Penumbra, Inc.

Good afternoon. My name is Lee, and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra's first quarter 2020 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to draw your question, press the pound key. Thank you. It is now my pleasure to turn the conference over to Ms. Jee Hamlyn-Harris, Investor Relations for Penumbra. Ms. Hamlyn-Harris, you may begin your conference.

Thank you, Operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the first quarter 2020. A copy of the press release and financial tables, which includes a gap to non-gap reconciliation, can be viewed under the Investors tab on our company website. at www.penumbrainc.com. During the course of this conference call, the company will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance, and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties. including those referenced in our 10-Q for the quarter ended March 31, 2020 which is scheduled to be filed with the SEC on May 7, 2020 as well as those described in our 10-K for the year ended December 31, 2019 which was filed with the SEC on February 26, 2020. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our periodic filings with the SEC including the 10-Q and 10-K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock, including but not limited to the impact of the COVID-19 pandemic on our business, results of operations, and financial condition. Penumbra disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise. On this call, certain financial measures are presented on a non-GAAP basis. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted press release. We anticipate the prepared comments on today's call will run approximately 18 minutes. Adam Elsesser, Penumbra's Chairman and CEO, will provide a business update. Maggie Yuen, our Chief Financial Officer, will then discuss our financial results for the quarter, and Sri Kosaraju, our President, will make concluding remarks. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Chi. Good afternoon and thank you for joining Penumbra's first quarter 2020 conference call. Today's earnings call will be structured differently than our prior earnings calls to address not only our quarterly performance but also the larger considerations surrounding the COVID-19 pandemic. The pandemic has had and will continue to have a significant impact on our global society, health, and economy. While Penumbra has handled challenging times before, obviously we have never faced anything like this. However, our mission and our culture have always served as important guides during challenging times, and we believe they will continue to help navigate us through this unprecedented period. Starting in early March, we took several immediate actions in response to the pandemic. These actions first focused on keeping our employees and their families physically safe and economically secure. Our next focus was making sure that we were able to supply and support our customers, suppliers, and business partners, all of which allow us to serve our first priority patients. We all hope that this pandemic is over soon and that we can return to a more normal work environment. But the measures we have put into place enable Penumbra to operate in this new, safe manner for as long as necessary. And they allow us to return to operating in this manner if additional waves of this pandemic were to come. This gives us great confidence that we will be able to satisfy our mission throughout the course of this pandemic. The specific company actions that we have undertaken can be captured in the following strategic priorities. First, restructuring our manufacturing operations to keep our employees safe during the pandemic. Second, fortifying our already strong balance sheet. And third, positioning Penumbra to emerge from the pandemic even stronger. I will begin my commentary by sharing what we observed in the first quarter, and I will include early trends that we saw in April. I will then address the more important topic about how we intend to operate the business effectively during this pandemic and ultimately emerge from it when it is over. As it relates to our first quarter results, our total revenues for the first quarter were $137.3 million, a year-over-year increase of 6.9% as reported and 7.6% in constant currency. Excluding Japan, Our constant currency increase was 14.3% over last year and sequentially flat versus the fourth quarter. We had operating income in the quarter of $0.6 million compared to an operating income of $11.2 million for the same period last year. Maggie will further review the financials, including some additional period expenses that we have taken in the quarter, and she will also provide detail on our balance sheet in her commentary. In the first quarter, we began to observe COVID-19, particularly in March. I will share certain observations that we have seen in our business through the month of April. While it is still early in the pandemic, we have started to see signs of stabilization. However, it is important to note that these are our current observations, and we can see rapid changes based on a number of factors in the United States and countries around the world. We have seen the nature of revenue declines compared to normal pre-COVID trends vary by geography, procedure type, and channel. Geographically, the impact to our business was initially observed in COVID-19 hotspots and then more broadly as communities proactively adopted strict physical distancing measures. Globally, for the month of April, Our daily sales trends in direct geographies have declined on average around 35% versus pre-COVID levels. Within the United States and Europe, our sales in April have trended down around 30% versus pre-COVID levels. As a reminder, the percentage changes that we are sharing are versus pre-COVID. These figures are not year-over-year growth rates. As it relates to procedure type, our neuro business has generally been more insulated. Average daily sales in April have trended down between 20 to 25% compared to pre-COVID levels. Turning to our vascular business, we have seen around a 35% decline versus pre-COVID trends. A greater percentage of our vascular procedures are elective in nature, and we have gathered that the number of urgent cases presenting at hospitals are significantly down from normal. Over the last several weeks, We have heard from many of our physicians that they are seeing an increased number of COVID-19 patients with large vessel thrombosis, TPE, and locations. It is too early for this to show up in our numbers in a meaningful way, but it is a developing phenomenon that we are paying close attention to. Lastly, as we look at many of our international distributor channels, particularly in China and Japan, We believe they will show a lagging effect related to COVID-19 and therefore we would expect that to be reflected in Q2 ordering patterns. I would like to turn my commentary to highlight a few positive operational and pipeline developments that occurred in the quarter prior to the impact of COVID-19. In January, we held a ribbon-cutting ceremony for a new production facility in Roseville, California. This facility will more than triple our current manufacturing capacity in the long term. But in the short term, it gives us the advantage of having significant additional space to increase our manufacturing capacity while maintaining physical distancing protocols for our employees.