Q2 2020 Penumbra Inc Earnings Call
Good afternoon, my name is and I'll 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. I'm going to speakers or March that 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 will now like to introduce Miss Hamlin Harris investor relations for penumbra 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 second quarter twenty-twenty a copy of the press release and financial tables, which includes a gas to non-gaap reconciliation can be viewed under the investors tab on our company website at ww.w. 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 a financial performance commercialization clinical trials regulatory status with 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 fourth quarter ended June Thirty $20 20, which is scheduled to be filed with the SEC on August 2020 as well as those described in our 10-K for the year ended December Thirty One 2019 Dodge.
Which was filed with the SEC on February 26th, 2020 at the results. 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 ten q and 10K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results for the market price of our stock including but not limited to the impact of the Chrome icon our business results of operations and financial conditions pin number 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 cold will run approximately 19 minutes Adam penumbra's chairman and CEO will provide a business update Magie 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 Elsa.
Thank you cheap and good afternoon everybody. Thank you for joining four numbers second quarter 2020 conference call our total revenues for the second quarter $150,000 a year over year decrease of 21.7% is reported and 21.3% in constant. Currency. Maggie will further review the finance channels as well as more details on our balance sheet in her commentary.
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 on a 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 surface this past quarter. And how number is addressing it both internally and externally first as we discussed on our last earnings call pin number confronted the covid-19 pandemic off my 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 and keeping up wage.
demand
To the overall business. We have also focused on cost reduction wherever possible and prudent on the customer's 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 friends from the quarter now overall business. We saw uniform Improvement as the quarter progressed specifically off in direct selling markets our business achieved slightly less than 90% of levels in the second half of the quarter. In fact Trends in June were even worse 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 moral certainty 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 Pub 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 to 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 wage should fundamentally deviate from the General Revenue trends of our medical device peers.
Beyond the numbers. The number 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 whether covid-19 pandemic will continue to pose challenges. I am convinced the numbers culture prepares our team to meet this challenge confidently off and with the 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 and our company's history month already strong balance sheet during the second quarter in addition to the previously announced $100 revolving line of credit with JP Morgan Bank of America and Citibank on which we had
not drawn
Late may we executed a follow-on offering the company and approximate $135 million dollars. 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 a particular note because of the financing we have felt comfortable with a rating 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 had 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 with specifically in mid-may we welcome Jason Mills Toopy number as Executive Vice President of strategy.
A few weeks ago. We announced the appointment of dr. Corey tigan to Chief scientific officer. And dr. Jim benenati to chief medical officer to newly-created positions Thursday. It is an ideal time for us to welcome Jason Corey and Jim two phone numbers leadership team as we move into our next phase of growth.
Now I would like to highlight a few developments with our products that occur during the first half of 2020 that I believe are very important to remember during our December investor day. We stated that we expected one stroke and two peripheral thrombectomy products to be cleared by the F Day 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 Strokes 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 a.m. Which is a significant advancement and how Claude is removed from the body. It is worth noting how we launched lightning 12. We introduced this revolutionary system through a unique virtue 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 12:00 Paradigm as we think it is important to convey the uniqueness of this technology the lightning twelve system includes a new larger aspiration catheter long did incorporate novel laser-cut hypotube catheter engineering to provide Advanced deliverability and torque ability within the body this unique larger clubs combined with lightning intelligent aspiration tubing, which is perhaps the most Innovative technique and Technology 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 allowing Physicians to focus on optimizing thrombus removal while reducing concern over blood loss.
the combination of these two products makes lightning 12 two numbers most
Removal technology the feedback from Physicians has been very positive and very inspirational for our entire team for example in Lexington, Kentucky. Dr. Nick Betty called our local territory manager regarding a patient a young woman who is 36 weeks pregnant and who had blood clot in the entirety of her left leg out 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 doctor Betty 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 month after 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.
Use lightning 12 on this patient and was successful and removing the blood clot. In fact doctor Betty told me during recent phone call that this is the most amount of cloud I have ever taken to someone. This was a great result in a very difficult case and another case the patient was admitted to a hospital in Florida with acute and chronic thrombus in his right palm brachial cephalic vein given that Florida is currently a covert hotspot. All the ICU beds in this particular Hospital were full at the time. This patient was admitted the stripping a over few days while the patient was in the ICU was not an option doctor venkat samala of the Lakeland vascular institute needed to treat this patient and send them home on the same day doctor Tamala asked our local territory manager to bring in lightning 12 to treat this patient the procedure took only 45 minutes and had very long.
Even better this patient who cannot make a fist before the procedure was able to flex their fingers just after doctor Tamala finished removing the cloud also because of the skill of doctor Tamala and lightning 12. This patient was able to go home the same day doctor tomorrow told me on a recent phone call that he believed that lightning 12 a.m. Quote a game changer for treating large volumes of blood clot on the venous side without the need for Linux. These cases are just two of the early cases that illustrate the Paradigm change light and 12 is bringing to the field. I am so proud of our entire engineering team for their incredible work on this product.
Finally, I'd like to discuss the impact on for number from the national discussion on racial Injustice and 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. But number is already extremely strong cream incapable in large part because of our diverse employee base, but I believe that this work will make the numbers even stronger and more capable as we continue on a mission of identifying developing and delivering therapies that truly matter to patients.
finally
Was standing 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 Life 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 deals are being honed through tireless dedication teamwork and effort during this crisis.
On the alternate called over to Maggie.
Thank you, Adam. Good afternoon. Everyone for the second quarter ended June thirtieth twenty twenty total revenues were 105.1 a decrease of 21.7% reported and 21.3% in constant currency compared to the second quarter of 2019 out Geographic mix of sales in the quarter were 74% and 26% International represented percent 44% of sales respectively furthermore given distributor channels real life in our international business. We believe it is constructive to provide additional color disk order on Regional performance for both our vascular and Euro businesses.
Revenues from a business were forty six point three million in the second quarter of 2020 a decrease of 12.1% reported and 11.9% in customer in the quarter. Our vascular decline was driven by results from both outgrown back to me and embolization businesses. Both of which were more negatively impacted by covid-19 in the fourth quarter the US vascular business declined 5.7% reported and international vascular franchise declined 36.7% reported compared to the second quarter of 2019.
Revenues from our old business or fifty eight point eight million dollars in the second quarter of 2020 a decrease of 27.8% reported and 27.3% in constant currency compared to the same period a year ago our business declined 13.3% reported compared to second quarter of 2019 and in a franchise declined 45.4% reported compared to second quarter 2019. Our neuro decline on the global basis was primarily driven by sales of a part number system for a long while our International New Road business was impacted by distributor order timing our gross margin in a quarter was 61.8% of Revenue compared to 7% of Revenue in the same quarter last year.
Our second twenty20 margin performance reflects volume to leveraging with minimal impact from ASP and product mix during the quarter. We maintained over our manufacturing spending at home twenty twenty levels as we made a conscious decision to continue to pay all of our direct labor at 100% while reducing labor capacity per shift to achieve social distancing and employee safety issue as a result certain labor costs were reflected as additional. Expense in the quarter. We expect our near-term gross margin will be similar to second-quarter levels as we continue to age volume absorption and investment in capacity expansion and scalability in our new Roseville so facility.
Operating expenses for the quarter was eighty two point six million dollars or 78.6% of Revenue compared to eighty one point 1 million dollars or 60.5% of revenue for the same quarter of a year ago representing a sequential cost reduction of just under 10% compared to the first quarter 2020. I'll spend control measures include Executives voluntary salary reduction certain age and related expenses and fewer activities such as travel and entertainment and conferences all of which drove a 20% spending reduction in sg&a compared to first quarter 2028 notwithstanding some accelerated investment in production capacity commercial digital capabilities product launches and new product development our research and development expenses were trying to point seven million dollars for Q2 $20 compared to thirteen point five million dollars for Q2 2019 as we accelerated investment in few important long-term growth wage.
Opportunities for the number which Adam reference earlier sg&a expenses were fifty nine point nine million dollars for $220 compared to sixty seven point seven million dollars for a 2019 we had operating loss in the quarter of Seventeen point six million dollar compared to an operating income of 12.8 million dollars for the same period last year.
Turning to our cash flow and balance sheet. We end a second quarter 2020 with $278 in cash and cash equivalents and marketable securities and no debt off that cash increased 110 million dollars reflecting approximately $135 million dollar net cash proceeds from the secondary offering in May all set by choice in operating activities during the second quarter notwithstanding our strong balance sheet. We will continue to control spending where it's prudent to do. So during uncertain times while still focusing on in Iraq and Strategic investment.
Finally due to the uncertainty caused by the covid-19 crisis in early April we withdrew guidance for 2020. We are maintaining this policy today as we cannot relax. We predict that recent Trends in our business are indicative of a recovery, especially given the recent acceleration of cases in the United States and in some markets around the world and now I'm back to turn the call back to Adam for closing remarks and I have outlined notwithstanding the challenges and uncertainty due to the Panthers a number is well positioned for strong long-term growth. I would like to use my closing remarks to clearly acknowledged that this strength is only possible because of the remarkable people who work at penumbra and the extraordinary work they do every day in addition. I want to extend my gratitude to every employee wage.
For the sacrifice you were made.
During this very challenging time. Thank you. And now 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, please press star then the number one on your telephone keypad and we'll pause for just a moment to allow the participants to enter the queue.
Your first question comes from the line of Bob Hopkins.
Hey great. Good afternoon. Can you hear me? Okay?
Yeah, hi, Bob. Hey Adam, how are you? Thank you for taking the question. First question is just a clarification on your comments on the impact of their actions of the United States and the just wondering sorry if I missed this, but could you quantify the impact on the the company in the second quarter and maybe gave us a sense for how long you think this this last just looking for a little clarification on the distributor commentary you made? Thank you.
Sure, so we didn't quantify that portion of our business. We highlighted, you know, the majority the vast majority of our business, which is direct as you know, Distributors make up somewhere between ten and 20% of our business. So the vast majority is not that and I was pretty clear to say that we didn't think that this was a month any form of a fundamental situation other than just those companies many of them family-owned distributorships managing their own businesses through this time. So I I don't think it has a any kind of long-term effect other than a quarter-by-quarter managing their business and to look at really are that busy as we control which is again the majority of the of of the business our Revenue. Okay. I just wondering if there's a quantification of the impact in Q2 total revenue, but from that I realized
The short-term issue but it's just curious the other the other thing I wanted to ask about him is just just to clarify your message on your commentary on June and Beyond and to make it easier for investors. Wondering if you could just let us know what the numbers total company year of your Revenue growth rate was in the month of June, you know, cuz we have that data from a from most of the companies and Medtech and then also want to make sure I heard your message correctly on Trends post June cuz I I think you basically referenced it because of the spread of code things have slowed a little bit post June, but just wanted to make sure I I heard you correctly.
Yeah, I we what we said in our prepared remarks were we qualified the second half of the quarter versus the first app. So the first month six weeks versus the second six weeks and then we mentioned that June was a tick up from that so we didn't purposely use numbers off and and Bob I totally understand, you know, the desire to know, you know, sort of the very micro-trends, you know, and then sort of into July as you've alluded to how things are going home. I I totally get that, you know, I've even heard some folks are asking companies sort of for a week-by-week, you know analysis of their numbers, but from our perspective, you don't really get birth information looking on those kind of trends that that being said and to be totally transparent, you know, our July numbers are on a even wage.
upward trend from
Those before but but what I wanted to say in the point that we want to make is really important. And and that is the acceleration of cases. I'm always sort of leads is a leading indicator of the hospitalization numbers and and we saw a huge acceleration cases in the month of July and so long. It's just sort of prudent. If you look at mainstream media and statements from public health officials, even in the last days over the weekend that sort of looking forward is hard to predict where this goes. We have no information. There's nothing about our business that is fundamentally different than our med-tech peers a point that we wanted to make money, but it's not prudent for us to project out that end of this quarter even the successful start of this the quarter to any kind of dog.
Friends for the whole quarter given the way this is playing out. So we just wanted to be Crystal Clear again. We have done. Well, we've seen an iceberg uptake, but we think just as our peers are saying we cannot predict how this goes for the rest of the year.
Okay, so I guess that the message is and I apologize for the short-term nature of the beast, but it's just a unique environment. So I guess the message is July is July is better in June, but be careful about extrapolating because of all the ads on t.
Yes.
Great. Thank you very much for entertaining the questions. Appreciate it.
Of course, of course.
Your next question comes from the line. Oh Cecilia furlong.
Great. Thanks for taking our questions. I guess I just want to start first just from a high-level perspective your perspective purple bath and DVT with lightning now just the role that Technology Innovation versus clinical data can have in driving the market and just really any Market differences you'd call out versus your experience with the stock market.
Yeah, thanks for that question. I think it's a great question to sort of compare it to stroke The Strokes Market needed the clinical trial that took out a number of years ago to prove that we should be treating these patients in the first place. And that was really the most important thing to lead and open up that market and then we had the second page asked that we're still in which is to make sure that those patients who have strokes get to a hospital where they can be treated that's dramatically different from the way the peripheral is is presenting itself. And what we did at our investor day in December was we outlined over 400,000 patients in the US Bank that are currently being treated for their clot either intervention Lee already most of the time using an Interventional administration of birth.
EPA or
EPA and devices or surgically through vascular surgeons. So these are patients that are already being treated with no clinical dead around that treatment. If you were to do clinical work to prove for example in PE or DVT that the use of some of these numerous techniques particularly liking twelve were better than what the sort of original standard of care is which is medical management. You could even take that five hundred twenty or thirty thousand number to a much larger number and probably get up to six or seven plus hundred thousand. So and again, these are all patients that are already being treated in the same lab that our customers with our customers that are using lightning 12. So there is definitely clinical work ahead of us in our plans, but that is really more wage.
Grow the market from the 430,000 patients rather than to tap into that initial large Market.
Great. Thank you. And I guess if I could just ask about your commentary regarding just the benefits you saw in the quarter launching this virtually but really just how you're thinking about launching products going forward. What were the biggest benefits and and just being able to really streamline that process?
Well, I yeah, thanks for asking a question. I'm going to I'm going to keep some of our exact strategy even though it's you know, sort of played out a little Club because I don't want some uh everyone else to use it against us. Um, but but I will tell you, you know, it's it's kind of extraordinary to adapt and deal with, you know, the the the world as it unfolds and and our team found a way to really engage and using the tools and and being very creative in the way done that to get the information about this product out there in a much much, um, uh sort of short time frame, you know, normally when you launch a project, you know, you start and your sales team starts to make appointments and cause doctors and then meets with them and and that process is pretty tried-and-true and it works but it takes a certain amount of birth.
And we were able to collapse some of that time pretty dramatically because of the launch techniques we used and and and the nature of time whether or not it's successful in a world in which we're not dealing with the pandemic, you know, that's hard to tell it may or may not have have long legs be on this but it certainly was quite quite effective for us with this launch and you know not to be cute about it helps that the product is as good as it is cuz it's really kind of an extraordinary product.
My pleasure. Your next question comes from the line of Larry biegelsen.
Good afternoon. Hey guys. Thanks for taking the question Adam. You can hear me. Okay?
Yeah, hi, Larry. Good high. So Adam, I assumed the product that you were talking about when you said it's the most successful product launch ever. Was that the the new Indigo 12 French with with light bulb? Is that fair? Yes, so, okay. So, you know you launched on July 14th, you know, it's pretty early to to make that claim. So I guess I ask a couple of questions on that one is what's that? You know that comment based on and you know, we're assuming we've heard in the market about a 35% price premium is that in the ballpark and is that do you expect basically the entire Indigo franchise including the eight French to kind of to transition to you know, Indigo plus lightning in other words to use lightning bolt and is the price premium, you know associated with with the lightning tubing and I had a follow-up.
All right. Well, let me there's two or three questions in there. So I try to write them down and and I'll try to answer them if I missed one. Let me know and then your follow-up first choice, I as you know and have gotten to know a number in me personally from covering us for a bit. I typically don't get ahead of ourselves, um, uh and comment on products until it sort of after-the-fact and so your observation that it's only been two weeks and I'm making these comments is quite a stood and the only answer to that is my personality has not changed. So what changes that is the success of this product it is we had very high expectations for this product Larry. We you know have been working on this for four years.
The technology is quite sophisticated and we were quite optimistic about what we thought we would see but to see it in the first couple of weeks in the real world and to see the success and they're just huge volumes of Platte. We're able to get up get out of patience on the venous side. Um, uh is really been off kind of extraordinary and and I think it's surpassed are even high expectations. So that's why I have the confidence to say that you know, we've talked to lots and lots of doctors bought a used it tried it out and and crude their reactions and that's led us to to make those statements as it relates to price which was next door to your question. You know, there is obviously a you know, before our tubing was just tubing you know, and it was sold for a relatively, you know, small dollar amount wage.
just now is a much more sophisticated component that does have a a
Higher price but that price trade trade-off comes with the fact that we are likely going to use notably less separators wage used in a lot of these Venus cases and that's sort of where we're going to, you know, not get to quite the same price premium that you just outlined because we'll see an overall reduction phone number separator. So we price this, you know, we talked about pricing strategy the goal for us and pricing is always make this ugh profitable procedure for how long for them to have success in treating their patients and be viable and this continues that exactly how we've always done that so we took very good about our prices, you know, we've we've always been thoughtful around that strategy. So we never have to go backwards. Um, and and this gives us some plays right into that strategy exam.
We've done and and then you said you had a a follow-up. Yeah, so so thanks for that Adam. Just so first jet 7 extra flexmax wage you you have that approved and I think a general access product but I didn't hear you talk about the rollout of those and then just lastly on the R&D spending. Is this the new run rate? It looks like a villain underlying basis about twenty million dollars a quarter and a wide now such a large increase in in R&D and it's kind of the new run rate. Thanks for taking the questions.
Sure. So the first question on j7 Max that I did mention we have been doing all the work we do with every new product that is cleared to evaluate and make sure it's all good. The product is exactly what we hoped. It would be what I would want to make sure everyone understands and I have said before I think a number of times and and that is some of the products that are are coming just being one of them matter independently, but really matter as part of a larger component of our long-term strategy and I reiterated that in my prepared remarks that you know that the goal here is to fundamentally reshaped how stroke patients are treated and and Max is an important step in that but independent job.
May not be as obvious as the the long-term picture which I think will come clearer as we get closer, you know or not closer but into 2021 and as for R&D spend, uh, we're not making any comments today on you know, this being the new normal life than what we had said that the the raise that we did in this quarter gave us the comfort in a time in which there's some uncertainty we were, you know, hoping to do this anyway, but the Rays gave us that Comfort to spend this money particularly focusing on three internally pre-existing projects thousand and one of them being the real system as we've said before the pandemic is opened up an opportunity for the real system to be used.
the existing
The original real system real one for for lack of better term used when a patient and a therapist are physically together that became hard at the beginning of month end of March and into April for a lot of patience. And so put out a a new temporary order around reimbursing sort of telling me that their possessions and then the subsequently put out notifications on that. It may can they're considering it may be permanent that opens up the door to them have all kinds of ability to do work with patients and therapists when they're not physically together as well as having Therapist assigned homework and do work independent of the to accelerate people's recovery, but also opens the door two types of medical conditions that don't require a physical or occupational therapist, but home
Huge impact on patient health care or health and wellness. So that is what the real investment is about is to take advantage of of that need that is desperate in the market right now. And as I said, the other two are projects we've been working on that gave us the Comfort to continue to to invest in actually accelerate them. So backed off. I think it's it's a good time. Thank you know, no problem. Go ahead for the helpful. Thank you very much.
Your next question comes from the line of Robbie Marcus.
Great. Thanks for taking the questions. I was hoping you can give us a little more color on the international Trends. You know, I very much appreciate you breaking out peripheral and neuro and international. I love when companies go to more versus less detail and disclosure but Adam, even if you take the money, you know ten to twenty percent of revenues that Distributors and you know, just assume they didn't happen at all in the quarter you're still at a pretty large differential and Trends internationally and wage is how much of that if you can say was the first half of the quarter versus the second does international look more like the as we're exiting the quarter here in any other Trends you can give us helps think about the the future International
Yeah, I I can't give you any sort of quantitative information beyond what we've said, you know, they us there. There was a difference obviously geographically in the first half of the quarter then the second half of the quarter but the page did you know relatively well on a whole quarter basis, uh there there isn't anything I guess. I guess what I'm trying to respond to there's nothing there's no there's no information here that that is to be gotten, you know, there's nothing about our international business other than what I call that around Distributors wage versus our us business are us businesses was obviously strong that that is a story sort of Beyond just managing through the timing of the pandemic and I guess dead.
I guess that's the best way to answer the
And there's no underlying issue to uncover here. The the business has been, you know returned strongly both in the US and international or distribute them in the long-term. I think we'll be fine. So so I guess I'm not I'm not sure what I maybe maybe provide some a different color. Yeah just do S&P Direct business, then the performance in first-half versus Improvement in the second half is pretty consistent and uniform across but then if we look at the international distributor Revenue, I mean even historically uh, the orders come in on the pretty inconsistent lumpy patterns, so there is no dead. We cannot derive just based on first half or second-half performance to the second half of the year.
Okay, thanks. And and maybe it's a follow-up Adam you talked about you three products that you're using the equity raised to put down to advancement in. The pipeline one was real VR. I know I'm not going to get you to disclose the other two, but can you give us a sense on our these near medium long-term projects Thursday fit within your existing verticals. Are they new verticals like real VR was too narrow and peripheral and you know any other comments you'd like to share.
Yes to some of those notice some of those know they they are significant opportunities that can help an extremely large number of patients. And as you know that sort of the way we think about products that we offer and and both of these fit that exactly significant opportunities that would help an extremely large number of patients.
Appreciate it.
Sure.
Your next question comes from the line of Margaret Kaiser.
Hi, this is Brandon on from Margaret. If I could just in the looking at the US it was kind of interesting that the vascular business seemingly had a little less dead ends in the neuro side. I guess it was interesting just cuz you think the exposure to elective procedures on the vascular side, maybe would have given a little headwind or a middle a little more headwind relative to neuro am so curious. If you could talk about what what would you attribute that to is it just a mix thing of of elective to Urgent and then maybe your expectations for what that what that means for the rest of 2020 and how these businesses should Trend going forward.
Yeah, let me start by commenting on the trend. We we really talked about this also last quarter to what we had started off that um in April when we shared our April numbers and I really think it comes down to the simple fact that you know it particularly in the beginning of the quarter, you know, the number of patients who had Strokes had that were showing up and again well documented and not only you know, scientific literature but mainstream media did not show up to the hospital. They they don't come back. You know that once that happens. You can't catch up on those or treat them later. But in the peripheral side a lot of that those patients month, you know can come back and be treated so there's a fundamental difference in what those trend lines are going to look like and I think that's that's sort of expected and then yep.
You know moving to the place where people feel comfortable going to the hospital. If we obviously that positive trend line in the back of the quarter, but my caution is just dead, you know, what is happening, you know in the larger the the larger communities both in the US and other markets with the pandemic and and the acceleration of cases in the US and the Resurgence of cases in in some other markets where they had done a better job of suppressing it. So so that's what provides some uncertainty going forward Beyond just you know, what they, you know by reading, you know, the listening to the news. We don't have any additional insight to offer some sort of guidance or or prospective going forward. Obviously if we can continue to have people be educated and and public awareness that going the hospital is safe, you know, we expect you know dead.
a stroke numbers to continue to be strong but if that were to change and and people started to feel differently than than those numbers would be and would be impacted the peripheral numbers, you know have that added the the benefit of seeing some of that business come back, you know in in June and and as we said continuing to July
Got it, that's helpful. And then within the the vascular side still have your reps been able to get back into the the accounts. I'm trying to think about how training efforts just going and and thinking about growth going forward one. Are you able to train new new docks? So can you have growth in the back half of the Year from new docks? And are you really able to just keep divorce in that market given it's a little bit of a market development effort. Thanks. Yeah. It's a great question and the answer is, you know, during the window of really June into July there a lot of reps were able to to get back in the hospitals than there are definitely parts of the country that that became a little more difficult and and strained as the acceleration of virus happened but so far off.
you know that that has
In been a big limiting factor particularly around the launch of lightning 12. But again, we're cautious about projecting out what we had seen so far to the back half of the year just given the nature of of what's happening and what you hear about the reports, but that being said that hasn't been a limiting factor yet. And for most people, you know, the the use of this product is if you're already using this product, you know, and all you're doing is adding lightning. It does not really require additional, you know in person training nice to have happy to do it, but you could do it without it and that's part of sort of a virtual launch if you will for new doctors whose never used it. They certainly could do that Thursday.
But we would try to get them some in person, you know sort of Education or training if possible.
Got it. Thank you.
Yeah, my pleasure.
Your next question comes from the line of Joanne Mitch. Good afternoon. How is everybody?
Good. How are you? Joanne doing? Well. Thank you. I have two questions. I'll ask them together. One of the drivers of the US Stock Market was slow or state-by-state adoption of your guidelines. I have no doubt that everything is really distracted elsewhere. But if you heard additional conversations on this type of job and then my second question is more of a financial one. I think if I heard you correctly a third quarter as margins will be similar to the second quarter. Can you confirm that and then how do we think about re accelerator? Not metric. Thank you.
Sure. Well, let me address the first part of the question and then I'll let Maggie address the gross margin question your instincts I think are generally right off that state legislatures right now are pretty busy with lots of other things than worrying about stroke triage. They are obviously are facing no questions around the pandemic and unemployment and schools opening and and so on we did recently receive an update from the home group that is running this campaign and and there are still some positive developments moving albeit. Probably a little slower than normal in state of Massachusetts, Ohio, Pennsylvania, but that I would expect that there would be a slowing of that state-by-state campaign for a little bit while we moved through the pandemic wage.
Um, but but it doesn't.
Mean, it's it's it's beyond that time frame and then Maggie can answer the gross. Margin question. I just went so let me look at I think about gross margin. So first of all, if gross margin is still a function of volume as options. So if Revenue increase the volume increase we will be able to better leverage fixed costs, but there are a couple of other factors to consider we did invest and build some inventory in this quarter in preparation for new product launches in Q3. So some of the under absorb overheads off in inventory and will be reflected in quarter. Another factor is why we are with demand we're still appropriately invest in efficiency and productivity in our facility. So some of these investment may have short-term margin impact, but all these investment will set us up for better margin expansion in the future. So it's more of a game.
future a short-term View
Thank you.
Thanks, Joanne.
There are no further questions at this time is Hamlin Harris return the call back to back over to you.
Thank you operator on behalf of the management team. Thank you all again for joining us today and for your interest in penumbra. We look forward to updating you on our third quarter calls.
This concludes today's conference call you may now disconnect.
6 a.m.