Penumbra, Inc.

Good afternoon. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's third quarter 2023 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 again. Thank you. I'd 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 2023. A copy of the press release and financial tables, which include the 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, 2022 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 of 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. 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 gap measures and a reconciliation of gap to non-gap financial measures are provided in our posted press release. Adam Elsesser, Penumbra's Chairman and CEO, will provide a business update. Maggie Ewan, 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 2023 guidance. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Chi. Good afternoon. Thank you for joining Penumbra's third quarter 2023 conference call. Our total revenues for the third quarter were $270.9 million, a year-over-year increase of 26.8% as reported and 25.9% on a constant currency basis. Our worldwide thrombectomy business achieved record revenue of $179.1 million growing 38% on a year-over-year basis. Our worldwide embolization and other revenue was $91.9 million, increasing 9.5% over the same period a year ago. Our global vascular thrombectomy business led our growth, increasing 56.9% year-over-year, while neurothrombectomy grew 10.3% year-over-year. We had another very strong quarter in the United States, as revenue of $194.8 million grew 30.9% year over year, led by total U.S. thrombectomy, which increased 42.1% year over year. Our strong growth in thrombectomy this quarter, during which we did not have new product launches as we've had in the first two quarters of the year, shows how demand is building for our computer-assisted vacuum thrombectomy and stroke products. In fact, we expect our total thrombectomy growth, both in the United States and globally, to accelerate slightly in the fourth quarter on a year-over-year basis, and we expect growth in embolization and access to be similar to the third quarter. We expanded our gross margins in the third quarter to 65.6%, strong revenue growth and gross margin expansion, coupled with disciplined operating investments and commercial execution, made the third quarter the most profitable quarter in our company's history. Non-GAAP operating income was a record $33.2 million, representing 12.3% of revenue. We posted record adjusted EBITDA of $51.5 million, or 19% of total revenue, compared to $14.6 million last quarter and 8.9% in the third quarter last year. We also grew our operating cash balance by $27.8 million sequentially. Looking forward, we expect to deliver strong revenue growth, gross margin expansion, increasing profit margins, and strong cash flow in 2024, 2025, and beyond. Penumbra is the largest thrombectomy company in the world, and developing proprietary technologies To take thrombus out of the body, wherever it is, from head to toe, has always been our mission. Almost 20 years of incremental innovative successes have led to this transformational moment in our company's history and the thrombectomy market. We have now successfully developed proprietary computer-assisted vacuum thrombectomy products that optimize the three most important elements of clot removal. Safety, speed, and simplicity. Lightning Flash and Lightning Bolt 7 and Red 72 Ascendant are currently driving our momentum. Because of these products, we expect to achieve an extraordinary milestone during the fourth quarter. We expect to treat more than 100,000 clot patients in the United States during 2023 alone. with our thrombectomy products. We obviously still have a long way to go to help the 1,250,000 patients each year in the U.S. that have significant clot burden, but this is a notable achievement for our physician customers and our team. In vascular thrombectomy, we had a strong third quarter. Lightning Flash and Lightning Bolt 7 delivered strong growth for our U.S. arterial and venous franchises. This success was achieved with over 1,200 total customer accounts, which we define as hospitals using either Flash or Bolt. So in some cases, hospitals are counted twice if they are using both products. As an update on the number of pending accounts, which are in addition to those I just mentioned, we succeeded in obtaining well over 650 new VAC approvals last quarter for Flash or Bolt. and these accounts are now working through the typical supply chain process prior to placing their initial orders. We expect many of these customers to order and begin using Flash or Bolt this quarter. In addition, we currently have at least 600 additional accounts that are still working through the initial VAC process, and we expect most of those accounts to order in Q1 or Q2 of 2024. Therefore, we expect the majority of our potential customer base will have flash or bolt on their shelves during the first half of 2024. Once these products are available and starting to be used, our work shifts to going deeper with training and increasing the use of CAVT in cases that currently use open surgery or lytic as the primary mechanism. So far, the reorder rates for both flash and bolt are as high as any product we've ever launched in thrombectomy. In stroke thrombectomy, we are gaining share from our already majority position. REDD72 with SENDIT technology is still early in its adoption curve as many hospitals work through the submission process for this product as well. We currently estimate that we have over 55% share of the US stroke market for aspiration catheters compared to 28 other aspiration catheters that are competing against each other in the rest of the market. Looking forward, we believe our new technology for both the front end of the stroke procedure, namely trackability with Red72 SendIt, coupled with our innovation for the back end of the procedure, clot extraction with Thunderbolt, can drive our share to 70% plus over the next several years. The two questions we get asked the most by investors are, first, are we ready to meet this moment of opportunity in thrombectomy? And second, what specific work is Penumbra doing to bring CAVT to the other 90% of patients who aren't receiving thrombectomy today? The answer to the first question is yes. I am confident that our team understands the serious work ahead and is able to meet the moment and think bigger than ever before. Now, without sharing competitive information, let me outline the specific areas of work ahead. Our work is focused on three areas, innovation, internal readiness, and implementation of market access work modeled after the historically best companies' work for long-term sustainable growth. First, our innovation pipeline is robust. We are hearing from our physician customers as well as hospital systems that computer-assisted vacuum thrombectomy is the future standard for thrombectomy. Over the next 18 months, we plan to launch four new CAVT products in the United States. Coupled with FLASH and BOLT7, we expect our CAVT portfolio will drive both market share and market growth in DVT, PE, and arterials. In addition to these new products coming in the near term, we have made significant advancements with next generation technology that could expand both the scope and dominance of our CAVT platform over the long term. We will talk more about these developments in the future, but for now I will say that these technologies will be integrated into our CAVT platform and will be able to provide unique benefits to our physician customers and their hospitals, including further optimizing patient outcomes and physician use. The second area is internal readiness. We have already started serious work on efficient manufacturing at scale, which includes raw material acquisition, stable supply chain, and efficient capacity utilization. We have also started the work to bring even more efficiency and scale to our customer and sales field support teams, enabling faster order processing time in all time zones. And of course, we are focused on evolving our commercial team, particularly in vascular. Currently, our team has a lot to focus on, launching two new transformative products in thrombectomy, plus continuing to grow with our current coronary thrombectomy product, and our market-leading embolization portfolio. With an appropriate investment that we believe marries well with our movement to stronger profitability, we will evolve the commercial team over the next two quarters, putting the team in an even stronger position to take advantage of the opportunity in 2024 and beyond in thrombectomy. Third, we are starting to implement a strong market access program based on depth and class historical programs focused on our computer-assisted vacuum thrombectomy platform. Internally, we refer to this work as the Penumbra CAVT Initiative, and it is being led by senior leaders across the organization, including Dr. Jim Beninati, our chief medical officer, and Dr. Venkat Tamala, our associate chief medical officer, working closely with senior leaders in the clinical specialties of interventional radiology, vascular surgery, interventional cardiology, and neurointervention, together with leaders in our reimbursement clinicals and commercial organizations, and in concert with external partners. We believe this initiative will substantiate the advantages of our CAVT platform over the long term. With the important work we are doing in innovation, internal readiness, and market access, we are well on our way to bringing computer-assisted vacuum thrombectomy to all hospitals treating patients with blood clots across every vascular bed from head to toe in the United States now and internationally as these products become available in the years to come. Indeed, in the United States where we have lightning flash both and send it, our thrombectomy business will comprise about 67% of our domestic revenue in 2023 and we expect it to grow to over 70% in 2024. By contrast, our thrombectomy franchise outside the US will represent approximately 55% of our international sales in both 2023 and 2024, after which we expect our new CAVT portfolio products will influence our international growth as it is in the US today. Our growth potential over the next several years is significant. with our commercial focus on thrombectomy globally, plus where there are opportunities for profitable growth in embolization and access. And we are in the early stages of strong operating leverage, while we still make the important investments focused on these three areas. The road ahead won't be a straight line, nor will it be free of challenges. But if we continue to do the right things, think bigger, and work purposefully, we can help many more patients while stewarding a growing profitable business over the next several years. I'll now turn the call over to Maggie to go over our financial results for the third quarter.