Penumbra, Inc.

Good afternoon. My name is Suzanne and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's third quarter 2021 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 redraw your question, press the pound key. Thank you. I would now like to introduce Ms. G. Hamlin-Harris, Investor Relations for Penumbra. Ms. Hamlin-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 third quarter of 2021. 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-K for the year ended December 31, 2020, filed with the NCC. 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-K previously mentioned, for 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 conditions. 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 third quarter, and Jason Mills, our Executive Vice President of Strategy, will discuss our updated 2021 guidance. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Chi. Good afternoon, everybody. Thank you for joining Penumbra's third quarter 2021 conference call. Our total revenues for the second quarter were $190.1 million. A year-over-year increase of 25.8 percent is reported and 25.6 percent in constant currency and a 3.2 percent sequential increase from the prior quarter. For the third quarter of 2021, we recorded operating income of $8.8 million or 4.6 percent of revenue compared to an operating loss of $20.2 million or 13.3 percent of revenue during the same period last year. Against the backdrop of the spreading Delta variant, particularly in the first part of the quarter, our team executed very well. Our vascular business achieved record results, and our neuro business nearly matched a record quarter as well. Our business was exceptionally strong in the United States, where our latest products in both vascular and neurothrombectomy are experiencing strong adoption. Overall, our business accelerated throughout the quarter, driven by the red series of stroke catheters and continued strength in vascular thrombectomy, while our embolization business also performed well, especially as the fall season progressed. I also want to acknowledge our physician customers and hospital staff. who against challenging circumstances, especially with COVID, worked particularly hard to take care of their patients. As a company, we think we are in the best position we've ever been to help more patients than ever before. As we look forward and the world emerges from this pandemic, the three key dynamics that have defined Penumbra, constant innovation, hiring the best people and execution once again to find our work in the third quarter and give us a lot of confidence that we can deliver strong, durable growth for years to come. As it relates to hiring the best people, we are adding remarkable people to the Penumbra team. In addition to the new engineers, other professionals, and best-in-class salespeople that we added, I would like to call your attention to new senior additions. Fred Havard and Joan Christensen recently joined us with decades of senior medical device experience. Fred will lead international commercial efforts as senior vice president, focused on areas outside of Europe and North America. Joan will lead our efforts in Europe and the Middle East as vice president and head of Europe. Also, Riley Russell, a former senior executive at Sony Interactive Entertainment, working on Sony PlayStation and third-party developers, has joined us as Executive Vice President of Third-Party Partnerships for Immersive Healthcare. And Amir Rubin, the former CEO of Sixth Sense, is leading our research efforts for Immersive Healthcare as Executive Vice President of Research for Immersive Healthcare. Also, we will continue to promote as well as add additional senior members to the team in the quarters ahead. Now let's focus on our products. Starting with our vascular business, we reported growth of 40.3% year over year to $105.5 million in the third quarter. Vascular thrombectomy revenue increased 10% sequentially in the United States with strong performances across venous, PE, arterial, and coronary. We continue to see accelerating growth in new physician customers adopting our thrombectomy products in the third quarter, which we think is a testament to both excellent patient outcomes and the value proposition our proprietary computer-aided lightning thrombectomy system brings to the healthcare system. We are focused on the opportunity to expand the paradigm of single-session therapy to many more patients going forward. As evidenced by strong results in the third quarter, our computer-aided lightning technology is resonating with an increasing number of physicians and is becoming an integral part of the treatment algorithms in PE, venous, and arterial procedures. Indeed, both Lightning 12 and Lightning 7 produced strong growth in the quarter, growing double digits sequentially in the U.S., Like other unique and transformational products we have developed, our lightning platform is the product of our focus on constant innovation dedicated to what's truly important to successful and safe outcomes for patients and the most talented team of engineers and product development professionals in the industry. Moreover, we continue to invest in innovation, clinical studies, and market development initiatives to reach the 90% of patients that can still benefit from this technology each year. In sum, we are just getting started, and our team's work continues. Moving to coronary, we continued seeing an accelerating number of physicians utilize CatRx to treat their patients in the quarter. We have a tremendous opportunity ahead of us with CatRx, having reached only about 10% of the coronary patients we believe we can help the most, those with high thrombus burden. Also, we look forward to the presentation of results of the CHETA study, which will be highlighted during the featured clinical research session at the upcoming TCT conference in Orlando, Florida, in two days, on Friday, November 5th. I will be in attendance, and I hope to see many of you there. Within our vascular embolization business, we matched our record numbers Second quarter results, notwithstanding, Q2 benefited from some catch-up in deferred procedure, while this quarter faced a modest COVID headwind. The uniqueness and breadth of our vascular embolization portfolio continues to resonate with physicians who are finding more reasons to use our products in both chronic and acute settings, including continued strong adoption of Ruby LP, which had another record quarter. Let me now turn to our neuro business in which we recorded growth of 11.5% year over year to $84.7 million in the third quarter. The neuro team has done incredible work alongside our physician customers throughout this pandemic. The initial launch during the quarter of red 72 and red 68 in the United States went extraordinarily well. Paired with red 62, The red series expands upon our US stroke portfolio, which recorded robust 17% sequential growth this quarter. Physicians in the United States have responded very positively to the red series. The extraordinary tractability and clot removal capabilities of the red series, driven by our new red glide coating technology and proprietary catheter architecture, are unrivaled in the field. And the breadth of the Red Series allows physicians to choose the catheter that best matches the patient's vessel size. In sum, the Red Series is designed to give physicians the technology they need to use aspiration as frontline treatment and maximize the ability to achieve first pass success. One of the hallmarks of our neuro business is portfolio breadth, with our stroke access and embolization franchises complementing each other extraordinarily well. Our neuro access business produced another record quarter led by continued adoption of BMX 96 and strong international growth. Our neuro embolization business nearly matched our record Q2 results, notwithstanding the COVID related headwinds to these type of procedures in the third quarter. In sum, We expect momentum to continue in our neuro business as we continue to invest in our team, our innovation engine, and important initiatives to expand access to our neuro products to more patients going forward. Let me now turn to our immersive healthcare business. We hosted an investor day in late September that marked a monumental moment for Penumbra. In addition to announcing the acquisition of Sixth Sense, A leader in virtual reality technology and our longtime partner we outline plans to build a platform to provide immersive therapy. To 10s of millions of patients across a broad range of healthcare settings. The combination of our proprietary hardware tracking technology software and unique content sourced from our own studio. Second party partners as well as a robust group of third party developers. define the real platform and the ecosystem we plan to build as we try to help over 50 million patients in the US alone. The feedback we have received since this event from the healthcare community has been extremely positive. We are dedicated to the important work ahead. Turning to our international markets, China continues to be a strong contributor to our business and we see significant opportunities for additional growth well into the future. In addition, we continue to see good momentum in our Japanese business, where we look forward to introducing our latest stroke and neuro products, our entire vascular product portfolio, and eventually our immersive healthcare platform in the future. Our EMEA, Latin America, and Asia Pacific businesses all showed solid growth year over year, And we think there are many opportunities to expand our presence in each one of these geographies going forward. Overall, notwithstanding the challenges all companies are facing, we are confident that we are set up to help more and more patients with our existing and future products across all of our product categories and geographies. I would now like to turn the call over to Maggie to go over our financial results for the quarter.

Thank you, Adam. Today I will discuss the financial results for the third quarter 2021. Additional details will be contained within our quarterly reports on Form 10-Q. For the third quarter ended September 30, 2021, our total revenues were $190.1 million, an increase of 25.8% reported and 25.6% in constant currency compared to the third quarter of 2020. and sequential growth of 3.2% over the second quarter of 2021. Our geographic mix of sales in the quarter were 70.9% U.S. and 29.1% international. U.S. and international reported growth of 23% and 33.5% respectively compared to the same period in 2020. Moving to revenue by franchise. Revenue from our vascular business grew to $105.5 million in the third quarter of 2021, an increase of 40.3% reported and constant currency compared to the same period last year. Compared to the prior quarter, revenue from our vascular business grew by 4.7% driven by strong performance in peripheral thrombectomy volume in the US. Revenue from our neuro business was $84.7 million in the third quarter of 2021, an increase of 11.5% reported and 11.1% in constant currency compared to the same period a year ago, with growth across neuro access, embolization, and thrombectomy franchises. Gross margin in the third quarter was 63.1% compared to 60.2% in the same quarter last year, due to benefits from additional volume and stable product mix. We are pleased with our ability to increase our manufacturing capacity and expand our supply chain and manufacturing footprint in 2021 to support rapidly growing demand for our new product launches. In the coming months, we will continue to accelerate our investment in our Roseville manufacturing site, including hiring and training product builders, transferring multiple key manufacturing processes, and improving efficiency and productivity. This may continue to have short-term margin impact as it did in the third quarter, but will set us up for strong margin expansion opportunities in coming years. Total operating expense for the quarter was $111.1 million, or 59% of revenue. compared to $111.1 million or 74% of revenue for the same quarter last year. Our research and development expenses for Q3 2021 were $16.7 million compared to $34.9 million for Q3 2020. SG&A expenses for Q3 2021 were $94.4 million compared to $76.2 million for Q3 2020. In the fourth quarter of 2021, we anticipate payments related to research and development milestones and one-time expenses associated with the Sixth Sense acquisition. We estimate these additional expenses in Q4 2021 in the range of $35 million to $45 million, the majority of which is non-cash. For the third quarter of 2021, We recorded operating income of $8.8 million or 4.6% of revenue compared to an operating loss of $20.2 million or 13.3% of revenue for the same period last year. We ended the third quarter with cash, cash equivalents and marketable security balance of $267 million, an increase of $28 million in operating cash. And now I'd like to turn the call over to Jason to discuss our 2021 guidance.

Thank you, Maggie. With the update of our third quarter results, we are formally increasing our 2021 revenue guidance range to $735 to $740 million, which would represent 31 to 32% growth over 2020 revenue of $560.4 million. This updated guidance compares to our previous 2021 guidance range of $720 to $730 million, given on our second quarter call in August. We see multiple drivers of growth going forward, both near and long term. In the fourth quarter, we expect sequential growth compared to our record third quarter results, driven predominantly by vascular thrombectomy across venous, PE, arterial, and coronary, further expansion of our peripheral embolization business, and increasing contribution from our new red series of catheters for stroke intervention. Overall, consistent with our approach to setting guidance in the past, our updated 2021 revenue guidance represents our current views on our markets, timing of new product launches, and other relevant inputs. I will now turn the call back to Adam for closing remarks.

Thank you, Jason, Maggie, and Chi. As we report the third quarter and we move through the fourth quarter, Penumbra is well positioned to help more and more people in the months and years ahead. We are making investments to constantly innovate both in neuro and vascular, as well as the newer area of immersive healthcare. We are hiring the best people in all parts of our business and we continue to execute in our day-to-day work. These three elements have defined our success for many years. Finally, I want to acknowledge and thank everyone at Penumbra for doing so much and working so well together to design, manufacture, and make available all of our products to physicians and patients, even in these challenging times. Thank you for your attention on the call today, and we'd like to open the call to questions. Operator, please go ahead.

At this time, I would like to remind everyone in order to ask a question, press star 1 and then number 1 on your telephone keypad. Please pause for just a moment as we compile the Q&A roster. Our first question comes from the line of Larry Beagleson from Wells Fargo.

Good afternoon. Thanks for taking the questions. Just let me start off on the guidance. Hey, you reported obviously a very nice quarter here, you know, compared to your historical seasonality. But the Q4 guidance at the midpoint implies lower sequential growth than we typically see from you guys, and it's only about 12% year-over-year growth. So what are you seeing that's leading to that conservatism and how do we put that into context for 2022? The street's assuming about 17% year-over-year growth and I just want to confirm you're still confident in the billion dollars in 2023 and I had a follow-up.

Larry, it's a great question. Let me start with the last question and then I'll let Jason take over with some of the specifics. The answer is we are definitely confident about our 2023 comment about a billion dollars. And I think if you look at how we've done this quarter and the guidance going forward, it gets you there pretty quickly. So we have a lot of confidence. I think our commentary today shows that. I'll let Jason talk about the specific guidance, but no question considered. we feel very confident about the future.

Yeah, and just before we leave the $1 billion comment, I'll just add a little bit to what Adam said. As you might recall, Larry, at the time we said that, we actually said $1 billion plus. And just to remind you that the plus referred specifically to our immersive healthcare business. That continues to be the way we look at that comment at this point in time as well. So, and I appreciate your question about the guidance. Obviously, you know, the sequential increase in our business in the third quarter was quite strong. It was a strong performance as we talked about across both neuro and vascular businesses. Obviously, stronger sequentially than a lot of folks and obviously representative of the strength of our products in our business. And so we're cognizant of that strong record growth, and we're also cognizant of the world and what others are saying about COVID. As we talked about in our remarks, we saw pretty good growth throughout the quarter, and we expect that to continue into the fourth quarter, which is why we expect sequential growth to continue.

All right, thanks for that. And just for my follow-up, so Adam, on the cheetah data, what do you think physicians will be focused on How do you plan to leverage the data? And just, Adam, we didn't hear anything about lightning. You know, is that still on track? Thanks for taking the questions.

Yeah, well, first of all, I think we, I said a lot about lightning. I think you meant thunderbolt. Thunderbolt, sorry, sorry, you're right. If I'm not mistaken. I know the names are close. Let's talk first about Cheetah. It's two days away. As you know, I want to be very respectful to the physicians who are presenting the data appropriate rules around that. I obviously am going to be there and look forward to talking about it with anyone after the presentation. And we can address that in a couple of days. But needless to say, there's a lot of data to go through and we look forward to doing that. As it relates to Thunderbolt, I think you guys know me well enough to know Last time I mentioned the name sort of publicly. We like to let our actions and the product speak for themselves. So it seemed appropriate this quarter not to continue to have that conversation, but there is nothing, and I mean nothing about that, that you should take as anything on the negative side by the fact that I didn't mention the name. And I think you guys can interpret the fact that I didn't mention it in the public comments the way I meant it to be. Thanks, Adam.

Thank you, Larry. Our next question comes from the line of Bill Plovovic from Kennecourt .

Hi, it's John for Bill tonight. Thanks for taking our questions. Adam, if we could go back to Cheetah quickly. Can you talk about the overall opportunity in coronary and then how are you going to balance that with your work in arterial, DBT, and PE? And then perhaps can you just talk about the call point overlap, any possible synergies there?

Sure. So, you know, the way we've talked about that market, and I mentioned it on the prepared remarks of this call, is really – going after the patients that have really high clot burden or thrombus burden, the patients that really need it the most. And that was what the CHIDIS trial was designed to study. That's what we'll report out. And that's really been the opportunity. That's a significant opportunity. We're only about 10% penetrated. And as we've said in the past, that opportunity is roughly the same size as the U.S. stroke opportunity for the U.S. patients in coronary. So it's not insignificant at all. And as I think you all know, the big technology change is the idea of using continuous power aspiration as opposed to some of the older technology. And when you look at some of the older studies, they really highlighted the need in those studies for innovation in technology to deal with those high thrombus patients. So that's the framework in which you can see and digest the data on Friday morning in Orlando. As it relates to the call point, obviously that call point is interventional cardiology. I think all of, you know, interventional cardiologists do a significant number. Sometimes people estimate up to around 25% of the peripheral work. And so there's just an obvious synergy between those two products and really not. One doesn't take away from the other. In fact, they work very, very synergistically and the teams have been focused on that for a while.

Thanks. We look forward to the data. And then just as a follow-up, too, on neuro, as you reach your COVID lull, how do you think about appetite of engaging with legislators, again, and first responders against your patients into the right care setting?

Yeah. So I'm really glad you asked that question. You know, this is, for the first time in, you know, a couple of years given the pandemic, I'm feeling and seeing, I guess, some early signs that things are starting to re-engage. I've spent a decent amount of time talking to our physicians out there. They're starting in the earliest phases to have the bandwidth and the time and the ability to go out into their local communities and start to work on the kind of local work that they had been doing in the past. But we also saw this quarter another state enact the state legislation that you were referring to, North Carolina did that. And so I'm feeling pretty optimistic that as we move into this next phase of the pandemic, we're starting to see a little more momentum. And as you heard in my prepared remarks, Our neuro team is really engaged. There's so much energy and momentum. You saw that in the sequential growth in the U.S., and it's a really, really exciting time to push the technology forward at the same time we're coming out of a really difficult couple of years.

Thanks. Take our questions.

Thank you.

Our next question comes from the line of Robbie Marcus from J.P. Morgan.

Oh, great. Thanks for taking the questions and congrats on a great quarter. Thanks, Robbie. Maybe to start, Adam, you spoke about a lot of different new product launches, Lightning 7, some of the red products. You talked about China and some of the adoption there. How do we think about the impact it had to sales in the quarter and what you're expecting, you know, let's say over the next six to 12 months, also throwing coronary, you know, you don't break out products or the different sub-line items for those businesses. So how do we think about, you know, where we're seeing the biggest incremental dollar growth?

Yeah, no, it's a great question. Well, we do obviously break out neuro versus vascular. So, you know, you'll see the benefit of the red series, you know, and future products, you know, I hope over the next, you know, six months to a year pretty clearly in our neuro business. As it relates to the vascular business, it's, and I said this in my prepared remarks, it's all working. We saw really successful growth both on PE and venous and arterial as well as coronary. So we're lucky, you know, we have the ability to really positively impact patients on all four of those categories. I think it would be, it's unnecessary to sort of break out which is more because they're all working and successful right now. And that's, I think, one of the really huge opportunities as the field starts to really digest and accept the idea of single session treatment. It's no longer just a thing that people sort of thought about philosophically. It's now becoming a lot more rooted in the viewpoint of physicians because in some part because of the pandemic and the need to free up ICU beds, they're finding success, you know, particularly with the lightning series in PE, venous, and arterial, and being exposed to cataracts in their daily practice. And with Cheetah, I think we'll see, but I think that can continue pretty dramatically. It's hard to break it down in a way to say which is contributing more because all of the team is focused on all of them, and all of it matters, and all of it's contributing. And that gives us, I think, the confidence that you hear in our voice that we have a lot of growth to come.

Robbie, just to follow up a little bit on that, going back to some of our prepared remarks, obviously when folks look at our Lightning 7 and Lightning 12 products, those are speaking to arterial and venous to a large extent in transfer. And we did talk about double-digit growth sequentially in both of those. Obviously, this quarter anniversary and a year ago, quarter which was pretty nearly a full quarter of the initial launch of Lightning 12. Just a couple of other things to just point out and remind. We talked about the US stroke business was up 17% sequentially. That's obviously because of the receptivity of the red series of catheters and overall in the United States peripheral thrombectomy being up 10%, you know, cuts across all four of those areas we talked about, arterial, PE, venous, and coronary.

Great. Thanks for that. And maybe a quick follow-up. You know, it's been a while since we got some. You used to give out details on how many procedures you thought were happening in the U.S. and outside the U.S. neurothrombectomy markets. If you have any sense of, you know, maybe where the U.S. and Europe is on track for procedures this year, and if there's any way to gauge how, you know, just the business performance in those markets have been since the recall last year would be really helpful. Thanks a lot.

Yeah. I don't think it's fair to give out specific numbers because they're a little harder to to track during this phase. We'll certainly try to do that going forward as best we can. But, you know, to throw out numbers, you know, sort of without having the sort of confidence is a little bit harder. As you know, there are lots more players in the field and everything that makes it a touch more difficult. I will reiterate what I said. I do think, you know, the last, you know, almost two years, not quite a year and a half, has been – relatively, you know, first it obviously went down dramatically at the very beginning of the pandemic and sort of recovered. I do see, and again, just, you know, purely anecdotal at this point, so I wouldn't want to, you know, be more aggressive than that. But I do see and hear an optimism around growing the number of patients. And that's really started, you know, a month or two ago. And then I think North Carolina is just a good example of sort of the energy that's still out there in order to sort of do this work and drive those patients. So it's a good question. We'll try to do more to give you as much specifics, but I don't want to just throw out numbers. We want to be as accurate as possible.

All right. If I could squeeze in one quick one. China, I know that used to be all a – or predominantly a Medtronic market. Any sense of the impact you're making there? Is it still real early days, or how do we think about the impact you're seeing? Thanks.

Yeah, I mean, look, China's a large market, and to quantify the impact – you know, to their business is hard because it's hard to know that from here. I will tell you, you know, from the conversations I've had, there's an awful lot of interest in moving that market to aspiration-based technology. You know, the physicians there have known about it for a while. They're excited to get the products that can do that work. 868 is the first product that was more recently launched, and we're seeing some real success in those cases. So I think, again, very early days, you know, significant opportunity, and as we've said in the past, we're using, you know, technology there that's a touch older than the technology we have here. So when you look at that between now and, you know, the future where we can continue to bring the most current stuff, I have a lot of confidence that we're going to continue to do quite well in the China market going forward.

Great.

Thanks a lot. Yeah, thanks, Robbie.

Next question comes from the line of Bob Hopkins from Bank of America.

Thanks, and good afternoon. Hi, Bob. Hey, guys. I'm Maggie. I was wondering if we could dissect Q3 just a little bit more. Maybe I'll ask two things about the third quarter. You said that growth accelerated over the course of the quarter. I was just wondering if you could put a little more color around that in terms of how pronounced that was. And then secondly about the third quarter, I was wondering if you could talk about just the impact of COVID because in some regards it's an obvious, I mean, obviously it's a negative because of the disruption to hospitals. But then, you know, the nature of COVID is that it's prothrombotic. And so there's also a, a positive aspect potentially to your business and one of your competitors calls that out on a quarterly basis. So just wondering if you could provide a little more color on Q3 around those two topics, the acceleration over the course of the quarter and then how COVID impacted your numbers in terms of that headwind and tailwind perspective.

Yeah, really, really good question. Let me take a shot at doing it as best we can without just sort of guessing. The first part about the quarter, the quarter looked surprisingly normal in the trajectory of the quarter for a third quarter. And that's what we were trying to say. Most quarters do accelerate as the quarter goes, particularly in the third quarter where you start out in July. And this looked relatively normal. And that's what we wanted to point out. You know, we knew COVID was there. We saw spikes, particularly, you know, in parts of the little later in the quarter. But it didn't have an impact for us. Now, why is that the case? You know, was that, you know, patients that would not otherwise have had thrombus? but had it because they got COVID. We've done a little bit of, you know, sort of anecdotal conversation with people on that, and we don't think that was the majority of, you know, or even a significant part of the growth. We think that we're really past that. You know, most of those patients are being treated earlier, and so they're not showing up with the kind of thrombus that needs to be removed in a mechanical setting. And a lot of it is really just new physicians being exposed to the technology over time, going, it's time to switch, you know, either from another tool that they're using or from TPA, and they're learning the benefit of the lightening, both, again, on the arterial side and in PE and particularly in venous as well. So I think it was really just sort of the normal growth of a really, really important product that does really, really good work for patients. And that's what gives us a lot of confidence that we'll see this continue for a while.

Okay, that's great. And then just one quick follow-up on that. Um, you mentioned 10% sequential growth in, in vascular thrombectomy. Um, and I know, you know, I know all of the components of that seem to be doing quite well between PE and venous and arterial and coronary, but what, what is the range around that 10% sequential? I mean, are there some of the, one of those four growing, you know, 20 or 30 or, you know, in some low single digit, or is it more bunched up around 10? Just wanted to get a sense for the range of performance within the four franchises. Well,

Yeah, well, they're really three because it's hard to really know with any kind of specificity within lightning 12 cases whether lightning is being used in PE or in venous, albeit we have a feel that we're doing well in both of them, but I can't give you you know, with any kind of certainty the difference there because it's the same product. But I can tell you that all of them are doing well. I think we called out Lightning specifically. You know, it's newer. There's more work to be done. You know, so between that and CatRx, Lightning did particularly well. Again, we'll pick this conversation up after Friday for going forward. But Again, it's a good spot to be in where all of it is contributing to our growth right now.

Yeah, Bob, just to reiterate what I said a bit earlier, we did say that 10% growth was a U.S. growth number sequentially, so just making sure you heard that. And then we did also call it double-digit growth for both Lightning 7 and 12 franchises, respectively. And obviously, consistent with what Adam said, it's hard to tell DVT versus PE on that front. And then just as a quick addition to your first question, you talked about the paradigm of whether it's prothrombotic or not. I think it's a, you know, we would just point you to a different paradigm, which is the paradigm of single session therapy is certainly resonating more and more. And obviously what goes along with that is In single session therapy, you're obviously not using up the resources from an intensive care unit perspective that you might otherwise. And that is a paradigm that we're seeing and probably continues.

Okay, great. Thank you very much. Thank you, Bob.

Our next question comes from Margaret from William Blair.

Hi, everyone. This is Brandon for Margaret. I first wanted to just kind of focus within Neuro still. It was a really nice quarter, especially within the US for stroke. You know, and I appreciate maybe you don't have specific numbers for market share, but is it a fair characterization to say 17% sequential growth is maybe above the market? And I guess what I'm trying to get at is you know, after a somewhat period of maybe disruptions and a little bit of recall, do you kind of feel like with the red series of catheters here, you're on the offensive now and you're taking share as you're heading into next year?

Yes, absolutely.

Okay. Simple enough.

Oh, I can tell you more. Yes, absolutely. And We're very excited about it. There's no question we're in a great spot right now. The Red Series is just doing amazingly well, and there's just not enough time in the day to get it out there as fast as we want. But this is not even a full, full quarter, and we're seeing a lot of success. So, yes. It is a really, really, it's heartening, it's exciting, morale's high, and physicians are really reacting positively to it. Got it. The market did not likely grow 17%.

That is true.

Right. And Adam?

Maybe just in a broader sense, you had hinted at increased investments or just maybe a focus on market development efforts. Maybe within vascular, that's especially important given how large the market is and there's maybe more for you to go after. Just curious if you could talk about what kind of market development efforts you're all investing in, you know, getting from 10 to 20% penetration and beyond maybe requires some of that. So what are the things that you're investing in and how important are they to maybe the next like 12 months of growth?

Yeah, it's a great question. So there's, again, similar to stroke, you know, where we spend time with, you know, communities and hospital systems doing outreach to make sure patients were getting to the right place. Here, the outreach is a little different, but with folks and physicians who believe in single session and want to continue that, there's local outreach to make sure that the referral patterns are in place and that patients are getting to see the physicians who are already sort of committed to treating them in a single session. So there's definitely work to be done and work we are engaging in doing to do that. The other area, of course, is in clinical work. We're running some studies right now, but really importantly is the studies that we're starting to really think about and frame up that particularly in certain areas like PE, you can think about really going after all of the other patients that aren't even getting TPA but are just getting medical management and how one would attach those. We've talked about that in the past. But, you know, we've always wanted to be sure and learn a lot more. And I think as we continue here, we're starting to understand more and more the benefits of the product and technology and starting those conversations. So, again, lots ahead, pretty exciting time to bring this technology to more and more people. Got it.

And then if I could just ask one last one, the new hires internationally were interesting, clearly an area that you're investing in. Is there anything that this maybe signals to new strategies? You know, is there, have you reached the level where you kind of need to tweak how you're approaching those markets? And what could that mean for 2022 growth in the international markets? Thanks.

Yeah, look, we've always, as a company, looked to continue to hire the best people that we can possibly hire that know things we don't, bring huge expertise in areas that we can continue to learn from. And the two international hires, Fred and Joan, are just that, two really extraordinary people who can just bring a ton of experience and bolster people with their experience, things we don't know as well. So, yeah, I do expect that we can continue to see growth in international in the years ahead. And it's exciting to have them. They're a great addition to the team.

Thanks, Brendan. Our next question comes from the line of David Rascott from Truist Securities.

Hey, guys. Thanks for taking the question. First, I guess, I'll come back to this segment. You know, there's been some, I guess, M&A in the space that we've seen with some kind of the larger diversified med tech companies over the past couple months or so, and I guess How do you think about the competitive landscape shaping up here? I mean, do you see a competitive advantage for some of these thrombectomy products to be within a portfolio alongside some other complementary products that address the vascular space? We'd just like to get some sense on how you're thinking about the positioning for increased competition going forward.

Yeah, look, I've been really, really happy to see particularly some of the big companies Acknowledge that removing clot in the body in a mechanical thrombectomy tool without TPA and other stuff is the way to go. That is a huge sort of statement to the whole field that we're on the right track and I think people are starting to really pay attention to this is the future. So I think it is all incredibly important and not unexpected that that would happen. And the fact that it's happening now, I think, is perfect. As it relates to technology itself, we have a lot of confidence in our sort of computer-aided lightning thrombectomy system. It works really, really well. We know the other technologies pretty well. And just as we are, we're in really good shape. But we also, as you know, don't ever stay still. And when you add in the innovation coming in this field that we are working on, we have a lot of confidence that as the market continues to switch from TPA drip to thrombectomy, we're going to be right where we want to be to capture a lot of those patients and do really, really well for those patients.

Okay, that's helpful. I guess just following up on kind of some of the commentary that you talked about on market development within the peripheral hemectomy segment, I mean, it seems like there's been some competitors, you know, specifically within pulmonary embolisms that have announced some head-to-head RCT trials. So I guess what's, and I know in the past that you've kind of commented on or expressed at least an interest in doing some kind of head-to-head studies within the Venus segment. So I guess, what's the strategy here or at least the overall thought behind potentially either having or not having some kind of head-to-head data? And if you don't have it or if you don't necessarily kind of invest in that segment, I mean, how do you think about kind of the dynamics between growing the market as opposed to kind of gaining market share within that segment?

Yeah, no, it's a really, really good question, and I'm glad you asked it. So I alluded to it just in my last answer, but maybe I'll be more clear. So PE, which is really what you're talking about, is today the smallest segment of patients in the U.S., if we're talking U.S. numbers, that are actually treated with some form of intervention, the majority being you know, dripping TPA over a period of time. And it's only about 20,000. It's significant, but it's a relatively small group compared to the number of patients on the venous sort of DVT and arterial side that are intervened on. The real opportunity is to go after the much larger group of patients that aren't intervened on, that are just given medical management, but could likely, they have submassive or massive PEs, and could potentially benefit earlier rather than waiting until those become quite acute. So that's the study that would open up the field, that would grow the field. The studies that are going on now, no judgment on them, but they're really market sort of share type studies, and that's less interesting for us given the sort of size of the growth that we're experiencing and the opportunity we think our product is going to have. So we're really focused on really a kind of study. We haven't announced it, but as I alluded to, we're starting to understand enough to have those dialogues with some of the physician leaders. as to what would really open up the market in a more significant way. The randomized studies that are currently going really are focused on the same relatively small pool of patients.

Okay, that's helpful. Thanks for making the question.

Yeah, my pleasure.

Thank you.

Again, if you would like to ask a question, first start at the number one, your telephone keypad. Next question comes from the line of Joanne Winch from Safety Research. Good afternoon.

Hi, and thanks for taking the question. So it looks like – two questions. One is on gross margins. It looks like the new manufacturing site that you have is beginning to weigh on that. How do we think about that, not just for the fourth quarter but into next year?

Yeah, Joanne, thanks for the question. So as to our investment in our Roseville site, impact to our margin, I mean, I want to, in my remark, say that it is, they're all intentional investment. I mean, we accelerate the investment quite a bit, all because of our projection of our long-term volume growth. So as with any investment in setting up manufacturing site, The impact to the short-term margin impact will be a little bit choppy, but it will continue to support margin expansion activities throughout the year. And I just want to also add that at this point, we have not seen material impact to our margin because of macro supply chain and inflation. area, but we believe that all these productivity investment is going to help us to offset some of the macro impact in the long term.

Okay. My second question has to do with real revenue, or revenue from the real system. I said it another way. People have this already in their models, from what I can tell. Based on what I can piece together, for next year, it ranges anywhere from $3 million to $26 million. which could be the difference between you meeting or beating consensus. Can you just sort of help us get our head around that so that we're set up right? Thanks.

Yeah, so let me try to address it as best I can without going into guidance or numbers for 2022, because we're just not doing that on this call, and I want to be clear about that. The opportunities in immersive healthcare we think are, as you know from our Investor Day, really significant. It will take us time to do the work that we laid out in the Investor Day. The work is a number of things. We have to continue to work on the platform itself and doing the work to build that capacity so that we can host and have developers working with us in terms of content. We also have to do the work to provide a viable business by getting a pretty significant install base. All of that is in the earliest stages of doing the work, so whether or not the revenue is significant we'll give you a decent amount of guidance when we start talking about our 2022 guidance but the the goal is to sort of lay that out do that work not chase the the sort of short-term revenue next year or you know as we sort of do this that that is important that being said we have a lot of excitement because after Investor Day where it was then sort of a public and we can start to talk about it, we've had a lot of conversations with healthcare community who would be, you know, in effect participating in this, buying this, you know, utilizing this with their patients, with their residents and so on. And I got to tell you that, as I said in my prepared remarks, the interest, the excitement, the need to have one trusted company in healthcare provide this, where it's all clear, it's all contained, the data's secure, it's a proper use of this great technology. That level of interest, frankly, I won't say it's surprising me, I knew it was there, but it's really heartening to see that it It's coming after that sort of public discussion. So stay tuned. We'll do our best to give you specific numbers as best we can in the future. But I think we're well on our way here.

Thank you.

Thank you. Thanks, John.

There are no further questions at this time. Ms. Hamlin-Harris, I turn the call back over to you.

Thank you, Operator. On behalf of our management team, thank you all again for joining us today and for your interest in Penumbra. We look forward to updating you on our fourth quarter call.

This concludes this conference call. You may now disconnect.