Q4 2020 Penumbra Inc Earnings Call
Good afternoon, My name is Chris and I'll be your conference operator today.
At this time I would like to welcome everyone to Penumbra, Inc, Q4, and full year 2020 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' 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'd like to withdraw your question press the pound key thank you.
I would like to introduce MS Jee Hamlyn Harris Investor Relations for Penumbra, Ms. Hamlyn Harris you May begin your conference.
Thank you operator, and thank you all for joining us on today's call to discuss the numbers earnings release for the fourth quarter and year end 2020, a copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation can be viewed under the investors tab on our company website at Www Dot Penumbra, Inc.
Dot 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 do you just sat and risks and uncertainties, including those referenced and our 10-K for the year ended December 31, 2020, which is scheduled to be filed with the SEC on February 23 2021.
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 went out.
Results of operations and financial condition.
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 pushed and press release, we anticipate the prepared comments on today's call will run approximately 20 minutes, Adam Elsesser Penumbra, as chairman and CEO will provide a business update Maggie Yuen, our chief Financial Officer.
Well, then discuss our financial results for the fourth quarter and full year and Jason Mills, Our executive Vice President of strategy and we'll discuss at 'twenty 'twenty, one guidance with that I would like to turn over the call to Adam Elsesser.
Thank you Qi and good afternoon, everybody. Thank you for joining <unk> fourth quarter and year end 2020 conference call.
Our total revenues for the fourth quarter were $166 $9 million a year over year increase of 14, 9% as reported and 13, 7% and constant currency, which marks a second consecutive record quarter for penumbra.
This also included a reduction of $5.8 million and revenue due to the recall of jet seven Xtra flex and mid December.
Excluding this onetime impact total Q4, non-GAAP revenue grew 18, 9% to $172.7 million.
For the full year 2000, and 'twenty, our total annual revenues were $564 million, which represented growth of 2.4% over full year 2019, Inc.
Excluding the one time recall impact total annual non-GAAP revenue grew three 4% over 202000 $19 million to $566.2 million.
Maggie will further review the financials as well as details on our balance sheet and her commentary.
During my prepared remarks, this quarter I will focus on three topics first I will briefly discuss our culture of innovation. It is responsible for the development of our broad portfolio of products and will then update you on our specific developments and vascular and neuro and virtual reality.
And I'll talk about the progress we've made and international markets since our last call, including China.
And third I will address the challenges we all faced in 2020 and early 2021 from the pandemic and our thoughts on its impact.
We have built a purposeful structure and culture at penumbra that allows us to develop and continue to innovate products that really matter, even as the company gets larger.
And this ability to continuously innovate has been led for almost 17 years by a large team.
Of highly skilled and motivated people, including our pension years, who share our commitment to solving hard problems and health care and it has been instrumental and the development of our broad portfolio of products.
Our results this quarter show that our products are positively impacting more patients than ever before yet we continue to be driven every day by the number of patients we can still help.
We estimate in the United States alone that nearly 80% of neurovascular thrombectomy patients over 90% of vascular thrombectomy patients and essentially 100% of patients to whom are real B R. Technology is applicable can be added in the future to the patients we can help.
And with our current portfolio of products.
Let's start with our vascular franchise, which became our largest business for the first time and the fourth quarter.
Our lightning products once again drove strong growth and vascular and.
In fact, our proprietary lightning technology is now embedded and products used to treat patients in both the venous and arterial segments with lightning 12, and now lightening, seven which I will discuss shortly.
Lightened and 12 continues to be incredibly successful at removing blood clot and single sessions from the veins and pulmonary arteries during the fourth quarter Lightning 12 received and indication from the FDA for the treatment of pulmonary embolism or PE.
In addition, we announced our partnership with rapid AI to bring their cutting edge artificial intelligence platform from stroke two p/e from.
From early conversations with pulmonary embolism response teams also known as per teams at hospitals. There is a lot of interest and need to streamline the communication flow and decision, making and p/e cases to help more patients and help them faster.
Lightning 12 is just scratching the surface and venous and pulmonary thrombectomy, even though adoption and physician feedback since its third quarter launch has been extraordinary.
During the last month, we started the initial evaluation cases for lightning, seven which have gone very well and we expect a full launch in late March we think lightning seven can offer significant improvements to physicians treating patients with clot in their arteries and provide benefits that are similar to those of lightning 12.
And provide lightened and 12 is providing on the venous side.
In addition, cat Rx our coronary product continues to help more and more patients who have coronary clock of U S. Population that we estimate is approximately the same size as the number of U S ischemic stroke patients eligible for mechanical thrombectomy each year.
Taking stock of our entire vascular business, including peripheral embolization, which also had a record quarter, we're poised for durable growth for many years to come.
Now, let me turn to our neuro business.
And the fourth quarter, we launched BMX ninety-six one of our most innovative access products BMX 96 is a slightly smaller outer diameter compared to our neuron Max guide catheter, but our novel technology has allowed us to make the inner diameter, even bigger going from 0.088 to point <unk> 90.
Six inches.
This allows for greater room inside the guide catheter to maneuver. The other catheter is being used and the case it.
And as being very well received by physicians, not just and stroke cases, but and all types of neuro vascular cases.
On the stroke side of the business following the recall of jet seven Xtra flex some of our stroke physicians, which directly towards a 60 or jet seven standard.
Whereas others took this opportunity to try other re profusion catheters. Following net trailing some of those physicians are coming back to using either a 16 or jet seven standard ship as their primary re profusion catheter and fact based on both the demand for exchanges as part of the recall and current demand we are working through a backward.
Order situation for the jet seven standard tip, which we expect to resolve and the next month.
And these products together with the rest of our portfolio will continue to play an important role and mini stroke cases until later this year when we update our catheters.
In addition, we remain very optimistic about our future innovation that we hope will bring even better solutions to our physician customers.
2020 was clearly a challenging year for the growth of U S stroke procedures and general due primarily to Covid.
But this motivates us to work even harder to successfully treat more stroke patients.
And we constantly remind ourselves of the enormous cost of the resultant disability of stroke that is devastating to patients and put such a huge financial burden on our health care system billions and billions of dollars it.
It will take some time, but we believe for these reasons the market will get back to growth over time.
Now, let's now move to our newest product area virtual reality or VR.
<unk> is the area and which we think we can help the most patients over the long term.
And our real immersive VR system is proprietary technology designed specifically as a platform for health care applications.
Built from the ground up to deliver creative applications that are purpose built from medical conditions that impact millions of patients are.
Our vision for real has actually expanded over the past year first there is a large opportunity for us to serve many patients who need need some form of rehabilitation with applications that are tailor made made for patients and interacting with their physical or occupational therapist, not only in the clinic, but also virtually.
While the patient is in their own home.
This rehabilitation opportunity for real includes patients recovering from stroke cardiac rehab orthopedic rehab movement disorders traumatic brain injury and other conditions. We also believe that is important to offer a broad portfolio of applications dedicated to helping patients suffering from chronic pain men.
It'll health stress and anxiety and memory loss among others.
The clinical evidence around the benefits provided by virtual reality for both rehabilitation and mental health applications is significant already and.
And we plan to build on these data working with some of the world's foremost VR experts and healthcare to develop applications and clinical evidence for the real platform.
We fully recognize that many uncertainties remain.
And we have a lot to prove regarding the real platform.
But we strongly believe that weird and what we're doing with the real platform truly matters and can help a great number of people.
Now, let me update you on our international business, which performed well and the quarter.
First I'd like to share I'd like to share company updates related to China.
During the fourth quarter, we signed a new multifaceted agreement with Genesis Med Tech group, which merged with while Med Tech our former partner, making it we believe the largest domestic company and China's neuro vascular space.
Our initial collaboration as a multi year fixed term strategic partnership for five products. A 68, a 63, Max neuron Max Oh, 88, and jet D and each product produces three distinct revenue streams licensing royalties and product distribution and for which we have a.
Good visibility we are excited to be working in partnership with Genesis and they share our commitment to patients and we believe they have the capacity and expertise to bring these important technologies to patients and China.
We're also excited about future opportunities for Penumbra, and Japan, while 2020 was a challenging year for us and Japan, owing to Covid reimbursement changes and ultimately the jet seven Xtra flex recall, we see many opportunities for growth and the region not only and our current stroke and vascular embolization business.
But and vascular thrombectomy and virtual reality over the long term as well.
Looking forward, we expect solid growth in Japan, and 2021 and beyond.
We also made solid progress and Europe, Latin America, and Asia Pacific and 2020, and expect to see continued growth and 2021.
Finally, I'd like to discuss the pandemic and its effect on our business.
The surge and cases around the holidays and our team's continued focus to maintain a safe working environment for employees had a small impact on our production.
However, assuming the virus variants do not change the current status. We believe we were we will be able to navigate our production capacity during this time and keep up with demand.
As for the impact on our revenue like most of our peers, we did see some impact and the first part of the quarter around elective cases, and the United States and in some international locations, which will have a minor impact on this quarter.
That said assuming the current trajectory continues we do not think it will have a major impact on and our annual growth for 2021.
I'll turn the call over to Maggie to go over our financial results for the quarter and the full year.
Thank you Adam good afternoon.
I will begin with a discussion of the financial impact of the recent jet seven Xtra flex voluntary recall.
We'll go into the results for the fourth quarter and full year 'twenty and 'twenty.
With the announcement of the voluntary recall of jet seven Xtra Flex on December 15, 2020, the financial impact and the fourth quarter was a reduction of $5 $8 million and revenue due to refunds for product returns as well as $12 $6 million and charges to cost of sales primarily related to inventory write offs.
And cost for product exchanges.
And Terry we call had an impact of approximately 900 basis points to our gross margin.
These figures represent a total expected financial statement impact from the voluntary recall.
We have accounted for our estimated any future returns on exchanges as required by the accounting rules, we do not expect to see any material changes to our financial statement and either a further reduction in revenue our increasing cost of sales expense in 2021 due to any lingering impact of the recall.
Yeah.
The following fourth quarter financial metrics will represent non-GAAP financial results, which exclude the impact of the voluntary recall as previously described as a reminder, fourth quarter GAAP figures on our reconciliation from GAAP to non-GAAP measures are provided in our posted press release.
For the fourth quarter ended December 31, 2020, our total non-GAAP revenues were $172 $7 million and increase of 18, 9% reported and 17, 7% in constant currency compared to the fourth quarter of 2019.
Our geographic mix of sales and the quarter was 70% U S and 30% international.
And international reported sequential growth of 10, 5% and 24, 4%, respectively compared to Q3, 'twenty and 'twenty.
Revenue from our vascular business grew to $87 $1 million cash in the fourth quarter of 2020 and increase of 45, 5% reported or 44, 7% and constant currency compared to the same period last year.
Our year over year performance is driven by growth across vascular thrombectomy and embolization products and we also saw strong sequential growth from lightning 12.
Revenue from our neuro business was $85 $6 million and the fourth quarter of 2020 and increase of <unk>, 2% reported and decrease of one 2% and constant currency compared to the same period a year ago.
Revenue for jet seven Xtra Flex through December 15 was $9 million or five 2% of total non-GAAP revenue, excluding the impact of the recall.
Our U S neuro business declined by 0.3% reported on a sequential basis, our international and Euro business increased by 33% sequentially and 5% reported compared to the same quarter a year ago. These.
And these results were driven by strong performance across Europe, China, and Asia Pacific regions.
Our non-GAAP gross margin in the quarter was 65, 2% compared to 67, 6% a year ago and sequentially improved from 62% in Q3, 'twenty and 'twenty.
Our gradual improvement in gross margin is driven by fixed cost leverage with increased demand and favorable product mix.
We continue to invest and direct labor and overhead spending on COVID-19 related safety measures and have made tradeoffs and efficiency to ensure employee safety and to support product demand.
Looking forward, we expect gross margin performance to continue at current level, but it could slightly fluctuate with price and product mix.
Total operating expense for the quarter was $96 1 million or 55, 6% of non-GAAP revenue compared to $87 $5 million or 63% of revenue for the same quarter a year ago.
Our research and development expenses for Q4, 2020 were $19 $5 million compared to $12 9 million for Q4 2019, as we continue to invest and product development programs.
SG&A expenses for Q4, 'twenty, and 'twenty were $76 $6 million compared to $74 $7 million from Q4 2019.
I'll spend increased primarily due to increase and head count and related compensation expense, while we continue to have slower spending and activities such as travel and conferences.
We had non-GAAP operating income in the quarter of $16 $6 million compared to operating income of $10 $6 million for the same period last year.
I will now summarize our full year GAAP performance.
For full year 2020, our total revenue for the year were $564 million, which represent an increase of two 4% reported and two 1% and constant currency compared to full year 2000.
Revenue from our vascular business for the full year 2020 was $267 $8 million and increase of 24, 1% reported and 23, 9% and constant currency.
Revenue from our neuro business for the full year 2020 was $292 6 million a decline of 11, 8% reported and 12% and constant currency.
Our gross profit for the year was 63% of revenues compared to 68% of revenue for full year 2019.
Operating loss for the year of $38 $9 million compared to our comparable operating income of $47 5 million for 2019.
Turning to cash flow and balance sheet in 2020, we increased our inventory balance by $67 million, which primarily consisted of $24 million of investment and stocking of real system and $43 million and consignment raw material and finished goods to support new product launches and growth and demand.
In the fourth quarter $18 million up real stocking and what should we classified on the balance sheet from property and equipment inventory due to changes and now go to market model.
We ended the year with $265 million and cash and cash equivalents and marketable securities and no debt.
And now I'd like to turn the call over to Jason to discuss out 2021 guidance.
Thank you Maggie and good afternoon, everybody, we entered 2021 with strong momentum in our business and the markets. We target are large the products. We bring to physicians are unique and our dedication to patients remains paramount to our culture. We are introducing revenue guidance for full year 2000.
21, and the range of $675 million to $685 million, which represented 20% to 22% growth over full year 2020 revenue of $564 million regarding revenue trends, we anticipate revenue and the first quarter.
And <unk> to be lower than our record Q4 results and increasing sequentially throughout the subsequent quarters of the year. We highlight two factors to consider with this guidance first we saw an impact to elective procedures and January from the resurgence in Covid cases, and the U S and other geographies.
We expect this to be a minor factor in our first quarter results second our guidance takes into account the near term dynamics and our neuro thrombectomy business. After the mid December recall of jet seven Xtra Flex that said, we are optimistic about our current portfolio of <unk> products as well.
And as our pipeline of new products, including the potential to usher in a new paradigm and stroke intervention overall consistent with our approach to setting guidance in the past our 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 I'd like to and our prepared remarks by first acknowledging the incredible work of the penumbra team. During this challenging time to continue to ensure our products where available to help so many patients in need.
Dedication is extraordinary and I am proud to work with all of you.
And finally, I know everyone at penumbra wed like to thank our physician customers and their entire teams for the work they have done over the past year, sometimes and extremely challenging circumstances to treat their patients youre heroic work motivates us to continue innovating to make better and better products and.
Has meant so much to us this year.
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.
And then the number one on your telephone keypad.
For just a moment to compile the Q&A roster.
Our first question is from Bill glove on it with Canaccord. Your line is open.
Great. Thanks, good evening.
The first question that we just on the you gave us some color on cadence and guidance.
Considering the quarter and if you back out the onetime charges Youre your annual 2021 guidance is.
Hello, just fourth quarter.
'twenty and.
Annualized and I'm too.
Trying to understand the puts and takes I understand with the neuro and some of the comments and and maybe that's not a growth business, but just trying to understood.
Is that do you expect that to go back significantly I'm, just trying to put all this together and Mitch.
It seems.
Oh, yeah, a little lower than what we would expect it.
Thanks Bill for the question. This is Jason and I'll start and then Adam can add on.
So as we said in the prepared remarks, we did see in January.
A bit of an impact as our peer group has seen and COVID-19.
And we.
We also are just taking into account and the dynamics associated with.
And the neuro thrombectomy business and the recall that have you been said, we're very optimistic and confident about our business and as we mentioned, we expect to see sequential increases as the year progresses.
Adam, Yes, Hi, Ed.
You know bill when you set guidance at the beginning of the year looking out.
And we try to be as accurate and careful as possible that said.
I think the guidance represents a pretty strong growth.
For the company as we look at 2021 and of course beyond but.
We obviously are I think Jason's point about the first quarter is fair and obvious.
But going forward I think there are numbers of represent.
Pretty strong growth.
And then just a follow up on that in terms of the neuro vascular.
Talked I think last year a bit no. There's some of the commentary and the prepared remarks, just the kind of new platform to replace.
The jet seven.
And this narrow area I was just wondering if we could get a little more color on what those features and benefits may be and if not on that granularity at least maybe some timing associated with and we should think about.
Yeah.
It's a very fair question.
I am going to.
Not on.
On this call and with this question break New news.
Prepare you for that.
But I will share they're two separate things one is and.
And we said that on this call the update.
Re provision catheters, and then separate from that what we're calling this new technology with it a paradigm change that the update on the catheters.
<unk>.
Just to continue to make them better and more trackable.
On the.
Which is not new news the paradigm shift.
You've talked about this more and generalities.
The goal of what we're trying to do with all of our thrombectomy.
On product lines and stroke, particularly as too.
And try to get all the clot out not part of the clot out, but all the clot out as fast as possible in all the cases and.
And no matter, where the clots located.
And we think we can make and impact on that with our new technology, we'll wait and see.
But I'm not.
Yet able to go beyond describing that technology.
But we're pretty excited about it and.
Want to bring it as soon as we can.
Great. Thank you for taking my question.
And of course, thank you thanks, Phil.
Our next question is from Robbie Marcus with Jpmorgan. Your line is open.
Hi, guys. This is actually Allen on for Robbie.
And I wanted to start off with a quick question on lightening, obviously b.
The peripheral side of that and thrombectomy business and continue to do very well, even with COVID-19 headwinds. So when we look at lightning seven and the kind of growth that line and 12 has given you.
Given it is moving into an area that you already had a very strong presence and arterial should we think of that as a more kind of like a modest.
Benefit to the business and it's not like you're moving into an area that you didn't have a strong presence and already or can we think of that as being as big of an impact as lightning 12 was for the broader franchise.
Yes, it's a really good question.
I think the way we look at it really is in and just total numbers.
If you look at the arterial side there are a lot more patients.
Debt are being intervened on with or surgically treated for arterial clots than there are patients who are being intervened on for venous or p/e.
And we've gone through those numbers and the past there are 250000 and these are U S numbers patients who have arterial clots debt is being treated through intervention and our surgery and thats compared to.
A little over 100000 on the venous and <unk> side.
So that the opportunity is just bigger.
And so that and the.
The impact on those patients is pretty extreme your many cases, not all intervening or are doing this in order to make sure you can save Allegra <unk> and <unk>.
Lim.
And so by definition, we think in the long run that that will have a significant positive impact on the business, but of course on those patients. So the the uptick on that and how fast do people convert.
To lightning seven.
And that.
That's an open question right now many of our customers are having great success with our current technology.
Barrier for many people to have converted because again, we're not even treating.
10% of these patients the barrier for the other 90% in many cases, what we've heard doctors say is they don't want to use as large a catheter as our cat eight which is an eight French system.
And so we're offering now a slightly smaller French sized.
Seven but with almost all of the benefits of a bigger catheter. It's it's just smaller enough and that's using our new novel technology to maximize the inner diameter. So it's almost the size of cat eight on the inner diameter, but then we add to it lightning which allows for a.
On a case and which you don't have to worry about blood loss or.
And you have sort of the.
And the odd.
Auditoriums signal that you're in clot and those are the things that I think will help bring folks who have not yet tried our system.
Over to try and single session and again.
A lot of the discussion around single session treatment versus multiple day lytic treatment is in the forefront of the of the.
Medical discussion with these doctors because of Covid and in ICU beds and all of that so I think we'll have some real success with it.
And will some of the physicians who were using caddie go back to you on down the size maybe in certain cases.
I think some of them might stay with Kathy.
Our next question is from Bob Hopkins with Bank of America and your line is open.
Great and good afternoon, and can you hear me okay.
Yes, Hi, Bob.
Good afternoon, and Adam So a couple of things.
You guys had previously said that you might be.
Getting into the weeds, a little bit more on on real this year with either maybe on analyst day, or some sort of event.
And I have put a little bit more meat on the bone is that still.
Going to happen at some point this year and and I think you had also previously said that the.
New stroke system would definitely launched sometime in 'twenty and 'twenty, one and just wanted to confirm that that was still the case.
So let's start on the stroke side.
We are fairly confident again don't control every regulatory decision there.
Debt.
And our catheters will come out.
We will wait and give a little more definitive update on timing of the sort of.
New paradigm shift and.
Again as I get more.
Confidence and clarity around specific dates on the regulatory front.
So I don't I don't want to give you time frames that are specific on this call until I have that certainty that being said on the real side.
We definitely will share.
And.
The new technology the models the timing of that.
As we look at it.
And it would be so more helpful and impactful if that was done in person. So people can experience and see virtual reality.
So.
If that's possible and the first half.
We will do that if if if we have to wait a little bit. So we can have that we'll find a way to share what we can and virtually and then have the in person follow.
And just give us a little time to sort that out but theres no question, we will be.
Sheri a lot more of that.
In the near term as we approach because as you can tell we're pretty excited about it.
And along those lines, Adam how big a push is this product could it be and 2021, I mean, and you're maybe a way to ask it is implicit in the guidance that you gave what what kind of contribution do you do you have from real.
Are you, making a big push on the launch front. This year, just maybe a little bit more color on what we might expect this year from from that technology.
Yes.
He is a really good question and 2021 is not the year debt debt, we're counting on a huge revenue contribution from this product.
Rather, it's a year and which there's a lot of work that we want to do to lay the base and the groundwork for for that future revenue growth.
But a lot of that I think will become even clearer when we talk about.
On this.
And the future when we sort of explained.
Both the go to market model and where our.
Where our thoughts have evolved on this product.
But.
Net.
Again.
And the possibility to help a huge number of people has just gotten clearer.
And we remain pretty excited but most of.
Our revenue guidance.
It revolves around our interventional products and then just one real last quick one on on the guidance.
On the neuro piece of the guidance do you have neuro.
Growing over 10% implicit in that guidance or I'm, just trying to get a sense for a rough breakdown of how much you think neuro will grow.
And how much that contributes to that 20% to 22% overall growth you're forecasting.
Yeah, Hey, Bob it's Jason and thanks for the question.
It's a really fair question as you know.
We don't break out our guidance to that level of detail.
And so we're not going to do that here.
But that having been said if you look at the businesses and total.
Really optimistic about the products, we have and the current portfolios for both neuro and.
And and and vascular as well as the new products that are contributing and.
And both and we've talked about both the current and the new.
On this call so.
I'm not going to give any ranges for you for the two businesses, but we're.
And we're confident and both that both can contribute to growth.
Overtime.
Okay. Thank you very much.
Thanks, Bob.
Our next question is from Larry Eagleson with Wells Fargo. Your line is open.
Hi, its Larry I play, calling in for Larry Thanks for taking my question.
Can you talk a little more about and Xtra flex we call.
And specifically the capture rate you made a comment about operations.
And then to other and devices.
And Peter devices and.
And back to Tom.
Is there anything you can quantify and give a little more color to that.
Yeah, No. That's a great question and it's it's a very it had been and and still I think remains a bit of a fluid.
Process, So I think quantifying it at.
At this stage is <unk>.
<unk> because it's changing you know one of the things.
I think we had some.
Instinct around.
On.
Or a 68 and our jet seven standard tip.
And we're at the time, great catheters, when they were dominant in the market.
And just because we launched jet seven Xtra flex did not make them less good catheters and when you takeaway jet seven Xtra flex and its track ability and just compare a 62 jets have been standard of too many of the market. The other products on the market they hold.
Up really well there they they performed recently really well.
And so I think.
The nature of of of this many of our physicians is to try new things and to make sure that they're testing them out.
But.
It has not surprised us.
And certainly been heartening for our team to to see many people coming back to using the catheters.
And that have done so well and have huge amounts of clinical data to support their use.
And a really independently great products so.
I think we're in pretty good spot I mean as I called out.
And such a way that we went on a small back order on jet seven standard tip, which will resolve shortly here so.
So I think we are.
We're doing okay that being said I think everyone knows us we never rest on our laurels and we're going to keep innovating and can't wait to the new.
And some new catheters come out later this year.
Great and if I can have and the other question just find out what you talked about about leaching and volume revenue and 2023 Adam.
And given the pump on up on three.
Recall and.
And what gives you the confidence at this point.
And he.
Kind of get to that.
Well I think the covenants I mean, it's a great question and the confidence comes from the success. We've had the last couple of quarters the growth of our.
All of our businesses, but particularly the lightning series, which really is and the earliest innings.
And the reaction to that.
You add in some of the other products that we've talked about and called out even today on today's call.
And what we have coming.
I think that's.
That innovation and that sort of constant.
Proving from our baseline is what gives us that confidence that we're on the right track.
But.
Let's.
It's a couple of years away, let's see let's see how it goes but.
As you can tell I think from our prepared remarks and some of your answers.
On the products, we have now are performing really well and solve so many of the issues that debt that physicians wanted solved.
And I went to a long answer on the Lightning seven question and part so people understood that that product.
It's sort of unusual right youre going slightly smaller, albeit that's.
No in the inner diameter, almost the same sizes the cash.
At eight a bigger but youre doing exactly what the doctors wanted without taking away any of the power and fact, adding.
Capacity with lightning. So I think those are the kinds of things, where we listen to our customers, we iterate and innovate as fast as possible.
Give us the confidence that we can hit that target.
And the only thing I would add to that is as Adam mentioned in his prepared remarks as sort of the market backdrop to all of that so on the product side, Adam talked about our confidence and optimism the market backdrop and each one of the segments that we are focused on.
And is really positive positive from the standpoint of those patients we've already helped but even more patients, 80% and stroke over 90% and peripheral thrombectomy and then we've got the whole market in front of us and virtual reality. So that provides a backdrop about which we're we're excited.
Okay.
Great. Thanks, so much.
Thank you.
Our next question is from Ryan Zimmerman with <unk>. Your line is open.
Thanks, Thanks for taking the questions. So Adam I just wanted to ask one.
Hey, guys. So I just wanted to ask one on first on jet seven and jet seven Xtra Flex Xtra Flex excuse me.
Aerodyne shift you're talking about Adam I'll ask and on a different way, but what is it that you feel like you are trying to build upon from jet seven Xtra flex that you're solving for maybe just beyond the design challenges you ran into with the agency what is it debt needs improvement at this point and ischemic stroke and not to steal.
And her from maybe what Youre going to debut later on this year. When you do debut, but what were some of the issues beyond what we saw maybe with some of the reports and the Mont database.
Yes.
Thank you Ryan for the question.
I think.
And the.
The two things are unrelated and I think it's true.
Really important that I make sure you understand that so.
The paradigm the current paradigm is to make catheters.
And as big as possible to therefore suck out as much cloud as possible and as you make catheter is bigger and making them big and trackable becomes the design challenge, which jet seven Xtra flex did a really good job of it.
And again follow the.
The instructions and all were followed that pair.
Paradigm that every company is now trying to make bigger catheters that track well is the paradigm that we're saying is it might change where that race.
<unk> is no longer as necessary because you think about.
A different way to think about removing.
And as all the clot as fast as possible. So so we're not really the challenges or the design considerations I should say for this new product or new technology is is really unrelated to jet seven xtra flex or a 68 or any of the other cash.
<unk>, it's trying to deal with the underlying issue, which is how do I sort of democratize and make the success of cases broader right now some physicians can with certain patients have great success quickly.
Patients don't have that kind of success and what we're trying to do is create a product that can have the ability to remove all the clot out as fast as possible and everybody.
And so that's that's sort of the point, so it's sort of unrelated to jet seven.
And that when you update our catheters, our key is to make big catheter attract as fast as possible and as well as possible. That's that's today's paradigm and we will continue to do that until the new technologies out there.
Okay. Thank you for taking that and then just a follow up to Bob's earlier question and I don't know whole get color on this or not but Maggie I think alluded to a change and business strategy related to real and so.
Contrast that with what you laid out maybe and 19 at the analyst day.
And what can we take to mean from that those comments in terms of business strategy on rail. Thank you.
Yeah, No Ryan it's a good question and that's one of the things that we'll share as soon as we can.
As Maggie said, it's really about our go to market strategy.
On.
One of the more interesting things about a lot of the things we've ever done whether it was stroke.
On the vascular thrombectomy and now real is they haven't been done before when we started out and stroke.
The idea of taking a catheter and large catheter up deep into the brain and second cloud no. One had done and so there are lots of things to figure out and learn and get better at.
And really there is no different and.
And as we do more work get more experience get more feedback we're constantly I think part of our strength is being able to evolve and adjust and.
And we've looked at.
Go to market model and the debt.
The way that should go and.
I think we're evolving our ambitions and a very strong and positive way and we're really sitting on something that can be a platform for the entire health care field and and that's pretty powerful.
Thanks for taking the questions on <unk>.
Thank you all right. Thank you.
Our next question is from Margaret Kaczor with William Blair. Your line is open.
Hi, everyone. This is Brandon on for Margaret Thanks for taking the question.
First can I just ask a question on on the vascular side is there any way you can quantify how impactful COVID-19 might have been investor and 2020 and.
I ask because it's it was actually a very strong year for vascular despite kind of a higher.
Mix to elective procedures, so I'm trying to understand as patients come back into the funnel and potentially there's some backlog and vascular patients and you continue the momentum youre seeing with light and seven and Lightning 12 is there potential for vascular to even accelerate as we move through 2021.
Yes.
And really really good question. So one of the really two parts to that the first part is are we seeing more patients. If you will that have clot.
Cause of Covid.
We certainly saw that in sort of the April.
May timeframe when it was a new phenomenon and they.
Health care professionals Werent, yet aware of it enough and we're trying to catch up I think a lot of that has.
Medical management of a lot of Covid patients has gotten up to speed pretty quickly and and so I don't think we are.
And we're seeing and any sort of man.
Quantifiable numbers.
Massively large numbers of.
More patients because of Covid and that being said and.
And I alluded to it already today one of the benefits.
Of.
Covid and.
And at the moment I said that I realize that came out wrong I don't mean.
That is a benefit of COVID-19, but one of the byproducts of Covid was the word I was looking for.
And is.
People need to think about treating a lot of these patients and single session.
Yes.
And single sessions.
And that plays directly into our technology and that's different than.
Sessions that take.
On multiple days or require sort of a longer recovery period.
And so that I think is opening many positions mines and keep the technology that we brought and then you add and at the ease of use around lightning.
Think that it's been certainly helpful.
Two to sort of move physicians toward our technology and I think that that phenomenon.
It's here to stay for a while I think that will continue because it's sort of top of mind, if many people as they think about.
The idea of single session treatment.
Got it thanks, and then in terms of gross margin if I heard Maggie correctly I think she had said that.
Youre broadly expecting gross margins to remain somewhat in line or flat as we move through 'twenty. One I was just curious one did I hear that correctly and two.
With a premium on lightning 12, and presumably a slight premium on lightning seven as well and then as we move past Covid, maybe some of the manufacturing efficiencies can start to die off a little bit.
Can we start to see growth margin expansion and the back half of 'twenty, one maybe approaching the pre COVID-19 2019 levels.
Yeah, Hey, thanks for the question.
Yes, I did.
And I mentioned that for 2021 gross margin is likely continuing to stay at the current level and not return that quickly to debt pre COVID-19 gross margin level and.
And at least not until we're completely out of the pandemic manufacturing environment and cost structure and.
It is not something that will switch overnight.
We can probably until the end of 2021 to CE.
Manufacturing environment changes.
We did see slight accretive.
<unk> gross margin as a result of lightning and we are going to assume similar trend going forward.
Got it thank you.
Thank you.
And again and if you would like to ask a question press star and and the number one on your telephone keypad and our next question is from Joanne Wuensch with Citi. Your line is open.
Yes, Hi, this is Matt Henriksson in for Joanne.
Our first question is related to stroke, we've talked a lot about the new products that are coming out with strict protocol 'twenty and 'twenty was honestly a quiet year, but how do you look at 2021 that kind of new states and legislation, adding new protocols and especially with this new paradigm shift.
Will that help accelerate that process.
Yes, let me answer the.
And last question first and unfortunately.
I don't think those two are tied.
The way one is treated versus the energy needed to get patients to the right.
On the right Hospital, I think theres sort of unfortunately day linked it would be nice to income.
And I really don't have.
The kind of visibility on the question around the state legislation that I did before Covid and part.
State legislature's are very busy doing lots of other things as you know.
They're our hands are full with crises I do get we obviously get updates from.
They get ahead of stroke campaign that is run by the physician Society. There has been some movement and some of the states.
But.
It hasnt been.
Incredibly vast there are some some.
Moving and ended 2000 twenty's. So so I expect 2021 to have.
Some progress.
But I do think.
And what will drive this and the short term is the kind of work that drove it before the state legislature.
Work and that is people being able to go back out into their community and make sure. These patients are treated and as and as we get a little closer to normalcy and having a lot of the health care workers vaccinated.
Already.
We're sensing that they're anxious to get back in to build their practice and and go into the community to do that so I'm I'm cautiously optimistic.
But but again I want to be realistic that when you're in a dynamic like this the work that's necessary to drive that.
It doesn't become first priority and I think that's what I said debt. During my prepared remarks, 2021 saw that our 'twenty 'twenty saw that but I do think and.
And this is the part debt debt that is really important.
We have too much evidence that we should treat these people the cost of not treating on both.
To their health, but also financially is so significant debt. This isn't how the story and that we're going to keep at this and we're going to.
There are a lot of people that will stay motivated to drive this growth.
It just might not be.
In this quarter next quarter.
But I do think it will continue I think that's debt just we know too much and and I think it will happen.
From the company standpoint, and again this is.
Everyone knows is now.
We will continue to grow.
Because we have such a broad portfolio of products that cover a lot of different areas.
And stroke.
Is obviously not the single thing driving our growth, but but obviously, we've taken a lot of questions on it and we remain incredibly committed to being.
Innovating and there I do think it's going to take a little longer ago.
That makes sense and then just looking at the R&D line.
We noticed there was a drop off and both the absolute spending and the percentage of revenue between third quarter and fourth quarter.
What's the strategy behind.
First the fourth quarter spending and then how should we look at 2021 is that something where we're looking more back towards that 20% of revenue or is it kind of 11% to 12% kind of the right.
And so forth.
Yes.
I'll take that first of all if you remember.
And our last quarter earnings call, we talk about a $20 million of R&D, one time expenditures related to lightning 12 debt, we reported non-GAAP expenditures. So so going forward, our Q4 spending and.
As a percentage of revenue is slightly going to be the trend going forward.
Thanks for taking the questions.
Thank you. Thank you. Thank you.
There are no further questions at this time Ms Hamlyn 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 and Penumbra and we look forward to updating you on our first quarter call.
This concludes today's conference call and you may now disconnect.
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