think is likely to continue to grow. So, as I said, I think all the signals are in the right direction. We are very aggressively, as I said in the prepared remarks, looking to build the sales and marketing team now. And as I said, I'm delighted that Tom has joined us, and we've worked together in our last company. So, I'm thrilled with that. So yes, I think that we should be able to grow at a pretty good pace in 2025. And I think -- I would say the other thing is, John, we reaffirmed our guidance for this year. And if you just add up the numbers, obviously, Q4 has to be a very good quarter for us to reaffirm. So, I think even in the quarter that we're in, we are feeling bullish that these results will impact the top line.

That's interesting, Arun. Maybe I'll follow up on that point you're making on reiterating the guide here. Just in terms of recurring versus capital or an impact related to physicians adopting the technology. How much of -- how much do you see in the fourth quarter in terms of mix between recurring and capital? And maybe talk a little about what you're expecting in terms of utilization. I saw it increased up 13% this quarter. How should we think about it now?

Yes. John, I do think that the utilization will continue to increase. Now I think that with respect to what is the mix between capital and recurring that I think earlier in the year, I kind of provided this high-level thing that there is likely to be a higher percentage of capital in the early stage as the installed base grows and we switch to this more of a standard medical device model. I can also tell you that a number of sites that already have TULSA that are using it in the current model of recurring revenue only have already expressed interest in converting it to that model. So, in fact, some of the sites will flip to the new model and some of those systems that belong to -- on our balance sheet today will flip over and some of the revenue will come from there. So, I think that -- I mean, the way I look at it is this is all good, that we want to go into a more standard model. We do have -- there's a very little doubt that the utilization is increasing, and it has been consistently increasing, and it will continue to increase. How exactly is the ratio in the very near term for the next, I would say, 3-4 quarters is a little bit harder to predict. But I do think that over the long haul, we're probably going to be in the 30% capital and 70% recurring revenue mix.

Our next question comes from the line of Michael Freeman with Raymond James. The line is now open.

Hey Arun, Matthew and Rashad, congrats on some great news around reimbursement and congrats on solid revenue results this quarter. My question I wonder if you could shed some light on sort of the sale and install dynamic that we might be seeing behind the scenes. Like do you get the sense that prospects of yours for the TULSA are -- had been waiting to understand what the final rule would be and what the exact reimbursement rate would be before pulling the trigger to sign a contract and to go ahead with install. And I guess, perhaps you could give us a bit of information on either your backlog or sort of your contract pipeline, just so we can get a sense of like what -- how we can understand the install pipeline better.

Yes. It's a great question. And I think, first of all, there's no doubt that there was -- and as I said, we sort of anticipated that at the beginning of the year that the dynamic will be unique and different in the second half of this year, and it did happen because even quite frankly, some of the investors are saying, well, we want to wait until you get to the final rule. And quite frankly, internally, the data that CMS looks at to the extent that, that data was available to us, there was certainly some expectation that we will get upgraded. So, there is no question that in Q3 with respect to new sites, that was a very important dynamic. And coupled with that, we were changing the model and basically talking about capital. And you go back the first two quarters of this year, we had -- we did have some capital revenues already. So that dynamic had started even prior. So, from the -- to your first question, yes, there's no question that we are in that inflection point, and there's some uncertainty. But at the same time, when Rashed and I and Mathieu and Tom, and we reviewed our forecast for this year, we were fairly comfortable that we would -- we could reaffirm our revenue guidelines for this year. So hopefully, you can see that this is part of this dynamic that Q3 is -- was going through this tentative period. But then now that it's finally out that we think we will be able to close those deals in this year. And so that hopefully gives you a little bit more color on why we are confident about the year. And I think that with respect to your question on the pipeline,…

Okay. All right. And just dovetails perfectly into my next question, which was on sales team. And wondering if you had done any hiring of individual sales team members during the quarter? What your -- like how many you anticipate hiring perhaps before the end of the year? And then ultimately, what's the size of the sales team you would like to have during the initial launch during active reimbursement of TULSA.

Yes. So, we are -- we're taking a short-term look and a strategic look at how we want to organize for growth and what do we need immediately from that organization. And so, the senior team has spent quite a bit of time to figure out what will the design look like, or design will look like and so on to go forward. We have about 13 to 15 salespeople at the moment. We want to get to about 40 as soon as we can. Obviously, we want to hire the top quality team. So not a fast -- not an easy process. But I would like to add at least at least five more this year, if possible, we can get that done quickly. But we will continue to recruit until we get to at least 40. In addition to the sales professionals, we are adding some sales management also. And part of the reason for adding the sales management is to prepare for even longer term to be able to continue to add people as the company and the revenues grow. So, a good bit of our effort is going into that at the moment.

Our next question comes from the line of Scott McAuley with Paradigm Capital. Your line is now open.

Thanks everyone. Congrats on the quarter. I think a lot of my questions have already been answered, but just wanted to get a little bit on the commercial model and kind of highlighting that you're seeing more interest in the more traditional model versus the pay-per-use model, especially with the updated reimbursement. The initial thinking being that the pay-per-use, you have the lower upfront cost, which is of interest to some places because you don't need the upfront capital. So like in talking to potential users, how -- what's driving this kind of your switch to focus more on the more traditional model going forward?

Yes. Scott, that's a very good question, actually. So, when we started, the technology was brand new and pretty much all the patients were cash pay patients. So, for a site, when they're looking at entirely new technology and cash pay, it's really hard for them to predict the utilization of the technology. And so that is why the recurring revenue-only model made the most sense. And because it's cash pay, they could charge and get whatever they needed to make on the procedure, and we got what we needed to do and so on. So that model for that time has worked out well for us. And I do take some confidence related to the future potential that even at price points of some of the sites charging $30,000 to $35,000 that they were getting quite a few patients to be -- to pay that and still get the TULSA procedure. So, I think it worked for multiple purposes. Now I mentioned to you that some of the sites that already have that recurring revenue only model have already indicated that they would like to just go ahead and buy the system. And the reason being that they now have a far greater level of predictability of how many patients they will be able to treat. And so, for them to financially then justify is much easier and particularly now with these numbers, that's a pro forma we can present to them. And for a urology practice to be able to go to the CFO's office and say, I've been using it this much. With this reimbursement, I can add this much more to it and thereby, it can be justified easily. That is the reason why I think we need to switch to the model to the traditional…

No, that's great. I appreciate that. And that definitely makes sense with the kind of utilization as the goal and wanting to give clinics the highest profit margins themselves. And I guess just second, in terms of commercial reimbursement from commercial insurance plans, obviously, the Medicare is very important and getting that as a key milestone. How are you thinking going forward in terms of getting added to commercial plan lists and being able to tap into that market as well?

Yes. It's a very big priority for us. Obviously, the results of the CAPTAIN trial will be very helpful. We will be -- we're the first Level 1 study in this space. and we will be able to provide that information to them by -- within a few months now. And we -- during this period, even though the model was cash pay, a number of our patients were able to take their cost data and apply for reimbursement from their own private insurance companies. And we have worked with many of them to make sure that the insurance companies have all of the data that they needed to make those decisions. So, I think with respect to visibility, we're getting there. And we are cognizant of the fact that this is really important. And part of the reason why we moved Mathieu to the President title is because I think that since he led the reimbursement work with the CMS and the work committees and so on, his -- part of his role is going to now switch to accomplishing the same goal with the insurance companies. So, I think in summary, I have two points. One is I think we have the clinical data; we have the cost data to get going with the insurance companies, and Mathieu will take that bull by the horn as he did for the CMS process. And second, we have been working with insurance companies and other ablative technologies have been reimbursed. And so, I do think that we're likely to have a better reception than something that they've never heard about before.

[Operator Instructions] Our next question comes from the line of Benjamin Haynor with Lake Street Capital Markets.

Just wanted to touch on TULSA Plus. Is that something that is kind of a straightaway pipeline expander? Or is it something where some folks might want to wait to choose to go down that route once it becomes available, I think you said 9 months out.

Actually, Ben, I think the way we're doing this is TULSA is available to them for existing sites today. So, if there's a hospital that has a compatible MRI, we are putting TULSA, and we're going to get going with them. What we are going to start doing starting next year is also giving them this TULSA plus option. And what -- the way we are going to go to market is to say, we'll put the TULSA in your existing site so your people can get going and start treating patients. And when the MR gets installed, which might take six to nine months, we will take that TULSA and put it on your new MR at that point. So, it will take some time to get the TULSA Plus model going. But I don't think it's going to be a bottleneck to get the hospitals started with the way we have been doing business so far. So that's the way we're planning the strategy. It's possible that there might be some sites that will say, hey, we just going to go for the MR because the MR is already FDA cleared. There are a few sites in the U.S. that already have it, and we're generally getting very good on the MR. So, I think it's possible that some might say, I'm just going to get both and so on. But doing -- I would say, historically, we've done things like some other sites have said to us, hey, I have a Siemens MR available today, but long term, I want it on a GE MR, and we've sort of provided it to them on a Siemens. And then when they switch the MR, we've switched the software to make sure they could use it on that. So, I think that flexibility exists, and we plan to use it.

Okay. Got it. And then just from a kind of LPA or ASC standpoint, do you see them under TULSA Plus kind of ponying up the $1 million plus that it costs to get one of these Magneton Femap access in your device? Or is that -- is it going to be something where there's Siemens is going to provide financing, or some third party is going to finance the capital equipment and they'll pay $200, $300, whatever grand a month?

Yes, that's exactly the way we're thinking. If you look at the website, Siemens Femap website, they are -- in fact, the website says that they are prepared to lease it for about $14,000 a month, which is a very reasonable number. And so many of these sites will -- I mean, ultimately, this is going to come down to a fairly straightforward equation. They need to predict or figure out how many patients they can treat per month. That based upon their reimbursement sets up their revenue, they'll know their costs, they'll know our costs. And they will be able to easily figure out how many procedures they need to do per month to break even and pay that monthly lease fee, right. And there are third parties that are willing to bundle it all together and convert it into lease payments. So, we're working through the details, but I think that is all in the realm of possibilities.

Congrats on the levelling up with the APC.

I'm showing no further questions at this time. I would now like to turn it back to Dr. Menawat for closing remarks.

Thank you so much, and we look forward to communicating with you for the Q4 and year-end call in 2025. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.