Penumbra, Inc.

Good afternoon. My name is Sidarius and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra's second 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 this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to introduce Ms. Chee 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 second 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 June 30, 2020 which is scheduled to be filed with the SEC on August 3, 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 19 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 Jason Mills, our Executive Vice President of Strategy, will join Adam and Maggie for Q&A. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Chi, and good afternoon, everybody. Thank you for joining Penumbra's second quarter 2020 conference call. Our total revenues for the second quarter were $105.1 million, a year-over-year decrease of 21.7% as reported and 21.3% in constant currency. Maggie will further review the financials as well as more details on our balance sheet in her commentaries. I will organize my comments today into three distinct topics. First, I will address the issues we have faced due to the COVID-19 pandemic and our view of the road forward. Second, I will review the development since our last earnings call related to the company as a whole and our specific products. And finally, I will touch on the issue of racial injustice that has brought to the surface this past quarter and how Penumbra is addressing it both internally and externally. First, as we discussed on our last earnings call, Penumbra confronted the COVID-19 pandemic by first making sure all of our employees could work safely. Over the past few months, we have continued to iterate how we conduct business, namely how we manufacture our products and communicate with our customers. With respect to product manufacturing, our team has done an extraordinary job executing on two key objectives, ensuring a safe workplace, With respect to the overall business, we have also focused on cost reduction wherever possible and prudent. On the customer side, we are very pleased with our team's ability to strengthen customer relationships during this challenging time, including perhaps our most successful new product launch in our company's history, which I will discuss more in a minute. With these important structural iterations in place, We have a lot of confidence our team will continue to operate successfully throughout the length of this pandemic. Now, let me outline some of the specific revenue numbers and trends from the quarter. In our overall business, we saw uniform improvement as the quarter progressed. Specifically, in direct selling markets, our business achieved slightly less than 90% of pre-COVID levels in the second half of the quarter. In fact, Trends in June were even better than this. As a reminder, we highlighted last quarter that the portion of our international business that is handled by distributors, a majority of which is our stroke products, carried with it more uncertainty last quarter because of the pandemic as our distributors were trying to navigate the crisis and its impact to their own businesses. Having said that, this observation does not raise concern about our long-term business opportunities in these regions as we get beyond the pandemic. Notwithstanding our positive recovery in June, we think that the acceleration of the spread of COVID-19 virus in the United States and other parts of the world where we sell our products is reason to be cautious about projecting late Q2 trends into the second half of the year. I want to be clear, however, that we do not believe that disruption in our revenue trends caused by the pandemic should fundamentally deviate from the general revenue trends of our medical device peers. Beyond the numbers, the Penumbra team has put forth extraordinary effort in the second quarter to navigate the company through this phase of the pandemic from which we will emerge even stronger. Further, while the COVID-19 pandemic will continue to pose challenges, I am convinced Penumbra's culture prepares our team to meet this challenge confidently and with a sustaining focus on things that matter to our physicians and the patients they treat. Now moving to the second topic, updates to the company and to our product portfolio since our last call. This may come as a surprising statement to some, but the last three months have been one of the most productive periods in our company's history. First, we fortified our already strong balance sheet during the second quarter. In addition to the previously announced $100 million revolving line of credit with JPMorgan, Bank of America, and Citibank, on which we have not drawn, in late May we executed a follow-on offering that netted the company an approximate $135 million. We believe these were prudent ways to give us additional access to capital to both navigate the current environment and continue investing in important opportunities. Of particular note, Because of the financing, we have felt comfortable accelerating three existing internal development programs, one of the three being new opportunities for the real system that emerged directly from this pandemic, and the other two we have not disclosed. In addition, we attracted additional leadership to the company, augmenting an already strong, deep leadership team with whom I am truly proud to work. Specifically, in mid-May, we welcome Jason Mills to Penumbra as Executive Vice President of Strategy. A few weeks ago, we announced the appointments of Dr. Corey Teigen to Chief Scientific Officer and Dr. Jim Beninati to Chief Medical Officer, two newly created positions. It is an ideal time for us to welcome Jason, Corey, and Jim to Penumbra's leadership team as we move into our next phase of growth. Now I would like to highlight a few developments with our products that occurred during the first half of 2020 that I believe are very important to Penumbra. During our December investor day, we stated that we expected one stroke and two peripheral thrombectomy products to be cleared by the FDA in 2020. All three of those products were cleared in the first half of the year. In addition, we received clearance for a neuro access product. We think both the stroke and the neuro access products are important components of our future development work in stroke, which we expect to see in 2021. As it relates to the peripheral thrombectomy products, we announced the US launch of two extraordinary products on Tuesday, July 14th. These two products come together to form the Lightning 12 system, which is a significant advancement in how clot is removed from the body. It is worth noting how we launched Lightning 12. We introduced this revolutionary system through a unique virtual launch that had massive reach and drove positive engagement among physicians. In fact, this may become our preferred method of launching new important products in the future. Let me spend a minute outlining the new Lightning 12 paradigm as we think it is important to convey the uniqueness of this technology. The Lightning 12 system includes a new larger aspiration catheter that incorporates novel laser-cut hypotube catheter engineering to provide advanced deliverability and torqueability within the body. This unique larger catheter is combined with Lightning intelligent aspiration tubing, which is perhaps the most innovative and technologically advanced product we have ever designed in our vascular franchise. Lightning automates through proprietary sophisticated software algorithms detection of blood clot and differentiate clot from flowing blood, allowing physicians to focus on optimizing thrombus removal while reducing concern over blood loss. The combination of these two products makes Lightning 12 Penumbra's most advanced clot removal technology. The feedback from physicians has been very positive and very inspirational for our entire team. For example, in Lexington, Kentucky, Dr. Nick Abedi called our local territory manager regarding a patient, a young woman who was 36 weeks pregnant and who had blood clot in the entirety of her left leg, from behind her knee all the way to the common iliac vein. In other words, a huge amount of blood clot on the venous side of this patient. Dr. Abedi had recently heard about Lightning 12, In particular, the unique feature within the system that produces audible signals to tell the physician when the catheter is in blood clot and when it is not. He felt this feature would allow a much faster procedure, dramatically limiting both the amount of radiation needed as well as blood loss, both important for any patient but critical for a pregnant patient. He used Lightning 12 on this patient and was successful in removing the blood clot. In fact, Dr. Abedi told me during a recent phone call that this is the most amount of clot I have ever taken out of someone. This was a great result in a very difficult case. In another case, a patient was admitted to a hospital in Florida with acute and chronic thrombus in his right brachiocephalic vein. Given that Florida is currently a COVID hotspot, all the ICU beds in this particular hospital were full at the time this patient was admitted. Thus, dripping TPA over a few days while the patient was in the ICU was not an option. Dr. Venkat Tumala of the Lakeland Vascular Institute needed to treat this patient and send the patient home on the same day. Dr. Tumala asked our local territory manager to bring in Lightning 12 to treat this patient. The procedure took only 45 minutes and had very little blood loss. Even better, this patient who could not make a fist before the procedure was able to flex their fingers just after Dr. Tamala finished removing the clot. Also, because of the skill of Dr. Tamala and Lightning 12, this patient was able to go home the same day. Dr. Tamala told me on a recent phone call that he believed that Lightning 12 was, quote, a game changer for treating large volumes of blood clot on the venous side without the need for lytics. These cases are just two of the early cases that illustrate the paradigm change Lightning 12 is bringing to the field. I am so proud of our entire PENgineering team for their incredible work on this product. Finally, I'd like to discuss the impact on penumbra from the National Discussion on Racial Injustice. An overwhelming number of our employees expressed a strong desire to engage in a constructive conversation to channel the collective anger, frustration, and distress. That energy led to the development of a company-wide plan that includes opportunities for individual education and effort, specific internal company initiatives, as well as external initiatives and community outreach. Penumbra is already extremely strong, creative and capable, in large part because of our diverse employee base. But I believe that this work will make Penumbra even stronger and more capable as we continue on our mission of identifying, developing and delivering therapies that truly matter to patients. Finally, notwithstanding the disruptions and uncertainty caused by the pandemic, The number is in the strongest position it has ever been for long-term growth. We are in the very early stages of two incredibly important product launches. We have the most robust product portfolio and pipeline in our history. We have the strongest team we have ever had. And finally, the team skills are being honed through tireless dedication, teamwork, and effort during this crisis. I'll now turn the call over to Maggie.