Q2 2022 Penumbra Inc Earnings Call
Good afternoon, My name is Angela and I will be the conference operator today at this.
This time I would like to welcome everyone to pin numbers second quarter 2022 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. Please press star one again 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 second quarter of 2022, 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.
Fitments 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 noise reference our 10-K for the year ended December 31, 2021 filed with the SEC.
As a result, we caution you against placing undue reliance on these forward looking statements.
Howard you to review, our periodic filings with the SEC, including the 10-K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock, including but not limited to the impact of the COVID-19 pandemic on our business results of operations and financial 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, the corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release.
Adam Elsesser, the numbers, chairman and CEO and Sandra less on Fox President of Interventional will provide a business update Maggie Yuen, our Chief Financial Officer will then discuss our financial results for the second quarter and Jason Mills, Our executive Vice President of strategy will discuss our 2022 guidance with that I would like to turn over the call to Adam.
Elsa.
Thank you James Good afternoon. Thank you for joining the numbers second quarter 2022 conference call.
Our total revenues for the second quarter were $208 $3 million.
Our year over year increase of 13, 1% as reported and 15, 3% in constant currency global vascular revenue grew 22, 7% global neuro revenue increased one 5% compared to the same quarter a year ago, we expanded gross margins 180.
Basis points sequentially to 64, 3%, we recorded non-GAAP operating income of $1 6 million or 8% of revenue in the second quarter.
Looking forward, we expect to increase our revenue in the second half of the year and accelerate growth in 2023 with four significant catalyst three major product launches and the presentation of significant clinical data Sandra will also speak about these catalysts in a few minutes.
Equally important in this economic climate, we expect to continue to expand gross margins was 70% plus is the goal within a few years and we plan to increase operating profitability through discipline and operational improvements notwithstanding prevailing downturns in the macro economy.
These catalysts, which include both neuro and vascular as well as our work on gross margins and operating profitability.
I believe make the next 12 to 18 months one of the most robust erez ever.
Brian .
Turning back to the second quarter I am proud of how our team executed notwithstanding a very difficult operating environment, primarily in the United States U S growth of 10, 2% year over year was lower than we had.
Anticipated and lower than we expect in future periods.
This specific challenge is most evident in our sector over the past few months included persistent staffing shortages, which challenged our hospital partners workflow.
Contrast supply issues, which we think have receded, but are still watching in certain geographies around the world and supply chain challenges, which our team continues to address with success and resolved, but not without significant effort. These.
These challenges were and still are evident, but we're getting better at addressing them and we expect to further mitigate their impact in the second half of the year during which we think growth in our U S business will accelerate.
Our interim than our international business grew 20% year over year and are starting to reach scale.
However, foreign currency fluctuations impacted our second quarter results and we expect FX to weigh on reported revenue in the second half of 2022 as well Jason will address this later in the call.
All of that said the combination of our U S and international businesses and the two large areas neuro and vascular in which we participate.
<unk> gives us a broad based product portfolio and geographic platform to succeed in virtually any macro environment macroeconomic environment.
Turning to our vascular business, we reported growth of 22, 7% year over year to $123 $5 million in the second quarter. We grew our vascular thrombectomy revenue, 33% year over year, and our vascular embolization revenue of 11, 8% year over year.
Our U S vascular growth was driven primarily by increased utilization within existing accounts, who already believe in thrombectomy, but we're early in the phases of try our technology.
This is in contrast, with sales stocking and new accounts that primarily use Linux.
In fact based on our analysis, we believe we won competitively and both venous and arterial thrombectomy during Q2, while some of the macro factors that I discussed earlier clearly had an impact on our Q2 vascular growth in U S.
We have seen a strong resurgence in the trends in our vascular thrombectomy business over the past month.
Our current technology, and venous and arterial disease Lightning 12, and lightning seven represents a new treatment paradigm in both of these vascular anatomies and which we have started to eliminate.
The typical tradeoffs in performing mechanical thrombectomy.
Looking forward, we believe our two new vascular products Lightning flash and lightning bolt will take us to another level of technology leadership in both markets right.
Lightning clash introduces a new advanced catheter and incorporates a next generation lightning algorithm that utilizes an extremely novel way to Electively control aspiration, which we think will increase the amount of coffee aspirate.
Further reduced the time it takes to do the procedure and further optimize blood loss mitigation, while also reducing the risk of vessel lumen damage.
Justice potentially important as lightning flashed could be in the Venus market. We are equally excited about the potential for lightning bolt in their arterial anatomy.
Lightning bolt is designed with an extremely sophisticated algorithm. The technology incorporates both dual pressure sensors inherent in our current lightning algorithm that helps mitigate blood loss as well as the class extraction technology inherent in Thunderbolt for ischemic stroke, which I will discuss in a few minutes.
Moreover, <unk>.
Our team along with key opinion leaders are advancing significant clinical work and building proof that our proprietary innovations improve outcomes reduce complications.
And are advancing the field overall we.
We expect much more discussion of important clinical work at medical meetings going forward as many physicians collect and present their experiences using our technology versus the competition.
For example at the recent <unk> summit in San Diego Independent data was presented on <unk> DVT patients treated with current thrombectomy systems, including Lightning 12, which comparatively produce superior results.
Look forward to these data and other independent data sets being presented published and discussed going forward.
Further we expect presentation of the first 60 patients enrolled in our strike <unk> trial at the purchase symposium in October , which we think will highlight our position in the PND market.
On the arterial side, we expect to finish enrollment in our stride study by year end with acute results expected to be presented next spring, which we believe will increase awareness and adoption of lightning seven in acute limb ischemia.
In addition, Sandra will discuss two new randomized clinical trials that we plan.
To conduct an vascular thrombectomy in the near term as well.
In coronary cat Rx continued its strong growth trajectory in the U S. As did our vascular embolization business, even though we did see an impact to the ladder from the macro dynamics during the quarter.
Also initiated a successful launch of both lightning 12, and lightning seven in the European market.
Moreover, the introduction of our original undergo thrombectomy products into China was successful and we expect strong growth going forward.
We also are working towards and introduction of our vascular thrombectomy products into the Japanese market.
Turning to our neurovascular business, our revenue grew to $84 8 million in the second quarter up one 5% on a year over year basis, and four 6% sequentially.
Our U S stroke business grew strong double digits again year over year, while our neuro embolization and international stroke business offset this growth.
We are excited to announce FDA approval of our ITE for their Thunder trial, effectively starting the Thunderbolt era and stroke therapy the.
The excitement among the neurovascular community about this technology and this trial is palpable and we expect enrollment to be brisk and believes thunderbolt could be launched in the United States in the second half of 2023.
We have said it before and conditions, who is now seen thunderbolt in green.
This technology could completely change the paradigm and ischemic stroke treatment by both improving patient outcomes as well as potentially allowing neuro physicians to treat more ischemic stroke patients.
Diffley efficacious Lee and Expediently.
Since <unk> is simply Thunderbolt trial is underway. This is an appropriate time to spend a few minutes, explaining what thunderbolt is and how it works.
<unk> is a microprocessor controlled advanced software algorithms.
Integrated into the tubing.
It's between the engine pump and the Red catheter.
Does not go into the patient's body directly.
<unk> orchestrates modulating aspiration.
Which is proprietary to this technology.
Two valves are integrated into Thunderbolt.
One valve directly connects the Red catheter of choice 60 to 68 or 72 to our engine pump. The second valve connects the red catheter to non pressurized daily bag.
Under both algorithms orchestrate the opening and closing of each valve up to 12 times per second once a client engagement is detected this modulator aspiration disrupts the friction.
Between the cloud and the tip of the catheter.
Eliminating this friction we believe will allow the red catheters to ingest the clot. The vast majority of the time. This compares to the current practice with aspiration, which ingestion Coors a small percentage of the time, even with larger board catheters that are much more challenging to track to the cloud.
Because of this we expect Thunderbolt change another existing paradigm in interventional stroke, we believe it will allow doctors to use smaller catheters, while getting the unique benefits of modulating aspiration faster more complete clot removal.
This could have the added benefit of increasing the number of treatable patients.
By allowing for the routine treatment of more distal occlusions.
And our U S stroke business Thunderbolt is the clear priority.
That said we are also bringing.
We still expect to launch an additional red catheter and the second half of the year, which we believe will be a very important addition to our market leading portfolio. We also expect to launch the red catheter family into the European market during Q3, which will help us revitalize our European neuro business.
Now I'll turn the call over to Sondra less helpful. President of our interventional business. If you prefer perspective on our new product pipeline clinical trial strategy.
Good afternoon.
Asia to join my first.
Earnings call.
Most of my career in the interventional space and withdrawing could join kingdom hub because of its unique culture innovation.
And because of its commitment to put patients first.
Our strong culture of innovation and built a comprehensive product portfolio that has stood the test of time and proven successful in multiple markets over the past 18 years and I believe the new product launches and supporting clinical data was stark and note that charter may chief per yard.
In <unk> <unk>.
I am excited about both David on that because the number of patients. We can help across our cross linked eventual market very present, one of the larger most underpenetrated Tito blockchain cheese I have seen in my carrier.
I have spent many years, leading some of the largest and fastest growing businesses in the intervention, we will meet the Kobe Bakersfield and I can say without a great location that the culture of innovation at <unk>.
It truly at a completely different level. The innovation culture here is unique it's continuous and most importantly, it is impactful.
I have already outlined the three specific technologies that we believe can be truly paradigm change to their respective fields and default rates clinics, Charles and I think slash Dana Chombo unbeliever and lagging thoughtful peripheral arterial disease.
Send adult lightning flash and lagging bulk in addition to lagging 12, and I think they've been all proprietary systems. The development of this transformational technologies has been years in the meeting and they are protected by strong intellectual property portfolios.
A common denominator across all of these cognex is the microprocessor controlled advanced stuff.
Then that integrate into the system, okay trading the accent of hour.
And our categories.
Alright.
And in lagging slash lightning bolt and Thunderbolt I customized to each catheter study, which we Dave lamp based on demand GMO Felicia for each specific anatomy.
So dana on narrow.
We have a clear strategic plan to accelerate the paradigm change in mechanical thrombectomy between Kelly joined exploration from traditional lead cheeks offset Gerry.
The propriety seem pleased <unk> sexually Jeff Atwood technology makes a difference and we expect these products will help physicians treat significantly more patients safely effectively and less invasive Lee in the land and years ahead.
They're generating new scientific Avi that will be critical to achieve our objectives.
On that front I'm happy to say that we are also embarking on the lost robust era of clinical evidence generation in our company's history.
In addition to the standard try for Thunderbolt in ischemic stroke, which as I mentioned, we have five additional trials currently enrolling <unk> completed his trumps after your LTE DVT and harmonization.
In addition, we are nearing completion of the trial design for two randomized controlled trials, one in <unk> and <unk> all day in coronary.
Which we expect to come out within the next few quarters. We will give you more details on these two important randomized studies in the near future combined our pipeline of breakthrough technologies and unmatched clinical portfolio.
It does exceptionally well to treat many more patients within our target markets.
And our leadership positions in each of these markets and to deliver strong growth for years in the future I will now turn the call back to add that.
Thank you saundra before I turn the call over to Maggie I'd like to give an update on our immersive healthcare business.
The idea of using immersive computing or virtual reality for healthcare.
It is continuing to gain momentum with health care professionals.
And validates our decision to invest in this business, we have seen an uptick in interest and use of our recently launched real wide series for rehabilitation using our updated hardware and myriad new experiences that we unveiled at our Investor day last year.
In addition, a significant event took place this quarter to further the interest and momentum regarding the use of virtual reality for healthcare.
The Veterans administration hosted a multi day summit.
On the use of virtual reality to help our veterans.
The honor of joining a keynote panel with senior members of the VA to discuss this important work.
I was extremely impressed with their overall knowledge and understanding as well as their willingness to validate and bring this technology to help not only veterans that.
But the huge number of other patients that can benefit as well.
Even with that confidence in the long term benefit and likely success of our immersive healthcare platform. Obviously, the macroeconomic environment has changed recently.
Because of that we are focusing our efforts on the most immediate use cases, which has allowed us to recalibrate, our quarterly spend rate and immersive healthcare to realign with our discipline to increase the profitability of the company over the next 12 months, we expect to trim over $10 million in operating expense.
From our business.
Wow, we maintain investments.
That we think will drive progress towards scaling this business over the long term.
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 second quarter of 2022, consistent with previous quarters financial result on this call for revenue and gross margin on a GAAP basis, while operating expenses and operating income on a non-GAAP basis, the corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures.
Provided in our posted press release.
For the second quarter ended June 32022, our total revenues were $208 3 million an increase of 13, 1% reported and 15, 3% in constant currency compared to the second quarter of 2021.
Our geographic mix of sales in the quarter were 69 67, 9% in U S and 32, 1% International the United States, We reported growth of 10, 2% and you know international regions. We increased revenue 19, 8% as reported and 27.
2% in constant currency.
Moving to revenue by franchise revenue from our vascular business grew to $123 $5 million in the second quarter of 2022.
An increase of 22, 7% reported and 24, 5% in constant currency compared to the same period last year.
We saw double digit growth across U S EMEA Asia, Atlanta, and Latin America region.
Revenue from our neuro business was $84 $8 million in the second quarter of 2022.
An increase of one 5% reported and four 3% in constant currency compared to the same period a year ago.
Sequentially revenue from our neuro business grew by four 6% reported and five 8% in constant currency driven by strong growth in neuro thrombectomy across international regions.
Moving to gross margin and operating expenses.
Margin in the second quarter was relatively flat at 64, 3% compared to 64, 4% in the same quarter last year and continues to improve sequentially from 62, 5% last quarter.
Our investment in capacity Labor force and productivity efforts in the last 18 months has begun to pay off in terms of driving margin expansion as well as enabling us to navigate through some macro labor shortage inflation and supply chain headwinds.
Looking forward to the balance of this year, we expect to see continued productivity improvements to offset heightened inflation and supply chain pressures and.
And we have several programs in place to continue to drive gross margin improvements in the future.
Now onto our non-GAAP operating expenses, excluding the quarter's amortization of acquired intangible assets of $1 $8 million.
Total operating expense for the quarter was $132 $4 million or 64% of revenue compared to $108 $4 million or 59% of revenue for the same quarter last year.
Our research and development expenses for Q2, 2022 were $19 $6 million compared to $17 $7 million for Q2 2021.
G&A expenses for Q2, 2022 were $112 $8 million or 54, 2% of revenue compared to $96 million for Q2 2021.
And $109 $1 million compared to last quarter we.
We made additional investment in commercial channels and temporary resources to support our ERP system migration in the second quarter.
We recorded operating income of $1 6 million or 8% of revenue in second quarter 2022, excluding the amortization of acquired intangible assets compared to an operating income of $10 $3 million for the same period last year.
For the back half of 2022.
We'll be more disciplined in our discretionary spending and together with over $10 million reduction in immersive health care operating expenses in the next 12 months, we expect continued operating margin expansion in sequential quarters.
We ended the second quarter with cash cash equivalents and marketable securities balance of $204 $4 million.
Although we experienced them.
Some receivable collection delay related to the migration of our new ERP system during the quarter. Our team has made great progress to lease them back to normal collection cycle.
And now I'd like to turn the call over to Jason to discuss our guidance.
Thank you Maggie and good afternoon, everyone foreign currency translations impacted our reported revenue in the second quarter and first half of 2022 by $4 million and $6 million respectively for the full year of 2022, we anticipate the FX impact to be approximately 10 to 15 million.
We are maintaining our guidance of $860 million to $875 million, but due to these FX headwinds we are more comfortable with expectations that the lower end of this range that said on a constant currency basis, we continue to expect our revenue growth to be 15% to 17%.
Compared to 2021.
Looking into 2023 Lightning flash lightning bolt and Thunderbolt represent three paradigm changing technologies and arterial venous and narrowed thrombectomy, respectively. These products, coupled with multiple international growth opportunities and strong clinical evidence pipeline underline our confidence in future growth.
Consequently, we reiterate our belief that we can accelerate our revenue growth in 2023, both on a reported and constant currency basis.
I'll now turn the call back to Adam for closing remarks.
Thank you, Jason Maggie <unk>, Chief I'd like to conclude this quarters earnings call by acknowledging the world class work.
The team did this quarter in very challenging circumstances I am so proud to work with this team.
We have shown time and time again their talent and perseverance by pulling together to tackle whatever comes our way.
I also want to quickly summarize how our team has a number of runs the business. We are developing products that can help a significant number of patients.
Many of whom are not getting the most advanced treatment today.
Our technology has always been unique and transformational but at this moment.
For significant catalysts coming three products plus supporting clinical data that will allow us to help more and more patients for many years to come.
This coupled with our disciplined planning and execution gives us confidence that we will deliver strong double digit growth increased gross margins materially and significantly expand operating profitability.
All while investing proportionate to.
To the large opportunities in front of us.
Thank you, we'll now take questions.
Okay.
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 well pause for just a moment to compile the Q&A roster.
Okay.
Your first question comes from the line of Robbie Marcus with JP Morgan.
Your line is open.
Hi, This is actually Lili on for Robbie today. Thanks, so much for taking the question.
Sure.
Hey.
Is there any way that you cannot quantify the magnitude of the contra shortage in the quarter and how are you thinking about this and other challenges like stopping China.
Impacting your growth over the rest of the year.
Yes.
Great question.
I wish there was an easy way to to quantify contrast.
The impact there really isn't.
I would say that there was.
A lot more kind of discussion about it earlier in the quarter.
I really haven't as I said in my prepared remarks, we haven't really seen it.
As much as a.
An issue right now.
Sort of.
Persistent staffing issues really have been the bigger impact we think if we were to pick.
What what was driving the challenges and some of the headwinds.
That being said and I said it in my prepared remarks.
The last month.
First month of this quarter last 30 days has.
We've seen a pretty strong resurgence and so whether hospitals are dealing with their staffing issues or finding a way to.
Operating within this environment in a more long term basis I think it's a combination of those we have a lot of optimism for what we've seen in the first month so far.
Yes, and just add a little bit of that is that.
Adam said quantitative specificity is very difficult.
We tried to ascertain that there was there was certainly.
A number of $1 million, we bank, but hard to quantify much further than that just to.
Try to put a finer point on it.
Okay.
Got it that's really helpful. Thank you and just as a fall.
Follow up.
Did the U S peripheral business grow sequentially and how are you thinking about that segment and the <unk>.
Back half of the year. Thanks, so much.
I'm sorry, just so I heard your question correctly deduced as U S or international.
U S <unk>.
Yeah. So.
Our U S business.
The first half of the year grew about 15%.
Certainly we saw as Adam mentioned staffing shortages, the macro economic challenges impact our U S business in the second quarter more than it did in the first we expect acceleration in that business in the back half of the year. We think it will step up in the third and even step up more in the fourth quarter and then if you look.
At the second half growth on a year over year basis in the U S. We think it will be similar actually to.
Through the first half, which as I mentioned was in the mid teens.
Yeah.
Great. Thank you.
Thank you.
Your next question comes from the line of Larry <unk> with Wells Fargo.
Your line is open.
Hi, This is lei, calling in for Larry Thanks for taking my question.
Adam Hi, how are you well thank you.
Good.
You talked about you mentioned it rebound and that's come back in the business in the past month.
Can you just give a little more color on how that trended through Q2 did it worsen from April to June and there was a big rebound in July .
And also any commentary along that trend line and not narrow and I have a follow up.
Yeah.
Let's start with peripheral thrombectomy business, what I was alluding to is really in the last.
So this the month of July we saw the strong resurgence.
<unk> started.
A little bit into the end of June as well.
Some of that I think is.
<unk>.
Hospitals are getting more organized around the staffing issues.
They've been working really hard to do that.
And some of it might be competitive share as I alluded to we're seeing a lot more conversation doctors are bringing up.
<unk>.
About some of that issue, particularly on the <unk> side and I think thats.
A bigger topic.
We're going to be talking about and addressing going forward.
But I think the combination of those things are seeing that acceleration on the neuro side.
I will tell you.
The excitement around Thunderbolt as more and more folks see it through the.
A large presentation.
F&I S.
With a demonstration.
From.
A physician who is part of the trial.
We had a lot of conversation about that.
Folks throughout the week coming up and talking about it and.
And so I think there is there is a.
Our real excitement around that and of course, the red catheters are part of that success right now.
Yes, just.
Add to that way.
The underlying fundamentals of our peripheral thrombectomy business. When we look at them very carefully we are actually quite healthy and it had been through the second quarter. We just saw.
Continued.
Improvement.
<unk> already strong fundamental base in.
July .
Generally speaking, we expect to see that continue here in the second half of the year.
Okay.
Okay.
Great. Thanks, and then as far as.
Gross margin can you talk about what we should expect a sequential improvement in second half and any comments around key drivers.
To get to that 70% plus gross margin in the next few years. Thank you.
Yes. Thanks for the question Yeah, we're very excited to see all the momentum.
In productivity improvement, especially in our Roseville say app and the manufacturing transfer effort. So a lot of the productivity. We see in this quarter is driven by those productivity initiatives.
And sequentially there is still some low hanging fruit and a lot of other initiatives that we're working on we will continue to see improvement.
And continue to navigate through the foreign exchange inflation and supply chain pressures.
And in the longer term.
Definitely continue driving improvement and new product launches to drive favorable mix and a lot of the other programs. We have in place will will get us in the right path to blunt, the 70% plus gross margin target.
Okay.
Thanks Lee.
Your next question comes from the line of Bill <unk> with Canaccord.
Your line is airlines.
It's John on for Bell Tonight, Thanks for taking the questions.
So you had a really good quarter and I just.
Wanted to dive more into that.
Is this really from the launch of the <unk>.
<unk>, 7% and 12 in Europe , and how should we think about O U S contribution in the second half of the year towards the overall revenue targets.
Yeah. Thanks for the question Josh Great question.
Growth in contribution was broad based in the quarter from our international business certainly.
The lightning launch launches in Europe .
EMEA broadly contributes to that we're looking forward to the red launches this quarter in that same region. We also saw broad based growth across Asia Pacific, including China.
And look forward to continued growth there as well as Japan, obviously, we mentioned where we could have our vascular thrombectomy products. There may be earlier than we thought so things internationally look like they are on a solid trajectory.
Great. Thanks for that and just on the call itself, because obviously, you've highlighted all of macro environment challenges in FX.
What's your comfort level around hitting that $1 billion in sales target for 2023. So do you think you could still alright.
Alright, thats going on now.
Yes.
Great. Thank you.
[laughter].
Thanks, Thank you.
Your next question comes from the line of Peter Chickering with Deutsche Bank. Your line is open.
Hey, good afternoon, guys. Thanks for taking my questions and she followed we don't just view on the revenues did you see a difference in demand between urban hospitals versus serve small hospitals as it relates to staffing can you also provide color on how vascular and neuro grow grew in the U S versus international.
Yes, good start will be the first one Peter and welcome to the call.
We didn't see a discernible difference.
I think what we've what we've heard from customers will be a small institutions are a larger academic institutions. They are both dealing with the same macroeconomic headwinds.
Nursing our tech.
Staffing issues or otherwise.
Same is true when contrast was more of an issue earlier in the quarter.
And generally speaking.
With respect to your second question.
US versus international we're obviously not giving granularity to the breakout.
Between our businesses U S International, but I think the important salient point is.
Underlying fundamentals and so I think you asked about thrombectomy businesses in both neuro, frankly, and and peripheral vascular are strong.
<unk> victory growth is obviously slower right now but momentum with Thunderbolt.
Really excited about.
Okay fair enough and if one for you on the gross margins specifically on the interventional side I guess, how different are they versus your pure play competitor.
And any color specifically on what you're seeing on inflationary pressures again within the interventional side would exclude <unk> <unk> of health and how should we think about deflationary pressures offset with efficiencies from.
There was the Roseville manufacturing facility coming online.
Yeah. Thanks for the question I think.
In terms of the margin has come back to me I mean relatively I think the biggest difference.
Competitive wise, it's just on the price element.
In general within our business from SME has a higher margin than our embolization business.
And then going forward.
We do see continued productivity improvement that we have seen working on in the last 12 to 18 months to offset the foreseeable.
Macro headwinds that we expect in the second half.
Great. Thanks, so much.
Thanks Bill.
Yeah.
Your next question comes from the line of David restaurant with true Securities. Your line is open.
Yes.
Hey, guys. Thanks for taking the questions first on the U S and.
First on the U S peripheral thrombectomy business obviously.
Last several years has had success kind of building that market up from the ground and especially.
Good success in the core with the headwinds in that segment.
Just wondering.
It is now or at some point in the future. We could think about maybe getting some more granularity around the individual segments within that business as it relates to an arterial or coronary p/e DVT as far as how they've been progressing relative to each other as well as relative to the rest of the overall market.
Yes, it's a good question I'll start Jason can add to the answer.
It relates to.
Arterial versus the larger being is there is some.
Way to sort of describe that I think it's premature to start breaking that up.
Just given the way, we're thinking about and running those businesses.
As we try to go out and build all of them at the same time I think that that will be more helpful. As the business matures.
And truly though as it relates to DVT and PE, it's going to be hard because the products will be the same.
And it becomes a lot harder to sort of know that answer.
It would be different if we had different products obviously.
But we'll give you the kind of color commentary, we can around the success we're having.
I alluded to that on this call.
Particularly as it relates to some of the competitive success. So we'll we'll continue to do that as best we can.
Yeah, and David just just to add to add to that.
If you look at the segments of the market.
The patient populations inherent in each one of those spaces.
And you go back to what we said on the in the prepared remarks about the technologies, we're bringing to bear that are specific for each one of those anatomies and you coupled out last thing.
The relatively low penetration, where we are in penetrating are helping the patients within those markets.
That's why we said on the call that we think we're about to enter the most robust era input numbers history.
With the microprocessor controlled algorithms that are inherent in each of these technologies and we announced a lightning flash for venous Thromboembolism for example allows us to deliver the most advanced therapy the.
The industry has ever seen and thrombectomy and venous thromboembolism seem to be said for lightning bolt in arterial cat Rx in coronary. So we feel really good about that and supporting that with clinical evidence true.
Clinical evidence, we feel very good about where we're going.
Okay. Thanks, I guess, just as it relates to the spend in this year.
Spend over the next.
A couple of years.
How are you thinking about I know in the past you've talked about kind of focusing on growth.
Opposed to.
Relative to margin expansion, but when you think about the spend over the next several years I mean, where do you think that the largest amount of the greatest.
That dollar per spend is coming from as it relates to either Thunderbolt, the VR opportunity just extending the neurovascular and peripheral businesses.
That being said Sunday on the longer term outlook of the stops.
Thank you.
Okay I'll start on that thanks for the question I think on that overall operating expense standpoint, I think especially looking back. The last 12 months, we have had pretty balanced investment across all product development sales force International win and also overall overall infrastructure. So I think we're at a pretty good.
The level and now with <unk>.
Scaling the opportunities and even be a little bit more discipline in some of the discretionary spending but as Adam mentioned earlier I mean, even with some of that cost savings area. If we are not going to.
At the cost of the pipeline development.
Yes.
Okay.
Thanks, David.
Your next question comes from the line of Mike Matson with Needham <unk> Company.
Please go ahead.
Yeah, Thanks for taking my questions Hey, Mike.
I wanted to ask Hi, I wanted to ask about.
Lightning flash in full.
Having both of those products available it sounds like they have some different kind of capabilities.
And then I guess, you have kind of the older original lightning as well so.
How are they going to be priced kind of a different level. So it's going to be have a tiered offering or something.
Where do you see that.
Flash versus full getting used.
Is it targeting different types of procedures or something.
Yes, it's a great question.
<unk> said in the prepared remarks.
Lightning bolt is primarily designed for use on the arterial side and lightning flash is primarily on the venous side.
And so.
That's sort of the fundamental difference.
The arteries and veins as you know are extremely different they operate differently.
Treat them differently, they are different sized as well that that being said the next question around price and all that let's get the products.
Cleared through the FDA and out there and then we will.
Address questions around.
How do we price it and how we think about it.
I will tell you, though having.
Being part of that.
Thats almost 20 year journey now in stroke, and watching sort of the arc of innovation happening in stroke.
And all of the things we used to do as a field and even as a company to try to get caught out and to where we are now about to be with Thunderbolt.
It brings the same sort of type of feeling around in the peripheral side too that we can really sort of get to the point, where we're not.
Doing the kinds of things.
We kind of almost had to do to get the clot out before.
And bring long term sort of risk to the vessel walls and things. So this technology across all of these.
It has a lot of meeting to people here. It is it is the kind of thing, we do where we really sort of.
Finish the arc of innovation that we've started.
And trying to get cloud out of the body. So there's a lot of passion a lot of a lot of extraordinary work put into these.
We'll deal with price when we get about new market, but it's exciting times. Thanks for the question Mike.
Yeah, and then just follow up on the on the rail system. So.
Yeah.
Just given the you are trying to focus on you said immediate use cases can you maybe talk about what those are and then what is your current.
Pricing scheme, and I'm not asking for dollar amounts, but I think in the past you've talked about kind of a rental model, but it seems like more recently, you've talked about more of like a set capital sale model.
Maybe just any color there would be helpful. Thanks.
Yes.
Good question.
No.
There'll be time and place to talk about the model that I have been clear that we will do our best to update people on the models is as we do our work to try to figure out.
The right way to do this for the field, but I think we need to focus on right now.
Is.
<unk>.
What is where can we be helpful where do people need.
This product and I got to just.
If you can indulge me for one moment.
I mentioned the meeting that the VA hosted.
It was an extraordinary event.
I was proud.
<unk> been invited and really blown away that the veterans administration was doing this they have an awful lot of people there both in person and virtually.
They talked about and there are a number of other vendors.
Vendors and so on it was a pretty broad meeting but.
Being able to share and talk about how to not only.
Figure out what.
Applications, because they kind of already know that to some degree, but how do you implement this what's the workflow look like.
Inside.
<unk> care system, and obviously NBA is the largest healthcare system in the U S.
I got to tell you Dan listening to handle after our panel.
Our veterans and having the veterans share their personal experiences.
Having used VR and what did that do for them and how that opened up at the beginning of not only therapy with VR with therapy in other ways.
Is.
There is a huge opportunity.
To help everyone, but if we can help our veterans we've done some good work together and I think that motivated us to be efficient in how we focus in.
Focus our spend in a way so we can be really really helpful to these people.
<unk>.
That's the most important thing right now and we're pretty committed to that.
Okay got it thank you.
Thanks, Mike.
Your next question comes from the line of Shanghai Tang with RBC.
Your line is open.
Hey, good afternoon. This is beyond push again thanks.
My question.
Just a follow up on immersive health care and although virtual reality.
Platform.
It's great that you've been getting a lot of good feedback, but what what metrics do you plan to share on real in the quarters ahead could.
Could you remind us how we should think about the reimbursement.
You roll out the platform and what gives you the confidence that.
We will be your largest business in the next five to six years.
So.
As I've said as soon as we're able with the kind of certainty and specificity.
You deserve we will share that information with you right now and I've learned many years ago. When we first started the company.
Just to remind everyone.
When we started thinking about doing a stroke product there was no reimbursement no one wanted to treat stroke.
There was no infrastructure for it.
And none of that deterred us.
Just went for it because we followed the most important thing and that there were patients that were having strokes and we thought we could do something now.
That's the same exact thing here and.
And Thats why that.
At that summit at the VA was reaffirming and particularly the patients that are being benefited from.
Immersive therapy at this point, so we will as soon as possible and as prudent we will get you that information.
But what gives us confidence is that we already see people benefiting.
And now we just have to figure out how to deliver and how to add this to the workflow of complicated health care systems and that.
That is not easy that is hard work has some uncertainty to it.
It is exactly like everything else we've ever done this has uncertainty to it and I think we're incredibly well suited and we have the.
The mindset to not sort of follow the lead of others, but to brave new spaces with the goal of helping people, particularly our veterans.
Just to add to this is Jason.
The guidance information, both quad quanta potato of guidance that we've given for this year and somebody thinks that qualitative guidance that we've given.
For 2023, just as a reminder is really.
Our interventional business alone.
And I just wanted to make sure that that was clear.
The financial model the business model for immersive healthcare.
We will talk about more in the future.
Is it can be a very good lucrative model for the company.
It is different than other prototypical medical device models to be sure, but nonetheless.
<unk> in terms of the opportunity not only from a top line perspective, but margins and profitability over the longer term.
And so I just wanted to add to that.
Yes.
Thank you.
Okay.
Okay.
Yeah.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Brandon <unk> with William Blair.
Your line is open.
Hi, everyone. Thanks for taking my question I wanted to hey, guys on the vascular business, you've talked a little bit about staffing shortages and weather kind of impacted the quarter is kind of a curious comment to me because it seemed like through COVID-19.
One of the great things about the gas business was that you guys were kind of a solution to the problem right. There was overwhelmed hospitals.
And you guys could come in there with lightning or it used to be indigo and get patients out of there quicker and safer than previously and I thought there might be a trend that could continue with less staff. They may still need to rely on someone like you.
Is there something I'm missing there and maybe talk about why that dynamic would've been played out in Q2 and much staffing shortages that are more acute impact this quarter.
Yes, absolutely Thats, a great question and thanks for giving us a chance to clarify that.
The staffing shortages that were dealing with frankly than others in the field.
Not only endovascular med tech, but it.
And broader spaces in med tech, but really procedural staffing shortages and so if you don't have the staff to do the procedure are to do as many procedures as you would otherwise like to you did can't do them I think what youre, referring to is certainly there was an honest on the health care system and other healthcare professionals writ large.
<unk> during COVID-19 to keep these patients out of the ICU and certainly that helped the thrombectomy business generally speaking because we can keep patients out of the ICU at least reduce their time there at the very least and so I think I think there are two different challenges.
Youre talking about not similar.
Okay and then.
As you do start to correct me, if I'm wrong, but my understanding on the prepared remarks was that there was a little bit less new account openings in the quarter in the vascular side and so.
But it did rebound as you exited the quarter started Q3 can you talk about how long it can take some of these new accounts to ramp and in part asking does the little pocket of less account openings or lowering of account openings create kind of a pocket of growth in the next one or two quarters as you get back on the offensive open new accounts and ramped.
Yes, it's a great question I just wanted to add something to that I think the broader answer from Adam.
Just as a reminder, the first quarter I believe we commented on this was the strongest quarter that we had had.
Since we launched a widening 12 and new account ads in the United States. So there is there is somewhat of a bit of it.
Consolidating those but just to point that out Adam maybe you can continue that answer yes.
The point of account openings how was that.
What I wanted to make sure it was clear that.
What we did this quarter was driven by usage of our product not stocking.
New accounts and that was the really most important point.
We paid a lot of attention to the customers as I said there was some.
Interest amongst number of them to two who are just starting out with our product that already were using mechanical thrombectomy to try ours and that required obviously attention.
These are moved to this sort of.
The next thing.
So I I.
I wanted to be clear about exactly my words around new accounts versus stocking.
And Thats generally the philosophy Brandon of the company. So the new account openings in the first quarter for example.
Utilization as well.
And just to be clear just about our our common practice.
Great. Thanks, very much thanks.
Your next question comes from Peter Chickering with Deutsche Bank.
Hey, guys. Thanks for taking a quick follow up here.
What percent of your stroke.
Respiration today is red versus jet Naas and as the reorder rate from doctors been different using red than it was previously and so what market share do you did you have at this point today versus a year ago.
Sure.
There is a bunch of questions in there so.
So I'll start.
I would I don't have a percentage.
In my head of Red versus the other.
In the U S.
The majority.
The vast majority of I can't give you an exact number but but it's certainly the vast majority of current usage has switched to the red series.
And we're seeing abroad.
Range between $62 68, and 72, there is a lot of.
People like them all.
Depending on preference and so on.
So that's most of that switch of our current customers I think we've seen a rebound.
Certainly.
Our numbers indicate.
And in share and I think we're continuing to see that.
As a very clearly said coming out of SaaS.
And.
In the month of July continuing on a lot of excitement because of Thunderbolt on course Thunderbolt connects to read catheters and so on so.
I think we're in a pretty good spot right now.
<unk>.
I can't wait to.
So we're talking about and showing you guys Thunderbolt inaction.
Great. Thanks, so much.
Thank you.
Yes.
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 again for joining us today I'm feeling interest in penumbra, we look forward to updating you on our third quarter call.
Okay.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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