Penumbra, Inc.

Hello, my name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra Inc. First Quarter 2022 Earnings 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, then the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Investor Relations for Penumbra, 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 of 2022. 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 that the year ended December 31, 2021, barred with the SEC. 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. The corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. We anticipate the prepared comments on today's call will run approximately 25 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 first quarter. And Jason Mills, our Executive Vice President of Strategy, will discuss our 2022 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 first quarter 2022 conference call. Our total revenues for the first quarter were $203.9 million. a year-over-year increase of 20.5% as reported and 21.8% in constant currency. Our gross margin increased 100 basis points sequentially to 62.5%, and I expect important investments we have made in our people, products, and production over the past two years will continue to translate into both strong growth and gross margin expansion going forward. Let me touch briefly on progress within our vascular, neuro, and immersive healthcare business during the first quarter. Then I will offer some general observations about our business, details about our new product roadmap, and growth opportunities that we see ahead. In our vascular business, we reported growth of 37.7% year over year to $122.8 million in the first quarter. We grew our vascular thrombectomy revenue 43.2% year over year, and our vascular embolization revenue 28.8% year over year. Our vascular thrombectomy growth was driven by continued robust adoption of our lightning products in the United States. We saw sequential growth across all segments of our U.S. thrombectomy business, DVT, PE, arterial, and coronary. we delivered strong growth of 30% year over year in our U.S. vascular thrombectomy business. We also expanded into China with our partner Genesis. This expanded partnership, which includes our older indigo vascular thrombectomy products, but not Lightning 7 or 12 yet, occurred a quarter earlier than expected and contributed an incremental $5 million to our first quarter revenue. In China overall, notwithstanding recent lockdowns, We have good visibility into our business, and we expect solid growth in China in 2022. We are excited to announce the launch of our computer-aided mechanical aspiration technology into the European market. We recently secured the CE mark for both Lightning 7 and Lightning 12, and the initial cases with both products have gone extremely well. Our dedicated vascular sales team in Europe which we established during 2021, is well prepared to bring this important technology to European patients suffering from arterial and venous clot, including pulmonary embolisms. On the coronary side, in late March, a new study was published in the Journal of Interventional Cardiology that confirms the extraordinary data shown in the CHETA study for CatRx presented last November at the TCT conference. This study called RAPOOST is an independent data set that shows the frontline use of CatRx to aspirate coronary clot prior to angioplasty leads to less distal embolization and better TIMI3 flow. Both are important predictors of long-term good outcomes for these patients. The study investigators said that they, quote, strongly believe that the Penumbra CatRx device should be used before any balloon angioplasty in patients with high thrombus burden, close quote. Our work to reach more of these patients is making great progress and will continue. In sum, our vascular business is our largest business and the number of patients we can help in our target markets is large and under-penetrated. We are expanding globally with our unique lightning products and the combination of our current product portfolio and new product roadmap, which I'll discuss more in a few minutes, gives us a lot of confidence that we can deliver strong growth for a number of years. Our neuro business grew to $81.1 million in the first quarter, or 1.3% growth over the first quarter of 2021. Globally, our stroke revenue grew 3%, which was in line with our expectations. Our stroke revenue was sequentially lower than the fourth quarter due to a mid-shift in our revenue in China, owing to our expanded partnership with Genesis on the vascular side. We expect the mix between neuro and vascular revenue in China will fluctuate quarter to quarter, but grow overall. Importantly, our U.S. stroke business delivered mid-teens growth year over year. Indeed, we believe we are at a very important moment in time in the ischemic stroke market. Notwithstanding a preponderance of clinical evidence over past years proving mechanical thrombectomy is unquestionably the best treatment modality for large vessel occlusions, only one in four of these patients are being treated this way in the U.S. The current paradigm in stroke treatment has brought us to this point, but we must do better for patients. Indeed, based on all we've learned in stroke thrombectomy, over the past 18 years, including many years of work on Thunderbolt, I am very optimistic that we are at the precipice of a new era in stroke treatment. We are excited to prove out our confidence in the Thunderbolt trial. Whereas the IDE has not yet been issued, we believe the trial will be a single-arm trial with approximately 150 patients with typical short-term endpoints. We expect to start enrolling patients this summer. Assuming Thunderbolt performs as expected, we hope to launch Thunderbolt in 2023. Meanwhile, we'll be moving this field forward with new catheter technology that will serve as an important bridge to and critical component of the future Thunderbolt paradigm. Thanks to the successful launches of REDD-6268, and 72 in the United States during 2021, we saw strong growth in our U.S. stroke business again this quarter. I expect our U.S. stroke business to achieve record quarters as we move through 2022, driven by red and momentum around our Thunderbolt trial. In addition, we plan to expand our red family in the U.S. later this year, which we think could have a positive impact on our U.S. stroke business late this year and beyond. Outside the U.S., we are launching the red catheter family into Japan this quarter. Japan is an important market for us and one in which we see tremendous opportunity going forward, not just with our new neuro products, but also with our vascular thrombectomy products. Further, we plan to launch our red catheters in Europe during the second half of this year. This launch will mark the first new stroke product in the EMEA region for us in more than three years, and we think our growth in this region will increase as a result. In sum, we have the most robust neuroportfolio in stroke, and we expect new red catheter launches around the world, coupled with enrollment in the Thunderbolt trial, will drive momentum in this business through 2022. In 2023 and beyond, we think the launch of Thunderbolt could accelerate our business. Turning now to immersive healthcare. We are making enormous progress and plan to communicate metrics applicable to our progress beginning later this year around three important areas. Number one, new product development in hardware, software, and content. Number two, the number of third-party partnerships which should drive scale to the content on our platform. And three, partnerships with key companies within several large healthcare channels which will drive our RealSystem installed base in the United States. We have now treated nearly 4,000 patients since RealSystem was launched in the US in the early days of the pandemic. We have increased our presence at important industry trade shows including the HIMSS meeting last month at which 40,000 people attended. Our conversations with hundreds of potential partners have validated our business model and approach to this new market. We are pioneering the first full-scale platform in immersive healthcare and will continue to invest appropriately in this important area. Now, I'd like to spend a few minutes on general observations about our business and future growth drivers. Overall, we're seeing benefits from the increasing scale of our business. We are investing in our people, and market development initiatives to reach more patients as we invest proportionate to the myriad growth opportunities in our target markets and geographies. In sum, we will continue to innovate in both interventional and immersive healthcare while we run a profitable business in 2022 and beyond. We are quickly approaching the $1 billion level in global revenue. which we originally set as a goal before the pandemic at our investor day in 2019, when our business was roughly half that size. Our growth has come organically, developing products that matter for patients across six large markets. We are still very early in each one of the five interventional markets and our immersive healthcare business, which could scale to be our largest business in five to six years, is making the kind of progress I expected when I communicated our vision at the Investor Day last fall. In past calls, we have focused on where we have been and what we have done. We are proud of both, but we must communicate more about where we are positioned to go in the future. Our core markets are obviously attractive, and this inevitably attracts competitors. That said, it is important to be clear about how we will continue to win. Our focus on improving patient outcomes will drive our leadership in these markets, and our growth is a direct product of our innovation culture, core principles of which are unique, continuous, and impactful innovation. This culture not only keeps us ahead in patient care but it also gives us the opportunity to change paradigms, to take patient care to another level. For 18 years, we have worked purposely to prevent taking blood clot out of the body, first from the brain, then the arterial system, the coronary vasculature, and the venous system. We have taken innovation in this field well beyond simply a catheter and an aspiration source. We know what's critical in a thrombectomy system to do this work with the utmost safety and efficacy. First, technology to prevent taking too much blood out of the body is important. Tracking the appropriately sized catheter tailored to the specific anatomy quickly and safely is important. Taking all of the clot out is important. Smart continuous power aspiration is important. And finally, doing all of this work inside the vasculature without causing trauma to the blood vessel is important. Trade-offs between these core criteria in clot removal are no longer acceptable because they are no longer necessary due to our innovation in two core areas. integration of computer technology into the thrombectomy system, and development of next generation catheter technology. We will lean in aggressively to this paradigm to help our physician customers realize the differentiated benefits of using our technology to treat patients with venous arterial coronary and neuro clot. With that understanding, let me give more details about the new products we have coming on the interventional side of the business. First, we believe we have paradigm-changing products launching over the next 18 months in both neuro and vascular. These include Thunderbolt and ischemic stroke, as we have discussed, and significant innovative iterations of our Lightning product portfolio for DVT and PE, and a new technology, Lightning Bolt, for arterial clot, both of which combines and expands on our latest technology. In addition to this game-changing technology, we plan to launch several products that will augment and expand our unique portfolios in both neuro and vascular. Throughout our history, the combination of paradigm-changing innovation and differentiated product expanding products has expanded our leadership positions in the markets on which we focus. Importantly, our increasing scale and growth gives us the opportunity to attract additional leaders who will expand our capacity to grow well into the future. I am excited to announce the addition of two new senior leaders. Sandra Lesenfant has joined Penumbra as president of our interventional business, and Joe Sendra has joined as senior vice president of operations strategy. Sandra has spent a career in the interventional space, with our last two interventional jobs running structural heart and endovenous, respectively, at Medtronic. Joe spent his career at Johnson & Johnson, most recently as Vice President, Worldwide Engineering and Technology. In addition, we successfully transitioned to a new ERP system in early April. This is an enormous amount of work and required collaboration across a broad cross-section of our global team. This extraordinary work encompassed two and a half years of careful planning and execution. It is paramount to our increasing size and scale. The ERP transition is one of a few notable investments we have made over the past two years to augment our supply chain, expand our manufacturing capacity, and deepen our leadership team. The gross margin improvement this quarter is a good start, and we see additional productivity improvements ahead. And all of these investments are foundational to our commitment to continue to deliver strong, durable growth. Finally, I was back on the road during the first quarter visiting over 40 physicians across the country. It was great to be back in person with both existing and potential customers. We learned a lot about what they are dealing with on a daily basis and how we can help them treat their patients more effectively. within this new environment as they continue to deal with the staffing shortages. Nearly everyone with whom we spoke expects the staffing shortage challenge to continue for some time, and this is making hospitals more acutely aware of pricing and cost within their system. We received many compliments about our pricing philosophy as a company, as well as how our products are allowing them to successfully treat patients who suffer from significant clout burden. Our pricing philosophy has been longstanding and purposeful and has helped create a sustainable and competitive advantage, both near and long term. I'll now turn the call over to Maggie to go over our financial results for the quarter.