Penumbra, Inc.

Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's third quarter 2022 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, please press star one again. 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 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 for the year-ended December 31, 2021 files 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 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 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. Adam Elsesser, Penumbra's Chairman and CEO, and Sandra Lesenfant, our President of Interventional, will provide a business update. Maggie Ewen, 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 guidance. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Chief. Good afternoon. Thank you for joining Penumbra's third quarter 2022 conference call. Our total revenues for the third quarter were $213.7 million, a year-over-year increase of 12.4% as reported and 15.1% in constant currency. Our global vascular revenue grew to $123.4 million, up 17% year-over-year, while our global neurorevenue increased to 90.3 million, growing 6.7% compared to the same quarter a year ago. Growth in our vascular business was driven by our peripheral thrombectomy franchise, which increased 19.8% year over year, led by share gains in venous, while our peripheral embolization business grew 12.4% year over year. In neuro, our global stroke business grew 16%, year over year, partially offset by our embolization and access businesses. Our gross margins were 63.3% up slightly year over year and down sequentially due to product mix. We significantly increased our non-GAAP operating income to $7.8 million, representing 3.7% of revenue in the third quarter, which does not yet include any material benefit from the reorganization of our immersive healthcare business that we did during the second quarter. It is also important to note that we're having a very strong start to the fourth quarter. Now, looking forward to next year, we expect to accelerate our growth and achieve at least $1 billion in total revenue. We are excited to launch three paradigm-changing products, Lightning Flash, Lightning Bolt, and Thunderbolt, that we believe will fundamentally change how clot is removed from the body and the brain. We expect these three product launches will drive significant share gain for Penumbra in PE, DVT, arterial, and stroke, as well as accelerate physicians' conversion to computer orchestrated aspiration from lytics, surgery, and medical management. Moreover, we reiterate that we expect our gross margins to expand in 2023 and beyond, exceeding the 70% level in a few years. While gross margin improvement won't be linear, we have confidence in the work we are doing to deliver higher gross margins over this time period. Further, and perhaps more importantly, we expect to continue driving higher operating profitability in 2023, notwithstanding prevailing macroeconomic headwinds. In sum, reflecting on this, Our 29th earnings call as a public company, we believe that the combination of our strong innovation engine and our prospects for accelerating growth, expanding gross margins, and increasing profitability makes this upcoming year the most exciting in our company's history. I would like to spend most of my time on this call talking about what's to come next year and why we think it matters so much to patients. Sandra and I have spent a large portion of the last three months meeting with physicians and attending medical meetings in both vascular and neuro. Without question, the prevailing theme permeating these conversations has been a focus on advancing solutions for removing more clot faster, easier, less traumatically to patients, and with even less blood loss. With this in mind, we are very excited to say that what the world wants today is here. The latest advances to our proprietary computer orchestrated technology will be delivered through the anticipated launches of Lightning Flash, Lightning Bolt, and Thunderbolt, which accelerate our journey along the arc of innovation in thrombectomy in both vascular and neuro. These advancements have been made possible because of our microprocessor controlled software algorithms. that orchestrate the interaction of our pump and our catheters, giving us the ability to innovate even faster. In sum, our proprietary computer orchestrated innovation gives us the unique ability to deliver exponential advancements within the field of thrombectomy that are simply not possible with mechanical devices alone. Lightning Flash will be the first of these new products launching in 2023 and it will be focused on the venous anatomy. We expect Lightning Flash will be the most impactful product launch in the company's history to date, building on the momentum of Lightning 12. Indeed, Lightning 12 had its best quarter ever in the third quarter, continuing to take share in both US and international venous thrombectomy, both of which grew double digits sequentially. Lightning 12 is continuing to take share in DBT and PE through the current quarter, and we expect our growth and share gain in venous thrombectomy will accelerate with the launch of Lightning Flash, which we are planning for January rather than mid-fourth quarter. While this six-week change in the timing of Lightning Flash changes our fourth quarter projections, the positive impact we expect this product to have on our business in 2023 has only grown. as Jason will discuss later in the call. The advancements in both software and catheter technology built into Lightning Flash produce a revolutionary breakthrough in how our proprietary computer orchestrated technology makes aspiration decisions. Flash makes these decisions automatically and much faster. In sum, the power, speed, and blood loss mitigation profile of Lightning Flash will, I believe, make Flash the market-defining technology for both pulmonary embolism and deep vein thrombosis once it is launched. Moving to the arterial side, our team continues to do important work to develop this under-penetrated market, yet we still have a long way to go as most arterial thrombus is still treated with lytics or open surgery today. Therein lies the huge opportunity we see with Lightning Bolt. Lightning Bolt incorporates two distinct algorithm sets, One is our proprietary modulating aspiration technology used in Thunderbolt, and the other is the technology that distinguishes clot from blood to maximize clot removal and minimize blood loss used in Lightning Flash. In Lightning Bolt, both of these algorithm sets are customized to pair with our arterial catheter system. We are as excited about Lightning Bolt's potential in arterial as we are about Lightning Flash's opportunity in venous. We expect both products to have a huge impact on vascular patients as well as our business. We plan to launch Lightning Bolt during the second quarter of 2023. Now let me turn to Thunderbolt and our neuro business. Earlier this quarter, we began treating patients with Thunderbolt in the Thunder study, and we can say that this product is performing exactly as we had hoped. Because of this, we have even more confidence today that Thunderbolt could completely change the paradigm in ischemic stroke treatment, driving better patient outcomes. We also think Thunderbolt could drive an increase in stroke procedure volume. There are over 200,000 patients who suffer a large vessel stroke in the US annually. We think Thunderbolt could be the technology that energizes expansion in the number of these patients treated each year. And finally, we continue to think Thunderbolt will allow doctors to use smaller catheters while getting the unique benefits of our proprietary modulating aspiration, faster, more complete clot removal. This could allow physicians to treat even more stroke patients in the future by advancing routine treatment of both large vessel and distal occlusions. We continue to expect to launch Thunderbolt in the United States in the second half of 2023. Before I ask Sandra to discuss our robust clinical evidence strategy, it is important to mention that the product development and geographic growth opportunities we have in front of us go even further than the three cornerstone products I have focused my comments on so far. We anticipate launching additional new products in 2023 making next year likely the largest number of new products launched in a single year in our history. Moreover, in Europe, the recent launch of our red family of stroke catheters drove sequential growth for our stroke business in the third quarter, while the launch of Lightning 12 and 7 accelerated our peripheral thrombectomy growth. In 2023, we expect continued adoption of these products to drive accelerating growth from our European business. We're also excited about our growth opportunities in China and Japan going forward. In China, Genesis has proven to be an extraordinary partner with whom we hope to expand our business with additional products. In Japan, we are very excited to bring our peripheral thrombectomy products to Japanese physicians and patients in 2023 in collaboration with our newest vascular partner, Asahi Intech, whose management, team, culture, and reputation are very impressive. I'll now turn the call over to Sandra Lesenfant, President of our Interventional Business, to give an update on our clinical work.