Q1 2021 Penumbra Inc Earnings Call
Good afternoon, My name is Katrina and I will be your conference operator today.
At this time I would like to welcome everyone to the numbers the first quarter 2021 conference 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 would like to withdraw your question press the pound key thank you.
I would like to introduce Mr. Stephen Dobson Investor Relations for Penumbra. Mr. Dobson 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 first quarter of 2021.
A copy of the press release and financial tables, which includes the 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 the 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, 'twenty 'twenty filed with the SEC.
As a result, we caution you against placing undue reliance on these forward looking statements and we encourage you to review our periodic filings with the SEC, including the 10-K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock, including but not limited to the impact of the COVID-19.
The pandemic on our business 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 GAAP to non-GAAP financial measures is provided in our posted 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.
The U N our Chief Financial Officer will then discuss our financial results for the first quarter and Jason Mills, Our executive Vice President of the strategy will discuss our updated 2021 guidance.
With that I would like to turn over the call to Adam Elsesser.
Thank you Steven and I appreciate you filling in for Chi while she is on maternity leave.
Good afternoon everybody.
Thank you for joining penumbra is first quarter 2021 conference call are.
Our total revenues for the first quarter were $169 $2 million of year over year increase of 23, 2% as reported and 21.5% in constant currency for the first quarter of 2000 of 'twenty. One we recorded operating income of $13 5 million.
Or 8% of revenue compared to operating income of $6 million during the same period last year.
Our vascular business produced outstanding growth again, this quarter with revenue expanding 50.5% Europe of year to $89 $2 million and we believe we are just getting started in vascular.
Our neuro business exceeded our expectations in the first quarter, posting total revenue of $80 million up 2.5% year over year.
Our neuro teams extraordinary work following the jet seven Xtra flex recall in mid December sets us up well throughout 2021 and beyond as we prepare to launch important new products. Further we continue to make progress with our real immersive therapeutic platform and we are increasingly excited.
About the growing opportunities to help patients.
And lastly, we saw solid trends in our international business, especially in China.
Our first quarter results show that our products are positively impacting more patients than ever before yet we are driven every day by the number of patients we can still help.
We have been purposeful and building of true portfolio of innovative products that has provided us the base to produce durable growth.
Now I'd like to briefly discuss our innovation and portfolio breadth of across each of these franchises, let's start with our vascular franchise, our proprietary lightning technology, coupled with our latest catheter innovations cat seven and CAD 12, once again drove strong growth in our peripheral thrombectomy franchise this quarter.
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Of the effectiveness of speed and value of our technology and both of the vascular beds is resonating with our physician customers driving increasing adoption of these tools to help patients suffering from clot in their bodies Lightning 12 continues to be incredibly successful at removing blood clot.
In single sessions from the veins and pulmonary arteries.
And with the recent P indication cleared by the FDA and the upcoming launch of rapid day is artificial intelligence P E platform.
We continue to think our lightening franchise will drive a strong growth from penumbra and the bina space going forward.
On the arterial side, we launched lightning seven to our customers towards the end of the first quarter.
The feedback has been extremely positive cat seven utilizes our proprietary hypo tube lumen maximizing technology, which provides the physicians treating arterial clots, a catheter with the smaller outer diameter without materially compromising on the inner diameter.
Plus it incorporates the significant benefits of our proprietary lightning technology for blood saving and ease of use.
With both Lightning 12 enlightening seven.
We now have the opportunity to help a significant number of arterial and venous clap patients among both current and new customers.
Bringing this technology to all intervention of radiologists vascular surgeons and interventional cardiologist will not happen in one or two quarters.
It will take time.
But we understand the benefits for patients and our team is committed to this mission.
Turning to our coronary thrombectomy system Cat Rx again posted record results and it still has a very long runway and a market. We estimate is approximately the same size as the U S stroke market.
The society of cardiovascular angiography and interventions updated their guidance late last year to include Cat Rx is a viable option for treating large thrombus burden and sadness green grass and we are investing in further clinical work to expand cat Rx is presence in this relatively large field.
Our peripheral embolization business also had another record quarter in the U S growing nearly 20% year over year.
Not only do we have a unique portfolio of products in this area the.
We continue to invest in innovation here as well.
For instance, one of our newest products Ruby low profile of L. P. Once again contributed meaningfully to our peripheral embolization growth this quarter.
Overall within this franchise, we are seeing both new physicians gravitate to our products and increasing utilization by our existing customers.
In some of the continued strong performance from both peripheral thrombectomy and peripheral embolization highlight the extraordinary important work our vascular team is doing in this field.
Now, let me turn to our neuro business, starting with our neuro access franchise, which had its best quarter ever.
We are seeing increasing adoption of BMX ninety-six has nearly doubled the number of our neuro physician customers used BMX 96 during the first quarter as compared to the fourth quarter. When it was initially launched BMX 96 is being used not only in stroke cases, but across all neurovascular cases indeed.
Need our access franchise produced double digit growth in the U S alone.
We still of a long way to go with this product in the U S and also internationally, where we have not yet launched it.
[noise] BMX Ninety-six is early success is a good example of why we put so much emphasis on both innovation and portfolio of products within our vascular and neuro franchises are not only unique but are also interconnected with other products within each respect of portfolio, giving physicians of comprehensive.
<unk> set to help as many patients as possible.
Looking forward and with the continued focus on both innovation and portfolio. We believe we are very well positioned for future growth across all of our neuro franchise stroke.
Access embolization within which our smart coil line had its best quarter ever and also neurosurgical speech.
Speaking of our neurosurgical business, which we don't talk about as much we had one of our best quarters ever with the Artemis system. It is worth noting that we are investing in the development of important clinical evidence that we believe is necessary to open up this therapy to many more IC each patients in the future.
Turning to our stroke franchise, our business in the U S exceeded our expectations are.
Our neuro team did extraordinary work demonstrating strength resilience and expertise in the field, we were instrumental in helping create over a decade ago.
We focus on a few things we think are critical in this field the importance of offering stroke physicians, a full portfolio of innovative products commitment and service to our customers and most importantly, the best and the end solutions to treat stroke in both large and distal anatomy.
Looking forward, we are excited to bring to customers our newest stroke catheters the red series.
In the next several months, we hope to introduce Red 62, which will be an extraordinary step forward in stroke intervention for the distal anatomy optimizing track the ability and maximizing thrombus removal.
We believe that there are still a disproportionate percentage of treatable strokes in the distal anatomy that are not treated because of limitations on technology. We think red 62 will be of cornerstone product.
Helping physicians treat more stroke patients going forward.
Further we look forward of launching additional catheters within the Red series soon thereafter and.
And we are also excited by the work we're doing to introduce a new paradigm in stroke intervention as well.
I'd like to now focus on the real platform of.
Our vision for real continues to expand as we learn more and identify additional opportunities to help patients within the realms of both physical rehabilitation as well as mental and cognitive wellness. We are fully aware of the unique opportunity we have to do something groundbreaking and virtual reality.
<unk> for health care.
We will leverage our proprietary technology for fully immersive mobile experiences to make the real immersive therapeutic platform available in all settings in which we believe patients can benefit from virtual reality therapy.
There was already a significant amount of clinical evidence showing the benefits provided by virtual reality for both rehabilitation and mental health applications and we have plans to build on these data working with some of the world's foremost we are experts in health care.
We have a lot of work to do and a lot to prove with real in the VR field.
But each day, we see the potential to help of great number of people leave.
Later this year when it is safe to congregate physically we plan to host an investor meeting focused on a real platform, we will update everyone over the coming months.
Now, let's turn to our international markets, our business in China augmented by the New Multifaceted agreement, we signed with Genesis Med Tech group.
Last quarter performed very well again in the first quarter and we are optimistic about additional growth opportunities going forward.
Yeah.
In Japan, we continue to expect solid growth in 2021 and beyond we also made solid progress in Europe, Latin America, and Asia Pacific Notwithstanding some impact from the pandemic and we expect to see growth in these regions going forward.
I'll now turn the call over to Maggie to go over our financial results for the quarter.
Thank you Adam good afternoon, everyone.
Today, I will discuss the financial results for the first quarter of 2021.
No details will be contained within our quarterly reports on form 10-Q.
For the first quarter.
2021 our total revenues were $169 $2 million, an increase of 23.2% reported from 21, 5% in constant currency compared to the first quarter of 2020.
Our geographic mix of sales in the quarter were 71% of U S and 29% International.
U S and international reported.
25, 4% and 18, 2%, respectively compared to the same period in 2020.
Revenue from our vascular business.
$89 $2 million in the first quarter of 2021.
Kris of 55% reported of 49, 1% in constant currency compared to the same period last year.
In the corner of vascular performance were driven by growth in both thrombectomy and embolization franchises with growth across the group.
Yes.
Revenue from our neuro business was $80 million in the first quarter of 2021, an increase of 2.5% reported.
6% in constant currency compared to the same period a year ago.
By growth.
The access franchise across all regions.
Our neuro business increased three.
And 3% sequentially driven by growth in the U S, Japan and China.
The offset by decline in Europe, and Latin America, with the resurgence of COVID-19 impact.
Gross margin in the first quarter was 65, 8% compared to 64, 1% in the same quarter last year.
Compared to Q4 2020 gross margin of 56, 5% of non-GAAP gross margin of 65, 2%, excluding the product recall impact.
We have implemented additional safety protocols.
Shrink facilities with the resurgence of COVID-19 cases in California in the beginning of the year.
And I'm proud of our ability to continue to scale production capacity to support our expanding portfolio of products.
Looking forward, our gross margin could fluctuate slightly due to price and product mix.
Total operating expense for the quarter was $97 $9 million.
Seven 8% of revenue compared to 87 $4 million or 63, 6% of revenue for the same quarter last year.
Our research and development expense for Q1, 2020 one.
Point of $1 million compared to $12 $9 million for Q1 'twenty 'twenty.
We'll continue to invest in product development and platform capabilities.
SG&A expenses for Q1, 2021 were $79 $8 million compared to $74 $5 million for Q1 2020.
The increase in <unk>, mainly.
The investment in commercial resources, and we have also seen domestic travels and other in person activities gradually increase over the last few quarters.
For the first quarter 2021, we reported operating income after two $5 million or 8% of revenue.
Compared to operating income of 0.6 million dollar from the same period last year.
We ended the first quarter with cash cash equivalents and marketable securities balance of $242 $6 million.
Uses of cash in the quarter.
The interval to the product recall and raw material purchases for new product launches.
And now I'd like to turn the call over to Jason to discuss our 2021 guidance.
Thank you Maggie and good afternoon, everybody with the update of our first quarter of results. We are formally increasing our 2021 revenue guidance range to $695 million to $705 million, which would represent 24% to 26% growth over 2020.
Revenue of $564 million.
Illustrating continued momentum expected in our business. This updated guidance compares to our original 2021 guidance range of $675 million to $685 million given on our fourth quarter call in February.
We see multiple drivers of growth and continue to expect our revenue to increase throughout the year from a year over year standpoint, we expect our second quarter growth rate to be higher given the outsized impact of the COVID-19 pandemic during the second quarter of 2020 on a quarter over quarter basis.
We expect growth to be higher in the second half of the year as we expand the rollout of new products, including <unk> seven and the Red series of stroke Catheters as hospital value analysis committees worked through several products introduced during the pandemic overall consistent with our approach to setting guidance in the past.
Yes.
Our updated 2021 revenue guidance represents the 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.
In the last several earnings calls I have acknowledged the amazing work our customers have done the.
The dedication of our production workers and the entire team that has supported their work during the heart of the pandemic.
And the extraordinary innovation from our engineers.
Today, I would like to specifically call out our field based sales and clinical team throughout the world.
You all have stayed so focused and passionate and being available for your customers and through them the patients they treat.
Your work has always been best in class, but during the past 12 months watching your engagement and dedication has been inspiring.
I also want to say that this past quarter.
We lost a valued member of our sales team to an untimely passing.
I know the entire team will join me in acknowledging his character and his extraordinary contribution as well as our deepest condolences to his wife and children, We love and we'll Miss 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 Press Star then the number one on your telephone keypad.
For just the moment to compile the Q&A roster.
Your first question comes from the line of Robbie Marcus of Jpmorgan. Your line is open.
Oh great.
First off congratulations on a really nice quarter.
Thanks.
So Adam its.
It would be great really got two questions I'll just ask them up.
Upfront here.
One it seems like you have some really good momentum coming out of first quarter. It would be great to get a sense of how it progressed and really importantly, how you exited and the trends into the second quarter here. So far and then maybe just probably part of that is.
A lot of people after Xtra flex was pulled in fourth quarter were concerned that you'd lose a good chunk of those.
<unk>, maybe just speak to what you've seen within stroke and around the world.
Users migrated.
And stayed within the penumbra of platform. Thanks.
Yes. Thanks, Ravi those are of great questions. So I'll start with the first and sort of the trends.
The there's no question that some of our business in the early weeks of the of the quarter and January when things were.
Looking a little more.
More difficult or feeling a little more difficult with the pandemic.
Were a little lighter.
But as you know a lot of our business is more.
Sort of emergent and therefore.
Wasn't it.
As impacted maybe as others.
But theres no question.
We saw that improve throughout the quarter hard to tell.
Again, given the nature of our business how much of that was the normal sort of quarterly you know sort of rhythm.
Versus the pandemic, but obviously, we're feeling confident about.
Where we sit right now in the business going forward.
As it relates to stroke and that business.
We've.
<unk> been very fortunate Theres no question.
Net.
The theres been a lot of sort of Trialing and moving around we've commented on on that.
Earlier.
And in the fourth quarter call.
Around that business, but the the.
Success of our product line and stroke the whole product line.
The jet seven standard tip as well as the a 68 in markets where the.
That is have continued to perform really well and we have seen doctors.
Who have tried other products and other companies' aspiration catheters come back.
To us we think there's more room to go there and.
And we think we're really positioned quite well.
As both the Red 62 comes out but also the other.
The catheters in that series in the back half of the year.
So we're we're feeling optimistic.
Great. Thanks, Adam.
Thank you Ravi Thanks, Sean.
Your next question is from the line of Larry <unk>.
From Wells Fargo. Your line is open.
Once we can marry the Goldman from Wells Fargo. Your line is open.
Hi, Adam can you hear me.
Yep Cadbury, Okay. There was a problem with the I think.
My phone.
Apologies for that and I missed the last part of I did want to ask about Red 62.
Can you comment on the on the timing is this the next generation workhorse kind of aspiration catheter, which will kind of replace a 68 jet seven.
And kind of what what are the benefits of this catheter.
Over the current catheter as I did have one follow up.
Yeah. Thanks, Larry So we in the prepared remarks, and I realize everyones got a busy day and in other company. So in my prepared remarks had commented that we're hoping.
To be able to have that product in a couple of months.
The Red 62, so red 62 is.
Obviously, the little smaller then.
The other catheters, and we think it will play.
Play a big role in the the sort of growing.
The interest in.
Discussions around treating more distal strokes.
Right now there are some limitations on some of the technologies to do that and we think Red 62 will play a pretty important role in <unk>.
Helping to treat more and more of the strokes.
That are that may not be treated now because of technology limitation.
As it relates to other sizes in the Red series, We did I did comment that we will have additional catheters in the Red series.
That will follow the introduction of Red 62, but I didn't.
Give a.
More specific timeframe.
But.
It will follow that.
The timeframe that I outlined for 62, so yes, we think 62 will matter.
But it wont it.
It's not meant to replace.
The larger catheters.
That will be coming after that.
That's very helpful and then one on lightning seven.
In the code has historically been stronger I think on the arterial side than the venous side.
In the past it was about two thirds to one third.
In favor of arterial how do you see that changing in 2021 and beyond and can you put the the launch of lightning seven at the end of Q1 in context for us thanks for taking the questions.
Yes.
Really good question.
And.
If I had different sales teams selling.
The lightning seven versus Lightning 12, I would absolutely use your question to challenge both of them to outdo each other but since it's the same team I can't get away with that.
We look at those two products really is complementary.
And the the scale of work to be done both on the venous P versus the arterial is so open.
There are so many piece of patients that we can still help so we don't really look at it as which will grow faster per se I think it will depend obviously.
On each position in region and so on the.
The opportunity now that we have brought lightning technology to both sides of that and really updated the catheter technology with.
Sort of CAD seven kept 12 with the new sort of hypo to technology that that we're finding really really successful I think we're going to have some real success.
In both of those areas.
Which will outgrow the other.
It's hard to know right now.
And let's hope day, they they're pretty they're both successful and I think of patients will benefit.
Alright, thanks for taking the questions.
Sure. Thanks, Mike.
Again, if you would like to ask the question Press Star then the number one on your telephone keypad.
Next question is from Margaret Kaczor from William Blair. Your line is open.
Hi, everyone. This is Brandon on for Margaret.
First just the question on guidance.
I'm, assuming kind of relatively small sequential increases in the vascular segment.
Maybe that's arguably a little conservative given the strength in the product launches coming up.
The timing of it seems like it implies a low double digit growth rate implied in guidance for the narrow.
Portfolio is that math fair and is that kind of how you all are internally thinking of the split between the peripheral and of that.
In neuro growth through the year.
Hey, Brandon good to hear your voice, it's Jason So I'll take that one and then maybe Adam can can add on if he wants.
So we don't.
The breakout the growth expectations between vascular and neuro.
And.
So the commentary was meant to help sort of.
On a BOE the year over year end of quarter over quarter basis.
I think it sounds like you you heard and understood.
That guidance from an overall perspective pretty well.
We also commented that the.
The back half of the year, we expected the sequential growth to be to be larger.
And we highlighted.
The products on both of the vascular and the neuro side.
And so I think those.
Those comp those comments about the overall business, obviously, given the highlighting products in both franchises apply respectively.
Okay.
That's helpful and on the on the vascular side of this business can just continues to perform really well.
Was curious if you could kind of give us.
On the in the field, what's kind of different than a year ago, a year ago, the business of growing really well on both the year over year basis in the sequential basis and it seems like in the last maybe two quarters, its really inflected to the positive side and it's gotten even better.
What's kind of changed out in the field in the last couple quarters.
I guess part of the question is trying to understand what's changed and how durable is that change.
Yeah, Brent thanks.
Great question.
A couple of things have changed and maybe it's sort of a.
Combination of all of this the first.
And most obvious of course is the launch of.
Our new catheters and lightning of the combination of those really with the technology in those catheters to allow them.
To perform the way they do track as well as have sort of the larger lumen with the smaller.
<unk>.
Outer diameter has been huge Lee valuable and then combine that with lightning, which both for blood saving but most of you know as important the ease of use.
For the customers. The feedback has just been extraordinary so the the product has really evolved.
As you know we are.
Take on these areas like blood clot in the body and we just keep innovating and innovating until the cases become easier and easier and this is a big step forward in that technology, you combine that with the the focus around the need for single session treatment.
The patient wouldn't have to go through an ICU or of monitored bad for a period of time.
Like when they are treated with licenses.
And the need for that during the pandemic last year.
I think Gabe.
The more attention to.
The need to remove blood clot in single sessions.
I think it's a combination of those things.
I also you know there's other companies who are.
Doing the same thing with different technology that is bringing more and more awareness. When you add it all up I think people are just now focused on the idea that there are a lot of folks who have blood clots in their body.
And what we were doing is not as good as what we can do.
And so we have a lot of optimism as it relates to how durable.
I think it's.
It's quite durable and as you know from our history, where even though lightning and cat seven in 12 of our recently of huge step up.
We're not done innovating and so we want to keep pushing this and pushing this to the point, where removing blood clot.
Becomes a relatively straightforward and and.
No not a not a significant procedure.
And we think we can get there so yes, I do think.
This is going to be durable for quite some time.
Got it thank you.
Yeah. Thank you thanks, Brian.
Next question, we have Bob Hopkins from Bank of America. Your line is open.
Oh, Thank you and good afternoon.
One follow up on two things if okay. The first one is on China and you guys had put in some disclosures of a pretty robust.
Amount of revenue from China in the fourth quarter, and just curious as to kind of how that played out in the first quarter or did you see sort of the same level of revenue.
And then maybe just talk about the outlook for China broadly this year would be great.
Yes.
Yeah. Thanks, Bob.
Great question.
As we announced.
When we.
Had that.
Our announced quarter the deal we signed with Genesis.
It's really a multifaceted deal.
That around five of our neuro products and we.
We think it has.
Great.
Potential potential for us over the next.
The number of years.
But we also as I said in the prepared remarks today, it's the beginning.
It's we think there's more we can do even than that in China. So, yes, we had another good quarter with China.
And we think going forward, we will continue to see that playing an important role for us.
We're excited about it.
Bring this technology the.
The first with these products in neuro and then across our larger portfolio.
To that country.
So.
Two of the things of that one is just a.
Going back to the 2019 analyst day, Adam you guys Hi.
Highlighted a lot of new opportunities.
China I realize was something that was kind of the over many many years, but you did highlight it as <unk>.
Multi billion dollar opportunity and.
That's what I'm trying to dig here, a little bit and understand.
When that could be come.
A more important part of the of the story.
So I guess just to drill down a little bit more degree they're willing to disclose as you do.
You think Youll see continued improvement off of that Q4 base. I mean did you see that in Q1 would you expect that for the rest of the year.
And then the other thing I'd love to hear your thoughts on are on this.
On the stroke side, you had talked about a couple of things this year from.
The new product launches and then a paradigm shift I assume we have yet to hear about the paradigm shift.
Yeah. So great great question, So we're not going to.
Start calling out specific numbers.
In our markets.
But the business needless to say for us.
In China, we think.
Is is quite substantial.
And again quarter by quarter, we're not going to call out those specific numbers, but.
It performed again this quarter, we called that out in the prepared remarks.
And was not insignificant.
Benefit, but not dominant of the rest of the business also performed so.
So I don't want it to be considered either or.
As it relates to the stroke.
As soon as we can as soon as it is sort of appropriate from a competitive landscape.
Cannot wait to share.
The products that the product that I have alluded to as part of the paradigm shift.
But for obvious competitive reasons.
Which I think everyone would understand.
As you know we have something like 15 companies now competing in stroke were going to wait to share that until.
The last possible moment, but.
But it's coming on net fuel.
As confident as ever about it.
I think it will be really really important for patients.
Terrific. Thanks for taking the questions.
Yeah. Thanks, Bob.
There are no further questions at this time, Mr. Johnson I turn the call back over to you.
Thank you operator on.
On behalf of our management team. Thank you all again for joining us today and for your interest in Penumbra.
We look forward to updating you on our second quarter call.
This concludes today's conference call you may now disconnect.
Okay.
Yes.
[music].