Q3 2024 Penumbra Inc Earnings Call
Jeremy: Hello, good afternoon. My name is Jeremy and I will be your conference operator today. This time I would like to welcome everyone to Penumbus 3rd Quarter 2020 for our conference call.
Jeremy: All lines have been placed on mute permit any background noise. After the speakers from Marks there will be a question and answer session.
Jeremy: Do you like to ask a question hearing this time? Simply press star, followed by the number one on your telephone key that. Do you like to withdraw your question? Press the pound key. Thank you.
Speaker Change: I would like to introduce Mrs. Cecilia Furlong, Business Development and Investor Relations for Conver. Ms Furlong, you may begin your conference.
Cecilia Furlong: Thank you, operator, and thank you all for joining us on today's call to discuss the numbers earning some release for the third quarter of 2024.
Cecilia Furlong: A copy of the press release in financial tables, which includes a gap to non-gap reconciliation, can be viewed under the Investors tab on our company website at www.pennumberinck.com
Cecilia Furlong: 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.
Cecilia Furlong: Quality, Compliance and Business Trends.
Cecilia Furlong: Actual results could differ materially from those stated or implied by or for looking statements, due to certain risks and uncertainties, including those referenced in our 10K, for the year ended December 31, 2023, filed with the SEC.
Cecilia Furlong: 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.
Cecilia Furlong: including the 10K 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.
Cecilia Furlong: Penumbar Disclaims, any duty to update or revise our forward-looking statement as a result of new information, future events, development, or otherwise.
Cecilia Furlong: On this call, financial results for revenue and gross margin are presented on the gap basis, while operating expenses, operating income and adjusted EBITDA are presented on a non-gap basis.
Cecilia Furlong: The corresponding gap measures and reconciliation of gap to non-gap financial measures are provided in our posted press release.
Cecilia Furlong: Non-gap operating expenses and operating income exclude expenses related to the wind down of our immersive healthcare business in the third quarter of 2024 of $5 million.
Cecilia Furlong: A one-time expense associated with the acquisition of IPR&D of $18.2 million in the third quarter of 2023 and amortization of acquired intangible assets of $2.4 million in the third quarter of 2023.
Cecilia Furlong: adjusted EBITDA of 56.7 million for the third quarter of 2024, excludes the WINDOWN Expenses, SOF Prombenization Expenses, Depreciation and Immortization, provision for income taxes, and interest income expenses.
Speaker Change: and members chairman and CEO will provide a business update.
Cecilia Furlong: Maggie Yuen, our chief financial officer, will then discuss our financial results for the third quarter of 2024. And Jason Mills, our executive vice president strategy, will discuss our 2024 guidance. With that, I would like to turn the call over to Adam Elsesser.
Adam Elsesser: Thank you, Cecilia. Good afternoon. Thank you for joining Penumbras 3rd Quarter 2024 Conference Call.
In the third quarter, we generated total revenue of $311 million, representing a year over year increase of 11.1% on a reported basis and 10.9% on constant currency basis.
Adam Elsesser: A third quarter results reflect another strong performance by our U.S. thrombectomy business driven by continued adoption and further market penetration of our current CABT portfolio, lightning flash 2.0 and lightning bolt 7.
Adam Elsesser: U.S. from back to meet grew 21.2% year over year to $162.1 million with our U.S. VTE franchise, delivering revenue growth of 32% year over year and 13% sequentially.
Adam Elsesser: The balance of our U.S. thrombectomy franchise continued to perform very well in line with our expectations.
Adam Elsesser: In the quarter we received FDA clearance for two new CABT products, Lightning Bolt 6X and Lightning Bolt 12, which further enhance and build out an increasingly comprehensive CABT portfolio.
I will try to digital details on these products later in my prepare remarks. In addition, we receive CE Mark for Lightning Flash 2.0 and Lightning Bolt 7 in mid-September and are in the early phases of introducing our transformative technology to European markets.
The trend of improving profitability continued in the third quarter, with gross margins expanding to 66.5% of 90 basis points over the prior year period.
and non-gap operating income of $40.3 million or 13.4% of revenue in the third quarter, up 110 basis points year over year.
Behind Positive Product Mix Shift and Operating Efficiencies
We continue to see a path to a gross margin profile of over 70% within the next 18-24 months and expect non-gap operating margin expansion to outpace gross margin expansion for the foreseeable future.
Adam Elsesser: Additionally, back by strong revenue growth, expanding growth margins and disciplined operating spend at this quarter. We generated $51.3 million in operating cash before you include the impact of our $100 million stock buyback.
We are well positioned to continue to increase our profitability and operating cash flow into the future.
Adam Elsesser: Within our U.S. peripheral business, the standout of the quarter was lightning flash 2.0.
Flash 2.0 consistently removes blood clots and VTE patients considerably faster than all older products.
Given the speed of the procedure now with flash 2.0, there is no significant blood loss.
Adam Elsesser: This flash 2.0 technology compares very favorably to other companies older technology that takes much longer to remove blood clots with enough blood loss to make physicians feel like they need to return blood to the patients.
As a result, Flash 2.0's performance continues to command physician interest and our third quarter results for a flex strong adoption of our latest Flash technology and its first full quarter on the market.
Adam Elsesser: with September representing our highest month of VTE procedure volumes ever as we continue to gain VTE market share.
The speed of flash 2.0 was extremely evident in a PE case this quarter, where a firefighter.
who was 39 weeks pregnant was treated for a very serious PE with a flash 2.0. The speed of the procedure saved the patient and her baby.
I had the privilege of watching a video of her and her baby being greeted by a lion of firefighters when she was being discharged from the hospital.
Speaker Change: In addition, we received FDA clearance for Lightning Bowl 12, expanding our portfolio of latest generation CVT products engineered to address VTE.
Lightning Bolt 12 combines our proprietary modulated aspiration technology validated by Lightning Bolt 7 strong clinical outcomes with a catheter size designed to address smaller parts of the Venus anatomy.
Speaker Change: Improved procedure efficiency and a reduction in procedure times to these patients.
Similar to Lightning bolt 12, we expect modest contributions from <unk> in the fourth quarter as we commence commercialization that said, we see a meaningful opportunity for arterial focus CBT portfolio currently including bolt seven and bolt <unk> to accelerate physician conversion.
Speaker Change: From open surgery or the use of <unk> to a computer assisted endovascular first approach to treating arterial clots.
Despite significant progress to date, we remain in the early stages of.
Speaker Change: Helping the over 800000 patients annually in the U S, who suffer from <unk> and arterial clots with our proprietary.
Proprietary <unk> technology.
Turning to the neuro vascular business our team delivered another solid double digit performance in stroke thrombectomy.
Speaker Change: As interest wanes and the Super large bore OA eight catheters adds aspiration catheters most of the companies with those products have switched to positioning them as guide catheters.
This positions us very well with our market, leading aspiration portfolio led by Red 72, with our proprietary send it technology and Red 43, as we prepare to bring Thunderbolt and the benefits of our <unk> technology to the neurovascular field as we previously announced.
Our Thunder trial recently completed enrollment with follow up scheduled to be completed by the ended the year we.
Speaker Change: We will provide additional future updates as appropriate but needless to say we are excited about the prospect of bringing CABG and its demonstrated clinical benefits and procedural advantages to the neurovascular field for further solidifying and enhancing our market leading position.
And in the field this stroke thrombectomy.
Shifting to our international business in September we received CE Mark for Lightning flashed to point out and lightning bolt seven further expanding the global reach of our latest CE Capt technology.
Speaker Change: Physician interest in that technology in European markets is high and while we have commenced initial sales we expect revenue contributions to scale in a measured fashion given the current reimbursement landscape across the region.
That said over time, we see opportunity for <unk> in international markets supported by the work. We're currently doing in reimbursement and clinical evidence generation and backed by strong commercial execution.
As we look towards 2025 and beyond we view a significant opportunity for <unk> to globally transform the way blood clots are addressed and treated.
Over the near term, we are focusing on executing.
Some strategy that we previously laid out number one.
Speaker Change: Constant innovation to further enhance cvt's comprehensive value proposition and further expand the patient population with clot burden able to be treated with CVT therapy safely effectively swiftly and simply.
Speaker Change: Number two clinical and health economic data generation via randomized clinical trials real World studies, and our global and our market access initiatives to increase awareness not only of Cbt's outcomes benefits, but also of the economic benefit to hospital systems.
Number three investment in our commercial and market access teams to fully realize <unk> potential and support sustainable strong growth in the number of patients able to benefit annually from our computer assisted intervention all approach.
Speaker Change: And number four executing our strategy with a disciplined focus on driving operating efficiencies and an improving profitability profile.
I'll now turn the call over to Maggie to go over our financial results for the third quarter.
Thank you Adam good afternoon, everyone today, I will discuss the financial results for the third quarter of 2024.
Maggie Yuen: Financial results 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 have provided in our posted press release.
For the third quarter ended September 32024 hour total revenues were $301 million, an increase of 11, 1% reported and 10, 9% in constant currency compared to the third quarter of 2023.
Our geographic mix of sales for the third quarter 2024 was 75, 2% in U S and 24, 8% International.
Our U S region reported growth of 16, 2% driven by 21, 2% growth in now from back to me franchise.
Our international regions decreased by one 9% reported and two 5% in constant currency, primarily due to a reduction in China revenue of $13 6 million.
Which was up which was offset by an increase of $12 $2 million and all other international regions.
The sequential growth in our total revenues up <unk>, 5% was primarily driven by an increase in our U S. Thrombectomy revenue of $8 3 million relatively flat revenue in Europe, and offset by a decline in China revenue of $9 $4 million.
Maggie Yuen: Moving to revenue by products revenue from global Thrombectomy business grew to $204 $1 million in the third quarter of 2024, an increase of 14% reported and 13, 8% in constant currency compared to the same period last year.
U S growth of 21, 2% is driven primarily by continuous adoption of CABG.
Our international business declined by seven 1%, primarily driven by a decrease in China revenue, which was offset by an increase in all other international regions as compared to the same period last year.
Revenue from Embolization and access business was $96 9 million in the third quarter of 2024, an increase of five 5% reported and five 2% in constant currency, which is in line without expectations and primarily driven by an increase in the U S.
Gross margin for the third quarter of 2024 is 66, 5% compared to $2 65, 6% for the third quarter of 2023.
We delivered 90 basis point improvement driven by favorable thrombectomy product mix across all regions and strong productivity improvements.
Additionally, <unk>.
Sequentially, we had 100 basis point improvement in our gross margin, excluding the onetime $33 million immersive healthcare inventory write off in the second quarter of 2024, which reflects higher some back to any product mix and favorable distributor makes our.
Our manufacturing team will focus on ramping up our volume, while driving productivity and efficiency for our new product launches in the fourth quarter.
Maggie Yuen: Yeah.
Now onto our non-GAAP operating expenses, non-GAAP operating income and margin and adjusted EBITDA.
Maggie Yuen: Total operating expense for the quarter was $160 million or <unk> 53, 1% of revenue compared to $144 5 million or 53, 3% of revenue for the same quarter last year.
Our research and development expenses for Q3, 2024 or $22 6 million.
Maggie Yuen: Kind of total revenue compared to $2 $51 5 million or 19% in the third quarter last year.
Turning to cash flow and balance sheet.
We ended the third quarter with cash cash equivalents and marketable security balance of $291 million and no debt.
Which is a decrease of $48 $7 million sequentially due to the stock repurchase of $100 million during Q3 2024.
Maggie Yuen: Excluding the stock repurchase our operating cash increased by $51 $3 million driven by operation profitability and improvement in working capital management.
We continue to expect positive operating cash flow trends for the rest of 2024 and beyond.
And now I'd like to turn the call over to Jason to discuss our guidance.
Thank you Maggie and good afternoon, everyone. We reiterate our total revenue guidance range for 2024 of $1 billion $180 million to $1.200 billion.
With one quarter remaining in the year, we are comfortable with expectations at the middle of this range, which is where they were coming into this call. Furthermore, we are raising the lower end of our 2024 guidance range for U S thrombectomy growth to 24% to 25% from 23% to 25% previous.
Maggie Yuen: Moving down the income statement, we expect gross margin in the fourth quarter to be consistent with third quarter levels, and we expect non-GAAP operating margin to expand sequentially, excluding the impact from the immersive healthcare impairments these metrics with quarterly with our full year guidance.
Maggie Yuen: A 100 to 150 basis points improvement in gross margin and 100 to 200 basis points improvement in operating margin.
Speaker Change: Operator, we can now open the call for your questions.
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.
Speaker Change: Well, possibly with just one moment to compile the Q&A roster.
We've talked about China last quarter and sort of the.
Speaker Change: Whats happening for us, particularly as we go from our licensing.
Revenue model to the distribution model, that's part of our deal. We spent a lot of time last quarter walking through that so really nothing has changed that that just now showing up.
We've sort of taken that into account there is no new information there.
Speaker Change: Obviously as China.
Speaker Change: Recovers that will be an upside in the future whether that's in the back half of 2025 or 2026 or beyond.
There is certainly significantly fewer headwinds in 2025 and there were in 2024.
Internationally and there is some real bright spots with.
Speaker Change: We called out on this call the launch.
A flash to point out as well as lightning bolt seven.
Speaker Change: Obviously theres a lot of.
Interest, there's a lot of conversations between physicians here in the states that are.
Speaker Change: Using it.
Speaker Change: To their colleagues in European markets.
I think as we roll that out we're going to see that part of the business.
Do really really well so.
Speaker Change: Theres not a lot of new news on our international markets. This is playing out how we had talked about it for a while.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Robbie Marcus from Jpmorgan. Please go ahead.
Speaker Change: Oh great.
Robbie Marcus: Thanks for taking the questions and congrats on a nice quarter here.
Two from me.
First I wanted to ask on the margin expansion once again came in nice.
Being inappropriate given.
Pretty muted reaction that we've seen and heard from most physicians we certainly.
Robbie Marcus: That it's not viewed.
Robbie Marcus: For all four products.
Obviously some of the details there.
Robbie Marcus: We're.
Robbie Marcus: We're not surprising given the procedure the duration of the procedure with their older devices and really the bleeding rates that arent.
Aren't true now with flash to point out so.
Robbie Marcus: I think.
Slash CVT and to point out are commanding a lot of attention and I think from everyone. We've talked to there on the ground as well as reading at.
We're all looking past that particular type of study and to the more important comparison, which is against anti coagulation.
Robbie Marcus: Like we're running in our storm study and I think that's where the real energy is put in the field and Thats, where the interest is so.
Robbie Marcus: No.
Robbie Marcus: I guess give.
Given those issues, we werent surprised with somewhat of the muted reaction, but but I don't think it's a negative for us at all.
I appreciate it thank you.
Robbie Marcus: Okay.
Our next question comes from the line of Larry <unk> from Wells Fargo. Please go ahead.
Speaker Change: Hi, it's clearly calling <unk>, calling in for Larry Thanks for taking my question.
Speaker Change: Starting with our Thunder trial, congratulations on completing the patient enrollment we saw in clinical trials that caused that.
That the sample size of patient sample size has that has that change, it's a little bit less than what you started with.
And the endpoint has changed one of the safety endpoint has changed can you just comment on those and.
<unk> agreed to those changes and I have a follow up.
Robbie Marcus: Thank you.
Robbie Marcus: Yes, good questions.
I, maybe misheard you I think you asked about gross margins.
Robbie Marcus: And I think you said getting them to 88%.
As opposed to what we had set out there which was 70% so I just want to make sure.
I heard it right.
I might not have but gross margins, we think can get above 70% and the big the.
The big issue. There is continued efficiencies, but the primary driver is just as we go further and deeper into CVT products. The margins are different in the product shift.
Drive is that so that's the primary driver getting to the gross margin number that we talked about are above that.
Robbie Marcus: <unk>.
Robbie Marcus: You talked about sort of the.
The question was related to commercialization.
Before we get ahead of ourselves, let's let's do the follow up.
Robbie Marcus: For that that's due.
We should complete that by the end of this year and then obviously, we will submit it and go through that.
Certainly know how to launch products after 20 years.
Robbie Marcus: And we certainly.
We're pretty excited about it.
But let's wait till we can get the trial formally finished with the follow up and move on and then we will give you.
More updated information at that point.
Thank you Sir.
Our goal is too high.
Robbie Marcus: Yes.
Well, it's a good internal goal no I'm just joking.
Robbie Marcus: Yes.
Alright. Our next question comes from the line of Michael Sarcone from Jefferies. Please go ahead.
Speaker Change: Hey, good afternoon.
To go through the Vac process.
Alright, Thanks, Adam.
Yes. Thank you.
Our next question comes from the line of Matthew O'brien from Piper Sandler. Please go ahead.
Hi, This is Samantha on for Matt today, Thanks for taking our question.
I wanted to ask more about the fixed accident that new full 12 devices.
Robbie Marcus: And I guess, specifically starting with <unk> can you talk just a little bit more about you know the difference between them.
Robbie Marcus: Ah different between the below the knee catheter versus upper one you know is it just the size of the catheter that's different and then maybe talk about some of the competitive dynamics going on in the arterial market too.
Robbie Marcus: Yeah.
Robbie Marcus: Yeah.
There's not.
On the size of the cathodes, it's obviously a little smaller.
The numbers seven forensics rents are or can note that the smaller it is.
Further distal it can go.
Robbie Marcus: So not just below the knee, but in into smaller arteries and other parts of the body as well.
Robbie Marcus: Which I mentioned in the prepared remarks.
And that's just the natural evolution.
Robbie Marcus: Capt as we bring it.
Two other places the the.
Robbie Marcus: The ex part of the <unk> is really a.
Robbie Marcus: A tool similar to what we call send it in the neuro space, where we help get the catheter and track it to more distant places so it's really ease of tracking.
Robbie Marcus: So on.
We've been involved in lots of programs, bringing awareness to this working with.
Some of the Big societies get ahead of stroke as you know over the years.
Robbie Marcus: <unk>.
I applauded and I'm glad to see it and I think it helps.
Robbie Marcus: Many many patients so I'm all in as it relates to our growth.
In the stroke business I think.
I think we're in a really really good spot as I mentioned on the call. There are a lot of companies with.
Robbie Marcus: Sort of the Super bored catheters that interest is clearly waning as people understand it and realize it may be.
Better focuses as guide catheters, which is a very different thing than an aspiration catheter.
And I think Thats really laid the foundation for what I think will be a pretty good.
Robbie Marcus: Run on our business in stroke.
And a lot of excitement as we move toward bringing thunderbolt.
Two the neuroscience as well.
Speaker Change: Alright appreciate it thanks.
Robbie Marcus: Thank you.
Our next question comes from the line of Mike Kratky from Leerink. Please go ahead.
Speaker Change: Hi, everyone. Thanks for taking my questions.
On the arterial side can you provide some more specifics on your U S arterial thrombectomy growth during <unk> and if the really strong momentum <unk> seen to date in that segment continued and then just as a follow up was there anything specific to call out in <unk> in that segment that may have led to any deviation in the recent growth you've seen if any.
Robbie Marcus: No.
Robbie Marcus: The arterial business.
Speaker Change: <unk> grew in the high teens.
Speaker Change: Off.
Speaker Change: Pretty challenging comps.
Speaker Change: From the prior year with the launch of Lightning bolt seven so we felt really really.
Speaker Change: Good about.
Speaker Change: Out of our getting.
Speaker Change: Catheter directed lysis, so youre not the guideline change around the 234, 5% isn't really relevant.
Speaker Change: And and it would be.
Speaker Change: Somewhat not particularly relevant.
Speaker Change: Guidelines to change around a specific product, particularly given the.
The reaction to the for most physicians to that data.
Speaker Change: I think really the.
Field is looking to the trials that come out with anti coagulation endpoints in and then I think guidelines will likely change.
I think it's unlikely.
Speaker Change: Debt.
Speaker Change: That.
It will be product specific even if we're the product.
That really stops innovation and no one wants to stop innovation, but you want to do is prove the concept and move on.
And continue to innovate and get better and better and I think back to <unk>.
Speaker Change: Plus years ago, when the stroke trials came out.
There was no real desire to stop innovation. So it was intervention means.
What people are using today versus what they used 10 years ago in stroke are dramatically different.
But the point still holds so I think that's how I would look at the field going forward.
That's great and then just as a follow up acknowledge the larger driver is the C. D platform itself, but we've also heard quite a bit of positive receptivity.
Of the select plus launch this week, so has that been able to drive any incremental growth similar to.
When <unk> first launched as kind of a comparator.
Speaker Change: So yes, thank you for raising it we don't typically talk about.
Catheter inter catheters like select plus theres sort of.
There to just make the case faster niesr.
Speaker Change: People, who really really liked select plus and it definitely is.