Penumbra - Q4 2023

Transcript

Operator (participant)

Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's fourth quarter and year-end 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 star one again. I would like to introduce Ms. Jee Hamlyn-Harris, Investor Relations for Penumbra. Ms. Hamlyn-Harris, you may begin your conference.

Jee Hamlyn-Harris (Director of Investor Relations)

Thank you, Operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the fourth quarter and full year 2023. 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.penumbrainc.com. During the course of this conference call, the company will make forward-looking statements pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance, and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those referenced in our 10-K for the year ended December 31, 2023, which is scheduled to be filed with the SEC on February 22, 2024.

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. 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. Non-GAAP operating expenses exclude the amortization of acquired intangible assets and a one-time expense associated with the acquisition of IP R&D, and adjusted EBITDA excludes a one-time expense associated with the acquisition of IP R&D and stock compensation.

Adam Elsesser, Penumbra's Chairman and CEO, will provide a business update. Maggie Yuen, our Chief Financial Officer, will then discuss our financial results for the fourth quarter and full year 2023, and Jason Mills, our Executive Vice President of Strategy, will discuss our 2024 guidance. With that, I would like to turn over the call to Adam Elsesser.

Adam Elsesser (Chairman and CEO)

Thank you, Jee. Good afternoon. Thank you for joining Penumbra's fourth quarter and full year 2023 conference call. Our total revenues for the fourth quarter were $284,700,000, a year-over-year increase of 28.7% as reported, and 27.9% on a constant currency basis. For the full year 2023, our total annual revenues were $1,058,500,000, representing growth of 25% as reported and 24.7% in constant currency over full year 2022. During the fourth quarter, our global thrombectomy business achieved record revenue of $190,800,000, growing 42.4% as reported, and 41.6% in constant currency on a year-over-year basis.

Our global embolization and access revenue was $93,900,000, representing increasing 7.6% as reported and 6.7% in constant currency over the same period a year ago. Our U.S. thrombectomy business continued driving outsized growth, increasing 46.4% compared to the same quarter a year ago, driven by continued growth with our computer-assisted vacuum thrombectomy, or CAVT products in U.S. vascular thrombectomy. We also delivered more than 20% year-over-year growth in stroke thrombectomy in the U.S., with RED 72 with SENDit technology, continuing to set the standard for the market in aspiration catheters and laying the groundwork for Thunderbolt. We expanded our gross margins in the fourth quarter to 65.7%. We expect to continue expanding gross margins in 2024, owing to favorable product mix and increase in productivity.

While we are making important investments to sustain strong growth into the future, we're also delivering increasing profitability. We delivered another record quarter of profitability in the fourth quarter. Non-GAAP operating income was $37,400,000, representing 13.1% of revenue. We posted record adjusted EBITDA of $53,400,000, or 18.8% of total revenue, and we grew our operating cash balance by $40,300,000 sequentially. We expect to expand our operating profitability in 2024 and beyond, all while we pursue the significant opportunity ahead of us in thrombectomy. 2023 was a watershed year for thrombectomy technology.The defining characteristic about this moment in time in thrombectomy is a confluence of CAVT, true second-generation thrombectomy technology, and physicians' broadening recognition that this unique platform technology can now successfully treat the majority of both VTE and arterial clot patients.

Over the past several months, our expanded base of customers have communicated to us a desire to work together with their hospital systems to expand the pathways of care for their thrombectomy patients. In other words, following 20 years of innovation in thrombectomy technology, now is the time for Penumbra to start doing the next phase of the important work with the healthcare community to help the vast majority of clot patients who are not yet getting this treatment. To fulfill the promise of this opportunity for our patients and physicians, we are focused on three areas of work, which I began laying out on our third quarter earnings call.

They are innovation, internal readiness, and market access. These areas of interconnected work are critical to our mission to reach all of these patients. Starting with innovation, Lightning Flash and Lightning Bolt 7 changed the trajectory of treatment in VTE and arterial thrombectomy in the United States during 2023. As many new customers worked through the submission process for these transformational products late in the year, we saw the trajectory of our U.S. vascular thrombectomy business accelerate in late November. Coupled with the growth of our commercial team in the U.S., we see this new trajectory as sustainable, as reorder rates for both Flash and Bolt remain as high as any product we've ever launched in thrombectomy. As we look into 2024 and beyond, the innovation that delivered Flash and Bolt remains at the core of Penumbra.

We recently received FDA clearance for Flash 2.0, the first of our four new CAVT products expected over the next 15 months. Flash 2.0 raises the already high bar established just a year ago by Lightning Flash in VTE thrombectomy, as 2.0 further optimizes the advantages of CAVT in PE and DVT procedures. Further, the next three products will expand the breadth of CAVT's utility to more areas of the body and will enhance the safety, speed, and simplicity with which CAVT tackles the variety of clot morphology. In addition, Thunderbolt is progressing very well in the THUNDER study, and we are excited to bring the advantages of CAVT to stroke thrombectomy as well, especially with our increasing market share in stroke aspiration catheters.

Further on the innovation front, we are advancing our strategy to leverage the fact that we have a computer chip in every case dedicated to each individual procedure. Through this important work, we will integrate new technology into the platform that can seamlessly collect valuable information, both procedural and patient-specific. This information will be utilized by physicians in real time and in reflection to further enhance treatment and produce efficiencies in patient care that could pay dividends for patients, physicians, and hospital systems for many years to come. Moving to internal readiness, the fourth quarter was a very important moment in time for Penumbra. The momentum in CAVT with Flash and Bolt in 2023 gave us the opportunity to bring more focus on thrombectomy, as well as more scale and efficiency to our vascular sales team.

We augmented the capabilities of the team in some areas and increased the size of the team overall. Much of this hiring was accomplished during the fourth quarter, with continued hiring and significant training taking place throughout the current quarter. In addition to our commercial team in the U.S., we continued to make significant progress on efficient manufacturing at scale, which would benefit our gross margins going forward. Given how early we are in the penetration curve for CAVT and thrombectomy, this internal readiness work is timely, important, and will continue to evolve. The third area of work for us is market access, through which we are developing additional evidence to validate the clinical benefit of our CAVT platform and health economic data with which hospital systems can make more informed decisions on treatment paradigms.

We believe there are at least 800,000 arterial and VTE thrombectomy patients in the U.S. each year. In order to reach the majority of these patients over the next 5+ years, our market access work with large hospital systems is critical. With hospital systems partners, we are collecting and analyzing real-world data on an increasing number of CAVT procedures compared to traditional therapies. These initiatives will focus on DVT, PE, arterial, and stroke. We believe this work will validate that getting the clot out by optimizing safety, speed, and simplicity with CAVT is advantageous to the patient, physician, and the hospital system in terms of both clinical outcomes and health economics. The benefits from the work we are doing in these three areas in 2024 will accrue primarily to our U.S. thrombectomy business.

Given that Flash and Bolt 7 have already built momentum, the new products in CAVT are coming first to the U.S., and reimbursement is in place for these procedures. In 2024, we project our U.S. thrombectomy business will deliver 27%-30% year-over-year growth.... While displacing traditional therapies and first-generation mechanical products will drive part of our growth, we believe the work I just described across these three areas will move more patients into the system to receive CAVT therapy in 2024 and build even more momentum in the U.S. over the next few years. Outside the U.S., our opportunity with CAVT is also compelling for future years, and we are well into the work with regulatory and reimbursement bodies in Europe, Asia Pacific, and Latin America to bring the entire CAVT portfolio to patients outside the U.S. as well.

We think we will begin to see the positive impact to our international thrombectomy business in 2025. This strategy and the timing associated with it allows us to not only focus on sustaining long-term revenue growth, but also increasing profitability. For the last 20 years, the Penumbra team has worked very hard to continuously innovate, and in so doing, has built what has become the largest thrombectomy company in the world, removing blood clot from head to toe. This innovation has led to the CAVT platform. Now is the time to start the next phase of the strategy, which we have outlined in detail again today. Our successful execution of this strategy will make our technology available to everyone who can benefit. This work will be hard and will not always be a straight line. However, it will be profound and extremely motivating.

The company is in the best position we've ever been. The Penumbra team is stronger than at any point in our history, and over the next few years, our CAVT products can positively impact the vast untreated patient population in ways no other technology platform has been able to before. I'll now turn the call over to Maggie to go over our financial results for the fourth quarter and full year of 2023.

Maggie Yuen (CFO)

Thank you, Adam. Good afternoon, everyone. Today, I will discuss the financial results for the fourth quarter and full year of 2023. Financial results on this call for revenue and growth margins are on a GAAP basis, while operating expenses and operating income are on a non-GAAP basis. The corresponding GAAP measures and our reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. For the fourth quarter ended December 31st, 2023, our total revenues were $284,700,000, an increase of 28.7% reported and 27.9% in constant currency compared to the fourth quarter of 2022. Our geographic mix of sales for the fourth quarter 2023 was 71.5% U.S. and 28.5% international.

For the fourth quarter of 2023, our U.S. regions reported growth of 29.6%, primarily driven by 46.4% year-over-year growth in U.S. thrombectomy. Our international regions increased 26.4% reported and 23.5% in constant currency. The sequential growth in our total revenue of 5.1% was primarily driven by an increase in our global vascular thrombectomy business of $12,200,000, or 10.1%. Moving to revenue by products. Starting this quarter, we are providing new revenue disclosures that better align with our business. As presented in our press release, we are providing detailed revenue results of our thrombectomy business and our embolization and access business, respectively, in the United States, international, and globally.

Revenue from our global thrombectomy business grew to $190,800,000 in the fourth quarter of 2023, an increase of 42.4% reported and 41.6% in constant currency compared to the same period last year. Revenue from our embolization and access business was $93,900,000 in the fourth quarter of 2023, an increase of 7.6% reported and 6.7% in constant currency compared to the same period a year ago. Before turning to our income statement, I will provide fourth quarter revenue results in the format we had previously used before we transition to the new disclosure format going forward.

On a global basis, and compared to the fourth quarter of last year, revenue from our vascular thrombectomy was $133,400,000, an increase of 64%. Neuro thrombectomy was $57,400,000, an increase of 9%. Vascular embolization was $51,500,000, an increase of 7.3%. Neuro access was $33,200,000, an increase of 18.3%. Neuro embolization was $5,900,000, a decrease of 33.8%, and other revenues were $3,300,000, an increase of 46.3%. US thrombectomy was our primary growth driver in the fourth quarter and will be in 2024, and we are also being disciplined with our commercial strategy for our embolization portfolio.

In sum, we are focused on driving both strong revenue growth and increasing profitability going forward. Turning to gross margin. Gross margin for the fourth quarter of 2023 is 65.7%, compared to 62.6% for the fourth quarter of 2022, and 65.6% last quarter. The 300 basis point improvements compared to prior year are driven by higher thrombectomy product mix, while cost savings and improvement and productivity and volume leverage have offset labor inflation and material price increases. In 2024, we target improvements of 100-150 basis points expansion in gross margin, which reflects continued favorable thrombectomy product mix, investment to support new product launches, and variation in regional and distributor mixes. Now on to our non-GAAP operating expenses, non-GAAP operating income and margin and adjusted EBITDA.

Total operating expense for the quarter was $149,600,000, or 52.5% of revenue, compared to $131,200,000, or 59.3% of revenue for the same quarter last year, and $144,500,000, or 53.3% of revenue for last quarter. Our research and development expenses for Q4 2023 were $21,900,000 compared to $18,000,000 for Q4 2022, and $21,000,000 for last quarter.

SG&A expenses for Q4 2023 were $127,600,000, or 44.8% of revenue, compared to $113,300,000 or 51.2% of revenue for Q4 2022, and $123,500,000, or 45.6% of revenue last quarter. Increases in the fourth quarter were driven by an increase in headcount for our U.S. commercial team. We recorded operating income of $37,4000,000, or 13.1% of revenue, in the fourth quarter of 2023, compared to an operating income of $7,200,000, or 3.3% of revenue for the same period last year, and operating income of $33,200,000, or 12.3% of revenue last quarter.

We continue to focus on innovation of our products, commercial evolution of our U.S. sales team to address the increased opportunity in front of us, and market access programs in DVT, stroke, arterial, and PE, all of which supports an increased number of patients treated. While we continue to spend on these long-term projects that will allow us to scale our organization into the future, we also continue to exercise self-discipline in our other spend in the present. In 2024, we target improvements of 100-200 basis point expansions in our operating margin. We posted record adjusted EBITDA of $53,400,000, or 18.8% of total revenue, compared to 10.5% in the fourth quarter last year. I will now summarize our full-year performance for the full year of 2023.

Our total revenue for the year was $1,058,500,000, which represents an increase of 25% reported and 24.7% in constant currency compared to full year 2022. Our geographic mix of sales in the year were 71.5% US and 28.5% international. For the full year 2023, US reported growth of 28%, primarily driven by growth from our vascular thrombectomy business of 45.2%, and our international regions increased 18% reported and 17.3% in constant currency. Revenue from our global thrombectomy business for the full year of 2023 was $677,300,000, an increase of 32.5% reported and 32.3% in constant currency.

Revenue from our global embolization and access business for the full year of 2023 was $381,200,000, an increase of 13.4% reported and 13.2% in constant currency. Revenue from our vascular business for the full year of 2023 was $652,400,000, an increase of 30.6% reported and 30.6% in constant currency. Revenue from our neural business for the full year of 2023 was $406,100,000, an increase of 16.8% reported and 16.3% in constant currency. Our gross margin for the year was 64.5% of revenue, compared to 63.2% of revenue for the full year 2022.

We had non-GAAP operating income for the full year of $101,300,000, compared to a non-GAAP operating income of $14,400,000 for 2022. Our adjusted EBITDA is $170,600,000, or 16.1% of total revenue, compared to 7.7% last year. Turning to cash flow and balance sheet. We ended the fourth quarter with cash, cash equivalents, and marketable securities balance of $289,200,000 and no debt, which is an increase of $40,300,000 from last quarter. We expect positive operating cash flow trend to continue in 2024. Now I'd like to turn the call over to Jason to discuss our guidance.

Jason Mills (EVP of Strategy)

Thank you, Maggie, and good afternoon, everyone. For 2024, we introduced guidance for total revenue in the range of $1,230,000,000-$1,270,000,000, representing year-over-year growth of 16%-20%, compared to $1,058,500,000 in total revenue in 2023....primarily based on currently forecasted orders from our international distributors and timing of new product launches, we expect global revenue growth in the first half of the year to be in the mid-teens range. Then we expect growth to accelerate to the high end of our 16%-20% guidance range or above in the second half of the year. We guide to U.S. thrombectomy revenue growth in the range of 27%-30% year-over-year.

We expect growth in U.S. thrombectomy to be consistently strong in this range throughout the 4 quarters of the year. We expect our U.S. embolization and access business to contribute low double-digit growth in 2024, and therefore, in total, we expect our U.S. business to deliver strong, consistent growth in the 22%-25% range throughout the year. From a geographical distribution perspective, we expect our U.S. business to represent 73%-75% of our global revenue in 2024. Outside the United States, we have worked the past 2 years to expand the foundation for thrombectomy in our international markets with our legacy products and have made significant progress. In 2024, more of our focus will be on regulatory, reimbursement, and market access initiatives to bring our CAVT products to patients outside the United States.

As we do this work this year, we expect our international thrombectomy revenue in 2024 to grow modestly over 2023 levels, and as these initiatives come through, we expect to accelerate our international thrombectomy growth in 2025. Also, on the international front, we are focusing more on driving profitable growth. We plan to continue to be disciplined with our commercial strategy in the near term for our embolization and access products in certain international markets, where prices do not currently reflect the value of our products. At the same time, we are continuing our work with international regulatory and reimbursement agencies with our new products in these areas. In sum, we expect our total international revenue in 2024 to be similar to 2023 levels, and we think our international revenue will accelerate to double-digit growth in 2025.

As a final thought, as we look beyond the current year, as Adam mentioned, we believe our CAVT products will sustain strong growth for the company over the ensuing years. Operator, we can now open the call for questions for the next 35 or 40 minutes.

Operator (participant)

Thank you. 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. We'll go first to Joanne Wuensch at Citi.

Joanne Wuensch (Managing Director and Senior Equity Research Analyst)

Thank you very much for taking the questions. I'm curious. I'm going to ask two. One, we're hearing about increased payer scrutiny on mechanical thrombectomy. I'm curious how that may or may not be impacting you. And then number two, how do we think about sort of ongoing profitability metrics? I'm finding that comes up more and more on several stocks and med tech, you know, sort of an LRP, longer-term view on gross and operating margins. Thank you.

Adam Elsesser (Chairman and CEO)

Yeah, first of all, thanks for the good questions. We, in fact, have not, on mechanical thrombectomy, particularly, as we see it, we have not seen the type of what you're calling scrutiny. That shows up in other types of procedures that aren't clot, you know, removing blood clots in the cases. So we haven't really seen that. In fact, we saw the opposite this year, in arterial. There was some increases, particularly interesting increases related to hospital outpatient use. So I think we're seeing the opposite.

As it relates to sort of how we think about profitability, you know, we've outlined the beginning on this call of our thoughts and plans around how we want to continue to accelerate that by focusing on certain areas where, you know, we're not seeing the same sort of price value for some of our embolization access business. So we're going to be disciplined about it. We sort of have, if you will, the luxury of being disciplined about that because we don't need every last dollar revenue when we have the growth of CAVT in the U.S. and coming to the rest of the world in out years. So I think you'll see more and more focus on that without taking away focus on the growth. And I think that's an important...

You're seeing the beginning of that in the last couple of quarters, and I think you'll see that continue pretty strong.

Joanne Wuensch (Managing Director and Senior Equity Research Analyst)

Thank you.

Jason Mills (EVP of Strategy)

Thank you.

Operator (participant)

We'll go next to Lei Huang.

Lei Huang (Equity Research Analyst)

Hi, this is Lei, calling in for Larry Biegelsen from Wells Fargo. Can you hear me okay?

Adam Elsesser (Chairman and CEO)

Yes. Hi, Lei.

Jason Mills (EVP of Strategy)

Yeah, hi, Lei.

Lei Huang (Equity Research Analyst)

Hi. Hi, everyone. Thanks for the question. Just my question's around the 2024 guidance, the 16%-20% growth, the midpoint being at 18%. That's quite a bit of deceleration. And thank you for the color on the, on the breakdown. Can you talk a little bit about how to think about the sales cadence through the year, just given there's so many different dynamics running through the different segments? And I have a follow-up.

Adam Elsesser (Chairman and CEO)

Yeah, absolutely, Lei. Let me start by first-

... saying, you know, I, we stand by our comment that we made, actually at your conference last September when our, and our overall guidance reflects what our confidence by projecting that we think 20% growth is achievable. I want to emphasize though, that we also added a lot more transparency, which you alluded to, by providing guidance of our U.S. thrombectomy business, where we project 27%-30% growth. And that's probably the most important, the more important number right now, since it focuses on our CAVT platform, which is only right now in the U.S. And it also allows us to prepare our international markets in 2024 for our CAVT platform in the future. So we can have similar accelerated growth, throughout the world in following years.

And that's how we're thinking about the business, and I acknowledge that there's a lot to digest because we've given you a lot of different numbers and talked about our business in a slightly different way, but that's also how we're managing the business. You know, that's how we see the growth, that's where the growth is. That's what the excitement around the opportunity to finally do what we set out to do 20 years ago, which is with this platform, we have visibility, we have the strategy around making sure we can bring this to everyone who has clot in their body from head to toe. We're hearing that from large hospital systems, we're hearing that from customers, we're seeing that in the cases.

So we're trying to focus our energies on that opportunity, and it takes some discipline because that hasn't always been the sole focus of the company. So you're seeing that in how we're thinking about our international business, our coil and access business, with that focus right now. But again, what we're thinking about is, you know, the other parts of our business matter, but the 27%-30% growth in U.S. thrombectomy is our focus, and Jason can follow up.

Jason Mills (EVP of Strategy)

Yeah, Lei, just to follow up on that with respect to the cadence. So, a couple of things I just want to repeat, and go over again. We, we commented about, that 27%-30% in U.S. thrombectomy, as well as the entire U.S. business at 22%-25%, delivering pretty consistent growth, in that range through the year. So the cadence quarterly, is primarily based on, distributor order timing, to which we have very good visibility, as well as, timing of product launches as well, to which we have, again, really good visibility, we believe. And so as Adam mentioned, we, we think that the U.S. thrombectomy number is the number to really look at primarily.

We've commented also that our international business should accelerate in 2025. We have a high degree of confidence in that as well.

Lei Huang (Equity Research Analyst)

Thanks. That's, that's helpful. Just a clarification on what you just said, Jason. So the U.S. growth overall is pretty consistent, so it's really the OUS, where you're talking about the distributor timing, that's driving the mid-teens growth in first half versus-

Jason Mills (EVP of Strategy)

Yes.

Lei Huang (Equity Research Analyst)

- second half at 20% or higher. Is that-

Jason Mills (EVP of Strategy)

That's correct.

Lei Huang (Equity Research Analyst)

Is that the message there?

Jason Mills (EVP of Strategy)

That's correct. And we have very good visibility into the timing. It's just how they land throughout the year.

Lei Huang (Equity Research Analyst)

Got it. Thanks. And just for my follow-up, can you talk about your assumption for the U.S. vascular thrombectomy market growth, in terms of what's assumed in your guidance for both venous and arterial? Thanks.

Adam Elsesser (Chairman and CEO)

Yeah, we won't give specific breakdowns between those two, but the assumption, the fundamental basis of that is what I've alluded to, now for the last month or so, or two, that we saw a notable uptick in our trajectory in late November, and that has been consistent. It wasn't a one-time event. It you know, and it went up and it stayed, you know, at a different level, which gives us the confidence, not only in those projections, but also in the consistency, throughout the year. And the reason for that is what we've been saying throughout most of 2023, which is we had a lot of new customers. We saw a lot of them come through at the, you know, end, the very last days of November and into December.

That's continued. I think that momentum is continuing, which is why you hear the confidence we have right now in this platform and in this business. You add into it the dialogues we're having with hospital systems and physicians, you know, which is just nothing we've ever been able to have before. It gives us an awful lot of confidence that we're headed in the right direction.

Jason Mills (EVP of Strategy)

Leigh, just to add to that a little bit, in referencing again the U.S. thrombectomy growth of 27%-30%, that includes VTE, arterial, coronary, and stroke. And while we're really excited about CAT RX and our stroke portfolios, with those, the growth rates implied for those thrombectomy franchises in the U.S. are lower than that range. VTE and arterial are expected to grow well above that range.

...Part of that strong growth is market growth, which is healthy. Again, market growth is best observed in arrears, I think, but it's still healthy growth. And in addition to that, we expect, of course, to add to our share throughout the year. Thank you.

Operator (participant)

We'll go next, we'll go next to Bill Plovanic at Canaccord Genuity.

Bill Plovanic (Managing Director and Senior Equity Research Analyst)

Hey, guys. Thanks. Good evening, and thanks for taking my question. Just, just some clarity here. So as we look at the U.S. thrombectomy, you know, you launched FLASH starting early last year, you launched BOLT soon thereafter. So as we go into the first half of the year, it's actually pretty easy comps as you keep the growth going. It sounds like, you know, you're going to keep the growth going, and then in the back half of 2024, at least in the U.S., it's the sales force changes that really kind of help that growth continue in terms of the market access and all the work you've done on that. Am I thinking about that correctly? And then I have a follow-up.

Jason Mills (EVP of Strategy)

Yeah. Hey, Bill, it's Jason. I'll start, and maybe Adam can chime in. We had a really strong first quarter last year with FLASH, especially early on with our existing customers, and we actually had quite a bit of success with new customers early in that launch as well. Of course, that continued. So I don't know if there are any particular comps to point out that, you know, one quarter outweighing another, and that's why we have pretty good confidence in the consistency with which those grow.

The other thing I would point out is launching a Lightning Flash 2.0, likely a full launch later this quarter, really won't impact things until you get into the second quarter, and the other product launches, we're not factoring in too much through the year, just to sort of be conservative on that as well.

Bill Plovanic (Managing Director and Senior Equity Research Analyst)

Okay, thanks. And then on, just Thunderbolt, I think, you know, some comments you made, I think, earlier in the year. Is that now pushing into 2026 in terms of contributing to the US thrombectomy business? And thanks for taking my questions.

Adam Elsesser (Chairman and CEO)

Yeah, Bill, it's a great question. You know, I obviously I'm going to be careful to, you know, give any kind of specificity on a trial that's still ongoing. I think I learned my lesson the last time, so I'm going to resist. The trial is going well. We're enrolling well. The cases are going well. We said during that time when we were resetting expectations around the timing of Thunderbolt, that we had not put in our number for 2024 or 2025, any Thunderbolt revenue. And so that's, that was what we said then. That's still true.

Whether or not it comes or not, you know, we'll, we'll deal with that at the time, but we're not counting on Thunderbolt revenue until 2026 anyway, and I said that, you know, over a year ago or whenever that last was. So that, that stayed consistent. So this is the growth that we're talking about is in CAVT, is on, you know, with FLASH and BOLT and the new products going forward. And obviously, our stroke growth, which was, you know, if I want to, you know, it's significant in the fourth quarter, we continued to take share. A lot of that is really just on the, the extraordinary success, continued success of RED 72 with SENDit, which is, as I said, just setting the standard. That, that is the catheter of choice now.

We've gained more and more share, and I think it's setting the table for Thunderbolt because, again, you need that catheter first, and then you can use Thunderbolt afterwards. So, again, we remain very optimistic about the sort of one-two punch there with those two products.

Bill Plovanic (Managing Director and Senior Equity Research Analyst)

A point of clarification on international, if I could. Are you going to discontinue selling some products in some countries in the first half of this year? Is that what some of the delays and kind of the downdraft in OUS?

Adam Elsesser (Chairman and CEO)

Yeah, so-

Bill Plovanic (Managing Director and Senior Equity Research Analyst)

Thanks for taking my questions.

Adam Elsesser (Chairman and CEO)

What we said was that in our embolization and access business, there are certain countries where reimbursement pricing just isn't commensurate with sort of the value of the product, and we're not, it's not a profitable business. So we are using this opportunity, if you will, with the success that we're having, where we don't need to do that. And they can use products that are more commensurate with what they want to pay for. And so, yes, the answer is, there are certain areas and countries that that is true, so we are gonna focus on profitability in those markets.

Operator (participant)

We'll take our next question from Robbie Marcus at J.P. Morgan.

Robbie Marcus (Managing Director and Senior Equity Research Analyst)

Oh, great. Thanks for taking the questions. I want to ask, and you know, I don't want to belittle 29% growth at all because it's a great growth rate, but this is the first time you've missed street numbers since the IPO. And I would say at, you know, at our conference in January, you didn't comment on the quarter, but you did sound pretty robust. So what happened during the quarter that you ended up missing, you know, the midpoint of your guidance range and the sell side numbers?

Adam Elsesser (Chairman and CEO)

Yes, what you just said is true, but our, you know, our Q4 revenue number, it was within our guidance, but obviously still just shy of the consensus number. However, you know, what led to my excitement at your conference, what's led to my excitement, you know, every single day since then, into now, is the very, you know, sort of the fact that, and I said it again today, we saw a notable uptick in our trajectory in late November, and that's continued since then, which gives us the visibility, Robbie, and the confidence to guide our US thrombectomy business to see a 27%-30% growth in the US this year. That's, what's not to like about that? That gives us an extraordinary amount of confidence about 2024, and beyond with the, the accept, you know, the success of this.

And we were waiting for this moment, you know, all these new accounts were coming. They were, you know, and we saw that sort of moment happen. So what's not to be like? And yes, I acknowledge, without a doubt, that there's $2,000,000 short, from the consensus, still within our guide. But I will assure you, our entire team here is totally focused on 2024, and succeeding, with this CAVT platform.

Robbie Marcus (Managing Director and Senior Equity Research Analyst)

Great. And, maybe to follow up on a question from before about cadence. You know, the US, you said, should be within the guidance range pretty much throughout the year. OUS, lower at the beginning, higher-

Adam Elsesser (Chairman and CEO)

Yeah

Robbie Marcus (Managing Director and Senior Equity Research Analyst)

... at the end due to stocking. How do we think about the amount of stocking that were in the different quarters? Because when we just look from the outside, we see much more difficult comps in the back part of the year versus the first and higher dollar values. So how do we think about what the amount of stocking is so we could get a-

Adam Elsesser (Chairman and CEO)

Yeah

Robbie Marcus (Managing Director and Senior Equity Research Analyst)

... a sense of underlying volume? Thanks.

Adam Elsesser (Chairman and CEO)

Yeah, it's, it's a great question. Let me just make sure our terminology is sort of right, if you will. We don't really do stocking, you know, as that word is sort of sometimes considered and used. What we're talking about in most of these international markets, not all, because we're direct in parts of Europe and so on, but, is really distributor orders. Distributors tend to order, they all are slightly different. You know, some have different ordering patterns. We've seen this now, they're not, they're not linear. You know, they don't order every week. They order, you know, most of the time, quarter by quarter, but sometimes even less than that. And then they, they then go sell it. We get those order and those forecasted orders from them.

We don't give them numbers, we get those in advance, and from those projected forecasted orders, we then, you know, put it into our number. All on the thrombectomy side, all of those folks, you know, I should say the vast majority of those folks know that CAVT is coming. So obviously they're going to be careful and not order as much product when they know a better generation is coming because they don't want to be left with excess inventory. That's just obvious and common sense. So we're taking that into account and being thoughtful about it.

The other part of it relates to the coil business, the embolization access business, and I've already sort of addressed that, that this is an opportunity now with us to focus that business in a way that allows us to retain our, you know, growth and profitability without really losing anything in the long, long run. So some of those are sort of, you know, dipping away or are, are negative, and we're just putting that into, into, you know, a lot of transparency. Which again, brings me back to, you know, the best measure is our latest technology and the growth curve that we're having, because not only are we going to continue to have that for a number of years, we think in the US, we think that will be replicated in international markets when those products get there.

That's sort of a good thing. So we're getting the business ready to go in those international markets where we can have that kind of growth, too.

Robbie Marcus (Managing Director and Senior Equity Research Analyst)

Thanks. And Adam, if I could just sneak in the size of those discontinued country sales? Thanks.

Adam Elsesser (Chairman and CEO)

You know, I, when you add it all up, you know, it gets you to the numbers that we were alluding to. I don't think by calling out each country is, you know, and the size feels right, on a public call. You know, those are great partners and great countries, and I think we can get to the same number without calling them out country by country. But I appreciate the question.

Robbie Marcus (Managing Director and Senior Equity Research Analyst)

Thanks a lot.

Adam Elsesser (Chairman and CEO)

Thanks.

Jason Mills (EVP of Strategy)

Thanks, Robbie.

Operator (participant)

We'll move next to Pito Chickering at Deutsche Bank.

Pito Chickering (Managing Director and Senior Equity Research Analyst)

Hey, good afternoon. One quick clarification. Just looking at the comments from sort of 3Q about at least 20% growth for 2024 and then guidance today, is the only difference between your commentary previously and where we are today just slower, you know, international growth because you're focused on profitability, or is there anything else?

Adam Elsesser (Chairman and CEO)

Yeah, I think you've got it. But that question implies you're really focusing on both the 27%-30% growth in U.S. thrombectomy, as well as taking that a step further, with the entire portfolio of neuro access, embolization, et cetera, at 22%-25% growth. And yes, the discipline we've talked about here with respect to certain international markets and timing is something we've been working on now for a little while, and we've seen a little bit of as well in 2023. So, we have pretty good visibility into this, but I think that is the difference that you've noted.

Pito Chickering (Managing Director and Senior Equity Research Analyst)

... Okay, great. And then, can we talk about the sales force for a minute? How many sales guys have you hired? What was the cadence of that hiring throughout the last 12 months? You know, where is the sales force for these new reps ramping up versus the demand? And do you have the right sales force today in order to meet your 2024 guidance, or do you need to hire more? And then last question: Are you seeing any churn of seasoned sales force because of the new ads, or is it looking pretty good?

Adam Elsesser (Chairman and CEO)

Yeah, I tried to write them all down. There's a long list of questions, so let me, if I miss one of the specific ones, please, re-ask it. As I said in the prepared remarks, most, but not all of the hiring is done. The majority of it is. Now we're focused on getting them all trained and operated. I will tell you, from years of doing this, this was the most seamless, as it related to, you know, moving around territories, bringing in new folks, than any other expansion we've had.

And that's in large part because our team, I think, very maturely and under, you know, sort of a, you know, as professionals, understood that they will actually benefit more in the long run, as will our patients, by having the ability to focus on less accounts. We had a lot to do. We have very large territories, much larger than our competitors, which is also why we don't give out our sales force numbers. And that has been part of our advantage. It stays that way, but with all of the work ahead and these two big launches and the growth ahead, we just needed more people. You know, we probably should have done it, you know, a day or two earlier, you know, had that happened, you know, it would've turned out differently.

But it's gone really well, and it's been a sort of a remarkable interaction sort of integration. The other thing, and part of the reason for that is, we have attracted the sort of most talented, most seasoned sales reps from other peripheral vascular companies that we've ever attracted. And I think part of that is just, you know, on the success of the CAVT products and what they know in here, so that the professionalism, the ability to move in and pick up quickly, has been pretty remarkable. So, it's gone well. You know, it obviously takes some effort to train them and get them started and so on.

You know, we've had training classes and all that, but in the long run, I think it's been one of the easiest things. As it relates to, you know, our current projected growth, this is the team that will get us there. Obviously, as that continues to go and the market access projects that we're working on bear fruit, we might need to, you know, evolve that as well. But for now, through this year, I think we're in really good shape.

Pito Chickering (Managing Director and Senior Equity Research Analyst)

Great. Thanks so much.

Adam Elsesser (Chairman and CEO)

Thank you.

Operator (participant)

We'll take our next question from Matt O'Brien at Piper Sandler.

Samantha Munoz (Medtech Equity Research Analyst)

Hi, this is Samantha on for Matt. Thank you for taking our question. I guess first I would like to go back and touch on guidance a bit. So I guess the lower end of the revenue guidance is 16%. What does that scenario consider or bake in compared to the top end of the range?

Jason Mills (EVP of Strategy)

Yeah, I'll start and then Adam can join in. Obviously, we have a range for US thrombectomy, where there's a low end and a range for our US business, which would contemplate our expectation for what US embolization and access to that also has a low end, 27% and 22%, respectively. And, you know, it's probably hard on a call where we have finite time to go through every detail on what drives the lower, the higher end or above of each one of those numbers. But in every event, it is, you know, market growth, it is, you know, things like that. Internationally, I think we have pretty good visibility, but of course, you know, you let the year play out.

I don't think there's anything demonstrable to point out between the lower or upper end. It's just, you know, execution at the end of the day.

Samantha Munoz (Medtech Equity Research Analyst)

Great. Thank you so much. And then, you know, one thing, I guess one of the bright spots for us this quarter was the, the EBIT was higher than we were expecting. I guess, where do you kind of see the margins moving in the long term?

Maggie Yuen (CFO)

I think, yeah, we're very pleased with our profitability this year. I mean, it kind of demonstrate that we can scale and continue to invest at the same time. Our gross margin, we're continuing seeing favorable product mix, so we are on track to our longer-term 70%+ margin target, and pretty sure that will pull through to the bottom line. We'll continue to invest, but I think we are setting up for very good infrastructure to scale.

Samantha Munoz (Medtech Equity Research Analyst)

Thank you.

Adam Elsesser (Chairman and CEO)

Thank you.

Maggie Yuen (CFO)

Thank you.

Jason Mills (EVP of Strategy)

Thanks.

Operator (participant)

We'll take our next question from Michael Sarcone at Jefferies.

Michael Sarcone (Equity Research Analyst)

Hey, good afternoon, and thanks for taking my question.

Adam Elsesser (Chairman and CEO)

Of course.

Michael Sarcone (Equity Research Analyst)

So just for the first one, do you think you can give us an update on the status of, you know, the VAC processes that you're working through with Flash and Bolt? Would just love to get an update there.

Adam Elsesser (Chairman and CEO)

Yeah, it's a great question. So, obviously, the uptick that we saw starting in late November and continuing, assumes that more, a lot more of those customers have come on board and started using the products. So, we're just like we said we were on the third quarter, i.e., we're getting through a lot of those. We still have some to go. You know, we're not obviously in every account in the country, and we have more coming, but a big bolus of those came, you know, in late November and into December, which is what we had hoped for. And now we're seeing the benefit of that.

As we continue, the focus now is, yes, on continuing getting the remainder, but really focuses on moving to getting the physicians up and running and using the product on a regular basis. It's a really good phase. You know, some of that administrative part is done and de-risked. Now we're just enjoying, you know, the early test cases. You know, we get texts from reps in the early cases and how they're all going, and pictures of clots and excitement and so on. We're moving into that phase, you know, which is a lot more fun than the heavy burden of the administrative load there.

Michael Sarcone (Equity Research Analyst)

That's helpful. Thanks, Adam. And then just last one from me. Could you give us any more color on, you know, the different, bells and whistles you've added to the Flash 2.0? I think you said, you know, it optimizes the advantages of CAVT, but anything that could help us, crystallize that more?

Adam Elsesser (Chairman and CEO)

Yeah. I think you would frame it the following way: We get more clot out faster with even less blood loss than before.

Michael Sarcone (Equity Research Analyst)

All right. Thanks, Adam.

Adam Elsesser (Chairman and CEO)

Thanks.

Operator (participant)

Next, we'll move to Richard Newitter at Truist Securities.

Richard Newitter (Managing Director and Senior Equity Research Analyst)

Hi, guys. Thanks for taking the question. Maybe just on the guidance, and the philosophy there, Adam, Jason. You know, the 2024 guide, particularly with respect to the US, you know, you're kind of very accountable on the metrics there, the revenue breakdown. Thank you for that. I guess what I'd like to know, you know, going off Robbie's question earlier, you know, what philosophically is your approach to guidance this year? Last year and in the fourth quarter, you know, you came close, but, you know, it wasn't necessarily upside relative to the guide or the consensus. So how should we think about your approach to this year? And I'm particularly talking about the US thrombectomy numbers, because that's where I think you're going to be graded the hardest. Is this aspirational?

Is this a floor? You know, what can you give us in terms of how much cushion is built in, and you know, how you set yourself up for better expectations, management, and execution? Thank you.

Adam Elsesser (Chairman and CEO)

So I would comment, but we're running out of time on your pun, the fact that our guide is aspirational, and that's the products we sell. I don't think you intended that pun, but I appreciate the effort, if you did. The fact is this, we learned a lot. Last year was a great year for us. We learned a lot. We have not had a year that had the scale of growth and excitement around a product in our company's history. And so it was really hard to figure that out. You know, how do we get the kind of information that can give proper guidance and so on? And we came really close, and I'm pretty proud of that, given the scale of growth and the transformational aspect of last year.

Obviously, better hit the number and move on, but in the long run, it is not as important as having the foundation to continue to grow from year over year. So we've learned a lot, and I think we're going to be more careful, thoughtful about it. We understand these products better. We understand the rhythm of them, the level of interest. We're further into it, so we have a lot more information. So our philosophy is to not guide aspirationally, to use your term, but to really guide with the kind of, you know, clarity and information that we've done in the past. And again, I think you'll see that in 2024.

Operator (participant)

We'll go next to David Rescott at Baird.

David Rescott (Senior Research Analyst)

Hey, guys. Thanks for taking the questions. Two questions. I'll ask them both upfront. First, I heard you call out Flash 2.0. I think maybe specifically, you talked a little bit about expanding to more areas in the body. So, just wondering specifically what some of those comments kind of mean? And then, you know, should we think about maybe a Bolt 2.0? And then my second question, just on international, it sounds like obviously 2024 is the big investment year. I think I heard you call out, you know, seeing that accelerate in 2025 to a double-digit range.

Just wondering if that, you know, growth outlook into 2025 for international is something that would be maybe accretive or just maybe more supportive to the total top-line growth of the company. Thank you.

Adam Elsesser (Chairman and CEO)

Let me start, and then Jason can sort of touch on the question around 25 and so on. The products... I'm not going to be more specific than I have been about where we think what these products are going to do. What I can tell you is the following: I've had, you know, the opportunity to hear about them, to see them, to talk to the folks who are designing them and playing with them. I'm really excited about it. The goal again is simple: We want to be able to go after every kind of clot in as much of the body as we can go. These new products do that.

They expand that opportunity to get different types of clots in different parts of the body, and, you know, sometimes both, sometimes just one of those. That's the goal. And I can't wait. I think we now have understood this. This platform of CAVT has totally changed how we're thinking about this, what we think we can go after, how we can continue to improve the algorithms. And so the goal here is to be able to go after clot in any part of the body with a lot of confidence that we can get it out, and that's what those products bring us even closer to. When those are done, we're not gonna be done. We're gonna keep adding, we'll keep innovating, we'll keep adding 3.0, 4.0, because that's how great technology works.

And I think we're set up for a pretty nice run here.

Jason Mills (EVP of Strategy)

Yeah, and David, thanks for your second question. In my prepared remarks, I talked about the international business, and I mentioned 2025, and you're right. We did say in those prepared remarks that we thought that international revenue could accelerate into the double digits in 2025. And then the next comment that we made was about our CVT products and sustaining strong growth. Because the reality is, even hitting our guidance this year in U.S. thrombectomy and doing really well, the market penetration rates we have, the number of patients we will have helped, is still really, really low penetration levels. We will have a long ways to go.

So that comment that I made, right on the heels of making the comment about international, was intended to talk about the fact that this is, as Adam has mentioned several times in the past, growth that can extend over the next ensuing years, a number of years. And so while I'm not gonna quantify what we think 2025 looks like yet, we're pretty optimistic about 2024 and beyond.

David Rescott (Senior Research Analyst)

All right. Thank you.

Operator (participant)

We'll go next to Mike Matson at Needham & Company.

Mike Matson (Managing Director and Senior Equity Research Analyst)

Yeah, thanks for fitting me in. I guess, you know, first with the efforts outside the US to get these CAVT products on the market, I just want to understand... I know it probably varies by country and whatnot, but it sounds like generally, you feel like there's the need to get some reimbursement in place. Is it, or is it just that there's reimbursement there, and it's just not enough to cover the cost of the products?

Adam Elsesser (Chairman and CEO)

Yeah, Mike, that's a good question. It's, you know, we're talking about large geographies, you know, many different countries in Europe that have different, reimbursement schemes, country by country. Same in Latin America and Asia Pacific. So each one is obviously very different. There are gonna be cases in which, reimbursement is there for the most basic, you know, sort of catheter and syringe-type system, which is not an expensive reimbursement, you know, and then, more sophisticated stuff is not yet reimbursed because they've never seen it. They don't know what it is. And we have to go through that effort. And then other cases, there's really no reimbursement yet for that procedure at all. So it's a little of each.

Obviously, we're focusing on some of the larger areas first, and then we'll continue to do that effort. Not different, just, you know, to give some, you know, some context to what we did in stroke many, many years ago. You know, stroke was not reimbursed at all, and ironically, still is not in certain countries. And we've been doing that work, for the better part of, you know, almost 20 years now. So I think we know how to do it. It just takes time, and we want to do it right and make sure, because we don't need to rush this because we have the benefit now of growth, particularly in the U.S.

Mike Matson (Managing Director and Senior Equity Research Analyst)

Okay, got it. And then just as far as the distributor ordering forecast or patterns you're expecting in 2024, you know, I was wondering, you know, in the commentary around exiting certain markets and certain product categories due to lower pricing, is China a factor in either of those things, either distributor ordering patterns or the markets you're exiting? Because I know there has been some VBP over there in the neurovascular area.

Adam Elsesser (Chairman and CEO)

Yeah, Mike, that's a really important question. I'm glad you asked it. I just want to maybe remind you and everyone else that we have three different buckets of revenue from China. You know, we have license fees, royalties, and distribution. So that structure, as you know, has sometimes created a funny quarter-by-quarter movement that we've talked about over the last couple of years in the past. But on a longer-term basis, that same structure has provided us, I think, a lot of protection, you know, from some of the current climate in China. So we feel pretty good about it. You know, going forward, we have a really incredible partner in Genesis. And we believe, you know, that our products, particularly the CAVT platform, can ultimately have an important place in the Chinese market.

We got a lot of work to do, but, you know, I think we're really set up for that, and we're pretty excited about it.

Mike Matson (Managing Director and Senior Equity Research Analyst)

Okay. Got it. Thank you.

Adam Elsesser (Chairman and CEO)

Thank you.

Operator (participant)

We'll take our final question today from Margaret Kaczor Andrew at William Blair.

Macaulay Kilbane (Equity Research Associate / Research Analyst)

... Hey, everyone, this is Macaulay on for Margaret. I appreciate you squeezing me in here. Just to kind of put two questions into one. I know you mentioned the 20% growth in U.S. stroke. Large part of that obviously SENDit, but as we look towards 2024, do you expect SENDit to be able to bridge that gap within neuro? Or I guess, how should we think about the rollout in terms of adoption compared to Flash and Bolt, which to your point, might have a longer tailwind? And then to throw in the second, just any update in terms of Thunder timeline on the Thunder trial?

Adam Elsesser (Chairman and CEO)

Yeah. So let me... Well, I'll start with the last one. I sort of answered that question around the Thunderbolt trial. It's going well. Enrollment continued. We aren't counting any of that revenue until, you know, 2026. So we've got a ways off, but the trial is going well. Stroke, what we said is greater than 20%, not 20%. That business is really strong. And we don't yet have 100% of the market. And so we're going to continue to go after those physicians. Word of mouth is now really strong as people, more and more physicians have used it. And the platform to get to basic clot, we're seeing more and more conversion to it.

So yeah, I think 2024 is going to be a good year for our stroke business, and we're going to continue to see some growth there. Obviously, that will continue and, and, and get even more when Thunderbolt comes. But in the meantime, it stands as an anticipation of Thunderbolt, because again, you got to have the catheter there first, then you can use Thunderbolt. So the setup is really kind of perfect for us.

Macaulay Kilbane (Equity Research Associate / Research Analyst)

Appreciate it. Thanks for fitting me in again.

Adam Elsesser (Chairman and CEO)

Yeah, thanks.

Macaulay Kilbane (Equity Research Associate / Research Analyst)

Thanks.

Operator (participant)

That does conclude the question and answer session. I'll turn the conference back over to Ms. Hamlyn-Harris.

Jee Hamlyn-Harris (Director of Investor Relations)

Thank you, operator. 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 first quarter call.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.